September 26, 2012

Hot Off the Press! NYSE & Nasdaq’s Compensation Committee Proposals

Late yesterday, the NYSE proposal – 58 pages – implementing the Rule 10C-1 requirements for compensation committees was posted. Then Nasdaq’s proposal – 97 pages – was posted this morning. We’ll be posting the inevitable slew of memos in’s “Compensation Committees” Practice Area (Mark Borges already has blogged about it).

What You Need to Do Now: These soon-to-be-adopted new rules will be a hot topic during our “7th Annual Proxy Disclosure Conference”” (and the combined “Say-on-Pay Workshop”) coming up in just over a week – October 8-9th in New Orleans and via Live Nationwide Video Webcast. If you haven’t been to our Conferences before, give it a try – particularly this year when New Orleans needs the tourism dollars. Here are the agendas for the combined conferences. Register Now.

Survey: Employees Use Internal Channels for Reporting Misconduct

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

Amidst concerns that the SEC whistleblower rules will encourage employees to bypass internal protocols and take allegations of misconduct directly to the Commission, a survey by the nonprofit organization, the Ethics Resource Center, found that only one out of six employees ever reported misconduct to regulators or other outside channels, and 84% of those individuals said that they took this step only after trying to work through their companies’ own procedures. Just 2% of employees surveyed initiated reporting outside of their companies and never informed their employers.

Inside the Mind of a Whistleblower” is a recent supplement to a 2011 survey that received over 4,000 responses. For companies that want to promote an ethical culture, it may be discouraging to learn that more than 1 out of 3 employees who have observed misconduct indicated that they never made it known. The strongest motivation for reporting misconduct comes from whether the individual believed corrective action would be taken, and not surprisingly, the main reason employees failed to inform anyone was the belief that nothing would change as a result of their efforts. Fear of retaliation, and the employee’s own sense of financial security (those whose earnings recently increased are more likely to report), were other factors that affected the likelihood of revealing perceived misconduct.

63% of those asked stated that the ability to make anonymous reports was a positive factor. However, a vast majority of employees sacrificed this benefit and instead first reached out to their supervisors, and another quarter initially turned to higher management. People who tend to report misconduct want problems to be fixed, and are not influenced by rewards, or bounties, offered to whistleblowers, but monetary gain does make a difference to certain employees who would otherwise not be inclined to make a report.

The organization’s 2012 survey was limited to 2,100 employees at Fortune 500 companies and shows similar findings, as only 1% of respondents said that they initially reported misconduct outside of their companies. Employees at larger companies seemed to be more cognizant of possible wrongdoing, as over half of the Fortune 500 employees said they had observed misconduct in the past year, compared to 45% of employees across a larger group of U.S. companies.

Most of these employees initially approached their supervisors or higher management, with 11% contacting a hotline. However, 17% of employees then made a second report outside of their companies, generally because they were disappointed with the responses.

While the surveys were conducted after the SEC adopted its whistleblower rules, their usefulness in predicting whether employees will approach the SEC directly as permitted under those rules is limited by the broad nature of the misconduct discussed by the respondents, involving primarily workplace environment issues rather than financial reporting, and the lack of clarity surrounding when these actions were discovered and subsequently reported.

Study: Political Contribution Disclosures at S&P 200

Here are some stats from the Center for Political Accountability – in conjunction with the Zicklin Center for Business Ethics Research – from their latest political contribution disclosure study for the S&P 200:

– Almost 60% disclose at least some information about political spending. This includes 47% that make some disclosure of their direct political spending and another 11% that say their policy is not to engage in such political spending.
– 40% are opening up about their payments to trade associations, often a conduit for secret political spending. 36% make some disclosure of their payments to trade associations, while 5% said they ask trade associations not to use their payments for political purposes.
– Even in a climate of increased hidden spending, 75 out of 88 large companies that were studied for two years in a row get improved scores for disclosure of political spending and for accountability.
– The 2012 Index identifies these top leaders for disclosure and accountability: Merck, with an overall score of 97 out of 100; Microsoft, overall score of 94; Aflac, 93; Gilead, 92; and Exelon and Time Warner, Inc., 88 each.
– Companies showing the greatest improvement from 2011 to 2012 are Costco, receiving a score of 85, up from 3 last year; Disney receiving a score of 67, up from 12; and Capital One, which improved its overall score from 20 to 63.

– Broc Romanek