TheCorporateCounsel.net Blog |
|
|
|
Friday, September 26, 2003
Going "Whole Hog" to Provide Access to Audit Committee Members In its definitive proxy statement filed September 24th, Micronetics discloses personal e-mail addresses for both of its audit committee members. We doubt that many other companies will go this far to comply with the rules adopted by the SEC under Section 301 of SOX, which require that audit committees establish confidential, anonymous procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters. As you might recall, the SEC's rules do not mandate specific procedures. SOX Scorecard/Timeline for Small Business Issuers Thanks to Faegre & Benson for contributing a SOX Scorecard and Timeline for Small Business Issuers that we have coded and posted in TheCorporateCounsel.net's "Small Business" Practice Area. A quick glance at this excellent resource reveals that small business issuers really didn't get cut much of a timing break from the SEC - all the effective dates are in 2003... Faegre & Benson also contributed an annotated compensation committee charter and an annotated governance/nominating committee charter, which we have added to our Portals on those topics. Still seeking sample evaluations for those committees if you got one to share! PCAOB Auditor Registration Update Back on September 11th, I blogged at length about the costly nature of the PCAOB registration process and indicated that only 200 - of the likely universe of 700 - audit firms had registered. On Tuesday, PCAOB Chair William McDonough testified before a US Senate Committee that the PCAOB has received almost 500 registration applications from U.S. accounting firms and that the first 38 of those applications were approved last week. That is more than I expected, but it still appears that a few hundred small firms said "fuhgedaboutit." Thursday, September 25, 2003
What is the Appropriate Motivation For Director Nominees? One aspect of boardroom reform that has not been fully explored is what should be an acceptable motivation for someone who seeks to serve as a director. Historically, directors have agreed to serve principally for the prestige and clublike atmosphere. Some have done it for the money - although this is unlikely the case for those directors that earn big dollars as officers at other companies. At the recent BRT Roundtable on Corporate Governance, Fannie Mae CEO Franklin Raines explained that he joined Pfizer's board to enhance his ability to be an innovator - which in turn would benefit his employer. This is an honest and understandable answer - but does it serve the needs of Pfizer's shareholders to whom he now owes fiduciary duties? Professional directors are not necessarily the answer as they inevitably take on multiple board seats to earn their livelihood. I'm not sure there is a good answer here. I just know that I serve on a local domestic violence non-profit board to give back to my community (there is no pay involved) - but that "feel good" model doesn't really fit the public company world. On GreatGovernance.com, we have posted the transcript from the BRT Roundtable, which included Reps. Oxley and Frank, Hank McKinnell, Dick Grasso, Nell Minow, William Donaldson and others. But I Live For My E-mail... Although the news constantly reminds us of the perils of e-mail communications - WSJ reports today that the case against Frank Quattrone hinges on a single email - most lawyers can't help but use e-mail as their primary mode of communication, both internally within their organization as well as externally with their clients. We have posted an interview with Michele Lange of Kroll OnTrack to further explore Potential E-Pitfalls. What many of us don't realize is that some organizations capture every voicemail that is left for one of their employees. These voicemails are archived on disks and stored according to a document retention policy (I guess this is where Comedy Central finds the ideas for "Crank Yankers"). It's all too scary for someone like me that is addicted to e-mail. PCAOB Reschedules Consideration of Investigation Rules Postponed by Hurricane Isabel, the PCAOB will now consider adoption of its investigation, adjudication and registration withdrawal rules on September 29th, right before its Roundtable on Audits and Documentation. All of this will be webcast. For companies, the investigation rules probably will be among the most important rulemakings the PCAOB conducts - as they will set forth the terms of how independent auditors turn over the records of their clients, etc. Wednesday, September 24, 2003
New Twists in Convertible Debt Offerings Today is our webcast on novel features of recent convert offerings - subscribers of TheCorporateCounsel.net should check it out live - or by audio archive or transcript! Reporting Out Next? The ABA Task Force on Corporate Responsibility has released its final report that was approved at the ABA Annual Meeting back in August. Still no word whether the SEC will act on its outstanding proposal regarding reporting out. Hopefully, the Commission will take some time to observe the impact of its reporting up rules and the ABA's recommendations before it acts. By the way, did you notice how I blogged yesterday about the SEC's tardiness on the PCAOB's ethic rules - and a few hours later they appeared! Maybe I should wish for 402 guidance from the SEC... An Accountant's Perspective of SOX Surprises Rick Telberg, Editor of Online Content for The CPA Letter, offers his Top 10 Surprises of SOX: 1. There's new caution in mergers and acquisitions, as public companies fret over uncertain financial liability for the private companies they acquire. Due diligence is costing more and taking longer for both sides in a deal, and some deals aren't getting done or even being considered because of it. And the law is unclear on whether the public company's executives will be held accountable for the private company's history. Deals are taking months instead of weeks. 2. Annual reports, quarterlies and proxies are getting heavier and thicker with detail. But it's not clear investors, who had a hard time staying awake through the turgid prose before SOX, are absorbing all the new footnotes. General Electric's latest annual report, for example, weighs in at 160 pages, twice the size of last year's. Wal-Mart, the superstore, has put out a superstore-sized annual report, three times the size of the previous year's. 3. After years of stagnation in a flat economy, Sarbanes-Oxley is reportedly fueling salary increases of about 6 percent across the finance function. Cash managers saw the most significant salary increase in 2003, receiving a 10 percent increase. 4. Outside auditors were hit by insult as well as injury through the financial traumas of the post-bubble era. But today the Final Four are bigger and busier than ever. And corporate clients are paying up to 30 to 40 percent more in fees to get up to speed with the new rules and regulations. 5. Financial software companies are enjoying a new bounty of business. Some information technology types are saying this is the best thing that's happened to their industry since the Year 200 bug was supposed to crash the world's computers 6. Private companies, supposedly exempt from SOX, are feeling a trickle-down effect. There are few signs that lenders and investors are embracing separate standards for private firms, forcing even smaller companies to ramp up their controls and reporting. 7. Talk about trickle-down. The law was designed to make top executives take personal responsibility, but many are reportedly strong-arming middle-level and lower-level managers to sign off on their reports before sending them upstairs. 8. Second-tier CPA firms were expected to get bypassed in the bonanza of new work sparked by Sarbanes-Oxley. But in the turmoil of more client switches than at any time in the history of public audits, large local firms are picking up a surprising amount of business. Even more surprising: They've learned to be careful and are passing up a lot of opportunities if they don't like the client. 9. After years of declines, many colleges are reporting surges of interest in accounting courses and careers. Suddenly CPAs are sexy again. And whatever happened to the 1990's panic over a labor shortage? Firms are hiring. 10. And, contrary to worries within the profession that new government involvement and oversight of the profession would usurp the profession's traditional roles in self-determination, state and national professional associations appear to be as vibrant, active and well-supported by their members as ever before. Tuesday, September 23, 2003
Deconstructing Microsoft's Proxy Statement Late last week, Microsoft filed its definitive proxy statement. It contains a brief description of its pre-approval policy for audit/non-audit services on page 12 and an updated calendar of audit committee activities at the back. More importantly, as Mike O'Sullivan notes, while Microsoft does seek approval for certain changes to its 2001 Stock Plan - principally to eliminate a sublimit on the amount of restricted stock it can grant - Microsoft does not seek approval for the changes it expects to make to its underwater employee options once they are sold to JP Morgan. If Microsoft still plans to complete its Stock Option Transfer Program in 2003, it can be assumed that Microsoft would seek whatever stockholder approvals it needs in this proxy statement. Therefore, it's fair to assume that Microsoft will not be seeking stockholder approval, even under the new Nasdaq rule, for its planned amendments to the options acquired by JP Morgan. Change in Accountants to Be Scrutinized by PCAOB At the PLI Director's Institute yesterday, PCAOB Board Member Charles Niemeier stated that the PCAOB will closely scrutinze any instances of a company firing auditors. This is not necessarily anything new as the SEC's Enforcement staff routinely reviews any Form 8-Ks filed under Item 4. But its noteworthy because the PCAOB staff might have more motivation, time and resources to delve further than the SEC staff. For TheCorporateCounsel.net subscribers, we have provided analysis/disclosure samples for companies to consider when they change auditors. SEC and PCAOB Ethics - What's Up With That... Have you noticed that the SEC hasn’t approved any PCAOB rules since August 1, or even noticed any. For example, the PCAOB Code of Ethics was adopted as a final rule by the PCAOB on June 30 - but it hasn’t even been noticed yet (and neither organization lets you know if the PCAOB has filed them with the SEC either). Let alone approved or rejected. What’s up with that? It is interesting that the SEC would let the PCAOB meander along without an ethics code given what’s going on at the NYSE and all the attention that situation is getting. Monday, September 22, 2003
Status Report on SRO Corporate Governance Proposals Last week, I was on a panel with representatives from the NYSE and Nasdaq. They indicated that final standards should be blessed by the SEC within six weeks. On September 10th, the Nasdaq filed an amendment to its proposal. Regarding interpretative advice, the NYSE should be posting FAQs about shareholder approval of equity compensation plans sometime in the next month - and the Nasdaq will be posting more interpretation on their "Legal & Compliance" page soon (they posted a handful back in the spring). Interestingly, the Nasdaq will be charging companies a fee for putting any interpretative guidance in writing - the NYSE has decided not to charge. Restatements Galore For 2003, expect more than the approximately 330 restatements that were made during 2002. This is due to a number of factors, including enhanced internal controls and more frequent changes in auditors. And if Bob Herz, head of the FASB, is successful in aligning US accounting standards with international standards, there will be a general requirement to apply accounting changes retroactively. This undoubtably would result in an explosion of restatements each year. For TheCorporateCounsel.net subscribers, we have posted an excellent interview with John Huber regarding Rules of the Road for Restatements. |
