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SEC Committee to Get a Makeover Due to Dodd-Frank

Melissa Klein Aguilar | September 13, 2010

The committee created to provide the Securities and Exchange Commission with input on investor concerns is getting a makeover of sorts, courtesy of the Dodd-Frank Act.

The existing SEC Investor Advisory Committee, created in June 2009, is being disbanded and will be constituted to meet the requirements under the reform law, according to a report in the Sept. 10 edition of Global Proxy Watch.

SEC spokesman John Nester confirms that between now and Oct. 1 the existing committee, led by AARP Financial President Richard Hisey and TIAA-CREF head of corporate governance Hye-Won Choi, and its subcommittees, are winding up their work.

"They will be memorializing the state of their work as of that date in a report which will be shared with the new statutory committee that we hope to announce next month, Nester says."We very much appreciate the efforts over the past year of the current committee and its members, which will provide a strong foundation for the new committee to build upon."

The reason is apparently some differences between the existing committee and the committee as mandated under Section 911 of the law. For example, members of new IAC must be approved by all five SEC commissioners, rather than named by the chair, and the scope of the committee under the law is far broader than the mission of the current group, says IAC member Stephen Davis, executive director of Yale University's Millstein Center for Corporate Governance & Performance, and a Compliance Week columnist.

"The current IAC was established to serve as a sounding board on items within the SEC's jurisdiction, while the Dodd-Frank Act's description of the mission of new IAC is far broader," says Davis.

For instance, the Act instructs the IAC to advise and consult with the Commission on: "(i) regulatory priorities of the Commission; (ii) issues relating to the regulation of securities products, trading strategies, and fee structures, and the effectiveness of disclosure; (iii) initiatives to protect investor interest; and (iv) initiatives to promote investor confidence and the integrity of the securities marketplace" and to submit to the Commission "such findings and recommendations as the Committee determines are appropriate, including recommendations for proposed legislative changes."

Since the appointing process is different, it remains to be seen how many of the 16 existing IAC memberswill be part of the new version. Hisey couldn't immediately be reached for comment. Davis expects "some continuity" between the old committee and new one, and says he would continue to serve on the new IAC if asked. However, at least one current IAC member won't be part of the reconstituted committee. Mark Latham, director of Proxy Democracy and founder of VoterMedia.org, won't put his name forward as a candidate for the new IAC.

"I tend to specialize in just a few areas of the SEC's broad regulatory mandate, and once I have submitted my personal comments on their recent proxy concept release, I will have contributed the bulk of what I have to offer," Latham wrote in an email. "There is still plenty of work for the new IAC to do on proxy voting, but I am confident that there are more suitable candidates than I to help with that."

Davis's subcommittee just recently approved two resolutions by unanimous vote. One calls for the SEC to encourage majority voting for directors elections at all U.S. public companies. Language mandating majority voting, which requires a director to gain a majority of votes cast to take a seat on the board, was included in the Senate version of financial regulation reform bill, but was omitted in the final law. At most companies, a plurality standard, under which a director could be elected by receiving just one affirmative vote, is still the default.

The second recommendation asks the SEC to identify internal resources to track sustainability reporting issues. Davis says the issue of "what companies ought to be reporting on environmental, social and governance issues is very much up in the air."

"Whatever position you take on the reporting question, it's an issue that's rising to top of markets around the world, as companies in many jurisdictions are required to report far more than they're accustomed to," he says. "We think the SEC ought to have eyes on this topic."

The SEC has already implemented one of the current IAC's recommendations. Earlier this year, the group called for the SEC staff to issue interpretive guidance on Regulation Fair Disclosure, in response to a concern that some companies were using the rule, which bars executives from selectively disclosing material non-public information, as an excuse to avoid talking with investors. The SEC issued that guidance in a June 4 Compliance and Disclosure Interpretation.

A second recommendation, aimed at making proxy voting more transparent, asks the staff to study the cost/benefit of requiring that the data in the DEF 14A proxy statement, N-PX filings for mutual fund proxy votes, and shareholder voting results reported in Form 8-K be "tagged" using a data-reporting language such as XBRL. The SEC is seeking comment on those issues as part of its proxy plumbing concept release out for comment until Oct. 20.