Our New "Audit Fees & Pre-Approval of Non-Audit Services Disclosure/Auditor Ratification Handbook"

Spanking brand new. Posted in our "Audit Fees" Practice Area, this comprehensive "Audit Fees & Pre-Approval of Non-Audit Services Disclosure/Auditor Ratification Handbook" provides a heap of practical guidance about the disclosure obligations under Item 9 of Schedule 14A; Item 14 in Part III of Form 10-K; and Rule 2-01(c)(7)(i) of Regulation S-X.

JOBS Act: Corp Fin Updates Its Confidential Submission Process Again

Yesterday, Corp Fin provided an updated announcement that merely says that EGCs and FPIs should continue to use the secure email system currently in place - but that Edgar will soon be reconfigured to allow for an EDGAR-based system for confidential and non-public submission of draft registration statements.

Report: Views on Use of "Virtual Annual Meeting" Services

Recently, Broadridge published a report - entitled "Guidelines for Protecting and Enhancing Online Shareholder Participation in Annual Meetings" - based on the views of a group it assembled to recommend "best practices" for electronic participation in shareholder meetings. The report's conclusions are not that profound, but can be useful to help guide those using the Web to supplement its in-person meeting - and it includes a useful appendix that summarizes each state's laws governing electronic participation in shareholder meetings.

Deal Cube Tournament: Round Two; 8th Match

Last match of the second round - this round sets up the Sweet Sixteen! As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:

- Budweiser Tap
- Barney's Shopping Bag
- Forklift with Paper Roll
- Harvester/Tractor

More on "Corporate Political Spending: A Hot Topic That Will Not Go Away"

Recently, I blogged about corporate political spending. It's a hot topic, but the numerous shareholder proposals on the topic have not received widespread shareholder support - although the first proposal did recently receive a majority vote as noted in this Davis Polk blog. And now there is a new Manhattan Institute study that claims that corporate political spending doesn't hurt shareholders.

As noted in Jim Hamilton's blog, some members of Congress are again (still?) pushing the SEC to adopt rules requiring disclosure of corporate political activity and to require a shareholder vote before being able to use funds for political spending. A push from someone in Congress in this area is essentially an annual rite of passage - but you never know when something might get traction on the Hill.

And one last item about The Conference Board's corporate political spending conference I attended. One term that was bandied about was how to avoid being "Target-ized." I asked Heidi Welsh of Si2 what that meant and here is her guidance:

Basically, Target gave $150k to a Minnesota political committee called "Minnesota Forward," which was "business friendly" ie. in favor of lower taxes, less regulation, etc. Then Minnesota Forward gave the money to a Republican gubernatorial candidate, Tom Emmer. Emmer is against gay marriage and had taken some other strongly conservative social positions. The contribution was made known from media trolling of the state's campaign finance disclosures - which are more robust than most - and gay rights groups felt the company had betrayed its commitment to the gay community (Target previously was well regarded by the Human Rights Campaign, etc.). So there was a nation-wide boycott. Very hard to quantify the impact on sales (it always is), but the publicity firestorm was intense and until now it's been used as the index case for political embarrassment that can occur when companies dabble in politics.

Today, I think there are three more recent examples that are far more potent: 1. ALEC and Pepsi, Coke, etc., with "stand your ground" legislation (I think 14 companies have cut their funding to the group), 2. Wal-Mart lobbying against FCPA while knowing it quashed an internal investigation of bribery in Mexico, 3. the health insurance companies and the $86 million funneled through AHIP to the U.S. Chamber of Commerce on health care lobbying. The common denominator on all these three is that the money went to non-profit groups (either trade/501 c-6s or 501 c-3s) and thence into politics.

The challenge for companies is "how to address an apparently insatiable appetite for more information about how corporate money gets into the political arena?" Usually it's not a straight-forward path as there are different definitions about what "political spending" is. My sense is that the general public's definition is much broader than the one used by most companies. For example, this issue of "what is political spending" was in a Chicago Tribune article. Boeing apparently didn't consider ballot initiative spending to be "political." We found in our study of 2010 corporate political spending that companies spend quite a bit on ballot initiatives, but don't always consider them political since they theoretically are non-partisan (but generally aren't really).

Our analysis of all the S&P 500 political spending policies suggests that companies usually think it just means campaign spending directly to candidates, although this is changing. But the shareholder proponents on this topic have increasingly focused on indirect political spending, which encompasses money that is spent on both campaigns and lobbying, and on issue ads and campaigns from non-profits. While the investors in almost all cases are looking at company treasury money, the general public usually doesn't perceive much difference between treasury and PAC money - even though the latter is from executives/employees, and isn't "shareholder money" per se (unless you get into the issue of executive compensation, which many do). The 99 percenters don't make these distinctions, however.

Does Corporate Spending Disclosure Impinge on Free Speech?

Check out Nell Minow's blog entitled "'Tis the Season of the Shareholders" on the important topic of whether forcing companies to make disclosures about their political spending is impinging on free speech.

More on our "Proxy Season Blog"

We continue to post new items regularly on our "Proxy Season Blog" for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

- Progress Report: Political Contributions & Lobbying Proposals
- Extension of the CPA-Zicklin Corporation Political Disclosure and Accountability Index
- How to Mitigate Disruptions at Your Annual Meeting
- ProxyMonitor.org: Tracking Fortune 200 Ballots & Voting Results
- ICCR's ESG Shareholder Proposal Database
- US Season Preview: Governance Proposals

Deal Cube Tournament: Round Two; 7th Match

As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:

- Green Bay Packers Football Stuff
- 'For Sale/Sold' Sign
- Pink Clear Pig
- Suitcase Nuke

More on "FINRA's Corporate Financing Filing Fees Triple!"

I'm still reeling from the news that FINRA's Corporate Financing fees are going way, way up as I recently blogged. As I blogged, FINRA's new rates - effective this upcoming Monday, July 2nd - are as follows: the calculation is raised from 0.10 percent to 0.15 percent of the aggregate value of all securities on the offering document, plus $500. The maximum is raised from $75,500 to $225,500. In the case of a WKSI, such an issuer filing a shelf offering must pay the maximum fee of $225,500.

Last Friday, the SEC issued four releases publishing a group of FINRA's with immediately effective rule changes that all raise various fees. This is the release that raises the Corporate Financing filing fee. As Suzanne Rothwell notes, this is a significant change. In the case of a $500 million offering, the filing fee was $50,500 and will now be $75,500. For a $1 billion offering, the fee was $75,500, the maximum, and will now be $150,500. In the case of REIT offerings, which generally register $2 billion on the initial and each follow-on registration statement, the fee is increased from $75,500 to $225,500. - a $150,000 difference.

Here's some emerging growth company stats courtesy of BlogMosaic.

Webcast: "Proxy Season Post-Mortem: The Latest Compensation Disclosures"

Tune in tomorrow for the CompensationStandards.com webcast - "Proxy Season Post-Mortem: The Latest Compensation Disclosures " - to hear Mark Borges of Compensia, Dave Lynn of CompensationStandards.com and Morrison & Foerster and Ron Mueller of Gibson Dunn analyze what was (and what was not) disclosed this proxy season - as well as how the SEC's new compensation committee and compensation advisor rules impact you.

Court Finds No Duty to Publicly Disclose Wells Notices

I'm feeling quite manly because my new "Legal Proceedings Disclosure Handbook" answered the question of whether receiving a Wells notice from the SEC's Enforcement Division requires disclosure of the SEC investigation with a very lengthy answer that can be summed up as "it depends."

Last week, as noted in this Morrison & Foerster memo, a US District Court in New York ruled that Goldman Sachs could not be sued for fraud under the federal securities laws for failing to publicly disclose that it had received a Wells notice. The court's decision - Richman v. Goldman Sachs Group (S.D.N.Y. June 21, 2012) - held that there is no "automatic" obligation to disclose receipt of a Wells notice under the federal securities laws. The court went further, providing some guidance to companies grappling with the always-difficult issue of whether to disclose the receipt of a Wells notice.

Deal Cube Tournament: Round Two; 6th Match

As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:

- Toolbox
- Snapple Bottle (Lemon Iced Tea)
- Rhino with Zesty, Upturned Horn
- Double Lions

Congress and Trading Based on Lobbying Activities

On Sunday, the Washington Post ran this front-page, lengthy article about the extent to which members of Congress trade in stocks of companies that lobby them. It is a meandering piece that explains how the new Stock Act fails to prohibit trading that can easily be perceived as giving an advantage to Congress (and fails to prohibit trading to the extent that laws reining in senior members of federal agencies do). To me, that is the central point - perception is everything. And that is reflected by the fact that nearly 2000 people have commented on the article - most of them raking Congress over the coals.

The bizarre thing is that the WaPo article gets into the details of a number of specific trades - but most of the dertails seem to clear the profiled Congress-folk of any wrongdoing (this blog agrees there were no smoking guns found). On the other hand, there are excerpts such as this that would sound like classic insider trading to the layperson:

"[a]t least 34 members of Congress recast their portfolios following phone calls or meetings with high-ranking Treasury Department and Federal Reserve officials during the economic crisis."

The bottom line is that Congress should take the perception point to heart and either require all members of Congress to use blind trusts to trade - or at least impose upon themselves the same stringent laws that they apply to federal agencies...

SEC Posts Internal Memo on Conducting Economic Analysis for Rulemaking

Last week, the SEC posted its internal memo about how it will conduct economic analysis when it is involved with rulemaking in the wake of last year's loss in the proxy access lawsuit in the District of Columbia Circuit court.

More on our "Proxy Season Blog"

We continue to post new items regularly on our "Proxy Season Blog" for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

- Anarchy Comes to an Annual Shareholders Meeting in Pittsburgh - And Executive Compensation is One of the Reasons!
- Loeb Tries to Win a Yahoo Proxy Battle, One Blog Post at a Time
- Six Companies to Provide More Auditor Information
- Questions that Shareholder Might Ask During Annual Meetings
- Exclusive Forum Proposal Survives No-Action Challenge
- AFL-CIO Releases Updated Proxy Voting Guidelines

Deal Cube Tournament: Round Two; 5th Match

As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:

- Cereal Boxes in Bowl and Spoon
- Pyramid
- Pillsbury Dough Boy
- Logging Truck

Say-on-Pay: Now 54 Failures - How Does That Compare to Pre-Season Predictions?

I've added 5 more companies to CompensationStandards.com's failed say-on-pay list for 2012. We are now at 54 companies in '12 that have failed to garner major support. Hat tip to Karla Bos of ING Funds for keeping me updated.

For this year's pre-season poll predicting how many say-on-pay failures there would be, the results were as follows: Less than 10 failures - 5%; 11-20 failures - 13%; 21-30 failures - 24%; 31-40 failures - 20%; 41-50 failures - 17%; 50-99 failures - 24% and more than 100 failures - 24%. So once again, perhaps I predicted too few failures myself in designing the poll. But a hardy 24% predicted correctly...

The Latest on CEO/Director Background Diligence

Recently, I've blogged several times about the Yahoo resume saga. In this podcast, Keith Meyer of CTPartners provides some insight into conducting diligence into management and director backgrounds, including:

- How much vetting of a CEO candidate's background should be conducted?
- What if the CEO candidate is an internal one? Is diligence still necessary?
- Should director candidates be vetted? Does it depend if they already sit on prominent boards?
- Who should conduct the diligence?
- Who should receive the results of diligence?

Transcript: "Looking Out for #1: How to Manage Your Career"

We have posted the transcript from our recent webcast: "Looking Out for #1: How to Manage Your Career."

Deal Cube Tournament: Round Two; 4th Match

As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:

- Black Jack Table
- "You Don't Bring a Knife to a Gunfight"
- Project Cornfield w/ Cornfield
- Koala Bear

Our New "Legal Proceedings Disclosure Handbook"

Spanking brand new. Posted in our "Legal Proceedings Disclosure " Practice Area, this comprehensive "Legal Proceedings Disclosure Handbook" provides practical guidance about the challenges of Item 103 of Regulation S-K.

Congress Writes the Book: "IPOs for Dummies"

Yes, Congress passed a comprehensive reform of the IPO process just a few months ago (JOBS Act). Yes, Congress did so without holding a single hearing. Yes, Congress is now complaining the IPO process is broken and needs reform. You can't make this stuff up folks. One member asked: "If Congress reforms the IPO process 3x per year. How many years will it take for them to get it right?"

See this letter from the head of the House Financial Services Committee Darrell Issa (R-Ca.) - although Democrats are agreeing with this notion too. And here's a WSJ article - and Prof. Bainbridge blog about it.

The Latest D&O Insurance Developments

In this podcast, Tom Bentz of Holland & Knight explains the latest in D&O insurance, including:

- What are the latest developments in D&O insurance?
- What role does the recent explosion in M&A litigation play in D&O insurance?
- What are some of the most common mistakes companies make regarding their D&O insurance?
- What should directors do now to make sure that they have broad coverage?

Deal Cube Tournament: Round Two; 3rd Match

As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:

- Movie Projector & Ticket
- Lava Lamp
- Tipping Bucket
- Listerine Bottle

SEC Adopts Rules Requiring Listing Standards for Compensation Committees and Compensation Advisers

Yesterday, the SEC finally adopted rules that direct the stock exchanges to adopt listing standards for compensation committees and compensation advisers under Section 952 of Dodd-Frank (Section 952 added Section 10C to the '34 Act). The Commission adopted the rules by seriatim.

The stock exchanges have 90 days from when the SEC's rules are published in the Federal Register to propose listing standards (and they have one year to finalize them). As noted in Mark Borges' blog, if the exchanges and the SEC move quickly, it's possible that the listing standards could be in place in time for the 2013 proxy season. In any event, there will be at least one new disclosure requirement in place for the 2013 proxy season - the adopting release provides that companies must comply with the disclosure changes in Item 407 of Regulation S-K in any proxy statement for a regular annual meeting occurring on or after January 1, 2013. This Item 407 change requires disclosure of an assessment of whether any work performed by a compensation consultant raises any conflict of interest (and if so, to disclose the nature of the conflict and how it was addressed).

As Mike Melbinger's blog notes, the SEC's rules confirm that Section 10C does not require compensation committees to retain - or obtain advice - only from independent advisers. A listed issuer's compensation committee may receive advice from non-independent counsel, such as in-house counsel or outside counsel retained by management, or from a non-independent compensation consultant or other adviser, including those engaged by management.

Here is the adopting release - and the press release. We will be posting memos in CompensationStandards.com's "Compensation Committee" Practice Area. There are none out yet, but yet all three of our CompensationStandards.com blogs have spoken on this development...

Tune in next Thursday, June 28th, for the webcast - "Proxy Season Post-Mortem: The Latest Compensation Disclosures" - to hear Mark Borges, Dave Lynn and Ron Mueller analyze what was (and what was not) disclosed this proxy season as well as discuss these new rules.

UK One Step Closer to Binding Say-on-Pay: On to Parliament

Yesterday, the UK took another step closer to mandating binding say-on-pay when Business Secretary Vince Cable presented a bill to Parliament mandating binding say-on-pay for consideration. Here is a page with information on the "Enterprise and Regulatory Reform Bill."

As I understand it, it looks very likely that the bill will pass and perhaps be law by October of 2013. There would actually be three types of say-on-pay votes:

- Review of past compensation - non-binding and annual
- Prospective review on compensation policy - binding and would happen every three years so long as the company's pay policy hadn't changed; if it had changed, would happen annually
- Share plans - binding

The biggest debate is over the annual advisory vote - which is backward looking - and supermajority vote thresholds. This Manifest blog captures some of the debate. I'll be blogging more on this as I figure it out.

What will happen now is that amendments to the Enterprise Bill are introduced in the House of Commons for debate. It then goes to committee and then to the upper chamber, the House of Lords, which then has their debate and committee and then if all is well, it is passed into law (unlike Congress, no riders or changes can be snuck in - only the bill that has been debated can pass). The Financial Reporting Council - which is a separate body and which looks after the UK Governance Code - will then do its own consultation regarding amendments to the UK Governance Code to ensure that the Law, as it applies to UK incorporated companies, will apply to listed companies. Thanks to Sarah Wilson of Manifest for helping to explain the UK process!

SEC Chief Accountant Kroeker Headed Back to Private Sector

Yesterday, the SEC announced that that Chief Accountant Jim Kroeker will leave the SEC in July to enter the private sector. No word on where he is headed...some conjecture in FEI's Financial Reporting Blog.

Deal Cube Tournament: Round Two; 2nd Match

As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:

- Casket (Opens & Closes; Deal Closed on Halloween)
- Milwaukee Brewers Beer Tap
- Golf Set with Putter, Cup and Balls
- Pill Bottle

Retrospective Application of Accounting Rules in Form S-3 Context

From this Cooley alert by Chad Mills: As a follow-up to Cydney Posner's article from a few years back, please note that calendar-year public companies were required to adopt a new accounting standard on comprehensive income (ASU 2011-05, as amended by ASU 2011-12) in their 2012 first quarter Form 10-Q with retrospective application. As described below (and see also Corp Fin's financial reporting manual (FRM) at Topic 13), if a company is filing a Form S-3 and had filed interim financial statements for a period that includes the date of adoption of a new accounting standard requiring retrospective application, Item 11(b)(ii) of Form S-3 normally requires the company to recast its prior period annual financial statements that are incorporated by reference to reflect the retrospective application (if material).

However, similar to the accommodation noted in Cydney's article, in lieu of recasting the prior period annual financial statements, a company may (and assuming the company's auditors agree) instead include a selected financial data table either included in or incorporated by reference in the Form S-3 containing certain information. Accordingly, if your clients are filing or post-effectively amending Forms S-3 this year, please take note of this and make sure to discuss with the client and its auditors. Note that in the case of a takedown from an already effective shelf S-3, a prospectus supplement is not subject to the Item 11(b)(ii) updating requirements; rather, companies would instead apply the "fundamental change" guidance in S-K 512(a) discussed in FRM Section 13110.2.

Below are a couple of recent S-3s with the selected financial data table reflecting the above:

- Sample 1
- Sample 2

For more background info, see this KPMG article at Part 3.

Study: A 11-Year Comparison of Restatements

In a recent study, Audit Analytics looked back over 11 years of restatements and, among other things, found that during the last three years, the quantity of total restatements appears to have leveled off, and the severity remained generally low, but hidden within the macro view of the data is the fact that restatements increased from companies trading on the NYSE and OTC.

Benchmarking Merger Agreements

In this DealLawyers.com podcast, Paul Koenig of Shareholder Representative Services explains how his company's novel initiative SRS MAX™ that allows for M&A analysis of merger agreements, including:

- What is the problem that the SRS MAX product is solving?
- How does it work and what do the users of the product receive?
- Do you charge for this, and if so, how much?

Deal Cube Tournament: Round Two; First Match

Round Two begins! This will determine the Sweet 16. As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:

- McDonald's Fries
- Globe with Bride
- Louisville Slugger Baseball Bat
- Shamu the Whale

Corp Fin's New Position: Price Ranges in IPO Preliminary Prospectuses

One of those things I swore I blogged about - but slipped through the cracks. Corp Fin recently changed its policy on IPO price ranges, now allowing a $2 price range for offerings up to $10 per share, and 20% if the price is over $10. Previously, the range was limited to a $2 spread. (I note Facebook's price range was $34 to $38.) The intent is to better reflect the inherent difficulty in pricing IPOs. Learn more in this memo posted in our "IPOs" Practice Area.

Check out this Cooley alert entitled "How Can 'Oversubscribed' be a Sign of IPO Weakness?"

62-Pages About This Season's Disclosures: Spring Issue of Compensation Standards Newsletter

For CompensationStandards.com members, we have posted our Spring 2012 issue of Compensation Standards print newsletter - thanks to Mark Borges! - that is a 62-page recap of how proxy disclosure went this past proxy season. Tune in next Thursday, June 28th to catch our CompensationStandards.com webcast featuring Mark, Dave Lynn and Ron Mueller entitled: "Proxy Season Post-Mortem: The Latest Compensation Disclosures."

Transcript: "Nasdaq Speaks '12: Latest Developments and Interpretations"

We have posted the transcript from our recent webcast: "Nasdaq Speaks '12: Latest Developments and Interpretations."

- Broc Romanek

EGCs: How Can You Tell If a Registration Statement Was Initially Confidentially Filed?

One member asked: "How can you tell if a EGC bothered with Corp Fin's confidential submission process or just publicly filed its Form S-1 right away?" You can tell from the exhibit list. When a company that went through the confidential submission process makes its first filing, it has to file the confidential draft (or drafts) as Exhibit 99 to the registration statement. So for LegalZoom, they filed an "Exhibit 99.1 Confidential Draft #1" and no others - so it appears they stayed confidential for only one round of comments.

Check out this Reuter's article entitled "IPO "whisper" estimates may be heard after Facebook." Also see this Rolling Stone article entitled "JOBS Act Fallout: More Fraud, Fewer IPOs."

Using Rule 135 to Announce a Confidential Submission

Rule 135 says that a very limited press release announcing a proposed public offering won't be deemed an offer for Section 5 purposes. Way back at the end of April, SolarCity became the first company to announce in a Rule 135 notice that it is making a confidential submission at the time of its private submission to Corp Fin (FleetMatics also announced one). This is something that companies are not required to do - and that I believe no other company has done since...

Dave notes one interesting unintended consequence he has heard from bankers is that having companies go through confidential submission means their visibility into the "pipeline" is all screwed up - so they don't have as good a feel for what is out there in the market going public, which could ultimately impact marketing and valuation.

Transcript: "LLCs: Understanding Capital Account and Allocation Concepts for M&A"

We have posted the transcript for our recent DealLawyers.com webcast: "LLCs: Understanding Capital Account and Allocation Concepts for M&A."

- Broc Romanek

SEC's Enforcement's First Publicly Disclosed Individual Cooperation Deal

As noted in this Latham & Watkin's memo, the SEC's Enforcement Division declined to prosecute a former AXA Rosenberg executive based on his assistance under the SEC Cooperation Standards Program, which gives important guidance and definition to the promise of the program.

More on "Chaos in the SEC's Inspector General's Office: 'He Said, They Said'"

Recently, I blogged about the madness in the SEC's Inspector General's office as a number of allegations are being investigated about a number of the Staffers there. Bear in mind that it's a small office with a handful of people working in it. The latest drama is laid out in this detailed Reuter's article.

Our New "Shareholder Communications with Directors Disclosure Handbook"

Spanking brand new. Posted in our "Shareholder-Director Communications" Practice Area, this comprehensive "Shareholder Communications with Directors Disclosure Handbook" provides a heap of practical guidance about the disclosure obligations under Item 407(f) of Regulation S-K.

- Broc Romanek

More on "Busted! Yahoo's Resume Lies: How Much Should You Investigate a Director Nominee?"

Did you see this NY Times column about Yahoo? Amazing that boardroom conversations get leaked to the press, particularly when the situation is in litigation. Not good governance to blab about your bad governance. Remember the H-P fiasco!

Anyways, as I blogged a few weeks ago, it seemed like a no-brainer to me that companies would conduct a background check on a director candidate (and CEO recruit) - even though they are not necessarily universal practices. Marty Rosenbaum weighed in with his own thoughts in a blog entitled "Responding to the Yahoo Resume Debacle."

In response, I received a wide range of responses - I guess reflecting the diversity of practice in this area. As I learned, there are numerous state laws on acquisition - and use - of credit information, as well as arrest and conviction information. Apparently, states are really clamping down on employers' use of all of this information for hiring purposes in view of the purported potential disparate impact on applicants. For example, see this Cooley alert about new California requirements for background check disclosures. And see these EEOC FAQs providing updated guidance about the ability of employers to check arrest and conviction records - as analyzed in this Locke Lord memo.

On the other hand, I had some members argue that the federal sentencing guidelines practically require criminal background checks for "substantial authority personnel." I'm told that a key problem remains over what you can do with the background information if it indicates that the person engaged in "illegal activities or other conduct" that is arguably "inconsistent with" a compliance program. To be on the safe side under the sentencing guidelines, I imagine you'd tend to not hire someone who was in the grey zone. Some members asserted that the sentencing guidelines safe harbor provision protects an employer who hires someone in order to comply with employment laws.

So I'm still not sure what the right answer is on background checks and definitely would like to get more feedback on that. In Yahoo's case though, the resume lie would have been uncovered with a simple Google search. This would have revealed discrepancies by comparing what Yahoo disclosed as the CEO's background compared to what other companies - on whose board the Yahoo CEO sat - were disclosing; or what the Yahoo's CEO's former school was saying about him in alumni announcements. As I noted in our new "D&O Questionnaire Handbook," this kind of basic diligence should be conducted every year when reviewing responses to the questionnaires. It's too easy to pass up - and can certainly spare you and your company some big headaches...

Check out this interesting blog from Keith Bishop entitled "The Case Of The Board Member Who Didn't Show Up - Or Did She?"...

SEC and DOJ Issue First FCPA Declination Opinions

As noted in his "Cady Bar the Door" blog, David Smyth explains the SEC and DOJ sort of issued their first FCPA declination opinions, noting that the agencies have decided not to pursue a particular matter. Not only are these useful to the parties involved, they can provide a useful window into the factual scenarios that do not rise to the level of a FCPA prosecution.

This Cooley alert describes a recent New Yorker article regarding economics of the FCPA.

Deal Cube Tournament: Round One; 16th Match

Last match of the first round (I decided to go with 64 cubes per tourney because 32 matches in a single round is too many) - there will be a break before 2nd Round begins. As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:

- Animal Feed/Water Tank
- Barney's Shopping Bag
- Forklift with Paper Roll
- eBay Shaped

FINRA's Corporate Financing Filing Fees Triple!

Last week, FINRA submitted a rule change that significantly increases the Corporate Financing Department filing fee - with an implementation date of July 2nd! The new filing fee will be $500, plus .015% (up from .01%) of the proposed maximum aggregate offering price of all securities included on the offering document, up to a maximum of $225,500 (up from $75,500). However, any shelf offering by a WKSI registered on an automatically effective S-3 or F-3 registration statement will be subject to the full $225,500 fee, regardless of the size of the offering. The FINRA rule change was filed as one that is immediately effective upon filing with the SEC. Thanks to Suzanne Rothwell for this news!

In other news, see this blog from "The Mentor Blog" for other proposed FINRA Rule 5110 changes...

Shareholder Proposals: KBR Wins Over Chevedden in Fifth Circuit Appeal

A few months ago, I blogged that John Chevedden appealed his loss in a lawsuit over the eligibility to submit shareholder proposals. A few days ago, the appeal was decided when the Fifth Circuit's decision affirmed the District Court's judgment granting summary judgment in favor of KBR and also affirming the District Court's denials of Chevedden's various motions.

Webcast: "How to Cope with the M&A Litigation Explosion"

Tune in tomorrow for the DealLawyers.com webcast - "How to Cope with the M&A Litigation Explosion" - to hear Wilson Sonsini's Doug Clark, Wachtell Lipton's David Katz and NERA's Marcia Kramer Mayer to not only learn of the causes of the M&A litigation maelstrom, but how you can best cope with its consequences - to changes in deal structures to developments in how deals are negotiated. Please print these course materials in advance.

Deal Cube Tournament: Round One; 15th Match

As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:

- Budweiser Tap
- Blue Phone
- Harvester/Tractor
- "Growing with Asia"

Say-on-Pay: Now 49 Failures - And 4 Companies Fail In Two Consecutive Years

I've added 10 more companies to the failed say-on-pay list on CompensationStandards.com for 2012! We are now at 49 companies that have failed to garner major support - with Nabors Industries becoming the fourth company to fail for two consecutive years (and the first company to fail a proxy access by-law vote). Hat tip to Karla Bos of ING Funds for keeping me updated!

Proxy Access Proposal Passes at Nabors

Ning Chiu of Davis Polk gives us the news in this blog:

In the first win of its kind, a majority of shareholders at Nabors Industries voted in favor of a proposal for the right of shareholders owning 3% or more for at least three years to nominate directors on a company's ballot, for up to 25% of the board. The thresholds are the same as those previously adopted by the SEC, which was later struck down by the courts. The shareholder proposal was submitted by a group of New York City Pension Funds led by the City Comptroller of New York, and co-sponsored by similar funds in five other states. The company confirmed news reports that the proposal has passed, but has made no public announcement about the specific vote results.

Nabors had been criticized for their executive compensation practices last year, which entitled the then-CEO to a cash bonus of 10% of any amount of the company's cash flow that exceeded 10% of average shareholder equity. In addition, a $100 million award was triggered when the CEO relinquished his title but did not leave the company. The outcry resulted in a failed say-on-pay vote. The company also announced an SEC investigation into its disclosure of aircraft perks after the Wall Street Journal reported that flight logs showed many flights to the CEO's homes that did not appear to be reported in the proxy statement.

While claiming that proxy access is a basic shareholder right in an exempt filing, the proponents also cited several issues that they argued made proxy access particularly compelling at Nabors, including the $100 million award (which the CEO later waived), related party transactions with board members and the absence of majority voting. A later filing quoted from ISS and Glass Lewis reports in support of the proposal.

While much of the attention on proxy access proposals this season has been on the versions proposed by U.S. Proxy Exchange and Norges Bank since they put forth the bulk of the proposals, it was always questionable whether they would succeed, given that their low thresholds likely caused institutional investors to question their reasonableness. In addition, the SEC staff permitted the exclusion of several proposals.

Instead of peppering the landscape with proposals, seasoned shareholder proponents like the City Comptroller targeted only a few companies that have been criticized for perceived governance issues. It now appears that their strategy has succeeded, as Hewlett-Packard previously negotiated to include proxy access and the proposal won at Nabors. The next proposal of this kind to be voted on is at Chesapeake Energy's annual meeting this Friday, but given that their recent governance changes included the ability of two shareholders to name directors to the board, the concept of proxy access seemed to have already taken effect.

Supreme Court to Revisit Fraud-on-the-Market Presumption

Here's news from this Morrison & Foerster memo:

Yesterday, the Supreme Court agreed to hear an appeal involving certification of securities fraud class actions. The case - Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, No. 11-1085, - S. Ct.-, 2012 WL 692881 (6/11/12) - presents two questions: (1) whether, in a misrepresentation case under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, the district court must require proof of materiality before certifying a plaintiff class based on the fraud-on-the-market theory; and (2) whether, in such a case, the district court must allow the defendant to present evidence rebutting the applicability of the fraud-on-the-market theory before certifying a plaintiff class based on that theory.

In the decision that is on appeal, the Ninth Circuit answered "no" to both questions. But other circuits have answered "yes" in other cases. The circuit-split means that, at present, defendants are being treated differently in different parts of the country. A clear answer from the Supreme Court to these questions could have a significant effect on securities litigation.

Deal Cube Tournament: Round One; 14th Match

As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:

- Green Bay Packers Football Stuff
- Daily Variety
- 'For Sale/Sold' Sign
- Standard

Hollywood's Mythological View of the SEC

I remember - way back when - seeing the original "Wall Street" movie right when I began my legal career at the SEC. It was an era of big time insider trading busts and I was proud when the movie concluded with the SEC crashing Gordon Gekko's offices to make the bust. Nevermind that the agency portrayed technically wasn't the SEC - if you review the movie's script, you will see it was "The Securities and Exchange Investigation Office" and Gordon was busted for violations of the "Security Acts."

Since then, I have seen quite a few movies or TV shows portray the SEC in a similar vein. The latest is a recent episode of "Revenge" where the main character - Conrad Grayson - is being investigated by the SEC for some ambiguous wrongdoing (a mix of domestic terrorism and troubling trading practices). As noted in this episode recap, the two big SEC-related moments is when Conrad's wife meets with a SEC "agent" on a park bench to spill some beans - and later when the SEC raids Conrad's office to cart off some boxes.

Here are three myths about the SEC that were perpetuated in this TV show:

Myth #1: The SEC has criminal authority - It doesn't, it only has civil authority. The DOJ or state attorney generals have to bring a criminal case and often work with the SEC in tandem when the circumstances warrant investigation into a possible crime.

Myth #2: The SEC can crash an office to conduct an investigation - I highly doubt the SEC shows up unannounced to carry off boxes - in fact, I'm not sure they could legally do so consistent with the Fourth Amendment because there's no mechanism for them to seek or obtain a search warrant. It's a much more mundane investigative process. Typically, requests are complied with by sending the Staff what they want to see - and even the depositions are conducted down at the SEC's offices. Enforcement investigations never involve showing up unannounced, although the examiners in OCIE can do that, and sometimes do. But they do so only at regulated entities (broker-dealers, investment advisers, investment companies, etc.).

Myth #3: The SEC will meet with someone to investigate a hot tip - It would be very rare to have a "deep throat" type meeting with any witness outside of a government office building or a private lawyer's office. For starters, the SEC doesn't have the resources to personally meet everyone who wants to blow a whistle, even with the new Office of the Whistleblower opening up. It is possible that the Staff will meet with someone after receiving a tip and conducting a little diligence on it. But I can't imagine any park bench meetings...

Our "Q&A Forum": The Big 7000!

In our "Q&A Forum," we have blown by query #7000 (although the "real" number is much higher since many of the queries have others piggy-backed on them). I know this is patting ourselves on the back, but it's nearly ten years of sharing expert knowledge and is quite a resource. Combined with the Q&A Forums on our other sites, there have been over well over 20,000 questions answered.

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.

Deal Cube Tournament: Round One; 13th Match

As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:

- Ancient Dodecahedronal Cubes (1976 & 1981)
- Pink Clear Pig
- Suitcase Nuke
- Spinning Circles

New Study Looks at Use of Proxy Advisors by Mutual Funds

Once again in the 2012 proxy season, we find ourselves spending a great deal of time focused on the voting recommendations of proxy advisory services, and now with the advent of Say-on-Pay, writing public rebuttals of the analysis and recommendations of those services. Much of the effort today is focused on convincing large institutional holders that they should support a Say-on-Pay proposal or a vote for the election of directors, notwithstanding the proxy advisor's recommendation.

A recent study commissioned by the Investor Responsibility Research Center (IRRC) Institute and conducted by Tapestry Networks reviewed the voting decision-making process at 19 North American mutual funds, accounting for over $15.4 trillion in assets under management. While the study found no standard approach to voting decision-making, it did find that proxy advisory firms represent on important input - but not the only input - that these mutual funds rely on in making their voting decisions. Among the findings in the study are that:

- The role of proxy advisory firms as data aggregators has become increasingly important to asset managers.

- Asset managers find the proxy advisor data particularly useful in Say-on-Pay and international votes.

- The influence of proxy advisors extends beyond just the voting decisions to the formulation of voting policy.

- The demand for engagement with investors will continue to grow.

The study also notes the extent to which proxy advisory firms influence issuer behavior outside of the voting cycle, including changes to the terms of executive pay plans.

For anyone who has spent a lot of time with their proxy solicitor trying to turn around a director election or Say-on-Pay vote in the face of an adverse ISS recommendation, the results of this study are not that surprising. Nonetheless, the study does provide some useful insight into the influence that proxy advisory firms have on the process and how asset managers use these services today.

Mailed: May-June Issue of "The Corporate Executive"

We just mailed the May-June Issue of The Corporate Executive, and it includes pieces on:

- Valuing Market-Based Awards
- Accounting for Retirement Provisions in Performance Awards
- Accounting for Vesting Commencement Before Grant Date
- Upcoming Tax Rate Changes (Or, the More Things Change, the More They Stay the Same)
- New Regs Expected Under Section 162(m)

Act Now: Get this issue rushed to when you try a "1/2 Price for Rest of 2012" No-Risk Trial to The Corporate Executive.

Deal Cube Tournament: Round One; 12th Match

As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:

- Toolbox
- Double Lions
- Colorful Compact Disc
- Notepadish

Corp Fin Revamps Its Web Page

Yesterday, the Division of Corporation Finance rolled out a revamped web page on sec.gov. Broc noted a few weeks back how the home page on sec.gov was redesigned, and now it looks like Corp Fin has followed suit with a reordered page that makes it easier to find useful guidance and information (once you get used to it).

While the page is still cast in the trusty blue, red and grey that we have grown accustomed to, the previously cluttered navigation bar on the far left now appears to be dedicated to linking to the "What's New" page, rather than including links to the largely the same things that are available on the body of the page or elsewhere on sec.gov. Further, a new "Staff Guidance and Interpretations" section in the left column of the page consolidates all of the legal and accounting guidance, including the CD&Is, the Financial Reporting Manual, No-Action, Interpretive and Exemptive Letters, SABs, SLBs, CF Disclosure Guidance and Division Policy Statements.

On the right side of the page, there are separate links for "special categories of issuers," i.e., asset-backed, foreign issuers and small business, an EDGAR search function, and, under the "Contact Us" header, links to the portals for submitting requests for interpretive advice and no-action letters. One nifty utility under the "Contact Us" header is the "Find the Office Responsible for Company Filings" search function, which allows you to enter the company name, CIK number, ticker symbol and/or SIC code and come up with the Assistant Director office that a company is assigned to.

Having been heavily involved in a prior redesign of the Corp Fin web page, I am a big fan of this new approach, as I think it makes it much easier to access the Division's guidance all in one place, rather than having to hunt around for all of the various pieces depending on whether the information is "legal" or "accounting" related.

Advisory Committee on Small and Emerging Companies Rolls On

With the enactment of the JOBS Act back in April, one may have thought that the SEC's Advisory Committee on Small and Emerging Companies would have folded up their tents and gone home. Luckily, they have not (in fact I don't think they were even issued tents), as there is still work to be done in terms of figuring out ways to improve capital access for small and emerging companies and reduce regulatory burdens on smaller companies, as evidenced by their agenda for a meeting taking place tomorrow at the Commission. The Advisory Committee plans to talk about the JOBS Act, market structure issues, and scaling of disclosure and corporate governance rules for smaller public companies. Hopefully, the Advisory Committee can serve as a useful resource to the Commission as it considers rules changes under the JOBS Act, and can also serve as a springboard for future small business initiatives that the Commission may want to undertake once it gets the JOBS Act rulemaking out of the way.

Deal Cube Tournament: Round One; 11th Match

As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:

- Snapple Bottle (Lemon Iced Tea)
- Rhino with Zesty, Upturned Horn
- Gold Buckle with Ram's Head
- Standard

Webcast: "Nasdaq Speaks '12: Latest Developments and Interpretations"

Tune in tomorrow for the webcast - "Nasdaq Speaks '12: Latest Developments and Interpretations" - to hear the latest practical guidance from senior Nasdaq Staffers Arnold Golub, Mike Emen, Lisa Roberts, Jurij Trypupenko and Manny Alicandro who will be discussing everything from the latest rule changes to whom do you call to resolve an issue, and much more. Please print off these course materials in advance of the webcast.

Nasdaq Proposes Changes to Director Independence Listing Rules

Nasdaq is proposing to broaden a rarely used exception in its corporate governance listing rules which permits one non-independent director to serve on the audit, nominating or compensation committees under exceptional and limited circumstances and with proper disclosure, provided that the board determines such service is in the best interests of the company and its shareholders and the term of service does not last more than two years.

Currently, a listed company can't utilize this exception for a director who has a family member who is an employee of the listed company, even if that family member is not an executive officer of the company, if the director is not independent for an unrelated reason; however, that same family relationship would not otherwise preclude the director from being considered independent. In order to eliminate this distinction, Nasdaq proposes to amend Rules 5605(c)(2)(B), 5605(d)(3) and 5605(e)(3) to allow a director who is a family member of a non-executive employee of a listed company to serve on the listed company's audit committee, compensation committee or nominating committee under exceptional and limited circumstances.

In making the affirmative determination that the non-independent director's membership on a committee is required by the best interests of the company and its stockholders, Nasdaq still expects that a board of directors would consider any family relationship between the non-independent director and a non-executive employee of the company. However, Nasdaq does not believe that the mere existence of this family relationship alone should create an outright prohibition on the use of the exception.

The SEC has put the proposed rule changes out for comment, with comments due within 21 days of publication in the Federal Register.

Deal Cube Tournament: Round One;10th Match

As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:

- Cereal Boxes in Bowl and Spoon
- Pyramid
- Pair of Houses
- Orange Tree

- Dave Lynn

The JOBS Act: Two Months Later

Only two months ago, President Obama signed the Jumpstart Our Business Startups Act into law, and in that very short time we have seen the transformation of the way in which IPOs are done with the fast-track implementation of Title I's provisions for "emerging growth companies." Whether Title I's permissive "on-ramp" provisions for emerging growth company IPOs actually encourages more companies to go public ― particularly in the face of the current market headwinds ― remains to be seen. In any event, the Corp Fin Staff has worked hard to provide some practical guidance very quickly in order to ease the transition to the post-JOBS Act world of offerings.

At the same time, we are 60 days into the 90-day timeframe that the JOBS Act specifies in Title II for the adoption of rules permitting general solicitation and general advertising in Rule 506 offerings when sales are only to accredited investors (along with comparable revisions to Rule 144A), and we have not yet seen any proposed rule changes; however, there is perhaps still time for proposals to be issued with a short comment period, or the SEC could decide to adopted "interim final rules" given the very short rulemaking deadline.

On the crowdfunding front under Title III, we have all been reminded that the exemption is not operative today, rather it is only effective upon SEC rulemaking due by the end of the year. Of all of the provisions of the JOBS Act, crowdfunding continues to capture the imagination of many, although there has emerged some skepticism as to whether the exemption, with all of the conditions contemplated by the statute and to be ultimately fleshed out by the SEC, could actually emerge as a viable means for conducting very small offerings, or whether it might end up like current Regulation A, which is rarely used today due to the difficulties of conducting offerings under that exemption.

Speaking of Regulation A, the new Section 3(b)(2) exemption contemplated by Title IV is also not operative until the SEC acts on the mandated rulemaking, and to date we haven't heard much word on when that might take place. Given the other JOBS Act-mandated rulemaking with short deadlines and the still unfinished Dodd-Frank Act rules, I have got to think that Regulation A+ may get put on the back-burner for now. Finally, the Corp Fin Staff's guidance on Titles V and VI clarified the immediate effectiveness of those changes to the Exchange Act registration thresholds, making avoidance of registration a reality for those issuers (bank holding companies and regular issuers) who exceeded the old holder-of-record thresholds but not the new thresholds at the end of their last fiscal year.

Upon reflection, it seems that quite a bit has been accomplished under the JOBS Act in just a couple of months, but of course much more remains to be done. More importantly, those of us who have policed and worried about Section 5 for all of these years are now starting to get used to the brave new world of securities laws after the JOBS Act.

More on our "Proxy Season Blog"

We continue to post new items regularly on our "Proxy Season Blog" for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

- Activist Project: Repealing Classified Boards in S&P 500 Companies
- Money Managers Increasing Activism on Governance: But Quietly
- The Impact of Majority Withhold Votes
- 2012 U.S. Season Preview: E&S Proposals
- GRId Information to Change When Proxy Filed
- Shareholder Proposals: Trends from Recent Proxy Seasons

Deal Cube Tournament: Round One; 9th Match

As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:

- Guitar
- Pillsbury Dough Boy
- Logging Truck
- Standard w/ Gold Plate

- Dave Lynn

Say-on-Pay: Now 39 Failures - And 1st Company to Fail Despite Favorable ISS Recommendation!

I've added 7 more companies to CompensationStandards.com's failed say-on-pay list for 2012. We are now at 39 companies in '12 that have failed to garner major support - with Digital River garnering support only in the teens (19.2%; going even lower than Chiquita Brands)! And Safety Insurance Group became the first company to fail after receiving a 'For' recommendation from ISS, as noted in this Semler Brossy blurb. Hat tip to Karla Bos of ING Funds for keeping me updated!

More on "The Mentor Blog"

We continue to post new items daily on our blog - "The Mentor Blog" - for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

- California Considers Legislation to Repeal its Corporate Long-Arm Statute
- ABA Spring Meeting: Corp Fin Notes
- The Bought Deal Bible
- Risky Business: What If the CEO Has a Risky Hobby?
- ABA's Internal Controls Comment Letter to COSO

Deal Cube Tournament: Round One; 8th Match

As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:

- "You Don't Bring a Knife to a Gunfight"
- Project Cornfield w/ Cornfield
- LU Chocolate
- Swirly

SEC Gets Sued for Not Rulemaking Fast Enough

As noted by Keith Bishop in his blog, Oxfam America has sued the SEC in the US District Court in Massachusetts for failing to comply with Congress' mandate to adopt regulations governing disclosures by resource extraction issuers under Section 1504 of Dodd-Frank (here's more in Jim Hamilton's blog). First the SEC gets sued for rulemaking too fast, now too slow...

"Occupy the SEC"

A few weeks ago, this Washington Post article entitled "Occupy the regulatory system!" notes that a former SEC Staffer is part of the movement. The article drew a few hundred comments. Funny that an "Occupy the SEC" group is based in NYC and not DC, where the SEC's HQ is based.

Meanwhile, a OWS-related group has filed what appears to be its first amicus brief, urging the Second Circuit to uphold U.S. District Judge Jed Rakoff's controversial rejection of the SEC's $285 million settlement with Citigroup.

Our June Eminders is Posted!

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

Deal Cube Tournament: Round One; 7th Match

As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:

- Black Jack Table
- In-Store Showcase
- Koala Bear
- Standard