I don’t know very much about the federal budget process, but I do know that any budget proposed by the White House – regardless of its occupant – isn’t worth spending time on, and that by the time the budget is passed, it often looks
Once again, it’s time for me to depart from my nerdy governance life and list my 10 favorite books of the year gone by. For those of you who are new to these annual posts, my top 10 list reflects what I read last year, rather than what was published during the year.
The only significant departure from prior years is that in a couple of instances I’ve combined two books by the same author. So here goes:
Non-Fiction
About a year ago, I was speaking with the governance committee of a prospective client. One of the committee members asked me what the “best practice” was in a particular area. I said that I hate the term “best practice,” because one size never fits all, there is almost always a range of perfectly fine practices, and that a company needs to think about how a particular practice would work (or not) given its industry, its history, and its culture, among the many things that make a company unique. Afterwards, I wondered if my candor would result in not getting the work, but evidently the committee agreed, and the rest is history.
At the time, I’d forgotten about a 2015 blog post I’d written on so-called best practices. In fact, I continued to forget about it until I recently read a fantastic paper published by the Rock Center for Corporate Governance at Stanford. Loosey-Goosey Governance discusses four misunderstood governance terms: good governance, board oversight, pay for performance, and sustainability. Along the way it demonstrates how wrong “conventional” wisdom can be – and is – regarding what companies should and should not do in the governance realm. Some examples:
I don’t look at my RSS feed or my Twitter account until I’m finished with my day’s work, so it wasn’t until last night that I read Broc Romanek’s blog post announcing his retirement from thecorporatecounsel.net. He’s already received a number of gracious and, I am sure, sincere paeans, including from my friend and mentee
Although Dodd-Frank was enacted in 2010, the rule needed to implement one of its provisions – the requirement to disclose hedging policies – only recently took effect. In fact, for calendar-year companies, 2020 will be the first year in which the proxy statement will have
A few years ago, a wonderfully outspoken member of the institutional investor community congratulated me on a corporate governance award I’d received. She apologized for not being able to make it to the awards ceremony, referring to it – very aptly, IMHO – as the “nerd prom.”
Well, we’ve progressed from the nerd prom to a nerd war – specifically, the nasty fight over the August 19 Statement on the Purpose of the Corporation, signed by 181 CEO members of The Business Roundtable. The Statement suggested that the shareholder-centric model of the modern American corporation needs to be changed and that “we share a fundamental commitment to all of our stakeholders.” The stakeholders listed in the Statement were customers, employees, suppliers, and the communities in which the companies operate; however, other stakeholders were referred or alluded to, such as the environment. And the final bullet point in the list stated that the signers were committed to:
“Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.”
In case you think that SEC Regulation FD is old news, think again. A recent enforcement action makes it clear that Reg FD is alive and well. (And, I might add, living in Boca Raton, Florida.)
Specifically, in an August 20 announcement, the SEC announced that it had charged a Boca Raton-based pharmaceutical company with FD violations “based on its sharing of material, nonpublic information with sell-side research analysts without disclosing the same information to the public.” The more detailed allegations include the following:
In recent years, the SEC has made a number of incremental changes to make disclosures more effective – not only more meaningful and user-friendly for investors, but also helpful to those of us who prepare disclosures for our companies and clients.
The drive to make disclosures more effective seems to have kicked into a higher gear with the August 8 issuance of a proposal that may result in the most significant changes in the disclosure rules in more than 30 years. The proposal would modify some key provisions of Regulation S-K, and in doing so would move considerably closer to a principles-based approach to disclosure. Some details follow.
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I recently came across an article reporting that the interim president of a state university system had failed to report a number of corporate board seats on his ethics forms. That got me thinking about the forms he may have been asked to complete, which in turn got me thinking about D&O questionnaires.
Getting directors and officers to accurately complete and return questionnaires in a timely manner is one of the most frustrating tasks faced by corporate secretaries. Years ago, I was speaking at a program for aspiring corporate governance nerds, when a young aspirant asked me if I had the secret to getting this task done. If memory serves me correctly, my response was to the effect that if I had the answer to her question, I could retire.
However, I sometimes think that people who circulate questionnaires are their own worst enemies. For example, a recent study reported that D&O questionnaires averaged 40 pages and 65 questions. That means that some, perhaps many, questionnaires are far longer. It’s unrealistic to expect someone with a life – much less a day job – to devote the amount of time necessary to complete a 40-page (or longer) questionnaire, particularly when many questions don’t lend themselves to simple “yes” or “no” answers.
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In December 2014, I posted my concerns with the law on insider trading. Perhaps someone read it, because the following year, H.R. 1625, the “Insider Trading Prohibition Act,” was introduced in the House of Representatives. I regarded it as imperfect but a start. Of course, it went nowhere, and the state of the law has not changed.
Well, it’s back – sort of – and may have a bit of life. H.R. 2534, with the same title as in 2015, was introduced by Congressman Jim Himes (D-CT), who introduced the 2015 bill, and co-sponsored by Carolyn Maloney (D-NY) and Denny Heck (D-WA). What’s new about the bill is that it was approved – unanimously – by the Financial Services Committee in May. That probably doesn’t mean anything, as Congress seems to be the place where legislation goes to die, but I suppose anything is possible.
Like its predecessor, it’s a start. But I still think it’s imperfect. The title of the first section is promising: “Prohibition Against Trading Securities While In Possession Of Material, Nonpublic Information.” Sounds good, right? The mere possession of MNPI means you can’t trade. Wrong. The text of the section gives the lie to its title. Specifically, the prohibition exists only if the person trading “knows, or recklessly disregards, that such information has been obtained wrongfully, or that such purchase or sale would constitute a wrongful use of such information.” In other words, (1) the bill seems to say it’s OK to trade while in possession of inside information as long as the information was not known to have been obtained wrongfully or is being used wrongfully (whatever the latter means), and (2) it would get us right back into the very issues that make the present state of the law so confusing. You can’t trade in a stock if you know (or should have known) that the MNPI was wrongfully obtained, but what if you don’t know or have no reason to know it was wrongfully obtained? If someone suggests that you buy (or sell) a particular stock, what is your duty of inquiry, and where does it end?