May 31, 2011

The SEC's "Staff Paper" on IFRS: The Condorsement Approach

As noted in FEI's "Financial Reporting Blog," the SEC's Office of Chief Accountant posted this "Staff Paper" last week that seeks comments regarding how to incorporate IFRS into US GAAP, including the "condorsement" approach (which is a process by which the FASB would gradually adopt specific parts of IFRS over a transitional period). The paper makes clear that the SEC hasn't yet decided whether to incorporate IFRS - or highlight a preferred method to do so. Instead, it seems comments on alternative approaches in case it does. Comments are due by July 31st.

FINRA: IPO Spinning Rule Delayed

Suzanne Rothwell reports the SEC recently approved an amendment to FINRA's new Rule 5131 - which will regulate IPO allocation abuses - to delay the new spinning and acceptance of aftermarket orders provisions to September 26th and delete a provision that would have required that broker/dealers have procedures that prevent investment banking personnel from influencing a new issue allocation. The latter requirement would have been problematic because it's the investment banking personnel that are often also engaged in the syndicate allocation activities - it may be impossible to separate them. The rest of the rule was implemented last Friday. We have posted memos on Rule 5131 in our "Underwriting Arrangements" Practice Area.

Webcast Transcript: "Nuts & Bolts of Bank M&A"

We have posted the transcript from the webcast: "Nuts & Bolts of Bank M&A."

- Broc Romanek

May 26, 2011

The SEC's New Whistleblower Rules

Yesterday, the SEC adopted rules - by a 3-2 vote - to implement Section 922 of Dodd-Frank, which added Section 21F to the Exchange Act. Here's the 305-page adopting release - and here's the press release and SEC Chair opening remarks.

Despite much criticism and lobbying, in the end, the SEC didn't change its proposed framework to require whistleblowers to use a company's internal reporting system as a condition to receiving a SEC bounty - although the final rules do include more incentives for whistleblowers to "blow" internally first. This controversial rulemaking will produce a torrent of memos and opinion pieces - we'll post them in our "Whistleblowers" Practice Area as they come in. Here's memos from Cooley, Morgan Lewis and Morrison & Foerster. The final rules become effective 60 days from Federal Register publication.

House Bill: Attacking Dodd-Frank's Whistleblower Provision

Meanwhile, House Representative Michael Grimm (R-NY) has introduced a bill that seeks to change the whistleblower provision in Dodd-Frank. Some believe the bill was introduced to put pressure on the SEC ahead of its rulemaking. This May 24th letter from a group of groups asks Congress to leave the whistleblower provision intact.

SEC Proposal: Changes to Rule 506's "Bad Actor" Disqualification

Yesterday, also by a 3-2 vote, the SEC proposed amendments to Rule 506 of Regulation D to implement Section 926 of Dodd-Frank, which would disqualify offerings by companies involving persons covered by the rule if they were subject to a "bad actor" order from the SEC (formerly known as "bad boys" in a less-politically correct world). Here's the proposing release - and the press release. As this Skadden memo notes: "With more than 90% of the offerings made under Regulation D seeking exemption pursuant to Rule 506, these proposed rules could have a significant impact on the applicability of the exemption."

- Broc Romanek

May 25, 2011

The Twitter Kool-Aid? Tastes Good

Dear Diary,

As I blogged back in January, I've come around to realize that the importance of Twitter has grown immensely over the past six months. I see broad acceptance by investors and investor relations departments. I see it growing as a mainstream news source. Although I still don't see as many corporate lawyers on it, I know that day will come soon - soon I will revise my periodic blog about how Twitter is not yet critical for our corporate law community.

Meanwhile, I have been having fun getting back on the road preaching how social media is changing how we get information - and how the nature of it is different than just "push" or "pull," rather it's both since it's supposed to be a "conversation." And how ultimately social media can change your career if you take advantage of its opportunities.

The best part is that these social media panels give attendees an opportunity to do something they might not have done before - dance at a conference! Here is the MidAtlantic Chapter of the Society of Corporate Secretaries dancing in Philly yesterday before Doug Chia and I spoke on a social media panel. We were bewildered when what was left of the crowd - we were the last panel of the day - asked hordes of questions at the end. Far too many for us to answer in the time allotted. The entire panel should have been just Q&A!:

And here's the Southeastern Chapter of the Society in Atlanta thinking about dancing before my solo presentation. They probably thought conference dancing was a little strange - but that's okay as my stated primary goal was scaring folks into dipping their toes into workforce use of social media (ie. trying something new):

Can a Tweet Meet a Company's Regulation FD Obligations?

During our recent "Tackling Social Media Issues" webcast, the panel tackled many tough issues that many of us will be facing in the near future. One issue not covered much during the program was the issue of whether a tweet can comply with Regulation FD. Dominic Jones provides his analysis - partly drawn from the comments made during the webcast - in this great piece on his "IR Web Report."

Webcast Transcript: "Tackling Social Media Issues"

We have posted the transcript for the webcast "Tackling Social Media Issues."

By the way, here's a 4-minute video interview where I discuss social media after I spoke about the topic at a PLI conference recently:

- Broc Romanek

May 24, 2011

AFSCME Study: Vanguard Tops List of Excessive CEO Pay Enablers

Last week, the American Federation of State, County, and Municipal Employees released its annual report regarding how mutual funds vote on compensation agenda items. The report reviews how 26 large fund groups voted on 10 specific items, including the voluntary "say on pay" votes at Motorola and Occidental Petroleum, compensation committee members at Nabors and Abercrombie & Fitch, and a shareholder proposal to end "golden coffin" benefits at Verizon Communications. The report doesn't include any 2011 votes, as mutual funds aren't required to disclose those votes until this August.

As noted in their press release, the report criticizes four mutual fund groups as "pay enablers" (Vanguard, BlackRock, ING and Lord Abbett). On average, these four fund groups supported over 90 percent of management proposals. In comparison, AFSCME praises four other fund families for being "pay constrainers" (Dimensional, Dreyfus, Oppenheimer and Wells Fargo).

Risk Realized? What Happens When the Regulators Go Public?

Way back when the NYSE and Nasdaq went public a few years ago, one of the biggest concerns was how they would regulate their listed companies when they had the pressure of being public on their shoulders. In his "IR Web Report," Dominic Jones analyzes how the NYSE may be changing their rulebook to favor one of their side businesses in his recent piece entitled "Alarm as NYSE seeks to add IR services to rulebook."

Our "Q&A Forum": The Big 6500!

In our "Q&A Forum," we have blown by query #6500 (although the "real" number is much higher since many of these have follow-up queries). I know this is patting ourselves on the back, but it's over eight years of sharing expert knowledge and is quite a resource. Combined with the Q&A Forums on our other sites, there have been over 20,000 questions answered. It's pretty cool now that the Q&A format is all the rage in Silicon Valley (eg. Quora) - we've been in this space for a decade!

You are reminded that we welcome your own input into any query you see. And remember there is no need to identify yourself if you are inclined to remain anonymous when you post a reply (or a question). And of course, remember the disclaimer that you need to conduct your own analysis and that any answers don't contain legal advice.

- Broc Romanek

May 23, 2011

The PCAOB's Nomination Process: SEC Adds a Little More Transparency

One of the oddest provisions of Sarbanes-Oxley was Congress creating the PCAOB with a dotted line to the SEC. I'm not sure that this was an obligation that the SEC wanted, particularly after a lawsuit involving this unusual regulatory framework (ie. one regulator reporting to another) wound up in the Supreme Court. After its SCOTUS victory, the SEC posted written procedures for appointment of a member or chair of the PCAOB in November.

Now that the SEC is actively seeking a PCAOB board member with a CPA background, it has taken another new step - posting information about this job search and even posting "sample letters" that it sent on Friday to 14 leaders in the financial industry seeking their input (egs. Ben Bernanke, Timothy Geithner, Jim Doty).

The SEC's New Chief Economist and Risk Fin Director

On Friday, the SEC announced it had hired Vandy Professor Craig Lewis to serve the twin roles of Chief Economist and Risk Fin Director. Craig has some awkward shoes to fill in the new Risk Fin Division in the wake of this Reuters article about the inaugural Director Henry Hu's perceived lack of accomplishments and his unusual reimbursement arrangement with the agency.

The LinkedIn IPO: A Favorable Comparison to the Internet Bubble Years

An anonymous member sent in these thoughts on last week's IPO by LinkedIn:

In the LinkedIn IPO, I was glad to see that:

1. a rational pricing of the security;
2. the company's CEO down-played the market performance of the stock on the first day; and
3. the prospectus disclosure made clear that it won't be profitable in 2011 - although still running a profit for the first quarter.

I also note that, unlike so many of the tech companies going public during the "IPO Internet Bubble," this is a company that had a profit last year and that the underwriters and their affiliates did not purchase LinkedIn securities in a pre-IPO private placement or extend a credit facility to the company. Such pre-IPO private placements by the underwriting firms had the effect of enhancing the company's stockholder's equity and also adding to the underwriting entity's risk because the firm was also, directly or indirectly, an investor in the company.

My view is that so long as Wall Street can restrain itself from engaging in pre-IPO investments in the companies they take public and otherwise "fixing" the aftermarket in some new way not already addressed by the SEC's expansion of the prohibitions of Regulation M to aftermarket trading, the "irrational exuberance" of the public to purchase shares in these kinds of companies will not cause broader economic problems when the trading price falls back to more rational levels in line with the IPO price and the value of the company.

The quality underwriting firms in the "good old days" required at least three years of profits before taking a company public. It would be good if the WSJ tended to indicate disfavor about the secondary market hysteria in acquiring the shares of an IPO company with just one year of profits - in order to inject a voice of reason - and not appear to encourage "Bubble" mentality. The run-up in the aftermarket price is irrational - and maybe at least partially the result of too many ordinary folks having the ability to trade for themselves directly.

Nonetheless, this is a better situation than the '90s IPO Bubble because if the public wants to overpay for the stock in the secondary market (as noted in this NY Times article today), then each person takes that risk and their individual loss should not have far-reaching consequences because the broker-dealer firms are not taking a position in the company and the secondary market price is not the result of fraud and manipulation.

Broc's note: I love how Dominic Jones has put together this "story" of how LinkedIn's IPO played out over social media channels. It's a brilliant idea to tell the story like that. And I also love Mark Suster's look at how LinkedIn compares to all the other hot start-ups in Silicon Valley right now.

- Broc Romanek

May 20, 2011

Say-on-Pay: 21st - 26th Failed Votes

This week, four more companies filed Form 8-Ks reporting failed say-on-pay votes: PICO Holdings (39%); Nutrisystem (41%); Masco (45%); and Hercules Offshore (41%).

In addition, I have found a Form 8-K filed by IsoRay from back in February where the company reported failing its SOP even though there were many more "For" votes than "Against" based on the way it decided to interpret Minnesota law (in comparison, Target - another Minnesota corporation - described the SOP standards a bit differently in its proxy statement - their way seems to make more sense). Actually, Seth Duppstadt of found this for us - thanks!

I keep maintaining our list of Form 8-Ks for failed SOPs in's "Say-on-Pay" Practice Area.

The SEC's First Deferred Prosecution Agreement

Here's news culled from this Wachtell Lipton memo (we are posting memos on this action in our "White Collar Crime" Practice Area):

The SEC recently announced its first use of a deferred prosecution agreement, one of the initiatives announced in January 2010 to encourage greater cooperation in enforcement investigations. The announcement of this agreement with Tenaris S.A. follows the agency's first non-prosecution agreement in December with Carter's Inc.

Tenaris, a manufacturer of steel pipe products, is incorporated in Luxemburg and has American Depository Receipts listed on the New York Stock Exchange. Tenaris allegedly bribed Uzbekistan government officials in bidding for government pipeline contracts, and made almost $5 million in profits from the contracts. A world-wide internal investigation triggered by other matters and conducted by outside counsel revealed Foreign Corrupt Practices Act violations in Uzbekistan. The company self-reported to the SEC and the Department of Justice, cooperated with the government and undertook extensive remediation efforts.

The SEC explained that Tenaris was an "appropriate candidate" for the agency's first deferred prosecution agreement because of the company's "immediate self-reporting, thorough internal investigation, full cooperation with SEC staff, enhanced anti-corruption procedures, and enhanced training." The SEC noted that the "company's response demonstrated high levels of corporate accountability and cooperation."

Under the deferred prosecution agreement (available here), the SEC will refrain from bringing civil charges against the company; however, if the Enforcement Staff determines that the company has failed to comply with its obligations under the agreement, the Staff may then proceed with an enforcement recommendation to the Commission. The agreement includes a statement of facts that is not binding against Tenaris in other proceedings. Tenaris also agreed to cooperate with the SEC, DOJ and other law enforcement agencies; although the company shared the results of its internal investigation with the government, its continuing cooperation does not require it to waive the attorney-client privilege. Tenaris further agreed to pay $5.4 million in disgorgement and prejudgment interest. Relatedly, the company entered into a non-prosecution agreement with DOJ under which the company is paying a $3.5 million criminal penalty.

The factors and considerations that the Staff will rely upon in determining whether to enter into a non-prosecution agreement, a deferred prosecution agreement or a conventional settled enforcement action remain uncertain at this point, but, based upon the Commission's actions to date, it is apparent that the breadth of any misconduct, the involvement of more senior corporate officers and a willingness to disgorge all profits from the alleged misconduct will likely be relevant factors beyond those specifically highlighted by the Staff in the Carter's and Tenaris cases.

Wilson Sonsini Wins Chancellor Chandler Sweepstakes

As noted in this press release, Delaware Chancellor William Chandler announced he's headed to Wilson Sonsini to open a Georgetown, Delaware office (as well as work in NYC). This WSJ blog captures the essence of the story - and here is more from Francis Pileggi...

Coming Soon: Over 175 New Derivatives Provisions

In their memo, Davis Polk notes that over 175 new Dodd-Frank derivatives provisions are scheduled to automatically go into effect on July 16th. Many of these provisions do not require action from market participants. Many other provisions could be deferred by the regulators based on their close connection to proposed rules. Yet, a number of significant self-executing provisions remain. The firm's memo identifies some of these new provisions and some of the required tasks to become compliant with them.

- Broc Romanek

May 19, 2011

President Submits Two SEC Commissioner Nominations to the Senate

Here's news from this WSJ article:

The White House on Wednesday submitted to the Senate a pair of nominees for the Securities and Exchange Commission, requesting a second term for Democrat Luis Aguilar and naming former SEC staffer Dan Gallagher Jr. for a Republican seat that is due to become vacant in June. Mr. Gallagher, now a partner at law firm Wilmer Cutler Pickering Hale & Dorr LLP's securities practice, served as a top official in the SEC's trading and markets division during the financial crisis. He had served for several months as that division's acting co-head when he left the agency in January 2010.

Mr. Gallagher, who joined the SEC in 2006, has served as counsel to former SEC Commissioner Paul Atkins and SEC Chairman Christopher Cox, both Republicans. Mr. Gallagher, if confirmed, would fill the seat being vacated by SEC Commissioner Kathleen L. Casey. Ms. Casey is stepping down next month, when her term expires. Mr. Aguilar, the Democrat, was nominated under President George W. Bush in 2008. His term expired last June. SEC rules allow commissioners to stay for as long as 18 months past the expiration of their terms if no successor has been appointed.

The SEC is an independent federal agency with five commissioners. With a Democrat in the White House, the commission is split, with three Democratic and two Republican seats. On commission votes, Mr. Aguilar typically sides with Chairman Mary Schapiro and Commissioner Elisse Walter, who occupy the other two Democratic seats. Messrs. Aguilar and Gallagher will need Senate confirmation. If confirmed, they would be serving at an agency that in recent months has stepped up insider-trading cases and is grappling with changes to the financial industry in the wake of the financial crisis.

SEC to Adopt Dodd-Frank Whistleblower Rules on May 25th

Next Wednesday, the SEC will hold an open Commission meeting to adopt final whistleblower rules under Dodd-Frank.

Putting an Overall Pricetag on XBRL

I've been blogging about the upcoming deadline regarding mandatory XBRL for smaller companies and the relative high pricetag for them. There is an interesting blog on this topic by Daniel Roberts, CEO of raas-XBRL, who estimates it will cost companies an aggregate of $550 million and over $1 billion during the 2011/2012 filing season.

Surprises from Spin-Offs

In this podcast, Carrie Darling of Callaway Golf Company shares her list of Top 5 surprises from spin-offs including:

- Work flow expectations and reality
- Culture (parent versus new co.)
- Restructurings

Poll: The Backyardigans

I had never heard of the TV Show called "The Backyardigans" but Carrie assures me it's all the rage with the tot set and wanted me to post this poll:

- Broc Romanek

May 18, 2011

"The Office" Tackles the Annual Shareholder Meeting

In memory of Steve Carell's departure from a fine show. An episode of "The Office" from a few seasons ago was a classic. Entitled "Shareholder Meeting," the episode deals with a suffering corporate performance by Dunder-Mifflin - which is close to declaring bankruptcy - and an annual shareholder meeting that is not too far off the "bizarro" mark from Fortis' crazy meeting last year. [The episode is archived on Hulu.]

The episode peaked at the end when Dwight Schrute endeavored to come up with a better way to run the meeting by making these suggestions during his turn to ask a question of management during the Q&A portion of the meeting:

"I've been standing in line all day. If this is any indication about how this company is being run, we are in big trouble. I want to say that there are options. What about taking a number? What about line varieties? Like an express line for quick comments of ten words or less that could move much more efficiently. What about ropes along the lines that you can hold on to?"

Corporate Governance Analysis: Issues Raised by "The Office"

Taking a page from the "That's What She Said" Blog - a blog devoted to analyzing the employment law issues raised by "The Office" - below is my analysis of a few of the governance issues raised by this shareholder meeting episode:

1. Heavy security presence - Although a heavy security presence can needlessly scare attendees, it does make sense if a company believes there can be trouble and it wants to dissuade any would-be troublemakers from acting out. Given that Dunder Mifflin was in financial trouble, it probably was reasonable in this case.

2. Informing attendees of the ground rules - Attendees got rowdy pretty early, booing management right off the bat. Management should have done a better job controlling the meeting so it wouldn't get out of control. One step in this direction is handing out ground rules for meeting conduct as folks came in the door.

3. Handling speakers - The all-white male senior management team also did poorly in managing its own microphone - allowing a middle manager (Michael Scott) to go beyond prepared remarks and blurting that the company had a 45-day plan when it didn't. Not that I believe management's remarks need to be completely scripted - but only true spokespersons should be delivering key statements. Then again, management was clueless in the face of angry attendees, essentially forcing Michael to do something to stem the tide.

4. 15-minute break during meeting - After Michael's outburst about a non-existent plan, management called for a meeting break. This is not a bad idea if a meeting is getting out-of-control.

5. Long lines to ask questions - Perhaps the biggest surprise was that in terms of good governance, the meeting wasn't a total wash. Numerous microphones were available and management appeared prepared to allow any and all questions.

6. Whistleblower protection - "That's What She Said" provides analysis of the whistleblower implications of this episode, as well as the employee relations nightmare caused by management showing up in limos.

Poll: Who Should Serve as Inspector of Election & Tabulator for Annual Shareholder Meetings?

I've written before about my opinion on this topic - and practice still widely varies (and is evolving) - but this poll asks your opinion rather than what the practice actually is at your company (or at your clients):

- Broc Romanek

May 17, 2011

Say-on-Pay: 17th-20th Failed Votes

Last week, four more companies filed Form 8-Ks reporting failed say-on-pay votes: Helix Energy Solutions (34%); Curtiss-Wright (41%); Intersil (44%); and Cincinnati Bell (34%). I keep maintaining our list of Form 8-Ks for failed SOPs in's "Say-on-Pay" Practice Area.

Early Bird Extended for Say-on-Pay Intensive Conference - But One Time Only: Due to so many requests from those too mired in the proxy season to make the budget request, we have extended the early bird discount for our annual package of executive pay conferences to be held on November 1st-2nd in San Francisco and by video webcast: "Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference" and "The Say-on-Pay Workshop Conference: 8th Annual Executive Compensation Conference." We will not be able to extend this deadline again. Save 25% by registering by June 24th at our early-bird discount rates.

Posted: Complete List of Say-on-Pay Additional Soliciting Materials

Thanks to Dave, we have greatly expanded the list of additional soliciting materials filed by companies who campaigned for their say-on-pay - typically by disputing recommendations made by ISS in a letter to shareholders - in's "Say-on-Pay" Practice Area. We have 31 examples posted.

A note from a respected compensation consultant: "One of the reasons the Europeans are so muted in their criticism of pay is they get a fraction of the information the US and UK puts out. It is also worth noting that equity is vastly less in the EU than the US, so pay levels are much less."

DOL: Considers Updating E-Delivery Standards for Employee Benefit Plans

Here's news from Jeff Capwell and Lindsay Goodman of McGuireWoods, pulled from this memo: The DOL recently issued a request for information about providing information electronically to participants and beneficiaries of ERISA-covered employee benefit plans. Existing DOL standards for electronic delivery of plan information have been unchanged since 2002. Responses must be submitted by June 6th.

- Broc Romanek

May 16, 2011

Under Fire: The SEC's Revolving Door

Last year, I blogged several times about Senator Grassley's desire for a study to be conducted regarding SEC Staffers who depart for jobs at organizations that they regulate. I also blogged that this issue is as old as the SEC itself. And note that it's an issue that exists at most federal agencies, not just the SEC (eg. last week's FCC Commissioner announcement).

Ahead of reports expected from the GAO and the SEC's Inspector General on the topic, the Project on Government Oversight (POGO) released a study on Friday that shows - between 2006 and 2010 - at least 219 former SEC staffers appeared before their former agency on behalf of private-sector clients in 800 different matters. POGO also has made its database available online, where you can search by Division or even an individual (yes, Big Brother is watching). Here's an article covering the study.

Perhaps even more troublesome for the SEC, a House Financial Service Committee hearing produced fireworks on Friday when it was revealed that the former Chief of the SEC's Fort Worth Regional Office - Spencer Barasch (now at Andrews Kurth) - has become the subject of a criminal investigation for continuing to represent fraudster Allen Stanford even after he was repeatedly told by the SEC's Ethics Office that he couldn't under rules barring former senior Staffers for appearing before the SEC on matters that they worked on during their time on the Staff. This NY Times article notes that Barasch blocked efforts to pursue Stanford at least 6 times over 7 years when he was at the SEC. Not good.

The SEC's Whistleblower Office Does Not Want To Talk To You

Hat tip to Werner Kranenburg for pointing out this Forbes' article entitled "SEC Whistleblower Office Does Not Want To Talk To You." The author - Edward Siedle - tried calling the SEC's new Office of the Whistleblower with disturbing results.

The SEC's home page features a prominent button called "Questions - Tips and Complaints - Whistleblower Provisions," right up in the top right corner. Prime real estate. But when you navigate to any of the pages associated with that button, your only options are submitting your facts electronically or through snail mail. No phone number.

And then Edward apparently called the Office of Public Affairs who told him the new Office didn't exist (even though the SEC made the effort to issue this press release announcing the new head - my good friend Sean McKessy - back in February, even though the Office hadn't been created yet. It still doesn't exist as it's still not funded). Edward was then given a phone number that wound up being the Office of Investor Education. And whistleblowing is not really their forte...

The Bigger Picture: Why Doesn't the SEC's Enforcement Division Provide a Phone Number?

Besides one more episode making the SEC seem silly, this article raises a serious issue. I often support the SEC - in this blog and otherwise - because I strongly believe in its mission, I'm in awe of the wisdom of many of its Staffers and I recognize how tough it is to get things accomplished there given its limited resources. But I had assumed that a fundamental problem from when I served there a dozen years ago had been fixed.

Now, I realize I was wrong to make that assumption. When I served in Corp Fin's Office of Chief Counsel, a fair number of the calls I returned - returning calls to those with interpretive questions is the largest component of that job - were to laypeople who had some type of Enforcement complaint. Since the Division of Enforcement didn't allow anyone with a fraud tip to phone it in, those calling the SEC with a complaint often got routed to Corp Fin - by the SEC's receptionist I suppose - and trust me, it was not my favorite part of the job.

For starters, I wasn't in Enforcement and I had enough on my plate as it was. But the real reason that I didn't like these calls is that I couldn't help them - they simply had made a bad investment decision and no fraud was involved. The caller just needed someone to talk to (i.e. they were kicking back drinking a beer on their couch, with Maury blaring in the background). Of course, the few calls that I received that appeared "legitimate," I referred to the Enforcement Division.

Anyways, I always was troubled that Enforcement didn't bother to make themselves accessible because collecting fraud tips is one of their primary functions regardless if a tip proves meaningful or not. As far as I can tell - nothing has changed. Here is Enforcement's page regarding how to submit a tip - and that page eventually leads you to an online portal that requires a bunch of data to be submitted regarding your tip (after you click "accept" on a lengthy disclaimer). No phone number is posted. And this is a framework that doesn't seem to provide a lot of comfort that taking the time to report a fraud will result in any action.

I know that Enforcement is strapped and has nowhere near the manpower it needs to pursue the numerous open investigations that it already has open. But it would seem relatively easy to rotate a group of Enforcement Staffers to pull phone duty so that someone would always be available to either take new complaints by phone or respond to calls left on voicemail. This is something that I imagine every other enforcement agency in the country maintains - and it would be seem particularly important to establish after the grief the SEC has received in the wake of Bernie Madoff, Allen Stanford, etc. Until that happens, I imagine the good folks in Corp Fin's OCC receive fraud complaints and are taking in Maury...

- Broc Romanek

May 13, 2011

Turn Back the Clock! SEC Staff Issues New Electronic Roadshow No-Action Letter

I was surprised to see that the SEC's Division of Trading and Markets issued a new no-action response related to electronic roadshows last week - this one to Roadshow Broadcast LLC.

I was surprised because a string of these letters were among the first positions that the SEC Staff took back in the late-90s related to the Internet (remember NetRoadshow I and II? Private Financial Network?) - I worked on a few of the letters when I served in Corp Fin - and then the Staff said they would issue no new letters. In 2005, the SEC adopted rules that superseded these no-action positions as part of its huge Securities Act Reform rulemaking. But I believe this new letter is different, relating to broker-dealer activity and not covering the same ground as in the prior letters. In fact, Corp Fin is not even a party to this new letter...

Your Legal Career in 6 Words or Less

I loved this "Legal Blog Watch" that cross-references Ross Fishman's interesting challenge to lawyers and law marketers: Can you summarize your "lives, careers, experiences, firms - or just something [you've] been thinking about" in six words or less? Ross has many fine examples that he received on his blog.

Mine? It would be: "Still crazy after all these years," with "Get crazy. Get loose. Go nuts" a close second...

- Broc Romanek

May 12, 2011

Survey Results: Disclosure Controls and Disclosure Committees

We have posted the survey results regarding the latest disclosure controls and disclosure committee trends, repeated below (this new survey supplements the 2005 survey on disclosure committees):

1. Does your company have a formalized, written set of "Disclosure Controls & Procedures"?
- Yes - 66.7%
- No - 33.3%

2. Have your company's Disclosure Controls & Procedures been formally updated and revised in the last year?
- Yes - 30.6%
- No formal changes, but there have been some informal changes during the last year - 27.8%
- No, there have been no changes in the last year - 41.7%

3. Does your company have a Disclosure Committee Charter?
- Yes - 58.3%
- No - 41.7%
- We don't have a formal Disclosure Committee - 0%

4. If there is a formal Disclosure Committee, who is the chairman of the Disclosure Committee?
- General Counsel - 14.3%
- Securities Counsel - 5.7%
- CFO - 31.4%
- COO - 2.9%
- Controller - 25.7%
- Corporate Secretary - 0%
- Other - 20.0%

Please take our new "Quick Survey on Regulation FD Practices ."

5-Year Study: CFO and Auditor Departures Occurring Near Issuance of a Restatement

In their new study covering a five-year period, Audit Analytics reviewed both CFO and auditor changes and compared them to changes that occurred near the disclosure of a financial restatement. In the study, Audit Analytics considered a change to take place near a restatement if the change fell within the one-year time window beginning three months before and ending nine months after the disclosure of the restatement. The findings include:

- CFO Perspective: A review of CFO changes showed that the chance of a departure increased near the occurrence of a restatement, but the vast majority of the increase was attributable to CFO resignations, not dismissals. Therefore, CFOs that are required to restate financials do not appear to expose themselves to a considerable increase in the risk of dismissal.

- Auditor's Perspective: Auditors, on the other hand, show an increase in both resignations and dismissals when a company discloses a restatement.

- Company's Perspective: The loss of a CFO or auditor can be disruptive to a company. While approximately 24% of the general population tend to lose a CFO or auditor in a given year, about 37% of companies that file a restatement experience such a departure.

Mailed: March-April Issue of The Corporate Executive

The March-April Issue of The Corporate Executive includes pieces on:

- Dodd-Frank Update: Proposed Compensation Committee and Adviser Independence Rules
- Update on Restricted Stock and RSUs
- Correcting Social Security Withholding Errors
- Say-on-Pay: The Results So Far

Act Now: Get this issue rushed to you by trying a No-Risk Trial today.

- Broc Romanek

May 11, 2011

Corp Fin's Revised "Completion of '34 Act Filing Review" Notice

Corp Fin has posted a "Division Announcement" on its web page that states:

Beginning May 9, 2011, the letter the Division staff will send to companies upon completion of the review of their Exchange Act filings will contain the following paragraph:

"We have completed our review of your filing[s]. We remind you that our comments or changes to disclosure in response to our comments do not foreclose the Commission from taking any action with respect to the company or the filing[s] and the company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. We urge all persons who are responsible for the accuracy and adequacy of the disclosure in the filing[s] to be certain that the filing[s] include[s] the information the Securities Exchange Act of 1934 and all applicable rules require."

As Corp Fin's notice merely repeats the Tandy language that companies already provide when they respond to Staff comments, that's not really news. But the real news may be that Corp Fin may start regularly using this "Division Announcements" avenue to communicate with us...

Capital-Raising Reform: SEC Chair Schapiro Testifies Before the House

A month ago, I blogged about the back and forth letters between SEC Chair Schapiro and Rep. Darrell Issa on capital-raising reform, particularly for pre-IPOs. Below is an excerpt from near the end of Chair Schapiro's testimony that she delivered yesterday before the House Committee on Oversight and Government Reform. In her testimony, Chair Schapiro lays out a list of potential rulemakings in the capital-raising area that could happen in the near future (here's a related Mercury News article):

As discussed above, I recently asked the staff to take a fresh look at our offering rules in light of changes in the operation of the markets, advances in technology and the acceleration in the pace of communications. I also requested that the staff think creatively about what the SEC can do to encourage capital formation, particularly for small businesses, while maintaining important investor protections. Areas of focus for the staff will include:

- the restrictions on communications in initial public offerings;

- whether the general solicitation ban should be revisited in light of current technologies, capital-raising trends and our mandates to protect investors and facilitate capital formation;

- the number of shareholders that trigger public reporting, including questions surrounding the use of special purpose vehicles that hold securities of a private company for groups of investors; and

- regulatory questions posed by new capital raising strategies.

In conducting this review, we will solicit input and data from multiple sources, including small businesses, investor groups and the public-at-large. The review will include evaluating the recommendations of our annual SEC Government-Business Forum on Small Business Capital Formation, as well as suggestions we receive through an e-mail box we recently created on our website. In addition, I expect our efforts to benefit from the input of the new Advisory Committee on Small and Emerging Companies the Commission is in the process of forming, which will provide a formal mechanism for the Commission to receive advice and recommendations about regulatory programs that affect privately held small businesses and small publicly traded companies.

Use of iPads for Board Materials Delivery

Once the iPad 3 hits stores later this year, I believe the movement of tablets replacing laptops will accelerate and the manner in which many of us work will dramatically change - including in the boardroom. In this podcast, Kris Veaco of the Veaco Group runs down some frequently-asked questions about how to use iPads for delivery of board materials (here are supplemental materials: "Tips for Successful Implementation of E-Portals"; "Sample Laptop Directions for Directors": "Society Presentation from Gina Merritt-Epps"), including:

- How are iPads being used as a way for directors to receive and view Board materials?
- How many directors are using iPads right now?
- What tips do you have for transitioning to iPads for board materials delivery?

- Broc Romanek

May 10, 2011

Panels Announced: "The Say-on-Pay Workshop Conference: 8th Annual Executive Compensation Conference"

I have now posted the speakers for our annual package of executive pay conferences to be held on November 1st-2nd in San Francisco and by video webcast: "Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference" and "The Say-on-Pay Workshop Conference: 8th Annual Executive Compensation Conference." Here's the "Proxy Disclosure Conference" agenda - and here's "The Say-on-Pay Workshop Conference" agenda.

I've assembled an all-star cast to ensure you are fully prepared for Round 2 of say-on-pay. Not only are ISS and Glass Lewis representatives speaking multiple times, but you will hear from in-house people about how they grappled with proxy advisor recommendations they didn't agree with. From companies that nearly failed say-on-pay. From many well-known compensation consultants and proxy solicitors. And perhaps most importantly, from the folks that actually vote the proxies - institutional investors - including these speakers:

- Vineeta Anand - AFL-CIO
- Donna Anderson - T. Rowe Price Associates
- Anne Chapman - Cap Re
- Michelle Edkins - BlackRock
- Kurt Schacht - CFA Institute
- Anne Sheehan - CalSTRS
- Albert Meyer - Bastiat Capital

Less Than Three Days Left for Early Bird: Save 25% by registering by this Friday, May 13 at our early-bird discount rates.

Whistleblower Laws in Court

On May 3rd, as noted in this memo, the 9th Circuit Court of Appeals held that the whistleblower law in Section 806 of Sarbanes-Oxley do not protect leaks to the media in Tides v. Boeing. This is the latest in a long line of whistleblower cases brought since SOX was enacted nearly a decade ago.

The next day, the US District Court - Southern District of New York - in Egan v. TradingScreen Brokerage Services - issued this order that takes a detailed look at who may invoke the anti-retaliation provisions under Section 922 of Dodd-Frank and what is required to invoke the protection. Although we are still waiting for final whistleblower rules from the SEC regarding whistleblower bounties, Dodd-Frank does allow for a private right of action. I believe this is the first whistleblower case under Dodd-Frank. Learn more in Kevin LaCroix's "D&O Diary" Blog.

First Uses of Golden Parachute Approvals at Annual Meetings

In his " Blog," Steve Quinlivan identifies the first five companies to use the optional advisory approval of golden parachute arrangements permitted by Dodd-Frank in connection with an annual meeting. Check it out.

- Broc Romanek

May 9, 2011

Say-on-Pay: 13th-16th Failed Votes

Last week, four more companies filed Form 8-Ks reporting failed say-on-pay votes - and a fifth reported a near failure. The companies that failed were: Stewart Information Services (48%); Dex One (48%); NVR (44%); and Penn Virginia (39%). The near failure is well described by Mark Borges in his "Proxy Disclosure Blog" on "Cooper Industries reports that its "Say on Pay" proposal was approved by a vote of 50.36% - 49.64%. While the company indicates in its proxy statement that abstentions are not to be considered votes cast at the annual meeting (and, thus, have no impact on the vote's outcome), there were over 2 million abstentions recorded. Had they been considered "negative" votes, the proposal would have been defeated, 50.4% 0 49.6%. Needless to say, the company would be well advised to pay close attention to its shareholders' concerns about its executive compensation program."

Less Than Four Days Left for Early Bird: Our Say-on-Pay Intensive Conference Lineup - We have announced the line-up for our annual package of executive pay conferences to be held on November 1st-2nd in San Francisco and by video webcast: "Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference" and "The Say-on-Pay Workshop Conference: 8th Annual Executive Compensation Conference." Save 25% by registering by May 13 at our early-bird discount rates.

Rumor: SEC Adopts Whistleblowing Rules on May 25th?

Many members are asking when the SEC will adopt its final rules regarding whistleblowing as required by Section 922 of Dodd-Frank. Originally, it was thought the SEC would act by the end of April. According to this Reuters article (entitled "SEC cool to corporate demands on whistleblowers"), the SEC may act on May 25th. More often than not, these rumors prove to be false - particularly here where a House Financial Services hearing on the proposal will be held on May 11th - and thus, I rarely blog about them. But given the keen interest, there you have it...

The Nuts & Bolts of Bank M&A

Tune in tomorrow for the webcast - "The Nuts & Bolts of Bank M&A" - to hear Bill Hickey of Sandler O'Neill & Partners, Rich Schaberg of Hogan Lovells, Larry Spaccasi of Luse Gorman and Suzanne Walker of Kilpatrick Townsend explore the latest trends and developments in bank mergers and acquisitions.

- Broc Romanek

May 6, 2011

Corp Fin Begins to Comment on Dodd-Frank Disclosures

Recently, Anne Cotter of Leonard Street & Deinard blogged the following in the " Blog":

The SEC has begun to issue comments on Dodd-Frank disclosures included in SEC filings. While perhaps the comments to date are not great in number, they demonstrate the SEC is capable of asking difficult questions about the impact of Dodd-Frank on an issuer's operations. We recommend that issuers consider the impact of Dodd-Frank when preparing their Form 10-Ks and other disclosure documents. The more significant comments we noted are set forth below.

FXCM Inc.: The SEC comment stated in part "Based on your description of your CFD business in the prospectus, it appears that the CFDs would fall within the definition of swap under the current language of Section 206A of Gramm-Leach-Bliley and would fall within the definition of a swap under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Please explain in a detailed legal analysis how your proposed plan of business would operate under both the federal securities law and the Commodity Exchange Act."

The issuer's response, in part, stated "To the extent that CFDs were deemed to be swaps, futures, forwards or other instruments over which the CFTC has jurisdiction or will, as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, have jurisdiction in the future, the CFDs offered and sold by the Company's non-U.S. subsidiaries would be fully outside of such jurisdiction since they are offered exclusively outside the U.S. and exclusively to non-U.S. persons. . . [citations omitted] Further, Congress provided in Dodd-Frank that the CFTC's jurisdiction over swaps would not generally reach swap transactions outside the U.S. Specifically, Dodd-Frank provides that the provisions of the Commodity Exchange Act relating to swaps shall not apply to transactions outside the U.S. unless they " have a direct and significant connection with activities in, or effect on, commerce" in the U.S. or contravene rules promulgated by the CFTC to prevent the evasion of provisions of the Commodity Exchange Act related to swaps. Section 722(d) of Dodd-Frank (to be codified in Section 2(i) of the Commodity Exchange Act)."

Randgold Resources Limited: The SEC comment stated "We note your operations in the Democratic Republic of the Congo (DRC) produce gold which is defined as a conflict mineral in the recent Dodd-Frank Wall Street Reform and Consumer Protection Act. With a view toward possible disclosure, tell us whether or not your mining operations acquire or purchase gold and/or other conflict minerals from local mining companies and/or artisanal miners." The issuer responded "The Company respectfully advises the Staff that the Company's Kibali Project in the Democratic Republic of the Congo is a development project which is currently at the feasibility stage, and consequently is not yet an operating mine and does not produce any gold. Furthermore, the Company does not purchase gold or other conflict minerals from any local mining companies and/or artisanal miners."

First Horizon National Corporation: This issuer responded to a comment requesting the issuer provide a "more robust discussion of your trust preferred loans." In part the issuer's response stated "Since the vast majority of trust preferred issuers to which FHN has extended credit have less than $15 billion in total assets, the passage of the Dodd-Frank Act is not expected to significantly affect future payoff rates for these loans."

A Transcript of Berkshire Hathaway's Loooong Annual Meeting

Most companies hold annual meetings that are over in a manner of minutes. Berkshire Hathaway is an anomaly was its annual meeting is the cause for pilgrimages for 30,000 investors to Omaha every year. Thousands - if not millions - in merchandise is sold at the event. With a hat tip of Jim McRitchie's, here is a 24-page transcript of some of the remarks made by Warren and Charlie Munger from the all-day event.

Francine McKenna of re:theauditors also made the trip this year and here is her blog about the event (and here's a piece from Francine raising questions about the format of journalists screening the questions submitted). The Q&A period was held during the first 7-plus hours of the meeting, with the formal business being covered during the last half hour (which many in the crowd decided not to stay for)...

The SEC's Foreign Private Issuer Stats

Here's some good stuff from Vanessa Schoenthaler and her "100 F Street Blog":

Recently, the SEC released its updated list of registered and reporting foreign private issuers for the year ended December 31, 2010. Of the 970 issuers accounted for approximately:

- 35.8%, or 347 issuers, were organized in Canada;

- 12.9%, or 125 issuers, were organized in the Cayman Islands;

- 7.6%, or 74 issuers, were organized in Israel; and

- 5.0%, or 49 issuers, were organized in the British Virgin Islands;

The remaining 38.7 % of issuers were organized in 47 different countries.

Most foreign private issuers, 46.5% of them, were listed on the NYSE/Amex/Arca markets, 27.1% were listed on the Nasdaq markets and the remaining 26.4% were quoted in the over the counter markets.

By the way, SEC Chair Schapiro already has provided the first in what is likely a long line of testimonies before Congress on the SEC's 2012 budget even though the agency's 2011 budget was just approved. She wants to add over 700 new Staffers for fiscal '12...

- Broc Romanek

May 5, 2011

Director Pay: Are Boards Really Shy About Giving Themselves a Raise?

Here is something that I blogged last week on's "The Advisors' Blog":

Recently, TK Kerstetter of Corporate Board Member expressed his opinion that directors are underpaid. Earlier this week, he wrote this blog entitled "Directors Still Shy About Giving Themselves Raises." I'm not sure where TK is getting his data from, but we haven't seen any studies for this proxy season yet as the proxy disclosures are just rolling in now - and the data from last year (comparing 2010 to 2009 levels) revealed that boards received double digit (11%) raises on average when comparing total values of director compensation. That surely isn't bad in a poor economy - and I predict the 2010-2011 comparison will also reveal a significant move upwards. [My data is pulled from Frederic W. Cook & Co.'s latest report on director compensation that compares the Nasdaq 100 vs. NYSE 100 for 2010.]

As reflected in TK's blog, some argue that boards are doing more now so their pay levels should be adjusted upwards. But that doesn't take into account that boards likely were overpaid in the past - so perhaps now they are finally earning what they make. $228,00 per year for a very part-time job isn't bad (this is the median amount for 2010 noted in the Cook report). Go back a decade and talk to anyone who spent significant time in the boardroom and you'll hear plenty of stories about how boards did very little before the advent of governance reforms and shareholder pressures directed towards them since the turn of the century. Consider that only a handful of companies had written procedures & policies (ie. corporate governance guidelines) about how their boards operate a decade ago. That says a lot about how seriously many boards took their role back then in my opinion.

And I strongly urge boards not to fall into the trap of relying solely on peer group studies to determine how much they should pay themselves. This would be repeating history as this type of benchmarking is one of the major causes of excessive CEO pay - the slippery slope upwards as everyone wants to be paid in the top quartile (who would say "we are a bad board and so should be paid at the bottom"?). Not to mention all the other perils of peer benchmarking, such as manipulating the data (as noted in the recent study). Common sense needs to prevail. Boards don't need raises because "everyone else is doing it" without considering the sizable amounts they already earn for the fairly limited tasks they perform.

Shareholder Proposals: Real Celebrities Get Into the Mix

Those of us that come to love (and hate) the proxy season know the names "Evelyn Y. Davis" and "John Chevedden" all too well. They are among our celebrities. As I touched upon in this blog, real-life celebrities are now entering into our small world - Mike Diamond of the Beastie Boys has become a shareholder proponent, using the Rule 14a-8 process to weigh in on net neutrality. I wouldn't be surprised to see more celebrities get involved with their causes by submitting shareholder proposals to companies.

Also note how much more litigation there is over shareholder proposals compared to prior seasons - see this complaint filed by the People for the Ethical Treatment of Animals against Merck after Corp Fin allowed the company to exclude PECA's proposal on eligibility grounds.

Impact of Dodd-Frank on States

In this podcast, Allen Goolsby of Hunton & Williams discusses how Dodd-Frank has impacted state law, including:

- How does Dodd-Frank erode state corporate law?
- What should companies be thinking about with respect to the laws of their states of incorporation?
- What other state law concerns does Dodd-Frank raise?

- Broc Romanek

May 4, 2011

Survey Results: CEO Succession Planning

We have posted the results of our survey regarding CEO succession planning, repeated below (compare to similar survey from '08):

1. Our company:
- Has a written CEO succession plan in a formal document or policy - 6.7%
- Has a written CEO succession plan in the form of a board resolution or as part of the board minutes - 6.7%
- Has a CEO succession plan, but its not memorialized in writing - 60.0%
- Doesn't have a CEO succession plan - 26.7%

2. Our company:
- Reviews and updates the CEO succession plan at least annually - 46.7%
- Reviews and updates the CEO succession plan on occasion - 20.0%
- Doesn't reviews the CEO succession plan (but it does have one) - 6.7%
- Doesn't have a CEO succession plan - 26.7%

Please take a moment to participate on this "Quick Survey on Regulation FD Practices."

Recent Corp Fin Comments on Disclosures of Loss Contingencies

Recently, Anne Cotter of Leonard Street & Deinard blogged about recent comments issued on loss contingency disclosures in the " Blog." Before listing sample comments, Anne notes: "If the SEC notes a significant potential loss, they may ask pointed questions about it. And if you talk about it during your earnings call, but do not mention it in your periodic report, they may still ask about it."

Happy Anniversary Baby! 9 Years of Blogging and Counting

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

Interestingly enough, I am spending my anniversary speaking at a PLI conference about social media. Check it out if you are curious about all the fuss...

- Broc Romanek

May 3, 2011

Say-on-Pay: 11th & 12th Failed Votes

Last week, MDC Holdings filed this Form 8-K to report that it became the 11th company to fail to gain majority support for its say-on-pay, with only 34% voting in favor. In addition, Janus Capital Group filed this Form 8-K - with only 41% voting in favor - to become the 12th company with a failed say-on-pay. We continue to maintain our list of links to Form 8-Ks filed by companies with a failed SOP in our "Say-on-Pay" Practice Area on

Dodd-Frank: Another Rulemaking Progress Report

Here is the 2nd progress report from Davis Polk regarding all of the various agencies engaged in Dodd-Frank rulemaking. This one visually illustrates the regulatory burden imposed by Dodd-Frank, noting that all 26 rulemaking requirements in April were missed, increasing the backlog of missed rulemakings to 30.

The Changing Society of Corporate Secretaries

In this podcast, Ken Bertsch, President & CEO of the Society of Corporate Secretaries & Governance Professionals, explains how he envisions the future of the Society, including:

- How do you like your new position so far? Any surprises?
- What types of changes do you foresee for the Society in the near term? Further out?
- How will this year's annual conference program differ from prior years?

- Broc Romanek

May 2, 2011

Say-on-Pay: A 10th Failed Vote

Last week, Cogent Communications filed this Form 8-K to report that it became the 10th company to fail to gain majority support for its say-on-pay, with only 39% voting in favor. Ted Allen's blog provides some analysis, including noting significant levels of "no" votes at Pfizer and Johnson & Johnson (both of whom are S&P 500 companies).

Less Than Two Weeks Left for Early Bird: Our Say-on-Pay Intensive Conference Lineup - We have announced the line-up for our annual package of executive pay conferences to be held on November 1st-2nd in San Francisco and by video webcast: "Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference" and "The Say-on-Pay Workshop Conference: 8th Annual Executive Compensation Conference." Save 25% by registering by May 13 at our early-bird discount rates.

Webcast "Tackling Social Media Issues"

As I blogged last week, there are so many novel issues to consider with social media right now (and cool stuff like this blog from Johnson & Johnson's Doug Chia regarding the company's voting results). Tune in tomorrow to hear these issues discussed during the webcast - "Tackling Social Media Issues" - by Tom Kim, Chief Counsel of the SEC's Division of Corporation Finance, Eddie Best of Mayer Brown, Karen Dempsey of Orrick, Herrington & Sutcliffe, Dave Lynn of and Morrison & Foerster and Dominic Jones of IR Web Report. Note the new time of this webcast from 12:00 - 1:00 pm eastern.

Our May Eminders is Posted!

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

If Sarbanes-Oxley and Dodd-Frank were hats...

- Broc Romanek