November 21, 2005

Early Holiday Gift from the SEC: No More Proxy Delivery to be Proposed!

The SEC has announced an open Commission meeting for November 29th, during which the Commission will consider proposing rules that would eliminate the requirement to deliver proxy materials for companies that wanted to follow this “alternative model.” This alternative model would require companies to deliver a notice – which could not be accomplished just by a Web posting – that state that proxy materials are available on a corporate website.

This proposal is a logical extension of the “access-equals-delivery” framework that the SEC adopted as part of the ’33 Act reform, as the SEC clearly now recognizes the widespread availability of Internet access for investors (and for those that don’t, they can request a paper copy). This proposal also reflects the fact that a high percentage of proxy statements go to shareholders that do not vote.

At an ABA meeting this weekend, Corp Fin Director Alan Beller indicated that the SEC would not be able to adopt final rules in time to apply to this proxy season. He also indicated that the proposed rules likely would:

– require that a proxy card or voting instruction form be sent (and will not presume consent to electronic voting)
– not address OBO/NOBO or other issues; it will be a narrowly focused proposal
– be available for issuers and others who solicit
– apply to the proxy statement and glossy annual report

ISS’ Final Postseason Report for 2005

ISS has issued its final postseason report for 2005 – and I will cover ISS’ voting policies for 2006 tomorrow.

To learn more about what to expect from investors and ISS in ’06, listen to our January webcast – “Forecast for 2006 Proxy Season and Solicitation Strategies to Consider” – which will include proxy solicitor panelists that will provide guidance about strategies to consider regarding shareholder approval of plans, etc.

PCAOB Inspection Reports: PwC, E&Y, and BDO Seidman

On Friday, the PCAOB released the last of the Big Four 2004 inspection reports, by issuing this Ernst & Young report and PwC report. For good measure, it also released the BDO Seidman report (BDO is the sixth largest auditor).

Problems with 8 audits by E&Y and 30 by PwC were big enough to suggest that the firms failed to obtain “sufficient competent evidential matter” to support opinions on their clients’ financial statements.

Here are some thoughts from Lynn Turner, former SEC Chief Accountant and now head of research for Glass Lewis, on these reports: “These reports include some stunning revelations about shortcomings in the described audits performed by PWC and E&Y. Unfortunately, these reports are being issued over 22 months after the December 31, 2003 year-end involved in many of these audits – and over a year after inspections were done.

This will not help instill investor confidence that audits are being done in accordance with required standards. However, it does appear inspections are much more in-depth than they were when the firms were regulating themselves (and let’s hope the PCAOB keeps up with this high level of inspection scrutiny).

Also of interest is that the Big Four are demanding that companies agree to a limitation on the damages an auditor would incur for doing negligent audit work. Based on these inspections, one can understand why the Big Four auditors want liability limitations.”

With Apologies to “Intervention”

I broke my policy of open-mindedness when I dissed the reality TV show “Intervention” in my Friday blog without ever having seen it. One member set me straight:

“If you haven’t seen “Intervention” on TV, you’d be doing yourself a big favor if you watched it. Particularly if you have kids. In my opinion, it is without a doubt the most gripping television I’ve seen in a long time, if not ever. It is nothing like Survivor, I imagine (I have to imagine this because I have never watched and will never watch Survivor or The Apprentice or any other “reality” TV).

Intervention is about the human condition, about forgiveness, about facing our own shortcomings, about growing up, about the disease of narcissism. Why did it take TV 60 years to create a show like this? Intervention is like a big public service announcement, a reminder that from dust we came and to dust we shall return, and in the meantime it would be good if could see our way clear to not being assholes to each other. A reminder I would do well to heed. And it is right that Intervention is shown on Sundays, particularly for those of us who, like me, don’t always get to church. Intervention gives real meaning to the expression: There but for the grace of God go I. I recommend it.”