SEC Proposes New Rules Regarding Disclosure of Hedging by Directors, Officers and Employees

On February 9, 2015, the Securities and Exchange Commission (SEC) proposed for comment new corporate disclosure rules regarding public company issuer hedging policies applicable to directors, officers and employees. The SEC’s proposed rules implement Section 955 of the Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which amended the Securities Exchange Act of 1934 to add a paragraph requiring issuers to disclose whether employees or directors are permitted to purchase financial instruments designed to hedge any decrease in the market value of the issuer’s equity securities granted as compensation to, or held by, the director or employee. The proposed rules would require the disclosure to be made in any proxy or information statement relating to an annual meeting at which directors are to be elected, and would apply to all companies subject to the federal proxy rules, including smaller reporting companies and emerging growth companies. The purpose of the disclosure is to provide investors with additional transparency about company governance policies that may affect the alignment of employee and director interests with shareholder interests. The SEC will seek public comment on the proposed rules for a period of 60 days following their publication in the Federal Register.

SEC to Review the Scope and Application of Conflicting Proposals Under Rule 14a-8

On January 16, 2015, SEC Chair White directed the SEC Division of Corporation Finance to review the proper scope and application of Rule 14a-8(i)(9), a provision that permits a public company issuer to exclude an otherwise qualified shareholder proposal from its proxy materials if the subject matter of the proposal directly “conflicts” with a company’s own proposal. Notably, in connection with this review, the Division of Corporation Finance also changed its long-standing position of responding to company requests for “no-action” relief and staff informal concurrence with an issuer’s decision to omit a shareholder proposal from its proxy materials pursuant to Rule 14a-8(i)(9). During the 2015 proxy season, the Division of Corporation Finance will express no views on the application of Rule 14a-8(i)(9), leaving many public company issuers that have submitted “no-action” requests under Rule 14a-8(i)(9) without any guidance how to handle conflicting shareholder proposals during the upcoming proxy season. In a speech given at Practising Law Institute’s Corporate Governance program on February 10, 2015, Division of Corporation Finance Director Keith Higgins discussed the background of the rule and the division’s historic consideration of its application. Director Higgins also announced that as it reviews the scope and application of the rule, the division is soliciting input from interested parties regarding Rule 14a-8 and the meaning of “directly conflict” in the context of shareholder proposals. Interested parties may send comments to the SEC at i9review@sec.gov.