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 Spring 2004 Volume No. 2
2004 National Conference Boston, MA, July 7-11
Leaders from Corporate America and the U.S. Securities and Exchange Commission will speak at the conference, and Alan Derschowitz, the renowned lawyer, author and Harvard Law Professor, will deliver the Annual Luncheon Address. Author and anti-slavery activist Francis Bok, a young man who escaped slavery in the Sudan, will give the Closing Address. The National Committees will meet before the start of the general sessions, and conference attendees will enjoy other networking opportunities at the Opening Reception, breakfasts, luncheons, Family Night at the Boston Museum of Science, and the Closing Gala at the Kennedy Library and Museum. Constance Bagley will host the pre-Conference workshop on ethics; a workshop on communications: "Defending and Enhancing Corporate Reputations in the Media," will be led by Brian McGlynn, a strategic communications expert with more than 30 years' experience in journalism, media and PR. ASCS is delighted to be at the Westin Copley Place Hotel, returning to the venue of our successful conference in 1997. How much has changed in corporate governance since then! In these times keeping up with regulation and best practice is crucial if you haven't done so already, visit http://www.ascs.org to register for the conference, or phone 212-681-2009 for more information. 
From the Chairman
We are returning to a print format for our newsletter in the hope that a print newsletter will serve as a complement to our electronic resources and give us an effective marketing and communications tool. We also thought you should have something new to carry and to read on your commute and during your business travels! This issue is being sent to all current members, as well as colleagues at regulatory institutions and our media contacts. We have added an advertisement on the back page to help us offset the cost of printing and mailing. Please keep in mind that your editorial contributions to the newsletter, and your comments, are welcome. Please address any communications to Hilary Johnson at the National Office. Since I last had the opportunity to write, much has happened in terms of ASCS's strategic planning. The planning teams I mentioned in the last newsletter were working on 1) communicating the processes for identifying and selecting ASCS's leadership; 2) developing a succession plan for ASCS's leadership; and 3) considering ASCS's name change, and will communicate their findings by the time of the National Conference. With regard to the last objective, Widmeyer Communications has been retained to examine the viability of an ASCS name change, to consider possible alternatives to our current name, and to map out a strategy for "rolling out" a change, if approved by the Board. You may be contacted by Widmeyer to discuss these issues. If you have questions about the process or input for our leadership please contact Tom Sanger or David Smith. At the National Office, David Smith has hired a new Vice President who will report to him. Geoff Loftus comes to ASCS most recently from Deloitte, where he managed several aspects of that firm's website. He has extensive writing and editing experience and has worked on The Conference Board's Across the Board magazine. Geoff will help us bring together our communications efforts and improve our information flow. I hope that many of you will have the opportunity to meet him at the National Conference in Boston, July 7-11. The Conference is coming up quickly. A brochure about the conference has been mailed to you, and you may register for the conference online, at http://www.ascs.org. I look forward to seeing many of you there, where I will close out a very active, rewarding year as ASCS Chairman, and turn the reins over to Kathy Gibson. Finally, I am sad to tell you that Don Pease, ASCS Chairman from 1981-1982, died in March at the age of 83. Mr. Pease was a WWII Merchant Marine and Navy veteran, a graduate of Georgetown Law School, and Corporate Secretary and Chief Counsel of the corporate law division of DuPont until his retirement from that company in 1983. After his retirement, he was a law professor at the Widener University School of Law until 1995, and also provided 25 years of service as a pro bono attorney to Child, Inc., a nonprofit corporation in Delaware that shelters abused spouses and children. Mr. Pease and his wife, Teresa, who predeceased him in 1998, had seven children. Mr. and Mrs. Pease often attended ASCS National Conferences. Peggy Foran
Interview: ASCS speaks with Brian Lane
Mr. Lane grew up in Overland Park, Kansas, is a graduate of Washburn University in Topeka, Kansas, and received his J.D. from the Washington College of Law of the American University, in Washington, D.C. ASCS: What inspired you to go to work at the SEC right out of law school? Lane: During law school I did an internship in the Division of Enforcement and enjoyed it so much that I decided it would be an excellent place for a career. I was correct. ASCS: What is your perspective on the current climate and tenor at the SEC? Lane: It is safe to say that after the scandals that have happened, not only is the SEC looking with greater scrutiny and with more eyes, since they have more staff, but that also additional parties are watching: Congress, the media, and other constituencies such as institutional investors and corporate America. The Commission itself is probably under more intense scrutiny than it was when I was Director, in the days before the scandals. I was at the Commission for sixteen years, and I can say that I saw the pendulum swinging back and forth between regulation and deregulation. Whenever there's a scandal, like the penny-stock scams in the 1990s, the pendulum swings more toward regulation, making things harder and more expensive for issuers. In the years where there weren't many scandals, sometimes the pendulum would swing back, and the focus would be on deregulation, trying to modernize the securities laws and streamline them. Obviously, the pendulum is over on the regulatory side right now. Companies have to understand that this is not just a storm that will blow over quickly, that Sarbanes-Oxley has changed not only the law, but will affect a generation of SEC regulators. ASCS: Could you clarify streamlining? Technology is taken into account more and more in regulation, and some might say that this is a kind of streamlining... Lane: The federal securities laws are more than 70 years old. They have worked remarkably well, as adapted by Congress and the SEC, but there are still some vestiges of laws better applied in the 1970s than in the 21st century. The arrival of new technology, such as the Internet, is an example of something that should drive a change in the law. ASCS: Do any vestiges remain of the Aircraft Carrier? Lane: Much of the so-called Aircraft Carrier has been adopted piecemeal. The remaining pieces are the different approach to the forms filed and the communications before and during the offering. The latter was the crown jewel of the proposals, in my opinion, because it would have represented true reform and modernization. It would have permitted open communications by an issuer, subject to the antifraud rules. It is an idea whose time has come, with certain safeguards, but the corporate scandals leading to the Sarbanes Oxley have distracted regulators and made any modernization in this area more difficult. Still, I believe that the current director of the Corporation Finance, Alan Beller, is a believer in this approach and may propose some relief in this area. ASCS: According to a recent "fireside chat" from the SEC Historical Society, Joel Seligman praised Arthur Levitt in his book. Do you feel that Levitt was farsighted in his approach to regulation? Lane: Absolutely. I've worked with many excellent Chairmen, but Arthur Levitt was not only the longest-serving Chairman, but, in my opinion, the most effective Chairman in accomplishing reform. It was a combination of his vision, passion, and negotiating skills that allowed him to accomplish so much in so many different areas. ASCS: I remember you told a story at an ASCS Securities Law Committee meeting about you and Levitt trying a Chinese delicacy from a street vendor cart in China. Any other fond memories? Lane: I have many wonderful memories of Arthur. He has his humorous foibles, and I will remember the fun and laughter we shared so often. We accomplished many great things together and I will be forever grateful to the man who gave me the greatest job of my career. ASCS: What do you miss most about the SEC? Lane: I miss the people the most, and I miss the fact that you're only working for one client: the investing public. I miss the camaraderie, the team work, the espirit de corps of trying to do the right thing. But what's interesting is that, in private practice, I have experienced a similar drive to do the right thing -- and more so than the SEC realizes. I've found, in my experience, that everyone of my clients is calling me because they want to do the right thing. Members of the Society, everyone I've dealt with, they all want to comply with the law. That's one thing I didn't fully appreciate at the Commission, as much. A sense of suspicion permeates the building. Once you're on the outside, you realize that it really isn't like that, at least with the quality of companies that seek my expertise in this area... That's not to say that everyone out in the world is law-abiding, but it's just that I have been lucky. The reason my clients come to me is because they want insights into how to comply with the law, and that makes me feel good. ASCS: Is regulatory caution becoming more part and parcel of the private sector? Lane: General Counsel and Auditor roles have been strengthened in the post Sarbanes-Oxley world. You're finding that the GC's office, internal audit to some extent, and CFOs and controllers have a much stronger focus on saying "Whatever we do, let's make sure it's the right approach, because we don't want to get in trouble." And those are good instincts, to try to avoid trouble, or at least to demonstrate a path of reasonability. ASCS: Should this be demonstrated more fully in board and committee minutes? Lane: Minutes are a completely different issue. With the minutes you have competing interests: On the one hand, minutes could be a great tool to show how spirited your board members were, what insights they brought to the process, the tough questions they asked. This can help protect board members from lawsuits and enforcement actions by the SEC. On the other hand, given strike suits, there's a great concern among litigators that the minutes should be nothing more than just generally what the agenda was, what conclusions were reached or resolutions made. Because there's always a concern that if you provide the play-by-play of what the directors said or general counsel recommended, etc., it could be used against the company. If directors can't speak freely about their concerns, then the process of corporate governance doesn't work as well. There's a tension between the amount of detail that you go into, and companies adopt different practices. ASCS: Your recommendation? Lane: I tend to recommend the middle of the road: Keep the minutes relatively short, but indicate in the minutes that there was discussion, so a reader can later determine, for example, that the board considered expert testimony or advice, or something like "an extensive question-and-answer period ensued." This shows that members of the board were active, yet isn't so detailed that it provides any kind of ammunition for a plaintiff's attorney later. ASCS: The Wall Street Journal recently ran an article that mentioned the problem of altered minutes. What advice would you give to a corporate secretary who is asked to change minutes? Lane: Obviously, you only make good-faith edits. ASCS: You are familiar with enforcement work. What are your insights into this aspect of regulation? What is your perspective now, from the "other side"? Lane: The Enforcement Division now is focused on accounting issues, though they are bringing cases for insider trading, and all the other violations. Earnings management is still a top focus. The new twist in enforcement is this: since Sarbanes-Oxley, with the added protection of whistle-blowers, our friends in the General Counsel offices of all the ASCS members are going to find that with every terminated employee in the finance, accounting, maybe even the legal area, there will be a much higher incidence of people claiming to be whistle-blowers -- that's just the sad state of affairs. When some people are terminated they look for a way to get more severance, or to get back at the company. That's not to say that there are not patriotic whistle-blowers, who look to bring things to people's attention, but counsels and corporate secretaries should get used to the thought that there's going to be a lot more whistle-blowing claims filed with the Department of Labor. Additionally, the Department of Labor has forwarded accounting complaints to the SEC in the past year. In conversations with the Division of Enforcement they've acknowledged that they are getting copies of complaints, and they feel like they have to look into them. This could get costly for companies, because the Enforcement Division will come in and investigate thoroughly when it deems it necessary. In light of this, it is very important for a company to take seriously any complaints that happen before an employee is terminated, and to make sure that any parting of service is amicable. Also, part of the termination process should be to make sure that they don't have anything to complain about, because if someone says "no, there's no problem," and then they appear later with an epiphany about bad accounting practices, it casts a light on the motivation of that employee, and I think the SEC will take that into account. But the more serious situation is when someone comes to the CFO and says "I think our accounting is wrong," and that person is terminated. That's what the SEC is looking for, and they will want to see everything that the person was complaining about, the practices in question, accounting policies, and they will want to see whether the company complied with GAAP. Hopefully, the General Counsel has already been sensitized to the fact that if a person has made a complaint, you should not terminate that person until you've had an opportunity to investigate the complaint. ASCS: What about Enforcement investigations in the post-Sarbanes Oxley era? I've noticed that enforcement inquiries tend to be somewhat more comprehensive and, therefore, take longer to complete. Management of a company can become impatient for the inquiry to be brought to a conclusion. The SEC investigative process is such that it tends not to happen quickly. Unless you can prove that the amount involved is trivial, be prepared for a wait of perhaps two years before an investigation is complete. But I see a need for faster determination, to move investigations along, to see whether they want to bring action or not. It's easier when you're on the outside to see a need for the "real-time enforcement" that Harvey Pitt had talked about -- either charge people or drop the investigation within a reasonable time. Further if an audit committee performed a truly independent investigation and took prompt remedial action, why not rely on that investigation, and close out the investigation of the company quickly, with appropriate safeguards? ASCS: How do you think Eliot Spitzer has affected enforcement work at the SEC? Lane: He has demonstrated, to the chagrin of many, that the SEC is not the only one to investigate Wall Street for potential abuses. I think it makes the SEC even more careful not to be second-guessed by Spitzer. ASCS: On a lighter note, at ASCS meetings and at seminars, you always seem to be able to see the humor in securities law. How do you keep a light-hearted approach to your work? Lane: I try to find the humor in everything I do. With serious topics like securities law, accounting, internal controls, dealing with emergencies that insiders have, there really is a need sometimes to have a lighthearted way to take a look at these issues and take some of the stress out of them. That doesn't mean you don't provide good advice and serious solutions. But I always found it a way to help survive the bureaucracy of the government: If you can laugh about things, it helps the stress go away. And it keeps people interested when you are speaking. People will likely pay much more attention to what you're saying, and it's likely to have a more lasting effect. ASCS: Do you get back to Kansas often? Lane: A couple of times a year: My parents still live there, and my brother, so it's a good excuse to go and get some real barbeque. -Hilary Johnson
Membership UpdateThis year's membership campaign ended with success, as the net monthly increase of 24 brought total membership to 3,944 at March 31, 2004. Although this represents three fewer members than one year ago, the number of companies is 25 higher. A significant part of this year's success was the high number of current ASCS members recommending new members -- 170 members recommended 198 new members during the campaign. The top recruiter among members from non-vendor companies was Susan Ellen Wolf, Staff Vice President, Secretary & Associate General Counsel of Schering-Plough Corporation in Kenilworth, New Jersey, who recommended eight new members. The top recruiter among members from vendor companies was Carolyn Coffey, Account Manager with Corporation Service Company in Denver, who recommended three new members. Congratulations to Susan and Carolyn, who each won $1,000! Two campaign prize drawings were held recently at the National Office. The winner of the drawing that included everyone who recruited at least one member to ASCS was Joan C. Zimmer, Assistant Secretary of Badger Meter, Inc., in Milwaukee, Wisconsin, whose prize is a stay at the Boca Raton Resort and Club in Florida with roundtrip airfare for two. The winner of the drawing that included a recruiter's name for each additional new member recommended was Jennifer McGarey, Vice President & Secretary of MCI, Inc. in Ashburn, Virginia, whose prize is registration, airfare and room at the 58th National Conference in Boston this July. Finally, the two campaign prizes for chapters have been determined. The $1,000 Chapter Recruitment Prize goes to the Los Angeles Chapter, and the $1,000 Chapter Retention Prize goes to the Chicago Chapter. Thank you all for your part in this year's campaign!
Key Facts from the 2004 Annual Meeting Dates & 2003 Practices Survey(203 Respondents)
For questions about this survey, contact Sara Sprague (ssprague@governanceprofessionals.org) or Blanca Rosbach (brosbach@governanceprofessionals.org). Regarding Shareholder CommunicationsThe Business Roundtable (BRT) and Georgeson Shareholder, with ASCS, have called the Securities and Exchange Commission's (SEC's) attention to a perceived need for reform in the "back-office" procedures of the proxy-voting system, through a petition for rulemaking and through letters of support. ADP, the largest processor of institutional votes, responds in turn that the rulemaking petition is identical to a proposal that had been discussed by ASCS's Proxy Voting Review Committee in 2002, when it was then decided that no action on proxy-voting reform should be taken. Those seeking proxy-voting reform in the United States urge that the system be modernized. They feel that the system currently lacks full transparency, and that direct communication with shareholders would be better for shareholders and issuers alike. They support modifying OBO voting procedures; allowing issuers to contact beneficial owners directly; and they also suggest that shareholders should be able to vote "no" on board candidates. In his first letter to the SEC, Georgeson Shareholder's Wilcox noted that one "underlying problem" in the voting system in the United States is that shareholders cannot remove directors unless they start a proxy contest. He stated "[g]iving shareholder a procedure to force their own candidates onto the proxy makes an end run around [the] problem without tackling it directly." Wilcox, as well as former SEC Commissioner Roberta Karmel, have suggested to the SEC that a "no" vote should be added to the ballot. The BRT submitted a rulemaking petition on direct shareholder communication to the SEC on April 12. Calling The Depository Trust Company (DTC) beneficial-owner voting set-up a "`daisy chain' system," the BRT's petition for rulemaking says that issuers could take advantage of technological advances to communicate directly with beneficial owners. The BRT petition suggests, "[W]e recommend that the Commission require brokers and banks to provide companies with contact information for all beneficial owners and permit the direct mailing of all communications (including proxy materials) to beneficial owners. We also encourage the Commission to require brokers and banks to execute omnibus proxies on behalf of beneficial owners, thereby allowing them to vote their shares directly." The issue of confidentiality -- OBO votes -- in the outlined system would be handled by the appointment of a designated nominee, who would not pool accounts, but maintain traceable, separate accounts for each beneficial owner. Institutional Shareholder Services (ISS) has suggested that giving issuers the power to communicate directly with beneficial owners would mean that issuers would be able to lobby owners, and counter a more corporate governance-savvy institutional investor vote. But Jill Fisch, Alpin J. Cameron Professor of Law at Fordham University School of Law, said in a phone interview that dissidents would have the same access to the shareholder list under state law, and that the BRT proposal was a "good idea" that would go a long way toward "leveling the playing field." The Council of Institutional Investors (CII) said in their April 20 newsletter that "abolition of the NOBO/OBO rule would create several new potential problems for investors, including the loss of confidentiality...." They add, "Concerns that investors would be...pressured on proxy voting may be another issue. And the elimination of the NOBO/OBO rule would impact the current ADP-dominated system of delivering materials and voting proxies." ADP President Rich Daly said in a phone interview that "processing issues and the rights of OBOs are separate discussions." A difference between the 2002 discussion and the current rulemaking petition, Daly says, is the elimination of OBOs. "ADP does not have a view on the rights of OBOs, although we know that banks and brokers are concerned about protecting the confidentiality of their customers," Daly said. Daly stressed that "BRT and ASCS should have a responsibility to address all of the issues that were the concerns of the Proxy Voting Review Committee in 2002, when, after significant discussion, issuers, institutions, and brokers decided that the proposal would reduce the impartiality, reliability and efficiency of the current process. This current proposal would set the process back 20 years." David W. Smith, ASCS President, who wrote a letter in support of the BRT petition, said, "The Society has been engaged over many years in discussing and helping to improve the proxy-voting process. We are convinced that today's technology, along with the need for transparency in corporate governance matters, require that regulators, issuers and the investment community continue to examine and study the process by which votes are collected and tabulated." - Hilary Johnson Core Document SurveysThe Society's Information Resource Center has a number of surveys posted in the "Core Documents" area. Among the surveys available are "Annual Meeting Dates and Practices," highlights of which are included on page 5, and other topics, such as "Board Turnover/Tenure"; "Retirement Age for Directors and Limits on Board Memberships"; and "Sarbanes-Oxley Section 404." One survey, on Compliance hotlines, from January 2004, showed that out of 290 companies responding, 149 are outsourcing compliance hotlines. In March, a survey on handling Audit Committee Complaint Procedures was completed. From the results, ASCS learned that forty-six percent of 180 respondents (82) outsource the required audit committee complaint procedures under Sarbanes-Oxley Section 301 and NYSE Rule 10A-3(b)(3). Of the 46 percent, 65 companies use a telephone number, ten use an e-mail or phone number, and seven use e-mail only. You can browse the surveys in the "Core Documents" area by topic, or search the ASCS website, using "Search Website" under "Search Tools" in the upper right-hand corner of the homepage, and narrowing your search to "Core Documents." If you have any questions on the resources available in "Core Documents," contact Blanca Rosbach by e-mail at brosbach@governanceprofessionals.org or by phone at 212-681-2010, or Sara Sprague at ssprague@governanceprofessionals.org or 212-681-2011. Upcoming Chapter EventsThe following is a list of upcoming chapter events. Please visit http://www.ascs.org and click on "Local Chapters" to find out more about these events, and to register for them.
Note: At the National Conference in July, there will be a Joint Meeting of the Educational Programs Committee and Chapter Officers. This is an opportunity for members of the Committee and chapter leaders to share ideas with each other on programming, leadership development, financing, and the interrelationship between the Society's educational and chapter programs. The meeting is scheduled for Wednesday, July 7, from 4:30 to 6:00 p.m.
Committee NewsThe Securities Law Committee will meet with the SEC Staff on May 14, in keeping with the mission statement of the committee, "the Securities Law Committee analyzes and seeks to influence the development of federal and state securities laws and regulations by evaluating SEC rulemaking proposals, by meeting at least annually with the Commission staff to discuss the Society's views on regulatory matters, and by commenting on pending and enacted securities laws and regulations affecting public companies." Topics to be addressed at the May 14 meeting include the director-nominations rule proposal; proxy mechanics and shareholder communications; and MD&A. Members of the Public Company Affairs Committee will join the presentation to discuss dematerialization of securities. The Committee has recently submitted comment letters to the SEC on matters including shareholder access to the proxy. The comment letters are available on the ASCS website, http://www.ascs.org, and on the SEC website, http://www.sec.gov. - Susan Wolf, Chairman, Securities Law Committee The Public Company Affairs Committee, on behalf of the Society, has recently submitted a comment letter to the SEC concerning the continued use of paper stock certificates. This letter is in response to a recent SEC Concept Release seeking comment on methods to improve the safety and operational efficiency of the US clearance and settlement system, and to help the US securities industry achieve "straight-through processing." The SEC is seeking comment on whether it should adopt a new rule, or whether the self-regulatory organizations should be required to amend their existing rules to require the completion of confirmation and affirmation process on trade date ("T+0") when a broker-dealer provides delivery-versus-payment or receive-versus-payment privileges to a customer. Second, the SEC is seeking comment on the benefits and costs associated with implementing a settlement cycle for most broker-dealer transactions that is shorter than the current three days ("T+3"). Third, the SEC is seeking comment on reducing the use of physical securities. The Society's comment letter focused on the third topic, and encouraged the SEC to support the Direct Registration System ("DRS") and other initiatives which will lead to more "immobilization" or "dematerialization" of physical securities. The letter pointed out that the use of paper certificates is a concept whose time has largely passed, and that the continued use of paper drives up costs and reduces efficiency for issuers, stockholders and the securities industry. The SEC was encouraged to support changes in state corporate codes (including Delaware) that would allow issuers to stop issuing physical certificates. - Cary Klafter, Chairman, Public Company Affairs Committee The Corporate Practices Committee will meet on May 13, in advance of the Securities Law Committee meeting with the SEC on May 14, which Corporate Practice Committee members will attend. At the meeting on May 13, the Committee will discuss several pending projects, such as the Compensation of the Corporate Secretary Survey. ASCS has received approximately 650 Compensation questionnaires. Thank you to all the members who filled out a questionnaire. It is anticipated that results of the survey will be available around the time of the National Conference. At the May 13 meeting, the Committee will also 1) receive updates on shareholder access and other significant governance issues, 2) discuss 2004 annual meeting experiences, 3) discuss the potential change in the Society's name and 4) engage in the traditional members roundtable discussion. - Katherine Combs, Chairman, Corporate Practices Committee
The Corporate Secretary: Underscoring the Importance of Good GovernanceSeveral international corporate governance codes delineate the role of the corporate secretary. An example is on the Institute of Chartered Secretaries and Administrators website in the United Kingdom, quoting from the London Stock Exchange's Principles of Good Governance: "All directors should have access to the advice and services of a company secretary, who is responsible to the Board." In the United Kingdom, the role of the company secretary is somewhat uniform because company secretaries take qualifying exams. American corporate secretaries do not, and their roles vary from company to company because of differences in state law and industry-specific regulation and company bylaws. The education and experience of the corporate secretary is also a factor in the United States, i.e., whether or not the individual is a lawyer. But in both the United Kingdom and United States, the foundation of the corporate secretary position is strong board support. Holly Gregory, a Partner with Weil, Gotshal & Manges LLP, does not believe corporate secretaries should be dedicated board staff members in the US, where the independence of board members is seen as paramount. "It's an independence paradox," Gregory says. "Boards [in the United States] are increasingly distinct from management, which makes them increasingly dependent on management to make sure they have the right information." In occupying a dual role of senior manager and adviser to the board, corporate secretaries can help the board by providing them with the proper information at the right time. The corporate secretary, Gregory says, should be "capable of communicating well in both spheres" -- the boardroom and the company. Stephen P. Norman, Secretary and Corporate Governance Officer, American Express Company, describes a pyramid-like corporate power structure, with management, shareholders, and directors representing the three sides, and the corporate secretary in the center. Norman says that the corporate secretary is possibly the only one in the company who "interfaces with all three sides," and who is therefore in the best position to design and administer a company's governance practices. He adds that companies who appoint corporate governance officers, as indeed American Express has done with him, do so to "underscore the importance of good governance" to the success of a company's operations. Operations and risk management are subjects of increased focus in the boardroom, according to Carol Strickland, Managing Director & Secretary, US Trust Corporation. Although US Trust Corporation is private, it has a large shareholder in Charles Schwab. The US Trust board has always focused on risk as a financial services company, but now corporate governance is increasingly part of the equation. "There is a more risk-based approach to corporate governance," Strickland says. Strickland is involved more closely with the board than ever before. "The role of the corporate secretary has changed because the role of the board [in providing increased oversight] has changed," she says. American Express Company's Stephen P. Norman points to an example of the nexus of governance and operations, in the certification requirements of Sarbanes-Oxley. Certifications of financial statements bring oversight responsibilities home to more managers, and the rule has fostered a spirit of engagement from all parties. Norman says that the words "fairly present" in the certification attestation are well-suited to the purpose. "Jefferson could not have chosen better words," he says. If corporate governance "best practices" have changed rapidly as a result of Sarbanes-Oxley and stock exchange listing standards, boards are keeping up. The Business Roundtable (BRT), an association of 150 chief executive officers in the US, recently released a survey that shows an evolution in boards' composition and focus. The survey revealed that more than 80 percent of companies surveyed (approx. 120) now have majority-independent boards, and that four in ten boards are 100 percent independent. More than 70 percent of companies responding to the survey have appointed an independent lead director or an independent chairman to head the board. Ninety percent of companies responding to the survey report that the amount of material given to the board in preparation for meetings has increased, and that, since July 2003, there has been greater than a 20 percent increase in the number of companies that have established a way for shareholders to communicate with the board. Shareholders may be noticing a difference. "Boards are realizing that they need to be a little less insular and a little more outgoing," says Cornish F. Hitchcock, an attorney with the McTigue law firm in Washington, DC, who has experience representing institutional activist shareholders. In the late 1990s, Hitchcock says, he supported a shareholder group who submitted a proposal to an S&P 500 company. The group held a meeting with a committee chairman, and that chairman told the group that he was "delighted" to have the meeting, because it was the first time he had ever met with a shareholder. A few weeks ago, Hitchcock was present during a meeting at a company with the chairman of the compensation committee, the chief executive officer, and the corporate secretary. The company representatives were able to discuss the issues on the agenda from the perspective of both the board and management. The two meetings over ten years, Hitchcock says, were "bookends of the same experience." Richard Ferlauto, Director, Pensions and Benefits Policy, American Federation of State, County, and Municipal Employees (AFSCME), stresses the importance of transparency and access to the board, but agrees that his recent experiences reflect a more transparent and open attitude on the part of boards and companies. This proxy season, AFSCME has submitted proposals to a few companies through the usual channels of the 14a-8 process. Ferlatuo has been pleased by the response from some companies, and has appreciated the role of the corporate secretary. "I've had constructive conversations with corporate secretaries," he says, adding that corporate secretaries "could play a very useful role in finding innovative ways to increase board transparency." Institutional owners, or activist shareholders, want access to the right people when they perceive a problem in the company, Ferlauto says. He adds that the first response of the corporate secretary should be one of "facilitator." "As gatekeepers for the board, corporate secretaries can help promote transparency," he says. The Sarbanes-Oxley Act and the new stock exchange listing standards have focused a spotlight on corporate governance and the board of directors. It is as if, in many companies, what has been good in corporate governance all along still occurs, but suddenly it's News. Cary Klafter, VP-Legal & Government Affairs, Director, Corporate Affairs & Secretary, Intel Corporation, says that the corporate governance role he performs at his company has become more prominent. "The input that corporate secretaries can offer, the work that they can do on corporate governance is that much more involved," he says, adding, "Clearly, the public focus on governance, and the flow of new regulations affecting governance, is high." Klafter "wears a multiplicity of hats" in his particular job. As VP-Legal & Government Affairs, Klafter spends a good part of each day working on corporate and securities law matters, in addition to board-related matters. "Among my board jobs, as secretary I am a formal primary staff contact. Not as a bottleneck, but as a facilitator and counselor," he says. While Klafter balances board support work with a number of other corporate-level roles, other corporate secretaries focus on different areas within the corporation: few corporate secretary jobs are the same. Many corporate secretaries have come up through the ranks, or have been appointed because the company was in need of a corporate secretary. In other companies, where there have been specific legal concerns, a lawyer has always been in the job. The last American Society of Corporate Secretaries (ASCS) survey on the responsibilities of the corporate secretary, in 2001, showed that 68% of ASCS members surveyed were attorneys. Recently, a number of ASCS members have been appointed Chief Governance Officers. Holly Gregory of Weil, Gotshal notes that the development of the Chief Governance Officer is an interesting one, in that it shows the seriousness with which some companies are taking corporate governance issues. But ultimately, "the title is less important than the role performed," she says. The role of the corporate secretary is "a pivotal communication point," she says. Communication skills are important to any corporate secretary, whether lawyer or not. ASCS members stress the importance of communication skills in their roles. Thomas C. Sanger, Secretary, Sempra Energy, was manager of communications before being appointed secretary. He feels his communication skills are very helpful to his job as secretary, especially because they allow him to see what he presents to the board from the board's perspective, and hone in on what is most useful to board members to effectively do their jobs. Sanger says his responsibilities are demonstrated through the mainstays of the corporate secretary role: recording accurate and thoughtful minutes; possessing a good grasp of issues under discussion in the boardroom; being a primary liaison to the board; and "putting the director together with the answer," to whatever questions they might have. Gwenn L. Carr, Vice President & Secretary, MetLife, Inc., agrees that communication skills are critical to a corporate secretary, whether or not that person is a lawyer or chief governance officer. The key element of the role is that the corporate secretary needs to "make sure directors have the means and the opportunity to do what they are obliged by law to do." Providing written materials in advance; scheduling meetings with the appropriate managers; providing the correct information and access to management at the right times, all are critical skills. Good communications skills on the part of the corporate secretary, Carr says, are valuable in helping the board of directors fulfill their duty of care and oversight "not just in the letter, but in the spirit of the law." Given the mandate in corporate governance across company boards, and, increasingly, in international corporate governance, what higher place in the company can corporate secretaries attain? -Hilary Johnson 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 membership
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The
National Conference Committee, under the leadership of Bob Lamm, has assembled
expert speakers, relevant panels and targeted breakout sessions for this year's
National Conference. The theme of the conference is "Changing Responsibilities,
Different Perspectives," and it will be reflected in sessions such as "Executive
Compensation -- New Rules, New Standards"; "Enforcement Heightened
Scrutiny"; and "Shareholder Nominations -- What's the Right Answer?"
Dear
Fellow Member,
Brian
Lane, Partner at Gibson, Dunn and Crutcher, spent the early part of his law
career at the Securities and Exchange Commission (SEC). He was Director of the
SEC Division of Corporation Finance from 1996 to 1999, and prior to that was
Counsel to Chairman Arthur Levitt; Counsel to Commissioner Richard Roberts;
Special Counsel in the Division of Corporation Finance; and Staff Attorney in
the Division of Market Regulation.