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Frequently Asked Questions
  It’s Time for Companies to Improve Board Diversity Disclosure
Identification Number 1304
It’s Time for Companies to Improve Board Diversity Disclosure
Publication Date: January 12, 2017

In this post on the National Association of Corporate Directors’ Board Leader’s Blog, Nasdaq highlights its research, which indicates that many companies have a compelling story to tell about their board composition and diversity of age, gender, race, and skill sets. As companies prepare for the upcoming proxy season, Nasdaq encourages them to consider some simple disclosure enhancements that will increase the transparency around their diversity, including disclosing not only a board member’s gender and age, but also their ethnicity, skills, and experience.

Publication Date*: 1/12/2017 Identification Number: 1304 Mailto Link
Frequently Asked Questions
  SEC Seeks Public Comment on Disclosure Requirements Related to Management, Security Holders, and Corporate Governance Matters
Identification Number 1250
SEC Seeks Public Comment on Disclosure Requirements Related to Management, Security Holders, and Corporate Governance Matters
Publication Date: August 26, 2016

As part of its “Disclosure Effectiveness Initiative,” the SEC recently announced that it is seeking public comment on certain disclosure requirements related to management, security holders and corporate governance matters. The public comment period will be open for 60 days following publication of the comment request in the Federal Register. Users may submit comments through the SEC’s internet submission form or via email to

Read more from the SEC Here >>
Publication Date*: 8/26/2016 Identification Number: 1250 Mailto Link
Frequently Asked Questions
  Hidden Director Conflicts Should Be Disclosed to Investors by Edward Knight
Identification Number 1214
Hidden Director Conflicts Should Be Disclosed to Investors by Edward Knight
Publication Date: June 16, 2016

This article was originally published by Institutional Investor on June 16, 2016.
Shareholder campaigns aimed at radically reshaping corporate policy and governance — and extracting short-term profits at the expense of long-term value creation — are once again in the news. Many think they are a recent phenomenon. But that’s not the case.

In 1986 vaunted management consultant Peter Drucker lambasted short-termism in an editorial in the Wall Street Journal, declaring, “Everyone who has worked with American managements can testify that the need to satisfy the pension fund manager’s quest for higher earnings next quarter, together with the panicky fear of the raider, constantly pushes top managements toward decisions they know to be costly, if not suicidal, mistakes.”

And the evidence today — the intense focus on quarterly earnings, diminishing capital investment by U.S. corporations, shrinking CEO tenure and, according to Ana Avramovic, director of trading strategy at Credit Suisse in New York, falling average holding period for shareholders to 17 weeks, among other things — continues to demonstrate a push toward decisions that can be costly for shareholders.

This situation is potentially calamitous. Short-termism, often driven by activists, can have grave implications for corporations, for our economy and sometimes for society overall. Innovation, discovery and hiring are curtailed when R&D projects are put on hold or canceled because of short-term pressures. Halted development undermines long-term U.S. competitiveness, to say nothing of potentially postponing lifesaving medicines or cutting-edge technologies from reaching the public. Short-termism also leads to mispricing, misallocation of assets and a lack of reliable information about long-term prospects. But because activists are shareholders, this dynamic puts corporate leadership in a bind. Nobody will disagree that a diverse pool of investors is a goal of any business and that none should be turned away.

Some activist groups today do claim they are in it for the long haul, bringing ideas, questions and concerns to the attention of corporate boards and management, which is an essential part of any healthy relationship between a company and its shareholders. Beyond this engagement by some, however, a movement is afoot in which some board members are paid directly by activist investors, often based on benchmarks such as an increase in share price over a fixed term.

This relation is the case with two directors on Dow Chemical Co.’s board who have a special compensation arrangement with hedge fund firm Third Point, which agreed to pay them stock appreciation rights that increase in value as Dow stock increases in price. At the very least, it is unclear how this director incentive-compensation arrangement does not establish an explicit obligation to Third Point at the expense of other shareholders, lead to conflicts on the board that skew the alignment of interests with shareholders and undercut the fundamental board responsibility to oversee management in the best interests of all shareholders. The question also arises as to whether these payments incentivize risky behavior by the very body that is responsible for ensuring that executive compensation does not do so.

So, in view of such an arrangement, how do we help ensure the healthy functioning of boards without compromising the role of shareholders?

We believe one way is to require transparency around these special compensation arrangements. Full disclosure would shed light on the conflicts of interest generated by these arrangements, steer the focus away from short-term results and benefit investors by providing information useful for their investment and voting decisions.

That’s why, earlier this year, Nasdaq filed a proposal with the Securities and Exchange Commission that calls for Nasdaq-listed companies to disclose “all agreements and arrangements between any director or nominee and any person or entity ... that provide for compensation or other payment in connection with that person’s candidacy or service as a director.” Where disclosure is required, the public company would need to identify the parties and material terms of the agreement or arrangement. This proposal is simple to enact, practical and in the best interests of shareholders and corporations alike.

Activist investors have woven themselves into the fabric of corporate dynamics, with mixed results. They do have a positive and important role to play. Boards and management must be challenged by shareholders so they can continue to develop better companies. Drucker recognized this dynamic when he wrote that the manager’s job is to “keep his nose to the grindstone while lifting his eyes to the hills.”

One way to strengthen the healthy symbiosis of checks and balances between corporate leadership and shareholders is to disclose third-party payments to board members. This openness would have a mutually beneficial long-term focus. If these hidden conflicts of interest are brought into the light, we can keep our eyes on the hills and write a chapter in our capitalist story that takes a positive turn.
Publication Date*: 6/16/2016 Identification Number: 1214 Mailto Link
Frequently Asked Questions
  Why CEO Succession Planning Disclosure Matters
Identification Number 1158
Why CEO Succession Planning Disclosure Matters
Publication Date: March 9, 2016

CEO succession planning is one of the most important responsibilities of a corporate board. Institutional investors--BlackRock, CalPERs, and CalSTRs among them--are calling for robust disclosure of CEO succession planning in their corporate governance policies. Shareholders submit proxy proposals on the issue. But does CEO succession planning disclosure make a difference in the success or failure of a company in transitioning to a new CEO?

According to Does CEO Succession Planning Disclosure Matter, a new study by the Investor Responsibility Research Center Institute, it does. Companies that successfully execute CEO transitions are far more likely to have disclosed CEO transition plans to shareholders. On the other hand, 63% of companies that did not execute a successful transition provided little or no disclosure. The report also reveals that while such disclosure is increasing, it is overall lacking among the majority of companies surveyed.

Among the key findings of the report were the following:

  • 24%of the issuers surveyed provided no disclosure regarding succession planning in the two year period prior to the CEO change.
  • When disclosure was provided, it was relatively poor: just over half the issuers surveyed disclosed who had responsibility for the succession planning, 10%disclosed how often the board reviewed succession planning, and 2% of issuers described the board’s process for identifying CEO candidates.
  • Less than one in ten companies surveyed mentioned the existence of an emergency plan for replacing a CEO, for example in the event of death or incapacitation.
Also of interest was that 20% of companies executing transitions had to replace the new CEO within a two year period. Of those companies, 48% of the CEOs resigned.

Publication Date*: 4/20/2016 Identification Number: 1158 Mailto Link
Frequently Asked Questions
  Building Investors' Trust through Transparency
Identification Number 1157
Building Investors' Trust through Transparency
Publication Date: March 29, 2016 

Transparency around the composition and qualifications of a board builds trust, as it helps investors evaluate the board’s independence and potential effectiveness.  With this in mind, Nasdaq took a close look at the board composition disclosure in our recently filed 2016 Proxy Statement to ensure that our presentation reflected important emerging trends in disclosure and could serve as a roadmap for our listed companies as they drafted their proxies.  It is in this spirit that we expanded our board disclosure to include:  

  • A board skills matrix, identifying the skills, knowledge, experience and capabilities of each director most relevant to help the board meet both current and future challenges.
  • A director qualifications analysis, detailing the tenure, age and skills of board members and illustrating the cognitive diversity of the board, with a range of experience, knowledge and perspectives.
Nasdaq also provided enhanced discussion of board, committee and individual performance assessments throughout the proxy, explaining the mechanics of how the board evaluation process is conducted and utilized. 
Publication Date*: 3/29/2016 Identification Number: 1157 Mailto Link
Frequently Asked Questions
  How to Build a Better Shareholder Letter?
Identification Number 1177
How to Build a Better Shareholder Letter
Publication Date: February 23, 2016

Just in time for the 2016 proxy season, Larry Fink, CEO of BlackRock, has some advice for CEOs of publicly-traded companies: articulate your company’s vision and plans for the future in shareholder letters.

For the past several years, Fink has strongly advocated that corporations turn their focus toward long-term health versus short-term reactions to activist and market pressures. In this year’s corporate governance missive to CEOs, dated February 1, Fink lamented that annual shareholder letters and quarterly earnings updates are “too often backwards looking” when a “perspective on the future…is what investors and all stakeholders truly need.” He emphasized that BlackRock’s corporate governance team, in their engagement with companies, will be looking for a strategic framework for long-term value creation along with explicit affirmations from CEOs that corporate boards have reviewed those plans.

Fink hopes that if corporations use quarterly earnings reports to educate shareholders about—and demonstrate progress towards—strategic plans, they “would be transformed from an instrument of incessant short-termism into a building block of long-term behavior.” In his letter Fink also proposes that corporations move away from providing quarterly earnings per share guidance, stating that “today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need.”

Weaning investors and analysts off of quarterly earnings data may not be feasible. However, Fink offers a compelling argument for consistently communicating progress toward long-term plans and goals: a CEO who fails to articulate strategic plans for long-term growth runs the risk of activist investors imposing their own on the company. He shared in his letter that Blackrock’s corporate governance team will support activists’ plans when they offer better strategies for long-term value creation than management. In the 18 largest U.S. proxy contests during 2015, Blackrock voted with activists 39% of the time.

Fink would like to see shareholder letters (and other communications with stakeholders) include some or all of the following information:

  • Strategic framework for long-term value creation
  • Financial metrics that support framework for long-term growth
  • Compensation plans linked to metrics
  • How the company is navigating the competitive landscape, including how it is adapting to technological disruption and/or geopolitical events
  • How the company is innovating
  • Where the company is investing capital
  • How the company is developing its talent
Read Larry Fink’s Corporate Governance Letter to CEOs in full here >>

There are a number of CEOs who already take this tactic with shareholder letters (including Mr. Fink himself) and we’ve gathered a few examples from 2015 below. They don’t share common formats: one of these letters is so long and detailed it includes a table of contents, while another is just a page. All, however, provide a framework of their corporate strategy to some degree.

Alphabet Founders Letter by Larry Page >> Letter to Shareholders by Jeffrey Bezos >>

BlackRock Chairman’s Letter to Shareholders by Laurence Fink >>

JPMorgan Chase & Co Chairman and CEO Letter to Shareholders by Jamie Dimon >>

Microsoft Shareholder Letter by Satya Nadella >>

Starbucks Annual Letter to Shareholders by Howard Schultz >>
Publication Date*: 2/23/2016 Identification Number: 1177 Mailto Link
Frequently Asked Questions
  Nasdaq Companies Recognized for Outstanding Proxy Disclosure
Identification Number 1159
Spotlight Promo
Nasdaq Companies Recognized for Outstanding Proxy Disclosure
Publication Date: July 30, 2015 just announced the results of its first annual Proxy Disclosure Awards and a number of Nasdaq issuers were among those recognized. These proxy statements help illustrate that innovation in content and formatting can certainly improve readability for stockholders. Use this list to get some great ideas for your next proxy!

See a list of all the winners by category here >
Publication Date*: 7/30/2015 Identification Number: 1159 Mailto Link
material_search_footer*The Publication Date reflects the date of first inclusion in the Reference Library, which was launched on July 31, 2012, or a subsequent update to the material. Material may have been previously available on a different Nasdaq web site.
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