In this blog, MoFo’s Anna Pinedo writes up a brief summary from recent speeches by SEC Chair White and Commissioner Stein. This excerpt of Kara’s comments caught my eye:
Commissioner Stein also raised interesting considerations regarding the increased reliance on private placements and other exempt offerings. She observed that “Studies have shown that a sizable amount of capital is now raised in the private markets. In fact, amounts raised through unregistered offerings have outpaced the level of capital raising via registered offerings in recent years. More than $2 trillion, in fact, was raised privately in 2014. Regulation D offerings accounted for more than $1.3 trillion of this amount. In comparison, registered offerings amounted to approximately $1.35 trillion in 2014.” She also commented on the unicorn phenomenon and the need for some level of transparency and accountability in private markets.
Here’s an excerpt from this WSJ article regarding the battle over whether Jim Doty will get another term as PCAOB Chair:
The Securities and Exchange Commission has decided not to decide on the leadership of the government’s audit regulator, at least for now. SEC Chairwoman Mary Jo White on Friday said her agency is waiting until it has a full complement of five commissioners before picking a head for the Public Company Accounting Oversight Board. The commission is currently down to just three members. Meanwhile, James Doty, the current PCAOB chairman whose term officially expired last October, can remain at the agency indefinitely until he’s either reappointed or the SEC taps a successor.
“It’s a decision I think should be left to the full commission, as in the past,” Ms. White told reporters, after remarks at a securities conference here. She added that Mr. Doty and the current PCAOB board were doing “quite well, without missing a beat.”
SEC Enforcement Lays Out Approach to Cybersecurity Cases
If you’ve ever attended the annual SEC Speaks conference, you know that the official program is an intensely uninteresting collection of short speeches by SEC officials who don’t have a lot of incentives to say groundbreaking things. But occasionally there are exceptions. I think Deputy Enforcement Director Stephanie Avakian’s discussion of cybersecurity cases on Friday was one of those.
Avakian broke those cases down into three categories.
1. Failures of registered entities to safeguard information. She cited the T. Jones Capital Equities Management case from September of last year (covered here) as an example of those.
2. Electronic thefts of material nonpublic information, and illicit securities trading following the thefts. Avakian cited the Dubovoy case filed in the District of New Jersey last August and updated on Thursday as an example of these.
3. Cyber-related disclosure failures by public companies. The SEC hasn’t brought any cases in this category yet, and much of Avakian’s discussion focused on why that is the case and how the SEC might get to the point of bringing one.
Assuringly for companies that are investing resources in cybersecurity and trying to do the right things for its customers and shareholders, Avakian said, “A company that has been a victim of an intrusion is just that: a victim.” She also said in several different ways that the Division understands that when attacks happen, critical facts can change and develop very quickly. These developing facts can make any necessary disclosures a moving target. Along these lines, the Enforcement Division will appreciate the difficulty of the circumstances, Avakian says. She added that the SEC is not looking to second guess well-thought decisions in this area.
With all of that said, the Enforcement Division very much wants companies that are victims of cyber attacks to involve appropriate law enforcement authorities as quickly as they reasonably can. It will also examine (1) whether companies have policies and procedures that are reasonably designed to protect customer information; and (2) whether companies with potential liability have self-reported issues to the Division. Regarding the second factor, the SEC’s Seaboard Report from 2001 continues to include the guideposts the Division will consider.
While no cases have yet been brought against public companies in this third category, Avakian can imagine circumstances in which the Commission does file a case to penalize inadequate cybersecurity disclosures. I can, too. Be careful out there.
Institutional investors will seek to “trust, but verify” the performance and governance of their portfolio companies in 2016, according to this recent Russell Reynolds report, which is based in large part on interviews with numerous asset managers, pension funds, shareholder organizations, proxy advisors and activist investors world-wide.
US-specific take-a-ways include:
There will be a focus on improving the quality of engagement between investors and boards, including through individual meetings between investors and board leaders.
Investors are pushing to have boards designate one or two directors as point people who will engage with investors meaningfully and appropriately about the board’s role in strategy development, executive compensation, and CEO succession planning.
Boards will start to look for more investor-savvy directors, whether from the investment community or from the ranks of current and former CEOs and CFOs who have dealt with investors regularly. At the same time, investors will be under pressure to improve the quality of their own engagement with boards—for example, by limiting “gotcha” questions.
Some very large institutional investors will push harder for regular (every third year) external board assessments, following the British and French models.
Board leaders, whether chairmen or lead directors, will see a new focus on their precise roles and responsibilities for board oversight of management (with requests that this be publicly disclosed).
Since the DOL has clarified fiduciaries’ ability to consider ESG factors (see this release), we expect to see more interest from all types of investors in disclosure of environmental and social risks.
See this related Forbesarticle and King & Spalding memo.
New Climate Disclosure Task Force
Late last month, the Financial Stability Board announced the initial membership of its industry-led task force on climate-related financial disclosures including four Vice Chairs to work alongside Task Force Chair, former NYC Mayor Michael Bloomberg – who currently serves as Chair of SASB and United Nations Secretary-General’s Special Envoy for Cities and Climate Change. Members include “data users” JPMorgan Chase and BlackRock and “data preparers” BHP Hilton and Air Liquide, as well as experts associated with Mercer, KPMG, S&P and HSBC. SASB director and former SEC Chair Mary Schapiro is identified on the Task Force website as Secretariat and Special Advisor to the Chair.
The Task Force, which met for the first time earlier this month, reportedly plans to deliver its first report re: current levels of disclosure and the scope of its work in March, and the second report suggesting voluntary disclosure guidelines by year-end.
See my earlier blog regarding this new Task Force.
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
– Study: Experience With Board Gender Quota Increases Director Support
– FEI Disclosure Effectiveness Review: A Preview
– Survey: Progress Slowing on Board Gender Diversity
– Username/Password Breaches: Notification & Other Considerations
– Social Media & the Securities Laws
This paperdocuments the not insignificant psychological effects of M&A transactions on employees, which – left unaddressed – can correspondingly undermine productivity, realization of expected benefits from the transaction and shareholder value.
According to the paper, research shows that more than half of merger failures are due to failure to attend to the “people factors” – which are often neglected due to management’s focus on the myriad operational-related issues inherent in the merger process. While the percentage of mergers deemed to be “failures” varies depending on, e.g., the source and definition of what constitutes a failure, this paper asserts that most commentators agree that between 50% and 70% of mergers fail to achieve their objectives.
Psychological Impacts of “Merger Syndrome”
Anxiety – Employees face uncertainty about job prospects and impact on career
Social Identity – Employees lose their old organizational identity
Acculturation – Employees must adjust to a new culture and form new relationships
Role Conflict – Employees face uncertainty about where they stand in the post-merger organization
Job Characteristics– Employees must adjust to changes in their jobs as certain functions are changed to eliminate redundancies
Organizational Justice– Employees lose trust if the company is unfair or not transparent about who they promote or lay off
While each of these psychological issues and suggested antidotes are discussed in detail, the table on the last page does a nice job of summarizing each issue, its sources, predicted outcomes, and suggested management actions to avoid or mitigate the potential for undesirable consequences.
An Attack on the Hedge Fund Activism/Positive Long-Term Value Link
This recent paper investigates the association of hedge fund activism and long-term firm value, concluding that:
Positive long-term association between hedge fund activism and long-term firm value documented in prior studies is likely affected by selection bias – as activist hedge funds tend to target poorly performing companies.
Once such selection bias is incorporated into the analysis, evidence shows that companies targeted by activist hedge funds improve less in value after their campaigns than ex-ante similarly poorly performing control companies that are not subject to hedge fund activism – suggesting that the hedge fund activism decreases – rather than increases – a company’s long-term value relative to comparably situated non-targeted control companies.
Findings are consistent with the authors’ hypothesis that the ability of activist hedge funds to substantially influence a firm’s investment policy exacerbates a company’s “limited commitment” problem toward long-term value creation and stable stakeholder relationships. The “limited commitment” problem (discussed further in the paper) purportedly arises out of the inability of public shareholders vested with strong exit rights and exposed to informational inefficiencies to credibly commit to long-term investment strategies or engage in long-term cooperation with other firm stakeholders.
See also this noteworthy Short-Term Thinking infographic from the New York Times.
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
– Director Exit Interviews
– Data Breach Derivative Suit Protection: Action Items
– How to Calmly Effect Emergency Succession
– Non-GAAP Disclosure Compliance Tips
– Redefining the Board’s Role in Strategic Planning
The seemingly positive SEC press release touting improvements in credit rating agency processes based on 2015 annual examinations (summary report) and reporting (annual report) notwithstanding, this NY Times article portrays the progress of the Big 3 rating agencies (S&P, Moody’s and Fitch) in particular in a much less favorable light based on a close read and analysis of the same underlying information contained in the SEC’s December 2015 reports.
By way of background, in August 2014, in response to the alleged role of flawed credit ratings on asset-backed and other securities in the financial crisis, the SEC adopted Dodd-Frank-mandated rules aimed at improving the quality of credit ratings by addressing, e.g., agency internal controls, conflicts of interest, procedures designed to protect the integrity of rating methods, and their transparency/accountability.
Contrary to the outwardly reassuring picture conveyed by the SEC release, the NY Times recounts these concerning findings from the SEC reports:
Two of the larger companies “failed to adhere to their ratings policies and procedures, methodologies, or criteria, or to properly apply quantitative models.” These failures occurred on numerous occasions.
Errors seem common. Because of a coding mistake, a structured finance deal made by one larger ratings agency didn’t reflect its actual terms. It took some time for this error to be detected and when it was, the transaction’s rating took a substantial hit.
A larger ratings agency employee noticed an error in the calculations used to determine certain ongoing ratings, but in subsequent publications, the company disclosed neither the mistake nor its implications. This ratings agency also inaccurately described the methodology it used to determine some of its official grades.
The analysts at one larger ratings agency learned of flaws in outside models used to determine ratings. But no one at the company assessed the impact of the errors or told others about them as required under its procedures. The SEC also identified instances where substantive statements made by this agency in its rating publications directly contradicted its internal rating records.
Policies and procedures at one larger credit ratings agency did not prevent “prohibited unfair, coercive or abusive practices.” As a result, the agency gave an unsolicited rating to an issuer that was “motivated at least in part by market-share considerations.” Such a practice would allow an agency to gain an issuer’s business by offering a better rating than a competitor.
At the same agency, two grades assigned by ratings committees were changed at the urging of “senior ratings personnel.” This not only violated the unnamed firm’s policies and procedures, but also resulted in a misapplication of the company’s ratings criteria.
Consumer Federation of America’s Micah Hauptman made these remarks: “These failures are eerily familiar, right? Sales and marketing concerns influencing the production of ratings. Credit ratings agencies that didn’t have policies and procedures in place to manage issuer-pay conflicts. These are the exact same deficiencies that caused the 2008 financial crisis, and that the Dodd-Frank Act was supposed to address.”
See these August 2014 statements from SEC Chair White and Commissioner Stein upon adoption of the new credit agency requirements.
Credit Rating Agencies: Random Selection
Under Presidential candidate Bernie Sanders’ plan to reform Wall Street, companies would no longer be allowed to select their rating agency:
Reforming Credit Rating Agencies
We cannot have a safe and sound financial system if we cannot trust the credit agencies to accurately rate financial products. And, the only way we can restore that trust is to make sure credit rating agencies cannot make a profit from Wall Street. Investors would not have bought the risky mortgage backed derivatives that led to the Great Recession if credit agencies did not give these worthless financial products triple-A ratings – ratings that they knew were bogus. And, the reason these risky financial schemes were given such favorable ratings is simple. Wall Street paid for them. Under my administration, we will turn for-profit credit rating agencies into non-profit institutions, independent from Wall Street. No longer will Wall Street be able to pick and choose which credit agency will rate their products.
Senators Al Franken (D-Minn.) and Roger Wicker (R-Miss.) reportedly offered a proposed amendment during the deliberation of Dodd-Frank to effect random assignment of rating agencies to companies – with an incentive for more business based on ratings accuracy, but the proposal morphed into a study. The two since have continued to push for reform.
Moody’s Evaluation of Cyber Risk: Credit Rating Impacts
In this podcast, Christian Plath, VP – Corporate Governance Analyst at Moody’s, discusses the credit rating impacts associated with companies’ cyber risks with reference to Moody’s recent cyber risk report (see this overview), including:
– How has Moody’s view of cyber risks vis a vis its credit analysis evolved over the past few years?
– How does Moody’s evaluation of cyber risk in its analysis differ from its evaluation of other types of risks – if at all?
– What can companies do to mitigate the potential for cyber risk to adversely affect their rating?
– Could a lack of preparedness or an acute vulnerability for a cyber attack ever be a justification to downgrade an issuer?
Ongoing challenges to the constitutionality of the SEC’s administrative proceedings ranks at the top of Baker Hostetler’s informative Top 10 list of SEC Enforcement Highlights of 2015.
According to the latest Cornerstone report, the SEC reportedly filed 76% of its enforcement actions against public companies as administrative proceedings in 2015 – more than triple the number and percentage of actions filed as administrative proceedings since 2010. This controversial issue – namely, the Appointments Clause constitutionality of the appointment of the arguably “inferior officer” administrative law judges who preside over the administrative proceedings, and the related constitutionality of the proceedings themselves – simply refuses to go away pending definitive resolution by the courts.
Here is the complete Top 10 list:
SEC Administrative Proceedings Challenged as to Constitutionality
SEC Claims Against Compliance Officers
Policing Manipulative High-Frequency Trading
First SEC Action to Enforce Cybersecurity Policies
SEC Presses Insider Trading Actions With Mixed Success In Post-Newman Era
SEC Charges Private Equity Giant With Misallocating Broken Deal Expenses
SEC Brings Enforcement Actions Over “Spoofing”
CFTC Brings Action against “Flash Crash” Trader
SEC Actions Protecting Whistleblowers
First Circuit Court of Appeals Vacates SEC Order Not Based on “Substantial Evidence”
See also the OIG’s recently issued final report of investigation into allegations of bias on the part of the SEC’s ALJs – concluding that there is no evidence to support the allegations.
Is the Yates Memo Unconstitutional?
This recent Corporate Counsel article authored by Paul Hastings Paul Monnin and Eric Stolze – Everything Old Is New Again: Why the Yates Memo is Constitutionally Suspect – does a convincing job of pointing out the several aspects and implications of the DOJ corporate cooperation policies espoused by the September 2015 so-called Yates Memo that raise potential constitutionality issues. Aside from potential constitutional challenges, the memo identifies the not unlikely adverse effects of the policy on internal corporate dynamics. It’s definitely worth a read.
See Broc’s and my earlier blogs on the Yates Memo and our oodles of memos about it in our “White Collar Crime” Practice Area.
Marsh: Cyber Insurance Trends
In this podcast, Marsh Cyber Practice leader Tom Reagan discusses key cyber insurance trends in the context of Marsh’s recent benchmarking report, including:
– Can you describe the overall trends in frequency of acquisition of cyber coverage?
– What are the top reasons companies are purchasing cyber coverage?
– What are the overall trends in terms of coverage limits?
– Are there any industry-specific trends?
– Can you describe the current state of knowledge – or perhaps confusion – about cyber insurance coverage?
– What are the overall pricing and insurance market trends?
– Is there anything companies can do to better position themselves before they seek to acquire or renew coverage?
ESMA’s (European Securities and Markets Authority) follow-up analysis of the proxy advisory industry’s self-regulatory code of conduct, aka, Best Practice Principles for Providers of Shareholder Voting Research and Analysis, found that although the industry is “moving in the right direction,” the Best Practice Principles Group (composed of ISS, Glass Lewis, Manifest Information Services Ltd, PIRC Ltd, and Proxinvest) should focus on: (i) improving its own governance – including the transparency of the group and its internal structure and the degree to which the BPP would appear to be workable from a practical point of view, and (ii) further clarity and transparency around the monitoring process it conducts to evaluate the effectiveness of the BPP – including any changes to the BPP resulting from its self-monitoring process or new market developments.
Conclusion Regarding Governance Approach
To summarise, ESMA’s expectations in relation to the governance of the BPP are to date partly fulfilled. While the drafting phase met ESMA’s expectations, both in terms of structure and process, there is room for improvement and open issues to be resolved in a number of other areas related to the on-going work which needs to be carried out to ensure the successful evolution of the BPP.
As for the BPPG’s structure and independence, it can be recalled that in its Final Report ESMA indicated that the industry committee was expected to be transparent about its composition and status, including the selection of its chair. While ESMA considers that the BPPG fulfilled these expectations regarding the drafting process, it highlights that the on-going monitoring work should also be based on a clear and sound governance structure.
Regarding the BPP being workable, the principles and guidance provided by the BPP are clear and the comply-or-explain system is widely understood as the most effective means to signal compliance with self-regulatory codes. However, signatories’ compliance statements do not always clearly point out when elements of the BPP framework are not complied with nor do they highlight the reasons for non-compliance or alternative practices applied
As for the monitoring framework, ESMA considers that it is not at this stage possible to draw a final conclusion as some developments are not yet completed. A feedback mechanism has been set up and the structure of a comparative framework established, although neither had been used at the closing of ESMA’s review in October 2015. The BPPG has announced that it will undertake a biannual review; however, there are no details available on this to date. ESMA encourages the BPPG to provide more information on these initiatives and to take them forward as substantively as possible in order for stakeholders to have confidence in the role of the BPP in addressing the areas identified in ESMA’s Final Report.
UK Group Aims to Improve Investor Compliance with Stewardship Code
The UK’s Financial Reporting Council (FRC) announced plans to evaluate institutional investor compliance with the Stewardship Codeand report on its findings publicly beginning in July 2016. The Stewardship Code, directed at institutional investors with holdings in UK-listed companies and – by extension, to their service providers such as proxy advisors – purports to establish areas of good practice to which investors should aspire, and operates on a comply-or-explain basis.
The FRC indicates that the quality and quantity of stewardship has improved over the past five years – but not consistently and transparently. The objective of the new evaluation scheme is to improve signatories’ reporting of their stewardship activities against the principles of the Code.
Stewardship and the Code
1. Stewardship aims to promote the long term success of companies in such a way that the ultimate providers of capital also prosper. Effective stewardship benefits companies, investors and the economy as a whole.
2. In publicly listed companies responsibility for stewardship is shared. The primary responsibility rests with the board of the company, which oversees the actions of its management. Investors in the company also play an important role in holding the board to account for the fulfillment of its responsibilities.
3. The UK Corporate Governance Code identifies the principles that underlie an effective board. The UK Stewardship Code sets out the principles of effective stewardship by investors. In so doing, the Code assists institutional investors better to exercise their stewardship responsibilities, which in turn gives force to the “comply or explain” system.
4. For investors, stewardship is more than just voting. Activities may include monitoring and engaging with companies on matters such as strategy, performance, risk, capital structure, and corporate governance, including culture and remuneration. Engagement is purposeful dialogue with companies on these matters as well as on issues that are the immediate subject of votes at general meetings.
5. Institutional investors’ activities include decision-making on matters such as allocating assets, awarding investment mandates, designing investment strategies, and buying or selling specific securities. The division of duties within and between institutions may span a spectrum, such that some may be considered asset owners and others asset managers.
6. Broadly speaking, asset owners include pension funds, insurance companies, investment trusts and other collective investment vehicles. As the providers of capital, they set the tone for stewardship and may influence behavioural changes that lead to better stewardship by asset managers and companies. Asset managers, with day-to-day responsibility for managing investments, are well positioned to influence companies’ long-term performance through stewardship.
7. Compliance with the Code does not constitute an invitation to manage the affairs of a company or preclude a decision to sell a holding, where this is considered in the best interest of clients or beneficiaries.
See this robust listof organizations that have published a statement of commitment to the UK Stewardship Code, including these statements from BlackRock,Vanguard, ISSand Glass Lewis.
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
– Report: Steady Rise in Voluntary Audit Committee-Related Disclosures
– Guide to Pro Forma Financial Information
– IIA Calls on SEC to Mandate Internal Audit Function
– Compliance Officers Call for SEC Enforcement Guidelines
– Study Estimates Almost 20% of Directors Nearing Retirement
It’s been six months since Nasdaq has been talking up its new Linq platform – and now it has delivered, both to settle trades and enable shareholders to vote using blockchain technology. This appears like it will be the wave of the future – particularly since blockchain technology is bound to get a big boost as more countries impose negative interest rates on their economies. Here’s a few things to review:
As noted in this blog by Steve Quinlivan, the SEC has approved a Nasdaq rule change to permit Nasdaq to exercise discretion to grant an extension to regain compliance before delisting a company that fails to hold an annual meeting.
Transcript: “Conflict Minerals: Tackling Your Next Form SD”
We have posted the transcript for our recent webcast: “Conflict Minerals: Tackling Your Next Form SD.”
Contingency Offerings: FINRA Reminds Brokers of Obligations
On February 8, 2016, FINRA released Regulatory Notice 16-08 relating to the contingency offering requirements of Rules 10b-9 and 15c2-4 under the Exchange Act. The Notice arises from FINRA’s review of various private placement offering documents in connection with FINRA Rule 5123’s filing requirement for certain offerings. FINRA observed that broker-dealers have not always complied with the regulatory requirements applicable to contingency offerings. Accordingly, the Notice is designed to remind broker-dealers of their obligations under these rules.
On Friday, Corp Fin posted 18 no-action responses over proxy access shareholder proposals for which companies had argued they should be excluded under Rule 14a-8(i)(10) – the “substantially implemented” basis. Looks like the Staff is favoring the 3% ownership threshold requirement as compared to other terms (egs. number of nominees, group size) as Corp Fin denied three no-action requests (Flowserve; NVR; SBA Communications), each of which involved a 5% ownership requirement adopted by the company. In other words, Corp Fin considers the ownership threshold to be a key determinant in its decision regarding substantial implementation, versus other provisions that don’t appear to be as material to the Staff. The other 15 no-action requests were granted, as detailed in this Cooley blog and Weil memo…
“The Manifest ‘Say on Sustainability” is a carefully done and important action-oriented research project. While it notes some modest progress in sustainability disclosures by some of the world’s largest companies, it also points out some very specific areas where improvements are needed such as in quality through standardized metrics, timeliness with financial reporting, more explicit linkages between financial and nonfinancial performance, and materiality determination. The latter ultimately rests with the board. Here too the report notes progress but areas where corporate governance needs to be improved. Manifest rightly points out that boards have a fiduciary duty to the company, not only to shareholders. This means they need to identity the significant audiences to the company which is the basis of determining materiality for reporting purposes. I suggest that this be done on an annual basis through a simple one-page board of directors ‘Statement of Significant Audiences and Materiality.’ This modest suggestion will lead to big improvements in all the key areas this report discusses.”
Where to Hold Board or Annual Meetings? The Answer May Have Surprising Consequences
In my experience, companies most often hold board and shareholder meetings at or near their principal executive offices. As a result, many corporations hold their meetings in California even though they may be incorporated in Delaware, Nevada or some other jurisdiction. Geographical convenience, however, can have unforeseen consequences. Several provisions of the California General Corporation Law apply to foreign corporations based on where they hold their board or shareholder meetings.
Here’s something from Abby Jones, who recently retired from QEP Resources as corporate secretary:
As I write this, my canine companion – who just a few months ago begged for scraps and dodged auto rickshaws on the bustling roads of Delhi – lies curled up next to me. I wonder what Jasmine dreams about – the rabbit she stalked in our local park this morning, or struggling to keep nine puppies alive on the unforgiving Indian streets. How she came to us is one miracle among many in the world of animal rescue.
Why, you can fairly ask, am I writing about animal rescue on this blog? I believe that sometimes, if we look at a problem through a different lens, it becomes easier to understand and perhaps solve. I sense that you, as trained skeptics, are doubtful – but stay with me for a few minutes, at the very least you may learn something about animal rescue.
I am fortunate to serve on the board of “Best Friends Animal Society,” a large non-profit whose mission is “to end the killing in America’s animal shelters … by building community programs and partnerships all across the nation.” In addition to running the nation’s largest no-kill sanctuary, which on any given day is home to nearly 2,000 homeless dogs, cats, rabbits, horses, goats, pigs and parrots, Best Friends has dog and cat adoption centers in Los Angeles, Salt Lake City – and one opening soon in Manhattan. They also work with a network including hundreds of no-kill organizations throughout the nation.
How Solving a Rescue Crisis Required Diverse Perspectives
In 1984, approximately 17 million animals were killed each year in America’s shelters. In that same year, the founders of Best Friends broke ground on their no-kill sanctuary in Kanab, Utah. As they worked toward their goal, the founders met many like-minded people and organizations striving for a no-kill nation. Due to the love and labor of thousands of people, the number of animals euthanized in America’s shelters is now 4-5 million. While Best Friends and its partner organizations will tell you that’s still too many, it is tremendous progress in 30 years.
Solving the euthanasia crisis involved tapping the talents of many smart people with diverse perspectives, and the solution is multifold. First, spay/neuter addresses the problem at the beginning – by preventing unwanted litters. In order to accomplish this goal, many animal welfare groups offer free or low-cost spay-neuter programs to low-income pet owners.
Second, adoption must be the preferred source of pets. The obstacle is that many potential pet owners dread going to shelters; they conjure images of forlorn animals, potentially with only hours before euthanasia, gazing at them from behind bars. Recognizing this issue, rescue groups pull animals from shelters, foster them in homes and take them to retail outlets where they can meet potential adopters. In addition to getting many animals adopted, this tactic reduces shelter populations, also decreasing the pressure to euthanize to create cage space.
The other strategies to achieve a no-kill nation include abolishing puppy mills (note – if your friend bought a cute puppy on the Internet or in a pet score, chances are over 90% that it came from a puppy mill), eliminating breed discrimination, and controlling feral cat populations through “trap-neuter-return” or TNR.
The Need for Fresh Perspectives on Boards
When, in 2013, one of the Best Friends founders asked me to consider serving on the board, I was stunned. The liberal, ex-hippie (maybe not ex), environmentalist founders who, with their passion and sweat had built an organization with revenues exceeding $50 million in 2014, were asking a lawyer who works for an oil and gas company (translate “fracker”) to serve on the board. What could I offer to a group that had already accomplished so much? The answer lies in what has changed the face of animal rescue over the last 30 years. Best Friends was looking for different perspectives – new ways to look at the problems the no-kill movement faces now.
Serving on the Best Friends board has helped me understand why board diversity is important. The boards of many oil and gas companies are populated with directors who come from the oil and gas industry (that they are almost always white and male goes without saying). Don’t get me wrong, their viewpoint is critical. Understanding geology and drilling techniques is incredibly challenging.
But imagine, if you will, adding a director who can ask the questions an ESG investor wants to ask, or the burning questions of a regulator? What kind of depth and breadth might those questions add to the debate? What if companies, instead of looking for directors who would help them perpetuate the existing company paradigm, offered them new ways to look at the problems of their industries today?
As investors push for change in the boardroom, I applaud their efforts. During my 13 years as a corporate secretary, I worked with many bright, talented and dedicated directors who truly did have corporate best interests at heart. I saw no instances of “group think” or simply rubber-stamping the CEO’s recommendations.
But what I rarely saw was a true diversity of viewpoints, people who looked at problems from different perspectives because their backgrounds were unique. It is that diversity that can truly change our boardrooms, help with crisis management and ensure companies are prepared to face the challenges that inevitably lie ahead.
Conflict Minerals: SCOTUS Extends Uncertainty
Last week, as noted in this Elm Sustainability Partners blog, the US Supreme Court granted an extension for filing an appeal to the SEC over the appellate court rulings on the conflict minerals disclosure requirements related to the use of specific determination wording – ie. NAM v. SEC.
Here’s the intro from this blog by Gunster’s Robert White:
Corporate venture capital has quickly developed into a major funding source for startup companies. This type of startup funding is available to some innovative startups and early stage companies, and the dollars involved are significant. This all sounds great, but is this type of funding right for your startup?
According to the National Venture Capital Association and PWC’s Money Tree survey, 905 corporate venture capital deals were closed during 2015 with $7.5 billion invested (primarily in high growth startup companies). These transactions comprised 21% of the total number of venture capital deals closed in 2015 and represented 13% of the total venture capital funds invested in that year. Not surprisingly, the biggest chunk of these investments went to software companies ($2.5 billion in 389 deals, which represented 33% of all corporate venture deals in 2015), while biotech deals were second ($1.2 billion in 133 deals, which represented 16% of all corporate venture deals that year).
Recently, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of 1,202 individuals — representative by gender, race, age, political affiliation, household income, and state residence — to understand public perception of CEO pay levels among the 500 largest publicly traded corporations. Key takeaways are:
– CEOs are vastly overpaid, according to most Americans
– Most support drastic reductions
– The public is divided on government intervention
74 percent of Americans believe that CEOs are not paid the correct amount relative to the average worker. Only 16 percent believe that they are. While responses vary across demographic groups (e.g., political affiliation and household income), overall sentiment regarding CEO pay remains highly negative.
This part doesn’t surprise me – but it’s still pretty amazing:
Public frustration with CEO pay exists despite a public perception that CEOs earn only a fraction of their published compensation amounts. Disclosed CEO pay at Fortune 500 companies is ten times what the average American believes those CEOs earn. The typical American believes a CEO earns $1.0 million in pay (average of $9.3 million), whereas median reported compensation for the CEOs of these companies is approximately $10.3 million (average of $12.2 million).2
Responses vary based on the household income of the respondent, but all groups underestimate actual compensation. Lower income respondents (below $20,000) believe CEOs earn $500,000 ($9.7 million average), while higher income respondents ($150,000 or more) believe CEOs earn $5,000,000 ($14.9 million average).
Rulemaking Petition: Disclosure of Gender Pay Ratios
Normally I don’t blog about rulemaking petitions because they don’t go anywhere. The SEC is not required to act on them; see my blog about how a lawsuit was recently dismissed that sought to force the SEC to act on a political contribution disclosure petition – but that case is now back in court!
Anyways, I thought I would note this new petition from PAX Ellevate Management that seeks to require companies to disclose gender pay ratios on an annual basis, or in the alternative, to provide guidance to companies regarding voluntary reporting on gender pay equity to investors…
Climate Change: GAO Examines Corp Fin’s Review of Disclosure
The GAO recently issued this 30-page report – entitled “SEC’s Plans to Determine if Additional Action is Needed on Climate-Related Disclosure” – to analyze whether the SEC stands on reviewing climate change disclosure, among other actions. Here’s an excerpt from the intro of the report:
SEC has taken one of three planned actions described in its 2010 guidance to determine if investors may need additional information on climate-related risks. Specifically, SEC has monitored the impact of its guidance on companies’ filings through its routine review processes but has not held a public roundtable on climate change disclosure, and SEC’s Investor Advisory Committee has not considered the issue. SEC staff believe that SEC has not taken the other two actions because some circumstances that existed when the 2010 guidance was issued have changed. Specifically, the 2010 guidance was issued when Congress was considering legislation that, if enacted, would have limited greenhouse gas emissions by establishing a cap-and-trade program.
According to SEC, this could have triggered disclosure requirements for companies covered by the program. However, the legislation was never enacted. This and changing priorities have resulted in SEC and its Investor Advisory Committee not taking additional actions. According to SEC staff, however, other efforts may address the issue of climate-related disclosure, including SEC’s project to review the effectiveness of disclosure requirements.
This project provides investors and other stakeholders with opportunities to provide comments to SEC on any disclosure topic. As of October 2015, the project is in its initial phase, and SEC staff have not recommended changes to the Commission.
