December 30, 2003

Severance Pay in the Headlines

Over the past few weeks, severance pay has dominated the news headlines. We have last week's SEC enforcement action against the former CEO of Vivendi that included his relinquishment of $25 million of severance pay (which consisted of the amount he negotiated when he resigned). The SEC's action was the first use of Section 1103 of Sarbanes-Oxley (because the SEC froze the payment before it was made pending its investigation) and the amount has been placed in escrow, with the intent to pay shareholders under the Fair Funds provision of SOX.

The NYSE is considering suing Dick Grasso to recoup some of the severance payments it made (and Grasso is allegedly considering suing to get some of the money he left behind). And the Office of Federal Housing Enterprise Oversight has sued the former Freddie Mac CEO and CFO to recoup severance payments made to them after they were fired this summer.

Shareholders have been more actively speaking out on severance pay. Quite a few shareholder proposals that sought to limit severance pay got majority votes this year, including one at Qwest last week.

The recent NACD Blue Ribbon Commission Report on Exec Comp recommends that severance pay should be limited to 2x-3x of base pay (not other forms of comp), with reductions in cases where the CEO is asked to leave over performance issues or eliminated entirely if the CEO resigns for another position or "for other reasons." It also recommends that the package size be tied to tenure through a vesting formula that requires a certain period of service (eg. 5 years) to receive the maximum benefit.

The Most Overlooked Features on

I thought I would close out the year by noting some valuable features on that might not be well known:

- HTML Version of Corp Fin's Accounting Training Manual (on

- Q&A Forum on Rule 144, moderated by Bob Barron and Jesse Brill

- 20 Areas of Sample Disclosures, complete with analysis

- List of Links to Director Education Programs

- Comprehensive MD&A Library in HTML, courtesy of Linda Quinn and Ottilie Jarmel

December 29, 2003

Stock Ownership Guidelines Grow in Popularity

Over the past year, there has been significant growth in the number of companies that require or encourage officers and/or directors to maintain certain levels of stock in their companies. Several studies show that nearly half of large companies now maintain them for officers (up from a third) and about a third of large companies maintain them for directors.

For members, we have posted 20 samples of stock ownership guidelines.

270-Page Report on SEC's Weaknesses

On Christmas Eve, the WSJ ran a lengthy article about the SEC weaknesses as detailed by a 270-page report prepared by SEC staffers and McKinsey consultants. The report is non-public and was commissioned by then-Chair Harvey Pitt.

The article indicates that the report is fairly critical of the agency as being too reactive and not having sufficient resources to do its job. Two telling statistics: only 33% of enforcement investigations are generated internally and 15% of them come from reading the morning papers.

Corp Fin is assailed for having an "assembly line mentality" for focusing on achieving numerical targets of reviews and picking "smaller, easier-to-review filings rather than more complex ones." I wonder how much McKinsey got paid to come in and tell them all these well known facts. I coulda done it for half...

December 23, 2003

Last Minute Holiday Shopping? How 'Bout a NYSE D&O Questionnaire!

I finally found a sample D&O Questionnaire, updated for the new listing standards. It is posted in our "Sample D&O Questionnaires" (which already includes an updated Nasdaq questionnaire). Happy Holidays!

Lobster Fraud! Fried Frank Continues Its Annual Play on Food

Read all about it here. I like a law firm that likes to have some fun...

December 22, 2003

SEC Issues MD&A Interpretive Guidance

Late Friday, the SEC issued an interpretive release on MD&A - something the staff had been promising for the past month or so.

Most of the guidance in the release has been well known for some time, as much of it had been either provided in the Fortune 500 report, in prior rulemakings or mentioned at conferences by senior staffers. Some of the recommendations that are relatively new include the recommended use of:

- introductory overview - includes most important matters on which senior management focuses in evaluating financial condition and operating performance and provides context for the discussion and analysis of the financial statements (and does not duplicate disclosure that follows).

- clear headings - use more to assist investors to follow flow of MD&A.

- "layered" approach - present information in manner that emphasizes, within the universe of material information that is disclosed, information and analysis that is most important.

There is much more guidance and reading this release is a "must" before drafting MD&A. Fortunately, our recent webcast - "The New MD&A" - focused heavily on the process of conducting due diligence before drafting, so the transcript remains very relevant.

Personal note - In its discussion of the history of the SEC providing MD&A guidance, the release skips over the interpretive guidance given in the Y2K context. I guess that year of my life - I was the primary staff draftsperson of the Y2K interpetive release - was all just a dream (or nightmare?).

Shareholder Access Comment Deadline

Today is the deadline for comments on the shareholder access proposal and it appears that this one will now hold the record for most comments on a proposal - with well over 10,000 comment letters submitted so far! The prior record was last year's proposal on disclosure of mutual fund policies and voting records.

For members, we have posted an interview with Ned Young of Hale & Dorr on Shareholder Access and Possible Changes in Control.

December 19, 2003

Transcript from "The New Governance Listing Standards" Webcast is Posted!

This webcast - featuring in-house practioners Peggy Foran of Pfizer, Jim Gunderson of Schlumberger, Susan Wolf of Schering-Plough, and Tina Van Dam of Dow Chemical was chock full of practice pointers. If you are a member of, check out the transcript.

Note that today is the holiday party at the SEC - so many staffers will be understandably busy during the afternoon.

SEC Issues Final Rules on Investment Companies/Advisors Compliance Programs

On Wednesday, the SEC posted its final rules on compliance programs for investment companies and investment advisers. The adopting release requests comments on whether there are other measures or refinements that would further enhance the independence and effectiveness of chief compliance officers under the rule, and comments on the definition of "material compliance matters" that must be reported to fund boards by chief compliance officers.

The release provides an effective date of Feb. 5 - and a compliance date of Oct 5, 2004. It specifies the deadlines for the first annual review by funds and advisers and the first annual report to the board by the chief compliance officer of a fund. The release also states that the transition period does not reduce the immediacy of the need for all funds to undertake a review of their policies and procedures.

December 18, 2003

Nasdaq Finally Issues Written Interpretation Regarding Timing of New Standards

Tucked amidst existing FAQs on governance on its "Legal & Compliance" page, the Nasdaq issued the following two interpretative positions yesterday (this confirms my blog from last Thursday about the NYSE and Nasdaq positions are now back to being split in this area):

"Independent Directors & Audit Committee Composition

The new NASDAQ rules approved by the Securities and Exchange Commission ("SEC") on November 4, 2003 require certain annual proxy disclosures relating to director independence.

Is a company required to make these disclosures in the 2004 proxy season or can it wait until the following year?

A company must generally disclose its board determinations relating to director independence in the proxy statement for the first annual meeting occurring after January 15, 2004. Similarly, a company relying upon the Controlled Company exemption must generally make required disclosures in this same 2004 timeframe. See Rule 4350(c)(1), which requires that a company disclose those directors that the board of directors has determined to be independent under Rule 4200, and Rule 4350(c)(5), which provides an exemption to certain of the requirements of Rule 4350(c) for a Controlled Company (provided the company discloses that it is relying on this exemption and the basis for the determination that it is a Controlled Company). For example, if a company holding its annual meeting on February 25, 2004 files a proxy on January 8, 2004, that proxy must include these disclosures. Note: Since foreign private issuers and small business companies have until July 31, 2005 to comply, proxy disclosure would need to occur in the proxy for any annual meeting preceding that date.

On the other hand, disclosures by a company using the "exceptional and limited circumstances" provision, in order to have a non-independent director on the audit committee, compensation committee, or nominating committee, are required in the proxy statement for the next annual meeting subsequent to such determination (or, if the company does not file a proxy, in its Form 10-K or 20-F). See Rules 4350(c)(3)(C), 4350(c)(4)(C) and 4350(d)(2)(B). This longer timeframe is appropriate because a company using this exception would not have appointed committee members until following the election of directors at the annual meeting, and as such, no disclosure regarding reliance on this exception is required until the company's 2005 annual meeting proxy statement.

Must a company obtain approval from NASDAQ in order to utilize the "exceptional and limited circumstances" according to Marketplace Rule 4350(d)(2)(B)?

No, a company may choose to rely on the exception without getting NASDAQ's approval. Of course, the company must make the disclosure required by the Rule in its next proxy statement."

MD&A Transcript is Posted!

For members, we have posted the transcript of last Wednesday's webcast - "The New MD&A" - featuring Ron Mueller of Gibson Dunn, Karl Groskaufmanis of Fried, Frank and Richard Harrison of GSI.

SEC Issues SAB 104 Regarding Revenue Recognition

Yesterday, the SEC cleaned up its guidance regarding how companies should recognize revenue in Staff Accounting Bulletin No. 104. SAB 104 revises and rescinds portions of the interpretative guidance included in Topic 13 of the codification of staff accounting bulletins in order to make the SEC's interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The principal revisions relate to the rescission of material no longer necessary because of private sector developments in GAAP.

December 17, 2003

NYSE Issues FAQs on Shareholder Approval of Equity Comp Plans

Yesterday, the NYSE sent notices to listed companies advising them of a list of FAQs regarding the shareholder approval of equity compensation rules. These FAQs have been long awaited - as borne out by the many issues raised in a November NASPP webcast.

The NYSE also stated it will be issuing a set of FAQs on the new governance listing standards in the near future. Nice of them to provide their interpretations for free (as opposed to Nasdaq).

PCAOB Proposes Oversight of Non-US Auditors

Last week, the PCAOB proposed rules relating to its oversight of non-US auditors. As I have mentioned a number of times, this is a highly controversial proposal because the PCAOB is essentially claiming global jurisdiction through this rulemaking - the first such claim for a regulator that I am aware of.

As part of this proposal, the PCAOB has decided to extend the registration deadline for non-U.S. audit firms by 90 days - now, the deadline is July 19, 2004.

Momentum of SEC Enforcement Grows

As reflected most recently by Director Stephen Cutler's remarks at the AICPA conference last week (he noted the SEC was about to announce actions against 11 auditors), the momentum of the SEC's Division of Enforcement continues. Here are some Enforcement statistics noted by Bruce Carton in his blog recently (as relayed by Linda Chatman Thomsen, Deputy Director of Enforcement, at an early December ABA meeting):

- In FY 2003, the SEC brought 679 enforcement actions (as compared to 598 cases in FY 2002 and 484 cases in FY 2001).
- 199 cases were in the financial fraud and issuer-reporting area. She observed that the percentage of issuer-reporting cases has been going up steadily over the last five years or so and that such cases first exceeded 100 in number in 2000.
- 109 cases were in the offering-fraud area, down from 119 in FY 2002.
- 137 cases were in the broker-dealer litigation area, up from 82 in FY 2002.
- 50 insider trading cases, down from 59 in FY 2002.
- 63 cases involved investment advisers.
- many more officer and director bars last year than in the past.

For members, we have an interview with Ken Winer of Foley & Lardner in which Ken discusses "SEC Enforcement and You."

December 16, 2003

A Little Something, Something for the Holidays - D&O Questionnaire

For TheCorporateCounsel members, we finally got our hands on a nice sample D&O questionnaire for Nasdaq companies - fully updated for the new governance listing standards and in a Word file.

Still working on one for NYSE companies - let me know if you see something. [personal anecdote - Saw Simon & Garfunkel last night. Truly amazing; Paul should run for President. Coincidently, I worked for Senator Paul Simon in the '70s as an intern (back when he was a Rep) - he was the most noble politician I have come across. Condolences to his family.]

SEC Goes After Independent Directors

Last Thursday, the SEC filed additional civil fraud charges in its long-running investigation of the Heartland Group high yield bond funds. Although this case is perhaps most noteworthy because of its analysis and response to mutual fund mispricings and bad acts by an independent pricing service, the SEC's action does include meaningful relief under the '33 Act as well.

The SEC obtained settled cease-and-desist orders against four independent directors of this registered investment company for violations of the antifraud provisions of the '33 Act (in addition to violations of the fund pricing provisions of the '40 Act). The funds' prospectus expressly stated that the directors would monitor and assure the liquidity of the funds' bonds. The directors failed to do this adequately and accepted the characterization of that failure as a violation of the antifraud provisions of the 1933 Act. More interestingly, they also agreed that their failure to participate meaningfully in the valuation of the Funds was a violation of the antifraud provisions of the '33 Act - and not just of the '40 Act.

The SEC's actions against the directors came despite the fact that the independent directors had been lied to by the Funds' advisor, had hired experts to assist them in performing their duties and had engaged in subsequent remedial actions once the Funds' problems came to their attention.

December 15, 2003

First "Opt-In" Proposal Submitted - Would Trigger Shareholder Access

To my knowledge, the first "opt-in" proposal has been submitted to a company, Marsh & McLennan (who is the parent of Putnam Mutual Funds). Three public pension funds - AFSCME, New York State Common Fund, Calpers and Calstrs - stated in a press release that they submitted the proposal because the company failed to properly control its money management business and does not have a sufficiently independent board.

Under the proposed shareholder access rules, if an "opt-in" shareholder proposal receives the support of a majority of shares voted at the company’s May annual meeting, shareholders would be permitted to submit board candidates for inclusion on the company’s proxy ballot the following year. Note that the SEC has not yet aopted this rule (comment period is open til 12/22) and the final parameters of what is an acceptable "opt-in" proposal is not known for certain. The company also can decide to challenge this proposal under a variety of exclusionary bases under Rule 14a-8.

Roy Disney - Taking It to the Web

Roy Disney and Stanley Gold recently left the Disney board in a huff to protest the leadership of CEO Michael Eisner. Now, they have launched a website - - in an effort to commence a grass-roots movement to oust Eisner, including the e-mail addresses of what they call "three key Disney directors."

Rule 10b5-1 Plans

For subscribers, we have posted an interview with Darryl Rains of Morrison & Foerster on 10b5-1 Plan Advantages.

And don't forget our "10b5-1" Practice Area, which contains a load of resources including model plans/arrangements; analysis of SEC guidance in this area and sample 8-K announcements of plans.

December 12, 2003

Impact of SEC's "Late Fund Trading" Proposal on 401(k) Plans

Yesterday, the SEC issued its proposing release regarding amendments to the mutual fund pricing rules to prevent late trading in fund shares. The proposed rules would require that all purchase and redemption orders be received by the fund (or a single transfer agent designated by the fund or registered clearing agency) no later than the time at which the fund prices its securities, typically 4 pm.

This change would have an impact on the operation of 401(k) plans. The proposal states that administrators of defined contribution employee pension plans - such as 401(K) plans - have informed the SEC that they likely will be unable to process any purchase or redemption requests the same day they are made.

Another issue that operating companies have to consider is market timing through trading in 401(k) investment options by plan participants. For example, it has recently been reported that some employees have been engaging in market timing in the Federal Reserve's employee thirft plan, and that the Fed has issued two letters to participants and imposed a restriction on rapid trading. Possible measures to restrict market timing in plans (e.g., redemption fees or trading restrictions) have to be reviewed for possible ERISA issues. Thanks to our roving reporter, Mike Holliday, for the information above!

Scrushy Looking to Overturn SOX

According to a brief story on, Richard Scrushy's lawyers said yesterday that part of Scrushy's defense in his criminal fraud case is "overturning SOX" (there is no further elaboration in the story). Scrushy, former CEO of Healthsouth, is alleged to have signed false 906 certifications. What kind of name is "Scrushy" anyways...

December 11, 2003

Yikes! Nasdaq Flips Back to Original Position on Effective Date

This one is a moving target. I hear from a reader that the Nasdaq staff is now going back to its original position that proxy statement disclosure in proxy statements sent to stockholders for annual meetings held on - or after - January 15th should include the newly adopted disclosure from the new governance standards.

So we are back to a split in opinion between the NYSE and Nasdaq - as we noted in our December issue of E-Minders. The maddening part is that nothing in writing has come from the Nasdaq staff on this very important topic - and its not the type of topic for which one should submit an interpretive request and pay the Nasdaq staff $2k (as now required under Rule 4550). As an aside, did you notice that Nasdaq has advertising at the bottom of its "Legal & Compliance" page? Sorta diminishes the feeling that you are dealing with a regulator...

Don't forget today's webcast on "The New Governance Listing Standards" during which inhouse counsel will discuss how they are implementing the new standards (and not rehashing what those new standards are).

New Executive Compensation Guidance

Today, the National Association of Corporate Directors is coming out with a Blue Ribbon Commission Report on Executive Compensation and the Role of the Compensation Committee. As evident from how often I cite the NACD "BRCs" in the FAQs on, I hold them in high regard as they are among the finest corporate governance publications out there.

Based on an article in today's WSJ, this BRC proposes ways to constrain exec pay, including recommending that comp committees hire their own comp consultants and that committees should hire consultants not used by management for other assignments (as well as that companies should provide disclosure if the committees do hire someone that does work for management). Other ideas are crackdowns on severance pay; "pay-for-performance" packages that are triggered after-the-fact; and incentive pay for weak performance.

Perhaps the most interesting is the advice to consider alternatives to CEO contracts. I will blog more after I get a chance to obtain and read this new BRC.

December 10, 2003

More Sample Governance Documents

We are starting to hit our stride by posting more sample governance documents in our "Sample Library," which is located in the bottom left side of our home page. During the past week, we have added new compensation committee evaluations and governance committee evaluations as well as new board evaluations and a board matrix.

In addition, we have posted new audit committee evaluations (now, there are 9 of them) - and we have a new audit committee financial expert questionnaire (which makes a total of 3).

In addition to today's webcast on "The New MD&A" (to which we just added Richard Harrison, President of GSI - which runs LiveEdgar - to the panel), don't forget tomorrow's webcast on "The New Governance Listing Standards" - which will be full of practical guidance from in-house counsel that have already grappled with implementing many of the new standards. The panel includes: Peggy Foran of Pfizer; Jim Gunderson of Schlumberger; Cary Klafter of Intel; and Tina Van Dam of Dow Chemical.

Mulling the Security of the SEC's Website

Today, the Washington Post ran an article about how most federal agencies flunked (again - 4th year in row) a test regarding the relative security of their computer networks and other online threats.

Seven agencies received an "F" including the Justice Department, which is charged with prosecuting many cases involving hacking and other forms of cyber-crime. The test is administered by the House Government Reform subcommittee on technology.

The SEC was not mentioned in the article and I couldn't find any more information from this subcommittee's webpage about the most recent scorecard. However, I have no reason to believe that the SEC's systems are not secure. In the hacker community, it has been a challenge to attempt to access the Edgar database for some time - just to prove it can be accomplished - and there have been no successes that I am aware of. Still, the thought of it can drive you mad - if someone accessed your recently filed 10-K and subtracted a few zeroes from net income...

December 9, 2003

SEC Comment Letters Online: The Big Chill?

Last week, GSI Online—sponsor of the LIVEDGAR database—rolled out a new product that consists of public access to SEC staff comment letters. The database appears to be comprised of hundreds - if not thousands of - letters that GSI has obtained through a massive FOIA request and includes requests for correspondence between the SEC staff and a wide range of companies (including companies that were part of the SEC’s Fortune 500 review project). This includes public access to both SEC comment letters and the responses.

For members, we have posted an interview with Thad Malik and Bill Tolbert of Jenner & Block on SEC Comment Letters in the Public Domain - including information about what Alan Beller said at this weekend's ABA meeting on this topic regarding confidentiality requests and more. We also have started posting law firm memos on this topic in E.18 of our "Sarbanes-Oxley Law Firm Memos."

While SEC comment letters have always been subject to FOIA requests, this facilitated ability to access - and word-search - them may well chill communications between the SEC staff and the corporate community. And Milberg Weiss certainly won't be opposed to such a development...

Sample MD&As

Although it was against my nature - due to my training on the SEC staff to never endorse specific disclosure - we have posted samples of specific MD&As that we thought were pretty good in certain areas (we included brief notes about what we thought were good about them). This was part of another update of the checklist in our "Proxy Season Resource Center" during which we have added several dozen more factors to consider in drafting a MD&A.

This is all in preparation for tomorrow's webcast on "The New MD&A". Tune in to hear Stacey Geer of BellSouth; Karl Groskaufmanis of Fried Frank and Ron Mueller of Gibson, Dunn.

AMEX Governance Listing Standards Approved

Better late than never, the SEC has approved the final AMEX governance listing standards (note that this SEC release is on our site, but not the SEC's site yet).

December 8, 2003

Nasdaq Does Not Change Tune - Final Word (I hope)

Over the weekend, the ABA Federal Regulation of Securities Subcommittee held a meeting - and someone reportedly told the audience that it will now interpret the effective date of its new governance listing standards so that applicable disclosures will not be required in documents before the date on which the company must comply with the amended listing standards - for calendar year companies, their first annual meeting after January 15, 2004 (i.e. disclosures not required in proxy statements because they are filed and delivered before the annual meeting - website disclosures required to be up as of the annual meeting date). This is the position that the NYSE staff took several weeks ago.

This was counter to what we heard Nasdaq was saying before - that proxy statement disclosure in proxy statements sent to stockholders for annual meetings held on - or after - January 15th should include the newly adopted disclosure. We reported this former split in opinion between the NYSE and Nasdaq in our December issue of E-Minders.

Now, on December 10, the Nasdaq has stated that its sticking by its original position as stated in E-Minders above - so the split between Nasdaq and NYSE remains and Nasdaq companies will have to provide these disclosures in the upcoming proxy statements.

Director Education and Orientation

For members, we have launched a "Director Education/Orientation Portal" which includes a sample checklist for director orientation and a list of links to all of the third-party director colleges. More to come in this area.

Don't forget to vote in our current survey on director education and orientation. So far, the twenty responses have been interesting...

December 5, 2003

"Reporting Up" Acid Test: Mutual Fund Lawyers?

SEC Commissioner Harvey Goldschmid gave a speech before the Investment Company Institute yesterday in which he warned that lawyers could be targeted if they were aware of credible evidence of a material violation of the securities laws and didn't report it up. There have been no specific allegations against lawyers yet in the mutual fund scandals.

As reported in a NY Times article today, John Villa of Williams & Connolly is reported to state "because the questionable practices uncovered by the mutual fund investigations are not clearly illegal, they present exactly what lawyers feared would result from the SEC's new rules."

More on Tender Offers for Underwater Options

FYI, Corp Fin has issued a no-action letter to Martha Stewart Living Omnimedia in connection with its arrangement to provide liquidity to employees that hold underwater options.

December 4, 2003

Shareholder Access Comment Letter Overload

How many comment letters do you think have been submitted to the SEC on its shareholder access proposal? You gotta take a guess...

Can you believe its easily over 5000 with several weeks left in the comment period. However, 2,898 individuals/entities submitted comments using "Letter Type I" and 1,916 individuals/entities used "Letter Type C." The Council of Institutional Investors has been very effective in getting out the vote. The SEC has been smart to combine these "cookie cutter" form letters into one submission on its website.

From the corporate perspective, one good letter is from the governance committee chair at Cendent.

Interesting Proposal from Joe Grundfest

Former SEC Commissioner and Stanford Professor Joe Grundfest offers an interesting alternative to the SEC's shareholder access proposal. He suggests an "advice and consent" set of procedures, that are modeled after Article II Section 2 of the United States Constitution.

These procedures would effectively force a nominating committee to take action against a director - or the director would be otherwise penalized - if there was a triggering event (and the triggering event would not facilitate the ability of shareholders to place nominees on the ballot in the following year).

So if a regulatory threshold of withheld votes were cast for a particular director, negative consequences would follow (what Joe calls "cure" provisions) - either the nominating committee getting that director to resign/not stand for re-election or if the director was re-elected, the director might not be deemed independent for purposes of listing standards, might be prohibited from voting on any matter required by SEC or SRO rules; or could trigger a rule that prevents a company from insuring or indemnifying the director for violations of federal securities laws.

Joe argues that this advice and consent mechanism has several clear advantages over the SEC's proposed shareholder access initiative. It greatly reduces the danger that shareholders will resort to the proxy mechanism as a device for promoting special interest agendas. It also greatly diminishes the dangers of factionalization that can arise from the election of dissident directors to a board. The proposal also eliminates the need for the SEC to adopt complex and potentially arbitrary rules defining "trigger conditions" and "qualified shareholders," and there is far less risk that the mechanism would be subject to a successful legal challenge.

December 3, 2003

What is a "Chief Governance Officer"?

More companies have been naming "Chief Governance Officers" and yet there still is some confusion about what these officers do. In fact, there is a disparity among what these officers actually do, as practice depends on the company's circumstances.

In my mind, the Chief Governance Officer's key role is to develop relationships with key constituents of the company, with the most obvious being institutional investors. However, the CGO is not the investor relations' officer - the CGO's contacts at these investors are those that vote proxies, which is a different group of folks from those that invest or analyze the company. Another key constituent is the company's regulators - which means that the CGO should be active in associations that interact with the government regularly.

None of this works if the CGO does not have the ear of the board - that's why just sticking a new label on a corporate secretary or inhouse securities counsel doesn't work unless it also means elevating that person's true status within the company.

For members, we have begun posting sample job descriptions for chief governance officers.

Europe On Its Way to Adopt Weak Takeover Code

On November 18th, the European Union’s Competitiveness Council of Ministers agreed to a weaker version of a proposed pan-European takeover code that would have removed many of the obstacles to cross-border mergers. Instead, the obstacles will largely remain in effect. Fourteen EU member countries voted in favor of the amended code (Spain abstained). If only one country had voted against the amended code, the EU could have rejected it.

Originally, the EU had wanted to enact a bold plan to remove nearly all of the existing barriers to cross-border buyouts. However, strong opposition from Germany and Scandinavia left the barriers in place.

Now, the EU's Council of Ministers and Parliment must approve the amended code - if so, it is expected to take effect in mid-2005.

December 1, 2003

December E-Minders is Up!

We have posted our December issue of E-Minders. If you wish to receive this free email newsletter - a courtesy to our community - sign up by merely plugging in your email address.

Writing on the Wall for Shareholder Approval of Equity Plans?

ISS' Friday Report runs a story about how five companies recently had trouble trying to obtain shareholder approval for equity-based plans. Charter Municipal Mortgage Acceptance Company has had to reconvene its annual meeting two times so far (to solicit more votes) - and two other companies have scheduled a reconvened meeting. Two other companies - LightPath Technologies and Sysco - also failed to receive approval but did not reconvene their meetings.

All the more reason why the transcript of the NASPP webcast on this topic is so valuable. If you are not a NASPP member, to gain immediate access to the archived audio or transcript, take advantage of the no-risk trial membership (you can obtain a full refund with no questions asked).

Cuts in Analyst Coverage

For those who were still eating turkey, the Friday edition of the WSJ had an interesting article about the cuts in analyst coverage over the past year.

A Greenwich Associates survey revealed that 29% of respondents said they had lost coverage by analysts (respondents were mostly large companies). Most revealing was a Reuters Research survey that indicated that 37% of tech companies had lost coverage - and those are the type of companies with above average trading volume that probably has been the least impacted by reduced coverage.

December 1, 2003

Wanna Buy Some "IDS"?

Today's WSJ contains an article about a company going public by selling "Income Deposit Securities" or "IDS." IDS is a new dividend and interest bearing security designed to provide tax benefits to the issuer and investors. Each IDS represents one share of common stock and one portion of subordinated notes (but investors won't own the underlying shares directly - rather a 3rd-party depository does). The IDS structure is akin to Canadian Income Trusts that are popular in Canada (but aren't allowed in the US).

For the Volume Services America Holdings IPO, the IDS will trade on the AMEX with underlying shares of common stock trading on the Toronto Stock Exchange. Another IPO of IDS is forthcoming (from American Seafoods). The IRS has not ruled on whether the structure is kosher yet - so it is possible that Volume Services could lose the ability to deduct some, or all, of its interest payments.

More about the New NYSE Governance Standards

For members, we have posted an interview with David Martin and David Engvall on the New NYSE Governance Listing Standards.

I have received a number of inquiries as to what precisely was the NYSE's follow-up guidance regarding transition - below is the exact text the NYSE staff emailed to listed companies:

"We have received numerous inquiries regarding 2004 disclosures required pursuant to our new corporate governance standards. We would like to clarify as follows:

· The existing audit committee and outside director requirements provided for in Section 303 of the Listed Company Manual continue to apply to listed companies pending transition to the new rules.

· If a company used the exception permitted by 303.02(D) during the preceding year, the requisite disclosure will be required in the 2004 annual meeting proxy.

· Companies have until the earlier of their first annual meeting after January 15, 2004, or October 31, 2004 to comply with the new standards, as expressed in Section 303A. Please see Section 303A of the Listed Company Manual for other transition requirements that may apply.

· Both sets of standards are currently available in the online version of the Listed Company Manual on

Section 303A contemplates disclosure as to certain matters in a company's proxy statement, annual report to shareholders, SEC filings and the company's corporate web site. Such disclosures encompass independence determinations and matters relating to governance documents, such as committee charters, Corporate Governance Guidelines, the Code of Business Conduct and Ethics and the CEO Certification to the NYSE. The NYSE mandated disclosures are not required in any documents that predate the applicable 2004 compliance date.

However, once the 2004 shareholder meeting is held, or by October 31, 2004, whichever is sooner, companies are expected to be in compliance with 303A and to have appropriately updated web sites with the committee charters, the Code of Business Conduct and Ethics and the Corporate Governance Guidelines.

303A.06 disclosures will be required as set forth in the SEC's Final Rule relating to audit committees. (SEC Release No.34-47654)

We will continue to require submission of a Written Affirmation in 2004 approximately 30 days subsequent to the 2004 shareholder meeting that demonstrates compliance with 303A. The new form of Affirmation and other requirements will be distributed prior to year-end."