Monthly Archives: September 2011

September 30, 2011

SEC’s New Filing Fee Rates: Effective October 1st

Yesterday, the SEC issued Fee Rate Advisory #3 to remind people about the new filing fee rates become effective tomorrow, as I blogged about a few weeks ago (the rate slightly declines to $114.60 per million, a 1.2% price drop). As explained in this SEC order, these new rates become effective regardless of when Congress passes the government’s budget. This is unlike past years, when the new rates didn’t become effective until five days after the date of enactment of the SEC’s appropriation for the new year, which often was delayed well beyond the October 1st start of the government’s fiscal year as Congress and the President battled over the government’s budget.

Court Order Available: Beazer Home’s Say-on-Pay Lawsuit Dismissal

Earlier this week, I blogged about the dismissal of Beazer Home’s say-on-pay lawsuit being dismissed and I noted that the judge rule from the bench. The judge has now issued a 24-page court order explaining the dismissal, which we have posted in the “Say-on-Pay” Practice Area on

SEC Sets Conflict Minerals Roundtable for October 18th

Yesterday, the SEC announced that it will hold a roundtable on conflict minerals on October 18th. A final agenda including a list of participants will be announced closer to the date of the roundtable. Before Section 1502 was dumped into the “Miscellaneous” section of Dodd-Frank, who would have thunk that the SEC would be grappling with this topic…

Congrats to Me! The NACD Directorship 100

Recently, I was honored to make the list of 100 most influential people in corporate governance according to Directorship, a publication recently bought by the NACD. There are many luminaries much brighter than me on the list but I’m happy to take what I can get…

– Broc Romanek

September 29, 2011

Survey Results: Director Resignations

Under at least two scenarios these days, a director may be required to submit a resignation letter – either when the company’s corporate governance guidelines require it when a director has a change in his/her job responsibility or as part of a majority vote provision. Below are our recent survey results about director resignations:

1. If a director resignation scenario arises, the process our company uses to obtain the letter involves:
– Corporate secretary or general counsel reminds the director of the need to submit the resignation letter – 47.1%
– Board chair or governance committee chair reminds the director of the need to submit the resignation letter – 41.2%
– Full Board reminds the director of the need to submit the resignation letter at a board meeting – 0.0%
– Nobody reminds the director of the need to submit the resignation letter – 8.8%
– Other – 2.9%

2. After a director resigns, the process our company uses as part of an “exit” interview – and to ensure that a Form 8-K under Item 5.02(a) is not required – involves:
– Board meets in executive session without the “resigning” director – 2.9%
– Board chair meets with the resigning director – 14.7%
– Nominating/governance chair meets with the resigning director – 23.5%
– CEO meets with the resigning director – 11.8%
– General counsel meets with the resigning director – 26.5%
– Corporate secretary meets with the resigning director – 8.8%
– Other – 11.8%

Please take a moment to participate in this “Quick Survey on D&O Questionnaires and Director Independence.”

Shame on Regulators: European Bank Blowups Hidden With Shell Games

From Lynn Turner: This Bloomberg article highlights what fools the European regulators and accounting standard setters now look like. The article rehashes how the banks and politicians ganged up together on both the FASB and IASB to immensely water down their rules three years ago, so that banks could prepare misleading financial statements that omitted losses on their investments. At the time, the SEC also failed to defend the FASB and in fact, when questioned, told a congressman they would see to it the FASB got the rule changes done in just 30 days.

Now, as the article highlights, this change has allowed (1) banks to avoid reporting the losses they have suffered on Greek Debt, (2) banks are slowing “dripping” their losses into their financials over a number of years including years to come, much like Chinese water torture, (3) resulting in banks failing to actively manage their problems, and (4) extending the problem and probably the magnitude of losses incurred. Back at the beginning of the 1990s, a report from the GAO noted the US government had engaged in similar financial shenanigans until Richard Breeden became chair of the SEC and forced the S&Ls and banks to report their true losses. Unfortunately, the politicians undid his work and the result is a negative outcome for investors.

September-October Issue: Deal Lawyers Print Newsletter

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

– The Down Economy: Special Negotiating and Diligence Items to Consider
– Changing Due Diligence Practices for Uncertain Times: An In-House Perspective
– Due Diligence: Implications of Dodd-Frank’s Whistleblower Provisions for Acquirors
– $17.50 from Column A and $17.50 from Column B: “50/50 Split” Implicates Revlon

If you’re not yet a subscriber, try a “free for rest of ’11” no-risk trial to get a non-blurred version of this issue on a complimentary basis.

– Broc Romanek

September 28, 2011

Proxy Plumbing & Proxy Advisor Regulation: What is the Latest Timetable?

With the fate of mandatory proxy access behind us, the latest common question I have been hearing from members is: “what is the timing of Corp Fin’s proxy plumbing project?” On a recent Glass Lewis webcast, Skadden Arps’ Brian Breheny noted that rulemakings emanating from the proxy plumbing project will likely come in waves, with greater regulation of proxy advisory firms being one of the first. But Brian noted that even this was not likely to be proposed this year given so many Dodd-Frank rulemakings still to come. Brian thought it was likely to happen in ’12 – but even then the timing is uncertain. So nothing will likely be in place until the proxy season in ’13 at the earliest here.

As for what the SEC might propose, Brian believes companies may be disappointed if they are waiting for the SEC to change the relationship between proxy advisors and their investor clients. Rather, the SEC could modernize Rule14a-2(b)(3) by:

– Requiring more disclosure regarding potential conflicts of interest
– Requiring proxy advisor recommendations to be filed with the SEC, but on a delayed basis so as not to harm any competitive advantage for the proxy advisors
– Requiring proxy advisory firms to describe their review processes in filed reports

The SEC also could amend the investment advisor rules to remove a barrier to registration so that proxy advisory firms can – or are required to – register regardless if they have the requisite amount of assets under management that the rules currently require. So far, a number of commenters asked the SEC to consider requiring proxy advisors to provide a draft of their recommendations to issuers before publication. Brian thinks it’s unlikely that the SEC would propose such a rule, if only because it would be difficult to craft and police.

Finally, Brian surmised that because Rule 14a-9 already applies to proxy advisors, the SEC could possibly bring actions for fraud under 14a-9 if solicitation material was deemed to be false or misleading – however, such actions are difficult to bring because the question as to whether proxy materials are false or misleading is dictated by the facts and circumstances of the matter. Here’s the comment letters submitted to the SEC on proxy plumbing so far. Thanks to Darla Stuckey of the Society of Corporate Secretaries for taking notes on Brian’s thoughts!

DOL to Repropose Changes to Its Fiduciary Definition Rule

Last week, the DOL announced that it will re-propose its rule on the definition of a fiduciary to collect more feedback from the public – and Congress. Given some of the language in the press release about giving folks time to comment on the agency’s “updated economic analysis,” it appears this extension was related to the recent proxy access court decision – particularly since the DOL already has received ample feedback. The press release notes: “This extended input will supplement more than 260 written public comments already received, as well as two days of open hearings and more than three dozen individual meetings with interested parties held by the agency.” Anyways, this rulemaking has bearing on whether proxy advisors are considered fiduciaries. The new timing is that a new proposal is expected in early ’12.

Changing Due Diligence Practices

In this podcast, Andrew Sherman of Jones Day – and co-author of a new book, “The AMA Handbook of Due Diligence” – provides some insight into how due diligence practices are changing, including:

– How do the deal markets look these days?
– How have due diligence practices changed over the past few years?
– What practices do practitioners often overlook?
– What is the best way to determine if someone doing diligence knows what they are doing?

– Broc Romanek

September 27, 2011

ISS’s ’12 Policy Survey Results: A Peek Into Pay Practice Views

Yesterday, ISS released the results of its latest policy survey, which both companies and investors are invited to fill out. Although investors and companies appear to be on the same page regarding some pay practices, there are many where they may not be. Among the findings per Mike Melbinger in his blog:

– A majority of both investor (60%) and companies (61%) cited executive compensation as one of the top 3 governance topics for the coming year, similar to last year.

– Investors and companies had different views on when companies should address shareholder opposition during “say on pay votes.” On a cumulative basis, 72% of investors said there should be an explicit response from the board regarding pay practice improvements if opposition exceeds 30%. Among companies, 48% said an explicit response wasn’t necessary unless there was more than 50% dissent. (The most commonly cited level of opposition on a say-on-pay proposal that should trigger an explicit response from the board regarding improvements to pay practices was “more than 20%” for investor respondents.)

– A majority of investors (57%) indicated more engagement activity with companies in 2011. When asked about engagement activity with institutional shareholders, companies almost equally cited “about the same as in 2010” and “more engagement in 2011.”

– Pay levels relative to peers and a company performance’s trend are relevant for both investors and companies when determining pay for performance alignment. When determining whether executive pay is aligned with company performance, an overwhelming majority of investors considered both pay that is significantly higher than peer pay levels and pay levels that have increased disproportionately to the company’s performance trend to be very relevant. On the other hand, most companies indicated that both of these factors to be “somewhat relevant.”

– A majority of investors (57%) and 46% of companies agreed that discretionary annual bonus awards (i.e., those not based on attainment of pre-set goals) to be sometimes problematic if the awards are not aligned with company performance.

– Regarding new equity plans, responses from investor and companies varied as to whether positive factors, such as above median long-term shareholder return; low average burn rate relative to peers; double-trigger CIC equity vesting; reasonable plan duration; robust vesting requirements, should be taken into account to mitigate an equity plan where shareholder value transfer (SVT) cost is excessive relative to peers. Most investors were reluctant to indicate that any of those factors would “very much” mitigate the cost.

– Where SVT cost is not excessive and whether negative factors, such as liberal CIC definition with automatic award vesting; excessive potential share dilution relative to peers; high CEO or NEO “concentration ratio”; automatic replenishment; prolonged poor financial performance; prolonged poor shareholder returns, weigh against the plan, a majority of investors indicated all of the factors, with the exception of high CEO/NEO “concentration ratio,” should “very much” weigh against the plan.

– An overwhelming majority of investor respondents do not consider automatic accelerated vesting of outstanding grants upon a change in control or accelerated vesting at the board’s discretion after a change in control to be appropriate. The vast majority of companies disagree, and consider both scenarios appropriate.

During our upcoming pair of say-on-pay conferences (one regarding disclosure and one regarding pay practices – both combined for one price), come hear investor views from the investors themselves during the panel – “Say-on-Pay Shareholder Engagement: The Investors Speak” – featuring T. Rowe Price’s Donna Anderson; Cap Re’s Anne Chapman; Blackrock’s Michelle Edkins; CalSTRS’ Anne Sheehan and AFL-CIO’s Vineeta Anand. In addition, investors are sprinkled throughout the panels over the two days to help you learn their latest thinking.

Act Now: Come join 2000 of your colleagues in San Francisco – or thousands more watching live (or by archive) online – to receive a load of practical guidance and prepare for what is promising to be a challenging proxy season. Register now.

Beazer Home’s Say-on-Pay Lawsuit Dismissed

Last week, I blogged how the Cincinnati Bell say-on-pay lawsuit survived a motion to dismiss. Now the count is 1-1 since – as noted at the end of this Thomson Reuters article – a state court judge in Georgia dismissed the shareholder derivative say-on-pay lawsuit against Beazer Home with a ruling from the bench.

Meanwhile, Steve Quinlivan has analyzed the Cincinnati Bell decision and has identified errors in his “Dodd-Frank Blog” – and Marty Rosenbaum characterizes the decision as a “game-changer” in his “OnSecurities Blog.”

Webcast: “How to Handle Contested Deals”

Tune in tomorrow for the webcast – “How to Handle Contested Deals” – to hear Chris Cernich of ISS, Joele Frank of Joele Frank Wilkinson Brimmer Katcher, David Katz of Wachtell Lipton; and Paul Schulman of MacKenzie Partners discuss planning for and responding to deal contests.

– Broc Romanek

September 26, 2011

More on “Should More Companies Be Going Public?”

A few weeks ago, I blogged both about the SEC’s efforts to study a push to get more companies public – a push fueled by Congressional interest – as well as the Groupon gunjumping saga. Both of these blogs are related in a sense because some would view Groupon as a good example of a company not ready to go public.

On Friday, the company filed it’s Pre-Effective Amendment #3 to its Form S-1. This amendment includes an Appendix A consisting of the information that the CEO sent to employees at the end of August – not the first instance of potential gunjumping for the company.

More importantly, the amendment changes the way that the company counts revenue – calling into question whether the company’s accountants can be trusted, as noted in this WSJ article and this blog. Simply opening the floodgates to allow more companies to prematurely lure investors into parting with their money – before these companies develop the proper type of compliance culture – will not magically cure what is wrong with our economy and job situation. If anything, it will make it worse as the credibility of our markets will take yet another hit…

Last week, Corp Fin Director Meredith Cross and Deputy Director Lona Nallengara delivered this testimony before the House Subcommittee on Capital Markets in a hearing about small business capital formation and job creation. Meanwhile, Meredith has recused herself from any further deliberations about crowdfunding because of some work she did for Lending Club before she came to the SEC, even though she had been cleared by the SEC’s ethics counsel.

Growing Activism on Corporate Political Spending Disclosure

For over a decade – well before the controversial Citizens United decision from the Supreme Court last year – there has been activism to elicit more disclosure from companies about their political contributions. The Center for Political Accountability has been successful in pressuring quite a few large companies into posting their political spending policies online. And there have been numerous rulemaking petitions submitted to the SEC, the latest coming last month from Professor Bebchuk and 9 others.

Activism through the shareholder proposal process on this topic has been growing, as reflected on pages 11-12 in this ISS post-season report.

And now we have this letter that recently was sent to all S&P 500 companies from the Sustainable Investments Institute (Si2) asking them to review their profile and provide feedback. Si2 is planning to release a report on November 10th based not only on the responses it receives, but on much drilled down data it has been collecting. The report, sponsored by the IRRC Institute, should be more comprehensive than research on this topic to date since it will focus on more than just the top tier companies – and it will enable us to see how things have moved from last year to this, now that companies have had a chance to react to Citizens United in their policies.

Ceres’ New “Proxy Voting for Sustainability” Guide

Last week, Ceres released a “Proxy Voting for Sustainability” guide which is designed to assist investors respond to environmental, social and governance – aka “ESG” – issues. The guide lays out 4 sets of principles and provides sample proxy voting guideline language. It also includes more than 75 specific best practice examples of proxy guidelines. There have been 720 ESG shareholder proposals over the past 2 years – and I expect there will be more going forward…

– Broc Romanek

September 23, 2011

Whoa! First Say-on-Pay Lawsuit to Survive a Motion to Dismiss

Early yesterday, I tweeted that the first say-on-pay lawsuit has survived a motion to dismiss and boy, did a get a reaction as nearly everyone had predicted that these lawsuits would be seen as frivolous. As noted in this order, the US District Court for the Southern District of Ohio refused to grant Cincinnati Bell’s motion because the company had not proven that it had met its fiduciary duties. The fiduciary duty standard in Ohio is a “deliberate attempt to cause injury to the corporation” or “reckless disregard for the best interest of the corporation.” Pretty breathtaking that the court thought the complaint supported “deliberate intent to injure” or “reckless disregard.” Thanks to Paul Hastings’ Mark Poerio for pointing this lawsuit out.

What does this all mean? A few things to consider:

1. More Lawsuits Coming – There have been 9 say-on-pay lawsuits filed so far. But I hear there are more in the pipeline because these 9 didn’t include demands on the board first. There are a slew of others that have first made demands – and if an agreement is not reached, lawsuits will be filed. And this development will likely encourage more suits to be filed as well.

2. More Failed Say-on-Pays in ’12 – I’ve been saying that this year was a test year for say-on-pay and that companies who just had their say-on-pay pass should not rest easy for next year. Here are just some of the factors that have led me to this belief:

– Conversations with institutions who appear willing to fail more companies next year now that they have had real experience with voting on large numbers of SOPs and realize that more engagement is possible if necessary

– Increasing anger about income inequality generally, including ramped-up rhetoric in an election year

– A rapidly declining economy and stock market – compared with all boats rising earlier this year

– Throw into the mix that we don’t know what positions ISS and Glass Lewis might change for the coming year. As well as investors and their policies.

– Directors were spared “against/withhold” vote campaigns this year in deference to say-on-pay. I wouldn’t necessarily bank on that happening again. And directors are likely to take a large number of “no” votes personally compared to SOP votes.

As I have learned from the prep calls for our upcoming pair of say-on-pay conferences (one regarding disclosure and one regarding pay practices – both combined for one price), I can tell you that we are still in the infancy of how say-on-pay will ultimately play out. And you will hear for yourself the horror stories when a company does fail its say-on-pay – and how the say-on-pay lawsuit really shakes up a boardroom – during the “Failed Say-on-Pay? Lessons Learned from the Front” panel during the conference.

Act Now: Come join 2000 of your colleagues in San Francisco – or thousands more watching live (or by archive) online – to receive a load of practical guidance and prepare for what is promising to be a challenging proxy season. Register now.

For Good Reason: Prominent Lawyers Support David Becker

A group of prominent member of the securities bar sent this letter yesterday to the House committees who held a hearing on the David Becker matter that I have been blogging about. A quick read of the letter illustrates pretty clearly how the SEC Inspector General’s investigation – and criminal referral – have all the trappings of a witch hunt.

In private conversations with lawyers more senior than me – those that know David far better than me – I have learned even more to support the notion that David might be the most ethical lawyer in the bar. So it clearly is no time to be idly sitting by and watch those not interested in justice and fairness do whatever they wish to accomplish personal (and unprofessional) goals. Here is David’s testimony – and SEC Chair Schapiro’s testimony – from yesterday’s hearing. Both are worth reading. And here is David Kotz’s testimony...

Tweeting Away! A Fake SEC Inspector General Employee

And apparently someone else think that the SEC’s IG referral is a crock. A few days ago, someone created this Twitter account pretending to be in Kotz’s IG office – Bill Hanrahan – and he has been sarcastically tweeting since. The fake guy’s tagline is “Bucking for a promotion since ’85.” Here are a few of the tweets so far:

– I can’t read lips so well but I think Schapiro asked my boss if he’d conduct an investigation into how he got to be so awesome. #madoff

– Need suggestions for new, totally appropriate venue to announce investigation. Used Fox Business on Goldman; maybe sit in Rick Perry’s lap?

– Proud of our new Becker precedent: if 7 or fewer people know you are not doing anything wrong…you are committing wrongoing.

– Heard DOJ paid for $8 muffins at conferences. Scones at my testimony prep right now taste like Harvey Pitt’s beard. Will ‘vestigate. #javert

– Need investigation re SEC failure to build time machine so it can predetermine all the unwitting mistakes it should not have made #TerraNova

– Working out a lot at #SEC gym a lot recently (you’ve got to be in shape to drag people through the mud)…

Let me be clear that this fake tweeter is not me! I do have a fake alter ego to have a little fun – @MrPoorCEO – but just the one. But these fake Twitter accounts can be worth real money – read this article.

– Broc Romanek

September 22, 2011

New FINRA Guidance: Corporate Actions Can Lead to Underwriter Problems

From Suzanne Rothwell: A few weeks ago, FINRA published Regulatory Notice 11-41 warning broker-dealers that their regulator will closely scrutinize the research issued by an underwriter for compliance with FINRA and SEC research analyst regulations when an issuer has made advance public statements explicitly or implicitly indicating that participation in the issuer’s anticipated public offering is conditioned on the broker providing favorable research.

Although FINRA recognizes that “such uninvited pronouncements place prospective offering participants in a challenging situation,” FINRA nonetheless warns that “even tacit acquiescence to such overtures to be a violation of NASD Rule 2711(e),” the FINRA rule prohibiting brokers from promising favorable research to a company as an inducement or consideration for receiving business. Such acquiescence may also violate NASD Rule 2711(c)(4), which prohibits brokers from soliciting investment banking business, and the SEC’s research analyst certification.

The specific situation of such an issuer’s statements discussed in the FINRA Notice related to a recent WSJ article that reported that AIG “Chief Executive Robert Benmosche has complained to senior executives at investment banks about the unfavorable stock research . . .” and quoted Mr. Benmosche as saying: “For the next offering, I want to make sure there is a clear understanding of who AIG is and our trajectory, and why AIG is a stock that investors should own.”

Are there other areas where an issuer’s demands could lead to regulatory problems for their underwriters? Yes. When an issuer conditions a broker/dealer’s participation in its underwriting on a pre-offering purchase of the issuer’s unregistered securities, FINRA Rule 5110 will generally treat such purchases within 180 days prior to the issuer filing its offering with the SEC as additional underwriting compensation (valued on the difference between the purchase price and the offering price) and the securities will be locked-up for 180 days following the issuer’s offering.

At times, the value of the securities does not, when added to the discount and other compensation, make the arrangement unreasonable under FINRA underwriting compensation limits – but at times it does. If the compensation is unreasonable, sometimes the only solution is for the purchasing broker/dealer to withdraw from the underwriting. Not a good result. These situations can generally be avoided by the underwriter’s counsel reviewing the proposed pre-offering purchase and ensuring that the arrangement would not create later problems.

House Bill Seeks to Relieve Smaller Companies of Internal Controls Obligations

As noted in this Cooley alert, a new House bill introduced by Rep Benjamin Quayle (R-AZ) – “Startup Expansion and Investment Act” – would make internal control reporting and assessment requirements of SOX 404 optional for “smaller” companies. Have I lost count of many bills before this seeking the same thing or was that just a dream?

Congress wants smaller companies to go public more frequently. Congress wants smaller companies to not have strong financial controls. Congress wants investors to lose their money…

RSUs Don’t Constitute a Separate Class for Purposes of Section 12(g)

A few weeks ago, Corp Fin granted no-action relief to Twitter – allowing the company to treat restricted stock units as a separate class for Section 12(g) purposes. The Staff has taken the position that options aren’t counted either for Section 12(g) purposes for some time, going way back to ’01 – and this RSU position has been taken since this Facebook response in ’08.

– Broc Romanek

September 21, 2011

Proxy Access: Why Did the SEC Publish a Release to Lift the 14a-(8) Stay?

Yesterday, the SEC’s release on lifting the Rule 14a-8 stay on proxy access shareholder proposals was published in the Federal Register – so it’s now “live.” I was in the midst of cross-country travel last week when I blogged about the SEC’s rulemaking that related to the lifting of the stay. Given that it was a 4:45 am blog before I jumped on a plane, I wondered – but didn’t have time – to research the technical question of why the SEC issued a release titled “Final rule; notice of effective date” that seemed to time the lifting of the stay with publication of that release in the Federal Register. Since the SEC did post a separate order granting the stay – and its language didn’t seem to require any further release or publication – I was left with curiosity.

Administrative law is not my bailiwick so I admit that I still don’t know the answer. I have perused some of the numerous law firm memos that have been drafted in the wake of the order, but the only thing that I have found somewhat related was an excerpt from this Sullivan & Cromwell memo:

The SEC’s effectiveness order relates not only to Rule 14a-8, but also to the other related rules adopted as part of the proxy access rule changes (other than Rule 14a-11). Many of these related rules seem to have no practical impact because they relate only to the now-vacated Rule 14a-11 – these include the exemptions from the proxy rules for solicitations by nominating shareholders to form a nominating group or in support of a candidate, as well as the safe harbor for Schedule 13G eligibility. As they now stand, these provisions do not apply to nominations made through a company’s proxy access bylaws.

Some of the new rules, however, will have an impact on nominations made through a company’s proxy access bylaws. These include Rule 14a-18, which requires the nominating shareholder to file a Schedule 14N containing specified information and representations, and Rule 14a-6, which confirms that inclusion of a proxy access nominee will not require filing of a preliminary proxy.

By the way, here are the results from my poll regarding how many proxy access proposals folks think there will be in ’12: 30% – less than 10 proposals; 30% – 11-20; 20% – 21-30; 7% – 31-100; 7% – over 100.

The Witch Hunt Continues: The SEC’s IG Report on Madoff

Six months ago, I blogged about the ridiculous witch hunt regarding former SEC General Counsel David Becker. In what may be one of the low points for the SEC in its history, the SEC’s Inspector General David Kotz released his 123-page report on the matter – which states that he has made a referral to the Department of Justice under a criminal conflict of interest provision. I received emails all day long from former Staffers bemoaning the state of affairs at the agency.

Beginning on page 100, the report notes that David Becker did, in advance, seek an answer from the SEC Ethics Counsel as to whether he should work on Madoff matters. He fully disclosed the fact that he had been a beneficiary of his mother’s estate which had invested in Madoff funds. The Ethics Counsel told him he did not need to recuse himself. And as noted on pages 10 and 11 of the report, SEC Chair Shapiro knew of the investment too – the Chair issued this statement yesterday. Here is an excerpt from this NY Times article:

Mr. Becker’s lawyer, William R. Baker III, said in a statement that the report confirmed that Mr. Becker had notified seven senior SEC officials about his late mother’s Madoff account, including Ms. Schapiro and the agency’s designated ethics officer.

“The inspector general concluded that ‘none of these individuals recognized a conflict or took any action to suggest that Becker consider recusing himself from the Madoff liquidation,’ ” wrote Mr. Baker, a lawyer at Latham & Watkins who worked at the SEC for 15 years, working alongside Mr. Becker at times. He said the report contained “a number of critical factual and legal errors,” but declined to enumerate them. Mr. Becker left the SEC last February.

There will be a joint House Financial Services Committee and Committee on Oversight and Government Reform hearing tomorrow regarding the report, where IG Kotz can once again demonstrate that he somehow is the most important person at the agency, assisted by some on the Hill. Simply amazing. And depressing as David did what he was supposed to do and they’re continuing to put him through the ringer…

More Congress Nonsense on SEC Modernization, Accountability

Mommy, please make it stop! Last week, the House Financial Services Committee dragged down senior officials once again – this time for a hearing entitled “Fixing the Watchdog: Legislative Proposals to Improve and Enhance the SEC” – to discuss two bills: the “SEC Regulatory Accountability Act” and “SEC Modernization Act of 2011.” I’ve already blogged bashing the latter and the former would require the SEC to engage in additional cost-benefit analysis before promulgating any new regulation. Here’s SEC Chair Schapiro’s testimony – and it’s worth reading this Washington Post article about former SEC Chair Harvey Pitt’s blasting of both proposals (he also had sharp words – indirectly – for SEC Inspector General Kotz).

Meanwhile, season senior SEC Staffers continue to make their way to the exits. 25-year vet Jamie Brigagliano, Deputy Director of SEC Division of Trading and Markets, is the latest to make a departure announcement. John Walsh also recently left after 25 years of service in OCIE…

– Broc Romanek

September 20, 2011

Been a Long Time! The 41st Failed Say-on-Pay (Barely)

With the proxy season long over, it’s been a long time – 9 weeks – since we’ve seen a company fail to garner majority support for its say-on-pay. But as Mark Borges reported last week in his blog, Exar has become the 41st company to do so this year.

In this Form 8-K, Exar reports that it was a close vote with the company receiving more “for” votes compared to “against” – but as Mark notes, the Delaware company counted its “abstentions” as “against” votes back when the company filed its proxy statement (see pg. 4) – thus resulting in the receipt of 49% in support. A list of the Form 8-Ks of the “failed” companies is in’s “Say-on-Pay” Practice Area.

Are Companies Doing Their Say-on-Pay Homework for ’12?

As I prepared to speak on social media to the crowd last week at the Society of Corporate Secretaries’ Western Regional Conference, I took in a say-on-pay panel – and almost dropped to the floor when Janice Hester-Amey of CalSTRS said no one that they had voted against say-on-pay wise had bothered to contact them yet to ask why they had voted negatively. Since CalSTRS voted “no” for 24% of the 3000 US companies in its portfolio, this means that not a single company out of hundreds has bothered to pick up the phone yet.

As I’ve learned from my prep calls ahead of our pair of executive pay conferences, other institutional investors have been getting calls asking “why” – but this still is startling considering how large CalSTRS is. And it begs the question whether companies who held say-on-pay votes this year remember that they will be required by Regulation S-K Item 402(b)(1)(vii) to disclose whether, and if so how, they considered the say-on-pay advisory vote in determining compensation policies and decisions and how that affected their executive compensation decisions and policies. Maybe some companies are just intending to disclose that they didn’t consider the advisory vote in their deliberations? A dangerous prospect if you ask me…

A Careful Orchestration: Two Days of Intensive Say-on-Pay Workshops

I’ve now been in this business quite a long time and I can honestly say that the upcoming pair of say-on-pay conferences will be a career peak for me. I’m proud of the high caliber of panelists that I have procured – and I’m now spending several months carefully orchestrating what topics each panel will cover so that there is minimal overlap. In fact, any overlap is intentional as there are numerous panels that have a distinct perspective.

There is a panel comprised solely of institutional investors; two panels with just ISS and Glass Lewis. There is a great panel with experienced corporate directors. But that’s not all – I have tailored many of the panels so they will drill down on practical topics that you hold dearly, such as “How to Work with ISS & Glass Lewis: Navigating the Say-on-Pay Minefield” and “Failed Say-on-Pay? Lessons Learned from the Front.” Check out the agendas for the conferences and see for yourself.

With the economy going into another funk – and anger over CEO pay likely to hit a fever pitch in an election year – I do believe that next year will bear out that this year was just a “test year” and many companies whose pay sailed through in ’11 could experience real struggles next season. This pair of conferences – focusing on both disclosures and practices – takes place on November 1st-2nd in San Francisco and by video webcast. Register now.

If you are experiencing budget woes but recognize that these conferences are a “must” – drop me a line as always.

– Broc Romanek

September 19, 2011

Crowdfunding: Should More Companies Be Going Public?

Recently, I’ve blogged several times about the SEC’s upcoming efforts to engage in capital-raising reform – particularly for pre-IPOs. This is a big topic for Rep. Darrell Issa. Thanks to Michelle Leder of for catching the 25 words that President Obama devoted to this topic during his recent jobs speech. Here’s the President’s Fact Sheet that also references it.

Soon afterwards, the SEC announced the formation of the Advisory Committee on Small and Emerging Companies – this press release included this note:

The committee is intended to provide a formal mechanism through which the Commission can receive advice and recommendations specifically related to privately held small businesses and publicly traded companies with less than $250 million in public market capitalization.

Then on Friday, the House Oversight & Government Reform committee held hearings on crowdfunding (see this Cooley alert previewing the hearing) at which Corp Fin Director Meredith Cross delivered this testimony. As noted in this WSJ article:

SEC Corporate Finance Division Director Meredith Cross, in a House hearing, said the key to easing restrictions on crowd-funding would be to create an exemption “that wouldn’t present significant concerns of fraud.” “Then I see real benefits,” Ms. Cross told a subcommittee of the House Committee on Oversight and Government Reform. “If it becomes viewed as a tainted market where people go to fraudulently steal money, then that won’t help anyone.” The SEC is currently looking at easing restrictions on crowd-funding as part of a wide-ranging review of its rules governing capital-raising. Cross said her remarks reflected her personal views, and that the SEC hadn’t yet weighed in on the matter. She said she expected the agency to complete its broad review in the near future.

This Cooley alert covers Meredith’s testimony in greater detail. And this Cooley alert covers another House effort to end the ban on general solicitation. Love this excerpt from that memo:

And you think you already get a lot of junk mail? So can we now look forward to seeing clever entreaties for funding pasted onto every frozen burrito at Safeway and every pair of socks on sale at Target?

The ironic part about this Congressional obsession with getting more companies public is that it was widely reported on Friday that this year has become a record one for scrapped IPOs. As noted in this article, a total of 215 IPOs have been withdrawn or postponed so far in 2011. These were scrapped due to market conditions, not SEC regulatory restrictions.

Groupon’s Gun-Jumping Saga: Will It Ever End?

Back in June, I blogged about potential gun-jumping by Groupon in the wake of the company filing a Form S-1. Since then, there have been several other instances of Groupon potentially gun-jumping (eg. memo to employees leaked to this popular blog). I imagine some are questioning whether Groupon’s management team has tough enough skin to run a public company as they can’t seem to take criticism. Anyways, DealBook reported that the company was considering delaying its IPO, with gun-jumping cited as one of the factors.

As for Groupon’s Form S-1 amendments, it’s too early to tell if the company’s filings have caught up with the potential gun-jumping incidents (and Corp Fin comments on such) as the last amendment was filed a month ago: Pre-Effective Amendment No. 2. I didn’t read this latest amendment too closely – but at a glance, the only unusual part seems to be this “Letter to Potential Stockholders” from the company’s CEO filed as an exhibit. Let me know if you spot anything else unusual…

Nuggets from “The Advisors’ Blog”

We continue to post new items daily on our blog – “The Advisors’ 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:

– Internal Pay Disparity: Comments Coming In Ahead of SEC Proposals
– Say-on-Pay Post-Mortems
– An Analysis of Recently Adopted Clawback Provisions
– AFL-CIO’s White Paper: “Why CEO-to-Worker Pay Ratios Matter for Investors”
– Study: Companies Change Peer Groups Often

– Broc Romanek