Action Items for Related Person Transaction Disclosures

With all the excitement surrounding the new executive compensation disclosure rules, the SEC’s recent amendments to the requirements for disclosing related person transactions have received less attention. As companies delve deeper into these new requirements, many are discovering that they must change their processes, policies and procedures in order to identify and address any potentially problematic transactions and relationships on a timely basis.

Item 404 of Regulations S-K and S-B contains the SEC’s requirements for disclosing company transactions with "related persons," which include the company’s directors, director nominees, executive officers, 5% shareholders, and their respective immediate family members. Effective for disclosure for fiscal years ending on or after December 15, 2006, the SEC revised Item 404 to make the disclosure requirements more principles-based and to broaden both the class of persons and the types of transactions and relationships requiring