Council of Institutional Investors

Corporate Disclosure

CII generally supports required disclosure of:

  • Climate change risk metrics
  • Diversity of the boards and executive officers
  • Key workforce metrics
Investors need useful and timely information on company performance and policies relevant to long-term shareholder value. This critical component of capital market efficiency extends to both financial information and “non-financial” information that plausibly can influence long-term financial performance. CII supports efforts by independent third-parties and regulators to ensure that the data investors use to make portfolio allocation and proxy voting decisions are reliable, comparable and widely accessible. Our approach to corporate disclosure of environmental and social factors is guided by our member-approved policy, Statement on Corporate Disclosure of Sustainability Performance.

Transparency and safeguards around executive trading in company stock
Under SEC Rule 10b5-1, executives, directors and other top company insiders are able to establish a written plan that details when they will be able to buy or sell shares at a predetermined time on a scheduled basis. But press reports and empirical research suggest that corporate insiders may have used 10b5-1 trading plans as cover for improper stock trades. Insiders can adopt, amend and cancel these plans easily and without disclosure, a recipe for fortuitously timed trades while in possession of material, non-public information. In 2012, CII submitted a rulemaking petition to the SEC recommending improvements to Rule 10b5-1 and we have urged the commission repeatedly to close the loopholes that invite plan abuse. 
 
In December 2021, SEC commissioners unanimously approved putting out for comment proposed rules to tighten the loopholes and enhance transparency of executive trading plans in company stock. The proposed rule referenced CII advocacy multiple times.

Enhanced transparency of share buybacks
CII believes that executives should have discretion to allocate capital as they think best. This may include returning capital via dividends or buybacks. Legislation or regulation tying companies’ hands on capital allocation could lead executives to invest in businesses that falter or fail to create jobs, harming the company and the economy in the long-run.

But CII also believes some buybacks are not appropriate. Companies should not repurchase their own shares to boost the stock price in the short term—especially if executive pay is linked to earnings per share or measures of capital efficiency, such as return on equity or return on assets, which are lifted when equity is reduced.

Under current rules, companies that adopt a share repurchase program are not required to describe how the program will affect executive compensation, or elements used to determine that compensation. CII has supported legislation to change that. Additionally, companies are only required to disclose the actual repurchases on a quarterly basis. CII supports more rapid disclosure, on par with disclosure of trades by insiders. This would give the market a better understanding of the relationship between stock buybacks, executive compensation and capital allocation decisions.

In December 2021, the SEC issued a proposed rule that would require companies to provide more detailed and more frequent and timely disclosure about stock buybacks.

Transparency of executive compensation
Executive compensation is the most critical and visible aspect of a company’s corporate governance. Directors' decisions about CEO pay speak volumes about the board’s accountability to shareowners. That is why CII urges the SEC to finalize pay-for-performance rules as mandated in the 2010 Dodd-Frank Act. In late January, the SEC reopened the comment period for rules the agency originally proposed in 2015 to implement a section of Dodd-Frank that requires companies to disclose information about the relationship between actual executive pay, as reported in the proxy (with certain adjustments), and company performance, as represented by total shareholder return.
 
CII is also pressing the SEC to close a loophole that permits the use of non-GAAP earnings in the Compensation, Discussion & Analysis (CD&A) section of a company’s proxy statement. While non-GAAP financial measures can be useful in understanding a company’s performance, they can be misused. Since 2003, the SEC has generally required companies to give equal prominence to GAAP and non-GAAP financial measures as well as provide a quantitative reconciliation of the numbers. Yet an anomaly exists in that the existing SEC rules currently do not apply to the target measures for compensation contained in the CD&A, which is the  important source of information investors use to evaluate executive compensation. Investors often struggle to make sense of how companies assess performance in approving large compensation packages. In 2019 CII filed a petition with the SEC asking that the CD&A reports include an explanation of why non-GAAP measures are better for determining executive pay than GAAP, and that they include a quantitative reconciliation (or a hyperlink to reconciliation in another SEC filing) of these two sets of numbers.