November 29, 2005

NYSE Takes a Position in Sovereign Mess

Yesterday, I went into a blogging frenzy on the Blog regarding the proposed – and controversial – transaction by Sovereign Bancorp, which has been amended so that the NYSE would allow it to proceed without a shareholder vote. Rather than repeat that lengthy blog, here are the primary topics I addressed to help you determine whether it’s worth visiting that blog:

– Dissecting the Shareholder Approval Issue
– The NYSE’s Trap for the Unwary?
– The Use of Treasury Shares or Cash to Avoid Shareholder Approval
– A Final Thought on State Law vs. SRO Regulation

Companies Go Public With Auditor Liability Caps

Yesterday’s WSJ carried an article with the title above that dissected the growing practice of limiting auditor liability through provisions in engagement letters. The article noted that two companies have disclosed the fact that they have limited their auditors liability in these proxy statements: Sun Microsystems’ proxy statement (page 17) and Silicon Graphics’ proxy statement.

Both companies disclose they have entered into an engagement letter with their outside auditor and then add: “That agreement is subject to alternative dispute resolution procedures and an exclusion of punitive damages.” Expect more investors to be seeking disclosure about limited liability to help them decide whether to ratify an auditor’s engagement – and I agree that this type of disclosure is a good idea.

Regarding the overarching point about the wisdom of limiting auditor liability, I have been urging companies for some time to push back on these so-called standard provisions in auditor engagement letters – learn more in our “Auditor Engagement Letter” Practice Area. Let me know if you have had any success pushing back recently!

UK Legislation on Auditor Liability and Engagement Letters

Following on the theme above, there is some interesting legislation introduced in the United Kingdom that would not only require auditors to disclose the details of their engagement letters, including any liability caps – but also require companies to obtain shareholder approval of these arrangements!

The proposed legislation would also create a lot more transparency regarding changes in auditors, giving investors a greater voice in that process as well. This legislation is part of a long-term review of UK corporate law that started in 1998.