April 18, 2016

Equity Compensation Plans: ISS Issues 7 New FAQs

Last month, ISS issued seven new FAQs to its “US Equity Compensation Plan FAQs” (for a new total of 55 FAQs) as follows:

– FAQ #2: Which equity compensation proposals are evaluated under the EPSC policy?

– FAQ #17: If a company assumes an acquired company’s equity awards in connection with a merger, will ISS exclude these awards in the three-year average burn rate calculation?

– FAQ #28: How does ISS evaluate an equity plan proposal seeking approval of one or more plan amendments?

– FAQ #29: How are plan proposals that are only seeking approval in order to qualify grants as “performance-based” for purposes of IRC Section 162(m) treated?

– FAQ #30: How are proposals that include 162(m) reapproval along with additional amendments evaluated?

– FAQ #31: How does ISS evaluate amendments by companies listed in France that are made in response to that market’s adoption of the Loi Macron (Macron Law)?

– FAQ #47: How does ISS determine the treatment of performance-based awards that may vest upon a change in control?

Director Viewpoints: Desired Director Attributes & More

According to Corporate Board Member’s annual “What Directors Think” survey, directors continue to rank industry expertise as the most important new director attribute (83%), followed by financial experience (78%), gender diversity (59%), and CEO experience (55%) – other results include:

– Long-term strategic planning is the primary issue directors wish to spend more time on – followed by innovation/disruption and cyber risk.
– Most respondents say they are satisfied with the level of information and in-person reporting they receive from their CFO (94%), CEO (93%), GC (90%), internal audit (88%), CCO (84%), and CIO/CISO (65%).
– At least 1/3 of respondents believe information flow between their board and management could be improved through a higher frequency of updates (36%), more concise reporting (31%), or in the time allotted to review materials prior to a meeting (34%). Other communication components directors believe could be of benefit include additional onsite visits with managers (44%) and more time allotted to discussing critical agenda items (47%).
– Nearly 1/3 of respondents worry that direct shareholder engagement carries undue risk of board and individual director liability; 28% say it elevates the risk of violating Reg. FD; 21% think it creates a wedge between the CEO and the board: and 14% believe direct engagement creates undue influence on the board.
– While half of the directors believe the recent wave of hedge fund activism has created more awareness for the need for good governance, 62% believe it has reinforced and rewarded short-termism.

SEC Enforcement: Document Why Significant Deficiency Isn’t a Material Weakness

Here’s more on this recent blog entitled “Internal Controls: A Consultant Can’t Do Your Job” – the intro to this Morgan Lewis blog:

The SEC recently announced settled administrative proceedings against Magnum Hunter Resources Corporation (MHR), the former chief financial officer and chief accounting officer of MHR, the engagement partner on MHR’s external audit, and the lead consultant responsible for documenting and testing MHR’s internal control over financial reporting (ICFR). The SEC states in the five orders issued on March 10 that registrants must fully document why a significant deficiency in ICFR is not a material weakness. Adequate documentation to provide reasonable support for the assessment of the effectiveness of ICFR is required by Instruction 2 to Item 308 of Regulation S-K and the SEC’s guidance relating to management’s report on ICFR in Financial Reporting Release No. 77.

Broc Romanek