The second wave of post-financial-crisis regulations (let’s not forget the elimination of broker discretionary voting that was effective Jan. 1) comes just in time for the 2010 proxy season when the SEC’s new enhanced proxy disclosure rules go into effect Feb. 28. While they won’t have the impact of “Say on Pay” or “Proxy Access,” these rules will prepare boards and management for issues that will most likely be addressed in further regulatory or legislative action.
The enhanced disclosure rules, which were approved on Dec. 16, 2009, focus on corporate governance and compensation matters. Specifically, they would require disclosures in the proxy and financial statements on:
• The relationship of a company’s compensation policies and practices to risk management.
• The background and qualifications of directors and nominees.
• Legal actions involving a company’s executive officers, directors and nominees.
• The consideration of diversity in the process by which candidates for director are considered for nomination.
• Board leadership structure and the board’s role in risk oversight.
• Stock and option awards to company executives and directors.
• Potential conflicts of interests of compensation consultants as well as the fees paid to consultants and their affiliates.
Additionally, the SEC on Jan. 20 issued a number of interpretative guidance on the new disclosures. You can go to the SEC page or check out Broc Romanek’s TheCorporateCounsel.net blog from Jan. 21. He has separate links to each Compliance Disclosure Interpretation (CDI). Read the rest of this entry »
As President Obama continues to propose more stringent bank regulations in light of the financial crisis – a hefty tax on 50 of the largest banks and a plan to allow regulators to limit the size and scope of those banks’ risk-taking activities (Read press release, Jan. 21) – it’s hard to imagine those gaining in any traction based on what has happened in the Senate.
The election of Scott Brown to the late Sen. Ted Kennedy’s seat gives the Republicans the power to filibuster since the Democrats will have only 59 votes, one vote short of what they need. With that said, many on the Hill believe it will be difficult, if not impossible, to approve such legislation as the financial reform package. And when you consider the proponent of the companion Senate bill, Sen. Chris Dodd, is now a lame duck, prospects for passage wane.
The uncertainty of any Obama proposal that needs Congressional approval leaves the SEC as the major corporate regulatory rule-maker for at least this year. So that is why I think it is prudent for directors and corporate management to keep an eye on the body’s rule-making and regulatory decisions over the next six-to-nine months.
Here are the most important SEC proposed and final rules I think many of you should be concerned with in 2010: Read the rest of this entry »
As almost every U.S. public board continues a post-mortem on the financial crisis, many are looking for sobering answers from their own. And one director who has been making the rounds is Bill George, former Chair and CEO of Medtronic and director of Goldman Sachs and ExxonMobil who is a professor of management practice at Harvard Business School.
Bill George, Goldman Sachs director and HBS professor
George, who was selected in 2002 as one of “The 25 Most Influential Business People of the Last 25 Years” by PBS Nightly News, has written and taught extensively on corporate leadership. In addition to his recent book, 7 Lessons for Leading in Crisis, Jossey-Bass (Aug. 2009), he has written Finding Your True North: A Personal Guide, Jossey-Bass (June 2008).
I came across a video of an interview he granted to The Economist on Jan. 6. In that 12-minute interview, he emphasized that the biggest lesson not learned by CEOs during the financial crisis is that they have not yet faced reality. He said, “this crisis has morphed into a jobs crisis, a health care crisis. A lot of leaders don’t want to face the problem.” While he acknowledged Goldman Sachs has become the lightning rod for the compensation debate, he did say there has to be some restraint.
I spoke with George following The Economist interview to get his take on what U.S. corporations should be doing to improve the leadership at their companies and what they should expect for this year. Read the rest of this entry »
The FDIC’s decision Tuesday on a new insurance premium model for banks falls in line with what many are saying about executive compensation: It makes sense to tie executive compensation to risk alignment.
Specifically, the decision reflects some of the tenets of the G-20 and The Conference Board Task Force on Executive Compensation executive compensation principles.
The FDIC, led by Chairman Bair, voted 3-2 Tuesday during a contentious meeting to require those banks that don’t align their compensation system with risk management to pay a higher insurance premium to the regulator. (Read Wall Street Journal blogger Damian Paletta’s coverage of that meeting.) “The FDIC is exploring whether the design of employee compensation programs should be considered as a factor in the risk-based pricing system,” according to a FDIC staff memo. The memo refers to Section 7 of the Federal Deposit Insurance Act, which requires the FDIC to establish a “risk-based” assessment system for depository institutions. (Read FDIC proposal, Incorporating Employee Compensation Criteria Into The Risk Assessment System.)
“The FDIC seeks to provide incentives for institutions to adopt compensation programs that align employees’ interests with those of the firm’s stakeholders, including the FDIC, and that reward employees for internalizing the focus on risk management,” the memo states.
As I said, not all five FDIC commissioners are on board with this measure, which is being pitched more as a way to replenish the bank insurance fund than a way to limit banker’s compensation. The vote itself calls for a 30-day comment period before the FDIC takes any action. Read the rest of this entry »
As part of my required reading during the first full week of the New Year, I can’t help but notice how many Top 10 board issue lists there are. And when I think about how critical 2010 is to the future of U.S. businesses and the recovery from the current recession, I realize how important it is to pore over those lists and determine whose advice is the most appropriate.
That is exactly what I will attempt to do with this post. Consider this the best of the Top 10 corporate governance lists for 2010. While it is by no means exhaustive, it is pretty thorough. I focused on annual memos from Weil Gotshal (Ten Thoughts for Ordering Governance Relationships in 2010), Financial Executives International (CEO Marie N. Hollein’s Top Challenges for 2010) and KPMG’s Audit Committee Institute (Ten To-Do’s for Audit Committees in 2010).
Another good source of advice, which I already featured in a recent post on good corporate governance, is the annual client memo from Wachtell, Lipton, Rosen & Katz (Some Thoughts for Boards of Directors in 2010) by partners Steven A. Rosenblum and Marty Lipton and associate Karessa L. Cain. Among many issues facing boards in 2010, Wachtell, Lipton believes succession planning is key as shareholder pressure builds. The memo reads: “CEOs and senior management have been under tremendous pressure from shareholders, employees, customers and other constituencies to manage difficult market conditions, and not surprisingly, continuity of executive leadership throughout the economic crisis has increasingly been the exception rather than the norm.”
Here are the best of the Top 10 lists for 2010 (OK, the FEI list only listed nine items, but you get the idea) in order of importance:
10.) Global Convergence of U.S. GAAP and IFRS: While it is true the United States is the last of the industrialized countries to embrace IFRS, that doesn’t mean boards shouldn’t be concerned about mandatory adoption in the near future. The SEC, whose IFRS roadmap hit a roadblock in 2009 in the midst of the financial crisis, seems ready to move ahead with setting a definitive date for adoption possibly by 2014. (FEI 2010 Top Challenges for Financial Executives) Read the rest of this entry »