September 18, 2015

Should Directors Annually Declare What Is “Material”?

As noted in this article, there is a movement afoot for directors to annually declare what is “material” for the company. This campaign – calling for a “Statement of Significant Audiences and Materiality” – has been launched by Harvard’s Bob Eccles & Tim Youmans through this paper, and is in conjunction with the UN Global Compact, UN PRI, UN Environment Programme Finance Initiative and the American Bar Association’s Task Force on Sustainable Development. A first example was issued by Aegon. Here’s an excerpt from the article:

Given that a board may have obligations to multiple stakeholders or audiences, we suggest that a company’s board of directors issue an annual “Statement of Significant Audiences and Materiality” (The Statement), which identifies the company’s significant audiences — and, by implication, those that are not significant. These audiences may include shareholders, bondholders, employees, or NGOs representing a variety of environmental, social, and governance (ESG) issues.

Only a page in length, The Statement enables the board to clearly and concisely communicate which issues are material to which of its audiences, and over what time frame. The benefits are clear for corporate reporting on material issues in financial or integrated reports: If, for example, a board decides that the only significant audience is short-term shareholders, then the only issues that are material are those that affect short-term financial results. Alternatively, a board may decide that the most significant audience is the company’s employees, and that it will cut dividends before approving layoffs.

Climate Change: More Pressure on Companies Belonging to Chamber

Recently, this letter – signed by over 60 investors – was sent to 50 companies who serve as board members or prominent company members of the US Chamber of Commerce urging them to act in the climate change area. Many of the companies receiving the letters already have strong policies addressing climate change, but this group of investors want to ensure those strong policies aren’t undermined by the Chamber lobbying against the EPA & the Clean Power Plan.

More on “Shareholder Approval – SEC Seeks Comment on NYSE’s “Early Stage Companies” Proposal”

Last month, I blogged about the SEC seeking comment on a NYSE proposal regarding the shareholder approval rules regarding “early stage” companies. I forgot to blog about the novelty of how the SEC went about this – here’s an excerpt from this blog by Cooley’s Cydney Posner that fills that bill:

This certainly appears to be an unusual action by the SEC. The SEC had received no comments on the proposal either when it was first published or when the comment period was extended. But because of the legal and policy issues involved, the SEC instituted “disapproval proceedings” to encourage comments to inform the SEC’s analysis. Notwithstanding the title, the Order contends that the proceedings do not mean that the SEC has reached any conclusions.

Rather, the SEC is seeking input on whether the proposal is consistent with the Exchange Act requirement that the rules of the securities exchanges be designed to, among other things, prevent fraud and manipulation, promote just and equitable principles of trade and protect investors and the public interest. The proposal would allow shares to be issued, even at a discount, to related parties, without shareholder approval, and the SEC questions whether audit committee approval of these types of potentially dilutive transactions should suffice.

Cydney subsequently has noted that the NYSE is the only one who has commented – on its own proposal!

– Broc Romanek