This is a primer on attorneys as award-seeking SEC whistleblowers. It digests the relevant law and explains how it applies in real situations. That law includes the SEC attorney conduct and whistleblower award rules and each state’s ethics rules applicable to attorney disclosure. Fully assessing a particular situation will often require referring to the relevant rules for each state that might come into play for a particular lawyer in a particular situation. We therefore include information about choice of law and a chart summarizing the relevant rules in each of 51 US jurisdictions.

Our hope is that with this primer close at hand, attorneys and companies will not only be equipped to spot issues and apply the law, but will also understand how limited the circumstances are that will allow a lawyer to disclose confidential information to the SEC without client consent and seek a monetary award. This is true even though the SEC has expanded the circumstances allowing disclosure beyond those recognized in many states.

We will end with steps companies can take to deal with risks related to attorneys who are actual or would-be whistleblowers.

…continue reading: Can Attorneys Be Award-Seeking SEC Whistleblowers?

Researchers and business leaders have long decried short-termism: the excessive focus of executives of publicly traded companies—along with fund managers and other investors—on short-term results. The central concern is that short-termism discourages long-term investments, threatening the performance of both individual firms and the U.S. economy.

In the paper, How Short-Termism Invites Corruption…and What To Do About It, which was recently made publicly available on SSRN, I argue that short-termism also invites institutional corruption—that is, institutionally supported behavior that, while not necessarily unlawful, erodes public trust and undermines a company’s legitimate processes, core values, and capacity to achieve espoused goals. Institutional corruption in business typically entails gaming society’s laws and regulations, tolerating conflicts of interest, and persistently violating accepted norms of fairness, among other things.

…continue reading: Short-Termism at Its Worst

Companies commonly supplement their reported earnings under U.S. generally accepted accounting principles (GAAP) with non-GAAP financial measures that they believe more accurately reflect their results of operations or financial position or that are commonly used by investors to evaluate performance. A non-GAAP financial measure is a numerical measure of a company’s historical or future financial performance, financial position or cash flows that includes or excludes amounts from the most directly comparable GAAP measure. Non-GAAP financial measures are used by companies to bridge the divide between corporate reporting that is standardized under GAAP and reporting that is tailored to a particular industry or circumstance.

The Securities and Exchange Commission (SEC) permits companies to present non-GAAP financial measures in their public disclosures as well as registration statements filed under the Securities Act of 1933 (Securities Act) and periodic reports filed under the Securities Exchange Act of 1934 (Exchange Act), subject to compliance with Regulation G and Item 10(e) of Regulation S-K (Item 10(e)). These regulations were adopted to ensure that investors are provided with financial information that is fulsome and not misleading.

…continue reading: Disclosure of Non-GAAP Financial Measures

In a Director Note recently published, The Conference Board reviews current corporate practices on risk oversight by members of the board of directors of U.S. public companies. The study is based on findings from a survey of 359 SEC-registered business corporations conducted by The Conference Board in collaboration with NASDAQ OMX and NYSE Euronext. Data are categorized and analyzed according to 22 industry groups (using their Standard Industrial Classification, SIC, codes), seven annual revenue groups (based on data received from manufacturing and nonfinancial services companies) and five asset value groups (based on data reported by financial companies, which tend to use this type of benchmarking).

The publication details where the board assigns risk oversight responsibilities, whether it avails itself of dedicated reporting lines from senior management on risk issues, and the degree to which it adopts a standardized framework on enterprise risk management (ERM). Given the correlation between risk and strategy, data on the frequency and forms of strategic reviews is also presented.

The following are the main findings discussed in the study.

…continue reading: Risk in the Boardroom

All U.S. S&P 500 companies except one report some form of sustainability disclosure. This widespread reporting indeed is good news. But, isolated sustainability disclosures have proven to be of limited value to corporate management trying to improve the bottom line, and for investors seeking to gauge risk and opportunity.

New research from the Investor Responsibility Research Center Institute (IRRCi) and the Sustainable Investments Institute (Si2) – the first to benchmark the status of integrated reporting in the U.S. – finds that nearly all S&P 500 companies are failing to connect the disclosure dots. A mere seven companies are integrating financial and sustainability reporting. These trendsetters include American Electric Power, Clorox, Dow Chemical, Eaton, Ingersoll Rand, Pfizer and Southwest Airlines.

The study also finds companies typically are beginning to place a dollar figure on sustainability – about 74 percent of corporations. But, these disclosures frequently mention other initiatives without quantification of the benefits and costs. Also interesting is that some 44 percent of companies link executive compensation to sustainability criteria.

What’s driving increased disclosure is a combination of factors – rules, regulations, fines, and even the increased volume on the climate change debate. What’s problematic, however, is that the rules are disjointed. As a result, companies and investors don’t have a clear vision so they can factor sustainability into corporate planning and financials.

But this disorderly backdrop doesn’t mean companies lack the capability to quantify the impact of sustainability.

…continue reading: Are Companies Connecting the Sustainability and Financial Disclosure Dots?

As discussed in our previous memo, in January 2013, the SEC approved amendments to the NYSE and Nasdaq listing standards relating to compensation committees and their advisers. Unless they have already done so, companies should begin implementing the new requirements with respect to compensation committees and their advisers that take effect on July 1, 2013. Compensation committee action is required in order to comply with these requirements.

Companies should note that, while the new rules require compensation committees to consider the independence of their advisers, the rules do not require that such advisers be independent, nor is any aspect of the mandated independence review required to be disclosed publicly (other than proxy disclosure concerning compensation consultants to a company or its compensation committee).

Companies should also note that this independent assessment applies only to advisers; there will be a separate independence assessment of directors required later, as noted below.

…continue reading: Compensation Committee and Adviser Implementation Begins July 1, 2013

In our study, CEO Succession Practices (2013 Edition), which The Conference Board recently released, we document and analyze 2012 cases of CEO turnover at S&P 500 companies. The study is organized in four parts.

Part I: CEO Succession Trends (2000-2012) illustrates year-by-year succession rates and examines specific aspects of the succession phenomenon, including the influence on firm performance on succession and the characteristics of the departing and incoming CEOs.

Part II: CEO Succession Practices (2012) details where boards assign responsibilities on leadership development, the role performed within the board by the retired CEO, and the extent of the disclosure to shareholders on these matters.

Part III: Notable Cases of CEO Succession (2012) includes summaries of 11 episodes of CEO succession that made headlines in the past two years and that were carefully chosen to highlight key circumstances of the process.

Part IV: Shareholder Activism on CEO Succession Planning (2012) reviews examples of companies that have recently faced shareholder pressure in this area.

The following are some of the major findings discussed in the study:

…continue reading: Statistics on CEO Succession in the S&P 500

There are two main sources of confusion in the public corporate governance debate. One is the confusion about the role of public policy in corporate governance. The other is a lack of empirical knowledge among commentators about the corporate landscape and the way that today’s stock markets influence the conditions for exercising long term and value creating corporate governance. This paper tries to mitigate some of this confusion and to increase awareness in both respects.

In terms of public policy it is important to understand that the general corporate governance discussion usually takes place on two different levels. And both are legitimate. One is concerned with the everyday workings of individual companies: how they organize their internal procedures, staff their company organs and build their corporate culture. Much of this is unique to the company in question. The choices to be made are often a matter of business judgment and are seldom in a domain where policy makers and regulators have any specific expertise.

…continue reading: Who Cares? Corporate Governance in Today’s Equity Markets

Today’s column focuses on new rules of the New York Stock Exchange (NYSE) and the NASDAQ Stock Market (NASDAQ) concerning independence requirements for directors who are members of compensation committees. The new rules must be complied with by listed companies by the earlier of the first annual meeting of shareholders after Jan. 15, 2014, or Oct. 31, 2014. [1]

NYSE Section

NYSE Listed Company Manual Section 303A.02(a)(ii) contains the following requirements regarding compensation committee member independence (references to an NYSE Listed Company Manual Section hereinafter will be referred to as NYSE Section):

[I]n affirmatively determining the independence of any director who will serve on the compensation committee of the listed company’s board of directors, the board of directors must consider all factors specifically relevant to determining whether a director has a relationship to the listed company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to:

…continue reading: Exchange Rules on Independence of Compensation Committee Members

PwC U.S. recently released two reports on corporate governance considerations relating to public offerings. The first, titled “Going Public? Five Governance Factors to Focus on,” outlines key governance considerations companies should address when pursuing a public offering. Its companion document, “Governance for Companies Going Public: What Works Best™,” guides directors and executives of companies planning an IPO through the many governance decisions necessary; offers insights from interviews with directors, executives, investors and board advisors; reports results of PwC’s proprietary research on pre-and post-IPO governance structures; and assists those involved understand the governance landscape.

The five key governance considerations detailed in the report titled “Going Public? Five Governance Factors to Focus on” include:

…continue reading: Corporate Governance Planning for Companies Going Public