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Monthly Archives: May 2007

May 2, 2007

Option Backdating: The Apple Saga – To Be Continued?

There has been quite a bit of commentary about what the SEC did – and didn’t do – in the Apple option backdating case last week. As this SEC press release notes, the SEC brought charges against Apple’s former General Counsel and former CFO Fred Anderson, but didn’t seek a bar against them as an executive or director of another public company (nor has the SEC brought any action against the company itself). The former CFO currently serves as the head of eBay’s audit committee.

From the complaint filed in US District Court by the SEC, it appears that Apple’s CEO Steve Jobs was fully aware of the implications of what was going on with the backdating. It is interesting that the CFO discussed backdating with the CEO, then did it and apparently did not inform the auditors about it – but some argue he did not do it “intentionally”; it seems pretty clear to me from the complaint that the CFO did mean to backdate the options.

And right after the SEC announced what it intended to do in the Apple case, former CFO Anderson spoke up in this WSJ article to claim that Jobs misled him. And then this Joe Nocera column from Saturday’s NY Times gives this story another twist, providing details about why certain mega-grants of options were awarded to Jobs in the first place.

Lawsuit Dismissed: Backdating Alone Not Sufficient to Prove Fraud – But Not Over?

A few weeks ago, Judge Alsup of the US District Court for the Northern District of California granted the defendants’ motion to dismiss the consolidated shareholders’ derivative complaint filed in the connection with alleged backdating at CNET Networks, based on plaintiffs’ failure “to plead with particularity that demand on the board was excused as futile.”

But then, on Monday, Judge Alsup issued a follow-up order to his CNET dismissal, after receiving briefing from the parties. The Judge is allowing the plaintiffs to amend (noting in particular that they should be more specific about whether the company’s compensation committee was allowed to delegate its authority), though he’s denied them discovery. He’s also opened up the possibility of staying the action while plaintiffs pursue discovery through Section 220 of the Delaware General Corporation Law.

So although the original order might end up being useful to those of you mired in backdating litigation – as it shows that plaintiffs will have to allege more than merely that options grant dates differed from the measurement date, or even that the directors received backdated options – there could be future developments. We have posted copies of the order of dismissal dismissal and the follow-up order in the “Backdated Options/Grant Policies” Practice Area on CompensationStandards.com.

Much thanks to Kevin Muck and Felix Lee of Fenwick & West for keeping us apprised of the developments in this potentially important case – here is their memo on the dismissal (and here is a CFO.com article – and a D&O Diary Blog on it). And on a somewhat related note, Kevin LaCroix has a blog about the first settlement of a backdating-related class action lawsuit.

Chairman Cox: SEC Will Resolve Option Backdating Cases Soon

Last Wednesday, in this Reuters article, SEC Chairman Cox apparently stated that the SEC’s investigation into improper awards of options at many of the 130 companies under examination will be resolved within the next few weeks…

May 1, 2007

Just Posted: Spring Issue of Compensation Standards Print Newsletter

Because the response to the first few issues of Compensation Standards has been so positive – with many companies asking for permission to provide additional copies to all their directors – we have decided to provide complimentary subscriptions to the popular Compensation Standards print newsletter to all our friends for the rest of this year. Hot off the press, here is the latest issue: Spring 2007.

Act Now: To receive these complimentary issues, you can do so in one of three ways:

(1) you can sign-up online for you and your directors.

(2) you can email us a list of all the contact information for you and your directors to info@compensationstandards.com (for the directors, we just need their mailing information, company and title; for you, we would also need your email address, phone number and fax number).

(3) you can email us at info@compensationstandards.com with your contact information (including title, company, mailing address, email address, phone number and fax number) and the number of copies you need (which you would then forward to your directors).

If you need assistance, contact our HQ at info@compensationstandards.com or 925.685.5111. Note our HQ is on the West Coast with hours of 8am – 4pm.

Senate Takes Up “Say on Pay” Bill

From ISS’ “Corporate Governance Blog“: After the passage of the “Shareholder Vote on Executive Compensation Act” by the U.S. House of Representatives, Senate Democrats are making it known that they, too, want shareholders to have a vote on executive pay.

A bill seeking to amend the Securities and Exchange Act of 1934 to give shareholders at public companies an advisory vote on executive compensation–or “say on pay”–was introduced April 20 in the U.S. Senate as a companion to the House bill approved the same day. The House legislation passed by a vote of 269-134, indicating that it got some Republican support.

Senate Bill 1181, which was introduced by Sen. Barack Obama of Illinois, proposes an annual vote on the executive compensation disclosed in proxy statements under the new Securities and Exchange Commission’s standards. Companies would be required to allow a non-binding vote on the compensation disclosure and analysis (CD&A), summary compensation tables, and related material, starting in 2009.

Like the House measure, the Senate bill would give shareholders the opportunity to vote on any severance agreements that are reached while a company is considering a takeover offer or merger.

S. 1181 has been referred to the Senate Committee on Banking, Housing, and Urban Affairs, and has attracted co-sponsorships from at least four of Obama’s fellow Democrats, including Sen. Sherrod Brown of Ohio, Sen. Tom Harkin of Iowa, Sen. John Kerry of Massachusetts, and Sen. Richard Durbin, also of Illinois.

In his invitation to co-sponsors on April 24, Obama wrote, “It’s time that we not only make executive compensation packages more transparent, but that we also allow shareholders to express and debate their views on those packages.”

The Bush administration has expressed opposition to the House legislation, saying it “does not believe that Congress should mandate the process by which executive compensation is approved.”

Understanding What “Say on Pay” Means

To review a new ISS 18-page white paper on pay votes in international markets, please go to the ISS’ “Say on Pay” Information Center. Note that, in this Center, you can track the results of how shareholders voted on “Say on Pay” proposals as they happen.

Our May Eminders is Posted!

We have posted the May issue of our complimentary monthly email newsletter. Sign up to receive it today by simply inputting your email address!