Yesterday, I blogged about the progress of the House-Senate conference committee deliberations and the release of the “Conference Base Text.” Later on, Rep. Barney Frank issued this press release stating that debate over the investor protection and executive compensation provisions will begin at 11 am today.
The press release contains a long list of changes to the base text that the House Democrats seek. As noted in the ISS Blog, among other changes sought by these House Democrats are these:
– Require separate shareholder votes on “golden parachute” retirement payouts when companies seek approval for mergers, consolidations, or other transactions. This provision was in the House bill, but not the Senate measure.
– Add a House provision on enhanced compensation oversight for the financial industry. The House members seek to require “all federal financial regulators to issue and enforce joint compensation rules specifically applicable to all financial institutions with a federal regulator.”
– Add a House provision that SEC apply independence standards to compensation committee consultants that are competitively neutral and treat large and small consultants equally.
– Add a House provision to direct the SEC to require large institutional investment managers (i.e., those subject to Section 13(f) requirements) to disclose their proxy voting on advisory votes and golden parachute matters.
This Washington Post article describes how the rare “made-for-TV” reconciliation process feels like…
As noted in this WSJ article, yesterday’s House-Senate conference committee negotiations resulted in the removal of new conflict-of-interest rules for credit rating agencies from the reform bill. The conferees agreed that something needs to be done to reform the rating agency process – but thought it was too complicated to tackle in this bill. So in essence, the reform was tabled for now – with a promise that something would be done later as noted in this NY Times article.
The Latest Compensation Disclosures: A Proxy Season Post-Mortem
Always a popular program, tune in tomorrow for the CompensationStandards.com webcast – “The Latest Compensation Disclosures: A Proxy Season Post-Mortem” – to hear Mark Borges of Compensia, Dave Lynn of CompensationStandards.com and Morrison & Foerster and Ron Mueller of Gibson Dunn analyze what was disclosed (and what was not disclosed) during the proxy season.
As part of the Senate-House reconciliation process, the House-Senate conference committee has released nearly 2000 pages of the “Conference Base Text” – these are the provisions that the conference committee is working off of – all of the governance provisions from the final Senate bill made it into the base text.
In the alternative, there is this 3-page press release from Rep. Barney Frank. Note that the House now has named all of its conferees (and here’s what is being negotiated today – this article notes some activity in the rating agency area).
Survey Results: Investor Perception of Independent Auditor’s Work
Below are the key findings of a recent survey by the CFA Institute regarding audit reports (see related info in our “Audit Process” Practice Area). This survey is notable because it provides a “customer” viewpoint on what the independent auditors provide. For starters, 72% of respondents said the audit report is “important” in their analysis and use of financial reports in the investment decisionmaking process, while 46% indicated it is “very important.” Here are more survey stats:
Report Language Describing the Nature of an Audit & Respective Roles of Auditor and Management (Pages 7 and 9)
– 73% agree that the auditor report’s language on the nature of an audit and respective roles of auditor and management could help reduce or manage the expectations gap that exists regarding the financial statement audit.
– Furthermore, 69% think it is important to provide these communications within the auditor’s report, with 33% indicating it is very important.
Disclosure on Roles of Auditors and Method of Determining Materiality
– An overwhelming 91% agree that in cases where there is more than one auditor, the identities and specific roles of other auditors should be disclosed.
– 82% agree that the method by which the auditor determines/assesses materiality should be disclosed.
Information about the Audit Process & Matters Related to the Audited Financial Statements
– 60% of respondents believe the auditor’s report should contain more information about the audit process itself and matters related to the audited financial statements. The findings show also that 37% of respondents believe the auditor’s report contains the right amount of information about the audit process itself and matters related to the audited financial statements.
Information on the Audited Entity (Page 18)
– 57% think the auditor’s report should contain more information on the audited entity. 40% think the auditor’s report contains the appropriate amount of information.
Additional Information in the Auditor’s Report (Page 20)
– 94% of respondents would like to see additional information in the auditor’s report
– 77% would like to see information about “audit materiality”.
– 72% would like to see information on circumstances or relationships that might bear on the auditor’s independence.
– 66% would like to see the level of assurance actually achieved in the audit.
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:
– Was That a Yes or a No? Depositions in the YouTube Era
– Second Circuit Provides Guidance as to When a Cautionary Statement Is Not Meaningful
– Trading of Private Company Stock: Issues to Consider
– Why is the Choice of Forum Important?
– Internal Controls Study: Fraud in Non-Accelerated Filer Companies
Recently, I blogged about how Staffer pay levels at the SEC have increased substantially since I left a dozen years ago. In her recent testimony before a subcommittee of the Senate’s Appropriations Committee, SEC Chair Schapiro indicated that she is looking to hire many more Staffers as part of her request for a big jump in the SEC’s budget. Here’s an excerpt from that testimony:
Managing Agency Growth: While the budget request anticipates significant growth in the size of the SEC, the agency is properly positioned to implement this spending plan. To accomplish the hiring of hundreds of new staff during the course of FY 2011, the SEC is enhancing its human resources staff and, consistent with its current authorities, streamlining its hiring process. Improvements include simplifying the application process and maintaining a searchable database of applicants, so that it is possible to interview for a vacancy as soon as it appears rather than having to go through the lengthy posting process each time. Being able to better tailor, target and speed recruiting will enhance the quality of applicants and help the agency acquire the necessary talent to perform effectively in an increasingly complex financial environment.
Perhaps to gear up for all this hiring, I understand that the SEC has retained a recruiter – Futurestep, a Korn/Ferry Company – to help “provide strategic talent acquisition solutions to help the agency address its continuing talent needs.” I don’t recall the SEC using a third party to help find candidates before – although I admit it’s something that I haven’t paid much attention to and it easily could be fairly routine…
Recently, SEC Commissioner Luis Aguilar delivered this speech entitled, “Recruiting the Best and the Brightest Means Striving for a Diverse Applicant Pool.” When I last worked at the SEC, then SEC Chair Arthur Levitt pushed hard for Wall Street to diversify. It’s a topic that certainly deserves greater attention as not much has changed.
Wanted: CLO for the SEC’s “SEC University”
One of the more interesting jobs that has recently opened up down at the SEC is the one for a “CLO” (no, not a “chief legal officer”). Below is the job description (note the opening just closed so the job isn’t listed online anymore):
The Chief Learning/Knowledge Officer (CLO) of the Securities & Exchange Commission is responsible for the management of SEC University and coordination of all SEC education investments providing executive leadership, policy direction, functional management, and successful coordination of Agency-wide training and development program and activities.
The CLO is responsible for ensuring that SEC’s learning and development programs and investments are linked directly to the Agency’s strategic goals by managing and implementing synergies among learning and development programs, SEC University and mission Division technical training units to meet the critical training goals of the Agency. These strategic plans/goals include assessing Agency-wide knowledge gaps technical and management competencies, developing strategies to close knowledge gaps, creating external partnerships designed to ensure leading edge training and development programs, and managing technology to deliver learning and knowledge programs across the Agency to ensure investment in employee knowledge development are optimally managed.
Getting Hired by the SEC
Last Fall – in response to a request from a Professor who had several students applying for an entry-level job at the SEC – I posted this 5-minute video on YouTube giving my ten cents on what it’s like to work for the SEC and what the hiring process is like.
It’s not a recruitment video (nor a parody). The SEC has been flooded with resumes over the past year – but I often get asked the question about how one gets hired there so I thought this might help those that may be curious. I slapped this together real quick so beware of low production values. I pointed the Flip at myself and shot…
On May 25th, the DOJ’s Acting Deputy Attorney General, Gary Grindler, sent around this memo requesting that federal prosecutors to be more clear on what help they can offer companies having issues with corporate monitors assigned to them under federal prosecution agreements. The memo states that if a company considers a monitor recommendation “unduly burdensome, impractical, unduly expensive, or otherwise inadvisable,” it need not adopt the recommendation immediately. In addition, if the company and monitor disagree on the recommendation, “the views of both shall promptly be brought to the attention of the department.”
The SEC as a Republican Target: Potshots Galore
Last month, House Oversight and Government Reform Committee Ranking Member Darrell Issa (R-Ca) released a 33-page report which recommends a number of SEC reforms not included in the financial reform legislation being considered by Congress (see pages 29-31). Given the tight timeline that Congress has for bill reconciliation, I doubt this report will have much influence. But the bulk of the report is not pretty for the SEC as it consists of a series of potshots taken at the SEC – in fact, the report’s title is “The SEC: Designed for Failure.”
In a way, the rebuttal would be that the SEC hasn’t had adequate resources for it’s massive tasks – and that Congress has been the one holding it back. See Lynn Turner’s excellent entry on our “The Mentor Blog” entitled “A Self-Funded SEC: Making the Case” from earlier this week…
The US Citizenship Ceremony: An Emotional Experience
I thought I’d share my recent experience of attending the US citizenship ceremony for my good friend Deng Juac. Deng is a 22-year whom the United Nations brought over here about six years ago from a Kenyan refugee camp (after his dad carried him on his back across a desert from Sudan to save his life when he was 11). My family has been involved in sheltering Deng and helping him through school for the past few years. He truly is a gentle soul.
Recently, Deng received his naturalization certificate and became a US citizen. As you can imagine, this is a big deal for immigrants. At the risk of being verbose, here is a play-by-play of Deng’s citizenship ceremony – some of it was quite emotional despite its bureaucratic nature:
1. Security at the federal immigration building is much tighter than any other federal building I have been in. There is a long line out the door at all times – and security is tight within as well. No wandering the halls.
2. After Deng turned in his green card (which had an incorrect name that they gave him when he arrived 6 years ago, “Juac Juac”), we waited as 10 folks at a time were brought upstairs. After some explanatory remarks, there was a rollcall of countries represented by the folks to be sworn in. It was quite a diverse group including Afghanistan, Pakistan and Somalia. Here is a video of that.
3. We listened to a recording of the Star-Spangled Banner and then we sang the Pledge of Allegiance.
4. Then came the swearing-in ceremony which officially gets you into the “club” – here is the first-half video and here is the second half.
5. We then watched a “welcome” video from President Obama that was great (my dad says he has attended citizen ceremonies in the past and the sitting President didn’t bother to do this). This was followed by a short presentation that showed past ceremonies.
6. Then came the presentation of the naturalization certificates – the photo-op that took a while as each new citizen got their photo taken with the Section Head of the immigration office we were in. Here is a video of a Iranian who need a translator – we’re talking “old country” here. And here is a video of Deng with one of his priceless smiles.
On May 27th, the New York County District Attorney’s Office (“DANY”) issued written guidelines for determining whether to bring criminal charges against business organizations. The District Attorney’s guidelines identify a number of factors prosecutors must consider before deciding to charge or not to charge an organization for violating New York State criminal laws.
Most of the factors to be considered closely follow the principles used by the U.S. Department of Justice for prosecuting business organizations. There are, however, important distinctions between the two sets of principles. As summarized in the attached, the DANY corporate charging guidelines incorporate additional factors to be considered, including (i) whether a corporation complied with the District Attorney’s request to waive attorney-client privilege and work product protections; (ii) the potential impact of a charging decision on the public’s confidence in the fairness of prosecutors’ decisions; (iii) the views of victims of misconduct; and (iv) the feasibility of prosecuting responsible individuals.
Because the DANY Guidelines establish a uniform framework for criminal charges against organizations, and incorporate considerations not found in the analogous federal guidelines, companies doing business in New York County should familiarize themselves with these new provisions and consider whether to modify their business practices or compliance programs in light of the new guidelines.
Timeframe for SEC Adopting Proxy Access Rules? Still Gunning for ’11 Proxy Season
On Tuesday, SEC Chair Schapiro delivered this speech and noted this about proxy access:
I can confirm that I am committed to bringing a proposal back to the Commission to consider final adoption, within a timeframe that would put the rules into effect for the 2011 proxy season.
As I blogged earlier this week, don’t forget that Congressional negotiations over the reform bill get televised starting today on C-SPAN…
Summer Issue of Compensation Standards Print Newsletter
We have posted the Summer Issue of our Compensation Standards print newsletter, which provides some examples of CEOs who have taken a stand on executive pay including their guidelines and motivations. We have posted this issue free to encourage others to become more responsible.
If you’re not yet a member of CompensationStandards.com, try our “Rest of ’10 for half price” no-risk trial to catch issues of this Compensation Standards newsletter. A membership gets you online access to this newsletter, including one hard copy of the newsletter.
Congrats to the Chicago Blackhawks, my childhood hockey team. They hadn’t won the Stanley Cup since the year I was born. Stan Mikita and I share a birthday…
Does Reg FD Prohibit Directors from Speaking Privately with Shareholders?
One area that continues to generate a slew of misinformation from some practitioners is Reg FD. So I was happy to see Corp Fin issue this new CDI:
Question 101.11
Question: Does Regulation FD prohibit directors from speaking privately with a shareholder or groups of shareholders?
Answer: No. Regulation FD prohibits a company or a person acting on its behalf — such as directors, executive officers and investor relations personnel — from selectively disclosing material, non-public information to a shareholder under circumstances in which it is reasonably foreseeable that the shareholder will purchase or sell the company’s securities on the basis of that information. If a company’s directors are authorized to speak on behalf of the company and plan on speaking privately with a shareholder or group of shareholders, then the company should consider implementing policies and procedures intended to help avoid Regulation FD violations, such as pre-clearing discussion topics with the shareholder or having company counsel participate in the meeting.
In addition, because Regulation FD does not apply to disclosures made to a person who expressly agrees to maintain the disclosed information in confidence, a private communication between an independent director and a shareholder would not present Regulation FD issues if the shareholder provided such an express agreement.
FINRA Proposals: Conflicts of Interest and Fixed Price Offering Rules
As part of its initiative to incorporate the NASD’s rules into the FINRA Rulebook, FINRA recently issued two proposals. In this proposal, FINRA proposes to incorporate its conflict of interest rule – NASD Rule 2720 – into the Rulebook as Rule 5121 without change except for references to other rules.
And in this rule filing with the SEC, FINRA proposes to codify what are known as the “Papilsky” or “fixed priced offering” rules (NASD Rules 2730, 2740 and 2750) into the Rulebook as new Rule 5141. This proposal includes numbers of changes to the prior rules.
In this follow-up podcast, Prudential’s Peggy Foran and Ed Ballo explain how their company’s novel initiative that tied its environmental/sustainability program to bringing in the vote for its annual shareholders meeting fared (here is their earlier podcast from before the meeting), including:
– What were the results of Pru’s experiment to engage registered holders?
– Where there any surprises?
– For other companies considering doing this type of program, what issues would you tell them to consider?
Closed Deal: RiskMetrics Acquired by MSCI – Will ISS Be Sold Again?
As noted in this press release, MSCI closed its purchase of RiskMetrics last week. I blogged about the deal when it was first announced. The word on the street is that MSCI will be selling off the ISS unit and keeping the remainder of the RiskMetrics assets. We’ll see if that comes to pass. Meanwhile, we can all go back to calling it “ISS” and drop the RiskMetrics label…
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:
– Whether Earnings Calls Transcripts Are Worth Producing?
– No Surprise: Wires Bashing Google’s Recognized Channel Approach
– More on “The Problem with IFRS: Little Independence for the IASB”
– What Boards Need to Know About SEC Comment Letters
– Canada Proposes Its Own E-Proxy Rules
Thanks to Michele Kulerman of Hogans Lovell for this rundown on how the timeline and processes of passing Congress’ financial reform bill – the “Restoring American Financial Stability Act of 2010” – goes from here:
The Congress returns to Washington this week, anticipating an intense month of negotiations to complete consideration of sweeping financial services regulatory reform. Because each chamber must pass identical bills before the President can sign reform into law, an ad hoc “conference committee” will be named to work through the differences between the House and Senate bills.
Members of the conference committee are selected independently by House and Senate leaders from both parties, and drawn from senior members of the House Financial Services Committee and the Senate Banking Committee. They are expected to be named Tuesday, June 8th. Party ratios in the conference reflect the parties’ ratio in each chamber. The conference on this bill will be chaired by the House, so Barney Frank (D-MA), who chairs the House Financial Services Committee will preside.
The first public meeting of the conference will take place Thursday, June 10 and this session and all subsequent meetings will likely be broadcast live via C-SPAN. The opening session will be devoted to member statements and may provide insight into possible avenues of compromise on open issues.
Staffers have been working for the past two weeks on the text which the conferees will use. The Senate amendment to the House bill, HR 4173, will serve as the base text, with added House-approved language related to mortgage reform and the hiring of minorities and women by the regulatory agencies. In addition, a side-by-side comparison of provisions in both bills is usually prepared. Both documents should be publicly available sometime next week.
The conferees will meet again June 15-17 and June 22-23 in open session to rewrite the text. Obviously, a lot of the work will take place behind the scenes, and the public meetings are as likely to highlight political differences in an election year as they are to debate differences in a spirit of compromise.
The conferees hope to conclude their work by the 24th by filing the conference report that day. The report – the text of the compromise bill – is usually accompanied by a Statement of Managers which reviews the need for the legislation, details the differences between the two versions, and explains the agreed-upon compromise.
The plan is for the House to act first, starting June 28th, and for the Senate to act in time to send the bill to the President by the end of the week.
Trends in Audit Fees and Non-Audit Fees
Recently, Audit Analytics released its annual “Audit Fees and Non-Audit Fees” report, a seven-year analysis focusing on fiscal years 2002 through 2008. The report examines the fees paid by 2,924 accelerated filers that disclosed fees in each year covered by the study, with the findings including:
– After 4 years of steady decline from 2002 to 2006, non-audit fees as a percentage of total fees have leveled off in 2007 and 2008.
– For the third year in a row, non-audit fees represented only about 21% of the total fees paid by accelerated filers, down from 51% in 2002.
– While the total audit fees increased steadily over the period examined, audit fees as a percentage of revenue decreased since 2005 and now stand at $556 per million dollars of revenue.
Navigating Corp Fin’s Comment Process
We have posted the transcript of our recent webcast: “Navigating Corp Fin’s Comment Process.”
On Wednesday, the SEC announced it had charged Diebold and three former finance officers for engaging in a fraudulent accounting scheme to inflate the company’s earnings. The SEC separately settled an enforcement action (here’s the litigation release – and here’s the complaint) against Diebold’s former CEO Walden O’Dell, obtaining reimbursement of certain financial benefits that he received while Diebold was committing the accounting fraud. The SEC used the clawback provision under Section 304 of Sarbanes-Oxley to get the former CEO to agree to reimburse the company $470,016 in cash bonuses, 30,000 shares of Diebold stock and stock options for 85,000 shares of Diebold stock.
Notably, the SEC didn’t allege that the former CEO engaged in the fraud (or any other violation of the securities laws) – something the SEC did last year in an action against the former CEO of CSK Auto Corp. (ie. Maynard Jenkins), who pushed back in a motion to dismiss last September as I noted in this blog. Jenkins’ motion has not yet been ruled upon (oral arguments were heard on April 30th; here’s the transcript from that hearing posted in CompensationStandards.com’s “Clawback Policies” Practice Area) – but a ruling is expected soon…
Smaller Company Proxy Disclosures: The Latest Developments
We have posted the transcript from the recent CompensationStandards.com webcast: “Smaller Company Proxy Disclosures: The Latest Developments.”
More on “Picking Kentucky Derby Winners Based on the Economy”
A few weeks ago, I noted how Mark Coller successfully picks his Derby winners based on current events. Another member took the ball and ran with it as we head into the Belmont leg of the Triple Crown. This member has made up some horse names to fit the times:
– Banker Bailout – this horse is so last year
– Public Malaise – this one has a shot, the horse is so well-aligned with the American psyche, I don’t see how he can be overlooked
– Shop and Spend – with a name like this filly, it looks unbeatable
– Rational Investment- not a chance in a million
– Retire Rich – see Rational Investment
– Trusted Advisor – are you serious?
– Conservative Banker – might have had a chance during Glass-Steagall
– Greedy Banker – ding, ding, ding this one has to be a lock, the surest shot in the history of the sport, cash in your 401k because this horse is the only way to retire rich and don’t forget to include Churn and Burn for the exacta
I don’t know why, but this video that features a lip-syncing of Carol Channing and Liza Minnelli spliced together on a Larry King episode cracks me up (here is the original video).
In this 11-minute podcast, Ning Chiu of Davis Polk does a great job of boiling down the corporate governance and executive compensation provisions that apply to all US public listed companies in the recently passed Senate reform bill, the “Restoring American Financial Stability Act of 2010.”
Not only does Ning compare the differences between the Senate and House bills, but she identifies which provisions aren’t all that clear – and she notes which provisions are more likely to sail through and which may be altered before Congress reconciles the two bills. Finally, Ning notes the practical consequences for companies of these provisions.
Timing News about IFRS and GAAP Convergence Project
Yesterday, the IASB and FASB issued a joint statement about the status of their project to converge US GAAP and IFRS. As noted in the statement, in November 2009, the two standard setters set June 2011 as the target date to complete all major convergence projects. Stakeholders expressed concerns about their ability to provide input on the large number of exposure drafts of standards that are planned for publication in the second quarter of this year. The standard setters therefore are developing a modified strategy to prioritize projects and stagger the publication of exposure drafts. The result is that completion of some projects will be extended past June 2011.
Shortly afterward, SEC Chair Schapiro issued a statement. She indicated that she did not believe these modifications to the timetable for the convergence project will impact the SEC Staff’s ability to execute its work plan issued in February 2010. She also stated that these developments would not affect the SEC’s ability to make a determination in 2011 about whether to incorporate IFRS into the financial reporting system for US issuers.
More on our “Proxy Season Blog”
With the proxy season wrapping up, we are winding down 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:
– Notes From Google’s Annual Meeting: Good Food!
– Will Google Sidewiki Change IROs’ E-Communication Patterns?
– SEC Not Swayed by Companies’ Post-Apache Arguments
– Study: Electing Directors
– More on “Surfing Champion Surfaces in a Proxy Filing”
– A New Site for Shareholders: Lemonjuice.biz