6.1.2 Governing Board Responsibilities

6.1.2 Governing Board Responsibilities

The SEC has made clear its view that public agency governing board members are responsible for ensuring that there is adequate disclosure in connection with the offering of municipal securities:

A public official who approves the issuance of securities and related disclosure documents may not authorize disclosure that the public official knows to be materially false or misleading; nor may the public official authorize disclosure while recklessly disregarding facts that indicate that there is a risk that the disclosure may be misleading. When, for example, a public official has knowledge of facts bringing into question the issuer’s ability to repay the securities, it is reckless for that official to approve disclosure to investors without taking steps appropriate under the circumstances to prevent the dissemination of materially false or misleading information regarding those facts.110

For a governing board member to participate personally in all aspects of the disclosure process is neither practical nor necessary. There are, however, important things governing boards and governing board members can do:

  • PROMOTE A CULTURE OF TRANSPARENCY. A governing board member can help establish a culture and “Tone at the Top” in which forthright and honest discussion of failures and difficulties is acceptable and covering over problems is not.

  • ENSURE A GOOD DISCLOSURE PREPARATION PROCESS. A governing board should make disclosure the responsibility of a high level officer of the public agency and empower that officer to command the participation of the entire organization in the disclosure preparation process. Each disclosure matter should receive the input of the particular individuals within the organization with the best information and insight. The board should make sure that the organization has written policies and procedures for preparing disclosure documents, that those procedures are followed, and that staff and the board receive regular training on securities law requirements and procedures.

  • ENGAGE EXPERIENCED AND KNOWLEDGEABLE PROFESSIONALS. A governing board should ensure that the public agency is assisted by experienced professionals who have an understanding of the public agency and the municipal market and who are knowledgeable about securities law requirements.

  • UNDERSTAND THE TRANSACTION. A governing board member should understand the terms of the proposed transaction, the obligations undertaken by the public agency, and how the financing affects the public agency’s financial position and fits into its overall strategy.

  • DON’T JUST MOVE THINGS ALONG. A governing board member should satisfy himself or herself that the disclosure document accurately describes the proposed transaction and the operations and financial position of the public agency. Special focus should be given to areas where the governing board member has particular insight and information. Questions should be asked, and responsive answers received before a transaction is approved.