Monthly Archives: October 2008

October 31, 2008

Keeping an Eye on Counterparty Credit Risks

Depressed stock prices inevitably raise the temptation for stock buybacks, and recently a number of large buybacks have been announced. Further, the SEC recently sought to encourage repurchase activity by temporarily relaxing the timing and volume conditions of Rule 10b-18. Stock buybacks remain controversial, however, and it is likely that the benefits and costs of buybacks will continue to be debated in these volatile times.

One approach to buybacks that has emerged over the past few years is the “accelerated share repurchase program” or “ASR.” (For a description of ASR programs, take a look at this blog from earlier this year.) In a recent research piece, Michael Gumport, Founding Partner of MG Holdings/SIP, notes that counterparty credit risk is potentially a big consideration in entering into ASR programs. In the piece, Mike notes that “[i]n light of current economic dislocations, companies contemplating execution of complex ASRs (or with ASRs in progress) ought to weigh whether counterparty risk is attached and, if so, the adequacy of compensation.”

I think that this piece highlights the need to evaluate counterparty credit risk in a wide variety of transactions where previously the future performance of the institutional counterparty was pretty much taken as a given. Today, the assessment of counterparty credit risk is complicated by concerns about credit ratings, which often serve as the basis for evaluating risk, and (as demonstrated by Bear Stearns and Lehman Brothers) the extent to which circumstances can change very rapidly. As companies consider their overall risk management practices, the continuous evaluation of counterparty risks of all kinds needs to be high on the list of priorities.

Mark-to-Market Roundtable

On Wednesday, the SEC held its first of two roundtables on mark-to-market accounting. The purpose of the two roundtables is to develop information for the study of fair value accounting that was mandated by the Emergency Economic Stabilization Act. Wednesday’s roundtable was focused on how fair value is used by financial institutions.

In his opening remarks at the roundtable, Chairman Cox noted:

“As we begin our panel discussions, it is important to keep firmly in mind the primary role of financial reporting as a direct communication with investors. Financial reporting serves several other purposes as well, including its use by safety and soundness regulators of financial institutions. Because of the many uses of financial information, today’s topic is not simply an accounting matter. It is important that these differences between the uses of financial information by investors, regulators, and businesses themselves, among others, be recognized and appreciated.”

Earlier this week, Robert Denham, Chairman of the Financial Accounting Foundation (which is responsible for oversight of the FASB) sent a letter to Chairman Cox asking that the SEC not bow to the pressure being put on fair value accounting, noting that “it would be detrimental to investor confidence to overturn a FASB standard or otherwise suspend or restrict independent standard-setting activities of the FASB in the current environment and in response to political pressure from some financial industry groups.”

A Blow to F-Cubed Litigation?

We have posted several memos in our “Securities Litigation” Practice Area concerning the recent decision of the Second Circuit Court of Appeals in the case of Morrison v. National Australia Bank Ltd., No. 07-0583-cv, 2008 (Oct. 23, 2008). This case is notable because it has now provided some clarification on issues concerning the extraterritorial reach of the US federal securities laws that have arisen in a recent rash of “f-cubed” litigation, where foreign investors sue foreign issuers over losses incurred on foreign securities exchanges.

At the invitation of the Second Circuit, the SEC filed an amicus brief in this case which supported the views of the plaintiffs.

– Dave Lynn

October 30, 2008

A New Chapter in the CSX Dispute

As noted in this WSJ article, a Section 16(b) claim has been filed against the two hedge funds that were locked in a dispute with CSX Corp. earlier this year. A CSX shareholder has filed suit against The Children’s Investment Fund Management and 3G Capital Partners, seeking to recover (on behalf of CSX and its shareholders) alleged short swing profits arising from the funds’ transactions in CSX securities and derivatives. This could be a very interesting case, as was the earlier litigation, which focused attention on the funds’ use of derivatives in the contest for control of CSX.

Posted: More Memos on Expiring Shelf Registrations

As Broc noted in the blog last summer – and as we recently covered in the latest issue of The Corporate Counsel in the context of the recent sharp decline in stock prices – the clock is ticking on issuers who will have shelf registrations expire soon under the 3-year sunset provision of Rule 415(a)(5). We have been posting lots of memos on this topic in our “Form S-3” Practice Area. Be sure to check them out before it is too late!

The Rise of Sovereign Fund Investing

We have posted the transcript from our popular webcast: “The Rise of Sovereign Fund Investing.”

What Are You Going to Be for Halloween?

Sadly, Halloween has become almost a non-event in my household this year. I think that this is the first time in a few years that I did not get a Halloween costume for myself, so I won’t be wandering around the neighborhood tomorrow as Jack Sparrow, Darth Vader or Chewbacca. Plus, I was disappointed that my local costume shop didn’t have any Hank Paulson masks. Maybe next year…

Online Surveys & Market Research

– Dave Lynn

October 29, 2008

CD&A at a Crossroads

With November just around the corner and, for many companies, perhaps the last compensation committee meeting of the year scheduled in the next two months, it is now critically important to start thinking about your Compensation Discussion & Analysis for the 2009 proxy statement. There is still time for companies and compensation committees to take appropriate actions that can serve as the foundation for the analytical disclosure in the CD&A that the SEC and others expect. Many of these actions were discussed in detail last week at our two conferences, “Tackling Your 2009 Compensation Disclosures: The 3rd Annual Proxy Disclosure Conference” and the “5th Annual Executive Compensation Conference,” as well as at the “16th Annual NASPP Conference.”

To kick off the CD&A panels at the 3rd Annual Proxy Disclosure Conference, I noted my view that CD&A is really at a crossroads this coming proxy season. In many ways, the 2009 proxy season will likely determine whether CD&A slides into irrelevance like its predecessor, the old Board Compensation Committee Report, or whether it will finally provide the crucial analytical background to the compensation numbers that was intended all along. I don’t think that the possibility for irrelevance is overblown – complaints are surfacing that institutional investors are skipping over CD&A and going straight to the compensation tables, because they are not finding useful information presented in the CD&A. This trend was confirmed by Pat McGurn and others on “The Investors and Proxy Advisors Speak” panel at the 3rd Annual Proxy Disclosure Conference. This trend, in my view, can only lead to trouble, because investors are only getting part of the story if they skip the explanation and rationale that is supposed to be included in the CD&A.

Several factors will certainly contribute to the focus on CD&A in 2009 and beyond. If some form of say-on-pay is enacted and investors are given the opportunity to cast an advisory vote on the CD&A and the other compensation disclosures, then what is said this next proxy season will be an important backdrop for voting decisions, even if mandatory say-on-pay votes don’t occur until 2010. Further, while the recent Emergency Economic Stabilization Act and the TARP program implementing that legislation included executive compensation provisions that are only applicable to participating financial institutions, the existence of these provisions in the federal legislation are reason enough to compel companies to consider taking action now on executive pay concerns – whether analogous to the Act’s provisions or in other areas that remain a significant focus of investor criticism. As Broc noted in the blog last week, John White’s speech at our 3rd Annual Proxy Disclosure Conference included White’s views on how the executive compensation provisions of the TARP may be instructive for other companies on how they should approach their executive compensation programs. Finally, with 2008 being a year when many companies faced significant challenges given the markets and the economy, all eyes will be on the CD&A in the 2009 proxy to see what compensation committees did do – or did not do – to address executive pay in the face of difficult conditions.

It may be that we now find ourselves at a broader tipping point on executive pay, marked by the recognition of some pay excesses in recent federal legislation and a clearly rising level of anger among investors over how compensation decisions may have contributed to the current situation.

Now it is up to all boards and their advisors to take the public and shareholder anger to heart when making compensation decisions. These developments make this year very different from what we have been dealing with in the past. As a result, disclosures must be different, and the company and compensation committee actions described in those disclosures need to be different. I don’t think that this is a situation where you can just look at the disclosure in a vacuum and try to tweak it here are there – there needs to be some deep consideration in the next two months as to how the compensation policies and decisions are going to be explained to investors in 2009.

For more on John White’s speech and how executive compensation disclosure should be changing in 2009, take a look at Mark Borges’ initial blog and follow-up blog on the 3rd Annual Proxy Disclosure Conference.

Waxman Seeks Wall Street Compensation Data

In a sure sign of how much things have changed, the focus on excessive compensation seems to be shifting from the executive suite to the broader employee population at those major financial institutions receiving an infusion of government money. In the wake of press reports on Monday about the size of Wall Street bonuses this year, Henry Waxman (D-CA), Chairman of the House Committee on Oversight and Government Reform, sent letters to nine major banks seeking detailed data about overall employee compensation at the banks. In the letter, Waxman states: “While I understand the need to pay the salaries of employees, I question the appropriateness of depleting the capital that taxpayers just injected into the banks through the payment of billions of dollars in bonuses, especially after one of the financial industry’s worst years on record.” Chairman Waxman asks that the information be provided no later than November 10, 2008.

For more on this development, see Broc’s entry today in The Advisors’ Blog on

More Executive Compensation Data in XBRL Format

Last week, a company by the name of Xtensible Data announced that its recently released interactive data website now includes 2006 and 2007 executive compensation data reported in XBRL for more than 4000 companies. This is a significantly greater data set than the SEC provides in its own executive compensation viewer, which only includes 2006 data for 500 large companies.

Like the SEC’s viewer, Xtensible Data’s Corporate Pay interactive tool focuses on the information provided in the Summary Compensation Table. The data is based on information from public filings, and the company has converted the data from HTML or standard text into an interactive XBRL format. The database can be searched based on company name and ticker, stock index, and industry, and the results can be sorted by each column of the Summary Compensation Table, and filtered by executive type and fiscal year. The method used to determine the value of stock and option awards may also be selected by the user. The Corporate Pay tool also allows users to graph the executive compensation information (including comparative graphs) and the data may be downloaded into Excel.

– Dave Lynn

October 28, 2008

The Perils of Pledging

One of the topics discussed several times at last week’s “Tackling Your 2009 Compensation Disclosures: The 3rd Annual Proxy Disclosure Conference” and the “5th Annual Executive Compensation Conference” was pledging of securities by executives, typically done under margin arrangements. A NY Times article from last week was among the latest media reports to note the rise in insider sales of securities necessary to satisfy margin requirements. The article notes the inadequacy of disclosure regarding pledged securities, despite the fact that the SEC specifically required disclosure of pledged shares in the Beneficial Ownership Table when it adopted the 2006 amendments to the executive compensation disclosure requirements.

Volatility in the stock market will continue to drive this trend – along with all of its potential pitfalls for executives and their companies. Because company stock may be pledged as collateral for margin on an account where an executive maintains a more diversified portfolio of securities, broad market swings can result in margin calls and the forced liquidation of company securities even in situations where the company’s share price remains relatively stable. Unfortunately, this issue may often be a “blind spot” in company policies on stock ownership, insider trading, codes of conduct, etc. As a result, many companies will need to re-examine this issue in light of the current turmoil – and before year-end – so that any necessary changes can be highlighted in the Compensation Discussion & Analysis for the 2009 proxy statement.

Look for more on this critical topic in the upcoming issue of The Corporate Executive. If you aren’t a subscriber to The Corporate Executive, take advantage of a “Rest of ’08 for Free” no-risk trial. If you are a current subscriber, be sure to renew for ’09 since all subscriptions are on a calendar-year basis.

A Banner Year for SEC Enforcement?

Last week, the SEC announced that the agency had the second highest number of enforcement actions take place in fiscal 2008, with 671 actions brought through the September 30, 2008 end of the fiscal year. The glowing press release notes that the SEC brought the highest number ever of insider trading cases during fiscal 2008, as well as a sharp increase in the number of market manipulation cases. The press release also notes the obvious uptick in Foreign Corrupt Practices Act cases, with 15 such cases filed in 2008 and a total of 38 FCPA cases brought since January 2006. Interestingly, the press release does not note how many cases the agency brought to suspend trading in and/or revoke the registration of delinquent filers, which has been a significant focus (in terms of the number of cases) over the past few years. The SEC notes that, for a second year in a row, more than $1 billion was returned to harmed investors through Fair Funds distributions.

The Division of Enforcement and the Commission’s attitude toward Enforcement matters have been under quite a lot of scrutiny recently, so it is good to still see these impressive numbers. While much might be made of the mix of cases that the SEC has brought (i.e., too much insider trading and not enough accounting fraud), it is important to keep in mind that priorities change over time and the agency always has to make due with its limited resources by focusing its enforcement efforts. Further, the Enforcement process – even with the many improvements made in recent years – remains relatively slow and will lag to a great extent the issues that are in the immediate public consciousness. All in all, these results should be taken as a positive sign that the SEC remains “on the beat.”

Unfortunately, the same might not be said for the FBI in its efforts to investigate financial fraud. This NY Times article notes that the FBI’s staff of white collar investigators shrank as the agency’s role shifted toward terrorism and intelligence. Most disturbing is the possibility that the shrinking ranks of white collar investigators may have thwarted efforts to investigate financial fraud occurring in the housing market in 2003 and 2004, when perhaps the criminal authorities could have made a real difference in how the financial crisis ultimately played out.

PCAOB Proposes Audit Risk Standards

Last week, the Public Company Accounting Oversight Board announced seven proposed auditing standards relating to “the auditor’s assessment of and responses to risk.” The PCAOB notes that these proposed standards would supersede the interim auditing standards related to audit risk and materiality, audit planning and supervision, consideration of internal control in an audit of financial statements, audit evidence, and performing tests of accounts and disclosures before year end. These new standards are all built around the concept of audit risk, which is the risk that an auditor will express an inappropriate opinion when financial statements are materially misstated. The titles of the proposed standards are:

– Audit Risk in an Audit of Financial Statements
– Audit Planning and Supervision
– Identifying and Assessing Risks of Material Misstatement
– The Auditor’s Responses to the Risks of Material Misstatement
– Evaluating Audit Results
– Consideration of Materiality in Planning and Performing an Audit
– Audit Evidence

The proposals are out for a generous 120-day comment period, ending February 18, 2009.

– Dave Lynn

October 27, 2008

Dave’s New Journey

During our Conferences, I announced that my co-blogger – Dave Lynn – would be taking on a new role as a Partner for Morrison & Foerster, working out of their DC office. We are happy for Dave, particularly because he also will continue to work with us. So you will continue to see him on our sites and print publications – just like Alan Dye splits time with Hogan & Hartson and us.

Not only is Dave a great guy, but he truly is a securities law genius. In my unique role setting up numerous conferences and panels over the years, I’ve worked with all the greats and I can honestly say I’ve never seen anyone quite like Dave. And I’m not the only one who thinks so, many of the greats regularly confer with Dave even though they have more experience. So seek Dave out in his new capacity if you need smart counsel.

Catch-Up Now: Register for Video Archive of the Executive Compensation Conferences

You will be hearing quite a bit from your clients and colleagues about last week’s “Tackling Your 2009 Compensation Disclosures: The 3rd Annual Proxy Disclosure Conference” and the “5th Annual Executive Compensation Conference.”

Not only was John White’s speech noteworthy, but every panel made an effort to provide practical implementation guidance for the challenges ahead of us. And given the likelihood that say-on-pay legislation will be adopted soon that will require shareholder votes on executive pay in 2010, the importance of your upcoming proxy disclosure can’t be overstated as investors will use that when they decide whether to include your company on a “watch list” and set your company on a path to not earn shareholder approval. You can still catch-up and register to watch the archived video of the Conferences (and obtain the critical Course Materials).

The Sights & Sounds of the Executive Compensation Conferences

Over 1800 Watch John Olson and Crew

The plenary session for the “5th Annual Executive Compensation Conference” was large (with several thousand more online):

The “We Want Heat” Chant

It got a little nippy during the “3rd Annual Proxy Disclosure Conference,” so I led the audience in a chant:

Baker & McKenzie’s Voodoo Dolls

Our Conference swag is always among the best; this year’s breakout hit was Baker & McKenzie’s voodoo dolls. Attendees were trading them like crazy:

Shiny Swag from Citi Smith Barney

Perfect for New Orleans – so shiny:

Merrill Lynch’s Photos

Many service providers took out clients after our receptions (one hired Howie Mandel for a private gig; another hired the singer Jewel). On Wednesday night, three different parades with marching bands left the hotel to private events. The hotel said that was two more than any other conference held there. Merrill Lynch provided keepsakes for their clients:

‘Living Room’ Exhibit Space

This exhibit booth from Stock & Options Solutions was the coolest I’ve seen in years:

Dude Singing ‘Time to Go’

My personal favorite moment was this dude telling the folks in the exhibit hall that the panels were back in session. Rather than ring a bell, he sang the schedule and more:

– Broc Romanek

October 24, 2008

Rock Bottom: Here We Come…

As I get on the plane to leave our Conferences in New Orleans, CNBC has this headline on its site: “Furious Stock Selloff Takes Historic Tone.” I believe we are just at the beginning of a dramatic restrucuring of our financial markets, particularly our regulatory framework. I know this is not going out on a limb at this point, but it bears repeating as we all think about our own career paths and immediate situations.

Yesterday’s US Senate Committee on Oversight and Government Reform hearing on the future of regulation was predictably sobering. Former Fed Reserve Alan Greenspan was grilled by angry Senators and Greenspan said he made a mistake for being too deregulatory. Here is the testimony from SEC Chair Chris Cox.

I know there is plenty to blog about regarding daily headline developments, but we are going to try to blog about the many other developments that impact the “bread and butter” of our members’ daily practices – partly to keep the tone from being so darn depressing…

Despite Conviction: Advancement Rights Continue Through Appeal

Travis Laster notes: In Sun Times Media Group v. Black, issued back on July 30th, Delaware Vice Chancellor Strine resolved a single question: Is a guilty verdict a “final disposition” for purposes of mandatory advancement rights, or do advancement rights continue through post-conviction proceedings and appeal? In a thorough 47-page opinion, the Vice Chancellor holds that advancement rights continue until the decision is truly final and not subject to potential reversal on appeal.

This decision resolves an issue that has arisen with increasing frequency in recent years, as corporations have bridled at providing advancements to individuals they believed had breached their fiduciary duties or engaged in bad or even criminal conduct. After a series of decisions from the Court of Chancery making clear that the corporation’s beliefs as to such matters were not a basis to cut off mandatory advancement rights, corporations began to focus on events that might otherwise provide a cutoff point, with guilty pleas and criminal convictions serving as the leading candidates.

In Sun Times, Vice Chancellor Strine holds that advancement rights continue through appeal based on the plain language of Section 145, Delaware public policy, and the unworkable regime that would result from advancement rights that started or stopped at each phase of a proceeding. Prior to this opinion, practitioners had only the language of Section 145 and two transcript rulings from scheduling conferences for guidance. Although these authorities pointed strongly in favor of the outcome reached in Sun Times, the issue has now been definitively resolved.

As I noted in discussing the recent CA decision, the next round on mandatory advancement rights likely will involve a board arguing that a mandatory advancement bylaw cannot compel the directors to provide advancements if they believe that by doing so they would breach their fiduciary duties. This argument was not viable under prior advancement decisions, but it could be asserted in good faith after the Supreme Court’s broad language against mandatory bylaw provisions set forth in CA. The argument also could be made to challenge a contract-based advancement right, but in my view remains non-viable against charter-based advancement rights.

Introducing the Lead Director Network

In this podcast, Jeff Stein of King & Spalding discusses a new group for lead directors, presiding directors and non-executive board chairs, called the “Lead Director Network” (see the LDN’s first issue of Viewpoints) including:

– What is the Lead Director Network?
– What is the exact purpose of the Network? For example, will the Network engage in advocacy on behalf of corporate directors or boards? Why do members choose to participate in the Network?
– So who are the initial members of the Network?
– How does the Lead Director Network differ from other director organizations (for example, NACD and the Millstein Center’s independent chair’s group)?
– What topics did the members of the Network cover in their first meeting, held this past July?
– What are the some of the topics that may be addressed by the Lead Director Network in the future? What do you see on the horizon for the Lead Director Network?

– Broc Romanek

October 23, 2008

Economic Crisis Impacts: Disclosure in 1934 Act Reports

In the September-October issue of The Corporate Counsel – which was just mailed – the primary focus is on issues you need to consider for your upcoming Forms 10-Q and 10-K. It’s a great issue, which includes pieces on:

– Economic Crisis Impacts: Disclosure in 1934 Act Reports
– More Meltdown Fallout—Falling Share Prices Can Affect S-3 Eligibility, WKSI Status, Listing
– SEC Regulation of Investment Banking—R.I.P.
– Legal Opinions in Rule 14a-8 No-Action Letter Requests
– Rule 701 Heads-Ups—Measurement Date(s) for Restricted Stock/RSUs
– New 1934 Act CDIs—Staff Confirms 10-K Delinquency Date Where Issuer Doesn’t File Proxy Statement Within 120 Days After Yearend
– The Recent Short Sale Ban—Impact on Counterparty Transactions
– A Few More Meltdown Thoughts
– It’s Here! Lynn, Romanek & Borges’ Executive Compensation Treatise

If you aren’t a subscriber yet, take advantage of a “Rest of ’08 for Free” no-risk trial to have this issue sent to you immediately. Current subscribers will want to start renewing for ’09 since all subscriptions are on a calendar-year basis.

Trends: Retail Ownership Continues to Drop

Not a big surprise that the concentration of ownership of US companies among institutional investors continues to grow, but it’s nice to get confirmation of this trend via this Conference Board press release with plenty of statistics, including that retail ownership of US stocks has fallen to a record low of 34% of all shares and 24% for the top 1,000 companies at the end of 2006.

Fallout from the Market Dip: Preferred Shareholders Sue

In his “D&O Diary” Blog, Kevin LaCroix notes how preferred shareholders have begun securities class action lawsuits for the first time.

– Broc Romanek

October 22, 2008

John White: Musing on How TARP May Impact All Executive Compensation Disclosures (Not Just Big Banks)

At our “3rd Annual Proxy Disclosure Conference” yesterday, Corp Fin Director John White delivered an important speech – entitled “Executive Compensation Disclosure: Observations on Year Two and a Look Forward to the Changing Landscape for 2009” – during which John talked briefly about how the TARP’s executive compensation provisions could potentially spill-over and impact the many companies not directly subject to TARP. Specifically, John addressed the TARP provision that requires participating financial institution’s compensation committees to meet with the senior risk officers of the institution to ensure that the incentive compensation arrangements do not encourage the senior executive officers to take “unnecessary and excessive risks that threaten the value of the financial institution.” Here is an excerpt from John’s remarks on this topic:

Most of you are not from financial institutions, so let’s talk for a moment about non-participating companies. This new Congressionally-mandated limitation on having compensation arrangements that could lead a financial institution’s senior executive officers to take unnecessary and excessive risks that could threaten the value of the financial institution obviously applies on its face only to participants in the TARP.

But, consider the broader implications and ask yourself this question: Would it be prudent for compensation committees, when establishing targets and creating incentives, not only to discuss how hard or how easy it is to meet the incentives, but also to consider the particular risks an executive might be incentivized to take to meet the target — with risk, in this case, being viewed in the context of the enterprise as a whole? I’ll let you think about what Congress might want. We know what our rules require. That is, to the extent that such considerations are or become a material part of a company’s compensation policies or decisions, a company would be required to discuss them as part of its CD&A. So please consider this carefully as you prepare your next CD&A.

Also, more broadly speaking, I expect that current market events are already affecting many companies’ compensation decisions and thus should be affecting the drafting of their upcoming CD&A’s. Regardless of whether your company participates in the TARP and consequently finds itself having to make new material disclosures, you should not merely be marking up last year’s disclosure. Instead, you should be carefully considering if and how recent economic and financial events affect your company’s compensation program.

For example, have you modified outstanding awards or plans, or implemented new ones? Have you reconsidered the structure of your program, or the relative weighting of various compensation elements? Have you waived any performance conditions, or set new ones using different standards? Have you changed your processes and procedures for determining executive and director pay, triggering disclosure under Item 407? These questions and more should be addressed as you consider disclosure for 2008.

Corp Fin’s ’09 Narrowly Selected Review of Executive Compensation Disclosures

Regarding Corp Fin’s review of compensation disclosures filed during the upcoming proxy season, John said this during his speech:

We also are looking at how we will shape our Corporation Finance review program for 2009 in light of recent market events, including the new executive compensation provisions in TARP and continued investor interest in executive compensation. As you know, our selective review program is guided by Section 408 of Sarbanes-Oxley, which requires that we review all public companies on a regular and systematic basis, but in no event less frequently than once every three years. The Act also sets out criteria for us to consider in scheduling these regular and systematic reviews, including considering companies that “experience significant volatility in their stock price,” companies “with the largest market capitalizations,” and companies “whose operations affect any material sector of the economy.” As you also will recall, in 2007 we did a targeted review of the executive compensation disclosure under our then-new rules for 350 companies of all sizes.

Our plan for 2009 will be responsive to current conditions. In 2009 we will select for review and review the annual reports of all of the very largest financial institutions in the U.S. that are public companies. This group will include the nine large financial institutions that have already agreed to participate in the Treasury’s capital purchase program. Our reviews will include both the financial statements and the executive compensation disclosures of these companies. We also intend to monitor the quarterly filings on Form 10-Q and current reports on Form 8-K of these companies.

Today: “5th Annual Executive Compensation Conference”

Today is the “5th Annual Executive Compensation Conference.” Note you can still register to watch online – and note that the archived video for yesterday’s “3rd Annual Proxy Disclosure Conference” is now available.

How to Attend by Video Webcast: If you are registered to attend online, just log in to or to watch it live or by archive (note that it will take about a day to post the video archives after it’s shown live). A prominent link called “Enter the Conference” on the home pages of those sites will take you directly to today’s Conference.

Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for or If you are experiencing technical problems, follow these webcast troubleshooting tips. Here is the Conference Agenda; times are Central.

How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online – and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic “prompts” all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except Pennsylvania (but hours for each state vary; see the list for each Conference in the FAQs).

– Broc Romanek

October 21, 2008

Today: “Tackling Your 2009 Compensation Disclosures: The 3rd Annual Proxy Disclosure Conference”

Today is the “Tackling Your 2009 Compensation Disclosures: The 3rd Annual Proxy Disclosure Conference”; tomorrow is the “5th Annual Executive Compensation Conference.” Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our Staff (but you can still interface with them if you need to).

How to Attend by Video Webcast: If you are registered to attend online, just log in to or to watch it live or by archive (note that it will take about a day to post the video archives after it’s shown live). A prominent link called “Enter the Conference” on the home pages of those sites will take you directly to today’s Conference.

Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for or If you are experiencing technical problems, follow these webcast troubleshooting tips. Here is the Conference Agenda; times are Central.

How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online – and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic “prompts” all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except Pennsylvania (but hours for each state vary; see the list for each Conference in the FAQs).

How Directors Can Earn ISS Credit: For those directors attending by video webcast, you should sign-up for ISS director education credit using this form. This is meant to facilitate providing information to ISS; they are the ones in charge of accreditation and any disputes will need to be taken up with them.

Soliciting Queries for Our “Compensation Consultants Speaks” Panel

Among the more popular panels during Wednesday’s “5th Annual Executive Compensation Conference” will be the panel entitled “The Consultants Speak: Straight Talk from the Top Experts.” I am soliciting issues or questions to be addressed by the panel if you want to shoot me an email beforehand (they will be posed anonymously).

Moral Hazard and Executive Compensation

Setting the tone for our big executive compensation conferences, we have posted an important new alert on from Fred Cook, founder of Frederic W. Cook & Co. In his piece – “Moral Hazard and Executive Compensation” – Fred addresses what moral hazard means and lays out a number of steps that you can take to mitigate it. We strongly urge you to read this piece and show it to your CEO and directors.

– Broc Romanek

October 20, 2008

Here They Come: First Batch of North Dakota Reincorporation Proposals

In response to a no-action request, the SEC’s Corp Fin Staff recently decided that Hain Celestial could not exclude a shareholder proposal calling for the company to reincorporate to North Dakota from its proxy statement (the company had hoped to exclude the proposal on procedural grounds; there don’t appear to be substantive grounds to argue for exclusion). Hain Celestial is incorporated in Delaware; the other two companies with this proposal so far – Oshkosh and Whole Foods – are incorporated in Wisconsin and Texas, respectively. Here is a copy of the proposal.

More companies can expect this type of proposal this proxy season as proponents attempt to leverage the North Dakota Publicly Traded Corporations Act, enacted in mid-’07 to provide for a host of shareholder-friendly measures (as noted in this blog).

As noted in this Reuters article, hold-til-retirement and say-on-pay will be two popular shareholder proposals topics during this proxy season as investors turn their attention to pay practices that encourage excessive risk-taking.

An Opportunity to Comment on RiskMetric’s ’09 Proxy Policies

Last week, RiskMetrics’ ISS Division put up a “Request for Comment” for a number of potential modifications to its policies for 2009. Take advantage of this opportunity to influence these important proxy voting policies through an easy-to-use online form. This year, the topics include:

– Poor Accounting Practices (U.S.)
– Discharge of Directors (Europe)
– Independent Chair (U.S.)
– Names of Director Nominees Not Disclosed (Global)
– Net Operating Loss Poison Pills (U.S.)
– Peer Group Selection for Executive Compensation Comparisons (U.S.)
– Poor Pay Practices (U.S.) Pay for Performance (U.S.)
– Corporate Social Responsibility Compensation Related Proposals (U.S.)
– Share Buyback Proposals (Global)

This Gibson Dunn memo summarizes RiskMetrics’ proposed policy changes. In addition, RiskMetrics has made these survey results from institutional investors available.

How Do You Feel About the Upcoming Proxy Season?

Online Surveys & Market Research

– Broc Romanek