September 19, 2006

The Corporate Counsel: Complimentary Special Supplement

With so many of you grappling with getting your hands around the SEC’s new executive compensation rules (as evident from the large turn-out for our just-concluded Conference), we have posted a complimentary copy of “Necessary Actions”: Special Supplement to Sept-Oct 2006 Issue of The Corporate Counsel on right side of’s home page.

We encourage you to read it and pass it on to others who might benefit from seeing the important actions that many should be considering to implement. This complimentary Special Supplement goes hand-in-hand with the regular Sept-Oct issue of The Corporate Counsel, which will be arriving in the mail this week to those who are our loyal readers.

FASB’s FAS 157: The “Fair Value” Pronouncement

Yesterday, the FASB issued its long-awaited pronouncement – SFAS No. 157 – regarding measurement and disclosure of fair values of assets and liabilities (here is a summary of FAS 157). Fair values can be quite useful for investors (as can historical cost numbers) – but they are only relevant if they are reliable (and obviously, not cooked up). This is a huge development that we will continue to provide guidance on…

SPACs: How to Use a Special-Purpose Acquisition Company

Don’t forget to tune into today’s webcast: “SPACs: How to Use a Special-Purpose Acquisition Company.”

Preparing Your CD&A – You May Have Less Time Than You Think

Great piece from Mark Borges in his “Proxy Disclosure Blog“: If one message came out of last week’s Disclosure Conference, it’s that compliance with the new rules will be a lot of work. Consequently, companies will want to get started soon mocking up tables and outlining their first Compensation Discussion and Analysis. It occurs to me that, because of liability considerations, some companies may have even less time to prepare their CD&A than they suspect.

Currently, companies that are accelerated filers have to file their annual report on Form 10-K within 75 days after fiscal year end. (Large accelerated filers will move to a 60-day deadline this winter.) Most companies satisfy their obligation to include executive compensation information in their Form 10-K by incorporating that information by reference from their annual proxy statement involving the election of directors. Under General Instruction G(3) to Form 10-K, as long as the proxy statement is filed within 120 days of the end of the company’s fiscal year, that technique is permitted. While in many cases, the Form 10-K and the proxy statement are filed simultaneously (or within a few days of each other), in some cases, the filings can be separated by a month or more.

In this latter situation, a company’s CEO and CFO may be required to certify the Form 10-K without necessarily having seen the final version of the tabular pay disclosure (although certainly a draft version will have been circulated and reviewed). It’s not clear to me that the CEO and CFO will be willing to take the same approach in the future now that their certification also covers the CD&A. I would expect that they will want the CD&A to be finished or near completion at the time the Form 10-K has to be filed (and the accompanying certification submitted along with it) so that they will know the substance of what they are certifying.

It seems to me that, going forward, the timeline for preparing the CD&A (and, perhaps, the disclosure tables) will be the schedule for filing the Form 10-K, and not the schedule for the proxy statement. For companies that file the two reports separately, this means that the CD&A will have to be substantially wrapped up by before March 15th (in the case of a calendar-year company), rather than sometime in April.

Companies will need to factor this consideration into their plans as they look to revise their timetable for drafting their year-end filings, as well as the availability of the compensation committee to review drafts and provide feedback to management. In some situations, I can see where a company will need to get going soon on its CD&A in order to meet this shorter schedule.