The securities and Exchange Commission yesterday proposed proxy rules changes that would provide stockholders with significant new information about the board of directors of their company.
The information would be included in the proxy material, which is mailed to stockholders when they are to vote on such corporate issues as new members of the board.
Currently, stockholders are provided with only a basic description of the proposed boardmember's business affiliations.
Under the proposals, when a new director is put forward by management, the corporation's stockholders would be informed about the would-be director's involvement with company management.
A prospective director would be described as a "management director" if he works for the company, an "affiliated nonmanagement director" if he has ties to the company, or an "independent director" if he has no business or personal involvement with the company or its management.
The commission held hearings on the proposals last year in Washington.Los Angeles, New York and Chicago. The public has until Sept. 18 to submit comments to the SEC.
Besides describing the degree of independence of a candidate for the board, the proposed proxy solicitation material would:
Tell how often the board has met and name any director who missed a substantial percentage of board meetings.
Disclose if a boardmember quits because of a disagreement with management, and describe the nature of the disagreement.
Divulge whether the company has audit, nominating or compensation committees, and whether nominations by shareholders are considered.
Disclose the terms of settlement of proxy contests for election to the board of directors.
Give advance copies of management statements in opposition to shareholder intitatives to the proponents so that they may object to any misstatements or omission of material facts by management.
The SEC said that the proposals are the initial results of the first comprehensive rexamination of the proxy rules since they were established some 40 years ago.
The corporate governance issue is a favorite topic of SEC Chairman Harold Williams, who has suggested in speeches and interviews that his "ideal" board would be made up almost totally of independent directors. Only the chief executive officer would come from management, and he would not be chairman, Williams has said.
In a release accompanying yesterday's proposals, the commission said:
"The decision to undertake the study was based, in part, on a recognition that in many public corporations, directors who are chosen by management do not effectively monitor management conduct, and also are not retally answerable to shareholders through the corporate electoral process."
The SEC added that "these concerns were underscored by recent events, such as . . . illegal corporate payments, which . . . raised questions about the adequacy of existing checks on corporate management."