October 30, 2009

Proxy Access: Alive & Well and Moving in the House

On Wednesday, as noted in this MarketWatch article (and this blog too), Rep. Maxine Waters introduced an amendment that was passed by the House Financial Services Committee that would require companies to allow proxy access. The amendment is part of a larger financial reform bill that's expected to get considered by the full House soon. Of course, the proxy access component of the bill could all die at any time - but it's notable since its gotten much further than either the Schumer or Peters bill has ever moved.

For those in denial and think that the SEC's delay of acting on its outstanding proposals killed the move to adopt proxy access, this may serve as a "wake-up" call that access is very much still alive and on the table...

A few days ago, I blogged about a move in the House to exempt smaller companies from SOX's internal controls requirements. As noted in this Huffington Post blog, one of that amendment's co-sponsors, Rep. Carolyn Maloney, has backed down and now merely proposes yet another study regarding the impact of Section 404 be done. As noted in the blog, Maloney acknowledges she was not aware of the recent study conducted by the SEC - but she wants the study done anyways. Congress at work...

Schering-Plough Issues Results of Shareholder Survey on Compensation

As Susan Wolf mentioned would happen during her podcast regarding Schering-Plough's experiment of surveying its shareholders about its pay practices ahead of its annual meeting last year, the company issued a report yesterday regarding the survey responses it received. We have posted a copy of this report in our "Say-on-Pay" Practice Area on CompensationStandards.com.

Note that Pfizer is the second company to go "biennial" by announcing yesterday it will start putting say-on-pay on its ballot next year.

IASB's Possible Changes to Fair Value Accounting

Last week, IASB's Chair - Sir David Tweedie - delivered a speech providing an update how fair value accounting might be reformed through changes to IAS 39, "Financial Instruments." Also read FEI's "Financial Reporting" Blog to learn how FASB and IASB have committed to "re-tripling" their efforts to meet the 2011 convergence deadline.

- Broc Romanek

October 29, 2009

A Proxy Solicitor's Perspective: Option Exchange Programs

From our proxy solicitor podcast series, in this podcast, Reid Pearson of The Altman Group provides some insight into option exchange program issues, including:

- Once a company has decided to bring an option exchange program to shareholders, what are some of the first steps they should consider?
- From a proxy voting perspective, what types of issues will institutional investors and the proxy advisory firms (egs. RiskMetrics, Glass Lewis) be looking at when deciding on their vote or recommendation?
- Is it acceptable for an exchange program to recycle the exchanged shares back into the pool of shares available for future grant?
- What kind of fallout would there be if a company does an exchange of underwater stock options, but does not bring the program to shareholders?

In this USA Today article, SEC Commissioner Elisse Walter's recent battle with cancer is described nicely.

Survey Results: "Affiliates" for Rule 144 Purposes

We recently wrapped up our Quick Survey on ""Affiliates" for Rule 144 Purposes." Below are our results:

1. At our company, we define the term "affiliates" for Rule 144 purposes as:

- All Section 16 "persons" - 62.3%
- All Section 16 "officers" - 12.3%
- Selected Section 16 officers and directors - 18.6%
- Selected Section 16 officers - 0.5%
- CEO only - 0.5%
- Other - 5.9%

Please take a moment to respond anonymously to respond to our "Quick Survey on D&O Questionnaires and Related-Party Transactions."

The "4th Annual Proxy Disclosure Conference"

Due to unprecedented demand and limited space at our conference hotel for the "4th Annual Proxy Disclosure Conference," we were forced to end Conference Registrations for those attending live in San Francisco. It's sold out!

You Can Still Attend Via Video Webcast: But note in the alternative, you can still attend the "4th Annual Proxy Disclosure Conference" (11/9) - which is paired with the "6th Annual Executive Compensation Conference" (held on 11/10) - by video webcast. You automatically get to attend both Conferences for the price of one. Here is the agenda for both Conferences. The speakers are a "who's who" in the executive compensation field, including:

- SEC's Shelley Parratt
- Disclosure experts Dave Lynn, Mark Borges, Alan Dye and Ron Mueller
- Disclosure experts Keith Higgins, Scott Spector, Howard Dicker, Amy Goodman and Martha Steinman
- Treasury's Mark Iwry, Senior Advisor to Secretary Geithner
- RiskMetrics' Pat McGurn and Valerie Ho
- Glass Lewis' Bob McCormick
- NY Times' columnist Joe Nocera
- Noted counsel John Olson and Marc Trevino
- Renowned consultants Fred Cook, Ira Kay, Mike Kesner, Doug Friske, James Kim and Don Delves
- Chevron director Bob Denham and P&G Chair A.G. Lafley
- Investor advocates Meredith Miller and Paul Hodgson
- Our own Jesse Brill and Broc Romanek

Order Audio from NASPP Conference: In addition, you can still hear each - and any - of the 36 panels you wish from the NASPP Conference by ordering the downloadable audio and course materials.

- Broc Romanek

October 28, 2009

Corp Fin Issues Staff Legal Bulletin on "Risk" and "CEO Succession Planning" Shareholder Proposals

Yesterday, Corp Fin issued Staff Legal Bulletin No. 14E, which changes how the Rule 14a-8(i)(7) exclusion for ordinary business operations applies so that proposals relating to CEO succession planning generally are no longer excludable ("generally" because proposals that seek to micro-manage will still be excludable; we'll have to see how "micro-manage" is interpreted by the Staff) - and that risk-related proposals will be analyzed under a new framework.

The SLB lays out this risk-related framework as: "rather than focusing on whether a proposal and supporting statement relate to the company engaging in an evaluation of risk, we will instead focus on the subject matter to which the risk pertains or that gives rise to the risk." The SLB also reminds companies and proponents how to notify the Staff when they intend to submit correspondence in connection with a no-action request.

Unlike last year's Staff Legal Bulletin regarding 14a-8, this one is bound to cause a stir because it essentially reverses two prior Staff decisions - with the likely result of more proposals being included in proxies during the upcoming proxy season.

In his blog, Sanford Lewis describes the changed positions as a victory for shareholders and gives some background about the press for these changes, including the shareholder proposal meeting with the Corp Fin Staff held last month. And the RiskMetrics' "Risk & Governance" Blog includes quotes from a number of activists hailing the SEC's actions, it also describes how these two Staff positions have evolved over time.

Posted: 2010 Compensation Disclosure Treatise

Dave Lynn, Mark Borges & I just finished the new '10 version of Lynn, Borges & Romanek's "Executive Compensation Disclosure Treatise and Reporting Guide" - it is now posted on CompensationDisclosure.com and the hard copy is at the printers (delivery expected in mid-November). To obtain both the online and hard copy versions of this Treatise, you need to try a no-risk trial to the Lynn, Borges & Romanek's "Executive Compensation Service" now.

Without access to this New Treatise - as well as the "Proxy Disclosure Updates" quarterly newsletters that you will get if you renew as a Service subscriber - you will miss our critical guidance that you need to prepare your proxy disclosures during this upcoming proxy season including this:

Proxy Disclosure Updates - Full Walkaway Model CD&A: Dave is putting the final touches on a key, new model CD&A disclosure which will need to be addressed in this year's proxy statements. The upcoming Fall issue of "Proxy Disclosure Updates" will focus on this important new full walkaway disclosure, providing not only new model disclosure, but also invaluable guidance on what to cover and why and how. To receive this model disclosure as soon as it's out, you need to try a no-risk trial now.

Carving Up the "Investor Protection Act": The Political Process at Work on SOX's Internal Controls

Last week, I polled members as to whether they thought the SEC's 6th - and deemed "final" - delay in having smaller companies provide auditor attestations would really stick. The poll results were:

- 50% said SEC would not further delay the deadline
- 22% said the SEC would further delay it without being forced to
- 12% said Congress would force the SEC to delay it
- 16% said "what me worry?"

Looks like there is a chance that 12% knew what they were talking about. Yesterday, the Huffington Post reported in this blog that Reps. John Adler (D-NJ) and Carolyn Maloney (D-NY) planned to introduce amendments to the Investor Protection Act that would permanently exempt companies with market capitalizations of less than $75 million from Section 404 of Sarbanes-Oxley and further delay that Section's application to companies with a market cap of less than $700 million. Here is Rep. Adler's related press release.

I have a copy of Rep. Adler's "Dear Colleague" letter as well as an opposition letter from the Consumer Federation of America, which combined provide more details than the Huffington Post blog - if you want them, email me...

- Broc Romanek

October 27, 2009

First Company Adopts "Proxy Access Reimbursement" Bylaw

Yesterday, HealthSouth announced that its board plans to adopt a by-law amendment relating to shareholder nominations for directors that would reimburse activist shareholders, subject to certain conditions, where the candidate gets at least 40% of the votes cast. Here is Joann Lublin's WSJ article.

The proxy access alternative of reimbursement bylaws - first permitted under Delaware law back on August 1st - has been promoted by AFSCME, who submitted two shareholder proposals on this topic this past proxy season and plans to submit it to ten companies next year. It also has been highlighted as a reasonable solution during the proxy access debate by Professor Charles Elson, who just happens to be Chair of HealthSouth's Governance Committee. So Charles is putting his money where his mouth is...

Corp Fin Issues Oil & Gas CDIs

Yesterday, Corp Fin issued several Compliance & Disclosure Interpretations related to the oil and gas rules.

Mailed: September-October Issue of The Corporate Executive

The September-October 2009 issue of The Corporate Executive contains a great lead article about how to plan ahead for your executives ahead of the inevitable tax increases (thanks to Mike Melbinger of Winston & Strawn for drafting this piece!). The issue includes:

- Secular Trusts, Distributions and Other Compensation Planning Opportunities in Anticipation of Potential Tax Increases
-Deferral vs. Acceleration of Income
- Common Acceleration Strategies
- Termination of Non-Qualified Deferred Compensation Plans
- Current Employer Funding Using a Secular Trust
-Roth IRA Conversions and Rollovers in 2010
- 3121(v) Employment Tax Election for SERPs
- Preparing Now For IFRS 2
-Option Pricing Model
- Awards with Graded Vesting
- More Granular Option Valuations
- Accounting for Payroll Taxes
- Share Withholding

Act Now: Get this issue on a complimentary basis when you try a "Rest of '09" for free when you try a 2010 no-risk trial today.

- Broc Romanek

October 26, 2009

How to Handle New York's New Power of Attorney

A few weeks back, I blogged about New York's new Power of Attorney law and its possible implications for registration statements, Section 16 reports and Form 10-Ks. Since then, there has been disagreement among practitioners regarding how broadly the new law should be applied in the federal securities law context.

A number of working groups, including one from the New York State Bar, have been making efforts to introduce a technical amendments bill in New York would clarify some of the open issues - but it sounds like there are some issues that would remain outstanding even after those efforts. Plus, a technical amendment doesn't appear on the fast-track and it's not likely to be adopted soon.

In this podcast, Maureen Sladek of IBM provides some great insight by identifying the open issues and addressing how to handle them under New York's new Power of Attorney law (including providing a set of FAQs and sample POA under the new law that she co-wrote with Evan Barth; see our "Power of Attorney" Practice Area for those), including:

- What's the background on the New York Power of Attorney law?
- What are the biggest problems from a corporate perspective?
- Are there any efforts to fix these problems?
- What should companies do in the meantime?

Ask the Experts: Prepping for a Wild Proxy Season

In a few weeks, we're holding a webcast entitled "Ask the Experts: Prepping for a Wild Proxy Season," during which a panel of experts will provide practical guidance in a variety of areas that those grappling with the upcoming season know too well. This is your chance to get your questions answered by the best - shoot me an email with any proxy season questions you may have leading up to November 18th. Your identity will be kept anonymous.

More on "The Mentor Blog"

We continue to post new items daily on our new blog - "The Mentor Blog" - for TheCorporateCounsel.net members. 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. Here are some of the latest entries:

- Is the SEC Necessary?
- Towers Perrin Releases 2008 D&O Survey Report: Some Comments
- More on "Law Firms Going Public: Crazy Talk?"
- Survey Responses: Transfer Agent Opinion Requests
- Study of Early Adopters: IRO Use of Twitter

- Broc Romanek

October 23, 2009

More on Broker Nonvote Math

Last week, Tom Ball gave us the basics in broker nonvote math. In this podcast, David Drake and Rhonda Brauer dig further into the math of revised NYSE Rule 452 - here's the worksheet you should print out to follow along - and help you explore some possible ways to get out those otherwise lost retail votes.

In our "Proxy Season Blog" yesterday, I blogged about the confusion of the intersection of revised Rule 452 and Delaware law. Note how there has been a bit of back and forth in Topic #5216 of our "Q&A Forum" about this topic too.

And remember that a number of critical proxy season areas are covered in our "Special" November-December issue of the Deal Lawyers print newsletter. Finally, note that the upcoming issue of The Corporate Counsel will be providing practical guidance in the broker nonvote area.

Federal Reserve Proposes Guidance on Sound Incentive Compensation Policies

From Cleary Gottlieb: Yesterday, the Federal Reserve released for comment proposed guidance on incentive compensation applicable to all banking organizations under its supervision. The proposal includes two supervisory initiatives. The first, applicable to 28 "large, complex banking organizations," will involve a review each organization's policies and practices to determine their consistency with the guidance described below. The organization-specific policies will be assessed by supervisors in a special coordinated "horizontal review."

The press release issued with the proposed guidance states that "[t]he policies and implementing practices adopted by these firms in response to the final supervisory principles will become a part of the supervisory expectations for each firm and will be monitored for compliance." The second initiative will involve a review of compensation practices at regional, community, and other banking organizations not classified as large and complex, as part of the regular, risk-focused examination process. These reviews will be tailored to take account of the size, complexity, and other characteristics of the banking organization.

The guidance is designed to apply to the compensation of: (1) senior executives and others responsible for oversight of an organization's firm-wide activities or material business lines; (2) individual employees, including non-executive employees, whose activities may expose the organization to material amounts of risk; and (3) groups of employees who are subject to the same or similar incentive compensation arrangements and who, in the aggregate, may expose the organization to material amounts of risk.

Alongside the proposed guidance, the Fed released six Q&As. The Q&As state that the Fed has issued the proposed guidance under its authority to monitor the "safety and soundness" of institutions subject to its oversight. The Q&As also note that the proposed guidance is "consistent with" the Financial Stability Board's Implementation Standards for its Principles for Sound Compensation Practices, which were released last month in conjunction with the G-20 Summit in Pittsburgh.

The FSB was organized at the direction of the G-20 in order to address vulnerabilities and develop and implement strong regulatory policies in the interest of financial stability. The United States is the first G-20 nation to issue detailed guidance on compensation practices since the FSB's Implementation Standards were released. The Q&As provide that comments on the proposed guidance will be accepted for 30 days.

In his "Proxy Disclosure Blog last night," Mark Borges blogged his analysis of the plan from Special Master Feinberg that was posted late yesterday. He also analyzes the separate "determination" letter sent to Banc of America.

SEC Proposes Rules for Dark Pools

On Wednesday, the SEC proposed a set of rules related to dark pools (here is Chair Schapiro's statement), meant to address three areas of concern by:

- Requiring actionable Indications of Interest (IOIs) -- which are similar to a typical buy or sell quote -- to be treated like other quotes and subject to the same disclosure rules.

- Lowering the trading volume threshold applicable to alternative trading systems (ATS) for displaying best-priced orders. Currently, if an ATS displays orders to more than one person, it must display its best-priced orders to the public when its trading volume for a stock is 5% or more; the SEC's proposal would lower that percentage to 0.25% for ATSs, including dark pools that use actionable IOIs.

- Creating the same level of post-trade transparency for dark pools - and other ATSs - as for registered exchanges. Specifically, the SEC's proposal would amend existing rules to require real-time disclosure of the identity of the dark pool that executed the trade.

- Broc Romanek

October 22, 2009

Special Master Feinberg Forces Serious Pay Cuts

Yesterday, Special Master Kenneth Feinberg revealed the details of the long and contentious negotiations over the pay levels for the top 25 paid executives at five financial institutions and two automakers that received TARP money. Although Feinberg's plan itself hasn't yet been made public (but will be later today or within the next day or so), the details of the plan are fully reported in numerous articles in the papers today.

It appears that the key components of this pay reform include:

- About a 50% overall compensation cut
- Salary cuts of about 90%
- Some of the reduced salaries replaced with restricted stock, vesting immediately but paid out in one-third per year installments after a two-year waiting period
- Limits on perks, with anyone receiving more than $25k having to seek special permission

Here are articles from today's newspapers describing this story:

- NY Times' "U.S. to Order Steep Pay Cuts at Firms That Got Most Aid"

- NY Times' "A New Challenge for 2 Ailing Banks"

- NY Times' "Who Gets Paid What"

- Washington Post's "U.S. to cut pay for bailed-out bosses"

- WSJ's "Pay Czar to Slash Compensation at Seven Firms"

- WSJ's "Pay Czar Moves Represent 'Seismic Shift'"

- Forbes' "Pay Czar Readies Knife"

The Battle Over Climate Change Heats Up for Shareholders

Recently, I blogged about the strong likelihood that Corp Fin would act on refining disclosure requirements related to environmental and climate change issues. That blog included statistics from the past proxy season regarding the growing support for ESG shareholder proposals, courtesy of RiskMetrics.

On top of this movement, the news recently has been filled with companies leaving the US Chamber of Commerce due to the Chamber's position on climate change (egs. Apple, Exelon, PG&E, PNM Resources, Duke Energy and Nike). We may soon see more of these departures - or at least companies publicly distancing themselves from the Chamber which is now in attack mode on climate, health care reform and financial reforms.

As noted in this press release, letters were just sent to 14 large companies from a group of 43 investors and investment-focused organizations - representing over $16 billion in assets under management - urging the companies to "end the 'glaring contradiction' between their own policies and the U.S. Chamber of Commerce's and National Association of Manufacturers' positions on pending climate legislation. Each of the companies has publicly stated that it supports action on climate change, which the Chamber and NAM strongly oppose." And Change-to-Win released a scatching report recently about how the Chamber's leader, Tom Donohue, has hijacked the Chamber's agenda.

Recently, a bunch of the mass media outlets were tricked into reporting that the Chamber had reversed its climate change stance. And the Washington Post reports how President Obama has reduced the clout that the Chamber has in DC.

Is the 6th Time a Charm? More Internal Control Delays Possible?

As I blogged recently, the SEC has announced a delay for smaller companies to provide auditor attestations - the adopting release is now posted. I think that's the last of the delays in internal controls, as SEC Chair Schapiro indicated in the press release announcing this last delay. But then again, the efforts to delay - or stop - internal controls reporting shouldn't be underestimated.

Recently, Representative Scott Garrett (R-N.J.) introduced the "Small Business SOX Compliance Relief Act," which would permanently exempt non-accelerated filers from the auditor attestation requirements of SOX Section 404(b). I doubt a deregulatory bill will go anywhere in Congress these days - but you never know. Let us know what you think:

- Broc Romanek

October 21, 2009

Board's Rejection of Plurality-Plus Director Resignation: Delaware Weighs In

A few weeks ago, the WSJ ran an article about how some boards were rejecting resignations by directors after they failed to achieve a majority vote "for" at an annual shareholders meeting.

A day later, Delaware Vice Chancellor Noble held - in City of Westland Police v. Axcelis Technologies - that, among other things, if a company adopts a plurality-plus voting policy (ie. Pfizer-style) and several directors do not receive a majority of the vote in the election, the board's subsequent rejection of the directors' resignation letters is not, by itself, enough to serve as a credible basis of wrongdoing in a books and records request brought under Section 220 of the Delaware General Corporation Law. I imagine this type of issue will become more common as withhold vote campaigns continue to gain traction. Fyi, Professor Jay Brown blogged about this case today and yesterday in "The Race to the Bottom" Blog.

In reading the opinion, note that VC Noble really focused on the plurality aspect, as the directors were, in fact, re-elected. There is the potential for a plaintiff to try to make a distinction if this arises for a company with a majority vote standard. I don't think this should make a difference, but a plaintiff may disagree...

Understanding the Impact of FASB's Codification on Disclosures in SEC Filings

Unfortunately, lawyers who draft disclosure for a living are impacted by the FASB's recent codification of accounting standard project. In this podcast, Larry Bard of Morrison & Foerster explains how the Codification impacts disclosures in SEC filings, including:

- What is the Codification and when is it effective?
- What effect will the Codification have on public companies?
- What about all the SEC rules and interpretative material that reflects the pre-Codification Literature?
- What should lawyers be doing to get up to speed with the Codification?

In FEI's "Financial Reporting Blog," Edith Orenstein reports on the dozen items on the PCAOB's ambitious standard-setting agenda going forward. Edith notes "Different from prior years, however, the agenda includes 'milestones' for projected dates of finalization of these projects, and the dates go out to 2011."

Last Day for San Fran Registration: "4th Annual Proxy Disclosure Conference"

Due to unprecedented demand and limited space at our conference hotel for the "17th Annual NASPP Conference," we were forced to end Conference Registrations last week for that Conference. It's sold out! However, we are still accepting San Fran registrations through the end of today for the paired Conferences, the "4th Annual Proxy Disclosure Conference" (11/9) - and the "6th Annual Executive Compensation Conference" (11/10). You automatically get to attend both Conferences for the price of one. Here is the agenda for both Conferences.

You Can Still Attend Via Video Webcast: In the alternative, note you can attend the "4th Annual Proxy Disclosure Conference" and the "6th Annual Executive Compensation Conference" - by video webcast.

Order Audio from NASPP Conference: In addition, you can still hear each - and any - of the 36 panels you wish from the NASPP Conference by ordering the downloadable audio and course materials.

- Broc Romanek

October 20, 2009

"Special Proxy Season" November-December Issue: Deal Lawyers Print Newsletter

With the upcoming proxy season promising to shake things up and possibly place more companies in "play" than ever before, I decided to create a "special" issue of the Deal Lawyers print newsletter and rush it out so that you can begin to prepare now. This "Special" November-December issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:

- How to Respond to a Stocklist Demand
- How to Scrub Your Bylaws Ahead of Proxy Access: Considerations for Delaware Corporations
- A Practical Primer: How to Tabulate and Report Voting Results
- "Practice Points" on Reporting Voting Results
- An Insider's Perspective: How to Avoid a Yahoo-Like Tabulation Nightmare
- The Growing Importance of "Just Vote No" Campaigns: Analysis and Takeaways

If you're not yet a subscriber, try a "no-risk trial to get a non-blurred version of this issue on a complimentary basis. Current subscribers should renew now as this is the last issue since all subscriptions expire at year-end.

Please take a moment to participate in our "Quick Survey on Impact of Loss of Broker Nonvotes for '10 Proxy Season."

RiskMetrics Publishes '09 Postseason Report

Always popular, RiskMetrics has posted its final '09 Postseason Report. It's a good piece to help read the tea leaves for the upcoming proxy season...

Bringing It: PPIP Finally Gets Going

Back on September 30th, the Treasury Department announced that two firms - Invesco and The TCW Group - have raised the initial capital for the purchase of illiquid assets in accordance with the Legacy Securities Public-Private Investment Fund (since then, 3 more firms have done so). Here is a related Washington Post article.

- Broc Romanek

October 19, 2009

SEC Hires First COO for Enforcement: Bolsters Goldman Sachs Conspiracy Theory

On Friday, the SEC announced that Adam Storch had been lured out of Goldman Sachs to fill the newly-created position of Managing Executive in the SEC's Division of Enforcement. As noted in the SEC's press release:

Mr. Storch will be responsible for project management and workflow for various infrastructure and operational aspects of the Division, including budget, information technology, and administrative services. In addition, he will oversee the workflow and process associated with the collection and distribution of Fair Funds to harmed investors. Along with Lorin Reisner, the Deputy Director of the Division of Enforcement, Mr. Storch will supervise the Office of Market Intelligence, improving the collection, analysis, risk-weighing, triage, referral, and monitoring of the hundreds of thousands of tips, complaints and referrals that the agency receives each year.

Getting beyond Adam's tender age of 29 - which is easy for me to get beyond, personally I feel I was "smarter" at that age, but not wiser (note Seeking Alpha has trouble with age) - the issue of whether Goldman Sachs secretly rules the world is what the public has focused on so far (here is an example, again and another). This one from the Motley Fool has a funny line:

I pledge allegiance to the Flag of the United States of America, and to the Corporation, which it supports, One Nation under Goldman, indebted forever, with Liberty and Justice unlikely.

I can understand how the fear of a Goldman conspiracy may the focus - and perception indeed does matter - but this clearly is a recruitment coup for the SEC. It's not easy to lure someone from the Street with a government salary, particularly someone that can help sift technologically through the massive amounts of market data and the numerous leads that the SEC receives daily. But maybe the SEC shouldn't have started Adam out in such a key role and saved themselves some "face"...

A Comeback for Insider Trading?

It's one of those crimes that we will never eradicate and periodically rears its ugly head as perhaps being rampant - insider trading. It's too easy to do and the gains are immediate (and likely feels like no one is being hurt).

On Friday, the SEC announced the latest "giant" in a series of insider trading actions that goes back decades. A billionaire hedge fund manager got charged with being a "master of the rolodex" rather than a genius in trading strategies. Raj Rajaratnam cultivated a network of senior executives at major companies like IBM, Intel and McKinsey.

I normally don't cover insider trading, but this one is a "biggie" (see this NY Times article and this Reuters article) and may signal a larger trend. For those in companies, make sure your compliance programs are spotless so that you don't get dragged down by any true fraudsters in your midst when the diligence for litigation commences...

Mailed: September-October Issue of The Corporate Counsel

The September-October issue of The Corporate Counsel includes pieces on:

- More Meltdown Fallout--Going Concern and Other Out-of-the-Ordinary Audit Reports in SEC Filings
- Omitting Schedules from a Filed Merger Agreement--The Merrill Lynch Bonuses
- Filing an Acquired Company's Post-ยง15(d) Suspension 10-K--EDGAR Technicalities
- Discussion at ABA of Risdall's Reg D Integration Holding
- A Few Thoughts on FASB's Recent Codification of Accounting Principles
- FAS 5 Now Subtopic 450-20--Impact on Audit Letters?
- Expert Consent Required For Reference to Consultant, Etc.?--New CDI
- New/Revised CDIs Provide More Flexibility for Selling Security Holder Registration

Act Now: Get this issue on a complimentary basis when you try a "Rest of '09" for free when you try a 2010 no-risk trial today.

- Broc Romanek

October 16, 2009

Surprise: The SEC Proposes Changes to E-Proxy

Well, it's not really a surprise since we've been waiting a few years for this proposing release to amend Notice & Access, which the SEC finally issued last night. The surprise is that it wasn't a product of an open Commission meeting. The SEC smartly issued this set of proposals without the fanfare of an open meeting, which is not required if all of the Commissioners sign an order (ie. seriatim). Since these e-proxy proposals are not likely to be controversial - at least compared to the outstanding proposals the SEC has out there - the SEC went with what used to be the traditional route of getting a proposal out of the SEC (more recently, nearly all proposals are the product of open Commission meetings; it wasn't that way a decade ago).

One problem is the late date of this proposing release. The comment period is 30 days from the proposals being published in the Federal Register, which doesn't give the SEC much breathing room to adopt changes to the e-proxy rules ahead of the upcoming proxy season.

Then again, the impact of the loss of broker nonvotes for director elections may cause many companies - ones that have used e-proxy during the past few proxy seasons - to go back to mailing paper (one of the subjects of our "Quick Survey on Impact of Loss of Broker Nonvotes for '10 Proxy Season"). So these proposals may be a day late and dollar short (sorta like NIRI's newly released "Standards of Practices for Notice & Access, Volume II").

The proposing release is pretty short (the "meat" is 21 pages) and there are three main items proposed:

1. More flexibility for the form of Notice that companies use (which will catch the rules up to what the SEC already has informally blessed for the revised Notice that Broadridge has been using recently)
2. Enabling companies (and others who use e-proxy) to enclose explanatory materials with the Notice
3. Tweak timeframe when someone other than an issuer relies on e-proxy to make it more feasible to do (changing to a later of (i) 40 days before the shareholder meeting or (ii) file preliminary proxy within 10 days of issuer filing a definitive proxy and send Notice no later than date on which it files its definitive proxy with the SEC)

Note that the SEC didn't propose reducing the 40-day timeframe for issuers - but did ask this question on page 17 as to whether to reduce it to 30 days. By at least asking the question, the SEC arguably could adopt something like this if it so desired. In comparison, the SEC didn't propose nor ask the question about whether issuers could just send the notice with a proxy card from the "get go." So this type of framework couldn't be adopted unless the SEC re-proposed it.

The First Company Creates a Year-Round E-Forum

The first company has created a year-round e-forum (there have been a number of companies that have created e-forums for their annual meeting, such as Intel and Amgen). In this podcast, Abe Wischnia of Abe Wischnia & Associates and Jnyaneshwar Prabhu of iMiners explain why - and how - a company can start its own e-forum for shareholders, including:

- What motivated you and your client company to implement an electronic shareholder forum?
- How can an electronic shareholder forum enhance corporate disclosure and transparency?
- What about processes and policies to maintain control of the board content and to ensure that SEC rules and regulations aren't violated?
- How expensive/time consuming was it to create the e-forum?
What is the process by which iMiners can help others that are considering an e-forum?
- What else does iMiners do?

Just found out that there is a famous "B Romanek" with handbags at Barneys - feel violated somehow...

The Fees Remain the Same (Not to be Confused with "The Song Remains the Same")

Last week, the SEC issued this fee rate advisory, announcing a a continuing resolution as part of its annual ritual of delaying the new rates for registrations statements, etc. until Congress passes the government's budget for the new fiscal year that started on October 1st. Until Congress acts, all fee rates remain at their current rates.

- Broc Romanek

October 15, 2009

Say-on-Pay: Prudential Becomes First to Adopt Biennial Model

Recently, I blogged about how Microsoft became the first company to take a triennial approach to say-on-pay. Yesterday, Prudential adopted a biennial model - starting with its 2010 annual shareholders' meeting, the company will have a non-binding say-on-pay on its ballot every other year.

More Executive Pay Surveys: A Comparison

Following a trend commenced last year by Schering-Plough, industry rivals Lockheed Martin and Northrop Grumman recently posted shareholder surveys regarding executive pay on their websites. The principal idea behind these surveys is to provide a better avenue than say-on-pay for shareholders to weigh in on compensation (egs. shareholders can provide specific comments and the questions are more narrowly focused).

You may recall that I recently conducted a podcast with Susan Wolf of Schering-Plough regarding how the experience worked out for them this past proxy season. Schering-Plough intends to announce the results of its survey sometime during the next few months. Amgen also canvassed shareholders this past proxy season. We have compiled all these surveys in our "Say-on-Pay" Practice Area.

A Comparison of the Surveys

1. Posting Surveys Online - The two newest surveys are posted online - but Schering-Plough mailed their survey as part of their proxy materials (as noted in this press release). Amgen also posted its survey online. It will be interesting to see whether posting surveys increases - or decreases - shareholder participation. My guess is "increase" - but you never know (for example, note how e-proxy has resulted in a decrease in retail votes).

2. Evaluation of CD&A Transparency - To some degree, all of the surveys piggyback on TIAA-CREF's list of ten questions for evaluating CD&As that was released back in August '07 (in fact, Amgen's survey is identical to TIAA-CREF's survey). All of the surveys ask whether shareholders found their CD&As clear and useful and allow for five types of answers.

3. Tying Pay to Performance - The surveys ask whether shareholders think pay is tied to performance in slightly different ways. Lockheed Martin's survey asks whether its executive pay as disclosed ties pay to performance and is aligned with shareholder value. Northrop Grumman's survey asks whether its compensation play is aligned with the long-term creation of shareholder value. Schering-Plough asks whether its executive pay program is tied to performance and then also drills down with questions about specific performance metrics.

4. Does Pay Matter? - Northrop Grumman asks two interesting questions that the others do not: whether the shareholder analyzed the company's pay policies and practices before becoming a shareholder and whether the company's compensation plan was a material consideration in becoming a shareholder.

5. Retention and Mix of Equity - Schering-Plough was the only company to ask whether shareholders thought that the company's pay plan allows it to attract and retain well-qualified executives, as well as ask questions about the mix of equity in both its executive's and director's pay.

6. Whether Shareholders Support Pay - Both of the newest surveys - Lockheed Martin and Northrop Grumman - cut to the chase and ask the $64,000 question: whether shareholders support the company's compensation plan as described in the CD&A.

7. Additional Comments - All of the surveys allow for shareholders to submit their own comments, a smart move since the use of multiple choice answers can be limiting. Amgen's survey doesn't even provide an opportunity to select from a multiple choice menu - each question has a text box below it. I think providing multiple choice selections will increase the likelihood of obtaining more responses - as some potential respondents may be daunted by the burden of spending too much time on a survey.

Note that Northrop Grumman decided to also use its survey to solicit feedback on two non-compensation related matters: allowing shareholders to call a special meeting on any issue and if so, what minimum percentage of shares should be the threshold to do so.

San Francisco Conference Registration Ends Tomorrow!

Due to unprecedented demand and limited space at our conference hotel for the "17th Annual NASPP Conference," we are forced to end San Fran Conference Registrations at the end of tomorrow, Friday, October 16th for those attending live in San Francisco. This includes attending the pre-conference - the "4th Annual Proxy Disclosure Conference" - in San Francisco.

You Can Still Attend Via Video Webcast: In the alternative, you can still attend the "6th Annual Executive Compensation Conference" (held on 11/10) - which is paired with the "4th Annual Proxy Disclosure Conference" (11/9) - by video webcast. You automatically get to attend both Conferences for the price of one. Here is the agenda for both Conferences.

Order Audio from NASPP Conference: In addition, you can still hear each - and any - panel you wish from the NASPP Conference by ordering the downloadable audio and course materials.

- Broc Romanek

October 14, 2009

Basics of Calculating Impact of Loss of Broker Nonvotes

Helping you to gear up for a difficult proxy season, I have decided to start a weekly proxy solicitor podcast series. Each week, a new podcast with cover a hot topic that you may well face soon - with practical guidance from a proxy solicitor to help you navigate troubled waters. Here is the second installment in our series:

In this podcast, Tom Ball of Morrow & Co. explains the basics of the mechanics of counting broker non-votes and it's implications for companies this proxy season, including:

- What is an example of how the math should be done to determine the impact of the loss of discretionary broker votes on a specific company?
- What type of companies - size, market cap, stock price, industries - may be impacted the most by the loss of broker nonvotes?

Please take a moment to participate in our "Quick Survey on Impact of Loss of Broker Nonvotes for '10 Proxy Season."

XBRL US Proposes New US GAAP Elements for Latest FASB Pronouncements

Recently, XBRL US announced that it has published a set of over 200 new elements - known as "US GAAP Taxonomy 2009 Addendum-1" - to reflect new FASB accounting standard changes issued since December 31, 2008. Some of these new standards are eligible for early adoption by public companies for annual and interim periods ending on or prior to December 31, 2009. These elements are out for public comment, but likely will be adopted as proposed.

The new FASB standards incorporated include only those that are deemed critical for companies preparing financial statements before the US GAAP Taxonomy 2010 is published. The XBRL US GAAP Taxonomy is published once each year to avoid confusion over which release should be used and to ensure the greatest comparability of data. In the event of a substantial number of new accounting standards, XBRL US publishes an addendum taxonomy such as this one, so that companies that need to use the new FASB pronouncements do not have to create new extensions and so that every company using the new standard uses the same element.

How to Sell a Division: Nuts & Bolts

We have posted the transcript for our recent DealLawyers.com webcast: "How to Sell a Division: Nuts & Bolts."

- Broc Romanek

October 13, 2009

BofA's Elusive Walk-Away Number: The Case for Better Disclosure

In his "Proxy Disclosure" Blog, Mark Borges has already blogged three times about the challenges of determining how much money recently "resigned" CEO Ken Lewis will walk away with from Bank of America. As Marked noted in his first blog: "All it took was one hour, two college degrees, and over 20 years' experience in the executive compensation area to come up with this "ball park" figure. Does anyone still think that we don't need a "walk-away" number as part of the executive compensation disclosure?"

We have been touting the need for better transparency in the severance and change-in-control contexts for quite some time - pushing the need for companies to disclose their "walk-away numbers." This is not even about responsible pay practices - this is squarely in the hands of lawyers who draft for a living. This is about better transparency. It's time for you to make a difference.

Those of you attending our upcoming "4th Annual Proxy Disclosure Conference" - either in San Francisco or by video webcast - will not only receive practical guidance about how to craft such a disclosure, you will also get a pro-forma example of what this looks like...register for the Conference now.

BofA Reverses Course: Waives Attorney-Client Privilege

It is widely reported that Bank of America's board decided on Friday to reverse course and waive its attorney-client privilege so that the SEC, Andrew Cuomo and others will soon know the details regarding "who advised what" when it came to BofA deciding not to disclose the circumstances regarding bonuses paid to Merrill Lynch employees. According to this NY Times article:

The board reached a tipping point after bank executives held conversations over the last two weeks with the office of New York's attorney general, said the people briefed on the matter. Mr. Cuomo's office threatened to charge individual bank executives, including Mr. Lewis, with wrongdoing, these people said. The bank also faced a deadline this week to provide a log of its private legal documents to a House committee.

The bank notified Mr. Cuomo's office of its decision on Monday, and will do the same in a separate case pending against it by the Securities and Exchange Commission. The bank will also provide documents to investigators in Congress, Ohio and North Carolina, where the bank is headquartered.

SEC (and BofA) Requests a Jury Trial: Is That Normal?

Last week, both the SEC and Bank of America filed a notice in the US District Court-SDNY seeking a jury trial. I searched the SEC website and confirmed my hunch that it is not at all uncommon for the SEC to ask for a jury trial, particularly when the circumstances indicate that their action will be contested. There looked to be at least a dozen complaints filed already in 2009 with demands for jury trials.

Bear in mind that most cases are filed as settled cases, so there would never by a jury trial demand in any of those. For example, in this case, the SEC didn't initially file a demand for a jury trial because BofA settled (and then Judge Rakoff didn't accept the settlement).

Ohio Attorney General Files Class Action Lawsuit against Bank of America

It's not just New York Attorney General Andrew Cuomo and the SEC going after BofA (and a horde of private plaintiffs; this Bloomberg article notes Delaware VC Strine refused to dismiss a case against BofA yesterday). On September 28th, the Washington Post article noted the Ohio Attorney General has filed a class action lawsuit against Bank of America and its executives over the bank's alleged failure to disclose losses and bonuses prior to its acquisition of Merrill Lynch. Here is the Ohio AG's complaint - and press release.

On re:theauditor, Francine McKenna blogs about Deloitte's exposure in these BofA cases, including a hearing being held today in one of them.

- Broc Romanek

October 12, 2009

Coming Soon: Broadridge's "Virtual" Annual Meeting

Last Friday, Broadridge filed their proxy statement, which reveals the company's intention to hold an electronic-only shareholders' meeting on November 18th. Just a few weeks ago, I blogged about Herman Miller's similar plans, as well as covered traditional objections to foregoing a physical meeting.

Unlike Herman Miller though (which will allow voting during the meeting via fax only), Broadridge will allow live voting online during the annual meeting (like Intel recently did, as I blogged about in this first-hand report).

As noted on page 8 of its proxy statement, Herman Miller will allow shareholders the ability to ask questions by downloading audio software (after they have submitted their 12-digit control number from their proxy statement) if the question is deemed appropriate. Broadridge's proxy statement says that shareholders may submit questions while attending the meeting on page 7 of its proxy statement, but its unclear how that work at this early date. The proxy statement says that instructions on how to do so are posted on its IR web page - and Broadridge's IR web page links to a "stockholder forum" and these instructions about how to participate at the meeting.

It will be interesting to see if there are any shareholder complaints over Broadridge's virtual meeting. I tend to doubt it considering how well its stock has performed (remember how I told you to buy "BR" a long time ago; I still own plenty of shares and so should you). For companies performing well, the virtual meeting can be a real time-and-money saver - but companies need to ensure that they don't disenfranchise shareholders and allow real opportunities for them to participate and not get shut out by either a rigorous screening process or a confusing set of hurdles just to get in. As part of this "inclusive" process, I think companies need to post a set of FAQs and other information about how to attend and participate online.

Remember how I've been touting the use of an "Annual Meeting Home Page" to better campaign during meetings. This goes double for virtual meetings as part of the effort to explain to shareholders what is going on...

The Rise of ESG Shareholder Proposals

As reflected by the postseason review of ESG (environmental, social, and governance - including climate change) shareholder proposals from RiskMetrics noted below, I think we can expect continued focus on environmental issues by shareholder activists - that eventually will result in the SEC acting on the handful of rulemaking petitions that have been submitted to elicit enhanced disclosure by companies of their environmental and climate change risks, etc.

Given the attention paid to this issue by the SEC's Investor Advisory Committee and recent remarks by SEC Commissioner Elisse Walter, I wouldn't be surprised if we saw Corp Fin propose something over the course of next year since the SEC's environmental regulations haven't been updated in quite some time. Here is the RiskMetrics '09 postseason review:

Environmental Proposals Maintain Support - by Carolyn Mathiasen of RiskMetrics' Sustainability Solutions Group

During the 2009 proxy season, there was greater support for some types of climate change proposals while investor backing for resolutions on sustainability and political contributions remained strong. The social issues season also was notable for setting a new record for negotiated withdrawals of resolutions, while the Securities and Exchange Commission staff allowed companies to omit fewer proposals this year.

A climate change proposal passed for the first time in 2009. The resolution in question, which got 51.2 percent support, asked utility firm Idacorp to set reduction goals for greenhouse gas emissions. This beat the previous record for a climate change resolution (39.6 percent), set last year at Consol Energy, by more than 11 percentage points, according to RMG data. Two resolutions sponsored by New York City's pension funds asking for reports on plans to reduce emissions also beat the 2008 record--winning 45.6 percent support at Massey Energy and 42.2 percent at Mirant. A resolution asking Dover to report on climate change challenges to business registered 40.5 percent support.

Support for other climate change proposals was in the 20 percent range, including results at ConocoPhillips, Home Depot, and two resolutions at ExxonMobil. But some other votes were considerably lower. A new resolution at Dominion Resources, which asked the company to provide 80 percent fossil-free electricity generation, got only 4.3 percent support. New proposals from the People for the Ethical Treatment of Animals asking two food companies--Tyson Foods and Hormel--to disclose greenhouse gas emissions from company products got less than 3 percent. PETA has been attempting to draw attention to emissions from factory farming, which recently have become part of the greenhouse gas debate. With these votes dragging down support figures, votes on the 20 proposals relating to climate change and renewable energy averaged 20.7 percent, compared with 23.9 percent in 2008.

Investors continued to give strong support to many proposals asking companies to provide broad-based reports on sustainability issues. After 20 withdrawal agreements, only eight resolutions came to votes during the spring 2009 season and averaged 19.5 percent support, a bit higher than in 2008. The best showing was at Boston Properties, where the resolution earned 37.3 percent support. Conversely, an individual proponent managed only 6.8 percent support at Berkshire Hathaway, and the Unitarian Universalists got 5.4 percent at Las Vegas Sands where Sheldon Adelson owns a majority of the outstanding shares, making it difficult for proponents to make much headway there.

Political Contributions
The campaign coordinated by the Center for Political Accountability to get companies to provide more disclosure on their political contributions and policies held up well in its sixth year. Investors associated with a wide range of proponent groups--public pension funds, labor unions, social investment funds, religious groups and foundations--filed 48 resolutions, the same number as in 2008, of which 29 came to votes. The proposals averaged 29.9 percent, beating last year's 26 percent tally.

The best showing was 39.8 percent support at Travelers, but three other resolutions also registered 39 percent votes. Votes at the low end of the spectrum were 10.5 percent at Ford Motor and 11.7 percent at Wal-Mart Stores; both companies have high percentages of family ownership.

Banking Practices
The filing deadlines for many resolutions hit in late 2008 just when the financial crisis was deepening, leading shareholders to submit a number of proposals related to that issue. Activists, especially those affiliated with religious groups, had been filing proposals on predatory lending even before the term became widely known, but they took on the issue with new vigor in 2009. Many of those resolutions were later withdrawn after agreements, but three of seven proposals asking companies to evaluate their credit-card marketing and collection practices did come to votes, with varying results. The resolution got 33.4 percent support at Bank of America and 28.4 percent at Citigroup, but only 8.4 percent at JPMorgan Chase. Most corporate recipients argued vigorously, but to no avail, that the issue was not appropriate under Rule 14a-8, the SEC's shareholder proposal rule.

Health Care
For the second year, the AFL-CIO organized a campaign to get companies to support universal health care--an option that opened up once the SEC staff pulled away from its earlier position that the issue could be omitted as an "ordinary business" matter because it related fundamentally to employee health benefits. The proposal, submitted to 41 companies this year, up from 28 in 2008, asked the companies to adopt an approach to comprehensive health care reform based on principles articulated by a 2004 report from the Institute of Medicine, an arm of the National Academy of Sciences. The principles assert that health care coverage should be universal, continuous, and affordable to individuals and families.

Ultimately, after a number of successful withdrawal agreements, 18 resolutions came to votes. As in the first year of the campaign, the votes were low, averaging 5.4 percent; the final average in 2008 was 4.5 percent. This year's highest vote (11 percent) was at Honeywell; the lowest vote was 0.4 percent at CBS.

Also faring poorly with investors were animal rights activists, though the proponents say they continue to find the shareholder resolution process an effective way to communicate their concerns to management. Anti-smoking proposals also continued to win meager results, as investors appeared to conclude that the issue was being handled effectively through other channels.

Record Number of Withdrawals
For many activist shareholders, the votes on social issues resolutions are not the central point of proxy season--success in working out withdrawal agreements also has fundamental importance. By this measure, 2009 has been a good year for proponents, with a bumper crop of withdrawals.

As of late August, proponents had withdrawn 143 resolutions (out of 381 filed overall), already cracking the all-time high of 140 registered during all of 2008, according to RiskMetrics data. A few of the withdrawals came about because proponents realized that they were going to lose corporate challenges at the SEC, but most involved at least some concessions from companies. At the same time, though, some proponents were more willing than in recent years to accept withdrawal agreements in return for companies' expressions of concern about the issue they were raising, rather than demanding substantive changes. A major exception was one of the most active proponents, New York City, which continued to insist that companies commit fully to the requests in their proposals before agreeing to withdraw.

The leading issue by number of withdrawals in 2009 involved the New York City-led campaign asking companies to amend their Equal Employment Opportunity statements to outlaw discrimination on grounds of sexual orientation and gender identity. Proponents withdrew 22 proposals after companies agreed to the requests or revealed that they already had such policies; in some cases this merely involved changing EEO statements that already outlawed discrimination against homosexuals to add gender identity, an increasing concern of activists.

The nine anti-discrimination resolutions that appeared on ballots pulled in some of the highest votes of the year. A proposal passed at D.R. Horton, and the resolutions overall averaged 30.5 percent support. By contrast, the issue with the next highest number of withdrawals got some of the lowest votes--proponents, led by the AFL-CIO, were able to withdraw 22 proposals in the second-year campaign asking companies to endorse universal health coverage. Many institutional investors were not comfortable with the wording of the proposal, but companies themselves have been increasingly willing to issue statements in support of universal health care.

Other issues with high numbers of withdrawals included sustainability reporting, traditionally a good negotiation target, with 20. Proponents who were part of the campaign to get companies to disclose their political contributions were able to withdraw 15 resolutions, although that was down from 20 in 2008, which had seen a similarly sized effort.

The number of withdrawals on climate change fell noticeably to 12 from 21 in 2008. The 12 included five of six in a campaign by the California State Teachers Employees' Retirement System, which has been newly active on the issue. In the banking category, shareholders withdrew all four new resolutions asking for a loan servicing policy that would "remedy borrowers for past predatory loan practices"; the withdrawals came after what proponents termed "productive dialogues." Resolutions raising a range of product safety issues, which have been increasing since the debut of the Investors' Environmental Health Network four years ago, have been relatively amenable to withdrawal, and IEHN members withdrew nine of the 16 proposals they submitted for 2009.

No-Action Rulings
As of late August, the SEC allowed companies to exclude 48 proposals that raised social issues, making it unlikely that omission totals for 2009 will reach the mid-60s' levels of recent years. None of the staff's 2009 no-action decisions appeared to set precedents that would make it harder for activists to get their proposals in proxy statements next year.

Seven of the omissions came about because of technical glitches in the filings, but the rest occurred because the SEC staff concluded that the resolutions fell under one of the 13 substantive reasons for exclusion under Rule 14a-8. As usual, the "ordinary business" exclusion accounted for the lion's share of the omissions, knocking out 23 proposals.

Notably, the ordinary business exclusion claimed most of the proposals in the biggest new campaign of the proxy season, which was organized by the Open Media and Information Companies Initiative, known as "Open MIC." The SEC staff allowed companies to omit proposals asking companies to report on the effects of their Internet network management practices on the "public's expectations of privacy and freedom of expression on the Internet." The institutions sponsoring the resolutions, including the New York City funds and social investment groups, say they will try again next year with new phrasing.

In other ordinary business decisions, the agency staff continued its June 2005 policy of allowing companies to omit proposals that it determines involve "an internal assessment of the risks or liabilities that the company faces as a result of its operations that may adversely affect the environment or the public's health." In 2008, the staff had decided that New York City's standard climate change proposal asking companies to report on how they are "responding to rising regulatory, competitive, and public pressure to significantly reduce carbon dioxide emissions" was vulnerable under that policy. For 2009, the city revised the wording of the resolution to emphasize reducing "social and environmental harm" from emissions, but the SEC staff concluded that the proposal still concerned ordinary business, allowing it to be omitted at the two companies (Consol Energy and Alpha Natural Resources) that challenged.

The classification of risk assessment as ordinary business had been strongly criticized by a large coalition of shareholder activists in a December 2008, letter to the SEC. At the time, the letter's primary author, attorney Sanford Lewis, acknowledged to RMG that it came too late to produce action that would affect the 2009 proxy season, but he said the letter's signatories hoped that it would discourage the SEC "from doing any more damage on this issue in 2009." Activists are likely to intensify their push to change this SEC policy before the 2010 season.

Editor's Note: All the vote results in this section are based on the votes cast "for" and "against" and don't include abstentions or broker votes.

Paying the Fraudster's Attorney Fees: Good Use of Shareholder's Money?

Kevin LaCroix indirectly gives us a reminder in his "D&O Diary" Blog today to review your D&O insurance policies and indemnification arrangements to attempt to prevent out-and-out fraudsters from draining corporate resources by enabling them to have their attorney fees paid for while defending themselves.

Kevin blogs about how Stanford Allen likely will get his fees paid for, while 60 others from Stanford Financial also fight to have their attorney fees covered...

- Broc Romanek

October 9, 2009

The SEC's Five-Year Strategic Plan: Open for Comment

Yesterday, the SEC released a Draft 5-Year Strategic Plan that outlines its strategic goals for fiscal years 2010 through 2015. The draft plan outlines over 70 initiatives for public comment. Nothing in particular struck me as profound - all of the larger reforms in the strat plan have already been announced (although the "world-class leader" section on page 45 gave me pause. More $$$ for the SEC to recruit?). Most of the few initiatives related to Corp Fin are on page 25, with a chart about turnaround of annual report and '33 Act reviews on page 36 and a veiled reference to XBRL on page 47.

The SEC is required to come up with a five-year plan pursuant to the Government Performance and Results Act of 1993 (here is my blog about the SEC's previous strat plan). Personally, I dislike five-year horizons for any plan since unforeseen events often change priorities and needs. Given the pressure that the SEC is under to change its ways, it needs a one-year blitzkreig plan - which for the Enforcement Division, it already has created...

Note that page 8 of the draft plan has a nice bar graph comparing fees collected and SEC funding levels - that should help make the pitch for the SEC to be self-funded.

Redoubled Efforts: Global Regulators Want Single Set of Accounting Standards by 2011

One of the outgrowths of the G-20 Summit last week was a call on the international accounting standard setters to redouble their efforts and achieve a single set of global accounting standards through convergence by June 2011. Here is the progress report provided at the Summit, which is more detailed than the leaders' statement as noted by Edith Orenstein in FEI's "Financial Reporting Blog."

G-20 Summit Ends with FSB's Pay Implementation Standards

As expected, the G-20 Summit ended with the release of these implementation standards that were developed by the Financial Stability Board in conjunction with the G-20 and provide the greatest degree of detail to date on global compensation regulation that could impact global financial institutions. These implementation standards build upon the principles that the FSB issued back in April.

The implementation standards focus on what the FSB considers the critical topics to be addressed first: Pay Structure and Risk Alignment; Governance; Compensation and Capital; Disclosure; and Supervisory Oversight. The Standards state that "[f]irms and supervisors should ensure the process of implementation is begun immediately and pursued rigorously in their respective jurisdictions." In a joint statement issued by the UK Treasury, the five largest UK banks - Barclays, HSBC, Lloyds, Royal Bank of Scotland and Standard Chartered - said they welcome the new rules and expressed hope that "there is parity both nationally and internationally on these issues."

Perhaps not the best online organization, but I have been posting related content in CompensationStandards.com's "Bonuses" Practice Area...

A Farewell to Craig Johnson

Our Associate Editor, Linda DeMelis, expresses her own farewell to Craig Johnson:

Craig was 62, but had the looks and energy of a much younger man. I worked for Craig from 1998-2003, and remained part of his network until his untimely death last week.

Craig worked very hard (and made a lot of money), but he also knew how to have fun. He sponsored quarterly "points parties" at VLG ("points" were the mechanism by which some of the law firm's profits were shared with all employees, not just partners), as well as an annual "Blue Chalk" party at a local pub for clients and friends of the firm. You never knew when he was going to show up in the office dressed as Batman or Marie Antoinette. He was a huge bicycling fan, once traveling to France to see Lance Armstrong top the Pyrenees. His enthusiasm was so infectious that I started following the Tour de France, though I don't even ride a bike.

Craig seemed to know everybody. Having any kind of meal with him in a public place, even breakfast, was quite an experience, because of the number of people who came by to say hello. But most of all, Craig was a heck of a nice guy, who treated everyone with respect. Silicon Valley can be a tough business environment, but I have never heard anyone say an unkind word about Craig. His family has set up a guestbook for remembrances of Craig, and I was struck by how many tributes came from staff -- secretaries, paralegals, and librarians -- with whom he had worked over the years.

His was a life well lived. I will miss him.

- Broc Romanek

October 8, 2009

Cuban-SEC Battle Heats Up: SEC Appeals and Cuban Sues for Costs

Yesterday, the SEC announced that it would appeal the US District Court for the Northern District of Texas' decision dismissing its insider-trading case against Mark Cuban. As noted in this article, Cuban's lawyers are not happy.

Last month, I blogged that Cuban had sued the SEC to recoup attorney's fees and expenses from the SEC, alleging bad faith.

For the enforcement afficionados out there, check out Russ Ryan's nice blog on the SEC's recent decision to delegate formal order authority.

More In-House Legal Departments Joining the Blogging Party

Recently, I noted that Microsoft's legal department is participating in blogging on behalf of the company. Now Doug Chia of Johnson & Johnson has also joined this emerging trend - here is his first post - and his second.

Here is a note from Doug:

I'm really encouraging my counterparts to start experimenting with using different media to reach the retail side. At the end, retail apathy may be too strong to counter, but we've at least got to try to reach them and not just rely on our traditional press release, SEC filing and proxy solicitor call M.O. The time has come for new approaches and if the amendments to Rule 452 don't make that abundently clear to us, I don't know what will.

And here is a note from me - If in-house lawyers are blogging, I can't understand how some law firms continue to prohibit their lawyers from doing so. Gain some exposure by contributing content to one of our blogs. Drop me a line and I can help teach you how easy it is...

How to Prepare for a Proxy Access World

We have posted the transcript for our recent webcast: "How to Prepare for a Proxy Access World."

- Broc Romanek

October 7, 2009

The Skinny on Split Voting

Helping you to gear up for a difficult proxy season, I have decided to start a weekly proxy solicitor podcast series. Each week, a new podcast with cover a hot topic that you may well face soon - with practical guidance from a proxy solicitor to help you navigate troubled waters. Here is our first installment in the series:

In this podcast, Scott Winter of Innisfree provides some insight into how to handle split voting (i.e., voting for nominees from opposing proxy cards in a contest) and its intersection with the 14a-4 bona fide nominee rule, including:

- What is split voting?
- How often do we see split voting?
- How do shareholders actually split their votes?
- Are there any ways we could make changes to the system which would make split voting easier?

Venture Capital: Facing a Changing World

We have posted the transcript for our recent webcast: "Venture Capital: Facing a Changing World."

As noted in the WSJ Law Blog, well-known venture capital lawyer Craig Johnson has passed away. Craig was the found of the Venture Law Group in the early '90s, and more recently founded the Virtual Law Partners. A true pioneer.

Verifying Pay Amounts: A Company's Special Use of Experts

With the SEC's proposal to enhance disclosures regarding the use of consultants when setting CEO pay levels, I thought it was worth noting this blog from Mark Borges' "Proxy Disclosure Blog" from a few months ago (Mark's daily blogs are so good that I could be re-blogging all of them):

Universal Corporation, the global tobacco merchant, provides a very thorough presentation of its executive compensation program in its proxy statement, which it filed earlier today. One item in particular caught my attention as I read the company's Compensation Discussion and Analysis (which begins at page 20).

In the discussion of its compensation committee's engagement of experts and other advisors to assist it in the discharge of its duties, the company includes the following paragraph:

"During fiscal year 2009, the Compensation Committee also retained our independent auditor, Ernst & Young LLP, whom we refer to as Ernst & Young, to review management's calculation of performance measures and the amount of the annual incentive awards to be paid to our executive officers in order to report to the Compensation Committee whether such calculations were accurate and properly prepared. Ernst & Young's role was limited to a review of management's calculations, and did not involve an audit of the calculations or any components used in the calculations. Ernst & Young presented their report to the Compensation Committee, but did not attend any other Compensation Committee meetings."

Given the increased attention on incentive compensation arrangements, and the concerns about "erroneous" calculations forming the basis of award payouts (especially as reflected in the TARP executive compensation standards), it shouldn't come as a surprise that compensation committees have begun to independently verify performance metrics before making bonus awards. While I expect that several companies already do this, Universal's disclosure is the first time I've seen it expressly addressed in the CD&A.

Coming Very Soon: 2010 Executive Compensation Disclosure Treatise and Reporting Guide: Now that we have seen the SEC's proposals and Treasury's legislation - that will force you to radically change your executive compensation disclosures and practices before next proxy season - we are wrapping up the '10 version of Lynn, Borges & Romanek's "Executive Compensation Disclosure Treatise and Reporting Guide," which we will deliver to subscribers later on in October.

To obtain this hard-copy '10 Treatise when its printed in October (as well as get online access to the '09 version right now on CompensationDisclosure.com, as well as the valuable quarterly "Proxy Disclosure Updates"), you need to try a no-risk trial to the Lynn, Borges & Romanek's "Executive Compensation Annual Service" now.

- Broc Romanek

October 6, 2009

The NYSE Speaks '09: Latest Developments and Interpretations

Tune in tomorrow for our webcast - "The NYSE Speaks '09: Latest Developments and Interpretations" - to hear senior NYSE Staffers discuss the latest developments and what to expect in the near future, including amendment of the NYSE's corporate governance listing standards. Please print out these Course Materials in advance and join these experts:

- John Carey, Chief Counsel - US Listings, NYSE's Office of General Counsel
- Carol Hoover, Vice President, NYSE Regulation
- Cindy Melo, Managing Director, NYSE Regulation
- Howard Dicker, Partner, Weil Gotshal & Manges
- Bob Messineo, Partner, Weil Gotshal & Manges

The Board's Executive Pay Duties: Potential Impact of US Supreme Court's Jones Case

Recently, Mike Melbinger blogged about the potential importance of an upcoming US Supreme Court case - Jones v. Harris Associates. Here is the SEC's amicus curiae brief for the case (and here's a list of the other briefs filed).

In this CompensationStandards.com podcast, Bill Wright of Fisher & Phillips describes how this case may have implications for executive compensation practices, including:

- How does the US Supreme Court's decision to hear Jones have potential implications in the executive compensation area?
- What is the importance of Judge Posner's dissent from the 7th Circuit's denial of rehearing en banc?
- When should we expect the US Supreme Court to deliver an opinion in this case?

TARP IG Report: Treasury Misled Public on Bailouts

As noted in this NY Times article, TARP's Special Inspector General Neil Barofsky - known as "SIGTARP" - reportedly released a 50-page audit report yesterday that criticized the Treasury Department (including Hank Paulson) for making "some misleading public statements last fall and raising the possibility that it had unfairly disbursed money to the biggest banks." Guess I'm getting used to being lied to as I'm not surprised in the least - are you?


- Broc Romanek

October 5, 2009

A Reprieve from the Guv'ner! No Proxy Access for '10 Proxy Season

I got many excited emails from members on Friday noting this Bloomberg article, confirming a rumor I had been hearing all week: the SEC is taking more time to consider the comment letters it has received. This WSJ article notes that the SEC's new goal is to consider access rulemaking is January or February.

According to this NY Times article, Senator Schumer issued a statement expressing disappointment - so there still is considerable pressure on the SEC to do something on access and this rulemaking is far from dead in the water. The Commission still seems to have a 3-2 vote in favor of access when they do consider final rules.

My guess is that in addition to analyzing the comment letters, the SEC may be waiting for Congress to pass a bill that gives the SEC clearer authority to conduct this rulemaking - in anticipation of a likely lawsuit - and that the SEC still needs to figure out how to handle the mechanics of proposed Rule 14a-11 since there are numerous open issues on how access would work in practice. Much work remains on getting a handle on the "proxy plumbing" and the SEC continues down that path, holding a two-day roundtable on securities lending last week.

This Simpson Thacher memo notes a speech from Commission Elise Walter on Friday, noting that she would give "careful consideration" to an opt-out" provision, but that she was less receptive to directors having an "unfettered choice" to have this discretion.

Simpson's memo notes that there is no indication about whether the SEC may still act before the upcoming proxy season on its Rule 14a-8(i)(8) proposal to end the practice of allowing companies to exclude shareholder proposals relating to director elections. My guess is that the SEC will not act on this proposal separate from the 14a-11 proposal for fear of enraging those in favor of a-11 since that might look like that is all the SEC is willing to do in the access area.

And as long as I'm guessing, I also think the January/February timeframe may be too soon for the SEC to act - there are a lot of open issues and the pressure of an upcoming proxy season no longer bears down on this rulemaking. But that is just conjecture on my part...

6th Time's a Charm? SEC Further Delays Auditor Attestation Requirement for Smaller Companies

On Friday, the SEC issued a press release announcing that it's giving smaller companies (ie. nonaccelerated filers) an additional six-month deferral to produce the long-awaited auditor attestations under Section 404(b) of Sarbanes-Oxley. So this latest extension pushes back the deadline from years ending after December 15, 2009 to years ending after June 15, 2010. (Remember that smaller companies have already been required to include a Section 404(a) management's report on internal control in their annual reports.)

It's worth noting that Sarbanes-Oxley - adopted back in '02 - still hasn't been fully implemented even though we're up to our eyeballs in a new sea of regulatory reform. So is this 6th delay in the smaller company deadline "final"? In other words, will smaller companies finally be facing the gun?

SEC Releases Internal Controls Cost-Benefit Study

To answer the question posted above, I believe the answer is "yes, it's final." That's because the SEC stated rationale for the delay was that it wanted to give smaller companies and their auditors more than three months to digest the results of the Section 404 cost-benefit study its Office of Economic Analysis released on Friday.

The cost-benefit study was conducted to determine whether the '07 reforms (i.e., management guidance issued by the SEC and PCAOB Auditing Standard No. 5) really did lower costs by producing more cost-effective internal controls evaluations and audits. The study reveals that these '07 reforms did indeed fit the bill and that costs are lower. And to answer the question quite clearly, the SEC's press release notes:

"Since there will be no further Commission extensions, it is important for all public companies and their auditors to act with deliberate speed to move toward full Section 404 compliance," said SEC Chairman Mary L. Schapiro.

- Broc Romanek

October 2, 2009

Draft House Legislation: Hedge Fund Regulation and SEC Enforcement Overhaul

As noted in this NY Times article, Rep. Paul Kanjorski, Chair of the House of Representatives' Capital Markets Subcommittee, released a series of three draft bills yesterday. The Investor Protection Act would overhaul the SEC's Division of Enforcement (much of the bill falls in line with what the Obama Administration proposed over the summer, with a few exceptions). The Private Fund Investment Advisers Registration Act would require the registration of all hedge fund and private equity managers and mandate certain recordkeeping and disclosure requirements. The Federal Insurance Office Act deals with insurance company issues.

Regarding the SEC's enforcement program, the bill would:

- Establish a whistleblower fund
- Dramatically increase SEC budget nearly two-fold over five years
- Close various statutory enforcement gaps (e.g., penalties in c&d proceedings, nationwide service of process, etc.)
- Expand access by SEC to grand jury materials
- Impose a deadline on SEC to complete exams and investigations within 6 months (or 1 year for "complex" matters)

Other types of provisions include:

- Give the SEC authority to reduce the disclosure time frame for beneficial ownership and short swing profits reporting to less than 10 days
- Impose fees on registered investment advisers
- Establish consistent duties for brokers, dealers and investments advisers in connection with retail investors
- Require pre-sale disclosure regarding investment company shares

Section 16 and PUHCA

A member sent this in recenty: "This is really a trivial matter, but I just noticed on the top of Forms 3, 4 and 5 (eg. see this Form 4 on the SEC's site), there is still a reference to filing the forms under PUHCA of 1935. I think the forms may have been last revised before the 1935 Act was repealed in 2005. I would imagine the SEC forms folks will delete the reference at some point in the future."

CDIs vs. C&DIs vs. CD&Is...

On another semantics note, here are some thoughts from a member reacting to my preference for the term "CD&Is" (or at least "CDIs") compared to "C&DIs" when referring to Corp Fin's Compliance and Disclosure Interpretations:

I was at a mtg down at the SEC lately and its painful to hear the Staff force themselves to follow the "C&DIs" convention when they vocalize it. I agree that "C&DI" should be banished from the English language as an instance of blind pursuit of logic at the expense of flow. (Another example that drives me crazy: "Forms 4.") But CD&I is just plain wrong. I vote for CDI.

Take this anonymous poll below to express your own views:

- Broc Romanek

October 1, 2009

Parsing the Proxy Access Comment Letters

With the comment letter deadline behind us, the SEC has received over 550 comment letters on its proposed proxy access rules - with more still dribbling in late. This is compared to over 15,000 comment letters submitted on the 2003 proposed proxy access rules, although that rulemaking was the subject of intense "form letter" campaigns (with roughly 14,500 form letters submitted by mostly individuals supporting the proposed rules in 2003). So in essence, the number of "real" comment letters between the first time the SEC proposed proxy access and this most recent third attempt is the same.

Loosely, most of the letters were against proposed Rule 14a-11, while about 110 were "for" it. Even some letters "for" it recommended some tweaks, particularly lengthening the holding requirement to two years from one year and changing the "first in" nomination formula to "largest shareholder."

Here is a rough breakdown in the views expressed in the first 500 letters (note more letters were submitted since the breakdown was made):

- Public/private companies - 119 letters, nearly all opposed proposed Rule 14a-11 - but a majority supported the proposed amendments to Rule 14a-8(i)(8) subject to further amendments. Law firms/individual lawyers submitted 27 letters that reflected similar sentiments (except the few from plaintiff firms). Most of the 29 letters from trade associations also reflected these views.

- Small businesses/individuals - 241 letters, many of whom opposed the proposed rules because of opposition to increased governmental involvement in business.

- Institutional investors/unions/public pension funds - 52 letters, universally supported the proposed rules except for the Vanguard Group and Carpenters letters.

- Governance service providers/activists - 15 letters, letters submitted by RiskMetrics, Glass Lewis, The Corporate Library, CtW Investment Group and similar service providers supported the proposed rules - while Computershare/Georgeson and the Altman Group each submitted a letter recommending that the SEC first reform the shareholder communications process by eliminating the NOBO/OBO distinction.

- Academics - 8 letters representing 96 academics, most of these letters supported the proposed rules.

Have you seen this Black Eyed Peas' "Dipdive" video from Oprah's show? It's unbelievable. If humans can do this, how come we can't solve world hunger, etc.?

Posted: 279-page Financial Crisis Manual

Recently, we posted this 279-page Financial Crisis Manual from Davis Polk. This monster is a comprehensive review of financial crisis laws as they apply to US financial institutions, covering the major Federal Reserve programs, Treasury's capital investments and warrants, the FDIC's debt guarantees, the public-private investment program, the enforcement landscape and executive compensation. It's great to have a reference work that gathers all the scattered primary sources of financial crisis laws, regulations and contracts in one place.

How to Prepare for the Upcoming Proxy Season

As could be expected given the expectations for the upcoming proxy season, our "4th Annual Proxy Disclosure Conference" - which will be held at the San Francisco Hilton and via Live Nationwide Video Webcast on November 9th - will be attended by many of you.

This full-day Conference crams a lot of practical disclosure guidance into a single day, with a total of 12 panels, including:

- How the Latest Developments Impact You
- How to Avoid the Conflict between the Lawyer and the Consultant (and HR): Working for Full Disclosure
- Why Disclosures Matter: 'Real World' Perspectives
- The SEC Staff Speaks: What to Expect from the Comment Process
- Practice Pointers: How to Implement 'Say-on-Pay'
- The New Challenges of Bonuses (and Clawbacks)
- How to Handle 'Out-of-Money' and Other Down-Market Arrangements
- Dealing with the Complexities of Perks
- Conducting - and Disclosing - Pay Risk Assessments
- The Latest on the CD&A
- Form 8-Ks for Compensation Changes - What to Do

Now that Congress is moving on say-on-pay (and other compensation-changing initiatives), you need to register now to attend our popular conferences and get prepared for a wild proxy season. Remember that the "6th Annual Executive Compensation Conference" (held on 11/10) is paired with the "4th Annual Proxy Disclosure Conference" - so you automatically get to attend both Conferences for the price of one. Here is the agenda for both Conferences.

Act Now: Register now to attend live in San Francisco or by video webcast. If you can't make these dates, note that both Conferences will be available through a video archive.

- Broc Romanek