Solange Charas is the president of Charas Consulting, Inc. and a senior-level human capital professional with 20-plus years of experience as corporate CHRO and consulting firm practice director. She is currently pursuing her doctor of management at Case Western Reserve. She has served as the chair of the remuneration committee for a NASDAQ-traded company.
There was an absolute buzz in the room when I joined the NACD Directorship Forum held in NYC May 23-24. Apart from the normal energy of New York City, there was a special quality in the air at the start (and continuing throughout) the one-and-a-half day event.
Maybe it was the grand opulence of the West Lounge of the Metropolitan Club where we sat surrounded by gilt cherubs who looked down from soaring ceilings, reminding us to be angelic in our dealings. Or maybe it was the opportunity to forge connections and relationships with close to 200 NACD members and staff attending the meeting. Whatever the reason, it was energizing and exciting.
The conference started off with multiple peer-exchange sessions. Each table had a discussion leader who facilitated a conversation between directors on topics from Executive Compensation to Board Building to Litigation and Liability to a topic called “How Boards Get Into Trouble.” Of course, that’s the table I joined!
Artfully led by Jeffrey Rudman of WilmerHale, this was an extraordinarily interesting conversation on risk, class action suits and accountability, with voices representing the boards of public and private sector companies and non-profit and for-profit organizations of all shapes and sizes. The consistency of the issues faced by all at the table, each representing very different organizations, was notable. Also significant was the level of engagement of all participants at the table. Asking questions and generating awareness of the importance of “tone at the top” was offered as the key component to achieving consistent messages in the organization. Topics like values, impartiality, integrity, and sensitivity to shareholder optics were considered vital for excellent board and company performance.
The second peer exchange I attended explored Executive Compensation and was facilitated by a former colleague of mine from Hay Group – Irv Becker. While more technical in nature, this session also generated great dialogue. There were more “advisors” at this session—professional service firm representatives who shared interesting perspectives and anecdotes about their current client challenges. The “usual suspect” topics were covered: CD&A accountability, Dodd-Frank impact on disclosure, and a general discussion about performance-based pay optics.
An interesting observation at this peer exchange was made by a new-to-the-boardroom director who questioned the validity of ISS and other rating agencies. The conversation then became very focused and there was consensus from directors that they disliked the power of ISS as it influenced their actions and decision making in the boardroom. The folks around the table felt it shifted the focus from what’s good for the company and shareholders to “What do we have to do to placate ISS?” One participant said that the influence that outside agencies have on corporate governance is “huge” and perhaps “ridiculously inappropriate.” After this declaration, I was curious as to how others felt. At least six directors voiced a consistent message—some with more passion than others—that they feel a high level of frustration with ISS. Here’s an opportunity to explore and dialogue on how to adopt strategies that address stakeholders and ISS through good governance. Over to you…
To take part in the upcoming NACD D100 Forum at the Waldorf Astoria, NYC on November 8-9, 2011, click here.
On May 25th, the SEC approved a final rule implementing the whistleblower provisions of the Dodd-Frank Act. The rule adds section 21F to the Exchange Act and directs the SEC to pay awards to whistleblowers who voluntarily provide the Commission with original information about a securities law violation leading to the successful enforcement of an action that results in monetary sanctions exceeding $1,000,000.
The rule, proposed on November 3, 2010, garnered significant attention from governance groups, corporations, trade associations, and audit firms. Perhaps most in contention was the provision allowing potential whistleblowers to bypass internal compliance systems and go straight to the SEC and inform them of securities violations. Over the objections of some organizations, including NACD, the SEC’s final rule does not mandate utilizing a company’s internal compliance system prior to or simultaneously with reporting to the SEC. Instead, the SEC has increased the potential amount of award for those who use a company’s internal systems. Whistleblowers may also claim a reward when they report to the company and the company subsequently reports to the SEC. In this case, any information provided by the company will be attributed to the whistleblower, potentially increasing the amount of reward.
The final rule also extends the time frame for whistleblowers to inform the SEC after reporting internally. For purposes of award eligibility, the SEC will treat an employee as a whistleblower as of the date that the employee reports the information internally – as long as the employee provides the same information to the SEC within 120 days. Through this provision, employees are able to report their information internally first while preserving their “place in line” for a possible award from the SEC. This additional time was provided to allow a company to identify, correct, and self-report securities violations.
Certain employees of a company are excluded from being considered for a reward under the new rule. Those unable to claim the award include:
Those who obtain the information through a communication that was subject to attorney-client privilege, unless disclosure of the information would prevent an issuer from committing a material violation of securities law or perpetrating a fraud upon the Commission.
Those who obtain information in connection with the legal representation of a client on whose behalf the whistleblower or the whistleblower’s firm are providing services, unless disclosure would be permitted in the instances referenced above
Individuals who obtain the information in a manner that violates federal or state criminal law
An officer, director, trustee, or partner of an entity and another person who informed the whistleblower of allegations of misconduct
The whistleblower, if the whistleblower learned about the information in connection with the entity’s processes for indentifying, reporting, and addressing possible violations of law
Any persons employed by or associated with a firm retained to conduct an inquiry or investigation into possible violations of law
An employee of a public accounting firm if the information was obtained through the performance of an engagement required by SEC
However, internal audit and/or compliance personnel as well as public accountants could become whistleblowers in the following situations:
The whistleblower has a reasonable basis to believe that disclosure of the information to the Commission is necessary to prevent the relevant entity from engaging in conduct that is likely to cause substantial injury to the financial interest or property of the entity or investors
The whistleblower has a reasonable basis to believe that the company is engaging in conduct that will impede an investigation of the misconduct
At least 120 days have elapsed since the whistleblower provided information to the company’s audit committee, chief legal officer, chief compliance officer, or the whistleblower’s supervisor, or since the whistleblower received the information, if it was received under circumstances indicating that the entity’s audit committee, chief legal officer, chief compliance officer, or the whistleblower’s supervisor was already aware of the information
Prior to passage of the final rule, NACD staff submitted a comment letter to the SEC and met with SEC officials to express their concerns. NACD stressed the need for whistleblowers to utilize the internal compliance systems prior to going to the SEC. The systems required by the Sarbanes-Oxley Act (SOX) were established with great expense to companies in the United States. NACD believes these systems are working and we requested a postponement of the whistleblower rules to have the SEC conduct a study on the effectiveness of current whistleblower programs such as those required under SOX.
Another major concern for NACD is the use of consultants. Consultant use is rising and is an important means of acquiring outside third-party information. In certain situations, a consultant may discover information about a securities violation and bring it to the SEC in order to claim a reward. The final rule does not extend the exclusions to outside consultants because the SEC believes that additional exclusions for such outside professionals would too broadly preclude individuals with possible inside knowledge of violations from coming forward to assist the Commission in identifying and prosecuting persons who have violated securities laws.
The new rules will become effective sixty days after they are submitted to Congress or published in the Federal Register.
NACD will continue to monitor any developments involving the whistleblower rules. Despite the passage of the new rules at the SEC, one notable development has occurred. Recently, Congressman Michael Grimm introduced draft legislation amending the Dodd-Frank Act to require whistleblowers to first use a company’s internal compliance systems. Potential whistleblowers may still bypass internal systems if the Commission determines in a preliminary investigation that internal reporting is not a viable option based on evidence that the alleged misconduct was committed by or involved the complicity of the highest level of management, or evidence of bad faith on the part of the employer. NACD will continue to monitor any developments involving the whistleblower rules.
To view the SEC’s summary of the rule, click here.
To read the SEC’s full explanation of the rule, click here.
“You’ll have to get on your dancing shoes” said Donna as we watched the Dancing with the Stars finale the other night, and I must admit a shudder ran through me.
“What do you mean?” I asked, worried that she was going to suggest a Latin salsa class or sign me up for the square dance squad at church. My toes refuse to twinkle and I am to ballroom dance what hippos are to hip hop.
Hines Ward. He's no Ken Daly
“Well, I see the NACD conference site is open for business” said my wife “and you know how quickly your dance card fills up every October in DC.”
She’s right. Our conference has sold out for the last two years and we’re expecting more than 800 directors at the JW Marriott in Washington, DC from October 2-4 this fall. It’s great to see chapter leaders, members I first met at roundtables or education events, Board Leadership Fellows and our own NACD board, but it sure is hard to find time to take a turn around the floor with everyone—and to break in on all the interesting networking conversations going on left, right and center.
Conference is like a cotillion, and at all hours of the day and night board members from companies big and small, public and private, from all over America and, increasingly, all over the world, are in constant, swirling motion. You’ll definitely need your comfy shoes.
Like everyone else who makes certain to attend, I like to catch as many break outs as possible. There are 24 this year and it takes the speed and stamina of Maksim Chmerkovskiy to run between them. One definitely not to miss: Bonnie Hill from the board of Yum Brands, Jim Brady from the board of Constellation Energy, former Governor Bill Owens from Colorado at the time of Columbine, and communications guru Richard Levick talking about the board’s role in crisis planning and management in the year of the beef taco, Fukushima and political volatility all over the world.
We have a full day of programming on Sunday this year: plan to attend one of five board committee forums or get to know fellow directors by joining our special private tours of the Capitol or the National Archives.
Sir Peter Bonfield
As I write, Sir Peter Bonfield, who has contributed a lifetime to driving international technology innovation and who now sits on the board of Sony Corporation (among others) has agreed to join the opening plenary on Global Governance with Ambassador Roz Ridgway and our board member Michele Hooper (who Sir Peter knows from the board of AstraZeneca) . It’s a small world—although The Honorable Barbara Hackman Franklin and The Honorable Charlene Barshefsky may beg to differ. They’ll be sharing their view from 30,000 feet on one of the rare occasions when they are not in the air flying to China or other far flung hot spots.
Members of our latest Blue Ribbon Commission on Effective Lead Directors will take the stage as will The Honorable Leo Strine from the Delaware Court of Chancery. As usual, you won’t be able to turn around without bumping into a big name from the business world or someone from the Administration or the Hill. As always, thanks to our fantastic line-up of sponsors who make it possible for us to offer you an event of this size and scale.
I am looking forward to meeting Medco director Myrtle Potter who is based on the West Coast and catching up with Chris Kubasik, President and COO of Lockheed Martin and a board member at USO—an organization that I am sure is close to all our hearts. I know you will have your own “dance card” of movers and shakers in the world of governance. Just remember, you can’t be part of the fun if you don’t make it to the ballroom floor. Register now and I look forward to seeing you twirl by in the middle of all the excitement this October in Washington DC.