Editor: David, for the benefit of our readers who may not have seen our earlier interview with you, would you tell us something about the Society of Corporate Secretaries and Governance Professionals?
Smith: The Society was started in 1946 by Reed Hartell, corporate secretary of a public company, and three others. The original idea for the Society of Corporate Secretaries was proposed by a proxy solicitor and a law firm attorney with the thought that there were a lot of issues that corporate secretaries deal with but that they do so in isolation. Unlike the system in the UK where there is an education process for company secretaries, there was never any similar organization in the United States. When Corporate America was growing after World War II and every company had a corporate secretary, the question was what is the secretary's role. This organization started as a networking organization, as it is today, for people similarly situated without a lot of history. The hallmark of the Society is networking and sharing experiences.
Editor: Tell us about the organization's membership.
Smith: The organization is made up of approximately 4,000 members, representing about 2,800 mostly large public companies. We also have private companies as our members, some nonprofits and lawyers in private practice. We have some academics and several former staffers of the SEC as well as three former Directors of the Division of Corporation Finance and one former SEC commissioner. Our membership concentrates on corporate governance. Our mission is to enhance the professional skills of our members who are corporate secretaries and others who are involved in corporate governance issues. We provide a forum for the exchange of information through our chapters, national committees, seminars and Annual National Conference.
We perform a leadership role in assisting our members and their companies and organizations in understanding and implementing sound business practices. We help our members achieve and maintain the highest levels of professionalism and ethics. We identify relevant issues of interest and concern to our members and their companies. We advocate on behalf of our members, taking informed positions on issues that affect corporate governance, with an eye on the bottom line of how rule-making is being done.
The SEC, PCAOB and stock exchanges are very interested in what we think will be the practical effects of some of their regulations. They will also call on us to survey our members. For example, when the SEC thought about shortening the filing periods for Forms 3, 4, and 5, they asked if we would survey our members on the impact of that change. We are the ones in the trenches who can give advice on what is going to happen when rules are promulgated and put into effect.
Editor: In recent years corporate governance has taken center stage among the issues faced by Corporate America, and the Society of Corporate Secretaries and Governance Profes- sionals is one of the leaders of that discussion. How does the Society go about identifying the issues that are relevant for your members and for Corporate America?
Smith: It is a combination of things. All of us are very attuned to what is going on in the corporate and regulatory world. Today there is so much publicity about issues that affect corporate governance, whether it is the director oversight role, executive compensation, stock option administration or codes of conduct. Many of the issues we are dealing with today have become newsworthy events. A combination of what is being promulgated by the regulatory bodies, what is in the news, what Congress may propose in terms of a shareholder advisory vote on executive compensation - all of this goes into the mix of our thinking. We look at how developments will affect corporate governance, disclosure, the work of the board and board committees.
Editor: What would the usual forum be?
Smith: Our chapters are very involved in networking activities. We have 25 chapters around the country of varying sizes. The smaller chapters do not meet as frequently as the larger chapters but a chapter like New York, Chicago or L.A. meets monthly with speakers who are outside experts dealing with topics of current concern. At every presentation there will be an opportunity to ask questions and discuss issues.
Editor: You have meetings with the SEC and other important bodies.
Smith: We still meet at least two times a year with the SEC. We meet in the fall with the Division of Corporation Finance where we make fairly formal presentations, having structured an agenda in advance. Usually the Director of Corporation Finance is in attendance with various staff members. If there are issues that affect market regulation or the chief accountant's office, these persons will be in attendance. In the spring we meet in a second session. At that meeting the Chairman of the SEC and some commissioners attend either the full meeting or come in periodically depending on the agenda item that they might be interested in. This practice has been going on for more than 30 years.
We constantly assess whether such meetings with the SEC are of value and have continued to conclude that they are productive. The SEC is always very complimentary of our presentations and the value that they receive from our practical insights into what they are proposing or rules that are in effect that may be troublesome in terms of how they are being applied in practice.
When the NYSE was dealing with possible changes to Rule 452, which is the broker non-vote rule, we had members very involved in the discussion of the implications of that rule in terms of quorum votes - what happens if broker voting goes away?
We have about 700 members representing mid- and small-cap companies and are very conscious of the difference in their needs from those of large companies. We represent a broad spectrum of corporate America in dealing with regulators.
Editor: Do you meet with the PCAOB as well?
Smith: Yes. We have a subcommittee of our securities law committee that meets regularly with them and comments on rules that they are proposing.
Editor: Have you been involved in the reforms that would make listing more attractive to smaller companies?
Smith: Yes. We have been involved in discussions about Section 404 which has been delayed insofar as it applies to smaller firms. We also have a small-company task force that meets regularly and deals with issues that affect small- and mid-cap companies.
Editor: Would you tell us about the 2007 report on corporate secretary compensation?
Smith: Our survey shows that compensation for corporate secretaries has not increased and is somewhat lower from 2004 to 2006, yet they are working much harder with the same or fewer staff members. According to our respondents the workload and hours worked for 69 percent of respondents increased owing primarily to Sarbanes-Oxley's demands while 31 percent found their workload to be about the same.
The number of board meetings has not changed but the number of committee meetings where our members must be present has increased dramatically. The range of issues that our members have to deal with has grown, including issues of majority voting; the elimination of the broker vote; issues regarding direct registration and book-entry ownership; issues of open access to proxies, and on and on. Much time is consumed with extensive disclosure, disclosure of perks, related party transactions, and it is not uncommon for proxy statements to be 200-page documents. (The compensation disclosure and analysis section is now running 20 to 30 pages.) Additionally, other issues require much time and thought: issues of director independence and in some cases, involvement in director selection as well as the issue of over-voting at annual meetings because of the borrowing of shares not to mention due diligence for the certifications that the CEO and CFO must sign.
Editor: How have your corporate secretaries with smaller companies addressed compliance with Section 404 of Sarbanes-Oxley?
Smith: Our Small Company Subcommittee wrote comment letters, suggesting that companies of a certain size be relieved of the burden of 404. That did not happen. It is a real problem for small companies - the expense is unacceptable, they do not have the staff to comply with all the requirements. There is some recognition now that SOX is overly burdensome not only for small companies, but that this law may have put the United States at a competitive disadvantage in terms of capital formation. We are seeing companies refuse to go public or public companies going private.
Editor: Certainly the kind of rational discussion that you folks have with the SEC and other regulators can make a difference. Yours is an organization that does not take policy positions but rather is trying to establish a dialogue with respect to mechanical problems imposed by regulation.
Smith: I don't think that there is any group that can say that they represent more of Corporate America. The Business Round Table is certainly more influential but that group is made up of 200 CEOs of huge companies. We represent a broad range of Corporate America; we are the field lieutenants dealing with all these housekeeping and other requirements who know how they affect the operations of the corporation. I know that we are a voice that needs to be listened to.
I think the thing that is going to roll back Sarbanes-Oxley's influence is if, as I pointed out before, we begin to perceive that we've lost our competitive edge for raising capital in the United States.
Editor: What do you see happening to the profession over the next ten years?
Smith: I think corporate secretaries are truly a critical link between an increasingly embattled management and their boards, which are under a microscope, and ever more influential shareholders who are supported by political forces. Who navigates all of this? Who deals with the vagaries and changing climate of aggressive shareholders, management under siege, board under siege? It's the corporate secretary. Short term, they are critical in keeping the corporation going in stormy seas. I think the pendulum will shift in time and there will be more balance and reason. As that happens corporate secretaries will be instrumental in bringing things back to a more normal process. Their role is not changing - they will be at the center of everything, keeping the corporation going, dealing with various constituencies where outside influences change the balance of influence from management to the board to shareholders. They will keep the process going - they will keep the corporation on an even keel. Their traditional role will continue into the future giving ballast to their organizations. I'm not sure they will ever get the recognition and credit they deserve, but be assured corporate secretaries will continue to operate behind the scenes and will remain highly regarded and critically important to their organizations.
Published April 1, 2007.
