Despite the increasing popularity of social media tools like Facebook and Twitter, most companies are still struggling with how to manage their social media risks, according to a poll by Deloitte.

Among more than 1,700 respondents to the survey, 84 percent agreed that that “every company should have policies in place to address social media risks.” However, just 35 percent of the group said their company actually has a policy in place. A third of those polled reported that their firm doesn’t have a policy, and the remaining 32 percent said they didn’t know or it wasn’t applicable.

“There’s a sense of risk awareness around this issue, but in terms of acting companies are still struggling to figure out what to do,” says Benton Armstrong, principal, Deloitte Financial Advisory Services.

While an initial knee jerk reaction by some companies was to restrict use of social media tools by employees, Armstrong says that’s not feasible, particularly since more and more companies are also adopting the tools themselves for communications with their employees and/or others outside of the company.

“It’s an illusion that social media use can be controlled—it needs to be managed from a risk perspective,” he says.

Underscoring that point, six percent of those responding to the survey said their organization has already had to present social media content from employees or vendors in a lawsuit.

Rather than developing separate policies to address social media risks, Armstrong says a lot of companies are applying existing e-mail and other communication policies to social media tools.

“The key is making sure people know what information about the organization can be shared—how and with what approvals—and that they understand that the existing rules apply to things said on Facebook and other social media sites,” said Armstrong.

While he notes that “properly trained internal groups can become self policing,” he says that only happens where there’s effective training upfront and where policies on what’s acceptable are clear.

Not surprisingly, results were split on which function within an organization is primarily responsible for monitoring employee social media activity, if any. While most respondents (38 percent) weren’t sure if their company monitors social media or not, 20 percent said their firms don’t engage in monitoring.

Of the remainder, six percent said the job is tasked to legal; nine percent said it falls on marketing, 14 percent said it’s done by compliance/risk, and 13 percent said it’s done by human resources.

Since monitoring social media use can be difficult, rather than “boiling the ocean,” Armstrong says companies can conduct risk assessments of particular parts of the organization or groups (like bloggers).

The survey of private and public company executives was conducted during a Deloitte Webinar, “Social Networking: Addressing Corporate Risks.”

Compliance Week and Deloitte recently hosted an Editorial Roundtable on this topic of social media and its impact on risk and compliance programs. The Roundtable, which took place June 22 at The Ritz-Carlton San Francisco, featured compliance executives at companies such as Apple, Google, HP and eBay. Coverage of the event can be found here.

Corporate America get ready: Like it or not, proxy access has finally arrived.

In a 3-2 vote, the Securities and Exchange Commission adopted a 451-page rule to allow shareholders access to a company’s proxy materials to include their nominees to the corporate board of directors.

Under the new rules, a qualifying shareholder or group of shareholders who have continually owned at least 3 percent of the company’s voting stock for at least 3 years will have access to the company’s proxy to nominate one candidate or 25 percent of the board, whichever number is greater.

The previous proposal floated by the SEC last year would’ve required ownership of 5 percent at the smallest companies and 1 percent for the largest companies and would’ve required shares to be held for just one year.

Under the rule, while shareholders may opt to adopt access rules that provide for greater access, either through a management recommendation or Rule 14a-8 shareholder proposal, they can’t limit the availability of the new proxy access rule. That “one-way flexibility” was one of the major criticisms by the two dissenting commissioners, Kathleen Casey and Troy Paredes.

Corporation Finance Division Director Meredith Cross noted that there will be a no-action letter process for issuers to get informal staff advice on whether a nominee must be included.

The new rules are deferred for “smaller reporting companies” for three years to allow the Commission to monitor implementation of the rules at larger companies and make changes, if necessary. The previous proposal didn’t include any delay.

The rules will become effective 60 days after publication in the Federal Register.

Under the rule, nominating shareholders must provide notice to the company of intent to use new rule 14-a-8 no earlier than 150 days prior to the anniversary of the mailing of the prior year’s proxy statement and no later than 120 days prior to that date.

Shareholders can’t borrow stock to achieve the 3 percent threshold. However, stock lent may be counted, if the nominating shareholder can recall the stock if the company includes the shareholders’ nominee in its proxy.

Today’s vote marked the agency’s fourth attempt since 2003 to address the contentious issue of proxy access. The move follows last month’s passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which affirmed the SEC’s authority to adopt an access rule.

SEC Chairman Mary Schapiro said the agency will closely monitor how the new rules are implemented.
“We will monitor not only in the context of future application to smaller companies … but also so that we can make prompt changes for all companies, if practice demonstrates the need to do so,” she said in her opening remarks.

Compliance Week will provide readers with detailed coverage of the new rules in its Aug. 31 edition.

Questions and concerns about the regulation and oversight of the growing market for life settlements have spurred two separate reports on that market in recent weeks.

Typically, under a life settlement, the owner of a life insurance policy sells it to a third-party investor in exchange for a lump-sum payment that exceeds the policy’s cash surrender value, but is less than the expected payout upon death.

Concerns about abuses by intermediaries—such as charging policy owners excessive commissions, not seeking competitive bids from potential buyers, and not providing policy owners with all relevant information—were highlighted in an April 2009 report by the Senate Special Committee on Aging.

A General Accounting Office report estimates the total face value of policies settled in 2008 ranged from around $9 billion to $12 billion.

A report, prepared by a Securities and Exchange Commission task force created in 2009 to examine emerging issues in the life settlements market and to advise the Commission on ways to improve market practices and regulatory oversight, recommends that life settlements clearly be defined as securities to better protect investors.

The SEC task force suggests the Commission consider recommending to Congress amendments to the definition of “security” in the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940 to include life settlements, which it says would clarify the legal status of life settlements, and provide for more consistent treatment under both federal and state laws.

The report notes that, while 45 states have adopted some form of life settlement legislation under their insurance laws, and 48 states treat life settlements as securities, the ways states enact those laws varies. In addition, life expectancy underwriters aren’t subject to significant regulation at the state level.

The amendment would bring intermediaries in the life settlements market under the jurisdiction of the SEC and the Financial Industry Regulatory Authority FINRA, and require them to register with the SEC and a self-regulatory organization. It would also require all offers and sales of life settlements to be registered with the SEC, unless an exemption is available. In addition, any mis-statement in the offers and sales of life settlements would be covered by the anti-fraud provisions in the Securities Act. The amendment would also mean that a pool of life settlements issuing interests in the pool would be an investment company under the Investment Company Act, unless it falls within an exemption.

The task force report also recommends that the Commission:
Instruct the staff to continue to monitor that legal standards of conduct are being met by brokers and providers;
Instruct the staff to monitor for the development of a life settlement securitization market; and
Encourage Congress and state legislators to consider more significant and consistent regulation of life expectancy underwriters.

In line with another recommendation in the report, the SEC recently issued an investor bulletin about investments in life settlements.

Meanwhile, the GAO released its own study looking at how the life settlement market is organized and regulated. That report noted that, due to inconsistencies in the regulation of life settlements, policy owners in some states “may be afforded less protection than owners in other states and face greater challenges obtaining information to protect their interests.”

GAO noted that policy owners could complete a life settlement without knowing how much they paid brokers or whether they received a fair price, could face challenges obtaining adequate information about life settlement investments, and due to conflicting court decisions and state law differences, individuals in different states with the same investments could be afforded different regulatory protections. Inconsistencies in laws across states could also pose challenges for life settlement brokers and providers.

The watchdog agency said two key elements of its framework for assessing proposals for modernizing the financial regulatory system—consistent consumer and investor protection and consistent financial oversight for similar institutions and products—have “not been fully achieved under the current regulatory structure of the life settlement market.”

“Congress may wish to consider taking steps to help ensure that policy owners involved in life settlement transactions are provided a consistent and minimum level of protection,” the report states. For instance, the GAO noted that, in another recent report, it suggested Congress consider the advantages and disadvantages of providing a federal charter option for insurance and creating a federal insurance regulatory entity to help harmonize insurance regulations.

What impact recent changes to the “notice and access” proxy distribution model will have on its adoption for the coming proxy season remains to be seen, but a recent survey sheds some light on results from the 2010 season.

For the 2010 proxy season, 42 percent of 329 respondents to a survey conducted by Bowne and Mediant Communications adopted Notice & Access. Of those, slightly more than half (53 percent) used a hybrid or stratified approach, by which they used the Notice & Access mailing for certain shareholders while sending a full set of paper proxy materials to others.

Cost savings were cited as the main driver at 77 percent of the companies responding to the survey. Other reasons included enhanced communication using the Internet and a desire to be environmentally responsible.

The Securities and Exchange Commission first adopted its so-called e-proxy rule in 2007 to allow issuers to make their proxy materials available either by “notice-only,” under which the issuer posts its proxy materials online and sends a notice to shareholders, or the “full set delivery option,” where the issuer posts the proxy materials online, sends the notice, and still delivers a full set of proxy materials to shareholders.

However, the rules were blamed as contributing to a further decline in already low retail investor participation in proxy voting. The number of retail accounts submitting voting instructions when issuers used the notice-only option was lower than the number of retail accounts submitting voting instructions when issuers used the full-set delivery option. That led the SEC to tweak the rules this February to provide more flexibility in the format and content of the notice sent to shareholders and to allow issuers to send shareholders materials with the notice explaining the e-proxy rules and reasons for the use of notice and access.

Nearly half (45 percent) of the issuers surveyed by Bowne and Mediant worked at large companies with accelerated filings, while 23 percent characterized themselves as accelerated filers. Another 12 percent reported themselves as “non-accelerated/small,” and 3 percent as investment companies; 17 percent didn’t respond.

Among the respondents, 30 percent of respondents said the recent change to NYSE Rule 452 to eliminate broker discretionary voting for director elections had impacted their voting results, while 59 percent said it didn’t impact voting results.

The full survey results are available for download here.

Notice and access is one of the various areas mentioned in the Commission’s proxy plumbing concept release currently out for comment. As part of the release, the SEC is seeking input on possible revisions to the notice-and-access model, including whether to require certain companies to use the stratified model to encourage retail voting participation, or whether to amend its rules to permit inclusion of a proxy card or voting instruction form with the notice.

The release also asks about the fees paid under notice and access. Currently, the reimbursable fees associated with notice and access aren’t capped by stock exchange rules. The concept release requests comment on whether the current proxy distribution fee structure needs to be revised, including determining what “reasonable” reimbursement for expenses associated with notice and access might be, and whether a market-based fee structure would increase or decrease issuer costs. Comments on the release are due by Oct. 20.

The staff of the Securities and Exchange Commission is seeking public comment on dozens of questions as part of its Work Plan on the possible adoption of International Financial Reporting Standards for U.S. issuers.

The agency issued the requests for comment in two separate releases dated Aug. 12. Comments on both are due 60 days following publication in the Federal Register.

One release seeks comment on the impact adopting IFRS would have on issuers’ compliance with contractual arrangements that require the use of U.S. Generally Accepted Accounting Principles, compliance with corporate governance requirements, and the application of certain legal standards tied to amounts determined for financial reporting purposes.

The other asks about the impact on U.S. investors’ current knowledge of IFRS, their preparedness for incorporation of IFRS into the financial reporting system for U.S. issuers; the ways investors educate themselves on changes in accounting standards, as well as the extent of, logistics for, and estimated time needed to make changes to improve investor understanding of IFRS and the related education process to ensure investors have a sufficient understanding of IFRS prior to potential incorporation.

As part of a statement adopted by the Commission in February reaffirming its support of convergence and global accounting standards, the SEC directed the staff to develop and execute a work plan aimed at hashing out several major issues identified during the comment period on its 2008 proposed roadmap that will impact its decision on whether and how to allow U.S. companies IFRS.

The SEC is supposed to decide in 2011 whether or not to allow domestic companies to make the move to IFRS. If it does move forward, the agency said that adoption wouldn’t occur until at least 2015.

Details of whether and how that move would occur are yet to be decided. The SEC’s 2008 proposed roadmap would’ve mandated adoption on a phased-in schedule. That plan had also contemplated letting some companies early adopt. In its February statement, the SEC dropped the early use option, but said it may consider the issue later.

The SEC is supposed to begin issuing public progress reports on the work plan by October.

Among other things, the releases ask about the extent and ways in which incorporating IFRS into the financial reporting system for U.S. issuers would affect the application, interpretation, or enforcement of contractual commercial arrangements, such as financing agreements, trust indentures, merger agreements, executive employment agreements, stock incentive plans, leases, franchise agreements, royalty agreements, and preferred stock designations.

Other questions ask what other types of contractual commercial arrangements would likely be affected, and how; and whether, for existing arrangements, the incorporation of IFRS would be treated differently than a change in existing financial reporting standards under U.S. GAAP would be treated today, and if so, how.

Some of the questions seek comment on the extent to which a move to IFRS would have any potential adverse effects on issuers’ compliance with corporate governance and related disclosure requirements

The agency also asks how the set of accounting standards used by a company for financial reporting are significant to an investor’s decision to invest in that company; how the current differences between U.S. GAAP and IFRS would affect an investor’s use of the information reported in the financial statements; how completion of the convergence projects would affect investors’ use of those financial statements, and how investors think incorporation of IFRS would affect comparability among different issuers’ financial statements.

The SEC also seeks comment on whether providing for a transition or phase-in period for compliance would mitigate or avoid any of the potential effects of incorporating IFRS, and how long a transition or phase-in period would be necessary. The releases also invite comment on whether the manner in which IFRS incorporation is implemented would have any affect on the answers to any of the questions.

Confirming the recent rumors, the Securities and Exchange Commission has officially posted notice that it will finally hold a vote next week on a proposal to give shareholders access to corporate proxies for nominating directors.

According to the Aug. 18 Sunshine Act Meeting Notice, the SEC will hold an open meeting on Aug. 25 to consider whether to adopt changes to the federal proxy and other rules to facilitate director nominations by shareholders.

The divisive issue has dogged the agency for years. It has tried unsuccessfully to craft rules for proxy access multiple times since 2003. The SEC’s five commissioners have themselves been split on the issue, as witnessed by last year’s 3-2 SEC vote to publish a rulemaking proposal.

Critics of the concept, including most companies, say it will lead to battles over board seats and will give special interests too much power. Supporters, including public pension funds and others activists, argue  that making it easier and less costly for shareholders to nominate directors will help make boards more accountable to a company’s investors.

Beyond the debate about whether or not allowing shareholders to place nominations for directors in corporate proxies is a good idea, issues such as how a federal rule would operate, how it would interact with state law, and the Commission’s authority to adopt it have been sticking points in the past.

This time, however, the SEC has something it previously didn’t—explicit backing from Congress. The Dodd-Frank Act signed into law in July includes language authorizing the Commission to let investors nominate directors on corporate proxies. Section 971 of the bill gives the SEC wide latitude to decide the details of a proxy access rule, including the ability to exempt smaller issuers from complying with it.

The details of the proposal to be voted on next week remain to be seen. The proposal floated by the Commission last summer would allow shareholder access on a sliding scale, where shareholders could gain nomination rights if they hold anywhere from 1 to 5 percent of outstanding shares for at least a year. It would also give shareholders the right to submit proposals related to director elections or the nomination process—including proxy access.

However, given the debate during the congressional conference and the flood of comments the SEC has gathered since that plan was unveiled, it’s likely some of the details will look different.

Stayed tuned. Compliance Week will provide readers with complete coverage of next week’s meeting.

Companies may need to revisit their proxy math: Broker discretionary votes are officially out for say-on-pay proposals.

Per Section 957 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the national securities exchanges are required to amend their rules to prohibit member organizations from voting shares without specific client instructions on matters related to executive compensation.

For proposals included on proxy statements that involve executive compensation matters for which brokers were previously allowed to vote uninstructed shares, NYSE will treat those matters as “may not vote” rulings going forward effective immediately, according to an Aug. 4 information memo.

NYSE said it intends to file an amendment to Rule 452 to prohibit members from voting uninstructed shares if the matter to be voted on relates to executive compensation, including “say-on-pay” proposals, at meetings occurring after July 21 (the date the Dodd-Frank Act was signed into law).

However, NYSE said an exception will be made for meetings on which it has issued a “may vote” ruling prior to July 21. NYSE Amex and NYSE Arca will file identical amendments to their rules.

Rule 452 prohibits brokers from voting uninstructed shares in “non-routine” matters. For instance, the rule was already amended, effective for annual or special meetings as of Jan. 1, 2010, to bar brokers from voting uninstructed shares in connection with the election of directors (excluding companies registered under the Investment Company Act of 1940).

Since brokers historically tended to cast those votes in favor of management, observers say the change could make it tougher for some companies to win shareholder approval of management say-on-pay resolutions, which will become mandatory under the law.

“Issuers may find it more difficult to gain support for compensation-related matters as a result of this pronouncement,” says Doreen Lilienfeld, a partner with Shearman & Sterling. She notes that the composition of a company’s shareholder base “will likely govern how the broker non-votes are likely to effect voting.”

“If a company has a large institutional shareholder base, there will likely be a minimal effect,” while companies with larger individual shareholder bases will likely find it more difficult to obtain the necessary votes, as many shareholders will not provide voting instructions to their brokers, says Lilienfeld.
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Likewise, Claudia Allen, head of the Corporate Governance Practice Group at Neal Gerber Eisenberg, says, “It can make a difference for some companies, since this has the ability to increase the influence of dissidents and others who may be unhappy with executive pay.”

Although Allen notes that say-on-pay votes have only failed at three companies so far, she says, “To the extent there’s any dissatisfaction with compensation, it has the potential to be magnified when broker votes are back out.”

“It’s a mistake to assume because the vote is advisory that it’s not important,” she says. “It’s important for directors to be informed about the issues of concern to the company’s shareholders.”

As such, she says it’s a good idea for companies to analyze their shareholder base to understand “who their shareholders are, the extent to which they’re advised by ISS or other proxy advisory firms, and to reach out to shareholders to get a sense of what their hot buttons are on compensation.”

Lilienfeld further notes that issuers should revisit the approval standard and the standard for counting votes for the say-on-pay vote pursuant to their bylaws and certificate of incorporation, as well as applicable state law, which can have an impact on the outcome of the vote.

As noted in the NYSE information memo, the Act also gives the Securities and Exchange Commission the authority to make other changes to Rule 452, so stayed tuned.

More summer reading for those with an interest in anti-corruption enforcement: The latest thinking on how federal prosecutors can encourage cooperation by rewarding companies for self-reporting transgressions of U.S. anti-bribery laws, courtesy of Baker & McKenzie partners Robert Tarun and Peter Tomczak.

In their proposal for leniency for self-reporting and cooperation by companies that uncover Foreign Corrupt Practices Act violations, Tarun and Tomczak say the model used by the Department of Justice’s Antitrust Division to give a break to cooperators who report antitrust violations should be applied to companies that voluntarily disclose FCPA missteps.

As Compliance Week has previously noted, the long-standing debate over what benefits companies actually get for confessing their FCPA sins has been the subject of numerous articles and spurred a number of suggestions for giving companies and their counsel some much-desired predictability about what they can expect to get for their efforts. For example, as noted on this blog in June, former Deputy Attorney General George Terwilliger, now head of the white-collar practice at White & Case, also publicly called for an FCPA leniency policy.

Patterned after the Antitrust Division’s Corporate Leniency Program, the authors’ proposed FCPA leniency policy, “A Proposal for a United States Department of Justice Foreign Corrupt Practices Act Leniency Policy,” originally published in the American Criminal Law Review’s 25th Annual Survey of White Collar Crime, would reward companies that promptly disclose FCPA wrongdoing and fully cooperate with the government and would penalize those that fail to investigate credible allegations of improper payments or don’t promptly stop the payments.

“If the left arm of government—the Antitrust Division—can be clear and transparent about their carrots and sticks, surely the right arm—the Fraud Section—can be equally transparent and clear,” Tarun, a former federal prosecutor, tells Compliance Week.

The Department of Justice through a spokeswoman declined to comment. In a May speech at Compliance Week’s annual conference, DoJ Assistant Attorney General Lanny Breuer promised that companies that come forward and fully cooperate will receive “meaningful credit.”

While DoJ officials “talk about ‘meaningful credit,’ their policy isn’t transparent,” says Tarun. “We need a policy that tells companies what they’re going to get.”

“As a matter of good governance, boards should be well-equipped to understand the costs, benefits, and consequences of self-reporting and cooperation,” he says.

Tarun and Tomczak’s proposal includes four “carrots” in the form of possible discounts. Corporations that self-disclose misconduct before an investigation begins would be eligible for a non-prosecution agreement and a 40 percent discount off of the minimum fine range under the U.S. Sentencing Guidelines.

Corporations that self-report and cooperate after an investigation has begun would be eligible for non-prosecution and a 20 percent cooperation discount off of the minimum Sentencing Guidelines fine range.

Most directors, officers, and employees of corporate leniency applicants would also be eligible for amnesty.

If a company has an FCPA compliance program in place at the time of the misconduct that meets 12 criteria (detailed in the proposed policy) it would be eligible for an extra 20 percent discount off of the minimum fine range. Finally, companies that provide information leading to the investigation and prosecution of another company or its officers or employees would be able to get an additional 20 percent cooperation discount.

The policy also includes two “sticks” in the event of a conviction. For companies that either don’t conduct internal investigations when they receive credible bribery allegations or that fail to promptly stop the misconduct, the DoJ will recommend a penalty of 10 percent above the maximum Sentencing Guidelines.

The idea is to “truly reward companies that genuinely cooperate,” says Tarun. “The government never could have done an investigation like the one done by Siemens—they just don’t have the resources.”

Under the proposed leniency policy, Siemens would’ve gotten a 20 percent cooperation discount, and paid a total of $1.35 billion to end its FCPA woes, instead of the combined $1.76 billion it actually paid. Kellogg Brown & Root would’ve received a total fine of $301 million instead of the combined penalties of $579 million, according to the article.

The proposal (here) details a number of eligibility criteria. Among other things, the company must report the improper payments before the Fraud Section gets credible information from any other source and it can’t have been named in an FCPA enforcement proceeding, including a deferred prosecution agreement or a non-prosecution agreement, in eight years.

The staff in the Securities and Exchange Commission’s Division of Corporation Finance has published several updates to its Compliance & Disclosure Interpretations.

The updates published Aug. 11 include eight new interpretations and three revisions to existing interpretations.

Two of the revised interpretations (Revised Question 139.29 and Revised Question 139.30) relate to lock-up agreements.

A number of the interpretations address issues relating to foreign private issuers (see New Question 110.01 and Revised Question 101.01, New Question 101.02, New Question 110.03, and New Question 110.04, which address Section 16 reporting issues.

Other topics addressed include Securities Act Rule 502 General Conditions to be Met (New Question 256.21); Securities Act Form S-3 General Instructions I.B.1 to I.B.6 - Transaction Requirements (New Question 116.22 and New Question 116.23); Exchange Act Form 10-K (New Question 104.17).

The senior staff of the Securities and Exchange Commission’s Enforcement Division gets to keep its authority to issue subpoenas, a power granted to it on a pilot basis last year in an effort to speed the pace of investigations.

This time last year, the Commission adopted a rule that, for the first time, delegated its enforcement director, Robert Khuzami, with legal authority to issue formal orders of investigation—and therefore subpoenas—without getting prior approval from the agency’s five commissioners. Khuzami in turn delegated that power to other senior enforcement officials.

The move was part of a broader effort to reinvigorate SEC enforcement following the Bernard Madoff debacle. The idea was to expedite the investigative process. Previously, the enforcement staff had to seek approval from the agency’s five commissioners, creating a speedbump that was blamed for slowing the pace of probes.

That rule included a sunset provision so the Commission could evaluate the Division’s use of the delegation. The authority would have expired this week. However, the SEC amended its rules to remove the sunset provision from the delegation of authority.

According to the rule filing, “The Commission has determined that it is appropriate to extend the Division’s authority to issue formal orders of investigation. In making this determination, the Commission considered the increased efficiency in the Division’s conduct of its investigations permitted by the delegation, and the Division’s continued effective communication and coordination in addressing pertinent legal and policy issues with other Commission Divisions and Offices when formal order authority is invoked.”