August 27, 2014

Bank Directors: Beware of Expanded Fiduciary Duties

In this American Banker article, Luse Gorman’s John Gorman discusses his concerns about – and opposition to – suggestions made by academics and others that bank directors’ fiduciary duties be broadened in the risk oversight area. His article was triggered by a recent speech by Federal Reserve Gov. Daniel Tarullo where he appeared to support the notion of expanding bank directors’ fiduciary duties – referencing a recent “provocative” academic paper proposing a simple negligence standard for expanded board oversight responsibility for risk-taking by “systemically important” financial institutions.

In the article, Gorman notes that expanding directors’ duties in this manner would expose boards to liability for good faith judgments as to risk management, increase litigation and expense, require boards to function in a management capacity, and discourage board service by capable candidates.

Kevin LaCroix echoes those concerns in this blog. Like Kevin, I too acknowledge stepping into an already-unfolding debate, but just have to note that I am similarly concerned about the implications of such a proposal. Among other things, it seems almost certain that the pool of aspiring and well-qualified bank board directors would shrink measurably as their potential liabilities increase, which would reduce overall board effectiveness – seemingly totally counter to the objectives of the proposal. Kevin’s blog further discusses his seemingly well-founded concerns that the notion of broadened fiduciary duties would quickly expand beyond just systematically important financial institutions to additional – or potentially all – bank directors.

On The Other Hand: Proposed Increased Protection for Australia’s Directors

While here in the US we are dealing with discourse around expanding the fiduciary duties of bank directors, proposals to limit director exposure to liability are being floated in Australia. This paper outlines the Australian Institute of Company Directors’ proposal for a new director defense to supplement the statutory business judgment rule.

The statutory business judgment rule is limited to a director’s duty of care and diligence – leaving directors exposed to liability for actions/omissions related to other Corporations Act provisions and laws that may impose personal liability. The Institute’s surveys (described in the paper) suggest that directors’ exposure to personal liability under the current regulatory scheme adversely impacts their decision-making and discourages their willingness to accept new board appointments. The proposed Honest & Reasonable Director Defense is designed to provide directors with appropriate protection.

The proposed defense is as follows:

Honest and reasonable director defence

Notwithstanding any other provision of this Act or the ASIC Act, if a director acts (or does not act) and does so honestly, for a proper purpose and with the degree of care and diligence that the director rationally believes to be reasonable in all the circumstances, then the director will not be liable under or in connection with any provision (including any strict liability offence) of the Corporations Act or the ASIC Act (or any equivalent grounds of liability in common law or in equity) applying to the director in his or her capacity as a director.

What is “Proxy Insight?”

In this podcast, Seth Duppstadt discusses how the new service – Proxy Insight – works, including:

- What is Proxy Insight?
- How does it differ from a proxy advisor?
- How does it differ from a governance ratings firm?
- Any surprises since you launched?


- by Randi Val Morrison

August 26, 2014

ABA: Throwing Stones in Cyber Glass Houses?

Jim Brashear of Zix Corporation addresses cybersecurity issues in this guest post:

At the ABA’s 2014 annual meeting earlier this month, delegates approved a resolution that “encourages all private and public sector organizations to develop, implement and maintain an appropriate cybersecurity program.” When you consider that some pundits characterize lawyers as technology Luddites and law firms as “the soft underbelly” of data security in corporate America, it may seem odd for the legal industry to be lecturing other organizations about getting their cyber houses in order.

Law Firms Are Targets of Cyber Attacks

The ABA Cybersecurity Legal Task Force report accompanying the draft resolution warns that “the threat of cyber attacks against law firms is growing.” It notes that law firms collect and store large amounts of critical, highly valuable corporate records. The report points out that “lawyers and law offices have a responsibility to protect confidential records from unauthorized access and disclosure, whether malicious or unintentional, by both insiders and hackers.” Unfortunately, many lawyers don’t fully appreciate the scope of that responsibility, particularly as it applies to data transmitted via the internet or stored in the Cloud.

Data in Transmission is At Risk

A survey conducted in March 2014 by LexisNexis found that 89% of law firms use email daily for business purposes, but only 22% of law firms are encrypting email. A recent post in Law Technology News urges that It’s Time to Secure Privileged Communications. The post notes that “attorneys should be concerned about the general uncertainty of privacy expectations for email.” Those risks to email confidentiality are not merely a theoretical concern.

For example, in February the New York Times reported that a foreign spy agency intercepted email messages between a large U.S. law firm and its foreign government client and then shared the information with the U.S. National Security Agency. In a carefully worded statement, the law firm said: “There is no indication, either in the media reports or from our internal systems and controls, that the alleged surveillance occurred at the firm.” The statement misses the point, because unencrypted email is intercepted, undetectably, while it is being transmitted or stored outside the firm’s internal network.

That news report prompted the ABA to ask the NSA to explain how the agency deals with attorney-client privileged communications. As discussed in the post, Law Firm Email Security Questions The ABA Should Be Asking, the ABA was conflating legal privilege with client confidentiality and asking the wrong questions of the wrong organization.

Standards of Care

The fundamental question is whether the firm’s lawyers were taking reasonable steps in the circumstances in order to secure sensitive email communications. The ABA report acknowledges that “law firms are businesses and should take special care to ensure that they have a strong security posture and a well-implemented security program.” Many lawyers say the NIST Cybersecurity Framework can serve as a general guide for information security oversight and risk assessments, in order to establish that reasonable care was taken. The NIST Cybersecurity Framework includes an assessment of whether “data-in-transit is protected.”

Email fundamentally is a convenient but unsecure method of transmitting and storing data in the Cloud. There are many simple steps that lawyers can take to protect sensitive data that they exchange with clients and third parties, including email encryption. State bar associations, however, continue to draw an unfounded distinction between the data security measures required when transmitting and storing data “in the Cloud” versus those required for email.

Be sure to tune into our pair of cybersecurity webcasts coming up soon: “Cybersecurity: Working the Calm Before the Storm” (9/16) and “Cybersecurity Role-Play: What to Do & Who Does What, When” (9/22).

GC’s Skill Set Should Include Understanding of Technology

I previously blogged about tips for GCs to respond to increasing governance demands based on this new study, which also identified key competencies GCs need to succeed in today’s environment.

This article argues that – as processes in every function of the business are being increasingly automated, the list of the GC’s key competencies needs to include an understanding of the automation side of the business. Here is the author’s suggested list of technology tools and concepts that every GC should be familiar with:


  • Cloud resources vs. local servers and storage.
  • Work flow systems to control legal review processes.
  • Document assembly and contract management programs.
  • Document management systems.
  • Secure remote access systems.
  • Audio and video meeting apps and services.
  • Matter and budget management systems.
  • Secure mobile device management.
  • Legal hold management system.



Are you familiar with the laws governing e-business in each of the areas where the company operates?

  • Securities laws
  • Tax laws
  • Identity theft
  • Advertising
  • Children’s online access
  • Defamation
  • Trademark and copyright



  • What is the corporate records management system?
  • How are compliance inquiries (e.g., hotline) managed?
  • How is risk assessment conducted? Updated?
  • How are reports generated on issues for board or audit committee?
  • Are policies available to all employees?
  • Is there an automated procedure in place to ensure that policies are current?
  • Is there a system to demonstrate compliance with each requirement of the Federal Sentencing Guidelines?



  • Are there rules regarding employee use of social networks?
  • Are there internal social networks and how are they managed?
  • Are there corporate rules for management of personal devices?
  • Are their rules of personal use of company email?
  • Are their retention rules for company email?
  • Are corporate automated marketing and sales tools reviewed for compliance with laws and regulations (e.g., the      Federal Trade Commission and the Food and Drug Administration)?
  • Are the computers in the company (particularly in the law department) compliant with ISO security procedures?
  • What procedures are in place to prevent company systems from being penetrated by viruses or spyware?
  • Does the company have a robust computer security policy for its data, including the data of customers, consumers?
  • Do third parties (such as dealers or franchisees) have access to company computer systems that could give rise to security breaches?
  • Does the company follow privacy rules of the US and other countries?
  • Is business done electronically (e.g., ordering, payment)? Are safeguards in place?

More on “The Mentor Blog”

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

- Auditor Engagement Letters: No Company Intervention in Auditor-Directed Work
- PCAOB Roundtable: Mixed Views of Proposed Changes to Auditor’s Report
- Perceived Board Effectiveness Linked to How Board Allocates its Time
- FINRA: Pre-IPO Selling Procedures Need to Be Adequately Supervised
- Board Trends at the S&P 1500

- by Randi Val Morrison

August 25, 2014

MD&A: SEC Brings “Known Uncertainties” Case Against BofA

Last week, it was big news that DOJ announced a record $16.7 billion settlement with Bank of America to put its mortgage-backed issues – part of the ’07 financial crash – behind it. This civil action from the DOJ was brought for violations of FIRREA (Financial Institutions Reform, Recovery, and Enforcement Act of 1989).

Dwarfed by that announcement was that the SEC also secured a civil settlement for MD&A violations (press release & complaint). MD&A cases are not brought all that frequently – read about other MD&A enforcement actions on pages 48-52 of our “MD&A Handbook

This is the BofA case in a nutshell: BofA admitted that it failed to disclose known uncertainties regarding potential increased costs related to mortgage loan repurchase claims stemming from more than $2 trillion in residential mortgage sales from ’04 through ’08 by the bank and certain companies it acquired. In connection with these sales, BofA made contractual representations and warranties about the underlying quality of the mortgage loans and underwriting – in the event that a loan buyer claimed a breach, the bank could be obligated to repurchase the related loan. The known uncertainties included whether Fannie Mae, a mortgage loan purchaser from Bank of America, had changed its repurchase claim practices after being put into conservatorship, the future volume of repurchase claims from Fannie Mae and certain monoline insurance companies that provided credit enhancements on certain mortgage loan sales, and the ultimate resolution of certain claims that Bank of America had reviewed and refused to repurchase but had not been rescinded by the claimants.

Meanwhile, Citigroup’s settlement with the SEC earlier in the month means that it is now a “bad actor” – and perhaps the SEC won’t waive the restrictions this time around as reported by this Reuters article

The Debate Over Disclosing “Critical Audit Matters” in Audit Reports

This article lays out how the PCAOB’s proposal to beef up the audit report is causing concern for both auditors and CFOs…

Here’s a Cooley blog about the PCAOB preparing to finalizing a standard for identifying lead audit engagement partners – and here’s a letter from CII weighing in on that upcoming action…

More on our “Proxy Season Blog”

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

- CalPERS Lauds Majority Support for Voting Calculus Proposal
- Recommendation Against Target Directors: Did ISS Get It Right?
- State Street’s Director Tenure Policy: May Result in Votes Against Directors
- Shareholder Proposals: No-Action Letter Stats
- Europe: Proxy Advisors Respond to Shareholder Rights Directive

- Broc Romanek

August 22, 2014

Shareholder Proposals: 10 Things About NY Times’ “Gadflies” Column

A few days ago, the NY Times ran this DealBook column – “Grappling With the Cost of Corporate Gadflies” – by Professor Steven Davidoff Solomon. Here are 10 thoughts that I had right off the bat:

1. Never Use the Loaded “Gadfly” Term – It’s politically incorrect to call someone a “gadfly.” Trust me, it is. Even though the definitions of the term don’t appear to be offensive: “A gadfly is a fly that annoys horses and other livestock, usually a horse-fly or a botfly” or “A gadfly is a person who upsets the status quo by posing upsetting or novel questions.”

2. Gilbert Brothers Brought Rule 14a-8 to Life – Davidoff calls Evelyn Y. Davis the “doyenne of this business” (yes, I had to look up “doyenne” in the dictionary) – but it was the Gilbert Brothers who were the first individual proponents that absolutely dominated the shareholder proposal scene before – and for decades longer – than EYD. In addition, they were the ones responsible for the shareholder proposal rule surviving in court against business interests a few years after the SEC adopted the rule (the Transamerica Corporation case in ’46, frequently referred to as the Magna Carta of the rights of shareholders – see page 221 of my “Shareholder Proposal Handbook“). I will be blogging more about the Gilbert Brothers soon.

3. Most Individual Proponents Don’t Like Being Grouped TogetherJohn Gilbert hated being lumped together with EYD in media articles. They didn’t act in concert.

4. Remarkable That Anyone Bought EYD’s “Highlights & Lowlights” – It’s amazing to me that any company would cave to what is essentially blackmail and buy Evelyn Davis’ “Highlights & Lowlights” – which essentially was a publication about herself. But it was a smart investment for anyone that didn’t want EYD to cause trouble at the annual meeting. Did Ford really give her a Jaguar? (I believe the answer is “no” – just that Bill Ford showed up when the car was delivered. But EYD paid full price.) Not sure if companies would be buying EYD’s newsletter today as I think they would get called out for it in this social media age.

5. What Is a “Successful” Shareholder Proposal? – Davidoff presumes that a shareholder proposal is successful only if it receives majority support from shareholders. But I define it much differently. For the proponent who brought the proposal, the definition of success may vary. They merely might want to force the board to consider the issue of the proposal. They actually might want to use a proposal to gain attention so they can obtain a meeting to discuss a more pressing issue (for which they don’t want to publicly disclose).

For many proposals, obtaining support much below the 50% threshold is considered a “success” as it might force the board to act – look what happens if a say-on-pay vote garners 30% support (ie. ISS-mandated consequences kick in). And remember that shareholder proposals are nonbinding. Companies can – and sometimes do – ignore them even if they obtain majority support.

6. Most Recent Court Cases Have Resulted in Losses for Companies – Davidoff brings up the fact that some companies have sued proponents – but he neglects to mention that companies have tended to lose these cases starting this year.

7. $87 Grand for No-Action Requests? Call My Lawyer – The gist of the Davidoff article is that shareholder proposals are costing companies so much money. Of course, that depends on whether a company decides to seek no-action relief from Corp Fin to exclude them. Davidoff throws out that it costs companies $87,000 per proposal for “dealing with them.” The link to the Chamber of Commerce page cited for this number is dead. So I have no idea what the basis for this number is, but I can pretty safely say it’s way off the mark in my experience. To prepare a typical no-action request, research and writing by outside counsel is probably $20k to $30k. It’s cheaper if it’s done in-house in terms of money laid out – but probably not in terms of resources used. [This Activist Investor blog dug and found the source of this number to be a rudimentary survey from '97.]

8. No-Action Process Ripe for Reform? – Anyways, if the real beef is cost – why not go to the heart of the matter and reduce the costs inherent in the no-action process? One idea is for the SEC to force companies to use a checklist format when seeking exclusion. That would enable research to be much easier, as well as simplify the drafting of the NOA requests. Not to mention it would make it easier for Corp Fin to process them.

9. Do Institutional Investors Support Proposals From Individual Proponents? – It appears that Davidoff didn’t bother to talk to any institutional investors to ask their opinion about individual proponents. If he did, I can tell you that most would support the right of these shareholders to submit proposals (in fact, EYD was known to pick topics that would receive wide support on purpose). And that institutions have supported their proposals many times over the years. Some of them actually get very concerned about Corporate America railing so hard against the right of retail shareholders to voice their opinion, wondering whether they have something to hide. This tone clearly doesn’t fit in this era of shareholder engagement. [Great quote from The Activist Investor blog: We also object to the idea that companies need to “grapple” with its own investors.]

10. Shouldn’t the Topic of the Proposal Matter, Not Who Submitted It? – Yep. Amen. The article piggybacks off this Manhattan Institute study which dissects which individuals submitted the most proposals compared to other individuals. Not that important a topic IMHO.

There are other issues tackled in – and with – the Davidoff piece:

- There is wacky math throughout the Davidoff piece. He says there were 286 no-action requests over a one-year period. And that they cost $87k each. But when he multiplies those numbers, he says the aggregate cost to companies is $90 million? No idea how that works as my calculator comes up with a number that’s less than a third of that.

This Activist Investor blog highlights that the majority vote rate of the three proponents highlighted in the Davidoff column fits squarely within the average range if the timeline is enlarged to ’06-’14 instead of just calculating that figure for the past year.

And Davidoff points out that 71% of no-action requests are granted – but his denominator is no-action requests – not the # of proposals submitted to companies in total, which is more pertinent to the point he is making in that part of the article (which would lower this percentage to the teens).

- Alter egos continue to be a concern of mine. If someone doesn’t meet the minimum ownership standard in the rule – which is pretty low – they shouldn’t be eligible to submit a proposal. This continues to be a battle with Chevedden.

- In this blog, Jim McRitchie has weighed in with a lengthy rebuttal to the Davidoff piece.

Shareholder Proposals: Need to Rethink Resubmission Thresholds?

The Davidoff column plays up the fact that AutoNation has gotten a proposal from Chevedden for 14 years in a row. So apparently his proposals are garnering more than 10% to satisfy the resubmission thresholds in Rule 14a-8(i)(12). Maybe it is time to rethink the parameters of that exclusion basis. But remember that opening up the shareholder proposal to reform will not solely go the way that most companies want.

There is no more highly contested area of rulemaking than the shareholder proposal rule. It’s been over 15 years since the last rulemaking in this area – and now with social media a factor in campaigns, I can see a rulemaking proposal about shareholder proposals garnering half a million comment letters (nearly all of them in favor of changes that benefit shareholders). Not a reason to avoid rulemaking necessarily – I just want to point out that it’s not as easy as you would think. There typically are trade-offs – if companies get a rule change that benefits them; then shareholders will also get a change that benefits them. So be careful what you wish for. There are very few companies that perhaps are unfairly impacted by the existing resubmission thresholds…

Shareholder Proposals: Evelyn Y. Davis Video

I’ve been dribbling out a series of short videos covering narrow aspects of Rule 14a-8 on Plug “shareholder proposals” into the “search” tool and you will see these 7 videos so far. 8 more to come. Not the best quality but I just read a bunch of books during my vacation about how to make better videos. So they will get better after this series of 15 videos runs (I’ve already taped all 15 – just haven’t posted them all yet). Here’s a 2-minute video about EYD that I posted this morning:

- Broc Romanek

August 21, 2014

PCAOB: Staff’s Concept Paper on Accounting Estimates & Fair Value

A few days ago, the PCAOB issued this 47-page “Staff Consultation Paper” about accounting estimates and fair value measurements. What is a “Staff Consultation Paper”? It appears to be similar to the SEC’s concept release – except it is issued at the Staff level and not by the PCAOB Board itself. I believe this is the first time that the PCAOB has issued this type of thing. Learn more about the paper in the FEI Daily and

This “Barely Legal Pawn” video featuring Bryan Cranston, Aaron Paul and Julia Louis-Dreyfus is hilarious!

Broadridge’s 2014 Proxy Season Stats

Last week, Broadridge released its 2014 proxy season stats. Most of the stats were in line with recent years, except mobile voting grew to over 1.5 million shareholders, a 300% increase over since ’12 and 70% from ’13…

Dodd-Frank’s Anti-Retaliation Provisions Don’t Protect Overseas Whistleblowers

Kevin LaCroix opens this blog with “In the latest fiscal year report of the SEC Office of the Whistleblower, the agency reported that as of the end of the 2013 fiscal year it had received a total of 6,573 whistleblower reports since the the Dodd-Frank whistleblower program’s inception. These figures include not only domestic whistleblower reports but also reports from a total of sixty-eight different countries. During fiscal year 2013, there were 404 whistleblower reports from outside the U.S. representing nearly 12% of all reports during the year. Clearly, whistleblower reports from non-U.S. countries have represented a significant part of the whistleblower program, and foreign whistleblowers have been drawn to the program.” He then goes on to discuss a new 2nd Circuit appellate court decision – Liu Meng-Lin v. Siemens AG – that found that Dodd-Frank’s whistleblower anti-retaliation protections do not apply extraterritorially. We are posting memos about that case in our “Whistleblowers” Practice Area

- Broc Romanek

August 20, 2014

Profanity in SEC Filings? Yes, It Happens

Have you ever wanted to swear when drafting disclosure? I have. So exactly when is it acceptable to write f%ck&ng a$$h@le in a prospectus? Perhaps when you are offering shares to raise production funds for a particular type of feature film – see this example from “Lydia Slotnick Unplugged.” Profanity sometimes also appears in the SEC’s administrative proceedings, like this example.

This Bloomberg article notes that the use of profanity in earnings calls varies with economic conditions…

In-House: What You Need to Know Before You Start Negotiating

Tying in the webcast transcript I just posted – see below – this blog has useful information for those going in-house or those already in-house that want a raise. Here’s an excerpt:

They forget one crucial distinction between the law firm and in-house environment. While associates and partners are an integral part of the law firm’s “profit centers” and help generate millions of dollars in revenues on behalf of the firm, when they transition in-house, they become “part of the overhead.” In-house counsels, with very few exceptions in the licensing area, do not generate revenues. At best, they protect a company from liability. Unlike a law firm that sees the hiring of associates and partners as a means to increase productivity and revenues, companies must determine whether hiring an attorney in-house is cost effective, in both the short and long run. The value proposition changes drastically, and therefore, so does the compensation.

While in-house salaries have traditionally been more negotiable than law firm salaries – whether or not the firms operate under a lock-step compensation plan – there are real limits to what can be negotiated. That said, while larger companies may be able to offer more attractive packages – they typically offer little in terms of negotiations. Larger organizations have to worry about setting precedent with other employees. Smaller organizations, on the other hand, may have more flexibility, especially with respect to intangibles.

Transcript: “Career Advice: The In-House Perspective”

We have posted the transcript for the recent webcast: “Career Advice: The In-House Perspective.”

- Broc Romanek

August 18, 2014

Survey Results: CEO Succession Planning

I have posted the results of our survey regarding CEO succession planning, repeated below (compare to a similar survey from ’11):

1. Our company:
- Has a written CEO succession plan in a formal document or policy – 14%
- Has a written CEO succession plan in the form of a board resolution or as part of the board minutes – 19%
- Has a CEO succession plan, but its not memorialized in writing – 62%
- Doesn’t have a CEO succession plan – 5%

2. Our company:
- Reviews and updates the CEO succession plan at least annually – 57%
- Reviews and updates the CEO succession plan on occasion – 38%
- Doesn’t review the CEO succession plan (but it does have one) – 0%
- Doesn’t have a CEO succession plan – 5%

Please take a moment to participate on this “Quick Survey on Earnings Releases and Earnings Calls” – and this “Quick Survey on Ending Blackout Periods.”

Congress & OpenSecrets: You Can Now Track Your Senator’s Trades!

This Market Watch article talks about a website – – that allows anyone to follow the stock trades of members of Congress (Senate trades aren’t online yet on this site – but they are online as part of a Senate site that doesn’t have great navigation). The online database draw on the disclosures now required under the STOCK Act. Pretty scary in this age of little privacy. And definitely will be fodder for the mass media and tweeting members of the public alike…

There are 5 jobs currently listed on our “Job Board.” Don’t forget to post your own details if you are looking for a job. Your identity is anonymous as listed on the Job Board…

Cap’n Cashbags: ALS Ice Bucket Challenge

In this 15-second video, Cap’n Cashbags – a CEO – tries to avoid the ALS Ice Bucket Challenge:

- Broc Romanek

August 18, 2014

Poll: How Are You Responding to Your SDX Shareholder Engagement Letter?

In the course of my blog entitled “Shareholder Engagement: Should Directors Be Politicians? 10 Things to Consider,” I noted that 1000 companies recently received a letter from SDX asking boards to “consider adopting and clearly articulating a policy for shareholder-director engagement, whether through adoption of the SDX Protocol or otherwise.”

Although the letter doesn’t specifically ask for a response, a number of members have asked what other companies are doing with the letter. Here’s a poll to address that query:

survey services

We have 25 memos about SLB #20 posted in our “Proxy Advisors” Practice Area – including this newest one from Georgeson in a useful FAQ format…

Regulation A+ Comment Letters: 9 Senators Weigh In

Recently, I blogged about some humor in comment letters sent in on the SEC’s Regulation A+ proposal. Now, a group of 9 Senators sent in their own comment letter, expressing concern about state regulator preemption. Not a new theme as this blog notes a comment letter along the same lines from 20 members of the House. Here are all the comments so far on this proposal.

Meanwhile, the latest state government – Kansas – is in trouble for their disclosures regarding their pension plan. As this SEC enforcement release states, one reason the Kansas plan is underfunded is that the state has not made the annual required payments into the plan, leaving it just 59% funded. In the SEC release, it notes an “outside accountant” advised the government they did not need to make the disclosures – but the SEC release fails to report who that accountant was (see paragraphs 7 and 8).

Delaware Supreme Court: Strine Wears New Robes – News at 11

I chuckled to see this article from DelawareOnline about the new style of judicial robe that Chief Justice Strine is rocking. Legal fashion is “in” baby! Justice of a different stripe?

Let’s not forget that SCOTUS Chief Justice Rehnquist upped the ante in judicial attire when he became Chief Justice in 1994. A local Gilbert & Sullivan troupe – Victorian Lyric Opera Company in Rockville – takes credit for the inspiration as a few months before Rehnquist’s duds were introduced as they had judges robes in “Trial by Jury” that were almost identical.

- Broc Romanek

August 15, 2014

ISS’ New “Equity Compensation Plans” Data Verification Portal: 10 Things to Know

Perhaps as a reaction to the SEC’s SLB 20 – or Commissioner Gallagher’s continuing war of words against the current state of proxy advisors – yesterday, ISS announced the upcoming launch of a new “data verification portal” for equity-based compensation plans up for shareholder approval. ISS also released a set of 19 FAQs to help explain this new portal (pet peeve: if you create a set of FAQs, please number them).

Here are 10 things to know:

1. Portal officially launches September 8th
2. Data verification only for equity comp plan approval (in other words, this is different than what S&P 500 companies now enjoy for their entire ballot; see FAQ #14)
3. All US companies can participate
4. Companies have to register for the portal before they can use it (do so soon since it takes 5-7 business days for ISS to process and you might forget if you procrastinate)
5. Only companies can use the portal; not their advisors
6. Can’t verify data until after proxy statement is filed with the SEC
7. After proxy filed, ISS will send an alert saying the data verification window is open (alert will come roughly within 12 business days after the proxy filing)
8. Once alert is sent, companies only have 2 business days to verify the data and request changes. Repeat: just two business days!
9. ISS will send responses to request for changes within 5 business days of the request
10. Review list of 27 questions in Appendix A of the FAQs to comprehend what ISS is looking for in equity comp plans

Pay-for-Performance Disclosure: CII Sends Recommendations to SEC

Last week, CII sent this letter to Corp Fin Director Keith Higgins providing recommendations on the implementation of Section 953(a) of Dodd Frank. The letter provides these recommendations:

- Do not make changes to the existing Summary Compensation Table.
- Provide a graphic representation of pay for performance for the CEO individually and the named executive officers in the aggregate.
- Provide, at a minimum, a five-year comparison of executive compensation to performance.
- The required disclosure, at a minimum, should compare executive compensation to total shareholder return.
- Disclosure about executive compensation actually paid should not exclude any components of pay.

Also see the new comment letter from the AFL-CIO on this topic. It was the first comment letter posted regarding the 3 rulemakings the executive pay area that have not yet been proposed in 10 months. Here’s all of those comment letters

Transcript: “Executive Pay Basics: The In-House Perspective”

We have posted the transcript for the recent webcast: “Executive Pay Basics: The In-House Perspective.” This was a tremendous program – perfect for anyone who needs some comfort if they are relatively new to being in-house or isn’t very well steeped in a wide scope of pay issues…

- Broc Romanek

August 14, 2014

SEC Probes Internal Leak: No Smoking Gun

As I’ve remarked on occasion, it’s been mindblowing how many times rumors seem to leak from the highest levels of the SEC to the media over the past decade (eg. here’s an example). That sort of thing never happened before then. As noted in this CNBC article, the SEC’s Inspector General recently spent months trying to uncover who leaked details about a closed Commission meeting about the JPMorgan “London Whale” settlement – but no smoking gun was found. Here’s an article from the Hill.

According to the articles, the level of detail in this 16-page report from OIG is pretty wild, even with parts of it redacted. It notes who was interviewed during the investigation (all of the SEC commissioners, 5 staffers of the Office of the Chair and 18 staffers of the Offices of the Commissioners) and much more. In his blog, Steven Quinlivan breaks down some of it too.

Bizarrely, I couldn’t find this OIG report on the SEC’s site. Here’s OIG’s webpage with all of its available reports if you want to check yourself. Instead, it was released as part of a FOIA request I believe based on the document’s URL

More on “The SEC Commissioners Rebel! Are the Wheels Coming Off?”

A few months back, I blogged about how the battles among the SEC Commissioners has intensified in ways not previously seen before in public. This Bloomberg article profiling Commissioner Kara Stein – entitled “Ghosts of 2008 Haunt SEC’s ‘Outsider’ as She Pushes for Tough Rules” – adds some more backstory to this theme…

This DealBook article really slams the performance of SEC Chair White after one year…

Good Ole Days: The Zany Dash for Filing the First CEO/CFO Certifications

Today is the 12th anniversary of the due date for the first batch of CEO/CFO certifications from the 1000 largest companies (ie. that their past filings contained no material misstatements nor material omissions). It was a wild time as Sarbanes-Oxley had just been enacted a few weeks before. For those practicing back then, you will recall how the passage of Sarbanes-Oxley came out of the blue as reform legislation had little chance of becoming law until WorldCom suddenly failed and Congress acted swiftly in response.

I’ll say it again. It was completely unexpected.

The importance of that can’t be underscored enough. So there wasn’t much lobbying on the bill nor was there much attention paid to the details of the law by the law’s drafters since it sailed through Congress in a heartbeat. The law was relatively huge in scope, with a potpourri of topics – and as we all got back from vacation and started to look at it, it became clear that Congress seemed to overlook that one of the key provisions took effect pretty quick as the rest of the law’s provisions required SEC rulemaking first. Although the Section 302 CEO/CFO certifications required SEC rulemaking first, that delay did not apply to the initial set of Section 906 certifications due with the next batch of 10-Qs. Yikes! I blogged about this back on July 31, 2002, the day after SOX was signed into law.

So these first certifications were due on August 14th, just two weeks after Sarbanes-Oxley was enacted. And CEOs and CFOs suddenly had to attest to their company’s financials, etc. with scant time to prepare – nor did they have the comfort of the sub-certification machinery that many companies have today. Throw in that Section 906 was regulated by the DOJ (which was the principal reason why these certs were not delayed) and had criminal possibilities attached to them. Truly, an anxious time.

And this was during an era before webcasts were born. Instead, I held an impromptu CEO/CFO certification teleconference and folks had to RSVP by fax. My fax machine went berserk for days…

- Broc Romanek