On Friday, October 2, 2009, SEC Chairman Mary L. Schapiro announced a delay in the proposed amendments to the SEC's proxy rules intended to increase shareholder access to issuer proxy materials. The SEC also announced a final deadline in the long-delayed full implementation of Section 404 of the Sarbanes-Oxley Act (SOX).
Delay of Proposed Proxy Access Rule Changes
The SEC announcement stated that the proposed proxy access rule changes would not be finalized until at least 2010, due at least in part to the need to consider the hundreds of comments the SEC received to the proposed changes. The delay means that the expanded access to issuer proxy materials will likely not impact the 2010 proxy season. The SEC had been targeting implementation in 2009 for the rule changes to be effective for the 2010 proxy season.
The proposed rule changes would require publicly traded companies to, in most cases, include director nominees that are proposed by shareholders meeting certain ownership-amount and holding-period thresholds in the companies' proxy materials.
Regardless of the delay in the proposed rule changes, publicly traded companies should continue preparations for a proxy access regime, as mandatory proxy access in some form still appears likely. The SEC has proposed proxy access rules several times in recent years, and legislation that would require the SEC to establish rules on proxy access has been introduced in the current session of Congress. Additionally, some states have adopted legislation concerning proxy access. For example, Delaware recently amended the Delaware General Corporation Law to permit, but not require, companies to provide for proxy access.
For additional information regarding the proposed rule changes, please see http://www.foley.com/publications/pub_detail.aspx?pubid=6145.
New Deadline for Full Compliance With SOX Section 404
On Friday, October 2, 2009, the SEC also announced that smaller public companies would be granted one more six-month extension on the deadline to comply with the Section 404(b) auditor attestation requirement of SOX. However, the SEC also made it clear that there would be no more delays for these smaller public companies. Non-accelerated filers — generally companies with less than $75 million in public float — will be required to provide the auditor attestation reports in their annual reports on Form 10-K for fiscal years ending on or after June 15, 2010.
Section 404(a) of SOX requires that management of a public company assess the effectiveness of the company's internal control over financial reporting, while Section 404(b) and related rules require an attestation report by the company's independent auditors as to whether the company maintains effective internal control over financial reporting. Non-accelerated filers have already been required to include management's assessment as part of their Annual Reports on Form 10-K beginning with fiscal years ended on or after December 15, 2007.