SCSGP conference highlights

The Society of Corporate Secretaries and Governance Professionals’ annual conference was held on July 10-13 at the Sheraton Seattle Hotel in Washington, with about 400 participants in attendance engaging in a healthy exchange of information and debate on corporate governance issues. 

On the opening day of the conference, Michelle Edkins, managing director of BlackRock, shared her views on CEO succession and management development with the full conference audience. She pointed out that boards spend most of their time dealing with compensation issues, but should focus more energy on succession planning.

‘Most boards will at least see that the chief executive is thinking about who the next CFO, general counsel and division heads are,’ Edkins said. She also emphasized that it is the board’s responsibility to ‘make sure the people who are the company’s biggest assets are being harnessed properly and being put to the best use of the company.’

Sempra Energy vice president of corporate responsibility and corporate secretary Randall Clark, PwC partner and head of global entity governance and compliance Jonathan Gibson, Northrop Grumman senior counsel and assistant corporate secretary Janette Hasan and Verbatim Global Compliance CEO Seth McNary participated in a dynamic panel discussing the increased regulation and risk involved in cross-border entity management. Key points brought up and discussed during the panel included:

• Create a steering committee or an informal group to determine what form an entity should take – analyze the advantages and disadvantages of starting a branch or a subsidiary.
•  Always have an exit strategy, because dissolutions can be costly. It may take years to get out of a particular area, so know what you need to do to get out before you actually need to.
• The corporate secretary must play a strategic role, proactively ensuring that legal and regulatory governance and compliance are maintained at all times. 
• If you engage in a joint venture, clarify which party will maintain the records, what will be the composition of the board and who will have signature authority for the joint venture entity.
• Make sure there is a tax strategy to how the entity is structured, then determine at what point the entity will have outlived its purpose.

Institutional voting

Glass Lewis CEO Katherine Rabin headlined a panel on institutional voting and proxy advisory firms that was moderated by Holly Gregory, partner at Weil Gotshal & Manges, and featured Vanguard Fund Financial Services principal and fund controller Glenn Booraem and PGGM corporate governance adviser Catherine Jackson. Rabin defended the job that the proxy advisory firms do, but acknowledged that criticism over the last year has led her company to make changes. ‘I think the issue around [proxy advisory firms making] errors is overstated,’ she said. ‘Just look at the US – where we received notification of an error, only one tenth of 1 percent resulted in a change.’

The panel also dealt with the question of whether institutional investors were overly reliant on proxy advisory company recommendations when it comes to voting. Jackson and Booraem emphasized that most institutional investors have their own criteria to determine how they will vote. ‘We don’t ever use the adviser reports as a proxy for the voting,’ Booraem told the audience, although he added that Vanguard does use the data from the reports in some decision making.

Jackson advised companies not to focus so much on ISS and Glass Lewis. ‘It doesn’t give me comfort that your company is talking to Glass Lewis,’ she said. ‘I would prefer you to be talking to your shareholders.’

Small concerns

A panel on the challenges of small-cap governance featured Zix vice president, general counsel and corporate secretary James Brashear, Third Creek Advisors founder Adam Epstein and Fenwick & West partner Stephen Graham. The panel focused on limited financial resources and inexperience as the two main issues small-cap firms often have to overcome. Lack of financial resources means smaller companies may not have a dedicated corporate counsel or may not be able to afford additional help dealing with compensation issues or additional disclosures, Brashear said. 

Lack of intellectual resources means higher risk potential for operations to be handled poorly. ‘It is more common than you would think for the CEO and many of the officers of a small-cap company not to have public company experience at their job,’ said Epstein. ‘But the CEO and CFO in tandem have to have some kind of experience.’ 

Graham advised: ‘If you are in the five-year development stage, you are going to need a different type of CEO. It is good to have people who were formerly directors at publicly traded companies.’

During the panel on capital-raising and governance, Covington & Burling partner Keir Gumbs, Dentons counsel Rani Doyle, Ernst & Young partner Jacqueline Kelley and SecondMarket general counsel Annemarie Tierney discussed everything from going public under the JOBS Act to deciding on whether or not to use a dual-class shares system. Kelley made the point that the cost of financing a public offering can be as much about the people on your team as anything else. 

‘Sixty percent of the cost is people,’ she said. ‘It is expensive, but having the right people pays off… The reason investors are going to buy your public offering is that the price is right and you have a compelling story with the right management team.’

Cash counts

Doyle said there were some benefits to using the JOBS Act to raise funds in a public offering, but he also cautioned that ‘companies must take the time to see whether they can raise money effectively before going to the public markets.’  

Tierney echoed that sentiment and warned of the overlooked costs of going public, which include the cost of compliance paperwork and paying for public board members. She said that ‘some companies may be going public for the wrong reasons’ and gave this sobering advice to any company looking to launch an IPO: ‘In order to be a successful public company, you need to have a valuation of at least $1 billion.’

Doug Chia, assistant general counsel and corporate secretary of Johnson & Johnson, moderated a panel on disclosure through social media that featured Vinny Jindal, chief executive of Stockr, and Nidhi Shah, securities and corporate governance counsel at Google. Among the topics covered were the many ways companies could use social media to communicate with shareholders, and making sure social media policies are in line with SEC regulations.

The panel discussed new trends in shareholder communication, which include virtual meetings, real-time discussions with shareholders and using more than the investor relations page on the company website to communicate with investors. Shah explained that in the future Google will publish its own earnings reports and financial statements through its website and social media to mitigate the risk of errors made by intermediary providers. Chia encouraged firms to ‘be proactive – create a governance policy for distribution of material information through social media channels now.’

There were many more panels that delivered key information, which made for an excellent event everyone attending could benefit from.