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Forum Files Comments on Proxy Disclosure Proposal

Yesterday, the Forum filed a letter with the SEC commenting on the Commission's rule proposal, Proxy Disclosure and Solicitation Enhancements.   As we noted in our July 13, 2009 post, "SEC Publishes Proxy Disclosure and Solicitation Proposals," the proposed rules are designed to improve disclosures in proxy solicitations, including those of investment companies.   The proposed rules would require new or amended disclosure about:

  • The relationship between a company’s compensation policies and risk;

  • Stock and options awards to company executives and directors;

  • Qualifications of directors and nominees as well as disclosure about legal proceedings involving directors and executives;

  • A company’s governance structure, including whether the fund’s board chair is an interested person.  (If so, the fund would also have to disclose whether the fund has a lead independent director and what role the lead independent director plays);

  • The role of the board in risk management; and

  • Potential conflicts of interest of compensation consultants.

The Forum's letter commends the Commission "for its efforts to improve investors’ understanding of how the companies in which they invest, including investment companies, are overseen and governed," and "supports the proposals in the Release related to additional disclosure about a fund’s leadership structure, the qualifications of directors or nominees, and the board’s role in risk oversight."

The Forum's comments focus more specifically on four areas of the proposal affecting investment companies most directly:

  • Disclosure about a Fund’s Governance Structure


The Forum’s letter supports the additional disclosure about a fund’s leadership structure proposed by the SEC.  The letter "agrees that a transparent governance structure can benefit shareholders, and therefore supports additional disclosure in this area. Additionally, the letter states that the disclosure currently required about fund boards could be enhanced by providing shareholders and potential shareholders with further information about how their fund’s governance system is structured, and particularly how that governance structure is intended to protect their interests."


  • Disclosure Regarding Qualifications of Directors


The Forum’s letter "supports the SEC’s desire to help investors understand the skills and talents that individual directors bring to their boards, and, in particular, its desire to provide useful information regarding each director’s 'risk assessment skills, particular areas of expertise, or other relevant qualifications.'" Further, the letter states "[b]oards tend to function most effectively when their individual members bring a diverse set of skills to the boardroom, thereby creating a board with a mosaic of skills and perspectives.  Accordingly, the proposal to briefly disclose “the specific experience, qualifications, attributes or skills that qualify that person to serve as a director for the Fund” may produce helpful information for investors who seek to know more about their fund’s board."


  • Disclosure of a Board’s Role in the Fund’s Risk Management Process


The Forum’s letter agrees that fund boards play a critical role in risk oversight.  With respect to risk management oversight, the letter states that risk management is "implicit in a board’s review of a fund’s advisory contract, annual internal control review, approval of new products and valuation considerations." Additionally, the letter goes on to state that "[n]ew disclosure requirements in this area, however, will focus additional attention on the role of fund boards in risk oversight, and likely will spur additional conversations in the board room about how to work effectively with management to develop and maintain risk management policies and procedures designed to address or avoid uncompensated or avoidable risks."

The full text of the Forum's comment letter is available at:

The full text of the proxy proposals is available at: