September 25, 2009

Survey Results: Stock Ownership Guidelines

Many companies have adopted stock ownership guidelines requiring executives and directors to own stock in their company based on a multiple of their salaries or board retainers. With the current market downturn and drop in net worth for many people, some companies are changing their stock ownership guidelines. Below are the results from a recent survey we conducted on this topic:

1. At our company, we are:
– Enforcing our stock ownership guidelines without change – 52.2%
– Revising our ownership requirements – 23.3%
– Terminating or suspending our stock ownership guidelines entirely – 5.6%
– Granting waivers selectively to executives or directors who aren’t meeting the guidelines – 3.3%
– We don’t have stock ownership guidelines – 15.6%

Please take a moment to respond anonymously to respond to our “Quick Survey on “Board Committees Interacting with Full Board

Move SEC’s Enforcement to DOJ? Good Grief…

If I tried to give my opinion on each of the hundreds of reform recommendations made in the wake of the financial crisis, that’s all this blog would be about. Plus, it’s probably humanly impossible to keep up with them all. Everyone has a say in how we should fix what is broken.

But sometimes I see something that causes my brain to hurt and I can’t help but say something. This Bloomberg article posits the idea of “spinning off” the SEC’s Enforcement Division to the Department of Justice because Enforcement
needs “independence.” And now I quote from the article, “That way, after people in the division of market regulation “notify the pit bulls” in enforcement about suspicious activity, the SEC has no further role in the investigation and can’t be pressured by the target firm to go easy.”

Ah, where do I start…I guess with these thoughts:

1. The SEC is an independent agency – just like the DOJ. It’s only been politicized during the last decade by an intruding Congress who had pushed for deregulation (as I’ve blogged about before) – just like the DOJ became politicized this decade (remember Alberto Gonzales?).

2. Not to say the SEC hasn’t slipped up occasionally this decade, but I haven’t seen the DOJ do anything particularly stellar recently. At this time, the SEC only has the authority to bring civil actions for violations of the federal securities laws – the DOJ is the agency tasked with bringing criminal charges. Do you see the DOJ using that authority to bring criminal charges against the perpetrators of the financial meltdown? I don’t.

3. Do the folks behind this idea think that the DOJ (or any other law enforcement in the world) doesn’t engage in negotiations with targets to arrive at a compromise solution? The SEC doesn’t go “easy” with its targets.

4. There is a clear lack of understanding about how the SEC really works in this article. Investigations with Market Reg or Corp Fin implications aren’t simply “handed off” to Enforcement. For example, Enforcement Staffers rely on Corp Fin Staffers for their expertise to help parse financial fraud.

I agree with the idea in the article that Enforcement should build a better mechanism to allow investors to submit complaints. But people have to realize the very limited resources of the SEC – it only has so many horses. And the number of crazy complaints that the SEC receives would boogle your mind (and that’s before this market crash). Thousands of investors who gambled in the market and lost think they have a case against someone. That somehow investing in the market was a guarantee. Do you want to spend your money as a taxpayer chasing down every single one of these crazy “leads”?

September-October Issue: Deal Lawyers Print Newsletter

This September-October issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:

– Convertible Debt Exchange Offers: Considerations for Distressed Issuers
– Mitigating Value and Dilution Risks in Stock-for-Stock Mergers
– Caveat Everybody: Changes in Control as Assignments of Contract Rights
– Substituting Tort for Contract: Tortious Interference Claims Against M&A Affiliates

If you’re not yet a subscriber, try a “free for rest of ’09” no-risk trial to get a non-blurred version of this issue for free.

– Broc Romanek