Monthly Archives: December 2011

December 8, 2011

The Mike Mayo Podcast: “Exile on Wall Street, One Analyst’s Fight to Save the Big Banks from Themselves”

I felt honored to sit down and tape a podcast with Mike Mayo, now a Banking Analyst for CLSA, who is widely recognized as one of the few honest analysts on Wall Street, a trait that has cost him a half dozen jobs over the years. In this podcast, Mike provides some insight into his new book “Exile on Wall Street – One Analysts Fight to Save the Big Banks from Themselves,” including:

– Why did you write this book?
– Any surprises in reactions to it so far?
– What are your thoughts about executive compensation?
– Any advice for corporate & securities lawyers in general?

Notes from the ABA’s FINRA Corporate Financing Rules Subcommittee Meeting

Here is a Skadden memo with notes from the recent meeting of the ABA’s Business Law Section’s FINRA Corporate Financing Rules Subcommittee, during which a member of FINRA Corporate Financing Department covered the latest rulemakings, interpretations, etc.

It’s Done! 2012 Executive Compensation Disclosure Treatise

Dave Lynn and Mark Borges just wrapped up the Lynn, Borges & Romanek’s “2012 Executive Compensation Disclosure Treatise & Reporting Guide.” For those that want to access it online, it’s now posted on For those that like a hard copy, it will be finished being printed in a few weeks.

How to Order a Hard-Copy: Remember that a hard copy of the 2012 Treatise is not part of a membership so it must be purchased separately – however, members can obtain a 40% discount by trying a no-risk trial now. This will ensure delivery of this 1200-plus page comprehensive Treatise as soon as it’s done being printed.

– Broc Romanek

December 7, 2011

Institutional Investor Files Six Proxy Access Proposals – and Advice on How to Handle Them

Yesterday, Ted Allen of ISS blogged about how Norges Bank Investment Management (NBIM) became the first institutional investor to submit proxy access shareholder proposals this proxy season. NBIM filed them at Wells Fargo, Charles Schwab, Western Union, Staples, Pioneer Natural Resources and CME Group as noted in its press release. Rumor has it that these proposals are in the form of a binding bylaw.

Just before this news broke, I had taped this podcast with Chuck Nathan of Latham & Watkins, who provides some insight into his newly drafted model proxy access bylaw for private ordering, including:

– What sorts of proxy access alternatives do companies have now?
– What is the optimal time for companies to implement something in response to private ordering?
– How complex is your model form of access bylaw?

Last week, CII issued this statement about access proposals.

Compensation Lawsuits: They Keep Coming

Here is something that I blogged on’s “The Advisors’ Blog“: Recently, I blogged about the spate of Section 162(m)-based lawsuits that increasingly are in vogue. The latest one of those was filed against Allergan in Delaware last week (here’s the complaint).

Now we have a new breed of lawsuit – or perhaps it’s more accurate to call it a retread of a vein of old-fashioned pay suits – because it’s not a say-on-pay or Section 162(m) lawsuit, but rather a breach of fiduciary duty – with a helping of alleged self-dealing – suit filed against Ralph Lauren last week in the New York Supreme Court. Even though there was a negative ISS recommendation, the company’s say-on-pay received 96% support (84% when backing out management’s ownership) Founder Ralph Lauren has voting control of the company though Class B shares and it’s deemed a “controlled company” under NYSE rules. The complaint is posted in our “Comp Litigation” Portal. Steven Kittrell notes these allegations in his “Just Compensation” Blog:

– Ralph Lauren Company made a large donation to a charity “affiliated” with a member of the compensation committee;

– One compensation committee member is a “Class B” director. Class B directors are elected solely by Class B stock that is owned only by Ralph Lauren and his family;

– The compensation committee did not hire a compensation consultant in the last year, but got recommendations from management’s compensation consultant for review.

Steven concludes that this case is unlikely to go to trial – and while that is always the best assumption because these cases rarely do, the complaint has a load of allegations that don’t pass the “stink” test giving this case somewhat of a “Disney-esque” quality to it…

The AFL-CIO is hosting a free event on Monday entitled “Executive Pay and the Dodd-Frank Wall Street Reform and Consumer Protection Act” in DC. Come say hello if you attend too…

iPads in the Boardroom: 20 Issues to Consider

Tune in tomorrow for the webcast – “iPads in the Boardroom: 20 Issues to Consider” – to hear Jennifer McGarey of Northrop Grumman, Gina Merritt-Epps of South Jersey Industries, Alicia Myara of Freddie Mac and Kerry Radich of Chevron provide practical guidance about issues to consider and obstacles to overcome involving the use of iPads in the boardroom.

– Broc Romanek

December 6, 2011

EU Proposes Audit Reform

Here’s news from Lynn Turner: On Wednesday, the European Commission proposed new legislation that would result in much greater oversight of the auditing profession within the European Union. Much of the legislation catches Europe up to the current status of regulation of the profession in the U.S. This is interesting in that ten years ago, politicians, Ambassadors, businesses, audit firms, etc. from the EU vehemently opposed Sarbanes-Oxley. Now in many regards, they are embracing it – but only after their investors have paid a very serious price for past lack of action.

The “devil is in the details” of the proposal, such as:

– While in the US investors have been asking for a separate report from the auditors providing information the auditors know, the EC would require such a report but prohibit it from being made available to investors.

– The EC proposal discusses the “client” of the auditor being the company, rather than investors.

– The EC would require substantial expansion of the audit report, in what appears to be a very positive development, including requiring the auditor to set forth how they assessed materiality. The PCAOB has also taken up this topic, but not yet issued a proposal.

– The EC would require auditors to disclose financial information. But that information is very, very limited such as to revenues, which the firms already disclose. It does not require disclosure of basic financial information necessary for any regulator to assess the financial stability, liquidity, viability or performance of the firms they are charged with regulating. In 2008, The U.S. Treasury Committee made a recommendation with respect to increasing transparency of the audit firms, which the PCAOB has yet to act on.

– While mandatory rotation is proposed every 6 years, there are mechanisms put in place to extend this out for up to 12 years. The PCAOB has previously taken up this topic in the US and issued a concept release, but has not yet issued a proposal.

– The EC proposes that non-CPA’s be allowed to own audit firms. This is a change the large audit firms have been requesting for over a decade, as a way to monetize their stock and let the older partners reap the benefit. This is a very dangerous proposal as it would allow for outside investors, or allow the firm to go public, putting the profit motive far ahead of the public interest obligation, and likely resulting in significantly lower audit quality. This idea has been debated and rejected here in the US. It also raises very serious independence issues, for example, when a private equity or hedge fund invests in a CPA audit firm, would the audit firm be able to audit other companies the investment firm holds? If so, could investors ever believe the audit firm would ever bring to light a problem in the company, such as an Olympus, if it would have negative consequences for the investment fund?

Ultimately, the real problem is the fact the company being audited still pays the bill. That is not changing under the EC proposal and will remain as the real problem, just as it is for credit rating companies. Until that problem is directly addressed it is likely audits will remain problematic, although some of the proposals may be beneficial.

EU Proposes Disclosure Requirements for Payments to Governments for Natural Resources Development

It’s not only Sarbanes-Oxley that is being somewhat cloned in Europe. As this memo summarizes, the EU recently issued two proposals to amend the European Union Transparency Directive that together contain new requirements for the disclosure of payments to governments by certain companies engaged in natural resource extraction or logging. This is a big deal for companies in the extractive industry with operations in the EU a la Dodd-Frank.

In the “Dodd-Frank Blog,” Jill Radloff of Leonard Street & Deinard provides an update on the OECD Conflict Minerals Project, including this new OECD report that establishes a baseline of current due-diligence practices of downstream companies.

EU Summarizes Comments on its Governance Green Paper

Recently, the European Union issued a summary of the 400+ comments submitted in response to its corporate governance green paper that it proposed back in April.

– Broc Romanek

December 5, 2011

Here They Come: Lawsuit Filed Against CFTC for Inadequate Cost-Benefit Analysis

As expected, SIFMA and International Swaps and Derivatives Association filed this complaint on Friday in US District Court for DC to challenge the CFTC’s new rule that seeks to curb excessive speculation (like proxy access, this rule was approved 3-2 by the CFTC Commissioners). The groups have petitioned the higher US Court of Appeals for the DC Circuit to hear the case – which is the court that ruled against the SEC in the proxy access lawsuit filed by the Business Roundtable and US Chamber of Commerce a few months back. And like that lawsuit, this one claims the CFTC didn’t conduct a proper cost-benefit analysis. Here’s a Reuters article – and here’s a NY Times’ DealBook article.

Senate Bill to Encourage Small Company Capital Formation

Catching up to the House activity in this area, Senators Charles Schumer (D-N.Y.) and Pat Toomey (R-Pa.) issued this press release last week about their new bill that would establish a new category of issuers – “emerging growth companies” – that would have less than $1 billion in revenues before the IPO and less than $700 million in public float after the IPO, along with scaled regulatory burdens – egs. freed from say-on-pay and just two years of financials rather than three – as part of a transitional “on-ramp” status that could last as long as 5 years, and more.

Auditor Tenure, Financial Officer Turnover and Financial Reporting Trends

Audit Analytics just wrapped up this study that provides data that should help to facilitate commentary on the PCAOB’s concept release regarding auditor independence and rotation. Highlights from the research include the following:

– Both the Russell 1000 and the Russell 2000 companies with auditor tenure of five years or less paid more in audit fees (per million dollars in revenue) than companies with longer tenure.
– 16.1% of the Russell 1000 companies have engaged the same auditor for 40 or more years. This percentage drops to 4.1% for the Russell 2000.
– About 50% of both the Russell 1000 and Russell 2000 companies experienced a CFO departure during the six-year period from 2005 to 2010.
– Over 96% of both the Russell 1000 and Russell 2000 companies with 40 or more years of auditor tenure experienced a turnover in an audit committee member during the six years under review.
– US accelerated filers were first required to provide SOX 404 certifications in annual reports for fiscal years ending on or after November 15, 2004. Ineffective ICFRs (SOX 404) for the Russell 1000 have significantly declined, from 8.21% in 2005 down to .83% in 2010. Adverse SOX 302 disclosures have declined in a similar fashion.
– During the six years under review, quantitative data concerning restatements and late filings (NT disclosures) reflect a steady and substantial improvement in financial reporting.
– Pursuant to Section 408(c) of Sarbanes-Oxley, the SEC is reviewing a company’s filings every three years; an analysis of SEC comment letters, however, show a more frequent oversight of the larger companies, particularly in the last three years, with over 65% of the Russell 1000 receiving a letter in each calendar years and over 50% of the Russell 2000 receiving a letter.

Last week, the PCAOB approved its 2011-2015 Strategic Plan and 2012 fiscal-year budget of approximately $227.7 million, which is a 11.4% hike from last year. Now the budget must be approved by the SEC…

– Broc Romanek

December 2, 2011

Corp Fin to Release Filing Review Correspondence Earlier

Yesterday, the SEC gave us a little holiday present when it announced that the releasing of comment letters and response letters would be reduced to “no earlier than 20 business days” from when Staff review is complete from the “no earlier than 45 days” standard that has been in effect since these types of documents were first made public in ’05. The new standard commences on January 1st.

Note that the new standard uses “business days” rather than mere “days” in it – so the reduction is roughly a third, not a half as might appear at first blush. Yes, I’m a lawyer who loves the fine print…

Three interesting pieces of Senate testimony yesterday:

Enforcement Director Rob Khuzami on applying insider trading laws to Congress
Corp Fin Director Meredith Cross/Deputy Lona Nallengara on spurring job growth through capital formation
Chair Mary Schapiro on implementing Dodd-Frank – before the Agriculture Committee of all things…

We Make the ABA Blawg 100: 4th Year in a Row!

We are grateful that our blog has made the ABA Journal’s Blawg 100 for the fourth year in a row. You may recall that our blog won the voting contest among the 100 two years ago (the first year that the Journal put the Blawg 100 head-to-head in a round of voting) and we were winning it last year until the last day when two other blogs mysteriously received a huge number of votes. This year, we aren’t actively campaigning – but if you care to vote, here are the steps you need to take:

a. If you voted last year:

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

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

3. Once logged in, go to the “Business Law” category and scroll down to Blog (it’s at the 3rd from the top) and click on the blue “Vote Now” symbol to the left of that.

b. If you didn’t vote last year:

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

2. Once you get your password, you should login

3. Once logged in, go to the “Business Law” category and scroll down to Blog (it’s at the 3rd from the top) and click on the blue “Vote Now” symbol to the left of that.

This faux news video is hilarious!

Three More Proxy Access Proposals Filed, Etc.

Proxy access, proxy access, proxy access. Say that three times fast. Here are three items as food for thought:

– Ted Allen of ISS blogs about access shareholder proposals submitted by Ken Steiner to three more companies (total of five so far).

– Professor Larry Hamermesh’s blog that contains more on the back and forth on precatory proxy access proposals.

– A new model proxy access bylaw – built for the private ordering world that we now live in – from Chuck Nathan at Latham & Watkins.

– Broc Romanek

December 1, 2011

Dave & Marty on New ISS Policies, Capital Formation and Electric Cars

In this podcast, Dave Lynn and Marty Dunn engage in a lively discussion of the latest developments in securities laws, corporate governance, and pop culture, including:

– ISS Policy on Say-on-Pay Voting Results
– ISS Policy on Choice of Venue Proposals
– The SEC’s Latest Capital Formation Initiatives
– Marty’s Volt

By the way, ISS is holding webcasts next week to discuss the updates to its US and European policies.

SEC’s Inspector General Being Investigated by SEC’s General Counsel

Last week, Bloomberg ran this article noting that the SEC’s general counsel is investigating whether the SEC’s Inspector General David Kotz acted appropriately when he gave a 75-minute video interview to, which was also uploaded on YouTube in 12 different segments (here is one segment for example). Kotz claims he cleared his appearance with the SEC’s Ethics Office – but questions have been asked about whether his appearance should be considered “investment advice.”

Our December Eminders is Posted!

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

– Broc Romanek