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Spring 2000
Volume No. 1
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Gwenn Carr of Metropolitan Life Insurance Company (New
York Chapter) and Carol Ward of CIGNA Corporation (Middle Atlantic Chapter)
have been nominated as ASCS Chairman and Chairman-Elect for 2000-2001. |
"Taking Corporate Governance to the Bottom Line" is the theme of
this year's National Conference, to be held from June 28 to July 2 at the
Fairmont Hotel in San Francisco. A full program of outstanding speakers and
panelists has been assembled for this event, and a wide range of governance-related
topics will be covered. In addition, the impact of technology and the Internet
will be an important element in many presentations.
The Conference officially begins at the Wednesday evening Opening Reception
with a special welcome from San Francisco Mayor Willie Brown. For attendees
who are in San Francisco on Wednesday, two pre-conference workshops are being
offered free of charge: the Ethics and the Law workshop, designed to help participants
become sensitive to behaviors that "bend" or "cross" the
line of ethical business or legal practice, will qualify attendees for CLE ethics
credits in most states, and the highly interactive Crisis Management workshop
will focus on the strategic and tactical aspects of crisis communication.
On Thursday and Friday, morning sessions commence with an Opening Address, followed
by panel discussions. On Thursday, the address will be given by Roberta R. Katz,
a leading authority on corporate governance in the new economy. Ms. Katz is
the President and CEO of the Technology Network (TechNet) whose mission is to
help pass laws that will foster the new economy. She is a lawyer and anthropologist,
whose experience, including positions as General Counsel at Netscape, and, before
that, at McCaw Cellular Communications, has been shaped by her interest in the
effects of technological and social change. Two panel discussions on corporate
boards of directors will follow Ms. Katz's talk, each moderated by leading governance
experts. Carolyn Brancato will first moderate a panel focusing on the best ways
to measure a board's effectiveness, and then Philip Lochner will lead a discussion
on how to recruit good directors and evaluate existing ones.
Other program highlights on Thursday include: a Luncheon Address by Pulitzer
Prize-winning author Frank McCourt; the popular ASCS Committee Update panel;
and a series of breakout sessions on issues such as audit committee best practices
and the corporate secretarial function at "dot-com" companies.
Friday morning's program is devoted to regulatory matters of current interest
to registrants, beginning with an Opening Address from SEC Commissioner Paul
Carey. Mr. Carey's address will be followed by an SEC Update panel with
David Martin, Director of the Division of Corporation Finance. Brian Lane, now
a partner at Gibson, Dunn & Crutcher, will lead the last panel of the morning,
on the challenges of disseminating corporate information - in writing,
orally, and over the Internet.
On Saturday morning, the business program wraps up, with three panels that
explore corporate governance issues of vital importance to corporate secretaries.
The panels, to be led by Richard Koppes, Carl Hagberg, and Lydia Beebe, will
concentrate on the theme of the Conference, "Taking Corporate Governance
to the Bottom Line," and will offer cost-saving ideas to enhance governance
practices. Each panel will also examine the connection between governance practices
and increased shareholder value. And immediately following the first panel,
the contributions of Archie Bankston, an active member of the Society since
1971, will be recognized as he is presented with the Bracebridge H. Young Distinguished
Service Award.
Throughout the entire program, the social program is fully packed, with highlights
to include a dinner on Wednesday for first-time conference attendees, a Family
Night on Thursday at the California Academy of Sciences, and a Gala Dinner with
entertainment by Melba Moore on Saturday evening. Child care will once again
be provided for children under age 12, and a teen room will be set up for older
children.
Members should have already received a preliminary mailing concerning hotel
accommodations and travel discounts. (In case you did not, a copy is posted
on the Society's website at www.ascs.org.)
In addition, a registration packet with full details about the conference was
sent out recently. If you did not receive it, call the National Office at (212)
681-2000. We look forward to seeing you there!
Speakers for the National Conference
   
  
Dear Fellow Member:
This letter, which also appeared in the Annual Report, will be my last to you
as Chairman of the Society. As you know, Gwenn Carr, Vice President and Secretary
of Metropolitan Life Insurance Company, will succeed me at our 54th annual National
Conference in San Francisco. I look forward to welcoming you there on Wednesday,
June 28, 2000, for what promises to be an outstanding business and social program.
I am very grateful to Alice Brennan, the Conference Chairman, her Conference
Committee, and to the National Office staff (particularly Suzanne Walker), for
all their hard work on this event.
Being Chairman of the Society has afforded me the opportunity to meet many
of you, particularly as I attended regional conferences last fall. The quality
of our regional conferences has continued to improve, and the effort of the
conference planners and of our Education and Program Committees is apparent.
Education is at the core of this organization's mission. This year's seminars,
from "Essentials," to "Issues Update," to "Beyond the
Basics," received high praise from attendees, and our teleconferences were
also very well received. I am proud of how we use technology to reach our members,
and I am proud of our website, ascs.org, which is rich in helpful and up-to-date
information, thanks to Kip Rice, Chairman of the Technology Committee, and Russell
Benasaraf, Computer Systems Administrator in the National Office.
The committees of ASCS, some of which were reexamined and strengthened this
year, continue to be a mainstay and a focal point of the Society. Through the
hard work and perseverance of each, important developments and legislation news
can be communicated to members as needed. For more details on the accomplishments
of the committees throughout the year, be sure to read the letter from me which
appears in the Society's Annual Report.
Just before the 1999 National Conference at The Greenbrier, your Board of Directors
adopted the tagline: "Promoting Excellence in Corporate Governance."
This tagline has appeared on the covers of Society publications and brochures,
and will soon grace our stationery. Many Society members have been promoting
it in action as well. First, Cherie Sorokin (former Director, former Chairman
of the Corporate Practices Committee, and 1999's Bracebridge H. Young Distinguished
Service Award winner), and David Smith participated in the Institutional Investors
Forum run by former SEC Commissioner Joe Grundfest, and the topic they raised
with the large institutional investors there was the notion of the Corporate
Secretary as Chief Governance Officer. What flowed from the meeting was a soon-to-be-published
article on the subject by Rich Koppes, Of Counsel at Jones, Day, Reavis &
Pogue, consulting Professor of Law and Co-Director of Executive Education Programs
at the Stanford Law School and a director of Apria Healthcare, Inc., and David
Smith. And I am very pleased that in early June 2000, the Society will be a
sponsor of Directors' College at Stanford University. Several Society members
are part of the faculty for this prestigious program.
1999-2000 was a busy, active year for all of our members, and a number of significant
improvements and developments were realized. Our membership base is now over
4,000 -Welcome to all of our new members, and to all of you who worked and supported
the Society on the national and/or local chapter level this past year, I am
certain that you will concur: "you get in return much more than you contribute."
Thank you.
Sincerely yours,
D. Craig Nordlund
In mid-March, Congresswoman Heather Wilson (R-NM), a member of the House Commerce
Committee, introduced H.R. 3997, The Money Return Act of 2000. Co-sponsors included
Finance Subcommittee Chairman Mike Oxley and Budget Chairman John Kasich.
The bill was designed to insure that adequate efforts are made to locate lost
shareholders before their assets escheat to the state. As initially drafted,
the bill could have extended the existing requirements to include street name
holders as well.
As this work was going on, the staff of the House Commerce Committee contacted
the Society through Washington Counsel Brian Borders, and then the Society's
Public Company Affairs Committee swung into action. After two meetings and several
phone calls and e-mails, Committee Chairman Don Hager and member Sophie Vergas
had thoroughly educated the staff of the House Commerce Committee, as well as
the staffs of Representatives Wilson and Kasich, on the extensive obligations
and well-established practices of corporate secretaries and company transfer
agents regarding lost shareholders. Committee Chairman Hager concluded that
the meetings were very useful and that the staff now has a much clearer understanding
of both the situation with street name holders and the measures that are already
being taken by companies and their transfer agents to find lost shareholders
(see article by Keane Tracers, Inc. which begins below).
The legislation is now due for a significant rewrite according to our Washington
Counsel, but Borders notes that the House Commerce Committee staff still likes
the concept of the bill. Moreover, he cautions, "as we know from experience
with other bills, the fact that there is no apparent problem that needs to be
addressed, doesn't mean there won't be legislation - especially in an election
year." Stay tuned.
By Debbie Zumoff, Iris Brown & Emily Scallan of Keane Tracers, Inc.
Reuniting shareholders with unclaimed assets is a sophisticated process requiring
technical support and expertise. The combination of federal mandates with state
due diligence requirements contributes to the complexity of the process. Methodologies
to address the challenge have traditionally been either conventional or comprehensive.
The question today is which solution proves most effective?
Regulatory Requirements
SEC Rule 17Ad-17
On December 7, 1997, the SEC adopted rules requiring record-keeping transfer
agents to conduct searches for owners whose accounts are considered "lost."
An account is considered lost when an item of correspondence is returned as
"undeliverable." Agents may re-mail the returned item within 30 days
prior to designating the account with a lost indicator and date.
Agents must conduct two electronic searches - the first between 3 and 12 months
from the date the account is coded lost and, if unsuccessful, a second search,
6 to 12 months following the first search. Verification of new addresses obtained
through the search is recommended.
State Required Due Diligence
States also regulate the method through which a company is required to notify
owners of unclaimed assets. Specifically, most states mandate a notice to the
last known address of the owner, not more than 120 days prior to the filing
of the annual unclaimed property report. New York statute requires a certified
mailing to accounts with a last known address in that state. Many states do
not require this notification if the address is deemed to be inaccurate.
Transfer Agent and Issuer Concerns
Only in recent years have industry standards for best practice gone beyond
these regulatory schemes. Some of the more common issues prompting corporations
and agents to aggressively seek to locate shareholders and reunite owners with
unclaimed assets include:
Maintaining an Active Shareholder File
Additional due diligence can improve response rates to:
- Proxy mailings
- Corporate actions required after a merger or acquisition
- Direct stock purchase and buy-back offers
- Consumer product and service offers
Reducing the Cost of Account Maintenance and Unclaimed Property Compliance
Locating owners can decrease the costs associated with:
- Reconciliation of uncashed checks
- Repeated mailings
- Unclaimed Property Reporting
Improving Shareholder File Integrity
Expansion of investment options, such as direct purchase, dividend reinvestment
and book share issuance, coupled with increased corporate actions, complicates
the record-keeping process. Shareholder mobility, as well as electronic commerce,
continue to rise. Accordingly, proper scrutiny of missing shareholder accounts
will result in:
- Correction of typographical, postal, and coding errors (typically 10 -
15% of the lost accounts)
- Identification of employees, officers, and pensioneers (also common to
lost accounts)
- Reduction of account remittance to the states in error, thus preventing
possible loss of owners' appreciated investment value.
Reducing Claims Following Escheat
There is nothing more time-consuming and onerous than supporting the claims
process once assets have been reported to the states. Corporations and agents
desire to avoid:
- Letters of complaint
- Non-recoverable personnel and research expense
The Best Industry Practice is a Comprehensive Approach
Many transfer agents, in conjunction with their service providers, have developed
customized solutions to locate shareholders and reunite owners with their assets.
The best industry practices are competitively priced, achieve maximum results
and include:
- Remailing correspondence prior to coding an account as lost
- Conducting the SEC search twice annually
- Verifying new addresses produced by the electronic search prior to updating
the master shareholder file
- Offering enhanced search capabilities to locate living shareholders and
the heirs of deceased shareholders
- Customizing solutions to identify officers, employees and pensioners
- Transmitting special mailings to an entire shareholder class to increase
the number of shares exchanged or redeemed following a corporate action
Other Considerations
Outside service providers perform the ultimate in due diligence, employing
methodologies that achieve the highest rate of success in reuniting owners with
their property. When choosing a service provider in this field of expertise,
be sure to select a firm offering a full range of services, competitively priced
for the marketplace. Additional considerations when choosing an outside firm
should include:
- Established and accepted method of operation
- Consistent and ethical service presentation
- Proven track record of acceptance in the industry with clients citing integrity
as their primary reason for engaging the firm
- Commitment to assist holders in understanding the obligation to perform
due diligence and comply with state unclaimed property law
- Expansive resources and broad expertise
- Compliance with State Fair Trade Practice and Consumer Protection regulations
- Licensed, bonded, and registered
- Compensation structure commensurate with the full scope and benefit of
services provided
- Confidentiality guarantee covering all data received
- Indisputable evidence of owners' entitlement to assets
- Data received by only one firm, thus safeguarding individuals against contact
from multiple entities
- Facility inspection encouraged
- Ancillary unclaimed property services provided
Achieving Maximum Results - Timing the Search Process
The search effort technically begins, for most agents, with the remailing of
correspondence returned as undeliverable. SEC Rule 17Ad-17 mandates a search
as early as 90 days following the date the account is coded lost. Given that
several states maintain a three-year dormancy period, the search process must
be timed to achieve optimal results.
0 - 30 Days:
Receive and remail correspondence returned as undeliverable. This process can
reduce the number of items coded lost by as much as 50%.
90 Days to 18 Months:
This is the standard time frame to conduct the two required SEC searches.
18 Months to 36 Months:
This is the optimal time frame to conduct in-depth search for living and deceased
owners that remain following the SEC search. Statistics reveal that electronic
database searches can produce a 53% confirmed success rate when locating "lost"
investors. Coupled with an in-depth search program, success rates may reach
as much as 90%.
36 Months to 39 Months:
State required due diligence for a three-year state is to occur 120 days prior
to the date the unclaimed property report is due.
Looking Ahead
SEC Rule 17Ad-17 and various state due diligence requirements dictate corporate
responsibility for locating shareholders. Taking this responsibility seriously,
many companies and their transfer agents have chosen to augment basic database
methods with creative solutions. Only a program that combines regulatory compliance
with customized solutions will deliver maximum, cost effective results.
Society Issues Two New Governance Publications
The Society's Corporate Practices Committee recently completed two new publications
designed to assist Corporate Secretaries in their role as advisors to management
and the board by providing information on what other companies are doing in
the area of corporate governance. These publications are: Current Board Practices,
Third Study and Board Committees: Considerations, Structures and Uses
in Effective Governance.
As part of its ongoing effort to analyze the direction in which companies are
moving to improve governance, the Society conducted three Board Practices Surveys
in 1995, 1997, and 1999. The response received to these surveys, unprecedented
in volume and candor, has provided ASCS with a good understanding of governance
trends in American corporations. The results of the latest survey on board practices
are reported in Current Board Practices, Third Study. It contains responses
from 680 corporations about their use of 40 practices frequently mentioned or
recommended in literature on governance and board activity - seven of the practices
were included for the first time in this latest report.
The survey data in this publication is analyzed in a variety of ways - by all
respondents, by company size and ownership categories, by industry, by board
size, and by number of meetings held. The most commonly adopted board practices,
such as including company stock in directors' compensation and holding periodic
board meetings devoted to the review of overall company strategy are examined,
as well as the least regarded practices of a board, such as separating the positions
of Chair and CEO and formally evaluating individual directors. Current Board
Practices, Third Study also charts trends in the adoption rates of these
governance practices since the 1997 survey.
The trends noted include a significant increase in the number of companies
adopting audit committee charters, and a similar but less dramatic increase
in the practice of the nominating committee playing a dominant role in screening
and/or selecting director candidates. Two of the practices that were included
for the first time in this study have also been the subject of recent activity
at respondents' companies - the practice of the board (or a board committee)
playing a dominant role in appointing committee members and chairs, and the
practice of assigning responsibility for corporate governance matters to a new
or existing board committee.
The Society's other new publication, Board Committees: Considerations, Structures
and Uses in Effective Governance, discusses the reasons why structure and
role of board committees have become such important topics, and contains the
results of another Society survey which was conducted to determine how committee
issues are being addressed at member companies. Various sections of the monograph
cover regulatory requirements, independence issues, and the influence of investors,
courts and the business press on how board committees operate today. Others
review how authority is delegated to committees, and examine the issue of whether
this delegated authority subjects board committee members to greater liability
than to their non-committee member counterparts.
Of particular interest are the results which illustrate the different ways
in which the work of the board is supported at other companies. For instance,
at a significant number of member companies, the traditional duties of attending
meetings and taking minutes are no longer the responsibility of the Corporate
Secretary's office. In such cases, it is usually the management liaison to the
committee who has assumed these responsibilities. Regardless of whether these
functions are handled by others, the survey results show that Corporate Secretaries
are very much involved in making sure committee members have access to adequate
information, and that they are active liaisons between committee members and
management.
The Corporate Practices Committee is currently working on supplements to the
Board Committees monograph that focus on audit, compensation and nominating/governance
committees. Also in the works are a monograph on information flow to the board,
and a new survey report on the responsibilities of the Corporate Secretary's
office.
Criticism of Governance in Public Pension Funds and
Public Companies is a Two-way Street
by Philip R. Lochner, Jr., Consultant to Directorship and Director, Apria
Healthcare and CLARCOR Inc., and
Richard H. Koppes, Of Counsel, Jones, Day, Reavis & Pogue, Director, Apria
Healthcare, and Consulting Professor of Law, Stanford University Law School
Public pension fund assets over recent decades have grown far faster proportionately
than the assets of other significant investor categories. Traditional company
pension funds are in relative decline, while the reduction in the unionized
workforce is expected to take a toll on union pension funds. Furthermore, the
evolution of a public better educated about investing and more willing to shoulder
the burdens of investment decision-making has coincided with the development
of a much more mobile work force unlikely to be employed by any one corporation
for the duration of any working life and less likely to ever qualify for a meaningful
pension from a single source. The greater heft and prominence of public pension
funds has prompted them to speak out aggressively on corporate governance issues
and apparent boardroom failings in the companies in which they are invested.
Others, however, are speaking out on the governance challenges of the funds
themselves.
Some in the corporate community find the growth of public pension funds unsettling,
not because they fear the expansion of government that the growth of public
funds reflects, but rather because they are concerned about the rising influence
public funds may exert on ordinary business decision making. While there is
little evidence of fund interference in day-to-day business decisions, the concern
remains, especially as public funds continue to grow and become more active.
The most important, or at least the most widely voiced, concern that the private
sector has about the role of the public pension funds relates to public fund
activism in the governance arena. Some of this arises from a genuine inability
to correlate good governance and economic performance. Certainly the academic
studies of the relationship are both numerous and inconclusive (Directorship,
March 1998). However, one can believe in good corporate governance for reasons
wholly unrelated to whether or not it engenders good economic performance. For
example, one might not unreasonably endorse good corporate governance as a way
to reinforce the legitimacy of private economic decision-making and limited
government in a society and economy where executives wield substantial decision-making
power in areas that would otherwise appear to escape much public oversight.
The power of the ideal of good governance, of course, has proven to be substantial,
whatever its limitations as an empirically verifiable model linking internal
corporate rules to economic success. This is in spite of the misuse to which
the idea has occasionally been put, and the sometimes unsavory nature of a few
of its supporters. A number of rogues and scoundrels, as well as some people
just seeking to get rich, have chosen to make use of the rhetoric of good governance
to support whatever short-term and self-serving goals they may have. Few revelations
can cause an idea or a slogan to be discarded faster by the public, as well
as those who purport to lead the public, than finding that some of those who
march under the same banner are mere opportunists or worse. The criticism of
some public funds is that they have been - in the best American tradition -
opportunistic in their choice of allies. But there are long-term costs to opportunism,
and those costs may to some extent undermine the good governance cause as well
as the ultimate effectiveness of some public funds.
This observation leads to a different set of criticisms of the public funds,
focused not on the legitimacy of the ideal of good governance but on the flaws
displayed by some public funds that advocate good governance. For example, it
is sometimes pointed out by critics that all public funds have not had unblemished
records of financial rectitude; public funds, which not unreasonably expect
purity from corporate officers and directors, have turned out not to be so pure
themselves.
Add to this the fact that a number of public funds are not necessarily well
governed themselves. Admittedly generalizations are difficult to make, and funds'
structures may largely be set by legislative fiat or state constitutional mandate.
But public fund boards are often made up of political appointees, or representatives
of public employees, whose qualifications by training and experience to oversee
multi-billion dollar asset pools may be limited at best.
While public fund managers may question the experience, expertise and independence
of some corporate directors, it should not be surprising that others might question
whether these characteristics prevail among the funds' leadership. While
some public funds preach to the corporate community the virtues of
- small boards
- substantial investments of time by directors
- individual director and full-board evaluations
- incentive-based pay for directors, and
- responsiveness to those for whom directors are fiduciaries,
not all public fund boards appear to take these ideas very seriously when it
comes to their own governance.
Public funds cannot skirt this criticism by claiming that the composition of
their boards and how they operate are decisions over which they have little
or no control. Not infrequently these funds go to state legislatures, and less
frequently to the voters, to seek - and more than occasionally get - changes
in the laws affecting their powers and activities. Why would it not be appropriate
for the funds to seek changes that could markedly improve their own governance?
Furthermore, making significant changes in board operating procedures may largely
be within the discretion of some public fund boards, and in those cases substantial
governance improvements would be possible without legislative or voter consent.
While it may not be appropriate for public funds to mimic the structure of for-profit
public companies, public funds could be better governed themselves, and few
would claim that the governance structures of all public funds - as often as
not the results of political or historical accident as of careful and thorough
analysis - are those that would be chosen were the issues entirely open for
serious de novo consideration. Poor public fund governance can only weaken fund
legitimacy and credibility when funds raise governance questions about the private
sector companies in which they invest.
Nor are public funds uniformly held in high regard as good managers of their
own assets, and often their true investment performance is unclear. Public funds
could reinforce their own legitimacy, as well as help ward off any pressures
to submit to more governmental oversight, were they to disclose more information
about their performance, more regularly, in a common format and make it more
generally available.
A related criticism is that public fund assets have in some cases been invested
in projects whose returns are questionable and whose motivations appear frankly
political. The same risk-return considerations should dominate corporate and
public fund investments alike. While readily conceding that there are a variety
of respectable theories for identifying the best risk-adjusted returns, investment
practices that begin with a plausible generally accepted investment theory and
then find the qualifying investments are to be preferred over those that start
with an investment and then search for a theory. Public fund credibility and
legitimacy can only be damaged by investments motivated by political or public
relations considerations.
Another commonly criticized public-fund practice is the obverse of ill-founded
investment. Some funds divest from legitimate investments with good returns
for openly political or entirely personal and idiosyncratic reasons. In some
cases these may be forced by legislatures anxious to curry voter favor. But
in other cases the funds themselves readily adopt these limits. Worse, they
adopt these limits on their own to satisfy the personal political or social
predilections of fund managers or trustees, limits that are not in the best
interests of fund beneficiaries or taxpayers. It is one thing to ask if some
legal product or practice is deplorable; it is quite another to ask what cost
should be incurred to avoid that deplorable product or service. Losses from
choosing not to invest for superior risk-adjusted returns are not trivial either;
in a number of cases the lost opportunities have been quite substantial for
public funds. Public funds harm themselves and the governance causes that they
eloquently espouse when they fail to act in accordance with generally acknowledged
standards for making investment decisions. To some extent, the public funds
have been the beneficiaries of benign neglect by the national financial and
business media, which for the most part have not sought to report on the public
funds in anywhere near the detail in which they cover, for example, similarly-sized
corporations. But given the size, wealth and influence of the public funds,
the absence of regular and sustained examination is unlikely to continue indefinitely.
At some point - perhaps as a result of a scandal or crisis - both the media
and the political process will subject the public funds to extensive examination.
Far better for the funds to reform themselves voluntarily and at their own measured
pace before such eventualities occur, than to find themselves vulnerable to
criticism and forced to change - perhaps inappropriately or counterproductively
- in circumstances beyond their control. Not unknown in our society and political
system is the legislative or regulatory remedy that turns out to be worse than
the illness whose cure is sought. The legitimacy and prospects of corporations
and public pension funds alike can be enhanced by the adoption of good governance
practices not only by corporations but also by the funds.
This is a reprint of an article which appeared in Directorship magazine,
May 2000, which was based on "Good Corporate Governance and its Advocates:
The Governance of Public Pension Funds and the Governance of Public Companies,"
which appeared in The NAAPA Report, February 2000, publication of the National
Association of Public Pension Attorneys.
March 31, 2000, the last day of the Society's fiscal year, also marked
the end of another successful membership campaign, and both the number of
members and companies represented in the Society are now at record levels.
This is due in no small part to the members who were involved with the campaign:
this year, 131 ASCS members personally recruited 162 new members, compared
to last year, when 105 members recruited 138 new members.
The full report? As of March 31, 2000, ASCS comprised 4,129 members from
2,847 companies - an increase of 124 members and 149 companies over the
previous year.
Clearly, the campaign's goal of 4,125 members at March 31 was met, and
to celebrate, the 17 local chapters who met or surpassed their campaign goals
(also a record) will be honored at the
National Conference in June. Of special note are the efforts of the Rocky
Mountain and Kansas City Chapters - the Rocky Mountain Chapter won the
$1,000 prize for recruiting the most new members based on chapter size at
the beginning of the campaign, and the Kansas City Chapter won the $1,000
Membership Retention Prize (retaining all but five members for the year).
Individual campaign recruitment prizes were awarded to Linda Wackwitz, of
Holmes Roberts & Owen (Rocky Mountain Chapter), for being Top Recruiter,
and to Neal Smith, of CSC The United States Corporation Company (Middle Atlantic
Chapter), for Second Top Recruiter. As Top Recruiter and Second Top Recruiter,
respectively, Ms. Wackwitz won the Caribbean vacation package and Mr. Smith
won the Homestead resort prize.
In the "One Chance Drawing", Carol Ward, of CIGNA Corporation (Middle
Atlantic Chapter) won the trip to Bermuda, and in the "Chance for Each
New Member Over One Recruited Drawing," Ardis Young, of Newmont Mining
Corporation (Rocky Mountain Chapter), won the weekend at the St. Regis in
New York City.
I want to thank all of the recruiters for making this year's campaign such
a success, and for making my job as Membership Committee Chair such a rewarding
one!
Don Hager
Membership Committee Chairman
From Corporate Secretary to Novelist
Sidney F. Davis, Society Chairman from 1984 to 1985, became a successful novelist
this spring with the publication of Murder in Lisbon, an historical aviation
adventure. The book, published by 1st Books Library, is selling well, and some
very enthusiastic reviews are currently online at amazon.com. A few of the headlines:
"A meticulously researched historical aviation adventure" ... "A
masterpiece of suspense"... "Sidney Davis hits a homerun"...
"A must read thriller." One reviewer writes: "As a retired airline
Captain I usually approach aviation fiction with skepticism, but I was convinced
Davis had hit a home run halfway through Chapter One. His flying scenes are
the best I've read in a long time. His characters are well developed, a rarity
in current fiction." This summer the book will be reviewed by "Publishers
Weekly," a very distinguished and highly regarded periodical.
In a letter to Society President David Smith, Davis writes: "A few years
ago we were exchanging correspondence about 'life after the ASCS' ...now, I
have something to really crow about and wanted to share it with you. Last month
my first novel, Murder in Lisbon, was published. It is a dream fulfilled..."
Davis, now an honorary member of the Society, was formerly an executive at
Delta Airlines, and during the time he was Chairman of the Society, was Vice
President, General Counsel and Secretary of Springs Industries.
Society Comments on SEC Proposals; Meets
at the SEC
The Society's Committees have been active on a number of fronts
this year. (See also "From the Chairman" on
page 2.) A number of comment letters have been submitted to the SEC on newly
proposed rules, and the Society, led by Chairman Craig Nordlund and Securities
Law Committee Chairman Peggy Foran, held its annual spring meeting with the
SEC to emphasize the points made in its comment letters and to provide additional
practical perspectives on new SEC initiatives. Joining in the presentation at
the SEC were Kathy Shannon, a director of the Society and former Chairman of
the Securities Industry Committee (now the Public Company Affairs Committee)
and Don Hager, former director of the Society and current Chairman of the Public
Company Affairs Committee. Additional speakers at the meeting and the topics
they addressed were: Tina Van Dam and Kathy Weigand, new audit committee rules;
Marilyn Mooney, Internet news; Frank Zarb, SEC Rules 14a-4 and 14a-8; and Thomas
Witt, proposed Regulation M&A.
In response to the following proposed rules, ASCS comment letters have recently
been submitted to the SEC.
Selective Disclosure and Insider Trading
The SEC's December 1999 releases (Nos. 33-7787 and 34-42259) propose the adoption
of three new rules: 1) Regulation FD (Fair Disclosure) to address the issue
of selective disclosure of material nonpublic information; 2) Rule 10b5-1 to
clarify that insider trading liability arises when a person trades while "aware"
of material non-public information; 3) Rule 10b5-2 to clarify when a breach
of a family or other non-business relationship may give rise to liability under
the misappropriation theory of insider trading.
Peggy Foran and Jim Guedry, Chairman of the SLC Selective Disclosure Subcommittee,
based their response to the SEC on conversations with Society members, many
of whom serve as legal advisors to their company on disclosure issues. The Society's
concerns with new Regulation FD include the need for more guidance on how to
determine whether information is "material," the need for greater
certainty as to when a company official will be considered "reckless in
not knowing" about a material selective disclosure, the possibility that
an issuer could lose its S-3 filing status as a result of a late FD filing,
and the reasons why posting on an issuer's website should be considered
an acceptable method of disseminating material information.
Also addressed in detail are Society member concerns with proposed Rule 10b5-1,
which adopts a liability standard equating "awareness" with "use"
of inside information. Based on members' experiences with the circumstances
under which corporate officers buy or sell issuer securities, the comment letter
urges adoption of the less rigid standard in the Adler decision of the Eleventh
Circuit, with "possession" providing a strong inference of "use"
of material nonpublic information.
Supplementary Financial Information
Peggy Foran and Carol Hayes, Chairman of the SLC Subcommittee on Financial
Disclosure, recently responded to the SEC's January 2000 releases (Nos.
33-7739 and 34-42354) proposing the addition of Items 302(c) and 302(d) to Regulation
S-K. New Item 302(c) would require more detailed disclosures concerning changes
in valuation and loss accrual accounts. New Item 302(d) would require disclosure
of more detailed information concerning tangible and intangible long-lived assets
and related accumulation depreciation, depletion, and amortization.
In its comment letter, the Society strongly objects to certain provisions of
proposed Item 302(c) because they could result in issuers incurring significant
costs. As discussed in the letter, requiring companies to report loss accruals
related to probable losses from pending litigation and tax disputes could limit
a company's ability to effectively manage its litigation and dispute resolution
with government agencies, interfere with its competitive business practices,
and ultimately destroy shareholder value.
The Society does not object to the proposed requirement in new Item 302(d)
to provide information on annual activity in property, plant and equipment and
intangible assets, along with related salvage values, accumulated depreciation,
depletion, and amortization, so long as this information is provided by class
of asset. The Society's view, as expressed in the comment letter, is that the
proposed requirement to provide this information by estimated useful life would
substantially increase the amount of detailed information that would need to
be compiled without a corresponding increase in the usefulness of the information
disclosed.
DTC Rule Change Pertaining to Direct Registration System
Don Hager responded on the Society's behalf to the SEC's release (No. 34-42366)
on a DTC rule change related to the Direct Registration System. The Society
is concerned with the moratorium imposed on additional participation in the
Direct Registration System which provides for book entry registration of securities
held by recordholders of corporate debt and equity. The moratorium imposed in
September 1999 is causing inefficiencies and increased costs for issuers and
shareholders as a result of the unnecessary issuance of negotiable certificates
into the market. The DTC rule change would require the excluded issuers and
their transfer agents to agree to use the DTC's PROFILE system when that system
becomes operational. Serious questions have been raised, however, by issuers
and their transfer agents about protection that would exist under the PROFILE
system if ownership were transferred from a registered shareholder to a broker,
without specific authorization from the shareholder to the issuer or its agent.
Accordingly, the Society's February 2000 comment letter requests that the moratorium
on additional participation in the Direct Registration System be lifted so that
all registered issuers would be able to participate in DRS under the same terms
and conditions, pending the resolution of issues with the PROFILE system.
Delivery of Proxy and Information Statements to Households
Kathy Shannon authored the Society's January 2000 response to the SEC's request
for comments on Releases (Nos. 33-7767 and 34-42102) proposing amendments to
the proxy rules to permit companies to send a single proxy or information statement
to two or more shareholders sharing the same address ("householding").
The Society fully supports the purpose of the proposed amendments, which is
to reduce the amount of duplicative information that shareholders receive and
to lower printing and mailing costs to issuers that are ultimately borne by
the shareholders.
Earlier in the year Society members benefited from a teleconference on the
SEC's selective disclosure release and from the Beyond the Basics presentations
on disclosure issues and EDGAR II. Additional presentations are scheduled for
the National Conference in San Francisco. (See the article
on Program Highlights which begins on page one.)
National Office Staff Additions
Suzanne Walker, Director of Meeting Services, recently hired
Ophelia King for the position of Meeting Planner. Ms. King replaces Harriet
Chabrowe, who retired at the end of January 2000. Many of you remember Harriet
fondly from national conferences and seminars. Harriet and her husband, who
retired from IBM several years ago, have moved to California to be near their
grown children.
Ms. King is a graduate of Rutgers, The State University of New
Jersey, with a BA in Communication. Immediately following graduation, she worked
at MTV Networks/HA!, The TV Comedy Network, and has for the past eight years
worked as a production associate at Consumer Reports Television, where she assisted
the Director with all aspects of organization management and production.
On May 12, Society President David Smith announced the hiring
of Hilary Johnson as Communications Administrator, reporting directly to him.
Ms. Johnson is a graduate of Smith College with a BA in English Literature.
She comes to the Society after several years at PricewaterhouseCoopers, most
recently as an Associate in Global Knowledge Management Communications. Prior
to that, she worked at NTT America (the U.S. Headquarters of Nippon Telegraph
and Telephone), doing multimedia and telecommunications market research.
"These recent personnel changes add strength and depth to what was already
a very able team in the National Office," said President Smith. "I
hope members will take the opportunity to meet these new employees at the National
Conference, where both will be working."
Highlights from the ASCS Survey of Annual
Meeting Practices
The Society has completed its review of responses to its most
recent survey on annual shareholder meetings. This year, 370 companies responded
to questions on issues such as timing and location, procedures, and vote solicitation.
In certain cases, specific data was collected about the outcome of meetings
held in 1999.
Here are some key findings from the survey:
- Once again, the most popular month for meetings was May (42%), with April
(33%) the second most popular choice. Least popular was July (1%).
- The vast majority of companies (84%) are scheduling morning meetings this
year.
- 70% of respondents are holding this year's meetings in the same location
as last year.
- The most popular place to hold annual meetings continues to be a hotel
(32%), followed closely by corporate headquarters (29%).
- 19% of companies will use ticket admission this year.
- Wal-Mart Stores, Inc. again had the largest audience in 1999 - more than
18,000 people attended their June meeting at the University of Arkansas.
- This year, 35% of companies will record their annual meeting on tape, and
17% will use a court reporter.
- The practice of using time limits for audience participation continues
to have a positive impact on meeting length. For meetings held in 1999, 23%
lasted 30 minutes or less, and 50% had meetings that lasted less than an hour.
21% had meetings that lasted up to two hours, but only 2% had annual meetings
that lasted more than two hours.
- 11% of responding companies indicated that they plan to streamline this
year's meeting. Of those companies, 48% plan to use fewer audio/visual materials,
40% will not provide lunch , 20% will not provide refreshments, and 30% will
not distribute sample products.
- More and more companies are using "Plain English" in their proxy
materials. This year, 55% of respondents will write their proxy statement
this way, up from 39% in 1999. The Management's Discussion and Analysis of
Financial Results ("MD&A") is being written more simply more
often as well - by 34% of respondents this year compared to 20% last year.
In addition, 48% plan to use "Plain English" in their Annual Report.
- Approximately 40% of companies surveyed will give shareholders the option
to vote electronically this year. Of these companies, 75% will provide electronic
voting by either phone or Internet, 19% will gather votes by phone only, and
5% will provide for voting solely via the Internet.
- 28% of respondents have a policy on confidential voting.
A full report on the dates and locations for annual meetings to be held in
2000 by survey respondents can be obtained by accessing the "Members Only"
section of the Society's website, www.ascs.org,
or by contacting Olga Holmes in the Society's
National Office (call (212) 681-2011 or send e-mail to oholmes@governanceprofessionals.org).
The cost for the report is $22. Olga can also provide background information
on particular survey questions.
Investor Responsibility Research Center. Board Practices, The
Structure of the Board of Directors at S&P Super 1,500 Companies. November,
1999, 119 pp., 1350 Connecticut Avenue, N.W., Washington, D.C. 20036
Braiotta, Louis, Jr. The Audit Committee Handbook. Third Edition, 446
pp. Edison: John Wiley & Sons, Inc., One Wiley Drive, Edison, NJ 08817
Korn/Ferry International. 26th Annual Board of Directors Study. 48 pp.,
200 Park Avenue, New York, N.Y. 10166
"A Five-Point Checklist to be Sure Your Electronic Delivery Systems Will
Pass the Stockholder Sniff Test" The Shareholder Service Optimizer
January-February, 2000
Manus, Leo F. "Board Skills for the 21st Century: Leading the Orchestra"
Director's Monthly, NACD January, 2000, pp. 8-9
Bakewell, Thomas F. "Strengthening Shareholder Relations in the Privately
Held Company” Director's Monthly, NACD April, 2000, pp. 1+
"The Impact of Board of Directors on Stock Prices: Interview with Woody
Small" Directorship January, 2000, pp. 4+
Mashburn, Brian C. "Tough Questions at Stockholders' Meetings in 2000"
Director's Monthly, April, 2000, pp. 7-9
Hall, Brian J. "What You Need to Know About Stock Options" Harvard
Business Review March-April, 2000, pp. 121-129
Chandler, William B., III "The Legal Framework for Analyzing Audit Committee
Oversight" The Corporate Governance Advisor January-February, 2000,
pp. 18-20
The Corporate Secretary is published throughout the year as a service to members of the Society of Corporate Secretaries and Governance Professionals. Articles or statements appearing herein do not constitute legal opinion, advice or judgment and should not be relied upon as such. Inquiries regarding information contained in this newsletter should be directed to Geoff Loftus, at (212) 681-2000 or by e-mail: gloftus@governanceprofessionals.org. Inquiries regarding membership or publication orders should be addressed to:
Membership Publications
Deborah Fox Olga Holmes
(212) 681-2014 (212) 681-2015
Society of Corporate Secretaries and Governance Professionals
521 Fifth Avenue New York NY 10175
212-681-2000 - Fax 212-681-2005
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