The second annual CPA-Zicklin Index of Corporate Political Accountability and Disclosure was released yesterday by the Center for Political Accountability in conjunction with the Carol and Lawrence Zicklin Center for Business Ethics Research at The Wharton School of the University of Pennsylvania.
Topic: Corporate Governance
PCAOB Issues Release Providing Information for Audit Committees About its Inspection Process
On August 1, 2012, the Public Company Accounting Oversight Board (“PCAOB”) issued an informational report about its inspection process that is intended to serve as a guide for audit committees to learn more about the inspection process and offer questions the audit committee may ask the audit firm about its inspection results. The PCAOB issued the release with the goal of helping audit committees engage in more informative discussions with audit firms about the inspection process in order to aid audit committees in their oversight responsibilities related to financial reporting. PCAOB inspections of an audit firm examine both aspects of a limited number of audits performed by the firm (Part I of the inspection report) and elements of the firm’s overall system of quality control over its audit process (Part II of the inspection report, which is confidential). The release provides information about both parts of the PCAOB’s inspections and lists specific suggestions for initiating or enhancing discussions with audit firms about the inspection results.
SEC Approves NASDAQ Rule Change for Independent Directors
On July 19, 2012, the SEC approved a proposed change to NASDAQ’s rules regarding membership on a listed company’s audit, compensation and/or nominations committee. NASDAQ sought to modify an exception to its Rule 5605, which allows a non-independent director to serve on such committees “under exceptional and limited circumstances” for up to two years. The amendment provides an exception allowing a non-independent director to serve on a company’s audit, compensation and/or nominations committee, where the director has a family member serving as a non-executive employee of the company, so long as the listed company’s board concludes that the director’s membership on the relevant committee is “required by the best interest of the company and its shareholders.”The SEC’s release is available at here.
Business Roundtable Publishes Principles of Corporate Governance 2012
Business Roundtable (BRT) today issued its Principles of Corporate Governance 2012, which update its April 2010 principles. The principles were updated to “reflect the new circumstances of Dodd-Frank Wall Street Reform and Consumer Protection Act implementation and the continuing evolution of best practices.” The new Principles of Corporate Governance include important updates in five key areas:
U.S. Securities and Exchange Commission Adopts Rules Implementing Dodd-Frank Requirements for Listing Standards Applicable to Compensation Committees
The SEC today adopted rules to implement Section 952 of the Dodd-Frank Act, requiring stock exchanges to adopt listing standards that:
- impose independence requirements on compensation committee members,
- authorize compensation committees to retain independent advisers, and
- require compensation committees to assess the independence of any consultant, legal counsel or other adviser that provides advice to the compensation committee, other than in-house counsel.
California Considers Legislation to Repeal its Corporate Long-Arm Statute
California Assemblyman Curt Hagman has introduced a bill in the California legislature that will, if enacted, repeal California’s corporate long-arm statute that imposes provisions of California corporate law on non-California corporations with substantial contacts in California. The bill (AB 2260) was introduced as a “spot bill” (i.e., a placeholder bill that does nothing other than identify a specific statutory provision to be amended) on February 24, 2012, and was substantially amended on March 29, 2012 to provide for the repeal of California Corporations Code Section 2115. For many private companies operating in California that organize as Delaware corporations (generally regarded as a preferred state for incorporating), Section 2115 creates uncertainty at times regarding whether California or Delaware corporate law controls. For example, when a Delaware corporation subject to Section 2115 undertakes to effect a merger, California and Delaware each impose different shareholder consent requirements and have different procedures for non-consenting shareholders to exercise dissenters’ rights, resulting in duplicative and sometimes inconsistent requirements and procedures. Similar to the impetus for the recently enacted JOBS Act, repealing Section 2115 is another example of deregulatory legislation aimed at removing hindrances to growth companies operating in California.
SEC Staff Grants No-Action Letter Excluding Proxy Access Shareholder Proposal
In a significant decision, the staff of the Securities and Exchange Commission today issued a no-action letter concurring that a proxy access shareholder proposal could be excluded from a company’s proxy materials under Rule 14a‑8. The proposal, submitted to Textron Inc. by John Chevedden on behalf of Kenneth Steiner, requested adoption of a bylaw amendment permitting shareholders to include in the company’s proxy materials director candidates nominated by any shareholder(s) that had continuously held one percent of the company’s voting securities for two years or by any group of shareholders “of whom one hundred or more satisfy SEC Rule 14a‑8(b) eligibility requirements.
ISS Extends Deadline for GRId 2.0 Data Confirmation and Release
Institutional Shareholder Services (ISS) announced today that it has extended the deadline for companies to review their updated GRId 2.0 data and submit corrections before GRId 2.0 is implemented. The deadline was previously Thursday February 23, 2012, at 8pm Eastern Time. The updated deadline is now Monday, February 27, 2012, at 8pm Eastern Time. ISS has also announced that the updated GRId scores will now be released on Monday, March 5, 2012, instead of the previously announced date of February 27, 2012.
UK Corporate Governance: The 2011 Report Card
Introduction: The Financial Reporting Council (“FRC”), the independent regulator responsible for promoting corporate governance in the UK, published its annual report at the end of last year assessing the impact and effectiveness of the new UK Corporate Governance Code (“CGC”) and the new Stewardship Code (“SC”) (the “Codes”), setting out proposals for reform and improvement in best practice.
NYSE Rule 452 Interpretation (Broker Discretionary Voting)
On January 24, 2012, the NYSE issued a notice regarding Rule 452 that establishes new restrictions on broker discretionary voting. NYSE Rule 452 regulates when brokers may cast discretionary votes on uninstructed shares. NYSE Rule 452 permits brokers to exercise their discretion to vote on “routine” proposals when the beneficial owner fails to provide specific voting instructions within 10 days of the scheduled meeting, and prohibits brokers from voting those uninstructed shares on “non-routine” matters. The NYSE notice states that they re-examined broker discretionary voting on certain corporate governance proposals in light of “recent congressional and public policy trends disfavoring broker voting of uninstructed shares.” The NYSE’s rule on broker discretionary voting has come under increasing scrutiny in recent years, as evidenced by recent amendments to Rule 452 prohibiting broker voting of uninstructed shares in the election of directors (other than for the election of directors for investment companies), and the provision in the Dodd-Frank Act directing the SEC to prohibit brokers from voting uninstructed shares on executive compensation and other “significant matters,” as determined by the SEC.