We recently wrapped up our Quick Survey on analyst “quiet period” practices. Below are our results:
1. Our company:
– Has a separate policy addressing quiet periods for analysts – 12.1%
– Has a policy addressing quiet periods for analysts, but it is part of our Regulation FD policy – 39.4%
– Has a policy addressing quiet periods for analysts, but it is part of our insider trading policy – 12.1%
– No, our company doesn’t have a policy addressing quiet periods for analysts – 36.4%
2. Our quiet period policy for analysts provides that the quiet period commences:
– More than three weeks before an earnings announcement – 10.4%
– Between two-three weeks before an earnings announcement – 25.0%
– Less than two weeks before an earnings announcement – 8.3%
– More than two weeks before a quarter ends – 8.3%
– Between one-two weeks before a quarter ends – 22.9%
– One week or less before a quarter ends – 6.3%
– Exactly when a quarter ends – 14.6%
– Sometime after a quarter ends – 4.2%
3. Our quiet period policy for analysts is:
– Has the exact same parameters as our trading blackout period (ie. when insiders are prohibited from making trades in the company’s stock) – 53.6%
– Has different parameters than our trading blackout period, as the quiet period for analysts commences at least two weeks earlier – 8.9%
– Has different parameters than our trading blackout period, as the quiet period for analysts commences between one-two weeks earlier – 5.4%
– Has different parameters than our trading blackout period, as the quiet period for analysts commences later than the blackout period – 14.3%
– We don’t have a quiet period policy for analysts – 17.8%
Don’t forget that the deadlines for Forms 5, 13G, and 13F this year falls on Tuesday, February 17th since Monday is a holiday.
Board Portal Developments
In this podcast, Joe Ruck of BoardVantage explains how the board portal processes have changed to make them more effective, including:
– What has changed since we spoke last year?
– How is the market for board portals evolving?
– Any surprises in terms of how boards use them lately?
– What are the latest developments for BoardVantage?
– How is BoardVantage affected by the financial crisis?
What Will the Future Bring for the SEC?
With the US Chamber of Commerce the latest in recommending changes to the SEC (see the other ideas in our “Regulatory Reform” Practice Area), it’s interesting to see what members thought during last week’s poll on what they think should happen with the SEC. Here are the results:
Now that the Senate has passed a bill with executive compensation restrictions that are dramatically different than the new set of Treasury guidelines that were just adopted last week, confusion reigns (within the 780-page “American Recovery and Reinvestment Act” is the Senate’s own set of executive compensation standards in Title VI of Division B; I could only find the bill on “Thomas“).
Try reading the Senate’s executive compensation provisions (here’s a memo outlining them; Mark Borges has provided an outline in his blog) – and you’ll get the feeling that various Senators got to insert their own random provisions because they don’t seem to work together. Hopefully this will get fixed during the House-Senate conferencing before this hodge-podge becomes law.
Meanwhile, in an effort to distance itself from the perceived failures of the recent past, the Obama Administration renamed TARP as the “Financial Stability Plan.” TARP, we hardly knew ye! But the markets reacted like it was more of the same.
Below is a brief summary of the Financial Stability Plan from Cleary Gottlieb:
The four-prong plan incorporates most major elements rumored in the press, but provides few details and leaves key questions unanswered.
– More Capital Assistance for Banks: Banks with over $100 billion in assets will undergo a regulatory “stress test” and then will be eligible to receive a preferred security investment from Treasury through the Capital Assistance Program (“CAP”). Smaller institutions will be eligible for CAP after a supervisory review. Securities will be convertible to common by the issuer at a modest discount to the February 9, 2009, market price. Stock purchased under CAP will be held in a newly created Financial Stability Trust.
– Public-Private Investment Fund to Buy Troubled Assets: Treasury (together with the FDIC and the Federal Reserve) will initiate a Public-Private Investment Fund to acquire “legacy” assets weighing down banks’ balance sheets, although Treasury is still exploring how to structure the fund. The fund is initially pegged at $500 billion, but could be expanded to $1 trillion. In later Senate Banking Committee testimony, Secretary Geithner emphasized that the fund is intended to kick-start a private market, not provide a Resolution Trust Corporation-type solution. Notably, the announcement did not address pricing concerns, the issue that has bogged down previous asset purchase proposals, saying only that the program would allow private sector buyers to set their own prices. In later remarks, the Secretary noted that he is unwilling to let the government subsidize the financial sector by overpaying for assets.
– Consumer and Business Lending Initiative—Expanding the Federal Reserve’s Term Asset-Backed Securities Lending Facility (“TALF”): The TALF program, announced last November but not yet implemented, will be expanded in both size and scope. Under TALF, the Federal Reserve Bank of New York will make non-recourse loans to eligible participants fully secured by eligible newly packaged AAA asset-backed securities. TALF could grow substantially, using $100 billion of Treasury funding to provide up to $1 trillion in new lending. In addition, eligibility will be expanded beyond securities backed by student loans, credit card debt, small business and auto loans to include commercial mortgage-backed securities and possibly other assets.
– Housing and Small Business Initiatives: Details of a comprehensive housing program will be announced in the new few weeks. The program likely will include use of TARP funds for foreclosure prevention efforts, national loan modification guidelines, and continued support for purchases of GSE mortgage-backed securities and debt by the Federal Reserve. CAP recipients will be required to participate in foreclosure mitigation programs consistent with Treasury guidelines. Treasury and the Small Business Administration plan to take steps to encourage small business lending, including financing purchases of AAA-rated SBA loans and supporting legislation that would increase SBA loan guarantees.
There will also be new requirements and conditions, including public reporting of detailed lending data and executive compensation limits, imposed on banks that receive CAP funds or exceptional assistance going forward. The Treasury announcement states that these standards will not be retroactive.
The Treasury Department also decided to launch a new site, FinancialStability.gov. The site sure ain’t no beauty and seems as rushed as the FSP. It opens with “This site is coming soon,” even though a few items have already been posted, including this fact sheet and Treasurer Geithner’s remarks announcing the new plan. I imagine this new site will be redundant with Treasury’s site, where all the TARP documents have been posted to date.
The Corporate Executive: January-February Issue Mailed
We have now mailed the full January-Febuary issue of The Corporate Executive (along with the Special Supplement with our Model CD&A). The issue includes pieces on:
– ESPPs—Opportunities in Today’s Environment
– Making Sure Your Stock Options Are Eligible for the 409A Corrections Program
– More Model Disclosures: Compensation Risk Disclosures
As all subscriptions are on a calendar-year basis, if you haven’t renewed yet, renew now to receive it immediately. If you aren’t yet a subscriber, try a no-risk trial for ’09 now.
Yesterday, SEC Enforcement Director Linda Chatman Thomsen resigned – with the lead candidate for replacement being former prosecutor Robert Khuzami, now a top Deutsche Bank lawyer.
This is not unexpected given the crisis that the SEC faces and the resulting stain on its reputation. Even if Linda is thought of as a solid performer – and I personally think she is – it’s smart of Chair Schapiro to “clean house” at the top to help regain the confidence of the markets (and Congress).
How far has the SEC fallen? A former Staffer that I know just landed a new job and was told to remove the SEC from his bio from the announcement that was being sent to clients. Having the SEC in your bio used to be a feather in your cap!
Nasdaq’s Response to Market Decline
In this podcast, Suzanne Rothwell of Skadden Arps explains how Nasdaq has responded to the current market downturn, including:
– What is Nasdaq’s general position for companies not meeting the continued listing standards?
– What accommodations has Nasdaq adopted to the listing standards or policies?
– What are struggling companies doing? Are some deciding it’s not worth trying to maintain their Nasdaq listing?
– Do you have any practical pointers for struggling companies?
Part II: Your Upcoming Proxy Disclosures—What You Need to Do Now!
We have posted the transcript from the second part of our popular two-part CompensationStandards.com webconference: “The Latest Developments: Your Upcoming Proxy Disclosures—What You Need to Do Now!”
On Friday, the SEC announced that David Becker would be returning as General Counsel in a few weeks. He also will have the title of “Senior Policy Director,” a new position. David served as GC earlier in the decade during Arthur Levitt’s tenure. David is a great lawyer and the SEC gets a big boost for his willingness to take the pay cut and return to the public sector.
It’s also rumored that Kayla Gillan will be joining the SEC Staff (although I’m not certain in what capacity, the rumors don’t say). For the past year, Kayla has been the Chief Administrative Officer for RiskMetrics (she was told to pick her own title) and before that, was one of the PCAOB’s founding board members. Given the heat the SEC is taking, it’s smart for Chair Schapiro to find investor-protection minded experts willing to get paid relative peanuts to join the embattled agency.
On Friday, Chair Schapiro delivered this speech in which she describes some of her first steps in changing the Enforcement Division’s policies & procedures, etc. Here is a good summary of the speech from Gibson Dunn.
I expect this will be the first of many speeches announcing changes. Here’s an example of how Mary gets the urgency of the need to make changes – the title of this article is “SEC chief says agency to act like ‘hair is on fire.'”
Economic Downturn Disclosure
In this podcast, Jason Day of Faegre & Benson discusses periodic disclosures relating to the current economic downturn, including:
– Which areas of periodic disclosure might require additional attention due to economic conditions?
– What types of specific economic-related disclosure should companies be focused on in preparing their MD&A?
– What new risk factors might companies consider?
– How else are you seeing the economic conditions influence disclosures?
Audit Committee Charters: May Need to Review Due to New PCAOB Rule
If you haven’t been checking out our new “Proxy Season Blog,” here is one of the first entries from last month: A recent change to the PCAOB rules on auditor independence may require some companies to revise their Audit Committee charters. Last August, the PCAOB adopted Ethics and Independence Rule 3526, which requires auditors to make independence disclosures before they enter into an initial engagement. Rule 3526 supersedes the PCAOB’s Independence Standards Board Standard No. 1.
Effective September 30th, the SEC made a conforming technical change to Item 407 of Regulation S-K, concerning disclosures that companies must make in their audit committee reports included in their annual meeting proxy statements.
As a result, folks should review their audit committee charters to remove any references to superseded ISB Standard No. 1 – and consider instead stating that the committee receive written independence disclosures required by the PCAOB’s applicable requirements. I doubt that this affects many companies, probably only those who wrote their charters to specifically refer to PCAOB rules.
It’s been a long week, so I decided to alter a popular song for my own amusement (apologies to leopard shoe owners in advance):
You put your right hand in,
You take a bunch of cash out,
You put your right hand in,
And you scoop the rest out.
You do the hokey pokey,
And you tell yourself it’s okay because everyone else is doing it,
That’s what it’s all about.
2. Left hand, with a shovel
3. Right foot, wearing some leopard shoes
4. Left foot, with more of those leopard shoes
5. Head, with ear plugs to drown out the pleas from the poor
6. Butt, wearing some sort of cover
7. Whole self, leaping into a pile of gold coins and jewels
TARP Under Attack: A $78 Billion Shortfall for Taxpayers
Late yesterday, the Congressional Oversight Panel said it would issue it’s third report today on how TARP is being implemented – and it won’t be pretty. The report will show that Treasury put about $254 billion into financial institutions in 2008, but got only $176 billion in value. As noted in this NY Times article, the head of the Panel, Elizabeth Warren, told the Senate Banking Committee that after three months on the job, her panel was still not getting enough answers from Treasury. She described the bailout as “an opaque process at best.” When the report is out, we’ll post it in our “TARP” Practice Area.
How Avvo Works
In this podcast, Mark Britton, CEO and Founder, explains how Avvo works, including:
– How did a corporate lawyer end up launching something like Avvo?
– What are Avvo’s latest developments?
– How do you like blogging? Any lessons learned?
Sights & Sounds of Northwestern’s San Diego Conference
Here are a few videos from my visit last week to San Diego:
Yesterday, on our “Advisors’ Blog” on CompensationStandards.com, I blogged a story about a conversation with a cabdriver about the Wall Street bonuses and how the environment has been altered so much that boards absolutely must change their thinking about executive compensation practices or else face potential societal implications (see this NY Times article).
Recognizing the need for this change, President Obama yesterday announced a new set of Treasury guidelines for those companies seeking government funds. The fact that the President made the announcement and held a press conference on the topic highlights the importance of this matter. Rather than repeat these new restrictions, read the bullets in this press release.
To explain these new restrictions – and how they impact both companies seeking government funds and all companies generally – we are holding a webcast – “TARP II: The Executive Compensation Restrictions” – next Thursday on CompensationStandards.com. Tune in to learn these new developments!
Jesse Brill lays out below how the latest Treasury guidance still needs to be tweaked to accomplish its goals of reining in excessive executive compensation:
The biggest change under the new Treasury guidelines is a $500,000 salary cap. One key aspect of the new $500,000 cap that has not gotten sufficient attention is the unlimited amount of restricted stock and stock options that still can be granted under the latest “restrictions.” Equity compensation is the pay component that has gotten most out-of-line over the past 20 years. It (as well as severance/retirement/ golden parachutes) has caused the greatest disparity between CEO compensation and that of the next tier of executives (and employees generally).
The new $500,000 cap provision does prevent executives from realizing the gains in their equity compensation until after the government is paid back. But there are two major problems with how this applies:
1. It does not apply to past equity compensation. Warren Buffet imposed a similar cap on Goldman Sachs’ executives, but his restriction applies to all the equity held by the top executives. It is not limited just to future grants, as is the case with the new government restriction. So Buffett’s provision wisely requires that the key decision-makers keep all their “skin in the game” until he gets paid off.
2. Although it may help protect the government’s investment, it is short-sighted and fails to protect the shareholders’ best long term interests. The holding period should be the longer of age 65 or two years following retirement. That will ensure that the key executives make decisions that truly are in the long-term best interests of the company (as opposed to decisions aimed at a shorter period – after which an executive could depart, taking all his marbles with him).Note that holding-through-retirement also addresses the major concern about top executives’ unnecessary risk taking.
Holding equity compensation through retirement is perhaps the single most important—and fundamental – fix to getting executive compensation back on track because it also addresses all the past outstanding excessive option and restricted stock grants. And, by requiring CEOs to keep their skin in the game for the long term, it will go a long way to restoring public trust in our companies and our market, which is so important to restoring stability to the markets.
Needless to say, the fundamental hold-through-retirement fix should apply to all companies – not just TARP financial institutions—and can be adopted at the same time that Congress adopts say-on-pay legislation (if such legislation is adopted). (It will have much greater impact and do more good than say-on-pay.) Learn how to implement hold-through-retirement in our “Hold-Through-Retirement” Practice Area on CompensationStandards.com.
Here are three additional points about the $500,000 cap:
1. Just as the $1 million cap was a major cause for the runaway increase in equity compensation over the past decade, the new unlimited opening for restricted stock will further exacerbate the problem. As an example, the typical time vested restricted stock grant does not qualify for the $1 million cap “performance-based” compensation exemption, thus more companies and shareholders will suffer the cost of the lost tax deductions as these very large amounts vest. (So, once again the top executives will benefit at the expense of shareholders.)
2. One reasonable fix to the tax deductibility problem would be to require real performance conditions (in addition to time vesting) upon the vesting of the equity.
3. To address the “unlimited “ new grants problem, do not permit additional grants in situations where the CEO’s total accumulated equity grants exceed the company’s own historic internal pay equity ratios compared to the next tiers of executives within the company.
SEC Chair Schapiro Lays Out Big Changes
As noted in this Washington Post article from Wednesday, new SEC Chair Schapiro intends to make big changes to the Enforcement Division – and quickly. Among other changes, the article notes:
– Rollback of highly-criticized requirement that the Enforcement Staff receive Commission approval before negotiating to impose penalties. This created a huge bottleneck and fines levied have dropped 85% since it was instituted three years ago.
– Beefing up the number of Enforcement Staffers. The number of Staffers has steadily decreased in recent years.
– Reforming an office to focus on identifying and preventing risk in the market. Earlier this decade, then-Chair Donaldson formed such a group – but it was scarcely staffed (umm, with one person) and shut down not too long after it was created.
Good Grief: Here Come the Crazy Ideas
It’s a good thing that Chair Schapiro is acting fast. Congress is out for blood, as became quite clear during yesterday’s House Financial Services Committee hearing on the Madoff scandal. Harry Markopolos is a bit too much for me (here is his written testimony, his oral testimony was beyond self-serving – and here is the SEC Staff’s testimony). With his announcement that he’s about to hand off his investigation of a new mini-Madoff fraud to the SEC’s inspector general, I’ve decided to call him the new “Joe McCarthy.” My favorite quote from him: “3,498 people at the SEC were against me.” Paranoid.
More bothersome than Markopolos was the tone and suggestions of some members in Congress about how to fix the SEC. It looks like plenty of bad ideas might get some traction. For example, the suggestions expressed in this NY Times column entitled “What if Watchdogs Got Bonuses?” from Andrew Ross Sorkin were raised. In the column, Sorkin reports from Davos about a recommendation that regulators get paid bonuses so that they are paid more like their private industry counterparts. Here are few reasons why this is not a good idea:
1. The column posits that paying more will attract smarter people to the government. Although I’m sure existing government staffers would like to get paid more, I can assure you that there are many right now in the government that are plenty smart.
In fact, just as smart as the folks in the private sector – why do you think so many securities lawyers start their career at the SEC? To get trained by the best and brightest. But even in the past five years, Corp Fin has essentially stopped hiring folks right out of law school because so many experienced practitioners were willing to take a pay cut and exit out of the madness that is the law firm lifestyle.
2. The government is not having problems finding qualified people. Right now, a record number of resumes are sitting down at the SEC. The level of unemployed professionals is very high and government service appeals to many who feel that their career has been lacking purpose.
3. The bonus recommendation ignores how most criminals are caught. Referrals lead to the bulk of the SEC’s investigations. This is not unusual in the law enforcement area. Cops don’t show up until they are called (unless they accidentally witness a crime). That’s just the way of the world (unless we develop “pre-cogs” ala “Minority Report“).
How would a bonus program be adminstrated when federal agencies would be working mainly from outside referrals? The payment of bonuses may well disturb the comradery and cooperation that is required between SEC Divisions – and among Staffers within a Division – to make the often years-long effort to bring a solid case. If you’ve ever worked on uncovering a financial fraud, you know how complex and difficult it is to tie the ends, etc. Needle in a haystack stuff.
4. Replicating the poor compensation practices of Wall Street in the public sector doesn’t fix the problem. It’s simply incredible that at the same time policymakers and pundits are decrying bonuses as having motivated executives to engage in improper management practices, they are suggesting that the same apply to the government. How is that supposed to promote objectivity in decision-making? What would you do if you were faced with: “I get a bonus if I bring this enforcement action regardless of how ill-founded it is – and don’t get a bonus if I don’t.”
Most people in government service are not there for the money – so paying them more will not necessarily generate better performance. To the extent those in enforcement are after money, it comes from them earning a reputation as a tough cop who brings good cases and then going into private practice.
The reform focus should be on Wall Street and its ethics. Sure, the government staff could stand to earn some more in base salary so there wouldn’t be pressure to leave when the kids hit school age – but paying the Staff a bonus won’t turn on some magical spigot that will enable the SEC to catch the many criminals out there.
And it certainly won’t stop Wall Street from engaging in practices of the sort that led to the current meltdown. We can’t rely on the government to ensure that people act responsibly and ethically. They can help point us in the right direction and remove outliers from the playing field – but if nearly all the players decide to continue to push the grey areas and not think of the bigger picture, chaos results and even cops can’t help us…
Your Ten Cents: The SEC’s Future
Here is a quick poll to anonymously get your views. You’re allowed to select more than one answer if you wish:
Recently, FINRA issued Regulatory Notice 09-05, entitled “Unregistered Resales of Restricted Securities.” This notice seeks to remind FINRA members of their obligations, when they are participating in an unregistered sale of securities, to determine whether the securities are eligible for public sale. This Notice comes out of recent FINRA enforcement actions, where it was observed that firms lacked adequate procedures for determining the status of the securities being resold, resulting in unregistered distributions of large amounts of low-priced stock.
The Notice details specific compliance steps that firms need to undertake, as well as some of the red flags that could signal the possibility of an illegal, unregistered distribution. Many of these red flags contemplate the type of issues that often come up with low-priced securities.
While this Notice for the most part serves as a reminder of obligations that brokers already have in serving their very important role in the resale of restricted and control securities, it will no doubt compel most brokers to reevaluate – and in some cases tighten – their procedures around the sale of securities under Rule 144.
How to Implement E-Proxy in Year Two
Tune in tomorrow for the webcast – “How to Implement E-Proxy in Year Two.” Whether your company will be trying voluntary e-proxy for the first time or this is your second time around, you will want the practical guidance from these experts:
– Lyell Dampeer, President, Broadridge Financial Solutions
– Thomas Ball, Senior Managing Director, Morrow & Co.
– Carl Hagberg, Independent Inspector of Elections and Editor of The Shareholder Service Optimizer
– Paul Schulman, Executive Managing Director, The Altman Group
– Keir Gumbs, Covington & Burling LLP
Act Today: Since all memberships are on a calendar-year basis, if you don’t renew today, you will be unable to access this webcast. Renew now for ’09! If not a member, try a no-risk trial for ’09.
Your Upcoming Proxy Disclosures—What You Need to Do Now!
We have posted the transcript from the first part of our popular two-part CompensationStandards.com webconference: “The Latest Developments: Your Upcoming Proxy Disclosures—What You Need to Do Now!” Be sure to review the transcript so that you know all of the “hot spots” in your CD&A and the rest of your compensation disclosure in this tumultuous proxy season.
A Call for Nominations: Regulatory Innovation
With all that has transpired in the past nine months, it seems that now more than ever we need some innovative approaches to financial regulation. Therefore, I am pleased to be a part of Morrison & Foerster’s establishment of the 2009 Regulatory Innovation Award through the Burton Foundation. This award will honor an academic or non-elected public official whose innovative ideas have made a significant contribution to the discourse on regulatory reform in the arena of corporate governance, securities, capital markets or financial institutions. If you know of someone meeting these qualifications who should be considered for the 2009 Regulatory Innovation award, please submit the nomination before February 27, 2009.
Recently, the PCAOB Staff issued updated guidance regarding the audit of internal control over financial reporting for smaller, less complex companies. The purpose of this Staff guidance is to assist auditors in applying the PCAOB’s Auditing Standard No. 5, An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements, to audits of smaller companies.
Guidance along these lines was released on a preliminary basis back in October 2007, at which time the Staff solicited comments. After considering the 23 comment letters received, the Staff has now finalized the guidance. The revisions to the preliminary guidance, which are discussed in detail in Appendix B to the document, are principally clarifications rather than a revisiting of the fundamental principles underlying the preliminary Staff views.
The topics covered in the PCAOB Staff Guidance include:
– Scaling the Audit for Smaller, Less Complex Companies
– Evaluating Entity-Level Controls
– Assessing the Risk of Management Override and Evaluating Mitigating Actions
– Evaluating Segregation of Duties and Alternative Controls
– Auditing Information Technology Controls in a Less Complex Information Technology Environment
– Considering Financial Reporting Competencies and Their Effects on Internal Control
– Obtaining Sufficient Competent Evidence When the Company Has Less Formal Documentation
– Auditing Smaller, Less Complex Companies with Pervasive Control Deficiencies
While the PCAOB Staff guidance is obviously geared toward auditors, smaller companies should take the guidance into account in the course of evaluating their controls, because the new guidance will certainly have an influence on how auditors view their internal control over financial reporting.
More internal control guidance is on the way – COSO has announced that it will release its four volume set of guidance on monitoring internal controls tomorrow. This guidance develops the monitoring component of Internal Control – Integrated Framework, in order to help companies “ensure the effectiveness of their financial, operational, and compliance-related internal controls.” COSO has already released the Introduction to this guidance in order to build the “buzz” around this new release!
The Fight Goes On: The Sarbanes-Oxley Act and the PCAOB
As noted earlier this month in the SCOTUS Blog, the fight over the validity of the PCAOB has now made it to the Supreme Court. The Free Enterprise Fund and Beckstead and Watts, LLP have filed this petition for writ of certiorari, arguing that the high court should consider the separation of powers issues raised in their dispute. As Broc noted in the blog last summer, the DC Circuit Court of Appeals upheld – by a 2-1 vote – the constitutionality of the PCAOB. Much remains at stake with the challenge, given the Sarbanes-Oxley Act’s lack of a severance clause.
Snowball: The Gathering Executive Pay Reform Efforts
“Hardly a day (or even an event) goes by anymore without some new revelation about corporate excess. (See this story about profligate spending by TARP participants at the Super Bowl.)
Today (Monday, February 2nd), The Wall Street Journal is reporting that the Obama Administration is expected to announce this week tougher executive pay standards for some of the companies receiving government aid (see “Treasury to Outline Bank Plan Next Week“). While the details are still sketchy, the standards are likely to ban companies receiving “exceptional” aid from making any severance payments. In addition, bonus pools for their top 50 executives will be scaled back by at least 40%. (Interestingly, the cut back would be based on 2007, rather than 2008, levels, resulting in a steeper drop than would be the case if more current figures were used). We’ll have to wait and see if the proposals actually mirror these rumored provisions, and what qualifies as “exceptional” aid.
Things are a lot less fuzzy in Congress, where, on Friday, Senator Claire McCaskill introduced legislation that would limit the total compensation of executives at firms receiving government funds to no more than the salary of the President. The Cap Executive Officer Pay Act of 2009 provides that no employee of any private company that accepts federal funds because of the economic downturn would be able to make more than the President (approximately $400,000) until the company is self-reliant again. For these purposes, “compensation” would include salary, bonuses, and stock options.
Wow – and it’s only Monday”
If you would like to check out more of Mark’s blog in these critical times for executive compensation issues, consider a no-risk trial for CompensationStandards.com or renew your subscription today.
Last Friday, the SEC posted the adopting release for its new interactive data rules. This project has been an enormous effort on the part of the Corp Fin Staff under an extraordinarily tight timeframe. Under the new rules, filers will be required to provide a new exhibit containing the financial statements and any applicable financial statement schedules in interactive data format with certain Securities Act registration statements, quarterly reports, annual reports, transition reports, and current reports on Form 8-K or Form 6-K that contain revised or updated financial statements. The new requirements will be phased in as follows:
1. Domestic and foreign large accelerated filers that use U.S. GAAP and have a worldwide public common equity float above $5 billion (as of the end of the second fiscal quarter of their most recently completed fiscal year) must provide the interactive data exhibit beginning with their periodic report on Form 10-Q, Form 20-F or Form 40-F containing financial statements for a fiscal period ending on or after June 15, 2009.
2. All other domestic and foreign large accelerated filers using U.S. GAAP will be subject to the interactive data reporting requirements beginning with their periodic report on Form 10-Q, Form 20-F or Form 40-F containing financial statements for a fiscal period ending on or after June 15, 2010.
3. All remaining filers using U.S. GAAP (including smaller reporting companies), and all foreign private issuers preparing their financial statements in accordance with IASB IFRS, will be subject to the interactive data reporting requirements beginning with their periodic report on Form 10-Q, Form 20-F or Form 40-F containing financial statements for a fiscal period ending on or after June 15, 2011.
Once the phase-in is complete, then companies becoming subject to the reporting requirements for the first time will be required to submit an interactive data file with their first periodic report on Form 10-Q or first annual report on Form 20-F or Form 40-F.
The tagging of financial statement footnotes and schedules is also subject to a phase-in schedule. While footnotes and schedules initially will be tagged individually as a block of text, after a company has tagged them in this manner for a year, then the company must begin tagging the quantitative disclosures – and may permissibly tag each narrative disclosure.
The interactive data exhibit is required for Securities Act registration statements containing financial statements, so it typically will not be required for a Form S-3 that incorporates the financial statements by reference. No interactive data exhibit will be required for initial public offerings registered under the Securities Act, nor will it be required as an exhibit to Exchange Act registration statements, such as Form 10 or 20-F.
After all of the build-up to XBRL, the question many are likely asking themselves is “what do I do now?” If you are in the first group to be phased-in, you are probably already well under way in preparations for the first interactive data filing. But for the second and third phase-in groups, the final rules should serve as a wake-up call to start preparing for the inevitable. A few pointers are:
– Familiarize yourself with the process and the output – Much of the nervousness around interactive data can be addressed by gaining a better understanding of what goes into producing it and how users may potentially utilize the data. The place to start is our “XBRL” Practice Area on TheCorporateCounsel.net. There are also lots of online tools and training sessions available for you to get up to speed. In addition, a number of issuers have participated in the SEC’s voluntary XBRL program, so they can be a great resource to consult.
– Consider whether you will use a service provider – The financial printers and others are all geared up to assist you with preparing your interactive data file, so you should visit with them to see what services they offer and how much it will all cost.
– Assemble your team – Preparing interactive data will require a team that includes accounting, finance, SEC reporting and legal personnel, among others critical to the process. While this same team is already in place for preparing the SEC reports, it may be helpful to have a smaller subgroup focused on interactive data implementation.
– Focus on quality control – As with any reporting issues, the key is having adequate procedures and controls in place to make sure that what gets included in the interactive data file is appropriate and will come out correctly when accessed through an interactive data viewer. A thorough familiarity with the applicable taxonomy and plenty of testing can go a long way on this front.
The NYSE’s Annual Corporate Governance Letter
The NYSE has sent its annual corporate governance letter, highlighting considerations for NYSE-listed issuers as the annual shareholders’ meeting season approaches.
Among the recent changes noted in the letter was the recent modification of Section 203.01 of the Listed Company Manual (effective December 16, 2008), under which listed companies subject to the proxy rules (or which, while not subject to the proxy rules, provide audited financial statements in accordance with the US proxy rules), are no longer required to issue the press release or post the undertaking on their website regarding the ability to receive audited financial statement free of charge.
In the letter, the NYSE also noted that SEC staff has indicated that it is still considering changes to NYSE Rule 452 to eliminate discretionary broker voting in connection with director elections. Further, the NYSE notes that it is considering an amendment to its timely alert policy in Section 202.06 of the Listed Company Manual to conform to the SEC’s guidance last summer on the use of corporate websites. No timetable was provided for either of these initiatives.