Archive for the ‘Regulations & Legislation’ Category

How Small-Cap Directors Can Surmount Challenges, Capitalize on Opportunities

March 12th, 2014 | By

While legislation—such as the Jumpstart Our Business Startups Act (JOBS Act) and Sarbanes-Oxley (SOX)—has eased some of the burdens small companies face when looking to go public, many of these companies now face the challenge of establishing effective governance structures. Limited resources and smaller staffs can lead to blurred lines between operations and oversight. Additionally, recruiting the right talent can also be difficult since small-cap companies may compete against their larger peers for talent.

Though lesser in market cap, these companies are growing in relative number. Small-cap companies compose nearly 80 percent of U.S.-listed public companies—4 out of 10 companies trade on the NYSE, Nasdaq, or NYSE MKT.

Recognizing that small-cap directors have a need for specific corporate governance resources, the National Association of Corporate Directors (NACD) developed the NACD Small-Cap Forums exclusive for small- and micro-cap company directors. The forums—held on April 10 in San Antonio and on July 17 in San Francisco—feature seasoned directors from small-cap companies and subject-matter experts on financing and capital markets and board building.

The keynote speaker is Adam Epstein, founding principal of Third Creek Advisors,  lead director of OCZ Technology Group Inc., and author of  “The Perfect Corporate Board: A Handbook for Mastering the Unique Challenges of Small-Cap Companies.”

Topics to be addressed include strategy and risk, board-shareholder communications, and shareholder activism. To view the full agenda or to register, visit

Investors Recommend Board Oversight of Trading Plans

February 7th, 2013 | By

New oversight responsibilities could be in store for directors. Although 10b5-1 trading plans have existed since 2000, a confluence of events—including several Wall Street Journal articles and a letter from the Council of Institutional Investors (CII) to the Securities and Exchange Commission (SEC)—has recently placed these plans in the regulatory spotlight. As noted in NACD Directors Daily this week, the SEC and federal prosecutors have opened investigations into a number of insider transactions, many centered on 10b5-1 trading plans.

Rule 10b5-1 plans were created to deter corporate insiders from trading while in possession of material, non-public information. An executive must enter such a plan when not in possession of insider information, and he or she must specify the amount, price, and date for the securities transaction, and must not be able to alter or influence the terms of the plan. However, significant loopholes still exist; for example, executives maintain the ability to cancel a plan. The SEC said that because such a cancellation does not directly result in insider trading liability because the cancellation did not occur “in connection with the purchase or sale of a security” there was no insider trading. In a November 2012 investigation, the Wall Street Journal found that 46 percent of plan terminations occurred if plans called for a stock sale prior to the company releasing good news, and thus leaving money on the table, while only 11 percent of plan terminations occurred if the plan called for a stock sale prior to the company releasing negative news.

Following the Wall Street Journal investigation, in December CII submitted a comment letter to the SEC expressing concern over potential insider trading. In this letter, CII recommends that boards be responsible for the oversight of preset trading plans, stating “making boards explicitly responsible for the oversight of Rule 10b5-1 plans will make them more responsible to long-term shareholders and more vigilant in their oversight responsibilities.” This is the sole comment letter to the SEC on the topic.

In Mary Jo White’s nomination to head the SEC, President Obama highlighted her prosecutorial experience. Many have speculated on this, including the New York Times, which noted that with her appointment, “the president showed renewed resolve to hold Wall Street accountable for wrongdoing.”

With increased public scrutiny, federal investigations, and pressure on the SEC to implement stricter rules on 10b5-1 plans, directors may wish to increase how they monitor this area.


Chairman Schapiro Resignation and SEC Rulemaking Progress

November 29th, 2012 | By

As reported in NACD Directors Daily, two weeks from today Mary Schapiro will step down from her current role as chairman of the Securities and Exchange Commission (SEC); she will be replaced by a current democratic commissioner, Elisse Walter. Commissioner Walter has served as an SEC commissioner since 2008. Although Commissioner Walter has not been designated as “acting chairman,” her appointment will last until the end of her current term at the SEC. According to the Wall Street Journal, an official from the White House has indicated that a permanent successor will be named before Commissioner Walter’s term concludes at the end of 2013. Until then, the commission will be split between two democrats and two republicans.

A significant portion of Chairman Schapiro’s tenure at the SEC was focused on implementing Dodd-Frank’s many provisions—and it is expected that Commissioner Walter will continue on this path. According to Davis Polk, the SEC has met 32, or approximately 33.7 percent, of the 95 requirements mandated by the legislation with finalized rules. However, the commission has also missed 50 deadlines. The SEC is not alone in its struggle to meet deadlines: the overall Dodd-Frank implementation process has proceeded in a similar fashion. From all regulatory agencies tasked with fulfilling Dodd-Frank legislative mandates, just 33.4 percent have been met with finalized rules.

To date, the SEC has finalized a number of critical Dodd-Frank rules on corporate governance, including: conflict minerals, compensation committee and advisor independence, say on pay and say on golden parachutes, and the elimination of broker discretionary voting. The SEC’s rule on proxy access was invalidated by the DC Circuit Court, due to the lack of an adequate cost-benefit analysis. Looking ahead, the agency is scheduled to implement rules on: pay for performance and pay ratios, compensation clawbacks, employee and director hedging, and the use of compensation consultants. The timeline for the implementation of these rules is uncertain; while the SEC posted a proposed timeline for Dodd-Frank rulemaking early this year, it has since has replaced the timeline with a list of pending actions.