Corporate America is Telling the Truth — Tips to Assure Reg FD Compliance

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With so many voices billowing false narratives and confusion these days, it is sometimes challenging to discern fact from fiction. But amidst all the dubious rhetoric, it’s good to know that sanity still prevails in the world of public companies.

Corporate America is standing out as a beacon of clarity and truth. And this isn’t by accident. It is the result of carefully crafted regulations designed to protect investors and ensure the integrity of the market.

As a refresher, the Securities Act of 1933, affectionately known as the “truth in securities” law, mandates that buyers of securities receive complete, accurate and truthful information before they invest. 

The Securities Exchange Act of 1934, referred to as the “34 Act,” created the Securities and Exchange Commission (SEC) as a body to regulate trading of securities after they have been distributed.

And in the year 2000, the ‘33 and ‘34 Acts were further strengthened by Regulation Fair Disclosure (Reg FD), with the intent of preventing public companies from selectively disclosing important information to certain shareholders and market professionals. Rather, it created a level playing field for all investors by ensuring that material information is disclosed to everyone simultaneously.

As the 25-year mark approaches since Reg FD was enacted, and as the IPO market warms up for the new year, following are a few reminders to help issuers assure compliance:

  • Maintain a formal disclosure policy. Outline procedures for publicly disclosing information, such as through press releases and social media. Press releases are by far the preferred disclosure medium, followed by social media and the company’s website. However, if a company principally uses the latter two vehicles to disclose information vs. press releases, it must ensure that both are widely recognized as the issuer’s primary distribution channels.
  • Train employees. For companies in the process of going public, provide formal Reg FD training – in person or by Zoom – for senior staff and for those who may be privy to sensitive information, and periodically conduct refresher training sessions. Specify who is authorized to communicate with investors and analysts.
  • Anticipate disclosures. Plan ahead if possible, and when doing so, be certain to remind the inner executive circle of the mandate for confidentiality.
  • Review executive presentations. Have an IR advisor or in-house counsel review presentations to be certain they do not contain material non-public information. 
  • Establish black-out periods for trading. Black-out periods can help prevent inadvertent insider trading and Reg FD violations. Some companies limit executives to only trading on a 10b5-1 plan to avoid violations.

Through Reg FD and other SEC mandates, corporations and their leaders are held to stringently high rhetorical standards – and they are doing a good job of adhering to them. Continued compliance requires awareness, regular refreshment, and constant diligent attention.

Roger Pondel, rpondel@pondel.com

Editorial Note: PondelWilkinson has been approved by the California Bar Association to provide Reg FD training to SEC lawyers for MCLE credit, and regularly provides such training to executives of pre-public and publicly traded companies.

Overcoming Challenges: The Path to Successful ESG Program Implementation

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While the adoption of environmental, social and governance (ESG) programs is becoming increasingly important for building a sustainable future, implementing such initiatives does not come without its challenges. Cost, ROI, engagement and clear messaging are just a few of the many factors to consider when it comes to corporate sustainability.

Below are some common concerns with commonsense solutions that may help companies better prepare for ESG deployment.

  • Capital allocation: Investing in and implementing ESG initiatives may require significant financing, which can be a hurdle for some companies, especially smaller organizations with limited resources. Not all ESG programs are costly, however. Starting slow and building a longer-term strategy over 2-3 years is good practice. It could be something simple, such as reducing a company’s carbon footprint by using energy-efficient lighting or adopting a hybrid workplace.
  • Complexity and measurement: Determining the right indicators, collecting reliable data and establishing standardized frameworks can be arduous. Companies can overcome this challenge by leveraging emerging technologies, collaborating with industry peers and engaging with ESG consultants and experts to ensure accurate and transparent reporting.
  • Benchmarking: It is important that organizations perform in a manner to maintain their performance, and at the same time, mitigate risk and capitalize on the potential benefits of sustainable business practices. Falling behind on these initiatives may lead to missed business opportunities. A good rule of thumb is to set realistic, achievable goals aside from regulatory obligations.
  • Stakeholder engagement: Balancing the diverse expectations of multiple audiences can be very demanding. Companies can use existing technologies to set up open communication channels with each of its targeted communities, from employees and investors to customers and suppliers. Social platforms can be used to garner support and to ensure that ESG programs align with stakeholder needs.
  • Integration and alignment: ESG programs often require changes to organizational structures, investment decisions and risk management practices. Since companies are constantly evolving, meaningful ESG practices can slowly and strategically be integrated into existing operations. What’s needed are leadership commitment, employee education and training and clear ESG goals that align with the company’s mission and values.
  • Regulatory environment: Compliance with multiple reporting frameworks and keeping up with varying regulatory and local jurisdictions often can lead to uncertainty. Engaging with policymakers, industry associations and subject matter experts can help companies stay informed and adapt their ESG programs to meet evolving requirements.

Today’s business and social climate are having a trickle-down effect on ESG. Large organizations, for example, are requiring smaller companies to adhere to ESG criteria as part of their global supply chains. Moreover, a growing number of institutional investors will not invest in companies without an ESG program in place.

Lack of standardization, inconsistent data quality and subjectivity are adding to the confusion when it comes to ESG. As a result, Bloomberg predicts more ESG-related shareholder lawsuits this year, which was highlighted in a recent Morgan Lewis webinar.  

Studies suggest that those companies embracing ESG will be competitive leaders and drive long-term value creation. ESG is not as complicated as it may appear. Deploying a program that does good – without breaking the proverbial bank – not only enhances brand reputation, but also will be well received among investors.

George Medici, gmedici@pondel.com

Ignorance is No Excuse: The Importance of Reg FD Training

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You may remember that Martha Stewart spent time in prison.

She served five months behind bars and another five months of house confinement at her 153-acre estate in New York, wearing an electronic monitoring bracelet, for selling 4,000 shares of ImClone Systems before news of the FDA’s rejection of one of ImClone’s cancer drugs was made public.

ImClone’s former CEO, Samuel Waskal, a friend of Stewart’s who presumably gave her the stock tip, served a seven-year prison term after pleading guilty to orchestrating stock trades, as well as to other corporate misdeeds.

How much insider trading is going on in U.S. stock markets based on material, non-public information? At least four times more than regulators actually catch and prosecute, according to research from the University of Technology Sydney. 

Could Reg FD training have helped either of them avoid prison sentences? 

We’d certainly like to think so. For Waskal, of course, he definitely knew better as CEO of a publicly traded company. Stewart may have never heard of Reg FD, but she should have known better as well, based on plain old common sense.

Whether you’re working at a public company for the first time, or you’re a seasoned pro, being aware of Reg FD (Regulation Fair Disclosure) and how to avoid missteps is vitally important. Many companies provide periodic formal Reg FD refresher training even for public company veterans. Not only does such training help prevent employees from disclosure pitfalls, but it also serves as a record that your company takes disclosure seriously.

Starting with the basics, Reg FD became effective more than two decades ago to help the SEC prevent selective disclosure of material, non-public information, remedying the perception of unfairness in communications throughout the investment community. One of the key principles of Reg FD is that information must be broadly distributed, not selectively disseminated. A good rule of thumb is to provide full disclosure to all … all the time.

What constitutes materiality? If there is a substantial likelihood that an investor would consider the subject important in the total mix of information when making an investment decision, and if it is reasonable to expect that the information could have an effect – up or down – on a stock’s price, it’s probably material.

Things to consider include receipt of a big contract, M&A, a stock buy-back program, a director or officer resignation, among many others. Materiality can be somewhat subjective though, so it’s important to communicate with your attorneys if there is any doubt.

There are two simple rules to follow to ensure you’re not running afoul of the SEC (and that you don’t wind up like Martha Stewart):

  • Never buy stock in your company, or encourage others to do so, when you are in possession of material, non-public information.
  • If you ever have questions about whether, and when, you, as an insider, can buy or sell your company’s stock, contact your CEO, CFO or legal counsel.

Keep in mind that while there are remedies for inadvertently disclosing material, non-public information, you should strive never to have to use those remedies. But, just in case, here are the steps to take should someone slip:

  • Let an authorized company spokesperson know as soon as possible, so that that person can work to promptly determine the nature and materiality of the selective disclosure. (Authorized spokespersons are required to determine the cause of the selective disclosure and take appropriate steps to reduce or eliminate the risk of recurrence.)
  • Within 24 hours of the inadvertent disclosure, or at the next opening of market session, a company may issue a press release or file Form 8-K with the SEC containing the material information that was deemed to be selective disclosure.

If it happened to Martha Stewart, is can happen to anyone. “It was horrifying, and no one — no one — should have to go through that kind of indignity, really, except for murderers, and there are a few other categories,” Stewart told Katie Couric during a 2017 interview on the Today Show.

Aside from providing Reg FD training to pre-IPO and newly public companies, along with refresher sessions, PondelWilkinson has been approved by the California Bar Association to provide one-hour Reg FD training sessions to attorneys for CLE credits. While we have to know the ins and outs to be effective trainers, we’d love to hear about your Reg FD experiences.

Laurie Berman, lberman@pondel.com

­10 Tips to Best Prepare for New SEC Universal Proxy Rule Change to Shareholder Voting

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For boards and senior management teams of publicly traded companies, a major law change by the U.S. Securities and Exchange Commission will soon go into effect for what some pundits believe could be a period of renewed activism ahead.

The new rule states that for annual shareholder meetings held after August 31, 2022, parties in a contested election must use universal proxy cards that include all director nominees presented for election.

Without going into all of the details, the rule gives shareholders the ability to vote by proxy for their preferred combination of board candidates, similar to voting in person. It addresses longstanding concerns that shareholders voting by proxy were not able to vote for a mix of dissident and registrant nominees in an election contest, as they could if they voted in person.  And very few shareholders, even before COVID, attend annual meetings in person.

The SEC’s new rule on shareholder voting will go into effect on August 31, 2022. Photo credit: Roger Pondel

As Gary Gensler, chairman of the SEC, said in a press release late last year, “Today’s amendments will put (all) candidates on the same ballot. They will put investors voting in person and by proxy on equal footing. This is an important aspect of shareholder democracy.”

No one knows for sure what will happen, and maybe nothing, but major law firms around the nation, proxy advisors, the National Institute of Investor Relations, and others have been talking it up big time in articles, webinars and conference panels.

On one hand, many smart minds – including our friend and long-time proxy campaign strategist Keith Gottfried, who recently addressed a PondelWilkinson staff meeting – believe that because it will be easier and less costly to run election contests, this hotly debated issue will “change the playing field dramatically” and foster greater shareholder activism. Gottfried, who just launched Washington, D.C.-based Gottfried Shareholder Advisory LLC, a boutique strategic advisory firm focused on shareholder activism preparedness and defense, said companies in the $300 million to $1 billion+ market cap range could be particularly vulnerable.

On the other hand, there is the thought that the new rule will stimulate a seismic shift in how activism is carried out. Rather than causing tumult at the annual meeting, there could even be increased engagement between issuers and activists that may foster cooperation and settlements.  

Our overview advice is for corporate boards, CEOs and CFOs to be armed with information and get ahead of the matter now to eliminate a potential sting and be prepared so there will not be an issue later. Consider the following:

  • Take a fresh look at your shareholder activist preparedness and defenses in order to react quickly, sans panic, for potential increased shareholder activism. With the help of a professional, revisit advance notice bylaws, corporate disclosure policies regarding director elections and determine whether changes are needed
  • Keep an eye on your peers. If there’s increased activism there, it may be coming your way as well.
  • Don’t get complacent in thinking that because your larger shareholders may have been quiet, they are not paying attention to your company. Periodically reach out pro-actively to them for updates.
  • Deploy best communications practices day-to-day, including transparency on quarterly conference calls and in press releases.
  • Think about conducting a Reg FD refresher training session for your senior staff and board. Having such a session “on the record” is a healthy omen that the company is sensitive to this important governance matter. 
  • Consider providing shareholders with an in-depth look at your company by hosting an investor day that showcases the operating tier of management, not just the senior-most corporate staff.
  • Know what your shareholders are thinking, even to the extent of conducting a third-party perceptions survey. The shareholders will appreciate that you are having an objective party ask candid questions. As the issuer, you may learn a thing or two and ward off a problem you may not even know existed.
  • Pay close attention to ESG matters, which are top-of-mind these days throughout the investment community in both large and small companies.
  • Be mindful of board composition, including diversity, experience and tenure.
  • Be alert, listen and do not be afraid of “well-wishing” shareholders who like to give advice on corporate growth, valuation and other board and management matters. Embrace them and pay attention to what they are saying. Often their biggest demand is for a company’s sale, not necessarily to “fix” anything or for a board seat.

It’s not only in politics, where voting rights issues are surfacing. The SEC’s new universal proxy rule is something to at least start thinking about seriously. If nothing else, it should prompt action for companies to take an inner look and be certain that best governance and communications practices are fully in place.

Roger Pondel, rpondel@pondel.com

New Class-Action Lawsuits Lurking: Tips for ADA Compliance on Websites, While Doing the Right Thing

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Recently, several of our California-based clients received letters from attorneys who are allegedly representing disabled persons, stating that those clients’ investor relations websites are not fully WGAC and ADA compliant.

With each communication, the attorneys specifically cite “not compliant for blind persons.” In some cases, they are requesting remediation within a certain timeframe. In other cases, however, real monetary damages were sought.

Is this ambulance chasing or a real problem?

For blind people or those with low vision, images without text equivalents, certain fonts and colors, and PDF documents can make websites difficult to navigate.

According to the CDC, 61 million Americans live with disabilities. The U.S. Census Bureau says that almost 19 million Americans have difficulty seeing or hearing.  Many websites, including investor relations websites, do not currently make accommodations for these users.

For blind people or those with low vision, images without text equivalents, certain fonts and colors, and PDF documents can make websites difficult to navigate. A recent article from NBC News details efforts by disability advocates, including that “federal lawsuits claiming websites are not compliant with the ADA rose by 12 percent last year.” 

Companies, publicly traded or not, should do whatever they can to provide a solution, so as not to leave anyone behind, as well as to be compliant and reduce the threat of legal action.  Of course, regardless of the threat of legal action, it’s the right thing to do.

But where does one start? 

First, some basic definitions:

  • WGAC – Web Content Accessibility Guidelines – Developed in cooperation with individuals and organizations around the world, WGAC has a goal of providing a single shared standard for web content accessibility.
  • ADA – Americans with Disabilities Act – Put into law in 1990, the ADA seeks to provide equal opportunity for individuals with disabilities.

Second, there are several tools to determine how closely a website is to being compliant:

  • The WAVE Web Accessibility Evaluation Tool allows a company to identify accessibility and WCAG errors. Running a URL through the tool will provide summary of accessibility errors.
  • Similarly, Web Accessibility by Level Access allows a company to determine the “health” of a site. There are many others, some free and some paid. (We are not endorsing the veracity of any.)

Once a determination has been made that changes or additions are necessary to ensure WGAC and ADA compliance, here are some practical tips:

  • Take a look at the WGAC guidelines to familiarize yourself with the requirements.
  • Have your website developer (both for your corporate and IR sites) run your sites through a tool like those listed above to see exactly what changes need to be made.
  • Considering purchasing code (usually a widget) that helps makes your website more compliant. There are several, and again, we are not recommending any particular vendor. Be aware, however, that these widgets are not without issues (see the NBC News article referenced above and this one at Forbes.com) and are not a panacea.
  • Recognize that if your corporate site is accessible, but your IR site is not, you are out of compliance. Similarly, if the home page of your corporate site and IR site are accessible, but the pages beneath that are not, you are out of compliance. Even if everything looks great, but you haven’t remediated PDF documents posted to the site, you are out of compliance.
  • Remember that websites are not static.  Any time a change is made to content, links, colors, etc. you run the risk of non-compliance.
  • Work regularly with your legal team to ensure you’re on top of all current and future regulations and requirements.

Laurie Berman, lberman@pondel.com

Disappearing Transparency: A Call to Action

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Back in July, the SEC proposed new 13-F rules, including amending the reporting threshold for investment managers to “reflect today’s equities markets.” At first blush, the headline seems okay. When one digs deeper (actually, you don’t need to dig deep at all), the proposed rules represent a huge step backwards to a time when issuers and the investing public had very little information about stock ownership.

Source: Securities and Exchange Commision

A little bit more about the SEC’s rationale before diving into the heart of the matter. According to its July 10 press release, the proposal would increase the 13-F reporting threshold from $100 million to $3.5 billion, “reflecting proportionally the same market value of U.S. equities that $100 million represented in 1975, the time of the statutory directive.” From everything I’ve read on the subject, this rationale is misguided and imprudent.

According to IHS Markit, approximately 600 of the 5,200 investment managers that filed a Form 13-F last quarter manage over $3.5 billion in equities. Put another way, almost 90 percent of investment managers that are currently required to report their holdings, would no longer be required to do so. Further, more than 90 percent of the dollar value of the securities currently reported is held by these 600 firms. IHS Markit also noted that, on average, 55 percent of the investors on an issuer’s shareholder list would stop filing 13-F’s, 69 percent of the hedge funds on an issuer’s shareholder list would stop filing 13-F’s, and “IR Immune investors,” including index funds, quants and brokers would stop filing for 2 percent of their share value, while active investors would stop filing for 10 percent of their share value. Not good for an industry that requires more visibility, not less.

The National Investor Relations Institute (NIRI), has aggressively taken up the cause, rallying issuers, IR counselors and other prominent business associations. Last week, NIRI sent a letter to the SEC opposing the proposed rule. 237 issuers with a combined market cap of almost $3 trillion, five high-profile business associations and 26 IR counseling firms signed on in support. Additionally, NIRI reports widespread opposition from retail investors and small investment managers, who, in total, have submitted more than 1,000 comments to the SEC.

It’s not too late to take action, even if you’ve already signed on to NIRI’s letter. The deadline for submitting comments directly to the SEC is September 29. You can visit NIRI’s Advocacy Call to Action page for more information and suggestions on how you can help.

The SEC’s proposal would significantly hamper issuers’ ability to understand who owns their stock, who is selling their stock and who is buying their stock. Imagine a scenario in which an activist is slowly building a position, but you can’t see it happening and you are blindsided by a takeover attempt. Imagine how difficult it would be to keep current holders updated if you don’t know who they are. Imagine the inefficiency of having no way to prioritize incoming phone calls and meeting requests because you are in the dark about ownership status.

Perhaps Jim Cramer said it best. “If you believe Wall Street is important, if you believe business is important, if you believe the market is important, then the public deserves to know who owns what.” Use your voice to let the SEC know that you strongly oppose the proposed rule.

Laurie Berman, lberman@pondel.com

Thoughts on Board Diversity

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Board diversity has been in the news for quite some time, but more recently, California became the first state to mandate that publicly traded companies headquartered in the state name women to their boards. Countries outside the U.S. have enacted similar laws. 

The new law stipulates that companies with at least five directors will need to have at least one female member by the end of this year, and two or three female members, depending on the size of the board, by 2021. According to the Wall Street Journal, the mandate in California could accelerate boardroom diversification across the country. 

But does diversity really matter? 

As noted in Forbes by professor Katherine W. Phillips from the Kellogg School of Management, diversity can result in better decisions. She explained that diversity “often comes with more cognitive processing and more exchange of information and more perceptions of conflict,” which she believes can spur new idea generation and creative solutions. 

Lisa Wardell, president and chief executive officer of Adtalem Global Education, wrote in Corporate Board Member that “board composition sends a powerful signal to current and future workforces about an organization’s commitment to equality of opportunity. It also signifies a commitment to performance, since studies show clearly the benefits of a diverse workplace.  McKinsey & Company found companies with strong gender diversity among their executives were 21 percent more likely to outperform on profitability compared with peers.”

Mike Myatt, chairman of N2Growth, recently offered a top-10 list in favor of diversity. You can read it here. 

Last year, Elizabeth Warren, a current U.S. senator and 2020 presidential candidate, introduced a bill called the Accountable Capitalism Act, that, among other things, would require that workers at companies generating more than $1 billion in revenue directly elect 40 percent of a company’s board of directors. This seems, to me, a bit more controversial than the new California mandate. In fact, when conducting research for this blog, I couldn’t find much in support of her proposal. Interviewed on CNBC, professor Jeffrey Miron from Harvard University said that Warren’s proposal “will create a whole set of new rules that the federal government will enforce. Those rules will not be clean, explicit or simple.  They’ll be messy, they’ll be complicated. [It will create a] huge ability for companies to evade and avoid.”

So, what are companies doing, if anything, to increase board diversity? 

A survey conducted by the National Association of Corporate Directors late last year showed that more than half of directors who responded said that their organizations have board diversity goals. Of those, 70 percent sited the need to enhance the cognitive diversity of boards, while almost half said that board diversity is a moral imperative. Barriers to diversity mentioned by 54 percent of respondents were the lack of an open board seat, while 53 percent cited finding diverse candidates that meet the board’s skill needs.

I’m as eager as the next person to see boards diversify and become more representative of current demographics and the investors they represent. But I’m also in favor of building boards with the best talent. As Myatt noted, “You’ll never hear me recommend diversity solely for the sake of checking a box, but when diversity in the boardroom offers so many benefits to the CEO (and to the entire organization) it’s nothing short of irresponsible for chief executives not to place their board composition under the microscope.”

It remains to be seen if recent efforts around board diversity will result in increased shareholder value, but it’s absolutely worth it for companies to look at their entire organizations, from top to bottom, to ensure diversity throughout its ranks. According to Wardell, “Performance comes from finding the best talent. And diversity, at its most basic level, is about increasing the pool of available talented people from which to choose.”

Laurie Berman, lberman@pondel.com

Class Action Litigation on the Rise: How Safe are Safe Harbor Statements?

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History has a way of repeating itself. With 2017 statistics of all kinds starting to be compiled, one offered by the Stanford Securities Class Action Clearinghouse should make public company management teams and their boards take notice: the number of securities class-action lawsuits is on the rise … in a startling way.

 

The clearinghouse reported that the number of annoying and costly public company securities class action lawsuits increased to 413 in 2017, up from 213 in 2016, and up from an average of 190 in the years 2002 through 2015.                        

                                            

classaction_law

Law firm Wilson Sonsini Goodrich & Rosati recently issued a paper highlighting the trend, which can impact companies of all sizes, from micro- to mega-cap. The three biggest reasons for the suits are material misstatements or omissions in registration statements and prospectuses for IPOs; challenges to merger and acquisition transactions, many if not most of which defense lawyers say are boilerplate in nature and meritless; and greater scrutiny by the SEC to disclosures being made by private companies.

 

Disclosures, or lack thereof, in press releases, which are totally in management’s control, often play a role in such lawsuits. While most companies are careful about including safe harbor statements in their press releases, which offer some legal protection, many companies do not use those statements properly. Often, they fail to customize those paragraphs to include the actual forward-looking statements mentioned in the press release. Worse yet, sometimes the safe harbor paragraphs are being included as boilerplate, even when there are no forward-looking statements at all.

 

Remember the term, “You’ve been Lerached?” A couple of decades ago, class action securities lawsuits were rampant, with a San Diego-based law firm, long since shuttered its doors, leading the pack in filing them. The firm’s principal ultimately went to jail for fabricating many such suits, looking for plaintiffs to buy a few shares of a given company, allegedly based on a CEO’s statement about future performance, then at the first sign of non-performance, voila, the company was “Lerached,” with the term affectionately named after lawyer Bill Lerach. Copycats followed.

 

Many of those lawsuits were legit, and they ultimately gave birth to the Private Securities Litigation Reform Act of 1995 and the safe harbor statements in press releases, followed by Reg FD in 2002. But despite the safe harbor protection, a case involving guidance issued in a press release by Quality Systems last July may signal a frightening change: The U.S. Court of Appeals for the Ninth Circuit, which governs California, reversed the district court’s dismissal of a securities fraud suit, saying various aspects of the safe harbor were “hostile in tone and application, when compared to many prior forecasting decisions.”  

 

What does all this mean?  Maybe nothing, but today more than ever, it pays to listen carefully to your SEC lawyer and to your investor relations advisor on all corporate communications matters. It also may be a good idea to place close attention to those safe harbor statements, and be sure to stay tuned as to whether those statements turn out to be not so safe as hoped.

— Roger Pondel, rpondel@pondel.com

 

 

 

Peek-a-boo, I See You

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Attention public companies: The Public Company Accounting Oversight Board, affectionately known as “peek-a-boo,” is watching you ever so closely…and wants to see even more of you.

That was the underlying message delivered by PCAOB Board member Greg Jonas as he addressed the recent second annual University of California-Irvine’s Audit Committee Summit, sponsored in part by PondelWilkinson.

“Regulators’ role is to be sure that investors hear the good, the bad and the ugly,” Jonas said. “Our challenge is to be useful and not just get in the way.”

Jonas spoke about the PCAOB’s “concept” issued in July, seeking public comment on 28 potential audit quality indicators to help identify insights into how high quality audits are achieved.

Jim Schnurr, Chief Accountant for the Securities and Exchange Commission, who is responsible for establishing and enforcing accounting and auditing policy and served as the event’s keynote speaker, interpreted the PCAOB’s project as a determining factor of whether additional public company disclosures should be made, particularly regarding greater oversight of management.

“The audit committee is in an excellent position to gain insight into management controls,” said Schnurr. “Avoidance of boilerplate reporting and minimizing the risk of litigation should be high on the directors’ agendas.”

Schnurr offered additional tips for audit committee members that should resonate with management:

  • Focus on effective disclosure
  • Increase the use of hyperlinks in communications
  • Periodically re-evaluate the relevance of disclosure items
  • Use solid judgment about what is not being disclosed
  • Be certain that audit committee members have the bandwidth to properly fill their roles

Two expert panel discussions followed Schnurr’s and Jonas’s addresses. Panelist Bala Iyer, audit committee chair at QLogic, offered a number of suggestions, focusing heavily on three: asking tough questions; trusting management; and taking the time to thoroughly understand the business.

The Sarbanes-Oxley Act of 2002, which created the PCAOB, requires that auditors of U.S. public companies be subject to external, independent oversight for the first time in history. The Board has no authority over public companies, but its work can have deep implications. Here’s looking atchya.

— Roger Pondel, rpondel@pondel.com

Access, Tenure, Pay

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The 2015 proxy season is underway, and following our exhaustive annual Google search for trends, it is clear that three major issues are leading the way on this year’s ballots: corporate access; board tenure/composition; and once again, executive pay.

Regarding corporate access, everyone seems to be talking about New York City Controller Scott Stringer’s filing of proxy access proposals at 75 companies, all at once, whose shares are owned by the New York City Pension Funds. Stringer’s proposals, as with most on this subject, request that companies adopt bylaws giving shareholders who own at least 3 percent of a company for three or more years the right to list their director candidates, representing up to 25 percent of the board. Some call for 5 percent ownership. There are some interesting pros and cons of letting shareholders have their way so easily, explained well in a Harvard Law School Forum on Corporate Governance, http://blogs.law.harvard.edu/corpgov/.

On the board composition/tenure issue, just how long can a board member serve and still be an independent advocate of the shareholders? Investors are concerned that long-serving directors may not be really independent and engaged. They may have made too many friends on the board and among the management teams. Institutional Investor Services (ISS), www.issgovernance.com, the leading proxy advisory firm, says nine years should be about it. Other aspects of this subject that are gaining steam include board diversity, with the term “board refreshment” becoming quite in vogue.

Lastly, always a bugaboo, the subject of executive compensation again seems to be receiving heightened attention. Aligning pay with performance is nothing new and always good, and boards seem to be doing a pretty good job of it. Even though the votes are non-binding, “yes” or a “no” votes that do not pass by large margins can signal shareholder discontent. Many companies see major swings in their say-on-pay votes from one year to the next. Read more at www.corporatesecretary.com.

– Roger Pondel, rpondel@pondel.com