Monthly Archives: January 2010

January 29, 2010

Survey Results: Impact of Loss of Broker Nonvotes for ’10 Proxy Season

Ahead of next Thursday’s webcast on e-proxy developments and other voting issues, below are the results from a recent survey we conducted on the topic of the impact of loss of broker nonvotes for ’10 proxy season:

1. Our company:
– Has used e-proxy in a past proxy season and definitely intends to do so in 2010 – 33.3%
– Has used e-proxy in a past proxy season and may decide to not do so in 2010 – 6.1%
– Has used e-proxy in a past proxy season and doesn’t intend to do so in 2010 – 0.0%
– Has not used e-proxy yet but definitely plans to do so in 2010 – 1.5%
– Has not used e-proxy yet but might decide to do so in 2010 – 13.6%
– Has not used e-proxy yet and will not use it in 2010 – 45.5%

2. When it comes to the impact of elimination of broker nonvotes, our company:
– Isn’t worried about its impact at all – 16.7%
– Is a little worried, but not much, about its impact – 50.0%
– Is somewhat worried about its impact – 27.3%
– Is very worried about its impact – 6.1%

3. Our company:
– Is not concerned about obtaining a quorum with the loss of discretionary votes – 13.6%
– Already seeks the ratification of auditors – 83.3%
– Already has another routine proposal planned the would address quorum concerns – 1.5%
– Will add the ratification of auditors this year out of quorum concerns – 1.5%
– Will add a different routine proposal this year out of quorum concerns – 0.0%

4. Our company:
– Has not used a proxy solicitor in the past for regular annual meetings but definitely intends to use one for the upcoming proxy season – 3.0%
– Has not used a proxy solicitor in the past for regular annual meetings but is considering it for the upcoming proxy season – 9.1%
– Has not used a proxy solicitor in the past for regular annual meetings and will not use one for the upcoming proxy season – 18.2%
– Has used a proxy solicitor in the past for regular annual meetings and definitely intends to use one for the upcoming proxy season – 59.1%
– Has used a proxy solicitor in the past for regular annual meetings and may use one for the upcoming proxy season – 9.1%
– Has used a proxy solicitor in the past for regular annual meetings but doesn’t intend to use one for the upcoming proxy season – 1.5%

5. Our company:
– Has a majority vote standard and intends to keep it – 54.6%
– Has a majority vote standard but may change it to a plurality standard – 1.5%
– Has a plurality vote standard and intends to keep it – 36.4%
– Has a plurality vote standard but may change it to a majority standard – 7.6%

Please take a moment to respond anonymously to our “Quick Survey on ‘More on Blackout Periods’.

Learning about a New Voting Service: Moxy Vote

In this podcast, Mark Schlegel, Co-Founder and VP-Business Developments of Moxy Vote, discusses the latest developments in proxy voting capabilities, including:

– What is Moxy Vote?
– What has happened since your launch?
– What can in-house counsel/corporate secretaries do to start participating?
– What types of advocates are on the site and what are the issues they cover?
– What do we want to accomplish?
– Are there any upcoming votes of interest?

Pat McGurn’s Forecast for 2010 Proxy Season: Wild and Woolly

We have posted the transcript for our webcast: “”Pat McGurn’s Forecast for 2010 Proxy Season: Wild and Woolly.”

– Broc Romanek

January 28, 2010

SEC Adopts Climate Change Disclosure Guidance (By 3-2 Vote)

Yesterday, the SEC adopted by a 3-2 vote (Commissioners Casey and Paredes voted against adoption) an interpretive release to provide guidance to companies about how they should make climate change disclosures (the release is not out yet; here is the press release). There was heated discussion during the meeting – particularly from Commissioner Casey – as to whether the SEC was getting into the tricky intersection of climate change and politics.

Although not discussed during the meeting or in the press release, since the guidance is in the form of an interpretive release, many are presuming it is immediately effective – meaning that it applies to the Form 10-Ks that will be filed fairly shortly by calendar-end companies.

Below is an excerpt from a memo from Troutman Sanders:

The SEC stated that its release does not create a new legal requirement or modify existing disclosure rules, regulations or interpretations, which the SEC remarked included the framework and flexibility necessary for meaningful disclosure. Instead, the release provides “guidance that can help public companies in determining what does and does not need to be disclosed” according to Chairman Mary Schapiro. The release was adopted by a vote of 3 to 2.

In presenting the release, the SEC reiterated the existing provisions requiring disclosure of climate change risks and implications when material to a public company:

– Item 101 of Regulation S-K: Item 101 provides for a general description of a company’s business and requires disclosure as to “the material effects that compliance with federal, state and local provisions… regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, may have upon the capital expenditures, earnings and competitive position of the company.” This item also may require disclosure as to the anticipated impact of future environmental regulation.

– Item 103 of Regulation S-K: Item 103 requires disclosure as to “any material pending legal proceedings, other than ordinary routine litigation incidental to the business.” The instructions to Item 103 state that disclosure is required regarding “an administrative or judicial proceeding … arising under any federal, state or local provisions… regulating the discharge of materials into the environment… for the purpose of protecting the environment.”

– Item 303 of Regulation S-K: Item 303 provides for management’s discussion and analysis of the company’s financial condition and requires disclosure of “known trends or uncertainties” that a company believes will result, or are reasonably likely to result, in material changes in the company’s liquidity, net sales, revenues or income from continuing operations.

– Item 503(c) of Regulation S-K: Item 503(c) provides for the disclosure of risk factors that make investments in the company speculative or risky to the extent that they are not generally applicable to any issuer.

The SEC stated that meaningful disclosure might address these four topics:

1. The impact of state and federal legislation and regulation, including potential legislation
2. The effects of international accords and treaties
3. The actual and potential indirect impacts and consequences, including reputational harm and lost opportunities
4. The actual and potential impact of physical effects of climate change

While the current rules and regulation require companies to disclose things that are material to investors, and the Staff noted that the SEC is not changing the traditional standard for materiality, which is a substantial likelihood that disclosure would be viewed by the reasonable investor as having significantly altered the total mix of information made available. But the Staff also emphasized that if there is any doubt to whether something is material or not, it should be resolved in favor of the investor and, thus, disclosed.

We are particularly concerned that the interpretive guidance, as described by Chairman Schapiro, might require a company to speculate on what legislation will pass and what its consequences will be. This is an unprecedented disclosure requirement and one that is frought with the risk of evaluation in hindsight. Those opposing the adoption of the release noted the great flux of the state of science, law and policy addressing climate change and suggested that the release was being adopted because of political pressures. They noted that disclosure on the four topics noted above would include much speculation and lead to greater investor confusion.

While the SEC did not issue new rules today, the discussion at the SEC’s meeting indicates that the Staff believes that public companies need to revisit their disclosure practices. We believe that if the SEC does not see improvements in the amount and detail of discussion, we will see a responsive flow of comment letters that could by their nature impose standards on all reporting companies.

We also believe that there is the potential that the SEC may resort to a formal rulemaking requiring specific disclosure, including discussion of carbon footprints and quantitative measurements. Companies wishing to avoid a “one size fits all” approach in the future should carefully draft their 2010 disclosure under the current framework to provide investors with useful information about the potential risks and implications of climate change.

ESG Disclosures: Environmental, Climate Change, Social Responsibilities

We have posted the transcript for our recent – and timely – webcast: “ESG Disclosures: Environmental, Climate Change, Social Responsibilities.” Even though this webcast was held before the SEC adopted its new interpretive guidance, the panelists covered many topics that can help you meet your new disclosure obligations.

More on “The Mentor Blog”

We continue to post new items daily on our new blog – “The Mentor Blog” – for 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:

– Obama’s 10th Justice Gives Supreme Court a Business Tilt
– Russ Ryan on the State of SEC’s Enforcement Division
– Becoming an “Outlier”: Leveraging Social Media
– What Level of Due Diligence Should a Placement Agent Conduct?
– Where the Action Is: CEO Searches
– Legal Implications of Cloud Computing
– More on “Collectively Stupid: A Way of Life?”

– Broc Romanek

January 27, 2010

Dave & Marty: Live at the Hotel Del Coronado!

Last week, Dave Lynn and Marty Dunn got together during Northwestern’s annual Securities Regulation Institute in San Diego to tape this podcast, including a discussion of:

– The Staff’s new position on Section 3(a)(9) exchanges
– Drafting director diversity disclosure
– The new C&DI on director qualifications disclosure
– The back story on the new non-GAAP measure C&DIs
– Marty’s travel stories

SEC Proposes to Modernize Stock Buyback Safe Harbor

Yesterday, the SEC posted this proposing release to update Rule 10b-18’s safe harbor when companies repurchase their own stock. The safe harbor hasn’t been updated much since the rule’s adoption in 1982 – and trading strategies and technologies have dramatically changed since then.

Alan Dye on the Latest Section 16 Developments

Tune in tomorrow for the webcast: “Alan Dye on the Latest Section 16 Developments.” This is always one of our most popular webcasts, as Alan answers many of the more common queries he has been receiving lately.

Act Now: As all memberships are on a calendar-year basis, renew now – or if you’re not yet a member, try a ’10 no-risk trial today.

– Broc Romanek

January 26, 2010

RiskMetrics: On the Auction Block?

Taken public just two years ago, this WSJ article claims that RiskMetrics is considering selling itself. The article notes a few prospective buyers and that the premium may be as high as 30%. Although the company does more than provide proxy advice, it’s interesting timing for a potential sale given the uncertainty over whether say-on-pay and proxy access will be mandated, either of which should give somewhat of a boost to its ISS Division.

Board Diversity Policies: Do You Need One? Samples Available

In reaction to the SEC’s new board diversity disclosure requirement, several members have asked for sample board diversity policies, so we have posted a few in our “Diversity” Practice Area. But in deciding whether you need one, you should consider the input provided yesterday in our “Proxy Season” Blog as well as the commentary made during our recent webcast: “How to Implement the SEC’s New Rules for This Proxy Season.”

Disclosure Controls & Procedures: An In-House Perspective

We have posted the transcript for our recent webcast: “Disclosure Controls & Procedures: An In-House Perspective.”

– Broc Romanek

January 25, 2010

White Paper: 51 Firms Weigh In on New York’s New Power of Attorney Statute

As I’ve blogged, there are appear to be deficiencies with the amendments to New York’s power of attorney statute that were adopted last summer, which have changed the requirements for creating certain types of valid powers of attorney in New York and – when read in isolation – may have had the unintended consequence of invalidating a wide variety of common corporate, commercial and financial documents.

Now, 51 law firms have weighed in with this White Paper with the aim of providing a blueprint for a consensus among practitioners on some of these troublesome issues because of the concern that an overly conservative interpretation may become the accepted version of the law. The White Paper focuses specifically on proxies to vote shares of corporations, indorsements to effect the registration of transfer of certificated securities and powers of attorney granted in connection with the formation and governance of non-New York limited liability companies and non-New York limited partnerships. The firms conclude that – consistent with New York’s customary and long-standing principles of statutory interpretation as well as the internal affairs doctrine – at least substantial portions of the statute do not apply to the issues covered in the White Paper.

Virtual Annual Meetings: Intel Decides to Hold Physical Meeting in 2010

According to Jim McRitchie’s “ Blog,” Intel has decided to at least postpone foregoing holding a physical component to its annual shareholders’ meeting for 2010. Initially, Intel planned to hold a completely virtual annual meeting as Broadridge did a few months ago. Intel planned to take its quasi-virtual annual meeting from last year one step further and hold it completely online – now Intel will hold its ’10 as a quasi-virtual one just like it did in ’09. Here’s an investor’s statement on Intel’s decision.

More on our “Proxy Season Blog”

With the proxy season in full gear, we are posting new items regularly on our “Proxy Season Blog” for 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:

– Effective Board Engagement with Shareholders
– A Real Reason: Attaching Plans to the Proxy Statement
– Newground Initiates “Fair Vote” Campaign
– Analysis: Voluntary Implementation of Proxy Access
– Annual Meeting Transcripts: Should You Post One?

– Broc Romanek

January 22, 2010

A Biggie: US Supreme Court Opens Corporate Coffers to Political Campaigns

Yesterday, in a 5-4 decision, the US Supreme Court delivered a surprising – and groundbreaking – opinion in Citizens United v. Federal Election Commission that held, among other things, that a prohibition on corporations, unions, etc. from using their general treasury funds to pay for campaign advertisements regarding an issue or political candidate was unconstitutional. Note that corporations are still prohibited from making direct political contributions to candidates or political parties. This decision is expected to radically alter the role that companies will play in political elections, as it turns back the clock a century on laws in this area. It represents quite an aggressive intervention into politics by SCOTUS.

Looking at Google News, there are already more than 2500 articles on this case – and I see that some law firms have already set up webcasts to explain this decision to be held as early as Monday! We will be posting memos on this decision in our “Political Contributions” Practice Area.

Here are a few blogs that lay out the issues and possible consequences of the decision pretty nicely:

Citizens United: What Happens Next?
What Will Citizens United Do to the 2010 Election Cycle?
How Corporate Money Will Reshape Politics

What Does Citizens United Mean for Director Elections? Turns Them Into Political Ones?

One topic not addressed so far in the media pieces I have read is how Citizens United may impact the boardroom. Given that a company’s board will likely be the greatest influencer on how a company spends money in political campaigns, I imagine the politics of each director could well be scrutinized now and perhaps it’s more likely that third-parties will attempt to place alternative candidates – ones with a different political bent – on a company’s ballot. Plus, Senator Schumer is talking about Congress adopting a law that would require shareholder approval of political expenditures as one of several alternatives to limit the decision’s impact. A true mix of politics and investing.

The importance of proxy access just jumped three-fold in my opinion. And the importance of the roles played by chief governance officers, corporate secretaries and investor relations departments also jumped as they will be called upon to help directors conduct real campaigns, a topic I have written about often (here is one example and another). The change never stops…

Mailed: January-February Issue of The Corporate Counsel

The January-February issue of The Corporate Counsel was recently mailed and analyzes these topics:

– Will Delaware Issuers Be Utilizing the New Bifurcated Record Dates for Their Upcoming Annual Meeting?
– Incorporation By Reference/Totality of Information As Good Deal-Disclosure–The Dialogue Continues
– Do Spring-Loaded Option Grants To Executives Trigger 8-K Item 5.02(e)?
– Rule 10b5-1 Plan Practices–Staff CDIs and Other Updates
– More Section 13(d)/(g) CDIs
– Getting Familiar with the GAAP Codification

Act Now: As all subscriptions are on a calendar-year basis, renew now if you haven’t yet to receive this issue. If not yet a subscriber, try a 2010 no-risk trial.

– Broc Romanek

January 21, 2010

The New Rules: Corp Fin Issues Nine More CD&Is

Yesterday, the SEC issued nine new Compliance and Disclosure Interpretations to deal with issues posed by the new executive compensation and proxy disclosure enhancement rules adopted last month. These CDIs are in addition to the transitional CDIs already issued.

Below are links to the new CDIs, the last two of which are transitional in nature (in the alternative, we have placed all of the new CDIs in one document for your reading pleasure):

CDI 116.05
CDI 116.06
CDI 117.04
CDI 119.20
CDI 128A.01
CDI 133.10
CDI 133.11
Question 6
Question 7

Coming Soon: SEC’s Climate Change Interpretive Guidance

Yesterday, the SEC announced that it will hold an open Commission meeting next Wednesday to consider issuing interpretive release on climate change. Here is the meeting agenda.

I wonder if this guidance will apply to this proxy season? Either way, we held an excellent webcast last week – “ESG Disclosures: Environmental, Climate Change, Social Responsibilities” – whose audio archive (transcript to come) will help get you to up-to-speed on the issues you should be analyzing now.

Webcast: “Pat McGurn’s Forecast for 2010 Proxy Season: Wild and Woolly”

Tune in today for our webcast – ““Pat McGurn’s Forecast for 2010 Proxy Season: Wild and Woolly”” – to hear Pat McGurn of RiskMetrics’ ISS Division give a recap of what transpired in the 2009 proxy season and predict what to expect for the upcoming proxy season. Here are course materials you should print out in advance of the program.

Act Now: Since all memberships are on a calendar-year basis and expired at the end of December, if you don’t renew now, you will be unable to access this webcast. If you’re not yet a member, try a 2010 no-risk trial.

More on “The Mentor Blog”

We continue to post new items daily on our new blog – “The Mentor Blog” – for 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:

– “Collectively Stupid”: A Way of Life?
– US and California Supreme Courts Tackle Attorney-Client Privilege
– The SEC Cares
– The Time I was Written Up for Blogging
– SCOTUS to Hear “Foreign-Cubed” Cases
– An Unforeseen Impact of an SEC Complaint: No D&O Coverage
– Why I Don’t Allow Comments on My Blogs

– Broc Romanek

January 20, 2010

Dave & Marty on Compliance, Risk, Ordinary Business and Heavy Metal

In this podcast, Dave Lynn and Marty Dunn engage in a lively discussion regarding compliance, risk and heavy metal – not necessarily in that order.

Redlined: Changes to S-K Items 401, 402, and 407

Thanks to Luke Frutkin of Frost Brown Todd, we have posted redlined versions of Items 401, 402 and 407 of Regulation S-K – which account for the recent SEC rule changes. We have also posted a Word version of the new Item 5.07 of Form 8-K (note that the SEC’s PDF of Form 8-K doesn’t include this new item yet).

Whistleblower Can Go “De Novo” If DOL Doesn’t Act

A few weeks ago, the Fourth Circuit – in Stone v. Instrumentation Laboratory Company – held that the Sarbanes-Oxley Act’s whistleblower provisions establish a complainant’s right to de novo review in federal district court if the Labor Department does not issue a “final decision” within the statutory 180-day period. This is the first time a court has addressed this issue.

– Broc Romanek

January 19, 2010

Corp Fin Hires State Law Expert: Professor Larry Hamermesh

In an interesting move, Corp Fin has hired Professor Lawrence Hamermesh of Widener University Law School as an attorney fellow, who will serve thru mid-2011. Professor Hamermesh is a well-known Delaware law expert and is regularly rumored to be a candidate for the bench there. Not surprisingly, the Professor will be advising on areas where both federal and state law intersect. I imagine this has a lot to do with proxy access. A good hire by the SEC…

Here We Go Again: SEC Files Second Complaint against BofA

Last week, the SEC filed a second complaint in the US District Court – SDNY against Bank of America concerning an alleged lack of disclosure over extraordinary financial losses at Merrill Lynch prior to a shareholder vote to approve a merger between the two companies (here’s the SEC’s litigation release). Last year, the SEC filed a “lack of disclosure” complaint against BofA over a bonus plan related to its merger with Merrill Lynch that became headline news after Judge Rakoff had earlier refused to approve a settlement between BofA and the SEC.

A second complaint was filed by the SEC rather than amending the existing complaint because the court had denied the SEC’s motion to amend. Note that in the SEC’s litigation release announcing its intention to seek leave to amend, the SEC specifically noted that it does not allege that any individual bank executive or counsel acted with scienter and does not name as defendants, any individual. Trial is set for March 1st…

Dominic Jones notes that Judge Rakoff recently ruled that BofA cannot present expert testimony asserting that media reports should have alerted shareholders to the bonuses it planned to pay Merrill Lynch executives after the 2008 merger.

SEC Approves PCAOB’s “Engagement Quality” Standard

On Friday, the SEC approved the PCAOB’s Auditing Standard No. 7 regarding engagement quality review, after receiving nine comment letters when the standard was proposed last August. The standard is effective for engagement quality reviews of audits and interim reviews for fiscal years that began on or after December 15, 2009. Here is the PCAOB’s press release.

– Broc Romanek

January 18, 2010

Non-GAAP Financial Measures: SEC Reinstates Old FAQ By Changing New CDIs

On Friday, the SEC reversed course and reinstated old non-GAAP FAQ 23, as CDI 105.07 of the new non-GAAP CDIs that had been released last Tuesday (which had updated the SEC’s FAQs on this topic from 2003). At the same time, the SEC also deleted new CDI 105.4.

It appears that in initially issuing CDI 105.4 last week, the intent was not to change the meaning of old FAQ 23 – but to make it clearer. In doing so, the new CDI omitted the key fact that the earnings release was not furnished on a Form 8-K before the conference call. To correct this, the SEC deleted new 105.4 and reissued old FAQ 23 as new C&DI 105.07, omitting the Reg FD sentence since nothing in that fact pattern raises an FD concern.

Courtesy of Davis Polk, here’s a redlined version of how the ’03 FAQs compare to the new CDIs, including this latest change.

SEC Agrees to 2-Year Stay of Rule 151A

Even though I don’t typically cover the indexed annuity products area, I thought this development was interesting because I don’t recall a situation where a court postponed the implementation of a SEC rule for two years (although I imagine it has happened before). Here is a summary of this development drawn from this Morrison & Foerster memo:

On December 8, 2009, the Securities and Exchange Commission (the “SEC”) stated in a filing with the U.S. Court of Appeals for the District of Columbia Circuit (the “Court”) that it agreed to stay of the effective date of Rule 151A for “two years after completion of all proceedings on remand, to run from publication of a retained or reissued Rule 151A in the Federal Register.” Compliance with Rule 151A is therefore postponed. Companies would have two years from that new publication date to comply with Rule 151A, or any reissued version of the rule.

The filing was made in response to petitions filed by various insurance industry participants requesting the Court to reconsider its remand order that it issued on July 21, 2009 and void Rule 151A. The Court had previously ruled that the SEC failed to properly consider the effects of Rule 151A on efficiency, competition and capital formation in the insurance industry and remanded the issue to the SEC for reconsideration.

More on “The Mentor Blog”

We continue to post new items daily on our new blog – “The Mentor Blog” – for 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:

– Becoming an “Outlier”: Leveraging Social Media
– What Level of Due Diligence Should a Placement Agent Conduct?
– Where the Action Is: CEO Searches
– Legal Implications of Cloud Computing
– More on “Collectively Stupid: A Way of Life?”

– Broc Romanek