Published by:  Bricker & Eckler LLP  

 

    

Oct 24, 2014

Board Diversity: Not Important to Most Corporate Boards?
 

Board diversity isn’t a priority for the majority of America’s corporate boards, or so suggests the survey results featured in a recent Businessweek article. Research suggests that companies with boards that include women tend to earn more, yet women only account for about a fifth of the board seats of the companies surveyed.
 
Posted by J. Beavers in   |  Permalink

 

Oct 02, 2014

Insurance Companies Will Soon Have to Disclose Corporate Governance Practices Annually
 

The National Association of Insurance Commissioners (NAIC) is moving forward with the Corporate Governance Disclosure Act (CGAD) and supporting Model Regulation. While the CGAD still needs to be approved by each state, it is anticipated that each state will adopt it without any changes. The one provision that some states may change is the confidentiality provision, which some states (e.g. Florida) have indicated is too broad. Click here for the version of the CGAD that was approved in Louisville.

As written, the CGAD act/regulation does not require companies to change or amend their governing practices, but it does require them to describe such specific practices/procedures on an annual basis. How the individual departments of insurance will use the information they receive and how the act/regulation will evolve to become more prescriptive after the state departments of insurance have analyzed the data from all of the companies is unknown. One area that we anticipate will become more prescriptive is board expertise/composition. For example, a requirement that certain expertise is present on a board (e.g. financial expert) in the near future would not be surprising. Similarly, we anticipate a requirement for annual board evaluations. 

The key provision of the CGAD regulation is Section 6, which describes what companies will have to describe in the new annual filing. It states:

A. The insurer or insurance group shall be as descriptive as possible in completing the CGAD, with inclusion of attachments or example documents that are used in the governance process, since these may provide a means to demonstrate the strengths of their governance framework and practices.

B. The CGAD shall describe the insurer’s or insurance group’s corporate governance framework and structure including consideration of the following.

(1) The Board, and various committees, ultimately responsible for overseeing the insurer or insurance group and the level(s) at which that oversight occurs (e.g., ultimate control level, intermediate holding company, legal entity, etc.). The insurer or insurance group shall describe and discuss the rationale for the current Board size and structure; and

(2) The duties of the Board and each of its significant committees and how they are governed (e.g., bylaws, charters, informal mandates, etc.), as well as how the Board’s leadership is structured, including a discussion of the roles of Chief Executive Officer (CEO) and Chairman of the Board within the organization.

C. The insurer or insurance group shall describe the policies and practices of the most senior governing entity and significant committees thereof, including a discussion of the following factors:

(1) How the qualifications, expertise and experience of each Board member meet the needs of the insurer or insurance group.

(2) How an appropriate amount of independence is maintained on the Board and its significant committees.

(3) The number of meetings held by the Board and its significant committees over the past year as well as information on director attendance.

(4) How the insurer or insurance group identifies, nominates and elects members to the Board and its committees. The discussion should include, for example:

a. Whether a nomination committee is in place to identify and select individuals or consideration.

b. Whether term limits are placed on directors.

c. How the election and re-election processes function.

d. Whether a Board diversity policy is in place and if so, how it functions.

(5) The processes in place for the Board to evaluate its performance and the performance of its committees, as well as any recent measures taken to improve performance (including any Board or committee training programs that have been put in place).

D. The insurer or insurance group shall describe the policies and practices for directing Senior Management, including a description of the following factors:

(1) Any processes or practices (i.e., suitability standards) to determine whether officers and key persons in control functions have the appropriate background, experience and integrity to fulfill their prospective roles, including:

a. Identification of the specific positions for which suitability standards have been developed and a description of the standards employed.

b. Any changes in an officer’s or key person’s suitability as outlined by the insurer’s or insurance group’s standards and procedures to monitor and evaluate such changes.

(2) The insurer’s or insurance group’s code of business conduct and ethics, the discussion of which considers, for example:

a. Compliance with laws, rules, and regulations; and

b. Proactive reporting of any illegal or unethical behavior.

(3) The insurer’s or insurance group’s processes for performance evaluation, compensation and corrective action to ensure effective senior management throughout the organization, including a description of the general objectives of significant compensation programs and what the programs are designed to reward. The description shall include sufficient detail to allow the commissioner to understand how the organization ensures that compensation programs do not encourage and/or reward excessive risk taking. Elements to be discussed may include, for example:


a. The Board’s role in overseeing management compensation programs and practices.

b. The various elements of compensation awarded in the insurer’s or insurance group’s compensation programs and how the insurer or insurance group determines and calculates the amount of each element of compensation paid;

c. How compensation programs are related to both company and individual performance over time;

d. Whether compensation programs include risk adjustments and how those adjustments are incorporated into the programs for employees at different levels;

e. Any clawback provisions built into the programs to recover awards or payments if the performance measures upon which they are based are restated or otherwise adjusted;

f. Any other factors relevant in understanding how the insurer or insurance group monitors its compensation policies to determine whether its risk management objectives are met by incentivizing its employees.

(4) The insurer’s or insurance group’s plans for CEO and Senior Management succession.

E. The insurer or insurance group shall describe the processes by which the Board, its committees and Senior Management ensure an appropriate amount of oversight to the critical risk areas impacting the insurer’s business activities, including a discussion of:

(1) How oversight and management responsibilities are delegated between the Board, its committees and Senior Management;

(2) How the Board is kept informed of the insurer’s strategic plans, the associated risks, and steps that Senior Management is taking to monitor and manage those risks;

(3) How reporting responsibilities are organized for each critical risk area. The description should allow the commissioner to understand the frequency at which information on each critical risk area is reported to and reviewed by Senior Management and the Board. This description may include, for example, the following critical risk areas of the insurer:

a. Risk management processes (An ORSA Summary Report filer may refer to its ORSA Summary Report);

b. Actuarial function;

c. Investment decision-making processes;

d. Reinsurance decision-making processes;

e. Business strategy/finance decision-making processes;

f. Compliance function;

g. Financial reporting/internal auditing; and

h. Market conduct decision-making processes.

It is anticipated that the CGAD will be in effect for 2016.


 
Posted by K. Kinross in   |  Permalink

 

Sep 23, 2014

Insurance Companies Will Soon Have to Disclose Corporate Governance Practices on an Annual Basis
 

The National Association of Insurance Commissioners (NAIC)  voted to adopt the model corporate governance annual disclosure act and regulation (CGAD) at its summer meeting in Louisville.  While the CGAD will still  need to be approved by each state,   it is anticipated that each state will adopt without any changes to the CGAD act/regulation.  The one provision that some states may change is the confidentiality provision-which some states (e.g. Florida) have indicated they believe is too broad.  Click here for the version of the CGAD that was approved in Louisville.

As it is written the CGAD act/regulation does not require companies to change or amend their governing practices but requires the companies on annual basis to describe such specific  practices/procedures.  The unknown is how the individual departments of insurance will use the information each receives and how the CGAD act/regulation will evolve to become more prescriptive after the state departments of insurance have analyzed the data from all of the companies.  One area that we anticipate will become more prescriptive is in the area of board expertise/composition (for example it will not be a surprise if in the near future there will be a requirement that certain expertise is present on a board (e.g. financial expert)). Similarly, we anticipate a requirement for annual board evaluations. 

The key provision of the CGAD regulation is Section 6, which describes what companies will need to describe in the new annual filing, it states:

A. The insurer or insurance group shall be as descriptive as possible in completing the CGAD, with inclusion of attachments or example documents that are used in the governance process, since these may provide a means to demonstrate the strengths of their governance framework and practices.

B. The CGAD shall describe the insurer’s or insurance group’s corporate governance framework and structure including consideration of the following.

(1) The Board, and various committees, ultimately responsible for overseeing the insurer or insurance group and the level(s) at which that oversight occurs (e.g., ultimate control level, intermediate holding company, legal entity, etc.). The insurer or insurance group shall describe and discuss the rationale for the current Board size and structure; and

(2) The duties of the Board and each of its significant committees and how they are governed (e.g., bylaws, charters, informal mandates, etc.), as well as how the Board’s leadership is structured, including a discussion of the roles of Chief Executive Officer (CEO) and Chairman of the Board within the organization.

C. The insurer or insurance group shall describe the policies and practices of the most senior governing entity and significant committees thereof, including a discussion of the following factors:

(1) How the qualifications, expertise and experience of each Board member meet the needs of the insurer or insurance group.

(2) How an appropriate amount of independence is maintained on the Board and its significant committees.

(3) The number of meetings held by the Board and its significant committees over the past year as well as information on director attendance.

(4) How the insurer or insurance group identifies, nominates and elects members to the Board and its committees. The discussion should include, for example:

a. Whether a nomination committee is in place to identify and select individuals or consideration.

b. Whether term limits are placed on directors.

c. How the election and re-election processes function.

d. Whether a Board diversity policy is in place and if so, how it functions.

(5) The processes in place for the Board to evaluate its performance and the performance of its committees, as well as any recent measures taken to improve performance (including any Board or committee training programs that have been put in place).

D. The insurer or insurance group shall describe the policies and practices for directing Senior Management, including a description of the following factors:

(1) Any processes or practices (i.e., suitability standards) to determine whether officers and key persons in control functions have the appropriate background, experience and integrity to fulfill their prospective roles, including:

a. Identification of the specific positions for which suitability standards have been developed and a description of the standards employed.

b. Any changes in an officer’s or key person’s suitability as outlined by the insurer’s or insurance group’s standards and procedures to monitor and evaluate such changes.

(2) The insurer’s or insurance group’s code of business conduct and ethics, the discussion of which considers, for example:

a. compliance with laws, rules, and regulations; and

b. proactive reporting of any illegal or unethical behavior.

(3) The insurer’s or insurance group’s processes for performance evaluation, compensation and corrective action to ensure effective senior management throughout the organization, including a description of the general objectives of significant compensation programs and what the programs are designed to reward. The description shall include sufficient detail to allow the commissioner to understand how the organization ensures that compensation programs do not encourage and/or reward excessive risk taking. Elements to be discussed may include, for example:


a. The Board’s role in overseeing management compensation programs and practices.

b. The various elements of compensation awarded in the insurer’s or insurance group’s compensation programs and how the insurer or insurance group determines and calculates the amount of each element of compensation paid;

c. How compensation programs are related to both company and individual performance over time;

d.Whether compensation programs include risk adjustments and how those adjustments are incorporated into the programs for employees at different levels;

e. Any clawback provisions built into the programs to recover awards or payments if the performance measures upon which they are based are restated or otherwise adjusted;

f. Any other factors relevant in understanding how the insurer or insurance group monitors its compensation policies to determine whether its risk management objectives are met by incentivizing its employees.

(4) The insurer’s or insurance group’s plans for CEO and Senior Management succession.

E.The insurer or insurance group shall describe the processes by which the Board, its committees and Senior Management ensure an appropriate amount of oversight to the critical risk areas impacting the insurer’s business activities, including a discussion of:

(1) How oversight and management responsibilities are delegated between the Board, its committees and Senior Management;

(2) How the Board is kept informed of the insurer’s strategic plans, the associated risks, and steps that Senior Management is taking to monitor and manage those risks;

(3) How reporting responsibilities are organized for each critical risk area. The description should allow the commissioner to understand the frequency at which information on each critical risk area is reported to and reviewed by Senior Management and the Board. This description may include, for example, the following critical risk areas of the insurer:

a. Risk management processes (An ORSA Summary Report filer may refer to its ORSA Summary Report);

b. Actuarial function;

c. Investment decision-making processes;

d. Reinsurance decision-making processes;

e. Business strategy/finance decision-making processes;

f. Compliance function;

g. Financial reporting/internal auditing; and

h. Market conduct decision-making processes.

It is anticipated that the CGAD will be in effect for 2016.

 


 
Posted by K. Kinross in   |  Permalink

 

Dec 09, 2013

Bricker & Eckler Launches New Business Litigation Blog
 

Members of Bricker & Eckler's Litigation group recently launched a new blog, BusinessLitigationBlog.com, featuring the latest on issues pertaining to a wide array of business disputes. Follow the blog to learn more about issues that your business has likely faced or may face in the future, including alternative dispute resolution, business contracts, business insurance, business torts, complex commercial litigation, general business litigation and intellectual property.


 
Posted by J. Beavers in  Uncategorized   |  Permalink

 

 

Search

 

Subscribe  

Subscribe to receive our RSS feed or email updates. 
 

Bricker Publications
View recent publications from Bricker & Eckler.
 

Recent False Claims Act News
Friday, November 21, 2014

HRSA Withdraws Proposed 340B “Mega Reg” in Favor of Future Agency Guidance
Wednesday, November 19, 2014

CMS Extends CEHRT Hardship Exception Deadline for Eligible Professionals and Eligible Hospitals
Thursday, November 13, 2014

Suggested Links

BoardMember.com
The D&O Diary
The Harvard Law School Forum on Corporate Governance Deloitte Center for Corporate Governance
Stanford Corporate Governance Research Program

 

The information contained in this site is for general information only and not for legal counsel or advice.
[Read More]

 

Copyright © 2011-2014     
Bricker & Eckler LLP     
All Rights Reserved