Monthly Archives: September 2006

September 15, 2006

This Clown Sure Can Set a Benchmark…

dilbert ceo pay.gif

September 14, 2006

John Olson on “The Board Presentation”

I know I am biased, but I can honestly say that anyone I have spoken to – or emailed with – raved about our just-concluded Conference: “Implementing the SEC’s New Executive Compensation Disclosures: What You Need to Do Now!” (For those that missed it, all the panels are now archived and available to watch – it’s never too late to register and take in the Conference.)

One of the conference highlights was the keynote by John Olson of Gibson Dunn on how to make your presentation to the board about the new rules. Many attendees – including a CEO from Dallas who came to DC to take in both days! – urged us to make John’s remarks widely available as “necessary” viewing for CEOs and directors.

We wholeheartedly agree. We have posted John’s 20-minute video – on a complimentary basis – on the home page of for everyone to see. Please watch John’s inspirational remarks – “John Olson on ‘The Board Presentation’” – and pass on the link to those that need it!

Conference Lessons Learned: What to Do Now

One of the central themes I heard from attendees is that each of the panels drove home the point that much more work will be involved this year putting together the new tables and disclosures; much more than they had originally thought. The mock-up tables and disclosures put together by the panelists really reinforced this point – even plain vanilla situations likely will result in tables that are 4x longer than you might have initially thought. And I challenge anyone who watched “The New Retirement Pay Tables” panel to bravely step forward and say their company can easily overcome all of the complicated open issues that were identified. The same challenge could easily apply to a half dozen other panels.

And the risks for not being prepared have never been greater. Not only do you bear the risk of angering directors and managers for surprising them with huge pay numbers – or even low numbers (eg. perks) – that will embarrass them once disclosed, but you run the very real risk of not capturing all the data you need to provide full disclosure.

And don’t forget that late SEC filings have now become a part of the game that hedge fund activists play, as they buy up bonds of late filers and then use the covenants in indentures to trigger huge defaults/cross-defaults – all in an attempt to put the companies in play! And as we all know by reading the papers, journalists are chomping at the bit for these enhanced disclosures – and investors are not afraid to use them to quickly mount a “just-vote-no” campaign against director nominees. This ain’t the same playing field as last proxy season, my friend! Not by a long-shot.

This is a mini-version of the internal controls exercise we went through over the past few years, just not nearly as comprehensive nor expensive. But another key difference is that most companies simply don’t have the resources they will now need to adopt a new multi-disciplinary approach to drafting compensation disclosures. As panelists repeatedly said, securities lawyers are now going to have to learn much more about compensation – and the HR staff needs to learn securities law. That’s why so many HR professionals attended our just-completed compensation disclosure conference.

So how are the securities lawyers going to learn about compensation? Attend the “14th Annual NASPP Annual Conference” coming up next month in Las Vegas, which has over 40 panels on various compensation issues. If you can’t do that, at least attend the “3rd Annual Executive Compensation Conference” by video webcast – if you listen to John Olson’s video, you should quickly recognize how important it is for lawyers to ramp up their compensation knowledge base as soon as they can. Remember that the “3rd Annual Executive Compensation Conference” is part of the NASPP Conference this year – so you get to attend it free as part of the 40 plus panels (and to cheer you up, there also is a private “Huey Lewis & the News” concert for NASPP attendees).

Consult Your Privacy Lawyer

I had many favorite moments during the Conference, among them was the advice from John Huber that securities lawyers shouldn’t practice privacy law. This was not in the context of the Hewlett-Packard saga, but in the more common context that many of us will now face when implementing updated disclosure controls & procedures and asking management and directors more questions about their finances and relationships.

Speaking of the Hewlett-Packard saga, I have posted the letter from four members of both parties of the House Committee on Energy and Commerce sent to H-P regarding their board investigation in the “Privacy Rights” Practice Area. There is legislation pending – that has been proposed for some time – to prevent the type of unauthorized access to individual phone records that appears to have occurred in the H-P situation (ie. HR 4943, Prevention of Fraudulent Access to Phone Records Act).

September 13, 2006

Coming Soon: A Leaner (and Less Meaner?) Version of AS #2

As reported by, the PCAOB and the SEC are working together to rewrite the internal controls auditing standard – Auditing Standard No. 2 – so that it’s much shorter and clarifies the respective roles of the internal auditor and management in the internal controls process. However, the core principles of AS #2 will not change. also posted this survey with an interesting perspective from CFOs, including questions on Section 404 and putting liabilities for pensions and leases on the balance sheet. The survey results seem to run counter to the critics who content that Section 404 needs a complete overhaul as 70% say that they have seen at least some improvement in their business due to the new law.

SOX 404 – Moving Forward

Yesterday, Corp Fin Director John White delivered this speech on internal controls. I’m still catching up on my emails after being away two days at our Conference and haven’t read it yet…

The New “Committee on Capital Markets Regulation”

But I have read this article from the NY Times’ Floyd Norris about a new Commission – the “Committee on Capital Markets Regulation” – being formed to make legislative recommendations to Congress about how to “fix” Sarbanes-Oxley. Bizarre timing given all the scandals in the papers this week; Bristol-Myers, Hewlett-Packard, etc.

Here is a list of the Committee’s members – and here is an excerpt from the NY Times article:

“The Committee on Capital Markets Regulation, announced today, includes representatives of every industry group interested in relaxing regulation of securities markets, and of increasing regulation of those who would sue them. It is not an official body, but it includes former close associates of Treasury Secretary Henry Paulson, and the news release announcing the formation of the group included praise from Mr. Paulson.

As such, it provides a road map to what some people hope will come out of the current anti-regulation mood, and it calls for a lot more than relaxing Section 404 of the Sarbanes-Oxley Act, which requires that companies have their internal control systems audited. Other areas to be explored include finding ways to limit liability for auditors, directors and bankers, and to assure that no future Eliot Spitzer comes out of state government to impose new regulations on investment banks.

It will also look at shareholder rights, such as whether activist hedge funds should be curbed, and will consider whether the Securities and Exchange Commission should be required to pay more attention to the cost of its regulations. It may even suggest giving some other part of government the right to block S.E.C. rules on the ground they are too costly.

There are professors and chief executives galore on the committee, and even a lobbyist and a corporate lawyer. But there are no former members of the S.E.C.

Hal Scott, the Harvard law professor who will direct the committee and helped choose its members, told me that was deliberate. “We would not want to put people in the position who had formulated these rules in the past,” he said. “They may have a lack of objectivity.”

The committee plans to get a report out in November, a schedule that committee co-chairman W. Glenn Hubbard told me was suggested by Mr. Paulson. Mr. Hubbard, a former chairman of President Bush’s Council of Economic Advisers and now dean of the Columbia University Business School, said that there would be plenty of S.E.C. knowledge because “Many of these people have S.E.C. interaction on a regular basis.”

Mr. Scott says he assumes Congress will not act on any recommendations until next year, but there is a scenario that might lead to quicker action, during a post-election session of the Congress. There is a pending lawsuit filed by the Free Enterprise Fund challenging the constitutionality of the Public Company Accounting Oversight Board. If a judge were to agree with the premise of the suit, that could create a crisis that would seem to require quick Congressional action. This committee’s recommendations would then be available to anyone hoping to reduce the regulatory burden.”

September 12, 2006

John White Speaks on Executive Compensation

Corp Fin Director John White gave this speech yesterday at our Conference, entitled “The Principles Matter: Options Disclosure” – and here is a speech that John delivered last week entitled “Principles Matter.” Based on his remarks, it appears that these two speeches are the first in a series of related speeches that John will be delivering in the area of executive compensation over the next few months.

I caught up with John after his remarks – and as I mentioned at the top of our “Dealing with the Complexities of Perks” panel – it sounds like the Staff will be issuing FAQs about early compliance at some point in the near future. It remains to be seen whether the Staff will issue FAQs on other interpretive questions, as they first need to see what types of questions they receive.

So far, I have heard nothing but glowing reviews about our Conference – but I am interested in criticism too (if you have any) because I really want your experience to be as positive as possible. One complaint I received was about bad pop music being played online during the breaks – I wasn’t aware of that (“My Sharona“?) and will see if I can get our video production folks to play something more soothing today…

How to Watch Today: Those of you watching live today will want to click on the appropriate link under the caption “Watch Live: Panels Presented Consecutively” – otherwise, if you wish to view an archived video from yesterday, click on a link under that panel’s caption.

Web Postings: Do They Satisfy Regulation FD?

Our new survey is on Regulation FD – please take a moment and answer the 4 queries. I’m particularly interested in how folks answer question #1, since it’s frequently asked these days (eg. see #2022 and 1487 of our Q&A Forum). The question relates to whether a company that solely posts information on its website satisfies its Regulation FD distribution obligations. As you might recall when the SEC adopted Regulation FD six years ago – in Section II.B.4(b) of the adopting release (Rel. No. 33-7881 (August 15, 2000) – the SEC acknowledged that companies may be able to rely solely on the Web to make disclosure at some point in the future, but emphasized that web postings by themselves likely were not sufficient as a means of distributing information at that time.

More recently, practitioners have been actively debating whether the “future” is upon us – and I have heard quite a few differing opinions on the topic. So the survey results might help resolve the debate – take the survey now!

Survey Results: Executive Sessions

The results are “in” from our latest survey on board’s executive sessions – they are repeated below:

1. Our board meets in non-management executive session:

– Before every board meeting – 12.5%
– After every board meeting – 62.5%
– Whenever the board decides it needs to – 8.8%
– Once per quarter – 8.8%
– Once per year – 1.3%
– Other – 6.3%

2. Our board’s Audit Committee meets in non-management executive session:

– Every committee meeting – 69.1%
– Whenever the committee decides it needs to – 14.8%
– Once per quarter – 13.6%
– Once per year – 0.0%
– Other – 2.5%

3. When our board’s Audit Committee meets in executive session:

– All employees of the company leave the room, including the corporate secretary- 86.1%
– Nearly all employees of the company leave the room, as the corporate secretary (or some other employee) stays to take minutes – 2.5%
– Nearly all employees of the company leave the room, as the corporate secretary (or some other employee) stays to take minutes for part of the executive session (for example, the employee stays for internal audit sessions but leaves for sessions with the outside auditor) – 11.4%

4. During the course of the year, our board’s Audit Committee meets at least once in executive session with each of the following:

– Independent auditor – 100.0%
– Head of internal audit – 81.5%
– General Counsel – 39.5%
– CFO – 53.1%
– CEO – 25.9%
– Chief Compliance Officer – 21.0%
– Other – 12.4%

September 11, 2006

Conference Items for Today

If you are attending today’s Executive Compensation Disclosure Conference by webcast, remember that you need to use your Conference ID/password to access the video webcast. Your ID/password for or will not work to access the video webcast. Here are other troubleshooting tips if you need them.

To gain access, simply go to the home page for one of the sites and follow the prominent link that sits at the top of the page. Then, you have three choices: (1) watch the panels consecutively live; (2) watch a specific panel live; or (3) watch a panel by archive (it will take 5-6 hours for a panel to be archived after it is over). Remember you are able to watch the archive of any panel from now until the end of 2007!

Conference materials are posted beneath the links for each panel. I was pretty excited to receive 20-pages of “Essential Practice Tips You Oughta Know” from the speakers – and that alone is worth the price of admission.

CLE Credit: We also have posted this list of states with the status/number of hours available for CLE credit, divided into two categories: those attending online and those attending in DC. If you are in a state for which the Conference is accredited for online CLE – please register for CLE for webcast attendance and follow the instructions there (then, approximately 3-4 weeks after the Conference, we will e-mail you a Certificate of Attendance).

Final Executive Compensation Rules Published in the Federal Register

On Friday, the SEC’s new executive compensation rules were published in the Federal Register – so they will become effective on November 7th (60 days after the date of publication), meaning triggering events for Form 8-Ks that occur on or after November 7th need to conform to the new requirements.

Compensation Standards – Our New Quarterly Print Newsletter!

In response to so many member requests for a practical print newsletter to share with their directors about executive compensation practices, we have created a new newsletter – Compensation Standards – to help directors learn the latest executive compensation developments – and to help them glean practice pointers that can assist them perform their challenging duties.

Compensation Standards is tailored for the busy director, quarterly issues that do not overload them with useless information – rather, this newsletter will provide precisely the type of information that you know they desire: practical and right-to-the-point. Plus, each issue will include timely compliance reminders to help directors avoid inadvertent violations (which also help advisors with their compliance tasks). And this newsletter is very reasonably priced – other director publications typically cost thousands! – with special discounts for companies that also are members.

We have just posted the Fall 2006 issue of the newsletter as a free sample – so you can see how practical it is for yourself! Order this practical newsletter today!

ISS: Up for Sale?

The WSJ reports that ISS has put itself on the auction block and might fetch as much as $500 million. ISS is privately held and changed hands just a few years ago. If a sale occurs, it will be interesting to see who will now control this influential organization.

September 8, 2006

Monday’s Conference: A Few Last Points

If you are attending Monday’s Executive Compensation Disclosure Conference by webcast, remember that you need to use your Conference ID/password to access the video webcast. Your ID/password for or will not work to access the video webcast. Here are other troubleshooting tips if you need them.

To gain access, simply go to the home page of one of the sites and follow the prominent links that will be at the top of the page. If you’re coming to DC, see ya there! “Walk-ups” will be accepted in DC, but I would call our HQ today to let us know you are coming and to find out the amount you should bring (our HQ’s number is 925.685.5111 or email

Binding Proposals: Second Circuit Overturns SEC’s Interpretation of (i)(8) Exclusion

On Tuesday, the Second Circuit of the US Court of Appeals ruled in favor of AFSCME in its lawsuit against AIG over the SEC Staff’s interpretation of the Rule 14a-8(i)(8) exclusion in the context of whether the shareholder proposal rule bars proxy access proposals. This decision reverses the district court, which decided in favor of AIG last year. Now, AIG is considering whether to ask for en banc review or appeal the decision to the US Supreme Court. We have posted a copy of the court opinion in our “Majority Vote Movement” Practice Area.

For the past two proxy seasons, AFSCME has submitted binding shareholder proposals to a handful of companies seeking to amend their bylaws to add a provision establishing procedures by which shareholders could nominate directors under certain circumstances (including that the shareholder or group of shareholders owns 3% or more of the company’s stock for at least one year). The SEC Staff permitted the exclusion of these proposals under (i)(8) because the proposals “related to an election.” AFSCME sued AIG – one of the companies that excluded the proposal in 2005 – in an attempt to force the company to include the binding proposal.

The Second Circuit decision states that it takes “no side in the policy debate regarding shareholder access to the corporate ballot.” Rather, the Court based its decision on the view that the current SEC interpretation of (i)(8) is a change from how the SEC Staff formerly interpreted the exclusion basis for a period of 15 years – from 1976 to 1990 – thereby creating an “ambiguous regulation.” In 1976, the Commission created the (i)(8) exclusion when it codified the Staff’s longstanding policy to exclude proposals that related to the election of directors so that proponents could not use the shareholder proposal process to effectuate a proxy contest.

Starting in 1990, the Staff began to interpret the (i)(8) basis more broadly to allow more companies to exclude proposals, but didn’t provide a rationale for this shift in position. However, the Staff very rarely provides the reasoning for a particular no-action response, because each letter is analyzed under its own unique circumstances. In a sense, the Court appears to take issue with the way the Staff provides no-action responses when it states that the original 1976 Commission interpretation should control (as interpreted by the Court), unless the SEC can offer “sufficient reasons for its changed interpretation.” The last paragraph on page 13 of the opinion drives the Court’s point home.

I’m not sure I agree with the Court’s logic here because forcing the Staff to provide a rationale for each no-action response would require the Staff to devote significant more resources to processing the hundreds of letters it reviews during the proxy season – and even then, what can appear to be very similar letters can get opposite results, because the Staff really does look closely at all the language in the proposal and supporting statement as part of its analysis.

The upshot may be that the SEC will reconsider whether it’s worth the hassle of going through the burdensome no-action letter process if it’s not allowed to change an interpretation over time. As evident from the last round of Rule 14a-8 rulemaking in 1998, the Staff would love nothing more than eliminating its role as referee in these disputes. But in that contentious rulemaking, one of the few things that everyone agreed upon was that it was critical that the Staff continue to serve as zebras.

Maybe a middle road is the Staff issuing more frequent Staff Legal Bulletins (recently, the Staff has issued one after each proxy season), such as issuing one whenever it decides to change a position under one of the shareholder proposal rule’s exclusion bases. If these SLBs included the Staff’s reasoning, that would appear to satisfy the Second Circuit – and it would help proponents and companies understand the latest Staff thinking.

What Does the AFSCME Decision Mean? Shareholder Access is Back!

The Second Circuit’s reversal essentially revives the SEC’s “shareholder access” reform – which was proposed by the SEC in 2003, but abandoned in the face of significant opposition – as it effectively allows for shareholder access until (and if) the SEC amends the shareholder proposal rule as noted below. It isn’t so much the bylaw element that is at issue here – rather, the decision questions the validity of the Staff’s view that 14a-8(i)(8) permits the exclusion of proposals that create election procedures that would have the effect of giving shareholders access to company proxy materials.

As a result of this decision, we should expect to see a huge increase in the number of binding “shareholder access” proposals this proxy season. If the decision stands “as is,” it would make it significantly easier for shareholders to add their own nominees to ballots, since shareholders could submit proposals under Rule 14a-8 that would allow them to make nominations to the board in future years (if the proposals were approved by shareholders and if the nominating shareholders were eligible to nominate candidates under the criteria set forth in the bylaw amendment).

The SEC’s Response: Amend Rule 14a-8

Just as I wrapped up drafting my blog yesterday morning, the SEC posted this press release noting that “that the Division of Corporation Finance will recommend an amendment to Rule 14a-8 under the Securities Exchange Act of 1934 concerning director nominations by shareholders. The staff proposal, still to be developed, will address issues raised by a decision of the U.S. Court of Appeals for the Second Circuit on Tuesday, which disagreed with the Commission staff’s longstanding interpretation of Rule 14a-8.

The Commission has calendared the recommendation for consideration by the Commission at an open meeting to be held on Oct. 18, 2006.”

Given the debate that took place inside the SEC when it was considering shareholder access the first time around, I would expect that there may still be some fiery exchanges within the SEC on this controversial topic – and remember that Chairman Cox and Commissioner Casey will be considering these issues for the first time…

September 7, 2006

Spy vs. Director: The Hewlett-Packard Saga

I love a good thriller, perhaps that’s why I was drawn to all the lurid details in yesterday’s WSJ article (and today’s NY Times article) about the revelation that Hewlett-Packard hired a private investigator to monitor a long-time director’s communications for leaks. And now, California’s Attorney General has requested information concerning the processes employed in the investigations into the leaks.

I’m not aware of anything quite like this situation happening before, but there surely have been other examples of contentious infighting on boards – so that it wouldn’t shock me if it has happened before, particularly the private investigator stuff. Rather than repeat the details laid out so well in the WSJ article, let me suggest which actors might play some of the key players for the movie based on this situation (given that I don’t have any personal knowledge of these people, they may very well be miscast):

– George Keyworth (Ben Vereen), a long-time director and former science adviser to President Reagan and purported source of many of the leaks about board deliberations; he has not been re-nominated to serve on the H-P board

– Tom Perkins (Warren Beatty), a storied figure in Silicon Valley, having helped start one of the first venture-capital firms there, Kleiner Perkins Caufield & Byers and who worked for H-P in the 1960s, and joined the company’s board in 2002 and who rejoined the board in February 2005; he resigned from the board on May 18th when it appeared that the board might try to remove his friend Mr. Keyworth from the board (he was once married to romance novelist Danielle Steel and recently wrote a racy novel of his own titled “Sex and the Single Zillionaire”)

– Patricia Dunn (Meryl Streep), non-executive chair of H-P’s board and vice chairman of Barclays Global Investors; she stepped up surveillance of Mr. Keyworth after Ms. Fiorina was fired and she grew up in Las Vegas, where her father (James Caan) was entertainment director at various casinos and her mother (Sharon Stone) had been a showgirl

– Carly Fiorina (Glenn Close), former Chair and CEO of H-P, who was fired in February 2005, partially due to her focus on board leaks; she has a “tell all” book coming out soon

– Robert Ryan (Robert Duvall, this guy – not the real one), Chair of H-P’s audit committee and former chief financial officer of Medtronic; he oversaw the surveillance after Ms. Dunn and Ms. Baskins concluded the leak was a violation of the company’s Standards of Business Conduct, which are overseen by that committee (in doing so they bypassed the Nominating and Governance Committee, then headed by Mr. Perkins, which normally handled matters concerning board operations)

– Private investigator (James Garner – Jimmy!), who was hired by the outside contractor (Harvey Keitel) who was hired by H-P to investigate the board leaks and who appears to have engaged in a controversial practice known as “pretexting” (ie. investigators call the phone company, and use personal information to falsely represent themselves as another person, in order to obtain that person’s records)

With this melodrama spilling into the papers, I guess we shouldn’t be surprised that this is a board that paid over $21 million to a fired CEO…

The Duty to Disclose: Director Resignations over Disagreements

Should what happens in a boardroom stay in the boardroom? Well, we know that answer is “no” if a director resigns due to a disagreement with management, as disclosure is required under Item 5.02(a) of Form 8-K. Item 5.02 requires that a Form 8-K be filed if “if a director has resigned or refuses to stand for re-election to the board of directors since the date of the last annual meeting of shareholders because of a disagreement with the company, known to an executive officer of the company, on any matter relating to the company’s operations, policies or practices, or if a director has been removed for cause from the board of directors.” The Form 8-K is required to include “a brief description of the circumstances representing the disagreement that management believes caused, in whole or in part, the director’s resignation, refusal to stand for re-election or removal.”

After Mr. Perkins resigned from the H-P board, a Form 8-K was filed on May 22nd that simply noted that Mr. Perkins had resigned and left it at that. Yesterday, Hewlett-Packard filed this Form 8-K describing the situation as it stands now. We have added it to our list of Form 8-Ks filed over disagreements in our “Director Resignations” Practice Area.

In the Form 8-K, the company discloses that it has “received a comment letter from the staff of the Securities and Exchange Commission’s Division of Corporation Finance with respect to its May 22 Form 8-K regarding Mr. Perkins’ resignation. HP intends to respond to the SEC staff that it believes its disclosures in the May 22 Form 8-K with respect to Mr. Perkins’ resignation were accurate and complete at the time of filing and were based upon Mr. Perkins’ actions and representations prior to such time concerning the reasons for his resignation.”

I imagine Corp Fin is questioning the brevity and matter-of-factness of the May 22nd Form 8-K in light of Item 5.02. The WSJ article provides some background regarding why the company decided to go the route of minimalist disclosure in the May 22nd Form 8-K (ie. board concluded Mr. Perkins had no disagreement with the “company,” only with the non-executive chair). It will be interesting to see if this moves on to the SEC’s Enforcement Division…

Briefs Supporting the Existence of the PCAOB

Last Friday, SEC Chairman Christopher Cox announced that the SEC (as supported by seven former SEC Chairs, going back to 1973 and appointed by Presidents of both political parties) filed a brief on behalf of the United States setting forth the government’s arguments in support of the PCAOB’s constitutionality in the US District Court for the District of Columbia in Free Enterprise Fund v. The Public Company Accounting Oversight Board. In addition, another brief supporting the PCAOB was filed jointly by the Council of Institutional Investors, TIAA-CREF, CalPERS, AFL-CIO and more. We have posted these briefs – along with other courts filings – in our “Sarbanes-Oxley” Practice Area.

September 6, 2006

California’s Legislature Passes Majority Vote Bill: What Will Arnold Do?

Recently, the California legislature passed SB 1207 (Alarcon) to allow some California corporations to adopt a form of majority voting. California law currently requires plurality voting for California corporations. The bill was co-sponsored by CalPERS and CalSTRS. Unless Governor Schwarzenegger returns the bill before September 30, it will become law and take effect on January 1, 2007. Voting on the bill in both houses of the legislature was sharply divided and bill supporters and opponents are making opposite predictions on the likelihood of a veto by the Governor.

As the bill moved through the California legislature, I understand some objected to the fact that it would allow majority voting in corporations with cumulative voting. California law mandates cumulative voting for all California corporations (and even corporations incorporated in other states that meet specified conditions). However, listed corporations (i.e., companies with shares listed on the NYSE, AMEX or Nasdaq National Market) may eliminate cumulative voting by an amendment to their articles or bylaws.

In the last few weeks of the legislative session, SB 1207 was amended to address this concern. As amended, a listed corporation that has eliminated cumulative voting may adopt an amendment to its articles or bylaws to provide that in an uncontested election the “approval of the shareholders” is required to elect a director.

Approval of the shareholders means the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present, which shares voting affirmatively also constitute at least a majority of the required quorum. If a director fails to be elected by approval of the shareholders, his or her term ends on the date that is the earlier of 90 days after the date on which the voting results are determined or the date on which the board selects a person to fill the vacancy.

Test Your Ability to Access Video Webcast

For those attending next week’s conference – “Implementing the SEC’s New Executive Compensation Disclosures: What You Need to Do Now!” – by video webcast, please test your ability to access video today (use your conference id/password to reach the testing area; a successful test means that you were able to play the sample video). We are unable to keep up these testing links beyond tomorrow, so it’s important that you test now.

Options Backdating: US Senate Finance Committee Meeting

For those of you burning to catch today’s US Senate Finance Committee Meeting on options backdating, I hear that you may be able to access a webcast of the 10 am eastern hearing. The witnesses include:

– Deputy Attorney General Paul McNulty

– IRS Commissioner Mark Everson

– SEC’s Enforcement Director Linda Thomsen

September 5, 2006

Less Than a Week Left!

Last chance to register to attend our blockbuster conference:”Implementing the SEC’s New Executive Compensation Disclosures: What You Need to Do Now.” Many of you are making the trek to Washington DC – and even more are will be taking in the Conference online (either live on September 11-12th or by archive). Here is check-in information if you will attend in DC – and here is testing information if you plan to watch by video or audio; you definitely should test in advance of the Conference to ensure that you have either Windows Media Player or RealPlayer properly installed.

For those attending online, simply to the home page of and on the days of the Conference and click on the prominent link that will then be available and log-in. Note that course materials will not be available until the first day of the Conference. They will be handed out in DC and posted online, adjacent to the links you will use to access the video/audio.

September E-Minders is Up!

We have posted the latest issue of our monthly e-mail newsletter.

Revisiting Deferred Compensation

In this Special September Supplement, we have compiled a bunch of Mark Borges’ recent blogs – from his “Proxy Disclosure Blog” – that have analyzed the SEC’s new executive compensation rules to give you a leg up on the type of practical guidance that will be imparted at our upcoming Conference. Below is an example of Mark’s latest handiwork:

“A couple weeks ago, I blogged about the the disclosure rules for nonqualified deferred compensation, but, as I’m starting to discover, I really only scratched the surface of the complexities involved in reporting deferral arrangements. Take, for example, a program that permits executive officers to defer all or a portion of their annual cash bonus into deferred stock units. each unit represents a share of stock at the deferral date. Let’s also assume that the DSUs are payable to a recipient at retirement (in other words, the arrangement contains no separate vesting condition).

It seems to me that, under Instruction 2 to Item 402(c)(2)(iii) and (iv), a bonus deferral into DSUs would be reportable as a stock award in the Stock Awards column of the Summary Compensation Table. (I reach this conclusion in spite of the literal language of the Instruction which says that it applies to amounts otherwise includable in the Salary or Bonus columns of the SCT. As we know, most performance-based annual incentives will be reportable in the Non-Equity Incentive Plan Compensation column and not the Bonus column of the SCT. I’m assuming that the Instruction can be applied to “bonuses” before their reporting status is determined. If I’m right, this Instruction has the curious effect of shifting an amount that may be otherwise reportable in the Non-Equity Incentive Plan Compensation column to the Stock Awards column. The result seems reasonable to me though, since by electing to defer the payment the executive officer has essentially converted a cash amount into a stock award.)

This deferral arrangement would have several additional reporting consequences as well:

– The DSUs would be reportable in the year of grant in the Grants of Plan-Based Awards Table (presumably, in column (i), the All Other Stock Awards column). The company would also be expected to describe the deferral arrangement as part of the narrative supplement to the Summary Compensation Table and the Grants of Plan-Based Awards Table required by Item 402((e).

– The DSUs would be reportable in the Nonqualified Deferred Compensation Table as nonqualified deferred compensation. They would show up in the year of grant as an executive contribution to a NQDC arrangement in column (b) and the year-end value of the DSUs would be included as part of the executive officer’s aggregate account balance in column (f). A footnote to the table would indicate where this amount was reported in the SCT (see the Instruction to Item 402(i)(2)). Again, the narrative discussion to accompany this table would need to describe the deferral arrangement (perhaps a cross-reference to the SCT discussion would be sufficient.)

– In subsequent years, the DSUs would be reportable:

= in the Outstanding Equity Awards at Fiscal Year-End Table (columns (g) and (h)) while outstanding and

= in the Option Exercises and Stock Vested Table in the year the executive officer retired. Even though the award doesn’t have vesting conditions, it seems to me that receipt at retirement is the equivalent of vesting for disclosure purposes. Also, if the executive officer has properly elected to defer receipt of the shares again, then a footnote to this table would be necessary to quantify the amount and disclose the terms of the subsequent deferral.

– The DSUs would also continue to be included each year in the Nonqualified Deferred Compensation Table as part of the executive officer’s aggregate account balance in column (f) and would be included as part of the footnote to the table quantifying amounts previously disclosed as compensation in the SCT (again, pursuant to the Instruction to Item 402(i)(2)).

= Unless further deferred, presumably the value of the DSUs at the time of retirement would be reported in the Aggregate Withdrawals/Distribution column of the table and would reduce the yearend account balance.

As I read back through this summary, I’m not sure that it’s right – or that I’ve even identified all of the relevant issues. In addition, my example doesn’t even get into how to treat any earnings on the DSUs while they were outstanding, which presents an additional set of reporting issues. That analysis will have to wait until tomorrow, or the next day.”