It looks like investors used their votes to send a message to some directors during this year’s proxy season – and it wasn’t “keep up the good work.” This excerpt from a recent Bloomberg article explains:
Shareholders have withheld 20 percent or more of their votes for 102 directors at S&P 500 companies so far this year, the most in seven years, according to ISS Corporate Solutions, a consulting firm specializing in corporate governance. While largely symbolic, the votes at companies such as Wells Fargo and Exxon Mobil are recognized as signals of displeasure and put pressure on boards to engage.
“Institutional investors are becoming more actively involved in communicating displeasure through their votes,”said Peter Kimball, head of advisory and client services at the consulting firm, a unit of Institutional Shareholder Services. “Voting against directors at large-cap S&P 500 companies is a way for an institution to send a signal to other, smaller companies about the actions that they don’t like. That feedback trickles down.”
We’ve previously blogged about Blackrock & State Street’s increasing assertiveness when it comes to pushing for board action on their priorities – and their greater willingness to use their voting clout to send a message to boards that aren’t responsive. The results from this proxy season suggest that other institutions may be taking the same approach.
Boards: What Do Proxy Advisors Want in a New Director?
I’m trying not to take this personally, but according to this recent “Directors & Boards” article, I’m everything that proxy advisors don’t want when it comes to new director candidates – “male, pale & stale.” So who do proxy advisors want instead of me? Here’s the article’s answer:
If proxy advisors – the firms that provide public company research and guidance to large investors – were writing a personal ad for the perfect board director it would probably go a bit like this:
Looking for diverse director with integrity who enjoys face-to-face communication with investors.
That profile is based on new report from “The Conference Board” called “Just What is a Director’s Job?” The report was the product of a roundtable of more than 50 proxy advisors, including ISS & Glass Lewis. The description of the proxy advisors’ “dream date” highlights not merely the growing importance of board diversity, but also the central position that shareholder engagement plays in their views about what makes a good corporate director.
Secret Societies: The Illuminati, Knights Templar & “The Big Four”?
Pretty interesting stuff in this European Parliament group study on the “opacity” of the organizational structure of the Big Four accounting firms. According to the study, nobody knows how many offices the Big Four have, exactly where they’re located, how many people work for them, or how their ownership is structured. Why so secretive? The study says that the Big Four have their reasons:
We suggest that the structure adopted by the Big Four firms of accountants, which at one level suggests the existence of a globally integrated firm and at another suggests that they are actually made up of numerous separate legal entities that are not under common ownership but which are only bound by contractual arrangements to operate common standards under a common name, has been adopted because it:
– Reduces their regulatory cost and risk;
– Ring-fences their legal risk;
– Protects their clients from regulatory enquiries;
– Delivers opacity on the actual scale of their operations and the rewards flowing from them.
The study was released by a left-leaning group of members who serve on the European Parliament’s Panama Papers inquiry committee. Anyway, who knew that your mild-mannered independent registered public accounting firm was playing such an integral role in bringing about the “New World Order”?
Speaking at the Heritage Foundation earlier this week, SEC Commissioner Mike Piwowar said that the SEC might be receptive to requests by IPO companies to include mandatory arbitration clauses in their charters. Here’s an excerpt from this Reuters article:
A key U.S. securities regulator on Monday voiced support for possibly allowing companies to tuck language into their initial public offering paperwork that would force shareholders to resolve claims through arbitration rather than in court. “For shareholder lawsuits, companies can come to us to ask for relief to put in mandatory arbitration into their charters,” said Michael Piwowar, a Republican member of the U.S. Securities and Exchange Commission. “I would encourage companies to come and talk to us about that.”
Mandatory arbitration bylaws got a lot of attention a few years back when Carlyle Group tried to install one in its IPO – although it ultimately backed off. The SEC Staff has historically said that these clauses were contrary to public policy & potentially inconsistent with the anti-waiver provisions of Section 14 of the Securities Act & Section 29(a) of the Exchange Act – so a shift in policy here would be big news.
IPOs: GOP Wants a Smoother Ride
Efforts to encourage IPOs are a big part of the SEC’s agenda. According to this MarketWatch report, Congressional Republicans are on-board as well – they believe that current rules discourage IPOs & deprive retail investors of a chance at the “lottery tickets” those deals represent.
SEC Commissioner Nominee: Hester Peirce to Get Another At-Bat
This WSJ article reports that President Trump plans to nominate former Senate aide Hester Peirce to fill the vacant Republican slot on the SEC (here’s a White House press release – this press release indicates the nomination was sent to the Senate yesterday).
If that name sounds familiar, it’s because President Obama nominated her to serve as a Commissioner in 2015 – but the full Senate never acted on her nomination, as we blogged about numerous times (here’s one of those blogs).
– Mark Borges, Principal, Compensia
– Mike Kesner, Principal-in-Charge, Human Capital Advisory Services, Deloitte Consulting LLP
– Dave Lynn, Editor, CompensationStandards.com and Partner, Jenner & Block LLP
– Maia Gez, Of Counsel, Gibson Dunn & Crutcher LLP
Register Now – Discount Ends July 28th: This is the only comprehensive conference devoted to pay ratio. Here’s the registration information for the “Pay Ratio & Proxy Disclosure Conference” to be held October 17-18th in Washington DC and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days. Register by July 28th to take advantage of the 10% discount.
Our “Annotated Model Pay Ratio Disclosures”: Now Posted
Oodles of Pay Ratio Panels: Comprehensive Coverage
It doesn’t matter whether you can make it to DC – because the October 17-18th Conference is available to watch online by video webcast, live on those specific days or by video archive at your convenience. We’ve clarified that in the box at the top of our Conference FAQs.
Among the panels for the October 17-18th Conference are:
1. Corp Fin Speaks (speaker from the Staff to be announced)
2. The SEC All-Stars: A Frank Pay Ratio Conversation
3. Parsing Pay Ratio Disclosures: US-Only Workforces
4. Parsing Pay Ratio Disclosures: Global Workforces
5. Pay Ratio: Sampling & Other Data Issues
6. Pay Ratio: The In-House Perspective
7. Pay Ratio: How to Handle PR & Employee Fallout
8. The SEC All-Stars: The Bleeding Edge
9. The Investors Speak
10. Navigating ISS & Glass Lewis
11. Keynote: A Conversation with Nell Minow
12. Proxy Access: Tackling the Challenges
13. Clawbacks: What to Do Now
14. Dealing with the Complexities of Perks
15. The Big Kahuna: Your Burning Questions Answered
16. Hot Topics: 50 Practical Nuggets in 60 Minutes
Register Now – Discount Ends July 28th: This is the only comprehensive conference devoted to pay ratio. Here’s the registration information for the “Pay Ratio & Proxy Disclosure Conference” to be held October 17-18th in Washington DC and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days. Register by July 28th to take advantage of the 10% discount.
Yesterday, the SEC posted its updated “Edgar Filer Manual” – Broc blogged about it coming last week. The updated version of the Manual includes instructions on how to comply with the new requirement to link to exhibits (see Section 5.4.2. on pages 5-50 – 5-52) – which will go into effect on September 1st for the larger companies (non-accelerated filers & smaller reporting companies that submit filings in ASCII don’t need to comply until a year later).
Let’s just say the instructions are a wee bit on the technical side. For instance, here’s the summary on “using HTML styles to indicate the location of exhibit links and the summary section”:
To indicate where in the document an exhibit hyperlink is located, in your HTML document enter the text “<a style=”-sec-extract:exhibit” ” before the web address and the text “</a>” after the exhibit name. See Section 5.4.2.2 for instructions on creating hyperlinks to exhibits in HTML documents.
To indicate where in the document the Summary is located, in your HTML document enter the text “<p style=”-sec-extract:summary”>” before the Summary and enter the text “</p>” after the Summary.
This is followed by a discussion of the “detailed steps” required to accomplish whatever the task I just described is – but trust me, you do NOT want to read the detailed steps. Send this one right to the HTML wizards.
At some point, Corp Fin will likely issue a set of FAQs – or some other form of guidance – as we hear there are a lot of open questions that folks are wondering about. For example, how does one link to an exhibit in a 30-year old registration statement that was filed as one gigantic ASCII file? The only available “link” would be to the filing as a whole.
New Accounting Standards: CAQ’s Tips on SAB 74 Disclosure
Several new accounting standards are being rolled out over the next few years – so this recent “Center for Audit Quality” alert reviewing disclosure obligations about new accounting standards under SAB 74 seems pretty timely.
The CAQ alert points out that even in situations where a new accounting standard is not expected to significantly impact the face of the financial statements, new footnote disclosures may still represent a significant change that companies need to address.
Along the same lines, it’s worth noting that this MarketWatch article cites recent comments from an SEC accounting fellow to the effect that even though a new accounting standard may not have a material effect on a company’s financial statements, that doesn’t mean that disclosures about that new standard won’t be material.
Transcript: “Flash Numbers in Offerings”
We have posted the transcript for our popular webcast: “Flash Numbers in Offerings.”
SEC Chair Jay Clayton’s recent speech at the “Economic Club of New York” has received a lot of attention – it was his first as Chair – but this remark seems to have been overlooked:
My last point on capital formation is a reminder. There are circumstances in which the Commission’s reporting rules may require publicly traded companies to make disclosures that are burdensome to generate, but may not be material to the total mix of information available to investors. Under Rule 3-13 of Regulation S-X, issuers can request modifications to their financial reporting requirements in these situations. I want to encourage companies to consider whether such modifications may be helpful in connection with their capital raising activities and assure you that SEC staff is placing a high priority on responding with timely guidance.
I don’t want to read too much into this – but it’s the third time in the past month or so that Rule 3-13 waiver requests have been mentioned in Corp Fin guidance or in comments by senior SEC Staffers.
In addition to Jay’s remarks, this Deloitte memo notes that Corp Fin’s Chief Accountant – Mark Kronforst – discussed waiver requests at a recent conference, and “urged companies to discuss their facts and circumstances” with the Staff. The Staff’s willingness to consider these waiver requests was also recently noted in Corp Fin’s announcement that all IPO filers would be permitted to submit confidential draft registration statements.
There’s no suggestion in any of these comments that it’s somehow “open season” on Reg S-X’s requirements. Still, I think it’s fair to say that the SEC Chair is sending a message that Corp Fin is more open to dialogue about Rule 3-13 waivers than some might assume.
Revenue Recognition: FASB’s “Gift” to Retailers
Over at “MarketWatch,” Francine McKenna recently pointed out that implementation of FASB’s new revenue recognition standard could turn out to be a big gift to the bottom lines of some major retailers. That’s because the new standard would change the way retailers recognize revenue from the unredeemed portion of company-issued gift cards.
This is known as “breakage revenue” – and companies have been recognizing it under various scenarios based on their own redemption experience. Under the new rule, companies will be required to spread breakage revenue over a gift card’s expected redemption period. That’s good news for many retailers:
Most companies will be able to accelerate breakage revenue rather than holding on to it until the likelihood anyone cashes in the balance becomes remote or until the card expires. The accounting change will affect everyone who issues gift cards, from classic bricks-and-mortar grocery and fashion retailers to restaurants to Amazon and other online stores.
Tomorrow’s Webcast: “FCPA Considerations in M&A”
Tune in tomorrow for the DealLawyers.com webcast – “FCPA Considerations in M&A” – to hear Richards Kibbes’ Audrey Ingram, K&L Gates’ Vince Martinez and Schulte Roth’s Gary Stein discuss how to take the FCPA and other anti-corruption laws into account during M&A activities.
As part of the mad rush to register for our comprehensive “Pay Ratio & Proxy Disclosure Conference”, we’ve fielded questions from a number of members who want to attend next Thursday’s webcast – but who can’t make it to Washington DC for the October 17-18th Conference. It doesn’t matter whether you can make it to DC – because the October 17-18th Conference is available to watch online by video webcast, live on those specific days or at your convenience by video archive. We’ve clarified that in our Conference FAQs.
As Steve Quinlivan has blogged, the NYSE recently proposed that listed companies provide notice to the Exchange at least 10 minutes before making any public announcement for a dividend or stock distribution – in all cases. This mean that notice would be required outside of the hours in which the Exchange’s “immediate release” policy is in operation, which goes beyond the current rule.
NYSE Refiles Proposal to Facilitate Direct Listing
A few months ago, John blogged about the NYSE’s proposal to facilitate “direct listings” – which which involves bypassing an IPO, and simply registering common stock under the Exchange Act & listing on an exchange. Then, David Feldman blogged that the NYSE had withdrawn its proposal. Now the NYSE’s proposal has been refiled as SR-NYSE-2017-30 (the withdrawn proposal and amendments 1, 2 and 3 were all related to SR-NYSE-2017-12).
We’re excited to announce three new resources for those grappling with Section 16:
1. “Section 16 Tales” – A Section 16 Beginner’s Manual – a 200-page paperback – filled with practical stories from in-house practitioners. Includes the “soft stuff” – practical guidance not found in the rules. Here’s a list of the 16 chapters in this paperback.
2. “Section 16 Bootcamp” – A combination of three resources for Section 16 beginners, including 13 online videos, copy of the “Section 16 Tales” paperback & the ability to attend a Section 16 Forum.
3. “Section 16 Forums” – A one-day event for all Section 16 practitioners – not just beginners – facilitating education & networking among your peers – one will be held on each coast, each year.
Cross-Border Conflict Over Analyst Research
Here’s the intro from this WSJ article by Dave Michaels:
The SEC is weighing how to alleviate the harshest side effects of a European Union law that could have U.S. repercussions for banks trying to comply with it. The EU law, which goes into effect in January, will require investors to pay directly for investment research provided by banks’ brokerage arms. The EU measure aims to make research costs more transparent for end investors by breaking them out separately from the trading commissions that investment firms pay.
Yet U.S. law discourages paying for research directly by imposing stricter legal obligations on brokers that accept separate payment for research. U.S. rules have for many years accommodated the current arrangement, which dates to an era when commissions were fixed by exchange rules and brokers competed by offering extra services such as research reports. The extra responsibilities would entail higher legal costs and complicate brokers’ roles as sellers of stocks and bonds, according to industry officials. Wall Street wants to avoid that outcome, and two Republican lawmakers took up their cause on Tuesday at a Senate budget hearing by urging SEC Chairman Jay Clayton to find a solution.
Cryptocurrency: What’s a “Security”?
Not sure I fully understand this article on “tokens” and other emerging digital currencies (think “blockchain” & “bitcoin”) – but reading #6 & 7 in the piece seems to indicate that the securities law might not apply to them. Here’s ten cents about this from John:
I think the author is saying that as conceived, these tokens/API keys aren’t securities. Since that’s the case, they qualify for application of the “Tulip Test,” which I learned from an analyst back in the ’90s. It says that whenever you don’t understand a technobabble sales pitch for a world-changing, non-traditional investment, try substituting the word “tulip” or “beanie baby” for the magic word in the article (i.e. “token” and “API Key”) and see how it reads:
“Tokens Tulips aren’t equity, because they have intrinsic use and because they are non-dilutive to the company’s capitalization table. A token tulip sale is more similar to a Kickstarter sale of paid API keys beanie babies than equity crowdfunding.”
Members still ask me if I plan to resurrect the “Proxy Disclosure Award Contest” that I ran a few years back. If you recall, I allowed the community to vote for the winners rather than selecting the winners myself.
I don’t have plans to run another contest. But I’m game to pick a “proxy disclosure award” winner this year – because I have heard a number of institutional investors rave about Allstate’s proxy statement. It indeed is awesome. Congrats to Deborah Koenen & her team!
Here’s some of the notables:
– Board Refreshment – Allstate focused on board refreshment disclosures, showing that the board is continuously engaged in succession planning – including data about the number of directors considered and added in the past five years. The additional information adds insight into board activities & appears to validate its processes.
– Lead Independent Director – Allstate provided detail regarding the profile sought to serve as the board’s lead director, as well as biographical detail regarding the director currently in the role (including notable highlights from her tenure).
– Board Highlights – A visual flow chart makes clear significant strategic, governance & compensation developments overseen by the board over the last five years.
– Management Succession – Allstate provided an overview of the board’s management succession oversight responsibilities & annual practices – showing a proactive board that prioritizes long-term organizational stability & prepares for multiple leadership transition scenarios.
– Corporate Responsibility – The proxy statement highlighted the board’s oversight of the company’s corporate responsibility initiatives, pointed out recent achievements – and provided a line of sight through to the most recent CSR report.
– Insights into Board Committees – Allstate presented a double-page overview of its board committees, including quotes from committee chairs and lead director. Love how the “New” tags highlight recent developments.
Tomorrow’s Webcast: “12 Strange Things in the Securities Laws”
Tune in tomorrow for the webcast – “12 Strange Things in the Securities Laws” – to hear Fenwick & West’s Dawn Belt, TheCorporateCounsel.net’s John Jenkins, Manatt Phelps’ Ben Orlanski and Faegre Baker Daniels’ Amy Seidel tackle the practical solutions to bizarre & illogical things that happen in your daily practice. Or once in a blue moon…
Corp Fin: NFL Fan Clubs as “Securities”
I find this blog by Bryan Pilko interesting because I processed a similar no-action letter when I was in Corp Fin’s Office of Chief Counsel twenty years ago. Think it was the Green Bay Packers no-action letter (11/13/97). Anyway, this no-action response to the LA Fan Club allows LA Rams fans (a NFL team) to buy memberships in the fan club without the Staff considering it to be a Section 5 violation…
For those registered for the upcoming “Pay Ratio & Proxy Disclosure Conference,” tune in on July 20th for the first in a series of three monthly webcasts that serve as a pre-conference: “Pay Ratio Workshop: What You Need to Do Now.” When you go to the webcast page on July 20th, you will be able to download a set of “Annotated Model Pay Ratio Disclosures” in both PDF & Word format. The second webcast is on August 15th.
The speakers for the July 20th webcast are:
– Mark Borges, Principal, Compensia
– Mike Kesner, Principal-in-Charge, Human Capital Advisory Services, Deloitte Consulting LLP
– Dave Lynn, Editor, CompensationStandards.com and Partner, Jenner & Block LLP
– Maia Gez, Of Counsel, Gibson Dunn & Crutcher LLP
The speakers for the August 15th webcast are:
– Mark Borges, Principal, Compensia
– Keith Higgins, Partner, Ropes & Gray LLP
– Scott Spector, Partner, Fenwick & West LLP
Register Now – 10% Discount Ends July 28th: This is the only comprehensive conference devoted to pay ratio. Here’s the registration information for the “Pay Ratio & Proxy Disclosure Conference” to be held October 17-18th in Washington DC and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days.
“Human Capital Management” Disclosure: A SEC Rulemaking Petition
As noted in this press release, a group of institutional investors with $2.8 trillion in assets – that is “trillion” with a “T” – has filed this rulemaking petition with the SEC that includes 9 categories of disclosures about human capital management. The driving force behind this is that companies are now only required to disclose their employee headcount – yet a large body of evidence links investments in human capital to better corporate performance…
By the way, as John has blogged before, Delaware has now passed legislation that will allow shares to be traded on a blockchain…
Transcript: “Proxy Season Post-Mortem – The Latest Compensation Disclosures”
We’ve posted the transcript for the CompensationStandards.com webcast: “Proxy Season Post-Mortem – The Latest Compensation Disclosures.”
Back in May, I blogged about 7 early adopters of the SEC’s new “link to exhibits” rule. I blogged that these companies had experimented by including links to their exhibits voluntarily – without the benefit of an updated Edgar Filer Manual.
Last Thursday, the SEC posted this adopting release about an updated Edgar Filer Manual. However, the updated Manual itself is not yet posted (the currently posted Manual was last updated in March). Perhaps it will be posted when this adopting release is published in the Federal Register? Regardless, it will be out soon. Hat tip to Goodwin Procter’s John Newell for alerting us to this development.
The adopting release doesn’t hint at the degree of instructive detail that the updated Manual will ultimately provide. Will it provide a detailed roadmap of what the SEC expects? Or will it state that companies have wide latitude as to how they provide links? We’ll know the answer when the updated Manual is posted.
Here’s what the adopting release says about all this on page 3:
Effective September 1, 2017, large accelerated and accelerated filers filing Forms S-1, S- 3, S-4, S-8, S-11, F-1, F-3, F-4, F-10, SF-1, and SF-3 under the Securities Act and Forms 10, 10- K, 10-Q, 8-K, 20-F, and 10-D under the Exchange Act will be required to submit these forms in HTML and include a hyperlink to each exhibit listed in the exhibit index of these filings, including exhibits that are incorporated by reference. Instructions for hyperlinking to an exhibit submitted with a previous submission, or an exhibit that is being filed concurrently with the submission, have been included in Chapter 5 of Volume II of the EDGAR Filer Manual. Instructions for using HTML Styles to indicate the location of the Exhibit Links and the Summary Section have also been included in Chapter 5 of Volume II of the EDGAR Filer Manual.
GE Creates Internal Yelp-Like Resource for Lawyers
Interesting article about how GE has created an internal Yelp-like resource to manage the 200 outside law firms it deals with. Not sure it will really used much by GE’s 800 in-house lawyers, but probably will be used by procurement – and that’s who everybody is increasingly answering to these days…
Controlling Audit Fees: “How-To Guide”
Here’s something from Dan Goelzer of Baker & McKenzie: As discussed in the December 2016 Update, the Financial Executives Research Foundation (FERF), the research affiliate of Financial Executives International (FEI), found, in its 2015 survey of audit fees, that the median SEC filer audit fee rose 1.6 percent in 2015. However, the largest public companies – large accelerated filers – enjoyed a 3.8 percent decrease in fees. FERF and Workiva, a provider of business data and control solutions, have followed up on the audit fee survey with a report on how companies can reduce audit fees or limit fee increases. The new report – “Mitigating Increases in Audit Fees” – is based on interviews with financial statement preparers and auditors.
The FERF recommendations fall into six categories:
1. Rethink the business and centralize business processes. “Audit fees are often related directly to the size and complexity of the business, so if any parts of the business are sold or discontinued, audit fees should decline in proportion. However, reducing audit fees for a company with a newly simplified structure often requires negotiation with the external auditor.” The report also notes that FERF’s annual audit fee survey has consistently found that companies with centralized operations average significantly lower audit fees than decentralized companies.
2. Align key controls with key risks. “Public Company Accounting Oversight Board (PCAOB) inspections have encouraged auditors to spend more time reviewing management controls during the annual audit, prompting registrants to align key controls with the most relevant risks.” In this respect, one of the auditors interviewed observed:
“Audits are a function of the amount of time that it takes to do the audit. If there are fewer key controls that need to be tested, the audit fees could possibly go down. However, there is a balance that needs to be struck, because the opposite could also be true. We think it is really important that the company and the external auditor align their control structure and do some upfront planning, because if the company and the external auditor both agree on the key controls that are in place and can be tested, there is a real opportunity for efficiency.”
3. Document internal controls. “Reviewing the documentation of internal controls, which can be time-consuming, has become a key part of the audit. If the client has very light or poorly organized documentation, or hasn’t thought through all the branches in a process, attestation becomes difficult for the auditor — and more costly for the registrant.”
4. Consider outsourcing internal audit. “A Big Four audit firm may be able to rely on the internal audit work of a regional firm with a significantly lower hourly rate.” Outsourcing internal audit to a firm in which the auditor has confidence should increase the extent to which the auditor is willing to rely on that firm’s work, rather than duplicating its testing. However, as the report notes, the effectiveness of this strategy also depends on the independence of the firm that performs the internal audit function.
5. Communicate with the auditor. “Good communication should be continual through the process, not limited to the start or end of the audit.” For example, in a case discussed in the report, the controller asked the auditor what the company could do to make the audit more efficient. The auditor responded with suggestions for analytics that could be prepared by the company’s staff, for review by the auditor, as a way of reducing audit hours. Another suggestion involved early communication to reach agreement on risk assessment.
6. Evaluate the latest technology. “External auditors and internal auditors are both using data analytics technology to increase audit quality, work smarter and potentially reduce costs. Technology can be used to detect and identify all exceptions, anomalies and outliers, rather than just those found within a sample.” One of the auditor interviewees suggested that–
“reports should generated [by the company’s IT system] in a way that the system retains a lot of audit evidence or evidence that the company might anticipate an external auditor would look for. * * * For example, the tracing and vouching to source documents, whether they’re invoices generated internally by the company or documents or evidence that is retained by a third party, such as a proof of delivery or a cash receipt.”
Comment: Because of their responsibility for the relationship with the outside auditor, audit committees may find the FERF publication a useful reference. The strength of the FERF approach is that it suggests ways in which the cost of the audit can be reduced with out compromising quality. Fee reduction demands which merely encourage the auditor to reduce audit hours run the risk of increasing the probability the audit will fail to detect a material misstatement or internal control weakness – either of which is likely to result in costs and embarrassment for the company and the audit committee out of proportion to any audit fee savings. Conversely, audit committees may want to probe more deeply into the reasons for fee reductions that are not based on the kinds of approaches outlined in the FERF guide.
