I’ve received too many emails to count from members wondering if the SEC’s proxy access adopting release has been published in the Federal Register yet given that the SEC approved the adopting release at an open Commission meeting three weeks ago (answer: it has not). Even more folks have asked why it hasn’t yet, given that it seemed like the SEC was in a rush to do so so that the clock would start ticking towards when access would apply during the proxy season (answer: I don’t know, but the delay is unusual).
This email from a member gives the explanation of the math involved, tied to the final rules being published in the Federal Register:
As you are aware, the final proxy access rules indicate (pages 224-225) that if the window period for 14a-11 nominations has elapsed prior to the effective date of the rules (60 days following publication in the Federal Register), then shareholders of this company won’t be able to make 14a-11 nominations for the 2011 proxy season).
So, given the 120-150 day window period, by my math, if the rules were published in the Federal Register, say on September 15th, the rules would be effective on November 14th, which would mean that companies who mailed their 2010 proxy statement prior to March 14, 2010 would have a window period that fully pre-dated the effective date of the rules for this proxy season – thus meaning that these companies would not be subject to proxy access for the 2011 proxy season (this would include a fair number of calendar year-end companies, increasing by the day). While I don’t think the rules are ambiguous in their application, I find it surprising that the final rules have not yet been published, given the Commission’s previous stated desire that proxy access rules be in effect for the 2011 proxy season.
By the way, I do know that the access rules won’t be published in the Federal Register today because a preview of the following day’s content is made available each day on this site and it wasn’t listed yesterday…
Poll: Why Do You Think the Proxy Access Rules Haven’t Been Published Yet?
It looks like more companies are willing to take the risk of negative press – and shareholder anger – and hold virtual-only annual meetings. For example, check out this letter writing campaign against Symantec for planning to hold such a meeting, spearheaded by the “United States Proxy Exchange.” Here is Symantec’s proxy statement, which explains how it’s annual meeting will work (eg. questions will be permitted to submitted in ‘real time’).
The Big Four and Their Growing Consulting Practices: Deja Vu in Europe?
For those of us practicing more than a few years, you will recall how the largest auditing firms spun off their consulting practices in ’02 (post-Enron thing) since the risks of conflict of interests was too great when it came to the auditors doing their audit work (eg. see this article). According to this article in The Guardian, the Big Four has grown its consulting groups in Europe to the point where the revenue from these groups constitutes as much as a quarter of the firm’s revenue stream. Not a good thing…
PCAOB Extends “Communications with Audit Committees” Comment Period
Not only has the PCAOB extended its “communications with audit committee” comment period, it has calendared a roundtable for September 21st on the topic – and posted this briefing paper.
For those seeking CLE credit, here’s a list of states in which credit is available for watching the Conferences live in Chicago and by video webcast. Note that the list is broken out for each of the Conferences – and note that a few states are listed as “pending” (check back to determine if the Conferences are approved in those states as we will be updating the list).
Act Now: As happens so often, there is now a mad rush for folks to register for these Conferences that begin on Monday, September 20th. With an aggregate of over 50 panels (including the “18th Annual NASPP Conference”), if these Conferences don’t help get you prepared for the upcoming proxy season of change, nothing will. You can either register for the three days of the “18th Annual NASPP Conference” (in Chicago) – or the two days of the “5th Annual Proxy Disclosure Conference” & “7th Annual Executive Compensation Conference” (in Chicago or by video webcast) or a combination of both. Note that we just extended the length of the last panel of the” 5th Annual Proxy Disclosure Conference” to cover proxy access in more depth. Register Now.
SEC to Propose Rules Requiring More Short-Term Debt Disclosure
Coming up on Friday, the SEC will hold an open Commission meeting to consider proposing new rules that would requires companies to disclose more about their short-term borrowings. This is not a Dodd-Frank rulemaking; rather, it’s a rulemaking driven by Lehman and general financial crisis concerns around companies incurring significant indebtedness through short-term borrowings that are ultimately not reflected in period-end balances.
Holding the Virtual Annual Meeting: Factors to Consider and Practice Pointers
– Cathy Conlon, Vice President, Strategic Development, Broadridge
– Carl Hagberg, Independent Inspector of Elections and Editor of The Shareholder Service Optimizer
– Lisa Beth Lentini, Senior Corporate Counsel, Best Buy
– Scott McMillen, Vice President & Senior Corporate Counsel, The Charles Schwab Corporation
– Doug Stewart, Senior Attorney, Intel Corp.
If you’re not yet a member of TheCorporateCounsel.net, get the rest of 2010 for free when you try a 2011 no-risk trial.
In this podcast, Dave Lynn and Marty Dunn engage in a lively discussion of the latest developments in securities laws, corporate governance, and pop culture. Topics include:
– Marty’s favorite concerts in 2010
– What to expect in the 2011 shareholder proposal season
– The latest SEC Staff comment trends
– Key areas for comment on the proxy plumbing concept release
Top 10 Concerns for Directors: Executive Compensation #1
In this recent survey conducted by Corporate Board Member and FTI Consulting, executive compensation topped the list with 41% of the respondents listing it as a major concern (all the more reason to attend our upcoming week of executive pay conferences). Here is the list:
I cannot overemphasize how important it is for every employer in America with non-qualified deferred compensation plans or employment, severance or change in control agreements that are subject to Code Sec. 409A (which includes just about all of them) to review its compliance with 409A one more time before December 31, 2010. This is because the IRS has given us one last chance to correct drafting issues in compensation plan documents and agreements that are subject to 409A, without penalty, under Notice 2010-6.
That is the good news. The bad news is that Notice 2010-6 does much more than just offer correction methods. It contains numerous examples of situations that the 409A final regulations did not clearly address – and provides for significant penalties for many plan provisions that a normal person might view as a foot fault. Therefore, even if you (and your counsel) thought your plans and agreements fully complied with 409A by the previous December 31, 2008 deadline, changes made by Notice 2010-6 may require you to take another look.
Revising plans and agreements to comply with Notice 2010-6 should be easy. What employers have found more troubling are the notice requirements of the Notice. If the necessary plan revision rises to the level of a “document failure” under the Notice, the employer that makes a “correction” must attach a statement to its original federal income tax return for the taxable year in which it makes the correction, which includes the name and taxpayer identification number of each employee affected by the document failure, the name of the plan or agreement with respect to which the failure occurred and four other specific items of information. If an employee is required to include an amount in income during a subsequent year to be eligible for the relief under the Notice, the employer also must attach this statement to its federal income tax return for the subsequent to the taxable year as well.
The employer must provide a similar statement to each affected employee, by the date it is required to provide Form W-2 or 1099 to the employee, which the employee must attach to his or her income tax return.
Therefore, employers may want to think hard about whether any revisions they make to plans and agreements are substantive corrections of document failures or mere clarifications.
The SEC’s new proxy access rule won’t take effect until November, but an investor, Discovery Equity Partners, already has announced its intent to use the rule to nominate two board candidates at Tier Technologies in this amended Schedule 13D. In a Sept. 7 letter to the company’s board, Michael Murphy, a managing partner at Discovery, said it intended to use SEC Rule 14a-11 to nominate up to two board candidates at the company’s 2011 meeting.
Reston, Virginia-based Tier Technologies provides transaction-processing services and software to federal, state, and local agencies. Given its current market capitalization, the company presumably would not be exempt from the new access rule. As of Sept. 8, the company had a $90.6 million market cap; the new SEC rule has a three-year phase-in period for companies with less than $75 million in public float.
Chicago-based Discovery and affiliates, which have a 13.5 percent stake, has been active at Tier Technologies in the past. In 2009, Discovery waged a proxy contest to elect two candidates. Management nominated just seven candidates for the nine open seats, so the dissident’s two nominees were elected.
In January 2010, Discovery said it would nominate three candidates, but the company announced an agreement with the investor in March. Under that settlement, the company reduced its board to seven directors, separated the roles of chairman and CEO, and provided reimbursement to Discovery for the 2009 proxy fight. In exchange, Discovery agreed not to nominate any candidates at the 2010 meeting and to support management. In August, the company named a new CEO, Alex Hart, to replace former CEO Ronald Rossetti, who stepped down in June.
Proxy Access: The Latest Reactions to the New Rules
Ted Allen also does a good job in this blog illustrating some of the views on both sides of the debate over whether proxy access is a good thing and whether its adopted formula will work. In addition, this Agenda article also touches on these points, including some of the math involved as noted in this excerpt:
Shareholder advocates had mixed reactions to the rule. While they were largely disappointed with the 3%-for-three-years restriction, they were happy to even be granted proxy access at all. It will be challenging for activist investors such as public pension funds to meet the threshold requirement, explains Amy Borrus, deputy director at the Council of Institutional Investors. However, she says she doesn’t think it will be impossible. Ricardo Duran, a spokesman at Calstrs, says that while it will be difficult to meet the 3% holding for three years in the large-cap segment of its portfolio, “Calstrs officials feel that it can be achieved.”
In an Aug. 12 letter to the SEC, several state pension funds illustrate the difficulties of meeting the 3% threshold, particularly with large-cap companies. The funds claim it would take 20 of the largest public pension funds that have stock in Goldman Sachs Group to hold in aggregate 2.88% of the company’s securities. What’s more, Calpers has released prior data showing the 10 largest public pension funds together hold less than a 2.5% stake at Bank of America, Microsoft, IBM and Exxon Mobil.
Poll: How Many Shareholders Will Try Proxy Access During the Next Year?
Please take a moment to participate in this anonymous poll regarding how many shareholders will try to use proxy access over the next year:
This is a question that has been asked long before the SEC’s recent adoption of proxy access. Media articles for quite some time have intimated that reporters were told that a court fight was inevitable if the SEC adopted access. Other recent articles have included denials that anything litigious would be in the works from the trade associations that tend to sue the SEC. This Reuters article from last week once again gives the impression that a court fight is inevitable. We shall see…
The WSJ has reported that the decision to accept the settlement in the Goldman case was only approved by a 3-2 vote. This is an outrageous leak, to the extent true.
This type of information is highly confidential and ought not to leak to the press. When there were leaks that the Goldman case had been authorized by a 3-2 vote, we criticized the leak and recommended that the Commission rely more often on executive sessions.
The article in the WSJ noted that the 3-2 vote occurred in a “30-minute closed-door session,” an apparent reference to an executive session.
Executive sessions are closed to most of the staff and typically open only to those who are in a must know situation. Despite the precaution, the leak occurred. Given the smaller number of officials aware of what transpired at the meeting, the Agency should conduct an investigation and attempt to identify the source of the leak. Indeed, we think that is an appropriate function for the Inspector General and a better use of his time than investigating whether whether the Goldman case was politically timed.
Leaks from the SEC have become fairly common this decade for some reason. Perhaps it’s a byproduct of the Internet, which makes it so much harder to lock down information. Perhaps it’s because the mainstream media – as well as a slew of social media “reporters” – actively follow the SEC these days. But it is notable that the key proxy access thresholds were not leaked before that rulemaking’s open Commission meeting. Pretty hard to do considering how much advance interest there was in that rulemaking…
Mailed: September-October Issue of The Corporate Executive
The September-October Issue of The Corporate Executive includes pieces on:
– A Legacy of the Bush Administration Comes to an End: Planning Now for 2011 Tax Rate Increases
– Which Tax Rates Are Really Changing (and for Whom)?
– Paying 2011 Bonuses in 2010?
– Accelerating Vesting for Restricted Stock and Unit Awards
– Section 83(b) Elections for Restricted Stock
– Possible Actions for Non-Qualified Stock Options
– Internal Pay Equity–Getting a Head Start
– Institutions and Proxy Advisors Will be Focused on Internal Pay Equity
– Respected CEOs Weighing In
– How Should Internal Pay Equity be Used by a Compensation Committee?
– What Is the Right Ratio – Why the Historical Analysis Is So Important
– Your Upcoming Proxy Disclosure – An Opportunity for the Company to Tell Its Own Story
– How to Make the Calculations – How to Craft the Proxy Disclosures
Last week, FINRA’s Corporate Financing Department issued a notice that establishes a voluntary process for public offerings filed under FINRA Rule 5110 that uses a new appointment scheduling feature of their calendar program. This will enable the law firm that filed the offering on behalf of the underwriters to place the date of the anticipated pricing of an offering on the Department’s calendar and to subsequently modify that information as often as necessary. This is an optional process that enhances the COBRADesk filing framework.
The process is intended to help Department Staff complete its review process and issue their “no objections” letter in a manner that meets the timing needs of each particular offering, as it is not unusual for sudden – and multiple – delays or accelerations of a pricing date. In addition, the process should facilitate communications between those making filings and the Staff rather than rely on a constant game of voicemail tag as this new process can immediately inform the Staff of any changes in the timing of an offering.
Note that once the process is first used to enter an anticipated pricing date onto the Department’s calendar for an offering (“create a new pricing date notification”), any change to that date must be made using the “modification” functionality. If the modified information is entered as if it were a new pricing date notification, there will be two pricing dates on FINRA’s calendar for the offering and Staff will not know which one is the latest.
CII’s White Paper: Client-Directed Voting
Last week, as noted in this press release, CII posted this white paper on client-directed voting. The white paper – written by Cleary Gottlieb’s Alan Beller, Janet Fisher and Rebecca Tabb “will inform the comment letter that the Council plans to submit to the SEC” on proxy plumbing – but it’s an independent study and does not necessarily reflect CII’s views.
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:
– One Reason to Keep Your Bar Membership Active…
– Nokia Cuts PR Wire Earnings Release to 41 Words!
– An IPO Field Guide
– Law Firms as Investment Managers? No Thanks
– What Drives Analysts Crazy? Ten Best and Worst IR Practices for Working with Sell-Side Analysts
The SEC’s status took a hit recently in the “Best Places to Work” rankings, a survey that evaluates job satisfaction among 263,000 federal agency employees – dropping from 11th place last year to 24th this year (note the agency was 5th in ’07). Here is last year’s rankings; here’s this year’s rankings.
Here’s an excerpt from yesterday’s front-page Washington Post article about the new survey results:
The SEC plummeted from 11th last year to 24th. Management said frontline lawyers, accountants and examiners are still recovering from a restructuring that started last year with the appointment of Chairwoman Mary Schapiro; the replacement of about a dozen senior managers; and a turnaround in culture.
“We would have liked to see different numbers,” said Jeffrey Risinger, SEC’s chief human capital officer. “But we’ve been through a lot in the last 18 months. When you go through those kinds of efforts, communication is challenging. There are times when you don’t have clear answers to communicate.”
The restructuring also exposed long-standing morale problems that predated the financial crisis, including complaints about how the agency promotes and evaluates workers, said Greg Gilman, president of Chapter 293 of the National Treasury Employees Union, which represents 2,700 SEC staffers. “These issues have reached back years,” Gilman said. “We feel we’re now in a position to actually be able to address them.”
The SEC’s Union Wins Battle for Business Casual in the Field (Sometimes)
As this Washington Post article notes, the SEC’s union appears to have won a months-long battle to allow Staffers in the Office of Compliance Inspections and Examinations to wear informal attire when they were in the field reviewing the operations of financial firms – so long as the attire matches that of the folks working for the firm under review (as noted in the union’s newsletter, a MOU settled the union’s grievance). To me, this makes sense in this day and age of comfortable living.
It’s been over a decade since the SEC’s employees became unionized. SEC Staffers can join if they are eligible (most supervisors are not eligible) and if they also desire to be in the union. Note it does cost something to be in the union but all employees can benefit from the union’s activities. I’ve read the union represents 2700 employees – but I’m not sure that is the number that have actually joined the union. Here’s the SEC’s union site. A number of other federal agencies also have unions (in fact, the SEC’s union is just a chapter in the Treasury’s union).
Poll: Am I a Securities Law Geek?
Normal people spend Labor Day not laboring if they can avoid it. Unfortunately, most securities lawyers don’t fall into the “normal” category, as they have been molded first by the law school experience and then the law firm culture to work as many hours as humanly possible. Take this anonymous poll to express yourself:
Yesterday, the SEC’s Enforcement Division issued this Section 21(a) report cautioning credit rating agencies about deceptive ratings conduct and the importance of sufficient internal controls over the policies, procedures, and methodologies the firms use to determine credit ratings. Here is the related press release.
– What is a Section 21(a) Report? – The SEC uses these reports as a vehicle to signal how it views a particular problematic area or set of practices – so they are essentially policy statements. Perhaps more important, they put people on notice that going forward the SEC and it’s Enforcement Division will consider similar conduct to be fair game for more conventional enforcement action.
Note that Section 21(a) reports are reports of the Commission, not its Enforcement Division. They typically follow a process similar to that of a settled administrative proceeding — i.e., the Division recommends resolving the investigation with a 21(a) report rather than an enforcement action, and the Commission accepts or rejects the recommendation. If it accepts, it issues the report – typically drafted by Enforcement – as a Commission document.
– How often does the SEC issue a Section 21(a) Report? – The SEC doesn’t issue Section 21(a) reports often (here’s a list of them on the agency’s site). Besides this muni pay-to-play one from this March, the Division issued this one back in 2008 to emphasize the responsibilities of all investment professionals – including large public retirement systems and other public entities – and to highlight the risks they undertake when they operate without a compliance program.
And then before that there was this Titan one in 2005 that had implications for M&A deals – and then this Motorola report in 2002, which was one of the initial foursome that kicked off a series of Reg FD actions. And then finally, this 2001 Seaboard report that outlined how companies could get credit for cooperating during investigations (a report that has since been replaced by updated Enforcement policies).
So including this new rating agency one, that’s just six reports in a decade – and notably, there’s been two of those just this year. And I believe this decade has produced the most Section 21(a) reports of any decade since the SEC was born…
The Challenges in Coordinating the SEC’s Regional Offices
Even though the bulk of the SEC’s Staff resides at its headquarters in Washington, there are 11 regional offices that carry out enforcement tasks. As noted in this Washington Post article, there appear to be problems at the SEC’s Fort Worth regional office. Oversight of far-flung offices from DC definitely can pose challenges, just like any other large organization. But Senator Grassley is not happy with the SEC’s response to this story, as noted in this Washington Post article yesterday.
Our September Eminders is Posted!
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