October 22, 2014

Posted: Archive Video from the “Usable Proxy Workshop”

Last month, I co-hosted a “Usable Proxy Workshop” with Addison in NYC for a group of in-house folks. The panels were video-taped (thanks to the host of our location, Simpson Thacher!) – and I have now posted those video archives in our “Usable Disclosure” Practice Area. So you can check out those panels (which include speakers from the companies leading the charge for more usable disclosure, such as GE, Coca-Cola, Pru, Western Union, etc.), as well as the related course materials at your leisure.

The panel topics include:

– “What Investors Really Want to See In Your Proxy”
– “Information Design 101: Beyond Fonts & Colors”
– “Bold Thinking in the Digital Age”
– “Video as a Disclosure Tool”
– “How to Use Customized Graphics to Enhance Your Message”
– “How to Best Work With Design Firms”

Checklist: How to Best Work With Design Firms

Recently, I posted this checklist about how to work with design firms that specialize in usable proxies. The checklist is filled with practice pointers from three in-house folks that have led the way making their proxy statements more usable. In addition, I just posted these two other related checklists:

Annual Meetings – Dedicated Web Pages
Annual Review Videos

Online Proxies: The Use of Tiles-Based Navigation

Recently, I received an email from Rich Andrews of EZOnlineDocuments reminding me of the growing use of “tiles” for online proxies to facilitate navigation in a growing mobile world. Tiles is a big boost to usability because if you open a PDF on a tablet or smart phone, there is no option to full-text search, etc. Probably the best way to explain “tiles” is to just show you. Here are examples from this year:

Xcel Energy
Otter Tail

– Broc Romanek

October 21, 2014

Clawbacks & The New Revenue Recognition Rules: On a Collision Course?

Here’s something I just blogged on’s “The Advisors Blog“:

As companies are staffing & gearing up for the FASB/IASB’s new revenue recognition rules, it dawned on me that folks in the accounting world might not be aware of the upcoming Dodd-Frank rulemaking on clawbacks. And those folks that live and breathe compensation might not be aware of the revenue recognition accounting changes that were adopted a few months back (but won’t be effective until fiscal years beginning after 12/15/16).

The implementation of the new revenue recognition rules will create all sorts of opportunities to get it wrong – and it looks like they will coincide with mandatory no-fault clawbacks that have to be applied to a broader range of executives for a longer period of time for any restatement. Section 954 of Dodd-Frank is quite prescriptive so I don’t know how the SEC will have much flexibility. Maybe in the implementation and grandfathering provisions. This convergence of forces may well make for a dandy of a sleeper in Dodd-Frank, years after it was enacted!

The upshot is that we may be living in a world where senior managers will be trying to persuade compensation committees to either have less performance-based compensation that is susceptible to a restatement – or to use metrics that are less susceptible. Stepping back from performance-based pay is not what shareholders want to see – so this likely will cause tension between companies and their shareholders.

It’s ironic that a new accounting standard that will cause more opportunities for restatements will apparently come on board near in time with the Dodd-Frank “super-charged” clawbacks. These newer clawbacks will be super-charged because you don’t need misconduct like under the Sarbanes-Oxley standard.

And the kicker to watch out for right now is that as more companies move to multi-year performance metric setting, there could be companies that are setting performance goals now for years that will be subject to both the new revenue recognition rules (no matter how they wind up getting interpreted) and the Dodd-Frank clawbacks.

The bottom line is that the new clawbacks will certainly up the ante in discussions among auditors, audit committees and management as to whether errors discovered in previously filed financials are material. As with any area of uncertainty, step with caution. Thanks to Steve Bochner of Wilson Sonsini for pointing this out!

Q&A With Bob Monks & Nell Minow

I’m always curious as to what Bob and Nell think about the issues of the day – here’s a USA Today interview that provides the latest from them…

Webcast: “Anatomy of a Proxy Contest: Process, Tactics & Strategies”

Tune in tomorrow for the webcast – “Anatomy of a Proxy Contest: Process, Tactics & Strategies” – during which experts with different perspectives on proxy contests will catch us up on all the latest: ISS’ Chris Cernich, Joele Frank’s Dan Katcher, Greenberg Traurig’s Cliff Neimeth and MacKenzie Partner’s Paul Schulman.

– Broc Romanek

October 20, 2014

When Will the SEC’s EDGAR Get Hacked? (Or Has It Already?)

About a decade ago, I blogged: “Personally, I am always amazed that there have not been any reported hacks of the EDGAR system – as that has to be one of the most popular targets of the hacking community, even for the youngsters for whom it’s just a sport. It is easy to imagine the harm that could be caused by someone that hacked EDGAR (e.g. post a fake 8-K with some drastic news that is a market-mover).”

I imagine that if EDGAR had been hacked, the SEC would make an announcement – or at least the SEC’s Inspector General would eventually mention it in one of their reports about the SEC’s security systems. And of course, the company (or companies) impacted by a hacking episode would tell the investor community of the problem. Falsified numbers in financials filed on EDGAR would truly undermine confidence in the markets. So I’m glad that there hasn’t been any cybersecurity incidents of this nature so far…

The SEC’s Long History of Laptop Security Issues

As picked up by this Fortune article, the SEC’s Inspector General recently issued a report that over 200 of the agency’s laptops could be missing. The SEC has 5525 laptops in total, with about half in DC. Here’s an excerpt from the article:

The SEC’s Office of Inspector General said it reviewed a statistical sample of 488 laptops assigned to the agency’s headquarters and three regional offices to determine laptop accountability. Of those devices, 24 laptops couldn’t be accounted for, while incorrect user information was listed for about 22% of the laptops and incorrect location information was found for 17% of the sample size.

This type of thing is not new news for the SEC. Problems with laptops dates back at least to this GAO report in 2005 through this SEC Inspector General report in 2012, as highlighted by this report about the federal government’s sketchy track record with cybersecurity safeguards for critical infrastructure by Senator Tom Coburn…

Friday Night Spamming by the SEC

And here’s something more light-hearted. After accidentally pumping out dozens of unnecessary alerts on Friday night, the SEC sent out this email:

Subject: Inadvertent email notifications

Last night, you may have received multiple email notifications inadvertently triggered by system enhancements that were installed after midnight. The notifications do not contain new information or changes. The problem was resolved this morning.

As Latham’s Steve Wink noted to me, it was the SEC’s own version of the Knight Capital glitch. If you want to sign up for updates from the SEC directly, here’s their sign-up page

– Broc Romanek

October 17, 2014

Our New “Rule 10b5-1 Trading Plans Handbook”

Spanking brand new. By popular demand, this comprehensive “Rule 10b5-1 Trading Plans Handbook” covers a topic that many have requested. This one is a real gem – 72 pages of guidance.

DOJ Staffer Provides Fresh Guidance on Effective Compliance Programs

As noted in this Morrison & Foerster memo, Marshall Miller, the Criminal Division’s Principal Deputy Assistant Attorney General in the DOJ, recently gave remarks about when a compliance program can help stave off indictment – or at least secure it more lenient treatment from the DOJ. Here’s a blog from Jeff Kaplan with more info…

Podcast: Canadian Shareholder Activism

In this podcast, Amy Freedman of Kingsdale Shareholder Services discusses her firm’s new report on Canadian shareholder activism-related developments & trends, including:

– Can you describe the level of proxy contest activity in 2014 relative to prior years, and reasons it may be declining or leveling off?
– Based on 2014 takeover activity, what is the BC Securities Commission position on poison pills, and what’s the best guidance for companies?
– What are the current levels & scope of activism in M&A transactions?
– Can you describe the trends in shareholder engagement?
– What activism-related developments & trends do you anticipate going forward, and how should companies prepare?

– Broc Romanek

October 16, 2014

ISS: New Draft Approaches to Equity Plan & Independent Board Chair Proposals

Yesterday, ISS released a group of draft policy changes for comment – two of them relating to the US: a new “scorecard” approach to evaluating equity compensation plan proposals and independent board chair proposals. Here’s what Ron Mueller & Beth Ising of Gibson Dunn have blogged about them:

Today, proxy advisory firm Institutional Shareholder Services Inc. (“ISS”) provided additional information on its plans to implement a new “scorecard” approach to evaluating equity compensation plan proposals at U.S. shareholder meetings and requested comments on its proposed policy change. This is one of two significant proposals ISS announced today that would impact U.S. companies for the 2015 proxy season, with the other proposed policy change relating to voting recommendations on independent chair proposals (which we discuss here). Companies considering seeking shareholder approval of equity plans at shareholder meetings in 2015 should consider these proposed changes now to the extent they want ISS to recommend votes “For” the equity plan.

Current ISS Approach to Equity Plan Proposals

ISS’s current approach uses a series of “pass/fail” tests. Specifically, ISS will recommend votes “Against” an equity plan if the total cost of the company’s equity plans including the proposed new plan is “unreasonable,” if the company’s three-year burn-rate exceeds the applicable burn rate cap determined by ISS, if the company has a pay-for-performance “misalignment” or if the plan includes certain disfavored features (e.g., if the plan permits repricing or includes a liberal change of control definition).

Companies seeking shareholder approval of a new equity plan or an amendment to an existing plan can often independently determine compliance with each of these factors except for cost. ISS evaluates the cost of a company’s plans using its proprietary shareholder value transfer (SVT) measure. ISS describes SVT as assessing “the amount of shareholders’ equity flowing out of the company to employees and directors.” ISS considers the SVT for a company’s plans to be reasonable if it falls below the company-specific allowable cap as determined by ISS using benchmark SVT levels for each industry. Thus, companies often engage the consulting side of ISS to determine the SVT of their plans and the number of additional shares that ISS would support for the new or amended equity plan.

New ISS Approach to Equity Plan Proposals

ISS previously announced its intention to implement a new “scorecard” approach to evaluating equity plan proposals at U.S. shareholder meetings. Today ISS provided more insights with the publication of its proposed new Equity Plans policy, which details ISS’s new Equity Plan Scorecard (“EPSC”). Under the proposed EPSC, ISS will determine its voting recommendations on equity plan proposals by determining an EPSC score for a company based on three broad categories of factors: (1) the total potential cost of the company’s equity plans relative to its peers; (2) the proposed plan’s features; and (3) the company’s equity grant practices. ISS has indicated that these scorecard factors and their relative weightings would be keyed to company size and status, with different weightings applicable to companies in the following categories: S&P 500, Russell 3000 (excluding the S&P500), Non-Russell 3000, and Recent IPOs or Bankruptcy Emergent companies.

With respect to the three categories that factor into a company’s EPSC score:

– Cost will continue to be evaluated on the basis of SVT in relation to peers. However, SVT will now be calculated for both (a) new shares requested, plus shares remaining for future grants, plus outstanding unvested and/or unexercised grants, and (b) only on new shares requested plus shares remaining for future grants.

– Plan features that will be evaluated under the EPSC include automatic single-triggered award vesting upon a change-in-control, discretionary vesting authority, liberal share recycling on various award types (which will no longer be a component of SVT), and minimum vesting periods for grants made under the plan, in each case as specified in the plan document itself rather than in practice through award agreements.

– With respect to company grant practices, ISS’s proposed EPSC will consider a company’s three-year burn rate relative to its peers (which will eliminate company “burn rate commitments” going forward), vesting requirements in the most recent CEO equity grants, the estimated duration of the plan (calculated based on the sum of shares remaining available and the new shares requested under the plan, divided by the average annual shares granted under the plan in the prior three years), the proportion of the CEO’s most recent equity awards subject to performance vesting (as opposed to strictly time-based vesting), whether the company maintains a clawback policy, and whether the company has established post-exercise/vesting holding requirements.

Although ISS has stated that certain highly egregious plan features (such as the ability to reprice options without shareholder approval) will continue to result in an automatic negative voting recommendation regardless of other factors, overall the EPSC will result in voting recommendations based on a combination of the above factors. This means that ISS may recommend votes “For” an equity plan proposal where costs are nominally higher than a company’s allowable cap when sufficient other positive plan features and company grant practices are present. Likewise, ISS may recommend votes “Against” an equity plan proposal even where costs are lower than a company’s allowable cap if sufficient other negative plan features and company grant practices are present.

Next Steps

ISS has invited comments on its proposed policy, and has specifically asked for feedback on: (1) whether any factors outlined above should be more heavily weighted when evaluating equity plan proposals; and (2) whether stakeholders see any unintended consequences from shifting to a scorecard approach. Comments may be submitted on or before October 29, 2014 via email to For more information, here’s the ISS release discussing the proposed revisions.

We expect that corporate commenters will focus on the nature and extent of flexibility in the EPSC approach around plan features and past grant practices. For example, we understand that under the proposed scorecard, a plan will gain credit if it contains minimum vesting provision (for example, a minimum three year pro-rata vesting requirement), although companies may want flexibility to grant some awards free of any such restrictions. Thus, companies may wish to provide input to ISS on situations in which such grant practices may be warranted and should not result in negative weighting under the scorecard.

With respect to the proposed EPSC’s factors that take into account past grant practices, companies often propose new equity plans so that they can implement new grant practices in the future that were not feasible under their existing plans (for example, a company may wish to be able to implement a performance stock unit program, or increase the percentage of shares granted under such awards and correspondingly decrease its use of stock options). In those cases, overemphasis on past grant practices may be inappropriate. Thus, in order that ISS may consider such situations as it develops its EPSC methodology, companies may wish to provide comments to ISS regarding situations in which they have sought shareholder approval of a new plan so that they could implement new grant practices, as well as other situations in which past grant practices may not be indicative of future equity programs.

Companies that are developing new equity plans that they intend to submit for shareholder approval at their 2015 annual meetings may need to scramble to reflect ISS’s EPSC factors in their proposed plan if they want ISS to recommend votes “For” the plan. For example, even if a company’s SVT would not have exceeded ISS’s limits under its current voting policy, a “liberal share counting provision” under which shares retained to pay taxes again become available for grant under the plan may now contribute to a negative ISS voting recommendation on the plan. Likewise, the proposed EPSC methodology will contribute to more plans containing restrictions on how quickly equity awards are permitted to vest. It is worth noting, however, as ISS observes in its request for comments, that even though ISS historically has recommended votes “Against” approximately 30% of equity plan proposals each year under existing its policy, no more than 10 plan proposals have actually failed in any recent year. Nevertheless, ISS’s policies are based in part on feedback from its institutional shareholder clients, and thus companies will want to carefully consider the extent to which factors considered under the EPSC reflect emerging trends and shareholder-favored practices.

ISS’s final 2015 proxy voting policies are expected to be released in November and typically apply to shareholder meetings held on or after February 1. We expect that ISS will soon offer a new consulting product to help companies and their advisors analyze equity plans under the proposed new EPSC.

Fee-Shifting Bylaws: Will The SEC Get Involved?

In her blog, Cooley’s Cydney Posner notes how Professors John Coffee and Larry Hamermesh recently testified at the SEC’s recent Investor Advisory Committee meeting about whether the SEC should get involved in the debate over fee-shifting bylaws. Here’s an excerpt from Cydney’s blog (and here’s a blog from John himself about it):

What is Coffee’s prescription for the SEC? Coffee suggests, unless the provision at issue expressly precluded application in cases involving the federal securities laws, that the SEC file amicus briefs in litigation arguing that these provisions are contrary to public policy as expressed in the federal securities laws and therefore any state law permitting them is preempted.

Meanwhile, Keith Bishop weighs in with a blog entitled “Why The SEC Should Stay Out Of The Fee-Shifting Charter Debate.” In addition, MoFo’s Bradley Berman blogs about how the SEC’s Investor Advisory Committee recommended that the definition of “accredited investor” in Rule 501(a) undergo some significant changes…

IPO Trends: “Loser Pays” Fee Shifting?

In this article, Alison Frankel of Reuters identifies this:

You’d better hope that the stock price is as solidly based as it seems, because if Alibaba’s officers and directors are engaged in fraud, shareholders will have a very tough time suing for their losses. That’s certainly what the company intends. On the very last page of its 38-page articles of association, Alibaba includes a provision stating that any shareholder who initiates or assists in a claim against the company must pay the company’s defense fees and costs unless shareholders win a judgment on the merits. This sort of “loser pays” fee-shifting is an exception to the general rule in the United States that each side bears its own costs of litigating – and it effectively precludes shareholder class actions suits because investors and their law firms don’t want to risk paying defendants’ legal fees.

– Broc Romanek

October 15, 2014

Whistleblowers: How to Evaluate Hotline Providers

With whistleblowing such a hot topic, it’s a good time to gain an in-house perspective on how to evaluate the many firms that assist companies to process whistleblower tips (we maintain a list of hotline providers in our “Whistleblowers” Practice Area). In this podcast, Joe Kolomyjec of Lionbridge Technologies addresses how to evaluate and select whistleblower hotline providers, including:

– Who within the company is involved with evaluating & selecting a hotline provider?
– What are the main factors that you initially considered important in evaluating hotline providers for Lionbridge?
– Did those factors change during the vetting process?
– How many hotline providers did you initially consider? How did you learn of providers to consider?
– How many vendors did you interview? Were all of the interviews telephonic?
– Were there any surprises during the process?

As noted in this Akin Gump blog, the Supreme Court declined last week to review the 11th Circuit’s decision in U.S. v. Esquenazi, leaving standing the appellate court’s expansive definition of “foreign official” under the FCPA.

Whistleblowers: Is New York’s AG a Better Alternative Than The SEC?

I would think “no” given that the SEC just blessed a $30 million payout to a whistleblower. But this Bloomberg article notes that some whistleblowers become frustrated with the SEC and turn to the New York Attorney General to report suspected violations.

Whistleblowers: Impact on SEC Enforcement & DOJ Cases

This study examines the impact of whistleblowers on the outcomes of SEC and DOJ enforcement actions for financial misrepresentation and found significant increases in penalties against firms and individuals when a whistleblower is involved. This suggests that whistleblowers are valuable to the SEC and DOJ – perhaps explaining why the SEC is willing to pay out $30 million to a single whistleblower! Here are some of the observations:

– 145 of the 1,133 enforcement actions (12.8%) during 1978-2012 have some form of whistleblower involvement.
– Average total monetary penalties assessed against firms in the 145 enforcement actions associated with whistleblower complaints was $143.9mm compared to $33.29mm for the 988 enforcement actions without a whistleblower.
– Average total monetary penalties assed against individual respondents in the 145 enforcement actions associated with whistleblower complaints was $63.6mm compared to $16.7mm for individual respondents in the 988 enforcement actions without a whistleblower.
– Average prison term of convicted respondents was 39.4 months in the 145 enforcement actions associated with whistleblower complaints compared to 17.9 months for the 988 enforcement actions without a whistleblower.
– Presence of a whistleblower increases the length of time needed to complete the enforcement action by 10% (approximately 10 months).
– Likelihood of an enforcement action given the filing of a whistleblower complaint increases to 20.5% compared to 4.3% without. This represents a 4.8x increase in the risk of an enforcement action for firms that have a whistleblower complaint filed against them.
– Estimated increase in total penalties associated with whistleblower involvement is $21.27 billion or 30.3% of the total $70.13 billion total penalties assessed in all 1,133 enforcement actions.

Take a moment to participate in our “Quick Survey on Whistleblower Policies & Procedures” and our “Quick Survey on Earnings Releases & Earnings Calls.”

– Broc Romanek

October 14, 2014

Survey Results: Ending Blackout Periods

I have posted the results of our survey regarding ending blackout periods, repeated below (compare results of our prior blackout surveys):

1. Which factor is most important in allowing a blackout period to end one day after an earnings release:
– Filer status being large accelerated filer and a WKSI – 18%
– Number of analysts providing coverage on company – 20%
– Average daily trading volume for the company – 18%
– None of the above is important – 44%

2. How many analysts covering the company is considered sufficient to allow blackout period to end one day after an earnings release:
– 1-5 – 6%
– 6-10 – 25%
– 11-15 – 8%
– 16 or more – 4%
– None of the above is important – 57%

3. What average daily trading volume is considered sufficient to allow blackout period to end one day after an earnings release:
– 1% of its outstanding common stock – 17%
– $5 million or more in average daily trading volume (daily trading volume x stock price) – 4%
– $10 million or more in average daily trading volume (daily trading volume x stock price) – 6%
– $25 million or more in average daily trading volume (daily trading volume x stock price) – 10%
– None of the above is important – 63%

Take a moment to participate in our “Quick Survey on Whistleblower Policies & Procedures” and our “Quick Survey on Earnings Releases & Earnings Calls.”

SEC Could Lose Ability to Bring Enforcement Actions Before Administrative Law Judges

In this blog, Allen Matkins’ Keith Bishop notes that the SEC has considerable latitude in choosing whether to pursue enforcement actions in an administrative setting or in a true Article III court. He notes that the status of administrative law judges is under attack in Stillwell v. SEC, U.S. Dist. Ct. S.D. N.Y. Case No. 14 CV 7931…

Note that “Alan Dye’s Section 16 Hands-On Training Workshop” on January 9th is sold out. If this was something that you wished to attend, email me as we may schedule another session on a date in mid-’15 if there is enough interest…

Webcast: “Private Company Trading Markets: The Latest”

Tune in tomorrow for the webcast — “Private Company Trading Markets: The Latest” — to hear NASDAQ Private Market’s Greg Brogger, SecondMarket’s Annemarie Tierney, ACE Portal’s Peter Williams and our own Dave Lynn of Morrison & Foerster discuss how the private company trading exchanges are evolving as the Nasdaq and NYSE have recently got into the game.

– Broc Romanek

October 13, 2014

SEC Staff Goes After “Unregistered Securities” Brokers

As noted in this blog by Steve Quinlivan, the SEC Staff announced two items last week that will make it harder to sell unregistered securities. The Division of Trading & Markets issued this set of FAQs – and OCIE issued this Risk Alert – to remind brokers of their obligations when they sell unregistered securities on behalf of clients, such as when founders and employees sell their initial stakes in companies that have gone public or when investors sell securities in public companies that were acquired in private placements. This twin sets of Staff guidance was accompanied by the announcement of an enforcement action against E*Trade for improperly selling billions of shares of penny stocks through such unregistered offerings. Stan Keller notes that while this doesn’t deal with lawyers and no registration opinions, including resales, the guidance has relevance for lawyers…

Asset-Backed Securities: Corp Fin’s New Draft Registration Review Process

Last week, Corp Fin posted this announcement that asset-backed issuers can request staff review of draft registration statements starting next week – on October 20th. This project is to help facilitate compliance with new ABS rules that become effective on November 23rd, 2015. Per the announcement, Corp Fin will select at least two issuers per asset class on a first-come, first-served basis (and perhaps select other issuers) to participate in this draft filing review program.

Transcript: “Cybersecurity: Working the Calm Before the Storm”

We have posted the transcript for the recent webcast: “Cybersecurity: Working the Calm Before the Storm.”

– Broc Romanek

October 10, 2014

PCAOB Prompts Audit Fee Increases

According to this article, finance executives attributed a 4.5% year-over-year increase in 2013 audit fees to review of manual controls resulting from PCAOB inspections and other PCAOB-related issues. The findings are based on this year’s FERF (FEI)/Audit Analytics Audit Fee Survey (paid publication), and include:

  • Public companies paid an average of $7.1 million in audit fees in 2013 – an increase of 4.5% over audit fees paid in 2012
  • 60% of respondents were required to change their controls, and 80% changed their control documents as a result of the PCAOB’s requirements or inspection feedback
  • Public company audits required an average of 17,525 hours in 2013, at an estimated average cost of $249 per hour
  • Average audit fees of companies with centralized operations – both public and private – were found to be significantly less than those with decentralized operations. On average, public companies with centralized operations paid $3.9 million for their annual financial statement audits, while those with decentralized operations paid an average of $9 million
  • Public companies have used their audit firm for an average of 23 years
  • 57% of public company respondents indicated an increase in internal cost of compliance with SOX within the past 3 years. However, many financial executives stated they believe they now have improved internal controls, making it worth the additional overall expense.
  • 92% of public company respondents stated their boards annually assess their audit firm’s performance and independence qualifications

See also this FEI articlePrior audit fee studies are available in our “Audit Fees” Practice Area.

Podcast: Investor Views on Forward-Looking Information

In this podcast, Sandy Peters addresses a new report from the CFA Institute about investor perspectives on the use of forward-looking information in financial reporting, including:

– What historical developments prompted obtaining investors’ views about the use of forward-looking information?
– What are the report’s key findings?
– What does the CFA Institute plan to do with the findings, and what are the ultimate objectives?
– What should companies take away from this report?

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:

– Optimizing the Value of Internal Audit
– Why You Shouldn’t Decide Anything Important at Your Board Meeting
– Study: CEO Succession Planning
– A Section 5 Case: Memories of Law School
– SEC Bars Bad-Faith Conduct Whistleblower From Any Awards Eligibility (Common Sense Prevails!)


– by Randi Val Morrison

October 9, 2014

SEC Chair White: Board Gender Diversity

As has been widely reported, SEC Chair White recently delivered this speech about gender diversity on boards. In her speech, Chair White identified studies demonstrating the positive impacts on company performance associated with women on boards, and regulatory and investor-driven efforts to increase gender diversity. She also expressed her own views about how to effect and accelerate change.

Among the points I found particularly noteworthy were her observation of investor and other stakeholder disappointment in board diversity disclosures in proxy statements and how they should affirmatively react, and her express disagreement with – and response to – those who indicate that the lack of gender diversity on boards reflects the lack of suitable women candidates.

As to the former, she noted the SEC’s board diversity disclosure requirements in Item 407 of Regulation S-K, and then stated:

I do recognize, however, that there is also disappointment about the quality of some of the disclosures that companies provide.  This is a shared responsibility.  Shareholders and interested stakeholders have a responsibility to make it known that this is an issue that is important, that they want more information on what is being done to promote diversity, and, if not enough is being done, what actions they expect to be taken.  There are a number of different avenues to make these views known – from direct engagement with public companies to shareholder proposals asking a company to establish more specific policies and commitments – and I encourage you to use all of them.

As to the dearth of women on boards, she indicated:

It is also important for companies to work harder to identify qualified women to serve on boards.  Some defenders of the status quo still say that there are not enough qualified women to fill board vacancies at higher rates.  I disagree.  There is no shortage of highly qualified candidates.  And if that is the view of any company, its nominating and governance committees should broaden their searches.  The challenge is not a lack of suitable candidates.  There is adequate supply, but, the challenge is creating real and committed demand.

Commissioner Aguilar similarly emphasized the board’s responsibility to actively seek diverse (women and ethnic minority) candidates in his 2010 speech on board diversity.

Chair White also mentioned that, based on survey data, there would be more opportunity in coming years to nominate women candidates due to increasing vacancies resulting from board term and age limit policies and the associated statistics (e.g., EY’s 2013 study indicating that 20% of S&P 1500 board seats are held by directors nearing or exceeding the common board retirement age of 72).

She concluded by noting that to effect real transformative change, investors and other stakeholders would need to seek change from companies, “and those who support this effort need to recognize those companies that are doing things right, and not just those that are not doing enough.”

See also this interesting new Paul Hastings study, which explores the role and influence that stock exchanges globally currently have – and could potentially have – on improving board gender diversity.

Directors Survey: Perceived Impediments to Gender Diversity

In contrast with Chair White’s view – as expressed in her recent speech – that there is no shortage of highly qualified women board candidates, a majority of directors in PWC’s latest annual directors survey indicated that there are no perceived impediments to increasing gender diversity, the balance cited lack of awareness of qualified women candidates as the top impediment to increased board diversity:

In general, what impedes a board’s ability to increase diversity?:*

  • Directors are unaware of many qualified diverse candidates
  • Directors don’t want to change the current board composition to create a position for a diverse candidate
  • There are insufficient numbers of qualified diverse candidates
  • Directors don’t view adding diversity as important
  • Board leadership is not invested in recruiting diverse directors


*Results shown from greatest impediment to least impediment

Also noteworthy is the fact that 61% of female directors described gender diversity as very important – compared to only 32% of male directors.

However, note that ISS’s just-released gender diversity report reveals measurable progress – particularly among S&P 500 companies, with women filling nearly 3 of every 10 vacancies so far in 2014, almost double the rate compared with 2008.

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:

– It’s Time to Fix the Very Pale, Very Male Boardroom
– The Risks of Too Much Risk Assessment
– Survey: Challenges with Complying with Internal Control Requirements
– No Link Between Interim CEO Appointment & Company Performance
– Surveys Show Need for Continued Focus on Effective Compliance Programs


– by Randi Val Morrison