June 26, 2003

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!

June 24, 2003

The July issue of Eminders is up at http://www.thecorporatecounsel.net/E-minders/.

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.

For TheCorporateCounsel.net subscribers, we have posted the transcript of last week's webcast "Burden of SOX on Mid- and Small-Cap Companies" at http://www.thecorporatecounsel.net/member/audio/06_17_03_transcript.htm.

June 24, 2003

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.

June 23, 2003

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.

The final rules are slightly different than the proposed rules. For TheCorporateCounsel.net subscribers, we have posted the NYSE's final rules at http://www.thecorporatecounsel.net/member/Memos/Misc/06_20_03_NYSERules.pdf.

We have also posted an interview with Marc Trevino of Sullivan & Cromwell on the Disney Opinion and Personal Liability for Directors at http://www.thecorporatecounsel.net/member/InsideTrack/06_23_03_Trevino.htm.

June 20, 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.

June 19, 2003

Executive compensation is up (what else is new) as borne out by TheCorporateLibrary.com in an excellent 24 page report. This report covers the proxy disclosure made by over 1000 companies over the past 2 years - and breaks out data in a variety of categories (but no director comp). The report is at http://www.thecorporatelibrary.com/company_research/reports/CEOpay2002_061903.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...

For TheCorporateCounsel.net subscribers, we have posted an interview with Ken Winer of Foley & Lardner on the Improper Influence of Auditors at http://www.thecorporatecounsel.net/Member/InsideTrack/06_16_03_Winer.htm.

June 18, 2003

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.

For Section16.net subscribers, the transcript of last Thursday's webcast - "Alan Dye on the Latest Section 16 Developments" - is at http://www.section16.net/member/Webcast/06_12_03_transcript.htm.

June 17, 2003

Last Friday was the deadline for comments on the SEC's concept of easier shareholder access to the ballot - although not yet posted on the SEC's web site, here is the ABA's Task Force comment letter - http://www.abanet.org/buslaw/fedsec/comments/03/20030613.pdf.

For TheCorporateCounsel.net subscribers, today is our webcast - "Burden of SOX on Mid- and Small-Cap Companies" - which promises to be interesting as its the only one of its kind that we are aware of - see the agenda at http://www.greatgovernance.com/programs.html#smallercompanies. If you are not a subscriber, you can get access with a "no-risk" trial at https://www.thecorporatecounsel.net/subscribe/CCNET_NEW/login.asp.

June 16, 2003

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.

Very few provide a link to their Section 16 reports as they reside in the Edgar database on the SEC website (eg. Morgan Stanley at http://www.morganstanley.com/about/ir/sec_filings.html?page=inv).

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).

For TheCorporateCounsel.net subscribers, we have provided links to the various ways that companies have chosen to comply with the new requirement at http://www.thecorporatecounsel.net/member/FAQ/Disclosure/disclosure_websites.htm.

June 13, 2003

In what has to be one of the most highly anticipated set of interpretations of all time, the SEC staff has finally posted its Reg G FAQs - 33 of them at http://www.sec.gov/divisions/corpfin/faqs/nongaapfaq.htm.

June 13, 2003

Apria Healthcare has filed its definitive proxy with its policy regarding shareholder access as an appendix - interestingly, the only discussion of the policy in the proxy statement is under the Nominating Committee heading. The policy is at http://www.sec.gov/Archives/edgar/data/882289/000089256903001480/a90655ddef14a.htm#059.

For TheCorporateCounsel.net subscribers, we have posted an interview with Marie Oh Huber of Agilent on Preparing for Internal Control Attestations at http://www.thecorporatecounsel.net/Member/InsideTrack/06_12_03_Huber.htm.

We have also posted a good memo from Debevoise & Plimpton on 11-Ks and 906 certifications at http://www.thecorporatecounsel.net/member/Memos/Debevoise/06_12_03_section302.PDF.

June 12, 2003

As the June 30 deadline for 11-Ks looms, its becoming increasingly apparent that the SEC is unlikely to give any firm guidance on whether 906 certifications are required (despite the paragraph in the internal control report adopting release issued Friday that noted that the SEC and DOJ were in discussions). As the due diligence for these certifications is likely to take a lot of time - because there is likely to be so many different third-party entities involved - companies should start figuring out what they will do to support the certification now.

The question remains - who should sign the 11-K certification. The answer likely is whoever signs the 11-K: the company's CEO and CFO - or the plan adminstrator (if that is a natural person) or whoever has the highest responsibility for the plan.

The next question is whether the certification should have the "fairly presents" language since there is no income statement involved - some companies have changed the certification to read that the fairly presents language relates to the "net assets available for benefits and changes in net assets available for benefits of the Plan." See the two 11-Ks filed by Intel this morning - one of these is at http://www.sec.gov/Archives/edgar/data/50863/000005086303000185/pr1165ex99.htm.

For Section16.net subscribers, today is a webcast program "Alan Dye on the Latest Section 16 Developments" - try a "no-risk trial" subscription (refund at any time - and for any reason) to listen at https://www.section16.net/subscribe2/new/login.asp?.

June 11, 2003

Under the leadership of board chair Ralph Whitworth (whose day job is principal of Relational Investors, one of the few groups that have used short slates in the past decade), Apria became the 1st company to voluntarily allow shareholders to nominate directors directly (last month, Hanover Compresser did it as part of a lawsuit settlement). Holders of 5% or more will be able to nominate up to 2 directors which will be placed on the ballot opposite 9 management nominees.

In the wake of the recent actions at Freddie Mac and new revelations at WorldCom (not to mention items like E&Y classifying janitorial inspection services as "audit related" at HealthSouth), it looks like it might be an uphill battle for those that wish the SEC will "go slow" to facilitate the ability of shareholders to nominate directors.

For TheCorporateCounsel.net subscribers, we have posted an interview with Jim McRitchie and Les Greenberg regarding shareholder access for retail investors at http://www.thecorporatecounsel.net/member/InsideTrack/06_10_03_McRitchie.htm.

June 7, 2003

Yesterday, the SEC posted the adopting rules regarding internal control reports at http://www.sec.gov/rules/final/33-8238.htm.

The SEC also issued a concept release on whether it should regulate credit rating agencies more - or not at all - at http://www.sec.gov/rules/concept/33-8236.htm.

For TheCorporateCounsel.net subscribers, we have added an "Internal Controls Portal" full of resources and practice pointers regarding getting ready for internal control attestations and reports at http://www.thecorporatecounsel.net/member/faq/internalcontrols/index.htm.

June 6, 2003

A joint survey conducted by ACCA/NACD was just released with some interesting results. A poll of 600 directors and general counsel demonstrates significant agreement about who bears responsibility for the recent wave of corporate governance scandals - and considerable doubt about the proposed remedies. See http://www.acca.com/Surveys/resp_corpgov.pdf.

As requested by the SEC after the short-lived Sandy Weill nomination for the NYSE board snafu, the NYSE has started the reform of its own corporate governance - with a special committee recommending disclosure of NYSE officer compensation and bars from such officers sitting on NYSE-listed company boards. See http://www.washingtonpost.com/wp-dyn/articles/A21876-2003Jun5.html?nav=hptoc_b.

For TheCorporateCounsel.net subscribers, we have posted an interview with Mayer Brown's Mike Hermsen and Phil Niehoff on the Effect of Recent Rules on Non-US Auditors and Companies at http://www.thecorporatecounsel.net/member/InsideTrack/06_05_03_Hermsen.htm.

June 5, 2003

Recently, CalPERS sent letters to the companies in the Wilshire 2500 index informing them that they withhold their vote for the election of audit committee members as directors if the auditor provides non-audit services. This appears to be aimed at certain forms of tax related consulting and information systems design and implementation services, which are permitted under SEC rules with audit committee approval - without regard to the dollar amount of those services or their relation to the amount of total audit fees. CalPERS does exclude preparation of tax forms and SEC compliance documents from the types of non-audit services that to which it objects.

Yesterday, the NASD proposed that the CEO and Chief Compliance Officer of member firm to jointly certify annually that the firm has adequate compliance and supervisory policies and procedures in place - see http://www.nasdr.com/pdf-text/0329ntm.pdf.

June 3, 2003

To counter Senator Biden's "legislative history," the ABA's comment letter to the SEC on certifications addressed the applicability of Section 906 certifications to Form 6-Ks, 8-Ks and 11-Ks - see http://www.sec.gov/rules/proposed/s70603/aba051303.htm.

The June issue of our complimentary E-Minders is up - http://www.thecorporatecounsel.net/E-minders/.

For TheCorporateCounsel.net subscribers, we have posted an interview with Jim DiBernardo of Morgan Lewis on Option Buyout Programs at http://www.thecorporatecounsel.net/member/InsideTrack/06_02_03_DiBernardo.htm.

June 2, 2003

We have posted the transcript of our recent webcast that we held on "Shareholder Access to the Ballot" - we have decided to make it available free to anyone (not just subscribers) to help frame this important debate - see http://www.thecorporatecounsel.net/Audio/05_21_03_transcript.htm.

The panelists included: Andrew Brownstein, Partner, Wachtell Lipton Rosen & Katz; Richard Ferlauto, Director of Pension and Benefit Policy, AFSCME; Lawrence Hamermesh, Professor, Widener University; Richard Koppes, Of Counsel, Jones Day; Ted White, Director of Corporate Governance, CalPERS; and Beth Young, Senior Research Analyst, TheCorporateLibrary.com and Corporate Governance Consultant.