SEC to GCs: Disclose … or Else

In a roomful of in-house counsel, an SEC lawyer is a 600-pound gorilla. Everyone’s keenly aware of him, and nobody wants to draw his attention.

At an “SEC Update” seminar Monday at the Association of Corporate Counsel’s annual meeting in San Diego, SEC Deputy Director Martin Dunn did about 70 percent of the talking, and his fellow panelists — two in-house attorneys and a Gibson, Dunn & Crutcher partner — weren’t about to shut him down. At one point Dunn jokingly referred to a report he’d written as “a work of genius” — but none of the 200 or so lawyers in the audience dared laugh. Which, of course, drew a rebuke from Dunn.

Substantively speaking, though, Dunn had an important message for every public company lawyer:

Start preparing now for new SEC disclosure requirements on executive compenation — specifically, a new “Compensation Discussion and Analysis.” The “CD&A” will require companies to spell out the objectives of their compensation program, what specifically the program is designed to reward, and each element of compensation and why the company pays it, among other things, according to Gibson, Dunn partner Ronald Mueller.

Overall, the companies will have to “explain and place in context the compensation disclosures in the proxy statement,” according to Mueller. Oh, and it applies to the CEO, the CFO and the three next-highest compensated officers, which can include any departed officers who received generous severance packages.

Dunn acknowledged that there are a couple of things that make the looming requirement “horrifying.” The first is that there is no precedent for it. “For a securities lawyer, all of life is a markup of last year,” Dunn joked, this time to a smattering of cautious chuckles.

Secondly, it will put GCs in the middle of a disclosure tug-of-war between management and the SEC. “You’re going to have people beating on you to say as little as possible,” Dunn warned. The SEC, meanwhile, will be beating on companies to say as much as possible.

Our money is on the gorillas.

— Scott Graham


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