January 28, 2004

Untangling SFAS 150 One of

One of the more complicated rulemakings in some time is SFAS 150 – even the effective date(s) are complicated. Under SFAS 150, an issuer must, in most circumstances, classify as a liability – not as equity – a financial instrument that falls into any of three specified categories. In certain circumstances, that could result in a freestanding financial instrument indexed to the issuer’s stock price.

Check out my recent interview with Richard Flowers, Jeff Ellis and Brad Kulman on the Impact of SFAS 150 to help untangle this recent accounting pronouncement.

NYSE’s Requirement to Communicate “Directly” with Independent Directors

I have been getting asked a lot of questions about the NYSE’s new requirement under Section 303A.03 that listed companies disclose a method for interested parties to “communicate directly with the presiding director or with non-management directors as a group.” The most common question is what is meant by “directly.”

From what I hear, the NYSE staff has been saying that a company doesn’t need to provide direct access to directors nor is it required to hire a third party. Rather, a non-management employee can undertake this task (it is unclear as to what constitutes a “non-management employee” – my guess is that it can be the corporate secretary or someone in the legal department – perhaps even if they are considered an officer).

However, this employee must be instructed from the non-management directors regarding what, when and how the directors want to review any communications. In other words, this employee can’t make any independent decisions (and of course, can’t share any communications with management unless instructed to do so by these directors). Obviously, it is wise to obtain these instructions in writing as part of a sound compliance program (and as CYA for the employee tapped as the “go-between”).