Corporate Governance and the SEC: Rapid Disclosure of Interim Results and Improving the Integrity of the Voting Process

We are discussing Exchange Act Release No. 60280 (July 10, 2009), the SEC's recent set of rule proposals designed to improve disclosure in connection with the corporate governance process.

Public companies have to report the voting results of shareholder meetings.  The data must appear in the next quarterly report, which can sometimes result in substantial delay.  Moreover, there have been  cases where the company has opted to sit on results of director elections for protracted periods of time, without announcing whether insurgents actually won or lost.   

The Commission has proposed a more rapid disclosure regime.  Rather than wait for the quarterly report, companies in the future will be required to disclose the results in a current report withing four business days after the meeting has occurred.  From the Commission's perspective, the technology exists for a more rapid tally.  "We understand that technological advances in shareholder communications and the growing use of third-party proxy services have increased the ability of companies to tabulate vote results and disseminate this information on a more expedited basis than is currently required."

Even where not final, however, rapid disclosure must occur.

• We have included an instruction to the proposed item that states that if the matter voted upon at the meeting relates to a contested election of directors and the voting results are not definitively determined at the end of the meeting, companies should disclose on Form 8-K the preliminary voting results within four business days after the preliminary voting results are determined, and file an amended report on Form 8-K within four business days after the final voting results are certified.

The requirement will do two things.  First, it will require rapid notification to insurgents of the results of any contests.  There will no longer be any opportunity to sit on the results for months.  Insurgents will probably be able to assume their posts on the board more quickly. 

Second, as a practical matter, it will to some degree improve the integrity of the voting process.  With preliminary data disclosed, management will have a much heavier burden justifying any subsequent changes in the results, at least where more favorable to management.  Most likely the change will end up in court and be subjected to discovery.  This means that the reasons and motive for the change will be placed under a microscope.  In at least some cases, companies will forgo changing the results in order to avoid this level of examination.