June 23, 2009

More Congressional Reform Activity: The Peters and Durbin Bills

Senator Charles Schumer’s “Shareholder Bill of Rights” is not the only legislation floating around the Hills these days seeking to reform corporate governance. Here are three others:

1. “Shareholder Empowerment Act” – As Dave recently blogged about, Rep. Gary Peters introduced the “Shareholder Empowerment Act.” Similar to Schumer’s bill – but going further – Peters’ bill would implement eight governance reforms that were highlighted in a Council of Institutional Investors letter to Congress late last year, including:

– Require majority voting for directors
– Allow long-term investors to have proxy access by nominating their own director candidates
– Eliminate uninstructed broker votes in uncontested director elections
– Require separation of board chairs and CEO positions
– Implement nonbinding annual shareholder approval of executive compensation
– Require independent compensation consultants
– Strengthen clawbacks of unearned incentive compensation
– Bar severance agreements for executives terminated for poor performance

2. “Excessive Pay Shareholder Approval Act” and “Excessive Pay Capped Deduction Act of 2009” – In May, Senator Richard Durbin introduced two bills in May aimed at curbing “excessive” compensation: the “Excessive Pay Shareholder Approval Act” (Bill S. 1006) and the “Excessive Pay Capped Deduction Act of 2009” (Bill S. 1007).

The “Excessive Pay Shareholder Approval Act” would require a supermajority vote (60%) to approve a compensation structure in which any employee is paid more than 100x more than the average employee of that company. In addition, in connection this vote, proxy disclosure would need to include:

– Compensation paid to its lowest paid employee
– Compensation paid to its highest paid employee
– Average compensation paid to all of its employees
– Number of employees who are paid more than 100x the average employee compensation
– Total compensation paid to employees who are paid more than 100x the average employee compensation

The “Excessive Pay Capped Deduction Act” would limit the federal income tax deduction for compensation paid to executives to 100x average employee compensation. Any amounts paid in excess of this cap would be considered “excessive compensation” and would be non-deductible.

In addition, any company that paid “excessive compensation” would be required to file a report with Treasury for such taxable year that included:

– Amount paid to the employee receiving the lowest amount of compensation during such year
– Amount paid to the employee receiving the highest amount of compensation during such year
– Average compensation of all of its employees during such year
– Number of employees receiving compensation that is more than 100x the average employee compensation during such year
– Amounts paid to the employees receiving compensation that is more than 100x the average employee compensation during such year

An Inspector General Report: The SEC’s “Restacking Project”

At the end of last year, I blogged about how the SEC was spending $4.1 million to shuffle its personnel around physically due to bad planning when the Staff first moved into its new building a few years ago. The SEC called this it’s “restacking project.”

Back in March, the SEC’s Inspector General, David Kotz, issued this report on how the restacking project fared. The IG initiated the review because of Staff complaints that the project was “not properly approved and initiated, did not serve a useful purpose, and was a waste of Commission resources.” The report claims that 81% of the Staffers surveyed by the IG felt that the reorganization was completely unnecessary. Then SEC Chair Cox ordered a cost-benefit analysis that was never completed for the project. Not a good story.

“Cool Deal Cube Contest”: We Have a Winner!

Recently, I announced a “cool deal cube contest” as part of our ongoing “Deal Cube Chronicles.” John Newell of Goodwin Procter takes the prize with this cube. John notes:

Here is an old JPMorgan advertisement from the late ’80s that explains this cube. In a nutshell, it is that the cube/tombstone from the “tombstone of the unknown deal.” I made a joke to a senior guy at Bowne of Boston after a public deal cratered and he made a couple of these babies.

Recently, I also received this story from a member:

During a drafting session for a follow-on offering in which we were underwriters’ counsel, we commented that the CFO was referred to in his bio as a certified pubic accountant. Company counsel expressed surprise because they had copied the language verbatim from the original IPO prospectus. There followed 1-1/2 seconds of uncomfortable silence, after which we flipped through a copy of the IPO prospectus and confirmed the worst.

There is some consolation in the fact that a search of the term “certified pubic” on EDGAR yields 142 hits (and counting).

– Broc Romanek