Monthly Archives: February 2011

February 11, 2011

Our Model Say-on-Pay Disclosures

On, we just posted the Spring 2011 issue of the Compensation Standards newsletter, in which Dave Lynn has drafted model say-on-pay disclosures to help you prepare your upcoming proxy statement. It includes a model executive summary, say-on-pay resolution and say-on-frequency resolution. We have also posted a Word version of the newsletter so that you can cut and paste as a starting point for your proxy disclosures.

Act Now: To immediately access this issue of the Compensation Standards newsletter, try a no-risk trial now since this newsletter is posted on as one of the benefits of membership.

A New CD&A Template

In this podcast, Kurt Schacht of the CFA Institute’s Centre for Financial Market Integrity talks about a CD&A Template put together by the joint efforts of a group of issuers and investors, including:

– Why was the template put together?
– What was the process for drafting it?
– How do you envision companies using it? How about investors?
– How does mandatory say-on-pay impact its use?

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:

– Board Diversity Survey: Cracks in the Ceiling for Women
– 23 Things Not to Write In An E-Mail
– Following Morrison v. National Australia Bank, Southern District of New York Court Weighs In
– Ten Country Interagency Report on Boards and Risk Management
– A Disclaimer Too Far
– Risks, Compliance, the SEC and New Concerns for Directors

– Broc Romanek

February 10, 2011

Shareholder Proposals: KBR Suit Alleges Chevedden’s Assault & Battery

I’m not pulling your leg on this one. A physical altercation between John Chevedden and a process server has led KBR to file this brief (and these exhibits) as part of its lawsuit to exclude a shareholder proposal submitted by Chevedden due to his alleged lack of eligibility (I also recently blogged about how other companies are challenging Chevedden’s eligibility).

The brief provides detailed allegations about how Chevedden has gone to great lengths to avoid being served – and how Chevedden knocked down a process server when she finally caught up with him outside a UPS store. The process server swore out a police report, which is pending before the City Attorney’s office. We continue to post pleadings filed in this case in our “Shareholder Proposals” Practice Area.

House Financial Services Committee: “Oversight” = “Micromanagement”

Last week, the House Financial Services released a draft version of its Oversight Plan for this Congressional session. Rather than focus on oversight of what caused the recent financial crisis – including enforcement of existing laws and tackling why there has been a dearth of cases brought in the subprime area, etc. – it looks like the Committee intends to spend its time micromanaging the implementation of Dodd-Frank (even though Congress hasn’t given the SEC the resources to do so). In addition, it looks like the Committee will be micromanaging the FASB and the standards it creates. So much for the independence of these two regulators.

The Treasury Department has announced the launch of a ‘beta’ Consumer Financial Protection Bureau website,, with the initial focus on soliciting ideas on the Bureau’s creation and priorities and for answering questions on its work.

More on our “Proxy Season Blog”

With the proxy season in full swing, 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:

– The Latest SEC Comment Letter Trends
– Proxy Access: It Has Been Done Before
– Broadridge to SEC: Mandate Use of Social Media
– Challenges Continue with XBRL Compliance
– The Quality of the Shareholder Vote in Canada

A Call for Nominations: Regulatory Innovation

With all that has transpired in the past year, it seems that now more than ever we need some innovative approaches to financial regulation. Therefore, Dave is pleased to be a part of Morrison & Foerster’s establishment of the 2011 Regulatory Innovation Award through the Burton Foundation. This award will honor an academic or non-elected public official whose innovative ideas have made a significant contribution to the discourse on regulatory reform in the arena of corporate governance, securities, capital markets or financial institutions. If you know of someone meeting these qualifications who should be considered for this award, please submit the nomination before February 18th.

– Broc Romanek

February 9, 2011

Say-on-Pay: A Second Failed Vote in the First Two Weeks of Annual Meetings!

Yesterday, Beazer Homes USA filed this Item 5.07 Form 8-K which revealed that it has become the second company to fail to receive majority support for its say-on-pay, with 54% voting “against.” As I blogged before, Jacobs Engineering became the first last week. That’s two failed votes out of roughly 30 SOPs voted upon so far – nearly a 7% rate.

In my poll last week – in which folks guessed how many failed votes there would be this year – zero picked 1-2 failures; 4% predicted 3-4 failures; 18% predicted 5-10 failures and 75% predicted more than 10 failures (5% said “what me worry?”). At the current 7% rate of failure, it looks like the smart money will have pegged it.

I’ve been amused by some who have recently reported that only 1 out of 20 have failed so far – as if a 5% failure rate was a good thing – and that’s not even counting the companies who have garnered a significant “against” vote like Monsanto and Johnson Controls. If you apply that failure rate to the number of companies that will hold SOP votes soon enough, the image is scary.

As Paul Hodgson blogged last year, 500 nays-on-pay would be the result extrapolating from the 3 failures last year out of the 60 companies that voluntarily had say-on-pay on their ballot. And as Paul noted, “Can you imagine what might happen if shareholders got organized? [FX: Long, slow, whistle on descending note….]”

Interestingly, a member brought three smaller companies to my attention that filed proxy materials after the effective date of Dodd-Frank’s SOP provision – but before the SEC postponed the applicability of SOP to smaller reporting companies. Given that the SEC hadn’t signaled the postponement beforehand, they certainly got lucky! Of course, given that they didn’t even know that SOP had applied to them, they likely don’t even know they are lucky…

Shareholder Proposals: Corp Fin Reveals Approach to Proxy Access Proposals During Stay

In this response to General Electric, the Corp Fin Staff tips its hand about how it intends to approach shareholder access proposals during the current stay of the challenge to the proxy access rule (ie. Rule 14a-11). This response is an interesting example of how the Corp Fin Staff is explaining its decisionmaking these days as the Staff indicates that it’s granting relief based on the way that Rule 14a-8(i)(8) operated prior to the shareholder access rulemaking. Probably the right answer, but one that had not yet been addressed to my knowledge.

Yesterday, the SEC celebrated bringing charges regarding expert networks by affixing a special logo dedicated to the event on its home page. That is a first. Wonder what the logo for adopting the say-on-pay rules would have been? Maybe this one

Pat McGurn’s Forecast for 2011 Proxy Season: Wild and Woolly

We have posted the transcript for our recent webcast: “Pat McGurn’s Forecast for 2011 Proxy Season: Wild and Woolly.”

– Broc Romanek

February 8, 2011

Say-on-Pay Frequency: Confusion Over Vote Counting

As perhaps can be expected given it’s a new ballot item for most companies, the first batch of companies reporting voting results regarding say-when-on-pay have led many members to send questions about how to properly count votes. As an example of the confusion, Steve Quinlivan notes a voting ambiguity at the end of this blog. And in his “California Corporate & Securities Law” Blog, Keith Bishop also blogs about the confusion of counting say-on-frequency votes – here is Keith’s follow-up blog too.

The bottom line is that whether a majority preferred a triennial vote depends on how “abstentions” are treated – which means that the same numbers could wind up with entirely different results for two different companies. Personally, I don’t see how abstentions wouldn’t be counted, but it seems like a matter of state law – not my area of strength. But I do note that the SEC’s adopting release in discussing the Rule 14a-8 exclusion states at footnote 151:

“Specifically, as adopted, the note to Rule 14a-8(i)(10) will permit exclusion of such a shareholder proposal if, in the most recent shareholder vote on frequency of say-on-pay votes, a single frequency (i.e., one, two or three years) received the support of a majority of the votes cast and the issuer has adopted a policy on the frequency of say-on-pay votes that is consistent with that choice. FN 151

Footnote 151 – For purposes of this analysis, an abstention would not count as a vote cast. We are prescribing this voting standard solely for purposes of determining the scope of the exclusion under the note to Rule 14a-8(i)(10), and not for the purpose of determining whether a particular voting frequency should be considered to have been adopted or approved by shareholder vote as a matter of state law.”

One might ask whether the difference matters. There are some consequences. One is determining whether a specific frequency preference received a “majority of the votes cast” for purposes of the Rule 14(a)-8(i)(10) exclusion – so it matters for purposes of the shareholder proposal rule (I guess it also could have an impact on which preference received a plurality of the votes cast, but this situation isn’t likely to come up too often – and doesn’t seem have any legal consequences). Perhaps the biggest factor to consider is one that isn’t driven by regulation: the optics of how you report your voting results. In other words, how will it be received by shareholders and the media in general.

I expect that companies will want to disclose the potential voting implications “right” at the outset in their proxy materials – it doesn’t look good to file a corrective disclosure. So it’s something to figure out now and not when it comes time to report the voting results in a Form 8-K…

In his “Proxy Disclosure Blog,” Mark Borges gives us the latest say-when-on-pay stats: with 218 companies filing their proxies, 58% triennial; 6% biennial; 30% annual; and 6% no recommendation.

SEC Promotes Mark Cahn to General Counsel

On Friday, the SEC announced that it had promoted Mark Cahn from Deputy General Counsel to the top job. Cahn came to the SEC two years ago from WilmerHale.

January-February Issue: Deal Lawyers Print Newsletter

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

– How to Respond to Shareholder Proposals Seeking Board Declassification
– The ABCs of Board De-Staggering
– Acquiring US Companies with Foreign Subsidiaries: Relevant Issues
– The Window Closing Pill: One Response to Stealth Stock Acquistions

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

– Broc Romanek

February 7, 2011

Hacking Nasdaq’s Directors Desk: Big Trouble for Board Portals

The news was first leaked late Friday from the WSJ that “hackers have repeatedly penetrated the computer network of the company that runs the Nasdaq Stock Market during the past year.” That forced the Nasdaq to issue this statement that Nasdaq’s Director Desk – a provider of board portal services to 300 companies – may have been compromised for over a year! Here’s more information from the NY Times and Dominic Jones’ IR Web Report.

Even though security breaches are a mainstay of modern life (check out the half a billion record breaches listed on this page), this could set back the board extranet movement a decade. And for good reason. Security is paramount when it comes to sensitive board materials. I can’t imagine companies not rethinking their posting of board materials online if their safety is at all in question.

I just can’t understand how the federal authorities have the ability to tell a service provider to not inform its clients that there has been a breach! Or why? What is the harm in Directors Desk telling its clients that there has been a breach so they can immediately protect their sensitive information? Even if the hacker was state-sponsored – as intimated by Jeffrey Carr in this blog (and as noted by Dominic Jones) – I don’t see how not informing boards of the breach can be justified, particularly given the seriousness of the breach. Carr notes in his blog: “The nth level effects of this breach could dwarf anything that we’ve seen to date.”

Of course, I still can’t wrap my head around how it took Directors Desk so long to discover the breach if enhanced security is what sold the product – it’s reported that the breach existed for over a year until it was discovered. Carr’s analysis of Directors Desk’s security measures is that it is no match for a serious hacker. Before passing judgment on the entire board portal industry, I’ll await his analysis of the security measures that other board portal providers utilize, but frankly I’m scared to hear that analysis…

SEC Speaks About a Lack of Funding

During last week’s annual PLI “SEC Speaks” Conference, many SEC officials talked about the agency’s limited funding and how hard it will be to implement Dodd-Frank timely on such a shoestring budget. For example, here is Chair Shapiro’s opening remarks, which she closed by talking about the strain of operating under the existing budget with expanded Dodd-Frank responsibilities. Later in the day, Corp Fin Director Meredith Cross mentioned that she can’t fully staff her newly created offices because of funding woes.

PLI has posted notes for each the panels devoted to the SEC’s Divisions (but not the workshop sessions), including:

Corp Fin
Trading & Markets
Investment Management
Judicial Developments
Risk Fin

SEC Commissioner Casey raised a few eyebrows during her speech when she challenged the Enforcement Division’s ability to apply new Dodd-Frank provisions to conduct that pre-dated the enactment of the Act based on anti-retroactivity principles.

Webcast: “Recent Developments Regarding Fairness Opinions, Valuation Analyses and Related Topics”

Tune in tomorrow for the webcast – “Recent Developments Regarding Fairness Opinions, Valuation Analyses and Related Topics” – to hear Kevin Miller of Alston & Bird, Steve Kotran of Sullivan & Cromwell, Stuart Rogers of Credit Suisse Securities and Jennifer Muller of Houlihan Lokey discuss the latest developments and trends of fairness opinions and valuation analyses. Please print off these course materials before the program.

– Broc Romanek

February 4, 2011

Whistleblower Bounty Program: SEC Hints on Future Direction?

A few days ago, the “WSJ Law Blog” cited to this speech delivered by the SEC’s General Counsel David Becker who said that whistleblowers should not have to use internal company reporting options before running to the SEC under the controversial Dodd-Frank whistleblower fraud bounty program. Becker’s logic is that some compliance programs “no matter how elaborately conceived and extensively documented, exist only on paper” and are “shams,” giving an example of a company where the “ostensibly anonymous employee hotline … actually rang on the desk of the CEO’s secretary.”

Does this tip the SEC’s hand as to where the agency will end up after months of business protest about the structure of the Dodd-Frank whistleblower bounty program? Perhaps not given that it was announced earlier this week that Becker is headed back to the private sector and he was speaking in a personal capacity (as the disclaimer that SEC speakers always gives indicates)…

Proxy Access: Two More Amicus Briefs

In our “Proxy Access” Practice Area, we have posted two more amicus curiae briefs – one from a group of pension funds and the other from a group of law professors.

Towards State of the Art: Scrubbing Your Bylaws, Governance Guidelines & Committee Charters

We have posted the transcript for our recent webcast: “Towards State of the Art: Scrubbing Your Bylaws, Governance Guidelines & Committee Charters.”

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:

– More on “Dress Code for Delaware Courts”
– California: Secondary Trading In Private Company Shares
– Staleness Calendar for 2011 Offerings
– Politics, Corporate Lobbying and the FASB
– Will Whistleblower Claims Give Rise to More SEC Enforcement Actions?

– Broc Romanek

February 3, 2011

Dodd-Frank’s Sleeper? The Winner is Conflict Minerals

Last Friday, the SEC extended the deadlines for submitting comments on a trio of Corp Fin proposals: conflict minerals, mine safety and resource extraction disclosure. The new deadline is March 2nd.

Last year, I blogged several times analyzing potential “sleepers” in Dodd-Frank and soliciting ideas from the community. As I define “sleeper,” it should be a provision that applies to many companies. Given the feedback I’ve received, including the comment letters submitted to the SEC so far – and the memos in our “Conflict Minerals” Practice Area – I’m now ready to deem Section 1502 regarding conflict minerals as the Dodd-Frank sleeper for disclosure lawyers. Here is an excerpt from remarks made by Amy Goodman during our recent Dodd-Frank webcast:

From talking to a number of companies in trade associations, people are realizing that this is a huge issue and could impact upwards of 6,000 issuers. While the SEC speculates that only 1,200 will actually file reports, we’re hearing from companies that it’s almost impossible under the current circumstances to determine that minerals do not come from the Congo. And in that case, the SEC proposal would require the report. So I would urge people to take a look at this requirement. I think it’s taken a while for people to realize the seriousness of this requirement. But it could be quite burdensome.

To understand the magnitude of the undertaking that companies face in order to comply with this requirement, check out this memo – which besides providing guidance on how to comply with the provision, it explains supply chain due diligence, what entities like the OECD recommend and what various industry organizations like the EICC-GeSI are doing. There even have been readiness rankings of various industries created, such as this report on the electronics industry from the Enough Project.

Industry Insiders Tells Congress: Don’t Cut the SEC’s Budget

I’ve blogged numerous times about how Congress plays games with the SEC’s budget (here’s a recent blog on the topic) – and how Congress has shamefully limited the SEC’s budget less than a year after it enacted Dodd-Frank. Due to the restrictive nature of the latest Congressional continuing resolution, the SEC has been forced to stop hiring and rein in travel and technology spending. It wasn’t that long ago that the SEC envisioned hiring hundreds of new Staffers this year.

Last week, the Executive Council of the Securities Law Committee of the Federal Bar Association sent this letter to Congressional leaders to ask them to stop the madness. Congress’ continuing resolution ends on March 4th – so by then, Congress will have to decide once more if they will adequately fund the SEC to do its job. Given it’s current limited resources, the SEC already has announced delays for some of its Dodd-Frank rulemakings.

Note that the effective date of the SEC’s final say-on-pay rules has been set as April 4th (it’s tied to the rules being published in the Federal Register). The compliance date is also April 4th.

Webcast Transcript: “The Latest Developments: Your Upcoming Proxy Disclosures – What You Need to Do Now!”

We have posted the transcript for our popular webcast: “The Latest Developments: Your Upcoming Proxy Disclosures – What You Need to Do Now!”

– Broc Romanek

February 2, 2011

The Financial Crisis Inquiry Commission Report: A “Clip Job”?

Last Thursday, the Financial Crisis Inquiry Commission released its long-awaited 410-page report about the causes of the financial crisis (and a 29-page dissent and a 95-page dissent-from-the-dissent). The Commission reviewed millions of pages of documents, interviewed 700+ witnesses and held 19 days of public hearings in New York, DC and communities across the country. Here’s the FCIC page with the full report, conclusions and dissents. Here’s some analysis that I received from Lynn Turner:

Unfortunately, what the FCIC did not do, is a real investigation. Congress never gave it enough money to do its job, not unlike how Congress has treated many of the regulators. It didn’t hire the attorneys and accountants trained as investigators as Pecora did. Some of its top staff were seconded from the Fed which as the report notes, was one of the biggest reasons for the crisis. Its top and initial head of staff left long before the project was done as did other staff frustrated by the superficial work of the Commission. It did not make all its subpoena’s public and quite frankly which would have been embarrassing as in all likelihood because they didn’t issue many. Likewise all the FCIC records of interviews and inquiries have not been made public raising (1) a question as to whether they agreed to nondisclosure agreements with some parties and (2) whether there is that much of a record.

Here’s more analysis of the report:

Ben Heineman’s “Financial Crisis Inquiry Commission: The Private Sector Failed”
Bloomberg’s “Wall Street’s Collapse to Be Mystery Forever
NY Times’ “Washington’s Financial Disaster”
DealBook’s “Everyone Was to Blame, Crisis Commission Finds”
Reuters’ “Bernanke: all but one major firm at risk in 2008”
DealBook’s “Crisis May Seem Criminal, but Try Making a Case”
Washington Post’s “Commission member dissents on financial crisis report, says housing policy caused meltdown”
Bloomberg’s “Infighting, Investigations Overshadow FCIC Report”
NY Times’ “Crisis Panel’s Report Parsed Far and Wide”

Jonathon Weil’s Bloomberg piece above is what gave me the idea for “clip job” in this blog’s title when he wrote this paragraph: “This, in journalistic parlance, is what we call a clip job. And that’s the trouble with much of the commission’s 545-page report. There’s lots of breezy, magazine-style, narrative prose. But there’s not much new information.”

SEC General Counsel David Becker to Leave

Yesterday, the SEC announced that its General Counsel – David Becker – was returning to the private sector after a two-year stint during his second tour of duty with the SEC as its GC. Given the SEC’s incredibly tight budget constraints right now, I wonder if the SEC has the money to replace David! Big shoes to fill for sure…

How to Implement Dodd-Frank for This Proxy Season

We have posted the transcript for our webcast: “How to Implement Dodd-Frank for This Proxy Season.”

Poll: What Will Be the Primary Cause of the Next Financial Crisis?

For most of us, we don’t know what will be the primary cause of the next financial crisis – but we do know that someday one will come because that is what history has taught us. And we do have our hunches of what might be the next cause. In this anonymous poll, share what your guess is of that cause:

Online Surveys & Market Research

– Broc Romanek

February 1, 2011

Shareholder Proposals: More Companies Challenge Chevedden Over Eligibility

Recently, I blogged about how two companies have gone to court in an attempt to exclude shareholder proposals submitted by John Chevedden based on eligibility grounds (ie. KBR, whose recently-filed court challenge is pending – and Apache, whose court challenge occurred last year). These cases hinge on whether a letter from an entity that is not a registered broker dealer or a DTC participant is proper evidence of ownership under Rule 14a-8.

These cases also raise questions about whether an introducing broker is a “record holder” for the purposes of Rule 14a-8. Interestingly, even though last year the entity at issue – RAM Trust – claimed to be an introducing broker – this year it now characterizes itself as a bank according to its most recent submission. Based on past SEC Staff practice, we would expect the Staff to refrain from responding to KBR’s notice of its intent to exclude the Chevedden proposal, which would be consistent with its practice of not commenting on matters that are the subject of litigation. It is less clear whether the Staff will respond to Apache’s latest notice, which was not filed concurrently with a lawsuit this time around. Stay tuned…

It also appears that at least a half dozen other companies – including Allstate, International Paper, McGraw Hill, Bristol Myers – have taken the traditional route of seeking no-action relief from the Corp Fin Staff to exclude proposals submitted by Ken Steiner, who in turn has listed Chevedden as his proxy.

The incoming no-action requests from these companies note that Steiner’s ownership verifications appear to be pre-signed by the introducing broker – Mark Filiberto, DJF Brokerage’s president – and they allege that Chevedden then filled in the company name, shares owned and date of ownership on the blank form that had been pre-signed with an October 12, 2010 date. Some of the later incoming no-action requests even include a handwriting expert certification that it is Chevedden’s handwriting on Filiberto’s signed letters (and that the pre-signed letters are all identical copies).

If true, this seems to be a case of double secret alter egos. It will be interesting to see how the Corp Fin Staff responds to these letters as it seems one thing to allege that someone is acting as an alter ego, but an entirely different thing to allege they have forged a letter. Who knew that disclosure lawyers would have a need for handwriting experts!

Our February Eminders is Posted!

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

More on our “Proxy Season Blog”

With the proxy season in full swing, 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:

– Proxy Access: Questions to Be Addressed if the Rules Take Effect
– More on “Proxy Plumbing: Analysis of Comment Letters”
– ISS’s Final U.S. Postseason Report
– CalPERS Reconsiders Corporate Engagement, Focus List
– Investors Pressure DOL on Environment, Social and Governance

– Broc Romanek