In the last several weeks we have been delving into the details of each change in the SEC’s March 20, 2019 Disclosure Modernization and Simplification final rule. This is the first of two posts that review changes to areas that are included in Part III of Form 10-K and in proxy statement disclosures about executive officers and delinquent Section 16 filers. Changes in both areas are fairly straightforward and, like most of the changes in the final rule, are effective for filings made after May 2, 2019.
Executive Officer Disclosures
A question that frequently arises in our workshops is “Why do companies sometimes include a list of executive officers at the end of Part I of their Form 10-K?” Answering this question starts with S-K Item 401, which requires disclosure of a wealth of information about both executive officers and directors. These disclosures are required in Part III of Form 10-K and in the proxy statement disclosures in Schedule 14A:
Item 7. Directors and executive officers. If action is to be taken with respect to the election of directors, furnish the following information in tabular form to the extent practicable. If, however, the solicitation is made on behalf of persons other than the registrant, the information required need be furnished only as to nominees of the persons making the solicitation.
(a) The information required by instruction 4 to Item 103 of Regulation S-K (§229.103 of this chapter) with respect to directors and executive officers.
(b) The information required by Items 401, 404(a) and (b), 405 and 407 of Regulation S-K (§§229.401, 229.404(a) and (b), 229.405 and 229.407 of this chapter), other than the information required by:
The proxy, however, is essentially about the election of directors and by including the information about executive officers with the information about directors could create confusion for shareholders in the voting process.
To mechanically deal with this potential problem many years ago the SEC added this instruction to S-K 401:
Instructions to paragraph (b) of Item 401:
- The information regarding executive officers called for by this Item need not be furnished in proxy or information statements prepared in accordance with Schedule 14A under the Exchange Act (§240.14a-101 of this chapter) by registrants relying on General Instruction G of Form 10-K under the Exchange Act (§249.310 of this chapter); Provided, that such information is furnished in a separate item captioned “Executive officers of the registrant” and included in Part I of the registrant’s annual report on Form 10-K.
The Disclosure Modernization and Simplification final rule addressed two issues surrounding this instruction:
- The instruction was part of paragraph “(b) Identification of executive officers”, so it was not clear whether or not the instruction applied to all the S-K Item 401 disclosures about executive officers, and
- The title for the disclosure, “Executive officers of the registrant” read in a formal kind of compliance language and is not particularly focused on communication.
To address these issues the SEC made two changes in their final rule. The SEC:
- Moved the instruction so that it now is clear it applies to all the S-K Item 401 disclosures, and
- Reworded the title so that it now has a more “plain English” communication focus.
The now moved and reworded instruction reads:
Instruction to Item 401. The information regarding executive officers called for by this Item need not be furnished in proxy or information statements prepared in accordance with Schedule 14A or Schedule 14C under the Exchange Act (§240.14a-101 and §240.14c-101 of this chapter) if you are relying on General Instruction G of Form 10-K under the Exchange Act (§249.310 of this chapter), such information is furnished in a separate section captioned “Information about our Executive Officers,” and is included in Part I of your annual report on Form 10-K.
As always, your thoughts and comments are welcome!