Release No. 33-8655
Release No. 34-53185

Release No. IC-27218
 

Securities and Exchange Commission

Executive Compensation and Related Party Disclosure
Section IV

    Release Table of Contents

IV. Beneficial Ownership Disclosure

We propose to amend Item 403(b)²²⁷ by adding a requirement for footnote disclosure of the number of shares pledged as security by named executive officers, directors and director nominees. To the extent that shares beneficially owned by named executive officers, directors and director nominees are used as collateral, these shares may be subject to material risk or contingencies that do not apply to other shares beneficially owned by these persons. These circumstances have the potential to influence managements performance and decisions.²²⁸ As a result, we believe that the existence of these securities pledges could be material to shareholders.²²⁹ Because significant shareholders who are not members of management are in a different relationship with other shareholders and have different obligations to them, the proposals would not require disclosure of their pledges pursuant to Item 403(a), other than pledges that may result in a change of control currently required to be disclosed.²³⁰ The proposals also would specifically require disclosure of beneficial ownership of directors qualifying shares, which is currently not required, because the beneficial ownership disclosure should include a complete tally of the securities beneficially owned by directors.

Request for Comment

Should any specific categories of loans, such as margin loans, be treated differently under the proposal to disclose management pledges of beneficially owned securities? If so, please explain why.

Should directors qualifying shares continue to be excluded? If so, explain why that information is not material.

²²⁷ Item 403(b) of Regulation S-K and Item 403(b) of Regulation S-B are proposed to be revised in the same manner.

²²⁸ See, e.g., Marianne M. Jennings, The Disconnect Between and Among Legal Ethics, Business Ethics, Law, and Virtue: Learning Not to Make Ethics So Complex, 1 U. St. Thomas L.J. 995, 1010 (Spring 2004) (arguing that the extension of loans to the CEO of WorldCom, which were collateralized by WorldCom shares owned by the CEO, contributed to WorldComs financial demise).

²²⁹ This proposal is similar to a proposal the Commission made in 2002. See Form 8-K Disclosure of Certain Management Transactions, Release No. 33-8090 (Apr. 12, 2002) [67 FR 19914].  

²³⁰ Current Item 403(c) of Regulation S-K. See also Items 6 and 7(3) of Schedule 13D [17 CFR 240.13d-101].