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New Proxy Disclosures for Directors: How to Cope

Melissa Klein Aguilar | February 2, 2010

Corporations should get ready to dish the details about their directors and officers in this year’s proxy statement; thanks to additional disclosures newly required by the Securities and Exchange Commission, it won’t be easy.

The new disclosures—of directors’ experience and qualifications, the board’s overall diversity, and more—are part of a sweeping new rule adopted by the SEC in December to provide investors with more useful information. So far the spotlight has been on the new disclosures about executive compensation and risk management, but experts warn that the “D&O” disclosures will require more attention as well.


“It seems like it should be easy, but given the sensitivity of the disclosure and the number of bases internally that have to be touched, companies should allow plenty of lead time to draft this disclosure,” advises Robert Cantone, a partner at the law firm Proskauer Rose.

Foremost, the rule requires companies to disclose each director’s (or nominee director’s) “particular experience, qualifications, attributes, or skills” that led the board to conclude that the person should serve as a director. The disclosure must also be made annually, even for directors who might not be up for re-election that year. Companies must also disclose whether the director has also served as director for any other public company or registered investment firm in the last five years, and an expanded list of legal proceedings involving directors, nominees, and officers going back 10 years.

While the requirement sounds straightforward, observers say it’s one that companies ought to consider thoughtfully, since the disclosure raises some touchy issues. In the past a company largely could pluck a few lines from a director’s curriculum vitae that he or she submitted as part of the annual D&O questionnaire and plunked into the proxy statement. Those days are gone. The new requirement goes beyond basic biographical details and essentially requires companies to justify not only why new candidates belong on their board, but also why their current directors—including incumbents not up for re-election—belong on their board today.


“They are intended to cause boards and their nominating committees to be more thoughtful and rigorous in nominating directors,” says James Barrall a partner with Latham & Watkins.


Bob Friedel, a partner with Pepper Hamilton, agrees. The effort is “part of a package of disclosures aimed at forcing companies to look at their boards and ask whether they have an old boys’ club or a group of qualified people who add to the quality of the company’s corporate governance,” he says.

The starting place to capture all the new disclosures is a revised D&O questionnaire, securities lawyers say. But a simple update to the questionnaire alone, with the new details slapped down onto your pre-existing proxy format, won’t necessarily cut it.

“You can’t meet the new requirement by filling out a form,” Cantone says. “The SEC is really driving for qualitative information that requires thought and input from a number of quarters.”

“The SEC is really driving for qualitative information that requires thought and input from a number of quarters.”

—Robert Cantone,
Proskauer Rose

Indeed, in addition to the usual group of lawyers, HR directors and corporate secretaries who draft the D&O questionnaire and the biographical disclosure, companies should also involve their nominating and governance committee in the process much more. Cantone also suggests leaning on investor relations executives as well.

“Companies have to convince shareholders—in a way they’ve never had to before—that a director is qualified for this company at this point in its corporate history,” he says. IR executives with “a finger on the pulse of what’s most meaningful for the company’s investors” may be able to provide helpful input, he says.

The disclosure must also be accurate as of the date the proxy is filed, Barrall adds, and “not merely memorialize what may or may not have happened as of the prior year-end.”

That means companies should pay a bit more heed to their veteran directors. New nominees are carefully vetted when up for their first term on a board, but many say incumbents typically don’t get the same level of scrutiny.


“Historically, where incumbents are standing for re-election, re-slating them has largely been a cursory, perfunctory process,” says Bob Wild, partner at Katten Muchin Rosenman. Now, Wild and others say nominating committees may need to re-interview incumbents and vet them as if they’re new candidates to elicit the proper disclosure.

Cantone says the disclosure should ideally prompt boards and nominating committees to “take the self-assessment process even more seriously, by forcing them to ask, ‘Is this the strongest board we can field, or do we have any weak links or missing talents or skills we should try to recruit?’”

When Will This Matter?

In truth, the expanded disclosures won’t be controversial for the vast number of companies whose director elections are usually staid affairs—but they will be important in proxy contests, Friedel says, where battling slates of directors will be comparing qualifications. As such, he says companies should contemplate what they want to disclose “to ensure that shareholder watchdog groups and institutional investors get the right message about the company’s directors.”


Below is an excerpt from the full SEC rule on new proxy disclosures, addressing disclosure of director experience.

The final rules require companies to disclose for each director and any nominee for
director the particular experience, qualifications, attributes or skills that led the board to conclude that the person should serve as a director for the company as of the time that a filing containing this disclosure is made with the Commission. The same disclosure, with respect to any nominee for director put forward by another proponent, would be required in the proxy soliciting materials of that proponent. This new disclosure will be required for all nominees and for all directors, including those not up for reelection in a particular year. The final rule requires this disclosure to be made annually because the composition of the entire board is important information for voting decisions. Although we are adopting the amendments to Item 401, we are not eliminating the disclosure requirements in Item 407(c)(2)(v) of Regulation S-K regarding the specific minimum qualifications and specific qualities or skills used by the nominating committee. We agree with commenters that this requirement should be retained because it will allow investors to compare and evaluate the skills and qualifications of each director and
nominee against the standards established by the board.

The final rules do not require disclosure of the specific experience, qualifications or skills
that qualify a person to serve as a committee member. In making this change from the proposal, we were persuaded by commenters who noted that many companies rotate directors among different committee positions to allow directors to gain different perspectives of the company.

However, if an individual is chosen to be a director or a nominee to the board because of a particular qualification, attribute or experience related to service on a specific committee, such as the audit committee, then this should be disclosed under the new requirements as part of the individual’s qualifications to serve on the board.

The final amendments do not specify the particular information that should be disclosed.
We believe companies and other proponents should be afforded flexibility in determining the information about a director’s or nominee’s skills, qualifications or particular area of expertise that would benefit the company and should be disclosed to shareholders.

Accordingly, we have deleted the reference to “risk assessment skills” that was included in the proposed amendments.108 However, we note that if particular skills, such as risk assessment or financial reporting expertise, were part of the specific experience, qualifications, attributes or skills that led the board or proponent to conclude that the person should serve as a director, this should be disclosed.


SEC (Dec. 16, 2009).

Barrall goes further, saying the disclosure spadework companies perform in 2010 could be crucial to defending the company’s governance when shareholder activists or hostile acquirers eventually do show up. Laying solid groundwork now will also be helpful when shareholder access to the proxy statement arrives sometime in the future (current best guesses are for the 2012 proxy season), letting companies set the example of what disclosures must be made about shareholders’ director nominees.

For starters, experts say, companies should add a question to their D&O questionnaire asking directors about the qualifications, attributes, and skills that qualify them to serve on the board. Companies should also allow plenty of time for the nominating committee, the full board, and the nominees to vet the information before it’s filed.

And companies with year-end fiscal years should get moving now, since they don’t have much time to spare before filing deadlines and annual meetings roll around. “Time is running very short and proxy season agendas are already jam-packed,” Barrall says.


Edward Smith, a partner in the law firm Chadbourne & Parke, recommends that those charged with drafting the disclosure may want to look to the north for help; Canadian companies, he says, have been making these disclosures for years. Corporate lawyers might also glean good ideas by examining dueling statements filed during proxy fights, he adds.

While most companies will likely make their disclosures in narrative form, Smith notes that some Canadian companies have disclosed the information in a chart or matrix. (The SEC guidance does not give explicit instructions on how the disclosures should appear in the proxy statement, but SEC officials speaking at various securities conferences recently have been warning companies not to assume that a simplistic, matrix-style design will pass muster.)

Smith also reminds that the new disclosure must be coordinated with current disclosure requirement under Item 407 of Regulation S-K, which specifies the minimum qualifications and skills used by the nominating committee, to ensure that the new individual disclosures meet the standards established by the board.