Monthly Archives: November 2012

November 30, 2012

A Sample Compensation Consultant Questionnaire & SEC Delays Approving Exchange Listing Standards

Yesterday, the SEC delayed approving the NYSE’s and Nasdaq’s listing standards relating to compensation committees and advisors. Action was due by today – but now has been deferred until January 13, 2013. The delay shouldn’t impact what companies disclose in proxy statements next year – unless the SEC decides to not go forward, which is highly unlikely given there were only 14 comment letters on this round of proposals.

Meanwhile, we have posted a sample compensation consultant questionnaire to help you assess what you need to disclose. This sample is posted in Word in our “Compensation Consultant” Practice Area on Also remember there was a sample questionnaire included in the July-August issue of The Corporate Counsel.

Don’t forget this “Quick Survey on Compensation Consultant Conflicts Disclosure.” Please take a moment to participate – all responses are anonymous as always…

Rule 10b5-1 Trading Plans Under Scrutiny Once Again

I was gonna gin up something on the recent WSJ article entitled “Executives’ Good Luck in Trading Own Stock” – but Kevin LaCroix has done such a great job that you should just read his piece in the “D&O Diary Blog.”

Court Orders Expedited Schedule for Conflict Minerals Challenge

On Wednesday, the D.C. Circuit Court ordered an expedited briefing schedule for the conflicts minerals case as noted in this Cooley news brief. The order specifically states that any “extension of the briefing schedule may result in the case not being calendared this term.” In addition, Amnesty International’s motion to intervene was granted.

Mailed: September-October Issue of “The Corporate Executive”

We have mailed the September-October Issue of The Corporate Executive, and it includes pieces on:

– Revisiting (or Visiting) Hedging and Pledging Policies
– Checklist: How to Avoid Being Named in a Proxy Disclosure/Say-on-Pay Lawsuit
– Proposed Regs Under Section 83
– IRS Provides Sample Section 83(b) Election Notice

Act Now: Get this issue rushed to when you try a “Free for Rest of 2012″ No-Risk Trial to The Corporate Executive.

– Broc Romanek

November 29, 2012

Survey: What Type of Compensation Consultant Conflicts Disclosure Will You Make in ’13?

Over on his “Proxy Disclosure Blog” on, Mark Borges has been analyzing the latest proxy statements and commenting upon their compensation consultant conflicts disclosures. As hopefully you know, new Item 407(e)(3)(iv) of Regulation S-K requires disclosure if a conflict of interest has arisen in connection with the work of a compensation consultant (whether selected by management or the compensation committee). To satisfy this disclosure requirement, companies will need to conduct a conflicts of interest assessment.

This raises the question of whether companies will include voluntary disclosure (so-called “negative disclosure”) in their proxy statement when a determination of “no conflict” has been made. To attempt to get a handle on what folks are planning to do, I have posted this “Quick Survey on Compensation Consultant Conflicts Disclosure.” Please take a moment to participate – all responses are anonymous as always…

The SEC’s Latest Clawback Court Victory

Kevin LaCroix’s blog recently covered the latest court decision over a SEC clawback under Section 304 of Sarbanes-Oxley: SEC v. Baker and Gluk. Here is a note on the opinion from Brink Dickerson of Troutman Sanders:

Baker is a succinct, well-written opinion from a conservative District Court – the Western District of Texas in Austin. It involves the clawback of executive compensation under SOX 304 from executives who were not the cause the underlying restatement, and, like Jenkins in Arizona, the court rejects the defendants’ claims that there had to be misconduct on their part. As importantly, the court also rejects claims that Section 304 is unconstitutional and is barred by the Civil Asset Forfeiture Reform Act, arguments that the court in Jenkins did not reach. With there now being two solid decisions finding against the misconduct argument, I think that it is settled for good.

Speaking of clawbacks, check out this Paul Hodgson piece entitled “It is time for real bank clawbacks“…

Say-on-Pay: Now 61 Failures

I’ve added one more company to our failed say-on-pay list for 2012 on as DFC Global failed with 25% support. One of only 7 of the 61 failures so far this year have the honor of 25% support or below. I missed this one until now since the results were in the 10-Q for 9/30 rather than an 8-K. Hat tip to Karla Bos of ING Funds for keeping me updated.

Related to failures #59 and 60 in recent weeks, notice that the PMFG Chair, who is the retired CEO and on the comp committee, lost the vote also for his own re-election to the board. This, along with Oracle’s compensation committee members losing their re-election vote if you exclude the CEO Ellison’s shares, should be sending a chill to directors. Hat tip to Fred Whittlesey for pointing this out!

– Broc Romanek

November 28, 2012

Elisse Walter: New SEC Chair (Until “Longer Term” Successor is Found)

Hmm, where do I begin? I did take pains to be correct in my blog yesterday about Commissioner Walter’s ascension to serve as Chair of the SEC. I rarely am wrong in this blog and proud of that fact. But yet, I blew it when I called Elisse an “Acting” Chair – even though loosely she will be. Let me explain.

Shortly, after the SEC’s “Schapiro is stepping down” press release came out, the White House issued this statement that Elisse would be “designated” as Chair. Even though I recognized that as ambiguous, I took that to mean she would be tapped as Chair and even tweeted so. Then I started seeing prominent publications (eg. WSJ) note that Elisse would be temporary and serve on an interim basis.

So I backed off my tweet in subsequent tweets – and I originally blogged yesterday that Elisse would serve as “Acting Chair.” This certainly would not be unprecedented as Laura Unger served as Acting Chair for six months in ’01 and Cynthia Glassman for three in ’05. So it’s not unusual for a sitting Commissioner to serve in that capacity.

But it’s now clear that Elisse will be serving simply as the Chair; not in an “Acting” capacity. However, the White House has mentioned that the President intends to nominate a long-term successor before Elisse’s term ends in December 2013. So unless Elisse is tapped for that, her term as Chair will be only a year or less (here’s a Reuters article with details about Elisse’s career). Capiche?

Learn more about what exactly a SEC Commissioner does – and much more – in next week’s webcast: “How the SEC Really Works.”

Does It Matter Whether Someone Serves as Short-Term Chair vs. Acting Chair?

Okay, is this all a lesson in semantics? Or is there substance over form? I don’t think it matters in terms of substance. Maybe it’s designed to give Elisse greater clout to get through some of the rulemakings that the SEC has been pushing. Until a fifth Commissioner is appointed to break the potential 2-2 political gridlock, that might not matter much.

Where it does matter is on the SEC’s historical list of who has served as a Chair. Apparently, Acting Chairs don’t cut it – so Laura Unger is not considered the first woman to serve as SEC Chair. That honor goes to Mary Schapiro. And of course, “Chair” looks better on a resume compared to “Acting Chair”…

A Former Corp Fin Staffer Takes the Helm!

For me, Elisse’s rise is notable for her background. Elisse served as Corp Fin’s Deputy Director (back when the Division only had one) in the late ’80s. From my research, she is only the second SEC Chair to have served in Corp Fin – with former Director Manny Cohen being the other in the late ’60s. That is awesome!

Poll: Who Will Become the Next Longer-Term SEC Chair?

Please guess who will be tapped to serve as SEC Chair after Elisse’s term expires in 2013:

Online Surveys & Market Research

– Broc Romanek

November 27, 2012

SEC Chair Schapiro to Step Down; Elisse Walter Will Serve as Chair

Given the number of rumors about SEC Chair Mary Schapiro departing over the past few months (see last week’s rumor – here are the latest rumors about a successor), it’s no surprise that the Chair announced yesterday that she was stepping down on December 14th. Even though most mass media articles have gotten it wrong, Commissioner Elisse Walter will serve as Chair until a “longer term” successor is found – her appointment doesn’t require Senate approval because it previously confirmed her as a Commissioner. [Note that I made corrections to this blog in midday – explanation to follow tomorrow about Elisse’s status.]…

Does this mean that rulemaking will cease? No. Might it slow down? Likely, particularly given the 2-2 split among the four remaining Commissioners along party lines…

Funny Errors: Inside SEC Filings – And On The SEC’s Site Too

Recently, I blogged about some pretty funny errors made in SEC filings. But as Keith Bishop blogs – in an entry entitled “The SEC’s Form 10-K: ‘In Endless Error Hurled‘” – sometimes even the forms themselves have minor errors.

And a member recently pointed out this “helpful information” that is listed on right side of the SEC’s “Company Search” page related to Edgar:

“The SEC does not require companies that are raising less than $1 million under Rule 504 of Regulation D to be “registered” with the SEC, but these companies are required to file a Form D with the SEC. The Form D serves as a brief notice that provides information about the company and the offering.”

Clearly, this bullet was not drafted by someone in Corp Fin as the member who noticed this snafu wrote this note to me:

When did companies have to start registering with the SEC under the ’33 Act? Here I thought it was the offers and sales that had to be registered. And, does this mean that companies raising more than $1 million under, for example, Rule 506 have to be “registered” with the SEC. I don’t think so.

Our New “Preliminary Proxy Statements Handbook”

Spanking brand new. Posted in our “Preliminary Proxy Statements” Practice Area, this comprehensive “Preliminary Proxy Statements Handbook” provides a heap of practical guidance about Rule 14a-6(a). This one is a real gem – 19 pages of practical guidance.

– Broc Romanek

November 26, 2012

Survey Results: Conflict Minerals

Here are survey results on preparing for complying with the SEC’s new conflict minerals rules:

1. Who is responsible for conflict minerals compliance:
– Legal department – 45%
– Procurement – 35%
– Finance – 15%
– Other – 13%
– Don’t know – 9%
– Not applicable, we are not an SEC registrant – 1%

2. Do you currently expect that you will be required to file a Form SD:
– No, we do not manufacture or contract to manufacture products – 11%
– No, conflict minerals are not necessary to the functionality or production of our products – 9%
– Yes, but we expect to conclude that all conflict minerals come from scrap, are recycled or originate outside the covered countries – 9%
– Yes, and we expect to rely on “DRC Conflict Undeterminable” – 22%
– Yes, and we expect to include an independent audit report – 5%
– Don’t know – 42%
– Not applicable, we are not an SEC registrant – 2%

3. If you manufacture or contract to manufacture products and conflict minerals are only contained in your packaging, do you anticipate concluding that packaging is necessary to the functionality or production of your products:
– Yes – 7%
– No – 11%
– Don’t know – 28%
– Not applicable – 54%

4. How far along are you in preparing for conflict mineral compliance:
– We’re still in denial – 18%
– We’ve begun to analyze our products, but haven’t begun implementing systems – 67%
– We’ve begun to revise our supply contracts to help comply – 2%
– We are very far along and don’t believe compliance will be a problem – 5%
– Don’t know – 2%
– Not applicable – 5%

Please take a moment to participate in this “Quick Survey on Internal Audit” and this “Quick Survey on Rules of Conduct for Board Meetings & Annual Meetings.”

Conflict Minerals: Latest in the Lawsuit Against SEC’s Rules

This Cooley news brief notes that filings have been made in the lawsuit against the SEC’s conflict minerals rules, most of them procedural. The filings state that SEC has agreed to an expedited briefing schedule, with final briefs to be filed by March 29th. Note that Amnesty International has intervened in the lawsuit to support the SEC…

We now have over 80 memos posted in our “Conflict Minerals” Practice Area including this nifty flowchart.

More on “The Mentor Blog”

I continue to post new items daily on our blog – “The Mentor Blog” – for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Judge Gets Into Online Disclaimers
– Update: Project to Enhance COSO’s Internal Control Framework
– Canada Looks to Bolster Governance of Its Banks
– Bad Grades Are Rising for Auditors
– Second Circuit Eases Aiding and Abetting Standard for SEC

– Broc Romanek

November 21, 2012

Glass Lewis Finally Releases ’13 Policy Updates to Public

Yesterday, Glass Lewis released its 2013 policy updates to the general public, a few weeks after it released them to its clients. We will be posting memos on the updates in the “Proxy Advisors” Practice Area.

Rumors Over SEC Chair Schapiro’s Departure Intensify

Here is a WSJ article that speculates on whom the next SEC Chair could be…Mary John Miller, a top Treasury Department official who played a key role during the debt-ceiling debate. Here’s an article outlining a speech that Mary Miller recently delivered on regulation…

SEC Brings Insider Trading Case Involving $276 Million Scheme

Yesterday, the SEC charged a hedge fund in a $276 million insider trading scheme involving a clinical trial for an Alzheimer’s drug being jointly developed by two pharmaceutical companies. The illicit gains generated in this scheme make it the largest insider trading case ever charged by the SEC. Here are thoughts from David Smyth of “Cady Bar the Door” about the case…

– Broc Romanek

November 20, 2012

EU Proposes 40% Non-Mandatory Quota for Women on Boards

Last week, the European Commission proposed legislation with a target of 40% women on board, with exceptions for small and medium-sized companies. The proposal is not a mandatory quota. Under the proposed Directive, companies that fail to meet the standard would be subject to sanctions such as “administrative fines or the annulment of the appointment of non-executive directors.” Here’s a NY Times article about a pushback in the UK over the EU proposal.

Securities Fraud: SEC Socks BP for Half a Billion!

Last Thursday, as noted in this press release, the SEC charged BP with misleading investors while its Deepwater Horizon oil rig was gushing into the Gulf of Mexico by significantly understating the flow rate in multiple reports filed with the SEC. BP agreed to settle the SEC’s charges by paying the third-largest penalty in agency history at $525 million. That’s some serious coin!

But that’s nothing. As noted in this NY Times article, BP agreed to pay over $4 billion and plead guilty to 14 charges from the DOJ. And three BP executives were individually charged with crimes. And the company could owe another $21 billion in pollution fines under the Clean Water Act. The coverup always is more costly than the crime. Here is a Glass Lewis blog about the saga…

The SEC’s 2nd Annual Credit Rating Agency Report

Last week, the SEC issued its 2nd Annual Staff Report based on credit rating examinations. The Staff determined that with one exception, all NRSROs appropriately addressed the Staff’s recommendations in the first annual report in 2011. In addition, the Staff announced a new initiative to highlight compliance issues at credit rating agencies between examinations.

– Broc Romanek

November 19, 2012

ISS Releases 2013 Voting Policies

Just as I was pushing the button on Friday morning to blog about Glass Lewis’ ’13 policies, ISS released their 2013 voting policies. ISS is holding a webcast on December 6th, by which time it is likely that ISS will have also issued a set of FAQs that flesh out the new policy updates. We have our own annual webcast with Pat McGurn coming up too – “Pat McGurn’s Forecast for 2013 Proxy Season: Wild and Woolly.” I’ll be posting memos in our “ISS Policies” Practice Area.

Here are blogs summarizing the development from Towers Watson, Mike Melbinger, Davis Polk, Blog and Just Compensation.

The SEC’s Annual Whistleblower Report: 3000 Tips in a Year

Last week, the SEC’s Office of the Whistleblower published a report for its activities of for the past year – revealing that it received 3,000 whistleblower tips from all 50 states and from 49 countries, with the most common complaints being related to disclosures & financials (18%), offering fraud (16%) and manipulation (15%). The bulk of the tips inside the U.S. came from California (17%) with New York (10%) and Florida (8%) being right behind (“need some swamp land?”). The big news was that 143 enforcement judgments and orders potentially qualify for a whistleblower award.

SEC Still Has Reservations about IFRS

As this Accounting Today article notes, the SEC’s “wait and see” approach to IFRS doesn’t appear to be changing…

– Broc Romanek

November 16, 2012

Glass Lewis Releases 2013 Proxy Voting Guidelines

Last week, Glass Lewis made available it’s 2013 proxy voting guidelines to its subscribers only. [ISS came out with their ’13 policy updates this morning – I’ll cover in Monday’s blog.] Here’s some analysis of the new guidelines from Towers Watson’s Dan Kelly & Jim Kroll (I’m posting memos on GL’s update in our “Glass Lewis Policies” Practice Area):

On November 8, Glass Lewis released its updated U.S. 2013 proxy paper guidelines, which immediately went into effect. The 2013 guidelines complement material compensation-related updates that went into effect this past July when Glass Lewis began sourcing peer companies for its pay-for-performance analyses from Equilar. (See “Glass Lewis Updates Its Pay-for-Performance Model.”) Although the recent policy update primarily focuses on issues outside of executive compensation, there are some changes with potential implications for executive pay in the upcoming proxy season:

– Equity plans up for shareholder approval will be examined for share-counting provisions that understate the potential dilution or cost to common shareholders. Although an uncommon practice, Glass Lewis will now evaluate so-called inverse multipliers in fungible share reserves that result in grants of options or stock appreciation rights that are counted against the share reserve as less than one share.

– Board responsiveness to a negative shareholder vote will be under scrutiny any time 25% or more of shareholders vote against the recommendation of management on any proposal. The new general policy will require examination of any disclosures of the board’s actions in response to shareholder concerns since the last annual meeting. Glass Lewis specifically noted that this policy will apply to compensation matters such as recent modifications to the design or structure of the company’s executive compensation programs.

– In recommending negative votes in the absence of a committee chairman, Glass Lewis’s policy has been to recommend that shareholders vote against the senior director (either the longest-serving member of the committee or, if one cannot be determined, the longest-serving board member on the committee). In a change from previous years, the 2013 guidelines call for Glass Lewis to recommend a vote against all directors if seniority cannot be determined. This policy will apply to all committees, including the compensation committee.

No other compensation-related updates were included in the release of the proxy advisor’s U.S. 2013 guidelines. Conspicuously absent from the list of changes was any mention of further updates to say-on-pay voting guidelines or the incorporation of alternative pay definitions. As such, it appears that the Glass Lewis pay-for-performance and say-on-pay analyses were set for the 2013 proxy season after the July updates.

DOJ & SEC Jointly Issue FCPA Guidelines

On Wednesday, the DOJ’s Criminal Division and SEC’s Enforcement Division issued joint guidelines for companies navigating the Foreign Corrupt Practices Act. The 130 pages of guidance – entitled “A Resource Guide to the U.S. Foreign Corrupt Practices Act” – is arguably the most thorough review of anti-bribery compliance since the FCPA was originally passed in 1977. Here is the press release – and here are Enforcement Director Khuzami’s remarks. We are already posting numerous memos in our “Foreign Corrupt Practices Act” Practice Area – and see this blog about declination opinions.

For those curious, here is an update on the status of DTC’s flooded vault, which I blogged about last week.

Venture-Backed Companies: Corporate Governance & Disclosure Practices in IPOs

Recently, Wilson Sonsini wrote this 2nd annual report on the governance and disclosure practices of 50 venture-backed companies that went public from July 2011 through June 2012, including those related to directors and independence, board committees and policies, stock plans, key metrics and non-GAAP measures and defensive measures.

– Broc Romanek

November 15, 2012

SEC Finally Issues Hurricane Sandy Relief

Ever since the SEC announced a week ago that it was giving relief to those impacted by Hurricane Sandy, I have been blanketed with questions about what exactly are the parameters of the relief. As noted in this press release, the SEC finally issued an exemptive order spelling out those details of conditional relief in a wide variety of areas including ’34 Act filing deadlines, S-3 & S-8 eligibility, Rule 144 public information criteria, proxy delivery requirements to impacted areas and more (eg. auditor independence requirements as they relate to reconstruction of previously existing accounting records for audit clients).

To get a sense of how the SEC works – which might help explain why it takes as long as it does to get an order like this out the door – tune in to our upcoming webcast: “How the SEC Really Works.” Even if you work at the SEC, I think this program will be instructive as to how offices other than yours function…

The Latest SEC Enforcement Stats

Yesterday, the SEC issued this press release highlighting the victories of the Enforcement Division over the past year – including noting that the agency has brought financial crisis actions against 117 defendants over the past 2.5 years. Insider trading cases essentially were flat compared to the prior year. and there were 79 actions related to disclosure violations…

November-December Issue: Deal Lawyers Print Newsletter

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

– “But I Just Work Here!”: The Rise of Corporate Officer Fiduciary Liability
– When Companies Combine: Object Lessons in Managing Leadership Succession
– Vintage Deal Tools Reemerge
– Analysis: Say-on-Golden-Parachute Voting
– Checklist: How to Handle Stockholder List Requests

If you’re not yet a subscriber, try a “Free for Rest of ’12” no-risk trial to get a non-blurred version of this issue on a complimentary basis.

– Broc Romanek