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"Lipman, Frederick D"
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Summary of major corporate governance principles and best practices
This paper summarises overall minimum corporate governance principles and best practices applicable to all organisations (whether public, private or nonprofit). These best practices are divided as follows:
structure of the board of directors
;
operation of the board of directors and
other corporate governance practices.
This paper discusses certain current best practices as advocated by corporate governance groups and practiced by some Fortune 100 public companies, with the understanding that best practices tend to evolve over time. We proceed on the assumption that a ‘best practice’ is one in which the benefits to the organisation substantially exceed the cost of implementation. What is a best practice today may not be a best practice in the future. Although the paper is addressed primarily to US-based organisations, the general principles are applicable to foreign entities as well, although modifications must be made to account for legal and cultural differences.
Journal Article
The SEC's \Change the Sign\ Rule
The author's choice for the SEC's worst accounting rule is not a rule at all but an interpretation of a rule contained in the Financial Reporting Manual, colloquially called the \"change the sign\" rule and designated by the SEC as the \"absolute value\" rule. The \"change the sign\" rule requires the losses of target acquirees to be treated the same as profits for purposes of computing whether audited financial statements of the target are required under Regulation S-X 3-05. The effect of the \"change the sign\" rule is that even if a target loss company is available for acquisition at a nominal price, a small public company will not be able to take advantage of this bargain opportunity. Thus, even if all the assets of the target can be purchased for $1.00, thereby easily satisfying both the asset and investment test, the \"change the sign\" rule will preclude the acquisition under the income test.
Trade Publication Article
Securities regulation of small public companies: what can we learn from the British?
Every major corporate scandal in the US generally has resulted in increased disclosure requirements by the SEC and enhanced corporate governance standards. These SEC rules have been applied generally to both large public companies as well as small public companies with only modest concessions to small public companies. The British have developed a lighter and more sensible approach to disclosure for small public companies listed on Alternative Investment Market (AIM). The SEC and Nasdaq would do well to study the AIM disclosure and corporate governance regulations. There is no empirical evidence that investors suffer any greater risk of fraud on AIM listed companies than on comparable small public companies listed in US markets. What is clear is that the AIM listed market is growing extremely rapidly and competes for listings with US markets that are more heavily regulation.
Journal Article
Audit committee members need an association
In response to the growing responsibilities and changing rules of the game, audit committee members need to band together in an association that will educate them on a real-time basis, help them develop national best practices and protect their interests. Lipman highlights the Association of Audit Committee Members Inc that was formed to fill the need for continuous real-time education program for audit committee members. The association, which is the only current organization operated by the audit committee chairs, is a not-for-profit corporation that also allows audit committee members to communicate with each other and exchange information on what trends and practices work and do not work.
Trade Publication Article
Directors' Liabilities: Legislature Lends a Helping Hand
On November 28, 1986, Governor Thornburgh signed the Directors' Liability Act (DLA), which became effective January 27, 1987. The DLA permits a corporation, through shareholder action, to eliminate a director's personal liability for money damages in the absence of self-dealing, willful misconduct or recklessness. Advocates hope the new law will reduce costs for directors' and officers' (D&O) liability insurance, a hope unlikely to be realized in the short term. The DLA also permits directors, officers, employees and agents to be idemnified by their corporation for individual liability to the corporation in derivative actions. In a derivative action, a shareholder sues a director on behalf of the corporation and the corporation is entitled to any recovery, less counsel fees paid to the shareholder's lawyer. Under prior law, the general belief was that a director could not be indemnified for his liability to the corporation in a derivative action, since the corporation merely would be returning to the director his own check in the amount of the judgment against him, plus the legal expenses in his losing defense. (excerpt)
Journal Article
TEN Best Practices For Audit Committees
The Sarbanes-Oxley Act of 2002 effectively transferred certain powers from the CEO and the CFO to the audit committee. The enhanced role requires audit committee members with more expertise to devote substantially more time and effort to their task. The public company audit committee now has enhanced role and needs to revise some of its practice. Here are some key areas to focus on: 1. Establish an effective internal audit function that reports to the audit committee. 2. Create an ethical, law-abiding culture within the organization without discouraging entrepreneurial risk-taking. 3. The audit committee should communicate with key people throughout the organization. 4. Monitor management sales of stock. 5. Be aware of other \"warning\" events. 6. Control conflicts of interest. 7. Ask the auditor the Warren Buffett questions. 8. Ensure auditor independence. 9. Refrain from using the auditor for tax planning and tax preparation services. 10. Carefully consider the impact of the independent auditor's preferred accounting treatment.
Trade Publication Article