June 15, 2007

A Coupla Executive Compensation Notables

Earlier this week, SEC Chairman Cox gave an interview for this article where he talked briefly about the Staff’s executive compensation rules and more.

And on Monday’s “Nightline,” AFLAC’s CEO Dan Amos talked about why the company is the first one to adopt “say on pay” in the US, allowing his company’s shareholders to have a non-binding vote on the CEO’s pay package starting in 2009.

Finally, no surprise that a majority of Americans believe that CEOs are unethical and overpaid, as noted in a new survey discussed in this Bloomberg article. Here is an excerpt:

“More than six in 10 people surveyed say CEOs are ‘not too ethical’ or ‘not ethical at all,’ versus 33 percent who call them ‘mostly ethical.’ An overwhelming majority, more than eight in 10, say executives are paid too much. At the same time, Americans remain upbeat about the state of the

By the way, the SEC will hold an open Commission meeting next Wednesday to consider adopting universal e-Proxy and propose rules that would permit foreign private issuers to file in the US using IFRS without having to provide a reconciliation to US GAAP.

[Congrats to Herb Scholl: Herb celebrated his retirement yesterday at the SEC after four decades of public service. Herb started working at the SEC in 1967. If you have ever had Edgar problems, you likely spoke to Herb – whose “claim to fame” is picking the name of “Edgar.” We will miss ya Herb!]

SEC Acts on Short Selling; Coming Soon? Demystifying Vote Lending Practices

This week, the SEC voted to adopt changes that will rein in naked short selling, which in turn should help prevent inappropriate vote lending. These changes are important; remember that one of the arguments made to slow down the SEC on a possible path towards shareholder access is that the entire voting system needs to be better understood – these changes should simplify the system (albeit this issue is just one of many issues that need demystifying). I tend to agree with this argument – the voting system is complex, with numerous moving parts and layers of intermediaries.

We may soon know more about the world of stock lending. Here is an excerpt from a recent Business Week article:

“Sources say authorities from the U.S. Attorney’s office are looking into allegations that some employees on the stock loan desks received kickbacks or other improper cash payments from so-called stock-loan finders, independent middlemen who sometimes track down shares for Wall Street firms to lend to investors. It is anticipated that the prosecutors will likely claim that some employees on the stock loan desk unnecessarily referred work to the finders, who did little to justify their fees and only added to the cost of arranging a stock loan.”

From Clearly Gottlieb, below are notes about what the SEC acted on during Wednesday’s open Commission meeting:

– Remove Rule 10a-1 under the Securities Exchange Act of 1934 (the “Exchange Act”) and amend Regulation SHO to provide that no tick test or other price test, including any price tests of any self-regulatory organization (“SRO”), shall apply to short sales of any securities;

– Amend Regulation SHO to eliminate the “grandfather provision” so that fail to deliver positions existing at the time a security became a “threshold security” would no longer be exempted from Regulation SHO’s close-out requirement;

– Amend Regulation SHO to extend the grace period before a broker-dealer is required to close out fail to deliver positions resulting from sales of threshold securities pursuant to Rule 144 under the Securities Act of 1933 (the “Securities Act”) to 35 settlement days (from the otherwise applicable settlement grace period of 13 days);

– Re-propose for comment the elimination of the options market maker exception to Regulation SHO’s close-out requirement, along with two alternatives providing for the close-out of options market makers’ fail to deliver positions in threshold securities within specified time frames; and

– Propose for comment amendments to Regulation SHO to require that broker-dealers marking a sale as “long” document the present location of the securities being sold.

Although the agenda for the Open Meeting also listed consideration of a pending proposal to amend Rule 105 of Regulation M (which applies to short sales in connection with public offerings), that topic was not addressed at the meeting and, we understand, will instead be discussed at the Commission’s next open meeting scheduled for June 20, 2007.

– Broc Romanek