The Big Kahuna: SEC Approves NYSE's Elimination of Broker Discretionary Voting

Yesterday, the SEC voted 3-2 to approve the NYSE's proposal to amend Rule 452 (and Listed Company Manual Section 402.08) to eliminate broker discretionary voting for director elections. The amendment to Rule 452 will be applicable to meetings held after January 1, 2010 (but won't apply to a meeting that was originally scheduled to be held in 2009 if adjourned to a date after January 1st).

As I've mentioned before, in my opinion, this change is the biggest of the reforms that companies face - bigger than proxy access, say-on-pay, etc. Here is the SEC's press release addressing all of its actions yesterday - and here is Chair Schapiro's opening remarks (and Commissioners Walter's statement and Aguilar's statement).

Commissioners Casey and Paredes opposed the proposal, both stating that the broker nonvote issue should be considered in the broader context of rejiggering the proxy process (read "proxy access") as well as examining more completely the impact of this change on companies. In his opening remarks, Commissioner Paredes noted they weren't alone - 93 comment letters (out of a total of 136) also urged a comprehensive review of the proxy system. They also expressed concerns that the change would disenfranchise retail holders at the expense of more control by institutional investors.

Since all the other Commissioners agreed with the importance of studying the proxy system's “plumbing,” near the end of the meeting, Chair Schapiro stated that the SEC would conduct this type of review later this year. I see roundtables in our future. If interested in reviewing "live tweets" that occurred during the meeting, see @footnoted and @simonbillenness.

Oh, boy! Check out today's front-page article from the Washington Post about how the SEC was warned in '04 by a SEC Staffer about Madoff - but yet the SEC didn't follow up. And that Staffer's boss ended up marrying Madoff's niece. The article is quite in-depth and is likely to result in more headaches for the SEC. I'll cover this more extensively next week.

The Surprise: SEC Proposes Expedited Disclosure of Voting Results

Although most of the SEC's big open Commission meeting went as telegraphed by earlier statements by the SEC Chair, there was one big surprise. The SEC proposed a new Form 8-K requirement for companies to disclose the results of a shareholder vote within four business days after the end of the meeting at which the vote was held (in contested elections, the final results would be permitted to be delayed under certain circumstances).

As I've complained before, the current disclosure standard doesn't elicit voting results for weeks - or sometimes months - after the vote, which doesn't really work in today's more competitive annual meeting environment.

Not a Surprise: SEC Proposes Say-on-Pay for TARP Recipients

Not surprisingly, the SEC also proposed rules - by a 5-0 vote - that would help implement Section 111(e) of EESA to permit an annual advisory non-binding shareholder vote on executive compensation. The SEC's proposal clarifies how these requirements apply to TARP recipients in the form of new Rule 14A-20. The SEC has already posted the proposing release for this one; could be record time for that. Here is Corp Fin's opening statement.

During the open Meeting, it was pointed out that - outside of the EESA mandate - the SEC Staff has allowed the inclusion of say-on-pay proposals. Commissioner Casey note that she only supported this proposal because it was required under EESA.

SEC Proposes Changes to Executive Compensation Disclosure Rules

No surprises here either. As expected, the SEC proposed amending Item 402 of Regulation S-K as follows (here is Corp Fin's opening statement):

- Broader CD&AS to cover risk - provide information about how a company's overall compensation policies create incentives that can affect the company’s risk – and the management of that risk, including policies for employees generally, including non-executive officers. Such disclosure would only be required if the risks arising from those compensation policies may have a material effect on the company. The SEC did not propose any requirement that would not require the disclosure of specific salaries of any individuals beyond those already required.

- Improved reporting of stock and option awards - revise way in which stock and option awards are reported in the Summary Compensation Table and Director Compensation Table so that it's based on the award's fair value on the grant date. This would reverse the December '06 "surprise."

- More disclosure about compensation consultants - in an effort to allow shareholders to evaluate potential conflicts, require disclosure about compensation consultant fees and services (and their affiliates) when they play any role in determining the amount or form of compensation for executives and directors, but only if those consultants (or their affiliates) also provide other services to the company.

In his "Proxy Disclosure Blog," Mark Borges provided in-depth analysis of the proposals yesterday.

SEC Proposes More Corporate Governance Disclosures

Finally, the SEC proposed a few governance disclosure enhancements, including revising Item 401 of Regulation S-K to require more disclosure about each director’s particular experience, attributes and skills that are appropriate for the person to serve as a director and as a member of any committee to which the person is appointed; extend the disclosure of the director's board memberships to the past 5 years; and expand disclosure of legal proceedings to the prior 10 years.

In addition, the SEC proposed requiring disclosure of why the board selected a particular management/leadership structure, particularly why the board chose to combine or separate the board chair and CEO positions. Although not proposed, the SEC's proposing release will solicit comments about whether the SEC should require disclosure about director diversity, including whether diversity is a factor considered when nominating director candidates.

- Broc Romanek

Here We Go Again: FASB Charging for "Souped-Up Version" of Accounting Standards

On Tuesday, the FASB released FAS No. 168, its codification of GAAP that has been long in the making and is officially launched as of today.

As Edith Orenstein notes in FEI's "Financial Reporting Blog": "FAS 168 represents the last numbered standard to be issued by FASB under the old (pre-Codification) numbering system, and amends the GAAP hierarchy to set the stage for a watershed moment - the July 1 launch of FASB’s Codification (full name: the FASB Accounting Standards Codification TM.) The Codification will supercede existing GAAP for nongovernmental entities; governmental entities will continue to follow standards issued by FASB's sister organization, the Governmental Accounting Standards Board (GASB)."

For a long time, I was miffed that the accounting standards that make up GAAP were not available for free. For us lawyers, this was akin to the SEC charging for access to its rules and regulations. About six years back, the FASB got smart and started posting its standards for free. Before then, just summaries were complimentary. (Note that a paper subscription always has - and still does - cost a fee.)

Now the FASB has done it again, charging an annual $850 subscription fee for the online "professional" edition of its codification of GAAP (a beta version was available for free during the recent verfication period). In comparison, the "Basic" version of the Codification is available at no charge (here is FASB's "Codification Resources" page). From reading the descriptions of the two, I believe lawyers can live with the Basic version since the Professional one has bells & whistles not related directly to the content of the Codification (egs. better search tool and printing ability).

It gets me nervous when a regulator sells access to its regulations, even if its just adding bells & whistles. It's a perception of transparency thing and a practice that should be prohibited. I understand that FASB is a non-profit organization and not a federal agency - but it still is a regulator by virtue of the SEC designating it as the organization responsible for setting accounting standards for public companies in the US. Let me know your thoughts (I won't post them without your consent).

NYSE Permanently Lowers Market Cap Requirement

Yesterday, the NYSE filed two rule changes with the SEC - both effective immediately - regarding its continued listing standards so that:

- In this rule filing, permanently lowered the $25 million average market capitalization requirement to $15 million (a temporary bar at the $15 million level was set to expire yesterday).

- In this rule filing, extended the temporary suspension of the $1.00 average closing price requirement until July 31st (prior suspension expired yesterday).

Our July Eminders is Posted!

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

- Broc Romanek

More on Reading Corp Fin's No-Action "Tea Leaves"

I received quite a bit of member feedback on my recent blog regarding how Corp Fin has a challenging job analyzing the circumstances of each shareholder proposal before making an exclusion/inclusion determination. Some of the feedback was frustration with the way that the Staff sometimes splits hairs. Here is an example of one member's frustration:

I liked your note about how companies, in trying to interpret the SEC's no-action responses, can misinterpret the tea leaves. I have heard from some in-house counsel about a special meeting proposal that John Chevedden has submitted to almost two dozen companies. He has two versions (copied below), which differ only slightly in the wording - as noted by the bolded and underlined language:

1. RESOLVED, Shareowners ask our board to take the steps necessary to amend our bylaws and each appropriate governing document to give holders of 10% of our outstanding common stock (or the lowest percentage allowed by law above 10%) the power to call special shareowner meetings. This includes that such bylaw and/or charter text will not have any exception or exclusion conditions (to the fullest extent permitted by state law) that apply only to shareowners but not to management and/or the board.

2. RESOLVED, Shareowners ask our board to take the steps necessary to amend our bylaws and each appropriate governing document to give holders of 10% of our outstanding common stock (or the lowest percentage allowed by law above 10%) the power to call special shareowner meetings. This includes that such bylaw and/or charter text will not have any exception or exclusion conditions (to the fullest extent permitted by state law) that apply only to shareowners and meanwhile not apply to management and/or the board.

In fact, in three instances, John submitted both versions to the same company. In no-action responses to Bristol-Myers, Dow and Wyeth, the SEC Staff allowed exclusion of the "and meanwhile not" version under 14a-8(i)(3). On the other hand, the Staff inexplicably did not allow exclusion of the "but not to" version of the proposal (and rejected arguments made under (i)(2), (i)(3), and (i)(6)).

In each of the cases, it appears that the Staff's determination hinged on whether the proposal contained the "and meanwhile not" wording or the "but not to" wording. It certainly is not clear why the result would turn on that wording. None of the companies made arguments that referred to that wording - and to my eyes, they mean the same thing. It seems that you make your arguments to the SEC Staff, they ruminate on your letters in silence for a few weeks, and their unexplained answer mysteriously appears on their website. I'm not happy.

Personally, my ten cents is that during those weeks of silence, the Corp Fin Staff is in fact researching precedent and often going through a healthy internal debate on where to draw the line. It is understandable that the line drawn often is not apparent to those on the outside since the Staff's response letters don't explain the rationale for the Staff's decision - and we are not privy to the internal debate. And I note that the Staff simply doesn't have the resources to add the rationale to their responses - so that is not the answer unless Congress ponies up more funding for the agency.

Fake SEC Filings: I Felt the Love

A while back, I asked whether anyone remembered a fake filing from a few years back. In response, a horde responded - reminding me of the fake Form F-1 filed by Apollo Publication Corporation in June 2005. I was embarrassed because I had blogged about that filing myself back then - not once, but twice! Clearly, I spaced when I did my homework.

Some interesting anecdotes about the Apollo fake filing:

- It was a Form F-1, not a Form S-1 or SB-2
- The directors of the alleged company included President Bush, Alan Greenspan, Jimmy Carter, Fidel Castro and a cast of thousands.
- The SEC issued a stop order in September '05 (here is an article about that).

An Even Better Fake Filing: Vietnam War Style

One long-time member sent me this prospectus to allow investors to buy stock in the Vietnam War. I am told this was a big hit circa 1970. It is one of the true classics, particularly for those who were in the military during the Vietnam-era. Almost every sentence has a gem in it. Just check out the subtitle: "This offering involves a high degree of risk." Ain't that the truth...

- Broc Romanek

Barriers to Entry: A "No-No" for IR Web Pages

As I've spoken at a number of conferences over the past year regarding last year's "corporate use of website" guidance from the SEC, I thought a few words about creating barriers to entry on your IR web pages would be appropriate. And by "few words," I mean: "don't do it."

There is nothing more antithetical to investor relations than requiring investors to jump through unnecessary hoops in order for them to access any of the content on your IR web pages. There is no practical reason for companies to impose click-through disclaimers on their IR content any more than requiring similar disclaimers for other content on their site. Can you imagine requiring a potential customer to click on a disclaimer to get product information? It's against the general nature of the Web (ie. simple and fast navigation on the information highway) - and severely diminishes the value of your IR web pages as investors will likely go elsewhere to seek what they want.

Luckily, this is a position that the SEC appears to agree with - in its recent interpretive release, the SEC cautions that the use of disclaimers may not be effective. In particular, the SEC says that companies can't require investors to waive protections under the federal securities laws as a condition to accessing content (at least in the blog and e-forum context).

In fact, the Corp Fin Staff seems to be issuing comments to companies that have click-through disclaimers. For example, in comment #3 of this letter to West Bancorp (as part of a Form 10-K review), the Staff asks the company how the disclaimer - which required investors to agree to a general release of liability - "accords with your responsibilities under the federal securities laws."

Unfortunately, the company's response was to add a statement to the disclaimer that the agreement is not intended to limit federal securities law liability. Check out this company's IR home page - would you bother as an investor to go further? So much for having relations with investors. [Ironically, the disclaimer is all about "we provide this site 'as is' and stuff like that" - but when you click the "I Agree" button, you are told you are going to a third-party provider who hosts the company's IR web page.]

I strongly believe that the SEC needs to get into the business of imposing a few bare minimum "do's" and "don'ts" for IR web pages since it's much more likely that's where investors will obtain information about an investment today compared to reviewing SEC-filed documents. In other words, the SEC needs to help save companies from themselves...

California Bylaw Provisions May Not Offend the Right to Buy Livestock

Here's something to brighten your day from Keith Bishop: "As someone who enjoys fishing, I've been bemused by the fact I have a constitutional right to fish here in California (Art. I, Sec. 25 "The people shall have the right to fish upon and from the public lands of the State and in the waters thereof . . .").

I've been practicing corporate law in California for more than two decades and I am ashamed to admit that I've been completely ignorant of the fact that this California statute specifically prohibits the directors or stockholders of a California corporation from adopting a bylaw that would prohibit any officer, stockholder or other person connected with the corporation from buying livestock in any market in California where livestock is bought and sold. This is definitely a statute to keep in mind when drafting bylaws - especially since any attempted enforcement of the proscribed bylaw would be a misdemeanor."

First Drafts: On the Two Yard Line or Closer to Midfield?

Below is some good stuff that John Jenkins of Calfee Halter & Griswold recently blogged on the "DealLawyers.com Blog":

A few months ago, our law firm had one of its periodic training sessions for our associate attorneys. The topic for this particular session was making the transition from junior associate to seasoned business lawyer, and the presenters were two investment bankers from one of our firm’s clients.

Lawyers have an obligation to zealously represent clients and protect their legal interests in a transaction, and that may cause lawyers to butt heads with bankers from time to time. But when bankers speak about the things lawyers do that drive them nuts or impress the heck out of them, it’s worth listening to them, because I think you can pretty much count on their position being consistent with that of the typical corporate client.

After all, when it comes to what an M&A client wants to accomplish - getting the deal done as quickly and efficiently as possible - there’s nobody in the transaction whose interests are more closely aligned with the client’s than its investment banker. That’s because bankers eat what they kill: they only get paid for their efforts if the deal closes.

The bankers who spoke to our associates shared a lot of insights about good and bad lawyering, and I’ll talk about more of them in later posts, but at the very top of their list of bad habits was something that anybody who has worked on a deal has experienced - namely, receiving a first draft of a purchase agreement that is so aggressively one-sided that it’s like starting a drive from your own two yard line.

They pointed out that this bit of grandstanding usually ingratiates you to absolutely nobody, including your own client. The first draft of a deal document sets the tone for the entire transaction. When you start out with one that’s burdensome and oppressive, the recipient’s legal and financial advisors immediately let their client know that the document is over the top. That means that not only does the draft usually get flyspecked, but each succeeding draft, along with just about every request made by the other side during the course of negotiations, gets looked at with a jaundiced eye.

Instead, the bankers suggested that a more balanced first draft is a much better way to approach a deal. If you start out with a document that puts the ball on the 35 yard line, you not only create an atmosphere that suggests your side wants to do business, but ironically, you’ll probably be more successful in your efforts to win on the handful of important deal points that you’ve drafted in your favor. When it comes to doing deals, it’s usually the reasonable people who can get away with murder.

From my perspective, I’ll concede that there are circumstances where it makes sense to be pretty aggressive in documentation. For example, if you’ve got a very hot commodity or a buyer that’s drooling all over the conference room table, then a little documentary boorishness is probably in order. But most deals don’t fall into that category, and most experienced business people don’t view an acquisition or a divestiture as a zero sum game. A first draft that suggests otherwise is usually a bad idea if your client’s primary objective is to get a deal done quickly and efficiently.

- Broc Romanek

Random Thoughts (and Worries) about Proxy Access

As we continue to post hordes of memos analyzing the SEC's proxy access proposal in our "Proxy Access" Practice Area, we're also are keeping an eye on the comment letters being submitted to the SEC. It's very early - so most of the comment letters so far are from individuals, including this one from a disgruntled citizen who is mad about the SEC's handling of Bernie Madoff and this one decrying the tyranny of the voting system (from Thomas Paine no less).

On a more serious note, Ning Chiu of Davis Polk notes: "One of the sleeper issues that has not been noted as much about proxy access is the impact on majority voting. If there's a shareholder nominee, then majority voting provisions default back to a plurality standard since the definition of a contest is usually phrased as having more candidates than board seats. That limits the power of "vote no" campaigns and ISS "vote no" recommendations, which had an impact on compensation matters this year. It's possible that activists and ISS would rather have threat of majority voting than a shareholder nominee on the ballot whose chances of getting elected may be slim."

Just before the SEC posted its proxy access proposing release, I noted that the month wait for the proposal was heading towards a record. [Note that 11% correctly picked "sometime this week" in my poll of predicting when the release would be out; the release came out the day following when the poll went up.]

Former Staffer Scott Taub, now with Financial Reporting Advisors, wisely responded that it wasn't even close to record "still waiting" territory. He points to the gap between the approval of the draft IFRS roadmap at an open Commission meeting (August 27th last year) and when that proposal was posted (November 14th). That wait will be hard to beat...

The Latest Compensation Disclosures: A Proxy Season Post-Mortem

We have posted the transcript from our recent CompensationStandards.com webcast: "The Latest Compensation Disclosures: A Proxy Season Post-Mortem."

No, Michael Scott Does Not Work for Us

But I wish he did. For those of you that aren't fans of the TV show - "The Office" - Michael Scott is a funny character played by Steve Carell. I do watch the show and it's good, but the reason I have bothered to blog about him is that some of our members have decided to use the names of characters from the show when they leave anonymous questions/answers in our "Q&A Forum." Here is one of the funnier notes:

I can sell you some paper, but cannot give it away. That would be stealing from my company. Instead, I'll give you a pass for a free night stay at Schrute Farms.

My superior thanks you, Dwight Schrute, Assistant Regional Manager

I just love it. Just like I love the screen names that members have used for our "Blue Justice League." My Top 5 there include: To Dye For; Tinkerbell; Clever Hans; moto moto and Professor Bertram.

As long as I'm blogging about TV shows, you need to see Tina Fey trying to get out of jury duty by pretending to be Princess Leia in this video.

- Broc Romanek

It's "Go Time": SEC to Propose Executive Compensation Disclosure Changes, Approve Elimination of Broker Non-Votes and More

As promised by Chair Schapiro earlier this month, the SEC has calendared an open Commission meeting for next Wednesday, July 1st, where it will consider proposals related to executive compensation disclosures, TARP's say-on-pay and other corporate governance issues. It also will consider approving the NYSE's "elimination of broker non-votes for director elections" proposal. This is a biggie.

There is one curious item on the SEC's agenda - I have no idea what the second part of Item 3 relates to: "to clarify certain of the rules governing proxy solicitations." I haven’t heard anything about problems with the proxy solicitation requirements. [Note: I now understand that this relates to codification of the Amylin letters (Eastbourne Capital/Carl Icahn) letters and other "housekeeping" rules.]

Early Bird Expires Tomorrow: With the SEC's goal to have new executive compensation disclosure rules in place before next proxy season - combined with the real likelihood of say-on-pay legislation and the loss of broker nonvotes for director elections - our the “4th Annual Proxy Disclosure Conference” (whose pricing is combined with the “6th Annual Executive Compensation Conference”) will be more important than ever. These Conferences will be held at the San Francisco Hilton and via Live Nationwide Video Webcast on November 9-10th.

Take advantage of reduced rates that will expire tomorrow, June 26th by registering now. These rates will not be extended - there will be no early bird discounts after Friday!

The SEC's Quick Response to Insider Trading Allegations: A More Restrictive Compliance Program

As media accounts continue to dribble out that damage the SEC's reputation (eg. see this recent Washington Post article regarding the Cox years), it appears that the furor over allegations over possible insider trading by SEC Staffers has died down.

One of the reasons may be the SEC's quick response - it quickly announced a series of measures that will strengthen its internal compliance program as noted in this WSJ article. More specifically, as outlined in this SEC press release, the measures include:

- New set of new internal rules governing securities transactions for all SEC employees that will require preclearance of all trades
- Prohibition on trading in securities of companies under SEC investigation regardless of whether an employee has personal knowledge of the investigation
- Contracting with an outside firm to develop a computer compliance system to track, audit and oversee employee securities transactions and elicit financial disclosure in real time
- Consolidated responsibility for securities transactions and financial disclosure reporting oversight within the SEC's Ethics Office
- Authorized the hiring of a new Chief Compliance Officer

Here is a noteworthy Washington Post article in which a SEC Staffer responds to complaints unrelated to the insider trading allegation, but which were included in the related SEC's Inspector General report .

Alleged Insider Trading: Reactions from Our Community

Since our members are closer to what happens at the SEC compared to the general public, it's worth noting some of their reactions to the insider trading allegations. I've already blogged my own thoughts in a piece entitled "My Ten Cents: What Does This Alleged Insider Trading Scandal Mean?"

And we have these poll results regarding "Should the IG's Report Have Been Made Public So Soon?":

- 54.6% said it shouldn't have been made public yet
- 34% said it should have been made public when it was
- 14.4% said the report was too long to read
- 15.5% wanted to cry
- 7.2% wanted to laugh

Here some of the member reactions that I received:

- Perhaps the SEC should do what some of the more conservative law firms do and prohibit its employees from trading in anything except index funds and ETFs? That would reduce the workload for the clearance officer and virtually eliminate any appearance of conflict. Still, if either of these people is guilty, they're just plain stupid since they of all people know how easy it is for the SEC to trace suspicious acvtivity.

- It is unclear whether the SEC Enforcement Attorneys traded on inside information or seriously violated SEC rules. However, the IG has been investigating for 15+ months and felt strong enough about the record to refer it to the US Attorney. Doesn't sound good- especially the parts about trading in stocks with potential or current investigations. I do note that the IG's last two reports to Congress mention the investigation and give identifying details.

- One person said that certain people who were familiar with the record found that the many of the questioned trades "didn't make sense." No one was happy with this reputational hit.

- These appear to be innocent (yet sloppy) transactions, not intentional fraud. One of the big problems at the SEC is that not many truly understand how the law and the financial markets work in a macro sense and how everything is connected to each other. Sure you have brillant people is specialized offices who know all about net capital rules, investment company communications or no action letters, etc... but not many who understand what really make investors, financial analyst and traders tick (can we say "Madoff"). This is not an easy thing as its takes a ton of work and reading to keep on top of things as you are aware. Thus you actually have to commend those who try to help others bridge the gap (this is how to invest in a stock, this is a bond) and who generally try to hone their skill sets.

- Didn't the SEC say they wanted to hire more financial professionals, do they expect these people to put all of their money in T-bills when they join? Unfortunately, the careers of these lawyers are probably doomed regardless of their culpability since if you did that many trades eventually you will probably run into a SEC conflict at some point, especially if you are buying financial stocks. I remember trying to pre-screen trades at the SEC many years ago; itf was essentially a broken system, so I hope that is not the reason for their predicament. Bottomline: expect future risk taking, innovation, and morale at the SEC to take a further set back.

- Broc Romanek

How to Monitor Shareholder Activism in a Changing World

We just posted the "Summer '09 Issue" of InvestorRelationships.com (we are maintaining this publication as complimentary thru ’09 as a “Thank You” to our loyal members in a down economy). The "Summer '09" issue includes articles on:

- How to Monitor Shareholder Activism in a Changing World
- The Art of Handling Director Resignations: Practice Pointers
- Parsing the SEC’s Proxy Access Proposal
- My Last ExxonMobil Annual Meeting
- Online Document Sharing Services: Legal and Reputation Concerns for IROs

If you're not yet a member of InvestorRelationships.com, simply provide your contact information in this sign-up form and gain free and immediate access to the issue. If you signed up last year, your ID/password will continue to work - if you forgot what those are, you can get a reminder.

Survey Results: Schumer's "Shareholder Bill of Rights" Unpopular with Executives

Recently, the NYSE conducted a poll of its listed companies regarding Senator Schumer’s "Shareholder Bill of Rights Act of 2009." Here is a summary of the results:

- 87% oppose and 6% favor legislation that requires advisory votes on executive compensation

- 82% oppose and 7% favor legislation to require proxy access, while 76% oppose and 10% favor the proposed 1% ownership level threshold for proxy access (among those opposed, 49% oppose and 31% favor a 5% level for proxy access, 55% oppose and 27% favor a 10% level for proxy access)

- 76% oppose and 16% favor legislation that mandates separation of the CEO and Chair roles

- 90% oppose and 4% favor legislation that precludes the CEO or a former CEO from ever serving as Chairman, even after retirement as a company executive

- 63% oppose and 25% favor legislation to mandate that all directors stand for re-election each year

- 45% oppose and 43% favor legislation requiring that in uncontested elections, directors must receive a majority of votes cast

- 66% oppose and 19% favor legislation that requires companies to establish a risk committee

- 73% currently have independent directors as part of the audit committee responsible for the company’s risk management practices, while 10% have a separate committee

- 81% oppose and 4% favor the Shareholder Bill of Rights Act (51% indicated that the Act would “greatly” or “somewhat” impair the company’s position with respect to their international competitors, while 24% and 2% say it would have “no impact” or “enhance” their competitive position; 90% say the Shareholder Bill of Rights Act would “significantly” or “somewhat” increase their costs as a public company, with 3% citing no effect)

Your Vote: What are the Odds of Schumer's Bill Being Passed?

Provide your anonymous vote in this poll:

- Broc Romanek

More Congressional Reform Activity: The Peters and Durbin Bills

Senator Charles Schumer's "Shareholder Bill of Rights" is not the only legislation floating around the Hills these days seeking to reform corporate governance. Here are three others:

1. "Shareholder Empowerment Act" - As Dave recently blogged about, Rep. Gary Peters introduced the "Shareholder Empowerment Act." Similar to Schumer's bill - but going further - Peters' bill would implement eight governance reforms that were highlighted in a Council of Institutional Investors letter to Congress late last year, including:

- Require majority voting for directors
- Allow long-term investors to have proxy access by nominating their own director candidates
- Eliminate uninstructed broker votes in uncontested director elections
- Require separation of board chairs and CEO positions
- Implement nonbinding annual shareholder approval of executive compensation
- Require independent compensation consultants
- Strengthen clawbacks of unearned incentive compensation
- Bar severance agreements for executives terminated for poor performance

2. "Excessive Pay Shareholder Approval Act" and "Excessive Pay Capped Deduction Act of 2009" - In May, Senator Richard Durbin introduced two bills in May aimed at curbing "excessive” compensation: the "Excessive Pay Shareholder Approval Act" (Bill S. 1006) and the "Excessive Pay Capped Deduction Act of 2009" (Bill S. 1007).

The "Excessive Pay Shareholder Approval Act" would require a supermajority vote (60%) to approve a compensation structure in which any employee is paid more than 100x more than the average employee of that company. In addition, in connection this vote, proxy disclosure would need to include:

- Compensation paid to its lowest paid employee
- Compensation paid to its highest paid employee
- Average compensation paid to all of its employees
- Number of employees who are paid more than 100x the average employee compensation
- Total compensation paid to employees who are paid more than 100x the average employee compensation

The "Excessive Pay Capped Deduction Act" would limit the federal income tax deduction for compensation paid to executives to 100x average employee compensation. Any amounts paid in excess of this cap would be considered "excessive compensation" and would be non-deductible.

In addition, any company that paid "excessive compensation" would be required to file a report with Treasury for such taxable year that included:

- Amount paid to the employee receiving the lowest amount of compensation during such year
- Amount paid to the employee receiving the highest amount of compensation during such year
- Average compensation of all of its employees during such year
- Number of employees receiving compensation that is more than 100x the average employee compensation during such year
- Amounts paid to the employees receiving compensation that is more than 100x the average employee compensation during such year

An Inspector General Report: The SEC's "Restacking Project"

At the end of last year, I blogged about how the SEC was spending $4.1 million to shuffle its personnel around physically due to bad planning when the Staff first moved into its new building a few years ago. The SEC called this it's "restacking project."

Back in March, the SEC's Inspector General, David Kotz, issued this report on how the restacking project fared. The IG initiated the review because of Staff complaints that the project was "not properly approved and initiated, did not serve a useful purpose, and was a waste of Commission resources." The report claims that 81% of the Staffers surveyed by the IG felt that the reorganization was completely unnecessary. Then SEC Chair Cox ordered a cost-benefit analysis that was never completed for the project. Not a good story.

"Cool Deal Cube Contest": We Have a Winner!

Recently, I announced a "cool deal cube contest" as part of our ongoing "Deal Cube Chronicles." John Newell of Goodwin Procter takes the prize with this cube. John notes:

Here is an old JPMorgan advertisement from the late '80s that explains this cube. In a nutshell, it is that the cube/tombstone from the "tombstone of the unknown deal." I made a joke to a senior guy at Bowne of Boston after a public deal cratered and he made a couple of these babies.

Recently, I also received this story from a member:

During a drafting session for a follow-on offering in which we were underwriters' counsel, we commented that the CFO was referred to in his bio as a certified pubic accountant. Company counsel expressed surprise because they had copied the language verbatim from the original IPO prospectus. There followed 1-1/2 seconds of uncomfortable silence, after which we flipped through a copy of the IPO prospectus and confirmed the worst.

There is some consolation in the fact that a search of the term "certified pubic" on EDGAR yields 142 hits (and counting).

- Broc Romanek