False telephone communications—not just the IRS….
You, like me, may have been the recipient of many, many, many calls from various persons claiming to be from the IRS and threatening you with imprisonment. We all know that the IRS doesn’t make those types of calls and we ignore them. Apparently, some of those folks have now shifted agencies claiming to represent the SEC. This could be a little trickier.
Survey updates pay-ratio data
In these survey results (courtesy of thecorporatecounsel.net), audit firm Deloitte provides data as of April 10 regarding pay-ratio disclosures for 294 companies in the S&P 500. Interestingly, so far at least, not many of the accommodations that the SEC deliberately included in the rule to provide “flexibility” have found favor with companies. For example, the survey showed that only 8% of companies used statistical sampling, a methodology initially suggested in comments by the AFL-CIO and adopted by the SEC in an effort to make the pay-ratio rule more palatable to companies. However, for this first year of reporting, many companies have opted to take a minimalist approach; whether that changes over time as companies become accustomed to the rule and more adventurous in its implementation remains to be seen.
Center for Audit Quality issues tool for board oversight of cybersecurity risk
The Center for Audit Quality has just issued Cybersecurity Risk Management Oversight: A Tool for Board Members. The tool offers questions that directors can ask of management and the auditors as part of their oversight of cybersecurity risks and disclosures. The questions are designed to initiate dialogue to clarify the role of the auditor in connection with cybersecurity risk assessment in the context of the audit of the financial statements and internal control over financial reporting (ICFR), and to help the board understand how the company is managing its cybersecurity risks.
Fallout from pay-ratio reporting
As a general matter, SEC rules do not mandate companies to disclose details about the composition or location of their workforces; Reg S-K requires disclosure of only the number of employees, but no information about them. And the vast majority of companies provide little detail voluntarily. But now, as this article in the WSJ reports, companies are beginning to disclose more information about their workforces overseas, and the impetus for that disclosure is the new pay-ratio rule—all at a time when issues of overseas versus domestic employment are especially fraught.
Auditors in the crosshairs (re-posted)
It’s certainly a rare event, but both ISS and Glass Lewis have recommended voting against a proposal to ratify the appointment of GE’s auditor, KPMG, at the GE annual shareholders meeting. Most often, the issue of auditor ratification is not very controversial—in fact, it’s usually so tame that it’s one of the few matters at annual shareholders meetings considered “routine” (for purposes of allowing brokers to vote without instructions from the beneficial owners of the shares). Are we witnessing the beginning of a new trend?
Corp Fin further refines Rule 14a-8(i)(9) exclusion
In past few years, after Corp Fin issued Staff Legal Bulletin 14H redefining the meaning of “direct conflict” under the Rule 14a-8(i)(9) exclusion for “conflicting proposals,” the staff has continued to fill in the outline of what works and what doesn’t work under the new interpretation of the exclusion. In American Airlines Group (avail. April 2, 2018), the staff concluded that the approach taken by the company was coloring outside the lines and denied no-action relief.
Corp Fin posts two new CDIs regarding non-GAAP financial measures in the M&A context
Corp Fin has posted two new CDIs regarding the use of non-GAAP financial measures in connection with business combinations, summarized below:
Study: What makes a good board chair?
In this article from the Harvard Business Review, “How to Be a Good Board Chair,” the author, an academic and consultant, discusses good practices for the board chair’s role based on a survey of 200 board chairs from 31 countries, 80 interviews with chairs and 60 interviews with board members, shareholders and CEOs. According to the author, international differences notwithstanding, he “found a remarkable degree of agreement about what makes a good chair.”
Human capital management moves to the forefront as an investor concern
For 2018, BlackRock has identified human capital management as one of its engagement priorities, echoing the exhortation from BlackRock CEO Laurence Fink in his 2018 annual letter to public companies: with governments seeming to fall short, it is up to the private sector to “respond to broader societal challenges”; companies must look to benefit their broader communities and all of their stakeholders, including employees, and that involves investment in efforts to create a diverse workforce, to develop retraining programs for employees in an increasingly automated world and to help prepare workers for retirement. (See this PubCo post.) With that mission in mind, in this post on The Harvard Law School Forum on Corporate Governance and Financial Regulation, Michelle Edkins, Managing Director and Global Head of Investment Stewardship at BlackRock, discusses Blackrock’s approach to engagement with companies on the topic of HCM. While, as an investor concern, HCM may not have the high profile of board diversity, climate change or executive comp, it may well be on its way.
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