Monthly Archives: December 2010

December 10, 2010

The Future is Here: Easy-to-Do Animated Reg FD Training

In this podcast, Melissa Gleespen of Owens Corning explains how she made this Reg FD training video, including:

– How much effort did it take to create the video?
– Did you get help on the technology side?
– How has it been received by those that have been trained with it?

More on “Dodd-Frank: An Unintended Consequence?”

Since I received such strong member feedback to my blog about silly SEC filings being forced upon some companies by Section 1503(b)(1) of Dodd-Frank (the miner safety provision), I thought I would share another one – this Form 8-K from Westmoreland Coal Company. I wish the reader response to my “Jimmy from Legal” was as strong! Real life always beats fiction…

On Wednesday, the SEC will hold an open Commission meeting to propose rules on mine safety and conflict materials, among other non-Corp Fin related items.

More on “The Mentor Blog”

We continue to post new items daily on our 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:

– FASB Delays Proposed Multiemployer Postretirement Plan Disclosures
– Congress: The Mid-Term Election’s Impact on the Corporate Community
– Corp Fin Accounting Comments: What’s on the Radar?
– More on ” An Insider’s View of the SEC: Principles to Guide Reform”
– The Goldman Case and the Inspector General: The Costs
– Microsoft Latest to Dump PR Wires for Earnings Releases

– Broc Romanek

December 9, 2010

What Financial Crisis? The SEC Has to Fight For Its Budget Per Usual

Unfortunately, Congress eliminated a SEC self-funding provision from Dodd-Frank during the reconciliation process, as noted in this blog. As I’ve said before, I don’t understand how people expect the SEC to be truly independent if they have to constantly bow to political pressures, of which there are more lately than ever before. Note that the SEC has revised it’s “Dodd-Frank Implementation Timeline” to delay creating all the new Offices that Dodd-Frank requires – and here is the SEC’s detailed justification for this year’s budget request.

Given all the nonsense in Congress these days, I guess we shouldn’t be surprised to hear this latest news from Lynn Turner: Recently, the Consumer Federation of America and Americans for Financial Reform sent letters urging Congress to provide funding to the SEC and CFTC in amounts that will enable them to do their jobs (neither letter is posted online; but see this blog). In the past, Congress has provided insufficient funding for technology acquisitions, market specialists, and other tools necessary to do their job. Congress has also failed then to oversee the agencies and ensure they are getting their job done.

Congress is once again debating whether or not to fund these agencies adequately. This comes after Congress in the Dodd-Frank legislation required these agencies to carry out hundreds of rule makings, dozens of in-depth surveys and reports, and create new Divisions and Offices within the agencies. Yet some in Congress are now suggesting that while telling the SEC and CFTC they must implement the legislation, they must do it without any further resources.

There is at least one draft continuing resolution (CR) that shows an increase to $244 million in funding for the CFTC and no increased funding for the SEC. However, the House may do a full-year continuing resolution with funding for CFTC and SEC at the higher levels approved by appropriators – $285 million for CFTC and $1.3 billion for SEC. The Senate may come back with a part-year CR that includes no added funding for either agency. You may recall it was in the Senate that Senators Durbin and Inouye killed self-funding during the Dodd-Frank negotiations that would have alleviated this recurring annual problem and provided funding sufficient for the regulators to do their jobs.

As the one letter aptly says: “There is widespread agreement that our recent financial collapse was caused in part because regulators who had the authority to rein in bad practices did not do so. But just as regulators need the will to regulate, they also need sufficient funding so that their respective agencies can operate effectively and efficiently. It is not enough for Congress to increase the authority and responsibilities of these agencies without giving them the funding they need to fulfill those responsibilities. We therefore strongly urge Congress, as it finalizes its 2011 spending plans, to include the $286 million for the CFTC and $1.3 billion for the SEC included in Senate appropriations bills.”

“Smaller Reporting Companies”: A Surprising Number

In addition to breaking the news over the past few days about how the first batch of proxy statements filed with recommendations for “say-when-on-pay” looks, Mark Borges also blogged this gem recently on’s “Proxy Disclosure Blog“:

A couple weeks ago, I participated in a panel on disclosure issues for smaller reporting companies at the ABA Business section Fall meeting in Washington D.C. Gerry LaPorte, the Chief of the Office of Small Business Policy in the SEC’s Division of Corporation Finance, was one of my co-panelists. Of the many interesting items that Gerry discussed, one statistic really caught me and the rest of the panel offguard.

This statistic involves the number of companies that self-identify as a “smaller reporting company,” For the period from October 1, 2009 through September 30, 2010 (the Commission’s latest fiscal year for which data is available), the number of entities filing annual reports on Form 10-K fell into the following categories:

– Smaller reporting companies – 4,353 (48%)
– Non-accelerated filers – 1,184 (13%)
– Accelerated filers – 1,800 (20%)
– Large accelerated filers – 1,479 (17%)
– Other – 98 (1%)

Total Companies – 8,914 (100%)

This total does not include foreign private issuers, registered investment companies, registered employee benefit plans (which file on Form 11-K), and asset-backed issuers, which take the total of SEC-registered entities up to the “13,000” total which we often refer to when talking about the number of companies registered with the Commission.

I had no idea that nearly 50% of the entities that file Forms 10-K are smaller reporting companies. While these entities represent a sizeable number of the filings made on EDGAR, they make up significantly less than 10% of the total U.S. market capitalization. At least I now know why it’s sometimes difficult to find proxy statements with a full-blown executive compensation disclosure section (particularly during the “off-peak” months).

Joint Ventures in India

In this podcast, Steven Goldberg of Baker Hostetler discusses Scripps Networks Interactive joint venture with New Delhi Television, including:

– Can you briefly describe the background of the deal?
– Did any unique issues arise in connection with this joint venture?
– What pointers do you have for companies when approaching a joint venture?

– Broc Romanek

December 8, 2010

Corp Fin Updates Its Financial Reporting Manual

On Monday, Corp Fin updated its “Financial Reporting Manual” for issues related to income averaging for significance testing, significance testing of equity method investees, reporting when there are both errors and changes in accounting, stock-based compensation in IPOs, internal control over financial reporting, selected financial data, MD&A, as well as other changes (see Topics 1600 and 9500). Corp Fin has been updating this Manual much more frequently than in the past – deciding to do minor tweaks here and there rather than overhauls every five years. Good idea.

Recently, Corp Fin Chief Accountant Wayne Carnall gave this slide presentation about common issues facing smaller issuers.

More on “The SEC’s New PCAOB Appointment Procedures: Time for New Board Members?”

Last month, I blogged about the SEC’s new procedures to appoint board members of the PCAOB – and then I went on to write about the three PCAOB board member openings (including the Chair) that have remained unfilled despite the Supreme Court removing the uncertainty that was hanging over the PCAOB’s head for a few years during the pendency of Free Enterprise Fund v. PCAOB.

In this recent Bloomberg article, it is rumored that former SEC General Counsel Jim Doty and former Corp Fin Director John Huber are among the leading candidates to serve as the next PCAOB Board Chair. This article coincided with this speech by SEC Chair Mary Schapiro at the annual AICPA Conference in which she stated that the SEC is in the final stages of the selection process for all three openings. So I imagine it will be any day now…

By the way, here is a nice speech from PCAOB Acting Chair Dan Goelzer about the PCAOB’s recent accomplishments and upcoming agenda that he delivered at the AICPA Conference yesterday.

More on our “Proxy Season Blog”

With the proxy season gearing up once more, 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:

– How Disruptive Shareholders at Annual Meetings Can Go to Jail
– Transfer Agents Take Up the Proxy Plumbing Mantle
– Trend: Taking Annual Meeting Questions from the Web
– Study: Review of 460 Annual Shareholder Meetings
– Investment Clubs Get Moxie

– Broc Romanek

December 7, 2010

A Groovy Risk Assessment “Step-by-Step Action Plan” Chart

With much thanks to Mike Melbinger and Erik Lundgren of Winston & Strawn, we have posted their “Step-by-Step Action Plan” Chart that can be used by companies who are serious about risk assessment (it is posted in the “Risk Assessment” Practice Area). By following the possible 20 steps, the chart provides guidance to help:

– impose a structure,
– assist board/committee in compliying with fiduciary duties,
– help ensure legal compliance, and
– give attorney-client privilege protection, when necessary.

Check it out and give Mike and Eric your feedback…

Study: Reissuance Restatements vs Revision Restatements

In this recent study, Audit Analytics conducted research about the various types of restatements and, among other things, found the following:

– In 2009, 44% of Reissuance restatements (those requiring an 8-K, Item 4.02 disclosure because past financial statements could no longer be relied upon) were issued in the subsequent Form 10-K instead of a 10-K/A.

– Since 2005, both Reissuance restatements and Revision restatements (those not requiring an 8-K, Item 4.02 disclosure) have declined, but Revision restatements have increased as a percentage of overall adjustments.

We have posted the study in our “Restatements” Practice Area.

Mailed: 2011 Executive Compensation Disclosure Treatise

We just mailed the hard copies of Lynn, Borges & Romanek’s “2011 Executive Compensation Disclosure Treatise & Reporting Guide” to those that ordered it. As you can imagine, our members believe this is a critical resource for this proxy season. This hard copy of the 2011 Treatise is not part of and must be purchased separately – however, members can obtain a 40% discount by trying a no-risk trial now. We will then quickly deliver this 1000-plus page comprehensive Treatise as soon as you try the trial.

If you need assistance, please call our headquarters at (925) 685-5111 or email

– Broc Romanek

December 6, 2010

The ABA Blawg 100: A Campaign Pitch

We are grateful that our blog has made the ABA Journal’s Blawg 100 for the third year in a row. You may recall that our blog won the voting contest among the 100 last year, the first year that the Journal put the Blawg 100 head-to-head in a round of voting.

This year, the voting is much more competitive and we currently stand in 8th place, behind such players as TaxGirl and IP Watchdog (who is way out in front). So we really need your support, particularly since our blog is sort of hidden in the obscure “Niche” category. It’s time for the corporate community to represent! If you value what you read all year long here, please repay us with 30 seconds of your time.

To help you navigate the ABA Journal’s voting framework, here are the steps you need to take:

a. If you voted last year:

1. You likely need to recover your password by simply inputting your email address. You will promptly receive an email with your password and screen name in it.

2. Once you have your password, you should login to their site

3. Once logged in, go to the “Niche” category and scroll down to Blog (it’s second from the bottom) and click on the “Vote” symbol to the left of that. Thanks!

b. If you didn’t vote last year:

1. Register to vote – it’s free (if you’re an ABA member, your ABA id/password won’t work for the ABA Journal’s site unfortunately as they are separate)

2. Once you get your password, you should login emailed to you

3. Once logged in, go to the “Niche” category and scroll down to Blog (it’s second from the bottom) and click on the “Vote” symbol to the left of that. Thanks!

If you’re having troubles, please shoot me an email and let me know and I can help you. Thanks for the support!

Nugget #3: Board Evaluations – Individual Evaluations are More Important in Light of Proxy Access

Recently, I started dribbling out some of the gems that Alan Dye and I shared a number of years ago during a series of “50 Nuggets in 50 Minutes” webcasts. Here is #3:

Board Evaluations – Individual evaluations are more important in light of shareholder access – The need for the nominating committee to evaluate incumbent directors has become clearer as the movement for shareholders to have a greater ability to nominate their own candidates grows [editor’s note: this was written in ’03; now that access is here, it truly apply]. For the nominating committee to evaluate incumbent directors, it needs information – and individual evaluations is one logical way to gather this information.

The latest surveys show that only 25% of public companies conduct individual evaluations. The most popular individual director evaluation method is the use of self-assessment questionnaires. Anyone who handles these evaluations should take care as this process can be quite political!

Poll: Who Should Play “Dave the Animal” in the Feature Movie?

A topic of interest among members is which characters will Dave and I play now that the Dodd-Frank Act has rendered “Billy Broc” Oxley and Dave “The Animal” Sarbanes obsolete (these characters were made infamous during these “The Sarbanes-Oxley Report” videos). So Dave and I seek your input into who we should be pretend to be now in this anonymous poll:

Online Surveys & Market Research

– Broc Romanek

December 3, 2010

The Opening Salvo in the Proxy Access Fight

The Business Roundtable and the US Chamber of Commerce filed their Opening Brief in the case against the SEC over the proxy access rules. The Summary of the Argument in the Brief (found on page 28 of the 61 page brief) is as follows:

The Commission has forced public companies to include the director nominees of a select group of investors in company proxy materials on the basis of shifting, inconsistent, and unsubstantiated assertions that are the hallmark of an agency that has not reached a cohesive understanding of its action, nor “consider[ed] . . . important aspect[s] of the problem.” State Farm, 463 U.S. at 43. The Rules violate the Administrative Procedure Act, the Commission’s statutory duty to consider effects on efficiency, competition, and capital formation, and corporations’ First Amendment rights. They should be vacated.

1. In three recent decisions, this Court has admonished the Commission to “apprise itself . . . of the economic consequences of a proposed regulation.” See, 28 e.g., Chamber of Commerce, 412 F.3d at 144. The Commission failed that responsibility by repeatedly blaming state law for costs it was imposing. It neglected to provide any estimate for the campaign costs that record evidence showed would be the most costly element of the Rules and–after initially predicting that election contests under the Rules would occur 5 times as frequently as traditional proxy contests–shifted ground without explanation and asserted that the contests would occur 25 percent less frequently than proxy contests, even though a central premise of the Rules was that election contests would be initiated “more easily” than supposedly “prohibitively expensive” proxy contests.

2. The Commission also based its assessment of the Rules’ costs on willful ignorance toward the agenda and practices of activist institutional investors, and the conduct of directors and corporations. Commenters warned that special interest investors would use proxy access as leverage to obtain concessions from companies; as a “soap box” to voice disagreements with company policy; and to seek the election of candidates favorable to the special interests of labor unions or the political officials in charge of government pension funds. The Commission failed to even discuss the first two concerns, and its 126-page Adopting Release did not even mention union or government pension plans and their unique and divergent interests. The Commission compounded its error by suggesting that corporations might not oppose the election of access candidates, even though all record evidence was to the contrary, and although elsewhere the Commission relied on anticipated corporate opposition in positing that the Rules would function effectively.

3. The Commission claimed to be empowering shareholders, yet prohibited them from voting to bar or limit proxy access to avoid the costs the Commission admitted might occur. In similar fashion, the Commission abrogated state laws that it claimed to be effectuating.

4. The Commission applied its ill-founded rule to investment companies (e.g., mutual funds) despite conclusive evidence that the asserted need for proxy access at investment companies is even less, and that some of the costs would be higher.

5. By forcing public companies to carry campaign speech of certain activist investors, the Commission violated the First Amendment.

For all of these reasons, Rule 14a-11 and its associated amendments should be vacated.

Something I Never Thought I Would See

In the “things I never thought I would see” department, yesterday the Department of the Treasury put out a press release announcing the exercise of the overallotment option in the GM initial public offering. The press release notes that the exercise of the overallotment option brought $1.8 billion in additional net proceeds for the US taxpayers, bringing the grand total of “taxpayer proceeds” to $13.5 billion and cutting the US stake in the automaker to 33.3 percent. The press release goes on to detail the return on the GM investment and the total amount of TARP funds returned to taxpayers. With the overzealousness of this post-offering press release aside, for me it is great to see the success of GM’s IPO, and hopefully to see a return to business success for this great American institution. [I can’t help but love the new Chevrolet Camaro, having had a 1969 Camaro when I was 16.]

The SEC Staff on M&A

We have posted the transcript of the webcast: “The SEC Staff on M&A.”

– Dave Lynn

December 2, 2010

CII Releases White Paper on Wall Street Pay Practices

A new white paper commissioned by the Council of Institutional Investors and prepared by The Corporate Library notes some improvement in pay practices at Wall Street firms since the financial crisis, but indicates that improvement is still needed in tying compensation to long-term value growth. Ted Allen notes in the RiskMetrics Governance Insight blog:

The Council of Institutional Investors (CII) released a new report today that concludes that Wall Street’s executive compensation practices have improved somewhat since the global financial crisis, but warns that major banks still are not tying pay to long-term gains in performance.

“While many banks have strengthened their pay practices, there’s still a long way to go,” Ann Yerger, CII’s executive director, said in a press release. “The report suggests they need to do more to make sure that executive compensation rewards performance over the long term.”

The report was prepared by written by Paul Hodgson, a senior research associate at the Corporate Library.

The report’s findings include:

– Total CEO compensation at major Wall Street institutions in 2003-2007 was two to three times the level of pay at other Fortune 50 companies during the same period. The differential was driven mainly by big dollops of time-restricted stock in Wall Street pay packages.

– Pay at these banks was structured to incentivize executives to deliver strong performance–over the short-term. But lavish cash bonuses, high absolute levels of pay, and excessive focus on short-term annual growth measures had damaging consequences for shareowners over the long-term.

– Compensation structures on Wall Street has improved since 2008, but the banks still are not tying compensation to long-term performance metrics.

The Case of the Forged Comment Letters

We have all observed the often annoying letter writing campaigns that are spawned by the SEC’s (or another agency’s) request for comments on rulemaking proposals where the people writing the letters don’t seem to have any idea what the rule proposal is actually about, but now it appears that a group has taken the letter writing campaign to a whole new level. This Bloomberg story discusses a recent situation where some comment letters submitted to the CFTC on one of its Dodd-Frank Act rulemaking were allegedly forged, and the CFTC has now referred the matter to the Justice Department.

November-December Issue: Deal Lawyers Print Newsletter

This November-December issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:

– The 2011 Outlook for Deals & Governance: Back to the Future
– “Clear and Simple”: SEC Proposes Say-on-Golden Parachute and Enhanced Disclosure Rules
– Delaware Supreme Court Upholds Net Operating Loss Poison Pill
– Top-Up Options: Looking Better and Better
– M&A Due Dilgence: The Effect of Restatements

If you’re not yet a subscriber, try a “Rest of ’10 for Free” no-risk trial to get a non-blurred version of this issue on a complimentary basis.

– Dave Lynn

December 1, 2010

Our December Eminders is Posted!

We have posted the December issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!

PCAOB Approves a Budget Increase

While the talk in Washington is now focused on a pay freeze for federal workers, the PCAOB has announced its approval of a $204.4 million budget, which represents an 11.5% increase over the 2009 budget. The increase is accounted for in part by the new oversight responsibilities that the Dodd-Frank Act has conferred on the PCAOB, which will now have to oversee the audits of broker-dealers. The Board notes that “the majority of new expenses in the 2011 budget are increases in staffing, information technology and facilities. The need for these additional resources is largely the result of certain changes in the Board’s 2011 responsibilities and programs, including: (1) the commencement of a program to oversee broker-dealer audits, (2) enhanced requirements for performing and documenting PCAOB inspection work, and (3) a potential increased number of litigated enforcement proceedings.” In addition to the budget, the Board also approved a strategic plan for 2010-2014. The PCAOB budget now goes off to the SEC for approval.

Relief Extended for Credit Ratings in Asset-Backed Offerings

Last week, the Corp Fin Staff issued a new no-action letter to Ford Motor Credit and a related entity, extending the relief originally provided back in July following enactment of Section 939G of the Dodd-Frank Act, which specified that, effective July 22, 2010, Securities Act Rule 436(g) shall have no force or effect. The relief contemplated in the original letter was set to expire with respect to any registered offerings of asset-backed securities commencing with an initial bona fide offer on or after January 24, 2011. The Staff now states that “[p]ending further notice, the Division will not recommend enforcement action to the Commission if an asset-backed issuer as defined in Item 1101 of Regulation AB omits the ratings disclosure required by Item 1103(a)(9) and 1120 of Regulation AB from a prospectus that is part of a registration statement relating to an offering of asset-backed securities.”

On the same day last week, the Commission issued an order extending a temporary conditional exemption for NRSROs from the requirements of Exchange Act Rule 17g-5, which deals with conflicts of interest in connection with the issuance of credit ratings for structured finance products. The temporary conditional exemption will run through December 2, 2011. The Commission also continues to seek comments on this already effective rule.

– Dave Lynn