Governance wonks can rest easy. In fact, we can all go home and think about another career. The reason? CalSTRS – California State Teachers’ Retirement System – has issued a “fact sheet” entitled “Best Practices in Board Composition”.
It’s interesting that CalSTRS calls it a fact sheet, since much if not most (if not all) of what it says is opinion, belief or aspiration rather than fact. However, I suppose calling it an “opinion sheet” or an “aspiration sheet” would have resulted in fewer hits.
The document lists five “best practices” (though the fifth has four sub-items; perhaps that means there are nine best practices?). No indication is given as to whether the practices are listed in order of their best-ness. However, it’s notable that the first practice is “independent leadership” – in other words, having “an independent chair that is separate from the Chief Executive Officer”. I’ve done lots and lots of research on this point, and the most that can be said is that there is no conclusive evidence of any connection between an independent board chair and performance. Again – that’s the most that can be said. (If you don’t believe me, take a look at this Yale study.)
For those who think nothing ever gets done in Washington, last week must have been a challenge. From outward appearances, both the SEC and the PCAOB seem to be working overtime, possibly in order to ruin our holiday weekend or at least lay some guilt on us for not spending the weekend reading what they’ve put out.
First, on July 1 the SEC published rule proposals on the last of the so-called Dodd-Frank “four horsemen” (or, as the SEC Staffers called them, the “Gang of Four”) compensation and governance provisions – specifically, clawbacks. It’s too soon for even nerds like me to have gone over the proposed rules in any detail, but at first blush they disappoint in a few respects. Among other things, they appear to call for mandatory recoupment of performance-based compensation whenever the financials are restated, without regard to fault or misconduct; even a “mere” mistake will trigger the clawback. Moreover, neither the board, nor the audit committee, nor the compensation committee will have any discretion or any ability to consider mitigating circumstances. Last (for now), they do not seem to provide any exemptions or relief for small companies, emerging growth companies or the like. Interestingly, equity awards that are solely time-vested will not be considered performance-based compensation for purposes of the proposed rules. Of course, these are only proposed rules, and they will eventually take the form of exchange listing standards rather than SEC rules, but the basic approach is absolute and draconian, and it’s difficult to envision them changing very much.
Last week I attended the National Conference of the Society of Corporate Secretaries and Governance Professionals in Chicago. It was a great conference – wonderful, substantive programs and a chance to catch up with many friends and colleagues.
With some exceptions.
One exception was the opening speech by SEC Chair Mary Jo White. Now don’t get me wrong – I’m a fan (particularly when Senator Warren and others go after her – as in my last post). Among other things, I love the fact that she speaks clearly; unlike so many others in Washington, whose statements make me think I know what it must have been like to visit the Delphic Oracle, she’s perfectly straightforward about her views. It was her views – or at least most of them – that I didn’t like.
Chair White addressed four topics, and on all but one of them she basically told the corporate community to give up. Her topics and views can be summarized as follows:
The SEC continued its program of enforcement actions in connection with the Federal EB-5 Program by bringing charges against two firms which raised approximately $79 million for EB-5-related situations. This matter is a little different in that it is the first SEC action to be brought in connection with unregistered broker-dealer activities in the EB-5… Continue Reading