Following up on my blog yesterday about the Dodd bill passing the Senate Banking Committee, I forgot to mention that there were two corporate governance amendments that made it into the 114-page Manager’s Amendment on the Dodd bill, both offered by Sen. Menendez (D-NJ):
– Pay Disparity Disclosure – Section 953 (the executive compensation disclosures provision) was amended to add a provision that would direct the SEC to amend Item 402 to require companies to disclose (i) their CEO’s annual total compensation, (ii) the median annual total compensation of their employees (excluding the CEO), and (iii) the ratio between CEO and employee pay. This disclosure would be required in registration statements, periodic reports and proxy/information statements
– Prohibit Use of Broker Non-Votes for Executive Compensation Matters – A new Section 957 was added to prohibit broker voting of uninstructed shares in director elections, executive compensation matters, or any other significant matter as determined by the SEC. While its language is general, this provision appears to be aimed at codifying the recent change to NYSE Rule 452, as well as precluding brokers from voting shares in “say-on-pay” votes (although Mark Borges notes that since it also applies to any shareholder vote involving “executive compensation,” it appears that it could extend to numerous compensation-related matters, such as the adoption of an employee stock plan and the approval of severance agreements).
And speaking of pay disparity, as a follow-up to my blog on the recent spate of shareholder proposals on pay disparity, it appears that the SEC Staff is rejecting requests from companies to exclude them under Rule 14a-8, as noted in this Reuters’ article.
Nostalgic for Options Backdating
Ah, remember the good ole days when citizens were just mad at Corporate America solely over options backdating. Those were the days! Luckily, backdating continues to creep into the news every once in a while. For example, criminal charges were dismissed recently against Broadcom’s former CEO and CFO – this may mark the end of new criminal cases (although there still needs to be a final disposition against the former Comverse CEO; here is an Ideoblog piece on this case) – while a securities lawsuit against Comverse was settled for $225 million (while a separate derivative lawsuit was also settled against Comverse a few weeks later, which includes a $60 million payment by the former CEO).
And this Bloomberg article noted that an investigation conducted by Treasury’s Inspector General concluded that the Office of Thrift Supervision allowed six thrifts to improperly backdate capital injections.
Also, Kevin LaCroix of the “D&O Diary” Blog notes that former McAfee General Counsel Kent Roberts, accused of options backdating-related misconduct, was acquitted following a criminal jury trial and the SEC later dropped its separate enforcement action against him. But that apparently is not enough for Roberts – he wants vengeance and has filed a defamation lawsuit (see this Bloomberg article).
And last September, a three-judge panel of the Ninth Circuit Court of Appeals reversed a District Judge’s order suppressing evidence related to information obtained by a law firm from Broadcom that helped conduct the internal investigation into options backdating by the company’s former CFO. Then, Broadcom settled a backdating-related securities class action lawsuit.
Finally, a new academic study surfaced that purports to show that the practice of backdating may have been significantly more widespread than previously believed – identifying 92 companies that have not previously been publicly associated with allegations of backdating. So maybe more backdating news to come…and not related to backdating, here is a provocative piece from Bud Crystal about opportunistic option timing.
As noted in the “Securities Litigation Watch,” Adam Savett is keeping updated options backdating stats as to how cases are being disposed. Here is an excerpt from that blog: “Of the 39 options backdating cases that have been filed as securities class actions, 30 have now reached a resolution. Of the resolved cases, 9 of those cases have been dismissed and 21 have settled. This is still in line with historical trends, where settlements outnumber dismissals by approximately 2-to-1.
The twenty one settlements total $1.56 billion, for an average of $74.38 million. But, removing the largest settlement (UnitedHealth Group) lowers the average back to $31.82 million. As could have been expected the averages are slowly creeping down over time, as the UnitedHealth settlement can now be viewed as a fairly clear example of an outlier in terms of the size of the settlement.”
SOX Whistleblowing Procedure Axed by French Supreme Court
Below is news from Gibson Dunn (we have posted memos analyzing this decision in our “Whistleblowers” Practice Area):
On December 8th, the French Supreme Court issued a decision impacting companies having operations in France and subject to the “whistle-blowing” requirements provided for by Section 301(4) of Sarbanes-Oxley. In 2004 and 2007, Dassault Systèmes – the holding company of the Dassault group – adapted its “Code of Business Conduct” (the “Code”) to provide for a whistle-blowing procedure.
The Code described the procedure as being “neither mandatory nor exclusive. Any person having knowledge of material breaches of the principles described in the Code of Business Conduct in financial, accounting or banking matters or relating to anticorruption issues and which deems it appropriate may communicate such breach to the designated persons within the DS Group. This procedure may not be used outside these areas. It may be used, however, in areas relating to the vital interest of the DS Group or the physical or mental integrity of a person (in particular in case of … discrimination or moral or sexual harassment).”
The French Supreme Court held that the Dassault whistle-blowing procedure was in breach of the Act on Computing and Liberties dated January 6, 1978 (“Loi informatique et libertés”). As a matter of principle, the Act requires the National Commission on Computing and Liberties (“Commission Nationale de l’Informatique et des Libertés”) (the “CNIL”) to authorize the operation of any automatic data processing system in advance of its implementation. The CNIL, however, has created simplified declaratory procedures in a number of areas. Under a deliberation dated December 8, 2005 on the Unique Authorization on Personal Automatic Data Processing Implemented in Respect of Whistle-Blowing Procedures (the “2005 Deliberation”), whistle-blowing procedures may be subject to a mere prior declaration to the CNIL, provided the procedures do not exceed the scope of the 2005 Deliberation. The 2005 Deliberation limits the possibility to use the simplified declaratory procedure in connection with procedures implemented in connection with “financial, accounting or banking matters or relating to anticorruption issues”.
The Dassault whistle-blowing procedure going beyond these areas, the French Supreme Court decided that it was in breach of the Act as it should have received the CNIL’s prior authorization. The French Supreme Court also held that the Dassault procedure was breaching the Act in that it failed to provide for a right for any person affected by the whistle-blowing procedure to be informed, and have a right of access to, and of rectification of, any information collected in this manner.
– Broc Romanek