Last Monday, I blogged about the new risk factor disclosure requirement to consider for the 10-Qs being filed over the next few days. A subsequent question was asked in our “Q&A Forum” about what to do if a company has no material changes to the risk factors described in its last Form 10-K (see #1712 in the Forum).

I like the approach that Coke took to this issue. As reflected in its Form 10-Q filed recently, Coke directs readers to its 10-K without expressly stating that there was “no material change.” This is the best approach I’ve seen so far. Here is what Coke disclosed:

“In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2005, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.”

More from the PCAOB on Inspections and Internal Controls

Possibly in response to the rising internal control audit costs, the PCAOB issued a statement yesterday on the approach it intends to take with regard to inspections of internal control audits during this year’s inspection cycle, which commences this month. The key emphasis will be on the efficiency of the auditors’ performance of internal control audits and the inspectors will be delving into whether the auditors have achieved the objectives of Standard No. 2 with the least expenditure of effort and resources. This will include an examination of how well auditors implemented the PCAOB’s guidance from last May (which was supplemented by the November 30, 2005 Report on the Initial Implementation of PCAOB Auditing Standard No. 2.)

This year’s inspection cycle will include the annual inspections of the nine firms – eight U.S. and one Canadian – that audit more than 100 public companies (as required per SOX Section 104). Additionally, the PCAOB will continue its three-year cycle of inspections of firms that audit 100 or less public companies.

Also yesterday, the SEC and PCAOB announced the panels for their May 10th joint roundtable on the second year of internal control reporting. A related briefing paper and agenda were also issued by the SEC.

Also, last Thursday, the PCAOB issued an “Overview of Auditing Standard 4 – Reporting on Whether a Previously Reported Material Weakness Continues to Exist,” which summarizes key points from PCAOB’s previously issued AS4. As you might recall, this overview was requested by the SEC when it finally approved Standard No. 4 in February.

NYSE Updates Its Affirmations and Certifications

Last Friday, the NYSE updated its Section 303A Annual and Interim Written Affirmations and Section 303A Annual CEO Certification for domestic companies. The changes appear to be minor, and include adding the company’s ticker symbol, eliminating references to the transition period for classified boards that expired last year and simplifying text.

Here is a full comparison of the 2006 forms to the 2005 forms. Note that if your company has already submitted its 2006 Section 303A Annual Written Affirmation, a new submission is not required.

According to ISS’ “Corporate Governance Blog,” the Executive Council of the Delaware State Bar Association’s Corporate Law Section has endorsed draft legislation to amend the Delaware General Corporation Law to enable shareholders to introduce an irrevocable change of bylaws on director elections, as well as provide for an irrevocable resignation of directors who fail to get a requisite number of votes. The proposal does not modify the default plurality standard.

The proposal would amend paragraph 216 of Section 5 of the DGCL to provide that a company bylaw adopted by a vote of stockholders that prescribes a required vote for director elections cannot be altered by the board without shareholder consent.

Another proposed revision seeks to get around the restrictions of Delaware’s “holdover” rule by adding a new provision that a director resignation may be made effective upon the occurrence of a future event or events, coupled with authority granted in the same section to make certain resignations irrevocable.

The proposed bill will be submitted to the Delaware legislature in the next week or two – and then it must be endorsed by the full Bar Association and then passed by the Delaware legislature before becoming law.

49% Support for Binding Majority Vote Proposal

Here is another item from ISS’ “Corporate Governance Blog“: This season’s first binding proposal seeking majority voting received more than 49% of votes cast at Honeywell this week, according to the proponent, AFSCME.

That showing was significantly higher than the 20% vote received by a binding AFSCME proposal at Paychex in October. The Honeywell vote is also noteworthy, because the company had adopted a director resignation policy. Before the April 24 vote, the best showing for a majority vote resolution at a company with a resignation policy was the 45% support at Hewlett-Packard in March for a non-binding proposal by the United Brotherhood of Carpenters and Joiners.

Majority Vote Standards in Articles of Incorporation?

And one last item from ISS’ “Corporate Governance Blog“: “Progress Energy filed in its proxy materials what is believed to be the first management proposal to change a company’s articles of incorporation to require a majority vote for the election of directors. Management is also proposing a resolution to hold annual board elections. The North Carolina utility’s annual meeting is May 10.

More than 20 companies have adopted a majority vote standard this year, primarily by revising their bylaws. Progress Energy appears to be the first to seek to make the change in its articles of incorporation. In North Carolina, as in most jurisdictions, articles of incorporation can only be amended if the change is proposed by the board and endorsed by shareholders, whereas bylaws can generally be revised by the board alone.

The Progress Energy proposal requires a majority of votes cast to pass, and abstentions and broker non-votes will not count as votes cast or against, the proxy statement notes. If approved, the new standard would apply for the company’s 2007 annual meeting. To overcome the North Carolina “holdover rule” which requires a director to serve until his or her successor is elected, the company adopted a director resignation policy in its corporate governance guidelines, which would become effective upon filing of the amended articles of incorporation.

Action on the resignation is left up to the governance committee, but if its members fail to gain majority support, the independent directors who did get elected can appoint a committee of independent directors to make a recommendation on the tendered resignation.”

May E-minders is Up

The May edition of our monthly newsletter is now available – sign up today to receive it on a complimentary basis.