Monthly Archives: May 2007

May 16, 2007

Exxon Mobil: Facilitating Questions for the Board

Interestingly, Exxon Mobil has a new web page that facilitates the ability of shareholders to e-mail questions in advance of its May 30th annual meeting. There is a May 15th cut-off for shareholders to send their questions in. I don’t believe this is a first (IBM and BHP Billiton have done it before).

I’m not sure if many companies would be willing to encourage more questions, although it may be a way to get more diverse questions – or at least more questions related to the business of the company. But since Exxon Mobil doesn’t promise to answer all questions submitted, it doesn’t seem like there is too much potential for harm (from the corporate secretary’s and senior management’s perspective) and this type of web page provides another avenue to get potentially valuable shareholder feedback.

By the way, there is no mention in Exxon Mobil’s proxy statement that shareholders can e-mail the board because this particular function was only added to the website after the proxy statement was mailed. However, the following paragraph can be found on page 9 under “Shareholder Communications”:

“Electronic Communications: You may also send e-mail to individual non-employee directors or the non-employee directors as a group by using the form provided for that purpose on our Web site at These communications are sent directly to the specified director’s electronic mailbox. E-mail can be viewed by staff of the Office of the Secretary, but can only be deleted by the director to whom it is addressed. More information about our procedures for handling communications to non-employee directors is posted on the Corporate Governance section of our Web site.”

AFL-CIO’s Key Votes Survey

Last week, the AFL-CIO posted its 2007 AFL-CIO Key Votes Survey. This is a preliminary scorecard of how the AFL-CIO believes that shareholders should vote at selected shareholder meetings.

Paul Hodgson on the “Pay for Failure”

In this podcast, Paul Hodgson, The Corporate Library’s Senior Research Associate, discusses his recent report on “Pay for Failure II — The Compensation Committees Responsible,” including:

– This is the second time you’ve produced this study. What made you revisit it and were you surprised to see some of the same companies reappear?
– Did you find any new problems within compensation structure and policy with the new companies or was it the same old issues?
– What do you think can be done to solve some of these problems?

May 15, 2007

Just Announced! Proxy Disclosure/Exec Comp/”The Corporate Counsel Speaks” Conferences

Come join us in San Francisco or via Nationwide Video Webcast for three special Conferences in mid-October:

– “Tackling Your 2008 Compensation Disclosures: The 2nd Annual Proxy Disclosure Conference” (10/9)
– “Hot Topics and Practical Guidance Conference: The Corporate Counsel Speaks” (10/10)
– “4th Annual Executive Compensation Conference” (10/11)

Among many other luminaries, the SEC’s John White, Linda Chatman Thomsen and Paula Dubberly will be speaking. Here is a combined agenda for the three conferences – and here is a brochure.

“Member Appreciation Package”: Three Conference Bonus for those Attending by Video Webcast – Early Bird Rate Thru June 30th

If you plan to attend by video webcast, take advantage of our special “Member Appreciation Package” to get access to all three of these Key Conferences for a single reduced rate for our members. And if you act by June 30th for this Member Appreciation Package, you will get $300 off as an Early Bird Discount.

And a Bonus for those Attending in San Francisco

Those who come to San Francisco to attend live in person are able to take advantage of a special reduced rate to attend the three-day NASPP 15th Annual Conference (with over 40 panels!) from October 10-12, which includes the “4th Annual Executive Compensation Conference” and the “Hot Topics and Practical Guidance Conference: The Corporate Counsel Speaks.” With over 2000 attendees year after year, many advisors find this to be the most practical conference available all year.

Act Now: You can register online by clicking any of the links above – or use this order form. If you wish to register for the “Member Appreciation Package,” you merely have to go to the online registration form for any of the three conferences or use this order form.

If you need help, please contact us at or 925.685.5111 (8 am – 4 pm West Coast time).

May 14, 2007

Radical Changes to Financials Underfoot?

Saturday’s WSJ included a cover story about how the FASB and IASB are considering radical changes to how financials are cobbled together as part of its joint Financial Statement Presentation project. The article’s title says it all: “Profit as We Know It Could Be Lost With New Accounting Statements.”

Here is an example of what financials might look like in the future. And here is an excerpt from the article:

“Pretty soon the bottom line may not be, well, the bottom line. In coming months, accounting-rule makers are planning to unveil a draft plan to rework financial statements, the bedrock data that millions of investors use every day when deciding whether to buy or sell stocks, bonds and other financial instruments. One possible result: the elimination of what today is known as net income or net profit, the bottom-line figure showing what is left after expenses have been met and taxes paid.

It is the item many investors look to as a key gauge of corporate performance and one measure used to determine executive compensation. In its place, investors might find a number of profit figures that correspond to different corporate activities such as business operations, financing and investing.

Another possible radical change in the works: assets and liabilities may no longer be separate categories on the balance sheet, or fall to the left and right side in the classic format taught in introductory accounting classes.

The overhaul could mark one of the most drastic changes to accounting and financial reporting since the start of the Industrial Revolution in the 19th century, when companies began publishing financial information as they sought outside capital. The move is being undertaken by accounting-rule makers in the U.S. and internationally, and ultimately could affect companies and investors around the world.

The project is aimed at providing investors with more telling information and has come about as rule makers work to one day come up with a common, global set of accounting standards. If adopted, the changes will likely force every accounting textbook to be rewritten and anyone who uses accounting – from clerks to chief executives – to relearn how to compile and analyze information that shows what is happening in a business.”

SEC’s Filing Fees: Demystifying How They Are Set

Have you ever wondered how the SEC’s filing fees are set every year? I have – and finally did a little research. I always knew that the SEC has no discretion over how much it collects in registration fees – but beyond that, it has been a black box for me. And I erroneously mused in this blog last week that the higher rates for 2008 might have something to do with funding the war.

The reality is that the fees are determined by a law passed by Congress a few years ago, the “Investor and Capital Markets Fee Relief Act of 2002.” Under that law, the SEC must adjust the fee rate each year to a rate that is reasonably likely to produce a target fee collection amount set in the statute. The SEC must determine the new fee rate by dividing the target fee collection amount by an estimate of the aggregate offering prices for securities registrations during the year.

Significantly, the target collection amounts set in the statute vary by year; thus, witness the sharp swing in rates the past few years. The targets in the law fell substantially between 2006 and 2007 (from $689 million to $214 million), but then they rose modestly for 2008 (to $234 million) and will continue to do so in the near future.

The new fee rate reflects the fact that the target for 2008 is $20 million higher than the target for 2007. But, even at this increased level, total fee collections in 2008 will still be dramatically reduced compared to just two years ago, when they were nearly three times larger…

Proposed Amendments to the Delaware General Corporation Law

On Harvard Law School’s “Corporate Governance Blog,” Professor Lawrence Hamermesh of Widener University School of Law made the following entry last week:

This year’s round of proposed amendments to the Delaware General Corporation Law, introduced on May 8, unquestionably falls a little short in the excitement department, at least compared to last year’s amendments (particularly those relating to director elections and retirement policies).

In the current crop, the most notable changes are to the appraisal statute. Under these proposed amendments:

– Petitions for appraisal can be filed by beneficial owners, rather than only by stockholders of record (although demands for appraisal must still be made by record owners). The Depository Trust Company will surely be relieved not to have to serve as a nominal petitioner in every public company appraisal suit.

– Reference to a “national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc.” has been deleted from the so-called “market out,” in light of last year’s reorganization of the NASDAQ stock markets.

– Most notably, there is to be a presumptive approach to awarding interest in appraisal proceedings. Ordinarily, interest is to “be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of the judgment.” This has been Delaware’s default legal rate of interest for some time, and has frequently been the basis for awards of interest in recent appraisal cases. By making it the presumptive approach to awards of interest in such cases, however, it is hoped that unproductive litigation efforts on the interest issue can be avoided. Under the proposal, however, the Court of Chancery still retains discretion, for “good cause,” to choose a different approach in awarding interest.

These amendments to the appraisal statute are to apply only with respect to transactions consummated pursuant to agreements entered into after August 1, 2007.

Two other proposed amendments would clarify voting rights in two specialized situations, as described in the synopsis accompanying the legislation:

– An amendment to Section 141(d) clarifies that when a provision of the certificate of incorporation endows some directors with greater or lesser voting power than other directors, that differentiation of voting power applies both in voting by the board of directors and in voting by committees and subcommittees of the board, unless otherwise provided in the certificate of incorporation or bylaws.

– An amendment to Section 216(4) clarifies that, unless otherwise provided in the certificate of incorporation or the bylaws, a plurality vote (and not a majority of the quorum) is the vote required to elect directors where one or more classes or series of stock votes as a separate class or series on the election of directors. Last year’s amendments relating to the ability to provide in the bylaws for majority voting in the election of directors remain unaffected.

May 11, 2007

Is This Commission Pro-Business or Pro-Investor?

I have to chuckle. The following scenario reminds me of my youth in Chicago, when Cubs fans wore one of two buttons: “Leo Must Go!” or “Leo Must Stay!” Leo Durocher was the embattled manager at the time; I still have one of each button somewhere in a box. Leo coined the phrase, “nice guys finish last.”

1. Pro-Investor? This article states that the White House thinks that SEC Chairman Cox sides with investors too much. Here is an excerpt:

“Of course, even if such a resolution were to finally force Bush to dump Gonzales, it could not require him to choose a successor worthy of the job. But the president is so weak politically, and the supply of plausible nominees with “loyal Bushie” credentials is so small, that he might be forced to choose a person of stature, such as Securities and Exchange Commission Chairman Christopher Cox. After all, Bush did replace the hapless Harriet Miers as White House counsel with Washington wise man Fred Fielding, and the discredited Donald Rumsfeld as Defense secretary with Robert Gates. Other signs are not encouraging, however. In response to suggestions that Cox would be a good nominee, for example, an unidentified White House source told The Washington Times: “Cox has been a disappointment at the SEC.” The reason? “He’s shown too much of a willingness to work with the Democratic members of the Commission.”

Of course, we cannot presume that the Democrats are always in favor of investors though, which clearly may not always be the case.

2. Pro-Business? A Bloomberg article from yesterday notes that Rep. Barney Frank, the House Financial Services Committee Chair, will hold a hearing next month to hear from each of the five SEC Commissioners, in response to criticism that SEC policies are increasingly favoring companies over investors. Here is an excerpt:

“‘There have been concerns that various people have voiced,” Frank, 67, said in an interview yesterday. “There is no point in prejudging, but obviously there are enough questions in the air that we are holding a hearing.’ He cited complaints that recent SEC actions have muzzled the agency’s enforcement division and may make it harder for investors to sue companies.”

Your Friday “Make a Million” business idea? Make some buttons…

Blockbuster Shareholders Vote 57% ‘For’ Say-On-Pay Proposal

As noted in this article, Blockbuster has become the first company to receive the support from a majority of shareholders on a “say on pay” proposal. Most of these other proposals have received significant support from shareholders, as recorded in ISS’ “Say on Pay” Information Center (scroll down on that page).

Foreign Corrupt Practices Act: Recent Developments

There have been a number of recent Foreign Corrupt Practices Act settlements entered into by the Department of Justice and the SEC that are quite meaningful, as they illustrate the government’s continued focus on enforcement of the FCPA, including when there is a change in ownership. The most recent settlement involved Baker Hughes, which paid a record $11 million criminal fine.

In our “Foreign Corrupt Practices Act” Practice Area, we have posted a number of memos on these recent settlements.

May 10, 2007

Corp Fin’s Review of Compensation Disclosures: Results Due This Fall

Last Friday, Corp Fin Director John White gave this speech at Northwestern’s “27th Annual Ray Garrett Jr. Corporate & Securities Law Institute” about the compensation disclosures made during this proxy season. In his speech, John White noted that the Staff’s compensation disclosures review project has begun and would be done in the Fall. I believe the Staff intends to finish its review and then announce its final results, rather than commenting on what it finds in a piecemeal fashion.

Executive Compensation Disclosures: Parsing John White’s Speech

There is quite a bit of information in Corp Fin Director John White’s speech. It’s a “must read” speech if you deal with proxy disclosures at all. Here are some highlights:

1. CD&A and Analysis – First and foremost, John spoke about “Analysis (or lack thereof),” a topic we started writing about in The Corporate Counsel even before disclosures were filed. This will continue to be an area of focus during our October 9th event: “Tackling Your 2008 Compensation Disclosures: The 2nd Annual Proxy Disclosure Conference.” The agenda for that Conference will be available next week (and includes John, among other Staffers).

2. Performance Targets and CT Treatment – John also discussed several specific areas that the Staff is focusing on. One area involves performance targets, such as whether companies have properly omitted specific target information (ie. whether they meet the competitive harm standard) as well as looking at the adequacy of the disclosures required if performance target metrics are omitted, i.e. how difficult it will be for the officer – or how likely it will be for the company – to achieve an undisclosed performance level or other factors. John also discussed the problem of negative numbers, disclosure about the CEO’s role in setting compensation and perk disclosure.

3. Disclosure Length – John also weighed in about the length of the compensation disclosures, something I have blogged about several times in the wake of a recent Chairman Cox speech that flagged this issue. Taking the risk that excerpts don’t place the statements in proper context, here are some excerpts from John’s speech on this topic:

– “I also think that criticisms of the length and language of the new disclosures can go too far. One of the primary drivers of length of the disclosure in proxy statements is that executive compensation itself tends to be very complicated and varies significantly in form and function, in spirit and letter, from company to company. Even if plain English principles are faithfully applied, under the new rules there may very well be substantially more disclosure required overall.”

– “Criticisms of the length and language of executive compensation disclosures tend to be fairly amorphous complaints. It is also not necessarily clear—if you agree with those criticisms on their merits—whether the problems or weaknesses leading to those complaints are rooted in the rules themselves, or in companies’ failure to comply with the rules. I would urge people to keep in mind, though, that the Commission was seeking to establish a “layered” disclosure approach, with CD&A as the top layer.”

SEC’s Chief Accountant: No Meddling With FASB

Jack Ciesielski notes in his “AAO Weblog“: According to this article on, Chief Accountant Conrad Hewitt appeared to deny that the budget actions were linked to any further SEC gains in control over FASB, saying “The budget coincidentally came at the same time as we were [evaluating] candidates,” adding that the SEC’s role over FASB is outlined in a 2003 agreement between the two organizations.” He also said that “FASB is independent as far as we are concerned.We do not appoint board members.” The remarks took place at a financial reporting conference at Baruch College in New York.

The next big scheduled test of how involved the SEC will be in FASB member selection will come up in less than a year. Next July 1, current board member Mike Crooch will trudge into the sunset, and the machinery behind his replacement will click into action around the beginning of 2008. In addition to the usual guessing games about who will be chosen, there’ll be an added element of suspense surrounding the SEC’s involvement – or laissez-faire.”

Conrad’s remarks come after FASB Chairman Bob Herz admitted to concerns about “control” issues with the SEC – as noted in this article, Bob pledges to guard FASB’s independence.

May 9, 2007

SEC Staff Answers JCEB Disclosure Questions

Yesterday was another “gold star” day for Mark Borges, as he recapped some of the happenings from the annual meeting between the ABA’s Joint Committee on Employee Benefits and key members of the Corp Fin Staff in his blog – just a few hours after the meeting ended! Mark promises to blog more about this meeting soon, but yesterday he analyzed the discussions about: (1) Prior Year Information for a New NEO and (2) A Perquisite’s “Total Cost.”

Once the official meeting notes are available (which often takes several months), we will post them in our “JCEB Meeting with SEC Staff Notes” Practice Area,” which remains a real treasure trove for informal Staff guidance regarding issues where the securities law intersects with compensation-related arrangements. Thanks to Gloria Nusbacher of Hughes Hubbard & Reed for her scribing all these years!

SEC Filing Fees: Going Up

In Monday’s fee rate advisory, the SEC announced that filing fees will be going up after October 1st (or whenever Congress approves the SEC’s budget, which historically is significantly later than October 1st) to $39.30 per million from $30.70 per million of securities registered with the SEC.

This is a 28% hike – and the first increase in the filing fee rate in quite some time. Not sure why there is an increase (remember how Chairman Cox was quite proud of the steep drop last year, that was quite a drop – over 70%). The SEC’s fee rates aren’t related to the amount of funding available to the SEC; instead, the money goes to the US Treasury – so my guess is that the rate is going up to indirectly fund the Iraqi war.

Inside/Outside CEOs: The Cost of Poor Succession Planning

Paul Hodgson of The Corporate Library has been issuing a score of research reports this proxy season. Below is a summary of a recent report from Paul on succession planning:

It has long been a contention of pay experts – even Jack Welch agreed – that one of the many ingredients ratcheting up CEO compensation is the ‘golden hello’ that is often paid to a candidate recruited to the position from outside the company. Mr. Welch claimed that both Robert Nardelli and James McNerney – each of whom lost out to Jeffrey Immelt for the top job at GE – ended up being paid more than he.

Initial impressions would certainly back that up, with both Mr. Nardelli and Mr. McNerney in receipt of very generous golden hellos. Indeed, in Mr. McNerney’s case, these turned out to be serial golden hellos as he has had two new jobs since leaving GE.

However, as a detailed analysis shows, Mr. Welch’s impressions were wrong in this instance. Taking the last six years of available compensation data, starting with Mr. Nardelli’s and Mr. McNerney’s first years in their new roles, and with Mr. Immelt working as chairman elect at GE, the positioning is:

1. Nardelli
2. Immelt
3. McNerney

Mr. Nardelli leads even without the inclusion of his termination package at the same time as having done, arguably, the worst job of the three in returning value to stockholders. While this example is illustrative of the experience of three CEOs and the actions of four compensation committees, it cannot provide a reliable generalization or conclusion.

In order to come to a more general conclusion, an analysis was conducted of the compensation of 52 S&P 500 CEOs who joined their companies at some point in 2005 (still the last year for which there are compensation details). Of these 52 CEOS, there were 32 inside appointments and 20 outside. No adjustments for industry or size were made to the sample, as each group contained a wide mix of market capitalization levels and industries and this mix on both sides of the sample is likely to have cancelled out any effects on pay levels.

The findings of this study clearly show that – in the first year of employment at least – CEOs recruited from outside the organization are more expensive. As can be seen, the biggest differential lies in total target compensation, which includes the grant date value of equity awards such as stock options and restricted stock, including the hefty up front awards that make up most golden hellos. Particularly at the median, the differential for outside appointees is considerable. They earn almost 2.6 times the target compensation of their inside appointee peers in their first year of employment.

May 8, 2007

Moody’s: How to Analyze Compensation Disclosures

One of my more popular blogs lately was one about how the Associated Press reports on total compensation numbers. Now, Moody’s explains how they look at what has been disclosed in the new batch of proxy statements filed this proxy season.

On, in this podcast, Mark Watson, Managing Director, Corporate Governance Specialist Team of Moody’s Investors Service, explains the “in’s” and “out’s” of “Moody’s User Guide to Compensation Disclosures” (which is posted in’s “Investor Demands for Reasonable Pay” Practice Area), including:

– What is the purpose of Moody’s new user guide for compensation disclosures? Why did Moody’s put one together?
– In your staff’s review of the disclosures made so far, which areas do you think are being adequately disclosed? Which areas need improvement?
– What do you recommend that companies do for next year?

More on the “Readability” of Compensation Disclosures

I’m still getting plenty of feedback from my blog about the SEC Chairman’s recent comments on the lack of plain English in compensation disclosures. One of the themes in these responses is how – after a decade since the SEC’s plain English initiative began – practitioners had never heard of the metrics used in the Chairman’s speech. These commentors point out that the Gunning-Fog and Flesch-Kincaid tests are not mentioned a single time during any of the SEC’s plain English rulemaking or commentary over the years.

In the wake of the Chairman’s speech, a group of compensation consultants conducted this follow-on readability study that is pretty interesting, looking at more disclosures, the SEC’s rules themselves and even Dr. Seuss’ “Green Eggs & Ham” for comparison purposes.

The upshot is that I think the SEC will have to revisit the plain English requirements if it is going to insist on using the metrics that the Chairman mentioned in his speech, because it doesn’t look like any company is coming anywhere close to what has been targeted as a “good” score. And I would bet that would be true for disclosure in any SEC filing, whether it be a proxy statement, prospectus, etc. This situation might be saying as much about these metrics as they do about disclosures generally; I think the metrics have to be examined more carefully before being applied as the litmus test of whether it is “good disclosure.”

Meanwhile, I imagine it won’t take long for shareholder activists to grab onto this issue – particularly since Microsoft Word has a tool that allows anyone to easily gauge the “readability” of a document. So my advice is for all companies to run the numbers and find out the readability of their CD&As (and other disclosures) now before someone comes calling. And of course, we wouldn’t be surprised to see Corp Fin get back into the business of issuing plain English comments. Should be fun…

Implementing the SEC’s Compensation Rules: Companies Start Providing Feedback

Even nine months after the SEC adopted its final executive compensation rules, it is still receiving comment letters on them. The first company to weigh in on the new rules after filing its initial proxy statement under them is Leggett & Platt, with this comment letter that focuses on confusion in the media in reading the disclosures as well as the impact of the sudden December rule change made by the SEC.

Leggett & Platt is not the only company frustrated by the SEC’s December change in the rules. As Marc Trevino and Joseph Hearn of Sullivan & Cromwell noted in their survey of compensation disclosure trends by the Fortune 50, Citigroup decided to include multiple pages in its proxy statement regarding the meaning of retirement-eligible accounting under FAS 123R, including this excerpt:

“In the view of the committee and Citigroup, the December 2006 SEC release regarding reporting of equity compensation in the Summary Compensation Table does not reflect the way the committee and Citigroup analyze and make equity awards. Under the new rules, the treatment in the Summary Compensation Table of awards with the same terms for all the named executive officers may differ depending on age and length of service with Citigroup, and accordingly, may make it difficult to discern the committee’s judgments about executive performance for 2006. The purpose of the foregoing discussion and disclosure is to make it clear that the committee made incentive awards for 2006 and in prior years based on the fair value of the awards and not on the accounting treatment of those or prior awards on Citigroup’s financial statements under SFAS 123(R) or other applicable accounting standards.”

May 7, 2007

Rule 10b5-1 Plan Developments

As I have blogged about before, academics – and now the SEC Staff – have been scrutinizing transactions made under Rule 10b5-1 plans to see if the “next” scandal is afoot (Kevin LaCroix has a nice recap about this in his D&O Diary Blog).

In this podcast, Barrett Howell of Haynes and Boone delves into some of the latest Rule 10b5-1 plan developments, including:

– Why have 10b5-1 plans come under scrutiny by the SEC Staff recently?
– How are such plans relevant in securities law class actions?
– What can companies and insiders do to protect themselves from allegations in these class actions?

Today’s “Federal Proxy Rules and State Corporation Law” Roundtable: Agenda and Briefing Paper

Today is the first of three SEC roundtables on the proxy process scheduled for this month; today’s roundtable is focused on how the federal proxy rules intersect with state corporate law.

Here is today’s roundtable agenda – along with its all-star line-up (albeit a tad heavy in the academic department for my tastes) – as well as a briefing paper.

NASD: Change in Proposed Rules for Real Estate Underwriting Arrangements

Recently, the NASD posted Amendment No. 2 to its proposed rules regarding the underwriting terms and arrangements of public offerings of direct participation program securities (“DPPs”), i.e., limited partnershps and other pass-through entities, and REITs. The amendments are significant, responding to comments from last July’s proposal. Since the rule filing includes a draft Federal Register notice, it is hoped that the SEC will republish the proposal for comment.

For folks in the real estate industry, this is a long-awaited SEC filing because it sets out the procedures that the NASD will use to allocate compensation of dual-employees of broker/dealers that sell DPPs and REITs (and amends what many viewed as a highly problematic proposal). The revised structure, if implemented with some discretion by the NASD Staff, should work and make reviews of DPP and REIT offerings less problematic in the future. Nonetheless, there remains areas of uncertainty about the practical application of certain of the amendments and republication of the amended proposal appears necessary to help resolve these areas.

May 4, 2007

Happy Anniversary to Me!

Believe it or not, today marks five years that I have been blogging. To toot my own horn, I believe I was the first lawyer to blog on substantive law issues. When I started back in 2002, a handful of lawyers were blogging about the marketing aspects of blogs, but not about the law itself. For the first year or so, whenever I told someone that I was blogging, I had to explain what it was. Only 25 more years to go until retirement!

Do me a “solid” and take this brief survey on my blogging…

[Your Friday “Moment of Happiness”: Here is a hilarious “don’t mess with this blogger dude” saga].

Answers About “Readability” of My Push-Out Blogs

Many of you have inputted your e-mail address in the box to the left of this blog, which enables you to receive an e-mail notification when I blog each morning. This notice includes the text of that day’s blog entry – but it’s not in the easiest-to-read format.

Unfortunately, there is nothing that I can do about this problem, as it’s a function of the blogging software (ie. Movable Type). Moving to another piece of software would be a killer because I have five years worth of archived blogs on this page that I would need to import.

The easy fix for you: most people just click on the link at the top of the e-mail when they get the blog sent to them and that sends them to the blog itself which is much easier to read…

Holy Sherlock Holmes! SEC’s Enforcement Staff Finds the Pipe Bomber

As noted in this article, there were over 150 law enforcement officials (including over 100 postal inspectors) trying to figure out who sent pipe bombs to a number of mutual fund companies. It was the SEC Staff who found him using trading records – and only 3-4 staffers were involved. As many of you know, it’s very unusual for the SEC to be tracking down this type of criminal – normally they are investigating those involved in problematic PIPEs…

John White on the Foreign Private Issuer Community in 2007

On Wednesday, Corp Fin Director John White delivered this speech on “Corporation Finance and the Foreign Private Issuer Community in 2007.”

May 3, 2007

The SEC’s Inspector General Comments on the Staff’s Interpretive Guidance

The SEC’s Office of Inspector General has been busy, issuing no fewer than four reports this week (even though some are dated March). The most important one is “Audit of Full Disclosure Program’s Staff Interpretive Guidance Process,” given that it is a topic frequently criticized by SEC Commissioner Atkins and something that is a lifeblood for many of us.

Here are my “Top Notables” about this 18-page report (listed in order of where they are mentioned in the report):

1. It took the Inspector General’s office 10 months to draft its report. (pg. 2)

2. The report states that most interpretive guidance comes from four groups of the Staff (Corp Fin’s Office of Chief Counsel and Office of Chief Accoutant and two offices in the SEC’s Office of Chief Accountant). I’m stumped why the report doesn’t include three of Corp Fin’s other specialized offices, which provide plenty of guidance: Office of Mergers & Acquistions; Office of International Corporation Finance and Office of Edgar and Information Analysis. (pg. 3)

3. Corp Fin as a whole answered 32,500 phone calls during 2005 – ouch! (pg. 4)

4. The report notes that Corp Fin’s Office of Chief Accountant provided advice on 340 referrals to Enforcement during 2005 – but oddly doesn’t mention Corp Fin’s Office of Enforcement Liaison, whose main function is to provide advice to Enforcement. (pg. 4)

5. Corp Fin/OCA runs its SABs through the Commissioner’s legal counselsors typically. The Inspector General recommends that the Office of General Counsel look into compliance with the Administrative Procedures Act relating to the processes involved in the SEC issuing SABs, as well as interpretive guidance from the Staff generally. In my view, this is the report’s bombshell as it has the potential to really gum up the works. (pg. 4-5)

6. Corp Fin doesn’t post shareholder proposal no-action responses on its website due to resource limits; it is recommended that Corp Fin post these responses. (pg. 5)

7. The Inspector General is looking for confirmation that Corp Fin’s Shareholder Proposal Task Force does indeed take mailing deadlines into consideration when processing no-action requests. I haven’t heard any company complain about Corp Fin not being conscientious of this need. (pg. 7)

8. Corp Fin issues comments on non-shareholder proposal no-action letters within 30 days of filing – its stated goal – about 50% of the time. (pg. 7)

9. Corp Fin may be updating its 25-year old interpretive release on how to submit no-action letters, including the format they should take. (pg. 11)

10. The report includes esoteric commentary about “uploading” internal documents. This is a process that commenced near the end of my last tour of duty in Corp Fin and luckily I never had to upload a single document. (pgs. 11-12)

The SEC’s IG also issued these reports on Enforcement Peformance Management and Backlog of FOIA Requests for Comment Letters. Before these, the last Inspector General report involving Corp Fin was issued last summer; it dealt with continuous surveillance of larger companies and lifted the curtain a little bit on Corp Fin’s screening process.

Resume Indiscretions Possible at the SEC?

Another new report from the SEC’s Inspector General deals with verification of bar memberships. Not only is it interesting that the SEC hasn’t been verifying bar memberships in light of the highly publicized cases of resume indiscretions in the news lately, it’s interesting because – not so long ago – it was a big deal for a SEC lawyer to pass a bar.

During my first tour of duty in Corp Fin, the SEC didn’t have the luxury of so many lateral hires like it does now. Back in the “day,” most new lawyers came right out of law school. Our new jobs weren’t “official” until we passed the bar and when you did, you were promoted from “law clerk” to “lawyer.” There was a one-year probation period during which you had to pass the bar; so if you failed the bar twice, your probation period will likely have run and you were booted out of the SEC!

The IG’s report does note that lawyers fresh out of school do indeed still have their bars checked; it’s the horde of lateral hires that apparently have not been verified. I’m surprised the SEC fell down on this because it’s pretty easy these days to go online to a state bar website and verify membership. If there was one area I could see falling through the cracks, it would be verifying that Staffers remain members of the bar (eg. someone doesn’t pay their bar dues). It’s easy to forget about – or ignore – state bar requirements.

No mention in the report about whether the SEC checks the CPA licenses of the accountants…

The NYSE Speaks: Latest Developments and Interpretations

We have posted a copy of the transcript from our popular webcast: “The NYSE Speaks: Latest Developments and Interpretations.”