TheCorporateCounsel.net

November 1, 2005

John Reed Speaks Out

At our “2nd Annual Executive Compensation Conference,” John Reed opened with some stirring remarks. Among other things, Mr. Reed said “That’s a cop out” when directors grant equity awards and don’t then make adjustments to future grants when the amounts actually realized/accumulated exceed what was anticipated.

Here is more from Mr. Reed, excerpted from a Dow Jones article published yesterday: Calling stock based compensation a “blunt” and even “dangerous” instrument, Reed suggested that compensation can easily be skewed by market forces, resulting in executives being significantly overpaid.

Reed issued his warning about stock grants in a pretaped Webcast delivered to a compensation conference, offering up himself and his former company in his frank assessment. According to Reed, some Citigroup employees were ultimately paid at least four times more than initially targeted because of options.

“I’ve had personal experience when I was at Citibank where we gave out stock to individuals expecting it to represent a certain value, and it turned out to represent four or five times more than we had anticipated at the time we gave out the stock,” he said. “This really meant that we had paid the people substantially more than we felt was appropriate to pay them.”

Jamie Dimon Speaks Out

Equally impressive was the passion and candor from luncheon speaker JPMorgan Chase CEO Jamie Dimon – he started by noting the widespread “anger” out there – shareholders, employees and the general public – and how we all need to get our house in order before Congress does it for us. He then went on to discuss many specific compensation topics at length, an amazing display of knowledge about this important area. The guy was truly dynamic; I am ready to buy JP Morgan stock…

We had over 100 walk-up registrations at the last minute, with a final count of well over 600 in Chicago and more than 3000 by video (surprising considering it was Halloween and PLI’s big event is later this week). We heard nothing but glowing reports from everyone here (an exhausting pace with so many panels back-to-back, but we felt a one-day conference was preferable to a two-dayer). I welcome any feedback you may have.

Update on Conflict of French Law and SOX’s Whistleblower Provisions

There have been some recent developments on the whistleblowing/French data protection rulings issues, as the French data protection agency – the CNIL – had a conference call with the World Law Privacy Group data protection committee on the issues faced by companies seeking to comply with SOX and deal with EU data protection laws at the same time. Subsequent to that call, CNIL produced draft guidelines with a comment period that ends November 10th (the draft CNIL guidelines are posted in our “Whistleblowers” Practice Area).

Unfortunately, the draft guidelines have some problematic provisions – any comments should be sent to Mark Schreider at “MSchreiber@palmerdodge.com,” who co-chairs the World Law Privacy Group data protection committee (and is a Partner with Edwards Angell Palmer & Dodge LLP). Obviously, the CNIL comment process is different than submitting comments to the SEC or the exchanges; they need to go in through specific channels.

In this podcast, Mark discusses these latest developments with the French CNIL, including:

– What does he make of the new draft CNIL guidelines on whistleblower schemes in France?

– What are the deficits or problems in the draft CNIL guidelines?

– How can US companies or their in-house or outside counsel provide input to the CNIL on these guidelines?

Nasdaq Proposes Clarification of Director Independence Standards

A while back, the Nasdaq filed proposed rule changes with the SEC to clarify its rules regarding director independence. Under the existing rules, a director’s independence is evaluated based on payments accepted from the company or its affiliates – the definition of independent director in Nasdaq Rule 4200(a)(15)(B) is proposed to be modified to provide that a finding of independence is precluded if a director accepts any compensation from the company or its affiliates in excess of $60k during any consecutive twelve month period within the three years prior to the independence determination.

The Nasdaq also proposed to change a Rule 4200(a)(15) interpretation to provide that a director that serves as a compensated officer of a company on an interim basis is not precluded from being considered independent after that service – the service as an interim officer is limited to not more than one year. The board would also still have an obligation to consider this interim service in making its overall independence determination.

The proposals would also clarify that references to “the company” in Nasdaq Rule 4200(a)(15)(D) includes any parent or subsidiary of the listed company.
Also, the proposals would clarify that the Rule 10A-3(c)(2) exception to the audit committee requirements for certain issuers that have a listed parent is also applicable to the Nasdaq’s audit committee requirements.