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 material 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.
In 2022, CII sent the SEC a letter generally supporting the commission’s proposal on the climate-related disclosure for investors with some revisions.

Transparency and safeguards around executive trading in company stock
The SEC on Dec. 14, 2022, unanimously approved final rules that close loopholes and enhance the transparency of executive trading plans in company stock. The adoption comes after CII pressed the commission for 10 years to reform Rule 10b5-1 trading plans.

Under the new requirements, executives will have to wait a specified period of time after adopting a Rule10b5-1 trading plans before they can execute trades. The rules also restrict the use of multiple overlapping trading plans. In addition, directors and management must certify when adopting a new plan or modifying an existing one that: (1) they are not aware of any material nonpublic information about a company or its securities; and (2) they are adopting the plan in good faith. More comprehensive disclosure of companies’ policies and procedures related to insider trading also will be required.

More than 20 years ago, the SEC implemented Rule 10b5-1 to let executives buy or sell company shares at a predetermined time on a scheduled basis. Although it was intended to prevent executives from running afoul of the prohibition on trading on material non-public information, over the years loopholes in the rule’s coverage emerged. Press reports and empirical evidence suggested that insiders were adopting, amending and canceling these plans easily and without disclosure—a recipe for fortuitously timed trades while in possession of material, non-public information.

In 2008 after CII members became concerned about these practices, CII adopted a member-approved policy on Rule 10b5-1 plans, specifying that plans should be publicly disclosed; adopted when the participant is not in possession of material, non-public information; and inactive for at least three months following adoption. To prompt SEC action on the issue, CII then submitted a rulemaking petition in 2012 urging the commission to adopt amendments that would place restrictions on the trading that companies and company insiders could conduct under the rule. 

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.

On May 3, 2023, the SEC approved amendments requiring companies to disclose more granular information about stock repurchases. Currently, companies report a summary of buyback activity for each month. Going forward, investors will have daily data provided on a quarterly basis. That extra information could help investors and researchers monitor the timing and terms of buybacks in relation to equity compensation or the timing of performance milestones.

Companies will be required to include a checkbox preceding their tabular disclosures to show whether certain officers and directors purchased or sold shares that are the subject of a share repurchase plan within four business days before or after the announcement of that plan. Notably, companies also will have to report quarterly on their adoption and termination of Rule 10b5-1 trading plans.

CII generally supported the amendments the SEC proposed initially in December 2021.

Transparency of executive compensation
The SEC August 25 adopted final rules implementing pay-versus-performance disclosure requirements for companies. The new rules, required under the 2010 Dodd-Frank Act, give firms discretion in what they report as the most significant measures considered when gauging performance and tying it to pay. Importantly, this information will supplement, not supplant, the disclosure of performance as measured by total shareholder return (TSR).

In April 2015, the SEC proposed amendments to implement these disclosure requirements, and then in January 2022, the commission reopened the comment period for the 2015 proposed rules. The new comment period provided the public with the opportunity to provide feedback on additional requirements the SEC was considering. CII sent the SEC a letter February 24 providing recommendations on how to improve the commission’s s plans to implement the pay-for-performance disclosure provisions.

The rules require all reporting companies, except foreign private firms, registered investment companies and emerging growth companies, to provide a table in their proxy statements (or information statements in which executive compensation disclosure is required) that shows specified executive compensation and financial performance measures for their last five completed fiscal years. Smaller reporting companies will be subject to scaled disclosure requirements.
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.