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SEC Guidance on Disclosures on Director Qualifications

On January 20, 2010, the SEC issued nine new Compliance & Disclosure Interpretations ("C&DIs") clarifying aspects of the proxy disclosure enhancement rules adopted on December 16, 2009. These C&DIs provide guidance on the new disclosure requirements relating to director qualifications, compensation consultants, equity awards and compensation policies and practices.

Though much of the interpretations is technical in nature, they do provide some insights for directors about the new requirements to disclose the "specific experience, qualifications, attributes or skills" of a director or a director nominee. The C&DIs stress the need for registrants to provide significant and specific detail about the qualifications and experience of each director or trustee, and how the experience and qualifications relate to their job as a director.  This introduces some challenges describing how more general business or other experiences are useful in the context of the registrant's business.

The interpretations are explicit that director qualifications must be described separately, and not on a group basis.

Question: For each director and nominee, Item 401(e)(1) requires disclosure of such person's "specific experience, qualifications, attributes or skills" that led the board to conclude that such person should serve as a director at the time that a filing containing the disclosure is made. May a company provide these disclosures on a group basis if the directors or nominees share similar characteristics, such as all of them are audit committee financial experts or all of them are current or former CEOs of major companies?

Answer: No. The disclosure of each director or nominee's experience, qualifications, attributes or skills must be provided on an individual basis. For each person, a company must disclose why the person's particular and specific experience, qualifications, attributes or skills led the board to conclude that such person should serve as a director of the company, in light of the company's business and structure, at the time that a filing containing the disclosure is made. For example, it would not be sufficient to disclose simply that a person should serve as a director because he or she is an audit committee financial expert. Instead, a company should describe the particular and specific experience, qualifications, attributes or skills that led the board to conclude that this particular person should serve as a director at the time that a filing containing the disclosure is made. [Jan. 20, 2010]


The C&DI's also explain why the qualifications of all directors, not just nominees to the board are required.

Question: Under Item 401(e)(1), how should a company with a classified board disclose why a director's particular and specific experience, qualifications, attributes or skills led the board to conclude that the person should serve as a director at the time that a filing containing the disclosure is made, if the director is not up for re-election at the upcoming shareholders' meeting?

Answer: Because the composition of the entire board is important information for shareholder voting decisions, the purpose of this disclosure requirement is to elicit current information about all directors on the board, including on classified boards. For each director who is not up for re-election, the evaluation of the director's particular and specific experience, qualifications, attributes or skills and the conclusion as to why the director should continue serving on the board, should be as of the time that a filing containing the disclosure is made. For some boards of directors, particularly those that do not conduct annual self-evaluations, this may require implementing additional disclosure controls and procedures to ensure that such information about directors who are not up for re-election at the upcoming shareholders' meeting is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. [Jan. 20, 2010]


As funds prepare their proxies and prepare their annual registration statement revisions, these interpretations are vital in helping those drafting these new disclosures.  The level of detail required should also be understood by boards as they review and approve these disclosures.

The full text of the January 20, 2010 C&DIs is available at:  http://sec.gov/divisions/corpfin/guidance/regs-kinterp.htm

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