A Sample Compensation Consultant Questionnaire & SEC Delays Approving Exchange Listing Standards

Yesterday, the SEC delayed approving the NYSE's and Nasdaq's listing standards relating to compensation committees and advisors. Action was due by today - but now has been deferred until January 13, 2013. The delay shouldn't impact what companies disclose in proxy statements next year - unless the SEC decides to not go forward, which is highly unlikely given there were only 14 comment letters on this round of proposals.

Meanwhile, we have posted a sample compensation consultant questionnaire to help you assess what you need to disclose. This sample is posted in Word in our "Compensation Consultant" Practice Area on CompensationStandards.com. Also remember there was a sample questionnaire included in the July-August issue of The Corporate Counsel.

Don't forget this "Quick Survey on Compensation Consultant Conflicts Disclosure." Please take a moment to participate - all responses are anonymous as always...

Rule 10b5-1 Trading Plans Under Scrutiny Once Again

I was gonna gin up something on the recent WSJ article entitled "Executives' Good Luck in Trading Own Stock" - but Kevin LaCroix has done such a great job that you should just read his piece in the "D&O Diary Blog."

Court Orders Expedited Schedule for Conflict Minerals Challenge

On Wednesday, the D.C. Circuit Court ordered an expedited briefing schedule for the conflicts minerals case as noted in this Cooley news brief. The order specifically states that any "extension of the briefing schedule may result in the case not being calendared this term." In addition, Amnesty International's motion to intervene was granted.

Mailed: September-October Issue of "The Corporate Executive"

We have mailed the September-October Issue of The Corporate Executive, and it includes pieces on:

- Revisiting (or Visiting) Hedging and Pledging Policies
- Checklist: How to Avoid Being Named in a Proxy Disclosure/Say-on-Pay Lawsuit
- Proposed Regs Under Section 83
- IRS Provides Sample Section 83(b) Election Notice

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

- Broc Romanek

Survey: What Type of Compensation Consultant Conflicts Disclosure Will You Make in '13?

Over on his "Proxy Disclosure Blog" on CompensationStandards.com, Mark Borges has been analyzing the latest proxy statements and commenting upon their compensation consultant conflicts disclosures. As hopefully you know, new Item 407(e)(3)(iv) of Regulation S-K requires disclosure if a conflict of interest has arisen in connection with the work of a compensation consultant (whether selected by management or the compensation committee). To satisfy this disclosure requirement, companies will need to conduct a conflicts of interest assessment.

This raises the question of whether companies will include voluntary disclosure (so-called "negative disclosure") in their proxy statement when a determination of "no conflict" has been made. To attempt to get a handle on what folks are planning to do, I have posted this "Quick Survey on Compensation Consultant Conflicts Disclosure." Please take a moment to participate - all responses are anonymous as always...

The SEC's Latest Clawback Court Victory

Kevin LaCroix's blog recently covered the latest court decision over a SEC clawback under Section 304 of Sarbanes-Oxley: SEC v. Baker and Gluk. Here is a note on the opinion from Brink Dickerson of Troutman Sanders:

Baker is a succinct, well-written opinion from a conservative District Court - the Western District of Texas in Austin. It involves the clawback of executive compensation under SOX 304 from executives who were not the cause the underlying restatement, and, like Jenkins in Arizona, the court rejects the defendants' claims that there had to be misconduct on their part. As importantly, the court also rejects claims that Section 304 is unconstitutional and is barred by the Civil Asset Forfeiture Reform Act, arguments that the court in Jenkins did not reach. With there now being two solid decisions finding against the misconduct argument, I think that it is settled for good.

Speaking of clawbacks, check out this Paul Hodgson piece entitled "It is time for real bank clawbacks"...

Say-on-Pay: Now 61 Failures

I've added one more company to our failed say-on-pay list for 2012 on CompensationStandards.com as DFC Global failed with 25% support. One of only 7 of the 61 failures so far this year have the honor of 25% support or below. I missed this one until now since the results were in the 10-Q for 9/30 rather than an 8-K. Hat tip to Karla Bos of ING Funds for keeping me updated.

Related to failures #59 and 60 in recent weeks, notice that the PMFG Chair, who is the retired CEO and on the comp committee, lost the vote also for his own re-election to the board. This, along with Oracle's compensation committee members losing their re-election vote if you exclude the CEO Ellison's shares, should be sending a chill to directors. Hat tip to Fred Whittlesey for pointing this out!

- Broc Romanek

Elisse Walter: New SEC Chair (Until "Longer Term" Successor is Found)

Hmm, where do I begin? I did take pains to be correct in my blog yesterday about Commissioner Walter's ascension to serve as Chair of the SEC. I rarely am wrong in this blog and proud of that fact. But yet, I blew it when I called Elisse an "Acting" Chair - even though loosely she will be. Let me explain.

Shortly, after the SEC's "Schapiro is stepping down" press release came out, the White House issued this statement that Elisse would be "designated" as Chair. Even though I recognized that as ambiguous, I took that to mean she would be tapped as Chair and even tweeted so. Then I started seeing prominent publications (eg. WSJ) note that Elisse would be temporary and serve on an interim basis.

So I backed off my tweet in subsequent tweets - and I originally blogged yesterday that Elisse would serve as "Acting Chair." This certainly would not be unprecedented as Laura Unger served as Acting Chair for six months in '01 and Cynthia Glassman for three in '05. So it's not unusual for a sitting Commissioner to serve in that capacity.

But it's now clear that Elisse will be serving simply as the Chair; not in an "Acting" capacity. However, the White House has mentioned that the President intends to nominate a long-term successor before Elisse's term ends in December 2013. So unless Elisse is tapped for that, her term as Chair will be only a year or less (here's a Reuters article with details about Elisse's career). Capiche?

Learn more about what exactly a SEC Commissioner does - and much more - in next week's webcast: "How the SEC Really Works."

Does It Matter Whether Someone Serves as Short-Term Chair vs. Acting Chair?

Okay, is this all a lesson in semantics? Or is there substance over form? I don't think it matters in terms of substance. Maybe it's designed to give Elisse greater clout to get through some of the rulemakings that the SEC has been pushing. Until a fifth Commissioner is appointed to break the potential 2-2 political gridlock, that might not matter much.

Where it does matter is on the SEC's historical list of who has served as a Chair. Apparently, Acting Chairs don't cut it - so Laura Unger is not considered the first woman to serve as SEC Chair. That honor goes to Mary Schapiro. And of course, "Chair" looks better on a resume compared to "Acting Chair"...

A Former Corp Fin Staffer Takes the Helm!

For me, Elisse's rise is notable for her background. Elisse served as Corp Fin's Deputy Director (back when the Division only had one) in the late '80s. From my research, she is only the second SEC Chair to have served in Corp Fin - with former Director Manny Cohen being the other in the late '60s. That is awesome!

Poll: Who Will Become the Next Longer-Term SEC Chair?

Please guess who will be tapped to serve as SEC Chair after Elisse's term expires in 2013:

SEC Chair Schapiro to Step Down; Elisse Walter Will Serve as Chair

Given the number of rumors about SEC Chair Mary Schapiro departing over the past few months (see last week's rumor - here are the latest rumors about a successor), it's no surprise that the Chair announced yesterday that she was stepping down on December 14th. Even though most mass media articles have gotten it wrong, Commissioner Elisse Walter will serve as Chair until a "longer term" successor is found - her appointment doesn't require Senate approval because it previously confirmed her as a Commissioner. [Note that I made corrections to this blog in midday - explanation to follow tomorrow about Elisse's status.]...

Does this mean that rulemaking will cease? No. Might it slow down? Likely, particularly given the 2-2 split among the four remaining Commissioners along party lines...

Funny Errors: Inside SEC Filings - And On The SEC's Site Too

Recently, I blogged about some pretty funny errors made in SEC filings. But as Keith Bishop blogs - in an entry entitled "The SEC's Form 10-K: 'In Endless Error Hurled'" - sometimes even the forms themselves have minor errors.

And a member recently pointed out this "helpful information" that is listed on right side of the SEC's "Company Search" page related to Edgar:

"The SEC does not require companies that are raising less than $1 million under Rule 504 of Regulation D to be "registered" with the SEC, but these companies are required to file a Form D with the SEC. The Form D serves as a brief notice that provides information about the company and the offering."

Clearly, this bullet was not drafted by someone in Corp Fin as the member who noticed this snafu wrote this note to me:

When did companies have to start registering with the SEC under the '33 Act? Here I thought it was the offers and sales that had to be registered. And, does this mean that companies raising more than $1 million under, for example, Rule 506 have to be "registered" with the SEC. I don't think so.

Our New "Preliminary Proxy Statements Handbook"

Spanking brand new. Posted in our "Preliminary Proxy Statements" Practice Area, this comprehensive "Preliminary Proxy Statements Handbook" provides a heap of practical guidance about Rule 14a-6(a). This one is a real gem - 19 pages of practical guidance.

- Broc Romanek

Survey Results: Conflict Minerals

Here are survey results on preparing for complying with the SEC's new conflict minerals rules:

1. Who is responsible for conflict minerals compliance:
- Legal department - 45%
- Procurement - 35%
- Finance - 15%
- Other - 13%
- Don't know - 9%
- Not applicable, we are not an SEC registrant - 1%

2. Do you currently expect that you will be required to file a Form SD:
- No, we do not manufacture or contract to manufacture products - 11%
- No, conflict minerals are not necessary to the functionality or production of our products - 9%
- Yes, but we expect to conclude that all conflict minerals come from scrap, are recycled or originate outside the covered countries - 9%
- Yes, and we expect to rely on "DRC Conflict Undeterminable" - 22%
- Yes, and we expect to include an independent audit report - 5%
- Don't know - 42%
- Not applicable, we are not an SEC registrant - 2%

3. If you manufacture or contract to manufacture products and conflict minerals are only contained in your packaging, do you anticipate concluding that packaging is necessary to the functionality or production of your products:
- Yes - 7%
- No - 11%
- Don't know - 28%
- Not applicable - 54%

4. How far along are you in preparing for conflict mineral compliance:
- We're still in denial - 18%
- We've begun to analyze our products, but haven't begun implementing systems - 67%
- We've begun to revise our supply contracts to help comply - 2%
- We are very far along and don't believe compliance will be a problem - 5%
- Don't know - 2%
- Not applicable - 5%

Please take a moment to participate in this "Quick Survey on Internal Audit" and this "Quick Survey on Rules of Conduct for Board Meetings & Annual Meetings."

Conflict Minerals: Latest in the Lawsuit Against SEC's Rules

This Cooley news brief notes that filings have been made in the lawsuit against the SEC's conflict minerals rules, most of them procedural. The filings state that SEC has agreed to an expedited briefing schedule, with final briefs to be filed by March 29th. Note that Amnesty International has intervened in the lawsuit to support the SEC...

We now have over 80 memos posted in our "Conflict Minerals" Practice Area including this nifty flowchart.

More on "The Mentor Blog"

I 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:

- Judge Gets Into Online Disclaimers
- Update: Project to Enhance COSO's Internal Control Framework
- Canada Looks to Bolster Governance of Its Banks
- Bad Grades Are Rising for Auditors
- Second Circuit Eases Aiding and Abetting Standard for SEC

- Broc Romanek

Glass Lewis Finally Releases '13 Policy Updates to Public

Yesterday, Glass Lewis released its 2013 policy updates to the general public, a few weeks after it released them to its clients. We will be posting memos on the updates in the "Proxy Advisors" Practice Area.

Rumors Over SEC Chair Schapiro's Departure Intensify

Here is a WSJ article that speculates on whom the next SEC Chair could be...Mary John Miller, a top Treasury Department official who played a key role during the debt-ceiling debate. Here's an article outlining a speech that Mary Miller recently delivered on regulation...

SEC Brings Insider Trading Case Involving $276 Million Scheme

Yesterday, the SEC charged a hedge fund in a $276 million insider trading scheme involving a clinical trial for an Alzheimer's drug being jointly developed by two pharmaceutical companies. The illicit gains generated in this scheme make it the largest insider trading case ever charged by the SEC. Here are thoughts from David Smyth of "Cady Bar the Door" about the case...

- Broc Romanek

EU Proposes 40% Non-Mandatory Quota for Women on Boards

Last week, the European Commission proposed legislation with a target of 40% women on board, with exceptions for small and medium-sized companies. The proposal is not a mandatory quota. Under the proposed Directive, companies that fail to meet the standard would be subject to sanctions such as "administrative fines or the annulment of the appointment of non-executive directors." Here's a NY Times article about a pushback in the UK over the EU proposal.

Securities Fraud: SEC Socks BP for Half a Billion!

Last Thursday, as noted in this press release, the SEC charged BP with misleading investors while its Deepwater Horizon oil rig was gushing into the Gulf of Mexico by significantly understating the flow rate in multiple reports filed with the SEC. BP agreed to settle the SEC's charges by paying the third-largest penalty in agency history at $525 million. That's some serious coin!

But that's nothing. As noted in this NY Times article, BP agreed to pay over $4 billion and plead guilty to 14 charges from the DOJ. And three BP executives were individually charged with crimes. And the company could owe another $21 billion in pollution fines under the Clean Water Act. The coverup always is more costly than the crime. Here is a Glass Lewis blog about the saga...

The SEC's 2nd Annual Credit Rating Agency Report

Last week, the SEC issued its 2nd Annual Staff Report based on credit rating examinations. The Staff determined that with one exception, all NRSROs appropriately addressed the Staff's recommendations in the first annual report in 2011. In addition, the Staff announced a new initiative to highlight compliance issues at credit rating agencies between examinations.

- Broc Romanek

ISS Releases 2013 Voting Policies

Just as I was pushing the button on Friday morning to blog about Glass Lewis' '13 policies, ISS released their 2013 voting policies. ISS is holding a webcast on December 6th, by which time it is likely that ISS will have also issued a set of FAQs that flesh out the new policy updates. We have our own annual webcast with Pat McGurn coming up too - "Pat McGurn's Forecast for 2013 Proxy Season: Wild and Woolly." I'll be posting memos in our "ISS Policies" Practice Area.

Here are blogs summarizing the development from Towers Watson, Mike Melbinger, Davis Polk, Dodd-Frank.com Blog and Just Compensation.

The SEC's Annual Whistleblower Report: 3000 Tips in a Year

Last week, the SEC's Office of the Whistleblower published a report for its activities of for the past year - revealing that it received 3,000 whistleblower tips from all 50 states and from 49 countries, with the most common complaints being related to disclosures & financials (18%), offering fraud (16%) and manipulation (15%). The bulk of the tips inside the U.S. came from California (17%) with New York (10%) and Florida (8%) being right behind ("need some swamp land?"). The big news was that 143 enforcement judgments and orders potentially qualify for a whistleblower award.

SEC Still Has Reservations about IFRS

As this Accounting Today article notes, the SEC's "wait and see" approach to IFRS doesn't appear to be changing...

- Broc Romanek

Glass Lewis Releases 2013 Proxy Voting Guidelines

Last week, Glass Lewis made available it's 2013 proxy voting guidelines to its subscribers only. [ISS came out with their '13 policy updates this morning - I'll cover in Monday's blog.] Here's some analysis of the new guidelines from Towers Watson's Dan Kelly & Jim Kroll (I'm posting memos on GL's update in our "Glass Lewis Policies" Practice Area):

On November 8, Glass Lewis released its updated U.S. 2013 proxy paper guidelines, which immediately went into effect. The 2013 guidelines complement material compensation-related updates that went into effect this past July when Glass Lewis began sourcing peer companies for its pay-for-performance analyses from Equilar. (See "Glass Lewis Updates Its Pay-for-Performance Model.") Although the recent policy update primarily focuses on issues outside of executive compensation, there are some changes with potential implications for executive pay in the upcoming proxy season:

- Equity plans up for shareholder approval will be examined for share-counting provisions that understate the potential dilution or cost to common shareholders. Although an uncommon practice, Glass Lewis will now evaluate so-called inverse multipliers in fungible share reserves that result in grants of options or stock appreciation rights that are counted against the share reserve as less than one share.

- Board responsiveness to a negative shareholder vote will be under scrutiny any time 25% or more of shareholders vote against the recommendation of management on any proposal. The new general policy will require examination of any disclosures of the board's actions in response to shareholder concerns since the last annual meeting. Glass Lewis specifically noted that this policy will apply to compensation matters such as recent modifications to the design or structure of the company's executive compensation programs.

- In recommending negative votes in the absence of a committee chairman, Glass Lewis's policy has been to recommend that shareholders vote against the senior director (either the longest-serving member of the committee or, if one cannot be determined, the longest-serving board member on the committee). In a change from previous years, the 2013 guidelines call for Glass Lewis to recommend a vote against all directors if seniority cannot be determined. This policy will apply to all committees, including the compensation committee.

No other compensation-related updates were included in the release of the proxy advisor's U.S. 2013 guidelines. Conspicuously absent from the list of changes was any mention of further updates to say-on-pay voting guidelines or the incorporation of alternative pay definitions. As such, it appears that the Glass Lewis pay-for-performance and say-on-pay analyses were set for the 2013 proxy season after the July updates.

DOJ & SEC Jointly Issue FCPA Guidelines

On Wednesday, the DOJ's Criminal Division and SEC's Enforcement Division issued joint guidelines for companies navigating the Foreign Corrupt Practices Act. The 130 pages of guidance - entitled "A Resource Guide to the U.S. Foreign Corrupt Practices Act" - is arguably the most thorough review of anti-bribery compliance since the FCPA was originally passed in 1977. Here is the press release - and here are Enforcement Director Khuzami's remarks. We are already posting numerous memos in our "Foreign Corrupt Practices Act" Practice Area - and see this blog about declination opinions.

For those curious, here is an update on the status of DTC's flooded vault, which I blogged about last week.

Venture-Backed Companies: Corporate Governance & Disclosure Practices in IPOs

Recently, Wilson Sonsini wrote this 2nd annual report on the governance and disclosure practices of 50 venture-backed companies that went public from July 2011 through June 2012, including those related to directors and independence, board committees and policies, stock plans, key metrics and non-GAAP measures and defensive measures.

- Broc Romanek

SEC Finally Issues Hurricane Sandy Relief

Ever since the SEC announced a week ago that it was giving relief to those impacted by Hurricane Sandy, I have been blanketed with questions about what exactly are the parameters of the relief. As noted in this press release, the SEC finally issued an exemptive order spelling out those details of conditional relief in a wide variety of areas including '34 Act filing deadlines, S-3 & S-8 eligibility, Rule 144 public information criteria, proxy delivery requirements to impacted areas and more (eg. auditor independence requirements as they relate to reconstruction of previously existing accounting records for audit clients).

To get a sense of how the SEC works - which might help explain why it takes as long as it does to get an order like this out the door - tune in to our upcoming webcast: "How the SEC Really Works." Even if you work at the SEC, I think this program will be instructive as to how offices other than yours function...

The Latest SEC Enforcement Stats

Yesterday, the SEC issued this press release highlighting the victories of the Enforcement Division over the past year - including noting that the agency has brought financial crisis actions against 117 defendants over the past 2.5 years. Insider trading cases essentially were flat compared to the prior year. and there were 79 actions related to disclosure violations...

November-December Issue: Deal Lawyers Print Newsletter

This November-December issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:

- "But I Just Work Here!": The Rise of Corporate Officer Fiduciary Liability
- When Companies Combine: Object Lessons in Managing Leadership Succession
- Vintage Deal Tools Reemerge
- Analysis: Say-on-Golden-Parachute Voting
- Checklist: How to Handle Stockholder List Requests

If you're not yet a subscriber, try a "Free for Rest of '12" no-risk trial to get a non-blurred version of this issue on a complimentary basis.

- Broc Romanek

Notes from PLI's Securities Law Institute

I haven't personally made it to PLI's annual Securities Law Institute in perhaps 6-7 years now after being a mainstay for 15 years or so. But my goal is to make it next year. I will be at the ABA Fall Meeting this Friday. Anyways, PLI has blogged some of the highlights from last week's event, including:

- Update from the Division of Corporation Finance
- Ongoing Disclosure and Compensation Challenges
- Jumpstarting Capital Formation - the New Legislation and Other Developments
- Governance Challenges
- Enforcement Roundtable
- Ethical Issues with Whistleblowers and Investigations
- General Counsel Roundtable

I was very sad to hear that Jim Byrne, long-time corporate secretary for Bankers Trust - who retired a decade ago - has passed away. Here is his NY Times obit. Jim was one of the bright stars that drew me into the fold of the Society of Corporate Secretaries. When I was at the SEC, he arranged a trip for me and others to Wall Street to explain some of the mysteries of the process. A very kind man. My condolences to his family and friends.

Say-on-Pay: Now 60 Failures

I've added two more companies to our failed say-on-pay list on CompensationStandards.com for 2012 as Oracle and PMFG during the past week. We are now at 60 companies in '12 that have failed to garner major support. Hat tip to Karla Bos of ING Funds for keeping me updated.

Compensation Standards Newsletter: Fall Issue Now Available

We have posted the Fall 2012 Issue of our Compensation Standards newsletter that contains practical guidance pulled from our successful pair of executive pay conferences. With Dave Lynn, Mark Borges and I wrapping up the 2013 Edition of Lynn, Borges & Romanek's "Executive Compensation Disclosure Treatise & Reporting Guide"- all of the updated Chapters of the Treatise are already posted on CompensationStandards.com - we thought it was best to compile the Talking Points as our Fall issue since that guidance didn't make it into the Treatise.

If you wish to order a hard-copy of the Treatise, try this No-Risk Trial to the Hard-Copy of Executive Compensation Treatise.

- Broc Romanek

The List: The 16 Division Directors of Corp Fin

With the election behind us, the rumors over whether SEC Chair Schapiro is a short-timer will intensify. And when the SEC Chair changes, there often are other senior management changes.

Anyways, I've decided to create this list of the Directors for the Division of Corporation Finance, dating back to 1934 (before the Division had that name). This list surprisingly wasn't easy to create as the SEC nor the SEC Historical Society maintains one. The list is repeated below (and includes their term as a Director):

1. Baldwin Bane (1934 - 1952)

2. Byron "Barney" Woodside (1952 - 1960)

3. Manuel "Manny" Cohen (1960 - 1962)

4. Edmund "Ed" Worthy (1962 - 1969)

5. Charles "Charlie" Shreve (1969 - 1970)

6. Alan Levenson (1970 - 1976)

7. Richard "Dick" Rowe (1976 - 1979)

8. Edward Greene (1979 - 1981)

9. Lee Spencer (1982 - 1984)

10. John Huber (1984 - 1986)

11. Linda Quinn (1986 - 1996)

12. Brian Lane (1996 - 1999)

13. David Martin (1999 - 2002)

14. Alan Beller (2002 - 2006)

15. John White (2006 - 2009)

16. Meredith Cross (2009 - present)

I saw a sneak preview for "Life of Pi" last night. Wasn't expecting to like it given the previews and because I'm not a fan of 3-D. It was mind-blowing, both the story and the way the 3-D felt. I definitely recommend it. Look at this clip of the flying fish scene...

The Debate Over Cost-Benefit in Rulemaking Continues

Here is an article from the Washington Post analyzing the Senate debate over a pending bill that could force federal agencies to do even more cost-benefit analysis when conducting rulemaking...

What the Election Results Mean for Dodd-Frank?

Here is an article from the Washington Post analyzing the impact of the results on Dodd-Frank and all the rulemaking thereunder that still needs to get done...

- Broc Romanek

SEC Denies Motion to Stay Resource Extraction Rules

Here's news from Davis Polk's Ning Chiu from this blog:

In early October, the American Petroleum Institute, Chamber of Commerce, Independent Petroleum Association of America and National Foreign Trade Counsel had filed a complaint and a petition for review in the D.C. Circuit Court of Section 13(q) of the Exchange Act, which under Dodd-Frank required the Commission to issue rules mandating reports by resource extraction issuers relating to payments made to a foreign government or the U.S. federal government in order to further the commercial development of oil, natural gas or minerals. The plaintiffs later submitted a motion requesting that the Commission stay the effective date of the final rules.

The SEC has now issued an order denying the motion to stay the implementation of the rules. The SEC adopting rules require issuers to comply for fiscal years ending after September 30, 2013, with each annual report due no later than 150 days after the end of the most recent fiscal year, such that the first reports would be due on February 28, 2014, at the earliest. This timing largely drove the Commission's decision on this motion.

In denying the stay, the Commission indicates that they do not believe the plaintiffs have demonstrated imminent, irreparable harm, given that the court's expedited briefing and argument schedule may determine the validity of the rules as soon as spring 2013. The Commission was also unpersuaded by the plaintiff's claims of harm with respect to: (a) initial compliance costs to document the payment information required under the rule; (b) competitive disadvantage for new contracts; (c) detrimental effects on existing contracts where disclosure is prohibited; and (d) competitive harms resulting from competitors' use of the disclosed information. In addition, the Commission found that the plaintiffs have not demonstrated a likelihood of success on the merits of their petition, based on the Commission's view of the strength of the explanations set forth in the rule's adopting release.

Corp Fin May Recommend Proposal Mandating Disclosure About Political Spending

Cooley's Cydney Posner writes in this news brief:

The WSJ reports that Corp Fin is considering recommending a proposal that would mandate disclosure of corporate political spending and lobbying activities. According to the article, the idea for the proposal was triggered by a rulemaking petition submitted to the SEC last year by a group of academicians. The SEC has received over 300,000 comment letters on the petition. Currently, some companies voluntarily make disclosure about the uses of corporate resources for political activities, but there is no SEC requirement to do so, and most companies "are hesitant to disclose the donations, saying it is part of ordinary business operations." The petitioners argued that the information is necessary to allow investors to hold corporations accountable, especially since the decision in Citizens United. In addition to the petition, there is also pressure on Corp Fin from the Coalition for Accountability in Political Spending, and one of the SEC commissioners has given a speech advocating rulemaking. According to the article, there have also been a record number of shareholder proposals related to corporate political spending and lobbying activities submitted in the 2012 proxy season.

PCAOB Makes Progress on Chinese Audit Access

I've blogged several times about the PCAOB's challenges in gaining access to audits of Chinese companies listed on US exchanges (as well as blogged about the questionable audits of this companies). This Reuters article notes that there has been progress made in this area recently...

- Broc Romanek

Survey Results: Delegation of Authority

Here are survey results on delegation of authority practices:

1. Who is responsible for managing your company's delegation of approval authority process?
- Corporate secretary's office - 25.0%
- Legal department - 27.5%
- Individual business units are responsible for managing their own process - 12.5%
- Finance - 30.0%
- Other - 5.0%

2. On what does your company base its delegation of authority structure?
- Monetary thresholds - 90.0%
-Transaction type (e.g. acquisition, capital expenditure, procurement, etc.) - 70.0%
- Strategic impact - 0%
- Business risk - 15.0%
-Time/resource commitment - 2.5%
- Other non-monetary considerations - 7.5%

3. Which best describes your company's approach to delegation of authority?
- We have a single policy that uniformly applies to the parent company and subsidiaries - 57.5%
- We have a single policy with unique thresholds for the parent and/or particular subsidiaries - 25.0%
- We do not have a single policy and separately address delegation of authority at each subsidiary - 10.0%
- Not applicable as our company isn't structured into parent and subsidiaries - 5.0%
- Other - 2.5%

Please take a moment to participate in this "Quick Survey on Rules of Order for Board Meetings & Annual Meetings" and this "Quick Survey on Conflict Minerals."

September-October Issue of "The Corporate Counsel"

Last week, we wrapped up the September-October Issue of The Corporate Counsel and it includes pieces on:

- JOBS Act Update: SEC Proposes the General Solicitation Changes to Rule 506
- The Rule 144 Aggregation Tail--Donees' Sales Don't Affect Affiliate's Form 144 Filing Obligation
-Three-Month Form 144 Look-Back Includes Sales Covered by Prior Form 144
- Standing in the Affiliate's Shoes--Our Interpretive Request
- 2012 Year-end Tax Tip for Gifts of Stock and Other Charitable Giving
- Say-on-Pay Litigation 2.0
- The Staff's Annual SLAB on Shareholder Proposals
- Nasdaq Research Keeps Getting Easier (and Better)
- Compensation Consultant Fee Disclosure--"Additional Services" Include Those Rendered to Compensation Committee
- Farewell to XBRL Limited Liability for LAFs

Act Now: Get this issue for free when you try a 2013 No-Risk Trial today.

- Broc Romanek

JOBS Act: Comments on the SEC's General Solicitation Proposal

In the "Dodd-Frank Blog," David Jenson of Leonard, Street & Deinard gives us some indication of what the comment letters submitted to the SEC look like regarding its general solicitation proposal. Interesting stats from the states - as well as anonymous rants and personal attacks - are among those in the comment letters. And as noted in this Business Insider article, even Sen. Carl Levin (D-MI) submitted a terse comment letter (see this Cooley news brief on the Senator's letter)...

SEC Brings 1st Enforcement Action Against Emerging Growth Company

As noted in this NY Times article, the SEC recently brought an enforcement action against an emerging growth company that looks like was a complete fraud perpetrated by a disbarred lawyer. For those like me that thought Congress rushed the JOBS Act, "we told you so"...

Transcript: "Secrets of the Corporate Secretary Department"

We have posted the transcript for our popular webcast: "Secrets of the Corporate Secretary Department."

- Broc Romanek

How Much Does a GC Make? Equilar's General Counsel Pay Study

In my experience, there is no more widely read document than one that reveals how much others in similar situations make. It's the bling baby. $$$.

So folks should be excited to read Equilar's new study on general counsel pay. Here are the key findings:

- How Much - General Counsel's pay reaches $1.4 million. The median total compensation for General Counsels at Fortune 1000 companies, as reported in Equilar's 2012 Top 25 Survey, was $1,409,982. Chief executives' pay calculated for 2011 among S&P 500 companies revealed a median total pay figure of $9.6 million.

- Growth Rate - General Counsel's pay growth outpaces CEOs and CFOs in 2011. For the 136 General Counsels at Fortune 1000 companies that participated in both Equilar's 2012 and 2011 Top 25 Surveys, median total compensation increased 2.4 percent in 2012 compared to the previous year. In 2011, the increase was 12.8 percent. That growth is more than the 6.2 and 8.9 percent growth of S&P 500 chief executive and chief financial officers over the same time frame, respectively.

- Industry Breakdown - Technology and Media CEOs replace Finance as highest paid industry. Companies in the Technology, Media, & Telecom industry ($1,679,000), Food & Beverage industry ($1,527,000) and Finance & Insurance industry ($1,521,000) paid their General Counsels more than any other industry. Last year, the Finance & Insurance industry had the highest pay. The lowest paid industries in 2012 were Retail & Consumer ($1,146,000) and Business Services ($1,161,000).

- GC vs. Others - The General Counsel role is replacing operational executives in importance. The number of General Counsels identified as named executive officers among the S&P 1500 index has grown from 494 individuals in 2007 to 591 individuals in 2011, a 20.9 percent increase. The importance of the legal position appears to be pushing out the operational executives from the five highest paid positions as the number of chief operating officers and vice presidents of operations have fallen by 13.3 percent, a decrease from 835 in 2007 to 724 in 2011.

- Equity Levels - Most GCs receive at least two types of equity vehicles. 49.9 percent of General Counsels received two unique award vehicles, while 28.6 percent received three unique vehicles. The most common vehicles are time-based stock, time-based options, and performance-based stock which were granted to 63.5, 61.0, and 62.7 percent of the General Counsels, respectively.

- Law School Matters? - Harvard tops all law schools with the most alumni serving in General Counsel roles. The top 3 law schools attended by Fortune 500 General Counsels were Harvard, Georgetown University, and the University of Virginia with 16, 12, and 9 alumni, respectively. Those Law Schools are ranked as number 3, 13, and 7 by U.S. News and World Reports' Best Law Schools Rankings, respectively. The top ranked schools, Yale and Stanford, did not appear in the top 10.

- Gender Breakdown - More women serve as General Counsels than as Chief Executive Officers. Of the 175 General Counsels disclosed in public proxy filings, 148 were male and 27 were female (15 Percent). 3 percent of chief executive officers among S&P 1500 companies are female .

- Gender Pay Gap? - Male General Counsels receive 6.7 percent more pay than their female counterparts. The difference between median total compensation for male and female General Counsels at Fortune 500 companies was 6.7 percent, $2,263,577 for males and $2,120,764 for females.

Craziest Idea of All Time? "Human Capital Discussion & Analysis"

I've held off blogging on this "Human Capital Discussion & Analysis" proposal by the Society for Human Resource Management because the thing was so laughable that I couldn't take it seriously. But last month, the SHRM issued a second draft of its proposal. Wow!

The SHRM's proposal would need to be adopted by the American National Standards Institute and would require public companies to prepare a Human Capital Discussion & Analysis, along the lines of the CD&A and MD&A except the focus would be disclosure of almost every corporate cost associated with the hiring, retention, and training of employees and contingent workers, plus detailed information regarding how the company is organized and staffed. I'm not sure exactly how they would pressure the SEC to require this. The HR Policy Association has been keeping track of comment letters submitted on this, etc.

Our New "Business Disclosure Handbook"

Spanking brand new. Posted in our "Business Disclosure" Practice Area, this comprehensive "Business Disclosure Handbook" provides a heap of practical guidance about Item 101 of Regulation S-K. This one is a real gem - 31 pages of practical guidance...

- Broc Romanek

Hurricane Sandy: SEC Gives Deadline Relief

If you've interacted with anyone up in the NYC or New Jersey areas, you know how bad it still is for those impacted by Hurricane Sandy. Late yesterday, the SEC posted the following announcement:

In a continuing effort to provide assistance to individuals and entities attempting to comply with filing and other obligations under the federal securities laws in the aftermath of Hurricane Sandy, the SEC today said it is preparing relief measures that would extend filing deadlines for those affected by Hurricane Sandy and its aftermath.

On October 29, 2012, the Commission posted notice on its website that it understood filers may have difficulty making filings and that the staff would handle requests for filing date adjustments on a case-by-case basis. SEC staff are preparing relief measures that are expected to include extensions of filing deadlines for any filing due during the period from October 29, 2012 to November 20, 2012 for publicly traded companies, investment companies, investment advisers, other persons with filing obligations, accountants, brokerage firms, and transfer agents, among others. It is anticipated that the deadline for any such filing would be extended to November 21, 2012, and the scope of the relief measures would extend to any individual and entity with a filing obligation that cannot file timely due to Hurricane Sandy and its aftermath. The staff will also consider requests for additional relief on a case-by-case basis.

Election Night Guide 2012

Pillsbury has put together this easy-to-read "Election Night Guide 2012."

Political Spending Disclosure (Like Political Spending) Is on the Rise

Here's news culled from this Blank Rome newsletter (I know I blogged about this before but bears repeating on Election Day):

The 2010 Supreme Court decision in Citizens United unleashed political spending by corporations and the 2012 elections are expected to be the most expensive ever. The Center for Political Accountability (CPA) and The Zicklin Center for Business Ethics Research recently issued their 2nd Annual Index of Corporate Political Accountability and Disclosure. The Index analyzes the manner in which S&P 200 companies are navigating corporate political spending after Citizens United based on the practices and policies of these companies as publicly disclosed on their websites. The Index sponsors believe that disclosure of corporate spending gives investors the facts needed to evaluate whether such spending is in the best interests of shareholders, identifies possible sources of risk and helps ensure meaningful and effective board oversight.

Highlights of the 2012 Index include:

- Many companies have increased their level of disclosure; of the 88 companies studied both in 2011 and 2012, 85% improved their overall scores for political accountability and disclosure, with the most improved, Costco, going from a score of 3 (out of 100) in 2011 to 85 in 2012;
- Almost half (47%) of the companies studied reported their contributions to candidates, parties and "super-PACS," 11% reported that they make no such contributions and 42% made no disclosures;
- More than half (57%) provided a full political spending policy on their website, 32% gave brief policy statements and 11% made no such disclosures;
- More than half (56%) reported that the board of directors regularly oversees political spending, 48% reported that a board committee regularly reviews company policy on political spending and 46% said that a board committee reviews company political expenditures;
- Smaller companies were less likely to provide full disclosure of political spending and board oversight;
- The highest scoring companies (based on a scale of 0 to 100) were Merck (97), Microsoft (94), AFLAC (93), Gilead (92) and Exelon and Time Warner (each tied with 88); and
- 18 companies were tied for last with a score of 0.

After all the data is in, we can expect that the amount of corporate political spending in 2012 will surpass all previous records and that there will be continued calls for disclosure. Accordingly, we expect that corporate governance "best practices" will soon require public companies to voluntarily disclose on their websites or through their SEC reports, information on their policies on political contributions and the amounts of such contributions. Companies not presently making such disclosures should consider "electing" to make them in the future.

- Broc Romanek

Hurricane Sandy: DTC Might Have $1.3 Trillion in Damaged Stock Certificates!

Wow! Did you see this press release from DTC? Haven't seen much about it online at all, just this short blurb from the Financial Times:

Trillions of dollars of stock certificates are feared ruined after Hurricane Sandy flooded a vault at the Depository Trust & Clearing Corp, the Wall Street-owned organization that manages important parts of the U.S. trading infrastructure. The DTCC houses 1.3m paper certificates for shares, bonds and other financial instruments, including foreign securities, at the organization's headquarters in Manhattan's financial district.

As businesses in the affected areas continued efforts to pump out flooded basements, the DTCC admitted on Thursday that its vault remained underwater and officials had still not been able to assess the damage. "The building itself remains inaccessible and will be until power is restored and an on-site health and safety inspection can be completed," it warned in an email alert to its clients. It has suspended processing of physical certificates for an indefinite period.

Adding to the confusion, the DTCC also said that it was still trying to track down certificates that were in the mail over the period of the storm. Couriers are experiencing disruptions of their own and could take several days to reroute deliveries to DTCC's alternative sites. A spokeswoman added that it had electronic records of all the certificates, which could be reissued. "Hindsight is 20/20. We have taken a lot of precautions, in terms of protection both for the security of our systems and of our records, and we have a full inventory of the certificates, as well as a robust recovery plan."

DTCC is used by the financial industry for clearing and settling trades, and it houses stock certificates so that they do not usually have to be posted around the country from investor to investor. The vast majority of trades are now recorded electronically without certificates moving at all. The organization said that it switched its systems to back-up servers and was dealing with electronic trades as normal out of offices in Dallas, Texas, Tampa, Florida and Brooklyn, New York. More than 1,000 of its New York employees are working from home.

In recent years, the DTCC has spearheaded an effort to encourage electronic-only share and bond issuance, so the proportion of securities that exist in paper form has declined. The organization has further encouraged the process by encouraging "dematerialization", where certificates are converted to electronic format. In a white paper earlier this year, it said that it cost the financial industry almost $300m to replace $16 billion of certificates that disappeared in the collapse of the World Trade Center in 2001.

A friend claims that stock certificates are printed on special paper that can be laundered - meaning I guess the damage would be minimal. But that doesn't seem to come out in DTC's press release (here is the latest on DTC's operations).

Disney's Proxy Access Shareholder Proposal

Recently, Disney submitted a no-action request in response to a shareholder proposal on proxy access. It looks like the proposal came from a London-based firm called Legal and General Assurance (Pensions Management) Limited, but ultimately from Hermes Equity Ownership Services (the letter says Hermes is the "client") which is a European-based fund again that's active. Maybe this proposal preempted one that I thought Disney got jointly from CalPERS and three other funds...

Meanwhile, Jim McRitchie reports that the United States Proxy Exchange (USPX) has suspended its central activities. USPX was a leader in filing shareholder proposals related to proxy access last season.

Atlas' Networking Potential

In this podcast, Dave Chun of Equilar explains what Atlas is and how it can help you leverage professional networks (you can try a free trial), particularly for boards, including:

- What is Atlas?
- What was your goal in creating it?
- Any surprises so far since it went live?

- Broc Romanek

More on "Impact of Hurricane Sandy on Your Disclosures"

Yesterday, I blogged about how Hurricane Sandy could impact your disclosures. Here is more on that topic from Goodwin Procter's John Newell, particularly for your next Form 10-Q:

Form 10-Q Disclosure and Sandy

Many of our public company clients are preparing to file their quarterly reports with the SEC. This message highlights the possibility that "Superstorm" Sandy is likely to affect these clients in a variety of ways. Although most companies have only just begun preliminary action to assess the impact of the storm, public companies will want to consider possible MD&A disclosure of the potential effects of Sandy, as well as related disclosure and other securities law issues. As a starting point for evaluating these matters, the SEC disclosure principles and related issues that should be considered include the following:

1. MD&A Speaks as of the Filing Date

The SEC has made clear that MD&A must discuss and analyze a company's financial condition and results of operations, including any known facts, trends or uncertainties, as of the date of filing, rather than the end of the fiscal period covered by the report.

Public companies should therefore consider including MD&A disclosure about the potential effects of Sandy in their Form 10-Q reports for the quarter ended September 30, 2012 if the report is filed after the date(s) on which Sandy affected the company's business, properties and/or financial status. Note that "risk factor" or other cautionary disclosure alone may not be adequately responsive to SEC requirements for an event that has already happened, even though the impact is currently unknown or uncertain. To the extent that the company's disclosure includes estimates or other quantitative information, cautionary disclosure about the possibility of that information changing as more facts develop should be considered.

2. Two-Step MD&A Disclosure Test

The SEC has also made clear that the required test for MD&A disclosure of known facts, developments, trends, demands, commitments, events or uncertainties is the test first announced in the 1989 MD&A Interpretive Release. Where a trend, demand, commitment, event or uncertainty is known, management must make two assessments:

First: Is the known trend, demand, commitment, event or uncertainty reasonably likely to come to fruition?

Second: If management cannot determine that the trend, demand, commitment, event or uncertainty is not reasonably likely to occur, management must evaluate materiality objectively on the assumption that it will come to fruition.

Disclosure is required unless management can determine that it is not reasonably likely to have a material effect on the company's financial condition or results of operations. This test, rather than the Basic v. Levinson materiality test (balancing of probability and magnitude), should be used for this MD&A disclosure.

Since Sandy is for nearly all companies a historical fact at this time, most companies will need to consider the potential effects of Sandy using the second test and include appropriate disclosure in their MD&A disclosure.

Because of the very short interval between the date of the storm and the due date for Form 10-Q reports, it is likely that many companies will be unable to make definitive or specific statements about the effects of Sandy. Among other things, the internal and external resources (such as engineers and insurance adjusters) required to begin a definitive assessment are likely to be subject to extremely limited availability for some time. As a result, it may be difficult for companies to establish reasonably accurate estimates of damages and/or uninsured losses; even approximate estimates or ranges may be difficult at this point and may take significant time to establish. These factors should be considered in drafting any disclosure relating to the effects of the storm.

Although the discussion above focuses on potential disclosure of adverse impacts, some public companies may experience increased demand for their products or services, which could lead to disclosure about possible favorable material effects (for example, building supply, construction and engineering/remediation companies; manufacturers of switches/signals/controls for transit systems; manufacturers of transformers and other components for the power grid). Other companies may benefit from increased consumer spending to replace damaged items, resulting in unexpected positive business developments, while companies whose business relies on discretionary consumer spending (for example, clothing) may see unanticipated negative business developments as discretionary consumer spending is redirected to spending related to storm damage. Each company will need to evaluate the need (and content) of potential disclosure based on its specific facts.

3. Form 8-K Item 2.02 Filing Requirement

Companies should be aware that the reporting requirements of Form 8-K Item 2.02 are triggered by the disclosure of material non-public information regarding a completed fiscal period. If a company releases additional or updated material non-public information regarding a completed fiscal period (for example, if the company issues a press release updating previously-released information relating to a completed fiscal period), that release will trigger an additional Item 2.02 filing requirement.

4. Other Possible Issues

A. Insider Trading. Companies should remember that to the extent that material information develops after the date on which the Form 10-Q is filed they may need to evaluate whether the company's insider trading policy and applicable SEC insider trading requirements would affect the ability of insiders to buy or sell the company's securities.

B. Guidance and Projections. Companies should also be aware that the effects of Sandy may cause guidance they give now or have given before to become incorrect. In appropriate cases, companies should consider highlighting the fact that their guidance does not include any estimates for the effects of Sandy. If companies choose to include an estimate for these effects, they should be alert to the possibility that it may be appropriate (or in some cases necessary) to update that guidance as more facts become known.

How to Request a Filing Date Adjustment for a Late Filing

Here is the skinny from Vanessa Schoenthaler's blog...

Hurricane Sandy: Should the NYSE Have Been Shut Down?

There has been some debate in the mass media about whether the NYSE should have shut down for two days due to Hurricane Sandy. Here are some of those articles:

- Bloomberg's "NYSE's Closing to 'Shake Image' for Exchange, Levitt Says"
- WSJ's "If You Think Sandy Was Brutal, Try Critics of the New York Stock Exchange"
- CNN's "How Wall Street went to work with the lights out"

Second Circuit Addresses Insider Trading Duty under Misappropriation Theory

In law school, my favorite part of the securities law class dealt with the emerging misappropriation theory. Here is a blog from David Smyth about the latest case, dealing with tipping by those that conducted due diligence for a possible deal...

- Broc Romanek

Impact of Hurricane Sandy on Your Disclosures

As with all disasters, the potential impact on your disclosures must be evaluated (Howard Dicker in NYC shares this eye-popping video of flooding). Here is some commentary from Yelena Barychev Blank Rome's blog on this:

A few SEC filings made this week reflect the effect of Hurricane Sandy ranging from postponing or cancelling quarterly earnings calls to extending the deadline of a tender offer. In addition, in response to Hurricane Sandy, some companies qualify their guidance in earnings press releases by excluding losses due to the impact of the hurricane if a significant portion of the company's revenues is derived from the areas affected by Hurricane Sandy.

Some forward-looking statements in earnings press releases reference the impact of Hurricane Sandy as one of the risks and uncertainties which could cause actual results to differ materially from those projected.

While we are in the midst of the 10-Q season, companies affected by Hurricane Sandy should also evaluate whether they need to include in Form 10-Q a risk factor related to the potential impact of the hurricane on their results of operations and financial position.

ISS Extends Policy Comment Deadline to November 9th

ISS has extended its deadline to submit comments on its draft '13 policies to November 9th.

Our November Eminders is Posted!

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

Conflict Minerals Poll: Are You Using a Process Design Consultant?

Lawrence Heim of Elm Consulting sent over this interesting set of anecdotes entitled "" that Emerging Dangers of Benchmarking Your Conflict Minerals Program" that bears reading.

Meanwhile, we had an interesting query in our "Q&A Forum" yesterday (#7397) about whether companies were hiring consultants to help them sort out the design & processes necessary to capture the conflict minerals data. I posted an answer but thought I would poll our readership since this wasn't in our "Quick Survey of Conflict Minerals" that will wind up soon...