Founded in 1969, NIRI is the professional association of corporate officers and investor relations consultants responsible for communication among corporate management, shareholders, securities analysts and other financial community constituents. The largest professional investor relations association in the world, NIRI’s more than 3,500 members represent 2,000 publicly held companies and $5.4 trillion in stock market capitalization.

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IR Weekly - August 16, 2011

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IR Weekly - August 16, 2011

President’s Note

Market Mayhem

Market volatility reached new extremes last week as we experienced global market moves of positive to negative 5% from one day to the next. Most believe it is very unlikely these market moves were driven by fundamental analysis of companies, but instead by panic, margin calls and computerized trading. For IROs, these are the most challenging market conditions as they lack logic and rational explanation. Time and other actions outside our influence and control will bring markets back into check, as we continue to tell our story to investors.

Some things to share with you this week:

• Contacting NIRI this week via email? NIRI is undergoing a major hardware and systems upgrade this Thursday and Friday (August 18 and 19) that will delay staff receiving your email and responding until Monday. Thank you, in advance, for your patience.
• New to IR? NIRI’s Fundamentals of Investor Relations is the place for you on September 11-14 in Boston. Also consider attending Writing Workshop for Investor Relations or Creating Powerful Investor Presentations in Boston on September 15 and 16.
• SEC Agenda Update. SEC staff indicated last week that no decision has been made on next steps for proxy access, but that the agency is seeking input on how to proceed. Dodd-Frank rulemaking is a top priority, while addressing proxy advisors is the first order of business in an upcoming evaluation of proxy mechanics.
I hope you have had the chance for vacation and to recharge as summer in the U.S. comes to an end. It seems like it will be a busy fall.

Until next week,

Jeff Morgan, FASAE, CAE
President & CEO
jmorgan@niri.org
www.twitter.com/jeffreydmorgan

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Professional Development

The NIRI Peer Governance Network's Proxy Season Plan – Webinar September 8 at your location
Fundamentals of Investor Relations – Seminar September 11 - 14 in Boston, MA
Regulations 101 – Seminar September 29 in Seattle, WA

Member Services

NIRI Career Center
Member-Get-A-Member Program

Chapter News

Upcoming Chapter Events

The Buzz

"SEC Says 'Large Is In'"
"Human Touch Returns Amid Market Volatility"
"Hitting the Switch on New Circuit Breakers"
"High-Frequency Firms Tripled Trading as S&P 500 Plunged 13 Percent, Wedbush Says"
"U.S. Companies on Buyback Binge But at Whose Expense?"
"Citadel Said in Talks to Sell Investment Bank, Shut Equity-Research Unit"
"S&P Balks at SEC Proposal to Reveal Rating Errors"
"FASB Approves Standard to Simplify Testing Goodwill for Impairment"
"Thrill-seeking CEOs Likely to Risk Company, Too"
"Volatility Scuppers Flotation Plans"
"Nays on Pay: The Story Behind the Votes"
"766 CEOs Discuss Sustainability: Accenture's Sector-by-Sector Report"
"The New Pressures on Executive Comp"

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Annual Conference Update

Going Where We've Not Been Before

Save-the-Date: June 3-6, 2012
The 2012 NIRI Annual Conference is in Seattle, WA! Same great content and networking... new city for the world's largest IR event.

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Professional Development

The NIRI Peer Governance Network's Proxy Season Plan – Webinar September 8 at your location

Join the NIRI Peer Governance Network, members experienced in governance and board reporting, as they discuss how regulation has influenced proxy season preparation.

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Fundamentals of Investor Relations – Seminar September 11 - 14 in Boston, MA

This comprehensive seminar, held at The Boston Seaport Hotel offers a broad overview of all aspects of investor relations, including marketing, communication, and finance.

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Regulations 101 – Seminar September 29 in Seattle, WA

This valuable seminar provides a comprehensive overview of regulations and court decisions that impact financial disclosure, governance issues, self-regulating organizations (NYSE and NASDAQ) reporting, governance requirements, and civil and criminal liabilities.

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NIRI's Career Center is a highly valued member resource that is one of the most frequently visited web pages on the NIRI Web site. Members can search job listings and post resumes confidentially. Employers and recruiters can post a job for a 30-day period for a $350 fee, and search resumes.

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Member-Get-A-Member Program

Refer a colleague to NIRI and receive $200 off a NIRI seminar!

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The Buzz

SEC Says 'Large Is In'
Traders Magazine (08/11) D'Antona, John

Regulators have adopted a rule that requires more active traders to code their tickets and brokers so that regulators can monitor their activities and reconstruct events after markets disruptions. This new rule is considered a stopgap measure, laying the foundation for a more comprehensive move toward instituting a consolidated audit trail (CAT). The move makes the Securities and Exchange Commission (SEC) better able to monitor trading activity. CAT would provide more information than the "large trader" rule, but will take longer to implement, hence the stopgap need. Under the new rule, high-frequency and other large-volume traders must code their trade tickets with a unique identifier and time stamp for trades they execute. This rule would first require large traders to register with the SEC through the new Form 13H, and second, it would impose requirements for record-keeping, reporting, and limited monitoring on certain registered broker-dealers. The large trader rule is expected to impact bulge brackets, as well as large hedge funds, investment companies, and proprietary trading firms.

| Web Link - May Require Free Registration | Return to Headlines

Human Touch Returns Amid Market Volatility
Financial Times (08/14/11) Demos, Telis; Stafford, Philip

Amid remarkable market volatility and volumes earlier in August, many traders reverted to an old habit to reduce their anxiety: picking up a phone and speaking with a broker. Though market deregulation and automation in the United States and Europe have pushed many institutional and retail traders in the direction of instant electronic completion of trades, apparently human contact still has a place in times of peak activity. Knight Capital Group, the largest market-making firm in the world, said voice trades accounted for as much as 85 percent of trading at peak volatility. "The skew goes from normally 50-50 voice to electronic, to 75 percent to 85 percent voice. You need the help, you need a second set of eyes," said Joe Mazzella, global head of trading at Knight. This goes against the trend. According to the Tabb Group, so-called "high touch," or voice, trades sent to sales desks represented 42 percent of trades over the past two years, down from 69 percent in 2006. Voice trading regained some traction in 2008, however, at the apex of the financial meltdown. The long-term trend reflects both a change in investors' habits as well as a push by Wall Street brokerages to reduce overhead and automate more functions to better serve the growth segment of high-frequency traders.

| Web Link - May Require Paid Subscription | Return to Headlines

Hitting the Switch on New Circuit Breakers
Barron's (08/13/11) Alpert, Bill; Stryjewski, Lisa

Every stock listed in the United States is now covered by its own circuit breaker geared to pause trading in the face of a sudden large move, and in the planning stages are next-generation circuit breakers forming a limit up-limit down system. However, a study by Barron's and Yale researchers indicates that, prior to this upgrade, the securities industry and regulators may want to collect more proof about whether single-stock trading controls are at all effective in protecting against cascading pricing problems of the kind that caused the May 2010 flash crash. The study suggests that the proposed volatility controls will be triggered the most often among the small-cap stocks, particularly during market turmoil such as the 2008 financial crisis. Yet even if the rules had been entrenched during the flash crash, the controls would only have impacted about 14 percent of the Russell 1000 and 7 percent of all listed shares. Assessing effectiveness of individual stock circuit breakers in place for the Standard & Poor's 500, the Russell 1000, and 344 popular exchange traded-funds over the last 12 months also has proven elusive, given the relative calmness of the market until recently and the apparent triggering of most single-stock halts by erroneous orders. Research determined that the limit up-limit down rules would competently halt stocks exhibiting up-down volatility, but the price-band triggers for small stocks may be excessively narrow, and as a result generate too many pauses. The other side of the coin is that the system may have too slight an effect on the big stocks that most shareholders care about.

| Web Link - May Require Paid Subscription | Return to Headlines

High-Frequency Firms Tripled Trading as S&P 500 Plunged 13 Percent, Wedbush Says
Bloomberg (08/12/11) Mehta, Nina

High-frequency trading (HFT) companies elevated trading by a factor of three in the rout that deleted $2.2 trillion from U.S. equity values. Wedbush Securities' Gary Wedbush says the hike from Aug. 1 to Aug. 10 over their 2011 average exceeded the 80 percent rise in U.S. equity volume, demonstrating that high-frequency traders constituted more of the market during the plummet. "Volatility creates far more opportunities," he notes. "Some of their algorithms and automated systems are trading two, three or five times as many shares as they would have in a more normalized volatility environment." Equity volume from Aug. 4 through Aug. 10 was a record for any five-day period, says data compiled by Bloomberg and Credit Suisse Group. The daily average of 15.97 billion shares trounced the previous record of 15.94 billion from Sept. 15 through Sept. 19, 2008. HFT firms have comprised three-quarters of U.S. equity volume in August, according to Wedbush estimates. U.S. prosecutors have joined a regulatory probe into whether some high-speed traders are gaming markets by posting and immediately canceling waves of rapid-fire orders, a pair of officials said in April. Wedbush says professionals who add bids and offers on exchanges boost the efficiency of trading and lower the cost of buying and selling shares for investors. "The bulk of high frequency traders are adding liquidity to the marketplace," he says. "Automated traders employ a myriad of strategies that seek to profit from a stock's short-term volatility, but the mass of HFT is adding liquidity by being on both sides of the market or doing creation/redemption arbitrage for ETFs." Wedbush says high-frequency firms typically concentrate on the most active securities, with some 80 percent of their trading limited to the most popular 20 percent. High-frequency firms are managing about 63 percent of U.S. equities volume, up from about 61 percent in July and down from 70 percent in 2010, according to ModernNetworks founder Tim Quast.

| Web Link | Return to Headlines

U.S. Companies on Buyback Binge But at Whose Expense?
Reuters (08/12/11) Strom, Roy

American companies are using their cash reserves to buy back their own shares, anticipating a Wall Street rebound rather than investing in new operations or bumping up dividends. And though investors lauded the moves during the market's recovery rally on Aug. 11, the strategy ultimately may not bear fruit for shareholders as buybacks are frequently a sign companies see scant opportunities to expand by building an additional factory, purchasing equipment, or acquiring another company. Buybacks, while increasing earnings per share, can keep shareholders from receiving a dividend increase, which would permit them to decide how to spend or invest the extra money a business is casting off. And when executives take the more pessimistic road it is a foreboding sign for lurching economic recovery and for job creation. The U.S. unemployment rate is at 9.1 percent even as corporate earnings growth has been robust and plenty of cash has been amassed on balance sheets. Buybacks are "a way to deploy capital without really being locked into anything," said Rob Leiphart, analyst at Birinyi Associates. While buybacks might sound like a good deal to shareholders, Leiphart said research has shown there is no relationship between those announcements and stock price performance. Investors who purchase shares based on company buyback announcements frequently have no idea when or even if those repurchases will occur, or if the companies will make the buybacks at prices that will reap dividends down the road.

| Web Link | Return to Headlines

Citadel Said in Talks to Sell Investment Bank, Shut Equity-Research Unit
Bloomberg (08/11/11) Burton, Katherine; Kishan, Saijel; Mider, Zachary R.

The investment bank Citadel Securities is planning to close its equity-research group. The group, which is headed by former Lehman Brokers Holdings Managing Director Jaine Mehring, was launched last September. Officials at the Chicago-based hedge fund Citadel, which owns Citadel Securities, had hoped the group would consist of 12 senior analysts by the middle of this year. Citadel had launched the equity-research group as part of an effort to compete with Goldman Sachs. However, Citadel Securities has been plagued by high levels of executive turnover. Rohit D'Souza, who was hired in October 2008 to head the securities business, quit after a year, while his replacement, Patrik Edsparr, was fired after seven months amid disagreements over business strategy and management. In addition, at least eight more executives quit or were fired over the past two years. Now that the equity-research group is being disbanded, Citadel Securities will focus on its market-making business and on providing electronic trading to institutions. Meanwhile, Citadel is planning to sell Citadel Securities. Citadel has been trying to get companies to employ its investment bankers and take over obligations to employees. Citadel and Societe Generale have been in talks about the Paris-based bank taking on a team of fixed-income salespeople and traders, though the two companies have yet to reach a deal.

| Web Link | Return to Headlines

S&P Balks at SEC Proposal to Reveal Rating Errors
Reuters (08/10/11) Lynch, Sarah N.

The Securities and Exchange Commission (SEC) is considering rules that aim to improve the quality of ratings issued by companies such as Standard & Poor's (S&P) and Moody's. Under the rules, rating agencies must post notices on their Web sites when significant errors are identified in the methodologies they use for credit rating actions. It remains unclear who would define what constitutes a significant error. The proposal has been criticized by S&P, which has been accused by the Obama administration of making a mistake in the calculations that resulted in the government's credit rating being downgraded from AAA to AA+. S&P President Deven Sharma said in a letter to the SEC that the commission "would be effectively substituting its judgment" for that of his company if it were to define what a significant error was. Sharma added that S&P's error correction policy has been effective and that the company has reacted quickly and in a transparent manner when addressing any errors that have occurred. S&P has also denied making an error in calculating the United States' debt over the next 10 years as the Obama administration claimed, saying that it simply changed the economic assumptions it was using following discussions with Treasury Department officials. S&P also said the different economic scenario it used had no impact on its decision to downgrade the government's credit rating.

| Web Link | Return to Headlines

FASB Approves Standard to Simplify Testing Goodwill for Impairment
Business Wire (08/10/11)

The Financial Accounting Standards Board (FASB) on Aug. 10 approved a revised accounting standard meant to simplify how an entity gauges goodwill for impairment. "The Board's decision today comes as a direct result of what we heard from private companies, which had expressed concerns about the cost and complexity of performing the goodwill impairment test," states FASB member Daryl Buck. "The amendments approved by the Board address those concerns and will simplify the process for public and nonpublic entities alike." The amendments will allow an entity to first assess qualitative factors to determine whether it is necessary to carry out the two-step quantitative goodwill impairment test. An entity will no longer be required to tabulate the fair value of a reporting unit unless the entity determines, following a qualitative assessment, that it is more likely than not that its fair value is lower than its carrying amount. Prior to the Aug. 10 decision, entities were required to test goodwill for impairment once annually at a minimum, by first comparing the fair value of a reporting unit with its carrying amount, including goodwill.

| Web Link | Return to Headlines

Thrill-seeking CEOs Likely to Risk Company, Too
Baltimore Sun (08/10/11) Hancock, Jay

In a study titled "Cleared for Takeoff? CEO Personal Risk-Taking and Corporate Policies," professors at the University of Oregon (UO) and Notre Dame conclude that CEOs who take risks in their personal lives are more likely to take risks with their shareholders' money, too. The study, co-authored by Stephen McKeon, an assistant professor of finance at the UO's Lundquist College of Business, and Matthew Cain, an assistant professor of finance at Notre Dame's Mendoza College of Business, documents a link between the personality traits of executives and business moves such as mergers, acquisitions, and accumulation of debt. "We found a variety of evidence to support our hypothesis that risk-taking CEOs are associated with riskier corporate policies," McKeon said. "These individuals take on higher leverage than their counterparts and are more active in mergers and acquisitions. The volatility of equity returns in their companies also is higher."

| Web Link | Return to Headlines

Volatility Scuppers Flotation Plans
Financial Times (08/09/11) Wigglesworth, Robin

Companies are canceling or postponing initial public offerings (IPOs) because of financial volatility sparked by the European debt crisis, the U.S. credit rating downgrade, and mounting anxiety over global growth. About $134 billion of IPOs have proceeded so far this year, but beating 2010's $281 billion total will be complicated by distressed equity markets. Thus far in 2011 global volume of withdrawn IPOs totals $42.1 billion, an 8 percent increase from the same period last year, Dealogic reports. The American IPO market has been relatively healthy for most of the year, but the number of U.S. registered deals withdrawn or put off climbed to 28 valued at $4.2 billion, up from six for $1.3 billion the previous week, according to Keefe, Bruyette & Woods. Global equity markets have lost about $7.8 billion of capitalization since July 26, taking a bite out of fund managers' returns. Worsening the dearth of demand for IPOs are outflows from many funds, which often favor apportioning fresh capital to flotations rather than selling out of existing positions. "Right now investors are focused on portfolio preservation," says Bank of America Merrill Lynch's Craig Coben. "There is a lot of disorderly, forced selling and no new inflows, and so for now there isn't much investor appetite for an IPO." EPFR Global reports that last week shareholders yanked the largest amount from developed market equity funds since the first week of last July. There are many planned IPOs in banks' pipelines, but "until we see a reduction in the macro uncertainty and calmer markets I don't think we'll see a fully functioning IPO market," says Alisdair Warren with Goldman Sachs. "We're continuing to build our backlog, but we have to be realistic as to how many will get done."

| Web Link - May Require Paid Subscription | Return to Headlines

Nays on Pay: The Story Behind the Votes
BoardMember.com (08/09/11) Deitch, Charlie

Many companies did not fully consider the implications of say on pay and how serious it would be, says compensation consultant Steven E. Hall. Donald G. Kalfen, partner and senior consultant at Meridian Compensation Partners, says that since "the idea of say on pay began percolating," his firm has been stressing to clients the necessity of using the CD&A to very clearly explain a company's compensation strategy in detail. "It's absolutely critical to use the CD&A to tell an effective story to the shareholders that describes why executive pay is what it is and why the decisions have been made the way they have been," Kalfen says. "The stakes are higher now because of say on pay, and your CD&A is an important tool." But not all companies have used this tool appropriately. Hall says that while some companies have done a better job with their CD&As, "with regard to shareholder outreach--getting out and telling their stories to shareholders and listening to what they had to say--I think a lot of companies fell short." Underperforming companies clearly seemed to bear the brunt of shareholder ire. Combine that with what investors viewed as high compensation compared to that performance, and it became a cocktail for failed votes. There are many nuances to a company's executive pay program--such as what it takes to attract leadership that will elevate a company that has been a lackluster performer in the past or, in some cases, to hire someone with the talent to help a company outperform its peers, especially during a recession. Put another way, frequently there is not a direct correlation between performance and pay. The important thing, many critics say, is not to judge executive compensation in a vacuum, or simply relative to a ratio of worker salary. David F. Larcker, the James Irvin Miller Professor of Accounting at Stanford University's Graduate School of Business and Rock Center for Governance, says that based on research by him and his colleagues, Institutional Shareholder Services (ISS) can sway somewhere around 30 percent of the votes for a typical firm. "However, the fundamental unresolved question is whether the approach used by ISS in developing [its] voting recommendations can actually identify firms with flawed compensation practices and bad governance," Larcker says. "I am not sure that it makes sense to base most of the voting recommendation on comparisons involving relative total shareholder return and change in compensation levels over one or three years." Pearl Meyer & Partners' Managing Director Susan O'Donnell offers three apt tips to help directors make sure they are ready to bring their compensation plan before shareholders. First, companies need to understand their shareholders' perspective on compensation. "You need to be very aware of what their voting guidelines are. And you need to know where your no votes are likely to come from," O'Donnell says. Second, pay close attention to the disclosure, which is a culmination of a year's worth of decisions. Third, review and clean up policies and processes, being mindful of clawbacks, ownership guidelines, holding requirements, the design of the incentive plan, and other considerations.

| Web Link | Return to Headlines

766 CEOs Discuss Sustainability: Accenture's Sector-by-Sector Report
Forbes (08/08/11) Singh, Aman

Accenture has issued a follow-up to last year's survey of CEOs on the issue of sustainability, with the new survey offering more detail and sector-by-sector comparisons of CEO responses. The previous report found that 93 percent of the 766 respondents said sustainability will be “important” or “very important” to their company's future success, and the new survey shows that the rate is 100 percent for automotive and consumer products industries, but only 68 percent for banking and 22 percent for communications. The 2010 report also found that while most CEOs agreed on the importance of sustainability, most also “continue to struggle to approach [sustainability] as part and parcel of core business strategy.” In the new report, Accenture's Peter Lacy says there are still “major gaps … between CEO ambition and execution.” In the automotive industry, for example, 95 percent said companies should train managers to integrate sustainability into strategy and operations, but just 52 percent said they are actually doing it. The response to last year's report was for the most part positive, but this year, amid the U.S. credit downgrade and ongoing recession, there is not so much optimism. But sustainability involves the belief that business goals cannot be reached without taking into account society and the environment in which it operates, and operating with such a mindset is one way to restore the country's reputation and image of trustworthiness.

| Web Link | Return to Headlines

The New Pressures on Executive Comp
Computerworld (08/09/11) Kroll, Karen M.

While the value of CEOs' compensation packages spiked in 2010--the median value among S&P 500 companies jumped 20 percent, to $10.6 million, according to ISS Corporate Services--the increase may not be the most notable change in executive compensation. The setup of executives' compensation also is changing, and simplifying, in major ways. "Most companies are in a back-to-basics mode," says Peter Miterko, managing director with Pearl Meyer & Partners, a compensation consultancy. More companies are making pay contingent on performance through a combination of measures like return on assets, return on equity, and total shareholder return, he says. And information from compensation consultant Equilar reveals just over half of companies--50.4 percent--now use three metrics to assess performance and determine CEOs' short-term compensation. The most popular metric: earnings or ESPs, which take into account non-financial measures like quality and safety. Within long-term compensation plans, the average number of performance metrics used last year was 1.68, a rate that has been relatively constant in recent years. But simultaneously, the percentage of companies using two or more metrics increased to 48.8 percent from 45.9 percent between 2008 and 2010. The most common metric in Equilar's compilation: total shareholder return, used by 40 percent of companies, with earnings next at about 33 percent of companies.

| Web Link | Return to Headlines

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August 16, 2011

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IR Weekly - August 16, 2011