Monthly Archives: February 2004

February 12, 2004

FEI Conducts Internal Controls/Audit Fee

Yesterday, the FEI released a survey of 321 companies that finds that the largest U.S. companies expect to spend an average of 35,000 hours to implement Section 404 – and incur an increase of 38% over current audit fees. Companies expect to document an average of 79% of their processes – and expect external auditors will test an average of 57% of those processes.

The survey shows that companies with over $5 billion in revenue expect to spend an average of $4.7 million this year to implement 404 – and expect audit fees to top $1.5 million on average.

Governance Metrics Releases Global Governance Scores

This week, GMI released governance rating scores on 2100 multi-national companies. The accompanying press release included some interesting observations, such as:

– Canadian companies had the highest overall average rating of 7.6, followed by the United States (7.0), Australia (6.9) and the United Kingdom (6.7). Japanese companies had the lowest overall average rating at 3.0
– 414 out of the 1,835 companies with a compensation committee included an executive on this committee (59 had the CEO)
– While the total number of independent directors increased marginally from 56.1% to 57.5%, the number of combined Chairman and CEO positions fell from 47.3% to 41.6%, the number of independent chairman grew from 13.2% to 21.2% and the change in the number of lead directors jumped from 23.3% to 33.4%

Our New “Section 402” Portal

We have launched a new Section 402 Portal that contains guidance on a host of cashless exercise and Section 402 matters.

SEC Adopts Mutual Fund Disclosure Rules

Yesterday, the SEC adopted new rules requiring mutual funds to provide enhanced periodic disclosure.

February 11, 2004

Learn about ISS’ New Competitor

This year, ISS has a competitor in the proxy advice business, Glass Lewis. Learn more about this new provider in my interview with the CEO of Glass Lewis – Greg Taxin on Glass Lewis and Proxy Advice.

NY Federal Judge Temporarily Blocks Ability of Shareholder to Mail Proxy Card in Proxy Fight

If you read Saturday’s NY Times, you know Judge Loretta Preska of Federal District Court in Manhattan issued a temporary restraining order against Highfields Capital Management (a shareholder that opposes a merger of MONY) on Wednesday night after a telephone hearing. On Friday, Judge Richard Holwell left the order in effect – but promised a written opinion today on whether the temporary order would stand.

At issue is whether shareholders can send out copies of a company’s proxy ballot card when they send letters recommending a vote against management in a proxy fight – that can make it easier for shareholders to change their vote (or to vote for the first time). MONY, which is seeking shareholder approval to be acquired by AXA Financial, filed this lawsuit against Highfields, which is trying to use the tactic to persuade shareholders to reject the deal because it considers the price too low.

Since Rule 14a-2(b)(1) was adopted in 1993, investors have been able to send communications to one another recommending votes without having to go through the proxy solicitation process. These investors have been able to send company proxy cards – though not their own – and have not been challenged in court.

Disclosure of CEO Succession Planning

Even though it’s near the top of the list of the most important tasks they undertake, boards rarely disclose developments related to succession planning. That is understandable if disclosure might undermine the board’s efforts (akin to preliminary discussions of a merger) – but in some cases, disclosure would be a good thing. As Walt Disney Co. is finding out, disclosure of succession planning is a good thing – as they filed a letter describing their planning as additional soliciting material yesterday.

FDA and SEC Agree to Cooperate

Last Friday, the SEC announced it had established a procedure for the FDA to refer to the SEC possible instances of securities laws violations by companies regulated by the FDA. This announcement included identification of contacts in the FDA and an FDA commitment to expedite the process.

February 10, 2004

Don’t Forget about Tomorrow’s Webcast

As could be expected, we have been receiving a steady stream of questions to pose to our expert panelists for our February 11th webcast – “Cashless Exercises and Other Murky 402 Issues.” The panelists include Stephanie Adams, VP/Manager of Compliance & Restricted Stock Programs, Morgan Stanley Dean Witter; John Aguirre, Partner, Wilson Sonsini Goodrich & Rosati and Marc Trevino, Partner, Sullivan & Cromwell. Send your questions now to and listen in tomorrow!

If you are not yet a member, take advantage of a no-risk trial to see what you are missing. Here are 10 Good Reasons to try us now!

Audit Response Letters

A provocative discussion in the Jan/Feb 2004 issue of The Corporate Counsel (at pg 9) has prompted several reader inquiries on whether “claims or assessments” should follow “pending or threatened litigation” in the first request category. While, in fact, there hasn’t been a formal change in the ABA’s standard form of request letter, the actual practice here varies widely, especially in light of the similar language in the second request category (unasserted claims, etc.). Expect more on audit letters in the next issue of The Corporate Counsel.

SEC Announces Shareholder Access Roundtable

On March 10th, the SEC will hold an all-day roundtable at its DC headquarters regarding the proposed shareholder access rules (interestingly, the announcement says that the SEC will accept comments at the roundtable and thru the end of March!) The agenda and list of participants has not yet been posted. Should be a humdinger. First come, first serve – so show up early if you plan to attend in person.

February 9, 2004

Notes from Northwestern’s San Diego

With big thanks to Richard Blake and Bret DiMarco of Wilson Sonsini Goodrich & Rosati, we have posted notes from Northwestern’s Securities Regulation Institute in San Diego – these notes cover 13 panels!

Company Fights “Opt-In” Shareholder Proposal on False & Misleading Grounds

I reported last month that Marsh & McLennan had received the first “opt-in” shareholder proposal under the proposed shareholder access rules. IRRC now reports that the company has sought no-action relief on two different grounds – that the proposal is false and misleading under Rule 14a-8(i)(3) and that the proposal deals with election of directors under Rule 14a-8(i)(8).

Interestingly, the company argues that it is false and misleading because the shareholder access rules are not finalized yet and the shareholder proposal implies that they are. We will be keeping a close eye on this one…

What the Top Compensation Consultants Are NOW Telling Compensation Committees

The NASPP has announced a tremendous webcast – “What The Top Compensation Consultants Are NOW Telling Compensation Committees” – scheduled for Thursday, March 18th. Try a no-risk trial membership to the NASPP and hear the top consultants “tell it like it is.”

If you didn’t see yesterday’s NY Times, Jesse Brill spoke out in an article by Gretchen Morgenstern about companies going beyond what is legally required to provide fuller disclosure of executive compensation arrangements, including deferred compensation and SERPs.

Come on, Antonin

Today, the Washington Post runs a interesting analysis of how US Supreme Court Justice Antonin Scalia refuses to recuse himself from a case in which VP Dick Cheney is a named defendent – Antonin had went on an extended duck hunting trip in January with Cheney after the court had agreed to hear the case (and flew to Louisiana for the trip on an official aircraft). Supreme Court Justices are able to determine their own impartiality. This smacks of one of the primary issues that governance reform is intended to fix – the elimination of the perception of conflicts.

February 6, 2004

Analysis of Boilerplate Agreement Provisions

The February edition of “Carl’s Corner” is up – and deals with analysis of boilerplate agreement provisions. If you haven’t checked out Carl Schneider’s musings before, you really should as he applies decades of practical wisdom to provisions that many of us take for granted.

Always Check the Rules Themselves

In law school, my administrative law professor admonished us to “always check the rules.” This is a useful warning as it is not uncommon to find law firm client memos that repeat mistaken law.

A perfect example is a handful of memos on the new SRO standards – some from the more prestigious firms – that state that the Nasdaq IPO transition period is 24 months – which was originally proposed but not adopted (only one year was adopted). The lesson learned when drafting a client memo is to always check the rules – and don’t necessarily rely on the client memos that hit the streets first.

Survey Results of Financial Experts for Small Cap Companies

In our “Audit Committee Portal,” we have posted a study from Haynes & Boone regarding how U.S. small cap issuers (i.e., exchange or Nasdaq-listed issuers with market caps below $75.0 million) are dealing with the new audit committee financial expert disclosure regulations adopted by the SEC.

The study finds that over 67% of U.S. small cap issuers expect to name a financial expert in their next annual report – and that over 82% of U.S. small cap issuers have at least one financial expert serving on their board of directors. I believe these numbers are generally higher than what most experts predicted – and are close to the results of a Fortune 1000 company survey conducted last year.

ISS Hires New CEO

Last week, ISS hired John Connolly, a veteran of IBM Corp. and a Cambridge high-tech start-up as CEO to replace Jamie Heard, who remains an investor in the privately held firm and who will stay on as vice chairman and focus on governance research, rather than day-to-day operations.

February 5, 2004

Nasdaq Not Likely to Issue

I attended an excellent DC Bar luncheon panel yesterday featuring some of the Nasdaq staffers that answer the many interpretive questions that continue to dribble in. Unfortunately, it does not appear that Nasdaq will be ready to issue more FAQs for a few more weeks. “The sooner, the better” as the proxy season is already in mid-swing.

SEC No-Action Letter on Equity Compensation Plan Disclosures

After a long wait, Corp Fin finally has issued a no-action response to the ABA – in a letter dated January 30th – regarding equity compensation plan disclosures. It covers 8 different topics – and is “must” reading for this proxy season.

How to Update Your Governance Practices

Learn how the NY Times is updating its corporate governance practices from their corporate secretary in my interview with Rhonda Brauer on Updating Governance Practices! I personally learn a lot when I dig into how each company is handling the new governance standards.

Big Four Shed Public Audit Clients in ’03

As reported by, for the first time in at least a decade, each of Big 4 lost more public company audit clients in 2003 than it acquired (according to an analysis by Auditor-Trak). PwC lost 91 public clients, KPMG lost 51; Ernst & Young lost 76 and Deloitte & Touche lost 65 clients. As I have noted before, in many of these situations, the Big 4 firms are letting the clients go – rather than the converse…

February 4, 2004

Corporate Governance Web Pages Galore

We have upgraded our list of links to corporate governance web pages by adding links to each of the Fortune 100 as well as the 20 companies with the most widely held stocks (these are in addition to the list we previously had to misc. companies that had upgraded their sites early). Also note that we have provided a list of links to the IR web pages for each of these companies.

Interestingly, roughly 85% of the Fortune 100 have already launched corporate governance web pages. However, there are no assurances that they all meet the new SRO standards.

Watch Out for SOX Scams!

Some community members have forwarded fraudulent invoices from an organization claiming to be the “Sarbanes-Oxley Compliance Registry.” These invoices are sent to the accounting departments of companies with a notice that registration fees are now due (for relatively minimal amounts, such as $125) and claim the fees are required by SOX. These scam artists are hoping the accounting department pays without asking someone within the company that knows better. If you are aware of other SOX scams, send them on!

Senate Finance Committee Approves Bill Containing CEO Certifications for Tax Returns

Last week, the Senate Finance Committee approved a bill that would require CEO to provide a certification with the company’s tax return.

February 3, 2004

February E-Minders is Up! The

The February edition of our popular email newsletter is available now. Sign up to get it free by just providing your email address in this online form.

SEC Speaks at Northwestern’s San Diego Program

We will be posting notes from this popular conference in the next day or two. One item that had the audience talking was the remarks from SEC Enforcement Director Steve Cutler. Steve stated that he was concerned about the granting of options at a time when a company was aware of a potentially positive event that had not yet been publicly disclosed. He acknowledged that this did not violate insider trading laws; rather it raised disclosure issues.

The audience asked questions but Steve was unable to provide much guidance – so this is an issue to watch (since it was unclear if Steve realized that options normally are granted before disclosure about them is made). For example, one question was if a preventive cure could be a set date for option grants arranged in advance. The answer was “no,” because this was not an insider trading issue and thus could not be cured with a Rule 10b5-1 plan for granting options.

SEC Continues in Growth Mode

Yesterday, the SEC released its request to Congress for its 2005 budget – $913 million (which includes $20 mm owed from last year). This amount is 12.5% above the amount recently received by the SEC for fiscal 2004. This budget request – the first crafted by Chairman Donaldson since his arrival in February 2003 – would permit the SEC to hire 106 new employees and is double the SEC’s 2002 budget. Good thing the SEC will be moving into a new building in a year or so…

February 2, 2004

Don’t Forget to Renew Your

It’s been nearly a year since the SEC went about rulemaking regarding mandatory e-filing of Section 16 reports. In anticipation of mandatory filing, many companies filed a Form ID for their insiders to enable them to file on their behalf.

Because passwords expire after 12 months, it is time for many of these insiders to renew their passwords. Since it is easy to renew before they expire – and not so easy to renew after they expire – I encourage you to renew them now. Alan Dye tells me that you can renew passwords on the SEC’s website before they expire – once a password expires, you have to file an amended Form ID to get a new one.

Interestingly, most compliance people don’t update insiders’ passwords, only their own. This is because you need only one password to get into the SEC’s system – after that, you can file using anyone’s codes. As a precautionary measure, however, you might want to renew all your insider’s passwords.

Thomson Financial on a Roll

Last week, Thomson Financial bought both CCBN – the leading IR Web page provider – and Glasser LegalWorks. Thomson also owns WestLaw and a number of other legal/corporate providers.