Forwarding a post by Eugene Fram – Nonprofit & Business Directors Must Be Vigilant – Board Liability Costs Could be $2.2 Million!

Below I have provided a link to a blog post by Eugene Fram. Eugene writes good materials for nonprofits. There have been rumblings for some time now about the possibility that a couple of states might start more actively overseeing nonprofits and their operations. And a few of the big players in the nonprofit community have suggested that more robust nonprofit governance might be beneficial. I ask that you click on the link below to Eugene’s post – although state action is unusual, the example situations that Eugene describes are less unusual. I am also updating my materials for nonprofit audit committees, which I will post soon.

Here is the link to Eugene’s post:  https://non-profit-management-dr-fram.com/2019/01/27/nonprofit-business-directors-must-be-vigilant-board-liability-costs-could-be-2-2-million-3/

Thanks for reading this post. If you have found value in this post, I ask that you also pass it along to other people who would be interested as it is through collaboration that great things and success occur more quickly. And please also subscribe to this blog and my other blog (see below), and connect with me on LinkedIn and Twitter.

Every case situation is different. You do need to consult with professionals about your particular situation. This post is not a solicitation for services inside of or outside of California, and, of course, this post only is a summary of information that changes from time to time, and does not apply to any particular situation or to your specific situation. So . . . you cannot rely on this post for your situation.

Best to you, David Tate, Esq. (and inactive California CPA) – practicing in California only

Blogs: California trust, estate, and elder abuse litigation and contentious administrations http://californiaestatetrust.com; D&O, audit committee, governance and risk management http://auditcommitteeupdate.com

Corporate, Business, Or Entity Culture – The Board’s Role And Knowledge About – From State Street

The following is a link to a January 2019, letter from State Street emphasizing and focusing on the business’s culture and how it adds value. The letter pertains to corporate culture because of the business in which State Street operates – but what we are really talking about is business or entity culture which includes public companies, private businesses, nonprofits, and governmental organizations and entities.

The letter is short and lacks detailed discussion about culture; however, I found interesting the attachment to the letter with possible questions that might be asked of the board members about the state of the business’s culture and the director’s knowledge thereof. I would assume that the majority of directors could not answer those questions with detail.

I also found interesting that the letter differentiates culture from values, and instead focus’ on culture’s impact on value. However, I would say that the business’s values drive and impact the business’s culture.

As culture has become a board topic (and apparently it might be here to stay), I would like to see additional, more specific discussions about how to evaluate and grade, and improve upon the organization or entity’s culture.

This definitely is a topic for the full board, but as it also falls into the category of risk management or ERM, this might also be on the plate of the risk management committee, if there is one, or on the plate of the audit committee to which risk management is often delegated (but let me also add, in my view, risk management is a topic for the entire board – if risk management is delegated to a committee, that committee should, nevertheless, report on risk management to the full board, for the full board’s consideration).

Here is the link to the State Street letter – be sure to read the attachment https://www.ssga.com/investment-topics/environmental-social-governance/2019/01/2019%20Proxy%20Letter-Aligning%20Corporate%20Culture%20with%20Long-Term%20Strategy.pdf

Best to you, David Tate, Esq. (and inactive California CPA)

Blogs: California trust, estate, and elder abuse litigation and contentious administrations http://californiaestatetrust.com; D&O, audit committee, governance and risk management http://auditcommitteeupdate.com

If you have found value in this post, I ask that you also pass it along to other people who would be interested as it is through collaboration that great things and success occur more quickly. And please also subscribe to this blog and my other blog (see above), and connect with me on LinkedIn or Twitter.

The following are a few additional materials for your consideration.

Auditor Inclusion of Critical Audit Matters in Audit Opinion – Center for Audit Quality Release to Help Understanding

You might be aware that external auditors are required to include a discussion of critical audit matters in their audit opinion reports for large accelerated filers for audits of fiscal years ending on or after June 30, 2019, and for other public companies for audits of fiscal years ending on or after December 31, 2020. I believe that these discussions will in some instances present or cause contentions between the external auditor on the one hand, and the audit committee, board, and chief executive officers on the other hand.

A Critical Audit Matter or CAM is defined as:

Any matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee: and that:

  1. Relates to accounts or disclosures that are material to the financial statements; and
  2. Involved especially challenging, subjective, or complex auditor judgment.

Thus, based on the above definition, simply determining whether a matter is a CAM could be a challenging issue.

For example, in any given audit situation consider:

-What matters were communicated, or were required to be communicated to the audit committee;

-Relating to accounts or disclosures that are material to the financial statements; and

-Involved especially challenging, subjective, or complex auditor judgment?

I will be discussing the good, the bad, the ugly, and the confusing as this upcoming new area of audit opinion report continues to develop. Auditors and audit committees will need to carefully evaluate what to communicate and what is required to be communicated, materiality (qualitative and quantitative), and whether a matter involves especially challenging, subjective, or complex audit judgment.

For additional help with these issues, the following is a link to a June 24, 2018, release by the Center for Audit Quality entitled Critical Audit Matters: Key Concepts and FAQs for Audit Committees, Investors, and other Users of Financial Statements – click on the following link https://www.thecaq.org/critical-audit-matters-key-concepts-and-faqs-audit-committees-investors-and-other-users-financial

Best to you, David Tate, Esq. (and California inactive CPA)

 

 

 

 

Tate’s Excellent Audit Committee Guide (02172017) – posted here, and being update

Below I have provided a link to Tate’s Excellent Audit Committee Guide, which I last fully updated February 17, 2017. Since that time developments relating to various of the discussion topics have been posted to this blog. I am starting the process of fully updating the Guide. To be sure there have been changes and developments since February 17, 2017; however, I believe that you will still find the Guide useful.

Click on the following link to the February 17, 2017, Guide Tate’s Excellent Audit Committee Guide 02172017 with Appendix A-2

The following is a screenshot of the Guide’s cover:

 

 

 

Board understanding of culture and mood are pretty low – per NACD materials

Below I have provided a snapshot from NACD promotional materials that I received – the materials are Benchmark Your Board, with which I tend to agree, if the benchmark evaluation is done with meaningful detail, evaluation, and recommendations, and if the board then takes action to improve the board, and all levels of the organization. I find all of the statistics from the materials (see below) of interest; however, for the purpose of this blog post I am focused on the corporate culture section – earlier this year corporate or business or nonprofit or organization culture was heavily in the news, but these things tend to pass.

I don’t hear as much about culture now. But in my view, culture and values need to stay in the news as they are one of the keys to how the entity (i.e., the people in the entity) act or behave, and perform.

Notice, according to the materials, 87% of directors say that their boards have a high understanding of the tone at the top, but is that true and what does that really mean; only 35% of directors say that their boards understand the mood in the middle, whatever that means, but nevertheless, the percentage is very low; and only 18% have a high understanding of the buzz at the bottom, again whatever that means, but the percentage is very low. These seem like failing grades, evidencing, in addition to other things, that board members need get out and visit and mingle at the facilities more.

NACD Benchmark Your Board promotion stat. page

And here are additional materials from prior posts:

Organization Culture Compass Circle

OVERVIEW OF A RISK MANAGEMENT PROCESS THAT YOU CAN USE 03162018

Audit Committee 5 Lines of Success, Diligence, and Defense - David Tate, Esq, 05052018

COSO Enterprise Risk Management Framework ERM Components and Principles

Best to you, David Tate, Esq. (and inactive California CPA), Royse Law Firm, Menlo Park, California office, with offices in northern and southern California.  My blogs: trust, estate, elder abuse and conservatorship litigation http://californiaestatetrust.com, D&O, boards, audit committees, governance, etc. http://auditcommitteeupdate.com, workplace http://workplacelawreport.com

David Tate, Esq., Overview of My Practice Areas (Royse Law Firm, Menlo Park, California office, with offices in northern and southern California. http://rroyselaw.com)

  • Civil Litigation: business, commercial, real estate, D&O, board and committee, founder, owner, investor, creditor, shareholder, M&A, and other disputes and litigation; and investigations
  • Probate Court Litigation: trust, estate, elder abuse, and conservatorship disputes and litigation
  • Administration: trust and estate administration and contentious administrations representing fiduciaries and beneficiaries
  • Workplace (including discrimination) litigation and consulting
  • Board, director, committee and audit committee, and executive officer responsibilities and rights; and investigations

Royse Law Firm – Overview of Firm Practice Areas – San Francisco Bay Area and Los Angeles Basin

  • Corporate and Securities, Financing and Formation
  • Corporate Governance, D&O, Boards and Committees, Audit Committees, Etc.
  • Intellectual Property – Patents, Trademarks, Copyrights, Trade Secrets
  • International
  • Immigration
  • Mergers & Acquisitions
  • Labor and Employment
  • Litigation (I broke out the litigation as this is my primary area of practice)
  •             Business & Commercial
  •             IP – Patent, Trademark, Copyright, Trade Secret, NDA
  •             Accountings, Fraud, Lost Income/Royalties, Etc.
  •             Internet Privacy, Hacking, Speech, Etc.
  •             Labor and Employment
  •             Mergers & Acquisitions
  •             Real Estate
  •             Owner, Founder, Investor, D&O, Board/Committee, Shareholder
  •             Lender/Debtor
  •             Investigations
  •             Trust, Estate, Conservatorship, Elder Abuse, and Administrations
  • Real Estate
  • Tax (US and International) and Tax Litigation
  • Technology Companies and Transactions, Including AgTech and HealthTech, Etc.
  • Wealth and Estate Planning, Trust and Estate Administration, and Disputes and Litigation

Disclaimer. This post is not a solicitation for legal or other services inside or outside of California, and also does not provide legal or other professional advice to you or to anyone else, or about a specific situation – remember that laws are always changing – and also remember and be aware that you need to consult with an appropriate lawyer or other professional about your situation. This post also is not intended to and does not apply to any particular situation or person, nor does it provide and is not intended to provide any opinion or any other comments that in any manner state, suggest or imply that anyone or any entity has done anything unlawful, wrong or wrongful – instead, each situation must be fully evaluated with all of the evidence, whereas this post only includes summary comments about information that may or may not be accurate and that most likely will change over time.

Elon Musk / Tesla – purported SEC settlement, but corporate governance and board member judicial independence questions also remain

To say the least, it must have been a stressful couple of months for Tesla board members – how do you get your undisputed CEO leader and visionary to control himself, to take care of his mental and physical health, stop doing stupid or ill-advised things and making stupid or ill-advised public communications, and stop causing self-inflicted wounds? Or, at this point, how much do you need Mr. Musk to be the CEO of Tesla – can’t some other person take the helm – someone who is better qualified to build cars, and who also is an electric/battery power visionary? And where was the board in all of this? Well . . . we don’t know because they were silent to the public.  

You might have heard the news that the SEC filed suit against Mr. Musk last week as a result of an ill-advised and possibly unlawful public comment that he made. Yesterday (Saturday) I read two articles about possible settlement or actual settlement with the SEC. The following earlier-in-the-day article represents that Mr. Musk had rejected a settlement offer made by the SEC.  But please be aware that I never simply accept a news or other article as being correct – the article might be correct, or some of it might be correct, or none of it might be correct, you can be reasonably certain that the article is not entirely complete, and I also watch for the adjectives used and the opinions and conclusions reached as opposed to facts and whether or not those facts are supported with objective, credible evidence and sources. Thus, although I am using articles below, I am not representing or suggesting that they are correct or entirely correct. 

I found the first, earlier-in-the-day article interesting because of its discussion about the terms (presumably only some of the terms) of settlement purportedly offered by the SEC, and more interesting for the purported reasons why the settlement offer was rejected. The reasons for rejection, for example, do not include whether or not acceptance of the settlement would be in the best interests of Tesla and its stockholders. The reasons suggest that the settlement was rejected based on reasons personal to Mr. Musk, the reasons suggest a desire to maintain and not lose board control, and the reasons suggest a lack of board member involvement in whether or not the settlement should be accepted, and a lack of board member active diligent governance, oversight, and independence. Of course, obviously there are additional facts about which we are not aware.

In terms of board member independence, I am talking about possible lack of judicial independence, not independence as defined by stock exchange or similar rules, or whether or not the board member is an officer of Tesla. Board member judicial independence is an evolving and increasingly important attribute and evaluation – for example, does the board member truly diligently and prudently evaluate the issues at hand in the best interests of the stockholders and the company, and make decisions that are independent of the director’s self interests and independent of the director’s relationships with the executive officers and with the other directors. As you might be aware, judicial independence, for example, also takes into consideration business, financial, social, family, and friend interactions, relationships, and influences or pressures.

The following is the earlier-in-the-day article representing that settlement with the SEC was rejected and at least some of the purported reasons for the possible rejection – see a picture from the earlier-in-the-day first article below or  Click Here For Article

Musk reportedly doesn't settle with SEC

A later-in-the-day article then represented that settlement with the SEC had been accepted, and at least some of the purported terms of the settlement. I would view acceptance of the purported settlement as a good decision in the right direction for Tesla and its stockholders, and also for Mr. Musk. I will be interested in hearing who the two new directors will be, the process for and who nominates/selects the new directors and what Mr. Musk’s involvement will be in that process, and who the independent directors will be and whether they will be and are judicially independent as they should be judicially independent after taking into consideration that matters, issues and people over which they will have specific oversight and responsibility. See a picture from the later-in-the-day second article below or Click Here For Article

Musk reportedly settles with the SEC

Best to you, David Tate, Esq. (and inactive California CPA), Royse Law Firm, Menlo Park, California office, with offices in northern and southern California.  My blogs: trust, estate, elder abuse and conservatorship litigation http://californiaestatetrust.com, D&O, boards, audit committees, governance, etc. http://auditcommitteeupdate.com, workplace http://workplacelawreport.com

David Tate, Esq., Overview of My Practice Areas (Royse Law Firm, Menlo Park, California office, with offices in northern and southern California. http://rroyselaw.com)

  • Civil Litigation: business, commercial, real estate, D&O, board and committee, founder, owner, investor, creditor, shareholder, M&A, and other disputes and litigation; and investigations
  • Probate Court Litigation: trust, estate, elder abuse, and conservatorship disputes and litigation
  • Administration: trust and estate administration and contentious administrations representing fiduciaries and beneficiaries
  • Workplace (including discrimination) litigation and consulting
  • Board, director, committee and audit committee, and executive officer responsibilities and rights; and investigations

Royse Law Firm – Overview of Firm Practice Areas – San Francisco Bay Area and Los Angeles Basin

  • Corporate and Securities, Financing and Formation
  • Corporate Governance, D&O, Boards and Committees, Audit Committees, Etc.
  • Intellectual Property – Patents, Trademarks, Copyrights, Trade Secrets
  • International
  • Immigration
  • Mergers & Acquisitions
  • Labor and Employment
  • Litigation (I broke out the litigation as this is my primary area of practice)
  •             Business & Commercial
  •             IP – Patent, Trademark, Copyright, Trade Secret, NDA
  •             Accountings, Fraud, Lost Income/Royalties, Etc.
  •             Internet Privacy, Hacking, Speech, Etc.
  •             Labor and Employment
  •             Mergers & Acquisitions
  •             Real Estate
  •             Owner, Founder, Investor, D&O, Board/Committee, Shareholder
  •             Lender/Debtor
  •             Investigations
  •             Trust, Estate, Conservatorship, Elder Abuse, and Administrations
  • Real Estate
  • Tax (US and International) and Tax Litigation
  • Technology Companies and Transactions, Including AgTech and HealthTech, Etc.
  • Wealth and Estate Planning, Trust and Estate Administration, and Disputes and Litigation

Disclaimer. This post is not a solicitation for legal or other services inside or outside of California, and also does not provide legal or other professional advice to you or to anyone else, or about a specific situation – remember that laws are always changing – and also remember and be aware that you need to consult with an appropriate lawyer or other professional about your situation. This post also is not intended to and does not apply to any particular situation or person, nor does it provide and is not intended to provide any opinion or any other comments that in any manner state, suggest or imply that anyone or any entity has done anything unlawful, wrong or wrongful – instead, each situation must be fully evaluated with all of the evidence, whereas this post only includes summary comments about information that may or may not be accurate and that most likely will change over time.

More on Culture/NACD, and Risk Management

I did some weekend reading. The following are two items of interest.

New NACD Report on Culture

The following is a link to the page for the NACD Commission Report on Culture as a Corporate Asset – the complimentary material (28 pages) is worthwhile reading if you are not a NACD member: https://www.nacdonline.org/Resources/Article.cfm?ItemNumber=48256

Of course, the NACD culture report doesn’t carry with it any force of law or requirement, and, although the report is fairly specific while at the same time also vague in that it often refers to comments by commission members who are unnamed, the report is significant because it is provided and supported by a leading board director organization as an indicator that entity culture is an important area for board oversight.

New Post by Norman Marks About Risk Management

And from part of a blog post by Norman Marks about risk management, which you can see at the following link  https://normanmarks.wordpress.com/2017/10/14/is-it-about-managing-risk/

” . . . board should be asking these questions:

  • How likely are we to achieve our objectives?
  • If the likelihood is less than acceptable, why? What can we do about it?
  • If there is a possibility of exceeding our objective, what can and should we do?
  • What assurance do we have that management is taking the right risks, making intelligent and informed decisions?
  • Are there any risks that we should be concerned about, that merit our attention and possibly our action?”