This Q&A interview with SEC Chair White conducted by Wilson Sonsini’s Steve Bochner is more useful than the typical speech (here’s a summary from Ning Chiu). Here’s an excerpt from near the end:
STEVEN BOCHNER: We have a few more minutes. Maybe talk a little bit about something that the next panel’s going to touch on as people get their lunch in a few minutes here, which is kind of balancing shareholder rights with the domain of the board. I mean, that seems to be one of the topics of our time here and there’s just been — since Sarbanes-Oxley dramatic change in shareholder rights, which has caused shareholder activism and a lot of is it a good thing/bad thing? The answer is probably somewhere in the middle, but proxy access, I think people know that history here.
What’s your view of how to strike that balance, the Commission’s role in it? How do you see that particular debate playing out?
CHAIR WHITE: Yes. I think at its core it’s not for the Commission to take sides in the debate. I can sort of explain what I mean about that a little bit. I mean, we obviously have rules that govern various acts of activism if we want to phrase it that way. We have rules that require disclosure. We’re focused on everybody, obeying/adhering to those rules, so investors get the information, shareholders get the information that they need to have. And so, I think that’s, one kind of important bedrock principle in that to the extent that I’ve said this before, I don’t think activists are a seamless piece. I think they can fall into different categories and they can be seeking different things and they can use different methods, which presumably means issuers may want to be responding differently depending on exactly what’s in front of them.
One of my favorite anecdotes is, I gave a speech on a lot of this at Tulane, at their corporate governance [conference], and the two immediate press readouts from what I said, one said, “White supports activists.” The other one side, “White trashes activists.” So I think I struck the balance right that day. [Later, they wrote about differences] between me and your opening speaker yesterday. On shareholder proposals, obviously our rules, since 2011 have provided for qualifying shareholders to make proposals.
Proxy access, clearly 2015 was a pivotal year. I think there were a lot — I think ISS has said over 120 shareholder proposals. I think 90 plus of them made it to a ballot. Sixty percent of them if I’m right, I think got majority support, and then I think there were 118 companies who actually in 2015 adopted some form of proxy access, names everyone knows –GE, Microsoft, Goldman Sachs, Morgan Stanley, Bank of America, and many other companies. And I saw one figure recently where I think there are 20 percent of the S&P — I think it’s 100, not 500 now have some form of proxy access. If you look back in 2013, it was 1/2 of 1 percent.
So, obviously there’s been a lot of activity in that space. I expect, by the way, there’ll be more activity this season in that space too.
The other piece of this — free associating a little bit — is, the uptick in what I call direct shareholder engagement that boards and companies are doing and shareholder proposals aren’t in that category. I’m really thinking of the outreach that’s being done. I think that’s all to the good. I mean, that’s something I really think is quite constructive.
STEVEN BOCHNER: Yeah. Well, why don’t we end on a topic that I know is important to you, which is diversity and you’ve been a director of a public company. You’ve been a federal prosecutor, Chair of the SEC. You’ve worked in a law firm, so you’ve seen it from about every side and I know it’s something you care deeply about.
CHAIR WHITE: Diversity on boards I think is enormously important — diversity everywhere I think is an enormously important topic. I think it adds value. I think you’ve seen in terms of the board context really study after study showing that greater diversity on boards adds value. I mean, it makes your board function better and adding value to your company obviously correlations — but start with that, and yet the numbers [on boards] really are not bearing that out in most companies.
I think on the gender side, it’s 16 percent women [on public boards] and I think GAO just put out a study in December saying that it’d take about four decades to get parity if you had an equal number of men and women, for example appointed to boards.
I don’t think it’s a want of supply either. I think there are plenty of highly qualified diverse candidates. There are resources to find them if your nominating committee needs resources to find them. I think I would urge boards to kind of start there. Where are you looking for your board candidates? If it’s that old traditional network where everybody’s come from for the last 50 years, you may have more trouble getting to highly qualified, diverse members of your board.
Obviously [I am] speaking [personally] from my various perspectives. When it comes to the SEC’s regulatory space, we don’t tell you who should be on your board and we don’t generally talk about even board qualifications. You know, a couple of exceptions to that, we do have disclosure rules on directors and their experiences and backgrounds and diversity. Those rules have been the subject of some conversation as to whether they are strong enough, whether they really are giving [enough useful information to] investors who are interested, and many are, in the racial, ethnic, and gender diversity of boards. They don’t require that disclosure. What they require is if a board considers diversity, say so and how, if it does. If you have a policy on a diversity as you’re locating and nominating directors how is that implemented and how do you judge its effectiveness?
In that rule we don’t have a definition of diversity because obviously diversity can mean a lot of things. In addition to gender, race, ethnicity, all kinds of qualifications, rightly so, fit into that concept.
We have a number of petitions pending that raise the issue of — wouldn’t this be more meaningful if you actually defined diversity in your rule, SEC, to at least include ethnicity, race, and gender, in addition to whatever other qualities, fall under that category and require disclosure of those facts And I think those concerns, from my point of view, are well-founded and I’ve asked the staff to study basically what the disclosures are currently under our existing rule, what they’ve been over time with an eye towards — with these concerns that I share, whether we need additional guidance or rulemaking.
Going Concerns: Slightly Down
Here’s the highlights of this Audit Analytics study on going concerns, for which an initial review seems to provide positive news, but a deeper analysis reveals a mixed bag of indicators:
– Fiscal year end 2014 is estimated to receive 2,233 going concerns, a decrease of 170 from the year prior, but this decrease is only 10 companies more than the 160 companies that ended up filing terminations with the SEC after disclosing a going concern in 2013. Therefore, almost all the drop was due to company attrition from the prior year’s going concern population.
– It is estimated that 15.8% of auditor opinions filed for fiscal year end 2014 will contain a qualification regarding the company’s ability to continue as a going concern. In 2008, the figure was 21.1% and the percentage decreased for 6 consecutive years thereafter to drop to the value of 15.8%.
– For fiscal year 2014, the number of new going concerns (going concerns filed for a particular fiscal year, but not the year prior) is estimated to be 530, which is the 4th year in a row with an amount under 600. This streak is notable because the 10 years prior to 2011 all had numbers above 600. Moreover, it should be noted that 48% of the new going concerns as of July 14th were disclosed in S-1s or F-1s and thus linked to recent IPOs, not established companies. A new going concern linked to a recent IPO should not necessarily be viewed as a negative economic event.
– Fiscal year 2014 saw the third (tied) lowest number of companies that improved well enough to shed its going concern status. A multi-year analysis of the going concerns allows for an identification of companies that filed a going concern one year but not the following year. This cessation can occur for one of two reasons: (1) the company files a subsequent clean audit opinion (subsequent improvement) or (2) the companies stopped filing audit opinions altogether (subsequent disappearance). A review of companies that experienced a subsequent improvement reveals that only 200 companies that filed a going concern in 2013 were able to file a clean audit opinion in 2014. This figure represents the third lowest (tied) for any year analyzed, since 2000.
Corp Fin Issues EDGAR Guidance for Asset-Backed Issuers
The Obama administration will call on lawmakers to double the budgets of the top U.S. market cops over the next several years, the White House announced Monday, a push almost certain to encounter opposition from the Republican-controlled Congress. The big request, which the White House is set to unveil formally Tuesday, calls for boosting annual funding for the Securities and Exchange Commission and the Commodity Futures Trading Commission to $3 billion and $500 million, respectively, by the fiscal year starting Oct. 1, 2020, according to a blog post by Jeffrey Zients, director of the National Economic Council. “The President will continue working to make sure that the financial system works for everyone,” Mr. Zients wrote. “As the financial services industry continues to rapidly evolve, some in Congress have used budget limitations to hamper the agencies charged with establishing and enforcing the rules of the road.”
President Barack Obama’s push to boost funding significantly for the SEC and CFTC comes amid increasing calls from Democratic presidential candidates Bernie Sanders and Hillary Clinton to do a better job at holding Wall Street firms and their employees responsible for misconduct. Tuesday’s blueprint, for the fiscal year beginning Oct. 1, is widely seen as an opening bid for budget negotiations with congressional Republicans and is unlikely to be enacted without significant tweaks. Mr. Zients said the White House would request $1.8 billion for the SEC next year, $200 million above its current funding level, and $330 million for the CFTC, up from the $250 million level it has hovered at for the second consecutive year.
Webcast: “How to Get Your Equity Plan Approved By Shareholders”
Tune in tomorrow for the CompensationStandards.com webcast – “How to Get Your Equity Plan Approved By Shareholders” – to hear Towers Watson’s Jim Kroll and Brian Myers, Fenwick & West’s Shawn Lampron and Alliance Advisors’ Reid Pearson explain how to navigate the NYSE & Nasdaq rules – as well as the proxy advisor and institutional investor policies – to obtain shareholder approval for your equity compensation plans.
Director Pay: Nasdaq Proposes Golden Leash Disclosure Requirement
A few weeks ago, Nasdaq proposed a rule change that would require listed companies to disclose “golden leash” arrangements. As noted in this Dorsey memo, the proposed rule would require listed companies to disclose on their website or in their proxy all agreements between any director or nominee any person or entity (other than the company) that provide for compensation or other payment in connection that the person’s candidacy or service as a director. The proposed rule is meant to be interpreted broadly – so it would apply to payments for items such as health insurance premiums. However, disclosure of arrangements that relate only to reimbursement of expenses incurred in connection with a nominee’s candidacy for director, or that existed before the nominee’s candidacy would not need to be disclosed.
Recently, I ran a popular blog listing 31 pet peeves about earnings releases. In response, a number of folks sent in additional pet peeves – including Foley & Lardner’s Pat Quick and Morgan Lewis’ Alan Singer – so here are 21 more:
1. Inappropriately mixing first & third person (“the Company” and “we”).
2. Conflating use of percent & percentage points.
3. Misuse and overuse of the verbs “drive,” “leverage” and “grow” – and variations of those terms.
4. Describing something as “growing” or “increasing” (i.e. a continuing event) when the data or evidence are historical (support only “grew” or “increased”).
5. Inadvertently issuing an earnings release early.
6. Having a bracket/change/comment from earlier draft seeping into the final.
7. Failure to update the forward-looking safe harbor.
8. Word typos. My favorite is when “Chief” is misspelled “Chef.” Spellcheck doesn’t catch that. Fortunately, for the company I knew that it happened to, the “Chef” Executive Officer loved to cook so she found it amusing (that one and only time).
9. Classic typo is putting in the wrong phone number for the conference call. Somehow the 800 number (that should have been entered as 888 or something similar) often turns out being an inappropriate hotline.
10. Bad numbers – the right people did not check them carefully enough, including showing “millions” as “billions” or vice versa.
11. Not owning up to a mistake. If there’s a mistake of consequence in the earnings release, the CEO/CFO should address it in the prepared remarks on the earnings call. And putting out a corrective earnings release is a tough pill to swallow, but it needs to be considered.
12. Management statements that a component of company results were “within management’s expectations” or “exceeded management’s expectations,” when no prior public forecast of the component was made.
13. Highlighting good news & burying bad news, particularly from one quarter to the next (one quarter, matters about ‘X’ are good news & in the headline; the next quarter, when all about ‘X’ is bad, there is no news about ‘X’ or the news is buried).
14. Always stating something is a “record” performance, each & every quarter.
15. Using performance measures in press releases that ultimately will not find their way into the 10-Q/10-K such that the release & disclosure filing seem to be talking about two different things.
16. Identifying something as a key performance measure one quarter & then not addressing that measure in subsequent quarters.
17. Explaining results from the quarter in present tense such that the statement seems to apply to the quarter that is in progress (“We are growing sales of our widgets” rather than “We had higher sales of widgets in the 3rd quarter”).
18. Do quotes really serve a purpose? They are often nonsensical.
19. Inconsistent guidance practices, such as changing measures from quarter to quarter or switching from annual/quarterly guidance to “long-term guidance.”
20. Over-promising & under-delivering (with respect to guidance) and then trying to explain it.
21. Not listening to the investor relations team (relying on the lawyers too much). But sometimes the converse is the problem.
Transcript: “The Latest Developments – Your Upcoming Proxy Disclosures”
We have posted the transcript for the recent CompensationStandards.com webcast: “The Latest Developments: Your Upcoming Proxy Disclosures.”
Cap’n Cashbags: Fakes His Own Death
In this 50-second video, Cap’n Cashbags fakes his own death to avoid giving a raise to a long-time employee. Stick around til the end for a dog clip:
The ink is barely dry from the FAST Act – which had been tucked into a transportation bill and the mashup of numerous bills that had been floated in the US House of Representatives last year – than the House passes three more bills that would changes the federal securities laws, as noted by Andrew Kuettel in this blog. Also see this MoFo blog – and this other blog by Andrew Kuettel…
By the way, Mike Gettelman has been posting a bunch of notes from the recent San Diego conference in his blog – including some analysis of the FAST Act…
Yahoo! Compensation Litigation: Parallels to Disney Case
Here’s a blog by Stinson Leonard Street’s Steve Quinlivan: The Delaware Court of Chancery has issued an opinion on a Section 220 demand made against Yahoo! No complaint has yet been filed, and although Vice Chancellor Laster speculates on some inferences that can be drawn, no one has proven anyone has done anything wrong.
The allegations in the case have eerie parallels to the Disney compensation litigation. The Vice Chancellor notes:
Mark Twain is often credited (perhaps erroneously) with observing that history may not repeat itself, but it often rhymes. The credible basis for concern about wrongdoing at Yahoo evokes the Disney case, with the details updated for a twenty-first century, New Economy company. Like the current scenario, Disney involved a CEO hiring a number-two executive for munificent compensation, poor performance by the number-two executive, and a no-fault termination after approximately a year on the job that conferred dynastic wealth on the executive under circumstances where a for-cause termination could have been justified. Certainly there are factual distinctions, but the assonance is there.
While noting the decision does not hold the Yahoo directors breached their fiduciary duties, the Vice Chancellor observed:
Based on the current record, the Yahoo directors were more involved in the hiring than the Disney directors were, but the facts still bear a close resemblance to the allegations in Disney III. The directors‘ involvement appears to have been tangential and episodic, and they seem to have accepted Mayer‘s statements uncritically. A board cannot mindlessly swallow information, particularly in the area of executive compensation: ―While there may be instances in which a board may act with deference to corporate officers‘ judgments, executive compensation is not one of those instances. The board must exercise its own business judgment in approving an executive compensation transaction.‖ Haywood v. Ambase Corp., 2005 WL 2130614, at *6 (Del. Ch. Aug. 22, 2005). Directors who choose not to ask questions take the risk that they may have to provide explanations later, or at least produce explanatory books and records as part of a Section 220 investigation.
Transcript: “Pat McGurn’s Forecast for 2016 Proxy Season”
We have posted the transcript for the webcast: “Pat McGurn’s Forecast for 2016 Proxy Season.”
This Cooley blog recaps this letter from BlackRock’s CEO to 500 companies about being wary of short-termism (as noted in this Davis Polk blog, the letter also urges companies to scrap quarterly earnings guidance). And here’s an excerpt from this CNBC article:
The world’s largest asset managers have held secret summit meetings to hammer out proposals for improving public company governance to encourage longer-term investment and reduce friction with shareholders. Jamie Dimon, chief executive of JPMorgan Chase, and Warren Buffett convened the sessions with the heads of BlackRock, Fidelity, Vanguard and Capital Group to work on a new statement of best practice that would cover the relationship between U.S. companies and their investors.
Also see this new study about short-termism by a trio of professors…
Transcript: “Proxy Drafting – Mid-Cap & Smaller Company Perspective”
We have posted the transcript for the webcast: “Proxy Drafting: Mid-Cap & Smaller Company Perspective.”
Political Spending: Court Dismisses Suit Against SEC for Not Acting on Rulemaking Petition
In practice, however, very few rights actually attend this right to petition, as was illustrated by the U.S. District Court’s recent ruling in Silberstein v. United States SEC, 2016 U.S. Dist. LEXIS 284 (D.D.C. Jan. 4, 2016). The plaintiff in that case sued the SEC after it failed to take any action in response to his rulemaking petition for over a year. The plaintiff complained that the SEC had both failed to respond and had effectively denied his petition.
With respect to both of these claims, Judge Rosemary M. Collyer ruled that the plaintiff was in the wrong court because Section 25(a)(1) of the Securities Exchange Act vests review of final orders of the SEC in the Court of Appeals, not the District Courts. Judge Collyer also found that SEC did not deny the petition; it merely failed to respond to it. Consequently, the plaintiff had failed to state a valid claim under the Administrative Procedure Act.
As Steven Quinlivan notes in this blog, the first crowdfunding portal has filed to be registered with the SEC – and as noted in this MoFo blog, the SEC recently approved FINRA’s funding portal rules that were subject to technical amendments a few weeks ago – and FINRA issued Regulatory Notice 16-06, which provides an overview of the new Funding Portal Rules.
Webcast: “Conflict Minerals – Tackling Your Next Form SD”
Tune in tomorrow for the webcast – “Conflict Minerals: Tackling Your Next Form SD” – to hear our own Dave Lynn of Morrison & Foerster, Ropes & Gray’s Michael Littenberg, Elm Sustainability Partners’ Lawrence Heim and Deloitte’s Christine Robinson discuss what you should now be considering as you prepare your Form SD for 2016. Get ready for the webcast with this commentary from Lawrence entitled “Why Your Conflict Minerals Policy Isn’t Good Enough for 2016“…
NASAA Proposes Rule for Tier 2 Regulation A Offerings
Here’s this blog from Morrison & Foerster’s Joanne Sur and Ze’-ev Eiger:
On January 27, 2016, the Corporation Finance Section of the North American Securities Administrators Association (NASAA) requested comments on a proposed model rule and uniform notice filing form aimed at simplifying the state notification requirements for Regulation A Tier 2 offerings. One of the most significant concerns regarding the proposed amendments to Regulation A was the requirement to comply with state securities laws. At the time the amendments to Regulation A were proposed, there was no coordinated review process by the states for Regulation A offerings. The final rules amending Regulation A, adopted on March 25, 2015, provide that Tier 1 offerings (for smaller offerings up to $20 million in any 12-month period) will remain subject to state securities law requirements, but Tier 2 offerings (for offerings up to $50 million) will not be subject to state review if the securities are sold to “qualified purchasers” or listed on a national securities exchange. Although the final rules define the term “qualified purchaser” in a Regulation A offering to include all offerees and purchasers in a Tier 2 offering, states continue to have authority to require filing of offering materials and enforce anti-fraud provisions in connection with a Tier 2 offering.
The NASAA’s proposed rule would require Regulation A Tier 2 issuers to file basic information about the issuer and the offering on a short notice form and pay a filing fee that can be used for filings in multiple jurisdictions. A consent to service of process also is included in the notice form so that a separate Form U-2 filing for consent to service of process for each applicable jurisdiction is not necessary. Issuers also can incorporate by reference into the notice form those documents filed on the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. Issuers would be required to submit the notice form at least 21 calendar days prior to the initial sale and the notice form would be effective for 12 months from the date of filing. Issuers can amend or renew the notice form for an additional 12-month period if the same offering is continued.
If you’re someone that spends any time reviewing the lists of comment letters on the SEC’s proposed rules, you may notice that occasionally those lists have a “memo to the file” indicating that a group has met with a SEC Commissioner about that specific proposal. Here’s an example of what such a memo looks like. This begs the question: “what is the rule that requires the SEC to post a memo reflecting that a meeting between a SEC Commissioner and someone happened over a proposal?”
This is a tricky one. It’s not really a rule that causes these “memos to the file.” Rather, it’s an interpretation from the SEC’s Office of General Counsel that the Administrative Procedures Act requires a discussion of a pending rule to be memorialized for the comment file.
Arguably, if the discussion sticks to the four corners of a comment letter submitted by the meeting counterparty, no memo is required (and no memo is required for discussions not related to a proposed rule). Since there is no rule, practice among the SEC’s Divisions, Offices and Commissioners varies in terms of how meticulous they document these meetings. Said differently, not every meeting is reduced to a memo – there might not be anything in the comment file about some meetings. So to answer the question posed above: “No rule, just practice varies by Commissioner.” And practice varies by federal agency – the CFTC is very meticulous about posting memos for all outside meetings. Thanks to Scott Kimpel of Hunton & Williams for his wisdom!
Personally, I remember when they first started posting the memos. I have always thought they were silly since they don’t say anything – nor should they. I think the Commissioners should be allowed to talk to folks to become more knowledgeable about rulemaking and not have it broadcast. But see this blog by Keith Bishop, who doesn’t like these ex parte meetings…
Recently departed SEC Commissioner Dan Gallagher has joined former Commissioners Atkins & Casey to work at Patomak Global Partners, as noted in this WSJ article…
Webcast: “Activist Profiles & Playbooks”
Tune in tomorrow for the DealLawyers.com webcast – “Activist Profiles and Playbooks” – to hear Bruce Goldfarb of Okapi Partners, Damien Park of Hedge Fund Solutions and Renee Soto of Sard Verbinnen identify who the activists are – and what makes them tick.
DTCC Explores Blockchain Technology
As noted in this blog by Steve Quinlivan, the Depository Trust & Clearing Corporation – known as “DTCC,” whose subsidiary that keeps book-entries is known as “DTC” – issued this white paper examining the use of blockchain technology to settle trades…
Senator Warren has issued this 13-page report on “weak justice”…
Recently, a member claimed that he heard that the SEC’s Public Reference Room was closed. I was surprised to hear that – so I paid a visit to find out that it indeed still exists. It does – albeit it’s now subsumed into the SEC’s library, with daily hours reduced to 10 am – 3 pm.
Of course, the importance of the Public Reference Room has greatly diminished over time. Before Edgar came online, that was the place to go to obtain SEC filings. There were times when there was a huge line to merely gain access to it – and it was often bedlam as described in this NY Times article from 1982. And here’s a GAO report from 1989 about how to improve its operations – remember microfiche! Here’s a pic of the room from 1937. And even when Edgar first started, there were many SEC-related documents that could be found only there.
But at this point, it’s more of a historic relic as information is readily available online, for free or a fee. In fact, the Public Reference Room now consists of what essentially is a one-person office with a solitary filing cabinet in it, filled with Form 144s. And if the SEC eventually requires the electronic filing of those forms (which Jesse Brill has urged for quite some time in The Corporate Counsel and more recently in this rulemaking petition), I imagine the Public Reference Room will truly be history. Please send your memories of the place – I won’t share without your permission.
How’s the SEC’s Library Looking?
I did visit the SEC’s library, which always has been one of my favorite spots. How many of the old-timers out there remember the library being jammed with both Staffers and visitors? And more than one Staffer perhaps getting a little shut eye? A nice quiet place for a nap. Send me your fond memories (and I won’t attribute unless you want it).
Getting in there is not as simple as the old days, when you could just walk in off the street. You still can walk in off the street – but you first must go through security and then wait in the Visitor’s Office until a librarian comes to fetch you. But it’s worth the trip! Of course, the library’s staff spends most of its time managing the numerous electronic resources available to the entire SEC – so the book collection is not visited often. It’s more of a museum. But for securities law nerds, it’s full of classic resources.
An exclusive group of heavyweights is chosen to deliberate over an obscure, yet crucial, policy matter. Two players who didn’t make the membership cut take offense, and spurn an invitation to join the discussion. It’s the stuff of classic Washington power politics intrigue. In this case, the tussle over the shape of an advisory panel has set up a behind-the-scenes tiff between the country’s top markets regulator – the Securities and Exchange Commission — on the one side, and two of the country’s biggest exchanges — the New York Stock Exchange, and Nasdaq – on the other.
The two exchanges are so upset the SEC didn’t offer either of them a seat on the agency’s Equity Market Structure Advisory Committee that they have spurned offers by the panel to participate in policy deliberations held by its members behind closed doors, according to people familiar with the matter.
Our February Eminders is Posted!
We have posted the February issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
Spanking brand new. By popular demand, this comprehensive “Materiality Handbook” covers a wide range of scenarios, from how 8-K, press releases and Reg FD to 10-Ks and 10-Qs and securities offerings. This one is a real gem – 32 pages of practical guidance – and its posted in our “Materiality” Practice Area.
The FASB’s “Materiality” Rulemaking: Comments So Far
The two FASB proposals for determining materiality continues to stir controversy. For example, these proposals have raised the ire of investors, including the SEC’s Investor Advisory Committee (see this comment letter from CII and this NY Times column). In its proposals, the FASB has said materiality is a legal concept – and in essence, isn’t an accounting concept. The latter is debatable as many courts have cited to the FASB’s concept of materiality in their decisions – and materiality has been discussed in both legal cases and in the accounting literature (eg. SAB 99). Here’s the comments on the FASB’s proposal so far – check out this one from Jack Ciesielski.
Audit Committees: Regulators Change Bank Duties
This blog by Steve Quinlivan notes how the Federal Reserve, FDIC and OCC recently issued an advisory to indicate their support for the principles in Parts 1 and 2 of the Basel Committee on Banking Supervision’s March 2014 guidance on “External audits of banks” referred to as the “BCBS external audit guidance.” Steven notes that Matt Kelly has written two blogs about the advisory, including this one about the practical implications of it…
Check out this blog by Mike Gettelman to hear what Delaware Chief Justice Leo Strine said this week at the San Diego conference…
Here’s something from Abby Jones, who recently retired from QEP Resources as corporate secretary:
Investor Relations and corporate governance teams increasingly are receiving investor questions about ESG matters. What should these teams do if they receive a call or letter?
How We Got Here – ESG stands for Environmental, Social and Governance. ESG has become shorthand for investment methodologies that consider sustainability. The ESG investment theory posits that considering ESG factors offers portfolio managers added insight into the quality of a company’s management, culture, and risk profile. ESG investors want companies to increase their disclosure of environmental, social and governance information so that investors can make investment decisions with that information in mind.
In February 2010, the SEC issued an interpretive release titled “Commission Guidance Regarding Disclosure Related to Climate Change.” In response, few companies provided climate change disclosure in their 10-Ks. Fearing the SEC guidance was inadequate, advocacy groups including the Global Investor Coalition on Climate Change, the Climate Disclosure Standards Board, and the Sustainability Accounting Standards Board issued carbon asset risk disclosure guidelines.
And some sustainability advocacy groups – such as Ceres – claim that most companies have failed to provide meaningful carbon asset risk disclosures in response to these guidelines. In order to obtain information, some large investors with ESG goals have begun to contact investors directly. Hence the calls.
Who is Calling Whom? – Some large investors such as state pension funds and large institutions with specialized funds have ESG teams devoted to gathering ESG information. Their first point of contact is typically someone in Investor Relations or the Corporate Secretary’s department.
What Do Investors Want to Know? – The information these investors seek can be very specific. For example, some investors have recently asked for greenhouse gas (GHG) emission totals, plans to submit data to the Carbon Disclosure Project, internal GHG emission targets, plans to adopt a corporate sustainability plans, and other related data. Those asking the questions are often well-informed about the subject matter and the industry involved.
What Should I Do Upon Receiving a Call or Letter?
Here are my suggestions:
1. Make sure all internal stakeholders are aware your company has been contacted. This will generally include Investor Relations, the Operations and/or the Health Safety and Environmental (HSE) team, the governance team, the CEO and CFO. Obviously, the list will vary depending on the organization.
2. Determine whether any of the information is proprietary, and your company’s willingness to release it, whether narrowly or broadly.
3. Determine whether your company has the information sought, and whether you measure it the same way the requesting investors do.
4. Ascertain which department(s) are responsible for gathering and maintaining the information.
5. Put together a working group to assemble the data to be released and to answer the policy questions.
6. Decide whether your company wants to provide the information just to the investor who requested it – or more broadly.
7. Set up a time to talk with the investor representatives. Even if your company plans to broadly disseminate the information, you should take the time to speak with the investors who contacted your company.
8. If you plan to disclose to just the individual investors, review all data you plan to provide with legal counsel to ensure you do not run afoul of Regulation FD. Have that counsel present during the call in case the answer to a question prompts disclosure of additional information.
9. If you plan to disclose the information more broadly, work with the Legal Department Investor Relations, Financial Reporting, and Corporate Communications to ensure adequate and accurate disclosure.
10. Have employees who understand the subject matter on the phone for the call. They are best qualified to have these discussions – and to answer specific questions.
11. If you have good facts to tell, by all means tell them. Investors want you to answer their questions – but in my experience they also like to hear about innovative processes your company has developed to advance ESG goals. Don’t be afraid to go “off topic” to provide good news.
Examining Carbon Reduction ROI & Competitive Positioning
Here’s a great blog by Pam Styles that analyzes disclosures companies have made about their ROI when it comes to carbon reduction initiatives. It includes some good sample purchasing company disclosures…
Transcript: “Audit Committees in Action: The Latest Developments”
We have posted the transcript for our recent webcast: “Audit Committees in Action: The Latest Developments.”
