NACD BLC 2014 Breakout Session – Inside the SEC: Anatomy of an Agency

October 28th, 2014 | By

The Securities and Exchange Commission (SEC) is charged with maintaining fair and efficient markets, facilitating capital formation, and, like directors, protecting investor interests. This regulatory arm of the federal government has a significant impact on businesses, but many may not effectively understand the commission’s inner workings. Providing directors with an insider look at the SEC was a panel comprised of: Mark D. Cahn, former general counsel of the SEC’s Office of the General Counsel, and partner at WilmerHale; Thomas J. Kim, partner at Sidley Austin and former chief counsel and associate director of the SEC’s Division of Corporation Finance; Troy Paredes, senior strategy and policy advisor at PwC and former SEC commissioner; and moderator Kendra Decker, partner in Grant Thornton’s National Professional Standards Group.

The SEC has five commissioners, each of whom is selected by the president of the United States, and no more than three of them can be from the same political party. The president also selects one commissioner to serve as chair. The chair sets the agenda and makes senior hiring decisions; however, this does not create a hierarchy as that professional title might imply. The commissioners are like a board of directors, with each person maintaining their own, independent voice as they vote on the issues set before them.

“No one commissioner has the power to do anything,” Kim said. “They only have power by acting as a commission, just like a board must act as a collective body.” Although the SEC is generally thought of as a rulemaking entity, Cahn pointed out that it’s a relatively infrequent occurrence that commissioners actually cast a vote. The organization’s day-to-day workings are processed at the staff level—and, in turn, the division heads engage with the commissioners.

The panel also drew attention to challenges within the commission. For Cahn, the biggest challenge with regard to rulemaking is the Government in the Sunshine Act of 1976, which requires all commission deliberations to be carried out in public. “You end up with meetings of two commissioners with staff members to discuss issues when they could be much more productive to work out matters as a group.”

In addition, trying to pass a rule through a multi-member commission can turn into a game of chess, with each member making suggestions for changes up until the last minute. If a rule passes with a split vote, those dissenting opinions serve as a roadmap to potential litigants who want to challenge the rule—a factor that emphasizes the importance of unanimity within the commission. “I think it [speaks] well for the agency overall when there’s consensus,” Parades said. “But sometimes you can’t bridge those differences. Another aspect is, from time to time, chairs have had a norm where they wouldn’t go forward unless there was a norm of four. What that does, it forces people to compromise and it doesn’t allow those in the majority to say that ‘this is what we’re going to do, regardless.’”

Despite these complexities, Paredes stressed the critical importance of third-party engagement. “The SEC is able to better evaluate the consequences of their rulemaking if they are able to hear from the people their rules are going to impact,” he said. “If [SEC] folks aren’t hearing that through one mechanism or another, there are going to be serious blind spots.”

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NACD BLC 2014 Breakout Session – Mindfulness Revolution

October 28th, 2014 | By

In Buddhism, mindfulness is a facet of meditation in which an individual focuses their attention on the thoughts, feelings, or sensations happening in the moment. In psychology, studies suggests that mindfulness improves an individual’s quality of life, boosting memory and reducing stress and anxiety, among other benefits. In business, the adoption of these techniques has shown to improve productivity—so much so, that even Fortune 50 companies and the U.S. military are integrating mindfulness practices into the workday. Mindfulness expert Janet Nima Taylor—an American Buddhist nun, author, and co-founder of meditation resource organization Serenity Pause—gave directors attending the 2014 NACD Board Leadership Conference a crash course in effective techniques and how to integrate meditation into a company’s daily operations.

Meditation has been an integral part of wellness for millennia, but it’s a practice that is just now finding wide acceptance in corporate culture—and it’s also a proven means of improving business. According to Taylor, there’s plenty of research that attests to how meditation induces physiological and mental changes that influence how you interact with yourself and the world around you. The key to mindfulness, she said, is to create a gap between stimulus and response. Research says that 90 percent of our day involves responding in habitual ways, but creating this gap allows people to consider alternatives and discover new ways of resolving problems. During her session, Taylor offered three practices that directors can easily integrate into their everyday lives, even while they’re on the go. “If you’re breathing, you have time,” Taylor said.

1. Concentration. Mindfulness is not about stopping thinking, but rather shifts in how we interact with our thoughts. Momentarily forget those top-of-mind concerns and be completely still. Breathe in and count to four. Breathe out, count to six. Physiologically, this exercise lowers blood pressure. Conversely, when people are stressed, they tend to take shallow breaths and their bodies become oxygen deprived. Taking a moment to get the oxygen flowing can impact how you’re able to make decisions because doing so calms the body’s “fight or flight” response along with its associated stress hormones. Concentration also affords an individual heightened awareness of oneself, which allows them to be more present in the moment. By extension, when board meetings get contentious, directors should take a moment to breathe and write down the words that describe how they’re feeling. This exercise forces people to better articulate themselves and moves them away from the desire to be competitive toward wanting to be cooperative despite differences in perspective and opinion.

2. Natural Awareness. In our technology-centric culture, Taylor observed, people tend to live in their heads, making it easy to lose track of what is happening in one’s body below the neck. A person needs to permit himself or herself to do absolutely nothing for five minutes and use their senses to become completely aware of what is happening throughout their body in that given moment. Culturally, people are wired to be continuously active, but research shows that people who set aside time to momentarily do nothing are far more productive than those who are always engaged.

3. Positive Imagery. The human mind has a highly active imagination. This capacity for flights of fancy can be used to an effective end. If faced with a source of stress, create a positive spin on that disruptive force and focus on that self-generated positive imagery. That focus will help neutralize the negative situation.

A study published in the Journal of Occupational Health Psychology showed that employees who participated in a free 12-week mindfulness program showed a significant reduction in stress. Integrating these practices into a business environment starts with the tone at the top. From the boardroom down through the employee level, people can look to leaders’ involvement to signal that these practices are acceptable in the workplace.

“Using the power of your mind is a teachable skill,” Taylor said. For a business, these tools help people to become better empowered to work together. And with company leadership on board, the positive benefits of mindfulness can transcend the organization.

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Complexity and the Boardroom

October 14th, 2014 | By

At the final plenary session of the 2014 NACD Board Leadership Conference, NACD President and CEO Ken Daly spoke with Steven Reinemund, director of Walmart, Exxon Mobil, Marriott, and American Express, and Gen. H. Hugh Shelton (Ret.), chairman of Red Hat and director of L-3 Communications on the issue of business complexity. The current environment is dynamic, fast-paced, and tumultuous, Daly observed. Not only must boards stay vigilant of disruptive forces—including those identified by NACD’s Directorship 2020®: economics, geopolitics, competition, technology, demographics, innovation, and environment—these forces rarely appear solo. Indeed, multiple forces can strike a company at once, creating a formidable force: complexity.

Drawing from his military background, Gen. Shelton suggested applying a process of “branches and sequels” in boardroom discussions to reduce unknown factors. This process requires that strategy development takes into account all possible actions of your adversaries or competitors—forcing directors to consider the “knowns and the unknowns.”

Reinemund used different terminology to address unknown and unanticipated factors. He said that boards may wish to view disruptors and risks through both offensive and defensive lenses. Most importantly, boards must also combine the two. Although defensive moves can be easier for boards to understand and address, by considering offensive actions the board can help move the business forward.

Turning to the topic of innovation, Daly noted that an unusually high number (95%) of the Standard and Poor’s 500 company earnings have been used to buy back stock or pay dividends. He posed the question: does returning earnings to shareholders reduce or limit the funds available for innovation or acquisitions?

Both panelists agreed that many companies have a large amount of cash available, but often the board can’t find a potential acquisition that fits the company strategy, or the target has such a high multiple that it is not a good purchase. Despite these potential issues, though, the panelists agreed that most large companies need to invest in innovation, through acquisitions or otherwise. Above all, the board has to think in terms of the amount of risk they are willing to take and—if necessary—encourage management to make innovation a priority.

The session ended with a discussion on board accountability. The panelists noted that directors must hold each other accountable for recruiting the right leaders, keeping their skills current, and maintaining the right mix of directors on the board.

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