This newsletter’s Table of Contents is as follows
- Directors Beware: Your organization’s “dark marketing practices” will not be tolerated
- Top Five Characteristics Of An Effective Compensation Committee Chair…or ANY CHAIR for that matter!!
- Audit Committee Practices Report: Common Threads Across Audit Committees + ESG
- New Survey Reveals Top Concerns of Private Company Boards
1. Directors Beware: Your organization’s “dark marketing practices” will not be tolerated
Last week, the Federal Trade Commission released a staff report, Bringing Dark Patterns to Light, which highlights the FTC’s concern about markers’ increasing use of so-called “dark patterns” to manipulate consumers. In a statement, Samuel Levine, the Director of the FTC’s Bureau of Consumer Protection, explained, “Our report shows how more and more companies are using digital dark patterns to trick people into buying products and giving away their personal information. This report — and our cases — send a clear message that these traps will not be tolerated.”
What are “dark patterns”? The FTC defines them as “design practices that trick or manipulate users into making choices they would not otherwise have made and that may cause harm.” While dark patterns may manipulate consumers in stealth, these practices are squarely on the FTC’s radar.
DIRECTORS SHOULD ENQUIRE ABOUT THESE PRACTICES:
Elements that Induce False Beliefs
A. The first type of dark pattern identified in the staff report is one that uses “design elements that induce false beliefs.” This type of dark pattern could be something as simple as a false claim or it could be a design element that “creates a misleading impression to spur a consumer into making a purchase they would not otherwise make.” The FTC said that common examples of this type of dark pattern include advertisements that are deceptively formatted to look like independent, editorial content, countdown timers on offers that are not actually time-limited, and claims that an item is almost sold out when there is actually ample supply.
B. Next, the FTC identified a type of dark pattern that uses design elements to “hide or delay disclosure of material information.” The FTC explained that some dark patterns operate by “hiding or obscuring material information from consumers, such as burying key limitations of the product or service in dense Terms of Service documents that consumers don’t see before purchase.” Other dark patterns, the FTC said, either trick people into paying hidden fees or use “drip pricing,” which lures consumers in with low prices, only to disclose the extra fees later on.
C. The FTC then described a type of dark pattern that uses design elements that “lead to unauthorized charges.” In the report, the FTC gave an example of a marketer offering a free trial period, but then “unbeknownst to the consumer, the trial is followed by a recurring subscription charge if the consumer fails to cancel.” The FTC also expressed concerns about marketers that engage in practices that make it hard for consumers to cancel subscription services.
The FTC said that companies should “first and foremost, aspire to become good stewards of consumer personal information.” The FTC explained that businesses should collect only the data they need. They should “avoid default settings that lead to the collection, use, or disclosure of consumers’ information in a way that they did not expect.” Second, they should “make consumer choices easy to access and understand.” Third, “choices about sensitive information, in particular, should be presented so that it is clear to the consumer what they are consenting to — as opposed to a blanket consent — and should be presented along with information that they need to make an informed decision.” And, finally, “businesses should take a moment to assess their user interfaces from a consumer’s perspective and consider whether another option might increase the likelihood that a consumers’ choice will be respected and implemented.”
SOURCE: Lexology
2.Top Five Characteristics Of An Effective Compensation Committee Chair…or ANY CHAIR for that matter!!
With 50 years of combined experience, we have come to know and identify the characteristics of an effective compensation committee chair. The most effective committee chairs have a significant impact on how well the committee functions, often by exhibiting similar characteristics.
Here’s our list of the top five characteristics of an effective committee chair:
- BE PROCESS ORIENTED.
Annual Calendar: The committee chair insists on managing the committee’s activities aligned with the charter against a comprehensive annual calendar, allowing it to be dynamic and flexible to account for evolving priorities throughout the year.
Meeting Cadence: The committee chair ensures that preparation for each committee meeting begins several weeks in advance of the meeting. This allows ample time to confirm meeting priorities and prepare presentation materials, with multiple opportunities for feedback on key agenda items.
Executive (“in-camera”) Sessions: The committee chair routinely schedules executive sessions for the committee to meet and discuss sensitive matters without company management present. Debriefing Session: The committee chair arranges for debriefing sessions with company management and the committee’s outside advisors to confirm approved decisions, open issues and next steps.
- FOCUS ON THE VALUE OF A TEAM.
Liaise with Management: The committee chair appoints a person on the company management team to be the principal liaison between management and the committee. The committee’s management liaison is typically instrumental in organizing all aspects of the committee meeting process. Equally critical, the committee’s management liaison can “quarterback” key input from the various company management functions.
Maximize Each Contributor’s Strengths: The committee chair will learn the strengths of each committee member and key executive in order to leverage their strengths and foster more informed decision-making.
- BE A GOOD LISTENER.
Be Open to Education: The committee chair will insist on regular briefings from company management and outside advisors on pertinent trends and governance developments so that the committee may factor them into its decision-making.
Be Open to Alternative Perspectives: The committee chair appreciates that there are rarely absolute “rights” and “wrongs” in executive compensation. Fully vetting all perspectives often leads to more informed decisions.
- CHALLENGE IDEAS TO PROMOTE UNDERSTANDING.
Be Willing to QUESTION Management: The committee chair questions company management to articulate the business case for management proposals, including the expected impact and implications of its proposals.
Encourage Committee Members to Challenge Colleagues: The committee chair encourages committee members to challenge each other’s views and opinions to take advantage of their collective knowledge, experience and perspectives in evaluating and responding to the company’s business circumstances.
- FOCUS ON COMMITTEE EVALUATIONS.
Embrace the Intent: Board members are typically highly accomplished professionals, some of whom find self-evaluation exercises to be an unnecessary use of their time. In our experience, effective committee chairs will fight against that sentiment and embrace the evaluation process as a vital governance tool.
Make Evaluations Impactful: The committee chair ensures that the committee’s annual performance is subject to a well-designed evaluation process that identifies the committee’s and its members’ strengths and areas for improvement. The committee chair will use the evaluations to promote discussion with the committee members and determine if there are actions that can make the committee more effective.
SOURCE: Corporate Board Member
3. Audit Committee Practices Report: Common Threads Across Audit Committees + ESG
It’s noteworthy that 24% of survey respondents primarily operate in the financial services industry. The regulatory requirement for certain publicly traded financial services companies to have a separate risk committee may be driving this result.
Separately, the CAQ examined publicly available ESG data for S&P 500 companies and found that 95% of S&P 500 companies had detailed ESG information publicly available. Audit committees responded that 66% of their companies issue sustainability or ESG-related report, and 69% obtain or are actively discussing obtaining third-party assurance on one or more components of ESG or sustainability data. While this speaks to the growing importance of ESG, only 10% of audit committees responded as having oversight responsibility for ESG reporting. In our experience, oversight of the various components of ESG may be distributed across the board and its committees.
4. New Survey Reveals Top Concerns of Private Company Boards
The National Association of Corporate Directors recently released its 2022 NACD Private Company Board Practices and Oversight Survey, which assessed the key topics of conversation among directors of these companies. Some of the most interesting findings include the following:
a. In terms of cybersecurity oversight, private companies have adopted many key practices at rates similar to their peers. For example, 68% of respondents indicate that they have reviewed their company’s current approach to protecting its most critical data assets (compared with 72% of public company boards) and 65% have reviewed the most significant cyber threats and their company’s response plans (compared to 64% of public company boards). They have closed the gap in areas like the assessment of risks associated with employee negligence or misconduct.
b. A majority of private company boards now discuss an enterprise-wide talent development strategy (70%), and a majority of respondents (58%) indicate that their board discusses human capital strategy as a recurring agenda item. However, to an even greater degree than among their public company peers, more advanced practices, such as delegating specific elements of human capital oversight to relevant committees (28% vs. 44% of public companies) and reviewing existing charters to ensure adequate oversight of human capital (32% vs. 46% of public companies) have yet to take hold.
c. Diversity, equality and Inclusion. While a slight majority of private company respondents indicated that their board’s understanding of DEI has improved compared to two years ago, it is clear there is room for improvement. For example, a quarter of respondents somewhat or strongly disagree that their board understands how DEI is connected with other board issues, such as strategy.
d. A majority of private company boards now discuss an enterprise-wide talent development strategy (70%), and a majority of respondents (58%) indicate that their board discusses human capital strategy as a recurring agenda item. However, to an even greater degree than among their public company peers, more advanced practices, such as delegating specific elements of human capital oversight to relevant committees (28% vs. 44% of public companies) and reviewing existing charters to ensure adequate oversight of human capital (32% vs. 46% of public companies) have yet to take hold.
SOURCE: Private Company Director
