Securities Mosaic® Blogwatch
December 6, 2018
Are Female CEOs More Likely to be Fired than Male CEOs?
by Vishal Gupta, Sandra Mortal and Daniel Turban

About 5 percent of U.S.-based publicly-traded firms now have female chief executive officers. While much has been written about the challenges women face in their ascent to top leadership positions, little is known about what happens to them once they break through the proverbial glass ceiling and become CEOs. The CEO remains the most powerful corporate position in the business world, but those who occupy it serve at the discretion of the board of directors. The corporate governance literature generally considers the power to fire chief executives key to corporate control and the ultimate recourse for boards in monitoring firm management.

Boards fire a CEO infrequently, perhaps because deciding whether to do so can put them between the proverbial rock and a hard place. On the one hand, boards that hesitate to fire a CEO when necessary are often accused of not being fully vigilant in their monitoring function and perhaps even supporting management misconduct. On the other hand, boards that seem eager to dismiss the CEO risk casting doubt on their original choice and come across as scapegoating the CEO for their own failures in counseling and advising management.

Prior research offers three possibilities for the role of gender in the dismissal of CEOs. The first is that boards are primarily concerned with having a well-managed firm and so will be blind to the gender of a CEO who manages the firm in the best interests of its owners, the shareholders. From this perspective, male and female CEOs are equally likely to be fired by the board. The second is that boards believe women face greater obstacles on their way up the corporate ladder, and those who reach the top tend to be more competent than their male counterparts (a sort of female advantage logic). From this perspective, female CEOs are less likely than male CEOs to be dismissed. The third possibility is that boards subscribe to the stereotype that good leadership is consistent with masculine qualities such as ambition and aggressiveness, but not with feminine qualities such as kindness and warmth. Further, and, consistent with research on numerical minorities, women CEOs will be subject to greater monitoring and scrutiny. From this perspective, female CEOs will be at greater risk of dismissal than male CEOs, even when they are performing at a similar level.

We theorize that boards are likely to evaluate women CEOs less favorably than male CEOs, because women remain rare in CEO positions and are subject to negative cultural stereotypes about leadership and so draw more unfavorable attention to their decisions and actions. Given that CEOs are usually evaluated under ambiguous assessment criteria that are likely to amplify the effect of cultural stereotypes, we posit that women CEOs will be dismissed more often than male CEOs. We also theorize that CEO gender will influence the extent to which the CEO is given credit for good firm performance, so that when the firm is performing well, women CEOs are less likely than male CEOs to be considered good stewards of the firm, and therefore more likely to be dismissed.

We test our predictions using data about public U.S. firms from 2000 to 2014. Our sample comprises 21,772 firm-year observations for 2,390 unique firms. Following common practice in prior academic research, we relied on coding of press reports and news releases of CEO departures, combined with information on CEO age and continued affiliation with the firm, to identify dismissals. There were 641 CEO dismissals from a total of 2,416 departures in the sample (1,769 departures were considered voluntary and six could not be classified). Our analyses controlled for a host of confounding factors, including firm size, whether CEO is also chair of the board, CEO ownership stake in the company, whether CEO came from within or outside the firm, CEO social status, CEO age, CEO functional experience, other possible CEO candidates in the firm, CEO ability, board size, board independence, board gender diversity, and prior firm performance. In general, we found that female CEOs have almost a 45 percent higher probability of being dismissed than do male CEOs. We also found that as a company’s performance improves, the probability of dismissal decreases sharply for male CEOs, but changes little for female CEOs, so that the male CEOs have a significantly lower dismissal probability than female CEOs at higher levels of performance.

Our findings contribute to academic and popular understanding of CEO dismissal in several important ways. First, although it has long been recognized that cultural stereotypes about gender roles foster biased judgments and decisions that impede women’s advancement in an organization, our results suggest that stereotypes may also result in women being pushed out of leadership roles even after they reach the highest position in a firm. This is a notable finding because existing models of CEO dismissal do not consider CEO gender as an explanatory variable, perhaps because those models were conceived when women were largely absent from the corner office. Second, firm performance is widely recognized as a predictor of CEO dismissal, but our research shows that CEO gender can potentially break the link between performance and dismissal. We consider the gender differences in CEO firings in the absence of performance problems especially disconcerting, as they suggest that good performance is enough to protect men but not women CEOs from dismissal. Overall, our research provides evidence that women face higher risks and perils in their leadership positions than men. Given that most directors are older white men, it may be useful to include gender-sensitivity training focused on reducing bias in the board’s assessment of senior managers.

This post comes to us from professors Vishal Gupta and Sandra Mortal at the University of Alabama and Daniel Turban at the University of Missouri. It is based on an article by them, Sabatino Silveri,and Minxing Sun, “You’re Fired! Gender Disparities in CEO Dismissal,” available here.

December 6, 2018
Institutional Investors, Voting Power, and Voting Patterns
by Efrat Dressler

Institutional shareholders’ role in corporate governance and their effect on firm value have been explored, both theoretically and empirically, mainly in the context of dispersed-ownership environments like the United States or the United Kingdom. In these common law countries, institutional investors play an active role, initiating proposals of their own regarding compensation [1] and appointment of board members. [2] In other countries, however, where corporate ownership is more concentrated and controlling shareholders are more prevalent, institutional investors are expected to fulfill a different function, namely, to protect minority shareholders in their conflict with controlling shareholders by, for example, voting against unfair related-party transactions proposed by management. Research suggests that certain voting processes could serve as an efficient form of activism in firms across the U.S. [3] as well as in other countries. [4] It is important to keep in mind, however, that minority shareholders’ ability to effectively oppose and prevent unfair transactions in controlling-shareholder environments is contingent on the existence of a regulation that gives them special power beyond their relative voting rights.

In line with this rationale, several countries have implemented advance minority approval of related party transactions. [5] This has opened up the possibility of investigating the effect of shareholders’ voting power on voting by institutional shareholders.  The term “voting power” is used here to mean a voter’s ability to influence voting results by either forming a coalition with other voters or withdrawing from one. A shareholder’s a priori voting power under a given majority rule is the potential influence that this rule assigns to that shareholder.[6] This variable can be measured using two different power indices, both widely used in scholarship: the Shapley-Shubik index (1954) and the Banzhaf index (1965). Both these measures are a function of three parameters: the number of players in a voting game, each player’s relative voting rights, and the majority rule for a winning coalition.

Inasmuch as the above two power indices take into account possible coalitions, they enable a more accurate measurement of an investor’s potential influence than his or her relative voting rights or equity-stakes. Consider, for example, a company that has only three shareholders, holding 49 percent, 49 percent, and 2 percent of the outstanding equity, respectively. The voting rights measure would predict significantly lower ability to influence any vote for the third, small shareholder. By contrast, the power indices would assign equal power to all three shareholders, as each is pivotal in one-third of possible coalitions. In this framework, a change in the required majority (like one implemented in 2011 by the Israeli regulator, for example) affects the shareholders’ power indices. The effectiveness of such a regulation can be better understood and evaluated through an analysis of the voting power of institutional shareholders and of their voting behavior on proposals involving self-interested transactions that require a special majority for approval.

Consistent with the literature on voting, [7] my analysis of the distribution of voting power and of the votes cast by institutional shareholders has shown that the strongest minority shareholders tend to vote in favor of management-sponsored proposals. In other words, a positive correlation was demonstrated between voting power and management friendliness.

What may account for this pattern? One possibility is that large shareholders’ voting decisions are swayed by conflicts of interest; they may, for example, have some other business dealings with firm management, or possibly management may even be “buying” their votes directly. Let us dub both these possibilities “the bad story.” An alternative scenario could be that, as strong institutional investors, large shareholders negotiate the conditions of a transaction with management before the vote and use their power to achieve better terms, thereby benefiting minority shareholders. This explanation can be labeled “the good story.”

Since behind-the-scenes negotiations are, by definition, not open to outsiders, in order to distinguish between the above two accounts, it is first necessary to identify the cases in which a negotiation took place between management and shareholders over the conditions of a transaction prior to the vote. An indication of such a negotiation could be a delay in a vote, announced shortly before the originally scheduled meeting, likely on account of disagreements. Such information was used in my study as a proxy for negotiations, and the analyses targeted subsequent votes of smaller shareholders with no conflicts of interest – specifically, if they had voted in favor of or against the proposed transaction, in line with the good and the bad story, respectively. My study shows that, when pre-vote negotiations regarding self-dealing transactions take place, small institutional shareholders are more likely to dissent, whereas the largest, and strongest, among minority shareholders are more likely to vote with management. This finding is consistent with the bad story, in the sense that large (and strong) minority shareholders vote with management even though the proposal does not necessarily maximize value. Furthermore, the data show that, in their voting behavior, institutional investors display consistent patterns such that their voting history is significant in predicting their next vote. The voting behavior of the largest and strongest investors tends to be management friendly, whereas small employee-owned funds tend to vote in opposition to management. Two possible interpretations for this observation are broached, neither of which bodes well for minority shareholders.

The first is that institutional shareholders develop a general voting strategy and apply it regardless of the specific details of the proposal voted on because of their limited interest in the voting process in general. [8] The second interpretation applies in cases where voting with management is the prevalent pattern. Here, a conflict of interest could be at play, as already elaborated in the literature. [9]

Overall, it appears that raising the required majority in an attempt to empower minority shareholders in a concentrated-ownership environment is likely to exacerbate inequalities in the distribution of voting power by bestowing even more power on shareholders that were powerful to begin with. Large institutions thus empowered tend to be management friendly and vote mostly in favor of management-sponsored proposals. It is therefore not at all clear that such a move can be effective in preventing minority shareholder expropriation by controlling shareholders and in improving corporate governance.

Implications from the Israeli case I investigated can be drawn to improve corporate governance in general. To achieve this objective, strengthening minority shareholders appears to be a necessary but not sufficient condition. An efficient regulation should ensure that institutions that represent minority shareholders do not operate under conflicts of interest. It is also essential that such a regulation increase these institutions’ motivation to consolidate a viewpoint on every proposal and utilize their position of power to benefit minority shareholders.


[1] See detailed review in Yermack, D. (2010). Shareholder Voting and Corporate Governance. Annual Review of Financial Economics, 2(1), 2.1-2.23.

[2] Cai, J., Garner, J., & Walkling, R. (2010). Shareholder Access to the Boardroom?: A Survey of Recent Evidence. Journal of Applied Finance, 20(2), 15–26.

[3] Cai, J., Garner, J., & Walkling, R. (2009). Electing Directors. The Journal of Finance, 64(5), 2389–2421., Fischer, P. E., Gramlich, J. D., Miller, B. P., & White, H. D. (2009). Investor perceptions of board performance?: Evidence from uncontested director elections. Journal of Accounting and Economics, 48(2–3), 172–189, and papers surveyed in Yermack 2010.

[4] Iliev, P., Lins, K. V., Miller, D. P., and Roth, L. (2015). Shareholder Voting and Corporate Governance Around the World. Review of Financial Studies, 28(8), 1–59.

[5] Canada, Australia, Hong Kong, Indonesia, Mexico and Israel (Fried, Jesse M., Kamar, Ehud and Yafeh, Yishay (2018), The Effect of Minority Veto Rights on Controller Tunneling. CEPR Discussion Paper No. DP12697. Available at SSRN: This post is based on an analysis of voting data from Israel.

[6] Felsenthal, D. S., and Machover, M. (2004). A priori voting power?: what is it all about?? Political Studies Review, 2(1), 1–23.

[7] Matvos, G., & Ostrovsky, M. (2010). Heterogeneity and peer effects in mutual fund proxy voting. Journal of Financial Economics, 98(1), 90–112. As well as Hamdani, A., and Yafeh, Y. (2013). Institutional Investors as Minority Shareholders. Review of Finance, 17(2), 691–725

[8] See, for example, Lund (2018), arguing that passive investors have no incentive to acquire information on every proposal in every firm in their portfolio, therefore will follow a passive vote strategy

[9] Hamdani and Yafeh, 2013. As well as Cvijanovi, D., Dasgupta, A., and Zachariadis, K. E. (2016). Ties that Bind?: How business connections affect mutual fund activism. Journal of Finance, 71(6), 2933–2966.

This post comes to us from Efrat Dressler, a visiting scholar at The Wharton School, University of Pennsylvania. It is based on her recent article, “Institutional Investors, Voting Power, and Voting Patterns: An Empirical Analysis,” available here.

December 6, 2018
Acquirer Reference Prices and Acquisition Performance
by David Whidbee, Qingzhong Ma, Wei Zhang

How do investors adjust their estimates of a stock’s value in response to an acquisition announcement? Rationally, the acquirer’s new stock price should reflect the synergistic gains associated with the merger, the premium paid to target company shareholders, the method of payment, and other value-relevant information associated with the acquisition. But what if the acquirer’s stock value is already difficult to estimate or there is limited information available about the target company? Is it possible that investors rely on heuristics under these circumstances? Specifically, we are interested in whether investors are influenced by readily available salient reference prices, even if those reference prices are fundamentally irrelevant.


In our article, Acquirer Reference Prices and Acquisition Performance, we find evidence that at least some investors are indeed influenced by the acquirer’s 52-week high price when assessing the valuation implications of an acquisition announcement. Specifically, in a large sample of acquisitions of both public and private targets, we find that acquirers with pre- announcement stock prices well below their 52-week high prices earn significantly higher announcement period abnormal returns than acquirers with stock prices at or near their 52-week highs. We call this the reference price effect. It suggests that acquirers with stock prices well below their 52-week high prices are perceived by investors as being undervalued relative to acquirers with stock prices at or near their 52-week highs.

The reference price effect and the impact of 52-week high prices on perceived valuation levels are rooted in anchoring, the well-known psychological phenomenon first documented by Tversky and Kahneman (1974). Anchoring describes the common tendency of individuals to be influenced by numeric anchors when estimating unknown numbers even if the anchor is irrelevant. For example, it is well known that buyers and sellers anchor on list prices for homes and cars, so those list prices influence ultimate transaction prices. This anchoring phenomenon is considered one of the most robust findings of experimental psychology and it has been used to explain a variety of empirical results. Recent work by Baker, Pan, and Wurgler (2012), for instance, documents a tendency for offer prices to cluster around target-firm 52-week high prices in acquisitions of public targets. Our results suggest the 52-week high price also influences investors’ perceptions of valuation levels of acquirers in mergers and acquisitions.

Consistent with the anchoring phenomenon being more important in circumstances involving less information or more uncertainty, the reference price effect is more pronounced in acquisitions of private targets and when there is more uncertainty regarding the impact of the acquisition on the acquirer’s value (when the acquirer’s stock price is more volatile, there are fewer analysts following the acquirer, in acquisitions of relatively large targets, and acquisitions involving non-cash forms of payment). The reference price effect is also more pronounced in acquirers with relatively large individual investor ownership, suggesting that less sophisticated investors are more likely to be influenced by 52-week high prices. These results hold even after controlling for a host of firm and deal characteristics and they survive a battery of robustness checks.

We consider several potential rational explanations, but conclude that none can adequately account for our results. For example, it is possible the reference price effect can be explained by some overlooked fundamental factor associated with acquisitions. Other possibilities include investors anticipating the acquisition for some of our acquirers, managers with high stock prices becoming overconfident and making poor acquisition decisions, or high stock prices protecting managers from monitoring. In all of these potential explanations, the reference price effect should be permanent. In reality, however, long-horizon returns exhibit a reversal of the short horizon return pattern: acquirers with pre-announcement stock prices well below their 52-week high prices tend to earn lower long-horizon abnormal returns than acquirers with pre-announcement stock prices that are at or near their 52-week high prices. This suggests the reference price effect is driven by an irrational behavior bias.

Our results add to the evidence that valuation level perceptions influence investor reaction to acquisition announcements and deal outcomes. Rhodes-Kroph et al. (2005) and Dong et al. (2006) document that perceived valuation levels influence investor reaction to acquisition announcements and deal outcomes. However, their analysis focuses on conventional measures of valuation levels (current stock prices relative to book values or estimated fundamental values). Our results, on the other hand, indicate that the 52-week high also influences investor perceptions of valuation levels in mergers and acquisitions.

In fact, our analysis of bid premiums and target-firm announcement period returns indicates that perceived valuation levels based on 52-week high prices do not just influence investor reaction to acquisition announcements, but can also influence merger negotiations. When there is greater uncertainty concerning acquirer valuation levels or when non-cash forms of payment are involved, acquirer’s with current stock prices close to their 52-week high prices tend to pay higher offer premiums, and this carries over into announcement-period abnormal returns for target firms. When there is little uncertainty concerning acquirer valuation levels or in cash deals, on the other hand, offer premiums tend to be influenced more by target-firm 52-week high prices. We find little consistent evidence that the acquirer’s 52-week high price influences the method of payment, the likelihood of the acquisition being a tender offer or hostile, or the deal’s success. Rather, our results suggest that these deal outcomes are not affected by 52-week high prices because firm managers have significant say over these outcomes, and managers are less likely to be influenced by irrelevant reference prices due to their sophistication and access to value-relevant information.

Overall, our results indicate that investors and merger negotiations are influenced by salient reference prices when assessing the valuation implications of an acquisition announcement, even if those reference prices are fundamentally irrelevant. Because this influence is irrational and driven by anchoring, a behavioral bias, its influence on announcement period abnormal returns is ultimately corrected in the long run.

The complete article is available here.

December 6, 2018
Dinosaur Governance in the Era of Unicorns
by Alissa Amico, Govern

The list of global unicorns—private companies exceeding a billion-dollar valuation—is dominated by two flags: Chinese and American. This bi-polar nature of the world of corporate giants is not a reflection of the importance of the two largest global economies but the effectiveness of the ecosystems that have produced them. Japan, the third largest economy is home to exactly one unicorn and Germany, the fourth largest economy, is home to less unicorns than India, the fifteenth economy in the world.

In 2013, when the term “unicorn” was coined, only 39 companies have trailblazed the billion-dollar mark. Since then, the growth of unicorns—numbering closer to 300 and valued at almost $900 trillion dollars—has been both utopian and Kafkaesque, considering the slowdown of the global economy. All signs point to the fact that technology unicorns, alongside state-owned companies, will dominate rankings of the largest global corporations.


And yet, whilst the DNA of largest corporations has mutated at a bewildering speed, regulators have been left behind with laws and regulations more suited to the “brick and mortar” as opposed to a “network” company. While following the financial crisis regulators have been busy devising rules for “systemically important” financial institutions, the most systemically important companies today both in terms of their social influence and market valuation are technology firms.

Given the growing role and the enormous influence of tech unicorns on citizens globally, regulators need to consider how their governance—or lack thereof—could impact consumers and shareholders, especially as unicorns have emerged as some of the largest listed companies following their listing. In order to avoid the scandals that have recently surrounded some these firms, regulators need to consider governance rules to specifically address listed tech companies as these are becoming an important category of public companies in their own right.

In particular, recent scandals have highlighted that unicorns and ex-unicorns—post their listing—demonstrate similar and systematic governance risks linked to the dominance of their founder-CEOs evident in the Tesla case. Nor is Tesla an isolated case: Alphabet’s dual-share class structure gives its CEO voting power 10 times of its other shareholders. In this year’s proxy documents, investors have complained that “currently a 1% minority can frustrate the will of our 66% shareholder majority.”

For now, policymakers appear torn between clipping the wings of CEOs and protecting shareholder rights. These need not necessarily be antithetical: the powers of founder-CEOs can be balanced with shareholder and stakeholder rights without diluting their creative genius. And while it is tempting to marshal simplistic solutions such as curtailing founder-CEO rights by doing away with dual class shares, this may do a disservice to both companies and their shareholders.

The perspective of tech companies is that investors are aware of what they are signing up for and that founder-CEO incentives are aligned with long-term company value. In their letter to stockholders at the time of Google’s IPO, Larry Page and Sergey Brin, the company co-founders, suggested that “by investing in Google, you are placing an unusual long-term bet on the team, especially Sergey and me, and on our innovative approach.”

Founders of tech companies are correct in claiming that the regulators’ objective should not to be to place ambitious company founders in a straight jacket. Instead, regulators need to consider the founder-centric DNA of most tech firms and develop a better understanding of compliance, technical and privacy risks that these companies present, which are all significant. Perhaps most importantly, the separation of CEO and Chair roles, combined in Amazon, Facebook and other firms needs to be urgently addressed.

Most tech companies are allowed to maintain Chair-CEO duality by virtue of their US listing where it is permitted, unlike in two-thirds of OECD countries and now many emerging markets. To their credit, some American unicorns are voluntarily abandoning this structure following their listing, and this should be made a requirement especially for companies where founders are also controlling shareholders. Introducing a COO role, as was done by Uber in the midst of a scandal when Travis Kalanick, now ex-CEO, admitted to needing “leadership help”, can help further segregate duties.

More generally, the Grand Canyon of information gap between executives and boards of large technology companies needs to be narrowed to facilitate oversight of all-powerful CEOs. This can be enabled by executives such as the COO, CFO, CTO reporting directly to the board. Similarly to banks, where the Chief Risk Officer now reports to the board Risk Committee, the Chief Technology Officer or equivalent should report directly to the board or its Technology Committee.

For this to happen, the structure of technology company boards and their committees should better reflect the priorities of these corporate giants. A Technology Committee of the board would support their decision making much more than a Remuneration Committee which most unicorns introduce after their listing and which is largely irrelevant given their compensation structure. For instance, the fact Facebook has Audit and Remuneration committees yet and no committee focused on technology is perplexing.

Independence of large tech company boards can and should be reinforced by introducing directors specifically elected by minority shareholders. Instead of making some corporate decisions subject to supermajority approval that necessitate founder-CEO agreement, minority directors’ approval of specific issues would bring needed checks and balances in corporate decision-making in these companies which are heavily CEO-centric in their decision making.

Many of the largest tech companies do not have board governance capacities called for companies of their size and complexity. Regulatory complexity, notably pertaining to data security and privacy, needs to be addressed at the highest levels of the organisation. This requires reinforcing technical competencies of boards based on the concept of “fit and proper” in banking, where Central Banks subject board members to specific requirements and approve their appointment.

It is time to recognize that efforts to simply abolish high tech companies such as Airbnb (in France), Facebook (in China) and Uber (in the United States) are doomed to fail: a U-turn to a hotel, a phone book or a taxi is simply impossible. Instead, regulators are now considering how to enable Airbnb better protect guest security, how to foster Facebook without compromising user privacy, and how to allow Uber without cannibalizing the taxi system.

A similar transformation is needed in regulatory approaches to corporate governance of large tech firms which have emerged among the largest listed companies globally. Applying conventional corporate governance regulations to tech giants has so far yielded similar results as applying dinosaur race rules to the Formula One.

Just like love in the times of cholera, governance in the age of tech firms needs to consider the specific risks that listed tech giants pose in order to protect user and investor rights. As Albert Einstein once suggested, “we can’t solve problems by using the same kind of thinking we used when we created them.” Fresh thinking is called for to address the impact of global technology firms which have emerged as an important force not only of industry but also of social and political disruption and, in some cases, destruction.

December 6, 2018
Principles for a Responsible Civilian Firearms Industry
by Christianna Wood, Christopher Ailman, John O’Hara, Michael McCauley, Peter Reali, Rakhi Kumar

As investors, we have come together to develop a framework to advance a responsible civilian firearms industry in the United States of America. We believe in the rule of law and respect the 2nd Amendment of the U.S. Constitution. As asset owners and asset managers, we have a duty to our beneficiaries who depend on us for financial security; such obligations compel us to assume responsibility for reducing risks that we and our beneficiaries face if and when we hold a financial interest in both private and public firearms related enterprises. We believe that enterprises involved in the manufacturing, distribution, sale and enforcement of regulations of the firearms industry are well positioned to support pragmatic transparency and safety measures that contribute to the responsible use of firearms. Through this framework, we assert our role as investors in encouraging such practices, and we identify expectations for the firearms industry that will reduce risks and improve the safety of civil society at large. Further, we commit to monitoring progress by companies over time and engaging with them regularly on this issue, especially in support of enterprises that champion adoption of responsible practices.


The Responsible Civilian Firearms Industry Principles (“Principles”) are meant to be sensible and not intended to be prescriptive in nature. We recognize that there are many ways to apply a principle; companies are free to apply the Principles in a manner they deem appropriate. We also recognize that the civilian firearms industry is highly regulated by both federal and state entities with respect to the manufacture, sale, use, and transfer of firearms. However, we also recognize that more can be voluntarily done by companies within these existing regulatory boundaries to advance safety and the responsible use of civilian firearms.

Collectively, we investors are supportive of the following five broad principles. We call on companies within the civilian firearms industry to publicly demonstrate and publish their compliance with each of these principles, failing which, we will consider using all tools available to us as investors to mitigate these risks.

  • Principle 1: Manufacturers should support, advance and integrate the development of technology designed to make civilian firearms safer, more secure, and easier to trace.
  • Principle 2: Manufacturers should adopt and follow responsible business practices that establish and enforce responsible dealer standards and promote training and education programs for owners designed around firearms safety.
  • Principle 3: Civilian firearms distributors, dealers, and retailers should establish, promote, and follow best practices to ensure that no firearm is sold without a completed background check in order to prevent sales to persons prohibited from buying firearms or those too dangerous to possess firearms.
  • Principle 4: Civilian firearms distributors, dealers, and retailers should educate and train their employees to better recognize and effectively monitor irregularities at the point of sale, to record all firearm sales, to audit firearms inventory on a regular basis, and to proactively assist law enforcement.
  • Principle 5: Participants in the civilian firearms industry should work collaboratively, communicate, and engage with the signatories of these Principles to design, adopt, and disclose measures and metrics demonstrating both best practices and their commitment to promoting these Principles.

Signatories include (as of November 14, 2018):

  • California Public Employees Retirement System (CalPERS)
  • California State Teachers’ Retirement System (CalSTRS)
  • Connecticut Retirement Plans and Trust Funds
  • Florida State Board of Administration
  • Maine Public Employees Retirement System
  • Maryland State Retirement and Pension System
  • Nuveen, the asset manager of TIAA
  • OIP Investment Trust
  • Oregon Public Employees Retirement Fund
  • Rockefeller Asset Management
  • San Francisco Employees’ Retirement System
  • State Street Global Advisors
  • Wespath Investment Management
December 6, 2018
Cybersecurity: Who’s Fessed Up to a “Material Weakness?”
by John Jenkins

The SEC’s recent Cyber 21(a) Report highlighted cybersecurity internal control shortcomings at 9 different companies. This Audit Analytics blog looks at which companies have disclosed a “material weakness” following a data breach. This excerpt says that not many have:

The investigative report stopped short of recommending any enforcement action and did not name the companies that were investigated. Moreover, the report does not provide sufficient details to determine the identity of the companies. Although we are unable to identify the companies, we were curious whether we can find similar cases. Using Audit Analytics’ cyber breaches dataset, we looked at recent examples & disclosures of companies that fell victims to the attacks described in the report.

In total, we looked at nine companies that disclosed incidents of similar breaches. Six of these companies disclosed the breaches in filings furnished with the SEC, though only one made the disclosure in a current report (8-K). Of the six companies that disclosed their cyber breaches in SEC filings, just three disclosed that the breach rose to the level of a material weakness in the companies’ internal controls.

The blog also reviews the disclosures made by companies that determined a material weakness existed following a data breach.

Audit Committee Disclosures: More, More, More

The amount of information available to investors about audit committee oversight of the independent auditor continues to increase. That’s the conclusion of the 5th annual “Audit Committee Transparency Barometer,” jointly issued by the Center for Audit Quality & Audit Analytics. This excerpt from the CAQ’s blog lays out the highlights:

– 40% of S&P 500 companies disclose considerations in appointing the audit firm (up from 13% in 2014), compared to 27% of mid-cap companies (up from 10% in 2014) and 19% of small-cap companies (up from 8% in 2014).

– 46% of S&P 500 companies disclose criteria considered when evaluating the audit firm (up from 8% in 2014), compared to 36% of mid-cap companies (up from 7% in 2014) and 32% of small-cap companies (up from 15% in 2014).

– 26% of S&P 500 companies disclose that the evaluation of the external auditor is at least an annual event (up from 4% in 2014), compared to 17% of mid-cap companies (up from 3% in 2014) and 12% of small-cap companies (up from 4% in 2014).

The CAQ & Audit Analytics also provide disclosure examples to illustrate how audit committees are enhancing information for investors & other constituencies. Check out this recent blog from Cydney Posner for more details on the Transparency Barometer’s finding as well as commentary on how SEC & PCAOB actions (particularly the new audit report standard) may drive more audit committee disclosure.

Latest Stats: S&P 500 Political Spending Disclosure

The latest “CPA-Zicklin Index” reviews disclosure policies & practices on political spending by the S&P 500. Here’s a summary of its findings on election-related spending disclosure:

– 294 S&P 500 companies disclosed some or all of their election-related spending, or prohibited such spending in 2018, compared with 295 for 2017.

– When these numbers are broken down further, 231 companies disclosed some or all election-related spending in 2018, compared to 236 such companies in 2017. Turnover in the S&P 500 influenced this fluctuation significantly.

– In 2018, 176 companies prohibit at least one category of corporate election-related spending, a sizable increase from 158 companies in 2017, 143 companies in 2016 and 125 companies in 2015.

This WSJ article has more details on the survey’s findings regarding corporate political spending & disclosure.

John Jenkins

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12/6/2018 posts

CLS Blue Sky Blog: Are Female CEOs More Likely to be Fired than Male CEOs?
CLS Blue Sky Blog: Institutional Investors, Voting Power, and Voting Patterns
The Harvard Law School Forum on Corporate Governance and Financial Regulation: Acquirer Reference Prices and Acquisition Performance
The Harvard Law School Forum on Corporate Governance and Financial Regulation: Dinosaur Governance in the Era of Unicorns
The Harvard Law School Forum on Corporate Governance and Financial Regulation: Principles for a Responsible Civilian Firearms Industry Blog: Cybersecurity: Who’s Fessed Up to a “Material Weakness?”

Blog posts are subject to copyrights held by the authors and are republished here with permission. Views expressed are those of the authors alone. Infringement Notification.