I was surprised to see that the SEC’s Division of Trading and Markets issued a new no-action response related to electronic roadshows last week – this one to Roadshow Broadcast LLC.
I was surprised because a string of these letters were among the first positions that the SEC Staff took back in the late-90s related to the Internet (remember NetRoadshow I and II? Private Financial Network?) – I worked on a few of the letters when I served in Corp Fin – and then the Staff said they would issue no new letters. In 2005, the SEC adopted rules that superseded these no-action positions as part of its huge Securities Act Reform rulemaking. But I believe this new letter is different, relating to broker-dealer activity and not covering the same ground as in the prior letters. In fact, Corp Fin is not even a party to this new letter…
Your Legal Career in 6 Words or Less
I loved this “Legal Blog Watch” that cross-references Ross Fishman’s interesting challenge to lawyers and law marketers: Can you summarize your “lives, careers, experiences, firms – or just something [you’ve] been thinking about” in six words or less? Ross has many fine examples that he received on his blog.
Mine? It would be: “Still crazy after all these years,” with “Get crazy. Get loose. Go nuts” a close second…
We have posted the survey results regarding the latest disclosure controls and disclosure committee trends, repeated below (this new survey supplements the 2005 survey on disclosure committees):
1. Does your company have a formalized, written set of “Disclosure Controls & Procedures”?
– Yes – 66.7%
– No – 33.3%
2. Have your company’s Disclosure Controls & Procedures been formally updated and revised in the last year?
– Yes – 30.6%
– No formal changes, but there have been some informal changes during the last year – 27.8%
– No, there have been no changes in the last year – 41.7%
3. Does your company have a Disclosure Committee Charter?
– Yes – 58.3%
– No – 41.7%
– We don’t have a formal Disclosure Committee – 0%
4. If there is a formal Disclosure Committee, who is the chairman of the Disclosure Committee?
– General Counsel – 14.3%
– Securities Counsel – 5.7%
– CFO – 31.4%
– COO – 2.9%
– Controller – 25.7%
– Corporate Secretary – 0%
– Other – 20.0%
5-Year Study: CFO and Auditor Departures Occurring Near Issuance of a Restatement
In their new study covering a five-year period, Audit Analytics reviewed both CFO and auditor changes and compared them to changes that occurred near the disclosure of a financial restatement. In the study, Audit Analytics considered a change to take place near a restatement if the change fell within the one-year time window beginning three months before and ending nine months after the disclosure of the restatement. The findings include:
– CFO Perspective: A review of CFO changes showed that the chance of a departure increased near the occurrence of a restatement, but the vast majority of the increase was attributable to CFO resignations, not dismissals. Therefore, CFOs that are required to restate financials do not appear to expose themselves to a considerable increase in the risk of dismissal.
– Auditor’s Perspective: Auditors, on the other hand, show an increase in both resignations and dismissals when a company discloses a restatement.
– Company’s Perspective: The loss of a CFO or auditor can be disruptive to a company. While approximately 24% of the general population tend to lose a CFO or auditor in a given year, about 37% of companies that file a restatement experience such a departure.
Mailed: March-April Issue of The Corporate Executive
The March-April Issue of The Corporate Executive includes pieces on:
– Dodd-Frank Update: Proposed Compensation Committee and Adviser Independence Rules
– Update on Restricted Stock and RSUs
– Correcting Social Security Withholding Errors
– Say-on-Pay: The Results So Far
Act Now: Get this issue rushed to you by trying a No-Risk Trial today.
Beginning May 9, 2011, the letter the Division staff will send to companies upon completion of the review of their Exchange Act filings will contain the following paragraph:
“We have completed our review of your filing[s]. We remind you that our comments or changes to disclosure in response to our comments do not foreclose the Commission from taking any action with respect to the company or the filing[s] and the company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. We urge all persons who are responsible for the accuracy and adequacy of the disclosure in the filing[s] to be certain that the filing[s] include[s] the information the Securities Exchange Act of 1934 and all applicable rules require.”
As Corp Fin’s notice merely repeats the Tandy language that companies already provide when they respond to Staff comments, that’s not really news. But the real news may be that Corp Fin may start regularly using this “Division Announcements” avenue to communicate with us…
Capital-Raising Reform: SEC Chair Schapiro Testifies Before the House
A month ago, I blogged about the back and forth letters between SEC Chair Schapiro and Rep. Darrell Issa on capital-raising reform, particularly for pre-IPOs. Below is an excerpt from near the end of Chair Schapiro’s testimony that she delivered yesterday before the House Committee on Oversight and Government Reform. In her testimony, Chair Schapiro lays out a list of potential rulemakings in the capital-raising area that could happen in the near future (here’s a related Mercury News article):
As discussed above, I recently asked the staff to take a fresh look at our offering rules in light of changes in the operation of the markets, advances in technology and the acceleration in the pace of communications. I also requested that the staff think creatively about what the SEC can do to encourage capital formation, particularly for small businesses, while maintaining important investor protections. Areas of focus for the staff will include:
– the restrictions on communications in initial public offerings;
– whether the general solicitation ban should be revisited in light of current technologies, capital-raising trends and our mandates to protect investors and facilitate capital formation;
– the number of shareholders that trigger public reporting, including questions surrounding the use of special purpose vehicles that hold securities of a private company for groups of investors; and
– regulatory questions posed by new capital raising strategies.
In conducting this review, we will solicit input and data from multiple sources, including small businesses, investor groups and the public-at-large. The review will include evaluating the recommendations of our annual SEC Government-Business Forum on Small Business Capital Formation, as well as suggestions we receive through an e-mail box we recently created on our website. In addition, I expect our efforts to benefit from the input of the new Advisory Committee on Small and Emerging Companies the Commission is in the process of forming, which will provide a formal mechanism for the Commission to receive advice and recommendations about regulatory programs that affect privately held small businesses and small publicly traded companies.
– How are iPads being used as a way for directors to receive and view Board materials?
– How many directors are using iPads right now?
– What tips do you have for transitioning to iPads for board materials delivery?
I have now posted the speakers for our annual package of executive pay conferences to be held on November 1st-2nd in San Francisco and by video webcast: “Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference” and “The Say-on-Pay Workshop Conference: 8th Annual Executive Compensation Conference.” Here’s the “Proxy Disclosure Conference” agenda – and here’s “The Say-on-Pay Workshop Conference” agenda.
I’ve assembled an all-star cast to ensure you are fully prepared for Round 2 of say-on-pay. Not only are ISS and Glass Lewis representatives speaking multiple times, but you will hear from in-house people about how they grappled with proxy advisor recommendations they didn’t agree with. From companies that nearly failed say-on-pay. From many well-known compensation consultants and proxy solicitors. And perhaps most importantly, from the folks that actually vote the proxies – institutional investors – including these speakers:
– Vineeta Anand – AFL-CIO
– Donna Anderson – T. Rowe Price Associates
– Anne Chapman – Cap Re
– Michelle Edkins – BlackRock
– Kurt Schacht – CFA Institute
– Anne Sheehan – CalSTRS
– Albert Meyer – Bastiat Capital
Less Than Three Days Left for Early Bird: Save 25% by registering by this Friday, May 13 at our early-bird discount rates.
Whistleblower Laws in Court
On May 3rd, as noted in this memo, the 9th Circuit Court of Appeals held that the whistleblower law in Section 806 of Sarbanes-Oxley do not protect leaks to the media in Tides v. Boeing. This is the latest in a long line of whistleblower cases brought since SOX was enacted nearly a decade ago.
The next day, the US District Court – Southern District of New York – in Egan v. TradingScreen Brokerage Services – issued this order that takes a detailed look at who may invoke the anti-retaliation provisions under Section 922 of Dodd-Frank and what is required to invoke the protection. Although we are still waiting for final whistleblower rules from the SEC regarding whistleblower bounties, Dodd-Frank does allow for a private right of action. I believe this is the first whistleblower case under Dodd-Frank. Learn more in Kevin LaCroix’s “D&O Diary” Blog.
First Uses of Golden Parachute Approvals at Annual Meetings
In his “Dodd-Frank.com Blog,” Steve Quinlivan identifies the first five companies to use the optional advisory approval of golden parachute arrangements permitted by Dodd-Frank in connection with an annual meeting. Check it out.
Last week, four more companies filed Form 8-Ks reporting failed say-on-pay votes – and a fifth reported a near failure. The companies that failed were: Stewart Information Services (48%); Dex One (48%); NVR (44%); and Penn Virginia (39%). The near failure is well described by Mark Borges in his “Proxy Disclosure Blog” on CompensationStandards.com: “Cooper Industries reports that its “Say on Pay” proposal was approved by a vote of 50.36% – 49.64%. While the company indicates in its proxy statement that abstentions are not to be considered votes cast at the annual meeting (and, thus, have no impact on the vote’s outcome), there were over 2 million abstentions recorded. Had they been considered “negative” votes, the proposal would have been defeated, 50.4% 0 49.6%. Needless to say, the company would be well advised to pay close attention to its shareholders’ concerns about its executive compensation program.”
Less Than Four Days Left for Early Bird: Our Say-on-Pay Intensive Conference Lineup – We have announced the line-up for our annual package of executive pay conferences to be held on November 1st-2nd in San Francisco and by video webcast: “Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference” and “The Say-on-Pay Workshop Conference: 8th Annual Executive Compensation Conference.” Save 25% by registering by May 13 at our early-bird discount rates.
Rumor: SEC Adopts Whistleblowing Rules on May 25th?
Many members are asking when the SEC will adopt its final rules regarding whistleblowing as required by Section 922 of Dodd-Frank. Originally, it was thought the SEC would act by the end of April. According to this Reuters article (entitled “SEC cool to corporate demands on whistleblowers”), the SEC may act on May 25th. More often than not, these rumors prove to be false – particularly here where a House Financial Services hearing on the proposal will be held on May 11th – and thus, I rarely blog about them. But given the keen interest, there you have it…
The Nuts & Bolts of Bank M&A
Tune in tomorrow for the DealLawyers.com webcast – “The Nuts & Bolts of Bank M&A” – to hear Bill Hickey of Sandler O’Neill & Partners, Rich Schaberg of Hogan Lovells, Larry Spaccasi of Luse Gorman and Suzanne Walker of Kilpatrick Townsend explore the latest trends and developments in bank mergers and acquisitions.
The SEC has begun to issue comments on Dodd-Frank disclosures included in SEC filings. While perhaps the comments to date are not great in number, they demonstrate the SEC is capable of asking difficult questions about the impact of Dodd-Frank on an issuer’s operations. We recommend that issuers consider the impact of Dodd-Frank when preparing their Form 10-Ks and other disclosure documents. The more significant comments we noted are set forth below.
FXCM Inc.: The SEC comment stated in part “Based on your description of your CFD business in the prospectus, it appears that the CFDs would fall within the definition of swap under the current language of Section 206A of Gramm-Leach-Bliley and would fall within the definition of a swap under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Please explain in a detailed legal analysis how your proposed plan of business would operate under both the federal securities law and the Commodity Exchange Act.”
The issuer’s response, in part, stated “To the extent that CFDs were deemed to be swaps, futures, forwards or other instruments over which the CFTC has jurisdiction or will, as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, have jurisdiction in the future, the CFDs offered and sold by the Company’s non-U.S. subsidiaries would be fully outside of such jurisdiction since they are offered exclusively outside the U.S. and exclusively to non-U.S. persons. . . [citations omitted] Further, Congress provided in Dodd-Frank that the CFTC’s jurisdiction over swaps would not generally reach swap transactions outside the U.S. Specifically, Dodd-Frank provides that the provisions of the Commodity Exchange Act relating to swaps shall not apply to transactions outside the U.S. unless they ” have a direct and significant connection with activities in, or effect on, commerce” in the U.S. or contravene rules promulgated by the CFTC to prevent the evasion of provisions of the Commodity Exchange Act related to swaps. Section 722(d) of Dodd-Frank (to be codified in Section 2(i) of the Commodity Exchange Act).”
Randgold Resources Limited: The SEC comment stated “We note your operations in the Democratic Republic of the Congo (DRC) produce gold which is defined as a conflict mineral in the recent Dodd-Frank Wall Street Reform and Consumer Protection Act. With a view toward possible disclosure, tell us whether or not your mining operations acquire or purchase gold and/or other conflict minerals from local mining companies and/or artisanal miners.” The issuer responded “The Company respectfully advises the Staff that the Company’s Kibali Project in the Democratic Republic of the Congo is a development project which is currently at the feasibility stage, and consequently is not yet an operating mine and does not produce any gold. Furthermore, the Company does not purchase gold or other conflict minerals from any local mining companies and/or artisanal miners.”
First Horizon National Corporation: This issuer responded to a comment requesting the issuer provide a “more robust discussion of your trust preferred loans.” In part the issuer’s response stated “Since the vast majority of trust preferred issuers to which FHN has extended credit have less than $15 billion in total assets, the passage of the Dodd-Frank Act is not expected to significantly affect future payoff rates for these loans.”
A Transcript of Berkshire Hathaway’s Loooong Annual Meeting
Most companies hold annual meetings that are over in a manner of minutes. Berkshire Hathaway is an anomaly was its annual meeting is the cause for pilgrimages for 30,000 investors to Omaha every year. Thousands – if not millions – in merchandise is sold at the event. With a hat tip of Jim McRitchie’s CorpGov.net, here is a 24-page transcript of some of the remarks made by Warren and Charlie Munger from the all-day event.
Francine McKenna of re:theauditors also made the trip this year and here is her blog about the event (and here’s a piece from Francine raising questions about the format of journalists screening the questions submitted). The Q&A period was held during the first 7-plus hours of the meeting, with the formal business being covered during the last half hour (which many in the crowd decided not to stay for)…
Recently, the SEC released its updated list of registered and reporting foreign private issuers for the year ended December 31, 2010. Of the 970 issuers accounted for approximately:
– 35.8%, or 347 issuers, were organized in Canada;
– 12.9%, or 125 issuers, were organized in the Cayman Islands;
– 7.6%, or 74 issuers, were organized in Israel; and
– 5.0%, or 49 issuers, were organized in the British Virgin Islands;
The remaining 38.7 % of issuers were organized in 47 different countries.
Most foreign private issuers, 46.5% of them, were listed on the NYSE/Amex/Arca markets, 27.1% were listed on the Nasdaq markets and the remaining 26.4% were quoted in the over the counter markets.
By the way, SEC Chair Schapiro already has provided the first in what is likely a long line of testimonies before Congress on the SEC’s 2012 budget even though the agency’s 2011 budget was just approved. She wants to add over 700 new Staffers for fiscal ’12…
Here is something that I blogged last week on CompensationStandards.com’s “The Advisors’ Blog”:
Recently, TK Kerstetter of Corporate Board Member expressed his opinion that directors are underpaid. Earlier this week, he wrote this blog entitled “Directors Still Shy About Giving Themselves Raises.” I’m not sure where TK is getting his data from, but we haven’t seen any studies for this proxy season yet as the proxy disclosures are just rolling in now – and the data from last year (comparing 2010 to 2009 levels) revealed that boards received double digit (11%) raises on average when comparing total values of director compensation. That surely isn’t bad in a poor economy – and I predict the 2010-2011 comparison will also reveal a significant move upwards. [My data is pulled from Frederic W. Cook & Co.’s latest report on director compensation that compares the Nasdaq 100 vs. NYSE 100 for 2010.]
As reflected in TK’s blog, some argue that boards are doing more now so their pay levels should be adjusted upwards. But that doesn’t take into account that boards likely were overpaid in the past – so perhaps now they are finally earning what they make. $228,00 per year for a very part-time job isn’t bad (this is the median amount for 2010 noted in the Cook report). Go back a decade and talk to anyone who spent significant time in the boardroom and you’ll hear plenty of stories about how boards did very little before the advent of governance reforms and shareholder pressures directed towards them since the turn of the century. Consider that only a handful of companies had written procedures & policies (ie. corporate governance guidelines) about how their boards operate a decade ago. That says a lot about how seriously many boards took their role back then in my opinion.
And I strongly urge boards not to fall into the trap of relying solely on peer group studies to determine how much they should pay themselves. This would be repeating history as this type of benchmarking is one of the major causes of excessive CEO pay – the slippery slope upwards as everyone wants to be paid in the top quartile (who would say “we are a bad board and so should be paid at the bottom”?). Not to mention all the other perils of peer benchmarking, such as manipulating the data (as noted in the recent study). Common sense needs to prevail. Boards don’t need raises because “everyone else is doing it” without considering the sizable amounts they already earn for the fairly limited tasks they perform.
Shareholder Proposals: Real Celebrities Get Into the Mix
Those of us that come to love (and hate) the proxy season know the names “Evelyn Y. Davis” and “John Chevedden” all too well. They are among our celebrities. As I touched upon in this blog, real-life celebrities are now entering into our small world – Mike Diamond of the Beastie Boys has become a shareholder proponent, using the Rule 14a-8 process to weigh in on net neutrality. I wouldn’t be surprised to see more celebrities get involved with their causes by submitting shareholder proposals to companies.
Also note how much more litigation there is over shareholder proposals compared to prior seasons – see this complaint filed by the People for the Ethical Treatment of Animals against Merck after Corp Fin allowed the company to exclude PECA’s proposal on eligibility grounds.
Impact of Dodd-Frank on States
In this podcast, Allen Goolsby of Hunton & Williams discusses how Dodd-Frank has impacted state law, including:
– How does Dodd-Frank erode state corporate law?
– What should companies be thinking about with respect to the laws of their states of incorporation?
– What other state law concerns does Dodd-Frank raise?
We have posted the results of our survey regarding CEO succession planning, repeated below (compare to similar survey from ’08):
1. Our company:
– Has a written CEO succession plan in a formal document or policy – 6.7%
– Has a written CEO succession plan in the form of a board resolution or as part of the board minutes – 6.7%
– Has a CEO succession plan, but its not memorialized in writing – 60.0%
– Doesn’t have a CEO succession plan – 26.7%
2. Our company:
– Reviews and updates the CEO succession plan at least annually – 46.7%
– Reviews and updates the CEO succession plan on occasion – 20.0%
– Doesn’t reviews the CEO succession plan (but it does have one) – 6.7%
– Doesn’t have a CEO succession plan – 26.7%
Recent Corp Fin Comments on Disclosures of Loss Contingencies
Recently, Anne Cotter of Leonard Street & Deinard blogged about recent comments issued on loss contingency disclosures in the “Dodd-Frank.com Blog.” Before listing sample comments, Anne notes: “If the SEC notes a significant potential loss, they may ask pointed questions about it. And if you talk about it during your earnings call, but do not mention it in your periodic report, they may still ask about it.”
Happy Anniversary Baby! 9 Years of Blogging and Counting
Today marks nine years of my blither and bother on this blog (note the DealLawyers.com Blog is nearly eight years old – not shabby!). It’s one time of the year that I feel entitled to toot my own horn – as it takes stamina and boldness to blog for so long. A hearty “thanks” to all those that read this blog for putting up with my personality. I’m sure I won’t get more refined with age.
Last week, MDC Holdings filed this Form 8-K to report that it became the 11th company to fail to gain majority support for its say-on-pay, with only 34% voting in favor. In addition, Janus Capital Group filed this Form 8-K – with only 41% voting in favor – to become the 12th company with a failed say-on-pay. We continue to maintain our list of links to Form 8-Ks filed by companies with a failed SOP in our “Say-on-Pay” Practice Area on CompensationStandards.com.
Dodd-Frank: Another Rulemaking Progress Report
Here is the 2nd progress report from Davis Polk regarding all of the various agencies engaged in Dodd-Frank rulemaking. This one visually illustrates the regulatory burden imposed by Dodd-Frank, noting that all 26 rulemaking requirements in April were missed, increasing the backlog of missed rulemakings to 30.
The Changing Society of Corporate Secretaries
In this podcast, Ken Bertsch, President & CEO of the Society of Corporate Secretaries & Governance Professionals, explains how he envisions the future of the Society, including:
– How do you like your new position so far? Any surprises?
– What types of changes do you foresee for the Society in the near term? Further out?
– How will this year’s annual conference program differ from prior years?
Last week, Cogent Communications filed this Form 8-K to report that it became the 10th company to fail to gain majority support for its say-on-pay, with only 39% voting in favor. Ted Allen’s blog provides some analysis, including noting significant levels of “no” votes at Pfizer and Johnson & Johnson (both of whom are S&P 500 companies).
Less Than Two Weeks Left for Early Bird: Our Say-on-Pay Intensive Conference Lineup – We have announced the line-up for our annual package of executive pay conferences to be held on November 1st-2nd in San Francisco and by video webcast: “Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference” and “The Say-on-Pay Workshop Conference: 8th Annual Executive Compensation Conference.” Save 25% by registering by May 13 at our early-bird discount rates.
Webcast “Tackling Social Media Issues”
As I blogged last week, there are so many novel issues to consider with social media right now (and cool stuff like this blog from Johnson & Johnson’s Doug Chia regarding the company’s voting results). Tune in tomorrow to hear these issues discussed during the webcast – “Tackling Social Media Issues” – by Tom Kim, Chief Counsel of the SEC’s Division of Corporation Finance, Eddie Best of Mayer Brown, Karen Dempsey of Orrick, Herrington & Sutcliffe, Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster and Dominic Jones of IR Web Report. Note the new time of this webcast from 12:00 – 1:00 pm eastern.
Our May Eminders is Posted!
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