October 18, 2006

PCAOB Staff Issues Option Valuation FAQs

Yesterday, the PCAOB Staff issued a set of 22 FAQs entitled “Auditing the Fair Value of Share Options Granted to Employees.” The FAQs address auditing the fair value measurements associated with determining compensation cost. It highlights risk factors that auditors should be aware of and addresses the auditor’s consideration of the process for developing a fair value estimate, significant assumptions used in options pricing models, and the role of specialists in fair value measurements.

M&A Dispute Resolution: Getting Deal Lawyers Into the Game

Next Tuesday, catch Jim Freund, Mediator and former Partner of Skadden Arps Slate, Meagher & Flom LLP – and one of the foremost M&A lawyers of any generation – in the webcast: “M&A Dispute Resolution: Getting Deal Lawyers Into the Game.” Settling the all-too-frequent post-closing disputes spawned by M&A deals is too important to be left solely to the litigators! Transactional lawyers should step up to the plate to help achieve commercially-sound solutions through negotiation or mediation.

Among other topics, Jim will cover:

– Why is resolving disputes such tough work
– How deal lawyers can add real value for their clients in the mediation process
– What are some common pitfalls in M&A disputes – and how to overcome them
– What are the keys to persuading a mediator as to the merits of your cause

And now you can catch this program at no cost if you take advantage of our no-risk trial for 2007 (and get access to for the rest of 2006 for free).

Sovereign Bancorp: “I Pity the Fools”

Last week, Sovereign Bancorp “fired” its CEO. You may recall that Sovereign Bancorp was last year’s “governance posterchild of the year” in my humble opinion. Of course, I use the term “fired” loosely since the company’s board didn’t remove the CEO “for cause” – why do that when you can pay the guy a bushel of the shareholder’s money on the way out the door? I pity Sovereign Bancorp’s shareholders.

Here is a related WSJ article from Saturday:

“By all appearances, Jay S. Sidhu was forced out in the past week as chairman and chief executive of Sovereign Bancorp Inc. Under his employment agreement, that could allow him to walk away with a severance package valued at tens of millions of dollars.

Several board members at the Philadelphia bank had been pressing for Mr. Sidhu’s dismissal due to concerns about the company’s earnings outlook, its stock performance – it trades at a discount to peers – and about deals he has engineered. But there is a catch: Sovereign’s official explanation for his departure didn’t match what was happening behind the scenes. The company said Wednesday that Mr. Sidhu “resigned and retired…for family health related reasons.”

If he jumped from the plane on his own volition as Sovereign says, compensation experts argue, Mr. Sidhu isn’t entitled to the golden parachute he appears to have gotten.

Nobody expected this to keep Mr. Sidhu from securing a rich goodbye package. His contract doesn’t include poor performance as a reason to deny him severance, so pay experts say he deserves the money if he was effectively fired. And Sovereign is hardly the first company to gloss over the reasons for an executive departure. But critics in the corporate-governance community say the company’s story should match its actions.

“It isn’t acceptable if he is being terminated to say that he is leaving voluntarily, nor is it acceptable for the company to pay him severance if he is leaving without good reason,” says Paul Hodgson of research firm Corporate Library. A Sovereign spokesman declined to comment. Mr. Sidhu didn’t respond to requests for comment.

Late Friday, Sovereign disclosed in a regulatory filing that Mr. Sidhu would, in fact, collect more than $40 million in payments stemming from his departure. And the company acknowledged that “the resignation and retirement came in the face of a threatened termination by the company.”