Reflecting the slow deal market, after a failed attempt to merge with Morgan Lewis and a defection by many top partners, it appears that Brobeck, Phleger & Harrison is close to disbanding.
January 31, 2003
January 30, 2003
At a conference in San Diego today, Marty Dunn, Corp Fin Deputy Director, revealed that the staff already has received over 450 requests for no-action relief regarding shareholder proposals - which equals the near record amount received during all of last proxy season. At this rate - because February and March are very heavy months to process these requests - it appears that the staff might process more than 50% more than they have at any other time.
The SEC has posted the adopting release regarding attorney conduct - along with a second release seeking additional comments on the proposed noisy withdrawal provisions and an alternative approach.The adopting release is at http://www.sec.gov/rules/final/33-8185.htm - and the proposing release is at http://www.sec.gov/rules/proposed/33-8186.htm.
January 29, 2003
In connection with the audit of Xerox, the SEC has filed fraud charges against KPMG - and four partners of KPMG - in a NY federal district court - see http://www.sec.gov/news/press/2003-16.htm.
The SEC has posted the final rules on auditor independence implementing SOX 208, 201-204 and 206 at http://www.sec.gov/rules/final/33-8183.htm.
Later today, we will post our "Sarbanes Oxley Scorecard" on the home page of TheCorporateCounsel.net - to facilitate your ability to access each proposing and adopting release. In addition, we will post a checklist of disclosure items to consider for this year's 10-K early next week as part of the February E-Minders.
January 28, 2003
In the Division of Corporation Finance, Shelley Parratt has been promoted to Deputy Director (Operations) - and Marty Dunn's title changes a little to Deputy Director (Legal). This is the first time in memory that Corp Fin has had dual deputy directors.
Paula Dubberly has been promoted to Associate Director (Legal) - my former and wonderful boss - leaving the Chief Counsel slot open. Congrats to both!!!
January 27, 2003
Tommorrow, former CSX chair John Snow - and President Bush's nominee for Treasurer - faces a potential challenging confirmation hearing in the Senate. Mr. Snow also co-chaired The Conference Board's Commission regarding corporate governance reform that issued its final report a few weeks ago.
In response to subscriber demand, we have posted a sample whistleblowing policy - courtesy of Sharon Hendricks and Venture Law Group - on TheCorporateCounsel.net.
January 24, 2003
Another crazy week...we are busying posting hordes of law firm memos in our Sarbanes-Oxley portal and that should continue unabated for the next few weeks.
In addition, today we launched a new site - GreatGovernance.com. The new site is for TheCorporateCounsel.net subscribers and has hundreds of FAQs on governance topics as well as a host of other governance related materials. We will be conducting webcast programs and interviews with experts over the coming year. See the new site at http://www.greatgovernance.com/.
January 23, 2003
The SEC's press release on the Investment Company Amendments and the Investment Adviser Amendments adopted at its meeting today is now available at http://www.sec.gov/news/press/2003-12.htm.
January 23, 2003
This is a guest blog by Mike Holliday
The final rules on conditions for use of non-GAAP financial measures, and insider trades during pension fund blackout periods are now available on the SEC's website.
Non-GAAP is at http://www.sec.gov/rules/final/33-8176.htm.
Insider trading is at http://www.sec.gov/rules/final/34-47225.htm.
The following are quick notes from the SEC's meeting today, and are subject to the actual wording of the adopting Releases and final rules.
A. Standards of Professional Conduct for Attorneys, Sarbanes-Oxley Section 307. Certain changes in the proposed rules were discussed at the meeting. The definition of appearing and practicing before the Commission to be subject to the rules was modified. The rules will not apply to attorneys who are licensed to practice law but are not providing legal services to issuers. Most foreign attorneys who are not admitted in the US and do not advise clients on U.S. law would not be subject to the rules. Non-US attorneys who provide legal advice on US law without consulting with US counsel would be subject to the rules if their activities constitute appearing and practicing before the Commission. It will be necessary to check the adopting Release and final rules to see exactly how this treatment of foreign attorneys is worded.
To be covered by the rules, the attorney must be providing legal services to the issuer and have an attorney/client relationship with the issuer. In addition, the attorney would have to have notice that a document the attorney is preparing or assisting in preparing will be filed with or submitted to the SEC. Again, it will be necessary to check the actual language.
Modifications to the final rule will insure that issuers can direct counsel to conduct internal investigations and defend them in litigation without compromising the attorney/client relationship.
The rules have an objective standard. The meeting discussion referred to using the concept of "credible evidence" of a violation; a prudent and competent attorney under the circumstances; and a reasonable likelihood standard that a material violation has occurred, is ongoing or is about to occur.
The requirement for the attorney to document the report of evidence of a material violation and the response has been eliminated. Also, the rules adopted do not include the proposed "noisy withdrawal" provision. The Commission is extending the comment period on that issue for 60 days, and then will consider the proposal. The proposal has not been eliminated but will be considered at a later time after the extended comment period.
B. Disclosure of Mutual Fund Proxy Voting Policies and Procedures and how the Fund Voted on Specific Issues. The proposals were adopted with modifications to reduce the costs of the new requirements.
C. Requirement for Registered Investment Advisers to Adopt and Disclose to Clients Proxy Voting Policies and Procedures and how the Adviser Addresses Conflicts of Interest. The rules do not require public disclosure of how the adviser voted, but to tell clients how they can obtain the actual voting record from the adviser.
January 23, 2003
This is a guest blog by Mike Holliday.
The SEC at an open meeting on Wednesday, January 22, 2003, adopted new rules in the following four areas, and issued four separate press releases describing the new rules in general terms.
A. Registered Management Investment Companies. The rule would implement the certification requirements of Section 302 of Sarbanes-Oxley for registered management investment companies, and will require disclosure controls and procedures. The Commission also adopted rules to implement Sections 406 and 407 of Sarbanes-Oxley for registered investment management companies requiring disclosure regarding the Code of Ethics for the principal executive officer and senior financial officers, and whether there is a financial expert on the audit committee. The SEC said that these two disclosure requirements were similar to those adopted last week for operating companies.
The SEC's related press release on investment company rules is at http://www.sec.gov/news/press/2003-8.htm
B. Strengthening Auditor Independence. The SEC adopted rules to implement Section 201 of Sarbanes-Oxley. The rules cover prohibited non-audit services, audit partner rotation, one-year period before an audit engagement team member may accept certain positions with an issuer, compensation based on procuring engagements other than audit, review or attest services, reports to the audit committee, pre-approval of services and disclosure regarding services provided by and fees paid to the auditor. The related press release covers most of the descriptions of the new rules at the meeting. Rotation will be required after 7 consecutive years for the lead and concurring partners on the engagement team, and after 5 years for certain other partners that play a key role in the audit. There was discussion at the meeting that there are some circumstances where providing certain tax services involving advocacy would impair independence. It will be necessary to check the adopting Release and final rules on this point to see exacatly how this is worded.
The related SEC press release on auditor independence rules is at http://www.sec.gov/news/press/2003-9.htm.
C. Disclosure of Off-Balance Sheet Arrangements and Aggregate Contractual Obligations.The proposed definition of off-balance sheet arrangements has been modified and will define certain categories by reference to recent FASB interpretations No. 45 on guarantees and No. 46 on consolidation of variable interest entities.The proposed disclosure threshold has been changed to the existing "reasonably likely" standard. There will be some more flexible, principle-based disclosure required. In addition, the proposed disclosure of "Contingent Liabilities or Commitments" has been eliminated. The SEC will continue to consider that possible area of disclosure.
The SEC press release on the off-balance sheet arrangements and contractual obligations rules is at http://www.sec.gov/news/press/2003-10.htm
D. Retention of Records Relevant to Audits and Reviews. The proposed rule would have required retention for 5 years. The rule as adopted will require retention for 7 years.
The SEC's press release on rules for retention of records by auditors is at http://www.sec.gov/news/press/2003-11.htm
January 20, 2003
The SEC has added a second open Commission meeting this week - on Thursday, January 23rd - and has moved consideration of the final attorney responsibility standards and mutual fund voting disclosure framework from Wednesday's meeting to this second date. See http://www.sec.gov/news/digest/dig011703.txt.
As for what the SEC will do with their final attorney responsibility standards, it is still anybody's guess at this point - as we continue to hear vastly different rumors.
January 17, 2003
Shortly, we will be posting a list of links to the entities/organizations that host director education programs. Spurred by the proposed new listing standards and corporate governance ratings services, the number of these programs has grown dramatically in the past six months.
The odd thing that i am hearing is that not too many directors attend these programs - rather, it is in-house counsel, corporate secretaries and others that populate the programs - and the directors that do attend typically are from the smaller companies. This makes sense as larger companies normally can afford to bring in experts to conduct educational programs on site at a board meeting (and directors of these companies tend to be shorter on time availability than most).
If you have an opinion or different experience, send me an email at email@example.com.
January 15, 2003
The SEC's next open meeting is Wednesday, January 22nd to adopt rules relating to:
* standards of professional conduct for attorneys
* off-balance sheet arrangements
* auditor independence and related disclosures
* mutual funds voting and policy disclosure
See the SEC digest with the meeting notice at http://www.sec.gov/news/digest/dig011503.txt.
January 15, 2003
Today, the SEC held an open Commission meeting to consider a variety of rulemaking (the Commission will adopt 9 rules and present 4 major studies during the next 2 weeks). The SEC adopted final rules on pro formas and filing of earnings releases; black-out pension funds; code of ethics for senior officers; and “audit committee financial experts”. The SEC delayed the adoption of rules relating to internal control reports and analyst certifications.
A. Financial Expert - As for "audit committee financial expert" (which term has been expanded from "financial expert"), the SEC listened to the 200 commentators that thought that the proposed definition of expert was too narrow. Accordingly, the definition has been significantly liberalized compared to the proposal.
Under the final rule, companies must disclose whether they have such an expert - and if not, why not. This rule is effective for fiscal years ended 7/15/03 or later (except for small business issuers, which take effect for fiscal years after 12/15/03). The rule does apply to foreign private issuers.
"Audit committee financial experts" must have five attributes:
1. understanding of financial statements and GAAP;
2. assess general application of GAAP in connection with accounting for estimates, accurals, and reserves;
3. experience preparing, auditing, analyzing, evaluating financial statements that present level of complexity of accounting issues comparable to the breadth of the issues that could reasonably be expected to be presented by the company's financial statements;
4. understanding of internal controls; and
5. understanding of audit committee functions.
In addition, such persons must acquire such attributes through education and experience as a CFO, chief accounting officer, controller, public accountant, auditor or position that performs similar functions - including experience "actively supervising" one or more of the above named persons. This would seem to include CEOs - but the adopting release will clarify that "active supervision" means "hands-on" supervision and not just someone higher on an organization chart (so CEOs might well not fit).
A safe harbor in the rule states:
- designation as an "audit committee financial expert" will not deem such person as an "expert" for securities law purposes
- designation does not impose additional duties or liabilities as compared to other audit committee members (in the absence of express imposition of such duties and liabilities)
- designation does not impact the duties or liabilities of other audit committee members
B. Pro Formas/Earnings Releases [thanks to Mike Holliday for his notes here!]
The SEC modified its proposal so that Reg G will not apply to non-GAAP information included in disclosure already subject to SEC detailed requirements covering business combinations.
The non-GAAP definition will not include measures required to be disclosed by GAAP or SEC rules or a system of regulation applicable to the registrant. In addition, EBITDA will be exempt from the prohibition on excluding charges or liabilities that
required or will require cash settlement, or would have required cash settlement absent an ability to settle in another manner.
Item 10 of Form 8-K was changed so that non-GAAP per share measures will generally be permitted. In addition, the Reg G provision permitting forward-looking non-GAAP measures where comparable quantitative information is not available without
unreasonable effort will also apply to Item 10 SEC filings. Also, the provision on information subject to SEC disclosure requirements covering business combinations in Reg G will be included in Item 10.
Form 8-K will require submission of earnings releases and announcements on Form 8-K. Note that this applies to results for completed fiscal periods and does not apply to forecasts for future periods. Also, the 8-K requirement applies whether or not the release or announcement contains non-GAAP measures. The 8-K requirement was modified so that it will not require that earnings releases and announcements be "filed" on Form 8-K, but will permit a company to "furnish" the release or announcement on Form 8-K. If "furnished", Item 10 of S-K will not apply. (Of course, Reg G will always apply if non-GAAP measures are included.)
A new Item 12 of Regulation S-K will be created that will apply to earnings press releases and announcements that are "furnished" on Form 8-K. Item 12 will require reconciliation to GAAP, equal or greater prominence for comparable GAAP measures, purpose for using non-GAAP and why management believes non-GAAP provides useful information to investors. One Form 8-K could
satisfy the new 8-K requirement and Regulation FD. (The FD timing requirement would have to be met.)
The related SEC press release is at http://www.sec.gov/news/press/2003-6.htm.
January 14, 2003
Rumor has it that the SEC is leaning towards not including the proposed "noisy withdrawal" requirement in its final rules (final rules must be adopted by January 26th) - see the related Washington Post story at http://www.washingtonpost.com/wp-dyn/articles/A52315-2003Jan13.html.
The California Secretary of State has issued the form that must be used to comply with California's new annual disclosure requirements - this new form (known as the "Corporate Disclosure Statement") is available at http://www.ss.ca.gov/business/corp/pdf/so/siptsupp.pdf.
Gibson Dunn & Crutcher has several articles related to this new disclosure requirement at http://www.gibsondunn.com/practices/publications/detail/id/766/?pubItemId=6822.
January 13, 2003
In a radio address over the weekend, President Bush promised that the SEC's budget would be significantly raised next year - to over $840 million.
However, the SEC has not been appropriated the additional money for this year's budget that was approved by Congress last summer. This stalling has drained the existing SEC staff and has kept many potential staffers on hold for several months. Its unclear if this logjam will ever break.
January 10, 2003
The members of the new Public Company Accounting Oversight Board are getting paid industry rates (or even better for some members no doubt, such as the Acting Chair who was working for the SEC before). Each of the four members will receive $452,000 per year - and the chair will earn $556,000 annually. With a budget of nearly $45 million, the Board intends to hire 200 staffers this year and 70 more next year. See a related Washington Post article at http://www.washingtonpost.com/wp-dyn/articles/A35261-2003Jan9.html.
January 9, 2003
Today, the Conference Board's Blue Ribbon Commission published its final corporate governance recommendations - including 3 alternative models for the board of directors. See http://www.conference-board.org/utilities/pressDetail.cfm?press_ID=2048.
Yesterday, the US Sentencing Commission released its new sentencing guidelines - they take effect January 24th. See the related Washington Post article at http://www.washingtonpost.com/wp-dyn/articles/A30177-2003Jan8.html.
January 8, 2003
The SEC designated Charles Niemeier to be the Acting Chairman of the Public Company Accounting Oversight Board - moving over from acting as the Chief Accountant in the Division of Enforcement and co-chairman of the SEC's Financial Fraud Task Force.
Also today, the SEC held an open meeting and proposed a rule that would direct the SROs to prohibit the listing of any security if the issuer does not comply with the audit committee requirements established by Section 301 of Sarbanes-Oxley. Under the proposed rule, an issuer would not be prohibited from having a security listed so long as:
- each member of the audit committee was independent according to specified criteria in Sarbames-Oxley
- the audit committee was directly responsible for the appointment, compensation, retention and oversight of the work of the independent auditor
- the audit committee had procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters - including procedures for the confidential, anonymous submission by employees regarding questionable accounting or auditing matters.
- the audit committee had the authority to engage independent counsel and other advisors, as necessary; and
- the issuer provided appropriate funding for the audit committee.
The proposed rule would apply to both domestic and foreign listed issuers - but the SEC will note in the proposing release that it seeks specific comment on certain areas due to known conflicts with laws of other countries (e.gs. allowing non-management employees to serve as audit committee members, allowing shareholders to select or ratify the selection of auditors, allowing alternative structures such as boards of auditors to perform auditor oversight functions where such structures are provided for under local law; and addressing the issue of foreign government shareholder representation on audit committees).
The proposed rule would also require disclosure regarding the identification of the audit committee in annual reports and audit committee independence. The proposing release is at http://www.sec.gov/rules/proposed/34-47137.htm.
The comment period is 30 days (and rules must be adopted by late April) - and the transition period is proposed as no later than the 1st anniversary of the final rule. If you listen to the archived webcast, the discussion of this rule starts at minute 26. Much of the discussion is about independence standards for non-listed companies (as proposed, they would have to pick a standard from an SRO of their choice) and application to non-US companies (discussed above). The archive is at http://www.sec.gov/news/openmeetings.shtml.
The SEC will be holding another open meeting next Wednesday, 1/15, at 10 am to adopt rules regarding pro formas and filing of earnings releases; black-out pension funds; code of ethics for senior officers; “financial experts” on audit committees; and internal control reports – as well as analyst independence.
January 3, 2003
Fresh start for a new year - I am now the Editor of TheCorporateCounsel.net. This is the location of my new blog - and I promise to include more practical information than i have provided in the past.
If you would like to contact me - firstname.lastname@example.org or 703.237.9222. This contact info is always in the "About Us" section of TheCorporateCounsel.net.
The SEC is holding an open meeting on Wednesday, January 8th to direct the SROS to prohibit the listing of any security of an issuer that is not in compliance with the audit committee requirements established by the Section 301 of the Sarbanes-Oxley Act of 2002. These requirements relate to: the independence of audit committee members; the audit committee's responsibility to select and oversee the issuer's independent accountant; procedures for handling complaints regarding the issuer's accounting practices; the authority of the audit committee to engage advisors; and funding for the independent auditor and any outside advisors engaged by the audit committee.