This Week in ESG and Impact Investing

On December 16, 2009, the Securities and Exchange Commission "approved rules to enhance the information provided to shareholders so they are better able to evaluate the leadership of public companies.

Additional Materials

Final Rule: Proxy Disclosure Enhancements

Beginning in the upcoming annual reporting and proxy season, the new rules will improve corporate disclosure regarding risk, compensation and corporate governance matters when voting decisions are made.

In particular, the new rules require disclosures in proxy and information statements about:

The relationship of a company's compensation policies and practices to risk management.

The background and qualifications of directors and nominees.

Legal actions involving a company's executive officers, directors and nominees.

The consideration of diversity in the process by which candidates for director are considered for nomination.

Board leadership structure and the board's role in risk oversight.

Stock and option awards to …

The Obama Administration is gearing up to reform the financial marketplace. Today, two proposals were released. The first, according to the New York Times,"seek(s) new authority to supervise the virtually unregulated complex financial instruments, known as derivatives, that were a major cause of the market crisis.."

And, according to Reuters, the second proposal "reforms..financial industry compensation practices to discourage excessive risk-taking, which is considered to have sown the seeds of the current credit crisis."

The two proposals are linked and reinforcing. The derivatives reform play seeks to eliminate or regulate a key tool used by executives at financial institutions to justify large amounts of compensation. (Unless you can produce outsized returns via standard financial instruments, extremely generous pay packages are unlikely to be received.)

And, in case that fails, the compensation reform play says we will limit your compensation no matter what you do…

Congress passed, on Feb. 13, 2009, HR 1, the ‘‘American Recovery and Reinvestment Act of 2009’’. Section 7001 of the legislation states that:

“(e) SHAREHOLDER APPROVAL OF EXECUTIVE COMPENSATION.—

(1) ANNUAL SHAREHOLDER APPROVAL OF EXECUTIVE COMPENSATION.—

Any proxy or consent or authorization for an annual or other meeting of the shareholders of any TARP recipient during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding shall permit a separate shareholder vote to approve the compensation of executives, as disclosed pursuant to the compensation disclosure rules of the Commission (which disclosure shall include the compensation discussion and analysis, the compensation tables, and any related material).

(2) NONBINDING VOTE.—A shareholder vote described in paragraph (1) shall not be binding on the board of directors of a TARP recipient, and may not be construed as overruling a decision by such board, nor to create or imply any ad…

According to the SEC:

"Securities and Exchange Commission Chairman Christopher Cox today launched the first-ever online tool that enables investors to easily and instantly compare what 500 of the largest American companies are paying their top executives. The new database highlights the power of interactive data to transform financial disclosure.The Executive Compensation Reader - available today on the SEC's Web site at http://www.sec.gov/xbrl - builds on the Commission's new requirements that went into effect earlier this year to dramatically enhance clarity and completeness of executive compensation disclosure."