TheCorporateCounsel.net

Below is an interesting summary of Equilar’s analysis of FAS 123 assumptions for how large companies value their options (as disclosed in their proxy filings). As footnote disclosures begin to appear in income statements by mid-2005 (for those companies who haven’t adopted FAS 123 already), focus will turn to their assumptions. Equilar looked at the most recent 3 years of filings for 472 companies in the S&P 500, focusing particularly on expected volatility assumptions as well as expected terms.

Here are the highlights of Equilar’s survey:

a. Expected Term Assumptions

– For expected term assumptions there has been little change in the past three years with the median (5.0 years), the 25th percentile (4.5 years) and the 75th percentile (6.0 years) remaining constant for each of the past three years.

– While there has been little change at the summary level, this masks the fact that over 56.3% of companies have changed their assumptions in the last three years; 28.8% of S&P500 companies increased their terms with a median increase of 17.5% and 27.5% of S&P500 companies decreased their terms with a median decline of 19.1%.

b. Volatility Assumptions

– For expected volatility assumptions, there has been an increase in the median volatility from 35.7% in 2001 to 36.5% in 2003. The 25th percentile and 75th percentile levels were little changed at 29.7% and 47.0% respectively.

– As one would expect, almost all companies (91.3%) had a change in their expected volatility assumptions over this three year period; 46.5% of companies increased their expected volatility assumptions with a median increase of 10.2% and 44.8% of companies decreased their expected volatility assumptions with a median decrease of 10.0%.

Webcast coming soon from the NASPP: The Final Standard: Option Expensing is Here – Are You Ready?

Want to Improve Your Internal Controls – Try Not Performing Your Duties?

Who would have thought that internal controls could be improved by
adopting a board-approved policy requiring that officers and employees not
perform their duties? Check out this December Bulletin from California’s Department of Financial Institutions regarding its position that institutions should relieve officers and employees from their duties for two consecutive weeks each year.

While I understand the Department’s logic, it struck me as amusing that a government agency would criticize someone for failing to prohibit its officers and employees from performing their duties. And although this is amusing, it would not be surprising for type of policy to find its way into the internal controls morass at public companies under circumstances for which it might make sense. Thanks to Keith Bishop for pointing this tidbit out and all this analysis!

Perils and Promises of Electronic Data Discovery

In the world we live today, I’m not sure we can learn enough about the perils of electronic discovery. Learn more in this interview with Tom Barnett on the Perils and Promises of Electronic Data Discovery.