oversight

Regional Alaska Native Corporations: Status 40 Years after Establishment, and Future Considerations

Published by the Government Accountability Office on 2012-12-13.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States Government Accountability Office

GAO             Report to Congressional Requesters




                REGIONAL
December 2012



                ALASKA NATIVE
                CORPORATIONS

                Status 40 Years after
                Establishment, and
                Future Considerations




GAO-13-121
                                               December 2012

                                               REGIONAL ALASKA NATIVE CORPORATIONS
                                               Status 40 Years after Establishment, and
                                               Future Considerations
Highlights of GAO-13-121, a report to
congressional requesters




Why GAO Did This Study                         What GAO Found
In 1971, the Alaska Native Claims              Incorporated under Alaska state law, regional Alaska Native corporations share
Settlement Act was enacted to resolve          fundamental characteristics, although they have chosen a variety of governance
long-standing aboriginal land claims           practices. Like other Alaska corporations, the regional corporations are subject to
and to foster economic development             the state’s corporate laws (with limited exceptions) and are run by an elected
for Alaska Natives. This federal law           board of directors. Nevertheless, each regional corporation has chosen its own
directed that corporations be created          organization and governance approach in terms of board operations, executive
under Alaska state law, which were to          and board compensation, board elections, and shareholder involvement.
be the vehicles for distributing the
settlement. As directed by the act,            Alaska Native corporations are subject to some financial reporting requirements
12 for-profit regional corporations were       under federal and state law, but oversight of the reporting is limited. The Alaska
established, representing geographical         Native Claims Settlement Act generally exempts the corporations from complying
regions in the state. Later, a                 with federal securities laws while requiring them to annually provide a report to
13th regional corporation was formed           their shareholders that contains “substantially all the information” required to be
to represent Alaska Natives residing           included in an annual report to shareholders by U.S. Securities and Exchange
outside of Alaska. Eligible Alaska             Commission registrants. The Settlement Act does not provide for a federal role to
Native applicants who were alive on            monitor the corporations’ compliance with this requirement, and oversight by the
December 18, 1971, became                      state of Alaska is generally limited to enforcement of state securities laws and
shareholders in the corporations. The          proxy regulations.
Settlement Act, as amended,
authorizes the corporations to provide         GAO found that the corporations provide a wide variety of monetary and
benefits to shareholders and to other          nonmonetary benefits to their shareholders and other Alaska Natives. Monetary
Alaska Natives.                                benefits include shareholder dividends, elder benefits, scholarships, memorial
GAO was asked to review these                  benefits, shareholders’ equity, and charitable donations. Nonmonetary benefits—
corporations. This report examines             often offered in partnership with village corporations, tribal organizations, and
(1) governance practices of the                nonprofit organizations within the region—include employment opportunities,
regional Alaska Native corporations,           cultural preservation, land management, economic development, and advocacy
(2) requirements for and oversight of          on behalf of Alaska Natives and their communities.
the corporations’ financial reporting
                                               During this review, GAO identified three questions regarding the ambiguity of
practices, (3) benefits provided by the
                                               existing federal financial reporting requirements, the role of the federal
corporations to their shareholders and
other Alaska Natives, and
                                               government in maintaining the corporations’ solvency, and the implications of
(4) questions to consider for the future.      defining who is eligible to be a shareholder. These questions may warrant
GAO reviewed relevant federal and              consideration and discussion by the federal government, the state, the regional
state laws and regulations, as well as         corporations, shareholders, or a combination of these entities.
the corporations’ annual reports, proxy        •   Should the “substantially all” federal reporting requirement be clarified and
materials, and other documents. GAO                overseen? GAO was unable to determine whether the corporations are
interviewed representatives from each
                                                   meeting the “substantially all” requirement in the Settlement Act because the
of the 13 regional corporations and
                                                   phrase is not defined.
visited seven of the Alaskan regions.
GAO is making no recommendations in            •   What is the appropriate role of the federal government in maintaining the
this report. Responses provided on                 solvency of Alaska Native corporations? The federal government has
behalf of the corporations made                    intervened in the past to help maintain the financial solvency of the
several points about their financial               corporations. The 13th Regional Corporation has been insolvent since 2007.
reporting and operations that are more
                                               •   Who should be a shareholder? As authorized by amendments to the
fully discussed in the report.
                                                   Settlement Act, shareholders of 5 of the 13 regional corporations have voted
View GAO-13-121. For more information,             to issue shares to Alaska Natives born after December 18, 1971, who meet
contact Anne-Marie Fennell at (202) 512-3841       certain criteria. In deciding to offer new shares to more people, corporations
or fennella@gao.gov.                               and shareholders face a number of considerations such as, potential effects
                                                   on dividends and shareholder involvement.
                                                                                       United States Government Accountability Office
Contents


Letter                                                                                      1
               Background                                                                    3
               The Corporations Have Adopted a Variety of Governance
                 Practices                                                                 16
               The Corporations Are Subject to Some Federal and State Financial
                 Reporting Requirements and Limited State Oversight                        29
               The Corporations Provide Diverse Monetary and Nonmonetary
                 Benefits to Their Shareholders and Other Alaska Natives                   38
               Questions to Consider for the Future                                        48
               Agency and Third-Party Comments and Our Evaluation                          54

Appendix I     Objectives, Scope, and Methodology                                          58



Appendix II    Comments on Behalf of the 12 Regional Alaska Native
               Corporations                                                                63



Appendix III   Comments from Volunteers for the 13th Regional
               Corporation                                                                 68



Appendix IV    GAO Contact and Staff Acknowledgments                                       71



Tables
               Table 1: Characteristics of the Regional Alaska Native
                        Corporations When Established in the 1970s                           7
               Table 2: Size and Scope of the 12 Regional Alaska Native
                        Corporations in Alaska                                             13
               Table 3: Regional Alaska Native Corporation Shareholder
                        Demographics as Reported by the Corporations                       16
               Table 4: Characteristics of the Boards of Directors, Regional
                        Alaska Native Corporations                                         18
               Table 5: Election Information for the Regional Alaska Native
                        Corporations, 2001-2011                                            24
               Table 6: Financial and Dividend Information as Reported by the
                        Regional Alaska Native Corporations, 2010                          39



               Page i                            GAO-13-121 Regional Alaska Native Corporations
          Table 7: Scholarship Information as Reported by the Regional
                   Alaska Native Corporations, 2010                                                 41
          Table 8: Employment of Alaska Natives by the Regional
                   Corporations and Their Subsidiaries, as Reported by the
                   Corporations                                                                     46
          Table 9: New Classes of Shares Authorized by the Regional Alaska
                   Native Corporations                                                              53
          Table 10: Regional Alaska Native Corporations and Communities
                   Visited                                                                          59
          Table 11: Regional Alaska Native Corporations’ Fiscal Years
                   Corresponding to the 2010 Reporting Period                                       60


Figures
          Figure 1: The Twelve Geographic Regions for the Regional Alaska
                   Native Corporations in Alaska                                                     5
          Figure 2: Examples of Benefits Supported by the Regional Alaska
                   Native Corporations                                                              44




          Abbreviations

          SBA       Small Business Administration
          SEC       U.S. Securities and Exchange Commission


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          Page ii                                   GAO-13-121 Regional Alaska Native Corporations
United States Government Accountability Office
Washington, DC 20548




                                   December 13, 2012

                                   The Honorable Edward J. Markey
                                   Ranking Member
                                   Committee on Natural Resources
                                   House of Representatives

                                   The Honorable Mark Begich
                                   United States Senate

                                   The Honorable Lisa Murkowski
                                   United States Senate

                                   On December 18, 1971, the Alaska Native Claims Settlement Act was
                                   enacted to resolve long-standing aboriginal land claims and to foster
                                   economic development for Alaska Natives. 1 This federal law directed that
                                   corporations be created under Alaska state law, which were to be the
                                   vehicles for distributing the settlement’s land and monetary benefits to
                                   Alaska Natives. The Settlement Act permitted the conveyance of about
                                   44 million acres of land to the corporations, along with cash payments of
                                   almost $1 billion, in exchange for extinguishing aboriginal land claims in
                                   Alaska. As directed by the act, 12 for-profit regional corporations were
                                   established representing geographical regions in the state, with each
                                   region composed as far as practicable of Alaska Natives who have a
                                   common heritage and share common interests. 2 In addition, a 13th
                                   regional Alaska Native corporation was subsequently formed to represent
                                   those Alaska Natives residing outside of Alaska.

                                   The Settlement Act was intended to conform “with the real economic and
                                   social needs” of Alaska Natives, without establishing any permanent
                                   racially defined institutions and without creating a reservation system,



                                   1
                                    Pub. L. No. 92-203, 85 Stat. 688 (1971), codified as amended at 43 U.S.C. §§ 1601-
                                   1629h. By settling aboriginal land claims in Alaska, the Settlement Act permitted the
                                   development of the vast energy potential of the state to aid in meeting the energy
                                   shortage the United States faced in the 1970s.
                                   2
                                    Under the Settlement Act, over 200 village, urban, or group Alaska Native corporations
                                   were also formed to participate in the settlement. This report discusses only the regional
                                   corporations.




                                   Page 1                                     GAO-13-121 Regional Alaska Native Corporations
among other aims. 3 Toward these ends, the Settlement Act, as originally
enacted, entitled certain Alaska Natives to be shareholders in the
corporations and prohibited sales of the corporations’ stock for 20 years.
Subsequent amendments, however, have authorized issuance of stock to
other Alaska Natives and their descendants, extended the prohibition on
the sale of stock, and generally exempted the corporations from
regulation by the U.S. Securities and Exchange Commission (SEC).
Under the Settlement Act and state law, the corporations are required to
provide certain information to shareholders, such as annual reports
including the corporations’ audited financial statements. The Settlement
Act, as amended, also authorizes but does not require corporations to
provide benefits to their shareholders and other Alaska Natives to
promote their health, education, or welfare.

To inform your understanding of the financial information being reported
by the regional Alaska Native corporations and how these corporations
are addressing the needs of Alaska Natives, you asked us to describe
various corporate practices. This report examines (1) governance
practices of the regional Alaska Native corporations, (2) requirements for
and oversight of the corporations’ financial reporting practices,
(3) benefits provided by the corporations to their shareholders and other
Alaska Natives, and (4) questions to consider for the future. 4

To conduct this work, we reviewed the Alaska Native Claims Settlement
Act, as amended; the Alaska Corporations Code; and other federal and
state laws and regulations relevant to corporate governance and financial
reporting by regional Alaska Native corporations. We examined the
corporations’ annual shareholder reports from 2010 and proxy materials
from 2011(the most recent years for which consistent information was
available across the corporations). We also asked SEC staff to provide
observations on the corporations’ 2010 annual shareholder reports. In this
report, we define an SEC registrant as a corporation subject to the
registration and reporting requirements of the Securities Exchange Act of
1934. We reviewed documentation provided by the regional corporations


3
43 U.S.C. § 1601(b).
4
 We were also asked to determine shareholders’ level of satisfaction with the regional
corporations. To answer this question, we proposed surveying regional corporations’
shareholders on their perspectives of the regional corporations. We were unable to
conduct a systematic and independent survey of shareholders, however, because the
regional corporations declined to provide us with their shareholder lists.




Page 2                                    GAO-13-121 Regional Alaska Native Corporations
             on their governance practices and on monetary and nonmonetary
             benefits provided to shareholders and others. Throughout this report, we
             refer to the corporations’ 2010 reporting period to describe each
             corporation’s fiscal year corresponding most closely to calendar year
             2010. We report all dollar amounts as they were reported to us by the
             corporations for the period in question; none have been adjusted for
             inflation. We interviewed representatives from all 13 regional corporations
             and visited multiple locations across 7 of the 12 Alaskan regions. During
             our site visits, we met with corporate executives and board directors,
             tribal officials, representatives from nongovernmental organizations, and
             shareholders to discuss their perspectives on the regional corporations
             and benefits provided. In addition, from the Alaska State Division of
             Banking and Securities, we obtained information on inquiries and
             complaints received by the division, and steps the division took to
             investigate and act on these claims, including administrative orders
             issued by the state. Appendix I describes our scope and methodology in
             greater detail.

             We conducted this performance audit from October 2011 to December
             2012 in accordance with generally accepted government auditing
             standards. Those standards require that we plan and perform the audit to
             obtain sufficient, appropriate evidence to provide a reasonable basis for
             our findings and conclusions based on our audit objectives. We believe
             that the evidence obtained provides a reasonable basis for our findings
             and conclusions based on our audit objectives.


             The Alaska Native Claims Settlement Act required the Secretary of the
Background   Interior to divide Alaska into 12 geographic regions, with each region, as
             far as practicable, composed of Alaska Natives having a common
             heritage and sharing common interests (see fig. 1). 5 The Secretary of the
             Interior was also required to enroll into a region every Alaska Native alive
             when the Settlement Act was enacted on December 18, 1971, generally
             according to residence. As defined by the Settlement Act, an Alaska
             Native is a person with 25 percent or more of Alaska Indian, Eskimo, or
             Aleut blood or combination thereof (called a blood quantum requirement).
             Each region in the 1970s established a regional corporation as directed
             by the Settlement Act, and the Alaska Natives enrolled into the region



             5
             H.R. Rep. No. 94-729 at 13 (1975).




             Page 3                               GAO-13-121 Regional Alaska Native Corporations
became its shareholders. Certain Alaska Native villages were also eligible
to form village corporations under state law. In addition, Alaska Natives
who were not residing in Alaska could elect to enroll in a 13th region.
Such a corporation, referred to as the 13th Regional Corporation, was
established by a vote of nonresidents, and only those nonresident Alaska
Natives who voted for the 13th Regional Corporation’s formation were
enrolled in that region and became its shareholders (nonresidents who
did not vote for it were enrolled in another region and became
shareholders of that regional corporation). 6 Enrolled Alaska Natives
received no more than 100 shares of their regional corporation’s stock
and, if they were enrolled in a village, no more than 100 shares of their
village corporation’s stock. Under the original Settlement Act, shares
could be inherited upon a shareholder’s death, but inherited shares
entitled the new shareholder to vote only if the shareholder was an Alaska
Native with a blood quantum of 25 percent or more. 7




6
 Initially, the Department of the Interior determined that a majority of all eligible
nonresidents had not elected to form a 13th regional corporation, but a federal court found
that basic fairness and equity compelled the creation of the 13th Regional Corporation
because Interior’s handling of the election was marked by “bureaucratic inconsistency”
and “lassitude.” Alaska Native Association of Oregon v. Morton, 417 F.Supp. 459, 464-71
(D. D.C.1974).
7
  If a shareholder dies without a will or heirs, the shares revert back to the corporation.
Additionally, the 1988 amendments to the Settlement Act permitted shareholders to
transfer their shares to Alaska Natives or their descendants during the shareholder’s
lifetime by giving the shares as a gift to specified family members. Under the 1988
amendments, shares have voting rights if they are inherited, transferred, or gifted to an
Alaska Native or descendant of an Alaska Native.




Page 4                                      GAO-13-121 Regional Alaska Native Corporations
Figure 1: The Twelve Geographic Regions for the Regional Alaska Native Corporations in Alaska




                                        The corporations established under the Settlement Act were to receive
                                        title to about 44 million acres of land in exchange for the extinguishment
                                        of Alaska Native aboriginal land claims. 8 Specifically, the 12 regional



                                        8
                                         In addition to extinguishing all aboriginal claims of the Alaska Native people, including
                                        any aboriginal hunting and fishing rights, the Settlement Act revoked all existing Indian
                                        reservations or reserves in Alaska except one, the Annette Island Reserve of the
                                        Metlakatla Indian community.




                                        Page 5                                      GAO-13-121 Regional Alaska Native Corporations
corporations received rights to the subsurface and some surface lands,
and certain village corporations received title to surface lands. 9 Under the
act, the 13th Regional Corporation is not entitled to any land or
subsurface rights. Under section 7(i) of the act, 70 percent of all revenues
annually received by each regional corporation from the timber and
subsurface resources conveyed to them under the Settlement Act is then
divided among the 12 regional corporations according to the number of
Alaska Natives enrolled in each region. 10 The 13th Regional Corporation
does not share in this natural resource revenue, known as the 7(i)
distribution.

In addition, each of the regional and village corporations established
under the Settlement Act received a portion of the nearly $1 billion
monetary settlement (see table 1). The portion of the settlement money
given to each regional corporation was based on the relative number of
Alaska Natives enrolled in the region. The 12 regional corporations in
Alaska were required to distribute to shareholders each year until 1976
not less than 10 percent of the settlement money and all other net
income, including the 7(i) distribution. After 1976, the regional
corporations must distribute 50 percent of funds from such sources
among the village corporations in the region and regional corporation
shareholders who are not residents of those villages. 11 The 13th Regional
Corporation was required to distribute to its shareholders not less than
50 percent of its settlement money. As a House committee report
accompanying the Settlement Act stated, the money provided by the
settlement was intended to provide the capital necessary to raise the



9
 In addition to regional and village corporations, the act allowed groups not qualifying to
establish an Alaska Native village corporation to establish Alaska Native “group”
corporations and Alaska Natives living in Sitka, Kenai, Juneau, and Kodiak to establish
“urban” corporations. Both group and urban corporations were eligible to receive title to
surface land.
10
  The 7(i) distribution was the subject of much litigation in the 1970s and is now governed
by the “Section 7(i) Settlement Agreement” finalized in 1982 (and subsequently amended).
Under this settlement agreement, the regional corporations share 70 percent of all net
revenues received from timber and subsurface resources conveyed to them under the act.
11
   43 U.S.C. § 1606(j). Specifically, the amount distributed as dividends to shareholders
who are not village residents bears the same ratio to the amount distributed among the
village corporations that the number of shares of stock registered on the books of the
regional corporations in the names of nonresidents of villages bears to the number of
shares of stock registered in the names of village residents. 43 U.S.C. § 1606(m).




Page 6                                      GAO-13-121 Regional Alaska Native Corporations
                                         standard of living of Alaska Natives—many lived in extreme poverty and
                                         underprivileged status—through their own efforts. 12

Table 1: Characteristics of the Regional Alaska Native Corporations When Established in the 1970s

                                                                                 Total cash
                                       Land entitlement                       distributions           Number of        Number of village
                                                         a                                                      b                      c
Corporation                          (acres in millions)              (thousands of dollars)       shareholders           corporations
Ahtna, Incorporated                                       1.78                      $13,365                   1,074                        8
The Aleut Corporation                                     1.43                       40,537                   3,249                       13
Arctic Slope Regional Corporation                         5.00                       46,889                   3,738                        8
Bering Straits Native Corporation                         2.28                       80,067                   6,333                       17
Bristol Bay Native Corporation                            3.07                       67,443                   5,401                       29
Calista Corporation                                       6.52                      166,100                 13,306                        56
Chugach Alaska Corporation                                0.95                       24,153                   1,908                        5
Cook Inlet Region, Inc.                                   2.41                       77,797                   6,264                        7
Doyon, Limited                                          12.22                       113,160                   9,061                       34
                                                                                                                                               d
Koniag, Incorporated                                      1.16                       41,675                   3,342                        9
NANA Regional Corporation                                 2.25                       60,269                   4,828                       11
Sealaska Corporation                                      0.59                      198,649                 15,787                         9
The 13th Regional Corporation                                  0                     46,601                   4,426                        0
                                                                                                                                               e
Total                                                   39.66                      $976,705                 78,717                      206
                                         Source: Department of the Interior.

                                         a
                                          Approximate totals include both surface and subsurface estates; surface amounts are generally
                                         owned by the village corporations within the region. Total acres do not include 4 million acres that
                                         villages elected to take title to as “revoked reserves” under section 19 of the Alaska Native Claims
                                         Settlement Act. Until late 1973, village corporations could elect to acquire title to the surface and
                                         subsurface estates in certain reserves established before the Settlement Act, reserves the Settlement
                                         Act revoked. Village corporations that elected to take title to revoked reserves were not eligible for
                                         any distributions from the regional corporation, and their shareholders were not eligible to become
                                         regional corporation shareholders. Seven village corporations elected to take title to five former
                                         reserves: Elim (Elim Native Corporation), Klukwan (Klukwan Corporation), St. Lawrence (Gambell
                                         Native Corporation and the Savoonga Native Corporation), Tetlin (Tetlin Native Corporation), and
                                         Venetie (Neets’ai Corporation and the Venetie Indian Corporation). The Klukwan Corporation,
                                         however, later chose to receive benefits from the settlement rather than taking title to the former
                                         reserve, and under section 16(d) of the Settlement Act, as amended, the Klukwan Corporation
                                         received settlement land after conveying title to its former reserve lands to the Chilkat Indian Village
                                         tribal government.
                                         b
                                          Figures represent the number of shareholders determined to be eligible after reopening eligibility as
                                         of December 31, 1982; the numbers do not include 1,522 eligible shareholders who were enrolled in
                                         village corporations that elected to take title to the revoked reserves.




                                         12
                                             H.R. Rep. No. 92-523 at 5-6 (1971).




                                         Page 7                                            GAO-13-121 Regional Alaska Native Corporations
                       c
                        These numbers do not include the seven village corporations that elected to take title to the revoked
                       reserves, and they represent the number of village corporations before any village corporation
                       consolidations or mergers with their regional corporation. For example, 10 of the 11 village
                       corporations in the NANA region merged with NANA Regional Corporation.
                       d
                        The 1980 amendments to the Settlement Act authorized seven additional village corporations in the
                       Koniag region with modified settlement entitlements. Pub. L. No. 96-487, § 1427(e) (1980).
                       e
                        There were a total of 220 eligible village corporations under the Settlement Act—the 206 included in
                       the table, plus the 7 that elected revoked reserves, plus the 7 additional Koniag village corporations.



Alaska Native Claims   Although the Settlement Act’s basic structure has not changed in the last
Settlement Act         40 years, the act has been amended several times. Some of the
Amendments             amendments pertain to the expansion of eligible shareholders, extended
                       restrictions on the sales of stock, exemptions from federal securities laws,
                       and participation in the Small Business Administration’s 8(a) program, as
                       follows:

                       •    Expansion of eligible shareholders. The Settlement Act was amended
                            in 1988 to permit the addition of new shareholders under certain
                            circumstances. Specifically, corporation shareholders could vote to
                            amend the articles of incorporation to authorize the issuance of
                            additional shares to (1) eligible Alaska Natives who missed
                            enrollment, (2) Alaska Natives born after the Settlement Act’s
                            enactment, or both. 13 A subsequent amendment in 1992 also
                            permitted corporation shareholders to vote on amending the articles of
                            incorporation to authorize the issuance of additional shares to
                            descendants of Alaska Natives born after December 18, 1971. This
                            provision allows corporations to issue stock to descendants of its
                            original shareholders without regard to blood quantum—as long as
                            shareholders vote to amend the articles of incorporation to authorize
                            such action.

                       •    Restrictions on sales of stock. The 1988 amendments also extended
                            the prohibition on sales of stock unless and until the shareholders of
                            the corporation decide to allow them. The Senate committee report
                            accompanying the amendments recognized that by the end of 1991—


                       13
                         The 1988 amendment also authorized shareholders to vote on amending the articles of
                       incorporation to authorize the issuance of additional shares to Alaska Native shareholders
                       who are 65 years old or older. In addition, the amendment authorized shareholders to vote
                       to amend the articles of incorporation to authorize the issuance of other classes and
                       series of stock to permit the corporation to raise equity capital by selling stock in traditional
                       capital markets.




                       Page 8                                           GAO-13-121 Regional Alaska Native Corporations
      the date when stock could be sold under the original act—many
      Alaska Native shareholders would not have acquired sufficient
      experience dealing with corporate activities to sell their stock on the
      open market without risking the loss of continued Alaska Native
      corporate ownership. 14 The amendment allows the shareholders to
      vote to amend the articles of incorporation to lift restrictions on stock
      sales.

•     Federal securities laws. In 1976, the act was amended to exempt the
      corporations from certain federal securities laws during the 20-year
      prohibition on the sale or disposition of stock. Specifically, the
      amendment exempted the corporations from the Investment Company
      Act of 1940, 15 the Securities Act of 1933, 16 and the Securities
      Exchange Act of 1934. 17 Because of this exemption, the corporations
      are also not subject to any amendments to these laws, including
      amendments in the Dodd-Frank Wall Street Reform and Consumer
      Protection Act 18 and the Sarbanes-Oxley Act of 2002. 19 These laws,
      and their implementing regulations, require certain corporations to
      register with and report periodically to the SEC, which regulates the
      securities industry. In 1988, when the act was amended to extend the
      prohibition on stock sales, the act was also amended to extend the
      exemption from securities law until after the corporation offers shares
      of its stock to the public, shareholders vote to allow stock sales, or the
      corporation registers with the SEC.




14
    S. Rep. No. 100-201 at 20 (1987).
15
  Investment Company Act of 1940, 54 Stat. 789, codified as amended at 15 U.S.C.
§§ 80a-1 to 80a-64.
16
    Securities Act of 1933, 48 Stat. 74, codified as amended at 15 U.S.C. §§ 77a-77bbbb.
17
  Securities Exchange Act of 1934, 48 Stat. 881, codified as amended at 15 U.S.C.
§§ 78a-78pp.
18
  Pub. L. No. 111-203 (2010). The purpose of the act is to promote the financial stability of
the United States by improving accountability and transparency in the financial system,
among other aims.
19
  Pub. L. No. 107-204 (2002). The act is intended to protect investors by improving the
accuracy and reliability of corporate disclosures made under securities laws, among other
purposes.




Page 9                                     GAO-13-121 Regional Alaska Native Corporations
                       •     Small Business Administration’s (SBA) 8(a) program participation. In
                             1988, the Settlement Act was amended to designate Alaska Native
                             corporations as minority and economically disadvantaged business
                             enterprises owned and controlled by Alaska Natives if Alaska Natives
                             and descendant shareholders represent a majority of both the
                             corporation’s total equity (shares) and voting power. Furthermore, the
                             amendment designated any direct and indirect subsidiary
                             corporations, joint ventures, or partnerships of these Alaska Native
                             corporations as minority and economically disadvantaged business
                             enterprises if Alaska Natives and descendant shareholders represent
                             a majority of both the total equity and voting power of the subsidiaries,
                             joint ventures, or partnerships. Alaska Native corporations’ qualifying
                             subsidiaries, joint ventures, or partnerships are eligible to participate
                             in the SBA’s 8(a) program—one of the federal government’s primary
                             means for developing small businesses owned by socially and
                             economically disadvantaged individuals. 20 Under the 8(a) program,
                             Alaska Native corporations, along with other tribal entities, have been
                             afforded special advantages, which have come under congressional
                             scrutiny in recent years. 21 Some of the regional corporations generate
                             a high percentage of their revenues from their subsidiaries’
                             participation in the 8(a) program.

Regional Corporation   The regional corporations are organized as for-profit corporations under
Organization           Alaska state law and are separate and distinct from the Alaska Native
                       tribal governments recognized by the federal government as Indian




                       20
                           43 U.S.C. § 1626(e).
                       21
                          GAO, Contract Management: Increased Use of Alaska Native Corporations’ Special 8(a)
                       Provisions Calls for Tailored Oversight, GAO-06-399 (Washington, D.C.: Apr. 27, 2006),
                       and GAO, Federal Contracting: Monitoring and Oversight of Tribal 8(a) Firms Need
                       Attention, GAO-12-84 (Washington, D.C.: Jan. 31, 2012). Special advantages include the
                       ability to receive sole-source 8(a) contracts for any amount, whereas sole-source awards
                       to other 8(a) firms must generally fall under certain competitive dollar thresholds ($6.5
                       million for manufacturing or $4 million for all other acquisitions). Section 811 of the
                       National Defense Authorization Act for Fiscal Year 2010—enacted in October 2009—
                       mandated changes to the Federal Acquisition Regulation to require a written justification
                       of sole-source 8(a) awards over $20 million. An interim rule amending the Federal
                       Acquisition Regulation to implement section 811 was issued on March 16, 2011, and
                       finalized on April 18, 2012. Previously, no justification was required for sole-source 8(a)
                       awards of any amount.




                       Page 10                                   GAO-13-121 Regional Alaska Native Corporations
tribes. 22 Incorporated under Alaska state law, regional corporations share
fundamental characteristics with other corporations in Alaska. For
instance, to form a for-profit corporation, articles of incorporation—which
contain basic information about the corporation and its structure—must
be filed with the state and a fee paid. The articles of incorporation specify,
for instance, how many shares the corporation is authorized to issue,
whether the shares will be divided into classes, who is eligible to receive
shares, and who serves on the initial board of directors. 23 Corporations
are required to submit biennial reports to the state containing information
about the current board of directors, number of shares issued, and other
related information. The state can dissolve corporations involuntarily for
several reasons, such as failure to file required biennial reports or pay a
biennial corporation tax. 24

The Settlement Act confirms that management of the regional
corporations is the responsibility of their boards of directors and generally
subjects the Alaska Native regional corporations to state law, although
the state does not have a role in overseeing any corporations’ corporate
governance or business decisions. According to the Settlement Act’s
legislative history, board members and officers were expected to avoid
abuses of the act’s intent; any unreasonable staff, officer, board member,
consultant, attorney, or other salaries, expenses, and fees; and
expenditure of funds for purposes other than those reasonably necessary
in ordinary business operations. 25 State corporate law does not authorize


22
   The term recognize means the federal government acknowledges that a particular
Native American group is a tribe by conferring specific legal status on that group,
establishing a government-to-government relationship between the United States and the
tribe, imposing on the government a fiduciary trust relationship to the tribe and its
members, and imposing specific obligations on the federal government to provide benefits
and services to the tribe and its members. See H.R. Rep. No. 103-781 at 2-3 (1994).
23
  Corporations also have bylaws—which contain the details of the corporations’ internal
governance arrangements—but bylaws are not filed with the state.
24
  As of this report, Alaska had never dissolved a regional corporation involuntarily,
although in 2010 the state did issue the 13th Regional Corporation a notice of potential
involuntary dissolution. Before a final notice was issued by the state, however, a state
official said that the corporation submitted necessary documentation and paid the required
fees. Although not involuntarily dissolved by the state, the 13th Regional Corporation has
largely been insolvent since 2007.The state has exercised its authority in the past to
dissolve several village corporations involuntarily. However, Alaska state law contains
provisions regarding reinstatement Alaska Native corporations. See Alaska Stat.
§ 10.06.960(i), (k).
25
 H.R. Conf. Rep. No. 92-746 at 37 (1971).




Page 11                                   GAO-13-121 Regional Alaska Native Corporations
                           the state to oversee such actions of any corporations’ directors, and the
                           act did not establish any oversight mechanism for the regional
                           corporations.

                           Under state corporate law, a corporation’s board of directors—who are
                           fiduciaries of the corporation and owe it the duties of good faith, care, and
                           loyalty—manages the corporation and makes business decisions. The
                           board hires and monitors corporate officers, such as president and
                           secretary. In contrast to the board of directors’ role, shareholders have
                           limited power to participate in management and control of a corporation.
                           Shareholders do not make business decisions for the corporation, but
                           they are responsible for electing the directors who do. Except for the
                           initial board, directors are elected by shareholders at an annual meeting.
                           The elections are usually conducted by an independent third party, such
                           as an accounting firm. In order for a shareholder election (or other action)
                           to be valid, a certain number of shares—specified in state law or the
                           articles of incorporation and known as a quorum—must be voted in
                           person or by proxy at the meeting. Voting by proxy means that a
                           shareholder who cannot attend the annual meeting in person directs
                           someone else—a proxy holder—to vote his or her shares. Shareholders
                           and the corporation can solicit shareholders to serve as their proxy
                           holders in what is known as a proxy solicitation. Proxy solicitations from a
                           corporation generally consist of an annual report to shareholders, a proxy
                           statement containing information on nominees for the board, and a proxy
                           form, among other things. In addition, shareholders must vote to approve
                           any amendments to the articles of incorporation and certain other actions
                           proposed by the board. Shareholders can also make recommendations to
                           the board on various matters by presenting and voting on resolutions at
                           annual meetings.


Overview of the Regional   Over the past 40 years, the 12 regional corporations in Alaska have
Corporations               grown into diverse and often large businesses, important to Alaska’s
                           economy. Although many of the corporations struggled financially when
                           they were first created and into the 1980s and 1990s—with at least
                           2 declaring bankruptcy—by 2011, the 12 corporations were ranked as top
                           businesses in Alaska. For example, in October 2011, Alaska Business
                           Monthly reported that the 12 regional corporations were ranked within the
                           top 25 Alaska-owned businesses in Alaska on the basis of 2010




                           Page 12                             GAO-13-121 Regional Alaska Native Corporations
                                         revenues. 26 Furthermore, the Arctic Slope Regional Corporation has been
                                         ranked as the number one Alaska-owned corporation for 17 consecutive
                                         years, with gross revenues of $2.3 billion in 2010. Collectively, the
                                         12 regional corporations’ revenues in 2010 reached almost $8.2 billion,
                                         and the corporations have extensive operations both within Alaska and
                                         around the world. For example, NANA Regional Corporation owns the
                                         land on which one of the world’s largest zinc-lead mines is situated, and
                                         the Arctic Slope Regional Corporation is a major producer of oil on
                                         Alaska’s North Slope. The regional corporations have multiple
                                         subsidiaries operating in Alaska, the lower 48 states, and several other
                                         countries. Specifically, the corporations reported to us that they
                                         collectively operate more than 330 wholly owned subsidiaries, ranging
                                         from fewer than 10 at one regional corporation to more than
                                         50 subsidiaries at another. 27 Total employees as reported by the
                                         corporations ranged from more than 500 at one corporation to almost
                                         11,000 at another. Table 2 summarizes the regional corporations’ major
                                         business operations, gross revenues, and net incomes.

Table 2: Size and Scope of the 12 Regional Alaska Native Corporations in Alaska

Dollars in thousands
                                                                                                     Gross revenue      Net income
                                                            a
Corporation                    Major business operations                                                     (2010)           (2010)
Ahtna, Incorporated            Facilities management, construction services, environmental                 $243,430          $1,739
                               services, professional services and staffing, pipeline maintenance,
                               range support and training, land management and protection
                               services, land and natural resource development
The Aleut Corporation          Fuel oil distribution, commercial real estate, government services,          143,046           8,381
                               mechanical contracting, oil field services, water quality testing
Arctic Slope Regional          Petroleum refining and marketing, government services, energy              2,331,681         164,433
Corporation                    support services, construction, resource development
Bering Straits Native          Facility operations and maintenance, construction services,                  197,706           8,848
Corporation                    computer facilities support and information technology, supply
                               logistics, administrative support, security equipment, aircraft
                               services and maintenance




                                         26
                                          Debbie Cutler, “2011 Top 49ers: Superheroes of Success,” Alaska Business Monthly,
                                         October 2011.
                                         27
                                          The regional corporations reported that collectively they are also involved as partial
                                         owners of, or in joint ventures or partnerships with, approximately 150 subsidiaries.




                                         Page 13                                     GAO-13-121 Regional Alaska Native Corporations
Dollars in thousands
                                                                                                                                Gross revenue    Net income
                                                                      a
Corporation                      Major business operations                                                                              (2010)         (2010)
Bristol Bay Native Corporation   Petroleum distribution, oil field services, construction, government                                1,667,200        43,017
                                 contracting services, natural resource management and
                                 development, tourism
Calista Corporation              Federal contracting, construction equipment and excavating,                                          234,866         18,301
                                 communications and media, real estate, energy, engineering and
                                 environmental services
Chugach Alaska Corporation       Base operation services, construction, information technology and                                    936,975         26,492
                                 telecom services, education, engineering, oil and gas services,
                                 mineral extraction
Cook Inlet Region, Inc.          Real estate, oilfield and construction services, environmental                                       188,357         16,535
                                 remediation, government contracting, tourism and hospitality
                                 properties and attractions, telecommunications, resource and
                                 energy development
Doyon, Limited                   Oil and gas services, government contracting, tourism, natural                                       280,268         15,678
                                 resource development
Koniag, Incorporated             Marine construction, aerospace manufacturing, information                                            131,052          8,654
                                 technology services, resource development and extraction, naval
                                 marine services
NANA Regional Corporation        Government contracting, oilfield and mining services, professional                                  1,592,826        41,173
                                 services including engineering, hospitality, natural resources
Sealaska Corporation             Plastics manufacturing and molding, environmental services and                                      $223,823       $15,154
                                 remediation, construction services, information technology
                                 services, security services, timber harvest and forest
                                 management, freight management and logistics
                                            Source: GAO analysis of information from the regional Alaska Native corporations.


                                            Note: Gross revenue and net income amounts are as reported by the regional corporations for the
                                            2010 reporting period.
                                            a
                                              Listed are the major business operations of the regional corporations as provided to us by the
                                            corporations in October 2012; the corporations may also undertake many other business activities not
                                            listed here.


                                            In contrast to the 12 regional corporations, the 13th Regional Corporation
                                            has experienced long-standing financial difficulties and has largely been
                                            insolvent since 2007. 28 In a 2009 letter to shareholders, the corporation’s
                                            board of directors explained that a series of events—including litigation
                                            involving the corporation’s former chief executive officer and changes in
                                            the construction and real estate markets where the corporation had
                                            operations—negatively affected the corporation to the point of insolvency.



                                            28
                                                In 1986, the 13th Regional Corporation filed for bankruptcy.




                                            Page 14                                                       GAO-13-121 Regional Alaska Native Corporations
The last annual meeting held to elect board directors was in 2006; as of
October 2012, advocates for the 13th Regional Corporation are working
without compensation to explore options for bringing the corporation back
into solvency. (We discuss this issue more fully in the last section of our
report.)

Over time, the number and demographics of the regional corporations’
shareholders have changed. For example, shareholders initially
numbered around 79,000 and now exceed 111,000. In addition, in over
half the regions, 25 percent or more of the shareholders now reside
outside Alaska (see table 3), but throughout the regions, many
shareholders reside in one of over 200 isolated villages in the state, often
located near the sea or rivers. Most villages are accessible only by small
planes, boats, or snow machines; 82 percent of the rural communities in
Alaska have no road system. Costs are high in the villages, particularly
for food, gas, and heating sources. Residents get much of their food from
a subsistence lifestyle—hunting, fishing, and gathering wild plants for
food—which remains a vital part of Alaska Native culture. Often, basic
infrastructure such as housing and water are far below the standards of
urban Alaska. For instance, some rural Alaskan homes lack running water
and flush toilets and instead use washaterias that provide laundry,
shower, and toilet facilities for a fee. In addition, employment
opportunities are scarce, and gaining access to health care and
educational opportunities is often challenging.




Page 15                            GAO-13-121 Regional Alaska Native Corporations
Table 3: Regional Alaska Native Corporation Shareholder Demographics as Reported by the Corporations

                                                                                                           Number of        Percentage of
                                                                             Number of                  shareholders         shareholders
                                         Number of                         shareholders              residing outside     residing outside
              a
Corporation                            shareholders                   residing in Alaska                       Alaska               Alaska
Ahtna, Incorporated                                1,751                               1,430                       321                18%
The Aleut Corporation                              3,750                               2,195                     1,551                  41
Arctic Slope Regional Corporation                11,090                                9,052                     1,620                  15
Bering Straits Native Corporation                  6,455                               4,865                     1,590                  25
Bristol Bay Native Corporation                     8,660                               7,090                     1,570                  18
Calista Corporation                              12,602                               10,559                       830                   7
Chugach Alaska Corporation                         2,520                               1,380                     1,010                  40
Cook Inlet Region, Inc.                            7,986                               4,900                     3,086                  39
Doyon, Limited                                   18,536                               13,891                     4,645                  25
Koniag, Incorporated                               3,696                               1,990                     1,706                  46
NANA Regional Corporation                        12,923                               11,155                     1,768                  14
Sealaska Corporation                             21,263                               11,159                    10,104                  48
Total                                          111,232                                79,666                    29,801                27%
                                       Source: Regional Alaska Native corporations.

                                       Note: These data represent the regional corporations’ shareholder numbers as reported by the
                                       regional corporations as of dates occurring from December 2011 to October 2012.
                                       a
                                        Current shareholder numbers for the 13th Regional Corporation were not available. According to one
                                       of the corporation’s shareholders, a former director, as of 2008, a total of 5,371 shareholders
                                       remained in the 13th Regional Corporation, of whom 695 resided in Alaska and 4,676 outside Alaska.



                                       Incorporated under Alaska state law, regional corporations share
The Corporations                       fundamental characteristics, although they have chosen a variety of
Have Adopted                           governance practices. Like any other Alaska corporation, the regional
                                       corporations are subject to the state’s corporate laws, with a few limited
a Variety of                           exceptions, 29 and are run by a board of directors elected by shareholders.
Governance Practices                   Nevertheless, as allowed under state law, each of the regional
                                       corporations has adopted its own set of governance practices. In
                                       reviewing these practices for the regional corporations, we found a range
                                       of similarities and differences in terms of board composition and



                                       29
                                         Regional corporations are subject to Alaska corporate law with the exception of certain
                                       provisions relating to capitalization, issuance of shares, and other topics identified in
                                       Alaska Stat. § 10.06.960.




                                       Page 16                                                 GAO-13-121 Regional Alaska Native Corporations
                    operation, executive and board compensation, board elections, and
                    shareholder involvement; we did not review governance practices of the
                    13th Regional Corporation because it has largely been inactive since
                    2007.


Board Composition   Under the Settlement Act, all regional corporation board directors must be
and Operation       shareholders of their corporations and over the age of 18, but otherwise
                    the corporations have taken various approaches in composing and
                    operating their boards. For instance, board sizes range from 9 to 23
                    directors, and the corporations have established differing restrictions
                    relating to the directors’ employment with the corporation or their
                    subsidiary companies. A few corporations specify that directors may not
                    be employed by the corporation or any of its subsidiaries, while others
                    specify that directors may not be employed by the corporation but may be
                    employed by certain subsidiary companies. In contrast, several
                    corporations do not restrict director employment with the corporation, but
                    one restricts certain director involvement with entities that may compete
                    with the corporation, and yet another requires that the position of
                    corporate president be filled by a director. For those corporations that do
                    not restrict director employment, we found several instances where board
                    directors were also employed by the corporation or its subsidiaries.

                    We also found that the age, sex, professional business experience, and
                    board tenure of the corporations’ boards varied. 30 Very few directors were
                    younger than 40, although directors’ ages ranged from 29 to 82 years.
                    Males made up a majority of all directors, but some boards were more
                    evenly divided by gender than others (see table 4). The professional
                    business experiences listed by the directors represented diverse fields
                    and professions, including commercial fishermen, construction operators,
                    medical doctors, school teachers and university professors, and business
                    managers and executives. Similarly, a director’s tenure on a board
                    ranged considerably across and within the corporations, from less than
                    1 year to 39 years.


                    30
                      State regulation requires regional corporations to include certain information for board
                    candidates and current board directors in their board proxy solicitations for director
                    elections, such as name, age, and address; all positions and offices presently held with
                    the corporation; and business experience during the past 5 years, including principal
                    employment or occupation and employer. 3 Alaska Admin. Code § 08.345(b)(1)(A), (B),
                    (F). In some of the proxy solicitations we reviewed, some of this information may not have
                    been fully reported, in which case we referred the issue to the state.




                    Page 17                                   GAO-13-121 Regional Alaska Native Corporations
Table 4: Characteristics of the Boards of Directors, Regional Alaska Native Corporations

                                                                                        Number of directors by total time served
                                         Number of            Male:female                  Less than         From 10 to       More than
              a
Corporation                               directors                  ratio                  10 years           20 years        20 years
Ahtna, Incorporated                                 13                      7:6                     6                  5                 2
The Aleut Corporation                                 9                     5:4                     4                  5                 0
Arctic Slope Regional Corporation                   15                      9:6                     6                  8                 1
Bering Straits Native Corporation                   15                    11:4                      5                  5                 5
Bristol Bay Native Corporation                      12                    10:2                      6                  2                 4
Calista Corporation                                 11                      9:2                     5                  2                 4
Chugach Alaska Corporation                            9                     5:4                     5                  4                 0
Cook Inlet Region, Inc.                             15                    11:4                     10                  1                 4
Doyon, Limited                                      13                      7:6                     8                  4                 1
Koniag, Incorporated                                  9                     7:2                     7                  2                 0
                                                        b
NANA Regional Corporation                          23                     13:9                     12                  7                 3
Sealaska Corporation                                13                      9:4                     6                  2                 5
                                         Source: Regional Alaska Native corporations.


                                         Note: The information on board directors reported here is based on the directors in place with each
                                         corporation before its annual shareholder meeting held in calendar year 2011.
                                         a
                                          The 13th Regional Corporation has nine board director positions.
                                         b
                                          At the time NANA held its 2011 annual shareholder meeting, there was one vacancy on the board
                                         because one director had passed away; the data presented in this row apply to the 22 directors then
                                         serving.


                                         In terms of board operations, the corporations’ boards are led by a chair
                                         and have designated committees, often with written charters spelling out
                                         their operating rules and procedures, although the types of committees
                                         and authority granted to each committee vary among corporations.
                                         Eleven of the corporations’ boards have audit committees to oversee the
                                         corporation’s financial reporting practices. 31 Other common committees




                                         31
                                           The Sarbanes-Oxley Act of 2002 requires companies listed on national securities
                                         exchanges and with national securities associations to have an audit committee that is
                                         directly responsible for the appointment, compensation, and oversight of the work of any
                                         registered public accounting firm employed by that company for the purpose of preparing
                                         or issuing an audit report or related work. Because the regional corporations’ shares are
                                         not listed on exchanges or with associations, they are not subject to this requirement.




                                         Page 18                                            GAO-13-121 Regional Alaska Native Corporations
                      include executive, lands, compensation, and shareholder relations. 32 In
                      some instances, committee membership is determined by a vote of the
                      board, while in others, committee members are appointed by the board
                      chair. Depending on the specific corporation and board committee, a
                      particular committee’s authority may be advisory, or it may have some
                      decision-making authority granted by the board.

                      In addition, almost all of the corporations’ boards have written codes of
                      ethics outlining the directors’ responsibilities, including legal duties and
                      business practices, restricted activities (such as restrictions relating to
                      individual contributions to political campaigns), and the avoidance or
                      disclosure of potential conflicts of interest. Many of the corporations’
                      codes of ethics discuss how conflicts of interest or the appearance of
                      conflicts of interest should be avoided and what information is to be
                      disclosed to the board in case of a potential conflict, such as when the
                      corporation may be considering a business transaction with a member of
                      a director’s family. Additionally, in their annual proxy statements, the
                      corporations generally disclose the family relationships of directors, board
                      nominees, or executive officers of the corporation and its subsidiaries and
                      certain financial transactions by the corporation with a director or
                      director’s family, as required by state regulation. 33


Executive and Board   The regional corporations report compensation information for certain
Compensation          corporate officers and board directors, although the type of information
                      reported varies. Under Alaska state regulation, boards’ proxy statements
                      must contain certain information on compensation distributed to or
                      accrued by corporate officers and directors over the previous fiscal year,


                      32
                        State regulation requires regional corporations’ board proxy solicitations to list any board
                      committees that perform audit, nominating, and compensation functions; briefly describe
                      the functions actually performed; and indicate the membership of each committee and
                      number of meetings held during the last fiscal year. 3 Alaska Admin. Code § 08.345(b)(7).
                      33
                        Specifically, state regulations for Alaska Native corporations’ board proxy solicitations
                      for director elections require the disclosure of any family relationship between (1) board
                      nominees for director or incumbent directors and (2) any director, nominee, or executive
                      officer of the corporation and its subsidiaries. 3 Alaska Admin. Code § 08.345(b)(1)(E).
                      In addition, the regulations require a brief description of financial transactions by the
                      corporation with any entity since the beginning of the last fiscal year and any presently
                      proposed transactions if (1) the transactions in the aggregate exceed $20,000 and (2) the
                      nominee, director, executive officer, or a family member is employed by, is an officer or
                      director of, or owns an interest in the entity. 3 Alaska Admin. Code § 08.345(b)(1)(H),
                      (b)(3).




                      Page 19                                     GAO-13-121 Regional Alaska Native Corporations
although the regulation does not prescribe the specific format to be used
or require information to be included about the methods used to
determine compensation. 34 We heard concerns from several
shareholders that clear information about executive or director
compensation was lacking. 35 Our review showed that the regional
corporations’ proxy statements provide varying levels of detail on
compensation amounts and methods used to determine compensation.

For the regional corporations’ 2010 reporting period, all the corporations
reported in their proxy statements the total remuneration paid or accrued
to their five most highly compensated officers or directors for services to
the corporation and any subsidiaries, as required by state regulation. 36
The top reported compensation amount for any one officer or director
ranged from $137,578 to $2,514,961. For seven of the corporations,
corporate officers were generally the five most highly compensated
individuals, while at the other five, officers of subsidiaries were commonly
the five most highly compensated. Some corporations provided annual
salary, bonus, or pension amounts, whereas others reported a total
without specifying what made up the total or what amounts were
distributed versus accrued during the time period.

Similarly, state regulation requires the corporations to report the total
remuneration paid to or accrued by all their officers and directors as a
group, as well as the number of persons in the group; the regulation does
not, however, specify whether this group is to include officers and
directors of any of the corporations’ subsidiaries. 37 For the corporations’
2010 reporting period, total reported compensation ranged from


34
   The state regulation defines executive officer as the president, secretary, treasurer, a
vice president in charge of a principal business function, such as sales, administration, or
finance, or any other person who performs similar policymaking functions for the
corporation. 3 Alaska Admin. Code § 08.365(6).
35
  Throughout this report we cite shareholder views that we obtained through four primary
means: (1) our site visits to communities and villages in Alaska, (2) phone interviews we
held with shareholders who contacted us or whom we contacted on the basis of referrals,
(3) a feedback e-mail mailbox we set up, and (4) social media websites and other news
sources. Because we were unable to conduct a systematic and independent survey of
shareholders, we were limited to using these views, which are anecdotal and not
generalizable to all shareholders.
36
 3 Alaska Admin. Code § 08.345(b)(2)(A).
37
 3 Alaska Admin. Code § 08.345(b)(2)(B).




Page 20                                    GAO-13-121 Regional Alaska Native Corporations
$1.4 million for 14 officers and directors to $19 million for 115 officers and
directors. Five corporations indicated that corporate and subsidiary
officers and directors were included in their totals; two indicated they
included corporate officers and directors only; and for the five others, it
was not clear whether the totals included officers and directors of
subsidiaries.

In addition, for their boards of directors, the regional corporations reported
in their annual proxy statements general information on the fees directors
were paid for their service on the board and the types of expenses for
which they could be reimbursed. The way compensation was reported
varied by corporation; the regulations do not specify a format for
reporting. Three corporations provided the total amount they paid to each
director for the reporting period (amounts reported ranged from less than
$17,000 to more than $49,000). Five reported monthly or annual salaries
for the directors, along with a description of other expenses for which
directors could be reimbursed, such as travel and technology expenses.
At these five corporations, salaries reported ranged from $1,500 per
month to $48,000 per year. The other four corporations reported director
compensation per day or per half day for attending board meetings
(sometimes in addition to a monthly or annual fee), along with a
description of expenses for which they could be reimbursed. These
corporations did not report the total number of days the directors spent in
meetings, however, making it difficult to estimate total compensation for
the directors. Further, several corporations reported that directors serving
as board chair, as chair of board committees, or on subsidiary board
committees received additional compensation in varying amounts,
depending on the corporation.

Although not required to by state regulation, several regional corporations
provide additional information in their proxy statements about their
executive pay practices. In the wake of public concern, executive
compensation at private and publicly traded companies has received
considerable scrutiny in recent years, and we heard similar concerns from
several regional corporation shareholders, particularly about the
transparency of compensation amounts or methods for determining such




Page 21                             GAO-13-121 Regional Alaska Native Corporations
                  amounts as reported to shareholders. 38 We found that several
                  corporations detailed the process they used to make executive
                  compensation decisions in their proxy statements, including how the
                  corporations evaluated management performance. For example,
                  one corporation reported in its 2011 proxy statement that its
                  compensation committee recommended a compensation plan after
                  reviewing national independent labor market studies of compensation
                  paid by comparable companies, including other regional corporations.
                  This corporation reported that it used independent compensation
                  consultants to assist its compensation committee in developing a
                  performance-based executive compensation plan, which included a base
                  salary plus potential additional performance-based compensation. In
                  contrast, although the other corporations did not include detailed
                  information in their proxy statements, when we asked the corporations to
                  describe their executive compensation policies, many of them reported
                  that they rely on outside corporate salary surveys and studies; a few
                  reported that they strive to set their compensation levels near the
                  midpoint of the market for comparable positions. Similarly, several
                  corporations reported that they had detailed methods in place to monitor
                  and evaluate the performance of their executive officers and described
                  incentive plans or bonuses available for meeting specific performance
                  targets.


Board Elections   For each of the regional corporations, board directors’ terms are 3 years
                  and staggered, so that generally one-third of the director positions are up
                  for election every year. Five corporations also require representation on
                  their boards from specific geographic areas within the region
                  (see table 5). For example, one corporation requires that at least one
                  director come from each of the region’s villages, whereas another
                  established units corresponding to certain villages or communities and



                  38
                    In their annual proxy statements and other reports, SEC registrants must provide a
                  comprehensive discussion and analysis of executive compensation policies, including
                  (1) the specific items of corporate performance taken into account in setting compensation
                  policies and making compensation decisions and (2) how specific elements of
                  compensation are structured and implemented to reflect the company’s performance and
                  the executive’s individual performance. In addition, under the Dodd-Frank Act, SEC
                  registrants generally must conduct a shareholder advisory vote to approve executive
                  compensation at least once every 3 years. This requirement does not apply to the regional
                  corporations. According to one corporation, advisory resolutions regarding executive
                  compensation are put forth by shareholders at most of the corporation’s annual meetings.




                  Page 22                                   GAO-13-121 Regional Alaska Native Corporations
specified a minimum number of directors who must come from each unit.
In addition, the corporations have varied in how they evaluate and
recommend candidates and conduct their elections. For instance, about
half the corporations’ boards have nominating committees to assess
potential candidates and develop or recommend to the board a slate of
nominees. These corporations often pay campaign expenses for their
board slate, but most of them also provide information in their proxy
statements on other candidates, known as independent candidates, and
include the independents’ names on their proxy at no cost to the
candidates. Independent candidates may also run for election using their
own proxy solicitations. Successful independent candidates may or may
not be reimbursed by the corporation for their campaign expenses,
depending on the corporation.

In contrast to those corporations with a board slate, five corporations’
boards do not develop a board slate but, rather, generally include in their
proxy statements all interested and qualifying candidates, as long as the
candidates submit certain required information, such as biographical and
conflict-of-interest information and, in the case of one corporation, petition
signatures by at least 10 voting shareholders other than the candidate.
These corporations pay for the proxy solicitations, but similar to those
corporations with board slates, candidates may or may not be reimbursed
by the corporation for other campaign expenses. A few shareholders we
heard from said it is expensive to run for a board position. For example,
they said, sending campaign information through the mail to all
shareholders could cost thousands of dollars, given the shareholders’
dispersed and often remote locations. We heard from a few shareholders
that the corporations will share only mailing addresses and campaigning
via e-mail or other electronic means may therefore not be an option for




Page 23                             GAO-13-121 Regional Alaska Native Corporations
                                         interested candidates. 39 Several corporate officials we spoke with noted
                                         that their corporations do not use e-mail to solicit proxy solicitations and
                                         that they provide only shareholder mailing addresses to interested
                                         independent candidates because the corporations solicit proxies by mail.

Table 5: Election Information for the Regional Alaska Native Corporations, 2001-2011

                                                      Number                            Geographic                               Number of
                                                     of board                           representation       Board           2001 directors
Corporation                                          directors                          requirements         slate          serving in 2011
Ahtna, Incorporated                                            13                       Yes                  No                               5
The Aleut Corporation                                            9                      No                   No                               3
                                                                                                                  a
Arctic Slope Regional Corporation                              15                       Yes                  No                               8
Bering Straits Native Corporation                              15                       No                   No                               9
Bristol Bay Native Corporation                                 12                       No                   Yes                              4
Calista Corporation                                            11                       Yes                  Yes                              6
Chugach Alaska Corporation                                       9                      No                   Yes                              3
Cook Inlet Region, Inc.                                        15                       No                   Yes                              4
                                                                                                                      b
Doyon, Limited                                                 13                       Yes                  Yes                              5
Koniag, Incorporated                                             9                      No                   Yes                              1
NANA Regional Corporation                                      23                       Yes                  No                               5
Sealaska Corporation                                           13                       No                   Yes                              7
                                         Source: Regional Alaska Native corporations.

                                         a
                                          Through its 2005 election, the Arctic Slope Regional Corporation identified board-endorsed
                                         candidates.
                                         b
                                          In August 2010, Doyon, Limited’s board voted to cease developing a board slate, starting with its
                                         2011 elections.




                                         39
                                           Alaska corporate law requires a corporation to make its record of shareholders and
                                         books and records of account reasonably available for inspection and copying by a
                                         shareholder of the corporation, upon a written demand stating with reasonable particularity
                                         the purpose of the inspection. In 2011, the Alaska Supreme Court ruled that this statute
                                         provides shareholders with a right only to inspect and copy and not a right to have books,
                                         records, or documents delivered electronically, by mail, or otherwise. The court also ruled
                                         that this statute does not require corporations to keep phone and e-mail addresses in its
                                         shareholder records, so the law does not require corporations to permit shareholder
                                         inspection of them. Henrichs v. Chugach Alaska Corp., 260 P.3d 1036, 1041-42 (Alaska
                                         2011). A state trial court also ruled in 2011 that on the basis of the statute’s language,
                                         case law, and statutory history, a regional corporation was not obligated to divulge
                                         information on individual executive compensation in response to a shareholder request.
                                         Pederson v. Arctic Slope Regional Corp., No. 3AN-09-10971 CI (Alaska Superior Ct. Feb.
                                         4, 2011) (order on reconsideration of motions for summary judgment).




                                         Page 24                                                GAO-13-121 Regional Alaska Native Corporations
All of the corporations use cumulative voting for their elections of
directors. Cumulative voting means that each shareholder has a number
of votes equal to the number of shares he or she owns multiplied by the
number of directors to be elected. For example, if a shareholder owned
100 shares and four directors were up for election, the shareholder would
have 400 votes and could cast all 400 votes for one candidate or divide
his or her votes among the candidates. In addition, nine corporations
allow their shareholders to return a discretionary proxy, meaning that
shareholders may grant the board or other specified proxy holders
discretion to cast their votes as the proxy holders see fit; for the
three corporations that do not solicit discretionary proxies, any votes that
are not directed to a particular candidate are counted only toward
reaching a quorum.

Several corporations indicated that achieving a quorum for their annual
elections can be challenging, but they have been successful over the last
several years in obtaining the required participation of shareholders to
elect directors for the board. To have a valid election, a quorum of
shareholders must be represented at the meeting in person or by proxy.
Four corporations’ quorum is one-third of voting shares, and the other
eight corporations’ quorum is a majority of voting shares. 40 To encourage
shareholders to vote, all 12 corporations offer monetary prizes or other
incentives to shareholders voting in the annual election of directors. 41
Seven corporations also allow shareholders to vote online; a few
corporations said they have considered online voting but determined it
may not be feasible or worthwhile, because, for example, many of their
shareholders live in remote locations where Internet access is limited.

In reviewing the regional corporations’ election outcomes during the
10-year period from 2001 to 2011, we found that more board-endorsed
candidates or incumbents have won elections than independent


40
  According to the bylaws of the 13th Regional Corporation, its quorum is one-third of
voting shares.
41
  The Alaska Department of Commerce, Community, and Economic Development’s
Division of Banking and Securities’ position is that prizes for shareholders returning
proxies are allowable only when they are available to all voting shareholders regardless of
the proxy chosen. In 2011, the Alaska Supreme Court ruled that a regional corporation’s
bylaws authorized the board to offer a prize as an incentive for shareholders to return their
proxies by a specified deadline for any proxyholder or candidate and that the prizes were
not illegal distributions or vote buying, since the incentive did not favor any candidate.
Heinrichs v. Chugach Alaska Corp., 260 P.3d 1036, 1044-45 (Alaska 2011).




Page 25                                    GAO-13-121 Regional Alaska Native Corporations
                          candidates but that board director positions have also changed hands
                          numerous times. Some shareholders we spoke with said that their
                          corporation’s use of a board slate and discretionary voting has made it
                          difficult to elect independent candidates. We found that for the
                          corporations with board slates, elections were won mostly by board slate
                          nominees. We also found, however, that at least one independent
                          candidate was elected during the 10-year period at all but one of these
                          corporations; one corporation elected no independent candidates.
                          Similarly, for the corporations without board slates, we found that
                          incumbent directors who ran for reelection largely won, but it was not
                          uncommon for at least one incumbent candidate to be unseated across
                          these corporations during any one election cycle. In addition, in most
                          elections across the 10-year period, candidates outnumbered the
                          available seats on the board of directors, although we found that for the
                          corporations with village-specific or other geographical restrictions on
                          certain board seats, a specific seat went uncontested in several elections.
                          Across the 12 corporations, director positions have turned over several
                          times during the last 10-year period. Roughly half or fewer of the directors
                          who were serving in 2001 were still serving in 2011 (see table 5).
                          Turnover has occurred for a variety of reasons, including resignations,
                          deaths, nominating committees not selecting incumbent board directors
                          for reelection, and incumbents losing board elections.


Shareholder Involvement   Legally, the role of shareholders in a corporation is limited, although the
                          regional corporations have developed a number of methods to seek
                          feedback from and encourage the involvement of their shareholders. For
                          instance, in addition to annual shareholder meetings, most regional
                          corporations annually hold informational meetings in all or a portion of the
                          villages located in their region and in other locations where significant
                          numbers of shareholders reside, such as Anchorage or the Pacific
                          Northwest. For these meetings, corporate officials or board directors
                          travel to communities to update shareholders on the corporation’s
                          business activities and finances and to enable shareholders to ask
                          questions, raise concerns, and offer comments and suggestions. The
                          corporations also provide news, updates, and other information to their
                          shareholders via corporate websites, electronic or printed monthly or
                          quarterly newsletters, and online social media like Facebook. In addition,
                          nine regional corporations stream their annual meetings online, allowing
                          shareholders to participate remotely. Several corporations reported that
                          they have received good online participation, allowing some shareholders
                          to participate who might not otherwise be able to attend. For instance,
                          one corporation reported to us that shareholders could view its 2012


                          Page 26                             GAO-13-121 Regional Alaska Native Corporations
annual meeting via webcast for the first time, and approximately
400 shareholders participated.

Three corporations have established shareholder advisory committees
comprising volunteer shareholders—representing shareholders living both
within and outside of Alaska—to learn about what matters to
shareholders, hear how the corporations can improve communications
and interactions with shareholders, and educate shareholders about
corporate policies and procedures, among other things. For example, one
corporation has established three shareholder committees to represent
shareholders living (1) in Anchorage, (2) in Alaska but outside Anchorage,
and (3) in the lower 48 states. Each committee consists of nine members
who are chosen by a random drawing from the names of those who
indicated interest in serving on the committee; chosen members serve
3-year terms. Two current directors from this corporation previously
served on the shareholder advisory committee, one of whom told us that
it was a great opportunity to learn more about the corporation and
become interested in serving on the board.

Further, six of the corporations open at least a portion of their regular
board meetings to shareholders. In a few instances, a request to attend
must be made in advance; in others, any interested shareholders may
attend. A few other corporations said they offered limited instances when
shareholders are invited to attend specific board meetings, such as when
the board may be meeting with visiting dignitaries or discussing a cultural
artifact. Additionally, many corporate officials we spoke with said they
have an “open door” policy, whereby shareholders can call or come to
their corporate offices to directly express concerns or obtain information.
Corporate officials also noted that many of the directors live in villages in
their region, and they receive feedback on corporate matters from
shareholders on a daily basis because their families, neighbors, and
coworkers are also shareholders.

We found that most regional corporations have surveyed their
shareholders for feedback over the past several years, although obtaining
a high survey response rate has been a challenge. All but two
corporations reported to us that they have surveyed their shareholders; a
few reported that they survey their shareholders on a regular basis, such
as every other year. Regional corporations have surveyed their
shareholders to gauge their general satisfaction with the corporation or to
obtain their views on specific topics, such as opening enrollment to
Alaska Natives or descendants born after the law was enacted in
December 1971, training or employment preferences, or special


Page 27                             GAO-13-121 Regional Alaska Native Corporations
payments to elders. In the survey results we reviewed for the handful of
corporations that shared them with us, the corporations reported that
most shareholders expressed satisfaction with their corporation. For
example, in a survey conducted in 2008, 67 percent of shareholder
respondents for one corporation expressed positive “overall feelings
toward” their corporation, and 62 percent of the respondents said the
corporation did a good job of telling shareholders what the company was
doing. We also noted, however, that in many instances survey response
rates were fairly low, ranging from 6 to 46 percent. A few corporate
officials we spoke with acknowledged the participation challenge and said
they typically offer incentives, such as prize drawings, to improve the
response rate. We also spoke to several shareholders, who said they
were generally satisfied with their regional corporation and stayed abreast
of corporate activities by regularly reading corporate reports. On the other
hand, we also heard concerns from several other shareholders that
access to meaningful corporate information was lacking or that some
shareholders do not participate in surveys or other corporate activities
because they were frustrated or disappointed with the corporation.

In addition to participating in meetings and surveys, shareholders may
submit resolutions for inclusion in a board proxy solicitation regarding
corporate matters for a shareholder vote. Many corporations have specific
requirements for including proposed resolutions, such as setting time
frames for submission or limiting the number of resolutions that can be
submitted during any one year, and shareholder resolutions have often
been advisory. We found that from 2001 through 2011, shareholders from
five corporations submitted 1 or more resolutions during any one year (for
a total of 14 resolutions across the five corporations during this period). 42
Examples of submitted shareholder resolutions included limiting terms for
the board of directors to two consecutive terms, designating a specific
location for the corporation’s next annual meeting, and establishing a
settlement trust.

Another option available to shareholders if they are dissatisfied with
corporate policies or activities is to file a lawsuit against the corporation.
During our review, we identified several lawsuits that shareholders
brought against regional corporations, including challenges to the


42
  The corporations’ boards of directors may also include in the proxy board-sponsored
resolutions for a shareholder vote. We found that from 2001 through 2011, 21 board-
sponsored resolutions were put forward across eight corporations.




Page 28                                  GAO-13-121 Regional Alaska Native Corporations
                          corporation’s denial of shareholder access to corporate books and
                          records, 43 the settlement agreement governing the 7(i) distribution, 44 and
                          payments to elders made through a settlement trust or elder benefits
                          program. 45 Shareholders lost the lawsuits we identified except one case
                          that settled out of court and two cases that, as of this report, were still
                          pending. Nevertheless, in a few of these cases, neither federal nor state
                          law authorized shareholders to bring lawsuits challenging the
                          corporation’s action, and under state law, successfully challenging a
                          corporate board’s business judgment is difficult. A few shareholders we
                          heard from expressed frustration that filing a lawsuit was their only
                          recourse, which can be very costly.


                          The regional corporations are subject to some financial reporting
The Corporations Are      requirements under federal and state law, although oversight of the
Subject to Some           reporting is limited. The Settlement Act generally exempts the
                          corporations from complying with federal securities laws while requiring
Federal and State         them to annually transmit a report to their shareholders that contains
Financial Reporting       “substantially all the information” required to be included in an SEC
                          registrant’s annual report to shareholders. 46 The act does not provide a
Requirements and          federal role for monitoring the corporations’ compliance with this
Limited State             requirement, and the state’s oversight is generally limited to enforcement
                          of state securities laws and proxy regulations.
Oversight
Federal and State         Under federal law and state securities laws and regulations, the regional
Financial Reporting       corporations are subject to some financial reporting requirements. At the
Requirements for Alaska   federal level, the Settlement Act generally exempts the corporations from
                          complying with federal securities laws. As explained in a House
Native Corporations       committee report accompanying an amendment to the Settlement Act,



                          43
                            Heinrichs v. Chugach Alaska Corp. 260 P.3d 1036 (Alaska 2011); Pederson v. Arctic
                          Slope Regional Corp., 3AN-09-10971 (Alaska Superior Ct.). (In a trial held in September
                          2012, a shareholder challenged the corporation’s denial of access to corporate documents
                          concerning a business transaction and executive compensation.)
                          44
                           Oliver v. Sealaska Corp., 192 F.3d 1220 (9th Cir. 1999).
                          45
                            Notti v. Cook Inlet Region, Inc., Nos. 01-35521, 01-35569. (9th Cir. 2002); Bodkin v.
                          Cook Inlet Region, Inc., 182 P.3d 1072 (Alaska 2008); Broad v. Sealaska Corp., 85 F.3d
                          433 (9th Cir. 1996).
                          46
                           43 U.S.C. § 1625(c)(1).




                          Page 29                                  GAO-13-121 Regional Alaska Native Corporations
this exemption was based on the understanding that federal regulation of
the corporations was not necessary to protect Alaska Native shareholders
or the public during the period when Alaska Native-owned stock could not
be sold. 47 The report also noted, however, that if this assumption proved
invalid in light of experience, the committee was prepared to reimpose
provisions of federal securities laws as necessary and that the 20-year
exemption should be viewed by the Alaska Natives as an experiment
which would be stopped if abused. In 1988, the act was amended to
extend the exemption from securities law until after a corporation issued
shares of its stock to the public, shareholders voted to terminate the
restriction on sales, or the corporation registered with the SEC. As of this
report, none of these events had occurred, and the 13 regional
corporations therefore continue to be exempt from federal securities laws.

In discussing the federal securities exemption, the House committee
report recognized that the Securities Exchange Act of 1934 was designed
to inform the investing public about securities and also provided useful
information to shareholders. 48 Accordingly, the Settlement Act was
amended to require Alaska Native corporations to annually transmit a
report to their shareholders that contains “substantially all the information”
required to be included in an SEC registrant’s annual report to
shareholders. In addition, the Settlement Act required that the accounts of
the regional corporations be audited annually in accordance with
generally accepted auditing standards and that the corporations provide
shareholders with a copy, or a fair and reasonably detailed summary, of
the audit report. 49

The SEC has characterized an annual report to shareholders as the
“principal document used by most public companies to disclose corporate
information to their shareholders.” 50 Regulations promulgated under the
Securities Exchange Act of 1934 prescribe the information that SEC




47
 H.R. Rep. No. 94-729 at 20 (1975).
48
 H.R. Rep. No. 94-729 at 19 (1975).
49
 43 U.S.C. § 1606(o).
50
 See http://www.sec.gov/answers/annrep.htm.




Page 30                               GAO-13-121 Regional Alaska Native Corporations
registrants must provide in their annual reports to shareholders. 51 These
annual reports are to include, among other things, detailed information
about the financial performance of the corporation, audited consolidated
financial statements for the corporation and its subsidiaries, and a
presentation of selected financial data highlighting certain significant
trends in the company’s financial condition and results of operations for
each of the last 5 fiscal years. A management discussion and analysis of
the corporation’s financial condition and results of operations are also
required. The SEC describes the management discussion and analysis
as an opportunity for management to help shareholders see the
corporation’s financial performance through the eyes of management; to
provide context within which the financial statements should be analyzed;
and to provide information about the quality of, and potential variability of,
a company’s earnings and cash flow, so that investors can ascertain the
likelihood that past performance is indicative of future performance.

At the state level, regional corporations are subject to financial reporting
requirements included in the Alaska Securities Act and its implementing
regulations. This act requires that copies of all materials related to a proxy
solicitation must be filed concurrently with the state’s Division of Banking
and Securities if the solicitation has been made available to at least
30 Alaska resident shareholders of an Alaska Native corporation with
500 or more shareholders and total assets exceeding $1 million. 52
Documents related to a proxy solicitation that must be filed with the state
include annual reports to shareholders, proxy statements, proxies that are
mailed to shareholders, as well as materials distributed by other means
such as e-mail or websites. Proxy solicitation materials filed with the state
are available for public review, although the state maintains only printed
and not online copies. 53



51
  Specifically, Rule 14a-3(b) establishes requirements for the information that is to be
included in annual reports to shareholders that must accompany or precede an SEC
registrant’s proxy solicitation for a shareholder meeting to elect directors. 17 C.F.R.
§ 240.14a-3(b). This required annual report to shareholders differs from the more detailed
annual report (Form 10-K) that SEC registrants must file with the SEC.
52
  Alaska Stat. § 45.55.139. This provision applies only to Alaska Native corporations.
Although other corporations incorporated in Alaska are not required to file their proxy
solicitations with the state, state regulations govern their issuance of securities.
53
  On September 27, 2012, the state proposed changes to the proxy solicitation
regulations to allow for electronic filing of annual reports and proxy solicitation documents
relating to certain Alaska Native corporations, among other things.




Page 31                                     GAO-13-121 Regional Alaska Native Corporations
                       Alaska Native corporations that meet the threshold requirement for filing
                       proxy solicitation materials are also subject to specific state regulations
                       governing the content of and process for proxy solicitation. 54 State
                       documentation describes these regulations as intended to protect both
                       the corporations and shareholders from “unscrupulous individuals,” by
                       promoting transparency in the solicitation process and the fairness of
                       elections. The regulations prohibit proxy solicitations from containing
                       material misrepresentations—generally defined as a statement that is
                       false or misleading with respect to a material fact or that omits a material
                       fact necessary to make a statement not false or misleading—and also
                       provide guidance and examples of what might constitute false or
                       misleading statements. In addition, the regulations require proxy
                       solicitations to be preceded or accompanied by a written proxy statement
                       including certain information. What information is required depends on
                       whether the solicitation comes from the boards of the regional
                       corporations or someone else, such as an independent candidate running
                       for a seat on the board, although the requirements overlap considerably.
                       For example, both types of proxy solicitations must be preceded or
                       accompanied by background information on board of director nominees,
                       such as involvement in any adverse legal proceedings with the
                       corporation, along with certain financial transactions between the
                       corporation and any entity in which the nominee, a board director, or a
                       member of the nominee’s or director’s family is employed or has an
                       ownership interest. Proxy solicitations from a regional corporation’s board
                       of directors must also contain detailed information about the corporation’s
                       current directors and committees, among other information.


Federal and State      The Settlement Act does not provide a federal role in ensuring that the
Oversight of Alaska    regional corporations comply with the act’s reporting requirements; there
Native Corporations’   is limited oversight of the regional corporations’ financial reporting carried
                       out at the state level. Although the Settlement Act requires the regional
Financial Reporting    corporations to annually provide their shareholders with a report that
                       contains “substantially all the information” required to be included in an
                       SEC registrant’s annual report to shareholders, the act does not define
                       what “substantially all” means. In addition, the act does not authorize any
                       federal entity to monitor whether corporations are complying with this




                       54
                        3 Alaska Admin. Code §§ 08.300-08.365.




                       Page 32                               GAO-13-121 Regional Alaska Native Corporations
reporting requirement. 55 Although annual reports to shareholders are not
required to be filed with or reviewed by the SEC, a House committee
report indicated that Alaska Native leadership would comply fully with the
intent of this provision and submit annual reports to their shareholders
which are as effective in disclosing corporate activities as those prepared
by SEC registrants, and that Alaska law would provide protection for
Native shareholders from any corporate mismanagement and
misrepresentations or omissions in connection with sales of securities. 56

Because regional corporations are required to provide “substantially all”
the information required of SEC registrants in their annual shareholder
reports, we asked staff of the SEC to provide observations on the extent
to which the corporations’ 2010 annual shareholder reports include the
information required to be disclosed by SEC registrants. The SEC staff’s
observations were subject to a number of limitations, as follows:

•     SEC staff did not evaluate the merits of any of the regional
      corporations’ investments or determine whether an investment was
      appropriate for any investor, consistent with the scope of its disclosure
      review program of publicly reporting companies.

•     SEC staff did not interpret the Settlement Act’s requirement that
      regional corporations’ annual shareholder reports contain
      “substantially all the information” found in an SEC registrant’s annual
      report. Instead, in providing its observations, SEC staff assumed that
      the regional corporations were required to include all of the
      information required to be provided in an SEC registrant’s annual
      report to shareholders.

•     SEC staff did not consider any information outside of what was
      contained in the annual reports or engage in a dialogue with corporate
      officials about any of their observations, as they normally would in
      their regular disclosure review program. According to SEC staff, this



55
  The Settlement Act originally required the corporations’ audited financial statements, or
a fair and reasonably detailed summary, to be transmitted to the Secretary of the Interior
and to the Committees on Interior and Insular Affairs of the Senate and the House of
Representatives. This requirement, however, did not authorize the Department of the
Interior to take any action with respect to the financial statements and was repealed in
1988. See Pub. L. No. 100-241, §12(a) (1988).
56
    H.R. Rep. No. 94-729 at 20 (1975).




Page 33                                    GAO-13-121 Regional Alaska Native Corporations
    additional information would have further informed their observations.
    Accordingly, SEC staff noted that they were unable to determine
    whether certain observations did in fact represent deficiencies or
    noncompliant accounting or disclosures or whether they were able to
    identify all material issues in providing us with their observations.

Nevertheless, SEC staff made a number of observations and raised
several questions where the information contained in the regional
corporations’ annual shareholder reports differed from what they would
have expected to see in an SEC registrant’s annual report. For example,
SEC staff noted that the management discussion and analysis
disclosures in most of the corporations’ annual reports did not fully
explain material uncertainties reasonably likely to affect future trends and
prospects, as they would have expected to see in an SEC registrant’s
report. SEC staff also noted that it was not clear to what extent certain
generally accepted accounting principles applied to the regional
corporations’ preparation of their financial statements. SEC registrants
are generally considered “public” and must follow accounting standards
for public corporations, whereas nonpublic corporations may not have to
follow certain accounting standards required for public companies. Since
the regional corporations are exempt from SEC regulation but are
required to produce annual shareholder reports containing “substantially
all the information” found in a report prepared by an SEC registrant, SEC
staff noted that it is unclear in some circumstances which accounting
standards and disclosures the corporations should follow.

Under state securities law, the state has the authority to regulate various
issues related to the regional corporations, primarily oversight of proxy
solicitations. According to state officials, the state has received a number
of inquiries about proxy solicitations from both shareholders and regional
corporations over the years. For instance, according to state officials, the
state received 59 inquiries about regional corporations—questions
relating to proxy materials filed with the state—from July 2011 through
June 2012. The inquiries covered a range of topics, including questions
from shareholders on how to file proxy materials or what materials,
including communications via social media, are considered to be proxy
solicitations, as well as questions from corporate officials seeking
clarification of the proxy solicitation regulations’ requirements. The state
also received inquiries about areas outside its jurisdiction, such as a
shareholder contesting the results of an election, in which case the state
advised the individual to seek legal counsel. According to state officials,
they were able to respond to and resolve all the inquiries within their
jurisdiction during this time period, and no further action was necessary.


Page 34                             GAO-13-121 Regional Alaska Native Corporations
The state has the authority to review all proxy solicitations but largely
reviews only those solicitations for which a corporation or a corporation’s
shareholder has filed a complaint (i.e., a written request for the state to
investigate). Specifically, the state does not investigate to determine
whether all Alaska Native corporations meeting the threshold
requirements for filing proxy solicitations with the state actually do so, but,
rather, the state relies on self-reporting by the corporations. In addition,
state officials we spoke with said they do not automatically review the
proxy materials submitted by the regional corporations or their
shareholders because they do not have the resources to routinely review
proxy filings to assess compliance with the requirements. 57 Instead, the
state mostly relies on the corporations or their shareholders to monitor
filed proxy materials and to submit complaints if concerns of violations
surface, such as proxy materials containing materially false and
misleading statements.

According to information provided by state officials, from January 2010
through June 2012, the state received nine complaints involving four
regional corporations. Of these, one was filed against a shareholder of a
regional corporation by a corporate officer, seven were complaints filed
against a regional corporation by a shareholder, and the other was an
investigation initiated by the state into a regional corporation’s use of
social media. The state determined that four complaints involved matters
outside the state’s jurisdiction, and the state declined to open an
investigation into two others because the complaints included allegations
that were part of ongoing litigation between the parties; state officials told
us that to the extent that litigation may occur over an issue for which they
have also received a complaint, the state generally does not pursue its
own investigation but instead defers to the courts. The state opened an
investigation for the three other complaints but closed them without taking
further action.

For investigations where the state determines that a violation has
occurred, it has the authority to issue an administrative order to parties




57
  The proxy solicitation regulations expressly state that the filing of proxy materials does
not constitute a finding by the state that the filings are accurate, complete, or not false or
misleading or that the state has passed upon the merits of or approved any statement in
the solicitation; see 3 Alaska Admin. Code § 08.315(b).




Page 35                                      GAO-13-121 Regional Alaska Native Corporations
found to be in violation. 58 According to information provided to us by the
state, from 1978 through 2011, the state issued administrative orders in at
least 29 investigations of a regional corporation’s or a regional
corporation shareholder’s compliance with the state’s proxy regulations. 59
Six of the investigations involved a regional corporation’s board
solicitation, and 22 were related to shareholder solicitations. 60
Administrative orders issued have generally found one or more of the
following violations:

•    Failure to file with the state proxy material that meets the
     requirements for filing.

•    Failure to include in proxy material information required by the proxy
     regulations, the omission of which might also be materially false and
     misleading.

•    Inclusion in proxy material of materially false and misleading
     statements. For example, the state found a solicitation to be false and
     misleading because it stated that the proxy holder was engaged in a
     lawsuit against the corporation involving the corporation’s failure to
     provide a shareholder list in a timely fashion, even though at the time
     the solicitation was disseminated, the court had already ruled that the
     corporation had timely provided the list.

In almost all orders, the state ordered the violator to cease the violation;
in many instances, the state ordered that any future proxy solicitations,
either indefinitely or for a specified time period, be filed with the state
before distribution to shareholders, and in some instances, the state
imposed a fine on the violator, with most fines set at $500.




58
  The state notifies in writing the person who filed the initial complaint, the alleged violator,
and the corporation at issue of its decision whether to issue an order or take no action.
Before issuing any final orders, the state must provide reasonable notice of and
opportunity for a hearing.
59
  Five of the investigations were resolved through consent agreements whereby the
alleged violator agreed to the sanctions.
60
  One investigation involved a village corporation’s failure to comply with state proxy
solicitation requirements when it placed ads in a local newspaper requesting that
shareholders vote for two candidates seeking election to a regional corporation’s board of
directors.




Page 36                                      GAO-13-121 Regional Alaska Native Corporations
In addition, corporations or shareholders may file a lawsuit over their
concerns about a proxy solicitation. During our review, we identified a few
lawsuits brought by shareholders alleging that proxy solicitations
distributed by their regional corporations violated the law or regulations.
We also identified a number of lawsuits brought by regional corporations
alleging that shareholder solicitations contained false and misleading
statements. In the cases we identified brought by shareholders—who
alleged that the corporations’ proxy solicitation did not include required
information, contained false and misleading statements, or both—the
courts ruled in favor of the corporations, that is, that the corporations’
solicitations were not false or misleading, although two cases were still
pending as of this report, and one settled out of court. 61 In contrast, in the
cases we identified brought by regional corporations, the courts ruled that
the shareholder solicitations contained false and misleading statements,
although one case was still pending in an appellate court as of this report,
and one settled out of court. For example, in one case, the court ruled
that a shareholder’s solicitation, which claimed that board directors
appointed themselves to top executive positions regardless of
qualifications, was false and misleading. 62




61
  See Henrichs v. Chugach Alaska Corp., 260 P.3d 1036 (Alaska 2011) (Appeal of 3AN-
05-11014Cl), and Rude v. Cook Inlet Region, Inc., 3AN-10-09493CI (2012).
62
  Arctic Slope Regional Corporation v. Rodney S. Pederson, 3AN-11-05733CI
(AK Superior Court).




Page 37                                GAO-13-121 Regional Alaska Native Corporations
                       The regional corporations provide a wide variety of benefits to their
The Corporations       shareholders and other Alaska Natives. Under the Settlement Act, the
Provide Diverse        corporations are authorized to provide benefits to promote the health,
                       education, or welfare of shareholders and other Alaska Natives, but they
Monetary and           are not required to do so. 63 As diverse as they are themselves, the
Nonmonetary            corporations provide an equally diverse array of benefits depending in
                       part on their financial means and on priorities related to shareholder
Benefits to Their      needs. 64 The articles of incorporation and mission statements of the
Shareholders and       regional corporations establish their intent to provide economic, cultural,
Other Alaska Natives   social, or all three types of benefits, which the corporations have chosen
                       to do in both monetary and nonmonetary forms; benefits go to
                       shareholders, shareholders’ descendants, and others. We do not include
                       the 13th Regional Corporation in our discussion because, without
                       operating revenues, it has not provided tangible benefits to its
                       shareholders for many years.


Monetary Benefits      The 12 regional corporations provide a variety of monetary benefits to
                       their shareholders and others, including dividends, elder benefits,
                       scholarships, memorial benefits, shareholders’ equity, and charitable
                       donations, as follows:

                       •    Dividends. The most broadly dispersed monetary benefit consists of
                            cash dividends paid per share to shareholders. Shareholders and
                            officials from several regional corporations told us that dividends are
                            often considered the most important benefit shareholders receive from
                            the corporations. We heard from several corporations that dividend
                            payments to shareholders provide a critical source of income to help


                       63
                         Amendments to the Settlement Act in 1998 confirmed the corporations’ authority to
                       provide benefits to promote the health, education, or welfare of shareholders and their
                       family members and that such benefits may be provided on a basis other than pro rata
                       based on share ownership. Pub. L. No. 105-333, § 12 (1998), codified as amended at 43
                       U.S.C. § 1606(r).
                       64
                         On February 11, 2011, SBA issued a final rule making changes to the regulations
                       governing the 8(a) program, including a new requirement for Alaska Native corporations
                       with subsidiaries participating in the program to annually submit information demonstrating
                       how their participation has benefited Alaska Natives, the Native community, or both
                       (76 Fed. Reg. 8222 (Feb. 11, 2011)). While the final rule took effect on March 14, 2011,
                       SBA delayed implementation of the benefits reporting requirement until September 9,
                       2011. However, as of this report, SBA had not yet finalized its method for collecting the
                       benefits information. SBA reported that in the absence of a finalized format, subsidiaries
                       have submitted the information using their own formats.




                       Page 38                                   GAO-13-121 Regional Alaska Native Corporations
                                                 defray living expenses, such as high heating costs during the winter.
                                                 The total dividends per share paid by each of the 12 regional
                                                 corporations during the 2010 reporting period varied considerably,
                                                 ranging from $2.35 per share at one corporation to $64.26 at another
                                                 (see table 6). The regional corporations’ boards annually determine
                                                 and approve dividend amounts on the basis of factors including the
                                                 corporations’ financial performance, and some have established
                                                 formulas, such as a targeted percentage of net income, or a
                                                 permanent fund out of which dividends are to be paid.

Table 6: Financial and Dividend Information as Reported by the Regional Alaska Native Corporations, 2010

                                                                                                                  Actual dividends
                                                                                             Declared             and distributions       Actual dividends
                                    Gross revenue           Net income                      dividends                  paid in total      and distributions
                                       (thousands           (thousands                      per share                  (thousands        as a percentage of
                                                                                                       a                           b
Corporation                              of dollars)          of dollars)                    (dollars)                  of dollars)             net income
                                                                                                           c
Ahtna, Incorporated                       $243,430                 $1,739                         $4.00                        $880                   51%
                                                                                                                                     d
The Aleut Corporation                      143,046                   8,381                         21.00                     7,670                      92
Arctic Slope Regional Corporation        2,331,681                164,433                          64.26                     73,667                     45
Bering Straits Native Corporation          197,706                   8,848                           2.35                     1,488                     17
Bristol Bay Native Corporation           1,667,200                 43,017                          13.80                      7,307                     17
                                                                                                           c                         d
Calista Corporation                        234,866                 18,301                           2.75                     4,161                      23
                                                                                                           c
Chugach Alaska Corporation                 936,975                 26,492                         41.92                       9,270                     35
                                                                                                                                                            e
Cook Inlet Region, Inc.                    188,357                 16,535                          35.42                     22,236                   135
                                                                                                                                     d
Doyon, Limited                             280,268                 15,678                            4.21                    7,253                      46
Koniag, Incorporated                       131,052                   8,654                         10.50                      3,903                     45
                                                                                                                                     d
NANA Regional Corporation                1,592,826                 41,173                          14.00                    21,714                      53
                                                                                                           c
Sealaska Corporation                      $223,823                $15,154                         $3.56                      $7,690                   51%
                                           Source: GAO analysis of data from the regional Alaska Native corporations.

                                           Note: The regional corporations’ financial information presented in this table reflects a single-year
                                           snapshot and may not be representative of past or future financial performance or dividends and
                                           distributions paid to shareholders. Unless otherwise noted, the numbers in this table represent
                                           amounts reported by the corporations in their audited consolidated financial statements and
                                           accompanying notes, both of which were contained within the corporations’ annual reports to
                                           shareholders for the 2010 reporting period.
                                           a
                                            Amounts in this column represent the corporations’ declared dividends per share during the 2010
                                           reporting period, which are amounts authorized by the board of directors to be paid to shareholders.
                                           For corporations that issue more than one class of shares, these declared dividend amounts may or
                                           may not correspond to declared dividends for each class of shares.
                                           b
                                            Amounts in this column represent the total dividends paid by the corporations during the 2010
                                           reporting period, including, for some corporations, distributions to elder shareholders.
                                           c
                                            Declared dividend amounts for this corporation were contained in the corporation’s annual report to
                                           shareholders but outside of its audited consolidated financial statements.




                                           Page 39                                                       GAO-13-121 Regional Alaska Native Corporations
d
These amounts were declared in the 2010 reporting period but were paid the following year.
e
 Cook Inlet Region, Inc., does not base its dividend payments on its net income but, rather, pays a
dividend equal to 3.5 percent of shareholders’ equity, that is, the monetary value of the corporation’s
assets minus its liabilities.

     In analyzing the corporations’ financial data for the 10-year period
     from 2001 through the 2010 reporting period, we found that not all
     corporations provided dividends every year. Each of the
     12 corporations paid dividends in recent years, but a handful of
     corporations did not provide dividend payments in the early 2000s;
     some corporations struggled financially or declared bankruptcy in the
     past. 65 Our analysis showed that for the 10-year period, the
     cumulative total in dividends per share ranged from $5.50 per share to
     over $600 per share; for half the corporations, the cumulative total
     amounted to approximately $34 to $100 per share over the period.
     Thus, a shareholder owning 100 shares could have received from
     $550 to as much as $60,000 over the period; typically, however,
     shareholders would have received about $3,400 to $10,000.

•    Elder benefits. In addition to dividends, almost all the regional
     corporations provide monetary payments to elder shareholders.
     Specifically, 11 corporations make cash payments, often quarterly or
     annually, to their elder shareholders, starting at age 60, 62, or 65,
     depending on the corporation. The regional corporations provide
     these payments—which ranged from $300 to $4,000 per individual
     during the 2010 reporting period—through various mechanisms,
     including from designated trusts, as a separate class of shares, or in
     cash payments authorized by the corporations’ boards. 66 Several
     corporate officials we spoke with commented that these payments




65
  Regarding the 13th Regional Corporation, one shareholder we spoke with, who actively
tracked and maintained documentation on the corporation’s activities, said that since the
corporation was established, it twice provided dividends to its shareholders: once in 1989
at 11 cents per share and another in 2000 at 50 cents per share.
66
  At least two corporations have established settlement trusts to provide cash distributions
to elder shareholders. In 1988, the Settlement Act was amended to authorize Alaska
Native corporations to establish a settlement trust under Alaska state law if shareholders
approved a resolution to convey corporate assets, except subsurface estates, to the trust.
The 1988 amendment also authorized shareholders to vote to issue additional shares to
Alaska Natives who were 65 years old or older. Shareholders who voted to do so have
voted to establish a separate class of shares known as elder shares.




Page 40                                          GAO-13-121 Regional Alaska Native Corporations
                                                 often constitute an important source of income for elder shareholders,
                                                 who may not otherwise have a retirement income.

                                             •   Scholarships. The 12 regional corporations support a variety of
                                                 educational scholarships to their shareholders and, in some cases, to
                                                 descendants of shareholders. In general, the corporations provide
                                                 funding to closely affiliated nonprofit organizations, such as
                                                 foundations endowed by the corporations, which then award
                                                 scholarships to qualifying undergraduate, graduate, or vocational
                                                 students. During the corporations’ 2010 reporting period, each of the
                                                 12 corporations reported to us that they provided funding to support
                                                 individual scholarship awards made by the nonprofit organizations, in
                                                 amounts varying by corporation and by type of scholarship award
                                                 (see table 7). In some cases, scholarships are competitive; in other
                                                 cases, corporate officials said they try to provide funding to as many
                                                 eligible applicants as possible.


Table 7: Scholarship Information as Reported by the Regional Alaska Native Corporations, 2010

Corporation          Scholarship provider        Scholarship support
Ahtna,               Ahtna Heritage              •  Higher education scholarships to shareholders
Incorporated         Foundation                  •  Students may receive $2,000 each per semester for full-time study, $1,000
                                                    each per semester for part-time study
                                                 •  Total of $187,000 provided to foundation
The Aleut            Aleut Foundation            •     Higher education and vocational scholarships to shareholders or shareholder
Corporation                                            descendants
                                                 •     Total of $615,315 provided by foundation for almost 200 scholarships
Arctic Slope         Arctic Education            •     Higher education, training, and leadership scholarships to shareholders,
Regional             Foundation                        shareholder descendants, or other Alaska Natives living in the region
Corporation                                      •     Total of $3.4 million provided to foundation, which awarded 425 scholarships
Bering Straits       Bering Straits Foundation   •     Higher education and vocational scholarships to shareholders or shareholder
Native Corporation                                     descendants
                                                 •     Students may receive $400 to $1,000 per semester or quarter
                                                 •     Total of $209,514 provided by foundation for 148 scholarships
Bristol Bay Native   Bristol Bay Education       •     Higher education and vocational scholarships to shareholders
Corporation          Foundation                  •     Students may receive $1,500 to $5,500 per year
                                                 •     Total of $400,000 provided to foundation for 156 scholarships
Calista Corporation Calista Scholarship Fund     •     Higher education scholarships to shareholders or shareholder descendants with
                                                       ties to the Calista region
                                                 •     Students may receive $500 to $1,000 per semester, depending on grade point
                                                       average
                                                 •     Total of $293,250 provided by fund for more than 200 scholarships




                                             Page 41                                   GAO-13-121 Regional Alaska Native Corporations
Corporation          Scholarship provider          Scholarship support
Chugach Alaska       Chugach Heritage              •      Higher education scholarships to shareholders or shareholder descendants
Corporation          Foundation                    •      Students may receive $4,800 to $6,000 per academic year for undergraduate
                                                          study to $12,000 per academic year for graduate study
                                                   •      Total of $851,632 provided by foundation to more than 200 recipients
Cook Inlet Region,   CIRI Foundation               •      Higher education and vocational scholarships to shareholders or shareholder
Inc.                                                      descendants
                                                   •      Students may receive up to $5,000 per academic year for full-time study and up
                                                          to $4,500 per academic year for part-time study
                                                   •      Total of $292,592 provided to the foundation for 431 recipients
Doyon, Limited       Doyon Foundation              •      Higher education and vocational scholarships to shareholders or shareholder
                                                          descendants
                                                   •      Students may receive $400 per semester to $7,000 per year
                                                   •      Total of $482,771 provided by foundation to about 400 recipients
Koniag,              Koniag Education              •      Higher education scholarships to shareholders or shareholder descendants
Incorporated         Foundation                    •      Students may receive up to $2,500 per year for general scholarships
                                                   •      Total of $153,450 provided to the foundation
NANA Regional        Aqqaluk Trust                 •      Higher education and vocational scholarships to shareholders, shareholder
Corporation                                               descendants, or dependents of shareholders or their descendants
                                                   •      Students may receive $2,000 per term for full-time study and $1,000 per term
                                                          for part-time study
                                                   •      Total of $803,920 provided by trust to 275 recipients
Sealaska             Sealaska Heritage             •      Higher education scholarships to shareholders or shareholder descendants
Corporation          Institute                     •      Total of $298,000 provided by the institute for roughly 400 scholarships
                                            Source: GAO analysis of information from the regional Alaska Native corporations.


                                            •     Memorial benefits. Most regional corporations provide financial
                                                  assistance to their shareholders and, in some cases, to shareholder
                                                  descendants or other family members to help with funeral-related
                                                  expenses related to the death of a shareholder, spouse, or
                                                  descendant. 67 Financial assistance can be used for burial or funeral-
                                                  related expenses, including travel by family members, which may
                                                  allow shareholders to maintain Alaska Native burial traditions and help
                                                  offset the high costs of travel in Alaska. Most corporations reported
                                                  that they set a cap on the amount of financial assistance available per
                                                  individual or family, ranging from $500 to $3,000, depending on the
                                                  corporation.




                                            67
                                              Memorial benefits may be provided directly from the regional corporations or through
                                            corporation-affiliated nonprofit organizations.




                                            Page 42                                                       GAO-13-121 Regional Alaska Native Corporations
•    Shareholders’ equity. Shareholders’ equity has been described by
     some of the regional corporations as a benefit, but because
     shareholders cannot currently sell their shares for a monetary return,
     they may not view such equity as a benefit. Shareholders’ equity is
     the net assets of the company, that is, the value of a company’s
     assets minus its liabilities. According to a Department of the Interior
     study on Alaska Native corporations, the values of the regional
     corporations are difficult to estimate in the absence of a market for
     their shares. 68 Moreover, absent a market value, shareholders cannot
     in effect express confidence or lack of confidence in the corporation’s
     management of the shareholders’ assets by buying or selling their
     shares. Nevertheless, in their 2010 reporting period, the 12 regional
     corporations reported total shareholders’ equity values ranging from
     $15 million to about $1.1 billion (6 regional corporations reported
     equity per share, which ranged from about $83 to nearly $1,000 per
     share). In contrast to the corporations’ view, a number of shareholders
     we heard from said that shareholders’ equity has little real value to
     them since they cannot sell shares for a tangible monetary benefit.

•    Charitable donations. The regional corporations each make a variety
     of charitable monetary and in-kind donations to regional nonprofit
     organizations and other entities that offer services to corporation
     shareholders and others in the communities. For instance, most of the
     corporations reported that they provide funding or other support to
     housing authorities, health organizations, or vocational schools
     located in their regions. One corporation, for example, provides
     funding to a flight school that trains private and commercial pilots, a
     particularly useful skill given that many Alaska Native villages are
     accessible only by plane (see fig. 2). Flight school officials told us that
     a local airline hires nearly all of the school’s graduates. Another
     corporation provides funding to a vocational facility in the region,
     which offers junior and high school students varied training, such as
     driver’s education, metal welding, and small-engine repair.
     Representatives at some of the nonprofit organizations we visited
     stressed the importance of the regional corporations’ support in
     maintaining their operations and programs. The corporations also
     make in-kind donations, such as firewood for winter heating, including




68
  Department of the Interior, Alaska Native Claims Settlement Act (ANCSA): ANCSA 1985
Study (Washington, D.C.: 1985).




Page 43                                 GAO-13-121 Regional Alaska Native Corporations
                                            delivery to elders and others unable to haul it themselves, or gravel
                                            for village infrastructure from corporation-owned gravel pits.


Figure 2: Examples of Benefits Supported by the Regional Alaska Native Corporations




Nonmonetary Benefits                    Nonmonetary benefits offered by the regional corporations—often in
                                        partnership with village corporations, tribal organizations, and nonprofit
                                        organizations within the region—include employment opportunities;
                                        cultural preservation; land management; economic development; and
                                        advocacy on behalf of Alaska Natives and their communities. Specific
                                        benefits may include, but are not limited to, the following:




                                        Page 44                               GAO-13-121 Regional Alaska Native Corporations
•    Employment and related opportunities. The 12 regional corporations
     or their subsidiaries may employ Alaska Native shareholders in
     preference over others (see table 8). 69 They may also offer
     internships and other employment support. Some regional corporation
     officials told us that employing shareholders is an important priority to
     them, and they actively train and employ shareholders in their
     businesses. For example, according to one regional corporation,
     55 percent of the employees at its zinc-lead mine are shareholders.
     According to corporation officials, employment opportunities for
     shareholders living within the region were an important consideration
     in initially determining whether to develop the mine. Officials from a
     few other regional corporations, in contrast, told us that their
     corporations have not emphasized creating employment opportunities
     because it has not been a high priority for their shareholder base or
     that business and employment opportunities may not be readily
     available where shareholders reside. In addition to hiring shareholders
     and other Alaska Natives directly, the corporations have internship
     programs for shareholders and, in some cases, for shareholder
     descendants or spouses. Internships vary from 6- to 12-week summer
     internships to longer internships or apprenticeships that can lead to a
     permanent position with a regional corporation. Several corporations
     also offer other employment support to their shareholders, such as
     providing career counseling, job fairs, and leadership training to retain
     shareholders as managers and leaders within the corporation.




69
  To facilitate Alaska Native shareholder employment programs, the 1988 amendments to
the Settlement Act excluded Alaska Native corporations and some entities owned by the
corporations from the provisions in civil rights laws prohibiting discrimination in
employment. Pub. L. No. 100-241, § 15 (1988), codified at 43 U.S.C. § 1626(g); S. Rep.
No. 100-201 at 39 (1987).




Page 45                                 GAO-13-121 Regional Alaska Native Corporations
Table 8: Employment of Alaska Natives by the Regional Corporations and Their Subsidiaries, as Reported by the
Corporations

                                                                                     Number of employees
                                                            Corporation                                                Subsidiaries
                                                                                   Shareholder                                        Shareholder
                                                                                              a                                                  a
                                                      Total                         employees                             Total        employees
Corporation                                      employees                         (percentage)                      employees        (percentage)
Ahtna, Incorporated                                          29                           11 (38%)                         1,780          68 (4%)
The Aleut Corporation                                        14                               9 (64)                         523            33 (6)
                                                                b                                     b                        b                 b
Arctic Slope Regional Corporation
Bering Straits Native Corporation                            63                              22 (35)                       1,031            46 (4)
                              c
Bristol Bay Native Corporation                               34                              22 (65)                       3,486            88 (3)
                      c
Calista Corporation                                          53                              30 (57)                       1,351            52 (4)
Chugach Alaska Corporation                                 307                               51 (17)                       5,086            56 (1)
Cook Inlet Region, Inc.                                      79                              40 (51)                       1,276            51 (4)
                 c
Doyon, Limited                                               74                              51 (69)                       2,761          438 (16)
Koniag, Incorporated                                         57                              23 (40)                         695            12 (2)
NANA Regional Corporation                                  102                               97 (95)                      10,846        1,147 (11)
Sealaska Corporation                                         71                              56 (79)                       1,309            67 (5)
                                        Source: GAO analysis of data from the regional Alaska Native corporations.


                                        Note: These data represent the regional corporations’ employment numbers as reported by the
                                        corporations as of dates occurring from March to October 2012.
                                        a
                                         Unless otherwise noted, numbers of employees in this column include the regional corporation’s own
                                        shareholders plus descendants of those shareholders; in some cases, these numbers may also
                                        include shareholders or descendants of shareholders of other regional corporations. Numbers in
                                        parentheses represent employees who are shareholders or descendants of shareholders as a
                                        percentage of all employees of the corporation or of its subsidiaries.
                                        b
                                            Data not provided.
                                        c
                                         This corporation does not track the number of employees who are descendants of shareholders.

                                        •       Cultural preservation. The regional corporations have supported
                                                numerous cultural activities focused on preserving and maintaining
                                                Alaska Native traditions and heritage. Nearly all of the corporations
                                                have established nonprofit organizations or heritage centers, many
                                                with the express purpose of administering cultural and educational
                                                programs to preserve and honor unique Native cultures. Cultural
                                                activities supported by regional corporations include programs for
                                                youth and elders, Alaska Native community events, and language and
                                                artifact preservation. For example, several corporations sponsor
                                                youth-elder camps, featuring activities such as language learning and
                                                gathering and preparing subsistence foods that help transmit Native



                                        Page 46                                                       GAO-13-121 Regional Alaska Native Corporations
    traditions from one generation to the next. Other corporations support
    groups or events centered on traditional art forms and languages,
    such as crafts, Native songs and dances, and the development of a
    compact disc teaching an Alaska Native language. Still other
    corporations have focused on protecting sacred and historical sites
    and Native artifacts. For example, one corporation helps protect more
    than 80 sacred historical sites located throughout the region on behalf
    of tribal entities that are the traditional owners of the sites, which
    include historical burial grounds, forts, petroglyphs, and villages.

•   Land management. The regional corporations actively manage their
    surface lands for subsistence and recreation by their shareholders
    and other Alaska Natives, as well as for natural resource use and
    protection. Many corporations indicated that subsistence—which
    plays a key role in Alaska Natives’ livelihoods and traditional culture—
    is often a primary or highest-priority use of their lands; subsistence
    activities include hunting, trapping, fishing, and food gathering and
    camps associated with these activities. Natural resource use and
    protection include a wide variety of activities such as working with
    research partners to study topics related to sustainable management
    of corporate natural resources, including timber, wildlife, and
    renewable energy potential; harvesting and marketing of corporate
    natural resources; managing property leases, and easements;
    developing strategies to promote outdoor tourism; and patrolling
    corporate lands against trespassing, particularly for those
    corporations with road systems in the regions.

•   Economic development. With their size and relative profitability, the
    regional corporations take actions to foster economic development in
    their regions, typically working in partnership with other regional or
    community organizations. For example, one corporation is working
    with a regional Native health association to build a 33,000-square-foot
    multidisciplinary health facility on corporation-owned land (which is
    leased to the association for 50 years at $1 per year). The facility is to
    house dental and health clinics, as well as behavioral health, tribal
    community, and environmental health services. Another corporation
    has established a joint business venture with a village corporation to
    bring an out-of-use seafood plant back into production. The regional
    corporations are also involved in various ways—such as seeking
    funding or procuring physical resources—in infrastructure or energy
    development. Several regional corporation officials told us that energy
    development is a high priority for them, to help reduce the high costs
    of energy in Alaska Native villages. These corporations, for example,
    are exploring renewable energy development opportunities, including


Page 47                             GAO-13-121 Regional Alaska Native Corporations
                             wind power generation on varying scales, and others are exploring or
                             investing in other alternative heating sources, such as solar power,
                             geothermal heat, or wood pellet heating.

                        •    Advocacy. Officials from several regional corporations said they serve
                             as advocates for Alaska Natives and the communities they live in,
                             partly because they have lobbying resources and legal expertise that
                             local populations may not. 70 The regional corporations may lobby
                             state and federal legislatures directly on behalf of their shareholders,
                             or they may work through other Alaska Native advocacy
                             organizations. One corporation, for example, successfully lobbied the
                             Alaska state legislature to pass a bill in support of a commercial
                             oyster industry in its region, which established a loan program for
                             entrepreneurs wishing to engage in this industry. Officials from
                             another corporation routinely attend meetings with the Alaska
                             Department of Fish and Game to represent village interests in
                             subsistence fishing and hunting rights. In addition, each of the
                             regional corporations is a member of the Alaska Federation of
                             Natives, the largest statewide Native organization in Alaska. The
                             organization’s mission includes, among other goals, advocating for
                             Alaska Native people, fostering and encouraging preservation of
                             Alaska Native cultures, promoting understanding of Alaska Natives’
                             economic needs, and encouraging development consistent with those
                             needs.

                        Over the last 40 years, the regional corporations have evolved along with
Questions to Consider   the Alaska Native Claims Settlement Act, which has been amended
for the Future          several times. Given the evolution and growth of the regional
                        corporations, we identified three questions that may warrant consideration
                        and discussion by the federal government, the state, the regional
                        corporations, shareholders, or a combination of these entities, as the
                        corporations move into the future. We identified questions regarding the
                        ambiguity of existing federal financial reporting requirements for the
                        corporations, the role of the federal government in maintaining the
                        corporations’ solvency, and the implications of defining who is eligible to


                        70
                          Under Pub. L. No. 108-199 (2004), as amended, the Director of the Office of
                        Management and Budget and all federal agencies are required to consult with Alaska
                        Native corporations on the same basis as Indian tribes under Executive Order 13175. This
                        order directs the heads of federal agencies, other than independent regulatory agencies,
                        to consult with Indian tribes on policies that have tribal implications, such as regulations or
                        rulemakings that may directly affect tribal treaty rights, lands, or governments.




                        Page 48                                     GAO-13-121 Regional Alaska Native Corporations
                            be a shareholder—this last question specifically for the corporations and
                            their shareholders to consider. We pose these questions only for
                            consideration and discussion and not to advocate a particular response or
                            outcome.


Should the “Substantially   Under the original Settlement Act, the corporations were to remain
All” Federal Reporting      exclusively Native owned for a period of 20 years, and after a 1976
Requirement Be Clarified    amendment, they were to be exempt from federal securities laws while
                            they were Native owned. The 1988 amendments extended the Settlement
and Overseen?               Act’s prohibition on sales of stock and continued the corporations’
                            exemption from federal securities laws until certain events occurred.
                            Nevertheless, the corporations are required to annually transmit a report
                            to their shareholders that contains “substantially all the information”
                            required to be included in an SEC’s registrant’s annual report to
                            shareholders. We were unable to determine whether the corporations are
                            complying with this reporting requirement because the phrase
                            “substantially all” is not defined. As a result, it is not clear which
                            information is required or the extent to which any required information
                            must be included in regional corporations’ annual reports. Furthermore,
                            the Settlement Act does not establish a mechanism for federal oversight
                            of the corporations’ reporting.

                            Corporate officials we spoke with acknowledged that “substantially all” is
                            not defined in the Settlement Act and that the phrase could be clarified.
                            They also stated that they do not believe they should have to comply with
                            all of the reporting requirements for SEC registrants because many of the
                            requirements are not relevant to Alaska Native corporations. Specifically,
                            corporate officials said, many SEC requirements are directed toward
                            providing information to potential investors, which is not directly relevant
                            to regional corporations as long as the corporations remain Native owned
                            and closed to outside investors. However, in their observations about the
                            corporations’ annual shareholder reports, SEC staff noted that additional
                            information in the annual reports could inform shareholder voting on
                            directors and resolutions and allow shareholders to better understand the
                            regional corporations’ financial performance.




                            Page 49                             GAO-13-121 Regional Alaska Native Corporations
What Is the Appropriate    Over the past 40 years, some regional corporations have experienced
Role of the Federal        periods of financial crisis, and legislation has been enacted to help ensure
Government in              their continued financial solvency. For example, in the 1980s the
                           corporations were authorized to sell their net operating losses, even
Maintaining the Solvency   though other corporations were generally prohibited from doing so, 71 and
of Alaska Native           more recently they were provided with special contracting advantages
Corporations?              under the SBA’s 8(a) program—advantages that have come under
                           congressional scrutiny in recent years. 72 At this time, the 12 regional
                           corporations in Alaska are on relatively sound financial footing, and they
                           also have both land holdings and natural resource revenue sharing
                           through the 7(i) distribution to help contribute to their revenues. If,
                           however, one of these 12 regional corporations became insolvent, it is not
                           clear what would happen to its land holdings and shareholders.

                           On the other hand, given the insolvency of the 13th Regional Corporation,
                           its advocates have sought assistance from the Department of the Interior
                           and the Congress. Specifically, the Alaska Federation of Natives on
                           behalf of the 13th Regional Corporation requested accounting, legal, and
                           administrative assistance from the Department of the Interior’s Bureau of
                           Indian Affairs, as well as funding to assist the corporation in its efforts to
                           reorganize, prepare for new elections, and pursue land claims. In
                           response to questions about Interior’s responsibility to shareholders of the
                           Alaska Native corporations and specifically to shareholders of the 13th
                           Regional Corporation, Interior’s Assistant Secretary for Indian Affairs
                           stated that the Bureau of Indian Affairs currently has neither a statutory
                           nor a regulatory responsibility to Alaska Native corporations. The
                           Assistant Secretary further stated that the bureau has no responsibility to
                           ensure that Alaska Native corporations are meeting their legal obligations



                           71
                              In 1984, an amendment to the tax code prohibited corporations, except for Alaska
                           Native corporations, from selling net operating losses, a tax-sheltering device whereby a
                           profitable company buys the losses of an unprofitable company and sets off those losses
                           against its own taxable income. For example, an Alaska Native corporation could sell for
                           $10 timber valued for tax purposes at $110. The Alaska Native corporation could then sell
                           the $100 loss to a profitable corporation, which could in turn apply the $100 loss against
                           its taxable income and thus lower its own tax burden. According to the legislative history of
                           the 1984 amendment, sales of net operating losses could bring an infusion of capital to
                           help many Alaska Native corporations that were in poor financial shape and had large net
                           operating losses. By some accounts, 11 regional corporations sold around $1.5 billion in
                           net operating losses for $425 million in revenue before the exception authorizing Alaska
                           Native corporations to do so was repealed in 1988.
                           72
                            GAO-06-399 and GAO-12-84.




                           Page 50                                    GAO-13-121 Regional Alaska Native Corporations
                  and that it does not have the authority to assist the 13th Regional
                  Corporation (or any other Alaska Native corporation) in any
                  reorganization efforts.

                  In addition, advocates for the 13th Regional Corporation have also sought
                  assistance through Congress. Specifically, legislation was proposed in
                  2006 and 2008 that would have authorized the conveyance of over
                  1 million acres of land in Alaska to the 13th Regional Corporation for it to
                  manage and required that it share a portion of natural resource revenue
                  derived from the land with the other regional corporations. 73 More
                  recently, representatives from the 13th Regional Corporation have
                  promoted an alternative proposal they would like to see as a bill
                  introduced in Congress. Under this proposal, the 13th Regional
                  Corporation would receive over 1 million acres of land, which the other
                  regional corporations would manage and share a larger portion of that
                  land’s associated natural resource revenue. As of this report, however,
                  this proposal had not been acted upon.

                  Also, several shareholders we spoke with suggested that the 13th
                  Regional Corporation’s shareholders be allowed to become shareholders
                  of one of the other 12 regional corporations. Amendments to the
                  Settlement Act, however, would be necessary to authorize such an
                  action. The debate about the future of the 13th Regional Corporation
                  raises the question as to what role, if any, the federal government is to
                  play in addressing solvency issues for Alaska Native corporations.


Who Should Be a   A question specifically for the regional corporations and their
Shareholder?      shareholders to consider is who should be a shareholder in the future,
                  particularly given the implications that shareholder ownership of the
                  corporations has on the corporations’ future operations, benefits, and
                  direction. Shareholder eligibility criteria have changed since the
                  corporations were established and may continue to change under the
                  1988 and 1992 amendments to the Settlement Act. Under the original act,
                  only those Alaska Natives with at least a 25 percent blood quantum who
                  were alive on December 18, 1971, were eligible to become shareholders,
                  and these restrictions were to end in 1991. The 1988 amendments,
                  however, extended these restrictions until and unless a majority of a



                  73
                   H.R. 5617, 109th Cong. (2006), and H.R. 5403, 110th Cong. (2008).




                  Page 51                                GAO-13-121 Regional Alaska Native Corporations
corporation’s shareholders voted to lift them and allow sales of stock to
the public. As of this report, none of the corporations had voted to lift the
restrictions on the sale of stock, and many of the corporate officials we
spoke with expressed their strong desire to remain Alaska Native
owned. 74

In addition, amendments to the Settlement Act allowed the corporations’
shareholders to vote to amend the articles of incorporation to authorize
the issuance of shares to Alaska Natives born after December 18, 1971,
or to descendants of Alaska Natives; to eligible Alaska Natives who
missed enrollment; or to Alaska Native shareholders who are 65 years old
or older. Shareholders of 6 of the 13 corporations have voted to issue
shares to some or all of these classes of shareholders, although who is
eligible to receive the shares varies considerably among the corporations
(see table 9). Some of the other corporations are still studying the issue of
opening enrollment. For example, in 2011, Calista’s shareholders
approved a resolution calling on the corporation to “examine, formulate,
and recommend for shareholders a program for approval of the issuance
of a new class of stock to descendents of shareholders born after
December 18, 1971.” As result, the corporation has embarked on a 20- to
26-month process to examine, formulate, and recommend such a
program. If the proposed timetable is adhered to, the recommendation
could be voted on in 2013.




74
  Critics of the stock-transfer restriction have suggested that the restriction prohibits
shareholders from selling their shares in instances where they may not be satisfied with
the corporation and that corporate management therefore has more leeway to pursue
objectives that might not be in the best interest of the shareholders. See, e.g., Stephen
Colt, Alaska Natives and the ‘New Harpoon’: Economic Performance of the ANCSA
Regional Corporations, 25 J. of Land, Resources, and Envt’l Law 155 (2005).




Page 52                                    GAO-13-121 Regional Alaska Native Corporations
Table 9: New Classes of Shares Authorized by the Regional Alaska Native Corporations

                            Natives born after   Natives who      Native shareholders                           Number of             Number of
                            Dec. 18, 1971, or missed the original who have attained                           shareholders         shareholders
                                           a                b                      c
Corporation                   descendants        enrollment          the age of 65                                 in 1982          in 2011-2012
                                       d
Ahtna, Incorporated                                                                                                    1,074              1,751
                                       e
Arctic Slope Regional                                                                                                 3,738            11,090
Corporation
                                       f
Doyon, Limited                                                                                                       9,061            18,536
                                                                       g
Koniag, Incorporated                                                                                                   3,342              3,696
                                       h                               i
NANA Regional Corporation                                                                                             4,828            12,923
                                       j
Sealaska Corporation                                                                                               15,787             21,263
                                           Source: Regional Alaska Native corporations.

                                           a
                                            43 U.S.C. § 1606(g)(1)(B)(i)(I). The eligibility requirements for these shares vary among the
                                           corporations. For example, most of the corporations have blood quantum requirements for these new
                                           shares, while one does not. In addition, all of the corporations issued these as life estate shares. The
                                           holders of life estate shares would receive the benefit of those shares during their lifetime, but the
                                           shares would revert back to the corporation upon their death because life estate shares cannot be
                                           passed to heirs through inheritance.
                                           b
                                            43 U.S.C. § 1606(g)(1)(B)(i)(II). Only one regional corporation (Sealaska) has issued these shares
                                           as life estate shares.
                                           c
                                               43 U.S.C. § 1606(g)(1)(B)(i)(III). These shares are issued as life estate shares.
                                           d
                                            Athna, Incorporated, has issued a class of shares to descendants of Natives who were original Ahtna
                                           shareholders and are one-fourth degree or more Alaska Native and born after December 18, 1971.
                                           e
                                            The Arctic Slope Regional Corporation issued Class C shares to Natives who (1) were born after
                                           December 18, 1971, to a parent who has been enrolled pursuant to the Settlement Act to the
                                           corporation or a parent who has received Class E shares from the corporation and (2) are, at the time
                                           of issuance, a resident of the United States. The Arctic Slope Regional Corporation has also issued
                                           Class D shares to descendants of an Arctic Slope Native (defined as someone who is not a Native
                                           but meets other qualifications) who (1) were born to or adopted by a parent who has been enrolled to
                                           the corporation pursuant to the Settlement Act and (2) are, at the time of issuance, citizens of the
                                           United States.
                                           f
                                           Doyon, Limited, has issued a class of shares to any Native or descendant of Native who is one-fourth
                                           degree or more blood quantum; who was born after December 18, 1971; who is the child of an
                                           original Class A, B, C, or D shareholder; and was neither issued nor holds stock in another regional
                                           corporation unless that stock was acquired through inheritance, inter vivos gift, or purchase.
                                           g
                                            Koniag, Incorporated, shareholders recently voted to amend the articles of incorporation to allow any
                                           Native who is not enrolled under the Settlement Act but who was eligible on December 18, 1971, for
                                           enrollment to the Koniag region; who is a citizen of the United States; and who submits or, if
                                           deceased, on whose behalf an application is submitted to the corporation prior to December 31,
                                           2013, to receive shares.
                                           h
                                            NANA Regional Corporation issued a class of shares to any Native, as defined in the Settlement Act,
                                           who is a citizen of the United States; who was born after December 18, 1971; and is a child of a
                                           parent who was enrolled pursuant to the Settlement Act to the Northwest Alaska region, or which
                                           parent, if not originally enrolled under the Settlement Act, was issued Class C Settlement Common
                                           Stock, or is the child of a parent who was issued Class D Settlement Common Stock.




                                           Page 53                                               GAO-13-121 Regional Alaska Native Corporations
                     i
                       NANA Regional Corporation has issued a class of shares to any Native, as defined in the Settlement
                     Act, who is not enrolled under the Settlement Act; who was eligible on December 18, 1971, for
                     enrollment to the northwest region; who is a citizen of the United States; and who submits or, if
                     deceased, on whose behalf an application to receive shares was submitted to the corporation prior to
                     December 31, 1995.
                     j
                      The Sealaska Corporation issued a class of shares to Natives who were born after December 18,
                     1971; are 18 or older beginning June 23, 2007; are lineal descendants of an original shareholder
                     (meaning a direct descendant such as a child or grandchild); are one-fourth degree or more Alaska
                     Indian (including Tsimshian Indians not enrolled in the Metlakatla Indian Community), Eskimo, or
                     Aleut blood or combination thereof; are U.S. citizens; and are not shareholders of another regional
                     Alaska Native corporation (except by gifting or inheritance).


                     In evaluating the decision whether to offer new shares in the corporation
                     to more people, the corporations and their shareholders face a number of
                     considerations and potential future challenges, including the following:

                     •    Reduced dividends. Executives with several corporations told us that
                          their shareholders have been reluctant to issue shares to new
                          shareholders partly of out of concern that, with more shareholders in
                          total, each shareholder’s dividend amount would be smaller.

                     •    Disenfranchising those born after December 18, 1971. Some
                          shareholders are concerned about disenfranchising the younger
                          population by excluding those born after December 18, 1971. Others
                          counter that issuing new shares is unnecessary because existing
                          shares can already be passed through gifts or inheritance to those
                          born after this date.

                     •    Decline in overall number of shareholders in each corporation. Other
                          shareholders we spoke with expressed concern that if shares were
                          not issued to new shareholders, then over time fewer people would
                          qualify as voting shareholders, and participation and engagement in
                          the corporation might suffer.

                     Deciding whether to make changes to shareholder eligibility criteria will
                     have implications for each corporation’s future operations and direction.


                     We provided the Department of the Interior, SBA, SEC, the state of
Agency and Third-    Alaska, the ANCSA Regional Association, and volunteers for the 13th
Party Comments and   Regional Corporation a draft of this report for review and comment. The
                     federal agencies and the state of Alaska responded that they had no
Our Evaluation       comments. The ANCSA Regional Association provided written comments
                     (reproduced in app. II) on behalf of the 12 regional corporations in Alaska.
                     Volunteers for the 13th Regional Corporation also provided written
                     comments, which are reproduced in appendix III. The ANCSA Regional



                     Page 54                                        GAO-13-121 Regional Alaska Native Corporations
Association also provided technical comments, which we incorporated
into the report as appropriate. In addition, the Cook Inlet Region, Inc.,
provided separate technical comments, which we also incorporated into
the report as appropriate.

In its written comments, the ANCSA Regional Association made a
number of points, including that our report gives “some voice to the
suggestion to end the exemption from SEC oversight” and stating that the
corporations do not feel an end to the exemption is warranted. We did
not, however, review any advantages or disadvantages of the
corporations’ SEC exemption from federal securities laws, and as the
association noted, we are not making any recommendations in our report.

The ANCSA Regional Association went on to say that the corporations
believe they are meeting “not only the ‘substantially all’ requirement,” but
also the “spirit and intent of [the Settlement Act].” In particular, the
association states, the corporations have chosen to adopt accounting
policies and disclosures that “generally are the same” as those required
of publicly traded companies (i.e., SEC registrants) by SEC regulations.
The association also states that the corporations determined that they
would provide the most relevant information that they have, given the
nature of their shareholders. Our report notes, however, that because the
“substantially all” reporting requirement in the Settlement Act, as
amended, is not defined or overseen, it is not clear what information must
be included in the regional corporations’ annual reports to shareholders.
As a result, we could not determine whether the corporations are
complying with the Settlement Act’s reporting requirement.

In addition, the association wrote that, under section 1606(o) of the
Settlement Act, the corporations’ financial statements are audited and
certified by independent public accountants. 75 Section 1606(o) of the
Settlement Act requires the regional corporations’ accounts to be audited
in accordance with generally accepted auditing standards. Under the
Sarbanes-Oxley Act, however, SEC registrants are required to be audited
in accordance with other standards, which differ, and may continue to



75
  The association wrote that “the draft report makes the important point that, pursuant to
43 USC 1606(o), the accounts of the Corporations shall be audited annually in
accordance with GAAP [generally accepted accounting principles].” Our report correctly
notes that 43 U.S.C. § 1606(o) requires the regional corporations’ accounts to be audited
annually in accordance with generally accepted auditing standards.




Page 55                                    GAO-13-121 Regional Alaska Native Corporations
differ, from the generally accepted auditing standards that previously
applied to SEC registrants and that section 1606(o) requires the
corporations to use. According to SEC staff, at present, the generally
accepted auditing standards and the standards SEC registrants are
required to use are not contradictory but the standards for SEC
registrants have some additional or supplemental requirements. These
standards may continue to diverge more in the future, and, if so, the
corporations’ practices may also diverge more from what is required for
SEC registrants.

The ANCSA Regional Association also raised concerns with the scope of
the report, stating that three of our “questions to consider for the future”
were beyond what we were asked to review. In our report, we state that
we were asked to describe various corporate practices of the regional
Alaska Native corporations. We added our questions to consider on the
basis of the work we did during our review and believe the discussion
provides information to Congress and the public about issues that may
warrant consideration and discussion by the federal government, the
state, the regional corporations, shareholders, or a combination of these
entities. We chose to include a wide breadth of issues to be as
comprehensive and informative as possible.

Written comments from volunteers for the 13th Regional Corporation
focused on the question posed in our report regarding the appropriate
role of the federal government in maintaining the solvency of Alaska
Native corporations. They stated that the 13th Regional Corporation did
not receive a fair and just settlement under the Alaska Native Claims
Settlement Act and requested that Congress take action to address the
issue.


As agreed with your offices, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from the
report date. At that time, we will send copies to the Secretary of the
Interior, the Administrator of the Small Business Administration, the
Chairman of the U.S. Securities and Exchange Commission, the
Governor of the state of Alaska, the ANCSA Regional Association,
volunteers for the 13th Regional Corporation, the appropriate
congressional committees, and other interested parties. In addition, the
report will be available at no charge on the GAO website at
http://www.gao.gov.




Page 56                             GAO-13-121 Regional Alaska Native Corporations
If you or your staff members have any questions about this report, please
contact me at (202) 512-3841 or fennella@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. Key contributors to this report are listed in
appendix IV.




Anne-Marie Fennell
Director, Natural Resources and Environment




Page 57                              GAO-13-121 Regional Alaska Native Corporations
Appendix I: Objectives, Scope, and
              Appendix I: Objectives, Scope, and
              Methodology



Methodology

              This report examines (1) governance practices of the regional Alaska
              Native corporations, (2) requirements for and oversight of the
              corporations’ financial reporting practices, (3) benefits provided by the
              corporations to their shareholders and other Alaska Natives, and
              (4) questions to consider for the future. 1

              To conduct our work, we interviewed officials from all 13 regional
              corporations by phone and in person. We also visited multiple
              communities, villages, and cultural or historical sites across seven of the
              regions (see table 10). We selected these locations on the basis of
              various factors, including the size of the regional corporation shareholder
              base; geographic location and number of villages in the region;
              characteristics of the regional corporations such as gross revenue, net
              income, and whether they have opened enrollment to those born after
              December 18, 1971; and regional corporations’ availability. During our
              site visits, we met with corporate officials and board directors,
              shareholders, tribal officials, representatives from regional and community
              nongovernmental organizations, and others to obtain information about
              the regional corporations. We also visited a number of villages and
              cultural sites to identify the type of work undertaken by the corporation for
              the benefit of shareholders and others in the communities and to gain
              shareholder perspectives. In addition, we attended a shareholder
              information meeting held by one corporation in the Pacific Northwest. We
              assessed the reliability of the information provided to us by the
              corporations by interviewing corporate officials and cross-checking
              information across various sources; we determined that the information
              was sufficiently reliable for the purposes of our report. We report all dollar
              amounts as they were reported to us by the corporations for the period in
              question; none have been adjusted for inflation. We also researched and
              analyzed issues raised in private litigation between the regional
              corporations and their shareholders that we identified during the course of
              our review.




              1
               We were also asked to determine shareholders’ level of satisfaction with the regional
              corporations. To answer this question, we proposed surveying regional corporations’
              shareholders on their perspectives of the regional corporations. We were unable to
              conduct a systematic and independent survey of shareholders, however, because the
              regional corporations declined to provide us with their shareholder lists.




              Page 58                                   GAO-13-121 Regional Alaska Native Corporations
Appendix I: Objectives, Scope, and
Methodology




Table 10: Regional Alaska Native Corporations and Communities Visited

 Corporation                                   Community
 Ahtna, Incorporated                           Gakona
                                               Glennallen
 Bering Straits Native Corporation             Nome
 Bristol Bay Native Corporation                Dillingham
                                               Kokhanok
 Calista Corporation                           Akiachak
                                               Akiak
                                               Bethel
                                               Kwethluk
 Cook Inlet Region, Inc.                       Anchorage
 Doyon, Limited                                Fairbanks
                                               Minto
 Sealaska Corporation                          Hoonah
                                               Juneau
                                               Kake
Source: GAO.


We interviewed officials from the Department of the Interior’s Bureau of
Indian Affairs and from the Small Business Administration. We also
interviewed representatives from various organizations with interests in
Alaska Natives, including the Alaska Federation of Natives, ANCSA
Regional Association, First Alaskans Institute, Native American Rights
Fund, and attended the October 2011 conference of the National
Congress of American Indians. To obtain shareholder perspectives
beyond those obtained through our site visits, we conducted phone
interviews with shareholders who contacted us or whom we contacted on
the basis of referrals, set up an e-mail “Alaska Native corporation
feedback mailbox,” and reviewed corporate or shareholder social media
websites and other news sources. The views we received from
shareholders are anecdotal and not generalizable to all shareholders.

Throughout this report, we refer to the corporations’ 2010 reporting
period, which was the most recent year for which consistent information
was available across the corporations. Because the corporations’ fiscal
years do not all begin or end on the same dates, we refer to the
corporations’ 2010 reporting period as each corporation’s fiscal year
corresponding most closely to calendar year 2010 (see table 11).




Page 59                              GAO-13-121 Regional Alaska Native Corporations
Appendix I: Objectives, Scope, and
Methodology




Table 11: Regional Alaska Native Corporations’ Fiscal Years Corresponding to the
2010 Reporting Period

 Corporation                                        Beginning date         End date
 Ahtna, Incorporated                                Jan. 1, 2010           Dec. 31, 2010
 The Aleut Corporation                              Apr. 1, 2010           Mar. 31, 2011
 Arctic Slope Regional Corporation                  Jan. 1, 2010           Dec. 31, 2010
 Bering Straits Native Corporation                  Apr. 1, 2010           Mar. 31, 2011
 Bristol Bay Native Corporation                     Apr. 1, 2010           Mar. 31, 2011
 Calista Corporation                                Jan. 1, 2010           Dec. 31, 2010
 Chugach Alaska Corporation                         Jan. 1, 2010           Dec. 31, 2010
 Cook Inlet Region, Inc.                            Jan. 1, 2010           Dec. 31, 2010
 Doyon, Limited                                     Oct. 1, 2009           Sept. 30, 2010
 Koniag, Incorporated                               Apr. 1, 2010           Mar. 31, 2011
 NANA Regional Corporation                          Oct. 1, 2009           Sept. 30, 2010
 Sealaska Corporation                               Jan. 1, 2010           Dec. 31, 2010
Source: Regional Alaska Native corporations.


To examine the governance practices of the regional Alaska Native
corporations, we reviewed the Alaska Native Claims Settlement Act, as
amended; the Alaska Corporations Code; other relevant federal and state
laws and regulations; the regional corporations’ articles of incorporation,
bylaws, and corporate proxy statements provided to shareholders during
2011 (the most recent year for which consistent information was available
across the corporations); and other documentation from the corporations
on their board composition and operations, executive and board
compensation, board elections, and methods for involving shareholders.
To further examine and describe board of director elections and
shareholder resolutions, we analyzed corporate proxy statements
provided to shareholders from 2001 through 2011.

To examine the requirements for and oversight of the regional
corporations’ financial reporting practices, we reviewed relevant federal
and state laws and regulations, focusing primarily on the Alaska Native
Claims Settlement Act and federal and state securities laws. Because of
the “substantially all” federal financial reporting requirement, we asked
staff from the U.S. Securities and Exchange Commission’s (SEC) Division
of Corporation Finance to provide observations on the extent to which the
corporations’ 2010 annual shareholder reports included information
expected from a corporation subject to the Securities Exchange Act of
1934 (we refer to such corporations as SEC registrants). We interviewed



Page 60                                        GAO-13-121 Regional Alaska Native Corporations
Appendix I: Objectives, Scope, and
Methodology




SEC staff about their work and analyzed the written observations they
provided for each corporation, as well as a summary of recurring themes.

We also interviewed officials from the Division of Banking and Securities
within Alaska’s Department of Commerce, Community, and Economic
Development to determine any actions they take to monitor and enforce
state financial reporting requirements. We obtained from the state of
Alaska summary information on inquiries and complaints relating to proxy
materials received by the state from the regional corporations from July
2011 through June 2012 and January 2010 through June 2012,
respectively. In addition, the state provided administrative orders issued
by the state from 1978 through 2011. We assessed the reliability of the
inquiry, complaint, and administrative order information by interviewing
state officials about their record-tracking system and determined that this
information was sufficiently reliable for the purposes of our report.

To determine the benefits provided by the regional corporations to their
shareholders and other Alaska Natives, we reviewed the corporations’
articles of incorporation, mission statements, annual shareholder reports
for the 2010 reporting period, and newsletters and other documentation
from the corporations describing monetary and nonmonetary benefits.
Specifically, to obtain financial information—including the corporations’
gross revenues, net income, and dividends—we reviewed the regional
corporations’ audited financial statements from their annual reports for
2001 through the 2010 reporting period. In addition, we analyzed
documentation from the corporations on other benefits, including benefits
provided through trusts or permanent funds, and we identified other
benefits through our interviews and site visits with the regional
corporations, shareholders, tribal officials, and representatives from
nongovernmental organizations.

Finally, on the basis of our analysis of federal and state laws and
regulations; interviews with federal and state officials, regional corporation
officials, and shareholders; and past congressional actions and bills
addressing Alaska Native corporation issues, we developed questions
that may warrant consideration and discussion by the federal
government, the state, the regional corporations, shareholders, or a
combination of these entities.

We conducted this performance audit from October 2011 to December
2012 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for


Page 61                              GAO-13-121 Regional Alaska Native Corporations
Appendix I: Objectives, Scope, and
Methodology




our findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




Page 62                              GAO-13-121 Regional Alaska Native Corporations
Appendix II: Comments on Behalf of the
              Appendix II: Comments on Behalf of the 12
              Regional Alaska Native Corporations



12 Regional Alaska Native Corporations




              Page 63                                     GAO-13-121 Regional Alaska Native Corporations
Appendix II: Comments on Behalf of the 12
Regional Alaska Native Corporations




Page 64                                     GAO-13-121 Regional Alaska Native Corporations
Appendix II: Comments on Behalf of the 12
Regional Alaska Native Corporations




Page 65                                     GAO-13-121 Regional Alaska Native Corporations
Appendix II: Comments on Behalf of the 12
Regional Alaska Native Corporations




Page 66                                     GAO-13-121 Regional Alaska Native Corporations
Appendix II: Comments on Behalf of the 12
Regional Alaska Native Corporations




Page 67                                     GAO-13-121 Regional Alaska Native Corporations
Appendix III: Comments from Volunteers for
              Appendix III: Comments from Volunteers for
              the 13th Regional Corporation



the 13th Regional Corporation




              Page 68                                      GAO-13-121 Regional Alaska Native Corporations
Appendix III: Comments from Volunteers for
the 13th Regional Corporation




Page 69                                      GAO-13-121 Regional Alaska Native Corporations
Appendix III: Comments from Volunteers for
the 13th Regional Corporation




Page 70                                      GAO-13-121 Regional Alaska Native Corporations
Appendix IV: GAO Contact and Staff
                  Appendix IV: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Anne-Marie Fennell, (202) 512-3841 or fennella@gao.gov
GAO Contact
                  In addition to the individual named above, Jeffery D. Malcolm, Assistant
Staff             Director; Ellen W. Chu; Clayton Clark; Emily Eischen; Cody Goebel; Ryan
Acknowledgments   Guthrie;, Alyssa M. Hundrup; Michael Meleady; Anu K. Mittal; Danny
                  Royer; Jeanette Soares; Andrew Stavisky; and Tatiana Winger made key
                  contributions to this report.




(361340)
                  Page 71                              GAO-13-121 Regional Alaska Native Corporations
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