Category: Agenda

SEC Provides New Guidance on Covid-Related Disclosures

Today, the SEC’s Division of Corporation Finance (CorpFin) provided new guidance related to disclosures companies should be making in light of the coronavirus (Covid-19) pandemic. The commission will also allow more time for public companies to submit mandatory filings, as long as the company clearly explains why it needs more time.

“These actions provide temporary, targeted relief to issuers, investment funds and investment advisers affected by Covid-19,” said SEC chairman Jay Clayton in a press release. “At the same time, we encourage public companies to provide current and forward-looking information to their investors and, in these uncertain times, companies are reminded that they can take steps to avail themselves of the safe harbor in Section 21E of the Exchange Act for forward-looking statements.”

Although the material impacts of the pandemic can be uncertain, the SEC is asking companies to disclose risks and related effects in Management Discussion and Analysis (MD&A) sections and business sections, as well as in the risk factors, legal proceedings, disclosure controls and procedures, internal control over financial reporting disclosures and financial statements sections as appropriate.

According to data from public company intelligence provider MyLogIQ, 41% of Russell 3000 companies had issued risk factor disclosures regarding Covid-19 by Monday, March 23. That’s up from 29% on March 11. For the S&P 500, the percentage had risen from 32% to 35% in the same time period.

Where Does ESG Oversight Fit on the Board?

As investors continue to pressure boards to take up environmental, social and governance (ESG) issues, directors are facing the question of where that responsibility lies on the board. Should the full board be responsible for ESG oversight, or is the subject important enough for a stand-alone committee? Or, should already established committees take responsibility? Agenda readers are divided, but about half think it’s a full-board job, according to the latest quarterly Directors’ and Officers’ Outlook Survey.

Out of 66 respondents, the largest segment (45.5%) says their full board has responsibility for ESG risk oversight. Meanwhile, 10.6% say audit committees should oversee ESG and the same proportion would assign ESG to risk committees, while 22.7% say they would designate it to an “other” committee.

Companies are also increasingly establishing ESG, sustainability or corporate social responsibility (CSR) committees to handle the heavy workload required for these issues. According to data from public company intelligence provider MyLogIQ, in 2019, 174 Russell 3000 companies disclosed having a stand-alone sustainability-focused committee, up from 142 in 2018. So far in 2020, 35 Russell 3000 companies have disclosed a sustainability-focused committee in public disclosures. However, according to the D&O survey, only 3% of the 66 respondents indicated their board had a stand-alone sustainability or ESG committee. The other 7.6% say their board had not discussed the issue.

Best Practices for Virtual Board Meetings

Directors are making plans to hold their next board meeting remotely to combat the spread of the novel coronavirus amid the ongoing pandemic. However, sources recommend that directors brush up on virtual meeting etiquette and ask corporate secretaries to ensure they are following applicable state laws on meetings even if they are meeting remotely.

“A good chairman of the board or a good CEO will make sure everyone will be heard,” says Krish Ramakrishnan, executive chair and co-founder of BlueJeans Network, an enterprise-focused, cloud-based videoconferencing provider.

For example, Ramakrishnan says, during a videoconferenced board meeting, the chair or lead director should advise attendees to raise their hand if they want to speak — rather than simply raising their voice as one might do on a phone call to be heard — and be sure to call on directors as they indicate they have something to say. He also recommends scheduling time for short breaks in between agenda items or longer discussions just as directors would do if they were meeting in person.

ISS: Say More on CEO Exit Deals, Or Else

What boards choose to disclose about a CEO’s departure could impact how Institutional Shareholder Services makes voting recommendations this proxy season, according to the proxy advisor’s recently released FAQs document on compensation policies.

According to ISS, CEOs should not receive severance if they stepped down willingly. As a result, ISS said, it wants more detail on whether the CEO was officially terminated for cause or not.

The vast majority of S&P 500 CEOs — 33 of the 35 — who left their company in 2019 were not terminated but rather resigned, according to public company intelligence provider MyLogIQ. Only two companies, McDonald’s and Gap, disclosed that they terminated their CEOs; most others used language in 8-Ks or other filings noting that the CEO “ceased to serve” or is “leaving” or “stepping down.” Gap’s filing noted that former CEO Arthur Peck was “stepping down,” in addition to being “terminated without cause” for the purposes of triggering post-termination benefits.

Interim CEOs: How the Top Temp’s Pay is Set

When a CEO exits unexpectedly, the vacancy leaves room for someone to step up and prove his or her worth to the company.

Their worth, as it turns out, is about $1.6 million, on average, for an “interim CEO-ship” among those in the Russell 3000, according to public company intelligence provider MyLogIQ.

There have been 140 interim CEOs named over the past six years, and many of them were paid handsomely to step into their temporary roles, with median pay at just under $1 million — although the total comp was far lower than the $4.8 million median pay that permanent CEOs make annually in the Russell 3000.

As with pay trends for permanent CEOs, there are a number of factors that comp committees consider when determining comp for the interim CEO.

Time Demands Lead to Offline Meetings, Resignations

Increasing demands on directors’ time are prompting boards and committee chairs to regularly hold ad hoc “meetings between the meetings,” as directors call them, ranging from quick, 30-minute discussions to lengthier deep dives, as boards grapple with packed agendas that leave little room for broader emerging issues. Research suggests that increasing time demands — whether from official board meetings or shorter, informal ones — are also leading to directors’ resignations from boards.

But many directors say the additional meetings are necessary to fulfill their oversight responsibilities. In addition to the formation of temporary committees and the proliferation of offline conference calls, committee chairs are also working to make their meeting agendas more adaptive so directors can focus on key issues as they emerge, while pushing routine business — barring something critical — into preparatory reading material or to a between-meetings call. That flexibility allows committees to avoid situations in which discussion of regular agenda items during audit committee meetings, for example, leaves only seven minutes at the end for cyber risk.

SEC Enforcers Listening to All Sources, Including Activists

Insurance underwriter Argo Group has been asked by the SEC to hand over documents related to perks awarded to its executives.

The SEC inquiry into Argo’s disclosures on executive perks, which was first reported by Bloomberg, comes after a proxy fight with Voce Capital earlier this year, and could indicate that activist investors have the ear of the SEC.

“The takeaway for boards is that the SEC listens to information from all sources,” says Brad Mroski, managing director at AlixPartners and former assistant chief accountant in the SEC’s Division of Enforcement. “The better the fact pattern is laid out, the more actionable it can be by the SEC.”

Amid #MeToo Scandals, Alphabet Lawyer Is Highest-Paid Legal Chief

Top legal officers are becoming increasingly valuable to corporations, at least according to the rising number of digits in some of their compensation packages.

Pay for the general counsel (GC) and chief legal officer role reached a five-year high, according to data released last month from compensation consultancy Equilar and executive search firm BarkerGilmore.

This latest research “brings to light the expanding role of the GC and the increased compensation associated with their seat at the table,” said BarkerGilmore managing partner John Gilmore in a statement.