This just in! In this 20-minute podcast, Dave Lynn and Marty Dunn engage in a lively discussion of the latest developments in securities laws, corporate governance and pop culture, including:

- Analysis of the new shareholder proposal decision in Apache Corporation v. John Chevedden
- What are the proxy disclosure trends under the new rules
- What Marty and Dave would be doing if they weren't securities lawyers (hint: Marty gets his hands dirty!)

The Senate's Say-on-Pay Bill: Lots to Chew On

As Senator Dodd races to release his comprehensive financial regulatory reform bill on Monday in the Senate (without Republican support according to this announcement), it is believed that the say-on-pay part of that package has already been unveiled - courtesy of Sen. Robert Menendez, D-NJ - in the form of S. 3049, "The Corporate Executive Accountability Act of 2010." Senator Menendez, a member of the U.S. Senate Banking Committee, introduced his bill a few weeks ago - and I've seen reports that it's expected to be part of the Democrat's larger reform package (but it's possible it could be changed before then of course).

Under the Menendez bill:

- Shareholders at public companies would have a nonbinding vote on the proxy disclosure of compensation packages for the company's named executive executives
- Shareholders would have a nonbinding vote on the merger proxy disclosure of golden parachute arrangements for the company's named executive executives
- Investment managers would annually have to disclose how they voted on the two items above
- SEC required to adopt rules eliciting internal pay ratio disclosure from publicly traded companies (ie. disclose the ratio of pay for CEOs compared to the median of all employee's pay)
- Stock exchanges would required to adopt listing standards giving regulators and investors authority to clawback incentive-based compensation from executives if the company has a restatement due to material noncompliance of the company (the "misconduct" standard would be struck from Sarbanes-Oxley)
- A "senior" executive officer "terminated for cause" (which is defined in this Act) would be barred from receiving a severance package as determined by the company's board
- Section 16 would be amended to limit executive officers from selling more than certain amounts of vested equity compensation; the bill has a 4-year formula where only 20% could be sold after the first year of vesting, 40% after the second year; 60% after the third and 80% after the fourth)

As noted in this article, one sticking point for the Republicans in a reform bill is proxy access. The prospects for Sen. Dodd's bill being passed is mixed right now...

Our "Q&A Forum": The Big 5500!

In our "Q&A Forum," we have reached query #5500 (although the "real" number is really much higher since many of these have follow-ups). I know this is patting ourselves on the back, but it's over eight years of sharing expert knowledge and is quite a resource. Combined with the Q&A Forums on our other sites, there have been over 18,000 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.

- Broc Romanek

Just hours after supporters of John Chevedden issued this press release predicting victory, Judge Lee Rosenthal in Federal District Court for the Southern District of Texas delivered this 30-page order and memorandum in an expedited manner allowing Apache Corporation to exclude Chevedden's shareholder proposal by granting the company's motion for declaratory judgment (and denying Chevedden's motion). After the decision, Chevedden supporters issued this press release saying that the bigger picture of the order tilted the "split-decision" in Chevedden's favor.

As noted in this blog (with follow-ups in this blog), Apache filed this novel lawsuit rather than attempt to exclude the proposal through the normal SEC channels - thereby challenging a position of the Staff regarding the use of introductory letters from brokers as evidence of ownership under Rule 14a-8(b). All the various documents filed in court during this case are in our "Shareholder Proposals" Practice Area.

Post "Apache v. Chevedden": What Will Companies (and the SEC) Do Now?

With the Apache's court decision now behind us, one must wonder "What do you think the SEC Staff will do now?" It's likely that a number of companies received letters from Chevedden with proof of ownership from an introducing broker, but not all of them from the same entity involved here or with the same inadequacies that drove this judge to allow the exclusion (the judge didn't rule on what Chevedden would have been required to submit to prove ownership under Rule 14a-8).

Since we are late into the proxy season, timing can be an issue even if a company hasn't mailed its proxy materials yet. Although the shareholder proposal rule has a 80-day deadline for a company to submit an exclusion request, Rule 14a-8(j) provides the SEC with the ability to make an exception if a company demonstrates good cause for not filing the exclusion request earlier as follows:

Rule 14a-8(j): Question 10: What procedures must the company follow if it intends to exclude my proposal?

1. If the company intends to exclude a proposal from its proxy materials, it must file its reasons with the Commission no later than 80 calendar days before it files its definitive proxy statement and form of proxy with the Commission. The company must simultaneously provide you with a copy of its submission. The Commission staff may permit the company to make its submission later than 80 days before the company files its definitive proxy statement and form of proxy, if the company demonstrates good cause for missing the deadline.

In her order, Judge Rosenthal provides a basis for the SEC allowing companies to file late exclusion requests - since the Staff would not have decided those requests if they had submitted earlier anyway due to this pending lawsuit - but it's possible the SEC could reject companies that file last-minute exclusion requests, partly because the SEC is behind in processing exclusion requests this year due to the snow. Remember that, five years ago, the SEC expounded on what might be "good cause" in Staff Legal Bulletin No. 14B. So this timing issue is an unknown quantity at this point.

Also, it's unclear what application the case has beyond its specific decision, since the Judge noted her opinion is narrow - and yet it could be argued that some of her reasoning throws into question the SEC's Hains position and other forms of proof of ownership. So the waters are a little murky here too.

The reality is that it's too late for most companies that have received proposals from Chevedden as they have already printed or will be printing soon. We'll be providing more analysis of this decision as it definitely has application beyond this proxy season.

How ShareGift USA Collects Odd Lots for Charity

In this podcast, Barbara Vogelstein of ShareGift USA and Andy Brownstein of Wachtell Lipton discuss how ShareGift USA collects odd lots of shares, aggregates them and gives the money to charity, including:

- What is ShareGift USA?
- How does it work in practice? How can companies get comfort that there are no securities issues?
- What can corporate secretaries and in-house counsel do to help?

- Broc Romanek

The bid price grace periods are running out for quite a few Nasdaq companies next week. In this podcast, Dave Donohoe of Donohoe Advisory Associates explains the impact of that as well as other Nasdaq delisting issues, including:

- How is Nasdaq dealing with bid price deficient issuers in the delisting hearing process?
- Is it possible to delay implementing a reverse stock split once you are in the hearing process?
- Have any significant rule filings related to delistings been adopted by Nasdaq recently?
- How is Nasdaq applying its reverse merger rule?
- Are there particular issues that companies should be aware of when transitioning from Nasdaq or Amex to the OTCBB or the Pink Sheets? Are there other over-the-counter options available?

Broadridge Enters Transfer Agent Business

Game on! Yesterday, Broadridge announced it acquired StockTrans, thereby moving into the stock transfer business for small- and mid-size companies. Broadridge's move into the transfer agent biz seems like a natural extension of the proxy management and shareholder communication services that the company currently provides to companies and should make it more easy for client companies to communicate with their own shareholders.

As I've been saying for a while, I normally don't recommend a stock to buy since I'm certainly no expert - but buying BR sure has made sense for me as it's nearly doubled over the past year.

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:

- Framework: Succession Planning Discussion by Boards
- Law Firms and Their Dead Pages
- Recent Court Case Confirms the Importance of Well Drafted Forward-Looking Statement Disclosure
- Auditor Engagement Letters: Time for a Review
- What Has Your Bar Done for You Lately?

- Broc Romanek

As we all anxiously await for Senator Dodd's draft financial markets reform bill - expected this week - and find out what survived the behind-the-doors horsetrading, I thought I'd not that for a while now, as noted in this Business Week article, a Committee has been pushing to create a new "National Institute of Finance," which would be an independent research institute that would support the existing federal agencies that deal with financial institutions. Now that dream is coming closer to reality as Senate Bill S.3005 was introduced recently by Sen. Jack Reed for just that purpose. Here is Senator Reed's statement.

I agree that the federal agencies need to better coordinate - but creating an entirely new agency to serve as the back office seems like it will create waste and turf wars. Better to build up the research capabilities of the existing agencies IMHO. Not to mention that I can't bear the thought of a federal agency with "Institute" in the name. Sounds straight out of a cartoon...

Security of Board Communications

In this podcast, Kris Veaco of the Veaco Group runs down some frequently-asked questions about how to keep board communication secure, including:

- For hard-copy board materials, what methods of delivery are used and are considered "secure" (i.e., Fedex, courier service, etc.)? Should a signature be required for home deliveries?
- Regarding electronic delivery of board materials, what are the security risks of using regular e-mail, and what are some more secure electronic delivery alternatives (i.e., board portals, e-mail encryption, encrypted CDs or flash drives, etc.)?
- For board/committee teleconferences, how do you ensure a teleconference system is secure?
- Should a board have an informal policy about directors e-mailing each other and with management?

Poll: Do You Remember the "Big 8" Audit Firms?

With the consolidation of the auditing profession now far in the rear mirror, I thought I poll on the identities of the "Big 8" audit firms - which were indeed the primary eight firms for most of the 20th century, until they became the "Big 6" after 1989 - was in order. See if you can pick five of the "Big 8" in the poll below - in other words, only five of the ten listed in the poll were part of the "Big 8" and you will only be able to make five selections:

As the SEC pushes every association known to humankind to make a big deal of their new "Proxy Matters Spotlight" page, some companies are trying novel ways to alert shareholders to the change in the NYSE's Rule 452. For example, Boeing just filed this preliminary additional soliciting material consisting of a card notifying shareholders of the recent change in the ability of brokers to vote in director elections. This card is being sent in advance of the proxy materials. [And as a Boeing shareholder I received an email about this letter a few days ago from Schwab (probably written by Broadridge and not Boeing); a follow-up blog is warranted regarding the deficiencies of that email. Coming soon.]

Boeing's shareholder letter is a noble effort - but I still think bigger measures are gonna be needed to increase voting levels (as I've blogged before). Thanks to Kevin O'Neil of Vorys for bringing the Boeing notice to my attention.

Congrats to local Sandra Bullock for her "The Blind Side" Oscar. My family has experienced something similar to that movie's theme over the past year. We welcomed a 21-year old Sudanese man - Deng - into our home (along with another family up the street) and his English has improved remarkably. And he passed his citizenship test last week. It's been one of the most rewarding experiences of my life. Here is Deng giving remarks at a surprise party his extended family held for him.

Corporate Governance Trends: Survey Results

Recently, Shearman & Sterling released its annual survey on corporate governance practices of the 100 largest US public companies. Among the trends described in the survey are:

- In the past three years, more than half of the Top 100 Companies have abandoned the plurality voting standard for director elections in favor of a majority voting standard, with 75 of the Top 100 Companies now with a majority voting standard in place.
- The number of companies that have separate people serving as CEO and chairman of the board continues to rise, increasing from 28 to 31 from 2008 to 2009. While 75 of the Top 100 Companies address the topic of whether the two offices should be separated, only 7 of those companies have adopted an explicit policy of splitting the two offices. And of the Top 100 Companies, 69 still have their CEO also serving as chairman of the board.
- With the increased complexity of board membership and decision-making, companies continue to limit the number of outside boards a director may serve on. For the second year in a row, 92% of companies addressed the issue of outside board membership, way up from just 76% in 2004.
- In 2009, 55 of the Top 100 Companies included governance-related shareholder proposals in their proxy statements.
- Of the Top 100 Companies, only 10 have a shareholder rights plan or "poison pill," down from 33 just five years ago.
- E-proxy notification continues to gain in popularity. Fifty-seven of the Top 100 Companies now use an e-proxy "notice-and-access model," way up from 35 just a year ago.
- Say-on-pay proposals were presented at 44 of the Top 100 Companies and at over 100 other US public companies. The proposals were approved at 8 of the Top 100 Companies and received majority approval at approximately 10 other US public companies.
- The number of Top 100 Companies that publicly disclosed that they maintain a "clawback policy" has significantly increased over the last three years―35 companies in 2007, 50 in 2008 and 56 in 2009. An additional five Top 100 Companies have disclosed that they have adopted clawback polices that became effective in 2009.

More on our "Proxy Season Blog"

With the proxy season in full gear, we are posting 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:

- More on "Diversity Policies: Do You Need One? Samples Available"
- Delaware Law: How to Count Abstentions and Broker Non-Votes
- Proxy Access: Seven Law Firms Comment on "Opt-Out"
- Survey: Number of Investors Holding 1% of a Company's Stock
- Suing for Attorney Fees: Causing Company to Add Proxy Disclosure
- RiskMetrics Group Releases 2010 Proxy Season Watchlist

- Broc Romanek

Several times over the past six months, I have noted potential issues with New York's new power of attorney law (egs. this blog - and this one). Cravath, Swaine & Moore recently informed me that it has been considering various issues raised by law and has concluded that, based on principles of statutory construction, this new statute is best understood as not applying beyond powers of attorney that convey to the agent power over the principal's money and property. Understood in this light, the statute does not apply to powers of attorney that only authorize signatures required in SEC filings. These include powers of attorney used in registration statements and annual reports on Form 10-K, as well as Section 16 filings. Here are more thoughts from Cravath:

The Statute speaks of two types of power of attorney - the "statutory short form power of attorney" and a "non-statutory power of attorney" - and then directs that, among other requirements, these two types of power of attorney must contain the "exact wording of the 'Caution to the Principal'" that is set forth in the Statute. The "Caution to the Principal" reads: "As the 'principal,' you give the person whom you choose (your 'agent') authority to spend your money and sell or dispose of your property during your lifetime without telling you."

The Statute does not provide that these two types of power of attorney are the only types of power of attorney recognized in New York, nor does the Statute define "non-statutory power of attorney". The obligation to include the "Caution to the Principal" legend with any power of attorney governed by the Statute reveals the necessarily limited scope of the term "non-statutory power of attorney" and thus the limited reach of the Statute.

Cravath's analysis concludes that, in light of the legend, the Statute should be interpreted to regulate only powers of attorney that convey authority to the agent to spend the principal's money and to sell or dispose of the principal's property. Otherwise, one would have to accept:

(a) that the Statute requires the inclusion of a false legend, which would be an absurd result and a reading that is inconsistent with basic principles of statutory construction, or

(b) that the Statute requires that every power of attorney executed by an individual in New York must convey power over the principal's money and property, which would be an absurd result in the absence of any evidence in the Statute or legislative history of the legislature's intent to effect such a dramatic change in the law would be even more absurd given the clear intention of the legislature in enacting the Statute to protect individuals from the abuse of that power by their agents, or

(c) that notwithstanding the plain words of the Statute a valid "non-statutory power of attorney" does not require the "Caution to the Principal" legend unless it includes power over the principal's money and property.

Rather than be forced to adopt any of these absurd interpretations or ignore the plain words of the Statute, our analysis suggests a more straight-forward result - the otherwise undefined term "non-statutory power of attorney" should be interpreted not to cover powers of attorney unless they convey authority to the agent to spend the principal's money and to sell or dispose of the principal's property.

Treasury Proposes "Volcker Rule" Legislative Text

On Wednesday, the Treasury Department proposed legislative text to implement the "Volcker Rule" announced by the Obama Administration back in January. This Davis Polk memo briefly summarizes the provisions of Treasury's proposal, which takes the form of new Sections 13 and 13a of the Bank Holding Company Act of 1956.

SEC Adds Six New XBRL FAQs

Yesterday, the SEC posted six new items (Q. 36-41) to its XBRL Staff Interpretations and FAQs. Note that on March 23rd, the SEC is holding a free XBRL seminar.

- Broc Romanek

Below are the results from a recent survey we conducted on the topic of proxy drafting responsibilities (including items such as the amount of time consumed):

1. The following takes the lead in drafting the proxy statement at our company (excluding the executive compensation disclosures):

- In-house Securities Attorney - 63.4%
- In-house Human Resource Staff - 1.0%
- In-house Accounting Staff - 3.0%
- General Counsel - 11.9%
- Corporate Secretary/Assistant Corporate Secretary - 18.8%
- Outside Counsel - 1.9%
- Outside Consultant - 0.0%
- Other - 1.9%

2. The following takes the lead in drafting the CD&A/other executive compensation:
- In-house Securities Attorney - 45.9%
- In-house Human Resource Staff - 29.4%
- In-house Accounting Staff, including CFO - 1.8%
- General Counsel - 12.8%
- Corporate Secretary/Assistant Corporate Secretary - 11.0%
- Outside Counsel - 4.6%
- Outside Consultant - 1.8%
- Other - 1.8%

3. The following provides significant assistance in drafting the CD&A/other executive compensation disclosures:
- In-house Securities Attorney - 32.4%
- In-house Human Resource Staff - 32.4%
- In-house Accounting Staff, including CFO - 18.1%
- General Counsel - 14.3%
- Corporate Secretary/Assistant Corporate Secretary - 17.1%
- Other NEO(s) - 0.9%
- Outside Counsel - 21.0%
- Outside Consultant - 8.6%
- Other - 4.8%

4. The following are involved in reviewing and providing comments on the draft CD&A/other executive compensation disclosures:
- In-house Securities Attorney - 38.6%
- In-house Human Resource Staff - 46.6%
- In-house Accounting Staff, including CFO - 54.6%
- General Counsel - 54.6%
- Corporate Secretary/Assistant Corporate Secretary - 37.5%
- Other NEO(s) - 38.6%
- Outside Counsel - 60.2%
- Outside Consultant - 42.1%
- Communications Staff - 19.3%
- Independent Auditor - 20.5%
- Other - 15.9%

5. For the lead drafter, the following is the estimated amount of time devoted to drafting proxy disclosures for this year:
- Less than 100 hours - 14.5%
- 100-200 hours - 53.0%
- 200-300 hours - 16.9%
- 300-500 hours - 6.0%
- Too many hours to even estimate - 9.6%

6. For all those involved in drafting proxy disclosures (including the lead drafter as well as people outside the company), the following is the estimated amount of time devoted to drafting proxy disclosures for this year:
- Less than 100 hours - 3.5%
- 100-200 hours -14.9%
- 200-300 hours - 32.2%
- 300-500 hours - 24.1%
- 500-700 hours - 9.2%
- Too many hours to even estimate - 16.1%

Please take a moment to respond anonymously to our "Quick Survey on 'More on Blackout Periods'."

Warren Buffett's Annual Letter to Shareholders

As noted by Kevin LaCroix in his "D&O Diary Blog," Warren Buffett's annual letter to shareholders is now available. Straight talk at its best...

CII's White Paper on Proxy Plumbing

Recently, CII issued this 48-page White Paper - entitled "The OBO/NOBO Distinction in Beneficial Ownership: Implications for Shareowner Communications and Voting" - that reviews a number of the problems with the current proxy processing system and discusses several of the reforms which have been proposed by various stakeholders. This is a good read as it serves as one of the better outlines of proxy mechanics and the issues involved in today's debate over the process. Interestingly, the paper's authors are from a law firm (Cleary Gottlieb's Alan Beller, Janet Fisher and Rebecca Tabb).

- Broc Romanek

We just posted the registration information for our popular conferences - "Tackling Your 2011 Compensation Disclosures: The 5th Annual Proxy Disclosure Conference" & "7th Annual Executive Compensation Conference" - to be held September 20-21st in Chicago and via Live Nationwide Video Webcast. Here is the agenda for the Proxy Disclosure Conference (we'll be posting the agenda for the Executive Compensation Conference in the near future).

Special Early Bird Rates - Act by April 15th: With anger over CEO pay at record levels, Congress and the regulators are intent on shaking things up and huge changes are afoot for executive compensation practices and the related disclosures - that will impact every public company. We are doing our part to help you address all these changes - and avoid costly pitfalls - by offering a special early bird discount rate to help you attend these critical conferences (both of the Conferences are bundled together with a single price). So register by April 15th to take advantage of this discount.

Corp Fin Revises the Non-GAAP Section of Its "Financial Reporting Manual"

Yesterday, Corp Fin posted a revised version of its "Financial Reporting Manual" with revisions to "Topic 8: Non-GAAP Measures of Financial Performance, Liquidity and Net Worth" to include "Section 9500: Critical Accounting Estimates-Goodwill Impairment" and other changes.

On Friday, the SEC posted the 334-page adopting release related to amending Regulation SHO and short selling.

Delaware Chancery Court Finally Rules in Selectica

Below is news from Steven Haas of Hunton & Williams (we are posting memos analyzing this decision in our DealLawyers.com "Poison Pills" Practice Area):

On Friday, the Delaware Court of Chancery issued its long-awaited opinion in Selectica v. Versata Enterprises, addressing the first modern triggering of a rights plan. The court provided judicial validation of NOL poison pills, upholding the directors' adoption and implementation of the rights plan and their subsequent decision to dilute an acquiring person who deliberately crossed the pill's threshold.

The court delivered a well-reasoned opinion that employed a very straightforward Unocal analysis. It found that the NOLs were a valuable corporate asset and, therefore, an "ownership change" which might jeopardize their value constituted a valid threat to corporate policy and effectiveness. It made clear that because "NOL value is inherently unknowable ex ante, a board may properly conclude that the company's NOLs are worth protecting where it does so reasonably and in reliance upon expert advice." Central to the Court's analysis was the board's reliance on outside financial, tax, and legal advisors.

The Court then found that the plan, with a 4.9% trigger, was not preclusive or coercive, notwithstanding the acquiring person's argument that no stockholder would run a proxy contest against Selectica's staggered board. The Court explained that "[t]o find a measure preclusive..., the measure must render a successful proxy contest a near impossibility or else utterly moot...."

The Court went on to find that the use of the rights plan fell within Unocal's "range of reasonableness." It rejected the acquiring person's argument that, among other things, the Selectica board should have adopted a more narrowly tailored response. "[O]nce a siege has begun," the court stated," the board is not constrained to repel the threat to just beyond the castle walls." It concluded that "[w]ithin this context, it is not for the Court to second-guess the Board's efforts to protect Selectica's NOLs."

While Selectica is not the Chancery Court 's first foray into the world of poison pills, this opinion marks the first time the Court has upheld a modern pill that has been actually triggered by an acquiror.

- Broc Romanek

Yesterday, RiskMetrics announced it had been sold to MSCI at a price not far from RiskMetrics' IPO price level when it went public two years ago. Based on the conference call related to the deal, MSCI's CEO stated in response to questions that the ISS corporate governance services are considered a "non-core" unit that will be operated to generate cash flow for debt reduction. MSCI is a provider of investment decision support tools.

My guess is that nothing much will change for those of us that deal with ISS - but you never know. I do think the ISS branding will come back to where it used to be (ie. without the "MSCI" label before it). By my count, this is the fourth sale of ISS during this decade...

One thing that could change now that RiskMetrics will no longer be a public company is a company that pushed the envelope with it's own corporate governance practices. RiskMetrics really help itself up to high governance standards once it went public. As one member noted: "Did you know that MSCI's CGQ is better than 2.3% of S&P 400 companies and 22.7% of Diversified Financials companies?"

US Sentencing Commission Proposes New Requirements

Below is news taken from Sullivan & Cromwell's memo on the topic:

On January 21st, the U.S. Sentencing Commission proposed important amendments to the Sentencing Guidelines applicable to organizations, including the definition of what constitutes an effective corporate compliance program. Because the Sentencing Guidelines serve as a principal reference point under federal law for minimum standards in the design and structure of compliance programs, corporations should examine their programs to determine whether they comply with these proposed standards.

As described in our memo, the proposed amendments address four important areas: (1) the steps a corporation should take when responding to the discovery of criminal conduct; (2) document retention policies; (3) the use of independent corporate monitors; and (4) the governance of corporate compliance functions.

Our March Eminders is Posted!

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

- Broc Romanek

Now that the SEC's new rules went into effect over the weekend (ie. February 28th), Corp Fin cleaned up all of their Compliance & Disclosure Interpretations this morning that deal with the old Summary Compensation Table reporting scheme. It's unusual to see CDI activity so early in the morning. That certainly woke me up!

Here's the changes:

- Withdrawn Question 119.04
- Withdrawn Question 119.05
- Withdrawn Question 119.11
- Withdrawn Question 119.12
- Withdrawn Question 119.15
- Revised Question 119.16
- New Question 119.24
- Withdrawn Question 120.05
- Revised Interpretation 220.01

Understanding Investor Perception Studies

In this podcast, David Calusdian of Sharon Merrill Associates explains the importance of investor perception studies, including:

- In a nutshell, what is an investor perception study?
- What types of companies should conduct one?
- Can you provide more details about how one is conducted?
- What ways do you recommend that a company use the study once it's conducted?
- Should there be a follow-up study?

More on our "Proxy Season Blog"

With the proxy season in full gear, we are posting 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:

- More on "Registered Holders: Broadridge vs. Transfer Agent?"
- Proponents Wanted: Blatant Online Ads for Alter Egos
- Survey Results: Proxy Access Issues
- Now Available: Glass Lewis' Policies
- Diversity Policies: Do You Need One? Samples Available
- More on "Shareholder Proposals: Chevedden Sued Over Eligibility"
- Determining Who is "Most Highly Compensated": More Complicated Than You Think

- Broc Romanek

Highlighting the high profile of the issue, the SEC voted unanimously to issue a Statement at an open Commission meeting on Wednesday regarding its current plans regarding IFRS. It's interesting that the open meeting format was used to approve a statement. Here's Chair Schapiro's opening remarks.

As noted in this press release, the Statement:

- Reaffirms the SEC's support for a single, globally accepted set of accounting standards (although the SEC still hasn't made a final decision to move to IFRS yet)
- Describes six categories of issues that need to be analyzed in an upcoming SEC Staff Workplan (there will be progress reports given on the Workplan, starting no later than this October)
- Describes milestones that need to occur before 2011 (including the SEC's study of certain issues and completion of convergence projects under the FASB-IASB Memorandum of Understanding) if the SEC is to move to IFRS
- Notes the first time that US companies would report under such a IFRS system (if one was adopted) would be no earlier than 2015 (the Work Plan will further evaluate this timeline)

PCAOB Staff Posts FAQs on Engagement Quality Review

Last week, the PCAOB published a "Staff Question and Answer" on the documentation requirements of Auditing Standard No. 7, the engagement quality review standard that provides a framework for the engagement quality reviewer to objectively evaluate the significant judgments made and related conclusions reached by the engagement team in forming an overall conclusion about the engagement. This set of FAQs was encouraged to be created by the SEC when it approved AS #7 last month.

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:

- Canadian OSC Staff Urges Better IFRS Disclosure
- Social Media Policies: No Paranoia Necessary
- Analysis: Ability to Backdate Board Resolutions
- An Auditor's Claim of Privilege: The Latest
- An Effete Corps of Governance Snobs

- Broc Romanek

Yesterday, the SEC issued this technical corrections release related to its proxy disclosure enhancement rules adopted in December (actually the release was posted Tuesday - taken down for a while - and then reappeared Wednesday morning). The release corrects Forms 10-Q and 10-K to retain the current numbering of the items appearing in each form to avoid confusion that might otherwise arise from references to the numbering from other rules, etc.

So what does this mean for your Form 10-K? For Form 10-Ks filed on or after this Monday - March 1st (actually, it's filings until 5:30 pm EST on Friday - even though filings are accepted until 10 pm, they are considered filed the next business day) - the title and substance of Part I - Item 4 should be deleted, the word "Reserved" should be inserted in the place thereof and the remaining items of Form 10-K should not be renumbered.

In addition, the SEC made three changes to Form 8-K, including adding an instruction that corresponds to an instruction contained in Forms 10-Q and 10-K that allows certain wholly-owned subsidiaries to omit the disclosure of shareholder voting results and to amend the regulatory text to make it consistent with the discussion of the amendments to that form contained in the adopting release.

NYSE: Annual Corporate Governance Letters Now Available

Last week, the NYSE issued its annual corporate governance letters - one for domestic companies and one for foreign private issuers.

RR Donnelley Buys Bowne: You May Lose Your Free Lunch

As a former employee of RR Donnelley (I launched RealCorporateLawyer.com for them when it was a different type of site), I closely follow the financial printer industry. Thus, I wasn't surprised to see Donnelley's announcement that it had bought Bowne yesterday.

As the printers have been struggling for quite some time, I had expected industry consolidation long ago. It will be interesting to see whether this will have an impact on the "freebies" for lawyers and bankers. I would imagine that narrowed margins for the industry and less competition in the space will combine to make that so. No more fifty-yard line...

SEC Adopts An Alternative Uptick Rule

At an open Commission meeting yesterday, the SEC voted 3-2 to adopt a new uptick rule, one that has a circuit breaker restriction on short sales in stocks that experience a price decline of 10% or more from the prior day's close. The uptick rule had been eliminated in July 2007 amid some controversy. Commissioners Casey and Paredes strongly opposed the new rule. The new rule will be effective 60 days after the publication of the release in the Federal Register - but it will then have a six-month implementation period (so essentially it will be 8 months until the rule takes effect).

Under the new rules, once the circuit breaker is triggered for a stock, short selling in that stock will only be allowed at prices above the current national best bid for the rest of the trading day as well as the following trading day, subject to certain exemptions. However, the SEC did not adopt an exemption for bona fide market making activity.

- Broc Romanek

During our recent snow-in here, I spent some time pondering how to get more people to vote in corporate elections. As I blogged yesterday, I believe one necessary first step is enhancing the usability of communications to shareholders. But as we all know, even that will only improve shareholder participation on the margins.

As I struggled with this diIemma - so desperate I was perusing old Dale Carnegie books about how to win friends and influence people for inspiration - I just happened to hear from Peggy Foran about a novel program that Prudential is trying this proxy season. I think what they are trying is pure genius. By tying the act of voting to the environment & sustainability movement, the company is trying to make people feel good about themselves when they vote. It will be interesting to see how it pans out in practice.

In this podcast, Peggy and Ed Ballo of Prudential explain their company's novel initiative that ties its environmental & sustainability program to bringing in the vote for its annual shareholders meeting (here are two items that will be used in Pru's mailings: program notice postcard and proxy materials insert), including:

- How does Pru intend to engage registered holders this season?
- What exactly will be sent to registered holders?
- Is there an online component to this initiative?
- What are the benefits to the company of this initiative?

Speaking of getting creative, this is one of the more unusual promotions I've come across in a while, courtesy of Smith & Wollensky...

The Latest on Fairness Opinions

We have posted the transcript for the DealLawyers.com webcast: "The Latest on Fairness Opinions."

Judge Reluctantly Approves SEC-Bank of America Settlement

A few weeks after the SEC announced it had settled (again) with Bank of America over its two actions against the company regarding alleged disclosure deficiencies in connection with BofA's acquisition of Merrill Lynch (one action regarding bonus amounts; the other over operating losses), Judge Rakoff from the Southern District of New York ended his game of "will he or won't he" and approved the settlement on Monday. As noted in this NY Times article, the Judge still expressed displeasure with the settlement - he called it "half-baked justice at best" - even as he issued this order.

Below is an excerpt from yesterday's "Proxy Disclosure Blog" from Mark Borges that explains the changes to the SEC's announced settlement:

As part of the Court's order, he modified several of the remedial corporate governance and disclosure measures that BofA must follow for the next three years. Specifically, with respect to the requirements to engage an independent auditor to assess whether BofA's accounting controls and procedures were adequate to assure proper public disclosures and to engage independent disclosure counsel to report solely to the audit committee on the adequacy of the bank's public disclosures, the Bank's choices must be fully acceptable to the SEC (not simply selected in consultation with the SEC), with the Court making the final selection if the parties cannot agree.

Interestingly, the Court also proposed that the selection of an independent compensation consultant to advise BofA's compensation committee be made jointly by the compensation committee, the SEC, and the Court (rather than solely by the compensation committee) The Court gave the following reason for this suggestion:

The reason for this suggestion was the Court's perception that too many compensation consultants have a skewed focus when it comes to executive compensation, concentrating on what they perceive is necessary to attract and keep "talent" (however defined), and more generally favoring ever larger compensation packages, while rarely taking account of limits that a reasonable shareholder might place on such expenditures.

However, in the face of BofA's objection, the Court conceded the point, explaining that the matter should not be a "deal breaker," especially in light of the "Say-on-Pay" vote that the Bank must conduct for the next three years.

While it's possible that some of these remedial measures may be superseded by the legislative initiatives that are currently pending before Congress, the fate of these legislative proposals is still very much up in the air. Consequently, BofA's disclosure practices may prove to be a very interesting "laboratory" over the next three years on the merits of these enhanced disclosure techniques.

Below is an excerpt from the NY Times' article, noting that BofA still faces a battle with the New York Attorney General:

"The bank still faces a complaint filed last month by Andrew Cuomo, the attorney general of New York. The judge, after studying some of the evidence in Mr. Cuomo's case, left room for that case to reach a different conclusion than the SEC's.

In particular, the judge said the SEC had substantial evidence to support the bank's claim that the dismissal of its general counsel, Timothy Mayopoulos, "was unrelated to the nondisclosures or to his increasing knowledge of Merrill's losses." That is the position the bank and its executives have argued since last spring, but Mr. Cuomo's office asserts that the firing was related to advice from Mr. Mayopoulos.

Judge Rakoff said he had not determined which was right, but he said he was comfortable that the SEC's conclusion was reasonable. "It is important to emphasize, with respect not just to the Mayopoulos termination but with respect to all the events that the attorney general interprets so very differently from the SEC, that the court is not here making any determination as to which of the two competing versions of the events is the correct one," the judge wrote.

Mr. Cuomo's complaint differs from the SEC's in that it charges the bank as well as its former chief financial officer, Joe Price, and the chief executive, Kenneth Lewis, who retired early in part because of the mounting investigations into the merger."

- Broc Romanek

As noted in this press release, the SEC issued an adopting release yesterday to tweak the e-proxy rules it proposed last October (it was adopted via the SEC's seriatim process like the proposal was made). The new rules become effective 30 days after being published in the Federal Register.

As calendar year-end companies are in the midst of the proxy season, it's hard to tell if they will take advantage of the new rules this time around - particularly because there is no discussion in the adopting release regarding transition issues (ie. whether companies can adopt early on a voluntary basis). Many members have already asked me whether they can rely on the new rules early - I don't know the answer.

Here is my math if companies aren't permitted to rely on the rule changes early: the SEC gets the adopting release published in the Federal Register within a week and the new rules become effective in late March or early April - then with notice and access requiring 42-45 days (as the SEC didn't reduce the number of advance notice days to 30 from 40 as proposed and Broadridge needs a few days to process a mailing) in advance of the meeting, companies with annual meetings in mid-May or later would be able to use the new rules. I will follow-up on this blog soon once we know more specifics...

Learn the latest practice pointers on e-proxy - and the factors to consider about how and whether to use it - in the transcript of our recent webcast: "How to Implement E-Proxy in Year Three."

The SEC's New "Plain English" Spotlight on Proxy Matters: My Ten Cents

Yesterday, the SEC also made a big splash about a new "Spotlight" page for investors about how they can vote - as well as issued this investor alert on the topic. This is a fine small step - but it's really small potatoes as I doubt many investors will get motivated by the SEC's educational content to cast their votes (as few investors are ever likely to come across the content).

I think the SEC should be taking steps that will have a much greater impact on voter participation. Starting with improving the usability of proxy cards, voting instructions - and the communications that go along with them. Most communications are laden with legalese and use 200 words when 20 will suffice - a critical mistake when using e-mail to get someone to act. Check out my DealLawyers.com blog entry today for more on my beef here. And I know many corporates are unhappy that they still aren't permitted to send a proxy card or voting phone number in their e-proxy notice mailings...

All the Rage: Tender Offers

Tune in tomorrow for the DealLawyers.com webcast - "All the Rage: Tenders Offers" - to hear Alex Gendzier of Jones Day, Josh Korff and Christian Nagler of Kirkland & Ellis and Jim Moloney of Gibson Dunn discuss the latest dynamics - and processes - of conducting tender offers, particularly debt ones...

- Broc Romanek

A few weeks ago, the IRS issued a proposed policy (in the form of IRS Announcement 2010-9) that would require corporate taxpayers to make broad disclosures on a schedule regarding their tax uncertainties, pulling information derived from FIN 48. The schedule would require a concise description of each "uncertain tax position" and information about its magnitude, but would not require disclosure of the taxpayer's risk assessments or tax reserve amounts.

If this controversial proposal is adopted, it could impact those of us who have to evaluate these positions to draft disclosures to be flied with the SEC. Notable is IRS Commissioner Doug Shulman's recent speech that discusses this proposal. We have been posting memos regarding this development in our "Tax Uncertainties" Practice Area.

The Last Samples: Companies Complying with the SEC's New Rules

In our "Proxy Season Blog" on Friday, I posted another batch of proxy statements filed under the SEC's new rules, courtesy of Kevin O'Neil of Vorys and Jackie Lasaracina of Perkins Coie.

Here's my last word on the subject - a preliminary proxy statement filed by Umpqua Holdings that uses a grid for director qualifications. I wonder how many others will follow this format compared to those that insert the information directly into the director biography section...

Note that the SEC has announced an open Commission meeting for this Wednesday to consider publishing an IFRS statement.

More on "One Hot Potato: Climate Change Disclosure"

Recently, I blogged about how the SEC's climate change interpretive guidance was a political hot potato. To bolster that statement, House Republican Spencer Bauchus (R-Ala), ranking member of the Committee on Financial Services (the committee that oversees the SEC), wrote this letter to the SEC recently, asking if the White House pushed the climate guidance. I'm sure there will be more to come...

Check out Kevin LaCroix's analysis in his blog about whether the new climate change disclosure requirements could lead to more climate-related lawsuits.

- Broc Romanek