Update on the current board issues: April 2013

Issues in brief


SEC: Social media use OK under Reg FD, if investors are alerted

Earlier this month the SEC clarified that its 2008 guidance regarding companies’ use of websites to disseminate information to investors applies to the use of social media.

Following a report of investigation, the commission announced that companies can use social media outlets like Facebook and Twitter to announce key information in compliance with Regulation Fair Disclosure (Reg FD) so long as investors have been alerted about which outlet the company will use. [Read the SEC’s press release on the social media announcement here.]

“Companies should review the commission’s existing guidance,” Lona Nallengara, acting director of the SEC’s Division of Corporation Finance, said. “It is flexible enough to address questions that arise for companies that choose to communicate through social media, and the guidance does so in a straightforward manner.”

Reg FD requires companies to distribute material information in a way that is broad and non-exclusive. It is designed to ensure that all investors have equal access to that information at the same time.

For more information on social media risks, directors may want to refer to the BoardroomDirect January 2013 Message to directors: Get more social in the IT space brief.


US Chamber puts forth proxy advisor principles

An arm of the US Chamber of Commerce is calling for more disclosure and transparency by the two major proxy advisory firms (Institutional Shareholder Services and Glass Lewis).

In its recently released Best Practices and Core Principles for the Development, Dispensation, and Receipt for Proxy Advice report, the US Chamber of Commerce’s Center for Capital Markets Competitiveness calls for proxy advisors to share drafts of their work with public companies. The report also asks that the advisory firms adopt policies and procedures that ensure the accuracy of their research and disclose potential conflicts of interest.

In the report, the Chamber states that it wants these principles to serve as a basis for proxy advisory firms, public companies, and investment portfolio manager organizations to engage in a dialogue to create a system that fosters strong corporate governance.

“The system is broken and it is time to fix it,” said David Hirschmann, president and CEO of CCMC. “The voting standards and advice issued by proxy advisory firms need to be grounded in fact and reflect reality. As the number and complexity of issues on the proxy has grown exponentially, proxy advisory firms have failed to develop open, clear and evidence based standard setting systems to help ensure the advice they provide strengthens corporate governance and shareholder value.”

The Chamber also believes that its guidelines are a start to creating the transparency, accountability and good governance needed to achieve those goals, Hirschmann said.

Representatives of ISS and Glass Lewis did not seem very receptive to the chamber’s principles and statements.

“As a firm committed to helping institutional investors exercise their fiduciary duties, ISS could not disagree more with the US Chamber of Commerce’s assertions that the corporate governance system is broken,” according to an ISS statement. “We take exception with the chamber’s misinformed characterization of the proxy advisory industry...” The statement reiterated that ISS is accountable to its clients, companies they analyze and the regulators that set the guidelines for fiduciary responsibility.

Robert McCormick, Glass Lewis chief policy officer, told Reuters that some points raised by the chamber could be acceptable. [Read US Chamber of Commerce wants more proxy advisory disclosures.] While he agreed with the need to disclose potential conflicts of interest, he said other principles, such as sharing research with companies before being published, were “non-starters.”