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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
  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
  Good Governance: A 2019 To-Do List for Your Company's Board
Identification Number 1674
Clearhouse
Good Governance: A 2019 To-Do List for Your Company's Board
Publication Date: January 16, 2019

Each year, corporate governance changes with the times and the priorities of investors. This year's governance checklist shares updates on three issues from last year, along with a number of new challenges. In this post, veteran director Betsy Atkins encourages companies (and their boards) to kick off 2019 by focusing on the following seven priorities.



Clearhouse
1. Keep an Eye on the Regulatory Landscape

Each year seems to bring a new watershed governance issue. 2017 was the year of the activist, with an unprecedented volume of activism and proxy actions not just across the U.S. but globally as well. 2018 was the year of #MeToo, a movement that led to the boards of numerous iconic companies scrambling to defend their corporate brands and investigate CEOs accused of sexual harassment.

I expect 2019 to be the year that regulation impacts a variety of businesses. I’m not just referring to high-profile issues, such as the data use and protection regulations being debated for internet goliaths. Sitting on the Wynn Resorts board has taught me that navigating the gaming commission and regulatory compliance is worse than trying to get top secret clearance. Almost every industry has a regulator they are dealing with, and companies that do business globally must navigate a complex regulatory landscape.

For example, a new law passed recently in India goes into effect in February and will limit online sales through Amazon and Wal-Mart. Both companies have bet billions of dollars on the upside of the online retail market in India. Combined, they represent 83% of the Indian online retail market through affiliate relationships, but that new regulation is going to cap online sales through affiliates at 25% via any one online marketplace.

Boards need a window into how upcoming legislation may impact company operations, so they can plan how to help influence and shape it. As regulatory compliance becomes more complex, it should become an annual best practice for board members to ask management to share the 1, 3, and 5-year regulatory agenda. A proactive approach is far better than winding up on the back foot when new legislation is passed.

Nasdaq does an excellent job keeping an eye on the regulatory landscape and participates actively in the debates that shape legislation that will impact its listed companies. The U.S. Securities and Exchange Commission (SEC) employs committees and roundtables to energize public policy discussions affecting public companies, including a recent roundtable on Proxy Access that covered issues about technology and proxy plumbing as well as the rules surrounding proxy advisors and how shareholders can introduce proposals. Another issue of interest that the SEC is looking to advance in 2019 includes a review of the quarterly reporting process for U.S. public companies.

Read More: It's Time to Fix the Proxy Process >>

Clearhouse
2. Review Your Board's Composition

Diversity of board composition is now a front and center topic.

Gender diversity is a must, as companies that fail to proactively address it are going to be under increased scrutiny. Starting in 2020, ISS will note “NO” on re-election of nominating and governance committee chairs if their company does not have at least one woman on their board. Many gender diversity advocacy groups are now aiming towards a near-term target of 30% of public company board members being female. If companies fail to make progress on this issue, there could be more legislation like the new board diversity law that passed in California and the mandatory women on boards bill recently introduced in New Jersey.

Diversity should also be more broadly defined as cognitive diversity, which is the diversity of thought achieved in a group with diversity of ethnicity, age, and demographical geography as well as gender. Experience as a CEO or top corporate executive is no longer a must-have credential for board service. Only 35% of the new S&P 500 directors are active or retired CEOs and other C-suite leaders, down from nearly half (47%) a decade ago. Look for new resources for board members in order to improve the diversity of thought on the board.

Another 2019 must is a digital director on the board. 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 artificial intelligence) will bring critical insights into the boardroom. There is not a business listed on Nasdaq that cannot apply technology to generate efficiencies in some way, whether to reduce the costs of supply-chain management or take friction out of the customer journey or revolutionize the industry’s business model. Look at the birth of sharing economies like Airbnb and gig-enabled businesses like Uber, Lyft, and Thumbtack.

The velocity of change and disruption has shrunk the average lifespan of companies; pretty much half disappear within a decade. The biggest risk to companies today is that they don't stay contemporary which makes cognitive diversity critical to maintaining a vibrant and sustainable business model for shareholders.

Read More: 2018 U.S. Spencer Stuart Board Index Highlights >>

Read More: ISS 2019 Proxy Voting Guidelines >>

Read More: The Digital Boardroom: Industrial Boards Are Looking for More Tech-Savvy Directors >>

Read More: Five Ways to Raise Your Board's Digital IQ >>

Clearhouse
3. Embrace Environmental, Social and Governance (ESG) Issues

A robust ESG program can open up access to large pools of capital, build a stronger brand, and promote sustainable, long-term growth. 2019 is the year boards have to proactively embrace ESG if their companies haven’t already.

ESG investments are estimated at over $20 trillion in assets under management—representing one of every four dollars under management. These tend to be stickier pools of capital that help promote sustainable, long-term growth. And, as the competition for talent increases and companies seek to be attractive to the millennial workers who already make up a third of the workforce, companies need to articulate a higher purpose. ESG is an excellent framework for explaining your company’s values and mission and purpose.

The low hanging fruit on the ESG tree is creating a baseline to bring visibility to the sustainable business practices the company has already adopted. Most companies are doing many good things in the ESG realm, but they're not measuring them or articulating them to investors. These might include environmental and sustainability reports; social employee initiatives around inclusion, gender diversity, anti-harassment, or anti-predatory practices; or better governance practices in general.

Companies also need to begin the operationalization of measuring ESG initiatives, and there are resources like MSCI and Sustainalytics to help companies identify which ESG criteria make sense for their industry.

Board members should ask their management teams to come forward with a plan to articulate the company's ESG position during 2019. If a holistic ESG program is too big to tackle in the near term, challenge management teams should come forward with a baseline and develop an ESG program to implement and publicize in 2020.

Read More: Strong ESG Practices Can Benefit Companies and Investors: Here's How >>

Read More: ESG Investing and Your Company: Is Your Board Ready? >>

Clearhouse
4. Proactively Engage Major Shareholders

There has been a sea change with regards to in-person shareholder engagement during the past several years. It used to be that CEOs held an analyst call once a quarter and followed up afterwards with a few major funds that were big shareholders. Now, index funds are disproportionately dominating the shareholder base, and they are creating in-house governance groups to monitor governance practices and issues within their portfolio companies. In a trend that began quietly but is picking up pace, index funds are requesting visibility from the board, including the chairman, lead independent director or compensation committee chair (it varies depending on the issues that the fund is sensitive to).

Boards should proactively ask their companies' governance teams if major shareholders want access to board members, and if so they need to determine which board members will engage in direct outreach (under management guidance of course), target the major shareholders they will visit, and determine what issues should be discussed.

Companies with large hedge fund ownership should proactively seek to engage these shareholders as well—don't wait for them to come to you, especially if an issue is brewing. Hedge fund activity by means of shareholders proposals continues to decline, but only because they have refined their tactics to stir public debate on their portfolio companies' business strategy and agitate for change without making a single SEC filing.

Read More: Corporate Governance Teams, Investor Relations, and the Changing Governance Landscape >>

Clearhouse
5. Quantify and Assess Tech-Readiness of the Company

Every company is a technology company in some way, and all boards should be continuously researching macro trends in technological innovation and digital enablement. These trends include robotic process automation, data analytics, artificial intelligence (AI), and machine learning. Disruptive technologies have the power to transform your business - delighting consumers, bringing efficiencies to supply chains, and lowering costs.

Hand-in-hand with keeping up with technology trends is ensuring the company is ready and able to adopt those new technologies. The ability to apply innovative technologies to the business is so significant to a company's viability that it should be of equal or greater concern to the board than cyber security. Boards need to consider developing a framework or template to assess the technology enablement of a company holistically: Are the company's software development and R&D teams continually updating their skills? Does the company's website convert sales leads? Does the company have omni-channel sales capabilities? Are ERP systems integrated? Is data analytics being deployed in decision making? Are there areas where machine learning and AI could save time and money?

Boards must routinely assess if the companies they are leading are laggards or frontrunners in technology enablement; if not, they risk becoming blindsided by technology like Blockbuster was by the streaming of video content.

Read More: 5 Ways Companies are Transforming Their Businesses with Machine Learning >>

Clearhouse
6. Develop a Social Media Crisis Management Plan

2018 taught us that we live in a real-time social media world, where a crisis is playing out in the public domain before the company has a chance to deal with it. Hours are the new days when it comes to social media crisis management. This has been true for a few years for business-to-consumer companies, but business-to-business companies are going to face this new reality too.

To make the most of those first precious hours after a crisis occurs, update the company's crisis management plan to be social media centric, with the top ten social media disasters or risks already thought through and on-the-shelf responses prepared.

The company should engage an outside social media consultant as a crisis partner. The firm should specialize in social media communication—not just offer social media as part of a larger traditional PR firm. Social media firms have a whole different network of getting the message out there and understand that crisis management requires a whole different approach.

Starbucks (Nasdaq: SBUX) is a great example of how to handle a social media crisis. When there was an allegation of racial bias leveled at Starbucks front-line staff, the whole company shut down and immediately retrained all of their employees. Starbucks' response to this crisis ultimately enhanced their company brand.

Read More: Managing Brand Risk in an Age of Social Media >>

Read More: Build Your Social Media Crisis Management Plan in 10 Steps >>

Clearhouse
7. Review Retirement Policies for C-Level Executives and Board Members

The model of corporate board service as a part-time gig for retired CEOs who are coaching with corporate playbooks from the '80s and '90s doesn't work anymore. The rate of change has accelerated so dramatically that a board slate of contemporary perspectives and experiences has gone beyond a competitive advantage to become a necessity of survival.

That doesn't mean companies should rush to stack their boards with millennials. Experienced executives bring wisdom and big picture perspective that is acquired through decades of experience. Contemporary perspectives are not age dependent, but rather engaged dependent. Boards need seasoned former executives who have remained deeply engaged in the business world and are dedicated life-long learners.

That said, it's important to strike the right balance between experience and ensuring the board has new and evolving skill sets critical to navigating the exponential rate of change. Mandatory retirement ages for board members, tied to board refreshment planning, are an effective way for a company to onboard the evolving skill sets and modern perspectives it will need in the boardroom in the next 3-5 years. Just be sure those policies allow for special exceptions, so exceptional talent and wisdom isn't lost due to an arbitrary age limit.

Companies should also review their executive retirement age policies before it becomes an issue and an exception must be made to keep valuable C-level executives as it did at Merck.

Read More: Board Refreshment: Finding the Right Balance >>

Read More: CEOs & Mandatory Retirement Age >>

***

Betsy Atkins serves as President and Chief Executive Officer at Baja Corp, a venture capital firm. She is currently on the board of directors of Cognizant Technology Solutions Corporation (Nasdaq: CTSH), Wynn Resorts (Nasdaq: WYNN), Schneider Electric, and a private company, Volvo Car Corporation. She previously served on the board of directors of The Nasdaq Stock Market LLC and as CEO and Board Chairman at Clear Standards.
Publication Date*: 1/16/2019 Mailto Link Identification Number: 1674
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
  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
  Enhancing Transparency in Regulation
Identification Number 1672
Clearhouse
Enhancing Transparency in Regulation
Publication Date: January 10, 2019

At Nasdaq, we believe transparency is fundamental to investor protection and fair regulation, ensuring that investors are protected and listed companies understand our rules, can structure compliant transactions and are never surprised. To this end, in 2012, Nasdaq created the Listing Center's Reference Library, which today houses more than 450 frequently asked questions about listing matters, 100 anonymized versions of appellate listing decisions and 350 written Staff interpretations of the Listing Rules. To reinforce the critical role transparency plays in our regulatory program, we are publishing, together with the Nasdaq Listing and Hearing Review Council, our second annual Transparency Report.

This report describes the facts and circumstances that prompted Nasdaq Regulation Staff and Listing Hearing Panels to exercise discretionary authority under our Listing Rules with respect to a company's listing. It also describes the factors we considered in requesting that listed companies make significant changes to certain share issuances and in shortening compliance time frames otherwise available to listed companies under our rules. In all of these cases, we removed information that might identify the companies involved.

We believe that sharing this information helps companies better understand how Nasdaq applies its listing rules, which helps companies and their advisors better comply with those rules. As always, we welcome your comments, which can be emailed to us at staffinterpretations@nasdaq.com.

View the 2017 Transparency Report Here >>

View the 2016 Transparency Report Here >>

Publication Date*: 1/10/2019 Mailto Link Identification Number: 1672
Frequently Asked Questions
  Innovation Competitions are a Unique Way for Companies to Foster Innovation and Diversity: Here's How
Identification Number 1660
Clearhouse
Innovation Competitions are a Unique Way for Companies to Foster Innovation and Diversity: Here's How
Publication Date: November 29, 2018

Jennifer Byrne is the co-founder and CEO of Quesnay Inc, an innovation consulting services firm that helps traditional firms and brands accelerate innovation by working with startups.

Legacy industries like insurance and banking continue to face the threat of disruption by new technologies and solutions. Many corporations are looking for proactive ways to catalyze innovation such as partnering with startups and influencing new ideas from within.

A survey by Accenture reports that over 85% of incumbent businesses from China, India, and the U.S. believe that collaborating with their smaller rivals will give them access to game-changing technologies that can help them thrive in technology-driven markets. The majority of companies surveyed view access to new technologies as the biggest opportunity of engaging with small high-tech firms in innovation initiatives. However, many companies don't know how to go about collaborating with startups and small tech companies—or don't go about it in the right ways.

A new way to approach collaborative innovation

That's where programs like innovation competitions come in. With the ability to be customized to any corporation's need, innovation competitions are essentially a form of business development that focuses on the creation and celebration of the best new ideas or solutions, crowdsourced from top innovators. Competitions typically run over the course of several months, during which companies are able to identify startups that can provide a different outlook on their industry and assess opportunities for long-term partnerships with them.

A corporation's objectives help determine the competition topic, question, and timeline. Once these factors are decided, recruitment for qualified startups takes place through numerous channels and industry experts judge the best solutions for the stated challenge. As an innovation consultancy, Quesnay Inc. has been running innovation competitions for over five years, helping clients to achieve their goals by introducing them to high-quality startups offering innovative solutions beyond their own industries, geographies, and demographics. Clients are encouraged to create relationships with these startups and often go on to have strong, mutually beneficial partnerships long after the competition ends.

The link between diversity and innovation

Whatever approach a company takes to collaborative innovation, there is one key element that should not be overlooked–the positive correlation between innovation and diversity.

A recent study by BCG shows that in both developing and mature economies, companies with an above-average diversity profile generated 45% of their total revenue from innovation versus just 26% for companies with below-average leadership diversity. In addition, organizations with diverse leadership reported better overall financial performance.

The research is clear, yet a lack of diversity persists in industries that are striving for innovation. A report by Mercer shows that when it comes to gender diversity in the financial services industry, as career level rises female representation severely declines. It shows the comparison of female to male employees at the manager level is 37% to 63%, at the senior manager level it 26% to 74%, and at the executive level, 15% to 85%.

Many corporations have created employee special interests groups and focused on diversity in their recruiting efforts to solve the problem, but they are also looking for new and actionable ways to move the needle. 

An innovative way to foster diversity

Here's how some organizations worked with Quesnay to structure innovation competitions to generate new ideas to help their business while fostering diversity.

Verizon Powerful Answers Award

When Verizon Communications Inc. (Nasdaq: VZ) was looking for new ways to expand into emerging areas of technology, they asked Quesnay to help design a program that allowed them to find and support innovative entrepreneurs. The result was the Verizon Powerful Answers Award, which provided more than $12 million in cash prizes to support the growth and development of new mobile-centric social enterprises around the world.  The award also opened up new integration and engagement pathways for startups across the Verizon organization, leading to multiple corporate venture investments, product partnerships and commercial relationships.

An example of this is Verizon's investment in Swiftmile, the leading provider of scalable turnkey eBike and eScooter transit systems, to support its growing internet of things (IoT) initiative. The relationship started with Swiftmile using Verizon's IoT-enabled Share Solutions platform as part of its electronic bike transit share system and continues today.

National Association of Broadcasters Pilot Innovation Challenge

The National Association of Broadcasters (NAB) chose to start their PILOT Innovation Challenge at the ideation stage. The competition awarded cash prizes for original ideas and innovative solutions to help broadcasters and media organizations better serve their local communities and audiences.

One of the winners was nēdl, an app that lets users search live radio as easily as they search the web and also start their own live broadcasts.  In addition to its $20,000 prize, nēdl received funding from Backstage Capital and Matter.vc, launched on Alexa, and was featured in the App Store. 

The NAB has continued to support the development of other winning teams through funding, mentorship, and introductions to key industry leaders with much success.

Quesnay's newest competition series, Female Founders in Tech (FFiT), works to not only support diversity of thought like the NAB PILOT and Verizon competitions discussed above, but places a special emphasis on gender diversity. Recent reports indicate that only 3% of venture capital dollars went to female founders.  Quesnay launched the FFiT to address the gap among women leaders in numerous industries with specific competitions for insurtech, fintech, and mediatech. This program recognizes and supports women-led startups and awards them with money, mentorship, education, and—perhaps most importantly—partnership opportunities with the companies sponsoring the program.

The 2017 FFiT winner, Goalsetter, is a goal-based savings and gifting platform. Goalsetter received investment from a competition sponsor, went on to raise $600,000, was selected to join Morgan Stanley's Multicultural Innovation Lab and was named a winner of JP Morgan Chase's Financial Solutions Lab competition.

The FFiT program is a powerful way for participating companies to increase staff engagement and actively promote an innovative culture, while also demonstrating their commitment to diversity and inclusion. Employees can directly impact women entrepreneurs through mentorship and coaching. In addition, workers at all levels can participate in evaluating the startup applicants and attending the pitch event.

The latest competition, Female Founders in FinTech presented by Wells Fargo, just launched on November 12 and is seeking innovative fintechs to change the game for financial services incumbents. The program's other sponsors and partners, Fidelity Investments, Shearman & Sterling LLP, and Royal Bank of Canada are supporting the program by providing mentorship and experts to evaluate the companies.  PayPal Holdings, Inc. (Nasdaq: PYPL) is also a strategic partner for FFiT's competition.   Louise Pentland, PayPal's Chief Business Affairs and Legal Officer, had this to say:

"Much like PayPal's mission to democratize financial services and create greater opportunities for consumers and merchants to participate – and in fact, thrive – in the global economy, Female Founders in Tech is designed to democratize access to capital, giving female entrepreneurs access to much needed resources. We are proud to serve as a strategic partner for FFiT's competition and look forward to hosting the final pitch event." 

To learn more about the current Female Founders in FinTech competition, visit www.quesnays.com/ffit2018fintech.

***

Whether corporations are looking to support women in tech from a diversity perspective, invest in strong, cutting-edge startups, or just get a better view on what startups are doing in their industry, an innovation competition is a compelling way to bring together and promote factors that can easily impact a corporation's future business success.

***

Quesnay is an innovation consulting services firm that helps traditional firms and brands accelerate innovation by working with startups. Quesnay achieves this by running innovation competitions and acceleration programs, as well as providing strategic partnership consulting services. Prior sponsors and clients include AARP, American Family Insurance, Condé Nast, CSAA Insurance Group, Farmers Insurance Group, Hearst Corporation, John Hancock, Liberty Mutual Group, MassMutual, National Association of Broadcasters, Prudential, QBE Insurance Group, RGAX Inc., Sterling National Bank, TD Bank, Thomson Reuters, and Verizon. For more information, follow us at @QuesnayInc or visit www.quesnays.com.

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*: 11/29/2018 Mailto Link Identification Number: 1660
Frequently Asked Questions
  5 Ways Companies are Transforming Their Businesses with Machine Learning
Identification Number 1654
Clearhouse
5 Ways Companies are Transforming Their Businesses with Machine Learning
Publication Date: November 5, 2018

At the intersection of machine learning and natural language processing sits Amenity Analytics, a relative newcomer to the text analytics industry. Amenity's founders see the information gushing from today's knowledge economy as a massive, untapped resource of important data for companies across a spectrum of industries.

The brainchild of a former portfolio manager and a machine learning academic, Amenity Analytics has automated the process of sifting through complex documents and narrative content to find and visualize meaningful data sets. For businesses that rely heavily upon the consumption and analysis of complex documents and texts, natural language processing (NLP) tools can save man-hours on a massive scale and deliver powerful insights to decision makers.

We spoke with Nate Storch, co-founder and CEO of Amenity Analytics, about how companies can stop drowning in information and start surfing it instead.

NLP is the branch of computer science that turns complex, unstructured data—specifically text written in human language—into structured datasets that can then be processed, visualized and analyzed.

I was an investment portfolio manager in my previous career, a job that required constant scanning of SEC filings, earnings call transcripts, broker research and news for nuggets of information relevant to our investments. Amenity Analytics was born out of finding a solution to information overload, which was one of my biggest problems in financial analysis.

I first learned about natural language processing when I was researching an investment and met my future business partner, Professor Ronen Feldman. Prof. Feldman is an early pioneer in NLP who coined the phrase "text mining" back in the '90s.

I saw immediately that NLP technologies could be a game-changer for me in investment analysis, not only bringing enormous time efficiencies to scanning complex financial documents but also creating data sets that could be visualized and analyzed to uncover trends and outliers. I saw potential applications of NLP to many other industries as well, and that's why Prof. Feldman and I founded Amenity Analytics.

We created a platform that gives people the ability to take a document and apply artificial intelligence to mimic the perspective of an expert. Forensic accountant, top financial analyst, an expert in ESG—all of those models are there, and countless others can be created. Amenity's NLP platform can quickly highlight, extract, and visualize data so users can spot patterns and outliers or establish causality—correlating stock prices with suspicious behavior, for example.

When you think about it, it's ridiculous that humans are still consuming text in much the same way we did 100 years ago. At Amenity, we are challenging our clients to reassess a process very core to their operations: reading complex financial documents. Here are five case studies that illustrate the innovative ways our clients are applying Amenity's NLP tools to solve problems, answer questions, and revolutionize the way they consume information.

1. Analyze quarterly earnings conference call transcripts to uncover deception or looming issues.

One of the spaces we're most focused on is my old industry—investment services. Amenity's platform is designed to address the needs of financial analysts and portfolio managers on a fundamental level, in a way that is going to be highly disruptive for the industry.

We are working with some of the world's largest and most sophisticated hedge funds. Our platform empowers their discretionary investors—the people doing true fundamental analysis—by providing additional insights and datasets into what's going on at their targeted companies.

For example, Amenity's software can process earnings conference call transcripts to flag companies that may be in trouble—before simmering issues impact earnings results. We've embedded the language analysis techniques used by CIA interrogators into our platform to capture and highlight clusters of language that might indicate uncertainty, doubt or even dishonesty, such as clichés and detour statements. A sudden spike in this type of language used by a CEO during a company's earnings call is often a reliable indicator that something is amiss.

Our platform can also process documents through a niche investment lens. For example, we built processing models from the perspective of an Environmental, Social and Governance (ESG) expert. If an analyst wants to quickly find pertinent ESG information related to a potential investment in a certain document, in the news, or in a 10-K or in an earnings call transcript, they can enter our platform and use an ESG model to highlight their documents from the ESG perspective.

2. Make better underwriting decisions, faster.

Starr Insurance Companies has customized Amenity's platform to assist in underwriting Directors and Officers (D&O) Insurance. Underwriters are often tasked with coming to a decision very quickly around whether they want to underwrite a company's D&O risk or not. And in order to make that decision, they have to process and understand information that's included in a stack of documents that can be a foot high.

Starr Insurance turned to us for help, first off, to create a model that analyzes those documents from the perspective of their top underwriters, those who consistently have the best feel for the data points that indicate whether a company is an acceptable risk or an unacceptable risk. We've been able to define and codify those data points, so the model can lead the underwriter directly to the relevant text in those documents that reveals that critical information.

So now, when one of their underwriters sits down to start analyzing a company, he has a checklist and nearly all the information that he is responsible for knowing is right there in front of him, already highlighted. Not only is he more efficient, but he's also more accountable because the information that he's responsible for knowing has now been defined and is very much measurable.

As the company continues to acquire and track relevant information, Starr's underwriters can add it to their predictive models to identify where and how those data points correlate to risk or to opportunity. As machine learning improves underwriting models, it drives smarter decision-making. For example, an underwriter could review the historical record of various types of litigation to identify how they correlate to claims and problematic situations. Underwriters can score this data so they can identify specific risks for the models to flag so it can extract related commentary.

Another insurance client recently tasked us with tracking diseases and epidemics. The company was trying to understand the path that an epidemic was taking by analyzing how people were talking about it—first in the news, second in social media and finally within the academic and scientific communities. We created a tracking model that brought together all three views to help the insurer separate true emerging epidemics from controlled diseases that were merely getting overblown in the news media or going viral in social media.

3. Track sentiment on political and economic issues.

Amenity was recently approached by a large investment bank to monitor news and conversations related to trade wars and flag changes in the tone of policy makers. For this project, we conducted a dynamic analysis of social media conversations and news statements regarding trade and tariff issues that were being made by major players in political and economic arenas, including Donald Trump, Steve Mnuchin, Robert Lighthizer and Wilbur Ross.

The trick in monitoring social media—as well as monitoring increasingly fragmented traditional media outlets and blogs—is cutting through noise to find data that is truly relevant to the specific topic. We identified and scored trade-related terms in key regions of the world, looking at equity, currencies, credit, and commodities. We were able to pull from unlimited sources and social media, cut the noise and false positives, and flag statements that were indicative of shifts in rhetoric or perspective.

4. Establish causality of market moves.

NLP is a useful tool for teasing out underlying factors of sudden movements in price or volume of trades in commodities, stocks, or currencies. Amenity was recently challenged by a client to sift through over 5 million news articles to discern what made the dollar move during a specific range of days. We were able to program our models and deliver an answer to our client in less than a week, via a dashboard of visualized data which enabled them to pinpoint the cause of each move.

We've created a similar dynamic analytic system for another client, centered around monitoring conversations related to cryptocurrencies. It processes discussions on cryptocoins to flag what is moving markets in each of them. We input Twitter's raw API, blogs and chatrooms that discuss cryptocurrency, and scraped various news sources such as Dow Jones and Reuters. We created a taxonomy of weighted topics to score meaningful data, so the system can pinpoint news and conversations that are directly connected to changes in coin prices as well as to buy and sell recommendations.

5. Prioritize documents for review.

In fact, Nasdaq partnered with Amenity to harness NLP technology for its regulatory compliance program. Today, Nasdaq's analysts spend about 60% of their workday reviewing the more than 48,000 SEC filings submitted by Nasdaq companies each year. While their compliance program effectively evaluates securities for compliance with quantitative requirements (e.g., equity), it has limited ability to facilitate the qualitative elements of an analyst's review (e.g., equity offerings, investigations). Nasdaq believes that our technology can improve efficiency and save time by helping them prioritize the filings that require manual review without compromising the integrity of the market.

***

One of the easiest ways for public companies to experiment with this technology is to use it to systematically analyze the earnings call transcripts of their competitors. Boards and executive leaders can use NLP technology to see at a glance what's going on in their industries with an incredible level of depth and granularity. They can monitor what all the companies in their space are saying about the competitive environment—not just in their specific industry, but up and down the supply chain as well.

Amenity has recently launched a new cloud-based software solution called Viewer, which enables any interested party to simply log on through Amenity's website and rapidly process earnings call transcripts and uncover real-time, actionable insights that can only be gleaned by analyzing massive numbers of complex documents at scale. Soon we will be adding SEC Filings, news, and research to Viewer.


***

Nathaniel "Nate" Storch is the Co-Founder and CEO of Amenity Analytics, a New York and Israel based provider of NLP analytical solutions and software. Nate is an experienced financial industry executive with nearly two decades as an investor and business builder. Before co-founding Amenity Analytics, he served as Managing Partner of Pilgrim Hill Capital, where he provided equity-related capital and strategic advice to small and mid-cap companies. Previously, Nathaniel served as Partner and Senior Portfolio Manager at Swieca Holdings/Talpion Fund Management, Partner and Head of Equities at One East Partners, and Head of Merger Arbitrage Research & Event-Driven Healthcare at Highbridge Capital Management.

Publication Date*: 10/30/2018 Mailto Link Identification Number: 1654
Frequently Asked Questions
  Learn How 6 Successful Women Earned a Seat at the Table
Identification Number 1650
Clearhouse
Learn How 6 Successful Women Earned a Seat at the Table
Publication Date: October 18, 2018

Aspiring women leaders gathered in New York City at Nasdaq's MarketSite last week to hear firsthand how successful women earned a seat at the table in some of America's most high profile public company boardrooms. They also heard how they too can join the pipeline of board-ready women and ascend to the next rung on the corporate ladder.

Nasdaq teamed up with ICR to host this event, which featured a dynamic slate of experienced women – all of whom are current or former C-suite executives. Between them, these accomplished women currently serve on more than a dozen boards:

  • Betsy Atkins, Board member of Cognizant (Nasdaq: CTSH), Wynn Resorts (Nasdaq: WYNN), SL Green Realty, Schneider Electric and Volvo
  • Coco Brown, Founder & CEO of The Athena Alliance
  • Zoe Cruz, Board member of Ripple and Man Group Plc and the former Co-President of Morgan Stanley
  • Rachel Glaser, Board member of The New York Times Company and CFO of Etsy (Nasdaq: ETSY)
  • Claudia Fan Munce, Board member of NEA, Best Buy, Bank of the West/BNP Parabis Group, and CoreLogic
  • Diane Neal, Board member of Fossil Group, Inc. (Nasdaq: FOSL) and former CEO of Sur La Table and Bath & Body Works

Following are six key takeaways from our distinguished guests:

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1) "Pay it forward." Betsy Atkins

To gain access to people in influential networks, you have to invest time and do something for them to prove you are valuable. Go out of your way to do a favor, make a meaningful introduction, or share useful information. For example, what can you do for some company in a private equity firm's portfolio? What door can you open? What presentation can one of those start-up companies make to your company that might result in buying their product or service?

You can't withdraw money from the bank until you put money in the bank. You have to forward invest with people, too. Don't ask for favors or introductions until you've proven you are worthy of making that withdrawal.


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2) "Get to know the power players." Coco Brown

In order to be in the right place at the right time to be discovered, women need to be part of the power networks. These are the networks of private equity firms, venture capitalists, CEOs and board members. Don't overlook advisory roles for companies backed by private equity, because they offer a fluid proving ground for board service and access to private equity networks.


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3) "Kiss a few frogs." Claudia Fan Munce

Consider helping a young company, which is basically a micro-version of a large company dealing with similar issues. There are incubators and accelerators in universities all over the country; there are local entrepreneurial programs in your communities. These organizations need people to bring skills because the little businesses they are nurturing can't afford to hire those skills.

Start engaging there and you will become known within what is actually a small network of investors and entrepreneurs. From there, you are in a better position to be tapped to advise larger start-up companies, privately funded companies and potentially a public board.

Hopefully your batting average is good. Then you will be elevated from startup advisor to advisor of a company that is now funded by a major institutional firm. You have to kiss a few frogs!


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4) "Bring more than your gender to the table." Diane Neal

Accept a board seat when you are respected for what you know, when you can identify how you will add value, and when you will grow in some way from the experience. The relationship won't work if you join a board that wants you just because you are a woman.


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5) "Take recruiter calls, even when you are happy with your job." Rachel Glaser

When you are ready to seek a board seat, it's important to reach out to the people who have mentored you and the board members of the companies you work for. Stay in touch, continue to be helpful to them, and make it known that you would like to be on a board. Plant those seeds with the people you like and know and trust.

Don't overlook recruiters. At The New York Times, board seats are filled by search firms. Take all those recruiter calls, even if you have no intention of leaving your current job, because a meaningful conversation that keeps you on their radar could lead to a spot on a board slate later.


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6) "Look abroad for opportunities to serve on boards." Zoe Cruz

In the U.K., the government has established targets for FTSE 350 companies that, by the year 2020, 33% of their board and leadership positions at be held by females. Many British companies are looking to head hunters to find women candidates to help meet these targets. When you call your favorite recruiting firms, they will claim to be global, but most are very regional. Ask to be introduced to their European counterparts and then go meet with them. It's well worth your while.


***
If you were not able to attend the event in person, a video recording of the entire event is available here; a description of each segment along with a video link is provided below.

Changing the Face of Corporate Boardrooms

While more women are joining corporate boards than ever before, some say progress is too slow with only 20% of board seats among Fortune 1000 companies filled by women. In this fireside chat, Diane Neal discussed with CNBC's Bertha Coombs the changing face of corporate boardrooms, reflecting on her experience as a female director to share insights into why gender diversity in board composition matters now more than ever.
Watch a video of this fireside chat here>>

Building the Modern Boardroom

From the leaders at the largest investment firms and pension funds to the limited partners of venture firms, there is a growing call for a new form of corporate governance. There is a lot that is changing. In her presentation, Coco Brown shared more about this transformation and elaborated on where the opportunities lie for women in the process.
Watch a video of Coco's Presentation here>>

Advancing C-Suite Women to Board Service

The panel, moderated by Stacie Swanstrom, engaged four highly accomplished women who have made an impact in the boardrooms and the C-suites of many high profile organizations, including Etsy, Wynn Resorts, Cognizant and Morgan Stanley. The conversation focused on leadership lessons and perspectives gained during their careers and provided the audience with practical, actionable intelligence that they could use to prepare themselves for board service.
Watch a video of the panel discussion here>>

View pictures from this event here>>

Learn from other Winning Women like Janet Hill and Candace Duncan here>>

***

ICR is a leading strategic communications and advisory firm with offices in New York, Norwalk, Los Angeles, Boston, San Francisco and Beijing. The firm pairs capital markets veterans with senior communications professionals, bringing deep sector knowledge and relationships to more than 500 clients in 20 industries.

Publication Date*: 10/18/2018 Mailto Link Identification Number: 1650
Frequently Asked Questions
  Comment Solicitation: Initial Listing Liquidity Measures
Identification Number 1645
Clearhouse
Comment Solicitation: Initial Listing Liquidity Measures
Publication Date: October 5, 2018

Click here to read our Comment Solicitation >>

Nasdaq is soliciting public comment on its initial listing criteria relating to the liquidity of equity securities. The comment solicitation is designed to elicit views on whether the rules should be changed and the impact of certain specific changes being considered on investor protection, the liquidity of listed securities and capital formation.

We encourage all interested parties to review the detailed description in our Comment Solicitation and provide comments before November 16, 2018.

Electronic responses are preferred and may be addressed to: comments@nasdaq.com.

Publication Date*: 10/5/2018 Mailto Link Identification Number: 1645
Frequently Asked Questions
  Business Development Companies Seek to Improve Retail Investor Access to Private Markets
Identification Number 1641
Clearhouse
Business Development Companies Seek to Improve Retail Investor Access to Private Markets
Publication Date: September 24, 2018

The Securities and Exchange Commission's (SEC) Acquired Fund Fees and Expenses Rule (AFFE) has constrained investment and liquidity in business development companies (BDCs) and limited the ability of main street investors to invest in private companies. Here's how.

BDCs provide funding to middle market companies that are not yet large enough to access broad capital markets but require more capital for growth than banks can provide. The BDC corporate structure also offers retail or "main street" investors the opportunity to invest in private companies, through a vehicle that is more accessible than other forms of private investing that require investors to have a high net worth and a 10+ year commitment.

Late last month, SEC Chairman Jay Clayton told The Wall Street Journal that individual investors need more access to the private markets. In his speech in Nashville, he also said that companies located in the center of the U.S. (where there is less venture capital funding) need more access to capital. BDCs can help close both the investment opportunity gap and the capital gap. The industry, however, is hampered by an SEC disclosure requirement that appears to be misapplied.

We spoke with several members of the Small Business Investor Alliance (SBIA), an advocate for investors in small and medium sized businesses, to get a better understanding of the complexities of this issue and why a fix is long overdue.

BDCs are important to the economy.

BDCs were created by Congress in 1980 to fill the void left by traditional lenders that found themselves unable to lend to small and mid-sized businesses due to increased regulatory burdens. Currently BDCs have over $80 billion invested in small to medium sized businesses. BDCs must invest at least 70% of their assets in active small and mid-sized businesses based in the United States. They invest in a variety of industries and sectors across America including manufacturing, healthcare technology, aerospace, consumer products, food and beverage, energy, media, and IT. BDCs have various investment strategies, but typically make secured and unsecured loans between $10-$50 million to middle market companies. Many of these companies grow into household names: Cirque Du Soleil, Formula One, National Surgical Hospitals, and Brunswick Bowling are all companies that were financed at some point through BDC investments.

While the BDC universe is still relatively small as compared to that of closed-end funds, it plays a significant role in the economy: "BDCs facilitate capital formation into the middle market sector of the economy which is responsible for 1/3 of private sector jobs and produces more than $6 trillion in revenues annually," said Tonnie Wybensinger, Executive Director of the SBIA's BDC Council.

The AFFE Rule overstates the expenses of investing in BDCs.

The SEC passed the AFFE Rule in 2006 in an effort to help investors better understand the full spectrum of fees and expenses incurred by registered funds, in particular those that invest in other funds as part of their investment strategy. However, the application of the AFFE disclosure requirement overstates the expenses of mutual funds and other registered funds that invest in BDCs. BDCs hold a unique place in the registered funds' world acting as an operating company within a closed end fund structure. Adding the total expenses of the BDC into the expense ratio of a regulated fund effectively double counts the impact in a registered fund's expense ratio. A BDC's trading price already reflects its operating expense structure, which reduces the total return of the acquiring funds' investment in the BDC. Reflecting these expenses again under the AFFE rule results in double counting a BDC's expenses. The existing application of the AFFE rule disclosure to a BDC investment is therefore misleading and inaccurate.

It is this overstatement of the regulated fund's expense ratio and the misinformation it portrays that resulted in major index providers excluding BDCs in 2014 from index eligibility and contributed to a BDC industry-wide decline in institutional ownership and IPOs.

BDCs are important to main street investors.

BDCs offer retail investors the opportunity to participate in the growth phase of small and mid-sized private companies, a sector of the market that is increasingly capitalized outside of public markets. Historically, BDCs have provided good returns to investors compared to traditional fixed-income investments: "During the past three years, BDCs have returned on average approximately 9% per annum, according to the Wells Fargo BDC Index," shared Wybensinger. "For a fixed income-oriented product, that's a pretty good return for investors, whether they are retail or institutional."

The exclusion of BDCs from major indices triggered a material decline in BDC IPO activity and a significant decline in institutional ownership (which dropped from 42% at the end of 2013 to 29% by the end of 2017). Investment and liquidity in the BDC industry have been constrained as a result, and fewer BDC IPOs means fewer opportunities for retail investors to participate in the creation of new firms bringing additional capital to contribute to the growth phase of small and mid-sized businesses.

"The loss of institutional ownership impacts the quality of governance for the BDC industry, and by extension harms retail investors. Fewer institutional owners means lower voter turnout and limited professional oversight of BDC managers, for example through research analyst coverage," said Liz Greenwood, Corporate Secretary and Chief Compliance Officer of publicly traded BDC, BlackRock TCP Capital Corp. (Nasdaq: TCPC) and a member of SBIA's legal steering committee. "There's an inherent governance benefit to retail investors when an industry has more institutional investors."

"BDCs are effectively excluded from passive investment manager investment," shared Ian Simmonds, CFO of TPG Specialty Lending and Chair of SBIA's BDC Council. "BDC portfolio companies are executing long-term growth strategies, and institutional shareholders tend to be more fundamentally based in their analysis. Exempting BDCs from the AFFE Rule will bring more stability to the sector's ownership, more liquidity into BDC stocks, and more depth to the overall shareholder base—all of which benefits retail shareholders."

The SEC has the authority to remedy this situation.

As markets evolve and change, a modernization of the regulatory framework supporting them is at times warranted. In fact, in the latest draft of the 2019 House Appropriations Bill Report, issued earlier this summer, Congress indicated that it would like the SEC to revisit the AFFE Rule as it pertains to BDCs.

There is precedent for exempting corporate structures similar to BDCs from AFFE disclosure. REITs and closed-end funds are already exempted from AFFE disclosure. When the SEC passed the AFFE rule in 2006, the BDC industry was in its infancy and there was no organized representative industry body to advocate on its behalf for exemption.

"We believe that while the AFFE Rule itself is fundamentally sound, its disclosure requirements shouldn't apply to BDCs, just as they don't apply to REITs. Exempting BDCs from the AFFE Rule will steer additional capital to the middle market sector of the economy and increase investor access to private companies, catalyzing job creation and economic growth," said Wybensinger.

For more information, visit www.BDCsWorkforAmerica.org and read SBIA BDC Modernization Agenda >>

***

Liz Greenwood is Corporate Secretary and Chief Compliance Officer of BlackRock TCP Capital Corp. (Nasdaq: TCPC) and a Managing Director of BlackRock TCP Capital's advisor, Tennenbaum Capital Partners, LLC. She also serves on the Legal Steering Committee of the SBIA.

Ian Simmonds is the Chief Financial Officer of TPG Specialty Lending, Inc. and a Managing Director of TPG Sixth Street Partners. He also serves as Chair of the SBIA's BDC Council.

The Small Business Investor Alliance (SBIA) advocates for investors of the small and medium-sized businesses that are a critical source of job growth in the U.S. The SBIA is the largest voice for business development companies (BDCs) in Washington, D.C., representing lower middle market private equity funds and investors who provide vital capital to small and medium sized businesses nationwide. Tonnie Wybensinger serves as the Executive Director of the SBIA BDC Council.

Publication Date*: 9/24/2018 Mailto Link Identification Number: 1641
Frequently Asked Questions
  SOX's Financial Expert Requirement 15 Years Later
Identification Number 1633
Clearhouse
SOX's Financial Expert Requirement 15 Years Later
Publication Date: September 4, 2018

Ann C. Mulé is the Associate Director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

This article was first published in Directors & Boards magazine. Republished with permission.

Many companies are missing an audit committee disclosure opportunity.

In the 15 years since the Sarbanes-Oxley Act of 2002 (SOX) was passed, large institutional investors have been "finding their voice" and sharing their views of board expectations with regard to composition, accountability and transparency.

One of the most important aspects of the legislation was that it added additional requirements for the audit committee — the board's financial-oversight lynchpin — in an effort to strengthen it.

SOX required an annual disclosure of whether or not the board of directors had at least one audit committee financial expert (ACFE) on its audit committee, and if so, the expert's name and whether or not they were independent of management.

Part of the reasoning underlying this new disclosure requirement was that someone who possessed the skills and experience to be qualified as an ACFE, would ask more challenging questions and, as a result, more effective financial oversight would occur.

SOX was specific as to the skill sets the designated ACFE should possess, and also how the ACFE acquired these skill sets.

While there has largely been consensus that individuals who possess deep accounting, auditing, or corporate finance expertise have the skill sets to qualify, there has been disagreement and confusion over whether or not an individual is qualified to be designated as an ACFE if she or he held a supervisory role over someone with these skill sets. Investors may differ as to which particular ACFE skill sets they want to see on the audit committee. However, are companies missing an opportunity to make the ACFE disclosure more transparent and easy to understand for investors?

Our exclusive review of the 2017 proxy statements of the Fortune 100 companies found the disclosure determining why an ACFE qualified was largely lacking.

Here is what we found:

1.    It was a difficult and time consuming task to determine the reason why an audit committee member qualified as an ACFE because very few companies have voluntarily disclosed this information within the language of the actual ACFE designation disclosure. Five companies that did disclose the ACFE qualifications within the context of the actual ACFE designation were The Travelers Companies, Inc., Johnson & Johnson, Marathon Petroleum Corporation, Best Buy and Target Corporation. Their disclosures were transparent and easy to follow because all of the information was contained in one place in the proxy statement. Such disclosures enable an investor to easily ascertain the diversity of ACFE skill sets present (or lack thereof) among the ACFEs as a whole.

As an example, Travelers designation disclosure reads as follows: "The Board also has determined that Mr. Dasburg's experience with KPMG Peat Marwick from 1973 to 1980, his service as a KPMG Tax Partner from 1978 to 1980, his experience as Chief Financial Officer of Marriott Corporation, as Chief Executive Officer of Northwest Airlines, Burger King Corporation and ASTAR and his service on the audit committees of other public companies qualify him as an audit committee financial expert, and he has been so designated. In addition, the Board designated Mr. Kane as an audit committee financial expert after considering his extensive experience as an audit partner with Ernst & Young for 25 years."

2.    Some companies clearly disclosed the specific reasons why an ACFE was designated within their director biographies in the proxy statement. Twelve companies took this approach: McKesson Corporation, United Technologies Corporation, Tyson Foods, Inc., Publix Super Markets, Inc., General Dynamics Corporation, CVS Health Corporation, Lockheed Martin, The Home Depot, Inc., Anthem, Inc., Walgreen Boots Alliance, Inc. and AmeriSourceBergen Corporation. Marathon Petroleum Corporation explicitly disclosed the reasons why each ACFE qualified both in the designation and in the director biographies.

3.    In many companies, it was not easy to determine the reason why one or more of the designated ACFE's qualified either from the actual ACFE designation disclosure or from the director biographies. In this case, one had to spend time carefully reading the director biographies to try to determine what experience or skill sets might qualify the individual as an ACFE.

4.    To complicate things further, there were two companies that had only "Supervisory CEO ACFE's" as designated ACFE's on their audit committees. In other words, neither of these companies had a designated ACFE with deep accounting, auditing and/or corporate finance expertise on their audit committees (i.e., no "Preparer ACFE" "Auditor ACFE," or "Evaluator ACFE.") However, after spending the time to do a further analysis of the background and skill sets of the audit committee members who were not designated as ACFEs, it was determined that each company had a non-designated member(s) who possessed either deep accounting or corporate finance expertise on the committee.

5.    Regardless of one's position with regard to the merit/value of the "Supervisory CEO ACFE," another relevant question that investors should be asking is whether or not some companies may be incorrectly designating a CEO as an ACFE who does not technically meet the necessary "active supervision" requirement as per the SEC's adopting release. In some cases, it was impossible to determine if this was the case through reading the proxy disclosures.

6.    Numerous organizations track the absolute number of ACFE's on audit committees and the absolute number has trended upward over time. This implies that the financial expertise of the audit committee as a whole has been increasing, which is a good trend. However, in some cases, simply tracking the numbers may lead to an incomplete picture. For example, with regard to a specific company, if the absolute number of ACFE's has increased numerically but all of them are "Supervisory CEO ACFE's" (i.e., none of whom have deep accounting, auditing and/or corporate finance expertise), shouldn't this information be readily available to investors so that they can independently decide whether or not that particular audit committee is "fit for purpose" with respect to financial oversight? (Or, at least whether or not there is a need to perform a more detailed review to see what other financial oversight skill sets may or may not be present in the non-designated members?)

Since the audit committee is charged with critical financial oversight responsibilities, investors should be able to easily understand what financial oversight skill sets are possessed by the directors on the board committee as a whole. They should also, as an important first step, understand WHY the board determined that the audit committee member qualifies as an ACFE.

It is important to note that boards and companies are already doing the due diligence work internally to make the judgment call as to whether or not an audit committee member qualifies as an ACFE, and why. Why not clearly share this important information with investors as way to assist and engage with them?

***

Ann C. Mulé is the Associate Director of the John L. Weinberg Center for Corporate Governance at the University of Delaware where she oversees and manages all of the professional, public service and academic outreach activities of the Center.


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*: 9/4/2018 Mailto Link Identification Number: 1633
Frequently Asked Questions
  Four Essential Elements for Optimizing Your Board's Meeting Agenda
Identification Number 1629
Clearhouse
Four Essential Elements for Optimizing Your Board's Meeting Agenda
Publication Date: August 13, 2018

As board portal tools streamline—or in some cases completely eliminate—administrative tasks on the board's meeting agenda, valuable meeting time is recaptured for the board to focus on core fiduciary duties. A well-structured meeting agenda leverages that additional time to maximize productivity in the boardroom.

In this post designed to help Chief Governance Officers build a better governance framework, Joan Conley, Nasdaq Senior Vice President and Corporate Secretary, shares the four essential elements of an effective board agenda.

Each company's optimal board agenda is dependent upon a variety of factors, including how often the board meets, how long the board meets, and how prepared board members typically are. At Nasdaq, we find that these variables can be transcended by making executive and chairman sessions standard protocol for each meeting. We also utilize an extended agenda for every board and committee meeting.

Board meeting agendas at Nasdaq are of course built within the company's secure board portal, where they are accessible to the board (and committee) chairs and archived as part of the corporate record. Nasdaq's playbook for creating an effective board agenda includes the following essential elements.

1. Executive sessions. Nasdaq board members have a standing invitation to hold executive sessions before and/or after the general board meeting. These brief sessions (typically 30 minutes or less) are attended by independent directors only, without the CEO or a corporate governance officer in attendance.

Executive sessions provide an opportunity for board members to discuss internal issues that may have cropped up since the previous meeting, or recent developments impacting corporations on a national or global level. If the consensus is that certain areas of concern or particular interest merit deeper discussion, the directors then share those with the CEO during the chairman session or general session.

2. Chairman sessions. These sessions may be longer than executive sessions, lasting up to 60 minutes. Chairman sessions at Nasdaq are attended by all directors (including the CEO) and by the Corporate Secretary.

During the chairman session, each committee chair reports on matters discussed and issues of importance to the committee. The CEO highlights key areas of focus for the board meeting, and then asks directors to candidly share any current concerns. The CEO is debriefed on topics of interest raised during the executive session so he or she can offer perspective on which items are relevant to the company and should be added to the general session agenda. Committee meeting reports, which are highly confidential, are an important component of the chairman session.

3. Regular session. This general board session includes the participants of the chairman sessions, as well as any executive staff or department heads called upon provide reports and/or updates. The board reviews the corporate strategy, receives updates on strategic initiatives, reviews quarterly or annual financials, and discusses new and emerging issues.

The goal of optimizing the board meeting agenda is to ensure directors receive all pertinent information required to carry out their fiduciary duties, that they have a voice in the decision-making process, and they make the highest and best use of meeting time. The order and length of each session within a board meeting agenda will differ from company to company and even meeting to meeting, depending upon the scheduling needs of the board and topics to discuss.

4. Extended agenda. An "extended agenda" is a highly effective tool that keeps board discussions focused and ensures directors are fully engaged.

The extended agenda is the basic meeting agenda with a script and attendance list embedded into it. This tool is used by the chair as he or she presides over meetings. The script outlines what should take place, the order of meeting sessions, and who should be there. It references specific page numbers of board materials and slide decks, and includes the standard template language required to process through the meeting agenda, including opening remarks, motions, action items, invitations for additional questions, and dismissal of staff between committee reports. The extended agenda is finalized during meeting prep sessions with the board chairman, the CEO, and each committee chairman.

The extended agenda facilitates better board meetings by allowing meeting chairs to participate in discussions without the distraction of keeping Roberts Rules of Order top of mind. Nasdaq's extended agenda is a tool our board chairs find so useful, they often carry it over to other corporate boards on which they serve. It has a tangible benefit to the chief governance officer as well, serving as a robust outline for drafting the board meeting minutes.

For more insights from Joan Conley, read:

Seven Tactics to Engineer Better Boardroom Dynamics >>

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*: 8/13/2018 Mailto Link Identification Number: 1629
Frequently Asked Questions
  Get a Handle on Critical Audit Matters
Identification Number 1627
Clearhouse
Get a Handle on Critical Audit Matters
Publication Date: July 30, 2018

Cindy Fornelli is the Executive Director of the Center for Audit Quality.

Last year, following approval by the Securities and Exchange Commission, the Public Company Accounting Oversight Board (PCAOB) adopted a new auditing standard that significantly changes the auditor's report—with equally significant implications for investors, audit committees and others. The new standard is now moving through an implementation period.

The identification and communication of critical audit matters (CAMs) is the most significant change required by the new standard. If you feel like you don't fully have a handle on CAMs yet, you're not alone. Here are some FAQs to help.

What is a CAM?

The CAMs requirement adopted by the PCAOB is intended to make the auditor's report more informative and relevant to investors and other users of financial statements. According to the new standard, a CAM is "any matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee" and that:

  • relates to accounts or disclosures that are material to the financial statements, and;
  • involved especially challenging, subjective, or complex auditor judgment.

How will auditors determine whether a matter is a CAM?

The determination of whether a matter is a CAM is principles based, and the new standard does not specify that any matter would always be a CAM. The new standard specifies that an auditor, in determining whether a matter involved especially challenging, subjective, or complex auditor judgment, should take into account, alone or in combination, certain nonexclusive factors (as specified in the new standard), such as the auditor's assessment of the risks of material misstatement, including significant risks.

What impact will CAMs have on the communication between the auditor and audit committee?

The source of CAMs are those matters communicated or required to be communicated to the audit committee. PCAOB auditing standards already require a wide range of topics to be discussed and communicated with the audit committee, which in most cases means most, and that it is likely that all of the matters that will be CAMs are already being discussed with the audit committee. However, not every topic that is discussed with the audit committee will rise to the level of a CAM. The PCAOB Board believes there should not be a chilling effect or reduced communications to the audit committee because the requirements for such communications are not changing.

Could a significant deficiency in internal control be a CAM?

The determination that there is a significant deficiency in internal control over financial reporting cannot be a CAM because such determination in and of itself is not related to an account or disclosure. However, a significant deficiency could be among the principal considerations that led the auditor to determine a matter is a CAM. For example, if a significant deficiency was among the principal considerations in determining that revenue recognition was a CAM, then the auditor could describe the relevant control-related issues over revenue recognition in the broader context of the CAM without using the term "significant deficiency."

Will CAMs only relate to the current audit period?

The PCAOB requires the communication of CAMs identified in the current audit period. While most companies' financial statements are presented on a comparative basis, requiring auditors to communicate CAMs for the current period, rather than for all periods presented, will provide relevant information about the most recent audit and is intended to reflect a cost-sensitive approach to auditor reporting. In addition, investors and other financial statement users will be able to look at prior years' filings to analyze CAMs over time; however, the standard permits the auditor to choose to include CAMs for prior periods.

Will the auditor be the original source of information about the company in the auditor's CAM communication?

The new standard includes a note explaining that the auditor is not expected to provide information about the company that has not been made publicly available by the company, unless such information is necessary to describe the principal considerations that led the auditor to determine that a matter is a CAM or how the matter was addressed in the audit. The SEC has stated that they believe that situations where auditors would be required to provide information about the company that management has not already made public would be exceptions, arising only in limited circumstances, and not a pervasive occurrence.

What impact are CAMs expected to have on financial reporting?

Increased attention on CAMs could result in an incremental focus on aspects of management's related disclosures. This could result in discussion between and among management, the audit committee, and the auditor on how CAMs are described, and that may have an impact on management's consideration of the information to disclose in the financial statements related to that particular matter. Early dialogue among auditors, management, and the audit committee will be important.

These questions and much more are covered in a new publication from the Center for Audit Quality (CAQ), Critical Audit Matters: Key Concepts and FAQs for Audit Committees, Investors, and Other Users of Financial Statements. I invite you to read that report and to find more resources on auditor reporting at the CAQ website.

***

A securities lawyer, Cindy Fornelli has served as the Executive Director of the Center for Audit Quality since its establishment in 2007.


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*: 7/30/2018 Mailto Link Identification Number: 1627
Frequently Asked Questions
  10 Ways to Secure the Forgotten Endpoints—Mobile Devices
Identification Number 1620
Clearhouse
10 Ways to Secure the Forgotten Endpoints—Mobile Devices
Publication Date: July 10, 2018

Vijaya Kaza is Chief Development Officer at Lookout, Inc., a mobile security company included in the 2017 Forbes Cloud 100, which recognizes the best private companies in cloud computing.

Did you remember to include mobile device security in your budget? If your company is like the majority of organizations in the world, the priority of your security budget is securing your company's network, data centers, email and endpoint devices such as laptops and desktops. Too often, cyber security plans overlook a significant risk that arises from the organization's new cyber-attack surfaces: mobile devices and tablets.

Mobile devices are rapidly becoming primary enterprise computing devices for employees. In fact, more than half of internet traffic originates on mobile devices. Users likely have access to important corporate data and other cyber crown jewels through their mobile devices. On top of that, by putting the user's two-factor authentication token on these devices, they may become the key to unlocking access to corporate and other critical data including bank accounts, credit cards and medical records as well.

It would be unfathomable to leave corporate laptops and desktops without antivirus software and other endpoint protection mechanisms, yet, that is exactly what the majority of organizations are doing with mobile devices. By largely ignoring the risks they pose, companies are leaving themselves (and in turn, often their customers) unprotected. According to a survey conducted by Gartner, only 3% of enterprises have anti-malware protection on mobile Android devices and only 1% on iOS devices.

When developing a cyber security strategy that includes smart phones and tablets, keep in mind that mobile devices are configured and used differently from other traditional endpoints, and therefore should be secured differently. For example:

  • Mobile devices are widely used by employees outside of the corporate perimeter. This makes traditional perimeter security mechanisms like IPS, firewalls and email security solutions irrelevant in protecting these devices.
  • Mobile devices are often owned by the users. They are unmanaged in most cases, with users choosing which applications to run on these devices. This is in contrast to the corporate issued and controlled laptops, which are often managed tightly.
  • Mobile devices are always connected and on. This makes them more available and susceptible to attacks.
  • Mobile devices have limited battery and CPU. The security solutions that an organization uses to protect laptops and other traditional endpoints are not applicable for these devices.
Mobile devices can be targeted from many different angles:
  • Mobile devices can be jailbroken or rooted into. Bad actors can take control of unprotected mobile devices and circumvent any security measures put in place by the OS vendors.
  • Vulnerabilities in the OS can be exploited. Discovering and patching such vulnerabilities is just as important—if not more important—on mobile devices as compared to other traditional endpoints.
  • Many different types of malware specifically target mobile devices. Malware is downloaded to these devices through seemingly innocuous and legitimate apps that the users willingly download for various purposes. Mobile malware is expected to comprise one-third of total malware by 2019.
  • Even legitimate, non-malicious apps may be collecting too much personal information. Music streaming apps, games, work organizers and social media platforms often access sensitive resources on a user's phone that they are not meant to, including the device's camera, calendar and contacts.
  • Mobile devices connect to multiple public networks. As employees leave the corporate network and connect to various public Wi-Fi networks, their mobile devices are susceptible to man-in-the-middle attacks from rogue Wi-Fi access points.
  • Phishing is rapidly becoming a prevalent problem for mobile devices. Sophisticated and intelligently-crafted phishing messages come through various mobile apps like SMS and social messaging, fooling and enticing the users to click on malicious links embedded in them. Users cannot always hover on the links or check the validity of the certificates on mobile devices, making it almost impossible to determine if the links are malicious. This makes phishing a bigger challenge for mobile devices than other traditional endpoints.
These security risks have made mobile devices a prime attack surface for hackers seeking to target the data and networks of enterprise systems. Many enterprises may not be well prepared to deal with these challenges, because most do not invest in adequate measures to protect their systems on the mobile front. If your organization allows access to important corporate data from mobile devices, then these endpoints cannot be ignored in your cyber security plan.

10 Ways to Secure Mobile Endpoints
Once your organization determines the extent of its vulnerability to the security risks discussed above, the following measures can be taken to mitigate mobile threats and secure mobile endpoints:

  1. Define the mobile deployment model of your organization. Do you issue corporate owned devices to employees or do you allow employees to bring their own devices (BYOD model)?
  2. Assess the threat profile and posture of your mobile fleet. How many Android/iOS devices are in your fleet? What OS versions are running on the devices and what vulnerabilities are present in them?
  3. Develop a security strategy for mobile endpoints. Base the strategy on the deployment model, the threat profile and the risk assessment.
  4. Make mobile endpoint security a priority in the cyber security budget. Many cyber security officers feel their budgets aren't adequate. In EY's 2017-2018 Global Information Security Survey of enterprise CIOs and CISOs, 87% reported that they need up to a 50% increase in their budgets, but only 12% expected to receive more than a 25% increase.
  5. Invest in mobile threat defense solutions. The feature capabilities and maturity of these products vary between different vendors in the market. Look for products that offer holistic solutions to each of the potential security attack vectors discussed above, including device, OS, network, application and phishing protection.
  6. Look beyond solutions that offer phishing protection just for corporate email. The email security solutions only filter out potential phishing emails and malicious URLs before they hit the corporate email server, but do not protect against malicious links that may come in through various mobile apps like SMS and social messaging.
  7. Put a strong security and compliance policy in place. A good mobile threat defense solution will identify vulnerabilities that are present in the current OS and send an alert if the OS is out of date or if the mobile device is out of compliance. Incentivize users to upgrade their OS to the latest version and address any compliance violations quickly. For example, block access to corporate data from any mobile device that hasn't been updated to the most recent OS versions or isn't compliant.
  8. Stay current on mobile cyber security risks and solutions. CISOs and Security Steering Committees should review the policies and compliance stance on a regular basis to ensure the organization stays ahead of mobile security threats.
  9. Train employees to defend their mobile devices from bad actors. Conduct mock phishing campaigns and training programs for employees to educate them on phishing on mobile devices.
  10. Partner with a mobile cyber security expert. Chose a vendor to help your organization stay on top of emerging trends and new security threat discoveries and continue to evolve your security strategy.

***

Vijaya Kaza is the Chief Development Officer at Lookout, Inc. Ms. Kaza previously served as Senior Vice President of Cloud Engineering at FireEye, Inc. (Nasdaq: FEYE), and prior to that worked for 17 years in multiple executive and leadership roles at Cisco (Nasdaq: CSCO).

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 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*: 7/10/2018 Mailto Link Identification Number: 1620
Frequently Asked Questions
  Bringing Lessons From #MeToo to the Boardroom: 7 Questions Boards Should Ask
Identification Number 1576
Clearhouse
Bringing Lessons From #MeToo to the Boardroom: 7 Questions Boards Should Ask
Publication Date: June 18, 2018

This article was originally published by MITSloan Management Review on June 7, 2018. With permission, minor changes to the text of this article have been incorporated in this version.

Boards need to be proactive in shaping a corporate culture that does not tolerate sexual harassment.

Has your board reflected upon the #MeToo and #TimesUp social movements, and about the continuing wave of CEO resignations amid misconduct allegations? Whether you are a member of the board of a public, private, or nonprofit company, procedures for addressing and preventing sexual harassment must be on your board's agenda. Directors need to do the right thing for employees, for customers, and for all stakeholders. The time for boards to act is now. Here are seven questions boards should ask.

As advisers to boards for a combined 40 years, we have had many discussions about the challenges facing companies. Understanding risk appetite and ensuring the company has a process in place for managing its risks is usually at the top of the list.

When we delve deeper into how boards manage risk, we often hear that different risks are monitored by different committees. For example, accounting risks come under the purview of the audit committee, and risks related to cash and stock incentive programs are monitored by the compensation committee.

But what about sexual harassment? Companies generally agree that while sexual harassment in the workplace is unacceptable behavior on the part of an individual, the ensuing silence or lack of consequences for the behavior reflects a problem with corporate culture — and, ultimately, culture is the responsibility of the entire board.

This begs the question: How do we monitor culture and focus board attention on preventing sexual harassment and misconduct at their organizations? Our answer, based on experience helping boards increase effectiveness, is that directors must first implore their board chair to put this topic on the board agenda. Even though it may be an uncomfortable issue, boards must start the dialogue about this "new" risk. To begin, we suggest directors ask the following seven questions:

How do our current policies measure up to best practices?

Too often, the board does not read company policies or require human resources leadership to review policies and procedures annually to gauge the effectiveness of the reporting process. Directors may think this level of review is "stepping on management's toes." However, the board must determi