The SEC proposed rules that would require certain institutional investment managers (“Managers”) to file annual disclosures with the SEC regarding their votes on executive compensation and certain “golden parachute” compensation arrangements. The current proposal is part of a rulemaking initiative by the SEC to implement elements of new Section 14A of the Securities Exchange Act of 1934 (“1934 Act”), which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in July. Section 14A requires certain issuers to provide shareholders with an advisory vote on executive compensation, the frequency of advisory votes on executive compensation and on “golden parachute” compensation arrangements (“Section 14A Votes”). The SEC has proposed rules designed to implement these advisory vote requirements as discussed in the October 26, 2010 Alert. The current proposal is designed to implement the requirement under Section 14A that Managers report their Section 14A Votes.
Class of Reporting Persons
The proposed rules would require every institutional investment manager that is required to file reports on Form 13F under Section 13(f) of the 1934 Act to file their record of Section 14A Votes annually on Form N-PX. In general, Form 13F filers are non-natural persons investing in or buying and selling exchange-traded equity securities for their own account and any persons exercising investment discretion with respect to the account of others that have an aggregate fair market value on the last trading day of any month or calendar year of at least $100 million.
Scope of Reporting Obligations
Managers would be required to report their record for each of their Section 14A Votes on Form N-PX, the same form on which registered funds are required to report their complete proxy voting records. A Manager would only be required to report Section 14A Votes if the Manager, directly or indirectly had or shared the power to vote, or to direct the voting of, the security. The SEC also has proposed that a Manager report Section 14A Votes with respect to “any security” over which it has voting power.
Time of Reporting
The proposed rules would require Managers to report their Schedule 14A Votes annually not later than August 31 of each year, for the most recent twelve-month period ended June 30. A Manager would not be required to file a Form N-PX report for the twelve-month period in which the Manager’s initial Form 13F filing is due. In addition, a Manager would not be required to file a report on Form N-PX with respect to any shareholder vote at a meeting that occurs after September 30 of the calendar year in which the Manager’s final filing on Form 13F is due.
To prevent duplicative reporting, the proposed rules permit a single Manager to report Section 14A Votes when multiple Managers share voting power and permit a Manager to reference Form N-PX reports of a registered fund to satisfy its reporting obligations. If a Manager’s Section 14A Votes are reported by another Manager, the non-reporting Manager must file a Form N-PX that identifies each Manager and registered fund that is reported on its behalf.
Form N-PX would be amended to include three parts: (i) the Cover Page, (ii) the Summary Page and (iii) required proxy voting information. Some of the proposed changes to Form N-PX would also affect fund filers. Proxy voting information would need to be presented in the following order: (i) the name of the issuer of the security; (ii) the exchange ticker symbol of the security; (iii) the CUSIP number for the security; (iii) the shareholder meeting date; (iv) a brief identification of the matter being voted on; (v) for fund reports (and not from Managers) whether the matter was proposed by the issuer or a security holder; (vi) the number of shares the reporting person was entitled to vote (for funds) or had or shared voting power over (for Managers); (vii) the number of shares that were voted; (viii) how those shares were voted; (ix) whether the vote was for or against management’s recommendation; and (x) identification of each Manager on whose behalf the Form N-PX is filed and who had or shared voting power.
Requests for Confidential Treatment
The SEC has proposed providing instructions on Form N-PX regarding how to request confidential treatment of the information filed on Form N-PX, the required content of such confidential treatment request and the required filing of information that is no longer entitled to confidential treatment. In this regard, the SEC asks for, among other things, comments as to when confidential treatment of such information should be granted.
If the proposed amendments are adopted, the SEC expects Managers to file their first reports covering Section 14A Votes at meetings that occur on or after January 21, 2011 and ending on June 30, 2011. The reports would be required to be filed no later than August 31, 2011. Funds would comply with the amendments to Form N-PX in their reports for the period ending June 30, 2011, except that for votes at meetings that occur before January 21, 2011, funds would be permitted to include the information currently required by Form N-PX.
The comment period for the proposed rules ends on November 18, 2010.