Recently, CII and others sent a letter to both the Senate Banking Committee and the Senate Appropriations Committee supporting SEC self-funding. Given that self-funding is included as Section 991 of the new Dodd bill, the support may have worked.
As I have blogged before, it’s an idea that is not new (20 years old? 30?) – and in my opinion, long overdue. I simply don’t feel the concerns expressed by academics like in this “blog” are in the realm of reality. The level of fees levied on the filing of registration statements has little impact on the decision of whether to register securities. Ask anyone in the biz…
FASB & IASB Publish Joint Exposure Draft on Conceptual Framework
Recently, the FASB and IASB issued this joint exposure draft on the reporting entity phase of their conceptual framework project (note the existing conceptual frameworks do not include a reporting entity concept). Comments are due by July 16th (learn more in this memo).
Between the aggressive schedule and volume of joint standard-setting projects flowing out of the FASB and IASB Memorandum of Understanding and the FASB’s own separate projects, interested parties will need to significantly increase their involvement in the FASB’s due-process efforts while also planning for implementing the numerous new standards that will result from these efforts. Accountants and lawyers alike will continue to be extremely busy with all the change wrought by reform…
A few weeks ago, the SEC issued this order approving the PCAOB’s changes to its inspections rules.
All the Rage: Tender Offers
We just posted the transcript for the DealLawyers.com webcast: “All the Rage: Tender Offers.”
Given the heft of the 1300-plus pages of Sen. Dodd’s reform bill that was released yesterday, I was inclined to first read the 11-page summary. Unfortunately, the summary is a pretty high-level document and I was forced into the abyss. Yesterday’s draft differs quite a bit from Dodd’s bill released in November – and substantially different from legislation passed by the House in December (and the exec comp provisions differ from Sen. Menendez’s bill that I blogged about on Friday). [We’ll be posting the inevitable onslaught of memos in our “Regulatory Reform” Practice Area.]
As could be expected from such a comprehensive bill, there is a lot of ground covered. Here are most of the highlights that pertain to our community:
– The Table of Contents omits Title IX, Subtitle E “Accountability and Executive Compensation” and Subtitle F “Improvements to SEC’s Management” (ie. Sections 951-966 on pages 868-895) for some reason. Wishful thinking?
– Investor Advisory Committee made permanent (Section 911, pages 760-766)
– SEC allowed to adopt proxy access, but not mandated to do so (Section 972, pages 898-899)
– Disclose whether chair and CEO roles split; something SEC has already done (Section 973, pages 899-900)
– SEC self-funded (Section 991, pages 980-996)
Note that the Dodd bill does not include an exemption for non-accelerated filers from Section 404(b) of Sarbanes-Oxley. The bill also no longer includes provisions to require a separate shareholder vote on severance arrangements nor shareholder ratification of classified boards.
The Dodd Bill: How’s the Road Ahead?
Here’s what to expect going forward from Sonnenschein: Chairman Dodd plans to have the Committee begin its markup of his revised bill on Monday, March 22 at 4:00 p.m., and to continue as necessary with the goal of completing the markup by the end of the week. Emphasizing that he wants the Senate to “move quickly” to pass financial regulatory reform, Senate Majority Leader Harry Reid (D-NV) indicated that he wants to bring the bill to a vote on the Senate floor before the Memorial Day recess at the end of May.
If this goal is met, the hope is that a conference committee will reconcile the House and Senate bills by the July 4 recess. Because the House and Senate bills are expected to be considerably different, a difficult conference is anticipated. Signaling his intention to protect the House bill, House Financial Services Committee Chairman Barney Frank (D-MA) stated that he wants all conference committee deliberations to be televised on C-SPAN.
Yesterday, Corp Fin issued Staff Legal Bulletin No. 18 regarding Rule 12h-3 and when companies can suspend their Section 15(d) reporting obligations. This guidance should dramatically reduce the number of no-action requests that the Staff must process – as it’s an increasingly common scenario (the Staff posted two responses just yesterday, including this one) – as the SLB notes:
Because of the routine nature of these requests, the large body of no-action precedent and the guidance in this legal bulletin, the Division is of the view that, on a going-forward basis, an issuer that fits within either of the two situations identified above and satisfies the conditions set forth in this legal bulletin does not need a no-action response from the Division before filing a Form 15 to suspend its Section 15(d) reporting obligation in reliance on Rule 12h-3.
And of course, this relief from seeking no-action relief will reduce the legal bills for the type of companies that probably need it most…
Even though calendar-year fiscal companies are pretty close to finalizing their proxy materials, Corp Fin continues to issue interpretations on the SEC’s new rules. On Friday, these three new CDIs were issued:
In his “Proxy Disclosure Blog,” Mark Borges provides some commentary on these new CDIs.
Something Novel: Proxy Statement Shareholders’ Letter from the Board
We’re all familiar with the glossy annual report’s letter to shareholders from the CEO. But what about an annual letter from the board for the proxy statement? On Friday, Prudential filed its preliminary proxy materials and it includes just such a three-page letter. Plain English, lots of rationale and detail into decisions. Good stuff.
Remember that Prudential also is trying a novel way to increase the level of voting by its registered holders with a novel initiative that ties to its environmental & sustainability program.
What the Top Compensation Consultants Are NOW Telling Compensation Committees
Tune in tomorrow for the CompensationStandards.com webcast – “What the Top Compensation Consultants Are NOW Telling Compensation Committees” – to hear Ira Kay of Ira T. Kay & Company, Mike Kesner of Deloitte Consulting and James Kim of Frederic W. Cook & Co. analyze what types of risk assessments companies are putting into place as well as what are companies doing in the areas of equity grants pay-for-performance and 280G gross-ups.
This just in! In this 20-minute podcast, Dave Lynn and Marty Dunn engage in a lively discussion of the latest developments in securities laws, corporate governance and pop culture, including:
– Analysis of the new shareholder proposal decision in Apache Corporation v. John Chevedden
– What are the proxy disclosure trends under the new rules
– What Marty and Dave would be doing if they weren’t securities lawyers (hint: Marty gets his hands dirty!)
The Senate’s Say-on-Pay Bill: Lots to Chew On
As Senator Dodd races to release his comprehensive financial regulatory reform bill on Monday in the Senate (without Republican support according to this announcement), it is believed that the say-on-pay part of that package has already been unveiled – courtesy of Sen. Robert Menendez, D-NJ – in the form of S. 3049, “The Corporate Executive Accountability Act of 2010.” Senator Menendez, a member of the U.S. Senate Banking Committee, introduced his bill a few weeks ago – and I’ve seen reports that it’s expected to be part of the Democrat’s larger reform package (but it’s possible it could be changed before then of course).
Under the Menendez bill:
– Shareholders at public companies would have a nonbinding vote on the proxy disclosure of compensation packages for the company’s named executive executives
– Shareholders would have a nonbinding vote on the merger proxy disclosure of golden parachute arrangements for the company’s named executive executives
– Investment managers would annually have to disclose how they voted on the two items above
– SEC required to adopt rules eliciting internal pay ratio disclosure from publicly traded companies (ie. disclose the ratio of pay for CEOs compared to the median of all employee’s pay)
– Stock exchanges would required to adopt listing standards giving regulators and investors authority to clawback incentive-based compensation from executives if the company has a restatement due to material noncompliance of the company (the “misconduct” standard would be struck from Sarbanes-Oxley)
– A “senior” executive officer “terminated for cause” (which is defined in this Act) would be barred from receiving a severance package as determined by the company’s board
– Section 16 would be amended to limit executive officers from selling more than certain amounts of vested equity compensation; the bill has a 4-year formula where only 20% could be sold after the first year of vesting, 40% after the second year; 60% after the third and 80% after the fourth)
As noted in this article, one sticking point for the Republicans in a reform bill is proxy access. The prospects for Sen. Dodd’s bill being passed is mixed right now…
Our “Q&A Forum”: The Big 5500!
In our “Q&A Forum,” we have reached query #5500 (although the “real” number is really much higher since many of these have follow-ups). I know this is patting ourselves on the back, but it’s over eight years of sharing expert knowledge and is quite a resource. Combined with the Q&A Forums on our other sites, there have been over 18,000 questions answered.
You are reminded that we welcome your own input into any query you see. And remember there is no need to identify yourself if you are inclined to remain anonymous when you post a reply (or a question). And of course, remember the disclaimer that you need to conduct your own analysis and that any answers don’t contain legal advice.
Just hours after supporters of John Chevedden issued this press release predicting victory, Judge Lee Rosenthal in Federal District Court for the Southern District of Texas delivered this 30-page order and memorandum in an expedited manner allowing Apache Corporation to exclude Chevedden’s shareholder proposal by granting the company’s motion for declaratory judgment (and denying Chevedden’s motion). After the decision, Chevedden supporters issued this press release saying that the bigger picture of the order tilted the “split-decision” in Chevedden’s favor.
As noted in this blog (with follow-ups in this blog), Apache filed this novel lawsuit rather than attempt to exclude the proposal through the normal SEC channels – thereby challenging a position of the Staff regarding the use of introductory letters from brokers as evidence of ownership under Rule 14a-8(b). All the various documents filed in court during this case are in our “Shareholder Proposals” Practice Area.
Post “Apache v. Chevedden”: What Will Companies (and the SEC) Do Now?
With the Apache’s court decision now behind us, one must wonder “What do you think the SEC Staff will do now?” It’s likely that a number of companies received letters from Chevedden with proof of ownership from an introducing broker, but not all of them from the same entity involved here or with the same inadequacies that drove this judge to allow the exclusion (the judge didn’t rule on what Chevedden would have been required to submit to prove ownership under Rule 14a-8).
Since we are late into the proxy season, timing can be an issue even if a company hasn’t mailed its proxy materials yet. Although the shareholder proposal rule has a 80-day deadline for a company to submit an exclusion request, Rule 14a-8(j) provides the SEC with the ability to make an exception if a company demonstrates good cause for not filing the exclusion request earlier as follows:
Rule 14a-8(j): Question 10: What procedures must the company follow if it intends to exclude my proposal?
1. If the company intends to exclude a proposal from its proxy materials, it must file its reasons with the Commission no later than 80 calendar days before it files its definitive proxy statement and form of proxy with the Commission. The company must simultaneously provide you with a copy of its submission. The Commission staff may permit the company to make its submission later than 80 days before the company files its definitive proxy statement and form of proxy, if the company demonstrates good cause for missing the deadline.
In her order, Judge Rosenthal provides a basis for the SEC allowing companies to file late exclusion requests – since the Staff would not have decided those requests if they had submitted earlier anyway due to this pending lawsuit – but it’s possible the SEC could reject companies that file last-minute exclusion requests, partly because the SEC is behind in processing exclusion requests this year due to the snow. Remember that, five years ago, the SEC expounded on what might be “good cause” in Staff Legal Bulletin No. 14B. So this timing issue is an unknown quantity at this point.
Also, it’s unclear what application the case has beyond its specific decision, since the Judge noted her opinion is narrow – and yet it could be argued that some of her reasoning throws into question the SEC’s Hains position and other forms of proof of ownership. So the waters are a little murky here too.
The reality is that it’s too late for most companies that have received proposals from Chevedden as they have already printed or will be printing soon. We’ll be providing more analysis of this decision as it definitely has application beyond this proxy season.
How ShareGift USA Collects Odd Lots for Charity
In this podcast, Barbara Vogelstein of ShareGift USA and Andy Brownstein of Wachtell Lipton discuss how ShareGift USA collects odd lots of shares, aggregates them and gives the money to charity, including:
– What is ShareGift USA?
– How does it work in practice? How can companies get comfort that there are no securities issues?
– What can corporate secretaries and in-house counsel do to help?
The bid price grace periods are running out for quite a few Nasdaq companies next week. In this podcast, Dave Donohoe of Donohoe Advisory Associates explains the impact of that as well as other Nasdaq delisting issues, including:
– How is Nasdaq dealing with bid price deficient issuers in the delisting hearing process?
– Is it possible to delay implementing a reverse stock split once you are in the hearing process?
– Have any significant rule filings related to delistings been adopted by Nasdaq recently?
– How is Nasdaq applying its reverse merger rule?
– Are there particular issues that companies should be aware of when transitioning from Nasdaq or Amex to the OTCBB or the Pink Sheets? Are there other over-the-counter options available?
Broadridge Enters Transfer Agent Business
Game on! Yesterday, Broadridge announced it acquired StockTrans, thereby moving into the stock transfer business for small- and mid-size companies. Broadridge’s move into the transfer agent biz seems like a natural extension of the proxy management and shareholder communication services that the company currently provides to companies and should make it more easy for client companies to communicate with their own shareholders.
As I’ve been saying for a while, I normally don’t recommend a stock to buy since I’m certainly no expert – but buying BR sure has made sense for me as it’s nearly doubled over the past year.
More on “The Mentor Blog”
We continue to post new items daily on our 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:
– Framework: Succession Planning Discussion by Boards
– Law Firms and Their Dead Pages
– Recent Court Case Confirms the Importance of Well Drafted Forward-Looking Statement Disclosure
– Auditor Engagement Letters: Time for a Review
– What Has Your Bar Done for You Lately?
As we all anxiously await for Senator Dodd’s draft financial markets reform bill – expected this week – and find out what survived the behind-the-doors horsetrading, I thought I’d not that for a while now, as noted in this Business Week article, a Committee has been pushing to create a new “National Institute of Finance,” which would be an independent research institute that would support the existing federal agencies that deal with financial institutions. Now that dream is coming closer to reality as Senate Bill S.3005 was introduced recently by Sen. Jack Reed for just that purpose. Here is Senator Reed’s statement.
I agree that the federal agencies need to better coordinate – but creating an entirely new agency to serve as the back office seems like it will create waste and turf wars. Better to build up the research capabilities of the existing agencies IMHO. Not to mention that I can’t bear the thought of a federal agency with “Institute” in the name. Sounds straight out of a cartoon…
Security of Board Communications
In this podcast, Kris Veaco of the Veaco Group runs down some frequently-asked questions about how to keep board communication secure, including:
– For hard-copy board materials, what methods of delivery are used and are considered “secure” (i.e., Fedex, courier service, etc.)? Should a signature be required for home deliveries?
– Regarding electronic delivery of board materials, what are the security risks of using regular e-mail, and what are some more secure electronic delivery alternatives (i.e., board portals, e-mail encryption, encrypted CDs or flash drives, etc.)?
– For board/committee teleconferences, how do you ensure a teleconference system is secure?
– Should a board have an informal policy about directors e-mailing each other and with management?
Poll: Do You Remember the “Big 8” Audit Firms?
With the consolidation of the auditing profession now far in the rear mirror, I thought I poll on the identities of the “Big 8” audit firms – which were indeed the primary eight firms for most of the 20th century, until they became the “Big 6” after 1989 – was in order. See if you can pick five of the “Big 8” in the poll below – in other words, only five of the ten listed in the poll were part of the “Big 8” and you will only be able to make five selections:
As the SEC pushes every association known to humankind to make a big deal of their new “Proxy Matters Spotlight” page, some companies are trying novel ways to alert shareholders to the change in the NYSE’s Rule 452. For example, Boeing just filed this preliminary additional soliciting material consisting of a card notifying shareholders of the recent change in the ability of brokers to vote in director elections. This card is being sent in advance of the proxy materials. [And as a Boeing shareholder I received an email about this letter a few days ago from Schwab (probably written by Broadridge and not Boeing); a follow-up blog is warranted regarding the deficiencies of that email. Coming soon.]
Boeing’s shareholder letter is a noble effort – but I still think bigger measures are gonna be needed to increase voting levels (as I’ve blogged before). Thanks to Kevin O’Neil of Vorys for bringing the Boeing notice to my attention.
Congrats to local Sandra Bullock for her “The Blind Side” Oscar. My family has experienced something similar to that movie’s theme over the past year. We welcomed a 21-year old Sudanese man – Deng – into our home (along with another family up the street) and his English has improved remarkably. And he passed his citizenship test last week. It’s been one of the most rewarding experiences of my life. Here is Deng giving remarks at a surprise party his extended family held for him.
Corporate Governance Trends: Survey Results
Recently, Shearman & Sterling released its annual survey on corporate governance practices of the 100 largest US public companies. Among the trends described in the survey are:
– In the past three years, more than half of the Top 100 Companies have abandoned the plurality voting standard for director elections in favor of a majority voting standard, with 75 of the Top 100 Companies now with a majority voting standard in place.
– The number of companies that have separate people serving as CEO and chairman of the board continues to rise, increasing from 28 to 31 from 2008 to 2009. While 75 of the Top 100 Companies address the topic of whether the two offices should be separated, only 7 of those companies have adopted an explicit policy of splitting the two offices. And of the Top 100 Companies, 69 still have their CEO also serving as chairman of the board.
– With the increased complexity of board membership and decision-making, companies continue to limit the number of outside boards a director may serve on. For the second year in a row, 92% of companies addressed the issue of outside board membership, way up from just 76% in 2004.
– In 2009, 55 of the Top 100 Companies included governance-related shareholder proposals in their proxy statements.
– Of the Top 100 Companies, only 10 have a shareholder rights plan or “poison pill,” down from 33 just five years ago.
– E-proxy notification continues to gain in popularity. Fifty-seven of the Top 100 Companies now use an e-proxy “notice-and-access model,” way up from 35 just a year ago.
– Say-on-pay proposals were presented at 44 of the Top 100 Companies and at over 100 other US public companies. The proposals were approved at 8 of the Top 100 Companies and received majority approval at approximately 10 other US public companies.
– The number of Top 100 Companies that publicly disclosed that they maintain a “clawback policy” has significantly increased over the last three years―35 companies in 2007, 50 in 2008 and 56 in 2009. An additional five Top 100 Companies have disclosed that they have adopted clawback polices that became effective in 2009.
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 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:
– More on “Diversity Policies: Do You Need One? Samples Available”
– Delaware Law: How to Count Abstentions and Broker Non-Votes
– Proxy Access: Seven Law Firms Comment on “Opt-Out”
– Survey: Number of Investors Holding 1% of a Company’s Stock
– Suing for Attorney Fees: Causing Company to Add Proxy Disclosure
– RiskMetrics Group Releases 2010 Proxy Season Watchlist
Several times over the past six months, I have noted potential issues with New York’s new power of attorney law (egs. this blog – and this one). Cravath, Swaine & Moore recently informed me that it has been considering various issues raised by law and has concluded that, based on principles of statutory construction, this new statute is best understood as not applying beyond powers of attorney that convey to the agent power over the principal’s money and property. Understood in this light, the statute does not apply to powers of attorney that only authorize signatures required in SEC filings. These include powers of attorney used in registration statements and annual reports on Form 10-K, as well as Section 16 filings. Here are more thoughts from Cravath:
The Statute speaks of two types of power of attorney – the “statutory short form power of attorney” and a “non-statutory power of attorney” – and then directs that, among other requirements, these two types of power of attorney must contain the “exact wording of the ‘Caution to the Principal'” that is set forth in the Statute. The “Caution to the Principal” reads: “As the ‘principal,’ you give the person whom you choose (your ‘agent’) authority to spend your money and sell or dispose of your property during your lifetime without telling you.”
The Statute does not provide that these two types of power of attorney are the only types of power of attorney recognized in New York, nor does the Statute define “non-statutory power of attorney”. The obligation to include the “Caution to the Principal” legend with any power of attorney governed by the Statute reveals the necessarily limited scope of the term “non-statutory power of attorney” and thus the limited reach of the Statute.
Cravath’s analysis concludes that, in light of the legend, the Statute should be interpreted to regulate only powers of attorney that convey authority to the agent to spend the principal’s money and to sell or dispose of the principal’s property. Otherwise, one would have to accept:
(a) that the Statute requires the inclusion of a false legend, which would be an absurd result and a reading that is inconsistent with basic principles of statutory construction, or
(b) that the Statute requires that every power of attorney executed by an individual in New York must convey power over the principal’s money and property, which would be an absurd result in the absence of any evidence in the Statute or legislative history of the legislature’s intent to effect such a dramatic change in the law would be even more absurd given the clear intention of the legislature in enacting the Statute to protect individuals from the abuse of that power by their agents, or
(c) that notwithstanding the plain words of the Statute a valid “non-statutory power of attorney” does not require the “Caution to the Principal” legend unless it includes power over the principal’s money and property.
Rather than be forced to adopt any of these absurd interpretations or ignore the plain words of the Statute, our analysis suggests a more straight-forward result – the otherwise undefined term “non-statutory power of attorney” should be interpreted not to cover powers of attorney unless they convey authority to the agent to spend the principal’s money and to sell or dispose of the principal’s property.
Treasury Proposes “Volcker Rule” Legislative Text
On Wednesday, the Treasury Department proposed legislative text to implement the “Volcker Rule” announced by the Obama Administration back in January. This Davis Polk memo briefly summarizes the provisions of Treasury’s proposal, which takes the form of new Sections 13 and 13a of the Bank Holding Company Act of 1956.
2. The following takes the lead in drafting the CD&A/other executive compensation:
– In-house Securities Attorney – 45.9%
– In-house Human Resource Staff – 29.4%
– In-house Accounting Staff, including CFO – 1.8%
– General Counsel – 12.8%
– Corporate Secretary/Assistant Corporate Secretary – 11.0%
– Outside Counsel – 4.6%
– Outside Consultant – 1.8%
– Other – 1.8%
3. The following provides significant assistance in drafting the CD&A/other executive compensation disclosures:
– In-house Securities Attorney – 32.4%
– In-house Human Resource Staff – 32.4%
– In-house Accounting Staff, including CFO – 18.1%
– General Counsel – 14.3%
– Corporate Secretary/Assistant Corporate Secretary – 17.1%
– Other NEO(s) – 0.9%
– Outside Counsel – 21.0%
– Outside Consultant – 8.6%
– Other – 4.8%
4. The following are involved in reviewing and providing comments on the draft CD&A/other executive compensation disclosures:
– In-house Securities Attorney – 38.6%
– In-house Human Resource Staff – 46.6%
– In-house Accounting Staff, including CFO – 54.6%
– General Counsel – 54.6%
– Corporate Secretary/Assistant Corporate Secretary – 37.5%
– Other NEO(s) – 38.6%
– Outside Counsel – 60.2%
– Outside Consultant – 42.1%
– Communications Staff – 19.3%
– Independent Auditor – 20.5%
– Other – 15.9%
5. For the lead drafter, the following is the estimated amount of time devoted to drafting proxy disclosures for this year:
– Less than 100 hours – 14.5%
– 100-200 hours – 53.0%
– 200-300 hours – 16.9%
– 300-500 hours – 6.0%
– Too many hours to even estimate – 9.6%
6. For all those involved in drafting proxy disclosures (including the lead drafter as well as people outside the company), the following is the estimated amount of time devoted to drafting proxy disclosures for this year:
– Less than 100 hours – 3.5%
– 100-200 hours -14.9%
– 200-300 hours – 32.2%
– 300-500 hours – 24.1%
– 500-700 hours – 9.2%
– Too many hours to even estimate – 16.1%
As noted by Kevin LaCroix in his “D&O Diary Blog,” Warren Buffett’s annual letter to shareholders is now available. Straight talk at its best…
CII’s White Paper on Proxy Plumbing
Recently, CII issued this 48-page White Paper – entitled “The OBO/NOBO Distinction in Beneficial Ownership: Implications for Shareowner Communications and Voting” – that reviews a number of the problems with the current proxy processing system and discusses several of the reforms which have been proposed by various stakeholders. This is a good read as it serves as one of the better outlines of proxy mechanics and the issues involved in today’s debate over the process. Interestingly, the paper’s authors are from a law firm (Cleary Gottlieb’s Alan Beller, Janet Fisher and Rebecca Tabb).