December 18, 2019

How “Direct Listings” Work

As Liz blogged last week, the NYSE proposal to allow “direct listings” for primary offerings has been revised and is back on the table, and it’s led to a lot of chatter and head-scratching about how exactly this path would work. This 12-page memo from Gibson Dunn is a good up-to-date resource that outlines benefits, issues to consider and current rules that apply. The memo has a nice tabular overview of the various listing standards so that you can compare different alternatives (as Liz also blogged last week, Nasdaq now has a rule that allows secondary direct listings on its Global Select, Global and Capital Markets).

At this point, we still don’t know why the SEC rejected the first NYSE proposal – was it something that the NYSE adequately addressed in its revised proposal, or does the SEC think there’s a fundamental problem with primary direct listings, for investor protection or other reasons? Stay tuned, we’ll be blogging more on this topic as it develops.

Improving Board Oversight of Risk

The board’s role in risk oversight continues to be top of mind – not only for directors, but also for shareholders, legislatures & proxy advisors.  If you’re looking for a pretty comprehensive resource, Wachtell recently issued a 24-page memo on the topic. It includes these recommendations:

– Assess whether the company’s strategy is consistent with agreed-upon risk appetite and tolerance for the company

– Review with management whether adequate procedures are in place to ensure that new or materially changed risks are properly and promptly identified, understood and accounted for in the actions of the company

– Review the risk policies and procedures adopted by management, including procedures for reporting matters to the board and appropriate committees and providing updates, to assess whether they are appropriate and comprehensive

– Review with management the quality, type and format of risk-related information provided to directors

– Review with management the primary elements comprising the company’s risk culture, including establishing “a tone from the top” that reflects the company’s core values and the expectation that employees act with integrity and promptly escalate non-compliance in and outside of the organization

Over Confidence about Risk Management?

As reported in a recent Navex blog, a survey from the Institute of Internal Auditors found that boards are over confident about the effectiveness of an organization’s risk management program.  According to the survey results, the board “has more faith in the company’s ability to manage risks than the company’s executives do.”

As the blog high-lights, this can present problems when the board believes the company is effectively managing a risk, such as third-party risk, and the board then voices approval for growing the business in an area that relies heavily on effective third-party risk management.  As the business expands or grows, a breakdown can occur and then questions will arise about an apparent weakness in risk management, and perhaps whether management was transparent with the board prior to the breakdown.

Navex offers tips for aligning management’s and the board’s views on risk management.  Tips for starting a conversation with the board include:

– Discuss whether the board has the right structure and right people

– Evaluate whether the company has good escalation procedures so that the right information gets delivered to the board

– Does management speak in a unified way about risk to help ensure transparency?

– Does the company have a single, trusted source of risk information – starting with the same data set of information is key

– Lynn Jokela