The SEC is seeking comments by November 18 on rule proposals relating to proxy votes on executive compensation, shareholder approval of executive compensation and golden parachutes (Rel. Nos. 34-63123, 33-9153). The first proposal would require an institutional manager that is subject to 1934 Act Section 13(f) to report annually on how it voted proxies relating to executive compensation matters. The second proposal would require companies to conduct a shareholder advisory vote to determine how often to hold advisory votes on executive compensation and sets forth the provisions for seeking votes to approve golden parachute compensation arrangements in connection with merger and acquisition transactions.

The Dodd-Frank Wall Street Reform and Consumer Protection Act added new Section 14A to the 1934 Act to require issuers to provide shareholders with a vote on certain compensation matters and to require institutional investment managers to report how they voted on those matters.

Section 14A requires that a proxy or consent or authorization for an annual or other meeting of shareholders for which the proxy solicitation rules require compensation disclosure include, not less frequently than every three years, a separate resolution subject to a shareholder vote to approve executive compensation. At least every six years, issuers must allow a vote to determine whether the executive compensation votes will occur every one, two or three years.

Section 14A(b) requires that any meetings at which shareholders are asked to approve an acquisition, merger, consolidation, or proposed sale or other disposition of all or substantially all of the assets of an issuer include a separate resolution subject to a shareholder vote to approve executive compensation agreements and understandings that relate to the transaction, unless they were subject to a shareholder vote under Section 14A(a).

Proposed Rule 14a-21 will provide for the separate shareholder vote to approve executive compensation, to approve the frequency of the votes on executive compensation and to approve golden parachute compensation arrangements in connection with merger transactions. Proposed Item 24 of Schedule 14A will provide disclosure about the effect of the shareholder votes required by Rule 14a-21, including the non-binding nature of the votes.

Proposed amendments to Item 5 of Schedule 14A, Item 3 of Schedule 14C, Item 1011 of Regulation M-A, Item 8 of Schedule 14D-9 and Item 15 of Schedule 13E-3 will require additional disclosure about golden parachutes in connection with mergers, going private transactions and tender offers. Amendments to Item 402 of Regulation S-K will address the issuer’s response to shareholder votes on executive compensation in Compensation Discussion and Analysis, and to prescribe disclosure about golden parachutes in new Item 402(t).

The SEC is also proposing amendments to Forms 10-K and 10-Q to require disclosure about whether and how the issuer will implement the results of the shareholder advisory vote on the frequency of shareholder votes on executive compensation.

Institutional investment managers will file their record of votes annually on Form N-PX, which is currently used by registered management investment companies to file their complete proxy voting records with the SEC.

The votes on golden parachute arrangements will be based on the aggregate total of all compensation, whether present, deferred or contingent, that may be paid or become payable to a named executive officer in connection with an acquisition or merger. The votes are advisory and will not be binding on the issuer or the board of directors.

The requirements for a vote on executive compensation and the frequency of the vote are effective for shareholder meetings occurring on or after January 21, 2011, regardless of whether the SEC has adopted rules to implement Section 14A(a). The vote on executive compensation agreements related to certain transactions will be effective when the rules implementing that provision become effective.

Proposed Rule to Define Family Offices

The Dodd-Frank Act will repeal the Investment Advisers Act’s 15-client exemption, effective July 21, 2011, as a means of requiring advisers to private funds, such as hedge funds, to register with the SEC. The Dodd-Frank Act also created a new exclusion from the Investment Advisers Act to prevent family offices from having to register with the SEC. The SEC has proposed a definition of family offices as instructed by Section 409 of the Dodd-Frank Act which is consistent with its previously granted exemptive orders under the Investment Advisers Act (Rel. No. IA-3098, October 12, 2010).

Family offices are typically established by wealthy families and generally serve families with at least $100 million or more of investable assets. The SEC cites industry estimates that there are 2,500 to 3,000 single family offices managing more than $1.2 trillion in assets.

Family office services typically include the management of securities portfolios, personalized financial, tax and estate planning advice, accounting services and charitable giving. These offices often meet the definition of investment adviser under the Investment Advisers Act because they are in the business of providing advice about securities for compensation.

Many family offices have been structured to take advantage of the exemption from registration that is available to an adviser that, during the course of the preceding 12 months, had fewer than 15 clients and did not hold itself out to the public as an investment adviser. A number of family offices have sought orders from the SEC declaring that they are not investment advisers within the intent of Section 202(a)(11) of the Investment Advisers Act.

The Advisers Act authorizes the SEC to exclude from registration any person that falls within the definition of investment adviser but is not within the intent of that definition. The SEC has not viewed the typical single family office as the sort of arrangement that Congress designed the Act to regulate. The SEC is concerned that registration under the Act would intrude upon the privacy of family members, so its orders have exempted family offices from all of the provisions of the Act. The exemptive orders have been limited to family offices that provide advisory services only to members of a single family and their lineal descendants with very limited exceptions.

The Dodd-Frank Act instructed the SEC to adopt an exclusion from the Investment Advisers Act, consistent with its previous exemptive policy, which recognizes the range of organizational, management and employment structures and arrangements employed by family offices.

The SEC is seeking comments on its approach to implementing Section 409 of the Dodd-Frank Act through November 18, 2010.

"The SEC is also proposing amendments to Forms 10-K and 10-Q to require disclosure about whether and how the issuer will implement the results of the shareholder advisory vote on the frequency of shareholder votes on executive compensation."