The Ticker shares recent developments in SEC compliance, capital markets, corporate governance, executive compensation and other matters important to public companies and their officers and directors.  It is published by Fredrikson & Byron’s Public Companies Group. 

EC Approves New PCAOB Related Party Transaction Standards The SEC approved as proposed the PCAOB’s new auditing standards with respect to related party transactions, significant unusual transactions and a company’s financial relationships and transactions with its executive officers. These standards address required audit procedures in these areas, including required management representations and auditor communications with the audit committee. The new standards will become effective for audits of financial statements for fiscal years beginning on and after December 15, 2014. To prepare, public companies should ensure that they have proper related party identification, authorization and approval processes and policies in place. Public companies should also inform audit committees of the additional communications with auditors that can be expected from the new standards.

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ISS Proposes Draft 2015 Policy Updates  ISS released draft voting policies for the 2015 proxy season for comment. The policy proposals offer details on the new “scorecard” approach to evaluating equity compensation plan proposals, as well as the voting policy on independent board chair proposals. According to ISS, the scorecard approach being considered “introduces a more nuanced approach around traditional cost evaluation by considering a range of plan features and grant practices that reflect growing investor awareness of aspects such as performance-conditioned awards, risk-mitigating mechanisms, and reasonable plan duration.” In addition, ISS noted its proposed voting policy for independent board chair proposals would be to generally recommend voting for the proposal, unless the company satisfies all six criteria specified in the policy. 

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SEC Plans to Address Audit Committee Effectiveness The SEC recently announced its plan to address the role of public company audit committees and the auditor-audit committee relationship. According to SEC Chair Mary Jo White, the SEC plans to issue a concept release in early 2015 in this area. In her remarks before the Investor Advisory Group of the Public Company Accounting Oversight Board, White noted that she “can’t overstate the importance of the audit committee functioning at the highest possible level.”

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Say on Pay: More Failures and Lower Approval Rates According to a joint report of Broadridge and PwC on the 2014 proxy season, there was an increase in say-on-pay vote failures as well as “signs of weakening support levels [for pay] at mid-, small- and micro-cap companies” in 2014 as compared to 2013. The report reviewed shareholder meeting results from over 4,000 companies during the first six months of 2014. The report goes on to note that “nearly three-quarters of directors agree that “say-on-pay” has increased shareholder dialogue and prompted directors to change the way they communicate about compensation.”  

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Whistleblowers and SEC Enforcement The SEC released a report on the activities of its Division of Enforcement in 2014, noting that the division “filed a record 755 enforcement actions” and “obtained orders totaling $4.16 billion in disgorgement and penalties.” Whistleblowers, and a failure by companies to adequately respond to them, have played an important role in the SEC’s enforcement efforts. A recent study noted that whistleblower involvement accounts for 30 percent of total penalties assessed for financial misrepresentation. To stay out of trouble, companies need to ensure that they have solid internal reporting and compliance procedures in place. 

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The Ticker shares recent developments in SEC compliance, capital markets, corporate governance, executive compensation and other matters important to public companies and their officers and directors.  It is published by Fredrikson & Byron’s Public Companies Group.