New Proxy Rules Take Effect; IFRS; More

As companies gear up for the 2008 proxy season, they’ll need to beware of several rule amendments that take effect in coming weeks. One notable change taking effect this month is the controversial amendment to federal proxy rules that effectively lets companies block shareholder efforts to put director nominations in the proxy statement.

The amendment to Rule 14a-8(i)(8)of the Securities Exchange Act, which took effect Jan. 10, codifies a long-standing Securities and Exchange Commission policy of allowing companies to exclude shareholder proposals that relate to a “nomination or an election for membership on the company’s board of directors or analogous governing body or a procedure for such nomination or election.”

The amendment followed the September 2006 federal appeals court decision that American International Group could not block a shareholder proposal to amend AIG’s by-laws so that shareholder nominations could be included in the proxy statement. That ruling reopened the debate between members of the business community who oppose shareholder access and those who favor proxy access, including shareholder activists, institutional shareholders and some members of Congress.

Meanwhile, the so-called e-proxy rules, which require issuers and other soliciting persons to post proxy materials online and let shareholders choose how they access those materials, took effect Jan. 1 for large accelerated filers. Those rules are supposed to provide a cheaper way to solicit proxies. All other filers, registered investment companies, and persons other than issuers conducting proxy solicitations can comply voluntarily with the rules now, but will be required to do so Jan. 1, 2009.

The SEC also recently voted to adopt amendments aimed at facilitating the use of electronic shareholder forums. Those amendments will take effect 30 days after publication in the Federal Register.

SEC Posts Adopting Release on IFRS Filings by Foreign Issuers

The SEC has posted the 111-page adopting release to let foreign private issuers file financial statements according to International Financial Reporting Standards without reconciling them to U.S. Generally Accepted Accounting Principles.

The rules require issuers and their auditors to attest that the financial statements comply with IFRS as issued by the International Accounting Standards Board. FPIs filing statements according to any other standards—including IFRS “tweaked” to an individual nation’s preference—must still file reconciliation statements.

The amendments take effect 60 days after publication in the Federal Register. They apply to financial statements for financial years ending after Nov. 15, 2007, and interim periods within those years contained in filings made after the effective date. Amendments to General Instruction G of Form 20-F relating to first-time adopters of IFRS apply to filings made after the effective date.

Meanwhile, the European Union recently adopted an “equivalence mechanism” to determine which third-country GAAPs it will accept as equivalent to IFRS starting in 2009. Issuers using equivalent GAAPs will be able to use those standards until 2011 at the latest, provided their home country is converging with or adopting IFRS.

CFA Centre Wants Better CEO Pay Disclosure Rules

An investor advocacy group wants the SEC to bolster the executive compensation disclosure rules put in place during the last proxy season.

In a recent letter to the SEC, leaders of the CFA Institute Centre for Financial Market Integrity made 10 recommendations covering information needs that were “omitted or unclear” in the final rules. They primarily relate to how the rules were interpreted and applied by companies.

Schacht

Kurt Schacht and James Allen, managing director and capital markets policy director, respectively, of the CFA Institute, wrote in their Dec. 20 letter that they were “highly disappointed in the inconsistent and overly complex implementation of the rules exhibited by many companies. The length, complexity, and lack of transparency of the disclosures suggest companies either ignored or misunderstood the spirit and intention of the rules.”

The CFA Institute urged the SEC to focus on efforts to improve the content and quality of executive compensation information, including the use of plain language, and to remind compensation committees of their responsibilities to participate in the review and preparation of the Compensation Disclosure & Analysis.

The CFA Institute also wants the SEC to require issuers to report the fair value of new share-based awards in the Summary Compensation Table, rather than the share-based GAAP compensation expense; to require disclosure of any use of company asset worth more than $10,000, regardless if paid by the company or through a perquisite purchase program; and to limit the ability of companies to use “competitive considerations” as a reason to avoid disclosure of compensation strategy.

The group also recommended issuers be required to disclose how much compensation consultants earn for other consulting work, the role the CEO plays in determining his or her own pay, and the names of competitors used to benchmark executive compensation. Additionally, the group said the agency should require three years’ worth of compensation data for each named executive officer, regardless of whether the person was included in the top five executives in prior years, and should reinstate a previously required graph comparing how an issuer’s shares performed relative to its chief competitors and peers.

SEC Boosts Cooperation With Indian Regulators

The SEC says it will increase its cooperation with the Securities and Exchange Board of India.

Announced last week, the SEC-SEBI dialogue will consist of regular meetings and ad hoc information exchanged at the staff level and between high-level representatives of the SEC and SEBI. It is the latest of numerous partnerships with overseas securities regulators that the SEC is trying to improve.

Cox

“As financial services and investment continue to grow and expand between the United States and India, the SEC and SEBI are increasingly working together to facilitate our aims of investor protection and healthy markets,” SEC Chairman Christopher Cox said in a statement.

Topics of discussion will include oversight of dually regulated entities; regulatory and compliance issues relating to outsourcing; accounting and auditing standards; corporate governance standards and internal controls; and cross-border cooperation and information sharing in securities enforcement matters.