Update on the current board issues: September 2015

Issues in brief

Corporate political spending disclosure a campaign issue

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Earlier this month, a group of 44 U.S. senators including Independent presidential candidate Bernie Sanders, sent SEC Chair Mary Jo White a letter suggesting that public companies be required to disclose their corporate political spending. Democratic presidential candidate Hillary Clinton subsequently announced her support for the proposal.

The letter suggested that a rulemaking petition calling for the disclosure of political spending submitted to the SEC by a team of academics in 2011 be reconsidered. In the letter, the senators stated: “Because shareholders are the true owners of a corporation, a public company should be required to disclose to its owners how their money is being spent. When it comes to spending on political activity, only roughly 2.2% of all public companies in the United States make such disclosures, and they do so voluntarily.”

The letter requests that Chair White reconsider her decision to remove the corporate political spending disclosure rule from the SEC’s regulatory agenda.

The original petition was filed by the Committee on Disclosure of Corporate Political Spending, led by Harvard Professor Lucian Bebchuk and Columbia Professor Robert Jackson Jr. According to a recent blog post from Bebchuk, the SEC has received more than 1.2 million comments on the proposal.

In a May 27, 2015 letter to SEC Chair Mary Jo White, former SEC Chairs William Donaldson and Arthur Levitt, and former SEC Commissioner Bevis Longstreth supported the same petition.

But not everyone is in favor of public companies disclosing their political spending. The U.S. Chamber of Commerce has been steadfast in its opposition to such legislation or rulemaking. The Chamber explains in a June 2014 article (Silencing Business: How Activists Are Trying to Hijack the Public Policy Debate) what is sees as an ulterior motive for supporters of such disclosure. The Chamber also considers such rulemaking a threat to the free speech of American citizens and businesses.

Memo: DOJ investigations should focus on individuals, not just corporations

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On September 9, Deputy Attorney General Sally Quillian Yates released a memo to all US Attorneys that sets a new bar for companies that are the subject of Department of Justice (DOJ) investigations: individuals will now be held accountable for their role in corporate wrongdoing.

All those who participate in corporate investigations, including directors, may want to understand how the memo potentially affects their company. They may also want to consider the existing coverage and indemnification covered by the company’s directors and officers liability insurance policies. [Read PwC’s Audit Committee Excellence Series: Dealing with investigations.]

“One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing,” Yates wrote. “Such accountability is important for several reasons: it deters future illegal activity, it incentivizes changes in corporate behavior, it ensures that the proper parties are held responsible for their actions, and it promotes the public’s confidence in our justice system.”

The memo is a product of a DOJ working group that looked at how the department approaches corporate investigations and which policies and practices the department should amend to more effectively pursue individuals responsible for corporate wrongdoings.

In the memo, Yates spells out six steps U.S. Attorneys should take to make sure individuals, not just companies, are held responsible for corporate crimes:

  • If a company wants credit for cooperating with the DOJ, it must provide the department with all relevant facts about individuals involved in corporate misconduct.
  • Both criminal and civil corporate investigations should focus on individuals from the beginning of the investigation.
  • Criminal and civil attorneys handling corporate investigations should routinely communicate with each other.
  • Unless there are extraordinary circumstances, no resolution of a corporate investigation will provide criminal or civil liability protection for any individuals.
  • Corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations runs out.
  • In a corporate case, civil attorneys should not let an individual’s ability to pay determine whether they should pursue a civil lawsuit against that person.


Two spots to fill on the SEC

SEC Commissioner Daniel Gallagher, a Republican, announced that he will leave the SEC no later than October 2. His term was due to expire in 2016. Meanwhile, Luis Aguilar, a Democrat SEC commissioner, whose term ended in June of this year, has said he would remain until his successor is appointed.

In his September 4 statement, Gallagher said: “In May I submitted my resignation to the President, effective on the appointment of my successor. Over the succeeding months, the need to bring greater clarity to my tenure has steadily grown. As a result, I recently informed the President that I intend to leave the Commission on the earlier of the appointment of my successor or Friday, October 2, 2015. It has been a great honor to serve on the Commission during such an important time.”

According to Reuters, the appointment of successors has been delayed after progressive-leaning groups pressured the White House not to replace Aguilar with any corporate lawyers who represent Wall Street.