November 30, 2009

Can We Just Go Home Now Mommy?

Always an interesting conference for hard-core securities practitioners, I attended the ABA's Fall Meeting for the "Federal Regulation of Securities Committee" in DC a week ago Friday. This year's meeting drove me to despair as it became evident that the finest minds in the securities bar didn't have a complete grasp on what was happening in Congress. If those of us "inside the Beltway" and normally plugged in didn't have all the answers, who does? No one, probably not even those working on the Hill.

The sheer pace of changes to proposed legislation - not to mention the large number of bills being floated - makes this a time unlike no other during my career. Truly anything can happen and at any time (eg. see this blog and this follow-up blog). Lobbyists are making their marks felt and who knows what type of regulatory framework we will end up with.

Even as senior Corp Fin Staffers laid out a blitzkrieg of upcoming proposals and adoptions during a panel, it was hard not to think about the real background and cause for concern these days. The great unknown of Congress. In terms of keeping up with the latest developments, the next few months may be our greatest challenge yet...

SIGTARP's Latest Audit Bashes New York Fed's Handling of AIG

Just as Congress readies legislation to enhance the oversight powers of the Federal Reserve (although this action taken by the House Financial Services Committee would move "too big to fail" power from the Fed to a new "Financial Services Oversight Council"), the TARP's Special Inspector General released its audit of how the Federal Reserve Bank of New York handled the AIG crisis. As noted in this NY Times article, the report is not good news for the Fed, including now-Treasury Secretary Geithner.

Dissecting the Dodd Bill's Broker-Dealer Provisions

In this podcast, Bob Colby of Davis Polk (and former Deputy Director of the SEC's Division of Trading & Markets) provides insight into the broker-dealer provisions of the Dodd bill and what we can expect to see, including:

- What is the background of the broker-dealer provisions of the Dodd bill and how did they come to be?
- How would the Dodd bill affect broker-dealers if it is passed in its draft form?
- How does the Dodd bill differ from the House's bill on broker-dealers?
- What are the odds of passage of the broker-dealer provisions of the Dodd bill?

- Broc Romanek

November 25, 2009

A Fond Farewell to Abe Pollin

Yesterday, a very special person in the DC community passed away. Although long-timer owner of the Washington Wizards (formerly the "Bullets") was considered by many to be "old-school" in the way he approached his team - really running it like a family business, often hiring old players for management positions - he truly was a visionary in the way he gave to the community.

For over forty years, Abe spent lots of time and money in the poorest parts of town - always on the sly, never seeking recognition. If you heard some of the stories last night on talk radio here in DC (like this one), you couldn't help but tear up. He gave opportunity to countless youths back in the '60s, '70s and '80s - and you could hear how those people were then inspired to do the same. Abe created generations of people willing to help others.

Abe completely changed the nature of the city itself. He spent his own money - spending most of his fortune - to build the Verizon Center a decade ago. This in an era where most sport owners threaten to move a team if the locals don't pony up and pay for a new stadium. That alone sets him apart. But Abe took the next step and insisted the stadium be built in a part of town that was essentially dead, just down the street from where the SEC's old HQ sat (rather than build it in a suburb).

That part of town now is the apple of DC's eye and its revitalization is continuing to spread outward. The transformation is amazing to behold - and it's all due to one man. As we give "thanks" tomorrow, remember that one person can - and will - make a difference. Don't give up in your struggle to reap the rewards of your own efforts to help others. Abe felt our love every day, as he has been the hero of this city for years. There are many tributes on the Web today like this WaPo article.

- Broc Romanek

November 24, 2009

The Downside of Blogging: Journalists Are "Out There"

I was trying real hard to not blog at all this week (which would be a first in years) - but I just can't help myself. That is one downside to becoming a blogger - you look for story ideas in everything you do (or at least, you should be). For every blog I post, there are three that lay in draft form for months and months until I finally delete them as unworthy or untimely. And my blogging style isn't even that involved - I favor fairly short pieces that link to more information from other sources.

But as Francine McKenna of "" fame describes in this blog, there is another downside to blogging. By blogging, you become a journalist whether you realize it or not - and with that, you open yourself to the world. It comes with the territory.

The good news is that the upsides of blogging far outweigh the negatives in my opinion. You only live once and blogging gives you a great opportunity to connect with like-minded souls. And that's just a personal benefit. There are numerous professional benefits. Read more about the pros/cons of blogging and whether you have what it takes to blog in my article from the "Summer 2008" issue of (which is still a free publication).

Microsoft's Shareholders Vote on Say-on-Pay

Last week, Microsoft held its annual meeting, including its first triennal vote on pay (which received 99% support). In this blog, Microsoft's Deputy General Counsel John Seethoff describes the results of the meeting - and links to this Roll Call op-ed by Carpenters Ed Durkin and Microsoft's GC Brad Smith on why a three-year cycle for say-on-pay makes sense.

So What About the Ohio AG's Lawsuit Against the Rating Agencies?

In his "D&O Diary" Blog, Kevin LaCroix examines the latest efforts to bring the credit rating agencies to bear for their role in the financial crisis. Good stuff.

- Broc Romanek

November 20, 2009

Our New "Model" Proxy Walkaway Disclosure

Since every company should now consider addressing walkaway numbers in this year's proxy statements, we have devoted the "Fall '09 issue of Proxy Disclosure Updates" to analyzing how to draft this type of disclosure. We even provide a model walkaway disclosure in this critical issue.

You will receive this issue, which is posted on, by taking advantage of a no-risk trial to Lynn, Borges & Romanek's "Executive Compensation Service" for 2010 (which includes the 2010 version of Lynn, Borges & Romanek's "Executive Compensation Disclosure Treatise and Reporting Guide" that we mailed last week to those that ordered the Service).

Act Now: As part of the Lynn, Borges & Romanek's "Executive Compensation Service," if you try a no-risk trial now, not only will you receive the walkaway issue described above and the 1000-page plus Executive Compensation Disclosure Treatise, you will also receive the Winter issue of Proxy Disclosure Updates - with important new proxy disclosure guidance - soon after the SEC adopts its new executive compensation rules.

Corp Fin's Chief Accountant Speaks: What's Doing

In FEI's "Financial Reporting Blog," Edith Orenstein provides a rundown of remarks from Corp Fin Chief Accountant Wayne Carnall at an FEI conference recently. Here are related notes from WebCPA. [I'll be down at the ABA meeting in DC today and will blog next week about any gloss Pat McGurn provides on these 2010 updates to RiskMetrics' policies that came out last night.]

It is good to hear that Corp Fin's "Financial Reporting Manual" will be updated soon to include 25-years worth of content based on meeting with the "CAQ Regs" Committee. Although as Edith tweeted, there could be a downside to adding 780 pieces of guidance (or subset thereof) to the Manual. That's gonna be hard to memorize. [I'll blog on Monday about the nature of the accounting proposals that passed the House Financial Service Committee yesterday, as reported by Edith. Too much going on.]

I laughed pretty hard reading Edith's notes about the "secret societies" that meet with the SEC. Trust me, those meetings are not as exciting as they may sound - at least the ones I've been to.

Shocker! Rich Ferlauto Heading to the SEC

I almost fell off my chair when I read this press release yesterday that Rich Ferlauto is leaving AFSCME and joining the SEC as Deputy Director of Policy of the agency's Office of Investor Education and Advocacy. It will be interesting to see if AFSCME will continue to be so active regarding shareholder issues without Rich - and it will also be interesting to see Rich wearing short-sleeve shirts and smoking from a corn cob pipe...

- Broc Romanek

November 19, 2009

Some Thoughts on Using Twitter: My Experiences So Far

Here are some thoughts about Twitter that I posted a while back on "The Mentor Blog":

Recently, I blogged about how you need to learn about Twitter since more and more executives are using it and you need to be able to recognize the corporate & securities law issues that arise, just like any other medium. I also noted that I've been regularly Tweeting since the beginning of the year.

With 10-months-plus experience under my belt, I can honestly say that - at this point - there probably isn't much marketing value for lawyers to be on Twitter. If you blog, tweeting about your blog entries can help promote your blog and I think is a "must." But most lawyers aren't blogging - and until they do, I wouldn't bother being a "regular" on Twitter right now. Following the blogs that cover your industry and interests is more educational and worth your time.

For me, one of my job descriptions is "journalist" so following others with like-minded interests helps me identify story ideas for the numerous blogs on our sites - so there is some value in Twitter for me. But so far, there are few folks with like-minded corporate law & corporate governance interests on Twitter (eg. think there are only two of us with M&A law background) so the marketing value of Twitter is pretty limited for you. And too many of the folks that I "follow" on Twitter continue to tweet about their personal lives and thus clog up my Tweetdeck with all sorts of useless drivel. Sorry, I really don't care that your cat is sick.

If critical mass is reached and the marketing value proposition of Twitter for those of us in corporate compliance becomes real, I'll let you know. Until then, Twitter's value is limited to informational and not much in the way of marketing...

By the way, you may want to read Bruce Carton's recent blog about whether the number of followers you have on Twitter may impact a client's hiring decision. I gave my ten cents on the topic in a comment to the blog.

Obtaining followers is pretty easy now since folks have learned some tricks of the trade to quickly score hordes by using scantily clad women. According to the Avvo Blog, this is exactly what some have done recently (although there may have been "hijacking" involved per this article)...and another thing about Twitter, it can get snarky, as noted in this blog.

What About Twitter for Investor Relations?

In comparison to my thoughts about Twitter for marketing purposes, we have these somewhat different thoughts about Twitter for IROs from the Q4 Blog. Here is an excerpt from that blog:

Social networks are having a dramatic impact in helping marketers and public relations professionals increase brand awareness and build new relationships with consumers. But how have these tools been adopted in the highly regulated world of investor relations?

To answer this question Q4 analyzed 80 public companies and their use of Twitter during the Q2 2009 earnings season (a new report analyzing the 3rd quarter was just released - 270 more companies are now using Twitter). Some of the findings of the report which were issued in a press release revealed that:

- 55% are using Twitter for investor relations.
- 48% are using Twitter to engage with their audience.
- 34% of the companies were from the technology sector, including Cisco, Dell, Oracle and Sun to name a few.
- 68% provided a link to their Q2 quarterly earnings release.

Bear in mind that the stats above are culled from those companies using Twitter - based on the list of companies in Q4's report, it looks like that number is relatively small right now, about 80. The list of companies is useful for those that want to monitor what others are doing now, since Twitter may well be here to stay. Personally, I worry about companies using Twitter to get their message out because the 140 character limit can impede placing words in context. More about this later...

Full-Time IR Website Manager: No Longer a Luxury

One of the more innovative - and capable - IR departments experienced a snafu last quarter when its earnings results was accidentally posted prematurely. Dominic Jones does a great job in his IR Web Report providing three lessons that this episode delivers.

- Broc Romanek

November 18, 2009

Renewal Time for 2010

Knowing that the economy continues to wreak havoc with your budget, we have decided to freeze the prices for our publications for next year. As all our memberships expire at the end of the year, please take a moment to renew today at our "Renewal Center" for:

- The Corporate Counsel print newsletter
- The Corporate Executive print newsletter
- Lynn, Borges & Romanek's "Executive Compensation Annual Service" on (this one expired September 30th)
- Section 16 Annual Service
- Romeo & Dye's Section 16 Filer
- Compensation Standards print newsletter
- Deal Lawyers M&A print newsletter

Comprehensive Price List: Here is a PDF that is a universal order form with the 2010 prices for all of our publications and web sites.

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

Recently, I blogged about one company's disclosures that it used its independent auditors to check its math for its performance metrics and incentive pay calculations. Here is a response from a member:

I found this entry fascinating - to the extent anything related to executive comp disclosure can be "fascinating." I recall that we, as outside counsel, used to prepare the compensation disclosure tables for our clients. Then, the client's HR folks did it. Then internal finance, i.e., accountants, would do it. Given the ridiculous complexity in the rules and interpretations and the fact that liability, in my opinion, does or will attach to the disclosures, it is not surprising that a company would now have outside experts checking its work and be proud of it.

What is often not discussed when implementing these new rules is the added cost and burden created by the disclosures. Even more scary is the fact that every proxy undoubtedly has some mistakes in it. I'm sure that almost all of them are non-material. However, the risk is so great at this point that the proxy has essentially turned into a process not unlike filing a 10-K. I don' t mean to downplay its importance but it really seems like what matters is the qualitative disclosure of why compensation committees do what they do, not adding thirteen more ways to calculate how much people walk away with.

I honestly believe that you could comply with the spirit and intent of the rules by cutting proxy disclosure in half. In fact, it would probably be more informative to investors. However, you'd have to have some serious fortitude to actually do it. To wit, over dinner conversation with very smart friends from all walks of life, they all universally acknowledge that it is a complete waste of time to read proxies because it tells them nothing meaningful about their investments. I've got to tell you, it is really life affirming...

Teaching IFRS in Schools

One reason why some are scared of adopting global accounting standards in just a few short years is that there is a shortage of expertise about global standards. Here is is an interesting letter regarding the testing of IFRS on the CPA exam from the Colorado State Board of Accountancy to the AICPA's Board of Examiners: I have heard that at least some of the Big 4 have told colleges they will not hire their students unless they teach IFRS in the classroom.

Recently, Deloitte conducted a survey about whether the SEC should proceed with its IFRS roadmap - 51% said "yes" but push it back one year, 20% said approve the roadmap as proposed and 12% said to reject the roadmap entirely. Here are the results.

- Broc Romanek

November 17, 2009

Ask the Experts: Prepping for a Wild Proxy Season

Tune into our webcast tomorrow - "Ask the Experts: Prepping for a Wild Proxy Season" - to hear a panel of experts provide practical guidance in a variety of areas that those grappling with the upcoming season know all too well. Note that I've posted the list of questions in the order that they will be asked to help you follow what's going on and take notes.

Join these experts:

- Dave Lynn, Editor, and Partner, Morrison & Foerster
- Alan Dye, Editor, and Partner, Hogan & Hartson
- Alan Singer, Partner, Morgan Lewis & Bockius
- Beth Ising, Partner-elect, Gibson Dunn & Crutcher

Renewal Time: As all memberships expire at year-end, it is time to renew your membership to so you can catch the upcoming companion webcasts to prepare for the proxy season:

- "Disclosure Controls & Procedures: An In-House Perspective" (1/12)
- "ESG Disclosures: Environmental, Climate Change, Social Responsibilities" (1/14)
- "Pat McGurn's Forecast for 2010 Proxy Season: Wild and Woolly" (1/21)
- "How to Implement E-Proxy in Year Three" (2/2)

If you're not yet a member, try a 2010 no-risk trial and catch tomorrow's webcast for free...

Corp Fin Releases Two New Lock-Up CDIs

Yesterday, Corp Fin's Office of Mergers & Acquisitions issued these two new Section 5 CDIs:

- New Question 139.29 (registered debt exchange offers and executing lock-up agreement with note holder before filing registration statement)
- New Question 139.30 (negotiated third-party exchange offer and acquiror executing lock-up agreement before filing registration statement)

And there was also activity on this page of outdated/superseded CDIs (one item added and one removed)...

SEC Brings First Regulation G Enforcement Action: Abuse of Non-GAAP Measures

Some big news from Davis Polk: Last Thursday, the SEC announced settled charges against SafeNet, Inc. and certain of its former officers and employees in connection with an alleged earnings management scheme that materially misstated SafeNet's GAAP and non-GAAP financial results. What's unique about this case is that one of the charges is that the defendants violated Regulation G by reporting non-GAAP earnings that improperly excluded certain ordinary expenses as non-recurring charges. This is the first enforcement action under Regulation G since its enactment in 2003, and it serves as a reminder that the regulation is another tool within the SEC's already powerful enforcement arsenal.

Regulation G prohibits disseminating false or misleading non-GAAP financial measures (i.e., measures that are not calculated in conformity with GAAP, and that often exclude non-recurring, infrequent, or unusual expenses) or presenting the non-GAAP financial measures in such a manner that they mislead investors or obscure the company's GAAP results. Regulation G requires companies to reconcile the non-GAAP financial measure to the most directly comparable GAAP financial measure.

The SEC alleges that, in order to meet earnings targets, SafeNet's CEO and CFO directed SafeNet's accounting personnel to improperly reclassify various expenses in both its GAAP and non-GAAP numbers. This improper accounting included:

- reclassifying ordinary operating expenses (such as ongoing advertising expenses and Sarbanes-Oxley compliance costs) as integration expenses incurred in connection with acquisitions;
- the improper reduction of accruals for certain professional fees; and
- the improper reduction of inventory reserve accruals.

The CEO and CFO also allegedly mischaracterized these items in SafeNet's earnings calls. For example, in response to questions about the nature of advertising costs classified as integration expenses, the CEO asserted that these costs were "one-time in nature" when they actually related to ongoing expenses.

Even after SafeNet's auditors required SafeNet to reclassify a significant portion of these costs as ordinary expenses and called its use of integration costs "abusive" and "a means of meeting [non-GAAP] EPS guidance," SafeNet continued to misclassify certain items for purposes of its non-GAAP numbers. To address the disparity between its GAAP and non-GAAP numbers, SafeNet created certain bogus categories in its non-GAAP reconciliation including: "Research and Development--non-recurring;" "Sales and Marketing--non-recurring;" and "General and Administrative--non-recurring." SafeNet used these categories to offset the ordinary recurring expenses that its auditor had refused to allow SafeNet to treat as integration expenses.

A few observations:

- Although this is the first Regulation G enforcement action, it has been clear for many years that the SEC views non-GAAP measures with suspicion and that the burden is on companies to demonstrate not only that the non-GAAP measures are useful to investors but that they have been compiled in good faith and on a reasonable basis.

- SafeNet's alleged conduct in this case suggests that the SEC could have brought an enforcement action against SafeNet and its executives under Section 10b-5 for material misstatements even in the absence of Regulation G.

- The complaint uses that ill-defined multi-purpose SEC term of opprobrium, "earnings management", to describe the conduct in question. Our experience is that cases like these are generally grounded in an underlying rule violation, and that "earnings management" is alleged not as the actual offense but as a motive that turns what might otherwise have been an innocent mistake into the basis for enforcement.

- Despite this case, we continue to believe that companies that are accurately disclosing and reconciling their non-GAAP numbers should feel comfortable using them. In fact, at a recent PLI conference, Meredith Cross, Director of the Division of Corporation Finance, said that she has asked the staff to review the Division's current Regulation G interpretations and guidance to see whether any adjustments are needed because she does not want companies to feel constrained from using non-GAAP numbers that they think accurately tell their story.

- Broc Romanek

November 16, 2009

Fudge This! Now That's Some Real Disclosure

As noted in this article, a New Zealand company is under fire for submitting financials to the New Zealand Stock Exchange because it included the words "fudge this" next to the depreciation line item. Here's the letter sent by the exchange to the company inquiring about this statement...

Any other locals feel this way? I'm bummed because the Washington Post has basically killed it's print edition with a complete redesign. The print is so small I can't read it. They've forced me to read it online (which is free). Unbelievable given how the newspaper industry is on its knees...

Private Equity and Dealmaking

In this podcast, Professor Steve Davidoff discusses his new book "Gods at War: Shotgun Takeovers, Government by Deal and the Private Equity Implosion," including:

- What's the hardest part of writing a book?
- What was your goal in writing the book?
- Did any parts of it change as you conducted research to write it?
- How has private equity influenced deal-making over the years?
- How can the book serve to help deal lawyers in their daily practice?

California (Finally) Extends Securities Exemptions to Nasdaq Capital Market Issuers

Some news from Allen Matkins: On August 17th, the California Corporations Commissioner certified the Nasdaq Capital Market under two key provisions of the Corporate Securities Law of 1968. These certifications will immediately extend significant legal benefits to companies with securities listed on that market.

Previously, the Nasdaq Stock Market operated as an over-the-counter market and consisted of the Nasdaq National Market and the Nasdaq Capital Market (fka Nasdaq SmallCap Market). In 2006, the Nasdaq Stock Market began operating as a national securities exchange. At about the same time, the Nasdaq National Market was renamed the Nasdaq Global Market. The Nasdaq Global Market presently consists of two tiers - the Nasdaq Global Market and the Nasdaq Global Select Market.

Securities listed or authorized for listing on the Nasdaq Global Market are "covered securities" under the National Securities Markets Improvement Act. As a result, California and other states cannot impose qualification or registration requirements under their securities or "blue sky" laws. In 2007, the listing standards for the Nasdaq Capital Market were increased and the SEC added securities listed or approved for listing on that market to the list of "covered securities" for purposes of the NSMIA.

In general, the offer and sale of securities in California must be qualified with the Commissioner unless an exemption from qualification is available or state regulation has been preempted by federal law such as the NSMIA. Long before Congress preempted state qualification requirements for covered securities, California had exempted securities of companies listed on exchanges certified by the Commissioner pursuant to Corporations Code Section 25100(o). This exemption was from the qualification, but not anti-fraud, provisions of California's securities laws.

While Congress' enactment of the NSMIA in 1996 seemed to make this exemption irrelevant, it remained important because it is unclear whether the federal preemption of state qualification requirements pursuant to the NSMIA extends to options, warrants and other rights to acquire a listed security. Because Section 25100(o) also excepts warrants and other rights to acquire a security listed or approved for listing on a certified exchange, the exemption continues to be relevant and important.

Despite the SEC's 2007 decision to extend "covered security" status to Nasdaq Capital Market securities, the Commissioner did not certify that market for purposes of Section 25100(o). This meant that options, warrants and other rights to acquire Nasdaq Capital Market listed securities remained subject to qualification even though the underlying securities were "covered securities". The Commissioner's recent certification of the Nasdaq Capital Market means that companies with securities listed on that market will no longer need to be concerned with qualification in California of options, warrants and other rights to acquire their Nasdaq Capital Market listed securities.

The Commissioner has also certified the Nasdaq Capital Market for purposes of Corporations Code Section 25101(a). That statute provides an exemption from qualification for offers and sales of securities in non-issuer (i.e, secondary) transactions. The exemption is available for any security of a person that is the issuer of a security listed on an exchange certified by the Commissioner. While the preemptive effect of the NSMIA obviates the need for this exemption in the case of "covered securities" (or equal or senior securities), the exemption has some residual utility because it covers not just the covered security (or an equal or senior security) but any security issued by a person that is the issuer of a security listed on a certified exchange.

The Commissioner's certification of the Nasdaq Capital Market will provide a non-securities law benefit to Nasdaq Capital Market companies as well. California has constitutional usury limitations. Pursuant to Corporations Code Section 25117(a), evidences of indebtedness and the purchasers or holders thereof are exempt if the issuer has any security listed or approved for listing on a national securities exchange certified by the Commissioner under Section 25100(o). The Commissioner's certification should therefore make it easier for smaller publicly traded companies to issue debt without concern for California's constitutional usury limits.

- Broc Romanek

November 13, 2009

Rich Koppes on "The Long View"

One of my favorites recently announced his coming retirement from law firm practice, so I thought I would take the opportunity to pick Rich Koppes' brain since he is so knowledgeable and seen so much. In this podcast, Rich provides a look back at his career and developments in governance during that time, including:

- What has been your career path?
- Tell us about the many hats you wear these days.
- Which parts of your career have been the most fun?
- How has governance changed since you started?
- What additional changes (if any) do you think need to happen in corporate governance?

Congrats to the International Subcommittee of the ABA's Corporate Governance committee for launching its own blog! We'll see more corporate lawyers blogging yet...

The SEC's Investor Advisory Committee and State Law

As the SEC's Investor Advisory Committee gears up and sets its agenda, I recently received this concern from a member:

It strikes me that the Investor Advisory Committee and some of these discussion topics in particular (e.g. fiduciary duties, majority voting, etc.) may be another means for the SEC to push deeper and deeper into matters traditionally reserved for state law. As are clear by the comment letters on proxy access, there is widespread suspicion/ concern among issuers about the increasing pressure to federalize state corporate law. The activities of this Committee will likely only add fuel to the fire in some respects.

SEC Approves FINRA's Rules re: Conflicts of Interest/Control Relationships, Etc.

From Clearly Gottlieb: Recently, the SEC approved FINRA's proposal to adopt NASD Rules 2240 (Disclosure of Control Relationship with Issuer), 2250 (Disclosure of Participation or Interest in Primary or Secondary Distribution) and 3340 (Prohibition on Transactions, Publication of Quotations, or Publication of Indications of Interest During Trading Halts) as rules in the Consolidated FINRA Rulebook and to redesignate such rules, respectively, as FINRA Rules 2262, 2269 and 5260.

Significantly, in connection with the redesignation of NASD Rule 2240 as new FINRA Rule 2262, the SEC also approved the repeal of existing NYSE Rule 312(f), which (like NASD Rule 2240) addresses conflict of interest issues when a NYSE member firm engages in certain activities involving the securities of an entity with which it is in a control relationship. At the time of our last Alert Memo, the effective date of the rule changes had not yet been announced. FINRA has now issued Regulatory Notice 09-60 indicating that the effective date of the redesignated rules and the corresponding repeal of NYSE Rule 312(f) is December 14, 2009.

- Broc Romanek

November 12, 2009

Survey Results: Board Committees Interacting with Full Board

Below are the results from a recent survey we conducted on the topic of how board committees interact with the full board:

1. Do the chairs of your company's primary board committees (audit, nominating & governance and compensation) provide oral reports to the board about what transpired during their committee meetings?
- Routinely - 93.0%
- On occasion - 2.8%
- Rarely - 4.2%
- Never - 0.0%

2. If so, how long do these oral reports last on average?
- Under five minutes - 22.4%
- Between five and ten minutes - 50.8%
- Between ten and fifteen minutes - 19.4%
- Over fifteen minutes - 7.5%

3. To whom does the company circulate minutes of committee meetings?
- All directors - 40.9%
- Only the committee's members but allow other directors to request a copy - 47.9%
- Only the committee's members - 11.3%

4. The company's primary board committees ask for board ratification of actions taken during a committee meeting:
- Routinely - 21.1%
- On occasion - 46.5%
- Rarely - 22.5%
- Never - 9.9%

5. The company's primary board committees meet jointly with another board committee:
- Routinely - 2.8%
- On occasion - 26.8%
- Rarely - 35.2%
- Never - 35.2%

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

More Recent Board Stats: Spencer Stuart Study

Recently, the latest "Spencer Stuart Board Index" - which annually looks at the state of corporate governance among the S&P 500 - was released. Among its findings:

- Majority voting: 65% of boards report that they require directors who fail to secure a majority vote from shareholders to offer their resignations. This is up from 56% last year.
- Director term limits: One-year terms for directors are now the norm in 68% of S&P 500 boards, versus 38% 10 years ago.
- Independent leadership: Half of all boards have only one insider, the CEO, up from 44% last year. And 37% split the chairman and CEO roles, versus 20% a decade ago.

Additionally, the study found that the profile of directors continues to evolve: Of the 333 new independent directors in 2009, just over one-quarter are active CEOs, COOs, or chairmen, down from 53% in 1999. Meanwhile, retired CEOs and leaders of divisions and functions now make up 17% and 21% of the new director pool, respectively.

California's Placement Agent Legislation

From Keith Bishop of Allen Matkins: Recently, the press has been publishing stories of alleged pay-to-play arrangements at public employee pension funds, including the California Public Employees Retirement System, or CalPERS. Last August, the SEC proposed regulations that would prohibit federally registered investment advisers and certain exempt advisers from providing advisory services to a government client for two years after the adviser or certain of its executives or employees make a contribution to certain elected officials or candidates. The rule would also ban the use of third parties to solicit government business. Last month, Governor Schwarzenegger signed legislation that, among other things, requires California public employee retirement systems to adopt placement agency disclosure policies by June 30, 2010. These policies must impose a 5-year ban for violations. Because this legislation was enacted as an emergency bill, it takes effect immediately.

CalPERS adopted a placement agency policy earlier this year. However, CalPERS did not follow the notice and comment requirements of the California Administrative Procedure Act. Last month, I asked the California Office of Administrative Law for a determination that the CalPERS statement was an "underground regulation" in violation of the APA. Responding to allegations of pay-to-play, CalPERS announced recently that it is initiating a special review of the fees paid by its external managers to placement agents and their related activities.

- Broc Romanek

November 11, 2009

Senator Dodd Releases Financial Reform Bill

Yesterday, Senator Dodd (D-CT) released a draft of his massive - 1136 pages! - financial services reform bill. Among its numerous provisions, the "Restoring American Financial Stability Act of 2009" contains a half dozen or so provisions aimed at enhancing corporate governance and executive compensation practices. For those of you who aren't inclined to wade through the bill text, here's a summary of the bill's key provisions - and here's the press release from the Senate Banking Committee. We are posting memos regarding this bill in our "Regulatory Reform" Practice Area.

As noted by Mark Borges last nite in his "Proxy Disclosure Blog," the executive compensation provisions are:

- Advisory Vote on Executive Compensation (Section 951) - The bill would mandate an annual advisory vote on executive compensation ("Say on Pay") for companies subject to the SEC's proxy rules. The vote would apply to all shareholder meetings taking place one year after the bill's enactment.

- Advisory Vote on Golden Parachutes (Section 952)- The bill would mandate disclosure of and an advisory vote on any compensation arrangements to the CEO that would be payable on a merger or other acquisition transaction that had not been previously been subject to a "Say on Pay" vote. This vote would also go into effect one year after the bill's enactment.

- Compensation Committee Independence (Section 953) - The bill would require the SEC to direct the national stock exchanges to revise their listing standards to prohibit the listing of any company that did not maintain an independent compensation committee. In addition, the bill would direct the SEC to adopt rules ensuring that any compensation consultant, legal counsel, or other advisor to the compensation committee was "independent" (as defined by the Commission). The bill would ensure that the compensation committee had the authority to retain compensation consultants, legal counsel, and other advisors, require specific disclosure in the proxy statement of whether the committee had retained or received advice from a consultant and whether the consultant's work raised any conflict of interest and how that conflict was addressed, and ensure that the committee had appropriate funding to retain these advisors. Finally, the SEC would be required to conduct a study on the use of compensation consultants

- Executive Compensation Disclosure (Section 954) - The bill would require the SEC to amend Item 402 of Regulation S-K to require disclosure of information showing the relationship between executive compensation and the company's financial performance and a pictorial comparison of the amount of executive compensation and the company's financial performance over the preceding five years. This appears to be an apparent enhancement of the current Performance Graph.

- Clawbacks (Section 955) - The bill would require companies to develop and implement a compensation recovery ("clawback") policy that would (i) be triggered by a financial restatement, (ii) cover all executive officers, and (iii) require recovery of all incentive-based compensation (including stock options) from the executive officers (both current and former) for the three year period preceding the restatement in excess of what they would have been paid under the restatement.

- Disclosure Regarding Employee Hedging (Section 956) - The bill would require the SEC to promulgate rules requiring proxy statement disclosure of whether a company permits its employees to purchase financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange funds) that are designed to hedge or offset market declines affecting compensatory equity awards.

- Compensation Standards for Holding Companies of Depository Institutions (Section 957) - The bill would require the new Financial Institution Regulatory Agency to establish standards prohibiting compensation plans of a bank holding company that provide executives, employees, director, and principal shareholders with excessive compensation or benefits, or could lead to a material financial loss to the bank holding company.

- Higher Capital Charges (Section 958) - The bill would permit the appropriate federal banking agencies to impose higher capital standards for insured depository institutions with compensation practices that the agency determines pose a risk of harm to the institution.

- Compensation Standards for Holding Companies of Depository Institutions (Section 959) - The bill would require the appropriate federal banking agencies to prohibit a depository institution holding company from paying excessive executive compensation or compensation that could lead to a material financial loss to any institution controlled by the holding company, or to the holding company itself.

- Corporate Governance Provisions - A separate subtitle in the bill (Sections 971-974) would provide for several significant corporate governance changes, requiring:

- disclosure of whether a company has a single CEO/Chairman of the Board or has separated the CEO and Chairman positions;

- the annual election of all directors, thereby eliminating staggered boards;

- majority voting for all uncontested director elections; and

- proxy access for shareholders (with the SEC to promulgate rules governing this access right).

Note that the video archives are now both available for yesterday's "6th Annual Executive Compensation Conference" as well as Monday's "4th Annual Proxy Disclosure Conference." If you missed registering, it's not too late to catch-up and watch these videos now.

More Details about HealthSouth's "Proxy Access Reimbursement" Bylaw

Last week, HealthSouth filed its Form 10-Q with the SEC and the company's amended and restated by-laws are attached as Exhibit 3.3. As I blogged recently, HealthSouth just became the first company to adopt a "proxy access reimbursement" by-law and this new provision is reflected in Section 3.4(c) of the company's revised by-laws.

Section 3.4(c) is complex and subject to several conditions and limitations. Reimbursement is not required if the Board "determines that any such reimbursement is not in the best interests of the Corporation or would result in a breach of the fiduciary duties of the Board of Directors to the Corporation and its stockholders or that making such a payment would render the Corporation insolvent or cause it to breach a material obligation incurred without reference to the obligations imposed by this Section 3.4(c)."

Reimbursement only applies if: (i) the stockholder's nominee receives at least 40% of the total votes cast' and (ii) fewer than 30% of the Directors to be elected are contested. The nominating stockholder (or group of stockholders) can only nominate one person for director at the annual meeting. Where the nominee is not elected, reimbursement is limited to the proportion of total expenses equal to the proportion of favorable votes received; if elected all expenses (as defined in the By-Laws) are reimbursed. There are a number of other conditions. Thanks to Mike Holliday for doing the sleuthing on this!

Check out #5265 in our "Q&A Forum" about whether a Delaware corporation must have a bylaw authorizing payment of proxy expenses. In other words, can Delaware law mandate reimbursement in the absence of a bylaw?

Ideas to Improve the Proxy Plumbing

Ahead of the SEC's release of a concept release on fixing the proxy plumbing, a few groups have already submitted ideas to the SEC. For example, The Altman Group submitted a proposal to the SEC entitled "Practical Solutions To Improve the Proxy Voting System." Their proposal focuses mainly on these five fixes:

1. A new methodology called ABO (i.e., All Beneficial Owners) should replace the current NOBO/OBO mechanism which has existed for 25 years, at least with regard to record dates for annual or special meetings.

2. The SEC should seek to authorize the establishment of a second mail and tabulation methodology, one that would give companies the ability (using the names available under ABO) to choose a different vendor to take responsibility for the mailing and tabulation process, while retaining the option to use the current Broadridge system. This new option would be akin to the way most companies currently use their transfer agent to mail and tabulate the votes of registered owners.

3. The SEC should require the NYSE to implement as quickly as possible a robust investor education program to try and ameliorate at least some of the impact resulting from the loss of broker voting on non-contested director elections under Amended NYSE Rule 452.

4. The SEC should amend Rule 13(f) so that information reported by institutions reflects both shares owned and also voting rights after taking into account loans and other transactions that alter such rights. We also suggest shortening the reporting period for 13(f) information to 15 days from 45 days after the end of a calendar quarter and reducing from 20 to 10 business days the pre-notification of a company's annual meeting record date.

5. The SEC should establish new procedures to deal with issues like "empty voting" and the use of derivative positions to alter voting rights.

On, Jim McRitchie has posted his analysis of the differences between The Altman Group's ideas and the positions of the Shareholder Communications Coalition.

- Broc Romanek

November 10, 2009

Today: "6th Annual Executive Compensation Conference"

Today is the "6th Annual Executive Compensation Conference"; yesterday was the "Tackling Your 2010 Compensation Disclosures: The 4th Annual Proxy Disclosure Conference," whose archives are already posted. Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our Staff (but you can still interface with them if you need to). Both Conferences are paired together; two Conferences for the price of one.

- How to Attend by Video Webcast: If you are registered to attend online, just go to the home page of or to watch it live or by archive. A prominent link called "Enter the Conference Here" on the home pages of those sites will take you directly to today's Conference.

Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for or If you are experiencing technical problems, follow these webcast troubleshooting tips. Here are the Conference Agendas; times are Pacific.

- How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online - and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic "prompts" all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except for a few (but hours for each state vary; see the CLE list for each Conference in the FAQs).

- How Directors Can Earn ISS Credit: For those directors attending by video webcast, you should sign-up for ISS director education credit using this form. This is meant only to facilitate providing information to ISS; they are the ones in charge of accreditation and any disputes will need to be taken up with them.

Late yesterday, I uploaded a rare afternoon blog to note Corp Fin Shelley Parratt's important keynote speech regarding what the SEC Staff expects from 2010 executive compensation disclosures, as well as observations from the '09 proxy season (eg. still not enough "analysis" in the CD&A). Read that blog for more information.

FASB & IASB Reaffirm Convergence by Mid-2011

As noted by FEI's "Financial Reporting Blog," the FASB and IASB have announced the release of a 23-page joint statement which reaffirms their commitment to improve IFRS and U.S. GAAP, and to bring about their convergence through completion of the major convergence projects outlined in the FASB-IASB Memorandum of Understanding by June, 2011. The joint statement outlines plans and milestone targets that will guide completion of the major projects by the June, 2011 target date.

Last week, SEC Commissioner Luis Aguilar delivered this speech entitled "Investors Deserve Sustainable Reform -- Not More of the Same" in which he decried some of the Congressional efforts to rein in Sarbanes-Oxley and more. Equally impassioned was Floyd Norris in his column entitled "Goodbye to Reforms of 2002."

The Coming Hostile Deals

In this podcast, Lois Herzeca of Gibson Dunn & Crutcher discusses the expected rise in hostile activity and how to be prepared, including:

- Why is hostile deal activity expected to increase over the next year?
- What interesting examples have occurred recently?
- What should companies be doing strategically to best position themselves?
- What should companies be doing in terms of structural defenses and what should they avoid?
- How should companies address their key investors and shareholder base?

- Broc Romanek

November 9, 2009

Corp Fin's Shelley Parratt Delivers Important Speech on Executive Compensation Disclosures

Today, Corp Fin Shelley Parratt delivered this important keynote speech regarding what the SEC Staff expects from 2010 executive compensation disclosures, as well as observations from the '09 proxy season (eg. still not enough "analysis" in the CD&A). Among other important points that I will cover in this blog later this week, Shelley raised this point regarding how the Staff will administer the comment process in the near future:

It means that after three years of futures comments, we expect companies and their advisors to understand our rules and apply them thoroughly. So, any company that waits until it receives staff comments to comply with the disclosure requirements should be prepared to amend its filings if it does not materially comply with the rules.

Shelley addressed several other crucial points during a Q&A period not covered in her posted speech. The video archive of her keynote should be available in our archived Conference sometime tomorrow for those that want to see that...

November 9, 2009

Today: "Tackling Your 2010 Compensation Disclosures: The 4th Annual Proxy Disclosure Conference"

Today is the "Tackling Your 2010 Compensation Disclosures: The 4th Annual Proxy Disclosure Conference"; tomorrow is the "6th Annual Executive Compensation Conference." Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our Staff (but you can still interface with them if you need to). Both Conferences are paired together; two Conferences for the price of one.

- How to Attend by Video Webcast: If you are registered to attend online, just go to the home page of or to watch it live or by archive (note that it will take about a day to post the video archives after it's shown live). A prominent link called "Enter the Conference" on the home pages of those sites will take you directly to today's Conference.

Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for or If you are experiencing technical problems, follow these webcast troubleshooting tips. Here are the Conference Agendas; times are Pacific.

- How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online - and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic "prompts" all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except for a few (but hours for each state vary; see the CLE list for each Conference in the FAQs).

- How Directors Can Earn ISS Credit: For those directors attending by video webcast, you should sign-up for ISS director education credit using this form. This is meant only to facilitate providing information to ISS; they are the ones in charge of accreditation and any disputes will need to be taken up with them.

Black & Decker's CEO Does the Right Thing? Foregoes Change-of-Control Payment

I loved Michelle Leder's title of her blog recently entitled "On Black and Decker's CEO and unicorns...". Michelle was referring to the Form 8-K filed by Black & Decker which reveals that its CEO would forego $20 million in severance, a sum he would be entitled to under his arrangements with the company as triggered by this week's announced merger with Stanley Tools. The Washington Post ran this article last week noting how this move is perhaps not as generous as it seems.

And here is a response from a member:

I don't mean to throw stones, but Mr. Archibald is 66 years old. Why is he entitled to three years severance in the first place?

Based on my review of his new three year Executive Chairman Agreement, he is entitled to a base salary of $1.5 million per year, a target bonus of $1.875 million per year and long-term incentives of $6.65 million per year, (of which 50% is in stock options and 50% in restricted stock). Add to that, a 1 million share "sign-on" stock option grant (estimated value $15 million) and a Synergy Bonus Amount of as much as $45 million. All in, he could earn $90 million over the next three years, which would easily make up for his contract waiver if the company performs.

It is also worth noting that his current SERP is worth $35 million as of December 31, 2008, and he retained the right to an enhanced SERP if he is terminated before the end of the new contract term (i.e., he gets additional years of service and his foregone severance is included in the benefit calculation).

While I am glad to see a CEO waiving severance, it looks to me like he is getting it back, and then some.

You may also want to read Paul Hodgson's "Extraordinary merger bonuses at Pfizer" from The Corporate Library Blog. Also check out this NY Times article from the front page yesterday with a quote from Jesse Brill.

Reminder: Many Companies Need to Amend for Section 162(m) by Year End

Mike Melbinger of Winston & Strawn recently issued this reminder in "Melbinger's Compensation Blog" on

Many companies will need to amend their employment agreements, equity plans and awards, and other incentive plans and agreements by December 31, 2009, to preserve the deductibility of performance-based awards and amounts under Code Section 162(m) [the $1 million limit on public companies ability to deduct compensation payments to its named executive officers] in light of Rev. Rul. 2008-13.

Background: Rev. Rul. 2008-13 held that if a plan or agreement provides for payment following an executive's termination without cause, for good reason, or due to retirement, the plan or agreement does not pay "remuneration payable solely on account of the attainment of one or more performance goals," as may be required by Code Sec. 162(m) and Treas. Reg. ยง1.162-27(e)(2)(i). Therefore, agreements providing for the accelerated vesting of performance-based cash or equity awards and a payment regardless of actual performance upon retirement, termination of the executive by the company without cause, or termination by the executive for good reason, would cause the awards to fail to satisfy 162(m)'s performance-based exception - even if the accelerated vesting and payout is never triggered. (The IRS first took this position in PLR 200804004.)

The IRS' rationale for this position was simple: terminations without cause, for good reason, or due to voluntary retirement, are not listed as permissible payment events under the 162(m) regulations. The IRS has also pointed out that, under the sample definitions of "cause" and "good reason" set forth in the ruling, the involuntary termination may arise as a result of the employee's poor performance and failure to meet the performance goal.

Effective Date Transition Rules: The IRS declared that it would not apply the holdings in the Rev. Rul. to disallow a deduction for any compensation that otherwise satisfies the requirements for qualified performance-based compensation under 162(m) and that is paid under a plan or agreement with payment terms similar to those in the ruling if either:

- The performance period for such compensation begins on or before January 1, 2009 or

- The compensation is paid pursuant to the terms of an employment contract as in effect (without respect to future renewals or extensions, including renewals or extensions that occur automatically absent further action of one or more of the parties to the contract) on February 21, 2008.

Thus, compensation paid for 2009 performance under most agreements and programs was exempt.

For most companies, the 2009 performance period is ending and, therefore, the delayed effective date under Rev. Rul. 2008-13 will not be available much longer. Every company should consider whether it needs to revise its performance-based compensation plans and agreements to comply with Rev. Rul. 2008-13 and, if it must, how to revise the plans and agreements to achieve the original purposes of the acceleration. Remember, Rev. Rul. 2008-13 would deny deductibility to plans and agreements with the offending language even if the acceleration event never occurs.

Mike also was the first one to blog about the IRS starting Section 409A audits about a month ago. Compensation newsletters I've seen are only now getting wind of this development...

- Broc Romanek

November 6, 2009

More Insider Trading Charges from the SEC

Following up on the giant insider-trading case a few weeks ago against Raj Rajaratnam and Galleon Management, the SEC brought insider trading charges against 13 more yesterday, including charges against a pair of lawyers for tipping inside information in exchange for kickbacks.

This story was interesting not only for the involvement of Wall Street lawyers (see the WSJ Law Blog for a discussion of how often lawyers are involved in insider trading - answer: it's rare), but for the colorful nickname of one of the defendants - "the Octopussy" - as well as notable details about the use of disposable cell phones. As noted by this NY Times article, this story has Hollywood potential written all over it - one of the main characters is named "Roomy Khan"! Another is "Deep Shah"!

Enforcement Director Rob Khuzami gave these remarks about how insider trading is a corruption of the basic principle that the markets are fair, including these memorable words:

Goffer would promptly tip the other traders we charge today, at times going to such extraordinary lengths to cover his tracks that he used disposable cell phones.

He gave one of his tippees a disposable cell phone that had two programmed phone numbers labeled "you" and "me."

After the insider trading was complete, Goffer destroyed the disposable cell phone by removing the SIM card, biting it, and breaking the phone in half.

He threw away half of the phone, and then instructed his tippee to dispose of the other half.

Needless to say, these antics might be appropriate in a James Bond movie.

But they have no place among Wall Street professionals who participate in our capital markets.

The ethical and legal judgments of these defendants were flatly wrong.

They weren't close calls.
They weren't nuanced.
They weren't in gray areas.

As an aside, the SEC's new Division of Risk, Strategy, and Financial Innovation is getting off the ground by announcing the hiring of three senior people...

US Supreme Court: Oral Arguments for Jones v. Harris

Last month, I blogged about the importance of the US Supreme Court's Jones v. Harris case since it could impact the fiduciary duties of directors, including this podcast. Oral arguments were held this week and here are some reactions:

- "The Conglomerate Blog" has at least a half dozen entries - scroll down

- "Race to the Bottom Blog" has a two-parter

The NYSE Speaks '09: Latest Developments and Interpretations

We have posted the transcript from our recent webcast: "The NYSE Speaks '09: Latest Developments and Interpretations."

- Broc Romanek

November 5, 2009

House Financial Services Committee Passes "Investor Protection Act"

Yesterday, as noted in this NY Times article, the House Financial Services Committee passed the "Investor Protection Act" by a vote of 41 to 28. The bill includes an additional $1 billion-plus for the SEC's budget and the proxy access provision blogged about recently. The Act now moves to the full House to be considered in the coming weeks, with a vote predicted to be held in early December.

The Adler-Garrett amendment - which exempts companies with a market cap of less than $75 million from having to comply with SOX's internal controls provisions - passed by a vote of 37 to 32. This amendment was supported by White House Chief of Staff Rahm Emanuel - but as the NY Times reports: "The amendment was criticized by senior Democrats, including Representative Barney Frank of Massachusetts, the chairman of the committee. But at a news conference on Tuesday, Mr. Frank defended Mr. Emanuel's involvement, saying he had helped to negotiate a substantial narrowing of the provision."

I didn't watch the Committee in action, but apparently it was a fluid, fast-moving and confusing situation and I have read a number of conflicting reports on what actually was passed. I'll post the bill as passed when I get my hands on a copy so you can see how it differs from this discussion draft (here is the Committee's summary of what passed yesterday).

As I understand it, this Miller amendment was passed, which would impact the independence of the FASB by establishing a federal government forum that would overlooking the FASB's work. I also hear that this amendment from Congressman Perlmutter will also be offered as an amendment to the upcoming legislation, which would create a new risk regulator structure. I blogged about these actions yesterday as well.

Course Materials Now Available: "4th Annual Proxy Disclosure" and "6th Annual Executive Compensation"

We have posted the Course Materials for our two Conferences next week - the set related to each Conference is here: "4th Annual Proxy Disclosure Conference" and "6th Annual Executive Compensation Conference."

Remember you will need your Conference ID and password to access these. Here is other important Conference information that I blogged about earlier this week.

When Will the SEC Adopt New "Proxy Statement Disclosure Enhancement" Rules?

Yesterday, SEC Chair Mary Schapiro delivered a speech at PLI's annual Securities Law Institute that summarized the current state of proposals that are Corp-Fin related, including identifying the areas that the SEC's upcoming concept release on proxy plumbing will address. She indicated that the proxy access proposal would be considered by the Commission in early 2010 (which is not new news, as noted in this blog).

But she did not indicate when the proxy disclosure enhancements proposals would be adopted (a set of proposals that includes the proposed executive compensation rules). At this point, it's clear that these rules will not be adopted on November 9th - as widely rumored for some time - and it's unknown when they will be adopted or if they would still apply to the upcoming proxy season even though time is running short to modify D&O questionnaires to capture new information. Corp Fin Director Meredith Cross indicated on a panel that these rules might indeed apply to the 2010 proxy season, but as I understand it, her statement wasn't definitive so anything can happen. [Don't forget our upcoming webcast: "Ask the Experts: Prepping for a Wild Proxy Season."]

And even harder for many companies: timing compensation committee meetings (and other board meetings) to deal with any new rules before the year is out. Numerous members have been emailing me asking if - and when - this is gonna happen...

Survey: Will Your Compensation Committee Hold a Special Meeting if the SEC Adopts New Rules?

Here is an anonymous survey to gather information about what companies are doing to prepare for the possibility of new SEC rules that apply to the upcoming proxy season:

- Broc Romanek

November 4, 2009

Analysis: Ability of Shareholders to Call Special Meetings

Continuing our proxy solicitor podcast series, in this podcast, Rick Grubaugh of D.F. King & Co. provides some insight into issues related to shareholder proposals seeking to allow shareholders the right to call a special meeting - many companies have received passing votes and are faced with tough choices on how to deal with the demand - including:

- What is background of the proposals that seek companies to allow shareholders to call a special meeting?
- What might we expect for the 2010 proxy season regarding this type of proposal?
- What do institutional shareholders believe is the right threshold of share ownership to call a special meeting?
- What options do companies have if they receive a proposal?

Congress Update: The Battle Over SOX's Internal Control Requirements Intensifies

This morning, the House Financial Services Committee will be voting on Rep. Frank's "Investor Protection Act of 2009." According to this WSJ article, the Committee passed an amendment by voice vote yesterday to exempt smaller companies from Section 404 of Sarbanes-Oxley. Rep. Frank reportedly hopes to beat that back today.

This Huffington Post blog notes that the White House is not doing anything to stop the move to soften Section 404 - and in fact, may be supporting it. This Washington Post article notes the same thing.

Meanwhile, FEI's "Financial Reporting Blog" notes the latest developments regarding Congressional interest in overhauling the accounting area as there are two competing bills being floated. One would overhaul the FASB by creating a Financial Reporting Forum to oversee its activities.

The other would create a new Federal Accounting Oversight Board to do the same - this new Board would also displace the SEC as the ultimate authority and overseer of accounting standards for public companies (a role that the SEC now delegates to the FASB with its oversight). As reported by the Journal of Accountancy, a joint letter from a group normally at odds with each other argues that the SEC should retain its role.

More on "The Mentor Blog"

We continue to post new items daily on our new blog - "The Mentor Blog" - for 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:

- Avoiding Market Misperception of Tax Withholding Transactions
- Survey Results: Use of Enterprise Risk Management (and Disclosure Thereof)
- Analysis: Recent Corp Fin Accounting Comments
- Fifteen Risk Factors for Poor Governance
- How Colleges (and Law Schools) Are Changing

- Broc Romanek

November 3, 2009

Important Conference Items to Note

We are less than a week away from the "4th Annual Proxy Disclosure Conference" (11/9) - which is paired with the "6th Annual Executive Compensation Conference" (11/10). Here are the agendas for both Conferences.

For those attending via video webcast:

- Test Your Access Now: To ensure you don't have any technical snafus for the Conferences, please test your access today (this test is only available this week) by using the ID and password that you received for the Conferences.

When you test your access, you can test our CLE Tracker as well as input your bar numbers, etc. You also will be able to input your bar numbers anytime during the days of the Conferences too (remember that you will need to click on the periodic "prompts" all throughout each Conference to earn credit). If you are experiencing problems, follow these webcast troubleshooting tips.

- How to Access the Conference: To access the webcast, use the ID/password that you received in an email from us to get in via a prominent Conference link that will be on the home page of on the day of the Conference; this ID/password is separate and different from any you use for our sites. Note that times posted are in Pacific Time; archives will be available within 24 hours after the live event ends.

- How to Earn CLE Online: Read the "FAQs about Earning CLE" carefully to see if it is possible for you to earn CLE for watching online - and if so, how to accomplish that. Both Conferences will be available for CLE credit in most states (but hours for each state vary; see which state and hours in List: CLE Credits).

- Don't Share Your ID/Password: We remind you that sharing your ID and password with anyone is stealing from us and a crime.

For those attending in San Francisco:

- Check-In Times: When you come to the San Francisco Hilton - located at 333 O'Farrell Street - you can check in for the Conferences (i.e. pick up your Conference materials, etc.) starting at 7:30 am on Monday, November 9th until the last panel on Tuesday. Continental breakfast is available on Monday from 7:30 to 8:30 am - and on Tuesday from 7:00 to 8:00 am.

- Monday Night Reception: We hope you can join us after the Conference on Monday for our Opening Reception - to be held after the last panel ends - from 6:00 to 8:00 pm. The opening reception will be held in the Exhibit Hall.

You Can Still Attend Via Video Webcast: Due to unprecedented demand and limited space at our conference hotel for the Conferences, we were forced to end Conference Registrations for those attending live in San Francisco. It's sold out! But note in the alternative, you can still attend by video webcast. You automatically get to attend both Conferences for the price of one: Register now.

Rep. Barney Frank's Discussion Draft: "Financial Stability Improvement Act of 2009"

As I've been covering in this blog over the past week, Congress is moving ahead with its regulatory reform efforts for the markets. Below is a summary of this Sullivan & Cromwell memo:

On October 27, U.S. House Financial Services Committee Chairman Barney Frank released a discussion draft of the Financial Stability Improvement Act of 2009, a legislative proposal for reform of the regulation of the financial services industry. The proposed legislation would, among other things, create a framework for regulation of systemically important financial firms and activities; provide an alternative resolution regime for systemically important financial firms; merge the Office of Thrift Supervision into the Office of the Comptroller of the Currency, retaining the federal thrift charter; reform in several significant respects the regulation of insured depository institutions and their holding companies; and impose certain asset retention requirements on originators and securitizers of asset-backed securities.

More on our "Proxy Season Blog"

With the proxy season now looming in many of our minds, we are posting new items regularly again on our "Proxy Season Blog" for 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:

- Europe: Shareholders Increasingly Exercise Votes
- Postseason Review: Withhold Votes
- Analysis: Online Annual Reports
- Reminder: "Independence" Ain't What it Used to Be!
- Will the Sky Fall if Union Representatives Sit on Boards?
- Time Warner Explains Consultant Selection

- Broc Romanek

November 2, 2009

Competing OTC Derivatives Bills Progress Through the House

Below is an excerpt from this Davis Polk memo that describes key provisions of two competing over-the-counter derivative bills being considered in the House, comparing their similarities and differences:

Two competing bills to reform the over-the-counter derivatives markets are awaiting action by the House of Representatives: a bill to enact the "Over-the-Counter Derivatives Markets Act of 2009" reported by the Financial Services Committee, chaired by Barney Frank, and a bill to enact the "Derivatives Markets Transparency and Accountability Act of 2009" reported by the Agriculture Committee, chaired by Collin Peterson.

Each of the Frank Bill and the Peterson Bill is based on the proposal released by the Obama Administration on August 11, 2009, and since their earlier releases as discussion drafts, they have moved incrementally closer to each other. The bills share many common features, but several important differences remain to be reconciled. It is expected that Chairman Frank and Chairman Peterson will work to reconcile the differences before a bill moves to the House floor.

And here is an interesting article from Harpers entitled "An Object Lesson in Governmental Failure: Derivatives Reform."

RiskMetrics Opens Its Policy Comment Period

Last week, RiskMetrics opened its policy comment period, providing an opportunity for a range of industry constituents to provide feedback on updates to its proxy voting policies in markets worldwide. Topics covered include takeover defenses in the U.S.; board and director independence in Japan, the U.S., and Europe; compensation and slate ballots in Canada; and equity and share purchase authorities in Europe. The comment period runs through next Wednesday, November 11th.

Sidenote: On Friday, the SEC's Inspector General released 536 exhibits related to the SEC's failure to uncover the Bernie Madoff scandal. That's a lot of paper. Here's DealBook's analysis of what the exhibits say...

Also notable is this recent speech from SEC Commissioner Luis Aguilar entitled "The Power of the Shareholder & the Rise of Corporate Democracy."

Our November Eminders is Posted!

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

- Broc Romanek