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Frequently Asked Questions
  Get Board Ready with Veteran Corporate Director Betsy Atkins
Identification Number 1686
Clearhouse
Get Board Ready with Veteran Corporate Director Betsy Atkins
Publication Date: March 15, 2019

In observance of Women’s History Month and International Women’s Day, Governance Clearinghouse is publishing a series of articles focused on gender balance on corporate boards. The series will highlight several facets of this complex issue, including pathways to board diversity, best practices of companies that have achieved gender parity in the boardroom, and the steps aspiring women directors can take to become “board ready.”

Betsy Atkins is a three-time CEO, serial entrepreneur and corporate governance expert, having served on over 30 boards.

I wrote my upcoming book BE BOARD READY: The Secrets to Landing a Board Seat and Being a Great Director as a guide for talented women who seek to be board ready and serve as high-impact, high-value contributing board members. I’ve had a number of opportunities to speak about board service, but one recent experience in particular was the catalyst for this book. Nasdaq invited me to participate on a panel with three other talented women directors, addressing an audience of over 100 aspiring women directors about the topic of board readiness. The Q&A segment following the panel discussion, and subsequent conversations with attendees who reached out to me afterward, made it clear there is a deep thirst for information about the path to board service.

Chapter Two of BE BOARD READY, which is shared here, takes a deep dive into the process of developing a pipeline of contacts that will lead you to prospective boards. Women professionals who aspire to board service need to elevate their networks to achieve their career aspirations. Developing relationships is like investing money in the bank and should be approached with the same discipline. This chapter from my book outlines best practices for expanding and leveraging your professional networks as you grow in your career. I hope these ideas will resonate as you read this excerpt from BE BOARD READY.

Whether you are an aspiring director who wants to join a board for the first time or are already on a board and looking for insights on how to be a great director, join me to celebrate the release of my new book in New York on Tuesday, April 9 or in San Francisco on Thursday, April 11. You must RSVP to attend as space is limited and available on a first-come, first-served basis.

To learn more and RSVP >>

Read Chapter Two, Business Development >>
Publication Date*: 3/15/2019 Mailto Link Identification Number: 1686
Frequently Asked Questions
  5 Ways Governance Teams Can Step Up Their Proxy Season Game for 2019
Identification Number 1682
Clearhouse
5 Ways Governance Teams Can Step Up Their Proxy Season Game for 2019
Publication Date: February 14, 2019 

To help governance professionals understand and address the evolving concerns of shareholders, Martyn Chapman, head of strategy for Nasdaq Governance Solutions, together with Dan Romito and Ben Maiden from Corporate Secretary, recently hosted a webinar.  Among other things, our hosts shared these five ideas to help governance professionals step up their proxy season game for 2019:

1) Hold virtual or hybrid annual meetings.

 Virtual and hybrid annual general meetings (AGMs) are becoming increasingly popular, particularly in the U.S. where shareholders are often dispersed over a very large geographic area.  If your company hasn’t yet implemented virtual attendance at AGMs, it isn’t too soon to begin planning for next year. Following are some key considerations when preparing to transition to virtual annual meetings:

  • Engage a vendor that provides robust and reliable technology.  There are already many providers in this space, and a number of them partner with registrars and transfer agents. 
  • Investigate legal and regulatory requirements.  Whether an annual meeting is virtual or hybrid, meeting requirements still apply, including those that govern notice, decorum, attendance, material display, and voting, among others.   The company’s articles of incorporation and/or bylaws may need to be amended to provide for virtual annual general meetings.   Among other things, amendments should cover any failure in technology, even if it affects only one or a few shareholders.  For example, the chair may not be able to put forward a resolution to shareholders to adjourn a meeting if there is a severe technical problem during a fully virtual meeting, so the articles should provide the chair the ability under these circumstances to adjourn the meeting without a resolution.
  • Consult with major stakeholders.  Most companies will want to consult with their key shareholders to be sure they are comfortable with virtual general meetings.  Some shareholders may react adversely if there is a long-standing tradition of well attended physical meetings.  Putting forward a resolution to ratify amendments to the articles of incorporation to hold virtual AGMs is a good opportunity to discover shareholder appetite for a virtual or hybrid meeting format.  Other stakeholders to consider are service providers, registrars and transfer agents, and any vendors who would be providing technology.

2) Control your company’s ESG narrative to neutralize potential shareholder proposals.

 Environmental, Social and Governance (ESG) issues are here to stay.  Morrow Sodali’s 2018 Institutional Investor Survey states this unequivocally: “ESG issues are either fully integrated or progressing towards full integration with investment decision-making.” That survey listed the following ESG topics as top concerns of institutional investors:

  • Board skills and experience.  Investors are focused not just on the reputation of a board member but the skills that individual brings to the table.  If a board lacks a critical skill such as cyber security experience, investors will likely become concerned. 
  • Climate risk disclosure.  This issue is industry and sector dependent because some industries have a bigger impact on climate than others.  But investors are not just concerned about a company’s impact on the climate—they also want to know that companies are assessing the impact of climate change on the long-term sustainability of their core businesses and taking steps to prepare for that risk. 
  • Executive compensation.  Investors are wary of what they perceive as excess compensation or excess severance.  For context on what index funds view as “excess,” BlackRock outlined their perspective on executive pay in their 2018 stewardship guidelines.

Companies are increasingly finding that better engagement on ESG issues leads to shareholder proposals being dropped—or not filed in the first place.  Best in class engagement is proactive engagement, because by the time institutional shareholders reach out to you with an issue, they often already have made up their minds. 

3) Explain your company’s human capital management strategy.

Human capital management (HCM) has become an investment issue.  Massive amounts of data can now be accessed and analyzed across a multitude of companies, which has allowed investors to unearth correlations between human resource initiatives and investment outcomes.  Investors are keeping a closer eye on labor markets.  In BlackRock’s 2018 stewardship guidelines, they reported “In light of evolving market trends like shortages of skilled labor, uneven wage growth, and technology that is transforming the labor market, many companies and investors consider robust HCM a competitive advantage.” 

Companies need to articulate how they’ve established themselves as an employer of choice for the workers they depend upon. The company’s approach to HCM, including employee development, diversity, a commitment to equal employment opportunities, health and safety, supply chain, labor relations, and labor standards, is viewed as a factor in the continuity—and ultimately the success—of the business. 

BlackRock is a good litmus test on investor attitudes towards HCM, and they are encouraging companies to go a step beyond providing commentary and begin to bring transparency to HCM data and practices.  Investors know that companies possess data on their workforce to help investors distinguish companies that are managing HCM matters more strongly than those who are not. 

4) Help investors understand how data is protected and utilized.

2018 was a year chock full of stories in the media about data breaches and data sensitivity issues, stories that adversely impacted a wide variety of companies.  Society in general—and investors in particular—were caught off guard by the manner in how data is protected and utilized.  Yet a vast majority of companies still don’t disclose (to the degree that investors would prefer) what they actually do with their data and how that data is protected. 

Given the trajectory of big data, investors generally understand that data will continue to be utilized in new ways, but they want more disclosure and transparency (especially from a risk management perspective) around how that data will be protected and utilized, both now and in the foreseeable future.

5) Create a cyber risk management dashboard and give the board access to the CISO.

Cyber risk management covers a broader spectrum than data protection, and while investors do not expect all board members to possess deep cyber security expertise, they do want assurance that the board has incorporated cyber security oversight into the risk management process.  Corporate secretaries and other governance professionals can support the board in this effort by ensuring the board has some form of dashboard or metrics that provide a regular overview of the strategic implementation of the company’s cyber risk program.

Because cyber risk is so technical in nature and changing so rapidly, another best practice is to ensure that the board has access to the CISO (chief information security officer).  The corporate secretary can play a key role in helping to bring together board members and those responsible in the organization for the implementation of cyber risk management. For example, it can be very useful to buddy up particular board members with the CISO, especially board members who are on committees tasked with cyber security and/or risk management oversight.  Some companies schedule private management meetings between board committee chairs and the CISO to get a better grasp of the issues. 

Listen to the full webinar: Looking Ahead: How GRC Teams Can Prep for 2019>>

***

Martyn Chapman serves as Head of Strategy for Nasdaq Governance Solutions, supporting product development and commercial strategies for Nasdaq’s flagship governance offering, Nasdaq Boardvantage. He has over 15 years of governance industry experience serving boards of FTSE100 and Fortune 500 companies with a focus on innovating corporate governance practices through technology.

 Daniel Romito is Global Head of Investor Analytics at Nasdaq where he oversees Nasdaq’s Strategic Capital Intelligence team, Insight360 Analytics Platform, and ESG index consulting and manages a global roster of advisory clients. His advisory work focuses on consulting management teams across the globe on optimizing capital allocation strategies, mitigating risk within their shareholder base and identifying opportunistic investors.

 Ben Maiden is editor of Corporate Secretary, a digital and print platform providing a forum where governance experts and service providers can share their experience, insights and best practice recommendations on a wide range of critical governance issues. 


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Publication Date*: 2/14/2019 Mailto Link Identification Number: 1682
Frequently Asked Questions
  9 Pathways to Diversity Innovation and Better Strategic Risk Governance
Identification Number 1685
Clearhouse
9 Pathways to Diversity Innovation and Better Strategic Risk Governance
Publication Date: March 5, 2019

In observance of Women’s History Month and International Women’s Day, Governance Clearinghouse is publishing a series of articles focused on gender balance on corporate boards.  The series will highlight several facets of this complex issue, including pathways to board diversity, best practices of companies that have achieved gender parity in the boardroom, and the steps aspiring women directors can take to become “board ready.”   

Andrea Bonime-Blanc is the founder and CEO of GEC Risk Advisory. Dante Alighieri Disparte is the founder and CEO of Risk Cooperative.

The imperative to equip the governance bodies of companies with diverse directors has never been higher – how the U.S. gets there is up for grabs. The EU has already made up its mind that this will be achieved through quotas. Other regions and countries like Canada require explanations of why diversity is low or does not exist. In the U.S., we have the first instance of a state establishing quotas – California – and where California leads other states often follow.  

Regardless of external regulatory or market pressures to move the needle on board diversity and inclusion, people see through half-hearted, check-the-box efforts.  Rather, companies and their boards, must view their closer approximation to the diversity in society as a net gain for their own resilience, decision making and competitive advantage.  More women on boards and at the head of the table or head of countries, just like more diversity of experience and backgrounds, will make for more fulsome decision making.  Diversity and inclusion should not be call-out efforts, but rather deliberate initiatives that become ingrained in the DNA of well-run companies.

Diversity improves returns – not only financial but reputational and stakeholder returns as well. Just like demographics, diversity is destiny and for boards that aim to capture this dividend, diversity and inclusion need to be incorporated into broad governance.

How do companies do this? We believe there are nine key pathways to board diversity.

1.   Establish a percentage target for diversity (gender, race, ethnicity, national origin, age) that is customized to your business needs.

Many (especially those already ensconced in board seats) abhor government regulations and mandates when it comes to board design. But when nothing changes, or change is glacial, others have come to accept that some government requirements for greater board diversity may not be so bad after all. Witness the recent California law mandating minimum gender diversity for California based companies.

What can companies do to either prevent or end new “onerous” governance laws? There is always the option to be proactive and look at your board, and look at your employee and customer base, and ask yourself the question: does our board reflect the stakeholder populations we serve? There is nothing like a voluntary corporate program to instigate positive change, reputational opportunity and value creation. Indeed, the more companies—and their boards—become a closer reflection of the diversity in society and markets, the less they will fear a reputational backlash for issues like the gender pay gap, the #MeToo movement or other “externalities”.

 2.   Broaden the talent pool with individuals skilled in the areas of risk, technology, sustainability, ethics and compliance.

Many boards do not include a broad enough pool of skillsets on the slate of possible board candidates. The vast majority of corporate board members are CEOs and CFOs, who on the one hand have clear skills in leading organizations and in financial accountability, but may lack refinement in wielding, responding to and appreciating the effects of “soft power” and intangible, unmeasurable threats – especially those that do not conform to quarterly reporting cycles. People (experienced and business-savvy of course) who hold expertise in areas other than the traditional silos of top financial and operational expertise, are seldom considered for board positions.

What about the treasure trove of highly experienced chief risk officers, chief ethics and compliance officers, heads of investor relations and corporate responsibility, audit, environmental, health and safety, chief information security or technology officers that are everywhere? Not all may be qualified to sit on a board, but undoubtedly the top 10% of these populations would make for an extraordinary addition to any board.  Broadening the diversity of skills tapped for boards is as critical as broadening the depth and breadth of diverse talent across all lines.

 3.   Reshuffle committees to represent current market realities and operating norms.

Most boards have the traditional 3-4 committees: audit, finance, nominating/governance and maybe one more; but rarely one that covers risk, sustainability, compliance and similar “intangibles” separately. Indeed, many boards’ audit committees are so oversaturated with responsibilities that anything that comes up that is seen as “extra” – whether ethics and compliance, risk, ESG, health and safety and recently cyber risk – gets thrown into the already overburdened audit committee.

We advocate that each company board look at the mission, vision and strategy of their company and decide what additional committee they might need to tackle their most important environmental, social, sustainability, ethics, technology issues, risks and opportunities. And, of course, in the process, review who on the current board is qualified and capable of being the chair or a member of such a committee. If there is no one present, maybe the time has come to search for a couple of non-traditional and diverse board members with relevant ESG and/or technology expertise?  Indeed, a novel concept to stay ahead of a growing market backlash or compliance-driven pressure to improve diversity and inclusion would be to establish a board-level committee to advance and defend these issues across the enterprise.  The UK’s laws on corporate reporting on gender pay are a good example of the growing pressure and the negative backlash faced by firms that were underperforming on the gender pay gap.  Pay parity, like diversity and inclusion, is not only the right thing to do it is a source of resilience, employee motivation and recruitment, as well as competitive advantage.

 4.   Separate risk and opportunity oversight from audit, perhaps by creating a specialized strategic risk and opportunity committee.

Very much along the lines expressed in point three above, and depending heavily on the industry, footprint and or sector involved, boards should be proactive in looking at their strategy from beyond the traditional mindset. Strategy is not just about growth, revenue and the search for profit, innovation and long term market gains. It is also about looking at strategic risk governance through the lens of the board, which includes considering risk as opportunity.

By separating strategic risk and opportunity evaluation from the audit committee, the board liberates itself from lumping risk into the audit committee’s core mission – financial auditing oversight – and allows other considerations to enter the board’s field of vision.

Strategic risk oversight is all too often a compliance-driven, check the box activity on most boards, which is why they often find themselves flat-footed and tone-deaf when “surprise” events and crises occur. By liberating important strategic issues – such as technology and digital transformation, climate change risk and opportunity, and leadership and culture as a competitive advantage – from the audit committee, companies and boards will breathe new life into their strategy formulation as they consider risk as part of opportunity creation.

 5.   Bring in third-party specialists to conduct scenario-based long-range analysis and cross-industry benchmarking.

Another step that can add to board diversity, at least to the diversity of views, is to consider introducing more innovative educational opportunities to the board.  This can be achieved through outside and inside experts that will help sensitize the board.  For example, experts can offer perspective on the potential crises that the augmented global risk landscape presents to every type of business today, such as culture shifts, cyber threats or climate change.

By dint of the kind of topic that can become a crisis, there is a diversity of experts available both inside the company and outside advisers who are not subject to “paycheck persuasion” to tell the board what they want to hear; these individuals can educate the board and perhaps become a member of the board over time.

 6.   Separate the CEO from the chair and strategic risk management oversight.

We believe this is a pro-diversity strategy by definition because many CEOs and board chairs suffer from deep diversity challenges. By having the amount of power that they do in a combined role, very little change is possible unless the person himself is in favor of improving governance diversity.  The operational benefits from this separation of powers have long been chronicled in the breakdown of decision making, risk management and the types of moral hazards that are bred when power remains unchecked.

In a recent piece we co-wrote for Risk Management Magazine, we detailed and made the case that if the boards of companies that had suffered recent serious crises and scandals had been more diverse leading up to their crisis, it would have helped prevent the crisis in the first place or enabled a more agile response and recovery. And in each of the cases mentioned, the CEO was also the Chairman of the board before and leading up to the crisis event.

 7.   Enforce term limits and cap the total number of concurrent board seats.

Again, this step is pro-diversity by definition because with more turnover and less entrenchment the opportunity for new and diverse members of a board grow substantially. 

Leading good governance advocates including some of the biggest asset managers such as Blackrock, State Street and some of the big state pension funds, have been on the record about preferring term limits for board members. Indeed, in this Harvard Law School Forum on Corporate Governance and Financial Regulation piece written by Jon Lukomnik, he reports on a study of major institutional investors responding to an ISS 2016-2017 Global Policy Survey in which:

 “Among the 120 institutional investors (one-third of whom each own or manage assets in excess of $100 billion) who responded, 68 percent pointed to a high proportion of directors with long tenure as cause for concern…Just 11 percent of the investor respondents said that tenure is not a concern.”

What this means in plain English is that boards that have tenures that are too long, or allow for repeated terms over time for the same person without limits, may not be serving the best interests of their shareholders or other key stakeholders – like customers and employees.

 8.   Create advisory committees of key outside experts to provide new perspectives.

While unusual and uncommon, such advisory committees can include less experienced but highly specialized, more diverse and helpful people who may not be ready for prime-time board seats but are promising candidates to be both listened to and mentored.

One area in which this practice can be specifically helpful is in the technology, cyber-security and digital transformation area, not to mention the clear generational shifts in populations. Most traditional board members are still current or retired CEOs and CFOs who did not grow up during the technological revolution. While it may be wise to have one or more board members with actual technology experience on your board, you might not be able to find the properly seasoned person to perform that role yet. Why not create a feeder advisory board to the corporate board that includes younger, more technologically savvy members who may one day make it to boards as well?

9.   Bring in independent, qualified directors and wean CEOs from the habit of appointing “friends and family” to the board.

The “friends and family” approach to board packing can be harmful to shareholders and other key stakeholders in the long run (and maybe even in the short run). By definition these kinds of boards are very un-diverse – mainly created by founders who are typically white men (although many can be fairly young as founders of tech start-ups).

We think that the long-term profitability and resilience of companies - and the acceptance and support of key stakeholders - is served well by the introduction of talented, meritorious board members who may not be friends and family to the founder or a powerfully entrenched CEO (who so often is also the chairman).

We also believe that the best governance solutions come from voluntary board self-evaluation with the help of the right experts to refresh your board. Boards should break out of the cycle of the self-fulfilling prophecies that most traditional board searches continue to do– with the same recycled profiles of people who are already on boards and have been vetted by the same handful of search firms. Such an approach will assure the continued un-diverse nature of many boards. Breaking that cycle will do the reverse - unearth the many non-traditional and highly qualified talents that are out there in search of board service.

***

Diversity is resilience, innovation and competitive advantage because diversity is destiny - both at the macrocosmic level of national demographics and at the microcosmic level of every company.

Andrea is the founder and CEO of GEC Risk Advisory providing strategic governance, risk, ethics and cyber advice to business, nonprofits and governments, and a board member, NACD Governance Leadership Fellow & Faculty Member. Her latest book – Gloom to Boom: How Leaders Transform Risk into Resilience and Value, will be published by Routledge in mid 2019.

Dante Alighieri Disparte is the founder and CEO of Risk Cooperative, a strategic advisory firm and insurance brokerage focused on risk, readiness and resilience. He is the co-author of the acclaimed book Global Risk Agility and Decision Making and the author of the forthcoming book, Supergovernance, to be published by Macmillan in mid 2019.

The views and opinions expressed herein are the views and opinions of the authors 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*: 3/5/2019 Mailto Link Identification Number: 1685
Frequently Asked Questions
  3 Ways Blockchain Will Transform Capital Markets
Identification Number 1684
Clearhouse
3 Ways Blockchain Will Transform Capital Markets
Publication Date: February 26, 2019

Syed S. Hussain is CEO of Liquidity Digital, a fintech company that is developing an end-to-end platform to facilitate the issuance of digital securities through blockchain technology.

A number of metaphors are being thrown around regarding the innovative potential of blockchain technology, including comparisons to the printing press, steam engine, antibiotics, and the internet. But despite high level talks of societal change, there seems to be no true historical parallel to rival the growing impact and future implications of blockchain technology, especially in how transformative it could be for global capital markets.

So what makes blockchain such a game changer? When focusing on current trends in the space, even the casual observer interested in financial use cases is most often drawn toward the concept of Digital Security Offerings (DSOs).  

At its most basic level, a digital security is a digital representation of an equity or debt security that can be bought and sold online, and is recorded on a blockchain-based distributed ledger. A DSO is the offering of digital securities to usually geographically-disparate investors who then trade them on secondary market platforms, which in turn bring liquidity to their global counterparts.  DSOs will revolutionize the securities markets in a myriad of ways, but for now we’ll focus on three key impacts: accessibility, transparency, and liquidity.

Accessibility

One of the most interesting, impactful, and truly innovative changes that DSOs offer is encapsulated by the term accessibility, sometimes referred to as financial democratization. There are two essential components to this:  time and geography.

At present, traditional stock exchanges are closed more hours a week than open. With digital securities exchanges, this will not be the case as they will be open 24 hours a day, seven days a week, 365 days a year. In fact, securities that sit on these new generation of exchanges will have just one opening bell to signal the start of trading into perpetuity. This will greatly increase market accessibility because access to your investments will not be on a rigid schedule that limits the time and place of trading. Thus, if you thought of a great investment opportunity while watching CNBC on Saturday night, the new structure of securities trading would allow you to execute that transaction at that moment, with minimum time and energy. The rush of orders placed at the opening bell, and the high-frequency trading and high order volume that occurs around that time, will be replaced by a constant stream of 24/7 accessibility.

Second, geographic barriers to capital market access will be eliminated due to the decentralized nature of the blockchain. In a fully matured landscape for digital security offerings, investors worldwide with funds and an internet connection can participate in opportunities throughout the world (assuming they pass KYC and AML checks).  This will be the true democratization of the global financial system, as even small actors can theoretically invest or access capital at rates similar to larger institutions.  Issuers and investors alike should tread carefully, however, because regulators across the globe mandate differing levels of registration with or exemption from securities laws.  And those laws will continue to evolve for the foreseeable future. 

Transparency

True transparency will fundamentally transform capital markets and provide a basis on which to grow new asset classes, as well as to clarify existing ones. 

Often used as a buzzword for blockchain, transparency is already playing a direct role in the growth of the digital securities ecosystem. In a securities transaction, who can you trust to ensure that you receive the fruits of your investment? Where does that baseline, that foundation that makes value transfer possible, come from? Right now, it’s an often highly-paid third party such as a trustee who ensures funds are distributed appropriately and consistent with contractual expectations. But with digital securities, that trust is a basic component built into the architecture of interactions: Who can you trust? The blockchain.

Within this context, transparency is trust’s essential core component. Every trading operation, issuance application, dividend payout and smart contract execution is transparently recorded on the blockchain to improve the overall securities ecosystem experience. This is an immensely powerful tool which seeks to prevent fraud and theft and will be massively important for payment companies such as PayPal as they navigate and adapt to the new blockchain-based monetary landscape.

Liquidity

Another fundamental impact of the DSO is liquidity.  Indeed, this is what has generated the most excitement in the securities space. The introduction of digitized securities into capital markets promises to increase dramatically the pace and quantity of capital transactions.

There are many different factors that interact in this ecosystem to produce heightened liquidity. Here I’ll highlight just two:  fractional ownership and asset fungibility.

Fractional ownership refers to the property of digital securities that allows them to be divided and sold as a part of the whole. For instance, an apartment worth $100,000 in Chicago may be tokenized and issued as 100 security tokens each representing $1,000. But what if I only have $100 to invest? Fractional ownership neutralizes that problem because I can still invest my $100 by purchasing 1/10 of a digital security that will experience the same rates of return as if I owned the whole apartment.

This drives liquidity by enabling smaller investors to participate, lowering the barriers to entry and increasing transaction turnover. Increased liquidity in capital markets also creates an associated liquidity premium, which essentially increases the asset value as a percentage of the whole.

The second major factor is the fungibility of asset classes. Simply put, if distinct asset classes when digitized and securitized are able to be traded interchangeably, the probability of liquidity events increases dramatically. Consider the example above of a digitized apartment. What’s stopping you from trading that 1/10 of a digital security for $100 worth of U.S. Treasury Bond securities? Absolutely nothing!

Many view fungibility to be the essential revolutionary element in the development of digital securities. No longer will investors need to partially divest from the stock exchange in order to diversify into other asset classes such as bonds and real estate. Access to digitized investments of all shapes and sizes, from more dependable long-term funds and bonds to quick day-trading equities, will be available to a much larger percentage of the world, thereby driving a veritable explosion of liquidity events.

The digitization and securitization of assets will in turn bring enhancements to blockchain technologies, particularly in the areas of security and compliance.

A fundamental concept underpinning the development of blockchain technology and the resultant DSO field is the security of digital assets. Similar to legacy banking, confidence in the system is based on the assumption that assets or their monetary equivalents are reasonably safe and cannot easily be stolen (and if they are, the assets are backed by insurance). Even though there are weaknesses inherent in any new technology, the current improvement rate of cryptographic security protocols is very high, and many companies are developing institutional-grade custody solutions.  When stored online with best-in-class custody providers or offline in cold storage, the risk that those funds will be stolen or lost is minimized.

Additionally, companies such as Microsoft and Amazon are highly involved in the back-end of this paradigm shift towards blockchain-based securities trading. They are eager to provide secure storage and processing solutions for as many start-up or institutional players as they possibly can.  This in turn brings much-needed stability to the arena. Therefore, especially in the nascent DSO industry where the security of digital assets is paramount, established partners and a custodial product strategy that remains far nimbler than the threats made against it are absolutely necessary, and thankfully, are becoming easier to find.

In terms of compliance, the Securities and Exchange Commission (SEC) has now made it clear that it has yet to come across an initial coin offering (ICO) that was not also an issuance of unregistered securities. At the end of 2018, SEC Chairman Jay Clayton commented: “If you finance a venture with a token offering, you should start with the assumption that it is a security.”

The prevailing wisdom has thus adapted, and come to dictate, that projects be proactive about approaching regulatory bodies with a plan to register their offering or issue it through an exemption, and that entities enabling the trading of DSOs register as a securities exchange or an alternative trading system. Some issuance platforms have developed their own compliant digital securities models, underwriters are preparing appropriate due diligence, and exchanges are suspending and banning fraudulent actors.

Here is where things get interesting for national securities exchanges and the companies listed on them:  The regulation and standardization of digital securities allows the industry to finally progress through the initial stages of trepidation and uncertainty to solidify processes like ensuring compliant tokenomics design and offering structure. Just as it did to the nascent institutions of the American West during the late 19th century, the imposition of regulatory order on the ‘wild west’ of blockchain-based currencies will enable new and exciting possibilities to take root and grow into stable, well-functioning pillars of the new digital economy.

***

Syed S. Hussain is CEO of Liquidity Digital, a fintech company that is developing an end-to-end platform to facilitate the issuance of digital securities through blockchain technology.  Liquidity Digital is backed by Soramitsu, a blockchain technology company which is part of the Linux consortium and developer of the Hyperledger Iroha protocol.

The views and opinions expressed herein are the views and opinions of the contributor at the time of publication and may not be updated. They do not necessarily reflect those of Nasdaq, Inc. The content is for informational purposes only and 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, tax, investment, financial, or other advice. Nothing contained herein constitutes a solicitation, recommendation, endorsement, or offer by anyone to buy or sell any securities or other financial instruments in this or in in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. 
Publication Date*: 2/26/2019 Mailto Link Identification Number: 1684
Frequently Asked Questions
  SEC Actions Regarding Mandatory Arbitration Bylaw Provisions
Identification Number 1683
SEC Actions Regarding Mandatory Arbitration Bylaw Provisions
Publication Date: February 20, 2019

On February 11, 2019, the SEC’s Division of Corporation Finance responded to a no action request for a company seeking to exclude from its proxy statement a shareholder proposal, which would have required the company to arbitrate all claims brought by investors under federal securities laws and would have precluded investors from bringing such claims as a class. Relying upon a submission from the Attorney General of New Jersey, which stated that the proposal would violate state law, the SEC Staff concluded that it would not recommend enforcement action should the company decide to exclude the proposal on the grounds that it would violate state law. Chairman Clayton issued a statement supporting the Staff’s decision, but also noting that the SEC Staff did not address the legality of mandatory shareholder arbitration in the context of federal securities laws, and emphasizing that any SEC policy decision on the ability of domestic, publicly-listed companies to require shareholders to arbitrate claims against them arising under the federal securities laws should be made by the Commission.

View the No-Action Letter here >>

View Chairman Clayton’s statement here >>
Publication Date*: 2/20/2019 Mailto Link Identification Number: 1683
Frequently Asked Questions
  Nasdaq Comments on PCAOB Strategic Plan
Identification Number 1681
Nasdaq Comments on PCAOB Strategic Plan
Publication Date: February 08, 2019

In August 2018 the PCAOB released a draft of its five-year strategic plan and sought public comment on the plan. On February 7, 2019, Nasdaq issued a comment letter commending the PCAOB for the initial steps in the Strategic Plan towards improving the quality of audit services and urged action to meaningfully reduce the hurdles of compliance as a public company where that can be done without harming investor protection or while enhancing investor protection.

View Nasdaq's comment letter here >>

Publication Date*: 2/8/2019 Mailto Link Identification Number: 1681
Frequently Asked Questions
  Congress to Consider Requiring Disclosure of Board and Executive Officer Diversity Data
Identification Number 1680
Congress to Consider Requiring Disclosure of Board and Executive Officer Diversity Data
Publication Date: February 07, 2019

Congressman Gregory Meeks, Chair of the Consumer Protection and Financial Institutions Subcommittee of the U.S. House Committee on Financial Services, has introduced the Improving Corporate Governance Through Diversity Act of 2019, which would require public companies to annually disclose the gender, race, ethnicity and veteran status of their board members, board nominees and senior executive officers. The bill also would require public companies to disclose whether their board or a board committee has adopted a policy to promote diversity. A companion bill was also introduced in the Senate by Senator Bob Menendez, who sits on the Senate’s Banking Committee.

Read Press Release >>

Publication Date*: 2/7/2019 Mailto Link Identification Number: 1680
Frequently Asked Questions
  Impact of Government Shutdown and Recommencement of Operations
Identification Number 1677
Clearhouse
Impact of Government Shutdown and Recommencement of Operations
Publication Date: January 29, 2019

DIVISION OF CORPORATION FINANCE ANNOUNCEMENT REGARDING RECOMMENCEMENT OF OPERATIONS

With the end of the government shutdown, the Securities and Exchange Commission has returned to normal operations. The Division of Corporation Finance has published an announcement stating that it generally will address matters in the order in which they were received; however, expedited assistance can be requested by contacting CFEmergency@sec.gov. Consistent with Corp Fin’s statement during the shutdown, some registrants omitted or removed delaying amendments from their registration statements and Corp Fin will consider requests to accelerate the effective date of those registration statements if they are amended to include a delaying amendment prior to the end of the 20 day period and acceleration is appropriate. Corp Fin also stated it would treat no-action requests concerning shareholder proposals in the order they were received, but asked that notice of any timing constraints or changes in circumstances (such as if a company no longer needs a response) be sent to shareholderproposals@sec.gov.
  
Read more from Corp Fin >>

See, also, Statement by Chairman Clayton >>

Impact of Government Shutdown

No changes to Original text: During the government shutdown, the SEC is operating with a limited number of staff members. This impacts the ordinary process for companies seeking to list on Nasdaq, including companies first seeking to go public, and may impact companies already listed. Nasdaq has received a number of questions about various capital raising activities and has published a series of FAQs addressing certain scenarios during the shutdown. We will update this information periodically as events unfold.

Read the FAQs >>
Publication Date*: 1/29/2019 Mailto Link Identification Number: 1677
Frequently Asked Questions
  BlackRock's Larry Fink Delivers Annual Message to CEOs
Identification Number 1678
BlackRock's Larry Fink Delivers Annual Message to CEOs
Publication Date: January 28, 2019

Each year, Larry Fink, CEO of BlackRock, delivers an annual message to executives.  In this year’s letter he calls on executives to be “leaders in a divided world” and stated that “stakeholders are pushing companies to wade into sensitive social and political issues — especially as they see governments failing to do so effectively.” The letter also reiterates last year’s plea for executives to focus on purpose and emphasized the "inextricable" link between purpose & profits. When it comes to preparing for this year's engagements, BlackRock's annual letter identifies these four priorities:
  • Governance - including the company's approach to board diversity;
  • Corporate strategy and capital allocation;
  • Compensation that promotes long-termism;
  • Environmental risks and opportunities; and human capital management.

Read Larry Finks’ 2019 Annual Letter >>

Publication Date*: 1/28/2019 Mailto Link Identification Number: 1678
Frequently Asked Questions
  Try These 5 Ideas to Foster Better Dynamics in Your Boardroom
Identification Number 1675
Clearhouse
Try These 5 Ideas to Foster Better Dynamics in Your Boardroom
Publication Date: January 23, 2019

Boardroom dynamics can make or break the effectiveness of a board. This could be why more than 600 governance professionals signed up for a recent webinar co-hosted by Martyn Chapman, head of strategy for Nasdaq Governance Solutions, and David Shaw, editor and publishing director for Directors & Boards magazine. While the webinar focused on the Seven Tactics to Engineer Better Boardroom Dynamics per a recent Governance Clearinghouse post, our hosts also brought new insights to executing these tactics, sharing these five new ideas that governance professionals can use to re-energize and refresh the dynamics in their own companies' boardrooms.

1) Design and implement a "reboarding" strategy.

An emerging practice, one the governance community may be hearing more about, is "reboarding." Reboarding is a process of re-energizing and refreshing the board without changing any of the existing players. 

Reboarding is useful for directors who have been on a board for a very long time, or for an organization that has changed its business or operational paradigm significantly during the tenure of the existing board. For example, if a corporate board has pivoted its focus to more technology-based business operations, such as expanding from traditional retail stores to online selling, it will need to change its approach. The re-boarding process can help a tenured board better understand how the business operates in its new domain, as well the new risks (such as cyber risk) that the company faces.  Re-boarding could become a useful element of continuing professional development for a board.

Whether onboarding a new director or reboarding tenured ones, it’s important to look at the particular passions, expertise and backgrounds of board members.  The program should be individually tailored to ensure each member has access to the right information and makes the right connections with appropriate members of management.

2) Encourage communication between board members and management outside of the boardroom.

Ideally, board members "keep their noses in but their fingers out" of running the business.  Boards walk a fine line between immersing themselves in company business and encroaching on the role of management, so any engagement between board members and management should be carefully supervised.  A strong Corporate Secretary has the institutional knowledge and cultural fluency to be the key person in the organization to facilitate communications between board members and management that take place outside of board meetings.

The appropriate level of engagement between the board and company management is defined by a company's corporate culture and should be shared with board members during the onboarding process. 

3) Bring the business to life with site visits.

Site visits are an excellent means of engaging board members and sparking knowledge sharing between board members and management.  Companies can host board meetings at sites that are of significant operational value to them, such as factories, storefronts, or mines.  New projects are also exciting to visit, such as a tunnel being built or a new research facility. These trips bring to life a better understanding of the business and foster a board that is more in touch with the company and its operations. 

4) Actively manage tension to minimize the likelihood that tensions escalate into conflicts.

Challenge and debate are key to a board’s effective oversight of management, stimulating new ideas and leading to robust decision-making.  When managed properly, tension and conflict form an integral part of boardroom dynamics.

There is a distinction between healthy tension and unhealthy conflict, and it is important to embrace the difference between the two. Tension, from a board perspective, is a disagreement which is uncomfortable but can be addressed by healthy debate.  Conflict arises when that tension becomes aggressive and escalates to unresolvable levels. 

There are three issues that tend to lead to tension and conflict in the boardroom:

  • people and personality matters (i.e., retention, recruitment, compensation);
  • historical disputes (issues and concerns that weren’t resolved, decisions where certain directors were not fully on board, transactions rife with conflict); and
  • decision making (fundamental disagreements over strategy or particular actions proposed by the board).

It is important to identify how tension and conflict present themselves in the boardroom. Healthy tension can present as discomfort when discussing difficult topics, during open exchanges of information, and when directors are engaged in robust debate.  Red flags that signify a conflict may be brewing are:

  • passive-aggressive behaviors, such as board members who do not engage in a discussion or are overly polite or detached when responding to difficult questions;
  • repeating a point;
  • overly interrogative or heavy-handed questioning;
  • pushing debate offline or out of the boardroom; and
  • physical actions such as slapping on tables, banging glasses or leaving the room.

Tension generally tips into conflict when discussions become emotionally charged.  There are strategies that the board chair, Corporate Secretary or CEO can take to manage tension and minimize the likelihood of tensions escalating into conflicts:

  • Explicitly acknowledge and address concerns during the board meetings.  Concerns that are ignored or not fully addressed can plant seeds for conflict later.
  • Hold face-to-face conversations between the chairman and the conflicted parties (either one-on-one or in a group). These conversations work best when the board chair targets individual members with specific issues ahead of board meetings in informal settings outside the boardroom. 
  • Remind board members of the higher purpose of what they are working toward, who they are working for, who they are representing.  The board chair plays a key role in that as well.
  • Sit opposing board members next to each other during board meetings.

5) Add an "extra" member to each board committee.

An emerging practice among company boards is to assign at least one more member to each committee than is required by listing rules. This provides a margin of compliance if a member is suddenly no longer available to serve, and also allows boards to more easily rotate one of the committee members each year.  Rotating committee memberships keeps viewpoints fresh, exposes board members to new aspects of company’s business and creates new working relationships between and among board members. 

Listen to the full webinar: 7 Steps to Better Boardroom Dynamics>>

Read the companion article: Seven Tactics to Engineer Better Boardroom Dynamics>>

***

Martyn Chapman serves as Head of Strategy for Nasdaq Governance Solutions, supporting product development and commercial strategies for Nasdaq’s flagship governance offering, Nasdaq Boardvantage. He has over 15 years of governance industry experience serving boards of FTSE100 and Fortune 500 companies with a focus on innovating corporate governance practices through technology.

David Shaw is editor and publishing director of Directors & Boards, a quarterly print and digital journal dedicated to the topics of leadership and corporate governance.
Publication Date*: 1/23/2019 Mailto Link Identification Number: 1675
Frequently Asked Questions
  Nasdaq Participates in the 2019 World Economic Forum in Davos
Identification Number 1676
Nasdaq Participates in the 2019 World Economic Forum in Davos
Publication Date: January 23, 2019

Thousands of business, political and cultural leaders from all over the world will return to Davos, Switzerland the week of January 22 to discuss the latest global issues.  Representatives from Nasdaq include Adena Friedman, Chief Executive Officer;  Nelson Griggs, Executive Vice President, Corporate Services & President;  Edward Knight, Executive Vice President and Global Chief Legal and Policy Officer; and Adam Kostyál, Senior Vice President of Listing Services, Europe.  The main theme of this year's World Economic Forum is "Globalization 4.0: Shaping a New Architecture in the Age of the Fourth Industrial Revolution."  Nasdaq will co-host four events involving a range of topics, including public policy and gender equality. 

Read More >>

Publication Date*: 1/23/2019 Mailto Link Identification Number: 1676
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