March 4, 2015

Disclosure Usability: GE’s Next-Gen 10-K!

In an effort to entice more investors to read it, General Electric has overhauled its Form 10-K this year – and the final product is quite impressive. In a nutshell, the company has applied its enhanced usability principles that it learned from upgrading its proxy statement (see my video from last year about that) to its 10-K. A video on this exciting development is coming soon – but you can learn much about what GE did to enhance the 10-K in this 15-page presentation posted in our “Usable Disclosure” Practice Area.

Here’s a WSJ article on GE’s 10-K. And here’s a Seeking Alpha interview with GE’s CFO Jeff Bornstein entitled “How We Have Reimagined Our Financial Reporting”…

Warren Buffett’s Annual Letter to Shareholders

A few days ago, Warren Buffett released his annual letter to shareholders, his 50th and its more than 40 pages! Here are some articles about it:

– MarketWatch’s 13 Quotes from Warren’s Latest
– WSJ’s “Crib Sheet for CFOs on Buffett’s 50th Annual Letter
– WSJ’s “Analysis: Warren Buffett’s Annual Berkshire Letter
– WSJ’s “Annotating the Oracle: Experts Weigh In on Berkshire’s Annual Letter
– Fortune’s “Warren Buffett: My $100 billion blunder
– CNBC’s “Buffett: These investments are a ‘fool’s game’

Interestingly, Buffett’s annual letter declines to clarify the succession plan at Berkshire Hathaway (as noted in this article) – but Vice Chair Charlie Munger wrote his own letter (starts at page 38) to shareholders and named two potential CEO successors (as noted in this piece)…

Coming Soon: “The Women’s 100 Conference” in Palo Alto

I’m excited to say that we are holding a 2nd annual “Women’s 100 Conference” in DC this year on Monday, June 1st – and it’s already sold out without even marketing it (but the waiting list is short right now). In addition, I am holding a 1st annual on the West Coast – on Tuesday, June 9th in Palo Alto. That one is nearly sold out – but there are a handful of slots left (plus a few folks typically drop out – so there likely would be some movement if you get placed on a waiting list). The attendees are a mix of in-house, law firm & investors of all ages.

If you are interested in more information about either event, please email me. It is heavily geared towards networking and the panels are intimately interactive with the audience (see this framework & agenda and this 1-minute video from last year for an inkling of what the event is like)…

– Broc Romanek

March 3, 2015

Shareholder Proposals: Another Flip-Flop? “Upon Further Reflection”

Here’s my reaction when I learned of this new development:

pooh confused

It looks like the Corp Fin Staff has reversed course on a line of proposals that asks the board to adopt a policy that the board chair shall be an independent director who is not a current or former employee of the company, and whose only nontrivial professional, familial or financial connection to the company or its CEO is the directorship. After Pfizer received a no-action response from the Staff in December allowing the exclusion of this type of proposal for being vague & indefinite under (i)(3) (which itself was an extension of this Abbott Labs letter dated 1/13/14 – there the proposal said that the directorship could be the “only connection” to the company and the Staff allowed exclusion as vague under (i)(3)), a number of companies filed similar no-action requests.

Then last week, the Staff started to issue responses to those requests (eg. this one to Boeing) and it appears to have changed its tune. Here’s an excerpt from those Staff responses:

We are unable to concur in your view that ____ may exclude the proposal under rule 14a-8(i)(3). You have expressed your view that the proposal is vague and indefinite because it does not explain whether a director’s stock ownership in accordance with the company’s stock ownership guidelines is a permissible “financial connection.” Although the staff has previously agreed that there is some basis for your view, upon further reflection, we are unable to conclude that the proposal, taken as a whole, is so vague or indefinite that it is rendered materially misleading. Accordingly, we do not believe that ______ may omit the proposal from its proxy materials in reliance on rule 14a-8(i)(3). (emphasis added)

I highlighted the “upon further reflection” language above because I don’t recall ever seeing that language in a Staff response before. So with the (i)(9) debate raising the profile of the shareholder proposal process, it’s possible that the playing field may continue to evolve for no-action requests under Rule 14a-8…

Add this to the list of things that will be discussed during our March 24th webcast: “Proxy Access: The Halftime Show”! Also check out this blog that I just posted in our “Proxy Season Blog” about shareholder proposals and the background of audit committee members…

Shareholder Proposals: Delay in No-Action Responses?

Last week, we got this query in our “Q&A Forum”:

Any idea what is going on at Corp Fin? They haven’t published a 14a-8 ruling in almost a week and I have clients who filed in mid-December – over 2 months ago – still waiting for a ruling. Many companies are going to press in the next week or two. Any insight?

The Corp Fin Staff works so hard on this thankless task that I am loathe to say it, but it does seem that they are behind – maybe not in numbers (it appears they have issued only slightly fewer letters compared to the same time last year and that could just be due to the time it takes to update their website), but by leaving some letters raising substantive arguments to be decided closer to 60 days after the requests were filed with the Staff. They may have fallen behind on the harder letters because they have been dealing with the sticky (i)(9) issue – and also because there are more no-action requests this year compared to last year. Moreover, even with the Staff declining to respond to the (i)(9) arguments, some of those would-be-and-now-partially-stunted requests raise arguments under other exclusion bases, plus some companies have filed supplemental requests raising alternate arguments since (i)(9) is no longer a viable argument this proxy season.

Remember that if you have a looming print deadline, you need to call the Staff and alert them to that as they typically make every effort to accommodate companies who might incur additional costs if they print belatedly. Or to accommodate companies facing a notice & access deadline as they need to know whether to include the proposal on the notice when they get it printed & mailed in time (ie. sending the notice at least 40 days in advance of the meeting date)…

Webcast: “Merger Filings with the SEC: Nuts & Bolts”

Tune in tomorrow for the webcast – “Merger Filings with the SEC: Nuts & Bolts” – to hear Dennis Garris of Alston & Bird, Laurie Green of Holland & Knight and Jim Moloney of Gibson Dunn discuss the nuts & bolts of preparing disclosure documents that are filed with the SEC, including practical guidance into what should be disclosed (or not disclosed) to minimize litigation risk – as well as how to handle common Corp Fin comments.

– Broc Romanek

March 2, 2015

Our Newly Redesigned Site! Give Me Your Feedback…

If you head to our home page today, you’ll see that we have launched a newly redesigned site! Long overdue, it’s my first rethink since I completely overhauled the site when I took it over in January 2003. The reality is that only the home page has changed. The underlying content is the same, the blogs are the same, etc. If you have subscribed to have a blog or eminders pushed to you, you will still receive them as you always have. And there is no log-in box on the home page, as you will only be prompted to log-in when you encounter members-only content.

My primary redesign goal was to enable you to more easily navigate to our main areas of content, which is accomplished now through the prominent 16 tabs at the top of the home page (for example, the 500+ Practice Areas are accessible from the top left tab rather than being forced to scroll through a long left column of the home page). And you’ll see that the rest of the page isn’t cluttered anymore. Rather, the bulk of the home page highlights developing news & key resources. A secondary goal was to have the home page look “clean” on any mobile device. Give me your honest feedback please!

Webcast: “Conduct of the Annual Meeting”

Tune in tomorrow for the webcast – “Conduct of the Annual Meeting” – to hear Randy Clark of Sempra Energy; Angela Hilt of Clorox; Jeff Taylor of Pepco, Carol Ward of Mondelez International and Carl Hagberg of The Shareholder Service Optimizer explain how they handle the many challenges of running an annual shareholders meeting.

Our March Eminders is Posted!

We have posted the March issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!

– Broc Romanek

February 27, 2015

Proxy Access: Citigroup Joins GE & Others (Sorta Kinda)

A few weeks ago, I blogged that General Electric and two other companies had adopted proxy access bylaws in the face of shareholder proposals seeking access. Now comes the news from this WSJ article (& this Reuters piece) – in this case, Citi will support the adoption of the 3%/3-year formula sought by the shareholder proponent, Jim McRitchie, after he changed his formula as noted in this blog. Here’s the draft support language for Citi’s proxy statement. So the Citi situation isn’t quite like the other companies because the company hasn’t adopted proxy access – rather, it has just agreed to support an amended non-binding shareholder proposal…

Meanwhile, a coalition of 17 groups sent this letter to the SEC on Wednesday expressing concern about the SEC’s decision to review its (i)(9) views in the midst of the proxy season…

SEC Probing How Companies Treat Whistleblowers

Here’s an excerpt from this Reuters article:

The U.S. Securities and Exchange Commission has sent letters to several companies asking for years of nondisclosure agreements, employment contracts and other documents to investigate whether companies are muzzling corporate whistleblowers, the Wall Street Journal reported. The inquiries come as SEC officials have expressed concern about a possible corporate backlash against whistleblowers, the newspaper said. It couldn’t be determined how many or which companies were sent the letters or what penalties the SEC could potentially levy in the probe, the Journal said.

Transcript: “Proxy Solicitation Tactics in M&A”

We have posted the transcript for the recent webcast: “Proxy Solicitation Tactics in M&A.”

I just love how Kevin LaCroix details his trips in his blog – the latest is about Australia! And coming this weekend, the first site redesign for in over 12 years! Email me if you want a preview…

– Broc Romanek

February 26, 2015

Should the SEC Shorten Its Adopting Releases By Providing Less Guidance, Etc.?

Recently, SEC Commissioner Piwowar delivered this speech entitled “A Fair, Orderly, and Efficient SEC.” The piece of the speech that interested me was the one below calling for shorter adopting releases – and perhaps even breaking rulemakings into smaller parts. Before I give my ten cents, I am interested to hear your feedback on the Commissioner’s remarks – email those to me and also provide your anonymous responses to the two surveys just below this excerpt from the speech:

Fairness demands that the Commission not act arbitrarily or capriciously. Those we regulate therefore should know the rules and standards to which they will be held. While we cannot guarantee that everyone has actual knowledge and understanding of our entire rule set, it is incumbent upon us to make sure that those we regulate are on notice as to the rules and standards by which they must operate. In particular, we must ensure that the rules do not change day-to-day on the whims of the Commission and/or its staff. This means that, as required by the Administrative Procedure Act, the Commission must not adopt any new rule or rule amendments without proper notice and an opportunity for comment by the public. The corollary of this principle is that the Commission and staff must not engage in rulemaking by enforcement or through examinations of regulated entities. For example, we must resist the temptation to include undertakings in enforcement settlements or principles in examination reports that serve as de facto rule requirements.

Another issue with our rulemaking process that raises fairness concerns is the increasing length of the releases that accompany and explain our rules. As many in this room can attest, it is becoming the norm that our adopting rule releases number well over 500 pages. While some of this length can be attributed to a more robust economic analysis, a significant portion is simply an attempt to explain the new rule(s) or amendments. Where 500 or 1,000 pages are required to explain the rules we have adopted, the Commission must ask itself whether our rule text is too complex for market participants to reasonably understand and apply. Moreover, the sheer length may discourage many from even attempting to read the rules, which is a significant problem for an agency seeking to promote compliance with its own rules.

The voluminous nature of many recent releases also suggests that rather than merely explaining our rules, these documents now include extensive guidance akin to rulemaking, which can create entirely separate fairness concerns. For example, the most recent amendments to our money market fund rule included key guidance akin to rulemaking for all mutual funds, not just money market funds, which was buried in a footnote within an almost 900-page release. We must reduce the size of our releases. I know that our rules can be quite complex, but perhaps we can start by breaking rulemakings into smaller pieces contained in multiple releases rather than in one omnibus rulemaking.

polls & surveys


customer surveys

Recap: The SEC’s Latest Investor Advisory Committee Meeting

The SEC’s Investor Advisory Committee is ramping up its activity lately. From SIFMA, here’s a summary of the committee’s latest meeting. Meanwhile, the SEC’s Advisory Committee on Small and Emerging Companies – which is a different committee – meets next Wednesday…

A SEC Commissioner Dissents Over Listing of ETFs

As noted in this Reuters article, SEC Commissioner Stein issued this dissent from the SEC’s order that approved the Nasdaq listing of a group of new exchange-traded funds. I’ve blogged before about concerns over ETFs – and whether they are turning the stock markets into more of a casino…

– Broc Romanek

February 25, 2015

Proxy Access: CalPERS & CalSTRS Weigh In

In this recent joint statement about climate change, CalPERS and CalSTRS note that they intend to ramp up their engagement efforts on this topic (remember that the NY Comptroller’s office sent proxy access shareholder proposals to 33 energy companies as part of its 75 access proposal initiative). In addition, CalSTRS updated its corporate governance principles noting that it would oppose any proxy access formula more stringent than 3%/3-years. Here’s an excerpt from CalSTRS’ related announcement:

“CalSTRS will, in the coming proxy season, support any shareholder proposal that includes a three-and-three group structure,” said Ms. Sheehan. “Our intention is to oppose any proxy access proposal with a structure more onerous than three-and-three ownership by a group of shareholders.” CalSTRS Corporate Governance unit will also urge fellow shareholders to withhold their votes from company directors who either exclude a three-and-three shareholder proposal from the proxy statement, or who deliberately preempt such a shareholder proposal with one of their own that establishes more excessive thresholds.

In addition, this Cooley blog notes comments from a BlackRock representative about proxy access. And, I finally found the full set of new FAQs from ISS that addresses proxy access, exclusion of shareholder proposals and unilateral bylaw & charter amendments (read more in Ning’s blog). Last week, I only found the policy about proxy access.

Finally, check out page 7 of this “Proxy Insight Monthly” for a list of how asset managers have voted for proxy access shareholder proposals in the past…

Amalgamated Bank Seeks Delaware Legislative Action to Curtail “Fee-Shifting” By-Laws

This recent Amalgamated Bank letter calls for reforms in the wake of ATP Tour v. Deutscher Tennis Bund in which the Delaware Supreme Court last year upheld a unilaterally-adopted company bylaw by which a shareholder who sues the company and does not prevail may be forced to pay the company’s legal fees and expenses. Numerous companies have adopted similar bylaws without shareholder approval in the wake of the ATP Tour case…

Webcast: “Private M&A Wake-Up Calls”

Tune in tomorrow for the webcast – “Private M&A Wake-Up Calls: Conflicted Board Risks, Post-Closing Unenforceability & Shareholder Approval/Duty of Care Traps” – to hear Cleary Gottlieb’s Ethan Klingsberg, Wilson Sonsini’s Marty Korman, Fenwick & West’s Andrew Luh and Morris Nichols’ Jeff Wolters cover the private M&A waterfront as new developments have shaken up this rapidly-evolving area.

– Broc Romanek

February 24, 2015

Transcript: “Conflict Minerals: Tackling Your Next Form SD”

People have been clamoring for the transcript from the recent webcast: “Conflict Minerals: Tackling Your Next Form SD.” And it’s now posted. The topics include:

– Pending Litigation and Current SEC Guidance
– Observations from 2014 Form SD Filings
– Common Errors in 2014 Form SDs
– Recent Corp Fin Guidance
– How Disclosures Should Be Changed for 2015
– Independent Private Sector Audit (IPSA) Considerations

The SEC Commissioners Speak: More Changes Coming?

Recently, the SEC Commissioners have delivered a higher volume of speeches than normal. Some of them seek some interesting changes. Here are a few:

SEC May Encourage “Venture Exchanges” – In this speech, SEC Chair White noted that the SEC may encourage the development of venture exchanges as venues to provide more liquidity for the securities of smaller companies (see this Bloomberg article)

SEC May Issue Guidance on Bad Actor Waivers – As I’ve blogged a few times, the Commissioners have been battling over the topic of bad actor waivers. It’s such a hot potato that most waivers now coming from the Commissioners, not the Corp Fin Staff itself. In this speech (and covered in this blog), SEC Commissioner Gallagher addressed the current debate over this topic (and this Reuters article notes that the SEC will be issuing guidance in this area).

SEC May Revisit E-Proxy – As noted in this Reuters article, SEC Commissioner Piwowar wants the e-proxy rules to be studied, particularly its impact on retail voting.

SEC Looking to Bring Enforcement Cases Over Cybersecurity Disclosure – As noted in this Reuters article, David Glockner, Director of the SEC’s Chicago Regional Office, said the SEC wants to bring enforcement cases over poor internal controls and/or misleading disclosure about a cybersecurity breach.

SEC May Issue Guidance on When Its Cases Will Go Before an Administrative Law Judge – As I have blogged several times (and as noted in this blog), there is controversy over when the SEC uses administrative proceedings to seek penalties against non-registered respondents. As noted in this speech, SEC Commissioner Piwowar wants the SEC to issue guidelines about when the SEC will use an ALJ. As noted in this article, the SEC has been getting sued over the use of its own administrative law judges to try enforcement cases. Here’s a Perkins Coie memo with more info about speeches on enforcement issues.

The Glaring Lack of Racial Diversity Continues in Our Profession

In this speech, SEC Commissioner Luis Aguilar listed his priorities including wrapping up the outstanding rulemakings required by Congressional acts and the need for the SEC to bring enforcement cases that are a real deterrent. Aguilar has been the Commissioner to periodically make speeches about diversity, probably the most challenging task facing our profession. The speech lays out the progress – and lack thereof in some cases – that the SEC has made in promoting diversity. But this is not a challenge just for the SEC. It is a challenge across the board for law firms, for companies, etc.

– Broc Romanek

February 23, 2015

Survey: Earnings Call Practices

The results of NIRI’s 2014 Earnings Call Practices Survey are summarized in this recent memo. Notable stats include:

Quarterly calls common: A whopping 97% of respondent companies hold quarterly earnings calls, compared to 80% 20 years ago.

When quarterly earnings calls are held: Over 70% of surveyed companies hold calls on Wednesdays or Thursdays. 75% of companies hold their call on the same day that earnings are released.  There’s almost an even split between holding calls during and outside of market hours.

How calls are announced:
– Press releases (93%)
– Corporate website (83%)
– E-mail blasts (55%)
– Twitter (9%)

When calls are announced: 86% announce between one week and one month in advance of the call. 35% announce 2 – 3 weeks before.

Length of calls:
– 46 – 60 minutes for 68% of respondents
– 30 – 45 minutes for 20% of companies

Formats used to broadcast calls to listeners: Telephonic (94%) and webcasts (almost 90%)

Call script & rehearsal practices:
– 63% begin preparing for an earnings call three weeks in advance or less; 30% prepare four weeks out.  22% ask the Street during their preparation period which topics they would like the company to address during the call.
– The IRO, CFO & CEO are most commonly involved in both script development and review. 37% and 71% involve in-house counsel in script development and review, respectively.
– Rehearsal practices are diverse, and 22% don’t rehearse at all.

Call participants: IRO, CFO & CEO virtually always participate. Less frequently but still common are CCOs (83%), in-house counsel (78%), CMOs (70%)

Screening practices: More than 3/4 screen call participants

Archival practices:
– 73% archive a webcast on the corporate website. 73% archive the audio. 57% archive a slide presentation. Only 25% archive the full call script.
– 40% archive their call audio for less than 90 days.
– 46% archive their scripts and 51% archive their slide presentations for longer than one year.

Access additional benchmarking information and other helpful resources in our “Earnings Releases” Practice Area.

IR Guidance on Tough Situations

In this new Deloitte piece, veteran IR managers share their views on how to handle difficult scenarios – including gaps in company and investor/analyst perspectives, communicating bad news and dealing with activist investors.

Transcript: “Rural/Metro & the Role of Financial Advisors”

We have posted the transcript for the recent webcast: “Rural/Metro & the Role of Financial Advisors.”


– by Randi Val Morrison

February 20, 2015

ISS Issues FAQs on Proxy Access Proposals

Here’s news from Davis Polk’s Ning Chiu’s blog :

In its long-awaited FAQs, ISS indicates that it will generally recommend in favor of management and shareholder proposals for proxy access which allow for nominations to be made by shareholders owning not more than 3% of the voting power for 3 years, with “minimal” or no limits on the number of shareholders permitted to form a nominating group, and allowing nominations for up to 25% of the board. ISS will also review the reasonableness of any other restrictions and may recommend against proposals that are more restrictive than these guidelines.

ISS is tracking 96 shareholder proposals on proxy access. For companies that present both a board and a shareholder proxy access proposal in their proxy statement, ISS will review each proposal separately. Yesterday, we issued a memo on a decision framework for evaluating proxy access, including for those companies that do not have the proposal this season but are watching these governance developments, which is available here.

In addition, ISS will recommend a vote against one or more directors (individual directors, certain committee members, or the entire board based on case-specific facts and circumstances), if a company excludes a shareholder proposal, unless it has obtained (a) voluntary withdrawal by the proponent; (b) no-action relief from the SEC or (c) a U.S. district court ruling. ISS may issue negative recommendations in these situations regardless of whether there is also a management proposal on the same topic. This is under ISS’ governance failures policy and expand beyond proxy access, to other situations where companies had also attempted to exclude conflicting shareholder proposals through the SEC no-action letter process, such as proposals requesting the right to call a special meeting. If a company has taken unilateral steps to implement the proposal, the degree to which the proposal is implemented, including any material restrictions, will also factor into the assessment.

Striking a Balanced View of Non-GAAP Disclosures

Non-GAAP measures have received some bad press recently – and in some cases, deservedly so. The WSJ reported that some companies are excluding costs that would seem to belong in earnings calculations such as “regulatory fines, ‘rebranding’ expenses, pension expenses, costs for establishing new manufacturing sources, fees paid to the board of directors, severance costs, executive bonuses and management-recruitment costs.”

Yet another WSJ article cites questions about exclusions of executive bonueses, fees for stock offerings and acquisition expenses, and notes that the SEC has sent comment letters to more than 30 companies in the past two years for giving their non-GAAP measures “undue prominence” in their filings. And this CFO article notes comments made by a PCAOB representative at an accounting conference about companies’ “increasing abuse” of non-GAAP measures, and an example he cited of a company’s exclusion of director fees because they allegedly related to governance – purportedly unrelated to company operations.

However, non-GAAP measures aren’t inherently bad. Used appropriately – in conformance with the letter and the spirit of SEC rules – they can significantly enhance comparability and provide tremendous insights into the business, ongoing operations and future prospects that aren’t otherwise discernable based on the use of GAAP alone. Rather than be deterred by – or ignoring – the bad press, companies should revisit the non-GAAP measure basics, and continue to use them effectively to enhance the utility of their disclosures.

PwC’s recent IPO study, although IPO-focused, provides a nice overview of the objectives, uses and SEC requirements pertaining to non-GAAP measures – as well as SEC comment letter examples that, for the most part, apply equally to mature companies. In addition, this Deloitte report (pgs. 72 – 74) includes a helpful discussion of recent SEC comment letter trends pertaining to non-GAAP measures that is instructive for future disclosures.

See also my previous blog addressing tips to enhance non-GAAP disclosures, and additional resources in our “Non-GAAP Measures” Practice Area.

Non-GAAP Measures Inspire FASB’s Financial Reporting Project

In this post, FASB Member Marc Siegel addresses some of the murmurings and studies on the use non-GAAP measures – and shares his view that the combination of GAAP and non-GAAP information is “more impactful” for purposes of understanding a company’s business than either dataset on its own.

Observations that non-GAAP measures may indicate how similar information might be better organized or presented in the income statement appears to be the genesis for FASB’s Financial Performance Project:

If this project is officially added to our agenda, we would look to find ways to improve the relevance of information presented in the performance (income) statement for public and private companies. Our goal would be to increase the understandability of the performance statement by presenting certain items that may affect the amount, timing, and uncertainty of an organization’s cash flows. Specifically, the research is developing a framework for defining operating activities and distinguishing between recurring and infrequent items.

The project is currently in the research phase.

More on “The Mentor Blog”

We continue to post new items daily on our blog – “The Mentor Blog” – for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Study: 10-K Tax Disclosure as a IRS “Roadmap”
– Revealing Whistleblower’s Identity is Retaliation
– Darden Announces Governance Reforms
– Basics of Board Delegations
– Comment Letter Summary: Advertised Private Placements Under Rule 506(c)
– Giving Good Guidance
– Study: Director Appointment Trends
– CPA: More Companies Pull Back Veil on Political Spending
– IPOs: Use of Non-GAAP Measures
– Revenue Recognition Changes & SEC’s Five-Year Summary
– Free Database of Fortune 500 Codes & Policies: Useful?
– Whistleblower Hotline Checklist


- by Randi Val Morrison

February 19, 2015

Governance Roadshow Upsides, Downsides & Success Factors

In the context of increased investor interest and activism in corporate governance practices, governance roadshows are no longer deemed to be solely crisis-driven – i.e., they should be among the several tools companies may consider in the ordinary course to enhance their rapport and posture with major institutional and other investors.

This recent blog does a fine job of identifying upsides & downsides of governance roadshows, or – more broadly – engaging with investors’ governance teams, as well as discussing several recommended “success factors” assuming a decision to proceed with engagement.

Potential upsides include:

  • Seeking direct input from governance experts will help the board make informed decisions on governance matters and emerging issues (e.g., board tenure, board diversity, proxy access), and can also limit the surprise of a future vote.
  • Creating a forum for companies to explain their rationale and philosophy on governance matters may in turn help influence the way investors vote.
  • Direct engagement will allow companies to establish a personal relationship with proxy voters – theoretically facilitating future discussions and mutual understanding.
  • There is an expectation that activist investors are themselves communicating directly with investors’ governance teams so as to further their own proxy-voting objectives. So company engagement is viewed as a preemptive measure.
    Potential downsides include:

  • Many companies don’t dedicate enough time to their core IR programs – so adding new responsibilities and yet more meetings to the annual schedule is difficult.
  • Investment firms’ governance departments are usually small and historically weren’t staffed to accommodate meetings with executives from all of their portfolio companies. As a result, big companies are getting an audience, but smaller companies – those that may also have serious governance issues to be discussed – can be boxed out.
  • Governance-side meetings are viewed by some as a waste of time, because proxy votes often follow a formulaic policy – if not the exact recommendations of the proxy advisors.
  • Opening up a dialog about controversial governance topics may have unintended negative consequences. If a governance expert takes a meeting and makes a suggestion around a specific bylaw or issue, the company will be expected to respond or make changes. If they don’t, it could worsen the relationship rather than improve it.
  • Possibility that starting a dialog may raise issues to the attention of busy governance experts that were previously under the radar or unconsidered

Understanding Governance Engagement from the Investor POV

In this article, CamberView Partners discusses key considerations relevant to successful governance engagement including investor diversity, identifying the most appropriate company participants for engagement, and the fact that such engagements commonly involve a 2-way dialogue – topics that were also very effectively addressed by Vanguard and BlackRock in our recent “Governance Roadshows” webcast.

Here are some of the many key insights from our webcast:

Sarah Goller, Senior Manager, Vanguard: First, there’s no one definition for governance roadshow or what we as investors want to get out of it. I think the one common denominator is that we always want a productive exchange. Firms like BlackRock and Vanguard hold shares of thousands of different companies in meaningful amounts. So we do hundreds of engagements every year, and it’s important that they’re productive.

It can vary a lot by meeting, but we always want to gather information. We want to understand what’s important to the company, what’s changing about the business, what changes they are thinking about on the governance front, within the board or about compensation, and understanding their rationale for those changes. Beyond that, we always want to be asked for feedback.

So we always want a call or a meeting to have a purpose. Maybe you’re thinking about a change. Maybe you’re thinking about something that will impact governance at a board and you want to hear what we’re saying.  It’s also important to define the agenda in advance. We want to have a clear purpose for the meeting and the right sort of people at the meeting. We want the meeting to allow us to exchange information, to listen to each other, and then to provide us with the opportunity to give feedback.

Michelle Edkins, Managing Director, BlackRock: When it comes to considering who in senior management attends and represents the company, I think companies need to be more thoughtful, without wishing to offend anyone, about not having people with a very traditional mindset, where you just do meetings with shareholders to broadcast the company’s message. That’s a real missed opportunity to hear shareholders’ views, and to listen for things perhaps not said. It’s important to hear shareholder’s views on issues and clarify what shareholders don’t understand about the company. Often that’s quite a significant factor, especially if in six months’ time there is an event where that lack of understanding means that the outcome is not optimal for the company.

In my experience, the role of the Corporate Secretary is becoming increasingly important in those “listening” meetings, rather than “broadcasting” meetings. I think that companies would do themselves a real service by thinking about how they structure that role and make it a more significant part of the outreach to their long-term steady-state shareholders.

If you haven’t already done so, be sure to check the webcast transcript out.

Podcast: Individual Director Evaluations

In this podcast, Kris Veaco of the Veaco Group discusses individual director evaluations, including:

– Why aren’t individual director evaluations more common?
– What is the process for evaluating individual directors?
– What do you do with the evaluation results?
– What are some of the benefits of individual director evaluations?
– Any final thoughts?


– by Randi Val Morrison