SEC Investor Advisory Committee to Meet May 17

Environmental, social, and governance disclosure issues, fiduciary duty as it relates to investment advisers and registered broker-dealers, investor education, and money market funds are among the items on the agenda for next week, when a committee created to offer input on investor concerns to the Securities and Exchange Commission holds its next public meeting.

The SEC Investor Advisory Committee, led by AARP Financial President Richard Hisey and TIAA-CREF Head of Corporate Governance Hye-Won Choi, is set to meet May 17. The meeting will be open to the public and Webcast on the SEC's Website. Compliance Week will provide readers with detailed coverage of the event in an upcoming edition.

According to the meeting notice, the committee's agenda includes: Remarks on investor reaction to disclosure by behavioral economist Dan Ariely; an update on previously adopted recommendations; a briefing on a work plan on environmental, social, and governance disclosure; an update on certain issues involved in financial reform legislation; discussion of fiduciary duty in the context of investment advisers and registered broker-dealers, including a presentation by SEC staff; discussion with an expert panel on mandatory arbitration; discussion of money market funds and the issue of net asset value, including a staff presentation; and a recommendation on an investor education campaign.

The "update on certain issues involved in financial reform legislation" was put in as a placeholder as the committee awaits the outcome of negotiations on the corporate governance provisions up for grabs in the Senate financial reform legislation. In particular, the current version of the Senate bill would require all public companies to adopt a majority-vote standard, which requires a director to gain a majority of votes cast to take a seat on the board. According to published reports, an amendment offered by Sen. Tom Carper (D-Del.) seeks to strike the provision, along with a provision that would reaffirm the SEC's authority to issue proxy access rules.

While dozens of companies have adopted majority voting, a plurality standard, under which a director could be elected by receiving just one affirmative vote, is still the default for most companies.

"If the measures fail in Congress, we will want to consider the option of acting," says Stephen Davis, chair of the Investor as Owner Sub-committee, executive director of Yale University's Millstein Center for Corporate Governance & Performance, and a Compliance Week columnist.

Davis's sub-committee is mulling a recommendation that the SEC make the majority-vote standard mandatory. Another option might be a recommendation for the SEC to adopt a "comply or explain" approach where companies must adopt the majority-vote standard or explain their logic for not doing so. The SEC took that approach in a December rule that requires companies to disclose whether and why they split the roles of CEO and board chairman. Another possibility is for the SEC to direct the stock exchanges to require a majority-vote standard for listed companies, though whether it has the legal authority to do that was up in the air at the last meeting. Meanwhile, the SEC still hasn't set a date for considering its controversial proposal on shareholder access to the proxy statement.

In February, the full committee approved two recommendations put forth by the Investor as Owner sub-committee. One recommendation calls for the SEC staff to issue interpretive guidance on Regulation Fair Disclosure, which bars executives from selectively disclosing material non-public information, to suggest ways for companies to address compliance fears about the selective disclosure of material corporate governance information in private meetings with investors. The recommendation aims to address a complaint that some companies use the rule as an excuse to avoid talking with investors.

The second recommendation, aimed at making proxy voting more transparent, asks the SEC staff to study the cost/benefit of requiring that the data in the DEF 14A proxy statement, N-PX filings for mutual fund proxy votes, and shareholder voting results reported in Form 8-K be "tagged" using a data-reporting language such as XBRL, which companies already use to tag data in their financial statements as required under an SEC rule.