Listing ETP Banner
Reference Library - Advanced Search


** To make multiple selections, select the first criterion and then press and hold the Ctrl Key **
1- 50 of 160 Search Results for:
Libraries:   Governance Clearinghouse
Filters:   Within Last 60 days; All;
Search   Clear

Collapse All
Printer Friendly View
Mailto Link 
Page: 1 of 4
Frequently Asked Questions
  Five Steps to Upgrade Your Board Evaluation By Beverly Behan, Author, "Great Companies Deserve Great Boards"
Identification Number 1471
Five Steps to Upgrade Your Board Evaluation by Beverly Behan, Author, "Great Companies Deserve Great Boards"
Publication Date: December 6, 2017

Beverly Behan has worked with more than 100 Boards of Directors on board and director evaluations over the past 20 years.

While board evaluations have been adopted by nearly every Nasdaq-listed company, the standard process has often outlived its usefulness and become a rote routine. The better the board, the more sophisticated the board evaluation should be, as it offers a unique opportunity to engage directors in a vibrant conversation about the board's strengths and elicit good ideas that might make the board even more effective going forward. However, the traditional survey format wastes that opportunity by turning the board evaluation into a perfunctory compliance exercise.

What kind of results are boards achieving when they change things up in their board evaluation? Here are some examples:
  • Three years ago, the board of a midcap REIT conducted a comprehensive board evaluation using all five steps outlined herein. They entered the process with no plans to recruit any new directors, but came away in complete agreement of the need to find three new board members to address gaps identified in the board's composition. Not only did they find them, over the next 18 months, these new directors made a tremendous and positive difference in the board's operation – and gave the board, as a whole, the confidence to make some significant changes in corporate leadership that were previously considered "off the table".
  • The board of an aerospace company had a practice of diving directly into questions the moment any management presentation began. While this was considered far preferable to "death by powerpoint", management described the practice as creating a "paintball dynamic" where questions were firing before they had even given an overview on the topic at hand. It was resulting in redundancies and inefficiencies; presenters were backtracking and dialogue was unfocused. Many board members also expressed frustration. Some wondered if the most important points had even surfaced when the dialogue had finished, as many questions went to "secondary issues". When these concerns surfaced during the board evaluation, changes were immediately agreed upon that led to a far more efficient process.

  • The board of a financial services company had been including their top management in the board evaluation for some time. When they repeated this process two years ago, the board was starting work on CEO succession planning in earnest with a two-year time horizon. In-depth questions on this topic were included in the board evaluation, which yielded extremely helpful insights for the Succession Committee. As a result, the board incorporated steps into the CEO succession process that they had not previously considered and even changed the timeline. Moreover, board members felt that this exercise provided them a far richer understanding of corporate culture issues (including cultural issues around a recent merger integration setback) that became invaluable in assessing potential CEO candidates.

What, then, are the five steps many boards have been adopting to revitalize their board evaluation and achieve the types of useful outcomes described in these examples?

Switch to a Three-Year Cycle
Companies listed on the NYSE are required to conduct an annual board evaluation. However, no such requirement applies to the boards of Nasdaq-listed companies. As such, Nasdaq boards have the freedom to adopt a three-year cycle, which is the current "best practice" in Britain. British boards typically use a more comprehensive board evaluation process than most of their American cousins and conduct their evaluations every three years rather than annually. After all, a well-executed board evaluation should yield an Action Plan that may require 18 to 24 months to implement; repeating the process a year later typically delivers only marginal returns.

Interestingly, some NYSE-listed boards have adopted the three-year cycle as well – using an interim evaluation process for the two interceding years between board evaluations to satisfy the NYSE's requirements. Interim years often involve a short survey or phone calls from the Chair of the Governance Committee to talk about progress on the Action Plan from the prior year's evaluation.

Replace Surveys with Interviews
The traditional approach to a board evaluation involves a survey form where directors are asked to enter a score from 1 to 5 on a series of questions relating to the board's operations, typically with some space for write-in comments. The design nearly always consists of closed-ended questions such as "The pre-reading materials are adequate" – a format that readily lends itself to numeric scoring but rarely yields insightful or truly actionable feedback. The result is a numeric report that lacks the richness of interview commentary.

To use the example noted earlier about the board that explored CEO succession issues in its board evaluation: Asking some closed ended questions about CEO succession might yield a score with a few write-in's like "Culture is a key concern". By contrast, the interview format they did use produced insightful comments, such as: "We have a bifurcated corporate culture at the moment; our traditional, highly conservative culture is sharply at odds with the entrepreneurial somewhat "cowboy" culture of [newly acquired company]. Our next leader needs to understand and bridge these."; "Since the merger, it's as if no one has been making any decisions. I don't know if that's the board's fault or who is responsible, but what we have right now, I would call a stymied culture and people are frustrated by it."

Interviews are also more engaging for participants. Most directors appreciate the opportunity to share their views and offer constructive suggestions to make a great board even better. They are anxious to see what others have said and whether their views are unique or widely shared. And therein lies one of the reasons greater impact is typically achieved: When relative alignment surfaces through a highly engaged process, the board typically moves swiftly forward to incorporate these good ideas.

Include Senior Management Feedback
As most Nasdaq-listed company CEOs serve as members of their governing boards and routinely participate in the board evaluation. Over the past decade, however, it has become increasingly popular to gather feedback from 3-5 top company executives who are not board members, but regularly attend board and committee meetings. While some directors bristle at the thought of management "evaluating" the board, most find it illuminating to include management feedback in the evaluation. Senior executives nearly always provide worthwhile perspectives. Moreover, including management in the evaluation demonstrates the board's openness to feedback, which nearly always earns kudos and respect from the executive team. It sets the right "tone at the top" in terms of accountability.

If management is included in the evaluation, a decision will need to be made as to whether and how the results of the board evaluation will be shared with those executives who participated. Some topics are probably best limited to discussions among the board itself, such as CEO succession. Others, however, such as enhancements to board pre-reading packages and presentations, lend themselves particularly well to joint board/management discussions.

Using a Third Party
The provisions of the 2016 UK Corporate Governance Code require that board evaluations of FTSE 350 companies be externally facilitated every three years. Even UK companies not in the FTSE 350 must indicate if an independent third party was used to facilitate their board evaluation.

This is clearly the direction board evaluations are heading. In a 2015 Wall Street Journal article on the growth of this trend, Joann Lublin quotes a Spencer Stuart partner who predicts that 35% of American boards will have adopted this practice by 2020. The article suggests that this trend may be driven, in part, "as investors ratchet up their expectations for board performance". Notably, the Chairman of Vanguard, in an open letter to public company directors dated August 2017 specifically includes "effective ongoing board evaluation practices" as one of the firm's expectations for investee boards.

Strive for an Action Plan of 3-5 Constructive Suggestions for Board Enhancement
Achieving a high score on a board evaluation is not the hallmark of an effective board but rather a board evaluation process designed to suppress rather than elicit good ideas from experienced and highly capable board members. Interview-based board evaluations typically yield 3-5 worthwhile suggestions for potential board enhancement; boards with highly engaged and thoughtful directors often surface 8-10. Shifting the desired outcome can make all the difference in how the process is designed and used: From a "tick the box" compliance exercise to an ongoing continuous improvement process aimed at making a good board great and keeping a great board vibrant.


Since 1996, Beverly Behan has been conducting board and director evaluations for the Boards of Directors of public companies, having working with more than 100 boards on this issue over the past two decades: She recently authored "Board and Director Evaluations in the 21st Century: A Practical Guide for Governance Committees" which is available to Nasdaq Clearing House readers at no charge by emailing the author:


The views and opinions expressed herein are the views and opinions of the author at the time of publication and may not be updated. They do not necessarily reflect those of Nasdaq, Inc. The content does not attempt to examine all the facts and circumstances which may be relevant to any particular company, industry or security mentioned herein and nothing contained herein should be construed as legal or investment advice.

Publication Date*: 12/6/2017 Identification Number: 1471 Mailto Link
Frequently Asked Questions
  PCAOB to Hold Webinars on Implementing Recent Changes to the Auditor's Report
Identification Number 1469
PCAOB to Hold Webinars on Implementing Recent Changes to the Auditor's Report
Publication Date: December 4, 2017

The Public Company Accounting Oversight Board will host webinars on Tuesday, December 12, 2017, and Wednesday, January 10, 2018, on the implementation of recent changes to the auditor's report that become effective for audits of financial statements for fiscal years ending on or after December 15, 2017. The webinars will highlight specific changes to the auditor's report required this year, such as auditor tenure, independence, and other key elements of the auditor's report. There is no fee to participate, but registration is required and participants are encouraged to submit questions in advance of the webinars.


Read PCAOB guidance >>
Publication Date*: 12/4/2017 Identification Number: 1469 Mailto Link
Frequently Asked Questions
  SEC Sets Enforcement Priorities
Identification Number 1457
SEC Sets Enforcement Priorities
Publication Date: November 27, 2017

The Securities and Exchange Commission's Enforcement Division issued a report highlighting its priorities for the coming year as well as a review of enforcement actions that took place during fiscal year 2017. The SEC described five core principles that will guide their enforcement decision-making: focus on the Main Street investor; focus on individual accountability; keep pace with technological change; impose sanctions that most effectively further enforcement goals; and constantly assess the allocation of resources. Co-Director of the SEC's Enforcement Division, Stephanie Avakian, stated "our goal is to continue to protect investors, deter misconduct, punish wrongdoers and keep our markets the safest and strongest in the world."


Read the Report >>
Publication Date*: 11/27/2017 Identification Number: 1457 Mailto Link
Frequently Asked Questions
  ISS Announces 2018 Benchmark Policy Updates
Identification Number 1456
ISS Announces 2018 Benchmark Policy Updates
Publication Date: November 23, 2017

Institutional Shareholder Services (ISS) recently released the 2018 updates to its benchmark proxy voting guidelines, which focus on environmental, social, and governance matters, for the Americas, EMEA, and Asia-Pacific regions. The updates will generally be applied for shareholder meetings on or after February 1, 2018 and include, among other things, updates with respect to non-employee director pay, gender pay gap proposals, and poison pills. Among the updates, ISS will now recommend an adverse vote "on the re-election of board members responsible for approving/setting non-executive director (NED) compensation when there is a recurring pattern (i.e., two or more consecutive years) of excessive NED pay without a compelling rationale or other mitigating factors."

Read more here >>

Read the 2018 Executive Summary here >>

Read the 2018 Full ISS Report here >>
Publication Date*: 11/23/2017 Identification Number: 1456 Mailto Link
Frequently Asked Questions
  Five Ways to Raise Your Board's Digital IQ
Identification Number 1455
Five Ways to Raise Your Board's Digital IQ
Publication Date: November 20, 2017 

Technology is disrupting virtually every industry in some way, and a business case for digital literacy on the board is emerging. In this post, veteran board director Betsy Atkins shares five ways companies can raise their boards' digital IQ.

There can be little doubt in today's business environment that adding board members with broad experience in technology (including software, services, cloud, analytics and A.I.) will bring critical insights into the boardroom. According to a recent study by Deloitte, the percentage of public companies that have appointed technology-focused board members has grown from 10% to 17% during the past six years. For high performers—those companies that outperformed the S&P 500 by 10% or more for the past three years—this figure almost doubles to 32%.

However, board refreshment may not happen soon enough for some companies, and adding a few tech experts may not raise the digital IQ of the entire board to a level where decision making becomes nimble. In the interim, the question is, how can companies raise the digital expertise that existing board members bring to the table?

1. Conduct a technology IQ assessment.

An appraisal of the board's digital IQ should be incorporated into the annual board assessment to identify any areas of weakness. A digital IQ assessment will be different for each board depending upon the company it serves or the industry it operates in, but may examine some or all of the following elements:
  • Are there enough (or any) board members with relevant technology backgrounds?
  • Have board members worked within a variety of business models?
  • Did board members lead or serve on companies that initiated digital transformation?
  • Have board members experienced a significant change in company business model?
  • How does the board monitor technological innovations and/or looming disruptions?
  • Does the board benchmark technology adoption against competitors?
  • What metrics is the board tracking to measure progress in digital transformation?
  • Does the board meet with the company's CTO or CIO on a regular basis?
  • Is the board comfortable with change?

2. Embark on a technology learning tour.

Every company is a technology company in some way, and all boards should be continuously researching macro trends in technological innovation and digital enablement. An effective way to boost the entire board's digital IQ quickly is a technology learning tour, during which board members spend a few days immersed in one of the major technology hubs, such as Silicon Valley, China, or Tel Aviv.

The board I sit on at Schneider Electric just toured Alibaba in China. We also visited leading Chinese companies in Shanghai, Hangzhou, Shenzhen, and Hong Kong. This fall, I joined my fellow Volvo board members in meetings with Google, Amazon, venture capital groups in Menlo Park, and other cloud services providers as we seek to understand the potential for connected car infotainment. We also met with companies that specialize in machine learning and AI algorithms related to autonomous driving, to discern how advances in those technologies may apply to Volvo.

There are major macro tech trends impacting Schneider and Volvo that require their boards to establish a framework of tech knowledge in order to adequately leverage the opportunities these trends present. Schneider for example is an industrial energy management company, and board member knowledge of—and experience with—the industrial internet of things is critical as "hardware" companies like Schneider transition to develop and embed software in their infrastructure. For Volvo, cloud services, infotainment, SaaS Software, the digital customer journey, and machine learning/AI algorithms for autonomous drive are all macro trends that are directly relevant to the company's business.

3. Invite subject matter experts into the boardroom.

Continuing education can take place in the boardroom as well as outside of it. Boards can engage external digital experts to update members about emerging tech-related innovations, disruptions and risks. Boards should also monitor how competitors are leveraging technology to delight consumers, bring efficiencies to supply chains, and lower costs.

The Governance Committee of HD Supply brings in outside speakers two or three times a year for a working dinner. We've had cyber-risk speakers from FireEye and digital transformation speakers from Accenture and Boston Consulting Group. An upcoming speaker will be presenting an in-depth discussion of competitive industry assessment.

Internal company technology officers and department heads are also indispensable subject matter experts, and the board should be hearing regularly from the company's top digital managers. (I recently wrote a piece about the evolving role of the CIO.) The Volvo board's Technology and Innovation Committee regularly receives updates from Volvo's head of research and development, Chief Digital Officer, head of product development, and global head of strategy. Schneider has created a role of Chief Digital Transformation Officer reporting to the CEO. The Schneider Board will consider adding a Digital Oversight Committee.

4. Allocate time on the board agenda to technology transformation as well as cyber risks.

There is a lot of buzz right now about cyber risk and how boards should manage oversight of that—and rightly so. However, companies today face a much greater risk than data breaches and ransomware attacks: business model obsolescence. According to a study published by Innosight, businesses are disappearing at a rate of 50% every 10 years, primarily because they don't evolve quickly enough in the face of seismic shifts in consumer behaviors or technological innovations (think Blockbuster, Borders, and Radio Shack). Tenure on the S&P 500 has dropped from 33 years to 14 years during the past 7 years.

Companies that seek opportunities for competitive advantage in evolving technologies will have the greatest chance of survival. To ensure business model vibrancy, boards need to embrace tech trends and new business models, and actively consider integration of them into their companies' strategies. Board agendas should allocate time to digital transformation, just as they do cyber, general enterprise risk management and other risk mitigations.

Digital transformation is a forward-looking perspective, so it shouldn't be tasked to the audit committee (which is traditionally backward-looking). Governance committees, on the other hand, often have additional capacity to absorb tech-related strategic oversight. Governance is the board committee charged with oversight of strategic digital transformation at HD Supply.

As Deloitte reported in the study I referenced at the beginning of this article, it is becoming more common for boards to add technology committees dedicated to digital and technical transformation. Volvo's board has a Technology Innovation Committee, and the Schneider Electric board formed a Digital Transformation Committee.

5. Refresh the board with directors who lean in to change.

The velocity of change is so intense now that corporate survival depends upon the intellectual and emotional experience of people who are more comfortable leveraging change than pulling away from it. To be effective, every director today needs to have past experience navigating a company through rapid and truly transformative change.

It's also important that directors in today's business environment have job experience within a variety of enterprises and business models. If everyone around the boardroom table spent their entire career immersed in a single corporate domain or business model, the board may lack familiarity with change or the conviction to innovate. They will try to apply the one lens or framework that was effective one or two decades ago. Board members who have worked for multiple companies during their careers are more likely to have experience leveraging technologies to refresh or retool business models, bring down costs, or improve the customer journey.


Watch Betsy's interview with Nelson Griggs, President of Nasdaq Stock Exchange: Why Your Board Needs Technology Leadership.

Other popular posts featuring Betsy Atkins on the Governance Clearinghouse:
Seven Critical Elements of a Board Refreshment Plan >>
What Makes a Great Board? >>

Betsy Atkins serves as President and Chief Executive Officer at Baja Corp, a venture capital firm, and is currently the Lead Director and Governance Chair at HD Supply. She is also on the board of directors of Schneider Electric, Cognizant, and a private company, Volvo Car Corporation, and served on the board of directors at Nasdaq LLC and as CEO and Board Chairman at Clear Standards.

Publication Date*: 11/20/2017 Identification Number: 1455 Mailto Link
Frequently Asked Questions
  Digital Transformation Catalyzes Diversity in Nasdaq Company Boardrooms
Identification Number 1454
Digital Transformation Catalyzes Diversity in Nasdaq Company Boardrooms
Publication Date: November 16, 2017 

"Every company is now a technology company, and boards increasingly require a new kind of director," says Coco Brown, founder and CEO of The Athena Alliance, an organization dedicated to preparing executive women for board service and facilitating board matches. A veteran of the Silicon Valley tech industry, Ms. Brown talked to Nasdaq about how digital transformation is disrupting traditional board composition and creating new opportunities for women to make meaningful contributions in the boardroom.

Despite increased pressure from investors, gender diversity on boards is improving at a glacial pace of just 1% per year. Why? Because boards are still accustomed to—and most comfortable with—appointing former and current CEOs and CFOs of large enterprises, and women comprise a very small percentage of those roles.

There is, however, an intriguing exception to the male majority in the boardroom: the gender composition of non-executive digital directors. Russell Reynolds has been tracking statistics on digital directors in the boardroom since 2013. Their most recent survey tracking digital directors appointed to the boards of the Global 300 uncovered encouraging trends:

  • 37% of Global 300 digital directors are women.
  • 58% of digital directors added to Global 300 boards between 2014-2016 were women.
  • Global 300 boards with a digital director have greater gender parity than traditional boards.
The advent of digital directors heralds a larger evolution taking place in the boardroom. Companies today face a wide range of threats and opportunities related to digital transformation, most of which didn't exist 10 years ago. These include cyber risk, technology innovations (including AI and machine learning), business model shifts, digital marketing, and brand management. The rapid pace of change has left traditional boards lacking in two fundamental areas:

Cognitive and relational diversity: Cognitive refers to diversity of thought, while relational diversity is the ability to relate to a company's constituents directly (customers, employees, and communities).

Modern digital competence on a mass scale: Any company that expects to be around 5-10 years from now will need to digitize supply chains, sales engines, business processes, and customer and employee engagement, if it hasn't already.

Savvy boards recognize that to stay competitive, they must address these deficits, and continuing to recruit board members from the ranks of former CEOs and CFOs is not the answer. It is becoming increasingly common for boards to "widen the aperture" beyond traditional executive roles to recruit non-executive directors who have engineering, technology, operations, human resources, and marketing backgrounds. As a result, a whole new generation of thought leaders is beginning to take seats at boardroom tables:

  • Human Resources Officers (CHRO, CPO): These are a company's workforce and culture experts and are under-represented in the boardroom. They also advise on compensation, succession planning, stock programs, and employee and community relations.

  • Digital Technology Officers (CIO, CISO, CTO, Chief Product Officer, Cyber Security): These experts are attuned to some of the biggest technology-related threats, challenges and opportunities of the next 3 - 5 years.

  • Digital Delivery & Operations Officers (Head of Business Strategy, CMO, COO, Chief Customer Officer, Chief Revenue Officer): These roles have a pulse on the industry, shifting business environments, and evolving business models; they also have connections that can make a big difference.
Recent data indicates that recruiting outside of the CEO/CFO realm and into other C-Suite roles in small to mid-cap companies, or even SVP/VP roles of mid to large cap companies may accelerate progress towards gender parity in the boardroom: Russell Reynolds reported that while the total number of female directors of Global 300 companies stands at just 19%, women represented 26% of all digital directors appointed to Global 300 company boards between 2014-2016.

A number of Nasdaq companies have recently "widened the aperture" in board refreshment, appointing women to help lead their digital transformation in the boardroom, including:

Axon Enterprise, Inc. (Nasdaq: AAXN): Julie Cullivan is CIO and Senior Vice President of Business Operations at ForeScout Technologies, Inc. (Nasdaq: FSCT). Axon can leverage Julie's extensive sales operations, IT, and cybersecurity expertise as the company transforms its product line through AI and cloud technologies.

Banner Corporation (Nasdaq: BANR): Merline Saintil is the head of operations of Intuit's (Nasdaq: INTU) product and technology group. Banner recruited Merline to bring information technology expertise to the financial company's board.

Forrester Research, Inc. (Nasdaq: FORR): Yvonne Wassenaar, former CIO of New Relic and current CEO of Airware, is described by Forrester as "a thought leader in cloud, big data analytics, and business digitization." Forrester tapped Yvonne for the board to help guide the company as it undergoes the digital transformation of its business.

MobileIron, Inc. (Nasdaq: MOBL): Jessica Denecour is CIO of Varian Medical Systems. MobileIron believes its shareholders will benefit from Jessica's expertise in using IT to positively influence business outcomes.

Morningstar, Inc. (Nasdaq: MORN): Caroline Tsay is a technology start-up founder and former online channel division vice president at Hewlett Packard Enterprise. Morningstar's investment services have moved from analog to digital technologies, and Caroline has the mix of leadership experience and information technology expertise that Morningstar's board needed.

Telenav, Inc. (Nasdaq: TNAV): Karen Francis DeGolia is on the board of AutoNation, the largest automotive retailer in the U.S., and Executive Chairman of AcademixDirect, a technology marketing company serving the education industry. She joined the board of Telenav last December and was recently named Lead Director, adding her extensive experience in the automotive industry and emerging mobility technologies to Telenav's board.

Another unexpected statistic came from the Russell Reynolds survey mentioned earlier: 78% of the Global 300 still has no digital representation on the board. As companies continue to awaken to the realization that they need digital innovation expertise and diversity of thought on the board, women will find opportunities in greater numbers to demonstrate value and relevancy in the boardroom.


Coco Brown is founder and CEO of the Athena Alliance, an organization dedicated to advancing diversity in the boardroom by preparing executive women for board service and facilitating board matches. Before founding the Athena Alliance, Brown served as the president and chief operating officer of Taos, an information technology consulting and services company based in San Jose, California. She is also the founder and CEO of Executive Kinections, a Silicon Valley consultancy that advises executive teams in strategic planning and organizational design.

Publication Date*: 11/16/2017 Identification Number: 1454 Mailto Link
Frequently Asked Questions
  SEC Speech: Governance and Transparency at the Commission and in Our Markets
Identification Number 1453
SEC Speech: Governance and Transparency at the Commission and in Our Markets
Publication Date: November 15, 2017

In a recent speech, SEC Chairman, Jay Clayton, discussed the SEC's agenda. Among the items he highlighted was the proxy process, including how investors participate in corporate governance at public companies. He stated that, given the core role of the proxy process in public company governance, the Commission should be "taking a hard look at whether the needs of shareholders and companies are being met." Citing several factors such as retail shareholder participation and shareholder proposals, Chairman Clayton indicated that the current proxy process may be too cumbersome and stated that he believed the Commission should solicit "updated feedback from market participants about what works and what does not work in our proxy system."

Publication Date*: 11/15/2017 Identification Number: 1453 Mailto Link
Frequently Asked Questions
  Nasdaq's Listing Center: A One Stop Shop for Applicants and Listed Companies
Identification Number 1165
Nasdaq's Listing Center: A One Stop Shop for Applicants and Listed Companies
Publication Date: November 7, 2017

Nasdaq's Listing Center provides an array of information resources for applicants, listed companies and their advisors. The Listing Center has expanded tremendously since 2009 when it was first introduced to facilitate the electronic submission of exchange notifications and forms. In this Q&A, Lisa Roberts, Vice President and Listing Center Product Manager, discusses the evolution of the Listing Center and details the full range of resources available.

Q: What is the Listing Center and how does it benefit companies?

A: When the Listing Center was first introduced more than six years ago it had one purpose: facilitate the electronic submission of applications and required exchange notifications. Since then, companies and their representatives have submitted more than 50,000 forms using this portal. From end to end, our process is entirely paperless. Companies can upload supporting documents directly from their computer into our system and our forms can be signed electronically so there is no need to manually print the form and send us a hardcopy. Our system even sends users a confirmation email along with a copy of their submission. All of these documents are readily accessible for future reference by both the person that created the form and those other users that were granted shared access. We are excited to offer this product to our companies and are not aware of any other exchange in the world that provides anything remotely comparable.

Over time, the Listing Center has really evolved and we have greatly expanded the utility of the site, building an expansive Reference Library to promote transparency of our listing rules, policies and procedures, and introducing a new Governance Clearinghouse webpage to promote dialogue across a variety of governance and related topics to help companies better engage with their shareholders.

Q: Tell me more about the Reference Library.

A: Our Reference Library houses hundreds of FAQs, interpretations of Nasdaq Listing Rules and Decisions of the Nasdaq Listing and Hearing Review Council in delisting appeals. We also added a fourth library for Governance Clearinghouse material. These pages are designed to promote transparency of our listing rules, policies and procedures. They also highlight governance news, issues and trends that may be of interest to companies. We continually make changes to these pages so that they are as user friendly as possible. By using our advanced search page, users can easily find the exact material that they are looking for by using a customized combination of criteria, including key words, categories, and timeframe. We also highlight our most popular material so when users go to the FAQ landing page, for example, they will notice a new category: Our Top 10. This will show users a list of the most popular FAQs over the last 90 days. We made similar changes to the landing pages for Listing Council Decisions and Staff Interpretations.

Q: I understand that Nasdaq built a mobile app for the Reference Library. Can you tell me more about the app and why you decided to go mobile with this site?

A: The Listing Center consistently gets more than 60,000 page views a month so we thought it was a natural progression to make the Listing Center more accessible from mobile devices. We saw this as a great opportunity to do something new and innovative. The app can be downloaded for free from Apple's App Store, Google Play or the Microsoft Store. The app has all the great functionality of our Reference Library plus some new features, like the ability to save FAQs, Staff Interpretations, Listing Council Decisions and Governance Clearinghouse posts to your favorites so you can readily access them later. We are really excited about the positive feedback we've received so far. When we released the app, we honestly weren't sure what to expect. While we knew this would never compete with Angry Birds, we were pleasantly surprised by the number of downloads, which were more than 5,000 at last count.

Q: Tell me more about the Governance Clearinghouse.

A: The idea behind the Governance Clearinghouse was to create a forum for dialogue and an exchange of ideas across a variety of topics of interest to public companies on governance and related matters. The goal is to provide information to companies about all sides of issues that affect them, so they can better engage with shareholders. Since launching in 2015, we have published hundreds of original articles. For example, we featured a survey that asked companies to provide feedback on their experience with proxy advisory firms and an interview with the CEO of Connecticut Water about the role board diversity plays in strengthening corporate governance and improving company performance. Other recent posts examine the importance of emotional intelligence or "EQ" on boardroom dynamics, how companies can investigate and respond to ransomware threats and articles focusing on the relationship between sustainability and the financial markets. This website is just one of a series of initiatives we have undertaken to be more responsive and engaged with our listed companies – and their advisors.

Visit the Reference Library >>

Download our Reference Library app for iPhone >>

Download our Reference Library app for Android >>

Download our Reference Library app for the Microsoft Surface >>
Publication Date*: 11/7/2017 Identification Number: 1165 Mailto Link
Frequently Asked Questions
  Ransomware Payment: Legality, Logistics, and Proof of Life
Identification Number 1450
Ransomware Payment: Legality, Logistics, and Proof of Life
Part Two: Investigation and Response
Publication Date: November 6, 2017 

This is the second in a three-part series of white papers authored by Cybersecurity expert John Reed Stark. The series offers guidance for boards of directors on the legal issues, logistical considerations and financial implications of responding to ransomware threats.

When confronted with a ransomware attack, the options all seem bleak. Pay the hackers – and the victim may not only prompt future attacks, but also has no guarantee that the hackers will restore their dataset. Ignore the hackers – and the victim may incur significant financial damage or even find themselves out of business. The only guarantees during a ransomware attack are the fear, uncertainty and dread inevitably experienced by the victim. That is why it is critical for all companies to approach ransomware response in a thoughtful, careful and meticulous manner, which is the focus of Part Two of this three-part series.

This three-part series of articles provides guidance on the legal issues, logistical considerations and financial implications when managing ransomware threats, including an exposition of the unique issues which can arise when seeking proof of life and opting to meet the monetary demands of ransomware attackers.

Part One of this series, Background and Reality, provided the keys to understanding the impact of recent ransomware strains, including a discussion of the nature and growth of ransomware; the dangerous aspects of some recent ransomware attacks; and the role (or lack thereof) of law enforcement when managing a ransomware attack.

Part Two of this series, Investigation and Response, examines the intricacies involved in ransomware response, including ransomware investigative tactics; ransomware payment logistics; and the legalities of ransomware response.

Part Three of this series will cover the remaining range of key ransomware essentials, such as notification requirements; ransomware remediation; and ransomware cyber insurance.


John Reed Stark is President of John Reed Stark Consulting LLC, a data breach response and digital compliance firm. Formerly, Mr. Stark served for almost 20 years in the Enforcement Division of the U.S. Securities and Exchange Commission, the last 11 of which as Chief of its Office of Internet Enforcement. He also worked for 15 years as an Adjunct Professor of Law at the Georgetown University Law Center, where he taught several courses on the juxtaposition of law, technology and crime, and for five years as managing director of a global data breach response firm, including three years heading its Washington, D.C. office. Mr. Stark is the author of, "The Cybersecurity Due Diligence Handbook," available as an eBook on Amazon, iBooks and other booksellers.

Publication Date*: 11/6/2017 Identification Number: 1450 Mailto Link
Frequently Asked Questions
  SEC Issues Guidance on Shareholder Proposals
Identification Number 1451
SEC Issues Guidance on Shareholder Proposals
Publication Date: November 6, 2017

The SEC Division of Corporation Finance has published new guidance in a Staff Legal Bulletin on excluding certain Rule 14a-8 shareholder proposals. The bulletin contains information about the Division's views on: the "ordinary business" and the "economic relevance" exceptions, each of which is a basis for exclusion of a shareholder proposal; proposals submitted on behalf of shareholders; and the use of graphs and images in proposals. In particular, the bulletin notes that "ordinary business" and "economic relevance" exclusions often involve difficult judgment calls, which a company's board is generally in a better position to make and encourages companies to include in requests for no action relief a discussion that reflects the board's analysis and details the specific processes employed by the board to ensure that its conclusions are well-informed and well-reasoned.

Publication Date*: 11/6/2017 Identification Number: 1451 Mailto Link
Frequently Asked Questions
  Society for Corporate Governance Complimentary Directors' Cut Newsletter
Identification Number 1448
Society for Corporate Governance Complimentary Directors' Cut Newsletter
Publication Date: November 2, 2017

The Society for Corporate Governance is now offering complimentary access to its Society Alert - Directors' Cut® newsletter. This quarterly online newsletter is a compilation of governance-related news from the preceding quarter's weekly Society Alerts, geared with a view toward director and C-suite audiences. Each issue covers a range of relevant developments and guidance in areas such as audit/financial reporting, board composition, board and key committee oversight, M&A, risk, and sustainability, as well as institutional investor developments and perspectives.

Read the 3rd Quarter Newsletter >>

Subscribe here >>
Publication Date*: 11/2/2017 Identification Number: 1448 Mailto Link
Frequently Asked Questions
  Effective Boards and the Need for Emotional Intelligence
Identification Number 1447
Effective Boards and the Need for Emotional Intelligence
Publication Date: October 31, 2017

In this Q&A, Nasdaq talks to Caren Merrick, veteran board member, angel investor and entrepreneur, about the importance of emotional intelligence or "EQ" on boardroom dynamics.

Q: Based on your experiences as a board member and a former CEO, how would you complete this sentence: "For a board to be effective . . ."

A: For a board to be effective, its members must demonstrate emotional intelligence. I don't see much written about the impact of emotional intelligence or EQ on board dynamics, yet it's an issue that someone raises almost every time I speak about boards. A general lack of EQ seriously handicaps a board's ability to problem-solve and make informed decisions.

When a board is recruiting a new member, emotional intelligence and relationship building skills are as important to vet as subject matter expertise and experience. Some of the biggest board blowups I've observed had to do with a board member who was more ego-driven to be a star contributor, or didn't know or respect the difference between their role and the CEO's role, or dug in and refused to budge on a particular issue.

A measured approach to navigating highly-charged situations is another often overlooked and undervalued ingredient of an effective board. When disagreements are handled poorly, boards can build factions and become very political.

Q: How has EQ impacted the boards you are sitting on now?

A: I am fortunate at this point in my career to be sitting on some of the most effective boards I've ever been associated with. The boards I'm serving on now have excellent EQ: We don't always agree on everything, but when we do disagree we are mindfully very constructive in our approach to resolving issues.

One board I sit on in particular, the Metropolitan Washington Airports Authority (MWAA), which oversees the $800m business operations of Washington Dulles International Airport and Washington Reagan National Airport in addition to the $6b Dulles Corridor Metrorail and other entities.

This board presents a unique challenge to the CEO Jack Potter, because his board members are all appointees. I've learned a great deal watching Jack cultivate a productive boardroom dynamic between a group of individuals he had no say in appointing, who were each put in place to represent distinct constituencies.

When there are disagreements—and there often are—Jack's approach is deliberative, measured, and involves all of the stakeholders. He's patient, asks a lot of questions and implements a rigorous process to analyze the pros and cons in order to uncover what's really at stake. He's also encouraged board members to think more regionally in their approach to governing the Authority. Since Jack became CEO and began implementing this approach, the MWAA board is functioning at a higher level than before and, I believe not coincidentally, our bond ratings have gone up.

Q: A board can be comprised of successful executives who represent a perfect balance of the right professional skillsets, yet still be dysfunctional. True?

A: Absolutely true. As an angel investor, I'm hyper aware of the high number of startups that ultimately fail, and one of the biggest reasons for that failure rate is investors having a different agenda for a company than its founders.

As an entrepreneur, I'm somewhat biased. In an ideal world, founders could build their public company boards from scratch with people who are wise, aligned, generous and completely independent. In reality, it's difficult to launch a company without using outside capital, so newly-public boards are often faced with the possibility of competing stakeholder agendas. It's very important to get transparency and clarity around those agendas right at the beginning, so the board can build consensus. Otherwise, there is a high risk of factions developing among board members aligned with existing investors versus those aligned with the CEO.

Alignment doesn't mean the board won't disagree—there should always be healthy debate in the boardroom—but alignment does significantly increase the odds of reaching constructive solutions and sustainable growth. This is important, because CEOs find it challenging to rotate investors off a board when major disagreements become a stumbling block.

Entrepreneurs are becoming increasingly savvy to the investor/founder alignment issue, and mindful of it when shopping for capital. I recently met a woman who walked away from venture funding because her investor changed the terms at the last minute. She decided, rather than bring on an investor board member who had their own agenda, she would patiently pursue other sources of funding.

Q: Are there any other factors, in addition to stakeholder alignment and EQ, which contributed to your own company's successful transition from a basement startup to a publicly-traded enterprise?

A: I learned from my own experience that the personal networks of board members are an indispensable resource in scaling a new company, particularly when it reaches an accelerated growth phase. A company requires different skillsets from the board at different stages of its lifecycle: During the early phase, a company is consumed with early wins and surviving; once it gains momentum, it needs board members with experience in scaling an enterprise from $20 million to $200 million, for example. Seasoned executives know the patterns involved in rapid growth, can spot challenges ahead, and help a company block and tackle.

When we took webMethods public, our entire board—angel investors, venture capitalists, founders, and management—were all focused on growth. We deliberately composed a board that was skewed toward functional expertise in growth, and had extensive personal networks we could leverage to make introductions to potential customers, influencers, partners, and key critical employees.

There are a lot of technology startups here in the D.C. region, because so many people here work for government agencies on various projects requiring a high level of technical expertise: DOE, Homeland Security, and EPA, just to name a few. When local tech innovators leverage their technical expertise and experience to start companies, one of the smartest things I consistently see them do is tap former agency heads to join their boards. Not only does the company get that person's technical and government expertise, but it gains access to their network and benefits by association from their professional credibility.

Q: If you knew then what you know now, is there anything you would have done differently when launching your own company?

A: Now that I'm a sitting board member, I realize in my past leadership roles, I should have taken much better advantage of my board members' expertise and the wisdom of their experiences. CEOs—myself included—move so fast defending so many fronts that they don't give themselves the time to check in with directors to discuss challenges or opportunities. Sadly, they leave a lot of valuable insight on the table.

Q: What is the greatest challenge boards face right now?

A: I think the greatest challenge most boards face is trying to stay ahead of what is going on in their markets and industries, and trying to imagine what the future looks like in light of major shifts in local and global economies. Obviously cybersecurity is a huge concern. My boards are requiring more and more of my time to stay current on market and industry dynamics to identify opportunities for the company to create value and avoid crippling risks.

Diversity in the boardroom is crucial for companies to successfully navigate the rapid pace of change happening now: not just gender and ethnicity, which are important, but also diversity of perspective, skillsets, age, and professional disciplines. Boards can no longer afford to be composed solely of former CEOs and CFOs, because they need functional expertise in customer relationship management, digital marketing, cybersecurity, ERP systems, and social media marketing (which is a huge new frontier for boards to understand and tackle).

I learn something new every time I meet with my boards: we have people who have led private equity ventures, enterprise resource planning, supply chain ventures, enterprise marketing, and technology. The questions and insights that come from the diverse perspectives seated around the table at these meetings are impressive and very educational.


Caren Merrick is the CEO of Caren Merrick & Co. Previously, she was founder and CEO of Pocket Mentor, a mobile application and digital publishing company that provides leadership development and career advancement. Caren currently serves on the boards of the Metropolitan Washington Airports Authority, WashingtonFirst Bankshares, Inc. (Nasdaq: WFBI), and The Gladstone Companies (Nasdaq: GAIN, GLAD, GOOD, LAND). She is also a co-founder and former Executive Vice President of webMethods, Inc., a business-to-business enterprise software solution, which went public on Nasdaq before being acquired.
Publication Date*: 10/31/2017 Identification Number: 1447 Mailto Link
Frequently Asked Questions
  Center for Audit Quality releases the 2017 Main Street Investor Survey
Identification Number 1446
Center for Audit Quality releases the 2017 Main Street Investor Survey
Publication Date: October 30, 2017

The Center for Audit Quality conducts an annual survey of U.S. retail investors, which measures confidence in U.S. capital markets, global capital markets, public companies and audited financial statements. The 2017 survey reveals that 85% of investors have confidence in investing in the U.S. capital markets, and that 63% of investors feel confident in corporate boards of directors. This year's survey also illustrates that investors are watching developments in Washington, D.C. closely and are concerned with the risks to the economy posed by the national debt, cyber-attacks on financial information and the capital markets, and global political unrest.

Publication Date*: 10/30/2017 Identification Number: 1446 Mailto Link
Frequently Asked Questions
  Proxy Advisory Firm Reform: Conversation with Rep. Sean Duffy and Other Experts
Identification Number 1444
Proxy Advisory Firm Reform: Conversation with Rep. Sean Duffy and Other Experts
Publication Date: October 26, 2017

Nasdaq, the U.S. Chamber Center for Capital Markets Competitiveness and the National Investor Relations Institute (NIRI) hosted a discussion on November 8th, regarding H.R. 4015, Corporate Governance Reform and Transparency Act. This legislation was recently re-introduced by Congressman Sean Duffy and seeks to mitigate and balance the influence of proxy advisors by subjecting them to SEC registration and oversight. H.R. 4015 aims to improve the quality of proxy advisory firms; enhance the protection of investors; and foster accountability, transparency, responsiveness and competition in the proxy advisory firm industry.


H.R. 4015 >>

Access a replay of the discussion >>
Publication Date*: 10/26/2017 Identification Number: 1444 Mailto Link
Frequently Asked Questions
  SEC Approves Changes to Auditor Report
Identification Number 1443
SEC Approves Changes to Auditor Report
Publication Date: October 25, 2017

The SEC approved a new PCAOB rule that requires significant changes to certain public company audit reports, including disclosure of critical audit matters and auditor tenure. These changes are intended to make the auditor's report more informative. SEC Chairman Jay Clayton issued a statement that investors will benefit from understanding how auditors viewed complex matters and urging implementation of the revised standard in a way that avoids frivolous litigation costs, defensive, lawyer-driven auditor communications, or antagonistic auditor-audit committee relationships. Mr. Clayton also noted that the PCAOB intends to monitor the results of implementation, including consideration of any unintended consequences.

Read Mr. Clayton's statement here >>

Read the SEC Approval Order here >>

Read Nasdaq's comment letter on the PCAOB proposed rule here >>
Publication Date*: 10/25/2017 Identification Number: 1443 Mailto Link
Frequently Asked Questions
  Seven Tactics to Engineer Better Boardroom Dynamics
Identification Number 1442
Seven Tactics to Engineer Better Boardroom Dynamics
Publication Date: October 24, 2017 

Boardroom dynamics can make or break the effectiveness of a board. In this post, Joan Conley, Senior Vice President and Corporate Secretary at Nasdaq, shares seven tried and true tactics for engineering better boardroom dynamics.

Proxy season has come and gone, new board members have completed their orientations, and many corporate boards are wrapping up summer strategy sessions. New board members bring new boardroom dynamics—and shifting dynamics may for a period of time impact the effectiveness of a board. On the other hand, excellent group dynamics can optimize board productivity for shareholders. Nasdaq's playbook for creating a healthy team dynamic in the boardroom includes the following tactics for facilitating director engagement, innovation, and candor in the boardroom.

1. Acclimate new directors to board culture.

Even public company directors need a safe place to ask "dumb" questions. At Nasdaq, we share an overview of board culture during orientation of new directors. Between the board chair, the CEO, and myself, our new directors have the resources to confidentially ask off-line questions related to the board culture, operations, and meeting protocol.

Be prepared to answer questions that delve into the granularity of board culture, including the cadence of the board meeting, how to refer to the board chair, when to ask the CEO direct confidential questions, when to inject comments during the board meeting, and how offline conversations should be handled. Knowing these details in advance can alleviate concerns of new board members, allowing them to focus on building important working relationships and tackling board agenda items.

2. Review boardroom etiquette with new directors.

Generally, the boardroom etiquette list of "dos" and "don'ts" closely mirrors the rules we learned early in life: listen, contribute, take turns, ask questions, treat everyone with respect. However, boardroom culture and rules of order may vary widely from company to company. Providing an overview of the general protocols followed during a company's board meetings can encourage participation in a meaningful way.

3. Avoid over-processing new board members.

There is a clarity of vision that comes with a fresh perspective. The observations made by new board members during their onboarding phase and early meetings are insightful and valuable. It's therefore important to educate a board member about the company's business and culture enough to hit the ground running at their first meeting, but without interfering with the insights and candor a fresh set of eyes brings to the table.

4. Facilitate communication between corporate management and board members.

Energized and enthusiastic directors are keys to positive boardroom dynamics. At Nasdaq, the onboarding program is individualized. We strive to satiate board members' appetites for knowledge related to the areas of our business they are passionate about, whether it's technology, fintech, M&A, market trading, or regulation.

For example, if a board member comes to us with expertise in technology, we have them spend time with Nasdaq's CIO, Brad Peterson, and his team. We also expand their horizons by having them meet with all of the other Nasdaq business unit leaders to cross-pollinate the board member's technology expertise with education and experiences in other areas of Nasdaq's business.

Board members who make tangible contributions stay focused and engaged. In my experience, the more often we bring board members together with executives and business unit teams to share knowledge, the more energized Nasdaq's boardroom dynamics become.

5. Engage all directors.

A board member sitting on the sidelines at any meeting represents a lost opportunity for the group to benefit from hearing and debating potentially important questions, concerns or insights. Listen to who speaks and who doesn't speak during board meetings and employ a strategy to engage all board members. Such a strategy might include:

  • Drafting call-out questions to be used by the board chair to elicit input from all directors.
  • Reserving efforts to elicit engaging discussions from all directors during executive sessions of the board.
  • Allowing directors to process and develop their input ahead of time by alerting them of, and educating them about, key agenda issues in advance.
  • Having the board chair or CEO reach out to board members offline, to solicit their ideas and concerns and find out what may be holding them back.
Typically, once a director has successfully been encouraged to speak in a board meeting, they will continue to do so.

6. Rotate committee memberships.

Rotating committee memberships keeps viewpoints fresh, exposes board members to new aspects of the company's business and governance, and creates new working relationships among board members—all of which contribute to effective boardroom dynamics and the optimization of board productivity for shareholders.

7. Leverage seating arrangements.

There's an art to managing seating arrangements to maximize positive group dynamics, and I recommend every Corporate Secretary pay close attention to it. It's important to plan who sits next to whom during meetings and dinners, based on a number of variables:

  • Which members don't know each other well yet?
  • Which members need to engage based on the meeting agenda?
  • Whose turn is it to sit next to the Chair?
  • How can unproductive side-bar conversations be prevented?
Reviewing seating arrangements for meetings and dinners ahead of time with the CEO and chairman of the board is an extremely productive use of time and contributes to a more successful board meeting.

For more insights from Joan Conley, read Onboarding New Directors: Beyond the Board Manual >>


Joan Conley is Senior Vice President and Corporate Secretary of Nasdaq and its global subsidiary organizations and, in that role, is responsible for the Nasdaq Corporate Governance Program and Nasdaq Ethics Program. She also serves as Managing Director of the Nasdaq Educational Foundation and is a Director of the Nasdaq Entrepreneurial Center Board.

Publication Date*: 10/24/2017 Identification Number: 1442 Mailto Link
Frequently Asked Questions
  SEC Proposes Rules to Modernize and Simplify Disclosure
Identification Number 1440
SEC Proposes Rules to Modernize and Simplify Disclosure
Publication Date: October 19, 2017

The Securities and Exchange Commission proposed amendments to modernize and simplify certain disclosure requirements in Regulation S-K, and related rules, in a manner that reduces the costs and burdens on registrants while continuing to provide all material information to investors. Among other things, the proposed amendments would revise the property description requirement to emphasize materiality, add flexibility in discussing historical periods in Management's Discussion and Analysis, require data tagging for items on the cover page of certain filings and require hyperlinks for information that is incorporated by reference and available on EDGAR.


Read the Proposed Rules >>

Read the FAST Act Report >>
Publication Date*: 10/19/2017 Identification Number: 1440 Mailto Link
Frequently Asked Questions
  SEC Names Brett Redfearn as Director of the Division of Trading and Markets
Identification Number 1441
SEC Names Brett Redfearn as Director of the Division of Trading and Markets
Publication Date: October 19, 2017

The SEC announced that Brett Redfearn has been named Director of the agency's Division of Trading and Markets. The SEC's Division of Trading and Markets oversees the major securities market participants and infrastructure including broker-dealers, self-regulatory organizations (including stock exchanges), alternative trading systems, and transfer agents. Mr. Redfearn joins the SEC from J.P. Morgan, where he was Global Head of Market Structure for the Corporate & Investment Bank.

Publication Date*: 10/19/2017 Identification Number: 1441 Mailto Link
Frequently Asked Questions
  The Rise of the Investor-Centric Activism Defense Strategy by Peter Michelsen and Derek Zaba of CamberView Partners
Identification Number 1439
The Rise of the Investor-Centric Activism Defense Strategy by Peter Michelsen and Derek Zaba of CamberView Partners
Publication Date: October 17, 2017

CamberView Partners provides advice to public companies on engagement and shareholder relations, activism and contested situations, sustainability and complex corporate governance matters.

Shareholder activism is often thought of in binary terms: activist v. company, dissident nominees v. company directors. Media coverage dramatically frames the "showdown" of prominent and press-savvy activists taking on companies as both sides seek the upper hand on the way to the ballot box. While an "us vs. them" mentality makes for a compelling narrative, this framework has a major flaw: it doesn't include shareholders, who are the most important constituency in driving the outcome of proxy contests.

Gaining the support of shareholders, in particular large institutional shareholders, through a well-crafted "investor-centric" activism defense strategy is increasingly the key to success in activism situations. Below we outline how activism defense and the investor landscape have evolved and why the "investor-centric" strategy has become the optimal path to victory for most proxy contests, regardless of whether they culminate in the withdrawal of the activist, a shareholder vote or a mutually agreed settlement.

Where it Began – Tactics, Tactics, Tactics

Five years ago, it would not have been uncommon to find a whiteboard on the wall of a company boardroom in a contested situation filled with a list of tactical measures to thwart the activist's campaign: poison pills, changing bylaws, moving meetings to remote locations, lawsuits, and shifting record dates. The primary focus of a tactical strategy was to outmaneuver the hostile acquirer or activist, the latter of which was more often than not pursuing a straightforward "sell the company" or "lever up and distribute" thesis and had limited ability to sustain a multi-year campaign.

Today, investors and proxy advisory firms are more skeptical of actions taken by the Board that appear purely tactical or are otherwise perceived as impinging upon shareholder rights. Often, these actions carry the risk of souring investors who might otherwise be willing to support the company but feel disenfranchised from decisions that materially impact the value of their portfolio company. While such tactics may still be part of the activism defense toolbox, they should be considered with great care and in the context of their impact on maintaining support from companies' increasingly diverse and sophisticated shareholder base.

The Activist-Centric Defense Strategy

As tactical considerations became less effective as an activism defense strategy, boards turned their focus directly to the activists and their agendas. Specifically, some companies took actions with the goal of either preempting the activist or appeasing them, aiming to implement enough of the activist's thesis to make the remainder of their demands not worth fighting for. The resonant concept was that boards should "think like an activist." In some cases, these actions resulted in a settlement with the activist or the activist withdrawing after achieving a partial, but "sufficient," victory.

However, in present times the major problem with a defense strategy focused primarily on addressing the concerns of an activist is that while the activist may have been satisfied by the outcome, some or many of the activist viewpoints may not have been shared by the broader base of long-term investors. In fact, in recent years, there has been significant pushback from large institutional investors, whose risk profiles and investment time horizons often differ from those of a vocal activist fund, about the practice of companies reaching settlements without receiving input from other shareholders. An unsettled shareholder base can leave companies vulnerable to a follow-on campaign either by the initial activist or another activist with a different agenda.

Evolution of the Investor Landscape

The evolution of defense strategies has occurred against a backdrop of recent tectonic shifts in the investor landscape that have reinforced the centrality of the broader, long-term shareholder base in activism situations. The oversight failures of the early 2000s and 2008 financial crisis spurred many investors to become more active owners and voters. Over time, governance-focused institutional investors have built out their proxy voting teams, which has allowed them to engage with a broader range of companies and other market players. Activism itself has undergone a transformation, with activists seeking to shed their "corporate raider" label while building relationships with investors. Additionally, active managers under pressure to generate alpha are more receptive than ever to activist theses.

Underlying all of this is the increasing concentration and acceleration of fund flows into passively managed index funds and ETFs over the past several years. Today, the top five institutional shareholders hold more than 20%, on average, of S&P 500 companies and one of the three biggest index funds (BlackRock, Vanguard and State Street) is the largest single shareholder in 88% of companies in that same index. These passive investors are increasingly important as they tend to have a longer-term perspective which results in them being more willing to support a company if they believe in its long-term strategy regardless of potential short-term negative impacts to the business or stock price.

The growth of assets held by passive investors has also heightened the focus on corporate governance and board-related matters across the market. These topics are now a critical focal point in activism campaigns. As a result, success in an activist situation now increasingly requires companies to persuade and win the support of a range of constituencies much broader than the traditional portfolio manager and buy-side analyst community, including governance teams, proxy advisory firms and key asset owners such as public pension funds.

The Investor-Centric Defense

The evolution of the investor landscape, in addition to the aforementioned problems that have arisen with prior defense strategies, has elevated the concept of an "investor-centric" defense strategy. Unlike previous strategies, this approach begins well before an activist arrives with their demands and is built on companies understanding their investors' concerns through years of engagement and relationship building. As the Chairman and CEO of Vanguard recently wrote, quoting a corporate CEO during one of their engagements, "You can't wait to build a relationship until you need it."

Rather than "think like an activist," the right approach for companies is to "think like a shareholder representative": engage with investors, understand and incorporate their perspectives, and educate them on why the company is pursuing a particular strategy, particularly before an activist appears. Ongoing dialogue enables companies to build credibility with key decision-makers within both the investment and governance teams at institutions, even if there are topics where these disparate teams are not in complete agreement. Even in situations where there is a large and supportive base of retail investors, it is these key decision-makers who will make the ultimate difference between winning and losing.

While companies typically have very active investor relations efforts focused on portfolio managers and research analysts, they must also understand how to engage with all investor constituencies that will drive outcomes in a potential activist situation.

For actively-managed funds, where communication during an activism situation is frequent, feedback will generally be more direct and the decision-making process will be primarily focused on core economic issues. Companies that have built buy-in for their strategy in advance of a fight by being responsive to feedback from these funds will benefit from a higher probability that these investors will vote with management.

On the other hand, governance-focused investors often enter a fight with a limited understanding of the company and are concerned about a range of strategic, financial and governance elements. Building trust with this constituency often means demonstrating that the company has the right board in place to evaluate and oversee long-term strategy, and that the board is operating with a focus on the best interests of shareholders. While this trust can be established in the fast-paced environment of a proxy fight, companies that have proactively built relationships with governance teams and proxy advisors will generally fare better than those that are scrambling to do so under a stormy sky.

With all of this in mind, it is clear that companies in an active defense situation must evaluate every decision through the lens of how investor constituencies will view the action and how it will affect the potential vote. Even if a threatened proxy contest ends in settlement, the leverage that companies have in negotiation derives primarily from the support of these key investors.

Takeaways for Issuers

The delicate balance among boards, management teams, investors and activists is a constantly-changing equation. Over the past several years, a small number of asset managers have amassed trillions of dollars of assets and significant power. These investors represent the ultimate "swing vote" that can effectively determine the outcome of an activist situation and are more willing than ever to exercise their vote. Activists have adapted their approaches to appeal to this increasingly powerful bloc of voters, while public companies have been somewhat slower to proactively build relationships beyond traditional investor relations efforts.

Given these new dynamics, it is critical that companies view their potential actions through an investor lens, whether three weeks before a meeting or during the off-season. A key step is engagement and relationship-building with all key investor constituencies before being confronted by an activist. If an activism situation occurs, company management and board will be able to draw on the trust generated with key decision-makers, will have had the opportunity to tell their story on critical strategic and governance issues, and will have heard and addressed the feedback and concerns of their investors.


Peter Michelsen is President and Co-Head of the Contested Situations Practice of CamberView Partners.

Derek Zaba is a Partner and Co-Head of the Contested Situations Practice of CamberView Partners.

CamberView Partners provides advice to public companies on engagement and shareholder relations, activism and contested situations, sustainability and complex corporate governance matters. CamberView helps its clients succeed by providing unique insight into investors' perspectives on long-term value creation, interpreting the evolving governance landscape and creating proactive strategies to stay ahead of investor challenges.

CamberView's services include: Shareholder Engagement, Governance Advisory, Sustainability, Complex IR Strategy, Say on Pay, "Vote No", Environmental, Social and Governance Shareholder Proposals, Activism Defense, Hostile M&A, Complex "Friendly" M&A, and Defense Preparedness.


The views and opinions expressed herein are the views and opinions of the author at the time of publication and may not be updated. They do not necessarily reflect those of Nasdaq, Inc. The content does not attempt to examine all the facts and circumstances which may be relevant to any particular company, industry or security mentioned herein and nothing contained herein should be construed as legal or investment advice.

Publication Date*: 10/16/2017 Identification Number: 1439 Mailto Link
Frequently Asked Questions
  Treasury Releases Second Report on the Administration's Core Principles of Financial Regulation
Identification Number 1438
Treasury Releases Second Report on the Administration's Core Principles of Financial Regulation
Publication Date: October 11, 2017

The U.S. Department of the Treasury released a report outlining ways to streamline and reform the capital markets. The report contains proposals to address the decline in publicly-traded companies, reform today's regulatory environment, and end the current one-size-fits-all market structure, including recommendations to increase the minimum ownership amount required for shareholder proposals and for the SEC to further study and evaluate proxy advisory firms.

Read Treasury Press Release >>

Read the Treasury Report >>

Read more from Nasdaq >>
Publication Date*: 10/11/2017 Identification Number: 1438 Mailto Link
Frequently Asked Questions
  Nasdaq Talks to . . . Express Scripts' CEO Tim Wentworth about Why He Believes Inclusion is the Soil in which Diversity can Flourish and Contribute to Competitive Success
Identification Number 1437
Nasdaq Talks to . . . Express Scripts' CEO Tim Wentworth about Why He Believes Inclusion is the Soil in which Diversity can Flourish and Contribute to Competitive Success
Publication Date: October 9, 2017

Express Scripts Holding Company (Nasdaq: ESRX) is a Nasdaq-100 company that believes "diversity and inclusion are the foundation on which success and growth are built." This company walks the talk, from the boardroom to the front lines of its workforce. The Express Scripts board is over 40% gender and ethnically diverse, while the company's 26,000-strong workforce is nearly 70% female and 40% minority. The average age of Express Scripts' workforce is 43 and over a third of its management personnel are under age 48.

Nasdaq spoke with Tim Wentworth, CEO of Express Scripts, to find out how the company built a culture based on holistic diversity and inclusivity, and nurtured it into a competitive advantage.

Q: Express Scripts states in its proxy that "broad-based diversity is an important attribute of a well-functioning board." Can you share how diversity contributes to the effectiveness of your board?

A: I'm one of the luckiest CEOs in America, I have a tremendous board that collectively understands and collaboratively analyzes the issues we face in a way they couldn't do if they weren't so diverse.

Many companies view diversity as a goal, rather than a byproduct of how you build the culture, how you run the company, and how you build a governance model. Express Scripts is focused on patients and operates within a very complex health-care system, so it was natural for us to recruit people to the board who represent a broad range of perspectives and come from different backgrounds. It was imperative to create an environment where those views are fully contributing to the mission of making us a better-governed and more effective company.

Express Scripts' commitment to diversity and inclusion starts at the very top of the company, and that is a very powerful dynamic for me as a CEO—and a powerful motivator of our employees.

Q: Express Scripts diversity and inclusion model extends to its workforce. How has Express Scripts achieved such a diverse workforce and why does the company view diversity in its workforce as a competitive advantage?

A: Our workforce deliberately reflects the patients we serve and Express Scripts has been very intentional about diversity for a long time. Diversity of race, gender, age and thought means we reflect our patients and clients and understand their individual needs much better. Our governance committee and our broader board have made diversity a priority. There is not a board meeting that I attend where we don't talk about the diversity of our workforce broadly—and our board specifically—and ask if we are doing enough.

Inclusion is the soil in which diversity can flourish and contribute to competitive success. We continually build programs and initiatives that support our demographically shifting workforce, which ensure we get the best from everybody who comes in the door. By engaging our employees in recognizing and legitimizing the differences that we all bring to work—and identifying how they make us a better company—we have created a workforce that is biased towards action.

Our inclusion model is based on three pillars: culture, engagement and leadership. We built six broad-based employee resource groups (ERGs) that have focused our cultural diversity initiatives and business strategies from the ground up. Every one of the ERGs has an executive sponsor. We have nearly 5,000 employees participating, which on a benchmark basis is very high for a company our size. More importantly, our employee-survey results tell us that members of these groups are the most engaged and the most likely to recommend us as a place to work.

Employees judge us by how we treat, engage with, and support that community. Our resource groups make employees feel better about the company they work for, and that's a very important byproduct of executing inclusion well.

Q: What can other Nasdaq companies learn from Express Scripts about the benefits of a culture of inclusion and diversity?

A: Diversity and inclusion create a culture of unity that benefits everybody. Employees feel part of something larger than themselves; they are no longer just members of a particular community or department, but part of a diverse and unified company from the board all the way to the entry-level of the workforce.

Our employees acknowledge that they work for a company where the words match the music—a company that is committed top to bottom to inclusion. This provides motivation that goes beyond a 3% pay increase.

The benefits of diversity extend to the fiduciary duty of every public company—creating value for shareholders. In Express Scripts' case, this means fulfilling our mission of putting medicine within reach.

Our shareholders can be confident that our board is seeking, and thoughtfully considering, input from across the entire organization in pursuit of that mission. Express Scripts' solid foundation of diversity and inclusion drives alignment around our broader mission, because our employees don't question whether they are included—they know their voices count.

Q: Many companies claim they have a hard time finding diverse candidates for board service. Can you share how Express Scripts overcame that obstacle?

A: There's no question that it's a challenge to diversify a board, but the real obstacle is ensuring the company is attractive to diverse talent in the first place. The goal should be recruiting talented leaders who represent diverse perspectives and come from diverse backgrounds.

Express Scripts' culture works for us when we are recruiting board members. When we were searching for a new board member a couple of years ago, our candidate pool included two extraordinary African-American leaders. These two individuals had unique and important skill sets related to Express Scripts' corporate mission. As a board, we quickly realized we had a chance to bring on two diverse and highly sought after board members, and after minimal discussion decided it wasn't an either/or proposition. The fact that both of these talented individuals were interested in us is indicative of the fact that they felt our culture and our board was going to be a welcoming place for them to contribute.

Kathy Mazzarella, who is the Chief Executive and President of Graybar Electric Co., is another example of a highly talented candidate who was attracted to our board. She's a tremendously strong leader with a great skill set. She saw in us what we see in ourselves – a diverse board that attracts strategic thinkers who can help solve healthcare's biggest challenges.

Q: How does the Express Scripts governance committee define "diverse slate of candidates" to a search firm?

A: It all starts with what your board needs from a skill-set standpoint. It's not sufficient to have a diverse board that doesn't have the right skill sets. All our board members bring complementary skill sets to achieving our business goals and growing value for our shareholders.

The challenge to our search firm was very simple: "These are the skill sets we need. Go find us diverse leaders who have those skills."

We don't mandate a ratio for the slate, beyond sharing our bias towards diversity. I'm not going to fire a search firm that can't bring me a 40% diverse slate if they can bring me one or two terrific diverse candidates we can consider based on the skills that we need on the board.

We also turn to our own board to add people, they know and have worked with, to the slate. An advantage of having a diverse board is that they are a great resource in finding and attracting other highly qualified and diverse candidates.

Q: What are your thoughts on why the diversity needle is moving slowly in corporate America?

A: For the most part corporate America has very good intentions, but a big part of the problem is limiting the talent pool to CEOs. As a sitting CEO myself, I'm not going to be on other company boards. I've got enough to do, right now.

Competition for qualified diverse candidates is increasing because board diversity is in the governance spotlight now. The board members we recently added had many other companies that would have loved to retain them, so we're very grateful that our mission and our culture attracted them.

Given that environment, companies are going to need to broaden the search aperture a bit—perhaps looking at CEOs recently retired, or executives who weren't CEOs but do have C-suite experience. Rick Palmore, for example, was General Counsel at General Mills, one of the most admired companies in America.

If companies expand their searches to SVP-level candidates who have CEO potential or broader leadership potential, they can find high-quality candidates who will benefit from the experience and bring important skills to the table. A talented division president who is diverse and has high potential would be a strong board member for many companies.

Q: If a company doesn't have a diverse board today, what is a first step in that direction?

A: Start with a very honest conversation about the true level of commitment to diversity and inclusion, and what the path is going to be to change the composition.

The path to board diversity isn't just bringing in a face, it's acknowledging that things need to evolve to allow leaders to be successful and contribute in a meaningful way. The board needs to ask honestly "Are we committed to creating an environment where a woman or a minority can be highly productive?"

That journey also starts with the employee base. Prospective board members are going to notice if a board doesn't match its aspirations with its own employee base. If the board is honest about its culture, and the culture of the company it is governing, the rest will follow naturally.

Q: How does a board that has no diversity convince a talented minority or female candidate to join them?

A: Have the courageous conversation around how you got to this point, and have the conviction to share that honest conversation with talented candidates. Focus on where you want to get to, set a course and be tenacious in achieving your goals. Talented, diverse board members are available. Make them available to your company.

Express Scripts Holding Company (Nasdaq: ESRX) is the largest independent pharmacy benefit manager in the United States and has been recognized by numerous organizations for their commitment to diversity and equality. Express Scripts scored 100% on both the Human Rights Campaign Foundation's 2017 Corporate Equality Index and the U.S. Business Leadership Network's 2017 Disability Equality Index. For the past two years, Express Scripts was also included in DiversityInc's 25 Noteworthy Companies.
Publication Date*: 10/9/2017 Identification Number: 1437 Mailto Link
Frequently Asked Questions
  Tone from the Top: Influence Boards Don't Know They Have by Dr. Phillip Shero
Identification Number 1435
Tone from the Top: Influence Boards Don't Know They Have by Dr. Phillip Shero
Publication Date: October 3, 2017 

Dr. Phillip Shero is the President of MasterMinds Leadership and works with CEOs and Board Chairs to build bridges of trust and accountability.

In a recent conversation, the Corporate Secretary of a Fortune 500 company proudly explained to me their culture of accountability and intentional investment in leadership at all levels.

"That sounds amazing," I said. "Tell me, what is the board's role in creating and sustaining that culture?"

He said, "There's not much the board can do about that. Culture is the CEO's job."

Therein lies the problem.

We have done such a good job emphasizing management's responsibility to drive culture that directors don't see the levers of culture available to them. If we want to succeed at creating the right "tone at the top," boards must recognize and embrace their levers of influence.

No Accidental Success

Consistent success over time is not an accident. It is purposeful. If the culture was truly exceptional at his company, I could not believe that the board was not involved.

I asked further questions and pointed to examples the Corporate Secretary had already given me to help him see the board's role in their success. His eyes went wide and he said, "Yes! I guess we did play a part." He was then able to cite several practical situations where the board set a tone for accountability and leadership development. Even in situations where the board was not directly involved, he was able to see how the members knew of and supported management's efforts to develop leadership and accountability.

One of his examples was an annual board meeting where the achievements of two dozen high potential employees were celebrated. He affirmed that the directors knew who these up-and-coming leaders were and were proud of their development.

His story is a clear case of unconscious competence: until that conversation, he did not realize what his board was doing right or how powerfully it supported their company's culture and tradition of leadership development.

Where are the Levers of Culture for Directors?

The Corporate Secretary was right in this: the two functions of management and governance have different arenas of responsibility. Directors do not have the same proximity to employees or opportunity to influence culture daily that the CEO and executive team have.

However, directors do have three levers to intentionally influence the culture of their organizations. These are the levers of Leadership, Alignment, and Perspective.

1) The Leadership Lever: Hiring the right CEO and building a relationship of genuine trust.

Boards select a CEO for many reasons—not least of which is his/her ability to drive profit. However, we know that not all profit is equally good. An executive can slash jobs and create profit instantly, but the effects on morale and culture will diminish those returns over time.

David Katz writes in Harvard Law School's Forum on Corporate Governance that cultural fit is one of two key elements in the CEO selection process. I believe his criterion can be strengthened further—a CEO candidate must have demonstrated ability to create and sustain healthy cultures, not just fit the culture that already exists.

Selecting the right CEO is a massive culture lever for directors, but it can only be moved about every 5 years. Therefore, directors must give attention to relationship quality.

The CEO selection lever has a dial to the side, which measures the trust, transparency, and relationship quality between the Board and CEO. Directors can influence organizational culture by turning up that dial to increase trust and transparency in the boardroom. One of the best ways I know to begin creating more trust between directors and the CEO is by getting to know each other outside of board meetings. Any process that creates the ability to share and recognize each other's strengths and weaknesses will strengthen the foundations for trust.

2) The Alignment Lever: Modeling the culture and rewarding a single standard.

It may come as a surprise to think of the culture of the boardroom as a reflection and lever of influence on the culture of the organization. Edgar Schein described culture as a combination of shared beliefs, values, and actions (or artifacts). All three are present in a board meeting: shared beliefs (what is true and/or real), shared values (what is important), and shared actions (what we do).

The cultural artifacts of the boardroom include how people are greeted, what makes it onto the agenda, how much time is given to different topics, what relationships are cultivated, whether interrupting speech is tolerated, and whether healthy conflict is possible or encouraged.

Along with modeling the desired culture in the boardroom, directors can leverage their interactions with the CEO to influence culture through relentless pursuit of alignment.

One way to pursue alignment is by rewarding a single standard. Note this example of a double standard: the board desires a culture where Millennial workers are developed and retained, but the CEO is rewarded for cutting lower-level jobs to achieve projections.

Directors can measure their current alignment through use of strategy-focused board surveys, facilitated by a third party. Many board surveys are heavily weighted toward compliance with standards and regulations, which tell little about internal alignment. However, a survey weighted toward strategic issues can reveal misalignment between governance and management early enough to make corrections.

3) The Perspective Lever: Asking the right questions and cultivating multiple perspectives.

As humans, directors and chairs must overcome the built-in social pressures that suppress hard questions. I continue to read about and hear from directors who do not ask questions out of concern that they would look uninformed or out of step.

In recent years, directors have been encouraged to ask more questions about more types of risk, including cybersecurity. Boards know they are responsible for risk. Yet, there is a disconnect when it comes to asking relevant and probing questions about culture, often until it blows up on the news. When bad news breaks, defective cultures are usually blamed on CEOs, with boards taking little responsibility. Consider recent news related to companies with broken cultures that resulted in a variety of toxic practices, including customer abuse, sexism, gender bias, and massive sales fraud. In each case, the assumption is that the CEO is at fault for bad culture. The board bears little or no responsibility.

A report issued by one company cited management's failure to correct an oppressive sales culture. The board did acknowledge some responsibility, but the report couched it as a structural issue—i.e. the board failed to fix a flawed, decentralized structure. Even with that admission, board members complained that they were not made aware of complaints and cultural problems. Perhaps so, but did they ask the right questions?

In addition to asking deeper questions about culture, directors can move the lever of culture by cultivating multiple perspectives. The board should ensure that it hears from various sources. If an internal study is commissioned, let the person who led the study present the report to the board personally. If an external consultant assesses the culture, the board should hear their findings in person. When it comes time to conduct evaluations, invite a third party to facilitate the survey and interpret the results.

The need to cultivate multiple perspectives is not an indictment of the CEO's or chair's lack of objectivity. Nor does it indicate lack of trust. Instead, hearing from multiple voices allows the directors and CEO to listen together, reflect together, ask questions together, and eliminate bias together. Important cultural indicators emerge from this shared listening, which can be easily overlooked when the same few sources always provide and interpret information.

Directors need to ask themselves the hard, honest questions about their attention to cultural health, and they need to brace themselves for the answers. What voices have been invited to speak in the boardroom outside of the top management team, audit firm, and legal advisors? What insights and new perspectives did they gain from hearing them? How deeply did they dig to understand the information that was shared?

Shifting "Tone at the Top" by Moving the Levers

Boards that want to shift the "tone at the top" must first recognize that they, as directors, have real influence on the culture of the organization. Directors can work together and individually to move the levers of Leadership, Alignment, and Perspective to actively extend their influence and shape the culture of the organization.


Dr. Phillip Shero is the President of MasterMinds Leadership and an executive coach to CEOs, senior management teams, and boards. He lived in Uganda for 15 years, where he became the co-founder and first president of LivingStone International University, an accredited liberal arts institution dedicated to producing ethical and empowered leaders in Africa. His firm specializes in executive leadership development, coaching high performing senior teams, and strategic planning. Dr. Shero writes weekly on leadership and publishes on LinkedIn.

The views and opinions expressed herein are the views and opinions of the author at the time of publication and may not be updated. They do not necessarily reflect those of Nasdaq, Inc. The content does not attempt to examine all the facts and circumstances which may be relevant to any particular company, industry or security mentioned herein and nothing contained herein should be construed as legal or investment advice.

Publication Date*: 10/4/2017 Identification Number: 1435 Mailto Link
Frequently Asked Questions
  SEC Provides Regulatory Relief for Hurricane Victims
Identification Number 1433
SEC Provides Regulatory Relief for Hurricane Victims
Publication Date: October 2, 2017

The Securities and Exchange Commission announced that it is providing regulatory relief to publicly traded companies, investment companies, accountants, transfer agents, municipal advisors and others affected by Hurricane Harvey, Hurricane Irma, and Hurricane Maria. To address compliance issues caused by these hurricanes, the Commission issued an order that conditionally exempts affected persons from certain requirements of the federal securities laws for periods following the weather events, including extensions for companies to file Exchange Act annual and quarterly reports.


Read the SEC Order >>
Publication Date*: 10/2/2017 Identification Number: 1433 Mailto Link
Frequently Asked Questions
  Results of 2017-2018 ISS Global Policy Survey
Identification Number 1432
Results of 2017-2018 ISS Global Policy Survey
Publication Date: September 28, 2017

Institutional Shareholder Services ("ISS") has released the results of its Governance Principles Survey for 2017-2018. The survey, which was open to institutional investors, corporate executives, board members and any other interested constituencies, covered key topics including voting rights, gender diversity on boards, virtual meetings, and pay ratio disclosures.

Publication Date*: 9/28/2017 Identification Number: 1432 Mailto Link
Frequently Asked Questions
  SEC Adopts Interpretive Guidance on Pay Ratio Rule
Identification Number 1429
SEC Adopts Interpretive Guidance on Pay Ratio Rule
Publication Date: September 26, 2017

The Securities and Exchange Commission approved interpretive guidance to help companies comply with the upcoming pay ratio disclosure requirements. Companies are required to begin making pay ratio disclosures in early 2018. The guidance address the use of estimates and statistical sampling, and clarifies that a company may use appropriate existing internal records, such as tax or payroll records. According to SEC Chairman Jay Clayton, the guidance "is intended to assist companies with their compliance efforts and reduce the costs associated with preparing disclosures."

Read SEC Press Release >>

Read Interpretive Guidance >>
Publication Date*: 9/26/2017 Identification Number: 1429 Mailto Link
Frequently Asked Questions
  Nasdaq Talks to the Equity Dealers Association about . . . Incentivizing EGCs to Go Public and Providing More Opportunities for Individual Investors
Identification Number 1431
Nasdaq Talks to the Equity Dealers Association about . . . Incentivizing EGCs to Go Public and Providing More Opportunities for Individual Investors
Publication Date: September 26, 2017

Reforming the capital markets has become a priority for investors, public equity firms, and regulators alike in the wake of the decline in the number of public companies in the U.S. At Nasdaq, we recently drafted a blueprint for revitalizing the capital market ecosystem, and are collaborating with other organizations intent on that same goal.

One such organization is the Equity Dealers of America (EDA). The EDA is a trade association formed to promote fair, efficient, and competitively balanced equity capital markets that protect investors, advance financial independence, stimulate job creation, and increase prosperity. In addition to policy advocacy and public outreach, the EDA hosts meetings on the equity markets to inform and educate its members on the issues relevant to their businesses.

"The EDA is working to incentivize emerging growth companies to enter the public equity markets and give individual investors an equal opportunity to participate in their growth," said Chris Iacovella, CEO of the EDA. "We want to ensure that small businesses can access the capital they need to create jobs and grow the American economy."

According to Iacovella, the path forward is two-fold and must be bipartisan. In order to reduce the compliance burden on EGCs and stimulate liquidity in their stocks, the EDA is drafting a regulatory agenda that can be implemented by the SEC as well as outlining statutory changes for Congress.

"Next year is an election year and since this is a jobs issue, the EDA believes there is a real opportunity to move forward to resolve these issues," said Iacovella. Following are a number of the capital market reforms the EDA is advocating:

Revamp market structure.

The JOBS Act was a good start to try and generate more IPOs in the marketplace, particularly by establishing a category of emerging growth companies (EGCs) with revenues under $1 billion. However, it's necessary to build on that concept to reduce disclosures and the costs associated with some of the internal controls, as well as modify the market structure so that it is applicable to emerging growth companies.

The one-size-fits-all construct put forth under Regulation NMS ten years ago does not work for small- and medium-sized companies, as the current equity market structure increases fragmentation and disproportionately harms EGCs. This needs to change, and the EDA is advocating for market structure reforms at the SEC.

There was an initiative recently to create venture exchanges to address this issue, but venture exchanges are not necessary. It makes more sense to empower issuers to choose whether they want to be a Reg NMS corporation or have their security traded on the exchange that they list on. This would cure the fragmentation occurring in smaller issuer stocks, as many are very illiquid and transact only 50,000 to 200,000 shares a day. If more EGCs choose to have their security traded only on the exchange that they're listed on, then centralized pools of liquidity will develop.

As liquidity improves, EGCs may be able to incentivize broker dealers to make markets and pay for research. The entire research ecosystem must be changed—the more research coverage that EGCs get, the better off they will be in terms of people wanting to transact in their stocks.

The time is right for a secondary market structure change, because the SEC's Investor Advisory Committee and Advisory Committee on Small and Emerging Companies are both also looking at ways to improve liquidity and increase research in these small company stocks.

Allow EGCs to opt out of Sarbanes-Oxley 404(b).

Allowing issuers that generate $1 billion or less in revenue to opt out of Sarbanes-Oxley 404(b) will lower the regulatory tax burden on those companies. Independent audits are one of the largest costs incurred by a small company when it first goes public, and those costs are ongoing.

Investors and issuers are aligned on this issue. Accounting firms want more public companies too, but reforms to Sarbanes-Oxley must be tackled in a manner that brings them into the process. For example, by relaxing independence rules for EGCs that choose to opt out of 404(b), accounting firms could be permitted to offer audit and consulting services to those companies until they exceed the $1 billion revenue level or become a Reg NMS security.

Streamline the SEC's disclosure regime.

There are certain industries, and companies within certain industries, where it doesn't make sense to go through the burden and substantial costs of filing 10Qs every quarter, supplementing with 8-Ks, and then bearing the cost of issuing a 10K at the end of the year.

For example, new biotech companies lose money until they have approval from the FDA. During the product development phase, it's not relevant to the investor to know anything other than where they are in the pipeline process of working their drug or their solutions through Phase 1, Phase 2, and Phase 3 of FDA approval. There are other industries that operate in a similar way.

While there is a substantial investment that goes into a biotech or any emerging company, the 8-K process can address those investors. If that information is not sufficient to investors, they will vote with their feet. If investors sell off a company's stock, then management will have to do something different, maybe go back to filing the Qs. Or perhaps the investors who hold the stock will say "We don't mind that you're only filing 8-Ks here, but we'd like to see at least some financials on a quarterly basis."

This idea also reduces short-termism by encouraging investors to allow enough time for critical research and development to bear fruit.

Increase the shareholder proposal threshold.

Frivolous shareholder proposals filed by low-dollar investors are becoming a burden for EGCs, who desperately need their time, resources, and capital to run and grow the business. Increasing the amount of stock that shareholders are required to own from $2,000 to $100,000 would reduce the costs associated with politically motivated proposals that are designed to advance personal agendas and interfere with corporate governance. This can only benefit EGCs as they will be able to put the limited resources they have to their highest and most efficient use.

Exempt pre-IPO discussions from Section 17 liability.

Fear of Section 17 misstatement liability is another hurdle to going public. Research analysts are focused on the future value of a company; however, potential issuers are often hesitant to speculate about future company valuations, cash flows, business lines, or multi-year growth projections because they're worried if projections don't come to fruition the company will be hit with a Section 17 misstatement liability. This issue could be resolved by allowing more free-flowing dialogue between issuers and potential investors and analysts during pre-IPO evaluation discussions and roadshows, while confining Section 17 liability to the offering documents themselves.

Increase the opportunities for individuals to invest in EGCs.

The ability to invest in EGCs has long been an opportunity for retail investors to build wealth. As the number of public companies dwindles, retail investors are being forced into passive investments, while private capital benefits from the wealth acquired during the growth stages of companies.

"The EDA wants to bring back the environment that existed when Walmart went public," said Iacovella. "In 1970, Walmart issued a 28-page prospectus and that initial offering raised just $5 million. The company continued to go back to the capital markets in subsequent years. The growth Walmart experienced since going public revitalized the economy of northwest Arkansas, and the folks who invested in Walmart over the years have been handsomely rewarded for it. That is a perfect example of how the equity capital markets are supposed to work."


Chris Iacovella is Chief Executive Officer of the Equity Dealers of America (EDA). Previously he was the Senior Director of Global Government Affairs, Strategy, and Public Policy at Bloomberg, L.P. where he worked directly with Bloomberg's internal businesses on regulatory solutions and interfaced with policymakers and regulators across the globe to discuss equity, fixed income, and derivatives market structure policy.

Read more about Nasdaq's blueprint for Revitalizing the Capital Markets >>
Publication Date*: 9/26/2017 Identification Number: 1431 Mailto Link
Frequently Asked Questions
  Nasdaq and the U.S. Chamber release their 3rd annual Proxy Season Update
Identification Number 1428
Nasdaq and the U.S. Chamber release their 3rd annual Proxy Season Update
Publication Date: September 21, 2017

The U.S. Chamber of Commerce's Center for Capital Markets Competitiveness and Nasdaq partnered this fall for a survey of public companies regarding their interaction with proxy advisory firms during the proxy season. Over 140 companies responded to help policymakers better understand the relationship between public companies, proxy advisory firms, and institutional investors.


Publication Date*: 9/21/2017 Identification Number: 1428 Mailto Link
Frequently Asked Questions
  Ransomware Defense for Boards by Betsy Atkins with input from Bill Lenehan
Identification Number 1427
Ransomware Defense for Boards by Betsy Atkins with input from Bill Lenehan
Publication Date: September 20, 2017

For all the clever coding involved, most ransomware delivers a very crude but deadly message when it strikes your company. Important company files are locked, and may be destroyed, unless you pay a specific ransom amount, anonymously, with a short deadline. At that point, panic sets in. But if your top management, IT team and board of directors have devoted some time, thought and resources in advance, you'll know how to respond (and might dodge the bullet altogether).

In my own recent boardroom experience, how boards should deal with cybersecurity is one of the hottest topics. I've been an evangelist for getting boards active in setting and assuring effective corporate digital policies. Much of this should be basic good governance for the twenty first century. Realize that a cyber-attack is now a matter of when not if. Make your board digitally savvy so it can ask smart questions on technology, threats, and liabilities. Assure things like up-to-date platforms, software, and third-party testing.

I should note that the majority of company hacking attacks still involve these conventional threats -- the cyber equivalent of smash-and-grab theft. However, the special dangers posed by digital hostage taking demands a unique corporate governance role. If regular hackers penetrate your systems to steal money or data, there are few shades of grey. There may be debates between IT and the rest of management on budgeting for safeguards (the board should be IT's advocate and "nudger" on this, by the way). However, the priorities after a conventional breach are never in doubt -- assess and limit the damages and learn from the attack.

Ransomware is existentially different and goes to the heart of a board's governance and fiduciary role. Do we as a company pay a ransom demand or do we take the moral high ground and say no? Your board needs to tackle this question, with its uncomfortable blend of technology and ethics, now, before an attack. The major ransomware strains, such as Petya and WannaCry, offer a short time frame (sometimes as little as 24 hours) to pay up or face the consequences. Convening a board meeting that quickly to deal with a flash crisis would be both impractical and unwise. Further, the actual ransom itself can be oddly small. Would you really convene an emergency board session to discuss expending $1,000?

Real-world board experiences with ransomware suggests there is a better way. I've seen ransom demands first-hand at one of my boards, and spoke with Bill Lenehan, CEO at Four Corners Property Trust, who's also faced these traumas. We have observed a number of effective strategies specifically targeted at dealing with the unique threat of a ransomware attack:

Have the ethical discussion before a ransomware attack occurs. Your top executives and IT staff need guidance from the boardroom on the big question of whether or not the company should submit to a demand for ransom. The decision is not an easy one; losing business (and perhaps the business itself) by taking the moral high ground is not your call as a shareholder fiduciary. Your number one mission is to protect the business for investors. That may involve the tough decision to pay up if it will save data or needed access.

"Boards need to provide guidance and support on how this is handled," recalls Bill Lenehan. He finds laying out the issues directly to the board helps clarify their thinking. "I was talking with a 70-year old board chair, and said 'Let me throw you a curve. You're trying to close a $200 million acquisition, when suddenly, your employees get a ransomware demand for a total of $3000. If you don't pay, you jeopardize the deal, your relationship with numerous counterparties, and maybe the company itself.' The response, 'My God, I never thought of this!??'"

Hold this debate now at the board level, because when a hacker's WARNING screen pops up, it's too late for philosophy.

Shape a corporate ransomware response policy based on the ethics discussion. Take the strategic principles the board has developed for responding to ransomware attacks and turn them into a working tactical policy. Include functional steps, like who is to be notified, who makes the final payment decision, damage/cost tradeoffs to weigh, etc. Also, will you even be able to pay the crooks? It sounds distasteful, but assure that you have the mechanisms in place to quickly meet the ransom demands if you choose to.

"You don't want to be scrambling to pay, figuring out how to practically make this work," Bill Lenehan recalls from his own experience as CEO of Four Corners Property Trust. At 5:30 one morning, he received a text message from the company controller telling him there was a problem -- a short-term ransomware attack was spreading globally. "Our board chairman was out of the country, hours behind us, so what do I do as CEO? Would I pay, or not pay, do I need to inform my board, or just hurry to set up a Bitcoin account?"

The CEO and other staff should not have to make these decisions on the fly -- and if they do, it's the fault of the board, which didn't prepare in time. "Ransomware is not the fault of the CEO," notes Lenehan. "It's like a school snow day -- you have to set your decision policies in advance." (Lenehan also notes that his small company has a staff of 12, and is as far off the business news radar as can be -- yet hackers still found them).

No policy can mean inability to respond at all. At a major company whose board I had served on, we faced a short-term ransomware demand, and decided we had to pay. But the hackers demanded payment in Bitcoin, and the company didn't have a Bitcoin account. This took two days to set up -- by which time the deadline had passed. In the missed deadline experience I referred to, we were able to negotiate a compromise. We were ultimately able to decrypt our files.

Also, ask what you'll do if other problems crop up. In Europe, a recent Petya attack demanded payment to the bit-napper's Posteo email account. But before victims could comply, Posteo had blocked the mailbox.

Beware risks related to ransomware attacks on third-party affiliates. Ransomware is not just an internal danger. Even after you shape a sound emergency policy for your corporate response, what about the suppliers, customers and advisors you depend on? Lenehan tells of a ransomware strike, not at his company, but at a major law firm they were depending on to close a $20 million acquisition. "The lawyers got an email from IT early in the morning telling everyone not to turn on their laptops and check them in immediately." A pending deal was suddenly frozen solid.

What would happen at this very moment if one of your top vendor's or client's IT system instantly went dark for an uncertain period of time? Are they able to back up their information with systems completely walled off from the afflicted ones?

Fight hackers with unconventional warfare. Above, I noted the generic things a board can do to improve the technical odds of avoiding and fighting cyber mischief. Push IT to innovate outside its normal comfort zone. Third-party vendors like Optiv, SecureWorks, and Stroz specialize in penetration testing, 24/7 threat monitoring and ethical hacking. Your IT staff says they have the latest software updates and threat assessments? Good -- let's contract with outside experts who can make sure. The expenses involved should be modest and today are a basic cost of doing business. Want to drive a car? You need to buy insurance. Want to operate in today's digital world? Invest in outside cyber-expertise.

Check that cyber insurance coverage is adequate. Speaking of insurance, check your liability and other business policies when it comes to hacking damages and, specifically, ransomware costs. What sort of losses are covered, which aren't, how much could ransomware losses total, what compliance measures must you have in place, and what are disqualifiers? Also, how should your company decide on making a claim? (If you file a claim for a ransomware payment of $5,000, will your premiums shoot up by ten times that amount?) "If someone demands $350 in Bitcoin, it may be like when someone keys your car in a parking lot," notes Lenehan. "Rather than making a claim, you just get it detailed out on your own dime."

Ultimately, boards and management need to respond to a ransomware crisis the same way they respond to any company crisis. They must assure good response tools and plans are in place and functioning, that tough questions are asked, and that everyone knows their role. But for the board, ransomware prep demands an added step -- asking if they're ready to make a deal with the devil.


Betsy Atkins serves as President and Chief Executive Officer at Baja Corp, a venture capital firm, and is currently the Lead Director and Governance Chair at HD Supply. She is also on the board of directors of Schneider Electric, Cognizant, and a private company, Volvo Car Corporation, and served on the board of directors at Nasdaq LLC and as CEO and Board Chairman at Clear Standards.

Bill Lenehan is the Chief Executive Officer of Four Corners Property Trust, a real estate investment trust that owns over 500 restaurant properties. He is also on the board of directors of Macy's, the department store company. Prior experience includes board service at Darden Restaurants and Gramercy Property Trust, among others. He spent ten years as an investor at Farallon Capital Management.


The views and opinions expressed herein are the views and opinions of the author at the time of publication and may not be updated. They do not necessarily reflect those of Nasdaq, Inc. The content does not attempt to examine all the facts and circumstances which may be relevant to any particular company, industry or security mentioned herein and nothing contained herein should be construed as legal or investment advice.

Publication Date*: 9/20/2017 Identification Number: 1427 Mailto Link
Frequently Asked Questions
  The 2017 BDO Board Survey Says...
Identification Number 1426
The 2017 BDO Board Survey Says
Publication Date: September 18, 2017

A new governance survey of public company corporate directors conducted by BDO USA, LLP provides some interesting findings. Directors were asked about the issues that boards need to manage in 2017, including tax reform (78% of directors anticipate tax reform will be achieved during President Trump's current four-year term, but just 22% believe it will occur in 2017), social responsibility (directors were split over the decision to withdraw the U.S. from the Paris Climate Accord), sustainability (54% of directors believe that disclosures of sustainability matters are important to inform investors – a marked turnabout from a year ago when less than 24% took that position) and board composition (66% of directors believe their board is already proactively addressing the issue of board diversity).

Learn more about the survey results >>
Publication Date*: 9/18/2017 Identification Number: 1426 Mailto Link
Frequently Asked Questions
  Key Takeaways from Society for Corporate Governance Teleconference on Pay Ratio Rule
Identification Number 1425
Key Takeaways from Society for Corporate Governance Teleconference on Pay Ratio Rule
Publication Date: September 15, 2017

To help companies comply with the CEO Pay Ratio Rule, which is scheduled to first be included in 2018 proxy statements, the Society for Corporate Governance published key takeaways from its teleconference on 'Pay Ratio Rules: Your Questions Answered'. The teleconference was shaped by member questions and included participation by several issuers, Compensia compensation consulting, and Skadden Arps.

Read the Key Takeaways >>
Publication Date*: 9/15/2017 Identification Number: 1425 Mailto Link
Frequently Asked Questions
  Ransomware Payment: Legality, Logistics, and Proof of Life
Identification Number 1424
Ransomware Payment: Legality, Logistics, and Proof of Life
Part One: Background and Reality
Publication Date: September 12, 2017 

Cybersecurity expert John Reed Stark has authored a three-part series of white papers offering guidance for boards of directors on the legal issues, logistical considerations and financial implications of responding to ransomware threats.

In the 2000 American thriller film Proof of Life, the title refers to a phrase commonly used to indicate proof that a kidnap victim is still alive. As an expert negotiator in kidnapping cases, Terry Thorne, played by Russell Crowe, is engaged to bargain for a corporate kidnap victim's safe return. Proof of Life's screenplay was partly inspired by Thomas Hargrove's book The Long March to Freedom, which recounts how the release of the once-kidnapped Hargrove was negotiated by Thomas Clayton, the founder of kidnap-for-ransom consultancy Clayton Consultants, Inc.

The film Proof of Life is not just a compelling narrative – its premise and main character also provide some useful insights into managing the emerging threat of ransomware. Ransomware, a special and more nascent type of malware, prevents or limits users from accessing their data by locking system screens or user files unless and until a ransom is paid.

Just like Clayton Consultants, the team advising a ransomware victim company (whether the victim is a hospital or global corporate conglomerate) must employ a thoughtful, careful and methodical protocol to survive the ransomware crisis. Like any hostage situation, when a cyber-attacker locks up critical data files the logistics and legalities of ransomware refusal, acquiescence or capitulation can be both elaborate and complicated.

To make matters worse, seeking law enforcement help for a ransomware attack unfortunately remains a very limited option. First, law enforcement has become inundated with ransomware reports and lacks the resources and wherewithal to assist victims. Second, most of the ransomware attackers are overseas, where merely obtaining an electronic evidence or interviewing a witness—let alone successful extradition and prosecution—are rarely possible. Finally, ransomware demands are often at monetary levels in the hundreds or thousands of dollars – too small to warrant federal law enforcement consideration and clearly outside of the jurisdiction of local law enforcement.

Thus, it should come as no surprise that a significant number of ransomware victims opt to pay the ransom. When padlocked files are business-critical (e.g., an important intellectual property formula); when encryption cannot be defeated (no matter how good the code-breaker) or when time is of the essence (e.g., when patient data is needed for life-saving surgery), paying the ransom can become the proverbial best worst option. Moreover, the typically de minimus ransomware payment demands (on average, about $679) are more akin to a financial nuisance than a material fiscal line-item, so from a cost-benefit perspective, payment can make the most sense.

This three-part series of articles provides guidance on the legal issues, logistical considerations and financial implications when managing ransomware threats, including an exposition of the unique issues which can arise when seeking proof of life and opting to meet the monetary demands of ransomware attackers.

Part One provides the keys to understanding the impact of recent ransomware strains, including a discussion of the nature and growth of ransomware; the dangerous aspects of some recent ransomware attacks; and the role (or lack thereof) of law enforcement when managing a ransomware attack.

Part Two will examine the intricacies involved in ransomware response including ransomware investigative tactics, ransomware payment logistics, and the legalities of ransomware response.

Part Three will cover the remaining range of key ransomware essentials including: notification requirements, ransomware remediation, and ransomware cyber insurance.

Read Part One of Ransomware Payment: Legality, Logistics, and Proof of Life >>


John Reed Stark is President of John Reed Stark Consulting LLC, a data breach response and digital compliance firm. Formerly, Mr. Stark served for almost 20 years in the Enforcement Division of the U.S. Securities and Exchange Commission, the last 11 of which as Chief of its Office of Internet Enforcement. He also worked for 15 years as an Adjunct Professor of Law at the Georgetown University Law Center, where he taught several courses on the juxtaposition of law, technology and crime, and for five years as managing director of a global data breach response firm, including three years heading its Washington, D.C. office. Mr. Stark is the author of, "The Cybersecurity Due Diligence Handbook," available as an eBook on Amazon, iBooks and other booksellers.

Publication Date*: 9/12/2017 Identification Number: 1424 Mailto Link
Frequently Asked Questions
  Nasdaq-Listed Companies Moving the Needle on Diversity in the Boardroom
Identification Number 1421
Nasdaq-Listed Companies Moving the Needle on Diversity in the Boardroom
Publication Date: September 6, 2017 

The discussion on gender parity in the boardroom is evolving beyond equality as gender diversity is increasingly correlated with higher profitability—and Wall Street is taking notice. As Janice Ellig notes in her recent article "Fearless Girl—SHE is the future and the future is NOW," a number of index funds have launched that focus on corporations with gender diverse C-suites and boardrooms. These include State Street Global Advisors Gender Diversity Index ETF, Barclays Women in Leadership Total Return Index and Bloomberg's Gender-Equality Equity Index. These funds may offer further tangible evidence that companies with diverse boards outperform their peers.

Despite correlations between gender diversity and profitability, studies such as those commissioned by Equilar, Deloitte and McKinsey continue to indicate that gender diversity in the boardroom is improving only incrementally. Some institutional investors are losing patience with the slow progress and plan to use their proxy vote to spur corrective action: State Street Global Advisors (SSGA) and BlackRock both recently announced they are prepared to vote against directors of boards composed solely of men. While proxy advisory firms Glass Lewis and ISS don't currently make gender diversity a determining factor in voting recommendations, there are signs these firms may soon follow the lead of SSGA and BlackRock. ISS' annual Governance Principals Survey—which can foreshadow upcoming changes to voting polices—includes a question this year about gender diversity on boards and whether organizations should vote against directors of public company boards with no female representation.

We began tracking gender diversity statistics of Nasdaq-listed company boards last year to gauge their progress against the datasets included in the studies mentioned above, as smaller, newer corporations are often not included in studies. We continue to find evidence that there are many Nasdaq-listed companies moving the needle towards gender parity in the boardroom. In fact, Nasdaq currently boasts 46 companies with boards that are at least 40% female. These companies represent many different sectors of the market and a wide range of market capitalizations. By shifting the spotlight towards these companies instead of overall statistics, we can begin to fully appreciate the progress that Nasdaq companies have made.

Many other Nasdaq companies made progress toward gender parity over the past year, including 24 companies that improved boardroom gender diversity by at least 20%, and 33 Nasdaq companies added two or more new women to their boards. In fact, Nasdaq added two women to its own board in 2017, which now includes three women out of nine members.

diversity stats

Overall, smaller and newer publicly-traded companies continue to have less diverse boards than larger, more established companies. However, not all companies follow this trend: Mersana Therapeutics, Inc. (Nasdaq: MRSN), a $350 million biopharmaceutical company that started trading on Nasdaq less than two months ago, is a shining outlier with four women sitting on a six-seat board.

When considering progress in board diversity, it is also important to remember that gender diversity is not the only type of diversity. While gender is one of the easier categories to measure, diversity in ethnicity, age, background and geography are also critical when viewing board diversity from a holistic perspective. State Auto Financial Corporation (Nasdaq: STFC) does a great job of stressing both the gender and ethnic diversity of its board. State Auto Financial used their most recent proxy statement to celebrate a ten person board comprised of 50% female or ethnically diverse members, three women and two African Americans.

Age diversity in the boardroom is also important and although we hear less about it, diversity in any form can positively change the dynamics in the boardroom. While our data showed that the average age of a board member is 58.5 years and has not moved much in the past year, there are companies that boast age diverse boards, such as Famous Dave's of America, Inc. (Nasdaq: DAVE), with six out of eight board members under the age of 50, and TripAdvisor, Inc. (Nasdaq: TRIP), with 50% of board members under the age of 50.

Progress does not stop with adding one or two women to a corporate board. "The business case for gender parity has been made, and further progress toward that goal is going to depend on tone at the top," said Ellig. "The CEO, the board chair, and the nominating/governance chair at a company have to be intentional about adding women to boards, and intentional about opening the pool of candidates beyond the usual names and beyond the CEO position to find highly qualified women for board seats."

To recognize public companies that are leading the way in reaching gender parity, in November, Ellig and The Women's Forum of New York will hold their fourth biennial Breakfast of Corporate Champions, saluting F1000 and S&P 500 companies that have reached the 25%, 30%, and 40% mark and those that have already reached gender parity on their boards.


Read Fearless Girl—SHE is the Future and the Future is NOW >>

Watch Janice Ellig's CNBC interview discussing how companies can promote gender equality in the workplace and in the boardroom >>

Publication Date*: 9/6/2017 Identification Number: 1421 Mailto Link
Frequently Asked Questions
  Sustainable Business Practices, Transparency Land Nasdaq Companies at Top of 2017's "100 Best Corporate Citizens" Ranking
Identification Number 1409
Sustainable Business Practices, Transparency Land Nasdaq Companies at Top of 2017's "100 Best Corporate Citizens" Ranking
Publication Date: August 9, 2017

Corporate Responsibility (CR) magazine recently recognized the 100 Best Corporate Citizens, ranking Russell 1000 companies in seven categories including the environment, climate change, human rights, employee relations, corporate governance, philanthropy and financial performance. A number of Nasdaq-listed companies made CR's list, including Hasbro (Nasdaq: HAS), Intel (Nasdaq: INTC) and Microsoft (Nasdaq: MSFT), which took the top three spots.

Why are good ESG practices important, and what does it take to be one of the 100 Best Corporate Citizens? We spoke with Nasdaq's Global Head of Sustainability, Evan Harvey, to find out.

Q: What does it take for companies to successfully balance CSR and ESG objectives? Which part or parts of the ESG framework are most important?

A: We don't really use the term "Corporate Social Responsibility" or CSR to describe sustainability initiatives in public companies anymore. CSR tends to focus on community outreach, responsible citizenship, and other externally validated (and externally valuable) tactics. We take a broader view, looking inside and outside the organization at key Environmental, Social, and Governance (ESG) practices in order to fully understand sustainability—and CSR is just one part of ESG.

Most of the companies listed above share this view, and most would likely say that all of the related tasks are important. CSR would not adequately cover supply chain oversight (SCO), which is the process whereby a large multinational drives better, more responsible and transparent practices at all of the companies in their supplier universe and is essential, for instance, to Microsoft's sustainability leadership. CSR would also not illustrate the vigor and tenacity whereby Intel removed virtually all conflict minerals from their products. Your question suggests that balance is essential, and I agree, but I think it's more important to look at the big picture.

Q: While some view ESG disclosure around environmental metrics unnecessary, how do ESG leaders use social responsibility to differentiate themselves and create business opportunities?

A: I talk to a lot of executives at our listed companies, and I don't know any who still believe basic environmental disclosures are unnecessary. They may take issue with the cost or complexity of making these disclosures, but they don't believe the data itself holds no value for investors or other corporate stakeholders. The opportunities for companies that fully embrace ESG integration, management, and disclosure are well-documented and include lower investor turnover, higher investor returns, better staff recruitment and retention rates, a deeper and more nuanced risk management profile, and so on.

Q: Socially responsible investing has gained popularity over the last few years, with investors looking to invest in companies that are making positive social/environmental commitments. Can you discuss the current scope of this trend and talk about how businesses are committing to being leaders in this area?

A: There is $23 trillion in sustainability investment out there right now, and one in every five dollars in the U.S. investment space finds its way into a sustainable company or responsible product. And that trend is only growing: The UN Principles for Responsible Investment (PRI) now has over 1,300 signatories, including everyone from niche SRI firms to Blackrock and State Street. By virtue of their commitment to PRI, all of these institutions have pledged to seek out more sustainable targets and to be a more active and engaged owner when it comes to driving ESG excellence. I don't see any reason why an Investor Relations Officer would ignore such a lucrative audience.

Q: From an ESG perspective, what is it that makes Hasbro, Intel and Microsoft standout? What can other companies learn from them?

A: Intel and Microsoft have been incredibly proactive in ensuring responsible sourcing of their components. Since joining the Electronic Industry Citizenship Coalition, Intel has made amazing strides towards incorporating conflict-free minerals into their supply chain and Microsoft has enacted some of the highest standards for supply chain oversight in the industry. Similarly, Hasbro has taken steps to ensure 100% of their third-party manufacturing meets ethical sourcing requirements and even publishes a list of their third-party vendors and factories. These companies have taken the initiative to be leaders in their fields and have been recognized for doing so.

Q: Can you highlight some companies that did not make this list, but have interesting ESG initiatives?

A: Many Nasdaq-listed companies are already leading the way. CA Technologies (Nasdaq: CA) just partnered with One for All to create and deliver social engagement apps on mobile devices. Starbucks (Nasdaq: SBUX) covers college tuition costs for its employees. And there are many Nasdaq companies moving the needle on board diversity, including Hologic, Inc. (Nasdaq: HOLX), Navient Corporation (Nasdaq: NAVI) and more than a dozen other Nasdaq companies who have achieved gender parity on their boards.

In terms of the other Nasdaq-listed companies that were recognized on the list this year, Biogen Inc. (Nasdaq: BIIB) has committed to a 35% reduction in emissions across its entire supply chain. Marriott International (Nasdaq: MAR) established aggressive targets for opening women- and minority-owned hotels, as well as purchasing from women-owned businesses. Texas Instruments Incorporated (Nasdaq: TXN) has worked to ensure that its integrated circuit supply chain is conflict-mineral free.

Q: What role does Nasdaq play in global ESG initiatives? What does Nasdaq do to help its listed companies with respect to their ESG programs?

A: Nasdaq not only pursues internal objectives—employee donation matching, team volunteering, affinity groups, alternate work schedules—but it also works diligently with listed companies. We provide sustainability research, training and education free of charge to any of our listings. Our long-running sustainability webinar series has brought together thought leaders from business, government, and the investment community for a number of years. But we are probably best known for our advocacy on a global stage, within the exchange and financial markets community: researching ESG performance measures, representing corporate interests with the largest sustainability reporting frameworks, and advocating for more voluntary disclosure. Our ESG Reporting Guide for Europe was just published in March.

Click here to view the entire list of companies that made Corporate Responsibility Magazine's 2017 100 Best Corporate Citizens list >>

Evan Harvey is the Global Head of Sustainability for Nasdaq. He is responsible for all corporate sustainability, philanthropic, and volunteering efforts and works with public companies, institutional investors, advocacy groups, and other exchanges. He currently sits on the U.S. Network Board for the United Nation's Global Compact and the Advisory Board for the Sustainability Accounting Standards Board.
Publication Date*: 8/9/2017 Identification Number: 1409 Mailto Link
Frequently Asked Questions
  July's Must Reads
Identification Number 1408
July's Must Reads
Publication Date: August 7, 2017

Each month, we will scour the web to bring you the news items and thought leadership pieces you need to get the governance advantage.

1. Women in the boardroom: A Global Perspective - Deloitte
Women are still largely under-represented on corporate boards globally; this study examines initiatives in 25 countries aimed at increasing the number of women in boardroom positions around the world.

2. What We Learned from Improving Diversity Rates at Pinterest – Harvard Business Review
Pinterest discusses how diverse teams yield smarter, more innovative results, which are essential in the competitive, dynamic tech industry.

3. 'Get the ethics right, and you will always be compliant' – Ethical Corporation
Companies often struggle to balance ethics and compliance. Those that are regulated often see compliance as pre-eminent.

4. Do High CEO Pay Ratios Harm Company Value? –
A new American Accounting Association study finds that even when controlling for the portion of pay linked to stock performance, the relationship between CEO pay ratio and stock price remains strong.

5. Directors Under 40 Make Their Way Into Corporate Boardrooms - Equilar
Diverse backgrounds may include gender, ethnicity, nationality, industry background, skill set and age—and the latter is coming into focus as many young executives are starting their own companies to meet the changing demands of today's consumers.

6. Here's What the Blockchain Future of Capital Markets Might Look Like – International Business Times
A growing number of stock exchanges around the world are experimenting with a variety of blockchain tools.

7. 2017 Proxy Season Review – Harvard Law School Forum on Corporate Governance and Financial Regulation
The 2017 proxy season is marked by the launch of a historic US stewardship code and the emergence of proxy access as standard practice across large companies.

8. How Your Board Can Be Ready for Crisis – Harvard Law School Forum on Corporate Governance and Financial Regulation
Most companies experience at least one crisis every four or five years. Regularly discussing the crisis plan with management and the results from testing it lets the board understand where there might be gaps in readiness.

9. Keys to effective board oversight of cyber risk management – EY
Many boards task their audit committees with overseeing matters related to cybersecurity. EY discusses the key factors audit committees should consider for effective cyber risk management.

10. How Significant are SEC Rule Changes for IPOs on Confidentiality? –
As of July 10, companies weighing an initial public offering can opt to keep certain information confidential until closer to their trading debut.

Publication Date*: 8/7/2017 Identification Number: 1408 Mailto Link
Frequently Asked Questions
  Board Members Must Open the Aperture Wider to Break the Silicon Ceiling by Betsy Atkins
Identification Number 1403
Board Members Must Open the Aperture Wider to Break the Silicon Ceiling by Betsy Atkins
Publication Date: July 20, 2017

Betsy Atkins, President and Chief Executive Officer at venture capital firm Baja Corp, is a veteran of 23 boards and 13 IPOs.

Changing any corporate culture is a challenge, but I've found bringing diversity to the tech industry is even trickier. Fast-growth "unicorn" companies can quickly outgrow their founding venture-based startup corporate governance and find themselves facing crises with too few adults in the boardroom.

Many reports assert women in technology industries still push against a silicon ceiling when it comes to career advancement and cultural issues. Research from the Society of Women Engineers found that 20% of today's engineering school graduates are women, yet just 11% continue working in the field. Women in IT leadership roles (such as chief information officers or technology vice presidents) are just 9% of the total, according to a recent survey from Harvey Nash and KPMG.

Today's board members should open the aperture wider in terms of their role. The days of a board's role being pure financial oversight was last millennium. This millennium, board members are expected to be an asset as well as an accelerant for the business. In my own experience, I've seen technology companies nurture diverse, inclusive cultures starting with a few one-on-one approaches from the boardroom.

Build internal career networks

At Volvo Car AB, where I serve on the board, we've launched a program where I regularly meet with senior and mid-level women executives on personal career development. We work with these women execs to build on their strengths, clarify their career aspirations, and offer advice on advancement. This is a new program, but it is already proving a success in energizing and motivating the paths of these current and future female leaders.

Group mentoring also harnesses networks and creates supportive environments where women managers and executives can brainstorm effective ways to promote diversity in the organization. According to a recent Harvard Business Review article about changing corporate culture, safe havens nurture cultural ecosystems that model what the organization can become in the future, while networks create coalitions that catalyze change.

Make mentoring personal

On the board of Schneider Electric, I make it a point to directly mentor one-on-one a number of women on the company's senior leadership team. I teach them to advocate for themselves, identify executives within their company who they can network with, build rapport with as their mentors and nurture those relationships into sponsorships.

Women in management may find it helpful to have someone in the boardroom take a personal interest in their career strategy and development. For example, at Uber, new board member Ariana Huffington is in an ideal position to put her mentoring and career savvy to work in helping rising women execs rebuild that company.

One key to a successful mentoring program is a regular ongoing coaching and support. In my experience, a good mentor/mentee match also requires synergy: a strong personal chemistry and an alignment of professional disciplines. I'm a passionate advocate of digital transformation and customer-centric processes, so I tend to mentor women executives who have roles and expertise in line with those disciplines.

Board members don't have to wait for CEOs to ask for mentoring of female executives. When I spot high potential women managers within the companies of the boards I sit on, I approach our CEOs and offer to help these women reach the next level in their leadership potential.

Go beyond mentoring to sponsorship

There is a big difference between mentoring—which is periodic advising and coaching—and sponsoring. Sponsors take a far more active role in helping individuals reach the next rungs in their careers. Women who are already senior managers or board members can kick mentoring up a notch by "sponsoring" women with high potential through career coaching, facilitating introductions to other executives and identifying and importantly, recommending them for new opportunities that will accelerate their careers.

Set a goal

According to the Harvey Nash/KPMG survey mentioned above, only 28% of small-cap companies have a formal diversity initiative in place, versus 72% of large-cap companies. For newer, smaller tech companies that are in hyper-growth survival mode, it's unlikely management will organically implement tactics that foster diversity of management. Hope is not a strategy.

If a company really wants to drive cultural change, a prescriptive diversity goal could be considered. That goal can be defined based on the values of the company, and may include gender diversity, ethnic diversity, age diversity, global diversity, etc.

Highly qualified female candidates ARE out there. I was the only woman on the board of HD Supply when I joined, and just three years later 23% of the board is female. I also sit on the board at Schneider Electric, where we set a goal of 40% gender parity on the board. Today Schneider Electric's board is composed of 38% women, so we have nearly achieved that goal in just 7 years. The Volvo board I sit on has 23% women. These companies all operate in industries traditionally thought of as "male-dominated," yet we were able to recruit highly qualified female board members without compromising one wit on the experience, talent and skillsets we were looking for.

Recognize when women make a difference

When I served as chair of the board's compensation committee at tech firm Polycom, we were active in the annual recognition event for sales staff. I noted that women were leaders in sales, making up less than 10% of the sales force yet 34% of our "President's Circle" top sales performers. Making an added effort to celebrate (and promote) this talent is crucial in sending the message that sales is not just a "guy thing" in the company.

The talents of women are a strategic asset to companies, and there is a growing body of research proving that firms who nurture and empower their gender diversity gain in revenues and stock performance. In any company, balance sheet results are always found downstream from company culture. When it comes to reshaping that culture to be welcoming to women, the boardroom is the ideal place to start.


Betsy Atkins serves as President and Chief Executive Officer at Baja Corp, a venture capital firm and is currently the Lead Director and Governance Chair at HD Supply. She is also on the board of directors of Schneider Electric, Cognizant and Volvo Car Corporation and served on the board of directors at Nasdaq LLC and at Clear Standards as CEO and Chairman.


The views and opinions expressed herein are the views and opinions of the author at the time of publication and may not be updated. They do not necessarily reflect those of Nasdaq, Inc. The content does not attempt to examine all the facts and circumstances which may be relevant to any particular company, industry or security mentioned herein and nothing contained herein should be construed as legal or investment advice.

Publication Date*: 7/20/2017 Identification Number: 1403 Mailto Link
Frequently Asked Questions
  Nasdaq Talks to...Morningstar, Inc. about How to Be an Exemplary Steward of Shareholder Capital
Identification Number 1399
Nasdaq Talks to...Morningstar, Inc. about How to Be an Exemplary Steward of Shareholder Capital
Publication Date: July 10, 2017

The importance of good corporate governance has become elevated in recent decades in the wake of increased regulatory compliance responsibilities following high profile corporate governance disasters; increasing global economic uncertainty; and the complexity of doing business in a rapidly evolving marketplace. Business schools, research and professional business firms, and professional associations alike are writing about—and attempting to quantify—the value and qualities of good governance. One of the world's largest independent investment research firms—Morningstar, Inc. (Nasdaq: MORN)—has taken a novel approach to analyzing the strength of corporate management teams by assessing companies' stewardship of investor capital.

Nasdaq recently spoke with Brett Horn of Morningstar's Equity Research team to find out more about the purpose and methodology behind Morningstar's corporate Stewardship Rating program and what it takes for a company to achieve "exemplary" status.

Q: Tell us about Morningstar's corporate Stewardship Rating and why stewardship is an important factor in investment decisions?

A: Morningstar's corporate Stewardship Rating assesses management's stewardship of shareholder capital. Essentially what we're trying to answer when we look at stewardship is whether the actions and strategies of corporate management are well suited to drive long-term shareholder value—or not.

We have three stewardship ratings: exemplary, standard and poor. The majority of companies included in our stewardship coverage earn a "standard" rating. What we are doing with "exemplary" and "poor" ratings is identifying companies that we think are outliers in terms of the strength or weakness of management.

While we believe that stewardship is a material factor that investors should consider, it is just one component of evaluating investment potential. A company with exemplary stewardship could still be a "poor" investment even if the evaluation is correct, and vice versa for a company with a poor stewardship rating.

Q: What are the characteristics that earn a company an "exemplary" Stewardship Rating?

A: Capital allocation is the primary factor Morningstar evaluates when rating companies on stewardship.

We review management investment strategy and valuation, both external and internal. A company with "exemplary" stewardship will be one that has an M&A history of making investments and acquisitions that support its competitive advantages and core business, while divesting underperforming or non-core businesses. We assess whether the company is paying a reasonable price for acquisitions. We determine if management is investing sufficiently to take advantage of all the value creative opportunities that are in front of it. We also evaluate whether management is over-investing and moving into areas where the returns are not going to be sufficient relative to the company's cost of capital.

We analyze how companies approach balance sheet structure to determine if they have reached optimal financial leverage—conservative, but not too conservative. We evaluate how they return capital to shareholders. We review accounting practices to determine if a company's accounting methods are aggressive or potentially deceitful, which is obviously going to be a negative.

We also look at executive compensation, specifically at the incentives and the targets that management is awarded and whether those are appropriate targets to align management's interest with shareholders in the long-run.

Q: There are currently 23 Nasdaq-listed companies with an "exemplary" Stewardship Rating. What are some stand-out companies among them that exhibit exemplary stewardship?

A: There are a number that come to mind:

CoStar Group, Inc. (Nasdaq: CSGP)
Founder and CEO Andrew Florence has navigated the company from its start-up days to its IPO in 1998. Since the IPO, the company has gone from $14 million in revenue to an expected $1 billion+ estimated for 2018. While acquisitions have complemented the existing platform recently, organic growth has been the main driver over the past two decades. The proprietary data CoStar has built out puts it light years ahead of its competition, and places a wide moat around the business.

Costco Wholesale Corporation (Nasdaq: COST)
Costco is a great example of a company that plays the hand that they've been dealt very well. The company has built up a very big footprint but stayed firmly within its circle of competence. Costco has prudently reinvested in the business, while also returning excess cash to shareholders. Management has also developed a winning culture that promotes below-average employee turnover, as the attrition rate is 6% among employees who have been there over a year—as opposed to attrition rates of 50% or greater in the general retail industry.

Fiserv, Inc. (Nasdaq: FISV)
Fiserv is a bank technology company that was built by numerous acquisitions since their founding which left a very decentralized management system. CEO Jeff Yabucki came in and centralized the company's operations, which led to material cost savings and margin improvement. We're also impressed by its stellar M&A track record. The relatively recent acquisition of Open Solutions greatly improves its real-time processing capabilities, which appears to be the future for bank software providers. In addition, it appears Fiserv got Open Solutions on the cheap since the price mostly consisted of the assumption of debt.

O'Reilly Automotive, Inc. (Nasdaq: ORLY)
Management has done well to leverage the company's size to capitalize on the firm's ability to provide more consistent and rapid part availability. The benefits of the firm's broad store and distribution network, as well as management's operational prowess, have pushed returns on invested capital higher over the last five years, with returns increasing from 14% in 2011 to 23% in 2016. O'Reilly's leadership has transformed the company from a regional player into a top-four national chain, acting quickly to develop and capitalize on significant long-term brand and cost advantages.

Signature Bank (Nasdaq: SBNY)
Management's strategy of providing deep levels of relationship-based banking has been unchanged since its founding, and bankers are compensated not only on the amount of assets they bring up, but how much they retain over time. The bank's focus on low costs as well has paid off, as it typically locates offices on the upper levels of buildings versus the more expensive street-level locations. Signature has undoubtedly been one of the most successful banks in the nation over the past 15 years, in large part because of Signature's straightforward business model and the nimbleness of its executives.

Steel Dynamics, Inc. (Nasdaq: STLD)
To date, Steel Dynamics remains one of the most efficient steelmakers, not just in the U.S., but also on a global basis. Management is quick to attribute its success to its employee compensation strategy which, modeled after Nucor's approach, effectively treats employees as managers by motivating their performance via weekly and monthly production bonuses.

Q: It looks like about 5% of companies got a poor rating. What characteristics would result in a poor stewardship rating?

A: It's the flip side of everything that would earn a company an exemplary rating. Poor stewardship companies are negatively impacted by short-sighted investment strategies or value-destructive acquisitions. For example, maybe a company has a very attractive core business, but if they make acquisitions that stray from core competencies or don't benefit from similar competitive advantages, their long-term returns are most likely going to be poor. Or a company that makes acquisitions that represent good sense strategically, but pays dramatically too much for them, will similarly dilute long-term returns.

Other examples of poor stewardship include aggressively investing internally in projects that are not going to earn necessary returns; too much leverage; over-aggressive accounting; or compensation targets that are tied to a matrix that would not correspond well with long-term value.

We also look at the extent to which a company is a good day-to-day operator. A company can't create shareholder value if it has frequent operational and execution missteps like industrial accidents, poor customer service, or product recalls.

Q: How does the Morningstar Stewardship Rating compare with the ISS QualityScore?

Morningstar's Stewardship Rating differs from ISS QualityScore in a few ways. QualityScore evaluates the extent to which the company's management adheres to standard corporate governance practices. Morningstar's Stewardship Rating is evaluating management's strategy and the likelihood that management's actions will improve or deteriorate long-term returns.

QualityScore is a quantitative numerical score that ranks companies, whereas the Stewardship Rating does not explicitly rank order management teams against peers within their industries but against ideal stewardship. We're not trying to figure out if one management team is slightly better than the other; we are focused on identifying particularly strong or particularly weak management teams.

Finally, QualityScore is a more objective rating, whereas Morningstar has extensive research data and the capability of delivering a rating that considers management's actions in the context of the company's situation, which is inherently more subjective. Morningstar's equity research focuses on competitive advantages, and our analysts have a very detailed understanding of the companies they follow and the industries those companies operate in. Investors primarily care about long-term returns, and our Stewardship Rating speaks directly to that.

Brett Horn is a Senior Equity Analyst with Morningstar who focuses on insurance and credit bureaus. He developed Morningstar's valuation model for insurance companies. Morningstar, Inc. is a leading provider of independent investment research and data insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, and real-time global market data.
Publication Date*: 7/10/2017 Identification Number: 1399 Mailto Link
Frequently Asked Questions
  June's Must Reads
Identification Number 1398
June's Must Reads
Publication Date: July 6, 2017

Each month, we will scour the web to bring you the news items and thought leadership pieces you need to get the governance advantage.

1. SEC seeks to boost market listings through privacy move – Financial Times
US regulators moved to try to boost the flagging number of stock market listings on Thursday, telling large companies that they will be able to keep their financial information secret while they prepare for a public offering.

2. PCAOB OKs First Big Change to Audit Report in 70 Years –
Worrisome matters reported by an auditor to a board audit committee would be disclosed in the auditor's report under a new standard approved by the Public Company Accounting Oversight Board.

3. The Key to Diversity in Tech? Diverse Investors, says New York-based Social Impact VC – Forbes
One often ignored tactic for encouraging diversity among tech founders and employees is to encourage diversity among the investors.

4. Sheryl Sandberg Shares 7 Ways to Build Resilience Into Your Company Culture As You Scale– Entrepreneur
As part of a 10-episode series, Sheryl Sandberg discusses, among other things: What it takes for an organization to be resilient and how a changing staff and culture remain strong despite massive shifts and bumps in the road.

5. Managing brand risk in an age of social media - Deloitte
This Deloitte whitepaper discusses how an organization's Board of Directors can effectively manage brand risk and reputation in the current digital environment.

6. 80% of This Public Company's Directors Are Women –
Travelzoo announces that it has the highest female-to-male ratio of any NASDAQ or NYSE-listed company (a group that includes nearly 6,000 businesses).

7. Webcast » The Corporate Governance Impact of Trump's First 100 Days –
In this webcast hosted by PwC's Governance Insights Center, a panel of experts discusses the current and future actions of the Trump administration and how today's companies can both prepare and respond.
Watch the video here >>

8. Where's the focus this year? –
EY discusses key themes and the shareholder proposal landscape for the 2017 proxy season.

Publication Date*: 7/6/2017 Identification Number: 1398 Mailto Link
Frequently Asked Questions
  Onboarding New Directors: Beyond the Board Manual
Identification Number 1393
Onboarding New Directors: Beyond the Board Manual
Publication Date: June 27, 2017 

The process of acclimating a new director to a corporate board can have a profound impact on boardroom dynamics. In this post, Joan Conley, Senior Vice President and Corporate Secretary at Nasdaq, shares key elements of Nasdaq's onboarding process as well as insights into the importance of a robust onboarding program.

Ideally, the onboarding process enables a new director to hit the ground running at their first board meeting. Proper onboarding also ensures critical alignment between management, the board and stockholders. Given those ambitious goals, there is much more to onboarding than asking a new director to read a manual and leaving them to tackle their role through trial and error.

Many companies mistake orientation for onboarding. Orientation is a one-time event designed to welcome a new director to the company and the board, outline meeting schedules and board service logistics, define their role, and provide a big picture overview of the company.

Onboarding, on the other hand, is a continuous process. It includes the orientation event and indoctrinates a new director into every aspect of the company's business, culture and the competitive environment it operates in, thereby facilitating meaningful contributions from directors and growth in long-term value for shareholders.

Nasdaq's onboarding process has evolved over time and includes the following key components, all of which are designed to help a new director shorten the learning curve and quickly become a meaningful contributor to the work of the board.

Establish a structured onboarding process.
Given the amount of information new board members need to absorb before their first board meeting, it's critical to have a focused plan in place to deliver that information. At Nasdaq, our onboarding educational process includes:

  • An orientation program that covers the following: board membership and meeting logistics; governance and director responsibilities; Nasdaq business strategy, goals, risks, operating environment, and recent financial performance; and presentations from corporate departments related to information security, corporate communications, and investor relations.
  • Face-to-face meetings with key executives and business unit managers.
  • Required reading of board meeting minutes and documents (including strategy, budget assumptions, compensation, and meeting minutes), investor presentations and analyst reports.

The different elements of governing a company fit together like a puzzle, and the onboarding process should help a new director fit the pieces of that puzzle together. New directors benefit tremendously from granular context on a company's operating environment, corporate strategy, goals, risks, opportunities, financial performance, and cyber security programs.

For example, at Nasdaq, we provide strategy slide decks from the prior year that outline the 1, 3, and 5-year strategies, along with minutes from subsequent update meetings, so new directors can see how the strategy has been followed. We encourage them to spend time researching our largest long-term stockholders and what motivates them to hold Nasdaq stock in their portfolio. We provide new board members with current and historical analyst reports, to give them a sense of how the company's strengths and weaknesses are perceived in the investment community.

Start the onboarding process before election day.
Don't wait until election day to engage new board members--start the onboarding process as soon as the proxy is released. At Nasdaq, onboarding of new directors starts as soon as a new director's nomination has been confirmed by the board and it is determined that the nomination is uncontested. That means even before the vote is final, we begin the very robust educational process outlined above.

Some general counsels may be concerned with providing confidential information to new board members prior to the election; in that case, a company can begin the education process with their public investor presentations and after that arrange for meetings with business unit leaders and others that may include confidential and proprietary information.

Make Audit Committee membership mandatory for new directors.
Every new Nasdaq director serves on the Audit Committee. Through audit committee service, new board members learn key enterprise risks, the financial and operating conditions of the company, how management relationships function within the organization, and details of the operations of each business unit. Audit Committee members hear presentations from internal and external auditors and experts within the company, review every internal audit report, and learn detailed financial information about the business. It's the best "on the job training."

Assign a mentor to new board members.
Board members with long tenure are an indispensable resource of institutional knowledge and historical context for new board members. Seasoned directors have seen the company through its most significant events: companies' success, market downturns, lawsuits, shareholder activism, acquisitions, and business model transformations. Pairing new directors with a mentor from the board accelerates cultural acclimation and encourages meaningful contributions from new directors during their first year.

Customize onboarding to individual directors.
Each director is carefully chosen for a board based on their unique skillsets, experiences, and talents. The onboarding process should be tailored to leverage those strengths, ensuring they contribute to their full potential and nurturing their interests in the company.

Ensure onboarding is ongoing.
Onboarding is essentially a process of continuing education. The three main elements of continuing education for board members at Nasdaq are knowledge sharing, rotating committee assignments, and offering opportunities to broaden and deepen their knowledge base.

I see a key role of the Corporate Secretary as aligning executives and board members, so the more opportunities I find to bring them together to exchange information the better. This continues even after new members have completed their first year, and these opportunities to meet with executives and business unit leaders are also individualized to each board member.

Rotating committee memberships is another excellent way to expand a board member's knowledge of the company. When a director is assigned to a new committee, they need a complete orientation on that committee's mandate, charters, and principals. Rotating committees begins a new sequence of onboarding events, refreshes the committee, and opens a whole new information silo for the board member.

I also continuously push news and information out to board members, again on an individualized basis. I send them relevant articles, updated analyst reports, links to subscriptions and alerts they may be interested in, and Nasdaq's daily news clips. I utilize Director's Desk for this, as well as the NACD daily summary. I maintain a budget for events and educational sessions that our board members may want to attend, such as director conferences.

Assess the fit and performance of new directors.
During a board member's first year of service, it's critical to assess whether the director is contributing effectively to the board and fits the group dynamic. That assessment takes place throughout the board cycle, not just during semiannual board assessments. If a new director needs assistance I work confidentially with the board chair to develop an action plan: perhaps a new director needs tutorials on non-GAAP financials, or information about a new product line or context on strategy in a certain business area, we tailor the onboarding plan to meet these needs.

Solicit feedback from new directors.
An onboarding process and curriculum is not something to develop and put on a shelf because it continually evolves with the business landscape and ideally is tailored and individualized. At Nasdaq, we solicit feedback on the onboarding process from new directors during their frequent first-year check-ins with the board chair and CEO. We continually modify our onboarding program based on that feedback, information they share about business units they may not fully understand, topics they felt they spent too much time on, or areas where they have a greater thirst for information.

Joan Conley is Senior Vice President and Corporate Secretary of Nasdaq and its global subsidiary organizations and, in that role, is responsible for the Global Nasdaq Corporate Governance Program and Nasdaq Global Ethics Program. She also serves as Managing Director of the Nasdaq Educational Foundation and is a Director of the Nasdaq Entrepreneurial Center Board.

Publication Date*: 6/27/2017 Identification Number: 1393 Mailto Link