Monthly Archives: April 2012

April 30, 2012

Our New “Nominating Committee Process/Director Nominee Qualifications Disclosure Handbook”

Spanking brand new. Posted in our “Corporate Governance Committee” Practice Area, this comprehensive “Nominating Committee Process/Director Nominee Qualifications Disclosure Handbook” provides a heap of practical guidance about the disclosure obligations under Item 407(c) of Regulation S-K, with a sample board matrix and other related policies and procedures included in the appendices.

Putting the SEC’s Annual Budget in Context

I’ve often blogged about how the SEC is lacking the resources it needs. This CFA Institute blog does a great job listing all kinds of great facts, of which these are just a few:

– SEC budget of $1.321 billion is 99.99% smaller than the markets it is supposed to protect
– SEC budget is equal to $1 for every $14,329 that it is charged with protecting
– SEC’s recent additional budgetary request amounts to an additional $0.13 for every $1,000,000 it supervises
– Citibgroup’s profits of $11.1 billion, equivalent to 7.4 more SECs.
– Citibgroup’s total assets of $1,873.9 billion, equivalent to 1,417.5 more SECs.
– Citigroup disposed of assets last year that were worth more than the SEC’s entire budget
– Other budget item of “Recreational and sporting services” is $4.2 billion, or 217.9% larger than the SEC budget.
– Other budget item of “Fish and wildlife service” is $1.6 billion, or 21.1% larger than the SEC budget
– Ray Dalio of Bridgewater Associates earned $3.9 billion in 2011, equivalent to 1.9 more SECs
– Carl Icahn of Icahn Capital Management earned $2.5 billion, equivalent to 89% of another SEC
– James Simons of Renaissance Technologies earned $2.0 billion, equivalent to 51.4% of another SEC

Diversity Tone at the Top

In this podcast, Jim Gauss of Witt/Kieffer discusses how senior leaders can encourage diversity in the workplace, including:

– What is the current state of diversity in healthcare organizations?
– Why is diversity in leadership so critical at this stage in healthcare reform?
– How can healthcare organizations’ board members play a role in promoting diversity in their institutions?
– What are the best methods for CEOs to approach diversity issues within their organizations?

– Broc Romanek

April 27, 2012

How to Deal With “Occupy Your Annual Meeting”

In response to my blog this week about the fireworks at Wells Fargo’s annual shareholders meeting (1000 demonstrators, few dozen arrests), I’ve gotten a number of interesting responses. Although some report that a coalition of unions and other organizations calling itself the “99% Power” intends to target more than 200 meetings, although only a few dozen companies are listed on “”

Some members suggested the use of virtual shareholder meetings would allow companies to dodge such a problem (a notion I will rebut some other time, but see yesterday’s blog). Some welcomed the challenge – some quivered in their boots. Some journalists even contacted me because they had been frozen out of recent shareholder meetings and wondered if that was legal (more on this later too).

For those planning your annual meeting and it is likely to be the target of demonstrations, I urge you to review the transcripts of the numerous webcasts I have held over recent years on “Conduct of the Annual Meeting” including the great one I held last month (these transcripts are posted in our “Annual Stockholders’ Meetings” Practice Area). You want to be prepared – but not overreact either.

In addition, wunderkind tabulator Carl Hagberg has graciously posted these excerpts from his most recent issue of the “Shareholder Service Optimizer” on his site:

Rules of Conduct for Shareholder Meetings
Our Top-Ten Tips for Dealing with Speakers at Shareholder Meetings
Our Number-One Tip for ‘Annual Meeting Security’

Also check out these “Basics” materials from Carl…

A Revamped Nasdaq Website: Access to Many Useful Materials

From Suzanne Rothwell, Several years ago, I participated in a webcast on this site with Mike Emen, Senior Vice President, Nasdaq’s Listing Qualifications Department. At that time, Mike mentioned that he was starting to do the legwork to revamp how the Nasdaq rules were posted, add more FAQs and exemption/interpretative letters and generally make information more available online regarding listing standards, corporate governance and compliance requirements to assist companies and their advisors. All this – and more – has been accomplished. In addition, Nasdaq currently is in the process of changing hard-copy listing and other filing/notification forms to electronic submissions.

Given so many changes to the Nasdaq website, some practitioners are having trouble finding the location of these materials. In our “Nasdaq Guidance” Practice Area, we have linked to all of the primary materials. One of these is the “Nasdaq OMX Listing Center,” where a user can create an account in order to complete and electronically submit required forms. The Center now supports the electronic submission of Corporate Governance Certifications and Listing Agreements. Listing Applications, Listing of Additional Shares (LAS) Notification Forms and Requests for Rule Interpretations.

More on our “Proxy Season Blog”

We continue to post 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 Advisors Vary Greatly In Withhold Recommendations
– Labor Fund to Challenge Omission of Auditor Rotation Proposals
– Even More on “Benchmarking the Number of ‘Executive Officers'”
– Director Troubles: What Now?
– H-P Gives Activist Shareholder Board Seat
– Online Annual Meetings Begin to Click
– Doing Diligence for Related Person Transactions: How Far Do You Go?
– California: New Law Requires Contractors to Comply with SEC Conflict Minerals Reporting Obligations
– Reaching Out to Largest Investors Prior to Annual Meeting

– Broc Romanek

April 26, 2012

The Case Against Virtual Annual Shareholders Meetings: Martha Stewart as Exhibit A

Over the years, I have wavered – yes, even flip-flopped – over whether allowing companies to hold virtual annual shareholder meetings (ie. without any physical audience) is a good idea. More recently, I had gotten comfortable with the notion that it might be okay for companies that know that their meeting will be held without any controversy. The problem is how do companies really know this when so much of their vote comes in typically within the last 48 hours or so?

So now we have the news that Martha Stewart Living Omnimedia intends to hold its meeting as a virtual one – as noted in its proxy statement – complete with an online shareholders forum, as noted in these additional soliciting materials. And even though the company is a controlled one – by Martha Stewart herself and family – I can’t help but think this is a problem given Mark Borges’ blog that the company is the target of a shareholder class action lawsuit alleging that the company’s disclosure for a proposal to increase the share reserve of its omnibus stock plan was inadequate (plaintiff is seeking an injunction to prevent the company from bringing the proposal to a vote at its annual meeting in late May). A company with a controversy should have its management team and board available to face interested shareholders once a year…

In case you missed it, I blogged about the “Big Fireworks at Wells Fargo Annual Shareholders Meeting” on our “Proxy Season Blog” yesterday (by the way, Wells Fargo shareholder voted against the proxy access proposal on the company’s ballot – first one to go to a vote this season). And as noted in this Davis Polk blog, expect more Occupy Wall Street demonstrations at annual meetings this season…

Our New “Disclosure Deadlines Handbook”

Spanking brand new. Posted in various Practice Areas on the site, this comprehensive “Disclosure Deadlines Handbook” is 103 pages long and addresses these subject areas:

– Form 8-K
– Periodic Reports
– Proxy Materials & Annual Meetings
– Smaller Reporting Company Status
– Confidential Treatment Requests
– Regulation FD
– Exchange Act Registration
– Public Offerings
– Deregistration
– Schedule 13D & Schedule 13G
– Dividends, Stock Splits & Other Related Corporate Actions

SEC Chair Schapiro on SEC Rulemaking & Economic Analysis

Last week, SEC Chair Mary Schapiro gave this interesting testimony before a House Subcommittee about how the agency is grappling with the challenges of economic analysis in the wake of the proxy access court decision. As this WSJ article notes, the Staff must now abide by an internal 17-page document that provides rulemaking guidelines and that:

The agency also is hiring 17 new staff with economics doctoral degrees, which would nearly double the number of Ph.D. economists already on staff to assist with rule-writing, Schapiro said. The agency seeks to hire an additional 20 economists for the fiscal year beginning Oct. 1, she added.

And as noted in this Reuters article, Chair Schapiro noted that the SEC wouldn’t be revisiting the proxy access rulemaking anytime soon. That should be no surprise given all the JOBS Act and Dodd-Frank rulemaking still on Corp Fin’s plate. And here is more testimony from Chair Schapiro that she delivered yesterday about the status of the agency’s rulemaking and how many more Staffers they need going forward, etc.

– Broc Romanek

April 25, 2012

Scandal Involving ISS Employee Selling Information Broadens to Proxy Solicitor

As noted in this recent NY Post article, Georgeson has been subpoenaed in the investigation regarding an ISS employee allegedly selling shareholder voting data.

A few weeks ago, MSCI – the owner of ISS – confirmed that an ISS employee tipped off a proxy solicitor to votes by ISS clients. As explained in this Form 8-K, the employee told MSCI “that he provided information to a proxy solicitor over a number of years about how a number of ISS’s clients voted their proxies. The employee has stated that the proxy solicitor in question provided him with meals and tickets to various events.” MSCI believes “the employee communicated the vote information by using his personal email accounts and by telephone and that he acted alone in gathering this information and communicating it.” The employee was terminated by ISS on March 26th and MSCI says it has been cooperating with the SEC and DOJ.

Recently, some commentators have applied ISS’s policies to its parent’s – MSCI – practices and been critical, such as this Reuters article and Exequity alert.

Companies Get Some “Larger Trader Rule” Relief from SEC

Last year, I blogged about how Section 13(h) of the ’34 Act was amended by Dodd-Frank to include “large trader” reporting requirements and that the SEC’s final rules to implement this Section didn’t include an exception for operating companies that trade as part of ordinary course balance sheet management activities. As noted in this Davis Polk memo, the SEC adopted a permanent exemption last week to provide companies (and underwriters) with some relief…

Whistleblower Advocacy

In this podcast, Jordan Thomas of Labaton Sucharow discusses his website,, including:

– What is your goal with
– Any surprise reactions to it?
– How do you screen whistleblowers when they approach you? How do you do diligence?
– Do you ever contact the company to check on the whistleblower’s story?

– Broc Romanek

April 24, 2012

Citi Gets Hit With Say-on-Pay Lawsuit in Record Speed: Before 8-K Filed!

As the bloggers on were quick to point out, Citigroup was hit with a say-on-pay lawsuit within two days of the revelation that it had failed to garner majority support for say-on-pay at its annual shareholders meeting last week. In fact, Citi’s Form 8-K reporting the vote results was filed on Friday – and the complaint was filed in the US District Ct.- SDNY on Thursday. The lawsuit was filed before the 8-K!

Here are pieces on this topic from:

Mike Melbinger’s “Copycat Say on Pay Lawsuits Quickly Follow Unfavorable Votes
Mark Borges’ “More on Citigroup
Mark Borges’ “More on the Citigroup Vote
Mark Borges’ “Citigroup Loses Say-on-Pay Vote
William Tysse’s “Citigroup sued after say-on-pay failure – more will be coming
Reuters’ “Citigroup CEO, Directors Sued For Outsized Executive Pay Packages

SEC Issues Warning to Crowdfunders

Yesterday, the SEC issued this warning:

On April 5, 2012, the Jumpstart Our Business Startups (JOBS) Act was signed into law. The Act requires the Commission to adopt rules to implement a new exemption that will allow crowdfunding. Until then, we are reminding issuers that any offers or sales of securities purporting to rely on the crowdfunding exemption would be unlawful under the federal securities laws.

Note that the SEC brought this enforcement case the week after the JOBS act was signed. In that case, the SEC charged a Silicon Valley man who raised millions for two Internet start-ups by falsely promising investors that his companies were on the verge of undergoing successful IPOs and were well on their way to becoming the “next Google.” With crowdfunding, look for these types of cases to swamp the SEC…

Lot of wild stuff going on, like the Wal-Mart revelations I blogged about yesterday on “The Mentor Blog.” Then yesterday, the SEC brought a fraud case against the former CEO of CalPERS – and as the complaint notes, another California fund refused to engage in the same activity as this CEO did. Based on the allegations in the complaint, there seems to have been serious fiduciary violations to the investors in CalPERS Fund, in addition to the fraud charges brought by the SEC. See Keith Bishop’s blog analyzing the situation.

SEC Approves Nasdaq Proposal for Alternatives to $4 Minimum Bid Price Test

As noted in this Cooley alert, last week the SEC issued this order approving a change to Nasdaq’s Capital Market listing standards to allow companies to list at $2 or $3 instead of the current $4 price. This allows companies that currently qualify for Amex to list on Nasdaq instead. Senior Nasdaq Staffers will be talking about this development – among many others – during the upcoming webcast. “Nasdaq Speaks ’12: Latest Developments and Interpretations.”

– Broc Romanek

April 23, 2012

Webcast: “JOBS Act & More: How Private Placements and Reg D Are Changing”

Tune in tomorrow for a special 75-minute webcast – “JOBS Act & More: How Private Placements and Reg D Are Changing” – and hear:

Lily Brown, Senior Special Counsel to the Director, SEC’s Division of Corporation Finance
Bob Dow, Partner, Arnall Golden Gregory
John Jenkins, Partner, Calfee Halter
Dave Lynn, Editor, and Partner, Morrison & Foerster
David Miller, Partner, Faegre Baker Daniels

Then tune in next Wednesday, May 2nd, for the companion webcast: “The New World of IPOs: Dissecting the JOBS Act” – Corp Fin Deputy Director Lona Nallengara was just added to the panel – as we all try to get a handle on a number of murky areas in a quickly evolving marketplace, as intimated in this recent WSJ article.

Corp Fin Issues MD&A Guidance for Smaller Financial Institutions

On Friday, Corp Fin issued the latest in its “CF Disclosure Guidance Topic” series with “Topic No. 5: Smaller Financial Institutions.” This guidance provides a long laundry list of what the Staff is seeking from small financial institutions in MD&A.

SEC’s Stop Orders Will Run Through Edgar Again

As noted in this announcement, the SEC will ensure that stop orders will appear in a company’s Edgar stream rather than just show up on the agency’s “administrative orders” page.

– Broc Romanek

April 20, 2012

Evelyn Y. Davis: Retired?

For many of you, the news that Evelyn Y. Davis is slowing down at age 82 will come as a mid-proxy season boost. As noted in this Chicago Tribune article, Evelyn has been skipping annual meetings this year – and even has halted production of her 47-year-old self-published newsletter “Highlights & Lowlights,” a $600-an-issue review of her governance battles that regularly features photos of her with bemused CEOs. Although Evelyn still has been submitting shareholder proposals to companies, I haven’t heard of her actually attending a meeting for the past two years.

For those of you who have never had the pleasure, go ahead and ask an old-timer for their favorite EYD story. Many of them are unsuitable for print in this family blog. I do note that she is partial to men, particularly if they are CEOs of a Fortune 50 company. Evelyn always had remarkable success with access to the powers that be – and making the CEO available to her often was a wise decision as it made it more likely that she wouldn’t turn your shareholders meeting into a complete spectacle. One day I’ll collect stories to post (including my own). I do note that Evelyn has been quite a philanthropist over the years, particularly in the effort to preserve Chicago history.

Until I post some stories, you’ll have to live with this great WaPo piece from ’03 – and this picture of Evelyn’s pre-bought tombstone in DC (I believe its two divorces behind):


Sentencing Commission Approves Increased Penalties for Certain Fraud Offenses

As reported in this Gibson Dunn memo, the United States Sentencing Commission has responded to Dodd-Frank directives by amending the sentencing guidelines – effective November 1st – that as noted in the memo “are likely to stiffen sentences for many defendants convicted of fraud offenses, particularly insider trading. At the same time, the Commission has continued its recent trend toward the use of rebuttable presumptions, rather than inflexible rules, in determining certain aspects of offense seriousness. That emerging approach gives criminal defense counsel greater latitude to advocate for sentence calculation methodologies more carefully tailored to each particular case.”

SEC Approves Amendments to FINRA Communications Rules

As noted in this Davis Polk memo, the SEC approved a significant overhaul of FINRA’s rules governing members’ communications with customers and the public. The revised communication rules will simplify and reorganize existing rules by reducing the number of communications categories from six to three. The new rules will also implement some noteworthy changes, such as the requirement to file with FINRA within 10 days of first use retail communications relating to registered structured products. FINRA will publish a Regulatory Notice by June 27, 2012 announcing an implementation date for the new rules that is not later than March 29, 2013. FINRA acknowledges that members will need time to alter their internal policies and procedures in response to the new requirements, and has stated it will take this into consideration in establishing an implementation schedule.

– Broc Romanek

April 19, 2012

Say-on-Pay Failures: #3 and #4

Over the past week, Citigroup (45%) and KB Home (46%) joined the club of those failing to gain majority support for its say-on-pay. A list of the Form 8-Ks filed by the “failed” companies is posted in our “Say-on-Pay” Practice Area. Citi has not yet filed its Form 8-K reporting the voting results – but did address the failure in its “Citi Blog” (which oddly has no comments after this CEO pay entry). The Citi failure was front-page news for the WSJ, NY Times, etc. and I spoke at an event in NYC last night and it was the hot topic (besides the JOBS Act).

Here’s something that Mark Borges blogged last night: The shock waves from yesterday’s Citigroup “Say on Pay” vote continue to reverberate. For an insightful analysis of how to interpret the vote, see Professor J. Robert Brown’s latest post at his website “The Race of the Bottom.”

This turns out to be Citigroup’s fourth “Say on Pay” vote since 2009 – the first two were as a participant in the Troubled Asset Relief Program. I took at look at the support for the company’s executive compensation program over this entire period, which went from 82% in 2009, 89% in 2010, and 93% in 2011 to just 45% in 2012. So it appears that there was a fairly consistent level of support for the program, which spiked in 2011 (the second consecutive year in which the company’s CEO received essentially nominal compensation – $1 in 2010 and $128,000 in 2009) before the bottom fell out.

Still, it’s difficult to understand how this happened – or whether the company saw it coming, particularly when you look back on its Item 402(b)(1)(vii) disclosure from this year’s Compensation Discussion and Analysis:

As part of the process for making incentive awards to the named executive officers for 2011, the committee considered the most recent “say on pay” non-binding stockholder advisory vote held in April 2011 regarding the named executive officers’ 2010 compensation. The resolution approving 2010 executive compensation received a 92.9% favorable vote. Several key features of the 2010 program for named executive officers are carried forward to this year, such as substantial deferred amounts, performance-based vesting of certain deferred incentive awards, a four-year deferral period, significant stock awards that are subject to clawbacks and a stock ownership commitment, and limitations on perks. To better understand the reasons for the favorable say-on-pay vote and potential stockholder concerns for 2011, management engaged in stockholder outreach at various times during 2011 to discuss executive compensation in the context of Citi’s sustained profitability. In particular, management sought a better understanding of stockholder views on Citi’s disclosure and compensation processes and the priorities of our investors. The committee considered the outcome of the most recent say-on-pay vote and stockholder perspectives generally as factors in the 2011 compensation process in addition to currently applicable regulatory requirements, market considerations, and company and individual performance.

Learning Thru Improv

In this podcast, Tommy Galan of The Peoples Improv Theater discusses how you can learn thru improv (here’s how you can learn more about earning CLE through improv), including:

– How do your improv workshops work?
– What are the benefits of using improv to earn CLE?
– Have you ever done an improv workshop at a law firm?
– What’s the funniest moment that has transpired at one of your workshops?

Finally Got to See My Launch (Sort Of)…

When you work in-house, you wind up working on some funky stuff. Back in what now seems like a lifetime ago, I was in-house at Lockheed Martin and besides the typical securities & disclosure stuff, I supported the Treasury function. One of the coolest things I worked on was a synthetic sale-leaseback for a spaceport down in Cape Canaveral, home of the Atlas V rocket. The law firm expert in complicated sale-leasebacks said it was the most challenging deal she ever worked on.

Anyways, after the deal closed, I was invited down to watch a space shuttle launch but I was always too busy to make it. One of my life’s true regrets because I heard many stories about how it was one of the wonders of the world. Don’t feel bad for me though, I received some very nice closing gifts including this framed set of pictures (including one showing the demolition of the old spaceport – that was a community event when they did it, like when Vegas blows up one of its old hotels) – see below. The happy ending is that my office rocked off its hinges a few day ago when they flew the Space Shuttle to it’s new home in the Smithsonian’s Air & Space museum out near Dulles airport. Wow!

New “Deal Cube Gallery”: Email me photos of your coolest – and most tacky – deal cubes or other deal momentos as I will place them in a new “Deal Cube Gallery” on this site and run a competition allowing folks to vote. You will remain anonymous as a source if you so wish.


– Broc Romanek

April 18, 2012

Our New “D&O Biographical/Director Qualifications & Skills Disclosure Handbook”

Spanking brand new. Posted in our “Board Composition” Practice Area, this comprehensive “D&O Biographical/Director Qualifications & Skills Disclosure Handbook” provides a heap of practical guidance – including a sample board resolution to designate executive officers and sample D&O questionnaire language. In particular, the Handbook focuses on disclosure obligations under Item 401(a) through (e) of Regulation S-K.

The Pioneers: First Company Leverages Moxy Vote

In this podcast, Doug Chia of Johnson & Johnson and Mark Schlegel of Moxy Vote discuss how companies can use Moxy Vote during the proxy season (here is a podcast with Mark from last year to learn more about Moxy Vote), including:

– How does Moxy Vote work?
– What is J&J’s involvement with Moxy Vote?
– How did J&J’s collaboration with Moxy Vote begin?
– What have been the experiences so far?

“No Personal Misconduct” Clawbacks: SEC Sues to Recover Bonuses and Stock Profits Again

As noted in this press release, in a Section 304 of Sarbanes-Oxley clawback action, the SEC sued both the former CEO and CFO of ArthroCare recently to recover bonus compensation and stock sale profits they received during an accounting fraud at the company. The two former officers had not been personally charged in connection with fraudulent financial statements; two other former officers were charged for that last year. This jibes with the District Court of Arizona holding in SEC v. Jenkins – that disgorgement of compensation and profit under Section 304 does not require personal misconduct.

By my loose count, the SEC has used Section 304 at least seven or eight times since its birth in 2002 – see the list of links to SEC clawback actions in’s “Clawbacks” Practice Area.

– Broc Romanek

April 17, 2012

Corp Fin Issues 17 More JOBS Act FAQs

Yesterday, Corp Fin issued 17 FAQs helping to interpret a bunch of issues regarding “emerging growth companies” under Title I of the JOBS Act – including scaled disclosure – ahead of the SEC’s rulemaking in this area. Here’s a Cooley alert describing these FAQs. I continue to post oodles of memos, etc. in our “JOBS Act” Practice Area, including this redline of how the ’33 and ’34 Acts have been altered…

In his blog today, Keith Bishop notes that the JOBS Act weighs in at less than 9000 words – compared to 360k for Dodd-Frank – but yet has a surprising number of technical errors…

Dave & Marty on More JOBS Act Guidance

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. Topics include:

– Determining emerging growth company status
– Navigating the confidential submission process for registration statements
– Staff guidance on Exchange Act Section 12(g) thresholds
– Dave’s & Marty’s crowdfunding endeavors (or lack thereof)

Tune in next Tuesday for the 75-minute webcast: “JOBS Act & More: How Private Placements and Reg D Are Changing.”

Transcript: “What the Top Compensation Consultants Are NOW Telling Compensation Committees”

We have posted the transcript for the recent webcast: “What the Top Compensation Consultants Are NOW Telling Compensation Committees.”

– Broc Romanek