Proxy Statements: Part 1 & Part 2
One of the issues that has arisen in the corporate governance area is the concern over information overload. The Proxy Statement has become increasingly crowded with disclosure that is relevant to shareholders but adds to the length and complexity of the document.
Proxy statements are already long. Take the one filed by Apple. The document was 51 pages long. Executive compensation took up 14 pages (pp. 21-35), with another page devoted to equity compensation plans.
Each time the Commission proposes a new disclosure requirement for the proxy statement, one of the criticisms invariably involves the added length and complexity. In adopting Rule 10C-1, for example, the Commission noted that commentators raised:
concerns about extending already lengthy proxy statement discussions of executive compensation and expressing doubt that additional disclosure of the process for selecting advisers would provide any useful information to investors.
Exchange Act Release No. 67220 (June 20, 2012). The concerns apparently had an effect on the final rule. As the Commission concluded:
Consistent with the proposed rule, the final rule does not require listed issuers to describe the compensation committee's process for selecting compensation advisers pursuant to the new listing standards. We are sensitive to the concerns of commentators that adding such disclosure would increase the length of proxy statement disclosures on executive compensation without necessarily providing additional material information to investors.
Pressure for additional disclosure in the proxy statement will only continue. The Commission has been called upon to require increased disclosure on a number of corporate governance issues, including political contributions, sustainability reporting, shareholder approval of auditors, and global warming. Whatever the merits of each of these proposals, they will presumably add to the length and complexity of the proxy statement.
It is, therefore, time to consider a Part 1 and Part 2 of a proxy statement, much the way the Commission already divides registration statements. Part 1 could be the material that had to be distributed directly to shareholders. It could be formatted in XBRL and written in plain English.
Part 2 could include some of the more complicated disclosure mandated by the proxy rules but of interest only to a small minority of investors. Part 2 could then be posted on the Internet. One suspects, for example, that much of the disclosure in the Apple Proxy Statement on executive compensation could be in the Part 2.
The approach would allow for the distribution of a simpler proxy statement while making the full disclosure easily available to anyone interested. A shorter proxy statement would entail costs savings, reducing the distribution expenses. At the same time, it would hold out the promise of a proxy statement that retail investors might actually read, potentially increasing the possibility that they would return their voting instructions.