Think Tank attendees and speakers share views on best practices
The fourth Corporate Secretary East Coast Think Tank held in May again attracted a high caliber of senior compliance and governance experts. Attendees enjoyed a day discussing some of the hottest topics facing public companies, including the challenges of implementing compliance programs, growing SEC concern over executive stock trading plans, the emerging issue of state reclamation of unclaimed property, and this year’s new favorite, notice and access.
Participants, including over 30 in-house corporate secretaries and general counsel, participated in a highly interactive program. They shared their own best practices and in turn questioned speakers from the SEC, outside law firms and vendors in sessions sponsored by Jenner & Block, the Bank of New York Mellon, CSC and Bowne.
An in-depth look at present-day compliance programs was followed by a vigorous examination of 10b5-1 plans, which allow executives to set-up pre-arranged trading plans that execute without direct involvement. Walter Ricciardi, deputy director for enforcement at the SEC, Douglas Chia, senior counsel and assistant corporate secretary at Johnson & Johnson, and Andrew Schwartz, VP and director of executive services for BNY Mellon Shareowner Services, covered pressing regulatory, corporate and administrative issues. The trio answered the many questions attendees had as to whether the plans provide the SEC’s promised ‘affirmative defense against insider trading.’
Announcements made over the last two years by director for the SEC’s division of enforcement, Linda Thomsen, suggested the SEC would take a harder look at 10b5-1 plans. Ricciardi partly dispelled worries by encouraging those in attendance to take up the option, while cautioning: ‘You don’t want to get into the gray areas,’ like withholding disclosure before a 10b5-1 sale. ‘People intentionally delaying news so they can take advantage of a higher stock price, people modifying 10b5-1 plans because they’re now in possession of material non-public information, those are the ways that people get in trouble,’ he says.
Scott Peters, assistant secretary and SEC counsel for Exelon, says his company is already on track, ‘We strongly discourage plan amendments or terminations.’
But correct protocol isn’t easy when approaches to 10b5-1 plans are so varied. ‘If it were more standardized,’ notes Peters, ‘it would be easier for an executive to swallow and easier for someone who’s trying to advocate the use of it.’
Chia is very aware of this problem and highlights that no executives at Johnson & Johnson have been encouraged to use 10b5-1 plans. ‘It’s hard to pinpoint why executives don’t use them,’ Chia says, but it may be for fear of indicating poor stock performance. He agrees with Peters on a more standardized approach, and also adds, ‘if the SEC were to come out with some kind of Q&A, it would promote the use of [10b5-1 plans].’
Best or bust
Losing no time waiting for the SEC to issue stronger guidelines, companies like Johnson & Johnson and Exelon are diving into the fray and generating their own best practices. ‘The compensation committee approved the use of 10b5-1 plans in July 2003 and adopted the policy of requiring the use of 10b5-1 plans for executive officers who wish to sell Exelon stock in January 2005,’ states Peters, reasoning the company ‘didn’t want the Street to be surprised by trades.’ Kathy Combs, deputy general counsel and corporate secretary at Exelon, mentions the requirement ‘was also coupled with stock ownership guidelines for each officer category.’
Property escheatment, to the surprise of many, is a growing issue. (See sidebar, ‘Winning the escheatment battle’.) Early adopters also offered insight into the notice and access process. (See ‘Navigating e-proxy’ on page 45.) Another Corporate Secretary Think Tank is planned for September 18 in Chicago.
