By Cydney Posner

In a speech today before the Council of Institutional Investors, new SEC Chair Mary Schapiro provided a preview regarding some upcoming SEC proposals, intended as direct responses to the current financial crisis.

In particular, she focused on several of the areas the SEC intends to consider with regard to disclosure:

  • More information about director nominee experience, qualifications and skills (proposal expected in June)
  • Boards' reasons for choosing their particular leadership structures —whether that structure includes an independent chair, a non-independent chair or a combined CEO/chair
  • a company's overall compensation approach, beyond decisions with respect only to the highest paid officers
  • compensation consultant conflicts of interests
  • how a company — and the company's board in particular —manages risks, both generally and in the context of setting compensation
  • how compensation structures and practices drive an executive's risk-taking

With regard to the last point, Schapiro cites the Counterparty Risk Management Policy Group, which last year identified compensation schemes "as one of five primary driving forces of the turmoil." In addition, last week, "the Financial Stability Forum issued a report agreeing with this assessment, and suggesting three principles for 'sound compensation practices.' These principles call for effective governance of compensation; effective alignment of compensation with prudent risk taking; and effective supervisory oversight and engagement by stakeholders." Schapiro believes that, by allowing a company's owners to "know how their managers and directors ensure that compensation does not drive inappropriate risk-taking," enhanced compensation disclosure will help to address one of the failures that led to the current financial crisis.

Proxy access will also be on the agenda next month. The SEC is reviewing (with "fresh eyes") both the 2003 and 2007 proposals as well as the potential impact of proposed changes to Delaware corporate law. (See the 3/5/09 post regarding Delaware proposals.) Schapiro believes that proxy access is "about making boards more accountable for the risks undertaken by the companies they manage." She noted in particular that the SEC wanted "to ensure that any procedural requirements for access are rational, and not a means to thwart effective investor participation."

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