DISCLOSURE DRAFTING TIPS

Welcome to my disclosure drafting tips! I hope to use this page to highlight some common errors that I find as I read annual reports, proxy statements, Forms ADV (or is that Form ADVs?), and other disclosure documents. The names have been changed to protect the innocent, but I promise: every “before” that you see here is real.

If your company has any particularly gnarly disclosure paragraphs that you want me to tackle, please send them along!

Don’t weigh down committee profiles with ancillary information

Most public companies describe their various Board committees in their proxy statements. Unfortunately, what should be very focused disclosure occasionally gets bogged down with information that is better placed elsewhere.

Here is what a committee profile should cover

  • The names of all the members, with the chairman identified.
  • Whether the members meet any special regulatory requirements. For example, who is independent? Who is an audit committee financial expert?
  • How many times the committee met in the past year.
  • The committee’s specific responsibilities.

Here are things I have seen in committee profiles that do not belong there

Detailed descriptions of risk oversight responsibilities. It is more efficient to discuss all of the committees’ risk-management duties in one place so readers can see how the Board as a whole coordinates risk oversight.

Discussions about consultants. If the Compensation Committee has retained an independent consultant to give advice about executive compensation, a discussion of that relationship belongs in the CD&A. If the Governance Committee has retained a consultant to give advice about Board practices, potential nominees, or compensation for independent directors, a discussion of that relationship belongs in the section of the proxy that talks about the Board generally. The Audit Committee description should say that the committee is responsible for retaining and overseeing the independent auditor, but the details of that relationship belong elsewhere, such as with the information that accompanies the auditor ratification proposal.

Explanations of how things are done. The description of the committee responsible for identifying new directors should list that responsibility, but the process for identifying nominees and the criteria for nominees belong in the section of the proxy that talks about the Board generally. If a particular committee is responsible for enforcing your code of conduct, that responsibility should be listed, but the committee profile is not the place to describe the code of conduct itself.

Finally, for the sake of efficiency, if every committee has a charter that is available on your website, say that in an introductory paragraph. It isn’t necessary for each individual committee description to explain how to get that committee’s charter.