The Delaware courts have been amazing busy issuing opinions over the past few weeks that appear to be dramatically changing the corporate governance landscape – the latest is from the Delaware Supreme Court in Krasner v. Moffett.
This opinion reverses the dismissal of a stockholder class action challenging the merger of Freeport-McMoRan Sulphur and McMoRan Oil & Gas into McMoRan Exploration Co. The Chancery Court granted the defendants’ motion to dismiss on the grounds that the merger, which did not involve a majority stockholder, had been negotiated by a special committee of independent directors and, therefore, the business judgment rule applied. The Supreme Court reversed on the ground that it was reversible error to dismiss the complaint under Rule 12(b)(6) at the pleading stage – and that a factual record needed to be developed to determine what standard of review applies (i.e., whether the business judgment rule or entire fairness standard applies). The Supreme Court reached this conclusion even though the plaintiffs did not plead facts establishing that the special committee members were not independent.
I blog this as i prepare to take a week off in Yellowstone (my first time) and am happy to note that Sharon Hendricks from the Venture Law Group will be our guest blogger for next week. I’m sure Sharon will give you the “skinny” on how mandatory Section 16 e-filing fares in its first few days. Enjoy!
To help kick off a special offer of a subscription to TheCorporateCounsel.net – $250 for the rest of 2003 (for a single user – multiple user pricing is half price for rest of 2003) – we have launched a new website called AccountingDisclosure.com. Learn more about the special offer at https://www.thecorporatecounsel.net/subscribe/CCNET_NEW/login.asp.
This website is devoted to accounting and auditing issues – and is a “one-stop” site that provides a host of resources to help you grapple with an increasingly complicated area that derives its guidance from dozens of sources. This site is yet one more benefit of subscribing to TheCorporateCounsel.net (non-members pay $395/yr. for access to AccountingDisclosure.com). Learn more about what is on AccountingDisclosure.com at http://www.accountingdisclosure.com/Misc/More.htm.
The 11-Ks are starting to roll in – and almost all of them now contain a 906 certification (although in various forms and signed by a variety of officials).
In Congress, the Senate and House passed the Accountant, Compliance, and Enforcement Staffing Act of 2003, which should help streamline the SEC’s efforts to add more accountants, economists and examiners to its staff. The new law will allow the SEC to hire accountants, economists and securities compliance examiners under the excepted service authority (lawyers already can be hired on under this authority) – rather than under the federal competitive service process.
Under excepted service authority, the hiring process can be completed in a few weeks’ time as opposed to the months-long time frame often necessary under competitive service requirements. However, the expedited process doesn’t really help if there are no accountants to hire! See http://www.sec.gov/news/press/2003-76.htm.
For Section16.net subscribers and NASPP members, today is the “Nuts and Bolts of Section 16 Electronic Filing” featuring Alan Dye and Herb Scholl of the SEC, among others. This program will walk you through the complicated process of making a filing on the SEC’s new system that is mandatory next Monday – see http://www.section16.net/Webcast/0603-b.htm.
Late Friday, the NYSE told listed companies that its revised listing standard requiring shareholder approval of equity compensation plans – and prohibiting the use of broker nonvotes for those votes – will become effective as of June 30th (and will let its pilot program expire on that date). Now, the SEC must approve the NYSE’s final rule by June 30th – otherwise the following is subject to change.
The transition is as follows: plans adopted before June 30th are not subject to shareholder approval unless they are materially revised – with the exception of special transition rules that apply to “formula plans” and “discretionary plans” (at a minimum, all pre-existing plans may be used for a limited transition period ending on the first to occur of (1) the company’s next annual meeting at which directors are elected that occurs on or after December 27, 2003, (2) June 30, 2004, and (3) the expiration of the plan). For broker nonvotes, the final rules are effective for any shareholders meeting that occurs on or after September 28, 2003.
Although the facts of the recent Disney opinion from Delaware Chancellor Chandler were “easy” perhaps, they follow a number of public speeches and articles from the Delaware judiciary about the need for directors to make executive compensation more carefully. We expect compensation consultants and lawyers to provide new guidance on how compensation packages should be structured – and the first law firm memos drafted in the wake of the Disney opinion bear that out.
As usual, we will post these memos under “Latest Developments” under GreatGovernance.com – as well as under “Sarbanes-Oxley Law Firm Memos – Executive Compensation” on TheCorporateCounsel.net. For TheCorporateCounsel.net subscribers, a copy of the Disney opinion is available at http://www.thecorporatecounsel.net/member/FAQ/MA/Disney.pdf.
Compensation committees should heed the warning from Delaware Chancellor Chandler in the recent Disney opinion who indicated that directors might have personal liability for a breach of “good faith” if they approve compensation packages without exercising proper diligence. More to come on the Disney opinion soon…
A NIRI survey conducted to determine whether new disclosure rules were negatively impacting the flow of information to shareholders and analysts reveals that companies are attempting to avoid use of pro forma numbers in earnings statements. 43% of respondents present results strictly in accordance with GAAP – all of which cited Regulation G as the reason. See more at http://www.niri.org/mediaCenter/pressReleases/NIRI%20PRcomm_prac_su0603.pdf.
A quick survey of the Fortune 100 IR webpages reveals that only about a third comply with the upcoming requirement to break out Section 16 filings on corporate websites (filings made on – and after – June 30 have to be posted). Of those that do, most do it as part of their outsourcing agreement with an investor relations’ provider.
Last month, the SEC tweaked Edgar so that companies can link directly to their insider’s Section 16 reports to facilitate compliance with the upcoming requirement. This is important because if companies decide to link to their Section 16 reports, it must be a separate link only for the Section 16 filings – not a link to all of the company’s filings. To create such a link, you can use the following URL and insert the company’s CIK code for the string of 10 z’s: http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=zzzzzzzzzz&owner=only (don’t forget the link must be clearly captioned to indicate that it is a link to the Section 16 filings).