TheCorporateCounsel.net

Looks like the executive pay issue is growing in prominence for the mainstream press as the NY Times ran this article attacking personal airplane use by executives on the front page of yesterday’s paper. That’s right – page A1.

The article’s statistics about a 45% increase in amounts billed as personal use from the 100 largest companies – from 2004 to 2005 – could have been easily predicted. In the article, the rise is explained by the IRS cutting back on what companies could deduct when they pay for their executive’s personal travel – thus increasing the burden on companies.

I believe an even more significant reason for the increase is that the SEC Staff had been providing warnings about perk valuations long before the SEC proposed the use of the incremental valuation method a few months ago (see Alan Beller’s speech at our “1st Annual Executive Compensation Conference” in October 2004 and we analyzed this issue way back in the May-June 2004 issue of The Corporate Counsel). I believe some companies took this message to heart and moved away from some of the more egregious valuation methods, such as SIFL.

Unfortunately, valuation methodologies – as well as how companies determine what is “personal” versus “business” use – continue to vary greatly from company to company, as we recently highlighted on pages 8-9 of the September-October 2005 issue of The Corporate Counsel.

So no one should be surprised when these numbers go up significantly when 2005 is compared to 2006 – and even more so when 2006 is compared to 2007, as this is when the “rubber meets the road” as the SEC new rules take effect and hopefully the result is more uniformity in practice. I say “hopefully” because the SEC’s proposed rules lack a clear definition of what costs should be included in the incremental calculation, as noted on pages 5-8 of this comment letter (which also argues that the valuation should be made from the perspective of the executive; not the company). More guidance in this area is necessary to ensure that companies don’t continue to abuse “loopholes” to hide the true costs of personal airplane use.

How to Go Public on the London Stock Exchange’s AIM

Check out today’s webcast – “How to Go Public on the London Stock Exchange’s AIM” – to learn how the London Stock Exchange’s Alternative Investment Market (AIM) increasingly has become an option for companies seeking to go public.

The Impact of Stock Trading Plans on Potential Liability

From Lyle Robert’s “The 10b-5 Daily“: Whether selling company stock under a Rule 10b5-1 trading plan can help shield corporate executives from securities fraud liability is an open question. Although some courts have considered the existence of a trading plan in finding that an executive’s stock sales did not create a strong inference of scienter (i.e., fraudulent intent), a recent decision goes the other way. In In re Cardinal Health Inc. Sec. Litig., 2006 WL 932017 (S.D. Ohio April 12, 2006), the court held that it was “premature” to evaluate the impact of a trading plan at the motion to dismiss stage because it is an affirmative defense to insider trading allegations.

Some Final Thoughts on Form 10-Q Risk Factor Disclosure

Brink Dickerson responds to some of the comments made on his thoughts on risk factors in 10-Qs by noting: “Commentators are absolutely correct that the SEC is hostile to disclaimers of duties to update. However, I include one in any event – usually with the qualifier “except as required by law” – because of Winick and some similar authority.

I have received comments from the SEC on this language – and they usually comment on the companion language as well that provides that the risk factors are the ones that the company currently considers to be material, but may not necessarily every material risk factor – and usually am able to convince them that some middle ground is appropriate. In Winick vs. Pacific Gateway Exchange, Inc., 73 Fed. Appx. 250 (9th Cir. 2003), the court said that ‘The company repeatedly disclaimed any duty to update its forecasts; thus, the company’s predictions regarding its ability to meet future obligations could not have remained “alive” in the minds of reasonable investors.’

A disclaimer of an obligation to update – or the general absence of a duty to update – is consistent with case law in the other circuits as well, and it is unfortunate that the SEC does not recognize that in its comments.”