September 26, 2008

The Senate's "Agreement in Principles"

We've posted a copy of the US Senate's "agreement in principles" that was reached yesterday for the bailout legislation (this WSJ article analyzes the odds of passage - and Dominic Jones explains the importance of retail investors for passage). Here is the very first principle:

Requires Treasury Secretary to set standards to prevent excessive or inappropriate executive compensation for participating companies.

The notion that a group of government staffers may be setting the parameters for a number of CEO pay packages is nearly incomprehensible. I'm glad it isn't me.

What are "Appropriate Standards" for "Shareholder Disclosure"?

From Will Anderson of Bracewell & Giuliani: The draft language in the Senate bill released earlier this week contains what I view as a potentially significant "sleeper" issue that seems to have escaped the attention of the media, commentators and the Congress (although I confess that I have had trouble keeping up with the flow of information). The Senate draft provides that the Treasury Secretary require sellers to meet "appropriate standards" for "shareholder disclosure." The draft from the House Financial Services Committee includes the same requirement for "corporate governance".

It's not clear to me what the Senate's "shareholder disclosure" requirement means, but it could be read to grant very broad and virtually unlimited authority to Treasury to establish a disclosure system for participating financial institutions. Or perhaps this language is limited to only executive compensation disclosure, although that is not what the language says. Or maybe it means something entirely different – one lawyer I spoke with thought it could be read to mean disclosure of the identity of the shareholders of financial institutions, but I doubt that is the intent (but who knows).

Hopefully, the shareholder disclosure language will simply be deleted from the bill that comes out over the next few days – or at least add a "related thereto" after the words "shareholder disclosure" so that it is limited to executive compensation. Perhaps the House has it right and it will be replaced with "corporate governance", although that requirement presents a host of issues that are better left for another day. Here is the Senate's most recent text (emphasis added):

SEC. 17. EXECUTIVE COMPENSATION.

The Secretary shall require that all entities seeking to sell assets through a program established under this Act meet appropriate standards for executive compensation and shareholder disclosure in order to be eligible, which standards shall include—

Here is the House Financial Services Committee's most recent text (emphasis added):

SEC. 9. EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE.

(a) IN GENERAL.—The Secretary shall require that all financial institutions seeking to sell assets through the program under this Act meet appropriate standards for executive compensation and corporate governance in order to be eligible.

The Short-Sleeve Culture: Celebrating Twenty Years

Twenty years ago, fresh off the bar exam, I started my professional career as a junior lawyer in Corp Fin. Five other lawyers started that day with me, including Bill Tolbert, Mark Coller and Larry Spaccasi (folks like Marty Dunn, Scott Freed, Celia Spiritos and Todd Schiffman started a few weeks before). Back then, more lawyers were hired right out of school - rather than the laterals that get into the SEC today - so a new batch always started in the Fall.

After a half-day of fingerprinting and general orientation, my branch chief, Steve Duvall, handed me a set of CCH books (ie. the rules) and told me to read them. That was my task for the week - a straight read of the rules. Ken Tabach was riding out his last week on the Staff before splitting for a law firm and he gave me some loose guidance about how to read a registration statement and write up comments.

Those comments that passed muster were read over the phone to an outside lawyer, who taped them and had them transcribed into a comment letter (eventually, we had a SEC secretary type the letter too - but that would take weeks as six or seven lawyers shared each secretary).

There were no computers and no voicemail for the phones. People could smoke in their offices if so inclined - and the old-timers followed an informal policy that they could wear short-sleeves if it was hotter than 90 degrees. And there were government-sponsored keg parties - or is that my vivid imagination playing tricks on me? Right after I started, Market Reg sponsored a party at a local bar to note the one-year anniversary of the '87 "market break" (that was a day when the market crashed at record levels for a day).

When I returned for my second tour of duty in Corp Fin years later, Bill, Mark and I would grab a morning donut together every year on this date to commemorate our anniversary. For those guys, I'm having two today...

- Broc Romanek