C. Inadequate Proxy Disclosure

The quality of the proxy information provided to shareholders in most other countries is generally much less comprehensive than in the United States. In many countries, companies provide only the most basic information describing the proposals to be voted on at a shareholders‘ meeting. There is generally very little or no disclosure information related to executive compensation, a valuable aspect of U.S. proxy statements. Nor is there much information about a company’s pension liabilities, interested transactions or business segments in any disclosure documents distributed by most foreign issuers. Moreover, in many countries, proxy information need be published only in a local newspaper or financial publication a few days before the meeting rather than delivered to all shareholders prior to the meeting.Accordingly, many U.S. institutions, including mutual funds, find it difficult to obtain proxy information on a timely basis or to make an informed voting decision based on the information available.

FundsMutual funds may purchase shares of foreign companies that trade in the United States, through either direct listings on a U.S. exchange or an American Depository Receipt (ADR) program. For the relatively limited number of foreign companies that list their shares for trading directly on a U.S. exchange, the U.S. securities laws generally require these companies to disclose on a regular basis detailed information regarding their activities to a similar extent as would be the case for a domestic U.S. issuer. In particular, U.S. law requires publicly listed companies to send detailed proxy-related information, together with an annual report, to each shareholder in advance of a company’s annual shareholders‘ meeting. These same proxy solicitation requirements, with certain informational exceptions, apply to the approximately 400 foreign companies that have registered their shares directly for trading on a U.S. exchange.

However, the shares of a much larger number of foreign companies-close to 2,000-are available for trading in the United States only through ADR programs. ADRs are essentially derivative securities representing beneficial interests in the shares of a foreign issuer that are held in trust by a U.S. bank (the ADR sponsor).ADRs are typically traded in the United States on one of the national exchanges or in the over-the-counter market. Foreign issuers that make their shares available in the United States only through ADR programs are entirely exempt from the SEC’s proxy rules, although the SEC does require ADR sponsors to make available in the United States English translations of any materials (including proxies) that must be publicly distributed in the underlying issuer’s local market. Similarly, none of the major U.S. stock exchanges require the ADR sponsors to provide any more proxy information to U.S. investors than is provided to investors in the issuer’s local market. At times, however, ADR sponsors have successfully negotiated for undertakings from foreign issuers to provide supplemental company information-or at least translations of existing information-to the sponsors for dissemination to U.S. investors.

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Corporate Governance Ouside the United States: Inadequate Proxy Disclosure