On Wednesday, as noted in this MarketWatch article (and this blog too), Rep. Maxine Waters introduced an amendment that was passed by the House Financial Services Committee that would require companies to allow proxy access. The amendment is part of a larger financial reform bill that’s expected to get considered by the full House soon. Of course, the proxy access component of the bill could all die at any time – but it’s notable since its gotten much further than either the Schumer or Peters bill has ever moved.
For those in denial and think that the SEC’s delay of acting on its outstanding proposals killed the move to adopt proxy access, this may serve as a “wake-up” call that access is very much still alive and on the table…
A few days ago, I blogged about a move in the House to exempt smaller companies from SOX’s internal controls requirements. As noted in this Huffington Post blog, one of that amendment’s co-sponsors, Rep. Carolyn Maloney, has backed down and now merely proposes yet another study regarding the impact of Section 404 be done. As noted in the blog, Maloney acknowledges she was not aware of the recent study conducted by the SEC – but she wants the study done anyways. Congress at work…
Schering-Plough Issues Results of Shareholder Survey on Compensation
As Susan Wolf mentioned would happen during her podcast regarding Schering-Plough’s experiment of surveying its shareholders about its pay practices ahead of its annual meeting last year, the company issued a report yesterday regarding the survey responses it received. We have posted a copy of this report in our “Say-on-Pay” Practice Area on CompensationStandards.com.
Note that Pfizer is the second company to go “biennial” by announcing yesterday it will start putting say-on-pay on its ballot next year.
IASB’s Possible Changes to Fair Value Accounting
Last week, IASB’s Chair – Sir David Tweedie – delivered a speech providing an update how fair value accounting might be reformed through changes to IAS 39, “Financial Instruments.” Also read FEI’s “Financial Reporting” Blog to learn how FASB and IASB have committed to “re-tripling” their efforts to meet the 2011 convergence deadline.
From our proxy solicitor podcast series, in this podcast, Reid Pearson of The Altman Group provides some insight into option exchange program issues, including:
– Once a company has decided to bring an option exchange program to shareholders, what are some of the first steps they should consider?
– From a proxy voting perspective, what types of issues will institutional investors and the proxy advisory firms (egs. RiskMetrics, Glass Lewis) be looking at when deciding on their vote or recommendation?
– Is it acceptable for an exchange program to recycle the exchanged shares back into the pool of shares available for future grant?
– What kind of fallout would there be if a company does an exchange of underwater stock options, but does not bring the program to shareholders?
In this USA Today article, SEC Commissioner Elisse Walter’s recent battle with cancer is described nicely.
Survey Results: “Affiliates” for Rule 144 Purposes
We recently wrapped up our Quick Survey on “”Affiliates” for Rule 144 Purposes.” Below are our results:
1. At our company, we define the term “affiliates” for Rule 144 purposes as:
– All Section 16 “persons” – 62.3%
– All Section 16 “officers” – 12.3%
– Selected Section 16 officers and directors – 18.6%
– Selected Section 16 officers – 0.5%
– CEO only – 0.5%
– Other – 5.9%
Due to unprecedented demand and limited space at our conference hotel for the “4th Annual Proxy Disclosure Conference,” we were forced to end Conference Registrations for those attending live in San Francisco. It’s sold out!
You Can Still Attend Via Video Webcast: But note in the alternative, you can still attend the “4th Annual Proxy Disclosure Conference” (11/9) – which is paired with the “6th Annual Executive Compensation Conference” (held on 11/10) – by video webcast. You automatically get to attend both Conferences for the price of one. Here is the agenda for both Conferences. The speakers are a “who’s who” in the executive compensation field, including:
– SEC’s Shelley Parratt
– Disclosure experts Dave Lynn, Mark Borges, Alan Dye and Ron Mueller
– Disclosure experts Keith Higgins, Scott Spector, Howard Dicker, Amy Goodman and Martha Steinman
– Treasury’s Mark Iwry, Senior Advisor to Secretary Geithner
– RiskMetrics’ Pat McGurn and Valerie Ho
– Glass Lewis’ Bob McCormick
– NY Times’ columnist Joe Nocera
– Noted counsel John Olson and Marc Trevino
– Renowned consultants Fred Cook, Ira Kay, Mike Kesner, Doug Friske, James Kim and Don Delves
– Chevron director Bob Denham and P&G Chair A.G. Lafley
– Investor advocates Meredith Miller and Paul Hodgson
– Our own Jesse Brill and Broc Romanek
Order Audio from NASPP Conference: In addition, you can still hear each – and any – of the 36 panels you wish from the NASPP Conference by ordering the downloadable audio and course materials.
Yesterday, Corp Fin issued Staff Legal Bulletin No. 14E, which changes how the Rule 14a-8(i)(7) exclusion for ordinary business operations applies so that proposals relating to CEO succession planning generally are no longer excludable (“generally” because proposals that seek to micro-manage will still be excludable; we’ll have to see how “micro-manage” is interpreted by the Staff) – and that risk-related proposals will be analyzed under a new framework.
The SLB lays out this risk-related framework as: “rather than focusing on whether a proposal and supporting statement relate to the company engaging in an evaluation of risk, we will instead focus on the subject matter to which the risk pertains or that gives rise to the risk.” The SLB also reminds companies and proponents how to notify the Staff when they intend to submit correspondence in connection with a no-action request.
Unlike last year’s Staff Legal Bulletin regarding 14a-8, this one is bound to cause a stir because it essentially reverses two prior Staff decisions – with the likely result of more proposals being included in proxies during the upcoming proxy season.
In his blog, Sanford Lewis describes the changed positions as a victory for shareholders and gives some background about the press for these changes, including the shareholder proposal meeting with the Corp Fin Staff held last month. And the RiskMetrics’ “Risk & Governance” Blog includes quotes from a number of activists hailing the SEC’s actions, it also describes how these two Staff positions have evolved over time.
Posted: 2010 Compensation Disclosure Treatise
Dave Lynn, Mark Borges & I just finished the new ’10 version of Lynn, Borges & Romanek’s “Executive Compensation Disclosure Treatise and Reporting Guide” – it is now posted on CompensationDisclosure.com and the hard copy is at the printers (delivery expected in mid-November). To obtain both the online and hard copy versions of this Treatise, you need to try a no-risk trial to the Lynn, Borges & Romanek’s “Executive Compensation Service” now.
Without access to this New Treatise – as well as the “Proxy Disclosure Updates” quarterly newsletters that you will get if you renew as a Service subscriber – you will miss our critical guidance that you need to prepare your proxy disclosures during this upcoming proxy season including this:
Proxy Disclosure Updates – Full Walkaway Model CD&A: Dave is putting the final touches on a key, new model CD&A disclosure which will need to be addressed in this year’s proxy statements. The upcoming Fall issue of “Proxy Disclosure Updates” will focus on this important new full walkaway disclosure, providing not only new model disclosure, but also invaluable guidance on what to cover and why and how. To receive this model disclosure as soon as it’s out, you need to try a no-risk trial now.
Carving Up the “Investor Protection Act”: The Political Process at Work on SOX’s Internal Controls
Last week, I polled members as to whether they thought the SEC’s 6th – and deemed “final” – delay in having smaller companies provide auditor attestations would really stick. The poll results were:
– 50% said SEC would not further delay the deadline
– 22% said the SEC would further delay it without being forced to
– 12% said Congress would force the SEC to delay it
– 16% said “what me worry?”
Looks like there is a chance that 12% knew what they were talking about. Yesterday, the Huffington Post reported in this blog that Reps. John Adler (D-NJ) and Carolyn Maloney (D-NY) planned to introduce amendments to the Investor Protection Act that would permanently exempt companies with market capitalizations of less than $75 million from Section 404 of Sarbanes-Oxley and further delay that Section’s application to companies with a market cap of less than $700 million. Here is Rep. Adler’s related press release.
I have a copy of Rep. Adler’s “Dear Colleague” letter as well as an opposition letter from the Consumer Federation of America, which combined provide more details than the Huffington Post blog – if you want them, email me…
Yesterday, HealthSouth announced that its board plans to adopt a by-law amendment relating to shareholder nominations for directors that would reimburse activist shareholders, subject to certain conditions, where the candidate gets at least 40% of the votes cast. Here is Joann Lublin’s WSJ article.
The proxy access alternative of reimbursement bylaws – first permitted under Delaware law back on August 1st – has been promoted by AFSCME, who submitted two shareholder proposals on this topic this past proxy season and plans to submit it to ten companies next year. It also has been highlighted as a reasonable solution during the proxy access debate by Professor Charles Elson, who just happens to be Chair of HealthSouth’s Governance Committee. So Charles is putting his money where his mouth is…
Mailed: September-October Issue of The Corporate Executive
The September-October 2009 issue of The Corporate Executive contains a great lead article about how to plan ahead for your executives ahead of the inevitable tax increases (thanks to Mike Melbinger of Winston & Strawn for drafting this piece!). The issue includes:
– Secular Trusts, Distributions and Other Compensation Planning Opportunities in Anticipation of Potential Tax Increases
-Deferral vs. Acceleration of Income
– Common Acceleration Strategies
– Termination of Non-Qualified Deferred Compensation Plans
– Current Employer Funding Using a Secular Trust
-Roth IRA Conversions and Rollovers in 2010
– 3121(v) Employment Tax Election for SERPs
– Preparing Now For IFRS 2
-Option Pricing Model
– Awards with Graded Vesting
– More Granular Option Valuations
– Accounting for Payroll Taxes
– Share Withholding
Act Now: Get this issue on a complimentary basis when you try a “Rest of ’09” for free when you try a 2010 no-risk trial today.
A few weeks back, I blogged about New York’s new Power of Attorney law and its possible implications for registration statements, Section 16 reports and Form 10-Ks. Since then, there has been disagreement among practitioners regarding how broadly the new law should be applied in the federal securities law context.
A number of working groups, including one from the New York State Bar, have been making efforts to introduce a technical amendments bill in New York would clarify some of the open issues – but it sounds like there are some issues that would remain outstanding even after those efforts. Plus, a technical amendment doesn’t appear on the fast-track and it’s not likely to be adopted soon.
In this podcast, Maureen Sladek of IBM provides some great insight by identifying the open issues and addressing how to handle them under New York’s new Power of Attorney law (including providing a set of FAQs and sample POA under the new law that she co-wrote with Evan Barth; see our “Power of Attorney” Practice Area for those), including:
– What’s the background on the New York Power of Attorney law?
– What are the biggest problems from a corporate perspective?
– Are there any efforts to fix these problems?
– What should companies do in the meantime?
Ask the Experts: Prepping for a Wild Proxy Season
In a few weeks, we’re holding a webcast entitled “Ask the Experts: Prepping for a Wild Proxy Season,” during which a panel of experts will provide practical guidance in a variety of areas that those grappling with the upcoming season know too well. This is your chance to get your questions answered by the best – shoot me an email with any proxy season questions you may have leading up to November 18th. Your identity will be kept anonymous.
More on “The Mentor Blog”
We continue to post new items daily on our new blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
– Is the SEC Necessary?
– Towers Perrin Releases 2008 D&O Survey Report: Some Comments
– More on “Law Firms Going Public: Crazy Talk?”
– Survey Responses: Transfer Agent Opinion Requests
– Study of Early Adopters: IRO Use of Twitter
Last week, Tom Ball gave us the basics in broker nonvote math. In this podcast, David Drake and Rhonda Brauer dig further into the math of revised NYSE Rule 452 – here’s the worksheet you should print out to follow along – and help you explore some possible ways to get out those otherwise lost retail votes.
In our “Proxy Season Blog” yesterday, I blogged about the confusion of the intersection of revised Rule 452 and Delaware law. Note how there has been a bit of back and forth in Topic #5216 of our “Q&A Forum” about this topic too.
And remember that a number of critical proxy season areas are covered in our “Special” November-December issue of the Deal Lawyers print newsletter. Finally, note that the upcoming issue of The Corporate Counsel will be providing practical guidance in the broker nonvote area.
Federal Reserve Proposes Guidance on Sound Incentive Compensation Policies
From Cleary Gottlieb: Yesterday, the Federal Reserve released for comment proposed guidance on incentive compensation applicable to all banking organizations under its supervision. The proposal includes two supervisory initiatives. The first, applicable to 28 “large, complex banking organizations,” will involve a review each organization’s policies and practices to determine their consistency with the guidance described below. The organization-specific policies will be assessed by supervisors in a special coordinated “horizontal review.”
The press release issued with the proposed guidance states that “[t]he policies and implementing practices adopted by these firms in response to the final supervisory principles will become a part of the supervisory expectations for each firm and will be monitored for compliance.” The second initiative will involve a review of compensation practices at regional, community, and other banking organizations not classified as large and complex, as part of the regular, risk-focused examination process. These reviews will be tailored to take account of the size, complexity, and other characteristics of the banking organization.
The guidance is designed to apply to the compensation of: (1) senior executives and others responsible for oversight of an organization’s firm-wide activities or material business lines; (2) individual employees, including non-executive employees, whose activities may expose the organization to material amounts of risk; and (3) groups of employees who are subject to the same or similar incentive compensation arrangements and who, in the aggregate, may expose the organization to material amounts of risk.
Alongside the proposed guidance, the Fed released six Q&As. The Q&As state that the Fed has issued the proposed guidance under its authority to monitor the “safety and soundness” of institutions subject to its oversight. The Q&As also note that the proposed guidance is “consistent with” the Financial Stability Board’s Implementation Standards for its Principles for Sound Compensation Practices, which were released last month in conjunction with the G-20 Summit in Pittsburgh.
The FSB was organized at the direction of the G-20 in order to address vulnerabilities and develop and implement strong regulatory policies in the interest of financial stability. The United States is the first G-20 nation to issue detailed guidance on compensation practices since the FSB’s Implementation Standards were released. The Q&As provide that comments on the proposed guidance will be accepted for 30 days.
In his “Proxy Disclosure Blog last night,” Mark Borges blogged his analysis of the plan from Special Master Feinberg that was posted late yesterday. He also analyzes the separate “determination” letter sent to Banc of America.
SEC Proposes Rules for Dark Pools
On Wednesday, the SEC proposed a set of rules related to dark pools (here is Chair Schapiro’s statement), meant to address three areas of concern by:
– Requiring actionable Indications of Interest (IOIs) — which are similar to a typical buy or sell quote — to be treated like other quotes and subject to the same disclosure rules.
– Lowering the trading volume threshold applicable to alternative trading systems (ATS) for displaying best-priced orders. Currently, if an ATS displays orders to more than one person, it must display its best-priced orders to the public when its trading volume for a stock is 5% or more; the SEC’s proposal would lower that percentage to 0.25% for ATSs, including dark pools that use actionable IOIs.
– Creating the same level of post-trade transparency for dark pools – and other ATSs – as for registered exchanges. Specifically, the SEC’s proposal would amend existing rules to require real-time disclosure of the identity of the dark pool that executed the trade.
Yesterday, Special Master Kenneth Feinberg revealed the details of the long and contentious negotiations over the pay levels for the top 25 paid executives at five financial institutions and two automakers that received TARP money. Although Feinberg’s plan itself hasn’t yet been made public (but will be later today or within the next day or so), the details of the plan are fully reported in numerous articles in the papers today.
It appears that the key components of this pay reform include:
– About a 50% overall compensation cut
– Salary cuts of about 90%
– Some of the reduced salaries replaced with restricted stock, vesting immediately but paid out in one-third per year installments after a two-year waiting period
– Limits on perks, with anyone receiving more than $25k having to seek special permission
Here are articles from today’s newspapers describing this story:
The Battle Over Climate Change Heats Up for Shareholders
Recently, I blogged about the strong likelihood that Corp Fin would act on refining disclosure requirements related to environmental and climate change issues. That blog included statistics from the past proxy season regarding the growing support for ESG shareholder proposals, courtesy of RiskMetrics.
On top of this movement, the news recently has been filled with companies leaving the US Chamber of Commerce due to the Chamber’s position on climate change (egs. Apple, Exelon, PG&E, PNM Resources, Duke Energy and Nike). We may soon see more of these departures – or at least companies publicly distancing themselves from the Chamber which is now in attack mode on climate, health care reform and financial reforms.
As noted in this press release, letters were just sent to 14 large companies from a group of 43 investors and investment-focused organizations – representing over $16 billion in assets under management – urging the companies to “end the ‘glaring contradiction’ between their own policies and the U.S. Chamber of Commerce’s and National Association of Manufacturers’ positions on pending climate legislation. Each of the companies has publicly stated that it supports action on climate change, which the Chamber and NAM strongly oppose.” And Change-to-Win released a scatching report recently about how the Chamber’s leader, Tom Donohue, has hijacked the Chamber’s agenda.
Recently, a bunch of the mass media outlets were tricked into reporting that the Chamber had reversed its climate change stance. And the Washington Post reports how President Obama has reduced the clout that the Chamber has in DC.
Is the 6th Time a Charm? More Internal Control Delays Possible?
As I blogged recently, the SEC has announced a delay for smaller companies to provide auditor attestations – the adopting release is now posted. I think that’s the last of the delays in internal controls, as SEC Chair Schapiro indicated in the press release announcing this last delay. But then again, the efforts to delay – or stop – internal controls reporting shouldn’t be underestimated.
Recently, Representative Scott Garrett (R-N.J.) introduced the “Small Business SOX Compliance Relief Act,” which would permanently exempt non-accelerated filers from the auditor attestation requirements of SOX Section 404(b). I doubt a deregulatory bill will go anywhere in Congress these days – but you never know. Let us know what you think:
A few weeks ago, the WSJ ran an article about how some boards were rejecting resignations by directors after they failed to achieve a majority vote “for” at an annual shareholders meeting.
A day later, Delaware Vice Chancellor Noble held – in City of Westland Police v. Axcelis Technologies – that, among other things, if a company adopts a plurality-plus voting policy (ie. Pfizer-style) and several directors do not receive a majority of the vote in the election, the board’s subsequent rejection of the directors’ resignation letters is not, by itself, enough to serve as a credible basis of wrongdoing in a books and records request brought under Section 220 of the Delaware General Corporation Law. I imagine this type of issue will become more common as withhold vote campaigns continue to gain traction. Fyi, Professor Jay Brown blogged about this case today and yesterday in “The Race to the Bottom” Blog.
In reading the opinion, note that VC Noble really focused on the plurality aspect, as the directors were, in fact, re-elected. There is the potential for a plaintiff to try to make a distinction if this arises for a company with a majority vote standard. I don’t think this should make a difference, but a plaintiff may disagree…
Understanding the Impact of FASB’s Codification on Disclosures in SEC Filings
Unfortunately, lawyers who draft disclosure for a living are impacted by the FASB’s recent codification of accounting standard project. In this podcast, Larry Bard of Morrison & Foerster explains how the Codification impacts disclosures in SEC filings, including:
– What is the Codification and when is it effective?
– What effect will the Codification have on public companies?
– What about all the SEC rules and interpretative material that reflects the pre-Codification Literature?
– What should lawyers be doing to get up to speed with the Codification?
In FEI’s “Financial Reporting Blog,” Edith Orenstein reports on the dozen items on the PCAOB’s ambitious standard-setting agenda going forward. Edith notes “Different from prior years, however, the agenda includes ‘milestones’ for projected dates of finalization of these projects, and the dates go out to 2011.”
Last Day for San Fran Registration: “4th Annual Proxy Disclosure Conference”
Due to unprecedented demand and limited space at our conference hotel for the “17th Annual NASPP Conference,” we were forced to end Conference Registrations last week for that Conference. It’s sold out! However, we are still accepting San Fran registrations through the end of today for the paired Conferences, the “4th Annual Proxy Disclosure Conference” (11/9) – and the “6th Annual Executive Compensation Conference” (11/10). You automatically get to attend both Conferences for the price of one. Here is the agenda for both Conferences.
Order Audio from NASPP Conference: In addition, you can still hear each – and any – of the 36 panels you wish from the NASPP Conference by ordering the downloadable audio and course materials.
With the upcoming proxy season promising to shake things up and possibly place more companies in “play” than ever before, I decided to create a “special” issue of the Deal Lawyers print newsletter and rush it out so that you can begin to prepare now. This “Special” November-December issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:
– How to Respond to a Stocklist Demand
– How to Scrub Your Bylaws Ahead of Proxy Access: Considerations for Delaware Corporations
– A Practical Primer: How to Tabulate and Report Voting Results
– “Practice Points” on Reporting Voting Results
– An Insider’s Perspective: How to Avoid a Yahoo-Like Tabulation Nightmare
– The Growing Importance of “Just Vote No” Campaigns: Analysis and Takeaways
If you’re not yet a subscriber, try a “no-risk trial to get a non-blurred version of this issue on a complimentary basis. Current subscribers should renew now as this is the last issue since all subscriptions expire at year-end.
Always popular, RiskMetrics has posted its final ’09 Postseason Report. It’s a good piece to help read the tea leaves for the upcoming proxy season…
Bringing It: PPIP Finally Gets Going
Back on September 30th, the Treasury Department announced that two firms – Invesco and The TCW Group – have raised the initial capital for the purchase of illiquid assets in accordance with the Legacy Securities Public-Private Investment Fund (since then, 3 more firms have done so). Here is a related Washington Post article.
On Friday, the SEC announced that Adam Storch had been lured out of Goldman Sachs to fill the newly-created position of Managing Executive in the SEC’s Division of Enforcement. As noted in the SEC’s press release:
Mr. Storch will be responsible for project management and workflow for various infrastructure and operational aspects of the Division, including budget, information technology, and administrative services. In addition, he will oversee the workflow and process associated with the collection and distribution of Fair Funds to harmed investors. Along with Lorin Reisner, the Deputy Director of the Division of Enforcement, Mr. Storch will supervise the Office of Market Intelligence, improving the collection, analysis, risk-weighing, triage, referral, and monitoring of the hundreds of thousands of tips, complaints and referrals that the agency receives each year.
Getting beyond Adam’s tender age of 29 – which is easy for me to get beyond, personally I feel I was “smarter” at that age, but not wiser (note Seeking Alpha has trouble with age) – the issue of whether Goldman Sachs secretly rules the world is what the public has focused on so far (here is an example, again and another). This one from the Motley Fool has a funny line:
I pledge allegiance to the Flag of the United States of America, and to the Corporation, which it supports, One Nation under Goldman, indebted forever, with Liberty and Justice unlikely.
I can understand how the fear of a Goldman conspiracy may the focus – and perception indeed does matter – but this clearly is a recruitment coup for the SEC. It’s not easy to lure someone from the Street with a government salary, particularly someone that can help sift technologically through the massive amounts of market data and the numerous leads that the SEC receives daily. But maybe the SEC shouldn’t have started Adam out in such a key role and saved themselves some “face”…
A Comeback for Insider Trading?
It’s one of those crimes that we will never eradicate and periodically rears its ugly head as perhaps being rampant – insider trading. It’s too easy to do and the gains are immediate (and likely feels like no one is being hurt).
On Friday, the SEC announced the latest “giant” in a series of insider trading actions that goes back decades. A billionaire hedge fund manager got charged with being a “master of the rolodex” rather than a genius in trading strategies. Raj Rajaratnam cultivated a network of senior executives at major companies like IBM, Intel and McKinsey.
I normally don’t cover insider trading, but this one is a “biggie” (see this NY Times article and this Reuters article) and may signal a larger trend. For those in companies, make sure your compliance programs are spotless so that you don’t get dragged down by any true fraudsters in your midst when the diligence for litigation commences…
Mailed: September-October Issue of The Corporate Counsel
The September-October issue of The Corporate Counsel includes pieces on:
– More Meltdown Fallout–Going Concern and Other Out-of-the-Ordinary Audit Reports in SEC Filings
– Omitting Schedules from a Filed Merger Agreement–The Merrill Lynch Bonuses
– Filing an Acquired Company’s Post-ยง15(d) Suspension 10-K–EDGAR Technicalities
– Discussion at ABA of Risdall’s Reg D Integration Holding
– A Few Thoughts on FASB’s Recent Codification of Accounting Principles
– FAS 5 Now Subtopic 450-20–Impact on Audit Letters?
– Expert Consent Required For Reference to Consultant, Etc.?–New CDI
– New/Revised CDIs Provide More Flexibility for Selling Security Holder Registration
Act Now: Get this issue on a complimentary basis when you try a “Rest of ’09” for free when you try a 2010 no-risk trial today.