Thanks to those that participated in this survey – a hot topic! Below are the results from our recent survey on hedging policies:
1. Does your hedging policy cover?
– Only officers? – 3%
– Only officers & directors? – 43%
– Officers, directors & employees? – 54%
2. Does the hedging policy cover?
– Only company securities granted by the company as compensation? – 3%
– All company securities without regard to how acquired? – 97%
3. If your company doesn’t currently cover all employees under a hedging policy, do you expect to expand it now to all employees?
– Yes – 27%
– No – 73%
4. Do you think there is a way to effectively enforce a broad hedging policy?
– Yes – 8%
– No – 61%
– Not sure – 31%
Escheatment: Delaware Proposes Changes Beneficial to Companies
As noted in this memo, Delaware Senate Bill 141 was introduced in the Delaware General Assembly last week proposing many significant changes to the existing Delaware unclaimed property audit and administration regime, many of which would be beneficial to companies if the law gets passed. Delaware likely is acting as it was just sued for the first time before an audit, according to this WSJ article. This is a hot topic – see this audio archive of our recent related webcast…
More on our “Proxy Season Blog”
We continue to post new items regularly on our “Proxy Season 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:
– Sample: Proxy Statement Reg Summary Sheet
– Shareholder Proposals: Corp Fin Allows Exclusion of “Review of Company’s Voting Policies” Proposal
– More Debate: Harvard’s “Shareholder Rights Project”
– Trinity v. Wal-Mart: Serious Implications for the Ordinary Business Exclusion
– Shareholder Proposals: Playing Games With Submission Deadlines
Since the new Regulation A/A+ took effect on Friday, June 19th – and the SEC denied Montana’s request to stay its implementation – the SEC has posted these 6 new/revised forms (& Form 2-A has been rescinded):
As we recover from Year Two of the conflict minerals disclosure push, we’ll continue to see plenty of reports and studies that focus on disclosure trends and statistics in Form SDs (they will be posted in our “Conflict Minerals” Practice Area as they become available). But this Stinson Leonard Street blog covers an article about the question of whether the conflict minerals rules are having a real world impact in the DRC. Here’s an excerpt:
Politico has an interesting article about a trip to the DRC in an attempt to answer that question. The author was told “not a single mine was tagging its output so that buyers could identify the mine at which it had originated.” “Tagging is very expensive, . . . We don’t have the partners to pay for it.” Of course, it’s only one person’s perspective.
More on our “Proxy Season Blog”
We continue to post new items regularly on our “Proxy Season 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:
– Shareholder Proposals: Review of Proxy Voting on ESG Issues
– Proxy Access: Whole Foods Responds to Shareholder Proposal With Own Alternative
– An Interview with Fidelity Worldwide Investments
– Group Presses on Political Spending Disclosures
– 10-K Wrap Design: Five Tips to Do More with Less
People love the brain-teasers. I received many emails in response to my blog about a contract that tackles the “what day is it” query. Here are some of those responses:
– Whitney Holmes of Dorsey & Whitney notes: Oh dear, the problem of the infinitesimal…. I don’t advocate bringing back the stake, but after 400 years I wish this kind of question would go away.
Midnight doesn’t really exist—it is only in the mind—because there is no indivisible unit of time. Midnight (in the sense of 12:00 o’clock at night) can be infinitely subdivided into seconds, tenths of seconds…nanoseconds, picoseconds and so on. What about 12:00:00.0000001 “midnight”? Still a.m. in my view and not heretical. See, Alexander Amir, Infinitesimal: How a Dangerous Mathematical Theory Shaped the Modern World, Scientific American / Farrar, Straus and Giroux (April 8, 2014). Because every unit can be subdivided into smaller units, any time that starts with a 12:00 has to be the beginning of the next cycle (the next day, in the case of midnight) or you would need an infinite string of zeros, which is impossible because infinity is also a concept that only exists in the mind. Therefore, nothing can happen “at midnight” unless midnight is understood to be 12:00 plus some minute increment of time. As a result, Midnight is 12:00 a.m. the next day. QED
Of course, that results in “12:00 noon” being “p.m.”, or “afternoon,” which is pleasantly paradoxical, not that anybody really cares. Id.
This is reminiscent of the argument that came up at the turn of the century regarding whether 2000 or 2001 was the first year of the new century. Ugh.
– Consecutive days simultaneously begin and end at midnight. It’s similar to the singularity principle with regard to black holes where relativistic equations break down because at the singularity, you reach a theoretical infinitesimal point where an infinite mass exists. The whole “boundary” concept proposed by others makes it seem like time, or more correctly space-time, is not continuous or that you could even discern exactly where the boundary lies. You could never measure the precise moment of midnight, it’s impossible because it’s a singularity. It’s not dissimilar from attempting to measure the length of an island’s coastline – as the size of your ruler decreases and approaches 0, the island’s coastline approaches infinity (there is an interesting book on fractals I read long ago that dives into this idea, which interestingly enough showed up on the LSAT exam I took – I guess that section did not truly test my reading comprehension because I know the answers to the questions based on prior substantive knowledge!).
The response that a day begins a “nanosecond” (10^-9 seconds) after midnight is not correct because that would mean that 1 picosecond (10^-12 seconds)after midnight would still be the prior day, which obviously doesn’t make sense. If you want to get really nerdy, one could analyze the impact of different inertial frames of reference on people’s perception of time under the special theory of relativity.
The practical solution is that if you want something to end at the end of a particular day, use 11:59:59, because it is unlikely that something could happen in the one second between this time and 12:00 that would cause a different result under a contract. For the same reason, I’d also use 12:00:01 for the same reason for something that must begin at the beginning of a certain date. If the one second is problematic for some reason, just carry the specified time out to more significant digits. At some point, we just need to accept an imperfect but practical solution to a problem that is impossible to solve perfectly.
– Pugh v. Duke of Leeds (1777) 2 Cowp. 714 per Lord Mansfield: “’Date’ does not mean the hour or the minute, but the day of delivery and in law there is no fraction of a day.” In Lester v. Garland (1808) 15 Ves. 248 Sir William Grant MR said “Our law rejects fractions of a day more generally than the civil law does. the effect is to render the day a sort of indivisible point.”
Thus a day begins at the instant of midnight passing, and ends at the following midnight. The parties can of course agree to define a day differently, and for banking reasons a day is often defined as ending at 1pm or 2pm (as money transmitted later may not reach the other party until the next day).
In English law, this holds good still – although there are some variations according to custom and circumstance. However, the starting point under US law is, presumably, Lord Mansfield in 1777, with whatever variations were determined by US courts or statutes since 1790 (or thereabouts).”
– There is no such thing as 12 am or pm. It is either 12 noon or 12 midnight.
Engaging on talent. Directors have long assumed responsibility for selecting and replacing CEOs, both in the normal course of business and in “hit by a bus” scenarios. Many also find it useful to track succession and promotion—for example, by holding annual reviews of a company’s top 30 to 50 key executives. But to raise the bar, some boards are moving from simply observing talent to actively cultivating it. Case in point: directors who tap their networks to source new hires. Donald Gogel, the chairman and CEO of Clayton, Dubilier & Rice, explains that “our board members can operate like a highly effective search firm. There’s nothing like recruiting an executive who worked for you for a long time, particularly in some functional areas where you know that he or she is both capable and a great fit.” Other boards actively mentor high-performing executives, which allows those executives to draw upon the directors’ experience and enables the board to evaluate in-house successors more fully.
3 Biggest XBRL Mistakes
For those responsible for XBRL filings, this article does a good job of explaining common errors (egs. DEI information; scale errors; auto-generated tags) – and tips on how to avoid them…
Here’s an excerpt from this blog by Cooley’s Cydney Posner:
Here’s an interesting report from Bloomberg on a soon-to-be-published study that concludes that stock analysts are actually worse at predicting corporate earnings now, after a number of regulatory actions to increase transparency and prevent research analyst conflicts of interest, than they were prior to these actions. In the wake of the dot-com crash and the Enron scandal, Congress, regulators and SROs enacted laws and adopted rules designed to increase transparency, improve corporate disclosure and prevent analyst conflicts, e.g., SOX (2002) and various conflict-of-interest rules adopted by the exchanges. While the study found an improvement in forecasting in the early 2000s right after adoption of these rules, the improvement was short-lived. The study showed that forecast accuracy significantly declined over the longer term despite the reduction in analyst conflicts of interest.
Also see this article entitled “9 ways companies fool you with earnings.” And don’t forget that Regulation A+ takes effect tomorrow, June 19th. As noted in this blog, the SEC has denied Montana’s request to stay it’s implementation…
Are Non-GAAP Disclosures Coming Under Renewed Scrutiny?
Here’s an excerpt from this blog by Cooley’s Cydney Posner:
A new study from the Associated Press, discussed in this AP article, shows a strong resurgence in the use of non-GAAP financial measures, most often reflecting numbers that are more favorable than GAAP numbers. The AP analyzed results from 500 major companies, based on data provided by S&P Capital IQ, a research firm, showed that the spread between GAAP and non-GAAP earnings has grown substantially over the past five years. For 21% of companies, non-GAAP profits reported in the first quarter were higher than net income by 50% or more, compared with 13% five years before. Although 72% of the companies had non-GAAP profits that were higher than net income in both the first quarter of this year and five years earlier, adjusted earnings were 16% higher this year compared with 9% five years ago. In the study, 15 companies “with adjusted profits actually had bottom-line losses over the five years.“ Moreover, the article contends, “the financial analysts who are supposed to fight corporate spin are often playing along. Instead of challenging the companies, they’re largely passing along the rosy numbers in reports recommending stocks to investors.”
Typically, the non-GAAP adjustments eliminated charges for layoffs, failed business operations or other restructuring charges, declines in the value of patents or other intangible assets, or charges related to employee equity comp. Whether or not these exclusions are fair, properly presented or even help investors see the financial results “through the eyes of management,” they are once again drawing the attention of critics. Indeed, former SEC chief accountant Lynn Turner is quoted in the article as contending that “companies are still touting ‘made-up, phony numbers’ as much as they did 15 years ago, perhaps more….” And one investor was quoted as finding the data “more confusing than it’s been in a long time, and the reason is all the junk they put in the numbers” and complaining of the time wasted “sifting through the same ‘nonsense’ figures…. confronted back in the dot-com days.”
In 2013, the head of the SEC’s Financial Reporting and Audit Task Force indicated at an AICPA conference, as reported by the WSJ, that the SEC was looking at the use of these non-GAAP measures “with an eye toward possible enforcement cases.” In particular, they were reportedly concerned about “mislabeling,…when companies use common, well-defined terms to refer to their own performance measures” and “trends and patterns that could indicate a risk of fraud, such as cases in which a company shows high reported earnings but has lower earnings for tax purposes, or when a company has a high proportion of transactions that are kept off its balance sheet.” While no big splashy cases have yet materialized as a result, frothy markets tend to invite the attention of concerned regulators, especially regarding issues that have attracted press scrutiny.
Political Spending Disclosure: House Bill Would Bar SEC From Adopting Rules
Yesterday, the House Appropriations Committee approved the “2016 Financial Services and General Government Appropriations” bill, which includes some items that don’t pertain to funding the SEC. [It’s a shocker that Congress would do that!] In addition to not giving the SEC an increase in funding (as I’ve blogged before), Section 625 of the bill prohibits the SEC from adopting a rule that would require public companies to disclose their political spending. We’ll see if that provision survives as this bill winds its way through the sausage machine..
Meanwhile, as noted in this article, over 20 advocates sent a letter to President Obama requesting that the upcoming SEC Commissioner be filled by folks who support corporate political spending disclosure rulemaking. And this article cites a new report – and petition – that supports the view that the next new Commissioner shouldn’t have ties to entities that the SEC regulates…
With so many companies now improving their proxy disclosures, I’ve decided to hold an annual contest for proxy disclosures. The deadline for nominations is Wednesday, July 1st. The winners will be decided by you – via anonymous popular voting. In three weeks, I will post the nominees to be voted upon in the following 14 categories – in the meantime, please submit your nominations by emailing them to me.
– Self-nominations permitted
– Max of 3 nominations per company
– No need to explain why you’re nominating a proxy for a category(ies). Just let me know the company name and the category(ies) for which it is being submitted.
Here’s the categories:
1. Best Overall Proxy (Combined Online & Print)
2. Best Print Proxy – Large Cap
3. Best Print Proxy – Mid-to-Small Cap
4. Best Online Proxy – Large Cap
5. Best Online Proxy – Mid-to-Small Cap
6. Most Improved Print Proxy
7. Most Improved Online Proxy
8. Most Persuasive Supplemental Letter/Additional Soliciting Materials
9. Best Executive Summary
10. Best CD&A
11. Best CD&A Summary
12. Best Shareholder Engagement Disclosure
13. Best Director Bios Disclosure
14. Best Shareholders Letter
Sights & Sounds: “The Women’s 100 Conference ’15″
Just wrapped both of my “Women’s 100” Conferences over the past two weeks – DC and Palo Alto. Like last year, they were very interactive & loads of fun. Here’s a nice note from Mintz Levin’s Megan Gates about it. [By the way, Megan & her team are doing a great job with their new blog – check it out!] Also check out this emotional speech by Prudential’s Peggy Foran, who earned the “Linda Quinn Lifetime Achievement Award” in DC.
Here’s a 40-second video that gives a little bit of the DC event’s flavor (with a nice wave cheer) – and then below that is a 40-second video of the Palo Alto event (great “boom shakalaka boom” at the end):
Here’s some thoughts from Baker & McKenzie’s Dan Goelzer: Recently, Audit Analytics released its annual report on financial restatement trends, “Financial Restatements 2014–A Fourteen Year Comparison.” The study concludes that the absolute number of restatements is constant and the severity of restatements is relatively low, although there is a trend toward more restatements by large public companies. According to the report synopsis and AA’s blog:
– During the last five years, the number of public company restatements has remained essentially flat. Restatements peaked at 1,842 in 2006. By 2009, restatements had fallen to 761. Restatements rose to 836 in 2010 and have remained near that number through 2014.
– While the overall number of restatements is relatively constant, the number of accelerated filers – the largest public companies – announcing restatements is rising. In 2009 and 2010, 171 accelerated filers restated. That number has increased each year since 2010. In 2014, 309 accelerated filers restated.
– The severity of restatements remained low in 2014, consistent with AA’s findings during the past several years. In 2014, the average public company restatement resulted in an income adjustment of $1.9 million, the lowest adjustment amount in eight years. In addition, AA’s blog states that “virtually all” of the severity indicators tracked by Audit Analytics remained low in 2014. The severity indicators are negative impact on net income; average cumulative impact on net income per restatement; percentage of restatements with no impact on income statement; average number of days restated; and average number of issues identified in restatement.
A somewhat different perspective emerges from a report released by Cornerstone Research. That report, entitled “Accounting Class Action Filings and Settlements—2014 Review and Analysis,” finds that securities class actions with accounting-related allegations increased in 2014; 69 new accounting cases were filed, an increase of 47 percent over 2013. (Cases are considered “accounting cases” if they involve allegations related to Generally Accepted Accounting Principles (GAAP) violations, auditing violations, or weaknesses in internal control over financial reporting.) Other highlights of the Cornerstone report include:
– More than one in four of the accounting class action complaints referred to an SEC inquiry or action. This is the highest level of private accounting suits that parallel SEC enforcement cases since Cornerstone began tracking this variable in 2010.
– Accounting cases involving restatements increased to the highest level in seven years – both in terms of the number of cases filed (29) and as a percentage of total accounting cases (42 percent).
– Since 2010, the majority of accounting cases have included allegations of internal control weaknesses. In 2014, 60 percent of cases filed involved internal control weaknesses.
– The “Disclosure Dollar Loss Index” for accounting cases involving restatements increased to its highest level since 2005. The Disclosure Dollar Loss Index is a measure of the decline in market capitalization at the end of the class period.
In Cornerstone’s press release, Dr. Elaine Harwood, a Cornerstone Research vice president and head of the firm’s accounting practice, offered this explanation for the increase in class action litigation alleging accounting violations: “The increase appears to be, at least in part, a result of the SEC’s heightened focus on accounting-related fraud as demonstrated by the substantial growth in accounting case filings that refer to inquiries or actions by the SEC.” As to the reasons why more class actions relating to restatements were filed in 2014, Dr. Laura Simmons, a Cornerstone Research senior advisor, observed: “The increase in filings of cases involving restatements is consistent with our finding of a relative increase in negative stock price movements surrounding restatement announcements in 2014 as compared to recent years.”
Comment: The Audit Analytics study is consistent with other research indicating that the reliability of financial reporting has increased post-Sarbanes-Oxley. However, as Cornerstone’s research indicates, market-moving restatements, while rarer than in earlier years, still can have severe consequences, both in terms of SEC action and private litigation.
A few months ago, I blogged an excerpt from an article that quoted the SEC’s Chief Accountant Jim Schnurr as saying that “there is virtually no support to have the SEC mandate IFRS for all registrants.” Now, a few weeks ago, Jim gave a speech in which he seemed to disagree that IFRS is dead in the US (as noted in this article). Here’s an excerpt from his speech:
As I mentioned publicly last month, the staff has recently heard from a number of different constituents about IFRS: preparers, investors, auditors, regulators and standard-setters. We heard three key themes through those discussions: There is virtually no support to have the SEC mandate IFRS for all registrants. There is little support for the SEC to provide an option allowing domestic registrants to prepare their financial statements under IFRS. There is continued support for the objective of a single set of high-quality, globally accepted accounting standards. So, while full-scale adoption or an option does not appear to have support, it does not mean we ‘bury’ the underlying objective of a single set of high-quality, globally accepted accounting standards. On the contrary, constituents continue to support that idea. So, the real questions are: what is the path to achieve that objective and how do we get there?
Delaware House Approves Curb on Fee-Shifting Bylaws
Here’s news from the Delaware Law Weekly (also see this memo):
The state House of Representatives on Thursday unanimously approved SB 75, the annual package of amendments to the Delaware General Corporation Law, which included a measure that would prevent stock corporations from enacting bylaws that impose attorney fees and costs on plaintiffs who lose after filing lawsuits alleging corporate waste or wrongdoing. The measure now goes to the desk of Gov. Jack Markell, who is expected to sign it into law.
“SB 75 helps preserve the balance between shareholders and management and ensures that shareholders in Delaware corporations have access to the Court of Chancery,” said Kelly Bachman, Markell’s press secretary. “The governor would like to thank the Corporation Law Council for its continued efforts to improve Delaware law and preserve Delaware’s place as the leading state of incorporation.”
Approval—which required a two-thirds vote—came on a 40-0 vote with one state representative absent.
Chief Deputy Secretary of State Richard J. Geisenberger came to the chamber before the vote to answer lawmakers’ questions and said its drafters were confident that the bill would maintain the delicate balance of Delaware’s franchise in corporate regulation, which he said is worth $1.1 billion annually to the First State. The state should aim, Geisenberger said, “to strike a balance between the attractiveness of our corporate statute to managers and [the needs of] raising capital from shareholders.”
He added that he did not think banning stock corporations from adopting fee-shifting bylaws posed a risk to Delaware’s attractiveness as a state of choice for incorporation. He stressed that another key provision of the act allows corporations to state in their bylaws that claims under the DGCL be brought only in the courts of Delaware.
Recently, Corp Fin announced a new policy that the Staff will publicly release “no review” letters for registration statements that are not selected for review. These “no review” letters will be posted on Edgar in a company’s “correspondence” stream. A company and its advisors would already know about a registration statement not being selected for review – so this move really only benefits third parties who wanted to know.
Some folks want Corp Fin to issue “no review” letters for preliminary proxy statements since the existing practice is that companies can presume that no comments from Corp Fin are forthcoming if they don’t hear from the Staff within 10 calendar days of filing, per Rule 14a(6)(a). Learn more about this process in our “Preliminary Proxy Statements Handbook.”
On the other hand, most folks like the fact that the Staff is silent and doesn’t issue a “no comments” letter if its ’34 Act filings are reviewed and the Staff has no comments. In other words, it’s possible that your 10-K was reviewed but the Staff had no comments – but you wouldn’t know that since they never contacted you. Typically, the ’34 Act review is only of the company’s financials, conducted by Corp Fin’s accounting staff. This review is necessitated by Section 408 of Sarbanes-Oxley, which mandates that every company’s periodic disclosures must be reviewed at least once every 3 years.
The rationale for not wanting a “no comments” letter is that you don’t want the CFO and Controller’s office getting excited and thinking they are doing a great job because Corp Fin didn’t issue any comments. Better to keep them on their toes…
Court Finds SEC’s Use of ALJ Likely Unconstitutional
The debate over whether the SEC’s use of administrative law judges in enforcement proceedings has ratcheted up a few notches. Last week, in Hill v. SEC, the US District Court for the Northern District of Georgia preliminarily enjoined the SEC from conducting the administrative proceeding brought against an alleged insider trader, finding a substantial likelihood that he will succeed on the merits of his claim that the SEC has violated the Appointments Clause of Article II of the US Constitution.
As noted in this blog, the Appointments Clause requires that “inferior officers” be appointed by the President, department heads or courts of law. SEC administrative law judges are not appointed by the SEC – they are hired by the SEC’s Office of Administrative Law Judges, with input from the Chief Administrative Law Judge, human resource functions and the Office of Personnel Management. The Court looked to the powers of the administrative law judge which are functionally comparable to that of a judge in making its decision.
As noted in this blog, this WSJ article indicated that the SEC will likely resolve this issue by having the Commissioners appoint its ALJs directly. But in the meantime the court’s ruling could spur similar challenges to the validity of current and past SEC proceedings – but the US government is fighting this new decision.
Tomorrow’s Webcast: “Proxy Season Post-Mortem – The Latest Compensation Disclosures”
Tune in tomorrow for the CompensationStandards.com webcast – “Proxy Season Post-Mortem: The Latest Compensation Disclosures” – to hear Ken Bertsch of CamberView, Alan Dye of Hogan Lovells, Dave Lynn of CompensationStandards.com and Morrison & Foerster and Ron Mueller of Gibson Dunn analyze what was (and what was not) disclosed this proxy season.
The SEC truly is getting it from all sides these days. As noted in this article, the House Appropriations Committee marked up a bill yesterday that would hold the SEC’s funding flat for the next fiscal year. The “2016 Financial Services and General Government Appropriations” bill would provide $1.5 billion for the SEC in fiscal 2016, the same budget level the agency is operating on this year. That number is $222 million less than what the Obama administration requested. The bill provides funding toward information technology projects at the agency – but prohibits the SEC from spending money out of a reserve fund established by Dodd-Frank…
Proxy Access: 5 Law Firm Comment Letter
A few days ago, five law firms – which handle the bulk of the Rule 14a-8 work out there – submitted this comment letter to the SEC regarding the agency’s ongoing review of the shareholder proposal process for no-action requests made under Rule 14a-8(i)(9) (ie. conflicting proposals).
There are 5 comment letters posted so far – including this one that includes a blog that I posted from an anonymous member as an attachment. Finding these comment letters can be tricky since there is no proposed rule – they are housed under the Corp Fin page, then head to the “Current Topics” box on the right side and you will see a link to “Share Your Views” on the Staff review of conflicting shareholder proposals – which has a link to “submitted comments” at the bottom…
Here’s the latest status check into how proxy access shareholder proposals fared during this proxy season.
Non-Partisan SEC Commissioners: Seeking Transfer Agent Update
A lot of ink has been spilled lately about the politicization of the SEC. But yesterday’s joint statement from short-timer Commissioners Aguilar & Gallagher – which was followed by a joint statement of support from Commissioners Stein & Piwowar! – do show that sometimes Commissioners from different political parties do work together. The Commissioners seek an overhaul of the transfer agent regulatory framework since that hasn’t been done in 30 years.
It’s amazing to me how often that individual SEC Commissioners put out their own statements – including dissents – these days. I wonder if that practice will continue beyond this current group of Commissioners…
Meanwhile, this WSJ article entitled “The SEC’s Recruiting Problem: Its Former Officials” talks about how former SEC Commissioners & Staffers are warning candidates for the upcoming two Commissioner slots that the job is full of dysfunction and that even the vetting process can be quite a challenge. Even with that as a backdrop, I’m pretty confident that a number of qualified individuals would be more than happy to become a Commissioner…
The average Fortune 100 firm has a staggering 320+ social media accounts with over 200,000 followers and 1500 employee participants who make over 500,000 posts to these accounts. Proofpoint Nexgate’s latest “State of the Social Media Infrastructure” report presents these (and other) concerning results of its analysis of 32,000+ social media accounts of Fortune 100 companies:
Findings
– The average company suffered from a total of 69 unmoderated compliance incidents during the study’s 12 month research window.
– Nine different U.S. regulatory standards triggered incidents, including rules and regulations of the SEC (e.g., Reg. FD), FINRA, FTC, FDA and the UK’s FCA.
– Financial Services Standards violations dominate the field. However, improper disclosure of confidential corporate activity accounted for 118 standalone incidents (i.e., 150 additional incidents crossed categories) – consisting of information regarding layoffs and restructurings, earnings and financial updates and M&A transactions. Reg. FD violations accounted for an additional 149 incidents.
– There were over 900 “Regulated Data” incidents consisting of improper disclosure of user names/passwords, SSNs, credit card numbers, etc.
The report also offers recommendations for developing a successful social media compliance program – summarized by Compliance Week.
See also this WSJ article discussing the various state social media laws, this Corporate Compliance Insights post, and this new FTI/NYSE Law in the Boardroom survey, which found that social media ranks among the top three areas about which directors have the least amount of confidence in their GCs’ oversight. And 91% of directors and 79% of GCs affirmed that they don’t have a thorough understanding of their company’s social media risks.
This recent CEB (Corporate Executive Board) blog identifies the most important triggers, and provides a decision tree, for determining when to develop a new or update an existing policy.
CEB research found that the seven most important reasons for writing a new policy or updating an existing one are:
New risk assessment results.
Revision of the company’s code of conduct.
New internal audit findings.
Publicized failure in the same or similar industry.
Shift in business strategy.
Merger, acquisition, or other organizational change.
Geographic expansion.
See the blog’s nifty decision tree, and this CEB Policy Management Toolkit on how to create and implement a policy on policies.
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:
– Spencer Stuart Addresses Board “Refreshment”
– Avoiding & Managing Boardroom Disputes
– Using COSO to Assess & Manage Cyber Risks
– Form 10-K Preparation Tips
– How to Proactively Tackle the Director Tenure Issue
This recently published paperseeks to undermine six myths about board gender diversity. I say “seeks” only because the rebuttal to one of the myths – that concerning the cause of gender disparity in the boardroom – is premised on an assumption with which I disagree, i.e., there aren’t enough women at the top of the corporate ladder who are potential candidates for directorships.
Not only do I disagree that there aren’t enough women at the top such that board diversity could be measurably improved (at least in the U.S.), but I also and – more importantly – disagree with the assumption that being a qualified director candidate is dependent upon being at the top of the corporate ladder. However, that’s just my personal view, and certainly all of the myths and associated discrediting facts are worth consideration.
Six myths about boardroom gender diversity:
– Popular boardroom surveys provide an accurate picture of women’s relative underrepresentation. – The financial crisis would not have happened if Lehman Brothers had been Lehman Sisters. – Female directors are just like male directors. – HR directors are to blame. – Adding a woman to your board will improve shareholder value. – Quotas are necessary to improve female board representation.
See this recently released NYSE Governance/Barker Gilmore survey, which found that more than half of company director respondents believe having a GC serving as an independent director on an outside board adds value to the company, and this recent Fortune articleidentifying (based on a PwC survey) five ways boards may differ if they had more women directors.
In this interesting new article, Ivey Business School Professors Seitjs, Gandz, and Crossan and Post-Doctoral Fellow Byrne elaborate on their previously published notion that being an effective board member requires competencies, character and committment by further exploring the aspect of character.
Based on meetings and surveys with over 780 directors and prospective directors, the paper discusses in detail the important – but too often ignored – attribute of character as represented by 11 character dimensions deemed to play a critical role in director effectiveness including judgment, integrity, accountability and others.
Among other things, the survey results revealed that boards don’t spend enough time addressing or assessing the character of their director nominees, despite believing that character is very important. In that context, the article offers a number of tangible recommendations to aid the director search, evaluation and performance review processes.
We have heaps of helpful resources in our “Board Composition” Practice Area.
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:
– Code of Ethics/Conduct Primer
– Audit Committee Role in Improving Disclosure
– CEO Succession Planning Guidance for CEOs & Boards
– Addressing Key Governance Challenges in International Markets
– Study: How Board Gender Impacts M&A Decision-Making
