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08 Mar. 2010 | Comments (0)

With the 2010 proxy season upon us, there are already signs that risk disclosure will remain high on the priority list for boards in light of new enhanced SEC proxy disclosure rules and shareholder pressure. In light of the recent financial crisis, the enhanced disclosure rules, which went into effect Feb. 28, [See past blog post, SEC Wants More Concise Disclosure That is Material, Dec. 18] have a heavy emphasis on risk management and oversight. Also, an Oct. 27, SEC Staff Legal Bulletin (No. 14E-CF) stresses how the regulator will not so easily allow no-action requests from companies receiving risk-related shareholder proposals. One of those risks out in front this proxy season is climate change. (See below, “Investors File a Record 95 Global Warming Resolutions: a 40% Increase Over 2009 Proxy Season”) One of the reasons for the focus on climate change is that Jan. 27 SEC interpretative guidance [See past blog post, Worth Reading…SEC Climate Change Disclosure].  It said as of Feb. 8 the regulator will be monitoring all filings to see whether or not they take into consideration climate change and its consequences on its financials. The SEC staff wrote that any disclosure pertaining to climate change need to look at the possible effects of international treaties associated with greenhouse gas emissions, indirect consequences of regulation such as the demand for products with lower emissions and the physical impact of climate change. Additionally, the SEC’s Investor Advisory Committee said it is considering climate change disclosure issues as part of its overall mandate to advise the commission. The tricky part for boards is integrating the enhanced risk-based disclosure rules with the climate change risk disclosures. It would seem the prudent thing to do is to include climate change risks among the laundry list of business risks: competitive, technological, regulatory, legal, financial, etc… Of the many disclosures now required by the SEC under its enhanced proxy and financial statement regimen are the board leadership structure and the board’s role in risk oversight. The risk disclosure requirement reads: “In addition, [the filing] must disclose the extent of the board’s role in risk oversight of the registrant, such as how the board administers its oversight function, and the effect that this has on the board’s leadership structure.” The Conference Board Governance Center’s Director Notes series on the 2010 proxy season addresses the role of the board in risk oversight. In the article, Directors’ Duties under the New SEC Rules on Disclosure Enhancement [To download article, click here. Membership required], William Kelly, a partner at Davis Polk & Wardwell, and Mutya Fonte Harsch, an associate at Davis Polk, wrote: “The rule can hardly be interpreted as requiring companies to provide an itemized description of how the board oversees each identified risk. For nonfinancial companies, the disclosure should address at a minimum the board’s general risk oversight procedures  supplemented by a description of the major features of the company’s overall disclosure controls and procedures as well as the special role that board committees may play…” Climate change risk disclosure is fast becoming a big issue as shareholder groups have taken the opportunity presented by the SEC guidance to file a record 95 climate change-related resolutions with 82 U.S. and Canadian companies.  The Investor Network on Climate Risk, a group of more than 80 institutional investors with more than $8 trillion in total assets, announced on March 4 that the number of resolutions represented a 40 percent increase over last year’s filings. Many of the companies targeted include oil companies, coal producers, electric utilities, homebuilders, big box retailers and financial institutions. Some of those companies include ConocoPhillips, ExxonMobil, Southern Company, International Paper and RR Donnelley. Many of the investors are using the recent SEC interpretative guidance on climate-related material effect disclosures as an impetus for the resolutions as well as possible withdrawal compromises. “We want our companies to closely look at the impact climate change legislation and regulation has on them, to realistically assess those risks, and to consider the indirect consequences of climate change-driven regulation and business trends on their activities,” CalSTRS CEO Jack Ehnes said in a March 4 statement. “The SEC’s interpretative guidance outlines exactly the kind of action we have been asking our portfolio companies to take with regards to the issues raised by climate change.” In order to better provide boards, management and shareholders with more intelligence for the proxy season, The Conference Board Governance Center is publishing The Shareholder Activism Report, a 400-plus page directory of activist investors, profiles of the top 50 activists, proxy contest facts, voting policies for shareholder groups and sample documents from activist campaigns. As part of the project, the Governance Center is also setting up a Web portal that will provide up-to-the minute information. (To receive information about this report and Web portal, e-mail me at
  • About the Author:Gary Larkin

    Gary Larkin

    Gary Larkin is a research associate in the corporate leadership department at The Conference Board in New York. His research focuses on corporate governance, including succession planning, board compo…

    Full Bio | More from Gary Larkin


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