On Monday, Broc Romanek wrote that the SEC’s Division of Corporation Finance has issued a new Compliance & Disclosure Interpretation clarifying how say-on-pay proposals should appear on the proxy card.   Many may welcome additional guidance from the staff.  I’m concerned.

C&DIs reflect the views of the Corp Fin staff.  Although the SEC’s website claims that C&DIs are not rules, regulations, or statements of the SEC, I question whether that is strictly accurate.  Section 551(4) of the Administrative Procedure Act defines “rule” to mean ”the whole or a part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy . . .”. 

Whether C&DIs constitute rules within the meaning of the APA, a more important policy question is whether the SEC should comply with the notice and comment rule making procedures of the APA (Section 553) when adopting new interpretations.   The reality is that lawyers tend to view staff interpretations as authoritative, if not binding.  While the notice and comment procedures mandated by the APA impose significant burdens on agencies, there are important benefits to following the rule making rules.  These include...

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