April 29, 2005

SEC Sues Tyson Foods Over Perk Disclosures

Yesterday. the SEC charged Tyson Foods with inadequate proxy disclosures as well as with failing to maintain adequate internal controls in connection with its former Chair's perks. The company settled by paying a $1.5 million civil fine - and the former Chair, Don Tyson, will pay an additional $700k since he caused and aided the company's violations of disclosure rules for benefits that he, his friends and family members received while he was Chair and after his retirement in October 2001. Mr. Tyson is still a consultant to the company and sits on its board.

Reading through the list of perks that Mr. Tyson received, you can understand why companies might be loathe to disclose the perks that their senior managers receive. There is some incredible stuff disclosed in this press release: from $80,000 in lawn maintenance fees and $200,000 in housekeeping fees - to $1 million to cover the personal income tax liability associated with his receipt of the numerous benefits!

One aspect of the SEC's order that Mark Borges blogged about yesterday was that the SEC found that the company's use of the phrase "travel and entertainment" misleading to describe the continuation of Mr. Tyson's perquisites under his retirement agreement. To Mark and me, this really underscores one of the conclusions from the earlier GE enforcement proceeding: executive perks have to be described with sufficient specificity so that shareholders can understand the nature and scope of these benefits.

In the May/June issue of The Corporate Counsel - which will be mailed in early June - there will extensive analysis of perk use and disclosures.

FASB Proposes New GAAP Hierarchy

Good for both accountants and us lawyers alike - in connection with its effort to improve the quality of financial accounting standards and the standard-setting process - the FASB yesterday published an exposure draft on "The Hierarchy of Generally Accepted Accounting Principles."

The GAAP hierarchy, which currently resides in the AICPA's Standard No. 69, ranks the relative authority of accounting principles issued from multiple standard-setters. The FASB's codification and retrieval project will integrate existing US GAAP into a single authoritative retrievable source, thereby creating a single authoritative codification of GAAP.

Remember that we have a set of FAQs that explains all the basics of accounting and auditing in our "Accounting Overview" Practice Area.

My Beef with the DC Bar

Just finished reading an article in the Legal Times about how eight former DC Bar Presidents - including former Deputy Attorney General Jamie Gorelick - filed an amicus brief supporting a DC Bar member (who is a senior DOJ staffer) that was suspended from the Bar for not paying his dues. The brief was filed because the DC Bar is essentially saying he can't rejoin the bar - even though he wants to pay what he retroactively owes - due to an arcane DC Bar rule.

The DC Bar's GC doesn't sound responsive as he is quoted is saying, "It is a mandatory bar, not a club" and explains how the rules limit retroactive reinstatement only where the DC bar makes a mistake. Got news for the GC - his staff made a mistake with my membership last year and they still refuse to acknowledge it despite multiple appeals. It is the most rigid organization I have ever dealt with - so I am glad to see this article and know I ain't crazy. Trust me, the members don't come first with the DC Bar!

Note that the senior DOJ staffer has a more complex situation, as he is being sued for malpractice as he has been trying cases for two years without a license in DC. Me? I just sit in my home office in pajamas and post stuff on websites all day - so I really don't need to give my money to the DC Bar anyways. As you probably can tell, I had to get that off my chest...

April 28, 2005

What's Next after the Annual Meeting

I'm excited about my first podcast - and it's a timely one as Lou Rorimer and Lisa Kunkle explain "What's Next after the Annual Meeting." Let me know if you have trouble getting it to play.

For those expecting podcasts captured at the ABA Spring Meeting in Nashville, I confess I didn't have the nerve to whip out the microphone and start asking questions - still making the conversion from lawyer to journalist after all these years. But now that I got my feet wet, I think I will be podcast-happy. Let me know if you have a topic you want addressed - or want to be interviewed yerself! This one was done over the phone and the audio quality seems fine.

How Not to Conduct An Annual Meeting

Speaking of annual meetings, in this Sunday's NY Times, this article points out how some companies still don't quite get "it" about corporate governance in the meeting context. Look at what the article says Weyerhaeuser did:

"At its annual meeting last Thursday, the company's board and management broke with their longstanding tradition of taking shareholder questions from an open microphone on the floor. Instead, they required that shareholder questions be submitted in writing, either before or during the meeting. And Steven R. Rogel, the company's chief executive, announced that his directors and managers would devote just 15 minutes to answering the written questions.

It's a disturbing precedent to abolish the single spontaneous interaction that executives -- who, after all, are hired help -- have with their owners every year. But Weyerhaeuser went even further, according to an investment manager who attended the meeting, by gaveling down several shareholders who tried to ask questions from the floor. And when management cut short the answer period and a proxy holder stood up to make a point of order and ask why, a beefy security guard removed him from the meeting."

And in the article, here was the response from Weyerhaeuser:

"Frank Mendizabal, a spokesman for Weyerhaeuser, said: ''What we were trying to do was ensure the meeting was orderly and that as many questions as possible were answered. It's a business meeting, not a forum for special interest groups.''

He said the company answered 12 of about 30 questions that were submitted and that it planned to communicate its responses to the remaining queries, though he said he did not know how it would do this. He added that Weyerhaeuser had not decided whether it would stick to the written-question format at next year's meeting, but that more questions were answered this year than in previous years when they came from the floor."

Anyone surprised that Weyerhaeuser recently made the focus list of CalPERS (and that was even before the annual meeting was held!) of corporate laggards? Apparently the Weyerhaeuser spokesperson was surprised - here is another quote: ''We were certainly surprised and disappointed that Calpers took that action,'' he added. ''We pride ourselves on our ethics and corporate governance.'' Lots of other gems in the article...

May Issue of Eminders is Available

We have posted our May issue of our monthly email newsletter - sign up for this free newsletter today!

April 27, 2005

Understanding Overvoting

Last week, someone posted the overvoting question below in our "Q&A Forum" - note that overvoting reportedly occurs at 95% of shareholder meetings - and I couldn't help but have Julie conduct this interview with me to delve deeper into this unexplored topic. For the answer to the question below, see #879 in our Q&A Forum:

"Apparently it is relatively common that at proxy time, ADP and the broker community don't properly reconcile votes. Very often brokers transmit voting instructions through DTC for more shares than they really have, in some cases substantially more. The transfer agent and ADP both wash their hands of the problem, and all point fingers at the brokers having multiple account numbers at DTC returning votes with the wrong account flagged. In years past, we haven't heard about this problem. This year, the transfer agent explained the problem and wants us (the issuer) to tell them how to tabulate the overvotes. The transfer agent will either (a) not tabulate the vote of a broker's shares unless the votes correspond to the broker's DTC position or (b) tabulate the shares in such a manner as to "subtract" the over votes from management's recommendations. Unbeknownst to us, option (b) has been used in years past. Any reaction on the choices, other alternatives and what others are doing? Have others heard of this problem?"

D&O Insurance Transcript is Posted!

We have posted the transcript from the webcast: "D&O Insurance Today."

SEC Approves Prohibition of Analysts from Participating in Road Shows

Last week, the SEC approved a NYSE and NASD rule that prohibits analysts from participating in road shows. The 10 largest investment banks have already been subject to such a ban since a 2003 settlement with Eliot Spitzer.

Besides barring analysts from appearing at road shows, the new rules preclude analysts from any communication with current/prospective banking customers while bankers are present. Similarly, the rules forbid bankers from directing analysts to take part in sales or marketing efforts related to investment banking deals.

Under the new rules, analysts will be allowed to "educate" investors about investment banking deals, provided their presentations are fair, balanced and not misleading. Analysts may communicate in writing or make oral presentations - but only if investment banking personnel and company managers aren't present.

April 26, 2005

What to Do With Over-Boarded Directors

Those of you following ISS policy changes know that ISS will now recommended withholding votes for "over-boarded" directors. Current ISS policy is that overboarded directors are defined as those directors that serve on more than 6 boards (or for CEOs, those that sit on more than 3 boards, including the CEO's own board).

As can be expected under this new policy, a number of members have told me that ISS has indicated that one of their directors is over-boarded this year - and the choice the company then faces is either having the director roll off boards to reach the ISS policy limit or bear the burden of a recommendation that votes be withheld from the director.

If a director decides to roll off, ISS requires that this corrective action be made public somehow, as this public disclosure serves as notice to all interested parties and covers the promise to ISS with the anti-fraud protection of the federal securities laws. This can be done either through a SEC filing or press release; although here ISS prefers for the disclosure to appear in each relevant proxy statement(s) where the director is listed as a nominee (which can be accomplished by adding a tag line to the bottom of the director's bio, similar to the language noted in the example below). ISS prefers disclosure in these proxy statements as a way to ensure that shareholders of each company have access to the information.

As an example of what this disclosure might look like, check out this Form 8-K filed by Cousins Properties filed on April 15th that states:

"Thomas D. Bell, Jr., President and Chief Executive Officer of Cousins Properties Incorporated (the “Company”), currently serves on the boards of directors of more than three publicly traded companies. He has announced that by the spring of 2006, and for so long as he is the Chief Executive Officer of the Company, he intends to serve on the boards of directors of no more than three publicly traded companies (including the Company)."

Calling All Reg FD Questions!

In connection with our webcast next Monday - "The Latest Regulation FD Practices" - please send any questions in advance to me via email at broc.romanek@thecorporatecounsel.net and we will try to address them during the program (you can simply hit the "Email Broc" link on the left side of this blog).

And don't forget to cast your vote in our survey on Reg FD practices on the home page of TheCorporateCounsel.net.

Looking for Venture Capital Content

According to Inc.com, venture capital in the US doubled in 2004. We have created a new "Venture Capital" Practice Area. Check it out and let me know if you have any content or further ideas to bolster it! Any potential bloggers out there?

April 25, 2005

SEC Chief Accountant Offers Peek at Future of Offering Process by Non-US Companies

On Saturday, the NY Times ran this article about a "road map" from SEC Chief Accountant Donald Nicolaisen which would allow European companies to sell securities in the U.S. without having to revise their financial statements.

Outlined in this recent speech by the Chief Accountant, the road map envisions that by 2009 (and perhaps as early as 2007) companies that follow International Accounting Standards might be able to file financial reports with the SEC without reconciling the reports with US GAAP. Here is a Paul Weiss memo that discusses the road map.

The article has quotes from European regulators and this one from SEC Chairman Donaldson: "achieving the goal would depend in part on a detailed analysis of the faithfulness and consistency of the application and interpretation of international accounting standards in financial statements across companies and jurisdictions." This jibes with what the Chairman noted in his meeting last week with EU Market Commissioner Charles McCreevy.

The article also says the SEC expects about 300 companies, primarily European, to file annual reports next year that use international standards, which are now required in Australia and in the European Union. While Australian companies must follow all of these international rules, the European Commission gave European companies permission to opt out of complying with major parts of a rule concerning derivative securities.

30 Nuggets Transcript is Up!

On DealLawyers.com, the much-sought-after transcript from "30 M&A Nuggets in 60 Minutes" is posted.

My Last Word on Lease Restatements

I've blogged a bit about the "biggest category of restatements we've ever seen" after the SEC's Office of Chief Accountant posted a letter regarding lease accounting in February. In last Wednesday's WSJ, I saw the most accurate description of why the SEC released that letter, indicating that the SEC Chief Accountant was merely reacting to what the Big 4 had suddenly realized regarding past lease accounting practices. Here is an excerpt from that article:

"It all started in November, when KPMG LLP told fast-food chain CKE Restaurants Inc. that it had problems with the way CKE recognized rent expenses and depreciated buildings. That led CKE to restate its financials for 2002 as well as some prior years. CKE will also take a charge in its upcoming annual filing for 2003 through its just-ended 2005 fiscal year.

By winter, the Big Four accounting firms had banded together to ask the Securities and Exchange Commission's chief accountant to clarify rules on lease accounting. Retail and restaurant trade groups began battling rule makers about the merits of issuing such guidance.

Now, about 250 companies have announced restatements for lease-accounting issues similar to CKE's, and the number continues to rise daily."

"Gripe Sites" Protected in 9th Circuit

Many companies have had to deal with so-called “gripe sites” — unauthorized websites that not only criticize the company or its products, but also use the company’s own trademark as part of the website’s domain name. Here is an article that explains what gripe sites are and here is a website that comments upon - and keeps track - of gripe sites.

As noted in this Skadden Arps' memo, earlier this month, the U.S. Court of Appeals for the Ninth Circuit found that the noncommercial use of a trademark as the domain name of a gripe site does not constitute infringement of a trademark. The court’s decision removed an important argument on which plaintiffs rely in such cases and split from an earlier Fourth Circuit decision.

April 22, 2005

JCEB Notes for 2004 Posted!

Long-awaited, the notes from the 2004 meeting between the SEC Staff and the ABA’s Joint Committee on Employee Benefits were just released and reflect discussions with Staffers held after last May's meeting. A lot of tough questions were dealt with in the JCEB meeting as the new 8-K rules were adopted during that period and the Staff's 8-K FAQs released last Fall reflect some of those discussions. The 2005 JCEB/Staff meeting is being held in a few weeks.

To access these notes - as well as notes from prior years - go to our "JCEB Meeting with SEC Staff Notes" Practice Area.

What About Sending Items to SEC's HQ?

In response to my blog yesterday about parts of Corp Fin moving today, several members asked where they should mail confidential treatment requests and other materials that get sent in hard copy to the SEC. The answer is that they don't go to a new address yet; they still go to 450 Fifth Street until the SEC makes an announcement to the contrary. This might take a few months as the Staff will be spread out over the two buildings until sometime this Summer. Will keep you posted.

By the way, Corp Fin now has released the new phone numbers for those Operation offices that move today. All of the new numbers are reflected in our constantly updated "SEC Staff Organization Chart."

Risks of Sharing Pleadings with the Media

My favorite interviews are those during which I learn a lot; I knew little about sharing pleadings with the media until I conducted this interview with Chris Ohly on Risks of Sharing Pleadings with the Media.

April 21, 2005

Calling Chief Counsel's Office? Goodbye 2900!

This Friday, the first wave of the SEC gets moved - one floor at a time - starting with Corp Fin. It's important to note that Staffer phone numbers will change - you will be able to call any old phone number to listen to a message detailing the new number. But Staffers will not be able to access voicemail on their old phones once they move - so don't leave any messages if a recording says the Staffer has a new number.

For the Chief Counsel's well-known number - 202.942.2900 - the recording now says that on Monday, April 25th, the number will change to 202.551.3500. Here are the other new phone numbers for Corp Fin announced so far.

[As an aside, some Staffers had some of my old oil paintings in their offices - and they didn't want them anymore - so I picked them up and you might see them soon on Ebay.].

Annual Meeting Preparation Extravaganza

With many annual stockholder meetings approaching, we have posted numerous sample documents relating to the annual meeting - courtesy of Stephen Older of Akin Gump - in our "Annual Stockholders' Meeting" Practice Area. In addition, don't forget the audio archive and transcript of last year's great webcast: "Conduct of the Annual Meeting."

SEC Releases Study on Administrative Proceedings

Not sure who follows what the Administrative Law Judges are up to, but if you care - here is a study of the ALJ activities over the past year that the SEC released yesterday.

April 20, 2005

KPMG Settles with SEC For $22 Million Over Xerox Audits

Yesterday, KPMG settled with the SEC over the financial fraud at Xerox, for which Xerox paid a record fine of $10 million in 2002. KPMG will pay $10 million in penalities itself, in addition to disgorging nearly $10 million in audit fees and another $2.7 million in interest. Another gatekeeper case; KPMG's spokesperson stated that the settlement did not involve findings that KPMG's conduct was fraudulent or reckless.

The SEC's Order requires KPMG to undertake a series of reforms designed to prevent future violations of the securities laws, after finding that KPMG caused and willfully aided and abetted Xerox's violations of the anti-fraud, reporting, recordkeeping and internal controls provisions of the federal securities laws. The Order also finds that KPMG violated its obligations to disclose to Xerox's illegal acts that came to its attention during the Xerox audits. The SEC's civil fraud injunctive action against the five KPMG partners involved in the Xerox audits during the period of fraud is ongoing.

Regulation FD Practices Survey

On the home page of TheCorporateCounsel.net, we have posted a new survey on Reg FD practices. Please participate - and also check out the running results. The final results will tie in well with the webcast - "The Latest Regulation FD Practices" - on May 2nd.

US Supreme Court Reverses 9th Circuit Decision in Dura Pharmaceuticals

Yesterday, the US Supreme Court issued this opinion in Dura Pharmaceuticals v. Broudo and overturned the 9th Circuit's findings about loss causation. It is a unanimous decision authored by Justice Breyer.

Here is the analysis from Lyle Roberts, who blogs in "The10b-5 Daily": As predicted, the court rejected the Ninth Circuit's price inflation theory of loss causation. Instead, the court held that a plaintiff must prove that there was a causal connection between the alleged misrepresentations and the subsequent decline in the stock price.

Loss causation (i.e., a causal connection between the material misrepresentation and the loss) is an element of a securities fraud claim. In the Dura case, the Ninth Circuit had held that to satisfy this element a plaintiff only need prove that "the price at the time of purchase was inflated because of the misrepresentation." (See this post for a full summary of the Ninth Circuit's decision.)

On appeal, the Supreme Court made three key findings in rejecting the price inflation theory of loss causation. First, the court dismissed the idea that price inflation is the equivalent of an economic loss. The court noted that "as a matter of pure logic, at the moment the transaction takes place, the plaintiff has suffered no loss; the inflated purchase payment is offset by ownership of a share that at that instant possesses equivalent value." Moreover, it is not inevitable that an initially inflated purchase price will lead to a later loss. A subsequent resale of the stock at a lower price may result from "changed economic circumstances, changed investor expectations, new industry-specific or firm-specific facts, conditions, or other events, which taken separately or together account for some or all of that lower price."

Second, the court found that the price inflation theory of loss causation has no support in the common law. The common law has "long insisted" that a plaintiff in a deceit or misrepresentation action "show not only that if had he known the truth he would not have acted but also that he suffered actual economic loss." Accordingly, it was "not surprising that other courts of appeals have rejected the Ninth Circuit's 'inflated purchase price' approach."

Finally, the court noted that the price inflation theory of loss causation was arguably at odds with the objectives of the securities statutes, including the PSLRA. The statutes make private securities fraud actions available "not to provide investors with broad insurance against market losses, but to protect them against those economic losses that misrepresentations actually cause." In particular, the PSLRA "makes clear Congress' intent to permit private securities fraud actions for recovery where, but only where, plaintiffs adequately allege and prove the traditional elements of causation and loss."

As clear as the opinion is on the issue of the price inflation theory, it fails to provide much guidance on what a plaintiff must allege on loss causation to survive a motion to dismiss. The court assumed, without deciding, "that neither the [Federal Rules of Civil Procedure] nor the securities statutes impose any special further requirements in respect to the pleading of proximate causation or economic loss." Even under the notice pleading requirements, however, the complaint's bare allegation of price inflation was deemed insufficient. As stated by the court, "it should not prove burdensome for a plaintiff who has suffered an economic loss to provide a defendant with some indication of the loss and the causal connection that the plaintiff has in mind."

Holding: Reversed and remanded for proceedings consistent with opinion.

Addition: A few initial thoughts on the Dura opinion from Lyle:

(1) The case is a significant victory for defendants in the Eighth and Ninth Circuits, which were the only two courts to adopt the price inflation theory of loss causation.

(2) Although the Supreme Court has put the price inflation theory to rest, its opinion raises some complicated questions about recoverable loss. For example, the Supreme Court notes that many factors other than misrepresentations can cause a stock price decline, but does not provide any guidance on how plaintiffs can meet their burden of proof for loss causation in cases where some or all of these other factors are present.

(3) The opinion is unclear on an issue that was expressly raised on appeal: does the stock price decline need to be the result of a corrective disclosure that reveals the "truth" to the market? The Supreme Court makes some opaque references to when "the relevant truth begins to leak out" and "when the truth makes its way into the market place," but does not squarely address whether there is any need for plaintiffs to establish the existence of a corrective disclosure.

(4) Finally, as noted above, the Supreme Court expressly leaves open the question of whether F.R.C.P. 9(b) or the PSLRA requires plaintiffs to plead loss causation with particularity. The lower courts will need to decide whether these statutes are applicable.

April 19, 2005

Coke Settles Disclosure Action with SEC's Enforcement Division

Yesterday, the SEC announced that Coke has settled an enforcement action relating to the company's failure to disclose certain end-of-quarter sales practices used to meet earnings expectations. In reaction to the SEC's action, Coke has already voluntarily taken steps to strengthen its internal disclosure review process.

One aspect of this settlement to highlight was that even though Coke’s accounting treatment for sales made in connection with "gallon pushing" (i.e. a form of "channel stuffing" in the beverage industry) was found to be without issue, the SEC still found that the company's failure to disclose the impact of gallon pushing on current and future earnings in MD&A, as well as the false statements and omissions in a subsequent Form 8-K, violated the antifraud and periodic reporting requirements. In other words, this is not a financial fraud case; it's a disclosure one.

Notes from the SEC's Internal Controls Roundtable

If you were not among the standing-room only at last week's 404 Roundtable - from what I hear, a record crowd! - check out these comprehensive notes from the Roundtable, courtesy of Shearman & Sterling and Alston & Bird. We have posted the notes in both the "Conference Notes" and "Internal Controls" Practice Areas.

Conflicts of Interest and Dicey Engagements

On DealLawyers.com, don't forget tomorrow's, Wednesday, April 20th webcast - "Conflicts of Interest and Dicey Engagements" - featuring Peter Douglas of Davis Polk; Brian McCarthy of Skadden, Arps; Kevin Miller of Credit Suisse First Boston; and Morton Pierce of Dewey Ballantine. Among other topics, this program will cover:

• How to determine what conflicts you may face? And what factors you should consider when facing a conflict?

• What issues should you consider to resolve a conflict? What steps are sufficient, such as disclosure and consent, implementing ethical walls, eliminating the conflict or having an advisor withdraw?

• What are the consequences of having a conflict, including how to assess the level of risk and potential liability? How should you deal with insolvent or unsophisticated clients, or unorthodox arrangements?

• What is required disclosure in SEC filings regarding fairness opinions, including permissible disclaimer language? What about disclosure of other potential conflicts? What is the impact of the NASD’s fairness opinion proposal?

April 18, 2005

SEC's Advisory Committee on Smaller Public Companies Meets For 1st Time

Last week, the SEC’s Advisory Committee on Smaller Public Companies met for the first time. The members were sworn in and other administrative and organizational matters were taken care of, such as the approval of by-laws and a determination of a master schedule for the Advisory Committee. Unlike past SEC Advisory Committees (ie. pre-Information Age), it appears that we will be able to closely follow the developments of this Advisory Committee and that they will be moving quickly to fulfill their mandate.

Check out the Committee's webpage on the SEC’s website, which provides access to the charter, webcast archive of its first meeting and written statements received in advance of its first meeting.

CII Favors Majority Voting

The Council of Institutional Investors (CII) unanimously approved a new policy at its annual Spring Meeting last week in favor of majority voting for director elections. The new policy reads:

"Director Elections: When permissible under state law, companies’ charters and by-laws should provide that directors are to be elected by a majority of the votes cast. If state law requires plurality voting (or prohibits majority voting) for directors, boards should adopt policies asking that directors tender their resignations if the number of votes withheld from the candidate exceeds the votes for the candidate, and providing that such directors will not be re-nominated after expiration of their current term in the event they fail to tender such resignation."

Also last week, shareholders of Gannett Co. and Caterpillar Inc. rejected majority voting proposals at their annual meetings; however, the proposals did receive 48% and 38% of the votes cast, respectively - a huge level of support considering past levels! For more on the Majority Vote Movement, see Broc’s April 14th blog and the new "Majority Vote Movement" Practice Area.

Broker-Dealers vs. Investment Advisers

Last week, the SEC decided that brokers do not have to register as advisers, upholding an exemption Congress originally included in the Investment Advisers Act. While the SEC didn’t change the existing law, it adopted a rule that addresses the application of the Advisers Act to broker-dealers offering certain types of brokerage programs. Under the rule, a broker-dealer providing nondiscretionary advice that is solely incidental to its brokerage services is excepted from the Advisers Act regardless of whether it charges an asset-based or fixed fee (rather than commissions, mark-ups, or mark-downs) for its services.

The new rule also provides that broker-dealers are not subject to the Advisers Act solely because they offer full-service brokerage and discount brokerage services, including execution-only brokerage, for reduced commission rates. The rule addresses the question of when a broker-dealer’s advisory activities are subject to the Advisers Act because they are not “solely incidental to” the broker’s business. The rule identifies three circumstances when a broker-dealer’s advice would not be solely incidental.

In the adopting release, the Commission stated its concern about the difficulty, on the part of investors, of differentiating between a broker and an investment adviser. The Commission said that it believes that those concerns may more appropriately fall under broker-dealer/Exchange Act regulation, and will receive a report from the Staff within 90 days addressing the options for most effectively responding to these issues and recommending a course of action.

-Posted by Julie Hoffman

April 15, 2005

Enforcement Director Cutler To Leave SEC

After nearly four years at the SEC, Enforcement Chief Stephen Cutler has announced he will go back into private practice in a month. Stephen joined the Commission as Deputy Director of Enforcement on Arthur Levitt's watch and was appointed Director of Enforcement by Harvey Pitt. If past experience of other former Enforcement Directors is any indication, he will do quite well in private practice. Here is the related SEC press release.

Now comes the traditional scramble to determine whether the next Enforcement Director comes from within the agency or from the outside world. In terms of post-SEC earning power, this position can be even more lucrative than the Chairman spot or any other position within the Commission.

Six-Month Delay for Option Expensing

Yesterday, the SEC announced the adoption of a new rule that amends the compliance dates for the FASB's 123R. Under Statement No. 123R, companies would have been required to implement the standard as of the beginning of the first interim or annual period that begins after June 15, 2005, or after December 15, 2005 for small business issuers. Calendar year-end companies that are not small business issuers, therefore, would have been permitted to follow the pre-existing accounting literature for the first and second quarters of 2005, but required to follow 123R for their third quarter reports.

The SEC's new rule allows companies to implement 123R at the beginning of their next fiscal year, instead of the next reporting period, that begins after June 15, 2005, or Dec. 15, 2005 for small business issuers. This means, for example, that the financial statements for a calendar year-end company do not need to comply with 123R until the interim financial statements for the first quarter of 2006 are filed. The financial statements for a company, other than a small business issuer, with a June 30 year-end, however, must comply with 123R when the interim financial statements for the quarter beginning July 1, 2005 are filed. The SEC's new rule does not change the accounting required by 123R; it changes only the dates for compliance with the standard.

Chairman Donaldson Bobblehead?

Each of us has our own gauge of our own success. For some, it's money; for others, it's fame. For me, it's a bobblehead. When they make a bobblehead with your likeness, you know you made it! Check out this article regarding bobbleheads of the US Supreme Court Justices.

April 14, 2005

63,000 Internal Control Problems and Counting

During yesterday's SEC 404 Roundtable, PwC said a study of 225 clients identified nearly 63,000 control problems or about 275 per company, most of which were fixed by the end of the review process.

The upshot of the Roundtable is that the PCAOB will likely issue staff guidance within 30 to 45 days to help clarify some aspects of Auditing Standard No. 2. And SEC Chairman Donaldson said that he will instruct his staff to present recommendations for change soon.

More on Majority Vote Movement

Haven't heard yet whether the Council of Institutional Investors voted to back the majority vote movement (which CalPERS and ISS already have) during their meeting yesterday - but SEC Commissioner Harvey Goldscmid gave a speech there during which he vowed that the shareholder access proposal is not yet dead.

During the CII meeting, ISS released this 30-page white paper on the majority vote movement. Also posted is a transcript from a webcast they conducted recently on the topic (and I had already blogged about their new policy on this topic).

By the way, for the first time ever, the CII now has a majority of its 16 board members coming from unions - so we should expect a more activist agenda from CII in the near term...

SEC Changes Form 20-F for Transitional International Reporting Relief

To take into account the new international financial reporting standards - and encourage their use - the SEC adopted amendments yesterday to Form 20-F in order to permit those non-US issuers that adopt the new standards before 2007 to file just two years of income statements, changes in shareholders' equity and cash flow rather than three years worth of those financials. No changes to US GAAP reconciliation were made.

April 13, 2005

The Latest Reg FD Practices

Not surprising given the confusion right now in the Reg FD area, one member disagreed with some statements that I blogged about a few weeks back regarding the Flowserve settlement, particularly what corporate practice should be in light of it. Here is that member's take:

"The facts and circumstances of Flowserve created a perfect storm of bad facts that resulted - appropriately - in an enforcement action. But it is not wise to make a blanket statement about the number of days after which one violates FD. Reg FD concerns selective disclosure of material information.

In Flowserve's case, where it had previously lowered its guidance 3 times during the year, the fact that it was sticking with its prior guidance was material. Additionally, the timing was such that it was near the end of the period for which the guidance had been given.

I don't know what analysts who covered the company were expecting, but it seems that they were expecting another lowering of guidance. These facts alone distinguish many other situations involving public company earnings guidance. If a company issues guidance at the beginning of the fiscal year and there is nothing to suggest that guidance could or should change, and depending on the history of the company maintaining or changing guidance, I would not find it an FD violation if there was a reaffirmation months later.

The facts of Flowserve also revealed that there was a failure to follow the company's own stated policy and a long delay in filing an 8-K to disclose the reaffirmation. The subsequent denial by the two Flowserve executives of the reaffirmation was also a contributing factor to the result."

To help clear up some of the uncertainty in this area, join us for a webcast -“The Latest Regulation FD Practices” – on Monday, May 2nd to hear John Huber of Latham & Watkins, Keith Higgins of Ropes & Gray and Stan Keller of Palmer & Dodge analyze how companies have reacted - and should be reacting - to the series of SEC Reg FD enforcement actions that have taken place over the past year, including the Flowshare settlement.

In the meantime, you can peruse the numerous law firm memos regarding Flowshare that we have made available in our "Regulation FD" Practice Area.

Recent Developments in Delaware Entity Law

Like last year, Lou Hering provides the lowdown on the latest Delaware law developments regarding LLCs and other entities in this interview.

SEC Intends to Delay Option Expensing

Today, the WSJ reports that the SEC intends to delay the implementation date of the FASB's option expensing rule until next January, effectively giving them a six-month reprieve. It is reported that companies whose fiscal year starts from mid-year through year-end wouldn't qualify for the delay.

If approved by the SEC (which would override the FASB), the delay would mark the second time that the implementation date has been delayed. Last year, the FASB voted to give companies six additional months, from last December until June 15, 2005, which is the effective date as it stands today.

April 12, 2005

Understanding Equity Burn Rates

The potential dilutive effect of option granting practices over the past decade has been the subject of intense investor interest - and many companies are now taking action in response to this uprising. Learn more about equity burn rates in this excellent article from ISS.

Tomorrow's D&O Insurance Webcast

On TheCorporateCounsel.net, don't forget tomorrow's, Wednesday, April 13th webcast - "D&O Insurance Today" - during which Joseph McLaughlin of Simpson Thacher, Patricia Villareal of Jones Day, and Kit Chaskin of Sachnoff & Weaver will analyze why you should be taking a second look at your D&O insurance policies – and provide practical guidance about what to do about your policies today.

Now That's My Kind of CEO!

Perusing the special CEO pay supplement in yesterday's WSJ, I loved this interview with Biomet CEO Dane Miller so much that I just had to copy an excerpt. Note that Dane's salary just passed $500k for the first time and that the other NEOs get paid nearly the same as him. Here is a fraction of the interview:

WSJ: Does shared greed mean the board becomes captive of management?

Dr. Miller: Some organizations that pay their senior management large sums also tend to pay their boards large money. They tend to want to keep each other happy.

WSJ: Should your cash compensation more closely reflect your employer's record results?

Dr. Miller: Earnings grow on behalf of shareholders. If revenues and earnings should drop, I would expect my compensation program to go in that direction as well. But I don't think there is any direct connection between the growth in revenues or earnings and what a company should compensate its CEO. If everybody's pay increase paralleled the increase in revenues and earnings, the company's results wouldn't increase.

WSJ: But isn't that what pay for performance is all about?

Dr. Miller: Our compound annual growth rate approaches 20% in both earnings and revenues. Taking the 20% growth number back 20 years, the corporation probably couldn't afford me today.

WSJ: Clearly, collecting a huge salary would bother you -- especially when you walk around the factory floor talking to workers earning $15 or $20 an hour. What else makes you uncomfortable about making an obscene amount as CEO?

Dr. Miller: Everyone should have a little problem making an obscene amount of money on the backs of shareholders.

April 11, 2005

More SEC Guidance on IPO Allocations

On Thursday, the SEC issued this interpretive release concerning prohibited conduct in connection with securities distributions under Regulation M, particularly with a focus on IPO allocations.

The release is a reminder that Reg M prohibits any attempts to induce aftermarket purchases during a restricted period and it lists 7 activities that the SEC believes violates Reg M (based on three enforcement actions the SEC recently brought). Section V (page 19) covers policies, procedures and systems underwriters should have, and states that firms also should take corrective action if breaches occur. The release says that the SEC will continue to solicit comments on its guidance - until June 7th - as it continues to monitor IPO allocation practices.

SEC Barely Adopts Regulation NMS

Last Wednesday, the SEC passed controversial Regulation NMS with another close 3-2 vote (Chairman Donaldson sided with the Democratic Commissioners). Reg NMS is a set of market-structure reforms that will force brokers and exchanges to guarantee the best available price to investors, so long as that price is immediately executable. Also known as the “order-protection rule,” it will apply to all marketplaces - including the Nasdaq Stock Market - and will require markets to go to a competing market if there is a better price. Opponents wanted the freedom to choose “speed” and “certainty of execution” over best price. Here is the related press release.

The SEC set a April 6, 2006 effective date, which some believe will eventually have to be pushed back because the technology won’t yet be available.

A Few Thoughts on Director Compensation

One hot topic today is how much to pay directors. I'm not sure I agree with the tone of this article from the Pittsburgh Gazette Review, which indicates that directors are lining their pockets. Directors face long hours these days, and more importantly, a heap of potential liability - and should be compensated accordingly.

One key to director's pay is independence. Because of the unique nature of the who sets board pay - the directors themselves - the amounts and processes of setting pay are more susceptible to attack than CEO pay. In the complaints filed against directors for setting excessive CEO pay packages, their independence universally is assailed, with their own pay package being used as exhibit #1 against them.

And although the basic tools of board pay often are identical to those used for CEO pay (i.e. cash and equity), the primary goals of the two types of pay differ considerably. I believe director pay should be designed to incentivize directors to act independently and preserve the company's value; whereas CEOs should be rewarded for superior corporate performance and growing the company's value. I am no expert, but I don't think this is an area that is well understood and likely will evolve over the next few years.

April 8, 2005

Internal Controls Roundtable

The Commission has announced the agenda and participants for the upcoming Internal Controls Roundtable, to be held next Wednesday, April 13. The Roundtable will be an all-day affair, from 9 to 5:30. It is open to the public and will also be webcasted. More information on the Roundtable is available.

Sarbanes-Oxley, UK Style

Portions of the United Kingdom’s Companies (Audit, Investigations and Community Enterprise) Act 2004 went into effect this week, placing U.K. companies under stricter auditing controls in an effort to improve the reliability of financial reporting and the independence of auditors. The Act also aims to strengthen the powers of company investigators.

The main requirements of the Act are:

• requiring directors to state in the Directors' Report that they have not withheld any relevant information from their auditors and giving auditors rights to information from employees as well as officers - failure to comply is a criminal offense, including making a false statement in the Directors' Report;

• requiring companies to publish details of non-audit services provided by their auditors;

• imposing independent auditing standards, monitoring and disciplinary procedures on the professional accountancy bodies; and

• strengthening the role of the Financial Reporting Review Panel in enforcing good accounting and reporting.

J&J Calls Out the Competition

As Mark Borges notes in his The Compensation Disclosure Blog on CompensationStandards.com, Johnson & Johnson took their competition to task over non-disclosure of aircraft perk amounts. As noted in J&J’s March 15 definitive proxy:

"many other peer corporations require their chairman and certain other executive officers to use company aircraft for personal as well as business travel. As a result, at those corporations, personal use of company aircraft by the chairman and those other executive officers is not treated as a perquisite or personal benefit and the costs associated with such personal use of company aircraft are not reported in the proxy statement. The Company has not required the chairman and other executive officers to use corporate aircraft for personal travel. Mr. Weldon is taxed on the imputed income attributable to personal use of company aircraft and does not receive tax assistance from the Company with respect to these amounts.”

In the words of Alan Beller (in his 10/20/04 speech at our Executive Compensation Conference): “simply stating that company executives must always fly in company planes (or drive in company cars, or accept any other benefit) for security reasons does not relieve a company from considering whether these benefits are perks." There is more in the "Airplane Use" Practice Area on CompensationStandards.com. Maybe next year, J&J will name names!

-Posted by Julie Hoffman

April 7, 2005

Impact of Class Action Fairness Act of 2005 on Securities Litigation

A lot has been written about the new class action law, but I haven't seen much about how it might impact securities litigation. Learn more in this interview with Charles Rothfeld on Future of Securities Class Actions.

SEC Speaks on Titan Section 21(a) Report

On DealLawyers.com, we have posted the transcript of the remarks from Brian Breheny, Chief of Corp Fin's Office of Mergers & Acquisitions, on the Titan Report from our webcast, "30 M&A Nuggets in 60 Minutes" (remainder of transcript coming soon).

In addition, a few days back, I guest blogged in "The Deal Guys Blog" about what Corp Fin Director Alan Beller said on the topic at the ABA Spring Meeting. Of course, this was a hot topic during the Negotiated Acquisitions committee meeting. [By the way, an informal splinter of that committee - calling itself the "Order of the Sub-Genius - will be presenting the 1st Annual Dr. Gonzo award at its fall meeting in Las Vegas!]

April 6, 2005

Option Valuation Webcast

With the deadline for option expensing bearing down on us, check out tomorrow's NASPP webcast - "What You Need To Know About Option Valuation" - is more important than ever.

SEC Posts Briefing Paper for 404 Roundtable

Yesterday, the SEC posted this Briefing Paper for the April 13th Roundtable on internal controls. The Paper lists the Roundtable's agenda, consisting of 6 Panels, as well as a summary and discussion questions. Here are the 6 panels (speakers not yet announced):

Panel 1 - The First Year

Panel 2 - Reporting to the Public

Panel 3 - Planning and Design

Panel 4 - Documentation and Testing

Panel 5 - Using Judgment in Communications and Conclusions

Panel 6 - Next Steps

The Future of Electronic Road Shows

At the ABA Spring Meeting, there was much discussion about the future of the offering process - a topic I will address this Friday at the "Cybersecurities Law Conference - 10th Anniversary of Cybersecurities Law." Back when I was in Corp Fin's Office of Chief Counsel, I remember spending countless hours trying to get the Bloomberg e-roadshow no-action response out - and how ridiculous the framework was (and still is) due to the outdated restrictions imposed by the '33 Act.

Now with reform looming to remove many of these restrictions, how might future roadshows look? For starters, look at VentureCapitalTV.com, where you can watch videos of executives from start-ups doing elevator pitches. After '33 Act reform is implemented, it's easy to imagine a pleathora of these "one-stop" sites that will house e-roadshows.

And what about a banker who dissects the daily grind of a physical roadshow in a blog, as that type of concept for a blog is very popular (in a way, its the online equivalent of reality TV - see this popular blog from a benchwarmer on the Phoenix Suns). Don't laugh; one set of i-bankers already has started this ThinkBlog.

April 5, 2005

Delaware Supreme Court Rules in Disney Books & Records Case

On Thursday, the Delaware Supreme Court issued an order in a case that had been appealed by Roy Disney last year. Roy seeks to have the confidentiality restrictions lifted on the sensitive executive pay information he had successfully obtained in his books & records request to the Walt Disney Company. Roy has said that he wants to publicize the pay information in his quest to improve governance practices at the company. The order is posted in "Books & Records" section of the "Compensation Litigation Portal" in CompensationStandards.com.

In remanding the case back to Chancery Court, the Supreme Court requested that Vice Chancellor Lamb make specific factual findings about the confidential nature of the documents in question and to balance the harm and benefits of lifting the confidentiality designation. This kind of balancing approach may suggest the test for getting confidential documents is not quite as stringent as Vice Chancellor Lamb had articulated in his initial decision, in which he set a high bar for plaintiffs trying to overcome a confidentiality designation by the company.

Crocodile Tears over Executive Compensation

I cringe when the media does a special report on executive compensation (like the NY Times on Sunday and USA Today last Thursday) because my dad will call me and ask why Corporate America continues to perpetuate excessive pay practices. To answer him, I resort to my top four explanations of this dilemma:

1. "Who's in Charge" Fingerpointing - Talk to most compensation consultants or lawyers about responsible practices and they are quick to point out that they have no control over what is paid and many feel they have no obligation to speak up to directors to advise them on responsible practices.

My hunch is that directors - most of whom serve in that role on a part-time basis - value the wisdom of their advisors and would welcome such input. And surprisingly, quite a few lawyers subtly talk in terms of representing the CEO, rather than the corporate entity for which they truly should serve. Need some backbone here.

2. The Catch-22 of Benchmarking - Unfortunately, nearly all compensation committees - based on the advice of their consultants - resort to relying on traditional benchmarking surveys to determine pay levels. This is true despite the fact that most agree that the compounded "ratcheting-up" effect of two decades of wanting to be in the top 25% has rendered survey data useless. Other benchmarking methods, such as internal pay equity, have yet to widely take hold.

The "Catch-22" here is that everyone is looking to the consultants for guidance in this area, but they are loathe to say their past data is bad - because that would be some form of admission of past failures. This cycle has to be stopped for normalcy to return.

3. Strong Dose of Alice in Wonderland- I don't know how else to explain it other than a lack of common sense, as I just don't see how a CEO would be motivated to perform better if she was paid only $5 million rather than $50 million per year. At some point, more compensation will not get you more performance - and if anything, might reduce performance as immense wealth sometimes can change one's ego and personality. And providing huge pay packages to retirees or severed officers - or "golden hellos" as mentioned in this recent Washington Post article - doesn't seem to provide shareholder value as its not tied to performance.

4. Soft Legal Standards - Arguably, there is no real law that prevents directors from establishing excessive pay practices. The state legal standards are the law of corporate waste (which has no teeth whatsoever) and the array of fiduciary obligations that directors have, which essentially requires that the proper process be followed. In fact, as noted in the Integrated Health decision in Delaware, to avoid personal liability under a lack of good faith charge, only the barest minimum of process need be present (unless Vice Chancellor Chandler really surprises in his Disney decision come this summer).

Honest to Betsy, we didn't think that we would have more than one Executive Compensation conference nor did we think that CompensationStandards.com would be more than course materials for last year's conference. And I truly hope that we won't have to keep these up long, but it sure doesn't look good.

For a refresher of the many issues still present in the compensation area, I strongly urge everyone to go back and read our "12 Steps to Responsible Executive Compensation Practices" from the May-June 2004 and Sept-Oct 2004 issues of The Corporate Counsel, which are still freely available to everyone on CompensationStandards.com.

April 4, 2005

404 Grouchiness?

As I dig out from under after 4 days at the ABA's Spring Meeting in Nashville, I chuckled at the WSJ article on Friday which noted this excerpt from Monarch Casino's 10-K (emphasis added by me):

"There has been no change in our internal controls over financial reporting during the year ended December 31, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reports.

We are in the process of our compliance efforts mandated by Section 404 of the Sarbanes-Oxley Act of 2002. As we have done our due diligence in trying to understand the requirements and corresponding work necessary to successfully document our system of internal controls to the standards and satisfaction of third parties, we have encountered egregious estimates of time, dollars, outside consultant fees, and volumes of paperwork. As our implementation has progressed, we have yet to realize any control, operations or governance improvements or benefits. Additionally, and most importantly, the estimated potential cost to our shareholders in relation to the benefits, or even potential benefits, is unconscionable. We believe that these additional costs and expenses will merely confirm the existence of an already effective and functioning control system that already conforms with a recognized system of internal controls.

Although we intend to diligently pursue implementation and compliance with the Section 404 requirements, we do not believe it is in our shareholders' best interests to incur unnecessary outsized costs in this effort. As we are a single location company with an extremely involved, hands-on senior management group in a highly regulated industry with significant insider ownership, the potential benefits to be derived from the Section 404 requirements are believed to be minimal. Consequently, we will make every effort internally to comply with the Section 404 requirements but will minimize what we believe to be the unreasonable and unnecessary expense of retaining outside third parties to assist in this effort.

As a result of this cautioned approach and the complexity of compliance, there is a risk that, notwithstanding the best efforts of our management group, we may fail to adopt sufficient internal controls over financial reporting that are in compliance with the Section 404 requirements."

Wonder if these issues will be addressed at the SEC's 404 Roundtable next week...

Corp Fin Updates "Current Accounting and Disclosure Issues" Outline

Even though dated March 4th, Corp Fin posted last week an updated version of its "Current Accounting and Disclosure Issues" outline. Note that its Table of Contents - pages 1-4 - indicate which sections are "Revised" and which are "New."

AFSCME Loses Lawsuit Against AIG Over Proxy Access

As reported by ISS, the American Federation of State, County and Municipal Employees (known as "ASFCME") sued AIG on February 25th in a New York City federal court after the SEC Staff advised AIG on February 14th that it could omit a binding shareholder proposal that seeks to amend the company's bylaws to allow shareholders to nominate directors. Here is ASFCME's press release on the lawsuit.

On March 22nd, ISS reported that the federal judge had dismissed the lawsuit. As you might recall, before this AIG no-action response, Corp Fin had already permitted the exclusion of similar proposals at Walt Disney, Halliburton, Qwest Communications and Verizon over the past two proxy seasons. It's pretty rare for lawsuits to be filed over Rule 14a-8 actions by the SEC.

April 1, 2005

The Intel Proxy Statement

Mark Borges continues to amaze in his daily dissections of recent proxy comp disclosures in his "The Compensation Disclosure Blog." Here is his take on Intel's just-filed proxy statement: This year's Intel proxy statement is a model of proactive, comprehensive disclosure. Take, for example, Andy Grove's cover letter to shareholders. In it, he addresses two significant issues that affect proxy voting; one new - the debate over plurality voting for directors, and one no-so-new -- broker voting on compensation plans:

"Your Intel stockholder vote is more important than ever in 2005. Each share of our stock that you own represents one vote. If you do not vote your shares, you will not have a say in the important issues to be voted on at the annual meeting. The 10 nominees receiving the most votes “for” election will be elected as directors; and to pass, each other proposal included in this year’s proxy statement will require a majority of votes present or represented at the annual meeting. Many of our stockholders do not vote, so the stockholders who do vote influence the outcome of the election in greater proportion than their percentage ownership of the company. In addition, banks and brokers that have not received voting instructions from their clients cannot vote on their clients’ behalf on “non-routine” proposals, such as approval of amendment and extension of the 2004 Equity Incentive Plan and the Executive Officer Incentive Plan, which further reduces the number of votes cast."

Without getting bogged down in legal jargon, this paragraph provides a brilliantly concise and understandable explanation of why shareholder voting is important -- and the potential consequences of failing to vote.

My main focus the first time through the proxy statement is on this year's Board Compensation Committee Report. It includes many noteworthy items, including:

- A description of the Compensation Committee's authority to engage, and actual retention of, compensation consultants. The Committee notes that, while it retained a consultant for two of the past three years, it did not do so in 2004 in connection with its work on 2005 executive compensation. The report goes on to say that the Committee is undertaking a study during 2005 of Intel’s executive compensation philosophy and design, and expects to engage outside experts to assist in this work.

- Disclosure that Intel's employees, including its executive officers, are employed "at will" and do not have employment agreements, severance payment arrangements or payment arrangements that would be triggered by a corporate change in control.

- A statement that the Committee’s review of the company's executive compensation programs and practices includes an analysis, for each executive, of all elements of compensation, consisting of base and variable cash compensation; stock option grants; retirement programs; and health and welfare benefits. The Committee compares these compensation components separately and in the aggregate to the compensation of Intel's peer group companies.

- A statement identifying and reaffirming the company's key strategic compensation design priorities: pay-for-performance, employee retention, cost management, egalitarian treatment of employees, alignment with shareholders’ interests, and continued focus on corporate governance.

- A description of the Committee's consideration of internal pay consistency with Intel's 100 most-highly paid employees in setting executive officer salaries and incentive baselines. The company monitors this data to ensure that executive officer compensation is not increasing at rates significantly beyond that of Intel’s other highly valued employees.

- A statement that, in setting executive compensation for 2005, the Committee reviewed the total remuneration that each executive officer could potentially receive in each of the next 10 years, under scenarios of continuing employment with the company or upon retirement from the company. (For these purposes, "total remuneration" included all aspects of an executive officer’s future cash-convertible benefits, total cash compensation (base salary plus incentive) from continuing employment, the future value of stock options under varying stock price growth assumptions (as well as, if applicable, the impact of accelerated vesting upon retirement), the value of any deferred compensation and profit sharing retirement benefits, and the value of health care benefits.)

- An indication that the company, long known as a stock option stalwart, is considering the use of performance stock, as well as other equity vehicles, as part of its long-term incentive program. The Report also discloses that, in 2004, approximately 99% of the company's stock option grants went to employees other than its top six most highly-compensated executive officers, and that, for the period 2000 to 2004, only 1.2% of all option grants went to its top five most highly compensated executive officers (top six for 2004).

- A statement reaffirming the company's egalitarian culture:

"Intel’s officers are not entitled to operate under different standards than other employees. Intel does not provide its officers with reserved parking spaces or separate dining or other facilities, nor does Intel have programs for providing personal-benefit perquisites to officers, such as permanent lodging or defraying the cost of personal entertainment or family travel. Intel’s office-building layouts are cubicle-based for all employees, including officers. Company-provided air travel for Intel’s officers is for business purposes only: Intel’s company-owned aircraft each hold approximately 40 passengers and are used in regularly scheduled shuttle routes between Intel’s major U.S. facility locations, and Intel’s use of non-commercial aircraft on a time-share or rental basis is limited to appropriate business-only travel. Intel’s health care, insurance and other welfare and employee-benefit programs are the same for all eligible employees, including Intel’s officers. Intel’s loan programs, although modest in nature, are not available to Intel’s executive officers. Intel has no outstanding loans of any kind to any of its executive officers, and since 2002, federal law has prohibited Intel from making any new loans to its executive officers. Intel expects its officers to be role models under its Corporate Business Principles, which are applicable to all employees, and Intel’s officers are not entitled to operate under lesser standards."

The Report finishes with a statement professing the Committee's belief that Intel’s pay-for-performance executive compensation program sets the standard for best-in-class executive compensation practices. The same can be said for its BCCR.

PCAOB Proposes Standard on Reporting for Elimination of Material Weaknesses

Yesterday, the PCAOB proposed a standard regarding how to report the elimination of a material weakness. Here is the related press release and the 42-page proposal.

Ten Years of Cybersecurities Law

Hard to believe that the Web is a decade old! Come hear me, John Stark from the SEC's Enforcement Division and other cyberlaw enthusiasts at the "Cybersecurities Law Conference - 10th Anniversary of Cybersecurities Law" next Friday in Toledo. The conference is free!