TheCorporateCounsel.net

To keep you satisfied until we will post notes from last week’s PLI Securities Law Institute, here are some noteworthy points from the SEC Staff panelists at the conference:

– Corp Fin’s Chief Accountant’s Office intends to issue a new version of the “Current Issues Accounting Outline” by the end of November

– Corp Fin is planning on issuing additional ’33 Act Reform FAQs sometime during the next few weeks – these will not deal with transitional issues, but will rather focus more on the substance of the new rules

– Corp Fin’s Office of Mergers & Acquistions has come to the conclusion that an interpretation of 14d-10, the all-holders rule, will not suffice to solve the problem created by the split in the circuit courts – thus, it is working hard to provide a proposal to amend the rule. The proposed amendment will not be a brightline test, but will be broad enough to provide the Staff with the ability to interpret. As a reminder, the Staff noted that the SEC has consistently taken the view that bona fide compensation arrangements should not raise 14d-10 issues.

As you can see, there weren’t too many newsbreaking developments at this year’s conference – likely because the new SEC Chair has not set his full agenda yet. Heard a few attendees bemoan the fact that fan favorite Marty Dunn was used for little more than “eye candy” on the ’33 Act reform panel – but that’s what happens when someone is a last minute addition to the panel (which Marty was).

[Not sure why, but my wife just sent me this video – maybe she’s a closet Milli Vanilli fan? Anyways, it reminded me how cool Google Video will be once it has matured…]

Implementing Ombudsman Programs

In this podcast, Arlene Redmond and Randy Williams, Founders of Redmond, Williams & Associates, provide their experiences on what makes a sound ombudsman program work, including:

– What is an organizational ombuds? And what role does one have in helping to protect a company’s reputation and assets?
– If a company has effective formal channels, such as the Corporate Secretary or legal department, why would it need an ombuds?
– How do the role of whistleblower hotlines compare to the role of an ombuds?
– How can a company assess the effectiveness of an Ombuds program?
– What are examples of companies that have Ombuds programs?

Governance Posterchild: Sovereign Bancorp?

Last week, much was reported about how Sovereign Bancorp’s CEO botched his communication of some deals that the company was negotiating. Boy, the news reports regarding investor reaction to the CEO’s comments at an analyst conference sure don’t seem to jibe with tenor of this press release released by the company.

But that is just the tip of the iceberg for Relational Investors, who owns the largest stake in the company and has filed preliminary proxy materials with the SEC to elect a short slate to the company’s board. The short slate consists of two members of Relational. (For those of you unfamiliar with Relational Investors, this is how they typically invest – they target poor performers and buy a stake; then take an active role in reforming the company. They are quite successful with this investment strategy.)

If you read Relational Investor’s preliminary proxy materials, it will blow you away. For example, here is a snapshot of how Relational Investors describes the company’s director compensation practices:

– Directors are paid over $300,000 annually, more than any other financial institution in the country, including global banks like Citigroup and Bank of America and more than 5x the peer group (which means that it will be easier for a plaintiff to show that the company’s directors are not independent since they set their own pay)

– Directors have the opportunity to earn “special bonuses” if the company meets certain cash targets – and the targets were set below guidance put out by management and could even be paid if the targets weren’t met (not to mention using this type of incentive pay for directors is dangerous since this could incentivize directors to be in cahoots with a management team that wanted to manipulate the numbers)

– Until recently, the company paid directors under a two-tiered compensatory structure so that newer directors were only paid about $60,000 annually (compared to the $300,000 paid to more senior directors) – even though all directors had the same obligations, liabilities, responsibilities and workload (arguably calling into question the board’s business judgment and sense of fairness)