Monthly Archives: May 2008

May 14, 2008

Big Changes Afoot in the Audit Industry

We all know about globalization in accounting standards, IFRS, etc. We know that the accounting industry is being closely studied for reform, with a series of changes (eg. limiting liability) being kicked around by the SEC’s Advisory Committee on Improvements to Financial Reporting and the Treasury Secretary’s “Blueprint” for a modernized regulatory structure.

But we haven’t heard much about how the Big 4 might be taking action itself. In this podcast, Francine McKenna, CEO of McKenna Partners (and a fellow blogger on discusses some of the new structural developments, including analying Ernst & Young’s announcement to merge its European partnerships and integrate a further 42 countries into a single unit. This is a bold shift by a Big Four firm to overcome the country-level legal and regulatory restrictions that have limited the Big 4 national partnerships and frustrated their efforts to mirror the global reach of their multinational clients.

Auditors’ Access to Board Minutes: Results of Our Quick Poll

A few weeks ago, I blogged a poll about auditors asking to review board minutes. The poll results indicated:

– 40% allowed auditors to read them, but not copy them
– 18% provided auditors with a copy to take, with privileged parts redacted
– 36% provided auditors with a full copy to take
– 7% don’t allow auditors to review minutes

On her blog, Francine McKenna discussed these results:

I have answered the poll as I believe one of my former clients would have. This former client, still completing several years of restatements, having made a fairly recent change in auditors, subject of internal and SEC investigations, defendant in more than a few lawsuits, and the recipient of assorted Sarbanes-Oxley material weakness and significant deficiencies, has no choice but to do whatever their new auditor asks. I believe their auditor has them by the short-hairs.

However, it looks like there are more than a few companies, more than 65% of the respondents to the poll, that believe that keeping information from their external auditors, perhaps under the guise of privilege, is ok and good policy. Who, in heck’s name, are their auditors?

Advance Notice Bylaws: Delaware Supreme Court Affirms Jana Partners

Yesterday, the Delaware Supreme Court issued this Order affirming the decision of the Court of Chancery in the CNET/Jana matter.

JPMorgan Chase/Bear Stearns: Splicing the Delaware Issues

Today, join for the rescheduled webcast – “JPMorgan Chase/Bear Stearns: Splicing the Delaware Issues” – as Professors Elson, Davidoff and Cunningham analyze a host of novel provisions in the JPMorgan Chase/Bear Stearns merger agreement.

– Broc Romanek

May 13, 2008

Senator Clinton’s New Executive Compensation Bill

On his “Proxy Disclosure Blog” on, Mark Borges continues to report on proxy disclosures as well as other items. For example, here is a recent entry from him:

I was doing some research on “Say on Pay” today when I stumbled across a piece of legislation
that was introduced in the US Senate earlier this month that has potential implications for, among other things, executive compensation disclosure.

S. 2866, the “Corporate Executive Compensation Accountability and Transparency Act,” was introduced by Senator Hillary Clinton (D-NY) on April 15th and referred to the Senate Committee on Finance for consideration. The bill aggregates a number of pay-related proposals and ideas that were in the news last year and consolidates them under a single executive compensation heading. Among other things, the bill would:

– Amend Section 409A of the Internal Revenue Code to impose a $1 million cap on the amount of compensation that can be deferred each year

– Amend Section 304 of the Sarbanes-Oxley Act of 2002 (the provision providing that, where a company is required to restate its financial statements as a result of misconduct, the CEO and CFO must reimburse the company for bonus or other incentive or equity-based compensation, or any trading profits, received during the 12-month period following the filing of the financial statements) to extend the 12 month period to 36 months and define what constitutes “misconduct” for purposes of the statute

– Add a provision to the Securities Exchange Act of 1934 mandating that reporting companies give their shareholders an annual advisory vote on their executive compensation programs (a provision that essentially mirrors the bill that passed the House of Representatives in 2007)

– Require the Securities and Exchange Commission to promulgate rules “clarifying and strengthening” the disclosure requirements concerning the compensation paid to compensation consultants and other advisors to the board compensation committee. Further, these rules would be required to (i) prohibit compensation consultants to the compensation committee from performing any other work for the company if its presents a conflict of interest or otherwise compromises the consultant’s independence and (ii) contain an independence standard that would preclude a consultant from working with a compensation committee if it had a noncompensation-related business or financial relationship with the company during the previous 18 months

Finally, in an area that’s close to my heart, the bill directs the SEC to promulgate rules requiring the disclosure of the full grant date fair value of equity awards in the Summary Compensation Table. While this provision wouldn’t require the Commission to scrap its December 2006 interim final rules on the reporting of equity awards, that is essentially what it’s intended to do.

At this point, it’s difficult to know whether Senator Clinton is serious about advancing this bill, or whether it’s just a campaign tactic. (Earlier this month, when the excessive executive compensation issue reared its head on the campaign trail, Senator Obama urged the Senate to take up his Say on Pay bill.) Either way, it’s a strong indication of the type of legislation that may be coming next year when a new Administration is installed in Washington.

Our New “Compensation Consultant’s Blog”: A Baker’s Dozen Now Blogging!

We’re pretty excited that thirteen compensation consultants have agreed to contribute to “The Consultant’s Blog” on If you’re a member of the site, input your email address on the blog to get new entries pushed out to you.

Only One Week Left! Early Bird Discount for Compensation Conferences

You have only one week – until May 20th – to take advantage of the Early Bird Discount to register for our Conferences – “Tackling Your 2009 Compensation Disclosures: The 3rd Annual Proxy Disclosure Conference” & “5th Annual Executive Compensation Conference” – which will take place in New Orleans and via Nationwide Video Webcast on October 21st-22nd. Here are the Conference Agendas.

Like last year’s blockbuster conferences, an archive of the entire video for both conferences will be right there at your desktop to refer to – and refresh your memory – when you are actually grappling with drafting the disclosures or reviewing/approving pay packages. Here are FAQs about the Conferences.

For those choosing to attend by coming to New Orleans, I encourage you to also register for the “16th Annual NASPP Conference,” where over 2000 folks attend 45+ panels. And if you attend the NASPP Conference, you can take advantage of a special reduced rate for the Exec Comp Conferences.

Register by May 20th for Early-Bird Rates: Whether you attend in New Orleans or by video webcast, take advantage of early-bird rates by registering by May 20th. You can register online or use this order form to register by mail/fax.
Note that we have combined both of our popular Conferences – one focusing on proxy disclosures and the other on compensation practices – into one package to simplify registration.

If you have questions or need help registering, please contact our headquarters at or 925.685.5111 (they are on West Coast, open 8 am – 4 pm).

– Broc Romanek

May 12, 2008

Investor Relations Officers as Bloggers

As I’ve mused before, I believe the day will come when more of you will be either a contributor to a blog or otherwise participating in some form of “expressing yourself online” activity. A perfect example is an IRO who gets the word out about a company’s investor relations through a blog.

In this podcast, Lynn Tyson, VP-Investor Relations of Dell and a co-blogger of “Dell Shares,” provides tips and insights into how investor relations officers can blog for their companies, including:

– What was the genesis for launching the “Dell Shares” blog?
– What types of internal approval did you need to obtain?
– Have there been any surprises from blogging?
– What changes have you made to your blogging style since you started?

Fyi, since I blogged about my pet peeve regarding the use of a click-through disclaimer on the “Dell Shares” blog, it has been removed. Bravo!

More on the SEC’s Staffing Levels

Last week, SEC Chair Chris Cox gave this testimony regarding the SEC’s ’09 budget before the US Senate’s Appropriations Subcommittee on Financial Services. On the same day, ten Senators sent this letter to the head of that subcommittee requesting more funding for the SEC – in the amount of $50 million – than the Bush Administration is seeking.

This Bloomberg article from last week – entitled “SEC’s Bear Stearns Oversight Points to Fund Shortage” – argues that more money is necessary for the SEC to adequately do its job. Here is an excerpt:

SEC staffing levels peaked in 2005 at 3,851 full-time employees, including 1,232 in its enforcement division, which investigates fraud. The agency had 3,465 full-time employees in the fiscal year ended last September and staffing in the enforcement unit dropped to 1,111.

“Staffing levels haven’t kept pace with the urgent work needing to be done,” Arthur Levitt, a former chairman of the SEC, said today in a Bloomberg Television interview. “We need more people in enforcement and more people at the commission. Those budget cuts have got to be restored.”

Under Cox, who became chairman in August 2005, the SEC has left money on the table. The 2007 budget included $14 million in “available balances from prior years,” according to the SEC’s 2009 funding request. The $906 million Congress granted the SEC in 2008 includes $63.3 million in unspent money from earlier years.

“This is akin to the fire department laying off people as the house burns down,” said Lynn Turner, a former SEC chief accountant. Nester said more than 90 percent of the money carried over to the 2008 budget from earlier years can’t be used for staff salaries. Most of the $63.3 million represents funding intended
for contract work such as technology upgrades that wasn’t spent, he said.

In re infoUSA: Special Litigation Committee Stay Granted In Backdating Case

Lots still going on with options backdating. For example, the SEC has settled/brought several actions during the past month, like this action brought against Marvell Technology and its COO last Thursday.

And there is this Delaware development from Travis Laster: In Ryan v.
, Delaware Chancellor Chandler held that an investigatory board committee (but not a formal SLC) had waived the attorney-client privilege in connection with an investigation into stock option backdating by reporting on its
findings to the full board. That opinion and the Chancellor’s subsequent denial of the application for interlocutory appeal have attracted well-deserved practitioner attention. Some have expressed concern that Delaware’s traditional deference to the SLC process may have ebbed, particularly in the stock option backdating context.

In this opinion, issued in the option backdating case involving infoUSA, Chancellor Chandler applied traditional Delaware deference to an application by an SLC to stay the derivative litigation to investigate the underlying allegations and claims. The opinion confirms that traditional principles of Delaware law continue to apply to SLCs, even in the sensitive area of stock option backdating.

Here are a few highlights:

1. The Chancellor granted the stay even though the defendants previously had moved to dismiss the complaint under Rule 23.1 and the Court had found demand was futile. The Court rejected the argument that the SLC was formed “too late,” noting specifically that under Delaware law, even a conflicted board has the power to appoint an SLC: “The fact that I have already determined demand is excused demonstrates why the board must act by means of a committee; it does not in any way explain why it cannot act through an SLC.” (Page 3).

2. The Chancellor granted a stay of 150 days, towards the high end of the traditional 3-6 month range routinely granted by Delaware courts.

3. The Chancellor rejected an argument, based on Ryan, that the Committee was not sufficiently empowered to address the litigation.

4. The Chancellor held that any challenge to the independence of the SLC was premature and would be addressed at the same time the Court considered the bases for the SLC’s conclusion.

Note that the infoUSA SLC was comprised of 5 directors, three newly appointed directors and 2 whom the Court previously had deemed disinterested.

– Broc Romanek

May 9, 2008

SEC Proposes Changes to Cross-Border Rules

Yesterday, the SEC posted a 194-page proposing release related to the amendments of its cross-border rules, the first proposed changes to the rules since they were initially adopted in 1999. A departure from recent practice, these proposals were approved by the Commission seriatim rather than in an open Commission meeting.

The proposing release includes many proposed rule changes that would codify existing Staff interpretive positions and exemptive orders – although there are some areas that are proposed to change – as well as some Staff interpretive guidance that the SEC seeks comment on. The SEC’s proposals include:

1. Refinement of the tests for calculating U.S. ownership of the target company for purposes of determining eligibility to rely on the cross-border exemptions in both negotiated and hostile transactions, including changes to:

– Use the date of public announcement of the business combination as the reference point for calculating U.S. ownership;
– Permit the offeror to calculate U.S. ownership as of a date within a 60 day range before announcement;
– Specify when the offeror has reason to know certain information about U.S. ownership that may affect its ability to rely on the presumption of eligibility in non-negotiated tender offers;

2. Expanding relief under Tier I for affiliated transactions subject to Rule 13e-3 for transaction structures not covered under our current cross-border exemptions, such as schemes of arrangement, cash mergers, or compulsory acquisitions for cash;

3. Extending the specific relief afforded under Tier II to tender offers not subject to Sections 13(e) or 14(d) of the Exchange Act;

4. Expanding the relief afforded under Tier II in several ways to eliminate recurring conflicts between U.S. and foreign law and practice, including:

– Allowing more than one offer to be made abroad in conjunction with a U.S. offer;
– Permitting bidders to include foreign security holders in the U.S. offer and U.S. holders in the foreign offer(s);
– Allowing bidders to suspend back-end withdrawal rights while tendered securities are counted;
– Allowing subsequent offering periods to extend beyond 20 U.S. business days;
– Allowing securities tendered during the subsequent offering period to be purchased within 14 business days from the date of tender;
– Allowing bidders to pay interest on securities tendered during a subsequent offering period;
– Allowing separate offset and proration pools for securities tendered during the initial and subsequent offering periods;

5. Codifying existing exemptive orders with respect to the application of Rule 14e-5 for Tier II tender offers;

6. Expanding the availability of early commencement to offers not subject to Section 13(e) or 14(d) of the Exchange Act;

7. Requiring that all Form CBs and the Form F-Xs that accompany them be filed electronically;

8. Modifying the cover pages of certain tender offer schedules and registration statements to list any cross-border exemptions relied upon in conducting the relevant transactions; and

9. Permitting foreign institutions to report on Schedule 13G to the same extent as their U.S. counterparts, without individual no-action relief.

In addition to those proposed rule changes, the Corp Fin Staff provides interpretive guidance or solicit commenters’ views on the following issues:

1. The ability of bidders to terminate an initial offering period or any voluntary extension of that period before a scheduled expiration date;

2. The ability of bidders in tender offers to waive or reduce the minimum tender condition without providing withdrawal rights;

3. The application of the all-holders provisions of our tender offer rules to foreign target security holders;

4. The ability of bidders to exclude U.S. target security holders in cross-border tender offers; and

5. The ability of bidders to use the vendor placement procedure for exchange offers subject to Section 13(e) or 14(d) of the Exchange Act.

If you’re wondering if the lack of an open Commission meeting means that this rulemaking is less important to the SEC, the answer would be “no.” Until a few Chairman ago, most rulemakings were approved seriatim and only the ones that the SEC wanted to get the attention of the mass media were approved at an open meeting. “Seriatim” simply means that each Commissioner signs an order indicating whether they vote in favor of a particular proposing or adopting release.

That trend started to change when Harvey Pitt became Chair and it is my hunch that since the open meetings are more “open” now due to the Web, that trend has continued to today. Plus, the SEC likes the publicity. But it’s a production to hold an open meeting, so some rulemakings have to go seriatim to keep the rulemaking machine humming.

More on Short Sellers and Rumors

My favorite part about blogging is reactions from members, particularly those that add more value to our experiences here. Here is another excellent addition from Keith Bishop following up on my recent blog about the SEC acting on short selling and rumors: There have been two recent cases involving challenges under California law to short selling:

1. Remember Broc’s “Lord Sith” blog about’s analyst call from about two years ago? did file suit. Among other things, Overstock alleged that the knowing and intentional dissemination of negative reports on containing false and/or misleading statements concerning Overstock constituted unlawful, unfair, or fraudulent business acts or practices by the defendants . . ., in violation of California Business and Professions Code § 17200. The Court of Appeal found California’s unfair competition statutes do not exclude securities claims. also alleged violations of California’s Corporate Securities Law. In a victory for, the Court of Appeal affirmed the trial court’s denial of the defendants motion to strike the entire complaint under California’s anti-SLAPP statute (Strategic Lawsuit Against Public Participation, Cal. Code of Civil Procedure § 425.16)., Inc. v. Gradient, 151 Cal. App. 4th 688 (2007).

2. Remember ZZZZ Best Co. and Barry Minkow (See In re ZZZZ Best Securities Litigation, 864 F. Supp. 960, 963 (C.D. Cal. 1994))? In Usana Health Sciences, Inc. v. Minkow (D. Utah, March 3, 2008), a company sued Barry Minkow and the Fraud Discovery Institute alleging that they engaged in a scheme of illegal market manipulation involving a lengthy and uncomplimentary report about the Company. In contrast to the decision in, the Court dismissed the state claims under California’s anti-SLAPP statute.

For years, some issuers have been complaining about the short sellers and rumors. To some extent, Wall Street has dismissed these complaints. See Joe Nocera . “New Crusade for Master of Overstock”, The New York Times, (June 10, 2006) (“Except for a few fellow-traveling Web sites, where Mr. Byrne is viewed as a heroic figure, most people who understand the issue or have looked into it think it’s pretty bogus.”). teaches that it may be possible to pursue these complaints under California’s Unfair Competition Law as well as its securities law. The differing conclusions of the courts in the Overstock and Usana cases make it clear that success in the face of free speech challenges is not assured. Finally, it is important to keep in mind that has not yet won its case – it has only survived a motion to strike. Nonetheless, the SEC’s recent settlement and the decision may burnish the credibility of those who are complaining about short selling and rumor mongering and encourage more litigation in this area.

A Personal Note: 20-Year Law School Reunion

I recently missed my twenty-year law school reunion. Yes, I had a bad attitude since I didn’t “dig” law school – but I was out-of-town anyways. My primary reason for disliking law school was the style – way too serious and not much in the way of “real life.” Isn’t that true of most educational platforms? Anyways, I pose the question to you:

Opinion Polls & Market Research

– Broc Romanek

May 8, 2008

Fare Thee Well Paul Atkins; Hello Troy Paredes

As the end of his term nears – and after six years in office – Republican SEC Commissioner Paul Atkins announced that he intends to leave the Commission “once a successor is appointed and takes office.” Well that may be soon since President Bush has already nominated Professor Troy Paredes as Atkin’s successor (as noted in this article). Given the speed of this nomination, the confirmation hearings may be upon us shortly.

So it looks like the Senate will consider the confirmation of three SEC Commissioners at once – Troy and the two Democratic candidates, Luis Aguilar and Elisse Walter. Three new Commissioners at once is beyond rare; according to this chart, it would be the first time it has happened since the Commission was formed in 1934.

By the way, Peter Schwartz recently wrote a pretty nice piece about Commissioner Atkins in his “Soap Box” (scroll down to April 28th entry).

I think it will be cool to have someone named “Troy” as a Commissioner. You may recall that was Fred Flintstone’s nickname in Episode 140 when Fred became a surfer hipster dude and kept saying “Yeah, yeah, I’m hip, I’m hip.” My friends made me a “Troy” T-shirt in college… The First Governance Site

I’ve been a long-time reader of Jim McRitchie, who is Editor of, a site that has been up over a decade and where Jim essentially has been blogging that entire time on his “News” page (even before there was blogging software available).

In this podcast
, Jim provides insights into what it’s like to be a long-standing reporter on corporate governance issues, including:

– What led you to create a decade ago?
– How has the site evolved over time?
– What have been the biggest surprises in managing the site?

The Future of Corporate Law: Symposium Notes

Below is a great example of the useful types of information that Jim McRitchie provides on

In the current issue of The Delaware Lawyer, a variety of practitioners and academics (including Lucian Bebchuk, Robert Thompson, Michael Dooley and Charles Elson) present brief appeals for reform of Delaware’s corporate statutes. Many of them, joined by professors Jennifer Hill, Brett McDonnell, Faith Kahn, Elizabeth Nowicki, and Ann Conaway, discussed their proposals for reform at the Delaware General Corporation Law for the 21st Century Symposium on May 5th at the Widener University School of Law in Wilmington.

Most Americans have become “forced capitalists” as companies have moved from traditional defined benefit pensions to 401(k) plans for employees, said Vice Chancellor Leo Strine Jr., a judge in Delaware’s Court of Chancery, at the lunch address. These forced capitalists invest in the market through intermediaries or money managers, Strine said. He calls it “separation of ownership from ownership.” (Experts look at corporate law statute,, 5/6/08)

Robert Thompson noted that “self-help” measures are important for shareholders. Delaware statutes have gaps with regard to that need. If Delaware doesn’t address the need directly, it will likely lead to a patchwork of Federal provisions. Shareholders must be able to check directors when they are conflicted or entrenched. There has to be an effective way to exercise their franchise which cannot be redirected by the board. Delaware should write statutes which make Federal preemption less likely.

Charles Elson said that times change. As great as the Delaware corporate law scheme is, we need changes to better protect investors. Forty years ago, we were in a different era. Now, stock is aggregated and held by largely by institutional investors who are more sophisticated. They don’t need protected by management. Shareholders need a way to replace directors, not just vote them down. Shareholders don’t have the right to direct day to day operations and shouldn’t. However, for directors to be accountable to shareholders, we need the threat of a real election. Make the election a vibrant process by allowing reimbursement for short slate contests instead of the current asymmetry where corporations only pay for one side. I get nervous when managers view themselves as the corporation. Elson has proposed a statute that would reimburse shareholders for the cost of putting forth a competing slate of directors if they are successful or nearly successful in getting people on the board.

Rick Alexander argued that five mergers were shot down by shareholders recently. The market is doing its job. Directors have a lot of information that isn’t publicly available. There are legitimate differences. We’re not going to maximize the economy by going with what 51% of stockholders think. What about the rights of the other 49%? Directors take their jobs very seriously. They know that failure to adopt resolutions that get a majority may cost them their jobs because ISS will recommend voting against them.

Jennifer Hill said the US hasn’t looked much to developments in other countries. The federalist system provides competition for corporate charters in the US. Common law may be better than civil law. However, the idea that the US operates similarly to other common law countries is a misconception. In the UK and Australia changes happens much more frequently. SOX didn’t give shareholders participatory rights, only some additional protection of their rights through disclosure and liability. In Australia and the UK a raft of recent laws have strengthened rights with provisions such as “say on pay.” Bainbridge and Stout argue shareholders don’t want rights. However, for Hill, News Corporation’s move from Adelaide was instructive. Institutional investors wanted charter provisions to render inapplicable certain Delaware laws in order to maintain Australian rights where corporate constitutions can be changed by shareholders, meetings can be convened by 100 members, and no poison pills are allowed.

– Broc Romanek

May 7, 2008

“Say on Pay”: Five Notables

With Aflac’s annual meeting results now in, “say on pay” is in the news. Here are five items to consider:

1. Aflac’s Pay Package Gets 93% Support – As noted in this NY Times article, Aflac’s meeting on Monday was uneventful with the company’s executive pay package getting overwhelming support.

2. RiskMetrics’ Aflac Report – ISS kindly has given us permission to post its analysis of Aflac’s “say on proposal.” It is interesting comparing that to the PIRC report that I posted last week.

3. Shareholders Not Supporting “Say on Pay” As Much This Year – As noted in this Washington Post article, the level of support for “say on pay” proposals is down this year compared to last year (bearing in mind that last year’s levels were remarkable for a “first year” type of proposal). So far, only proposals at Apple and Lexmark have garnered majority support.

Compare the Washington Post’s conclusions with those of ISS from this article. Here is an excerpt: “This year, pay vote proposals have averaged 42.1 percent support at 21 companies so far. That is in line with results for calendar 2007, when 52 such proposals received 42.5 percent average support. Surprisingly, however, the measure received less support at a number of financial companies this season, including Citigroup, Morgan Stanley, Wachovia and Merrill Lynch, where many observers expected the measure would fare better than last year given investor anger over subprime-related losses.”

As noted in the ISS piece, I’m also hearing that levels of support for proposals generally are down. I’m not sure of the reason, although some claim it’s partly due to the lower level of retail holders voting under e-proxy (I’m not sure I buy that given that relatively few companies are doing e-proxy).

4. Two More Companies Agree to “Say on Pay” – Littlefield and MBIA have joined the group of companies that have agreed to allow their shareholders to vote on executive pay, bringing the total number to seven. MBIA’s vote will occur in 2009 and Littlefield’s vote is in a few weeks, where its shareholders will vote on two management resolutions that ask shareholders whether the total compensation received by the CEO, president, and directors in 2007 “is within 20 percent of an acceptable amount,” according to its proxy statement. Hat tip to this ISS article for uncovering these two!

5. RiskMetrics’ Own “Say on Pay” Proposals – A few weeks ago, RiskMetrics Group filed its first proxy statement and it includes three separate resolutions for shareholder approval, which may become the model for future “say on pay” proposals. These three proposals are: (1) the company’s overall executive compensation philosophy; (2) whether the board executed these principles appropriately in making its 2007 compensation decisions; and (3) the board’s application of its compensation philosophy and policies to the company’s 2008 performance objectives.

Canada Revises Its Executive Compensation Proposals

Recently, the Canadian Securities Adminstrators re-published their executive compensation disclosure proposals. The original proposals were made a year ago – and interestingly, many Canadian companies have already voluntarily changed their disclosures to match the proposals. Here is a memo explaining how the proposals have changed.

The PCAOB Speaks: Latest Developments and Interpretations

We have posted the transcript from our recent webcast: “The PCAOB Speaks: Latest Developments and Interpretations.”

– Broc Romanek

May 6, 2008

Sample: Wal-Mart Reacts to Advance By-Law Cases

In the wake of the two recent Delaware Chancery Court cases (Levitt Corp. v Office Depot; JANA Partners v. CNET) regarding advance by-laws, some companies are taking the memos posted in our “Advance By-Laws” Practice Area to heart. Essentially, the memos urge companies to specify in their Notice that the agenda item on director elections applies only to the election of director candidates described in the company’s proxy statement; not to nominations generally. For example, when Wal-Mart filed its proxy statement recently, it limited its state law notice to only those nominees “named in the attached proxy statement.” Compare Wal-Mart’s notice from last year.

Another example is the proxy statement filed by the Canadian company, Storm Cat Energy Corp. Interestingly, Storm Cat is incorporated in British Columbia, so it’s not directly impacted by the recent Delaware decisions. (By the way, it’s a cool name for a company, although I have a beef with them – when you click on “Annual Reports” on their IR web page, the 2005 glossy is the latest!)

J-SOX is On!

A few years in the making, Japan now has it’s own version of the Sarbanes-Oxley Act. The J-SOX rules became effective on April 1st and they apply to about 3,800 Japanese listed firms, their large subsidiaries and affiliates. The new rules are bound to have their own challenges. Learn more in our “J-SOX” Practice Area.

2008: The Year of the Hedge Fund Activist

Join tomorrow for the webcast – “2008: The Year of the Hedge Fund Activist” – to learn about the latest strategies and tactics used by hedge fund activists, as well as latest planning tips employed by those that seek to stave off these attacks. The panel includes:

– David Katz, Partner, Wachtell Lipton Rosen & Katz
– Ron Orol, Senior Writer, The Deal and The Daily Deal
– Damien Park, President & CEO, Hedge Fund Solutions, LLC
– Veronica Rendon, Partner, Arnold & Porter LLP
– Professor Randall Thomas, Vanderbilt University Law School
– Christopher Young, Director of M&A Research, RiskMetrics Group

The Williams Act – 40 Years Later!

On May 21st and 22nd, Georgetown University Law Center will be hosting a conference to commemorate the 40th anniversary of the adoption of the Williams Act takeover regulations. The speakers and panelists will include members of the SEC staff, academics, financial journalists, international takeover regulators, practitioners, bankers, and Delaware judges. It’s free – but you still need to register (here is the agenda). If you have questions, contact Larry Center at

Earlier that week, Corp Fin will be hosting a meeting of international takeover regulators at the Commission’s headquarters – so representatives from the UK, Germany, France, Hong Kong, Australia and Japan will likely be at the Georgetown conference, lunch and reception if you want to rub elbows with a group of regulators.

– Broc Romanek

May 5, 2008

Obtaining Staff Guidance: No-Action, Interpretive and Exemptive Requests

We just put the finishing touches and mailed the March-April ’08 issue of The Corporate Counsel, which includes guidance on the process for obtaining issuer-specific and interpretive guidance from the Corp Fin Staff. For those that haven’t tried a no-risk trial, try one now to get this issue rushed to you. In an upcoming issue, we will discuss the process for obtaining informal legal guidance and relief from Corp Fin’s Office of the Chief Accountant.

The March-April ’08 issue includes analysis of:

– Obtaining Staff Guidance Today
– Staff Response Process
– What Staff Relief Means
– The New 8-K Item 5.02 CDIs
– Current Disclosure of Cash Bonus, Etc. Plans (Item 5.02(e))
– Officer and Director Appointments, Resignations, etc. (5.02(b)–(d))
– Bebchuk’s Shareholder Proposal—Follow-Up
– Expect More Full 1934 Act Reviews
– Non-AFs—Failure to Include the SOX 404(a) Report in the 10-K
– SEC–0; Short Sellers–3—More Thoughts on Mangan, Etc.

Happy 6th Anniversary to Me!

Today marks six full years of blogging for me. It’s definitely personally and professionally rewarding, but it can tend to rule your life (but doesn’t cause death like this NY Times’ article intimates). That’s why I’m so glad Dave joined me on this blog last year.

And I’m excited that Steve Haas of Hunton & Williams has joined me on the blog. On Friday, Steve posted his first entry. Any other M&A practitioners out there interested in blogging? I’m hoping to add a half-dozen others willing to post something once or twice per month. If interested, give me a buzz or email me. You too can “be somebody”!

Nasdaq: Housekeeping the Rules

Recently, Nasdaq submitted a proposal to the SEC that would reorganize the rules applicable Nasdaq-listed companies. These rules would be moved from the Rule 4000 Series of the Nasdaq manual to the Rule 5000 Series – and would not change the substance of any rule. According to Nasdaq, the reorganization is necessary because the rules have become complex over time and difficult to navigate.

I applaud the Nasdaq for recognizing the need to clean up its “house.” We are in the process of doing the same for our sites, which have grown heavy with content over the years and are in need of some reorganization. Recently, and have undergone a “tune up.” Let us know if you have suggestions about how improve our sites.

– Broc Romanek

May 2, 2008

The E-Proxy Experience: Practice Pointers and Pitfalls to Avoid

The interest in our inaugural issue of has been overwhelming. As Yoda would say, investor relationships are very strong in this one.

No doubt that one reason for the interest is the lead article entitled “The E-Proxy Experience: Practice Pointers and Pitfalls to Avoid.” Sign-up for free copies of this new quarterly newsletter and see what you think of the pointers.

Broadridge’s Latest E-Proxy Stats

In our “E-Proxy” Practice Area, we have posted the latest e-proxy statistics from Broadridge. As of March 31st:

– 283 companies have used voluntary e-proxy so far (a big leap from 103 at the end of February – understandable since proxy season is in full swing)

– Size range of companies using e-proxy varies considerably; all shapes and sizes (eg. 25% had less than 10,000 shareholders)

– Bifurcation is being used more as the proxy season progresses (but still not all that much); of all shareholders for the companies using e-proxy, now over 10% received paper initially instead of the “notice only” (up from 5% last month)

– 0.45% of shareholders requested paper after receiving a notice; this average is down from 0.70% at the end of February

– 55% of companies using e-proxy had routine matters on their meeting agenda; another 30% had non-routine matters proposed by management; and 14% had non-routine matters proposed by shareholders. None were contested elections.

– Retail vote goes down dramatically using e-proxy (based on 92 meeting results); number of retail accounts voting drops from 19.0% to 4.5% (over a 75% drop) and number of retail shares voting drops from 31.4% to 13.9% (a 56% drop)

This recent WSJ article entitled “Shareholder Voting Declines as Companies Adopt Web Ballots” muses on various reasons why retail voting has declined when e-proxy is used. I doubt it’s a “temporary phenomenon as shareholders make the adjustment.”

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“Witches Brew”: SEC Accuses Trader of Rumormongering on Deal

As noted in this NY Times article on Friday (and this Wilson Sonsini memo), the SEC settled a case with a former securities who allegedly spread false rumors to profit from a pending buyout of Alliance Data Systems by the Blackstone Group (the deal tanked later due to other reasons). The SEC said this was its first “rumormongering” case.

According to the NY Times article, the trader allegedly “fabricated a rumor that Alliance Data’s takeover was being renegotiated to $70 a share from $81.75 a share. The trader said that Alliance Data’s board was meeting to discuss the revised proposal. At the time, Alliance Data’s board members were on a plane and could not be reached for comment.” Trading in Alliance Data’s stock was suspended due to heavy volume caused by the rumor, which the trader had sent via instant messages to 31 other traders and other market participants. He was short selling the stock at the time.

Reading the SEC’s complaint, it’s not clear if the trader knew that the board was on a plane and unavailable – my guess is that he didn’t know (and thus was unlucky because if they had been reached and quashed the rumor more quickly, the damages would have been reduced and perhaps this case wouldn’t have been brought or the penalty would be been less than the $130,000 he ended up paying).

In the SEC’s press release, SEC Chairman Cox noted ““The commission will vigorously investigate and prosecute those who manipulate markets with this witch’s brew of damaging rumors and short sales.” It will be interesting to see if the SEC’s Enforcement Division will be bringing more of these cases, particularly due to the heightened interest in hedge funds and their failures to adopt adequate insider trading compliance programs (see Dave’s recent blog on the SEC’s Section 21(a) Report involving the investigation of the Retirement Systems of Alabama).

– Broc Romanek

May 1, 2008

The SEC’s 2009 Budget: Same Ol’, Same Ol’

On the one hand, SEC Chairman Chris Cox has been under fire, mostly due to his comments just before the Bear Stearns deal was announced (and more generally due to the crisis on Wall Street). On the other, he is being mentioned as a possible running mate for John McCain, as noted in this ABC poll. This is the world of “inside the Beltway” in a nutshell.

In the face of the market crisis, Chairman Cox recently gave testimony before the House Subcommittee on Financial Services/Appropriations regarding the President’s proposed SEC budget for fiscal year 2009. Noting that the agency’s budget has not been increased for three years, Cox is seeking a 4% increase over two years. Trust me, this ain’t much because after taking inflation into account and the impact of pay raises, the head count for the Staff would remain basically the same.

It’s hard to imagine how the SEC will be able to regulate new markets (eg. rating agencies), delve into the complicated derivatives and securitization morass and chase the seemingly ever-increasing number of wrong-doers with its current level of staffing (this op-ed from yesterday’s NY Times by three former SEC Chairs agrees). Not to mention the challenges of integrating a global regulatory framework. If that’s not enough, maybe this will get your attention – there is a total of one person in the SEC’s Office of Risk Assessment today.

Even some in the government are skeptical that the President’s budget for the SEC makes sense. According to this article in the, the GAO will examine the SEC’s Enforcement Division to ensure it has adequate recources; looking at the SEC’s budget justification (page 13), you can see that the percentage of enforcement cases filed within two years of an inquiry first being made has markedly declined over the past few years. And in this speech, Senator Reed discusses his views on the topic.

SEC Filing Fees: Going Way Up

In yesterday’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 $55.80 per million from $39.30 per million of securities registered with the SEC.

This is a 42% hike, after a 28% hike last year. Before this period, there had not been a hike for quite some time. Note that there is no mention in the SEC’s press release of a reason for the hike. Actually, the press release doesn’t even mention that this is a hike from last year (but we still remember how Chairman Cox was quite proud of the steep drop in ’06, with a lot of fanfare in that press release). You may recall that 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.

The Leap Year Curse

In typical leap year fashion, word on the street is that many companies missed the 120-day proxy filing deadline on Tuesday. Apparently, some service providers had the due date as Wednesday on their “filing calendar.” Yikes, a “failure to communicate“?

– Broc Romanek