May 29, 2009

Proxy Season Developments: Ten Signs that Things are Changing Online

I spoke at a MidAtlantic Chapter meeting of the Society of Corporate Secretaries on this topic in Philly last week, so I thought I'd share my thoughts with you. For quite some time, I've been warning companies to be prepared for heated online campaigns related to their annual meetings (remember to read this free issue of on the topic). As I noted yesterday in my blog about Target's campaign site, this didn't happen much during this proxy season - but there were a number of developments that lead me to believe that next year could be a watershed one.

Here are ten things that happened this proxy season worth noting:

1. First Use of Live Internet Voting - In his "IR Web Report," Dominic Jones brought us the news (and analysis) that Intel decided to tackle the challenges of allowing for "live" voting online at its annual shareholders meeting this season. Intel also has this "Stockholder Forum" to allow shareholders to submit queries in advance.

2. Soliciting Shareholder Feedback on Compensation Practices - Taking a page from Schering-Plough's efforts to survey investors about pay practices, Amgen is inviting its shareholders to offer comments on TIAA-CREF's "Ten Questions for Evaluating CD&As." The invitation is presented on page 51 of the company's proxy statement (page 59 of the PDF), directing shareholders to a survey questionnaire on the company's site.

3. Soliciting Shareholder Feedback on Disclosures - Barclays used this "2009 Annual Report Survey" to solicit feedback on its annual report. The company promised provide responses directly to the questioners - and intends to post a selection of them.

4. Emergence of Proponent Sites Designed to Solicit Mutual Funds - is a new type of site, jointly created by the proponents of four ExxonMobil shareowner proposals (Bob Monks among them). Mutual fund holders who are concerned that ExxonMobil has not done enough to address climate change and address certain corporate governance issues can send a message to the 25 largest mutual fund families through the site.

5. Easier Ability to Track Voting Results - Smart companies like to predict how their voting results will be at shareholders' meetings so that their board and senior managers are not surprised. Hiring a proxy solicitor that has shareholder intelligence abilities is the most common way to accomplish this - but some of the tools that solicitors use are now freely available. For example, a relatively new site - - tracks how mutual funds vote on specific types of proposals. And it's free. The site tracks both management and shareholder proposals - and it tracks voting trends by specific fund families.

6. Use of "RSS Street" to Follow Developments - Dominic Jones blogged about the rise of a group of web monitoring services that help investors track online mentions of companies they follow. Companies should be doing the same to understand what is being said about them as the online media gradually displaces traditional mainstream media.

7. Use of Corporate Blogs (and Third-Parties) to Solicit Questions - As noted by Dominic Jones in his blog, Microvision used its blog to solicit queries for its upcoming earnings call. The same can be done for annual meetings. In fact, Warren Buffett tried something novel this year - soliciting queries by asking Berkshire Hathaway shareholders to send them to three reporters via email. As described in Warren's annual letter to shareholders, these reporters - independent third parties - then choose the ones they deemed most interesting and important and posed them during the meeting.

8. Use of Twitter to Describe Live Events - Ebay became a pioneer when its resident corporate blogger tweeted the details of its earnings call as it happened, as described by Dominic Jones in his blog. Again, this can be done for annual shareholder meetings - and it helps if the company controls the messaging rather than only have third-parties tweeting during the event (which is becoming more common, like it was during Banc of America's annual meeting this year. I'm not sure how they enforced it, but I hear that live-tweeting and blogging was banned from Target's annual meeting yesterday. If it's true, I think it's not a good idea as that can garner bad publicity and will happen anyways).

9. Investors Communicating Through Social Sites - Another area where companies increasingly are going to have to keep an eye on are the social sites. Beyond the obvious ones - Facebook and MySpace - there is a new player, Broadridge's "Investor Network." It's too early to tell if their social site will really take off, but it's safe to say that social sites generally are here to stay and the likely place will a lot of shareholders will be venting in the future.

10. Much Easier Use of Video Changes Everything - With everyone now walking around with a camcorder in their pocket (ie. their cell phone), no one should presume that what happens at the annual meeting, stays at the annual meeting. As brought to my attention by this blog, an embarrassing moment at an annual meeting could cost an inhouse lawyer or corporate secretary their job. Be prepared for zaniness at meetings by being prepared.

This video below from Fortis' annual meeting - held a few weeks ago - is real and is a "must" viewing. The meeting was delayed a half hour after the management team was pelted with shoes, coins, etc. I particularly liked the dismissive shake of the Chair's head. Sometimes it’s uncanny the way that corporate life imitates Monty Python (remember this "Stoning" sketch):

- Broc Romanek

May 28, 2009

Target's Annual Meeting Campaign: "Bringing It" Online

My first two blog entries today feature good and bad news. The good news comes from Target, whose annual meeting is being held today. This will be no "regular" annual meeting as William Ackman, whose Pershing Square Capital Management owns a 7.8% stake, is seeking a seat for himself and four other nominees on Target's board (as noted in this article) as well is seeking the company to use a "universal ballot" (as noted in The Corporate Library blog).

Although it's become fairly common for dissidents in the throes of a proxy fight to leverage the Web (see this list of examples I have collected), it's still fairly rare for companies to do the same. That's why it's worth noting Target's annual meeting page to point out how they "get it" when it comes to campaigning online in their defense.

A number of the items posted on the company's annual meeting home page were recommended in my article from the Spring '08 issue entitled "The Coming Online IR Campaigns: The Future of Director Elections" (which is still available for free). To begin with, Target bothered to create an annual meeting home page. That's a critical first step. They highlight endorsements from proxy advisors. They even post a white paper making their argument why they think one proxy advisor's report is flawed (as noted in this article).

Have a good look. I predict these types of shareholder meeting sites will become more of the norm for IR departments/corporate secretaries when we live in a proxy access world without broker non-votes (ie. next year)...

You want further proof that the Web is changing the job of a corporate secretary? How about when a shareholder proponent posts a transcript of his remarks from the annual meeting? Governance guru Bob Monks did just that yesterday on his blog, right after he presented five proposals at Exxon-Mobil's annual meeting.

No Questions Allowed at TDS Annual Meeting: This Year's Governance Posterchild?

Now the bad news. Remember the hubbub a few years back over Home Depot's annual shareholder meeting and the then-CEO Bob Nardelli not allowing questions? Well, it looks like that publicity nightmare was forgotton by Telephone and Data Systems.

Here is what Gary Lutin reports in his "Shareholder Forum":

Yesterday’s annual meeting of TDS shareholders did not provide the expected opportunity for shareholders to consider management responses to their questions. In an unusually restrictive process, the chairman limited business to the formal requirements of presenting matters noticed in the company’s proxy statement and announcing approval or rejection according to the controlling shareholder’s previously reported intentions, followed by a prepared management report of the company’s condition.

The Forum’s four questions for directors were presented at the meeting by a representative of Southeastern Asset Management as part of the legally allowed presentation of their shareholder proposal. The chairman, who had received a copy of the Forum’s questions on May 15, stated that “given other commitments I’ve had, I’m not in a position to speak to the questions the Shareholder Forum raised,” and further that “I also don’t believe it’s the time or place for a director or the chairman to answer those questions.” He did, however, assure a future response.

The chairman subsequently declined to hear other shareholder questions, saying that they could be addressed after the formal part of the meeting. The webcast ended at the conclusion of the formal agenda, though, and it was reported by attendees that shareholders were then simply told that any questions should be sent to the company’s corporate relations officer.

In his report on the meeting, Gary links to the audio archive of the meeting and provides specifics about when the TDS chair blows off the shareholders. Gary also notes that the day job of TDS' non-executive chairman (who is also the brother of the CEO and co-trustee of the family trust that controls TDS through super-voting stock) is a partner of Sidley Austin, heading its Financial and Securities Litigation Group.

CalSTRS Breaks New Ground Announcing Votes

Yesterday, CalSTRS revealed that it has become the first institutional investor that will regularly announce its voting decisions regarding upcoming annual shareholder meetings on Broadridge's ProxyEdge, a platform used by nearly all brokers. This is a big deal since it's a step towards a fully integrated proxy voting system.

Imagine going to vote - and having access to endorsements, etc. at your fingertips just when you're about to push the button. Useful - and much more influential than the annual meeting campaign sites I described above since this information will be available right at the crucial moment of voting. I certainly could use that type of information when I'm in the voting booth and I'm presented with candidates I've never heard of running for County Commissioner...

- Broc Romanek

May 27, 2009

Obama and Treasury May Strip SEC Down: Lynn Turner's Ten Cents

The battle over the SEC's future is heating up. Last week, the Treasury Secretary received this letter from 14 pension plans regarding the importance of maintaining the independence and oversight of the SEC.

Below is some interesting commentary from Lynn Turner regarding the latest developments in this battle:

This Bloomberg article highlights the efforts of Treasury Secretary Geithner, Larry Summers and the Obama Administration to strip the SEC of some of its powers. Changes being discussed include taking away the SEC's regulation of mutual funds. Also perhaps giving a new consumer products commission some of the SEC's powers.

About three years ago, the Treasury's Paulson Blueprint Report, one from the Business Roundtable - as well as other reports - recommended that the SEC be weakened, with less protections afforded to investors in an effort to make the US capital markets more competitive and attractive to business. Those efforts seem to be in full swing again. There was a meeting last week in Washington DC between those individuals and others including Paul Volcker, Arthur Levitt and Elizabeth Warren to discuss the issues cited in the article.

The Federal Reserve is the Problem; Not the Solution

The financial meltdown - as the recent Frontline documentary aptly highlighted - was caused by banks making a lot of bad loans and Wall Street firms taking on huge risks and bets when they insured those loans through trillions of dollars of credit derivatives. The Fed stood idly by despite 1994 legislation that permitted the Fed to prevent these unsound lending practices. The Fed was the regulator for some of the biggest institutions that would have failed without taxpayers bailing them out. But then again, the Fed has never protected investors - and strongly advocated for legislation that allowed the creation of banks that became too large to fail and stopped any regulation of derivatives.

Now Treasury Secretary Geithner - who as head of the NY Fed oversaw these very banks that needed bailouts - and who was involved with the decisions on Bear Stearns, Lehman Brothers and AIG, is now proposing to give the Fed even greater powers while stripping those powers away from the SEC. Geithner speaks in the Bloomberg article of enforcement - but the Fed has a terrible enforcement track record and has never protected consumers and investors.

That is specifically why I understand the Congressional Oversight Panel has said the government needs to create yet another government agency to protect consumers - because the Fed and other banking agencies (which are captives of the industry) have refused to do so depite legislation such as the '94 Hoepa Act and Truth-in-Lending laws. You don't need the fingers on one hand to count the number of banking executives - whose major banks have required taxpayer-subsized bailouts - that have been targeted by the Fed for their unsound lending practices.

What is the Treasury's Case?

What the Treasury has not done is make a case as to what problems they are seeking to fix with this change in powers. And explain why - other than for political reasons and due to their close ties to the banking industry - they would make changes to the SEC's powers. On the other hand, the mutual fund industry has attracted large sums of money away from what use to be deposits at banks during the past two decades. And with those investments, mutual funds have invested in the commercial paper of many public companies, replacing bank financing in some instances. It appears what may be occurring is an effort on the part of the banking industry to get the government to decide "winners" and "losers" and try to bring those deposits back. But it will be costly for investors in terms of their future returns.

What people seem to forget is that there was one and only one money market fund that went under: the Reserve Primary Fund. That fund had invested heavily in Lehman debt in the prior year. Perhaps if the credit rating agencies had properly rated Lehman's debt, that would not have happened - but that is another issue. (Also as Frontline documented, Geithner failed to understand the major issues associated with Lehman debt when he - along with Paulson and Bernanke - decided to let them fail.) In addition, the Reserve Primary Fund had a few very large institutional investors who withdrew their money, thereby forcing the fund to "break the buck" and create a liquidity issue. (Professor Mercer Bullard, a former SEC Staffer, gave some excellent testimony before the Senate Banking Committee on this issue a few months ago.)

However, this is but one fund. At the end of 2007, according to the ICI 2008 Fact Book, there was $3.1 trillion in money market funds invested in the US, up from $1.3 trillion ten years earlier. There were 38.8 million individual money market accounts. Having just one fund go under in this very severe downturn is a real statement on how well these funds - and the mutual fund industry generally - have weathered the storm.

At the same time, literally over a hundred banks have required a government-backed bailout with actual cash investments, as well as insurance of their debt. Dozens of banks have now failed this year - and without hundreds of billions of taxpayers dollars, other banks (including many deemed to big to fail) would have as well. Clearly mutual funds have turned out to be a safer and better deal for investors.

The Bottom Line: Let Investors Decide "Winners," Not the Government

Why one would want to strip regulation of money market funds from the SEC and place it with the banking regulators or another agency is highly suspect and questionable. It clearly appears to be a play by the banks to recapture lost deposits, deposits they lost because their product was of an inferior quality to what mutual funds have offered. The government should not interject themselves into this fight between banks and mutual funds, but rather let the customer - the investing public - decide which is the best product. We need less of the government deciding who the winners and losers are, not more.

As the Bloomberg article notes, the current Chairman of the SEC has curiously been excluded from the negotiations and has argued against any changes through the mainstream media.

SEC’s Unpopularity: All-Time High?

Although I'm not convinced this type of survey has been conducted frequently enough so that we can really tell that the SEC's unpopularity is at an all-time high, I would be surprised if that wasn't the case given the phenomenal amount of negative publicity that the SEC has received during the past year.

As noted in Michael MacPhail's blog, a recent Persuasion Strategies survey of potential jurors captured their opinions of six federal agencies. The SEC was the most negatively-viewed agency of the six, with 55% of respondents expressing an unfavorable opinion - compared with 46% expressing an unfavorable opinion towards the oft-despised IRS.

I completely agree with what Tom Gorman wrote in his "SEC Actions Blog" in his piece entitled "Remaking The SEC For Tomorrow" and couldn't have said it better. The mission of each Division needs to be rethinked, including whether their focus should be broadened or even new Divisions need to be created (think asset-backed securities)...

- Broc Romanek

May 26, 2009

Carpenters Push Triennial Alternative for Say-on-Pay

One of those things I've been meaning to blog about - and no one else was blogging about until Mark Borges covered it in his blog recently. A few weeks ago, Ed Durkin and the United Brotherhood of Carpenters Pension Fund has submitted a new shareholder proposal to 20 companies seeking a triennial vote on pay rather than an annual one. The rationale is that this would help shareholders by reducing the number of companies they would have to analyze each year - and would help companies as they wouldn't have to face an annual battle over their pay practices.

As Mark notes, the triennial executive pay (known as "TEP") proposal would require:

- In addition to an overall vote on named executive officer compensation, separate votes on a company's (i) annual incentive plan, (ii) long-term incentive plan, and (iii) post-employment benefits (including retirement, severance, and change-in-control payments); and

- A "forum" between the compensation committee and shareholders on at least a triennial basis to discuss senior executive compensation policies and practices.

In talking to company representatives, they obviously find a vote every three years (with a forum in between periods) more palatable than an annual vote (eg. Intel recently launched a stockholder forum leading up to last Wednesday's annual shareholders meeting).

I agree with Mark that this idea's weakness is how to deal with corporate implosions between the triennial votes. My solution would be a safety valve where shareholders could gather and trigger a vote, much like the idea of triggering proxy access. In other words, if a group of shareholders got together that met a ownership threshold and filed some type of certification with the SEC that states they seek a say-on-pay vote (with the filing made by a particular deadline), the company would be forced to put say-on-pay on the ballot for the upcoming meeting.

But note that I'm still dubious whether say-on-pay is really meaningful anyways. I would rather rely on votes "against" compensation committee members as the signal to the board that shareholders are unhappy over pay practices. In a say-on-pay world, I worry that board will routinely get their pay packages blessed (see this recent WSJ article) and that excessive pay practices won't change.

Welcome to Barbara Nepf!

We're very excited to have Barbara Nepf join our staff! Most recently, Barbara worked for DLA Piper as a Knowledgement Management lawyer, specializing in all those areas that you find on this site. Barbara will be working part-time from the NYC area. Give her a "shout out" at

Spring Issue of the Compensation Standards Newsletter

On a complimentary basis, we recently posted the Spring Issue of the Compensation Standards Newsletter. The lead article is entitled "Compensation Arrangements in a Down Market: Insights into Latest Practices."

Please note that we also have posted all the archives of this publication for members to access.

- Broc Romanek

May 22, 2009

The New "Financial Crisis Inquiry Commission"

From Davis Polk: Legislation that creates an independent commission to examine the causes of the financial crisis was signed into law by the President on Wednesday. Section 5 of the "Fraud Enforcement and Recovery Act of 2009" makes only one notable change to the bill discussed in Davis Polk's May 15th alert. Earlier versions of the bill required only a simple majority vote of the Commission for a subpoena to be issued - but the final version requires at least one affirmative vote of a Commission member appointed by the Republicans.

Congressional Democrats will appoint six members of the ten-member commission and Congressional Republicans will appoint four members. Whether this change has a material impact on the Commission's operations is uncertain, and will likely depend on the Commission's ability to secure voluntary production of witnesses and evidence.

“Early Bird” Conference Rates: Expires at End of Today

Note that in response to our generous early bird offer for the “4th Annual Proxy Disclosure Conference” (whose pricing is combined with the “6th Annual Executive Compensation Conference”), we are on pace for a record number of attendees (despite the economy). A true reflection of how important executive compensation is this year! These Conferences will be held at the San Francisco Hilton and via Live Nationwide Video Webcast on November 9-10th.

Act now, as this tier of reduced rates will not be extended beyond the end of today! With the SEC intending to propose new executive compensation rules in the near future - and Congress looking to legislate executive compensation practices this year, these Conferences are a "must." Register today. If you're in need of a few days to get a check cut, email me today to hold this rate.

Whistleblower's Fight over Definition of Risk

As has forever been the case, most scandals see the light of day because someone was brave enough to speak out. I don't know enough to know the merits of this situation, but this fight between a Deutsche Bank employee and his employer has many lessons for all of us in the corporate world. In this letter, the employee - Deepak Moorjani - shares his perspectives on his firm's risk policies and the culture and reward structure that he claims encouraged practices that were not in the company's best interests.

- Broc Romanek

May 21, 2009

SEC Proposes Shareholder Access Again: Third Time's a Charm?

For the third time this decade, the SEC proposed a proxy access rule - Rule 14a-11 - yesterday in an open Commission meeting (Dave blogged about the proposal's long history last week). The vote was 3-2 - with Commissioners Casey and Paredes dissenting - and there is a 60-day comment period. Here is the SEC's press release in a nice Q&A format - and here are statements by Chair Schapiro and Commissioners Aguilar, Walter, Casey and Paredes.

Ahead of the proposing release being available, here are the basic of the proposal:

- Sliding Scale Ownership Requirements - The ownership threshold would vary depending on a company's size: 1% of voting shares for large accelerated filers; 3% for accelerated filers; and 5% for non-accelerated filers.

- One-Year Holding Period - Nominating shareholder (or group) must have held the requisite percentage for at least one year at the time of providing notice to the company.

- Up to 25% of the Board - Shareholders can nominate the greater of one nominee or the number that equals up to 25% of the board. If shareholders nominate too many candidates, it's "first in, first on the ballot."

- 120-Day Deadline - Nominating shareholders must provide notice to the company and the SEC at least 120 days before the first anniversary of the date that the prior year’s proxy materials were first released (i.e. the Rule 14a-8 deadline), unless the company has an advance notice bylaw that provides a different timeframe.

- Schedule 14N Certification- Nominating shareholders must file a Schedule 14N reporting the percentage beneficially owned, period of time held, intent to hold shares through date of the shareholders meeting and other disclosures and certifying that the nomination is not intended to result in a change in control or result in more than minority representation on the board.

- Nominee Candidate Must Be Independent - Any nominee must meet state law and stock exchange independence standards and the nominating shareholder can't have any agreement with the company regarding the nomination. However, there is no restriction on shareholders nominating persons with whom they have a relationship, including themselves.

- Rule 14a-11 Trumps State Law - Rule 14a-11 would preempt any proxy access provisions set forth in state law or in a company's charter or bylaws (as noted by Prof. Verret).

- More Access Proposals Allowed Under Rule 14a-8 - Revised Rule 14a-8 would allow more shareholder proposals relating to the processes for the nomination and election of directors, requiring inclusion of proposals that would amend a company’s governing documents regarding election procedures.

Here are a few completely random thoughts:

- Regarding nomenclature, I guess "proxy access" is in and "shareholder access" is out.

- Although I didn't go down to the SEC (I hear not too many did - it's easy to watch via webcast), I do know that meetings now open with a slideshow warning about what to do in case of emergency, including the SEC's "Shelter-in-Place" procedures. And that the SEC's security guards now carry guns.

- A number of folks "live-tweeted" the meeting (eg. @nminow and @simonbillenness), thus putting pressure on the firms that rush out their firm memos hours after meeting to join the Twitter brigade. You can't beat real-time! You can see a collection of tweets about proxy access using the hash tag of #proxyaccess.

- The "first firm to issue a memo" sweepstakes? Simpson Thacher over O'Melveny and Davis Polk in a sqeaker. I've seen a dozen more already. Of course, alacrity doesn't equal quality...

The First Model Proxy Access Bylaw

Recently, Wachtell Lipton shared this model proxy access bylaw for those companies seeking to take advantage of the new amendments to the Delaware General Corporation Law, which allows companies to pick and choose their own proxy access process. I imagine we'll see a few other models as we approach the August 1st effective date for the DGCL amendments and we'll be posting them in our "Proxy Access" Practice Area.

Some Perspective on Shareholder Access

Recently, Ted Allen - RiskMetrics' Director of Publications - wrote this nice recap of proxy access as it exists today:

Existing Corporate Provisions

A few U.S. companies have access provisions in place. Comverse Technology instituted an access bylaw in 2007 during an overhaul of its governance policies after an options backdating scandal. Under that bylaw, an investor group that owns a 5 percent stake for at least two years may nominate one director to appear on the company’s proxy statement. The Comverse bylaw also bars investor groups from making nominations for four years if its nominee fails to receive at least 25 percent support. (Editor’s note: RiskMetrics Group allows investors who hold a 4 percent stake for two years to nominate a candidate.)

In 2003, California-based Apria Healthcare adopted a policy to allow shareholders to submit names for inclusion on its ballot, but the company's board can reject those candidates, according to Bloomberg News. In 2005, two shareholder nominees appeared on the company ballot at Gateway Energy, a small-cap natural gas firm based in Houston. UnitedHealth created an advisory committee in 2006 to allow investors to provide input on board nominees. In 2007, Pfizer held a town hall meeting with large investors to solicit their input on directors and other issues. Other firms, such as H-P, allow shareholders to suggest nominees, but investors have no recourse but to wage a costly proxy solicitation if management ignores those suggestions.

Activist investors have sought less rigorous ownership requirements. The proposals filed at H-P and UnitedHealth in 2007 called for allowing two nominations by investors who collectively own a 3 percent stake for at least two years. The Council of Institutional Investors supports a similar standard for access, provided that investors who nominate board candidates adhere to the same SEC disclosure requirements that now apply to proxy contests.

Access in Other Markets

Other major markets, such as the United Kingdom and Japan, allow investors to nominate board candidates to appear on management proxy statements. Under the U.K. Companies Act, investors can nominate candidates at an annual meeting if they collectively own at least 5 percent of a company’s share capital or are part of a group of at least 100 shareholders who each hold stakes worth 100 pounds ($146) or more. Since January 2008, investors have nominated board candidates at nine U.K. firms, according to RiskMetrics data. The most high-profile case was Aegis Group, where the Bollore Group, which now holds a 30 percent stake, nominated two board candidates who were not elected.

In Japan, shareholders who own at least 1 percent of a company's capital or 300 share units for six months may propose business for a corporate agenda, including nominating board candidates or seeking the removal of directors. Nevertheless, dissident board slates are quite rare; one notable exception is the proxy fight now being waged at Japanese wigmaker Aderans Holdings by the Steel Partners Japan Strategic Fund.

- Broc Romanek

May 20, 2009

Schumer's "Shareholder Bill of Rights": Why, What, When and If

Yesterday, Senator Charles Schumer - along with Senator Maria Cantwell - finally introduced the "Shareholder Bill of Rights Act of 2009" (this is the final proposed bill). Here is my ten cents on your burning questions:

1. Why? - Typically, it would be expected that this type of legislation would originate in Rep. Barney Frank's House Financial Services Committee. So why did Senator Schumer begin frontrunning his own bill a few weeks ago. The likely answer is that influential parties wanted governance reform as part of the discussion over Obama's "First 100 Days" to keep these issues in the spotlight. And Frank was too busy with financial regulatory reform to drum up something as a placeholder.

2. What? - As noted in this blog before, the bill is a virtual "wish list" for investors interested in reform (eg. CII's press release and Paul Hodgson's observations in "The Corporate Library Blog") as it tackles every hot governance there is today (with the notable exception of CEO succession planning).

3. When? - The big question: "What are the odds of this bill getting passed?" I think the odds are fairly slim that this bill becomes law because it includes too many items that potentially contravene state law and open it up to a Constitutional challenge. However, if another big scandal suddenly surfaces, Congress could push this through unexpectedly (just as WorldCom's implosion pushed Congress to adopt Sarbanes-Oxley).

The fact that only one other Senator placed her name on this bill is a "tell" that there might not be a lot of momentum for it. My guess is that Sen. Schumer wanted to make a mark within the first 100 days of the Administration - and that he wanted this bill to influence what Rep. Frank produces later in the year as well as influence the financial regulatory reform that is being crafted now. In the end, I think the chances of certain provisions of this bill becoming law by the end of the year is fairly high, including say-on-pay and shareholder access - just not as part of this bill.

4. If? - What if this bill gets passed? Wow...

Looks like the parameters of today's proxy access proposal have been made available to the mainstream media since this NY Times' article states: "The proposal would permit large shareholders — typically institutional investors like pension funds or hedge funds — or alliances of shareholders to nominate as many as one-quarter of the directors. For the 700 largest public companies, the proposal would require approval by 1 percent of the shareholders for a dissident slate to be nominated. For smaller companies, it would be either 3 percent or 5 percent, depending on the size of the business.

It Ain't Over Til It's Over: SCOTUS to Review Constitutionality of SOX

On Monday, the US Supreme Court granted certiorari and agreed to consider a constitutional challenge to ability of Sarbanes-Oxley to create the PCAOB. As you might recall, this is the long-standing case brought by a small auditing firm, Beckstead and Watts and the Free Enterprise Fund.

At issue is whether Congress treaded on the Constitution's separation of powers, specifically Article 2, Section 2 known as the "Appointments Clause" because it gives power to the President to appoint and supervise executive-branch officials. The SEC appoints the members of the PCAOB's board rather than the President - and the SEC can only remove the PCAOB board members "for cause." Check out Professor Jay Brown's blog on the chances of its success.

Last August, the US Court of Appeals for the DC Circuit - voting 2-1 - concluded that the SEC’s “comprehensive” oversight of the PCAOB satisfied the appointments clause. Then in November, the full DC Circuit voted 5-4 not to
reconsider the ruling. We continue to post the central pleadings in this case in our "Sarbanes-Oxley Reform" Practice Area.

May-June Issue: Deal Lawyers Print Newsletter

This May-June issue of the Deal Lawyers print newsletter is out and includes articles on:

- Reversing Course: Delaware’s Supreme Court Provides Comfort to Directors Regarding Revlon Process and Bad Faith
- Going In-House: Stewart Landefeld On His Time at Washington Mutual
- The Shareholder Activist Corner: Mario Gabelli’s GAMCO
- Are We There Yet? Issuer Debt Tender Offers and Offering Period Requirements
- Private Equity in 2009: “Back to Basics” Practice Tips

If you're not yet a subscriber, try a no-risk trial to get a non-blurred version of this issue for free.

- Broc Romanek

May 19, 2009

Looking Out for #1: How to Manage Your Career

With changes in the legal profession being accelerated by an economic downturn, I thought it was an appropriate time to hold a webcast to look at how these trends may impact how you approach managing your career. The days of sitting in a job for thirty years clearly is over.

Tomorrow's webcast - "Looking Out for #1: How to Manage Your Career" - will explore the differences between working in firms, the government and in-house. It also will explain how to best pick a recruiter and what can be expected from that relationship. And it will analyze how you can best market yourself, including the use of new technologies. Join these experts:

- Jim Brashear, Partner, Haynes and Boone LLP (and former Corporate Secretary of Sabre Holdings Corp.)
- Selena LaCroix, Head of US Practice Group and Managing Partner for the Dallas Office, Egon Zehnder
- Bob Major, Founding Partner, Major, Lindsey & Africa
- Kevin O'Keefe, Founder and CEO, LexBlog
- Broc Romanek, Editor,
- Manny Strauss, VP & Assistant General Counsel, XO Communications

It doesn't matter where you work today. Even being in-house is not safe, just yesterday I participated on a panel that I jokingly referred to as "Where Corporate Secretaries Go to Die" to a chapter of the Society of Corporate Secretaries and there was a high level of interest.

Survey Results: Corporate Lack of Enthusiasm for XBRL

With XBRL mandated for the largest 500 companies next month, XBRL USA conducted a survey recently that shows that two-thirds of these companies are ready. While the organization touted this as a good thing, my reading of the results is "surprise" since that's quite a few companies unprepared to meet a requirement that is looming very soon.

On top of this frightening news is this Grant Thornton survey of CFOs and senior comptrollers that shows that 64% of the respondent public companies have no plans to use XBRL (the respondents seem to include a cross-section of all companies, not those mandated to implement it next month). Even more scary is that 35% of the respondents said they are "not familiar" with XBRL.

These companies are lucky as SEC Chair Schapiro has indicated that XBRL is low on her priority list (as noted in this article), which I suppose could possibly mean a delay in the phase-in of mandatory XBRL for smaller companies.

Meanwhile, the SEC just calendared a seminar for June 10th to help companies learn how to comply with the new rules, to be held in DC and by webcast.

Meanwhile, XBRL is high up on Rep. Issa's list as he seeks to use XBRL as a way to increase TARP's transparency by introducing this bill. According to this letter, Rep. Issa thinks that standardized use of XBRL will prevent the next financial crisis. Wonder if I can get my hands on some of that Kool-Aid...

Hide n' Go Seek? XBRL in Regulation S-K?

Here is a note I recently received from a member that I thought was worth pass ing on: Am I the only person who thinks it's weird that the website requirement for XBRL wound up in Regulation S-K? Especially in Item 601? I have always thought of S-K as being only for cross-referencing from a form (i.e., 10-K, S-3, etc.), and surely Item 601 is only for describing exhibits. I am not sure why I care, but I am finding it annoying that they have sullied this system by placing a requirement in S-K that seems extraneous to the disclosure forms.

It's with great sadness that I note the passing of Alison Youngman of Stikeman Elliott. Although I barely knew her, you can tell she was a special person by reading this memorial describing her. Condolences to her family and friends.

- Broc Romanek

May 18, 2009

Allegations about Insider Trading Within the SEC

Well, the latest thing to tarnish the SEC's reputation is making the rounds. CBS broke the news on Friday with this report that two SEC Enforcement attorneys are under investigation by the FBI for possible insider trading, based on a 56-page report from the SEC's Inspector General. The mainstream media (eg. WSJ) blogosphere is humming with the news (eg. Crooks & Liars).

Here are the basics that we know from the IG's report:

- The IG started to look into this matter in January '08 after the SEC's Ethics Office informed it of an Enforcement attorney who pre-cleared voluminous trades.

- The IG reviewed more than two years of email and broker records and broadened the inquiry to two other Enforcement attorneys (one of whom didn't trade nor respond to emails from the other two, but did communicate with them otherwise about the markets).

- The IG referred its investigation to the FBI and DOJ after it noted that some of the trades by the two Enforcement attorneys occurred around the time that the SEC opened investigations into the related companies.

Here are some interesting tidbits from the report:

- Although the report doesn't identify the two targeted Enforcement attorneys, we know that the female has been with the SEC since 1981 (and was referred to as a "stock guru" by the others, page 34) and the male is in Enforcement's Chief Counsel office.

- These two targets - plus the other enforcement lawyer - had a "standing lunch" for Monday where they often discussed stocks and which often lasted 90 minutes (the name of the restaurant was redacted on page 30).

- The two targets frequently emailed about stocks - an average of one per day - and even had folders in their Outlook entitled "Stocks" to archive their emails. Yet, they denied under oath that they used their SEC email accounts to discuss the market and denied knowing the SEC's policy of limiting personal emails to de minimis use (page 33).

- The colleagues of the targeted attorneys said they thought them to have integrity and character and would be very surprised if either used information for personal purposes and that they were careful, experienced attorneys (page 29).

As if to prove the overreaching by the mainstream media over the IG's report, the Washington Post ran a top story on the front page in the form of this article on Sunday that honed in on the SEC's Deputy Secretary and the allegation that she might have wielded her title in a phone fight with a broker whom she believed mishandled her mother's account. While its arguable whether this might be bad etiquette, it certainly isn't criminal and definitely shouldn't be headline news. People use their station in life during their daily routines every day.

In my opinion, I think the Post decided to highlight this story over the suspicious trading because it was able to uncover the identity of the party - potentially ruining her reputation in the process - and because the other media outlets had overlooked this item. Get real.

My Ten Cents: What Does This Alleged Insider Trading Scandal Mean?

In the wake of these insider trading allegations, I've had numerous friends and family members contact me to wonder:

- Whether I knew the two people involved? (No, their identities have not been revealed.)

- What type of safeguards exist at the SEC against such conduct? (Not much, as detailed in the IG's report.)

- How could this happen? (Even with a much sounder compliance program, anything can happen in this world. But note these two haven't even been charged with insider trading misconduct.)

- Is this type of conduct rampant at the SEC? (I highly doubt it. I've worked at the SEC twice - and still network with many of them - and I've never had a single conversation with anyone about whether to trade a stock.)

- What took SEC's Ethics Office so long to refer the matter to the IG? (It's one of the things that the SEC needs to fix. Since the female attorney was day trading - 247 trades in a two-year period - and properly filing her pre-clearance paperwork with the SEC's Ethics Office for most of those trades, it should have raised a red flag earlier. I seem to recall a six-month holding period for trades during tours of duty at the SEC - is my memory faulty?)

- Did I know that Enforcement's Office of Chief Counsel had "bagel" meetings every Friday? (No. But I do now due to page 26.)

Here is my ten cents:

1. Bad Stuff Happens - Putting aside the reality that these two have not even been charged with anything, I point out that if the allegations were true that wouldn't really mean much in "normal" times because I can pretty safely say that this is an isolated occurrence based on my own personal experience. Trust me, there is no rampant insider trading at the SEC. Those that work there know how simple it is to track it. Nearly all communications these days are digital and easily uncovered - and if someone starts hitting home runs in the markets without a track record of doing so = big red flag.

As those that watch a lot of TV know, just because a cop turns "bad" doesn't mean the entire department is bad. But these are not normal times and the SEC is under heavy fire, so some serious damage control is required and fast. The SEC's compliance procedures clearly need an overhaul, just like a number of processes at the SEC.

2. How Did This Information Get Public? - It looks like Senator Grassley forced it out into the open. As noted in this response from the SEC's Inspector General to Senator Grassley, due to the nonpublic nature of the report, the IG had to go through a process that delayed releasing the report for five weeks.

The IG asked that the report be kept confidential due to the potential harm to the agency. Yet, the Senator choose to release the information. At least that seems to be the way this has happened, since the redacted IG report is not available from the SEC's IG page.

3. Should This Information Have Been Made Public? - Not until something can be proven. As stated in this letter from Senator Grassley to Chair Schapiro, the Senator himself says that "it's hard to imagine a more serious violation of the public trust that for the agency responsible for protecting investors to allow its employees to profit from non-public information about its enforcement activities."

If the Senator recognized the damage that releasing this information could cause to the markets, why did he force this information into the public domain prematurely? There hasn't even been charges of misconduct yet. At most what we have is that some Staffers lied under oath, took lunches that lasted too long; spent some of their working hours on personal business and violated some of the SEC's policies regarding trading in the markets (egs. not reporting all trades). It's pretty clear that the approval process was not used properly, but the more serious suspicions aren't obvious here.

I imagine that the SEC Chair would have acted on the IG's recommendations to strengthen the SEC's compliance procedures without this dirty laundry being aired. But those that follow the SEC know that Grassley has had an axe to grind against the SEC, going back to him pressing the Pequot Capital Management case.

As an aside, did you see how the SEC took action to drum fraudulent securities off Craigslist the day after Craigslist forced prostitutes from its site...

Your Ten Cents: Should the IG's Report Have Been Made Public So Soon?

Okay, you have my ten cents. Let me know how you feel (all votes are anonymous; you can select more than one answer):

- Broc Romanek

May 15, 2009

Proposal Rumor: Proxy Access Threshold of 1% Ownership?

Rare is the occasion where I blog about rumors, partly because they are often wrong - partly because the truth is soon known thereafter (so blogging the rumor serves no purpose other than the vanity that comes with being among the first to break the news).

But since Wednesday's open Commission meeting to propose yet another reincarnation of proxy access is something that our community can't get enough of - here is a Bloomberg piece by Jesse Westbrook which states that 1% is the ownership threshold that the SEC "may" propose. The article does specify the SEC "may" propose that threshold - which also means that it "may not." The article notes that the final decision on the proposal's content has not been made - as stated by SEC spokesman John Nestor - which I do believe to be the case.

So in the end, the article doesn't really say much of anything that can be considered concrete (although I think highly of Mr. Westbrook) and that's why I normally don't blog about rumors...

If you can't wait until next week to see the final version of Senator Schumer's proposed "Shareholder Bill of Rights," here is a draft and Mark Borges posted a brief summary in his "Proxy Disclosure" Blog this morning.

The SEC's 75th Anniversary: Wanna Party?

On June 25th, the SEC Historical Society is hosting a 75th annual dinner at the National Building Museum - and it's sold out. Personally, I passed on the official dinner due to the steep price tag of $250. There's a recession on! I think the 60th anniversary celebration was more in the area of $20, but didn't include dinner. Does anyone remember?

Anyways, I'm toying with the idea of picking a place nearby for a more informal gig the night before - on Wednesday, June 24th (it would be free as you would buy your own drinks). If you would be interested in such a thing, shoot me an email and I'll see if we can raise a quorum.

The Society's museum committee has put together this list of "75 Memorables," which essentially is a list of the federal securities law/Wall Street highlights over the years. It's a hard list to concoct as it's obviously subjective - rejection of PUHCA (#69) and real-time access to EDGAR made the cut (#65; remember that the SEC used to make investors wait 24 hours to get access to filings until they were able to get out of that contractual restriction in '02; probably one of the craziest things the SEC has ever done); adoption of XBRL did not...

“Early Bird” Rates: Expire Next Friday, May 22nd

Note that in response to our generous early bird offer for the “4th Annual Proxy Disclosure Conference” (whose pricing is combined with the “6th Annual Executive Compensation Conference”), the conference hotel is close to being “sold out.” These Conferences will be held at the San Francisco Hilton and via Live Nationwide Video Webcast on November 9-10th.

Act now, as this tier of reduced rates will not be extended beyond next Friday! With the SEC intending to propose new executive compensation rules in the near future - and Congress looking to legislate executive compensation practices this year, these Conferences are a "must." Register now.

- Broc Romanek

May 14, 2009

Obama is On the Move: Executive Compensation, Derivatives

Facing pressure by Congress and others who are impatient to see action (e.g. recent introduction of the "Authorizing the Regulation of Swaps Act" in the Senate), the Treasury Department outlined plans yesterday to regulate derivatives. Under these plans, the Commodity Futures Modernization Act of 2000 would be rolled back. The plans are detailed in this letter by Treasury Secretary Geithner to Congress and in this Treasury Department statement.

This action followed remarks by President Obama that he intends to rein in pay practices at all financial institutions, not just those receiving TARP money. It's unclear yet what form these restrictions would take, although a few alternatives are posited in this WSJ article.

In this WSJ video, Joann Lublin does a great job explaining the futile consequences of past efforts by the government to rein in pay. Takes the words right out of my mouth...

SEIU Pushes for Clawbacks of Excessive Pay

Recently, the SEIU Master Trust - the pension funds managed on behalf of the SEIU - sent letters to the boards at 29 major financial services companies, demanding that they investigate more than $5 billion in compensation to their NEOs that may have been tied to derivatives and other instruments that are now worthless. The SEIU argues that if the payments - including cash and equity - are shown to be based on false economic metrics, they may be subject to clawbacks. They further demand that the boards overhaul their executive compensation practices so that the NEOs don't reap bonuses and other incentivized pay regardless of corporate performance. A list of the 29 companies is at the bottom of this press release.

In this podcast, Mike Barry of Grant & Eisenhofer and Stephen Abrecht of the SEIU explain this movement to seek clawback of excessive pay, including:

- How did the SEIU choose the targeted 29 companies?
- What legal theories are being used to seek recovery of excessive pay?
- What did the letters request? Do they seek responses from the boards of the companies?

Recently, the Council of Institutional Investors revised its governance policies regarding clawbacks to make it broader, asking companies to recapture compensation in circumstances beyond fraud. That's all well and good, but it's just as important for boards to adopt clawbacks with "teeth" (we outlined exactly how to do this in our Winter '08 issue of Compensation Standards).

FINRA Proposes Changes to Conflicts of Interest Rules in Public Offerings

The SEC has finally published FINRA's proposal to change its broker-dealer conflict of interest rules in public offerings of securities by a broker/dealer or an affiliate of a broker/dealer. FINRA has been seeking to change Rule 2720 since 2007. We have posted memos regarding the proposal in our "Underwriting Arrangements" Practice Area.

- Broc Romanek

May 13, 2009

SEC Open Meeting on Shareholder Access Scheduled for May 20

The SEC has announced that it will consider “whether to propose changes to the federal proxy rules to facilitate director nominations by shareholders” at an Open Meeting scheduled for next Wednesday, May 20. As Chairman Schapiro had promised, the SEC is moving forward quickly with its corporate governance agenda, with more proposals likely to follow in the next few months.

It is still hard to believe that the access debate has been going on for nearly 70 years. The debate originally kicked off with a Staff study in the early 1940’s that resulted in the solicitation of comments on a proposal to revise the proxy rules to provide that “minority stockholders be given an opportunity to use the management’s proxy materials in support of their own nominees for directorships.” Today, the SEC has thousands upon thousands of comment letters, as well as roundtables and other commentary, to draw upon resulting from the 2003 “universal” access approach and the 2007 Rule 14a-8 approach. I think that this remains one area where both sides are dug in, so we will still likely see fierce opposition to pretty much any proposal that the SEC puts forward.

Revised CDI Gives More Leeway on Selling Shareholder Disclosure

As Broc mentioned in the blog last month, the Staff recently updated a number of CDIs. Among the revised CDIs was Securities Act Rules CDI Question 220.04, which deals with how registration statements for secondary offerings should be revised to reflect the substitution or addition of selling shareholders. While the adoption of Rule 430B back in 2005 provided much more flexibility for issuers to deal with changes in the selling shareholder table, there remain situations where issuers do not meet the requirements for Rule 430B (i.e., when the issuer is not eligible for primary offerings under General Instruction I.B.1 of Form S-3).

The prior iteration of CDI Question 220.04 carried over some old concepts from a predecessor Telephone Interpretation and provided that issuers ineligible to rely on Rule 430B were required file a post-effective amendment (rather than a prospectus supplement) in order to add or substitute any selling shareholders, except that a prospectus supplement could be used to reflect donative transfers or de minimis transfers for value (e.g., less than 1% of outstanding) from a previously identified selling shareholder.

In the revised version of the CDI, the Staff notes that an issuer not eligible to rely on Rule 430B when the registration statement is initially filed must still file a post-effective amendment to add selling shareholders to a registration statement related to a specific transaction that was completed prior to the filing of the resale registration statement. However, the Staff now says that a prospectus supplement can be used to update the selling shareholder table to reflect any transfer from a previously identified selling shareholder, so long as the new selling shareholder’s securities were acquired or received from a selling shareholder previously named in the resale registration statement, and the aggregate number of securities or dollar amount registered has not changed.

The revision to this CDI provides significantly more flexibility for issuers that are not eligible to use a shelf for primary offerings to update the selling shareholder information in the prospectus for the type of normal course transfers that happen all of the time. By avoiding the filing of post-effective amendments, issuers are not faced with potential delays in the completion of secondary sales during the waiting period before the Staff declares the filng effective.

Staff Guidance on Dealing with Preliminary Earnings Estimates

Situations sometimes arise where an issuer may feel compelled to put out preliminary earnings numbers, which may at the time of issuance represent estimates of the potential results. In new Form 8-K CDI Question 106.07, that Staff notes that when an issuer reports “preliminary” earnings and results of operations for a completed quarterly period, the issuer must comply with all of the requirements of Item 2.02 of Form 8-K, even when those preliminary results may be estimates.

Further, while not discussed in the CDI, it should be noted that when the issuer provides the “final” earnings numbers, a separate Item 2.02 of Form 8-K obligation would be triggered. Instruction 1 to Item 2.02 specifies that the requirements of Item 2.02 are triggered by disclosure of material non-public information regarding a completed fiscal year or quarter, and that the release of any additional or updated material non-public information regarding a completed fiscal period would trigger an additional Item 2.02 Form 8-K.

- Dave Lynn

May 12, 2009

More Details Released on the Administration’s Tax Haven Proposals

Yesterday, Treasury released details of the Obama Administration’s tax proposals, including a wide variety of proposed tax cuts and tax revenue raisers included as part of the 2010 budget. The Treasury’s document provides additional details regarding the Administration’s efforts, announced last week, to shut down overseas tax havens. In describing this initiative, which is estimated to raise $95.2 billion over the next 10 years, President Obama said “[f]or years, we've talked about shutting down overseas tax havens that let companies set up operations to avoid paying taxes in America. That's what our budget will finally do. On the campaign, I used to talk about the outrage of a building in the Cayman Islands that had over 12,000 business - businesses claim this building as their headquarters. And I've said before, either this is the largest building in the world or the largest tax scam in the world.” (The White House press release notes that one address in the Cayman Islands houses 18,857 corporations, few of which have any actual presence on the island.) As noted in this Bloomberg article, the proposals seeking to close corporate tax “loopholes” face some stiff opposition and an uncertain future in Congress.

Among the proposals discussed in more detail in Treasury’s summary include:

- limiting deductions associated with deferred profits retained in foreign subsidiaries of U.S. corporations;

- disallowing foreign tax credits for taxes paid on income that is not yet subject to U.S. tax; and

- treating interest payments received by low-taxed foreign affiliates from high-taxed foreign affiliates as subject to current U.S. tax.

Check out the memos posted in our new “Tax Havens” Practice Area for more details on the Administration’s proposals.

SEC’s Brings Proxy Voting Case Against an Investment Adviser

The SEC recently brought a settled administrative proceeding against INTECH Investment Management LLC and its Chief Operating Officer for exercising voting authority over client securities without having written policies and procedures “that were reasonably designed to ensure it voted its clients’ securities in the best interests of its clients” and also failing to adequately disclose the voting policies and procedures to clients.

The case was brought under Investment Advisers Act Rule 206(4)-6, which was adopted in 2003 and requires that advisers adopt and implement policies and procedures reasonably designed to ensure that they vote their clients’ proxies in the clients’ best interests, including addressing material conflicts that may arise between the adviser’s interests and those of its clients. The rule also requires that advisers disclose to clients how they can obtain information about how the adviser voted proxies, and describe to clients the adviser’s proxy voting policies and procedures.

In the case, the SEC alleged that INTECH had used ISS recommendations for its voting policies, but had moved from ISS General Guidelines to ISS Proxy Voter Service (PVS) under circumstances involving a potential conflict of interest. The SEC alleged that INTECH chose to follow the voting recommendations of ISS-PVS while the adviser was participating in the annual AFL-CIO Key Votes Survey that ranked investment advisers based on their adherence to the AFL-CIO recommendations on certain votes, and the adviser believed that an improved score in the AFL-CIO Key Votes Survey would be helpful in maintaining existing and attracting new union-affiliated clients, without considering the impact on clients not affiliated with unions.

It will be interesting to see if this case represents one isolated incident, or if it reflects a broader area of SEC interest, given the ongoing concerns with proxy voting.

Chairman Schapiro’s Outline for Regulatory Reform

With Congress moving slowly on the financial regulatory reform front, it certainly gives regulators an opportunity to fight for their position in the new reformed landscape. Chairman Schapiro took that opportunity in a speech last Friday before the Investment Company Institute. In the speech, the Chairman outlined her vision of the SEC’s role in the new world order as an independent capital markets regulator that is united, and not divided, in approaching the regulation of the products, disclosure and intermediaries. Chairman Schapiro also endorsed FDIC Chairman Sheila Bair’s call for a single regulator for systemically significant firms coupled with a systemic risk council to provide macro-prudential oversight of risk.

- Dave Lynn

May 11, 2009

The "Say-on-Pay" Experience So Far This Season

As the proxy season progresses, we are starting to see the results from efforts by activist investors to move Say on Pay forward through the shareholder proposal process. Not surprisingly, proposals asking companies to implement an advisory vote on executive compensation have been garnering significant levels of support this season, as the outrage over pay levels continues largely unabated.

Last week, AFSCME issued a press release noting “[w]ith 29 Say on Pay proposals voted on since the start of the 2009 shareholder season, ten have received a majority of the votes cast (out of FOR and AGAINST votes). These 29 proposals have averaged more than 46 percent support, and this level of support is expected to increase as companies release their final voting numbers. Approximately 80 Say on Pay shareholder proposals are expected to be voted on this year.” Generally, the level of support this year has been higher than the support received for similar proposals in the very short history of the Say on Pay shareholder proposal.

Ted Allen of RiskMetrics Group recently provided some additional insights in the RMG Risk & Governance blog, noting “[t]he best showing so far this season was 62 percent support for a shareholder proposal at Hain Celestial; the lowest were 30 percent votes at Eli Lilly and Burlington Northern Santa Fe, according to RiskMetrics data. The two votes appear to reflect the firms’ ownership mix. At Lilly, a family endowment holds an 11.9 percent stake; at Burlington Northern, Berkshire Hathaway owns a 22.6 percent stake. In the coming weeks, 'say on pay' proposals are scheduled for a vote at Chevron, ConocoPhillips, Exxon Mobil, Home Depot, McDonald’s, Qwest Communications, Raytheon, Target, UnitedHealth, and Yum! Brands.”

For at least one company that has already implemented Say on Pay, apparently not all shareholders are on the warpath - as noted in this Washington Post article, last week shareholders overwhemingly supported executive pay at Verizon Communications with a 90% vote in favor!

CalSTRS Calls for Pay Reforms at 300 Companies

Say on Pay features prominently in a new initiative announced by CalSTRS last week. CalSTRS is calling on 300 of its portfolio companies to develop executive compensation policies and to allow shareholders advisory votes on those policies.

As part of the initiative, CalSTRS has published model executive compensation policy guidelines, as well as some broad executive compensation principles for the targeted companies to follow. CalSTRs plans to step up its engagement with the 300 targeted companies on executive pay issues, and in the event that the companies are unresponsive, the pension fund will ultimately vote against or withhold votes in directors’ re-election.

Deal Protection: The Latest Developments in an Economic Tsunami

Tune into the webcast tomorrow - "Deal Protection: The Latest Developments in an Economic Tsunami" - to hear these experts analyze the latest Delaware law developments in deal protection:

- Clifford Neimeth, Partner, Greenberg Traurig
- William Haubert, Director, Richards, Layton & Finger
- Ray DiCamillo, Director, Richards, Layton & Finger

- Dave Lynn

May 8, 2009

Short Sale Roundtable: Lots of Work Ahead for the SEC

On Tuesday, the SEC held its Roundtable on Short Selling (you can still catch the archive of the four hour session), where the Commission solicited the views of a variety of interested parties, including representatives of public companies, broker-dealers, SROs, funds and academics. In her opening remarks, Chairman Schapiro noted that short selling has outpaced any other issue “in terms of the number of inquiries, suggestions and expressions of concern.” Chairman Schapiro noted that an evaluation of short sale regulation is a priority for the Commission.

As could be expected, the views expressed on short selling were diverse and there was not necessarily a lot of common ground. The one exception is with respect to naked short selling, where the panelists lauded the SEC’s efforts in 2008 to try to address abusive naked short selling. As for other issues, representatives of the investment industry seemed to favor the less dramatic individual stock circuit breaker approach, while some issuer representatives seemed to favor market-wide measures. One of my favorite quotes from the session was from William O'Brien, CEO of the stock trading platform Direct Edge, who said of broad scale short selling restrictions: "Nobody likes being stung by a bee, but you don't kill all the bees and then wonder why all the flowers have died." Yet another issue that received some attention was the cost and time that would be necessary to implement any new short sale regulations.

With the Roundtable out of the way, now it is time for the SEC to start considering the comments and narrowing down the options to one workable approach. The comment period closes June 19.

If you are looking for a more “blow-by-blow” account of the Roundtable, then you should check out the tweets of SEC Investor Ed on twitter. Staff in the Office of Investor Education and Advocacy at the SEC are busy twittering away, including providing an account of the Roundtable in 140 character increments.

Short Sale Studies: Mixed Results from Last Year’s Emergency Actions

The SEC recently posted a study performed by its Office of Economic Analysis regarding the impact of last July’s ban on naked short selling of the securities of 19 large financial institutions. After comparing the performance of the securities subject to the ban to control groups of securities not subject to the ban, the SEC’s economists concluded that "imposing a pre-borrow requirement may have had the intended effect of reducing fails but may have resulted in significant costs on all short sellers even those whose actions were not related to fails."

With another perspective, Abraham Lioui recently published an EDHEC-Risk Position Paper presenting a study of last year's short sale bans. Lioui notes in the Summary:

“As a result, short sellers perhaps did not really merit the punishment that, by simply banning the shorting of the shares of financial institutions, the market authorities recently meted out. It also seems (and this study confirms it) that the shares that were the object of the ban were relatively unaffected by it. All the same, this drastic measure cast the market authorities in a particularly negative light. After all, the reasons for this measure are unclear, a lack of clarity that adds to the bewilderment of the market. The market, of course, reacted accordingly.

The ban on short selling was followed by a sharp rise in the volatility of the markets, and on the stock markets concerned the impact of the ban was systematic; the impact on volatility was greater than that of the financial crisis. In general, the risk/return possibilities of investors worsened. And although it is hard to substantiate the impact on the volatility of the shares, the rise in the volatility of these shares, which is undeniable, is a result of the rise in idiosyncratic risk and thus of the noise in the markets. As a consequence, share prices deviate yet more from their fundamental value. Finally, the desired effect on market trends has not been achieved (no reduction of the negative skewness of returns is being observed) and there is no evidence of the possible impact of this measure on extreme market movements. What is clear is that stock market indices now have components that are subject to different rules, differences that make them even less representative and relevant.”

New Delaware Decision: Reaffirmation of Pre-Suit Demand Precluding Challenge to Board Independence

Here is some commentary from Brad Aronstam of Connolly Bove Lodge & Hutz: Recently, the Delaware Court of Chancery issued this letter opinion in FLI Deep Marine LLC v. McKim (C.A. No. 4138-VCN) affirming the well-settled principle that shareholders making a demand upon a board of directors concede the independence of a majority of the board and, as such, will be precluded from later arguing that demand should be excused because the directors were conflicted. While this holding is far from revolutionary, the action involved atypical facts that warrant attention by practitioners counseling boards and shareholders in this common setting.

The minority shareholders of Deep Marine Technology alleged that the Company's majority shareholders and their designees had looted the Company. Rather than pleading demand futility based upon the board’s lack of independence, the minority shareholders made a pre-suit demand requesting that the Company's directors take immediate action to, among other things, investigate the alleged wrongdoing and bring appropriate action to recover the funds wrongfully diverted from the Company. The directors responded to the demand the following day by forming a special committee comprised of two directors - who themselves were accused of wrongdoing - to investigate the allegations of the demand. Three weeks later, "before the special committee had completed its investigation and before the Board took any action concerning the demand," the minority shareholders filed suit alleging that demand was futile and should be excused.

As noted by Vice Chancellor Noble, "[t]he requirement of demand effectuates the 'cardinal precept' that directors manage the business and affairs of the corporation." Delaware could "hardly be clearer" that a plaintiff's pre-suit demand "conclusively concede[s] the independence of the Board, and . . . preclude[s] [the shareholder] from [later] arguing that demand should be excused because the directors are conflicted."

The Court rejected the plaintiffs' request for an exception to this "well-settled" rule on the grounds that "the Board and its special committee [we]re comprised of allegedly conflicted directors" and thus "the Board's consideration of their demand [wa]s 'a farce meant to giver the illusion of independence where none exists.'" While recognizing that the plaintiffs "might well be correct" concerning the alleged lack of independence and disinterestedness among the board given the Complaint's allegations, the Court categorized the plaintiffs' decision to make a demand as "inexplicable" and "improvident." The Court refused to "grant the plaintiffs relief from a strategic decision they now regret," as doing so would "part ways with established Delaware law.” The Court implied that it might have reached a different decision if the plaintiffs could establish that "their plea . . . [was] based on new information" concerning the Board's lack of independence.

The decision reaffirms that shareholders who make a demand cannot later (absent new information) challenge director independence and wrestle control of potential claims from a special committee prior to that committee's findings (if at all). Shareholders must therefore continue to think long and hard about whether to make a demand or allege demand futility.

Practitioners should also note that although the Court refused to endorse a specific timetable for a special committee to conduct and complete its investigation (see Op. at 11 noting that "whether the board has taken more than a reasonable amount of time to conduct its investigation is a fact question, and one for which no formula exists"), a committee should be prepared to offer a “persuasive reason” for the length of its investigation.

- Dave Lynn

May 7, 2009

SEC Enforcement: Past, Present and Future

Before we all move on with the next phase of the SEC’s revived enforcement efforts, we still have occasion to review what may have helped get use into this mess. As reported in this Bloomberg story from yesterday, the GAO released a report at the end of March outlining the headwinds faced by the Enforcement Staff over the past several years. (Broc mentioned the report in the blog last month.) Today, the Senate Subcommittee on Securities, Insurance, and Investment of the Committee on Banking, Housing, and Urban Affairs will hold a hearing on strengthening the SEC’s enforcement responsibilities.

The Bloomberg story points out how the GAO found that the SEC instituted policies that “slowed cases and led enforcement-unit lawyers to conclude commissioners opposed fining companies.” As one unidentified Staffer put it, there was a feeling that the Commissioners prevented Enforcement from “doing its job.” The findings of the GAO’s report bear out my own experience during those years, not only with respect to Enforcement but also with respect to all other regulatory matters - hostility toward the Staff and its recommendations became institutionalized, which served to not only demoralize the Staff but also to result bad decisions being made at all levels.

The report also notes the use of executive sessions during former Chairman Cox’s tenure, where some Enforcement Staff were barred from participating. The report indicates that executive sessions occurred on 40% of the days when the SEC met to vote in closed Commission meetings in 2008, more than three times the rate in 2005 when Cox was appointed Chairman (but equal to the rate from 2003 and 2004).

As for the future of Enforcement, Chairman Schapiro reiterated her agenda for the Division of Enforcement in an address last week to the Society of American Business Editors and Writers. She noted that she has streamlined SEC enforcement procedures by no longer requiring full Commission approval to launch an investigation, and eliminating the need for approval by the full Commission before negotiating a settlement. She stated “before these directives, enforcement attorneys will tell you that they worried about red lights at every turn — now they see green.” This is sure to mean many more inquiries and, in all likelihood, much speedier cases as the Enforcement Division ramps up again.

SEC Brings First Credit Default Swap Insider Trading Case

Earlier this week the SEC filed a complaint alleging insider trading in credit default swaps. The SEC noted in its Litigation Release that this case is the first of its kind – and I suspect that it is certainly not the last case we will see regarding the much-maligned credit default swap market. Not only is the case novel in the sense that the alleged insider trading and tipping occurred with respect to credit default swaps, but it is also another notable case of the SEC alleging insider trading in fixed income markets. The SEC’s interest in this area was highlighted two years ago in the settled case of SEC v. Barclays Bank PLC, Litigation Release No. 20132 (May 30, 2007). (For more on the implications of that case, check out our “Insider Trading” Practice Area.)

In terms of the SEC’s jurisdiction over the trading in the OTC derivatives, the SEC noted in the complaint that “[t]he CDSs at issue in this matter qualify as security-based swap agreements under the Gramm-Leach-Bliley Act of 2002 and are therefore subject to the antifraud provisions set forth in Section 10(b) of the Exchange Act and the rules promulgated thereunder.”

Cracking Down on an Opinion Mill

While on an Enforcement theme here, I note that the SEC brought an action earlier this week against the operators of what the SEC called a Rule 144 “opinion mill.” In its Litigation Release, the SEC notes that it has filed a complaint against the operators of 144 Opinions, Inc., which runs the website They are alleged to have “issued fraudulent legal opinions used by promoters in a pump-and-dump scheme, and others, to sell securities in violation of the registration provisions of the federal securities laws.” Rule 144 opinions over the Internet – what will they think of next? Maybe we will have to start twittering Rule 144 opinions some day...

- Dave Lynn

May 6, 2009

Global Accounting Standards: No Convergence for 10-15 Years?

As noted in this article, FASB Chair Bob Herz noted in a recent Financial Crisis Advisory Group meeting, consisting of accounting regulators from around the world, how hard it would be to push the convergence of global accounting standards in the US, mainly due to politics in the wake of the financial crisis. Herz' statement that it make take 10-15 years to pull it off surprised the room since the so-called Norwalk Agreement, a memorandum of understanding between the FASB and IASB, calls for the completion of all "major joint projects" by 2011.

And who knows, that might be conservative when you read this other article in which it notes that CFOs are urging the SEC to drop a proposal mandating US companies to adopt IFRS. Here are the comments made on the SEC's IFRS proposal; the extended deadline ended last Monday.

IASB: IFRS Rules Are Freely Available

It's good to see that the International Accounting Standards Board is following the FASB's lead and allowing free access to summaries of its core International Financial Reporting Standards. Unfortunately, the IASB's additional guidance - which includes its rationale for its conclusions - are still subscription-based.

An IFRS' E-Learning Website: This can be useful for those of you struggling to get up to speed on IFRS: Deloitte has an IFRS's e-learning website. The site contains a series of IFRS training modules which are offered free once you register.

More Proxy Season Developments

If you haven't signed up to get our new "Proxy Season Blog" pushed out to you, here are a few of the items you've missed during the past week or so:

- Swine Flu: Time to Have Electronic Shareholder Meetings?
- Survey Results: Number of Section 16 Officers
- Latest Trends: CEO-Chair Separation
- Barclay's 2009 Annual Report Survey
- Dissecting the Citigroup Annual Meeting
- My Ten Cents: NACD's "New" Key Agreed Principles
- Broadridge's Latest Implementation of Householding
- Proxy Season Update
- Facing an Unpredictable World: How to Change Earnings Guidance Practices

Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog (just like you can accomplish that functionality for this blog).

- Broc Romanek

May 5, 2009

Complimentary: March-April Issue of The Corporate Executive

As a “thank you” to members – and due to the importance of the analysis included in it - we have decided to share a complimentary copy of the March-April issue of The Corporate Executive with you. This issue includes pieces on:

- Grant Guidelines and Declining Stock Prices
- Excessive Windfalls in Compensation Once Stock Prices Recover
- Two Fundamental—and Very Relevant—Considerations for High Level Executives
- Executives Surrendering Underwater "Mega" Grants
- Important, Timely Guidance on the Accounting Treatment of Acceleration of Vesting—Including Ramifications for Underwater Options
- Important, Timely Suggestions from a Respected CEO

In addition, you should read this supplement as it contains our recommended key fixes to the SEC’s executive compensation rules.

Act Now: To continue receiving the practical guidance imparted in The Corporate Executive, try a no-risk trial now.

Congrats to Jesse Brill for appearing on "The Today Show" this morning during a piece on executive pay. Here is a video archive of the segment.

SEC May Reverse "December Surprise": Equity Compensation Disclosure Methodology for the Summary Compensation Table

In her AP article, Rachel Beck notes how the SEC may be considering reversing the rules from the December '06 "surprise" - this relates to equity compensation disclosure methodology for the Summary Compensation Table.

Here is some commentary from Cleary Gottlieb on this development:

Many of you will recall that when the SEC comprehensively revised the executive compensation disclosure rules in August 2006, equity awards were to be presented in the Summary Compensation Table based on the full grant date fair value of each year's awards, computed in accordance with FAS 123R. This was the methodology set forth in the proposed rules in February 2006, and there was full consideration of the approach as part of the comment process before the final rule was adopted.

In an unexpected release on December 22, 2006, the SEC changed the rules to require that the grant date fair value of an equity award be reflected in the Summary Compensation Table based on the recognition of accounting expense in the reporting company's financial statements as required by FAS 123R in respect of the award, typically over an amortization schedule that corresponds to the award's vesting period. That revision was adopted without a public meeting, without notice and comment and without any adequate explanation as to why the change was being made. Beyond the procedural concerns, many considered that the revision undercut the purpose of the Summary Compensation Table by obfuscating the value of equity-based grants, which are of course a principal element of executive compensation, and led to unnecessary last-minute changes to the composition of the named executive officers, primarily because amortization under the accounting rules was typically not permitted for "retirement eligible" executives.

Fast forward two-plus years, and we learn that the SEC is considering a reversal back to the original August 2006 rule. Press reports on Friday stated, based on an interview with SEC Chairman Mary Schapiro, that the SEC "is considering changing a formula that critics say often allows public companies to low-ball in regulatory filings just how much top executives are paid." If the reversal happens, it in fact should be a welcome development for critics and reporting companies alike. The inclusion in the Summary Compensation Table of the grant date fair value of equity awards granted in each year to named executive officers presents a clearer picture of compensation decisions in a given year, and makes the determination of the named executive officers more predictable and sensible.

If the press reports are correct, interesting questions arise as to the transition from the current rule to the new rule. Will unamortized awards from prior years be entirely excluded from the Summary Compensation Table? Will companies be required or permitted to recompute the amounts disclosed for prior years, as if the changed rule had been in effect in the past? Could the basis of disclosure for 2009 (if that is the first fiscal year for which the change is effective) equity awards be different than the basis for the amounts set forth in the Table for earlier years? We would expect the SEC to address these and other transition issues as part of any rule change or in accompanying guidance. Stay tuned.

SEC Filing Fees: Going Up 28% for Fiscal Year 2010

Last week, the SEC issued its first fee advisory for the year. Right now, the filing fee rate for Securities Act registration statements is $55.80 million (the same rate applies under Sections 13(e) and 14(g)). Under the fee advisory, this rate will rise to $71.30 per million, a hefty 28% price hike. The new fees will not go into effect until five days after the date of enactment of the SEC’s 2010 appropriation - which often is delayed well beyond the October 1st start of the government's fiscal year as Congress and the President battle over the government's budget.

You might be asking, "How are the SEC's fees set?" The SEC sets its filing fees annually under the “Investor and Capital Markets Fee Relief Act of 2002.” The SEC's budget is not dependent on its fees; it's not a self-funded agency. In fact, the SEC wishes it could use those fees as it brings much more in for the government than it's allowed to spend. Learn more how this all works in this blog.

- Broc Romanek

May 4, 2009

How Annual Shareholder Meetings Are Changing: Notables from BofA's Meeting

I recognize that the heavy media attention paid to last week's Banc of America annual meeting of shareholders is an anomaly and will never be the norm for all companies- or even the norm for an individual company from year-to-year. Still, the heightened level of attention paid to the meeting - including details that many of us in the business would consider minor - should serve as a "wake-up call" to all companies that annual meetings are indeed changing.

Here are a few facts about the BofA meeting: four hours long; 2000 in attendance, with many disgruntled shareholders turned away (and some complaints that "insiders" displaced shareholders who traveled far to attend); two directors with over 30% withhold votes and four more with more than 20% (with those numbers likely higher if broker nonvotes were removed, per this article); and a binding "split the Chair/CEO" proposal garnering 50.3% support.

Here are some takeaways from the BofA meeting that relate to growing trends:

1. People Expect Immediate Voting Results - As just mentioned last week in this blog, there is a growing expectation that the voting results will be announced at the conclusion of the meeting - since the general public is conditioned by the immediacy of the results produced by our political elections.

I watched numerous news accounts on the day of Banc of America's meeting and every single reporter spent considerable time about their frustration over how the voting results were not announced at the conclusion of the meeting. Can you imagine what those reporters would have said if they knew that the typical timeframe for reporting voting results from an April meeting was mid-August? Wisely, BofA recognized the public relations danger of waiting that long - and a few hours after the meeting, the company released its results in a press release.

2. The Nature of the Media is Changing - There was quite a bit of "live blogging" at the meeting (including live tweeting); this type of live coverage will undoubtably grow for many companies. Live bloggers/tweeters included: SEIU Blog; Rick Rothacker of the Charlotte Observer; and radio station WFAE (click on live blog link). And of course, other blogs covered the meeting after-the fact (eg. DealBreaker).

One consequence of coverage provided by others than the mass media is that the more interesting parts of the meeting were covered. For example, there was considerable commentary about Evelyn Y. Davis, who apparently was in classic form. Evelyn talked so much that people were shouting "Order!" at her - and at one point, the entire packed theatre started clapping in the middle of her antics in the hopes of getting her to sit down. Here is one blog that focused on Evelyn - and here is another blog.

3. Lack of Attention to CEO Succession Can Be News - As noted in this WSJ article, a reporter was able to sleuth that the board meeting held after the shareholders' meeting did not include a discussion of CEO succession planning. CEO succession planning continues to be the least understood part of a board's job - yet, probably the most important. Learn more about how to implement a succession plan during our June 17th webcast: "How to Plan for CEO (and Other Senior Manager) Succession."

4. CEO Lewis Loses His Chair Title - As noted in this WSJ article, BofA's shareholders voted in favor of a binding bylaw amendment requiring the board to split the CEO and Chair jobs at the company, mostly aimed at Ken Lewis who held both titles. After the shareholder meeting, BofA's board acted in the wake of the vote and split the jobs (and a longtime director became the board chair). According to RiskMetrics, the vote marked the first time that a S&P 500 company was forced by shareholders to strip a CEO of his Chair duties.

5. The Media Might Push Shareholder for More Withholds - Check out this Bloomberg article entitled "Bank of America Owners Declare War on Taxpayers," in which Jonathan Weil rails against those BofA shareholders that didn't withhold their votes (despite the quote from Prof. Charles Elson in the article, who properly recognizes that the level of withhold votes here was quite significant compared to historical norms).

6. Coming Soon: Online Battle for Board Seats - Even though BofA knew in advance that its meeting would be contentious - a group of seven unions had announced a "just vote no" campaign beforehand - it still didn't have a notable online campaign against it (other than a few efforts to get similarly-minded people together like this "call to action" to have BofA stop funding coal). Based on continuing trends in the political arena (see this Washington Post article about how the current Virginia Governor's race is being waged primarily online), I think it's worth reading my article – "The Coming Online IR Campaigns: The Future of Director Elections" - from the Spring '08 issue of well before the 2010 proxy season so you can be prepared for some possible changes next year.

It's worth wrapping up my thoughts on BofA with an excerpt from this commentary from Beth Young of The Corporate Library:

A second shareholder proposal, to give holders of 10% of B of A’s shares the ability to call a special shareholder meeting, nearly passed, garnering over 49% of the vote. What’s surprising about this proposal’s near-passage is that B of A, unlike the majority of companies we cover, already allows shareholders to call a special meeting, although it requires that holders of 25% of shares make the demand. Often, the fact that a company has gone a good part of the way toward implementing a proposal undercuts shareholder support for it because many shareholders are reluctant to micromanage. That was not the case at B of A this year, however.

Finally, B of A was required to put up a management proposal for an advisory vote on executive compensation as a result of its participation in TARP. About 71% of shares voted in favor of this proposal, a high proportion given the extent of shareholder anger. The ability of brokers to fill in votes for their customers who did not vote, the so-called “broker-vote,” likely boosted the vote on this proposal. (Broker voting, a creature of stock exchange rules, is not available on shareholder proposals.)

Although the SEC appears poised to approve changes to the broker-may-vote rule that will prevent its use in uncontested director elections—broker votes accounted for some of the support for Mr. Lewis and the other embattled B of A directors—those changes would not extend to the shareholder advisory vote on executive compensation. It seems likely that shareholders will press the SEC to keep broker votes from being cast on advisory votes in the 2010 proxy season.

Happy Anniversary Baby! #7 and Counting

Yes, today marks seven years of my blither and blother on this blog (note the Blog is nearly six years old - not shabby!). It's the one time of the year that I feel entitled to toot my own horn - as it takes stamina and boldness to blog for so long. A hearty "thanks" to all those that read this blog for putting up with my personality. I'm sure I won't get more refined with age.

I'm excited about our upcoming webcast - "Looking Out for #1: How to Manage Your Career" - because it will enable me to share some insights about blogging that I have gleaned over the years. It will hopefully enable you to feel more "blog proud" rather than "blog tolerant," two nice terms-of-art coined by "3 Geeks and a Law Blog" in this recent piece.

I'm excited to see that another of the old-timer bloggers, Mike O'Sullivan of Munger, Tolles & Olson, is back on the scene blogging again after a five year hiatus. Give his new "Provided However" Blog a try...

Our May Eminders is Posted!

We have posted the May issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!

- Broc Romanek

May 1, 2009

Grant Guidelines and Declining Stock Prices

We just sent the March-April issue of The Corporate Executive to the printer. This issue includes pieces on:

- Grant Guidelines and Declining Stock Prices
- Excessive Windfalls in Compensation Once Stock Prices Recover
- Two Fundamental—and Very Relevant—Considerations for High Level Executives
- Executives Surrendering Underwater "Mega" Grants
- Important, Timely Guidance on the Accounting Treatment of Acceleration of Vesting—Including Ramifications for Underwater Options
- Important, Timely Suggestions from a Respected CEO

To have this issue rushed to you, try a no-risk trial to The Corporate Executive today.

Corp Fin's Latest CD&I: XBRL Boxes for 10-Q/10-K Cover Pages

As we flagged early last week in this blog, companies need to place a new box on their Form 10-Q and Form 10-K cover pages, even if they won't be filing in XBRL anytime soon (see our new cover pages available in Word). Yesterday, Corp Fin issued a new "Exchange Act Form" Compliance and Disclosure Interpretation - CD&I 105.04 - to deal with the many questions being asked on this new box.

The SEC's New Risk Identification & Assessment Initiative

Yesterday, the SEC announced an enhanced effort to identify and assess risks in the markets by getting help for its Office of Risk Assessment through a new "Industry and Markets Fellows Program."

Back in '04, under former SEC Chair Donaldson's tenure, the Office of Risk Assessment was created (after getting the idea from former Chair Pitt) - but it was only staffed with a handful of folks and the office chief left after a few years and was never replaced. Now it looks like this Office will be staffed more appropriately.

- Broc Romanek