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Whether your firm is a publicly traded company or privately held, it continues to be under tremendous pressure to perform. Companies are required to achieve immediate and sustained earnings, in a tough, fiercely competitive and often uncertain environment, where change occurs with unsettling regularity. Companies committed not just to survive, but to prosper in a reduced-resource environment, will be characterized by the quality and timeliness of the many decisions they will be required to make. One such critical decision is assuring that corporate capital is positioned efficiently to provide the highest yield for core business activities, while minimizing its impact on the balance sheet and continuing to support operational demands.

Don’t Become a Hostage
We all recognize the almost predictable cyclical nature of our world economy. And, in times of unbridled prosperity or economic turmoil, we tend to ignore the signals of impending correction and often leave the underlying value of our corporate real estate subject to significant market risk. Often times, a major use of capital are the corporate real estate holdings of a company. Surprisingly, these assets are often not properly structured to reflect the operational requirements and financial needs of the organization. In essence, the company becomes hostage to its real estate decisions. Evidence of this is plentiful:

• decisions related to leasing, ownership or other hybrid structures are often not seriously considered;
• design decisions are made without consideration for an exit strategy;
• vast amounts of profits are left in the hands of developers that could be used to reduce occupancy costs;
• corporate facilities management responsibilities are administered in-house, when significant savings and efficiency may be achieved via outsourcing initiatives; and
• capital is often kept stranded in owned assets, when it is better suited for higher-yield core operations.

To truly fulfill a company’s overall operational and financial objectives, the structure and financing of corporate real estate holdings should support and reflect core business fundamentals. Regardless of a company’s size or age, and even if corporate real estate plays a minor role in your company’s capital structure, properly planned, structured and executed real estate finance alternatives will maximize efficiency, allow control of assets in such a manner to fulfill core business strategies, and minimize its overall costs of occupancy. As depicted on the right, when a company is able to obtain an alignment between the needs of the COO and the CFO, within the context of the local and capital markets, the result can be a successful, coordinated strategic real estate plan.

Competing Interests
Corporate real estate holdings should be structured to balance the often competing demands of the COO for operational control and flexibility, versus the CFO’s requirements for maximizing return and minimizing total facility operating costs. To help achieve the appropriate balance of demands, executives must be equipped with tools and protocols for the fundamental asset management of a corporate real estate portfolio. In other words, before embarking on a specific real estate strategic implementation, corporate executives should perform a critical review of all real estate financing alternatives within context of the inherent corporate environment. This critical review is essential whether your company may:

• seek to restructure assets to enhance performance measurements and obtain cash for core business opportunities;
• possess immediate real estate needs that demand financing alternatives with minimal effect on earnings, cash flow and the balance sheet; or
• boast record levels of unrestricted cash and is examining unique opportunities to enhance management effectiveness ratios and control of critical corporate assets.

In any case, a regular and recurring critical assessment of your corporate real estate financing strategy will ensure that your company is positioned to support core business requirements and take advantage of current opportunities in the capital and real estate markets.

The five additional postponed compensation and governance rules are likely to be delayed past the deadline for implementation before the 2012 proxy season. These rules include:

• Pay vs. Performance Disclosure
• Ratio of Median Employee Pay to CEO Pay Disclosure
• Clawback Implementation and Disclosure
• Hedging Policy Disclosure
• Regulation of Incentive Pay at Financial Institutions

The SEC implemented Dodd-Frank Act-mandated rules on say on pay, say on frequency and say on golden parachutes in time for the 2011 proxy season. Final rules on compensation committee and advisor independence, compensation committee oversight authority, and disclosure of compensation consultant conflicts of interest are expected to be issued by the end of 2011, likely making them effective for the 2012 proxy season.

Stuart Hammer

Lauren M. Boccardi

The SEC released interpretive guidance on the application of existing SEC disclosure requirements to climate change-related matters on February 2, 2010. While the guidance did not create a new rule, regulation or legal requirement, or change the materiality standards under existing SEC rules, it was intended to provide clarity for public companies and their investors and encourage consistent application of existing rules.

At the time the SEC highlighted four areas for companies to consider when assessing whether climate-related disclosure is required under its rules and regulations:

1. the impact of legislation and regulations, such as laws requiring companies to install pollution control equipment,
2. the impact of international climate change accords, such as the Kyoto Protocol,
3. indirect consequences of regulation, such as decreased demand for carbon-intensive products and
4. physical risks of floods, hurricanes and other natural disasters that may result from climate change.

A little more than one year after the SEC issued its guidance, there is some evidence of increased disclosure of climate-related risks. An October 2010 report by ISS Corporate Services, “Disclosing Climate Risks: How 100 Companies Are Responding to the New SEC Guidelines,” analyzed climate disclosure in the 10K filings of the 100 largest U.S. public companies (by market capitalization). Among its conclusions, ISS found that:

• A little over one-half of the companies mentioned climate change in their filings;
• Approximately one-quarter of the companies addressed physical risks to their assets posed by climate change;
• Very few companies addressed all of the issues outlined in the SEC’s climate guidance; and
• The energy and utilities sectors had the most comprehensive climate-related disclosure.

In addition, a February 2011 report from CERES, a coalition of investor and environmental groups, noted that there was some improvement in companies’ climate change disclosure. However, CERES also identified what it considered to be inadequate disclosure by various companies and outlined specific steps for companies to take to improve their climate disclosure.

When it released the guidance, the SEC said it would hold a public climate change disclosure roundtable in the spring of 2010. However, the roundtable did not take place and the commission has not been particularly proactive in following up on its interpretive guidance. In addition, the SEC said it would monitor disclosure both through its Investor Advisory Committee (IAC) (which was considering climate disclosure issues as part of its mandate to provide the SEC with input on investor concerns) and through its ongoing disclosure review program. The IAC has since been disbanded.

While the SEC has been monitoring climate disclosure, its enforcement of any perceived violations has been limited. Based on a review of publicly available information, there are fewer than a dozen comment letters in which the SEC sought additional information concerning climate disclosure in registrants’ 2010 filings. In some of the comment letters, the SEC asked registrants to explain what consideration they had given to the climate guidance. Some registrants acknowledged the existence of the guidance, but explained that climate disclosure was not warranted as climate risks were not material to the business. In other instances, the SEC asked registrants to expand their disclosure concerning the impact of climate change legislation or the effects of possible increases in global temperatures or to discuss the costs incurred in reducing greenhouse gas (GHG) emissions. Some registrants revised their disclosure to more directly address climate-related issues.

The SEC’s fairly muted follow-up to the interpretive guidance may be linked to several factors. The political climate has changed since the SEC issued its release; it now appears unlikely that Congress will pass a comprehensive climate change law in the near future. Additionally, the SEC may have limited capacity to address climate change disclosure given budget and staffing constraints and the deluge of Congressional demands arising out of the Dodd-Frank Wall Street Reform and Consumer Protection Act. As a result, the SEC may simply be focusing on what it considers to be more pressing issues than climate change disclosure.

The task of analyzing climate risks is more difficult given the uncertainty regarding climate change legislation and regulation. A year ago, the passage of a comprehensive climate change bill appeared more likely given that the U.S. House of Representatives had passed such a bill and leading lawmakers in the U.S. Senate were discussing similar legislation. However, in 2010, efforts to pass a comprehensive climate change bill stalled in the U.S. Senate. Thus, registrants that previously disclosed the likelihood of passage of a climate change bill should update their disclosure to account for developments in the U.S. Congress.

While climate change legislation has stalled, the United States Environmental Protection Agency (EPA) has started regulating certain GHG emissions. For example, the EPA requires certain large GHG emitters to annually report their emissions to the EPA. The EPA is also seeking to curb GHG emissions under the Clean Air Act. However, some members of Congress are seeking to scale back, if not eliminate, the EPA’s GHG regulations. It remains to be seen whether the EPA will roll back its GHG rules or initiate additional GHG rules. Registrants impacted by the EPA’s regulations should consider these uncertainties when drafting their climate change disclosure.

In addition, companies that are disclosing climate change information in other forums, such as in company sustainability reports or through organizations such as the Carbon Disclosure Project (a not-for-profit organization that maintains a database of climate change information), should ensure that such disclosures do not conflict with any climate-related information contained in their securities filings.

It is unclear whether the SEC will increase its focus on climate change disclosure in coming months. Registrants, particularly large GHG emitters, will need to continue monitoring developments concerning legislation, regulation, physical effects and other trends related to climate change. As developments in these areas change rapidly, registrants should update their disclosure to assure that it remains accurate.

Stuart Hammer is counsel and Lauren M. Boccardi is an associate in the New York office of Debevoise & Plimpton LLP. They are members of the firm’s Environmental Practice Group.

Photo by Matt Buchanan

The number of companies utilizing board portals (online resources hosting board materials and other company information) has been growing substantially, with half of the 358 general counsels, corporate secretaries, senior managers and directors surveyed saying their companies used them. Within the next six to 12 months, an additional 20 percent plan to make the move to board portals. This is in stark contrast to the nine percent of companies who used online portals when the survey was conducted in 2009.

What’s also changing is the way in which directors access this information. Eighteen percent of companies reported supplying their directors with tablet computers to access the portal, with another 20 percent planning on doing so in the upcoming year.

Companies may be more likely to provide tablets to board members for board portal access because of IT security concerns – 75 percent reported some degree of concern over portal security – and dedicated tablets provide a way to mitigate these concerns. Some companies also restrict the content posted to the portals, with 32 percent of respondents reporting that “sensitive” information is not posted to the portal. All information pertinent to board members is posted online at 68 percent of companies.

Board portals are also taking communications between board members out of the regularly scheduled meetings and into directors’ everyday lives, with 17 percent of companies using the portals for real-time communications and collaboration between board members. The most common usage of the portals, however, are posting pre-meeting board materials and updating the board on important company developments. Seventy percent of boards update the portals whenever new, pertinent information is available, while the remaining 30 percent update on a scheduled basis, quarterly, monthly or weekly.

At 64 percent of companies, some or most members of the respondents’ boards had difficulty adapting to the new technology. Despite this learning curve, 55 percent believed that the portals made their boards more efficient.

Click here for more information from NACD BoardVision on how new technologies are affecting the boardroom.

Anton Valukas

Prompted by the bankruptcy examiner’s report, authored by Jenner & Block Chairman Anton Valukas, the government decided to examine oversight of auditing companies, what role they played in the financial crisis and how future problems can be prevented. The role of the SEC, and alleged failures to report problems at Lehman, also came under scrutiny.

Valukas appeared before the Senate Banking Committee to provide his insights into the financial crisis, with a particular focus on the events at Lehman. While not laying blame directly on any one group, the Valukas report did highlight failures by auditors that could have helped prevent, delay or mitigate the Lehman bankruptcy. “The auditors did play a role in the disclosure, or non-disclosure, of information that would have been critical for the public to know about and which masked Lehman’s financial condition,” In the full report from March 2010, he pointed directly to the auditor’s failure to object to the omission in Lehman’s public filings of any reference to Repo 105 transactions (which were conducted in the U.K. because the way they were recognized as “sales” is not considered legal in the U.S.). Valukas also spoke of his concern that the auditor did not examine the assets in Lehman’s liquidity pool to determine the actual value (or if the assets were in fact liquid at all).

Valukas told the Committee, “I found that Lehman’s decision not to disclose to the public a fair and accurate picture of its financial condition gave rise to colorable claims against senior officers who oversaw and certified misleading financial statements. Nevertheless, and wholly apart from the claims involving Lehman’s auditors, we must recognize the general principle that auditors serve a critical role in the proper functioning of public companies and financial markets.

“Boards of directors and audit committees are entitled to rely on external auditors to serve as watchdogs—to be important gatekeepers who provide an independent check on management. And the investing public is entitled to believe that a ‘clean’ report from an independent auditor stands for something. The public has every right to conclude that auditors who hold themselves out as independent will stand up to management and not succumb to pressure to avoid rocking the boat. I found that colorable claims exist against Lehman’s external auditor in connection with Lehman’s issuance of materially misleading financial reports.”

For the full transcript of Valukas’ testimony please click here.

Also at the hearing before the Senate Banking Committee, SEC Chief Accountant James Kroeker was called on to answer questions that the SEC had information about problems at Lehman, specifically concerns about liquidity pools, and failed to adequately take action.

The Valukas report suggested that the now-defunct Trading and Markets unit at the SEC knew about problems and did not inform officials at other divisions of the Commission. Kroeker says the SEC took the report seriously and has responded: “It is a very serious observation, but it has been addressed.” It was not explained exactly how the problem was addressed beyond the fact that the SEC went through a reorganization of divisions in late 2008.

In addition to Valukas and Kroeker, the chairman of PCAOB was also called on to give testimony. James Doty admitted that auditors should have been more vigilant, not just at Lehman, but across the board. “There were a number of areas where auditors should have delved more deeply,” Doty said. He pointed to serious ongoing problems with valuations and end-of-period transactions.

The findings of the committee will likely have a serious impact on the oversight of the auditing industry as a whole. The government is currently examining various aspects of the way auditing firms are regulated and their level of accountability to companies and investors who relay on their assessments.

For the full Jenner & Block examiner’s report on the Lehman Brothers bankruptcy, please click here.

Brendan Sheehan is the editorial director of NACD Directorship and Directorship.com.

The results of our 2010 KPMG/NACD Public Company Audit Committee Member Survey make clear that the pressures on companies to grow are shaping audit committee agendas. Every audit committee should review the detailed survey results (visit auditcommitteeinstitute.com), but here’s a snapshot of what our survey found—and where most audit committees are focusing their efforts.

Top concerns for the year ahead. Risk, public policy initiatives, financial statement issues, IT risk, liquidity/cash flow and internal controls will dominate audit committee agendas in the months ahead.

Financial reporting and controls. Economic uncertainty and pressures to grow—or make do with less—continue to drive a sharper focus on financial statement issues, key performance indicators (KPIs), and stresses on financial reporting and compliance systems. Our survey found that audit committees are continuing to pay close attention to:

• Fair value, asset impairments, pension obligations, tax valuation allowances and other ongoing financial statement issues affected by economic conditions
• Earnings, cash flow, liquidity positions and other KPIs
• The impact of recession-related cost reductions—particularly on talent/training, internal controls and fraud risk
• Alignment of strategy, risks, controls, compliance and incentives—particularly in the context of strategic growth initiatives
• The company’s ability to identify emerging risks and understand the “velocity” of risk events.

Financial communications and disclosures. From earnings guidance and press releases, to the MD&A and other disclosures, to the impact of economic conditions on the company’s financial statements, all financial communications—and the financial reporting system behind them—are getting focused attention. Interestingly, however, only 59 percent of respondents said their audit committee drills down and reviews the key assumptions underlying management’s material accounting judgments and estimates “to a great extent.”

Transparency and information quality. Given the uncertain economic and political environment today, and the increasing complexity and globalization of business, audit committees are focused on ensuring good internal transparency and quality information—the “backbone” of the company’s decision making. Our survey finds audit committees particularly focused on:

• The timeliness and the accuracy of financial forecast information
• Whether management is focused on the right KPIs
• Information quality in general—and specifically the significant risks facing the business, including IT and tax risk
• Monitoring the company’s ethical culture and tone at the top.

Risk management. In light of the tremendous focus on risk management and risk oversight by companies, boards, investors and regulators, audit committees are rethinking their role in the oversight of risk: Should they be focused primarily on financial reporting and related risks? Or should their role be more expansive, involving other substantive areas of risk—or, perhaps, oversight of the company’s risk management processes? Responsibility for oversight of “strategic risks” appears to be shifting to the full board, while the risk-oversight responsibilities of audit committees still vary widely. Survey respondents cited “understanding the velocity of risk events” as the top risk management challenge facing their company.

The CFO, finance team and auditors. Pressures on the CFO and finance team and the adequacy of their resources, including budget, people and skills, are clearly areas of audit committee focus. Notably, many survey respondents said the committee has not established clear performance objectives for evaluating the CFO, or a formal CFO succession plan.

Audit committee performance. Respondents said their effectiveness would be most improved by better information, agendas that are more focused on key issues facing the business (versus “checklist” items) and a deeper understanding of the company’s strategy and related risks.

Mary Pat McCarthy is U.S. vice chair, KPMG LLP, and executive director of KPMG’s Audit Committee Institute.

“I think boards are so overwhelmed with new measures and regulations that there is a real possibility that directors are going to lose the core of what they’re supposed to be doing,” began Jack Wasserman, who like fellow panelist, Edward Kangas, is a veteran of audit committee service.

Mary Pat McCarthy asked about the board’s role in developing company strategy. Kangas broke it down into three elements: set the fundamental direction (which boards do actively with the CEO), develop the strategic plan (also driven by the CEO) and review, monitor and approve transactions and major investments that are a result of that plan. “When I joined Tenet Healthcare in 2003, the company…had been accused of bribing doctors through physician relocation agreements, doing unnecessary surgeries in certain hospitals—and the government was threatening to pull their Medicare certification, which would have put them out of business,” Kangas said. “The board decided we had two decisions: we could liquidate the company and sell off the hospitals…or we could decide to do what would be needed to have the government back off, which meant, change all the management.” Kangas explained that if they went with the first decision, the current CEO would stay; if they decided on the latter, they would need a new CEO. “So the CEO couldn’t make that decision; that was not a management activity,” Kangas said. “The board made the decision to change management, change the board and restructure the company…today Tenet is doing reasonably well.”

Wasserman added that there is a dynamic between the CEO and the board. “There has to be board surveillance,” Wasserman noted. Senior management gets “big dollars” to do their jobs. “Leave them alone…let them do their jobs.” Wasserman continued, noting that unless the company is in the process of a major structural change or looming crisis, management should be allowed to perform their duties—and if they don’t, “change the management.”

Both Kangas and Wasserman agreed that it can be difficult to identify a plan to maximize shareholder value when shareholders are only interested in the next two or three years. Kangas said that it is important to deliver results in a 36- or 48-month timeframe and that developing plans for 10 years can work, but is often difficult. Wasserman agreed, noting that it’s a given to have a financial plan, but when planning for risk, the plan frequently changes. “We just don’t know what’s going to happen over the long term,” Wasserman said. Kangas added that if a good strategic plan is in place, it serves as a solid foundation to handle potential future risks: “If management can’t do that, you change the management.”

Gretchen Michals Salois

Let it be said that Brian Breheny is a good sport. He gamely agreed to present his own view of the agency’s recharged agenda under Chairman Mary Schapiro before being questioned by the panel of former SEC commissioners. In introductory remarks, Breheny implored directors to engage shareholders and not be fettered by Regulation FD, which he said, “was never intended to stand in the way of those conversations. Are people using the regulation as an excuse? Are you okay with that?”

To open the panel discussion, Edwin S. Maynard asked for reaction to what was then proposed financial reform legislation. What’s being promulgated is what Paul Atkins called a “trade union agenda” and the federalization of governance initiatives such as say on pay, majority voting, clawbacks of executive compensation and proxy access that are best left to the discretion of the states. Atkins warned that increased regulation could thwart the creation of jobs by constraining investors. “Will we finally reach the straw that breaks the camel’s back with respect to public markets, where it’s just completely unattractive to become a public company anymore, or it’s cheaper and easier to go elsewhere to raise funds?”

The best hope, said Annette Nazareth, is “that we end up with legislative provisions that are not so prescriptive that they can be dialed up or down by regulators through notice and comment rulemaking. Frankly, if you look at some of these provisions and you reverse engineer where some of the banks are today, about two thirds of them would not be in compliance. So that’s a real problem. We have to hope that through the conference process that some rationality prevails.”

“Everyone now knows the SEC and that has made the environment more difficult for directors,” Richard Roberts said. “When I worked at the SEC–and I’m from Alabama, originally–nobody knew who the SEC was. Now, everybody knows who the SEC is, and it’s not necessarily a good thing…but that’s the environment that we’re all in. Directors are thrown into that environment, too.  So folks know who you are.  Your responsibilities are going to be much more difficult.”

Part of that changed environment relates to proxy advisors. In response to a question from the audience, Breheny said that the SEC intends early next year to issue its study and concept release on proxy advisory services and whether they should be further regulated: “We can disagree on the role that people play and the cost and how the process is working, but I really do hope that when it gets out that we’ll have at least educated everybody so we can focus on the issues.”

What does KPMG’s Audit Committee Institute do for audit committee members, particularly in these times?
The Audit Committee Institute is viewed as an honest broker in the audit and governance arenas. It is a catalyst that brings audit committee members together to discuss the most important topics of the day and to provide a forum for sharing insights and perspectives. Certain audit committees and audit committee members stand out as leaders—and ACI helps the entire audit committee and board community benefit from the best practices and best thinking.

Where are board and audit committee oversight practices headed?
Every audit committee faces the ongoing challenge of continuous improvement.  They want to be responsive to changing business environments and dynamics that the companies they serve are operating in. At the same time, they want to be able to step back and think about how they perform their audit committee role and assess their effectiveness, particularly given the current economic environment.

A lot of companies and their audit committees, as they react to this business environment, are re-examining what they do and why. For example, audit committees are taking a hard look at financial reporting. Are they truly getting insight about the associated processes and risk issues? How much does business strategy play into the discussion? The timing of the NACD’s Blue Ribbon Commission on Audit Committees couldn’t be better. It marks an important opportunity for audit committees to re-examine how they do what they do—and to ramp-up their effectiveness. The BRC report will offer 10 principles to help guide audit committees—and the management and audit professionals supporting them—in their oversight of financial reporting and related risks. Plenty of how-to’s and practical suggestions.

How has the audit committee’s role evolved?
Harry Truman may have said it best: “The buck stops here.” I’ve heard more than one audit committee member say that if an issue is complicated and requires a lot of time and focus, it usually lands on the audit committee’s plate. The challenges and priorities that companies face keep increasing, and executives and boards can’t simply give matters a cursory review. There’s a tremendous amount of information that needs to be considered, and I think you’ve seen audit committees gravitate toward delving into the intricacies of these activities with a much more attuned focus on the salient financial reporting items.  The audit committee’s role and scope of oversight activities will vary by company and by industry – but there’s a “great reassessment” taking place now…many audit committees are reassessing their role in risk oversight.

We’re seeing the full board increasingly taking on responsibility for oversight of major strategic risks facing the business – with the audit committee focusing squarely on financial reporting and related risks. In some cases, the audit committee is overseeing the risk process, and serving as a catalyst to help the board get a handle on risk.

How has the auditor and the audit committee dynamic changed, especially since SOX?
The professional bond or the relationship between the external auditor and the audit committee has become much stronger in the post-SOX era. The level of dialogue has been raised, as well as the quality of communication, and most importantly, the quality of understanding about the company and its risks. Audit committees get a lot of information sent their way, and one of the things I often hear people ask is, “I get a lot of data, but am I really getting the right information?” One of the roles the external auditor can play is helping to bridge the data/information gap.

As a best practice, we spend time with the AC Chair, or the whole audit committee before their committee meeting—to discuss what we think are the more important elements and questions they should consider.  Instead of listening to a presentation, they can have a more meaningful dialogue about the issues at hand.

What’s coming from the impact of the financial reform regulations on accounting and audit committees?
It’ll be sizeable for most companies. Directors, however, should not view the reforms as an additive burden, but rather, how do you build-in the impact of the reforms to benefit your business?  One likely change is that a lot of companies will focus on getting back to basics. Many companies have observed that over time, they got involved in periphery activities outside of their core competencies. We’re seeing companies re-examining what those peripheral activities are, what impact those activities have on liquidity, capital and other organizational  resources and what they want to be known for in the marketplace.

What can boards do to manage risk better?
I think the NACD’s 2009 Blue Ribbon Commission on Risk Governance is a great starting point. The report provides a very practical framework to help boards get their arms around risk. Three big points that are made in the report: risk is part of doing business;  risk and strategy are inseparable—and they should be assessed and monitored together; and risk oversight is a team sport—which means every director and every committee plays a role.

Post financial crisis, what learnings from the financial services sectors can be applied to businesses in other industries?
A lot of people overestimated the resilience and strength of liquidity and capital resources in the market. They assumed that there would always be access to capital and liquidity to fund ongoing business activities.  People also made some very general assumptions on how products would perform and how service activities would develop based on historical experience, which is not always the best predictor. A lot of companies got involved on the periphery of their core business. Those activities drew a disproportionate share of capital, and most importantly, did not always operate within an expected risk threshold—and the commensurate financial statement impact was particularly large.

Now, companies are saying, “Let’s decide what we want to be known for in the marketplace and let’s make sure we deliver that service better than anyone else. Let’s do things in a measured and thoughtful fashion and make sure that we truly understand the inherent risk in our products and services.”

What’s on the horizon for changes in financial reporting and to financial statements?
There are at least a dozen projects up at the Financial Accounting Standards Board (FASB) right now with a view toward converging with International Financial Reporting Standards (IFRS). Some of these issues are particularly challenging, and the FASB may end up looking at things in a different fashion than the international community.

Companies need to understand the FASB proposals, and get involved in the comment letter process, so that from a deliberation perspective, the FASB gets the best information from the marketplace.

In terms of financial statements, I think the question that should be asked is whether financial statements should simply be a snapshot of what was, a rear-view mirror look at how things shaped up last year?  Or should the financial statements and related disclosures be part of a process that includes a look at the financials as well as a forward-looking discussion of risks and other issues facing an organization?

What are expectations of a company for their audit and how has KPMG helped its clients get more out of the audit process?
Everybody expects a high-quality audit that is in accordance with the professional standards. But more than that, companies want their auditors to provide insight and perspective, not only into the company but also into the industry in which the company operates.

Executives also want a great client experience. They want the auditor to be efficient and effective. They want us to be “collaborative” in terms of working to leverage the work of the company’s internal audit department, where appropriate. They also want good communicators who offer practical and timely guidance on matters important to them.

Looking ahead, what are the main concerns voiced by your client organizations? Risk oversight tops the list. I would also point to strategic focus—as in, what do we want our company to be known for in the marketplace? What is our risk appetite? What rewards will accrue to the organization as a result of providing that activity or service to the marketplace?

Of course, greater financial transparency is also top of mind. A lot of companies are reexamining how they communicate with the external marketplace—for example, explaining the significant judgments and estimates that underlie their financial performance.

Many boards and audit committees are also focused sharply on understanding the risks posed by cost reductions made in response to the economic crisis. It’s important to ask whether the company’s delivery model has been changed, and whether a “cost-reduced” business model can be sustained.

Another area of concern for boards and management is preparing for the potential impact of public policy initiatives—healthcare, the environment, energy, and financial services regulation. These reforms will impact a broad cross-section of companies and industries, and may impose additional reporting, transparency and compliance obligations.

What do you envision for the Audit Committee Institute going forward?
We’ve always wanted ACI to provide a forum for audit committee and board members to liaise with their peers, and get insight and perspective as to how people are dealing with common issues and challenges, and to feed that information back into the marketplace. Issues like risk, uncertainty posed by economic and public policy environments, financial statement issues, and interestingly, IT risk – those are some of the issues that audit committee members have highlighted as their most pressing concerns, and that’s what shapes the dialogue at ACI forums.

How do you drive efficiency in the audit process?
Just like companies have to take a hard look at what they do and why they do it, we need to do the same thing from an external audit perspective. How do we enhance the professional communication process with our client? How transparent are we with the audit committee about how we assess risks in the organization and how we’re going to go about doing our work? Are we collaborating with the internal audit group and the finance function to perform our work in the most effective and efficient fashion?

We need to focus on three primary things for our clients:

First, rigorous execution of professional standards – our credibility and the credibility of financial statements depends on it.  Second, timely and proactive dialogue regarding salient risk matters and those other items impacting financial statements and related disclosures. This needs to be an ongoing dialogue. The accounting profession needs to overcome a perception of being stand-offish and dogmatic.  And, third, active analysis of critical judgments and factors impacting the financial statements – we need to understand how management made its judgments and how certain decisions affected the financial statements.

How would you describe KPMG’s business strategy?
Our strategy is very simple. We want to be regarded by our people, our clients and the external constituencies we serve as the very best Big Four public accounting firm.

From an organizational perspective, four priorities underlie our culture:

• Professionalism and integrity. Very simply, do the right thing in the right way—every single day.
• Be an employer of choice. Our people represent our intellectual capital, and we foster an environment where people feel that they have a great place to build a career.
• Quality growth. We want to have the right clients and the right services.
• Think globally and act globally.  It’s one of the things we challenge our people with daily. We operate in the global marketplace and we’ve got to display our global strength and consistency.

Can you talk briefly about your commitment to diversity and why that’s important to KPMG beyond the obvious? And how do you envision your role as head of an 8,000-person audit organization?
We operate in a diverse world. The workforce that we interact with everyday, here at KPMG and at our client organizations, is diverse. For us, diversity is a business imperative and we take it very seriously. We have a proven record of support for diversity initiatives at our firm and in the communities we serve, and we are firmly focused on engaging in even more impactful activities looking forward.

My personal goal is to help our people be more successful every day. How can I help them do better quality audits and deliver an unmatched client service experience? How can I help them grow our business, and how can I help them develop, deploy and inspire our people? I do believe that my role is to make sure that we’re focused on the right things, that our people have the resources, the tools, and anything else they need to serve their clients day-in and day-out.

What do you do when you’re not working?
Well, my full-time job when I’m not working is my family. My wife and I have four children, and we try to spend as much time with them as we can. The kids have an extremely busy schedule, often times every bit as busy as my own. So any chance I get to spend time with them I enjoy it to its fullest.

The handbook focuses on both the role of the individual trustee and the role of the board as a united and functioning entity, outlining the specific skill set and focus that are necessary traits of a successful board. Important tax information is also explained, as well as regulatory and compliance issues.

Click here to read the handbook.

The accounting and audit firm outlines the roles and responsibilities of being a member of a volunteer organization. This handbook, one in a series, includes both advice on recruiting new board members and the role of the board. It covers topics such as liability and accountability, financial stewardship and need-to-know tax information and regulations.

The handbook also offers a step-by-step look at operating procedures for a not-for-profit board on subjects such as information flow, proper meeting prep and board selection. Acting as a unit, each board member fulfills several functions, and demands on the board members of not-for-profit organizations are mounting.

Grant Thornton’s handbook  is designed to help board members understand these demands and the ways to meet them.

Click here to read the not-for-profit board member handbook.

In March, the SEC announced it was charging the former audit committee chair, Vasant Raval, of infoGroup Inc. and three former executives with securities fraud and securities law violations.  The SEC stated Raval had improperly conducted an internal investigation at infoGroup and, as a result, infoGroup had filed financial statements with the Commission that were materially misstated.

Raval’s travails contain numerous lessons for boards and audit committee chairs.  Though Raval may have been an extremely qualified individual in other ways, his actions demonstrate that he did not properly oversee an internal investigation.  Moreover, while the issues surrounding infoGroup and its board relate specifically to an internal investigation of fraudulent transactions, the lessons learned from infoGroup’s troubles are applicable to a diverse array of internal investigations, and can provide practical guidance for board members regarding internal investigations.

Background

On March 15, 2010, the SEC announced it had charged the former CEO, CFOs, and audit committee chair of infoGroup, a publicly-traded $500 million marketing company, with securities fraud and other securities law violations.  According to the SEC, former infoGroup CEO Vinod Gupta, “directed [infoGroup] to pay him approximately $9.5 million of unauthorized and undisclosed perquisites” from 2003 through 2007, including “personal use of corporate jets; costs associated with a yacht, homes, automobiles, and life insurance policies; personal credit card expenses; and club memberships and related costs.”  Gupta also “entered into related party transactions totaling approximately $9.3 million with two entities which Gupta controlled, and one entity with which he was affiliated, without disclosing the transactions in infoGroup’s public filings with the Commission.”

Gupta’s actions were brought to Info’s board, who then tasked Info’s audit committee chair, Vasant Raval, with leading an internal investigation in late January 2005.  The board asked Raval to report back “before the company filed its 2004 Form 10-K and proxy statement in March 2005.”  Raval, however, made numerous missteps in the conduct of his investigation.  According to the SEC:

• Raval found insufficient documentation and explanations related to some of Gupta’s expenses.

In spite of this lack of documentation, Raval failed to further investigate Gupta’s expenses.

• Raval received communications from Info’s director of internal audit questioning the nature of related party transactions pertaining to Gupta.  Raval assured the director of internal audit that he would discuss her concerns with Gupta, though he subsequently had no such discussions.
• Raval’s report to the board, issued on February 8, 2005, did not discuss that Raval himself was aware of insufficient documentation pertaining to Gupta’s expenses.
• In the summer of 2005, a new director of internal audit at infoGroup raised concerns about Gupta’s expenses.  However, Raval did not bring these concerns to the board.

Because of these actions (or, in some cases, inactions), the SEC charged Raval with numerous securities law violations.  In connection with these charges, Raval agreed to pay a $50,000 penalty and “consented to an order barring him from serving as an officer or director of a public company for five years.”  InfoGroup’s CEO was also required to pay a total of $7 million in fines and penalties and consented to an order forbidding him from serving as a director or officer of a public company.

Lessons for Boards and Directors
The charges and penalties faced by Raval highlight an overarching lesson for directors and the boards on which they serve:  financial and accounting expertise do not necessarily portend an ability to conduct an internal investigation. While Raval may have been an extremely qualified director in many areas, his actions evidence that he was not an expert in internal investigations.  They also provide numerous additional lessons for directors related to internal investigations.

First and foremost, the situation at infoGroup highlights the need for boards to develop a preliminary action plan for internal investigations—even before the requirement for an investigation arises. While the investigation conducted by Raval was related to the fraudulent nature of transactions, a preliminary action plan can be valuable in many different types of investigatory settings, including those related to environmental, operational, and fraud-related liabilities.  As such, directors should formulate preliminary plans for these types of events and/or other prominent liabilities that pose a reputational risk to the company.

By possessing a preliminary plan, directors can move swiftly in commencing the internal investigation and also help it move along efficiently.  Key elements of a preliminary plan might include:

• A list of trusted external firms and counsel whose services might be useful in the investigation.  This list might include potential external counsel as well as forensic experts.  These firms and their personnel should be vetted by board members so that they can be quickly engaged in the event of an internal investigation.
• A general procedure describing the manner in which an internal investigation will be conducted along with the personnel involved.
  • This plan would describe whether a special committee of the board would be formed as well as identify potential individuals who could lead the investigation.
  • It might also specify the frequency with which board meetings will be held in the event of an investigation and the manner in which these meetings would be conducted.

When the need for an internal investigation arises at the board level, this preliminary action plan can be quickly developed into a complete document outlining the manner in which the investigation will be conducted.  Key internal and external persons will have already been identified and vetted; they can be quickly assembled to devise a more complete action plan.  For example, in the case of an operational liability, such as a product recall, a preliminary plan might include a list of external engineering and validation firms that the company could call upon; a list of potential outside counsels that could be used; key contacts from each external firm; a list of internal personnel who could lead and participate in the investigation; and a procedural outline of how the investigation should be conducted.  Once the need for an investigation arises, the preliminary plan would be modified to include specific details of both internal and external individuals and firms selected to participate in the investigation as well as chair the investigation.

Second, no matter the thoughts regarding the size and scope of an internal investigation, board members should ensure that in-house or external counsel is involved. Counsel can appropriately advise the board on the proper manner to inform corporate insurers; review the company’s charter, bylaws and state employment regulations to develop an understanding of the company’s obligations for indemnification; and, help conduct a confidential investigation that is governed by the attorney-client privilege.

While internal investigations are almost always conducted, in part, by in-house personnel, it is generally important for directors to hear an independent voice on the matter from a third party.  Using in-house personnel can help the company control costs of the investigation and allow personnel intimately connected with the company to work on the investigation; however, employees’ familiarity with in-house personnel can also work to the detriment of an internal investigation.  Employees may be uncomfortable sharing information with people they know.  In some instances, members of the in-house investigation team may have been former co-workers of potential employee witnesses. This familiarity may preclude witnesses from speaking openly and candidly.  They may also have reservations about the confidentiality of information they might potentially share with an in-house investigator.

In contrast, third-party experts can provide a company with an independent view of the internal investigation.  These experts may specialize in internal investigations and, as such, may have more intimate knowledge of the laws and regulations surrounding investigations than in-house personnel.  Furthermore, use of third-party experts may be viewed more favorably with prosecutors and regulators due to their independence and appearance of propriety. However, in using third-party experts, companies must ensure confidentiality is maintained throughout the course of the investigation and after its conclusion.

Third, developing a formal investigation plan requires input from counsel and as well as a thorough understanding of all available facts by numerous individuals.  The development of an investigation plan and oversight of the investigation should involve multiple board members as well as legal counsel; one board member should not be given this task alone, as was the case with infoGroup.

Work plans should clearly articulate the scope of the internal investigation, the personnel (both internal and external) involved in its execution, the methods investigators plan to use in conducting the investigation, the form of the deliverable that will be presented upon the investigation’s completion, and a list of individuals who will present the results of the investigation to the board.  Work plans should be flexible in order to allow investigators sufficient time to investigate new leads and tie up loose ends.  If the investigation is forced to conclude before sufficient evidence is collected and analyzed, the company’s reputation may still hang in the balance.

In the case of infoGroup, the timetable and tasks presented by the board to Raval were aggressive.  One could argue that the board did not provide Raval enough time to conduct an “in depth” investigation:  he was charged with leading an investigation on January 27, 2005 that was supposed to conclude in March 2005.  In less than one month of time, Raval was required by the board to uncover all the facts surrounding Gupta’s expenses, examine these facts, opine on them, and generate a report to the board.

Moreover, it appears the board did not assist Raval in obtaining internal or external personnel to assist him with the investigation; he was left to his own devices in carrying out the investigation, a nearly insurmountable task for even the most experienced audit committee chair. Securities laws compel public companies to provide funding for advisors retained by the audit committee in instances such as internal investigations.  However, while funding apparently existed to assist Raval in his investigation, it appears he did not ask for the support necessary to carry out his investigation.

Despite the fact that Raval stated his report was the result of an “in-depth investigation,” Info’s board should have known that a report issued just 12 days (8 business days) after a launched investigation would more than likely not contain detailed or substantive findings—especially when the investigation was conducted by a single person.  Nonetheless, the board apparently accepted Raval’s report as evidence that a detailed investigation had taken place, and that it had been presented with a complete inventory of facts uncovered in the investigation.  Additionally, by tasking Raval with overseeing the investigation on his own, his interpretation of the facts was left unchecked by other individuals.  He acted as the lone filter to the board, able to select information for presentation at his own discretion.

In general, while one individual may lead an internal investigation, its results should be presented to the board by no less than two individuals who do not work side-by-side on a daily basis.  For instance, an audit committee chair could present the results of an investigation in conjunction with an in-house or external counsel.  Or, because they do not work together on a daily basis, the results of an investigation could be presented by a special committee of the board to the board as a whole.   In some instances, it may be beneficial to have the results of an internal investigation presented by personnel who are both internal and external to the company.  This practice can help board members gain confidence that evidence was collected and reviewed in an unbiased manner.

Lastly, Raval’s actions highlight the importance of internal audit reporting best practices documented by the AICPA.  By reporting to a single person, as in the case of infoGroup, an internal auditor’s findings can be inappropriately filtered, leaving the board potentially uninformed on crucial issues. Best practices, however, including those contained in the AICPA’s book The Audit Committee Toolkit, state that chief audit executives should report to the entire audit committee.  Audit committee members are required by securities laws to be “independent.”  While the board itself may contain non-independent directors, such as the CEO and CFO, the audit committee must be comprised entirely of independent directors and led by an individual with financial expertise.  By reporting to the audit committee and not the board as a whole, opinions expressed by the chief audit executive will be heard by a committee of individuals who are entirely independent from the company itself.

Conclusion
The recent SEC actions against executives and the audit committee chair of infoGroup highlight numerous lessons learned for directors: 1) boards should develop a preliminary plan for internal investigations prior to the need for such an investigation; 2) internal or external counsel should always be involved in an internal investigation; 3) development of an investigation plan should include oversight from at least two independent board members in conjunction with counsel; and, 4) the chief audit executive should report to the entire audit committee.

The actions of infoGroup’s audit committee chair not only harmed the company’s reputation, but also prevented the company from effectively containing the problem in an efficient manner.  Raval’s actions did not afford the board a chance to understand the full extent of CEO Gupta’s actions, and potentially subjected infoGroup to repeated harm when such harm could have been prevented.  However, directors can learn many lessons from Raval’s mistakes, including that internal investigations require experienced personnel oversight for proper execution.

Harry Cendrowski is a founding member of Cendrowski Selecky, Cendrowski Corporate Advisors and The Prosperitas Group. Contact him at hc@cendsel.com.

Jim Martin specializes in providing comprehensive risk assessments at Cendrowski Selecky, focusing on the evaluation of operating effectiveness of business processes and the internal control structure, and the development of recommendations for improvement. Contact him at jpm@cendsel.com.

Companies with revenues between $100 million and $250 million enjoyed an average 8 percent decrease in audit fees from 2007 to 2008, while those with revenues of $250 million to $500 million experienced a drop of 5 percent, according to a recent study published by CFO magazine.

For audit committee members, who bear the responsibility of selecting and monitoring a company’s audit firm, this is welcome news. But the fluctuation in fees also creates the need for them to a gain a better understanding of what they are paying their auditors to review their finances and why. “It’s a good idea for audit committee members to get a better feel for what they are paying compared to similar companies,” says Cynthia Jamison, national director of CFO Services at Tatum, who also chairs the audit committees at Tractor Supply Co. and Cellu Tissue Holdings. Audit committee members should also look out for audit firms that come in with a low bid to win the business and then slowly inch up rates. A periodic review of audit costs can protect against such practices.

The current softening in the market for accounting services is largely the delayed reaction to a rule change from the Securities and Exchange Commission a decade ago. In 2000, prompted by concern over the growing proportion of auditor fees derived from consulting, the SEC required that companies begin disclosing all payments made to their auditors in the annual proxy statement. While the effects of that rule were masked by the initial increased audit requirements of SOX, that transparency in fees gave audit firms more information to underbid existing audits. Now that the SOX has become de rigueur the effects of price transparency are driving audit fees lower.

Another factor contributing to the decline in audit fees is an increased willingness on the part of companies to replace their audit firm, increasing competition. In some ways, the negative perception associated with the announcement of a change in auditors has diminished. Before SOX, a change in auditor could be a red flag to shareholders that something was amiss with the finances. While that concern isn’t gone completely, companies feel more comfortable changing auditors, especially if they can justify it with a savings in audit fees. “It used to be that companies were afraid to change auditors because of the signal it sent [to shareholders]. While companies still need to be careful about making a change, there is less of the stigma than it was before, as long as they can explain why they are making a change,” says Blythe McGarvie, who sits on the audit committee at Viacom. Given the current state of the economy, lower costs are an increasingly acceptable reason.

Certainly, changing auditors is a decision no audit committee takes lightly. To increase the information at hand, many governance experts suggest that boards should conduct benchmarking to see how their auditors stack up. The same rule from 2000 that brought more transparency to audit fees makes it easier for companies to compare their fees with similar companies. “Your obligation as an audit committee member is to get the best work for the best fee,” says Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, and a member of the audit committee at HealthSouth. “Auditors need to charge a responsible fee for the services they provide,” he says.

As a result of the past recession, finance departments have been looking at any opportunity to tighten the belt and more recently, the audit has come under scrutiny as a possible place to cut costs. While companies are not required to disclose why they are changing their auditor, some accounting experts suspect that many of the recent changes are due to the fact that filers are negotiating a better deal with another firm. If so, it would stand in sharp contrast to the period just after SOX was passed when many auditor changes were the result of audit firms dumping risky clients.

By the Board
In large part, much of the audit shopping has been driven by the finance department. In fact, during an April meeting of PCAOB’s Standing Advisory Group (SAG), Lynn Turner, former SEC chief accountant, suggested that in many cases, it was CFOs that effectively were doing the hiring and firing rather than the audit committee, creating a high-risk area. This is cause for alarm for many audit committee members. “It’s very clear that it is up to the audit committee to shop the audit and not the finance department,” says Elson. “While audit committees want input from the finance department, it would be troubling if they are the ones that are driving the process.”

While it’s clear that audit committee members bear the responsibility of making key decisions on whether to make a change in auditor, they also have a responsibility to monitor the current audit firm. According to Ruth Aguilera, a professor at the University of Illinois who specializes in corporate governance and accounting, increased scrutiny of audit committee members resulting from recent scandals in the financial services sector has pushed them to reevaluate their choice of auditor. “There is a lot of scrutiny on their decisions these days and they want to make sure they can back those decisions up. Having more data from activities like benchmarking makes it easier for them to justify the end decision,” says Aguilera.

According to Jamison, many audit committees conduct informal benchmarking of audit fees by making comparisons with what other companies pay, based on the experience of board members who serve on other boards. “If it seems out of line, you need to push back,” she says. Jamison doesn’t go as far as to say that the audit has become a commodity, but she does say that there is less differentiation among the firms. “There is not a huge amount of difference among the big firms, unless there are industry specific specialties,” she says. “Price is not the top differentiator, but it has gotten more important.”

A recent study by the University of Illinios’ Aguilera shows that three factors drive audit costs: the company’s size; the complexity of the business–especially the number of offices or units overseas–and the inherent risk associated with the business. For these reasons, she says benchmarking inside your own industry may not provide the best comparisons. When choosing a peer group to conduct benchmarking, Aguilera says audit committee members will want to look at these factors.

New services are becoming available to help audit committees benchmark audit fees. One application, CFO Audit Fee Report will generate a customized, downloadable analysis. The report automatically identifies outliers that can skew results and are normally hidden among multiple filings, including restatements, management- or auditor-reported control failures and auditor changes.

How Low Is Too Low?
Benchmarking audit fees makes sense even for companies that aren’t looking to get a better deal on audit fees. Why? Because paying too little for the audit can be just as bad as paying too much. Of course, some audit committee members are uneasy about the idea of comparison shopping among audit firms. “There are better places to look for cost savings than on the audit,” says Elson. But audit experts say that the idea is not to squeeze auditors to get the best price, but rather to ensure that your audit fees are not an outlier with a comparable peer group. “This is one of the cases where you want to be on the fairway. You don’t want to be paying too much or too little,” says Jamison.

“You want to be in the ballpark,” agrees Aguilera. “If you are paying too little, shareholders will worry that you aren’t getting a quality audit. Pay too much and they worry that you are paying for other services and that the auditor has an incentive to be kind when conducting the audit.”

Indeed, paying too little for an audit can be worse than paying too much. “Money spent on the audit is money well spent. You have an obligation to shareholders not to waste money, but the risk of an improper audit far outweighs the benefits of cost cutting,” says Elson. It could also draw the scrutiny of regulators. During the PCAOB SAG meeting, members suggested that the decline in audit costs could be a troubling trend, and that PCAOB inspectors may consider fee reductions as a potential audit risk when determining which firms to scrutinize.

“Don’t be pennywise and pound foolish” advises McGarvie. She says audit committee members should spend more time communicating with their auditor about what they are paying for. “There is a saying among CFOs: ‘beware of the profits you don’t understand more than the losses you do.’ In this scenario, beware of the services you don’t understand more than the costs that you do.”

But just because companies are getting a good deal on the audit fees doesn’t necessarily mean that they are getting a low-quality audit. According to the University of Illinois’s Aguilera, there is no correlation between what companies pay for the audit and the quality of the audit they get. “The data suggests that companies that pay more don’t have better results, it is usually a factor of more complexity and risk,” she says.

While many audit committee members say that fees shouldn’t be the driving factor in making a change in auditor, they agree that it is something they should all have a solid grasp on. Says McGarvie: “It makes sense to look at what others are paying, but you have to review that in context of the overall service the auditor provides and the relationship you have with them.”

Benchmarking Audit Fees Made Easy
Do you know how your audit fees compare with those of companies like yours? A new online application from CFO.com provides a fast and accurate way to benchmark your audit fees against what your peers paid, over a three-year period.

Type in your company name (or industry and revenue size) to generate a peer group and, for a fee, the CFO Audit Fee Report will generate a customized, downloadable analysis. The CFO Audit Fee Report automatically identifies outliers that can skew results and are normally hidden among multiple filings, including restatements, management- or auditor-reported control failures, and auditor changes.

The report allows you to view the full list of companies and auditors in your peer group before you finalize your purchase. The final report includes the following:

Summary: Provides an immediate benchmark of what your company pays and how it compares with your selected peer group

Adjustments for Outliers: Analyzes how outlier events affect audit fees within your industry and peer group; provides a summary of outliers within your peer group; and allows you to exclude or include outliers from your overall analysis

Auditor Analysis: Analyzes what each auditor charges the companies in your peer group and how much those fees varied; estimates what each firm hypothetically would charge your company; and shows you each auditor’s market share within your peer group

Complete Data: Provides a complete list of the companies in your peer group, their individual audit firms, fees, and additional data used in the report analysis. CFO sources its data from Audit Analytics, a leading provider of audit-fee information.

Joseph McCafferty is a freelance writer and former editor of Directorship magazine.

A report from Ernst & Young highlights the forces that have been driving unprecedented change in the global tax landscape–and the impact that resulting increases in tax controversy and risk management are having on companies.

In preparing it, leaders from EY’s Global Tax division drew upon the firm’s global tax policy and controversy network, their dealings with many of the world’s leading businesses, exclusive EY interviews with many of the leaders of tax administrations around the world and independent surveys.

Download a PDF of the complete report: Tax Administration Without Borders

“All parties involved in the financial reporting process need to continue to focus on ways to prevent, deter and detect fraudulent financial reporting,” COSO Chairman David Landsittel said. “COSO plans to sponsor additional research on fraudulent financial reporting, as well as the development of further internal control-related guidance to assist those involved in the financial reporting process.”

Some key findings:

• Financial fraud affects companies of all sizes, with the median company having assets and revenues just under $100 million.
• The median fraud was $12.1 million. More than 30 of the fraud cases each involved misstatements/misappropriations of $500 million or more.
• The SEC named the CEO and/or CFO for involvement in 89 percent of the fraud cases. Within two years of the completion of the SEC investigation, about 20 percent of CEOs/CFOs had been indicted. Over 60 percent of those indicted were convicted.
• Revenue frauds accounted for over 60 percent of the cases.
• Many of the commonly observed board of director and audit committee characteristics such as size, meeting frequency, composition, and experience do not differ meaningfully between fraud and no-fraud companies. Recent corporate governance regulatory efforts appear to have reduced variation in observable board-related governance characteristics.
• Twenty-six percent of the firms engaged in fraud changed auditors during the period examined compared to a 12 percent rate for no-fraud firms.
• Initial news in the press of an alleged fraud resulted in an average 16.7 percent abnormal stock price decline for the fraud company in the two days surrounding the announcement.
• News of an SEC or Department of Justice investigation resulted in an average 7.3 percent abnormal stock price decline.
• Companies engaged in fraud often experienced bankruptcy, delisting from a stock exchange

Click here for the full report.

We know that cash is the lifeblood of business; recent events have amplified this axiom. Over the last few years, we have seen many companies operate with insufficient liquidity to handle shifts in their business or the economy. As the U.S. government attempted to infuse cash into the system to indirectly help these companies, many lenders were using the cash to shore up their own balance sheets. While some companies have cut back on their requests for capital during this time, others have continued with their plans to raise capital in the near future.

We wanted to learn more about the methods some companies are employing to raise needed capital and how other companies can improve their rate of success. This research and resulting report, “Raising capital in the current credit markets,” was undertaken by Financial Executives Research Foundation, Inc. (FERF) in association with Grant Thornton LLP. The results and analysis herein are based on data collected in late 2009 using a brief 14-question online survey of more than 250 financial executives, and on individual interviews with executives of companies that are seeking capital and with investment banking firms, merchant bankers, and economic development organizations that provide or arrange capital.

Executive Summary from a special white paper prepared by Grant Thornton titled “Raising Capital in the Current Credit Markets.

Some key findings of the survey include the following:

• 44 percent of respondent companies attempted to raise capital by renewing existing debt agreements.

• Almost half (48%) of survey participants believe that amounts being lent have decreased.

• Just over half (55%) of respondents feel that interest rates on borrowing have increased, while nearly one quarter (24%) felt they have decreased.

• 66 percent of respondent companies believe that current regulatory reform proposals, including taxing financial transactions, will increase costs and move capital flows overseas.

In order to learn of the obstacles they face, we interviewed financial executives of companies that are seeking capital. To provide insights to help them overcome these obstacles, we also interviewed executives of companies that provide or arrange capital for their clients. While each company’s experience is unique, some consistent themes arose:

• Be aware of what is happening in the credit and equity markets, even if your company is not distressed or seeking immediate capital.

• Enhance the information your company communicates to lenders.

• Be prepared and ensure that your company’s financials are in order.

Click Grant-Thornton-Raising-Capital-May-2010 to read the full report.

This article was written by Laraine Rothenberg, Amy Blackman, Todd McCafferty, Rachel Posner and Deborah Lifshey.

Stockholders and company management are finding stock option exchange programs more appealing than in the past due to changes in the manner in which options are exchanged. Previously, “one-for-one exchanges,” which involve reducing option exercise prices or substituting new options for underwater options on a one-for-one basis, were more common. However, this type of exchange created a host of problems and ultimately became the subject of significant scrutiny from institutional shareholders and stock exchanges. Now, “value-for-value exchanges,” where new options are exchanged for old underwater options based on the value, often calculated under Black-Scholes, of the underwater options being canceled, have become more popular, as evidenced by exchange programs recently instituted or announced by several public companies.

Stock option exchange programs are often preferable to granting new options in addition to previous grants. First, underwater options exchanged for new options are canceled, resulting in no (or limited) shareholder dilution. Second, if a company merely granted new options without canceling underwater options, both the new options and the underwater options held by certain executives would need to be disclosed in proxy compensation tables, inviting potential confusion over the level of executive compensation.

Companies considering an option exchange will need to determine the structure and terms of the exchange offer, including the number and type of options to be exchanged, whether directors and executive officers will be eligible to participate in the offer and whether restricted stock will be exchanged for all or a portion of the underwater options. Companies will also need to establish the terms and exercise price of the replacement options and whether the canceled underwater options will be available for future issuance. If non-US employees are eligible to participate, companies should also consider applicable foreign legal and regulatory requirements.

In considering whether an option exchange program is an appropriate and effective means of aligning the interests of a company’s employees and its shareholders, a company should first consider the legal, tax, and accounting implications, as well as the rationale, terms, structure, and optics of the exchange. It should also conduct a diagnostic to assess whether there is sufficient reason for the exchange and whether the exchange is practical given the particular facts specific to the company. Many of these issues are especially relevant for option exchange programs that require shareholder approval, as these programs will be closely scrutinized by institutional shareholders and proxy advisors.

Legal Considerations
Tender Offer Rules
Value-for-value exchanges require that participating employees make an investment decision to “tender” one option award in exchange for another option award with different terms (such as a different number of options, different strike price and/or different vesting schedules). Accordingly, this type of exchange is deemed a “tender offer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and must generally comply with the requirements of Rule 13e-4 under the Exchange Act, including a requirement that the offer remain open for at least 20 business days. Under a global exemptive order issued by the Division of Corporation Finance of the Securities and Exchange Commission (“SEC”), most option exchange programs have been granted limited relief from the “all holders” and “best price” rules.

Specifically, the company must file a Schedule TO with the SEC in connection with the commencement of the offer. The Schedule TO must include a detailed summary of the terms of the exchange offer. In addition, any communications in connection with the offer must be promptly filed with the SEC (generally on the same day the communication is first disseminated). Oral communications may need to be reduced to written form and filed if they contain material information that is not already on file with the SEC.

Disclosure Requirements
As discussed below, disclosure requirements may arise in connection with an option exchange program both before the program is implemented, in the event shareholder approval is required and after the program has taken place, particularly if the company’s named executive officers participate. First, under requirements imposed by the stock exchanges and the terms of the particular stock option plan, many companies will be required to obtain shareholder approval in order to initiate an option exchange program, in which case the company must comply with the SEC’s proxy rules. In that case, the company will be required to file a preliminary proxy statement with the SEC disclosing the proposed terms and rationale for the option exchange program. The preliminary proxy statement will be subject to review and comment by the SEC staff before it is disseminated to stockholders.

Second, once the exchange offer is completed, additional disclosures may be required in future proxy statements. Specifically, the Compensation Discussion and Analysis section of the proxy statement will need to discuss any participation by named executive officers in the exchange. In addition, the Summary Compensation Table and Grants of Plan-Based Awards Table must discuss and disclose the incremental fair value of repriced awards granted to named executive officers.

The Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 (formerly, FASB Statement 123R) (“Topic 718”) requires additional disclosure following completion of an option exchange program. Topic 718, which governs the accounting treatment of stock options (discussed below), requires that exchange programs be described in footnotes to the financial statements. The footnote disclosure must include the terms of the program, the number of participating employees, and any incremental compensation cost recognized as a result of the program. This disclosure obligation continues for as long as the expense is recognized.

Finally, for employees subject to Section 16 reporting, both the cancellation of underwater options and the new option grant must be reported on a Form 4.

Accounting and Tax Considerations
Topic 718: Valuation of Stock Options
Topic 718 treats a stock option exchange as a “modification” to the existing stock option and requires a comparison of the fair value of the stock option before and after the modification to determine if there is any increase in value of the stock option. If there is an increase, an accounting charge must be taken. Value-for-value exchanges are structured to avoid this charge.

Section 409A of the Internal Revenue Code: Nonqualified Deferred Compensation
Under Section 409A of the Internal Revenue Code of 1986, as amended, which imposes an excise tax with respect to certain nonqualified deferred compensation, an option exchange is treated as the equivalent of a cancellation of the outstanding options and a new grant. As long as the new option exercise price is equal to or greater than the current fair market value of the underlying stock, there should be no Section 409A implications. However, if an option undergoes a series of repricings, rather than just one, it could indicate for Section 409A purposes that the exercise price was never fixed at the time of grant and the repricing would therefore no longer be exempt from Section 409A, potentially resulting in a substantial excise tax.

Incentive Stock Options
Under the Incentive Stock Option (“ISO”) rules, an option exchange is also considered a cancellation coupled with a concurrent grant. This would trigger the recalculation of the $100,000 limitation on ISOs and the two-year holding period would restart from the time of the new grant. Also, if the offer to reprice an ISO is outstanding for more than 30 calendar days, the ISO is deemed to have been modified as of the offer date. This could result in the disqualification of ISOs held by employees who do not participate in the exchange.

Shareholder Approval
Under New York Stock Exchange (“NYSE”) and NASDAQ rules, a company must obtain shareholder approval of an option exchange program unless the company’s option plan expressly provides for repricings. It is rare for option plans to include such a provision and the requirement to obtain a shareholder vote can present a significant challenge to crafting and implementing an option exchange program. Moreover, even if a vote is not technically required, conducting an option exchange program without shareholder approval could lead to the possibility of a “withhold” recommendation from RiskMetrics Group (formerly ISS) on the company’s compensation committee members in the future.

When seeking shareholder approval to satisfy the NYSE and NASDAQ rules, companies should consider whether their shareholders would ultimately support an option exchange program. A company should have a clear understanding of its shareholder base and how certain key shareholders have historically voted. It may be useful for the company to retain a proxy solicitor in order to facilitate an effective campaign. Institutional investors and others often look to proxy advisors such as RiskMetrics Group for insight in determining whether to support a proposal. Companies should seriously consider the form of their exchange program and provide clear reasons for its implementation.

Although RiskMetrics Group approaches management proposals on a case-by-case basis, they have outlined the considerations they use in determining whether to recommend a vote for or a vote against an option exchange program. Some of their primary concerns relate to:

• Whether executive officers and directors are excluded from participation and the various levels of employees who would be eligible to participate in the program.
• The historic trading patterns and volatility of the stock price. Underwater options should not likely become in-the-money in the short term. As a rule of thumb, the threshold exercise price for eligible options should be the higher of the 52-week high or 50 percent above the current stock price. As a result, only deeply underwater options are eligible for the program.
• The rationale for the repricing and whether the stock price decline was due to conditions beyond management’s control or as a result of poor management policies.
• The intent and timing of the exchange program, such as the length of time the options have been underwater.
• Whether to exclude certain underwater options (for example, options granted within two years of the proposed exchange or options with an exercise price below the 52-week high of the company’s stock price).
• The characteristics of the replacement options, such as whether there are new vesting schedules, whether the new terms differ from the replaced options terms, and whether the exercise price is set at fair market value or at a premium to the market.
• What happens to the surrendered options and whether they are canceled or returned to the plan reserve.

Management should take all of these factors into account when crafting an option exchange program to increase the likelihood that proxy advisors will support their proposal.

Practical Considerations
While option exchanges can renew the vitality to a company’s equity compensation program, there are important issues that must be considered. First, exchange programs may undermine pay-for-performance principles. They also contradict the premise that employee and shareholder interests are aligned in long-term wealth creation, and may be viewed as poor governance and a breach of shareholder trust. It may even suggest a lack in faith in the company’s future value. Ultimately, shareholders will consider these issues as most exchanges will be submitted for shareholder approval. Aside from optics, companies must consider the monetary costs of conducting the exchange – the tender offer process, for example – as well as the time and effort of various employees and outside advisors to complete the transaction.

As the costs associated with an exchange may be high in terms of money, time and optics, companies should carefully consider whether an exchange program is necessary and appropriate to meet their needs. Exchange programs are most appropriate in environments where one or more of the following factors exist:

• The right employees would be motivated and retained – if the goal is to motivate/retain only officers and directors, who may be required to be excluded if RiskMetrics Group’s approval is important, an exchange may not be effective;
• Stock price is significantly down and not expected to recover soon, as option holders will receive a windfall if there is a “pop” following an exchange;
• A determination is made that the company must provide some value through the options in order to motivate employees to help get the company back on track and retain employees who have other viable employment opportunities;
• Employees hold a number of underwater options such that the exchange would have an important impact on motivation and retention;
• Dilution is high and the company has insufficient shares available to make new equity grants; and
• Underwater options are “inefficient” because the value perceived by holders is considerably less than the accounting expense.

In addition, once the exchange is completed, the job is not complete. Companies must continue to monitor the design and mix of ongoing compensation programs in light of the newly revitalized equity to ensure retention and incentive objectives are being met effectively and in an appropriate manner.

Closing
Stock option exchanges can be a useful and effective tool in maintaining equity-based incentive and retention programs following significant declines in equity value resulting from broad market trends. While securities law requirements, accounting concerns, tax considerations and the need to craft a program that is acceptable to shareholders all must factor into a company’s decision-making process, these obstacles are not insurmountable. If a company sets clear and reasonable objectives and plans in advance in consultation with its legal counsel and other advisors, it is possible to implement a successful option exchange program as a cost-effective means of helping to align the interests of a company’s employees and shareholders.

Laraine Rothenberg is a partner and chair of Employee Benefits and Plans, and Executive Compensation Department, and Amy Blackman and Todd McCafferty are associates, at Fried, Frank, Harris, Shriver & Jacobson LLP. Rachel Posner is senior managing director and general counsel at Georgeson, and Deborah Lifshey is managing director at Pearl Meyer & Partners.

There is a good likelihood that the PCAOB will replicate its prior behavior and adopt (or approve something similar to) the new audit standards, making them applicable to public company audits.  Further, major thrusts of the new audit standards are (i) to highlight the role and responsibility of management in the preparation of an entity’s financial statement and (ii) to encourage communication between the auditors of an entity and those charged with corporate governance.  It is inevitable that there will be extended, and more meaningful, discussions on a myriad of topics that are closely related to the entity’s financial statements.  Given this inevitability, it behooves directors to familiarize themselves with the more-interactive environment they are likely to encounter in the near-term future, since it will interwoven with the question of whether the directors have successfully discharged their fiduciary responsibilities.

The Genesis of Current Accounting Standards
The primary responsibility for generating auditing standards has fallen upon the American Institute of Certified Public Accountants (AICPA), since its predecessor American Institute of Accountants was appointed to that task by the Federal Reserve Board in 1917.  Since 1978, that task has been the province of the Auditing Standards Board (ASB), which is the senior technical committee of the AICPA. Over the years, the ASB and its predecessors have generated 120 Statements on Auditing Standards, which are included in the Codification of Statements on Auditing Standards and have come to be known as Generally Accepted Auditing Standards (GAAS).

By virtue of the Sarbanes-Oxley Act of 2002, the PCAOB assumed the responsibility for promulgating auditing standards relating to the financial statements of public companies.  With some exceptions, the PCAOB has adopted the pre-existing GAAS as its own.

The Need to Change Auditing Standards
An event that caused the ASB to decide to overhaul its auditing standards was globalization.  As entities become more multi-national, their various components became subject to the accounting and auditing rules of different jurisdictions.  In an attempt to address this hodge-podge, the International Auditing and Assurance Standards Board (IAASB) began to develop standards that it hoped would be applicable worldwide.  The AICPA, however, did not think it appropriate to blindly adopt auditing standards promulgated by an entity that lacked the background to fully understand the development of American audit standards.  Thus, the ASB was asked to converge U.S. GAAS with the international standards being developed to the extent possible so the two standards would be more consistent while allowing for divergence where appropriate.

Since a rewrite was necessary, the ASB decided that the rewrite should also include the concept of clarity.  As 120 standards had been developed over the years by different sets of people, it was felt that an overhaul, including the use of simpler language, would provide a more unified structure that was easier for an auditor to understand.

Also bearing directly on the clarity aspect of the project was the fact that the language used in the standards sometimes obscured the difference between mandatory requirements and applicable guidance.  Thus, the new standards were written in such a way as to clearly distinguish between the two.

By way of example, a comparison of the related parties standard is instructive.  The current standard, promulgated is 1983, is twelve paragraphs in length and it is accompanied by several auditing interpretations generated since.  The PCAOB standards are a virtually verbatim adoption.  By contrast, the proposed new standard is twenty-seven paragraphs in length, accompanied by 52 more paragraphs of applicable guidance.  As one might imagine, it is both more comprehensive and more specific.

The Roles of Those Charged With Governance
It has always been the auditor’s mantra that an entity’s financial statements are the primary responsibility of corporate management.  This makes perfect sense since the management chooses the accounting, develops applicable policies, hires the personnel to implement those policies, establishes and maintains internal controls and then supervises compliance.  While management responsibility is the basic premise on which an audit is conducted, mention was only sporadically made in GAAS since the focus was primarily on the auditor.  This has now changed.

The 10 bedrock auditing standards, which have been in existence over half-a-century, and which made no mention of management responsibility, will soon be extinct.  They are replaced by a Preface to the new Codification which in its second-numbered paragraph has a detailed explanation of why management responsibility is a basic audit premise.  Previously, the auditor was encouraged to discuss management responsibility before taking on an audit; now, the management’s acknowledgment of its responsibilities is a mandatory part of an engagement without which an audit cannot be undertaken.  The standard auditor’s report, which formerly made a generalized reference to management responsibility, will soon have a detailed explanation for the benefit of recipients.

In addition to this intensification of focus on management responsibilities, the new standards are rife with provisions encouraging a dialog (and sometimes providing a script) between the auditors and those charged with corporate governance, whenever certain issues arise.  Again illustrative is the proposed related party standard.  The basic premise is weaved into one of the application paragraphs, with an explanation as to why the premise is particularly important in the related party context.

How Changes Will Affect Outside Directors
The outside director will approve an audit engagement that acknowledges the role of management in the preparation of financial statements, and will receive an audit report that describes that role at length.  It will be impossible for that director to say, with any degree of plausibility, that he/she has no understanding of what that role might be.

Instead, that director would be best served by asking both management and auditor their respective understandings of that role, what policies, procedures, and internal controls are designed to assist in that role, and how well management is meeting those responsibilities.  Any unsatisfactory or inconsistent answer should be followed up, and a concise record should be made of the inquiries and responses to minimize future questions as to whether the directors had fulfilled their fiduciary responsibilities.

Similarly, the increased emphasis on communication between the auditors and those charged with corporate governance will undoubtedly result in more such communications.  As the ultimate stewards of the business entity, the directors can only discharge their fiduciary responsibilities by paying close attention to these discussions, resolving any issues that arise, and keeping a careful record of what has transpired.

Of course, one might say that a careful director would do all these things under the present standards, and one would be right.  The difference under the new standards is that these circumstances will arise more often.  The director should anticipate this development and decide what types of issues should be addressed, after consulting with counsel and consultants as appropriate.  The minefield of compliance with fiduciary responsibilities will be tricky and it is best to negotiate it with experienced assistance.

And properly addressing the issues that will be raised is important.  Obviously, it is important from a litigation possibility perspective and from the perspective of discharging fiduciary obligations; but it is also important from the perspective of fostering better management performance and more reliable financial statements.

Anthony Costantini, a New York-based partner of the law firm of Duane Morris LLP, recently completed a three-year term as a public member of the Auditing Standards Board.

The Basic Blocking and Tackling
Understand how the financial reporting works. This includes meeting key individuals in the finance department, understanding critical accounting policies and ensuring that you get an appreciation for the areas requiring the most judgment. Review the company’s key annual and quarterly filings with the SEC. Review recent press releases and listen to a sample of archived analyst calls to get a better sense of what information the company is focusing on when it reports results, and how market observers are viewing the company. Also understand the status of any open issues:  comment letters from the SEC that the company is addressing, the status of any major new accounting standards the company is implementing, and reporting considerations for significant transactions being undertaken. The CFO, controller, chief accounting officer and external audit partner will all play roles in helping you get a deeper appreciation of the financial reports your committee is responsible for overseeing.

Meet with the external audit partner. The external audit partner can be a great resource to you as you transition into your chair role. Get an appreciation for his or her experience, not only with the company, but also within the industry and in dealing with the types of issues the company faces. The audit partner can also provide useful insight into how the company functions, where the reporting risks are and the bench strength of both the finance department and the internal audit function. Additionally, he or she may have perspectives on how the audit committee could be more effective. Understand how the partner ensures that the right team is available to serve the client—particularly important if you have geographically diverse operations.

Use your staff support. Who from the company (corporate secretary, internal audit director, controller or other individual) is assigned to help you with agendas, meeting materials, and general scheduling? Whom can you call with questions? When and where are the meetings, what topics do they typically cover and how long do they usually run? Are there any constraints (such as schedules for other committee meetings) on how long your meetings can run?

Differentiators for Effectiveness
Focus on critical aspects of risk management. This may be the most significant challenge:  How can your audit committee play a central role in risk management without being tagged to oversee all areas of risk within the company? One way is to think of your role as an air traffic controller: knowing what the key risks are and allocating each of them to be overseen by the appropriate committee or the full board. Then you can focus your agendas over the year on overseeing the key risks assigned to the audit committee. Obviously, the audit committee takes the lead in areas such as risk relating to financial reporting. Your committee is also likely to find itself assigned oversight of compliance risks, and perhaps IT and privacy risks, too.

On a related note, you’ll want to think about the best ways for your committee to interact with the compensation committee, as focus grows on the link between risk and compensation. The better the audit committee understands the performance metrics the compensation committee tags to incentive pay, the better the audit committee can monitor the integrity of those metrics—in particular, by focusing on whether the ability to achieve performance targets significantly affects management’s financial reporting judgments. This sharing of information between the two committees is especially critical if there is no cross-committee membership.

Forge strong ties with your internal auditors. Internal audit can be the eyes and ears of the audit committee—giving you an objective view of issues facing the company. But it can do that only if you have the right leadership in the internal audit function and if the audit committee supports internal audit’s effectiveness. Get a sense of how company executives and your external auditors view internal audit.

Also get to know the internal audit director and form your own opinion on his or her effectiveness. Understand how internal audit uses its resources and what additional assurance it could provide if it had more resources. Set aside time for periodic, informal contact with internal audit. Be clear that you are open to hearing about any serious issues, including sensitive ones. Many chairs aim for regular between-meeting contact—a call or coffee—to keep the communication lines open.

Tackle the tough stuff. It’s human nature to focus time and attention on the items we already understand and can grasp easily. It takes discipline to ensure the more challenging issues are included in your agenda.

Identify what these issues are—they may, for example, relate to IT security, derivative transactions, complex technical accounting issues or treasury operations. Ask for more in-depth information on these areas. If they represent major risks, consider relevant training sessions for the entire committee. Insist on getting the information in plain English.

Summing It Up
Don’t go it alone. It’s likely you’re in the chair role because you qualify as an audit committee financial expert. That doesn’t mean you need to have all the answers or that you should ask all the questions. Ensure that all your committee members have a voice. Consider involving them in some of your between-meeting discussions—particularly if there is a reporting issue you’re monitoring. And watch for the dynamics in the meetings themselves, recognizing that it can be difficult to build a cohesive committee when you’re only together five or six times a year in a fairly scripted setting. It might mean privately soliciting views from each director after the meeting, especially if a member has been largely silent during the meeting. It definitely means insisting on time for executive sessions of just the committee members, so that committee members have an alternative venue for sharing what they’re thinking. Consider occasionally visiting one-on-one with committee members between meetings to better understand what issues they are concerned about.

As you work with your committee over time, you’ll develop a better appreciation for the additional information you and your committee members need. You can determine if additional training sessions would be appropriate. You also may identify additional skill sets or experience that would be useful, and that ultimately may dictate a shift in committee composition.

At the end of the day, the committee’s effectiveness is largely up to you. Ensure that you have the relationships, information and members you need to effectively fulfill all the committee’s responsibilities.

The Transition to Chair
If you’re fortunate enough to have been a member of the audit committee before assuming the chair role, your task is easier. You already understand the financial reporting process and the players. And you’ll already have a view on how the meetings should run and whether the materials could be improved. You may also have a perspective on the committee membership.

But you might not have realized just how much the chair did between meetings. You’ll want to schedule time to meet separately with the internal and external auditors and with key members of the finance team, to solidify those relationships. You’ll want to identify areas to dig deeper, and start tailoring the committee’s agenda to reflect your vision.

Catherine L. Bromilow is a partner in the corporate governance group at PricewaterhouseCoopers LLP.

ADDITIONAL COVERAGE IN THE BOARDROOM GUIDE FOR THE NEW DIRECTOR:

• An Orientation for New Directors
• A Message to New Directors
• Performance and Pay Alignment: A Top Priority for Compensation Committees
• A Renaissance in Succession Planning and Board Recruiting