TheCorporateCounsel.net

January 11, 2008

CD&A: “To Be Competitive” is Not Analysis

We just mailed a Special Supplement to The Corporate Counsel, highlighting a potential trap for those in the process of preparing their CD&As. When seeking to justify compensation amounts, companies may be lulled into saying that they pay those amounts “to be competitive” – which may, in fact, become a red flag to highlight compensation decisions that were made without critical analysis. In this regard, it is not enough to merely describe analytical tools such as tally sheets – issuers need to provide the critical analysis and what is done in response to that analysis. Take a look at our final copy of the January-February 2008 issue of The Corporate Executive for examples of how the necessary analysis – and the actions taken in response to that analysis – can be described in your CD&A.

In order to keep this sort of essential guidance on your proxy disclosures coming, be sure to renew your subscriptions to The Corporate Counsel and The Corporate Executive today. If you are not yet a subscriber, we encourage you to take advantage of a no-risk trial.

GAO Study on the Audit Market: No Immediate Action Required

The Government Accountability Office has released another study of the market for audit services (the last study was mandated by the Sarbanes-Oxley Act), and this time the GAO reports that while there is significant concentration of auditors for large public companies, there is no need for Congress to step in at this point.

The GAO noted that 82 percent the Fortune 1000 saw their choice of auditor as limited to three or fewer firms, and about 60 percent viewed competition in their audit market as insufficient. Smaller companies, on the other hand, reported that they were satisfied with the auditor choices available to them. The study noted that concentration in the audit market for large companies is likely to continue, particularly given the challenges faced by those smaller accounting firms seeking to audit more public companies. The GAO also considered steps that have been suggested to increase competition – such as capping auditors’ liability – but it did not recommend that any such steps be pursued at this time.

The GAO’s findings will be food for thought for Treasury Department’s Advisory Committee on the Auditing Profession (discussed in this blog), which is expected to issue a report this summer.

All Quiet on the Corp Fin Front?

After such a huge push in rulemaking during 2007, it is understandable (and perhaps welcome) that Corp Fin has not announced any significant rulemaking projects over the next six months. The recently released Unified Agenda (also known as the Semiannual Regulatory Agenda) – which summarizes the rules and proposed rules that each Federal agency expects to issue during the next six months – doesn’t list any new rulemakings on Corp Fin’s plate in the coming months. On some outstanding rule proposals and solicitations of comment, such as proxy access, the next action is listed as “to be determined.” For the executive compensation rules, the agenda lists a projected final action in May 2008, so it remains to be seen what is contemplated on that front.

Absent from the latest Unified Agenda are some of the potential rulemaking initiatives that the Staff has been talking about over the past year or so, including rules regarding voluntary filers, amendments to Item 4.02 of Form 8-K, and the roll-out of mandatory interactive data. But the fact that a rulemaking doesn’t make it to the Unified Agenda is by no means a signal that it is not going to happen in the near future, because plans can change pretty quickly at the SEC these days.

– Dave Lynn