Feb
03
2010

What to Make of the Loss of Directors’ Education Accreditation

If you are a director or a provider of director education programs, like The Conference Board Governance Center, The Directors’ Network or the NACD’s Corporate Directors Institute, you may be trying to figure out what to make of RiskMetrics’ decision to discontinue its director education accreditation program as of March 1.

For director education program providers, the move may not be surprising given RiskMetrics reported decision to put itself up for sale (See Wall Street Journal article) but it does spark a debate about the quality of such programs. Both the Governance Center and The Directors’ Network were among the first “holistic” directors education programs to be accredited by the then ISS, before it merged with RiskMetrics.

“I certainly think directors need to participate in continuing education programs,” Paul DeNicola, Governance Center director, said. “And I also think there needs to be an independent body that ensures the quality and substance of these programs. I believe directors should not view participation as a necessary evil, but as another part of keeping themselves informed so that they can do their jobs.”

Stephanie Joseph, president of The Directors’ Network she founded in 1994, said the “carrots” she used to market her programs were a benefit on their D&O insurance and a higher ISS Corporate Governance Quotient (CGQ) score. Read the rest of this entry »

- Gary Larkin

Posted by Gary Larkin at 4:21 PM | 2 Comments »
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Dec
18
2009

SEC Wants More Concise Disclosure That is Material

The SEC has three messages for public boards and management next proxy season when it comes to disclosing policies and practices regarding executive compensation, risk and corporate governance: the Compensation Discussion and Analysis (CD&A) should be used to tell their story, all disclosures should take risks into account and should have a threshold for materiality.

In so many words, SEC Chair Mary Schapiro and a majority of commissioners want disclosures, especially the CD&A, to be less voluminous, easier to read and full of content the investors can truly use. The commission is trying to instill in public companies the idea that disclosures should be treated like a “memo” to investors and not just another compliance document.

That is what I believe directors and management should take away from the SEC’s 4-1 approval Wednesday of new rules for disclosures in proxy and information statements. The proxy disclosure enhancements, which go into effect Feb. 28, 2010, 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.

Read the rest of this entry »

- Gary Larkin

Posted by Gary Larkin at 11:49 AM | 2 Comments »
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Dec
15
2009

Executive Compensation Reform Taking Some Baby Steps

The Obama Administration is using good old-fashioned peer pressure and more targeted disclosure to change the way executive compensation policies are carried out by public companies in the U.S. (How else can you explain that only days after the House narrowly approved an historic financial reform package (NYT, Dec. 12)  that the SEC is meeting to approve new compensation disclosure rules?)

As part of his peer pressure campaign, the President met with 12 of the CEOs from the largest U.S. financial institutions Monday morning to drive home the message that after these banks received help from the taxpayers, it’s time for them to give back. (Thanks to the tip from Pete Davis of Pete Davis Capital Investment Ideas)

“Now, I should note that around the table all the financial industry executives said they supported financial regulatory reform,” the President said in an official statement following the meeting. “The problem is there’s a big gap between what I’m hearing here in the White House and the activities of lobbyists on behalf of these institutions or associations of which they’re a member up on Capitol Hill.  I urged them to close that gap, and they assured me that they would make every effort to do so.”

Does Corporate Governance Matter?

That begs the question, “Should U.S. boards even care about corporate governance reform, especially any change to executive compensation policies, in the near future?” The short answer, as I see it, is a resounding YES! Based on discussion at The Conference Board Governance Center Fall Investor Summit, which focused on The Conference Board Task Force on Executive Compensation report, some of the issues investors are concerned about for 2010 are compensation committee composition, executive long term incentive plans and how executive bonuses will be paid. Read the rest of this entry »

- Gary Larkin

Posted by Gary Larkin at 11:43 AM | No Comments »
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Oct
13
2009

Directors, GCs Take Note of New SEC Five-Year Strategic Plan

Directors, general counsel, C-level executives and others involved in corporate governance may want to take note of the SEC’s draft Strategic Plan for Fiscal Years 2010-2015. For starters, the plan of more than 70 initiatives is a lot more specific and prescriptive for its staff than the previous five-year plan in 2004 and it includes performance metrics to measure the agency’s ability to achieve its four goals.

SEC Five-Year Strategic Plan Draft

SEC Five-Year Strategic Plan Draft

The SEC is planning on issuing investor alerts and other education efforts designed to arm investors in their own first line of defense against fraud and help them understand both intermediaries and new products.

With the SEC under intense scrutiny for lax enforcement during the Bush administration highlighted by the Bernard L. Madoff Ponzi scheme, companies may want to look at Strategic Goal No. 2: Establish an Effective Regulatory Environment. Having already proposed a myriad of governance-related rules and amendments – shareholder proxy access and disclosure regulations regarding compensation policies, company leadership structure and the board’s role in risk management – the SEC under Chairman Mary Schapiro is intent on changing the way it enforces its regulations.

This is the third such five-year plan the SEC has created under the 1993 Government Performance and Results Act. If you wish to comment on the draft five-year plan, the SEC asks that you send letters to strategicplan@sec.gov by Nov. 16.

The SEC spells out its principles for securities regulation: “First, all investors should have equal access to accurate, complete and timely information about the investments they buy, sell and hold. Second, investors should be able to rely upon self-regulatory organizations, broker-dealers, investment advisers, investment companies, and other market participants to conduct investors’ securities transactions efficiently and in the investors’ best interests.”

As part of the effective regulatory environment goal, it plans on achieving three outcomes:

  • The SEC establishes and maintains a regulatory environment that promotes high-quality disclosure, financial reporting, and governance, and prevents abusive practices by registrants, financial intermediaries, and other market participants.
  • The U.S. capital markets operate in a fair, efficient, transparent, and competitive manner, fostering capital formation and useful innovation.
  • The SEC adopts and administers rules and regulations that enable market participants to understand clearly their obligations under the securities laws.

If you were thinking this SEC under Schapiro was not going to take up such  hot button issues like proxy access, risk management disclosure, separation of chair and CEO, executive compensation and international financial reporting standards, forget it.

Just look at what is listed under Outcome 2.1:

  • Improve the quality and usefulness of disclosure – Areas of focus will include disclosure about risk management, executive compensation decisions and practices, nomination of directors, board governance and discussion and analysis of results of operations and financial condition.
  • Strengthen proxy infrastructure.
  • Promote high-quality accounting standards – Support a single set of high-quality global accounting standards and promotion of the ongoing convergence initiatives between the FASB and the IASB.

Among the many metrics the SEC will use to measure its own progress is a survey of financial analysts and institutional investors on the quality of disclosure, the percentage of transaction dollars settled on time each year, the speed of execution of transactions in the securities markets and the length of time to respond to written requests for no-action letters, exemption applications and written interpretive requests.

By the way, the other goals for 2010-2015 plan are:

  • Foster and enforce compliance with the federal securities laws.
  • Facilitate access to the information investors need to make informed investment decisions.
  • Enhance the commission’s performance through effective alignment and management of human, information, and financial capital.

‘Doctrine of no surprises’ Not a Goal this Time

If you want to get an idea how much priorities can change at the SEC in five years, take a look at the last strategic plan in 2004. Look at what Broc Romanek of TheCorporateCounsel.net wrote back then (The SEC’s 5-Year Plan, Aug. 10, 2004). He writes that Chairman William Donaldson touted how the “new Office of Risk Assessment is leading the way to implement the ‘doctrine of no surprises.’” Guess no matter how much you try, they’ll always be surprises.

- Gary Larkin

Posted by Gary Larkin at 10:41 AM | No Comments »
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