Broc Romanek is Editor of CorporateAffairs.tv, TheCorporateCounsel.net, CompensationStandards.com & DealLawyers.com. He also serves as Editor for these print newsletters: Deal Lawyers; Compensation Standards & the Corporate Governance Advisor. He is Commissioner of TheCorporateCounsel.net's "Blue Justice League" & curator of its "Deal Cube Museum."
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.
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…
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.
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…
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
I haven’t personally made it to PLI’s annual Securities Law Institute in perhaps 6-7 years now after being a mainstay for 15 years or so. But my goal is to make it next year. I will be at the ABA Fall Meeting this Friday. Anyways, PLI has blogged some of the highlights from last week’s event, including:
I was very sad to hear that Jim Byrne, long-time corporate secretary for Bankers Trust – who retired a decade ago – has passed away. Here is his NY Times obit. Jim was one of the bright stars that drew me into the fold of the Society of Corporate Secretaries. When I was at the SEC, he arranged a trip for me and others to Wall Street to explain some of the mysteries of the process. A very kind man. My condolences to his family and friends.
Say-on-Pay: Now 60 Failures
I’ve added two more companies to our failed say-on-pay list on CompensationStandards.com for 2012 as Oracle and PMFG during the past week. We are now at 60 companies in ’12 that have failed to garner major support. Hat tip to Karla Bos of ING Funds for keeping me updated.
Compensation Standards Newsletter: Fall Issue Now Available
We have posted the Fall 2012 Issue of our Compensation Standards newsletter that contains practical guidance pulled from our successful pair of executive pay conferences. With Dave Lynn, Mark Borges and I wrapping up the 2013 Edition of Lynn, Borges & Romanek’s “Executive Compensation Disclosure Treatise & Reporting Guide”- all of the updated Chapters of the Treatise are already posted on CompensationStandards.com – we thought it was best to compile the Talking Points as our Fall issue since that guidance didn’t make it into the Treatise.
With the election behind us, the rumors over whether SEC Chair Schapiro is a short-timer will intensify. And when the SEC Chair changes, there often are other senior management changes.
Anyways, I’ve decided to create this list of the Directors for the Division of Corporation Finance, dating back to 1934 (before the Division had that name). This list surprisingly wasn’t easy to create as the SEC nor the SEC Historical Society maintains one. The list is repeated below (and includes their term as a Director):
1. Baldwin Bane (1934 – 1952)
2. Byron “Barney” Woodside (1952 – 1960)
3. Manuel “Manny” Cohen (1960 – 1962)
4. Edmund “Ed” Worthy (1962 – 1969)
5. Charles “Charlie” Shreve (1969 – 1970)
6. Alan Levenson (1970 – 1976)
7. Richard “Dick” Rowe (1976 – 1979)
8. Edward Greene (1979 – 1981)
9. Lee Spencer (1982 – 1984)
10. John Huber (1984 – 1986)
11. Linda Quinn (1986 – 1996)
12. Brian Lane (1996 – 1999)
13. David Martin (1999 – 2002)
14. Alan Beller (2002 – 2006)
15. John White (2006 – 2009)
16. Meredith Cross (2009 – present)
I saw a sneak preview for “Life of Pi” last night. Wasn’t expecting to like it given the previews and because I’m not a fan of 3-D. It was mind-blowing, both the story and the way the 3-D felt. I definitely recommend it. Look at this clip of the flying fish scene…
The Debate Over Cost-Benefit in Rulemaking Continues
Here is an article from the Washington Post analyzing the Senate debate over a pending bill that could force federal agencies to do even more cost-benefit analysis when conducting rulemaking…
What the Election Results Mean for Dodd-Frank?
Here is an article from the Washington Post analyzing the impact of the results on Dodd-Frank and all the rulemaking thereunder that still needs to get done…
Here’s news from Davis Polk’s Ning Chiu from this blog:
In early October, the American Petroleum Institute, Chamber of Commerce, Independent Petroleum Association of America and National Foreign Trade Counsel had filed a complaint and a petition for review in the D.C. Circuit Court of Section 13(q) of the Exchange Act, which under Dodd-Frank required the Commission to issue rules mandating reports by resource extraction issuers relating to payments made to a foreign government or the U.S. federal government in order to further the commercial development of oil, natural gas or minerals. The plaintiffs later submitted a motion requesting that the Commission stay the effective date of the final rules.
The SEC has now issued an order denying the motion to stay the implementation of the rules. The SEC adopting rules require issuers to comply for fiscal years ending after September 30, 2013, with each annual report due no later than 150 days after the end of the most recent fiscal year, such that the first reports would be due on February 28, 2014, at the earliest. This timing largely drove the Commission’s decision on this motion.
In denying the stay, the Commission indicates that they do not believe the plaintiffs have demonstrated imminent, irreparable harm, given that the court’s expedited briefing and argument schedule may determine the validity of the rules as soon as spring 2013. The Commission was also unpersuaded by the plaintiff’s claims of harm with respect to: (a) initial compliance costs to document the payment information required under the rule; (b) competitive disadvantage for new contracts; (c) detrimental effects on existing contracts where disclosure is prohibited; and (d) competitive harms resulting from competitors’ use of the disclosed information. In addition, the Commission found that the plaintiffs have not demonstrated a likelihood of success on the merits of their petition, based on the Commission’s view of the strength of the explanations set forth in the rule’s adopting release.
Corp Fin May Recommend Proposal Mandating Disclosure About Political Spending
The WSJ reports that Corp Fin is considering recommending a proposal that would mandate disclosure of corporate political spending and lobbying activities. According to the article, the idea for the proposal was triggered by a rulemaking petition submitted to the SEC last year by a group of academicians. The SEC has received over 300,000 comment letters on the petition. Currently, some companies voluntarily make disclosure about the uses of corporate resources for political activities, but there is no SEC requirement to do so, and most companies “are hesitant to disclose the donations, saying it is part of ordinary business operations.” The petitioners argued that the information is necessary to allow investors to hold corporations accountable, especially since the decision in Citizens United. In addition to the petition, there is also pressure on Corp Fin from the Coalition for Accountability in Political Spending, and one of the SEC commissioners has given a speech advocating rulemaking. According to the article, there have also been a record number of shareholder proposals related to corporate political spending and lobbying activities submitted in the 2012 proxy season.
PCAOB Makes Progress on Chinese Audit Access
I’ve blogged several times about the PCAOB’s challenges in gaining access to audits of Chinese companies listed on US exchanges (as well as blogged about the questionable audits of this companies). This Reuters article notes that there has been progress made in this area recently…
Here are survey results on delegation of authority practices:
1. Who is responsible for managing your company’s delegation of approval authority process?
– Corporate secretary’s office – 25.0%
– Legal department – 27.5%
– Individual business units are responsible for managing their own process – 12.5%
– Finance – 30.0%
– Other – 5.0%
2. On what does your company base its delegation of authority structure?
– Monetary thresholds – 90.0%
-Transaction type (e.g. acquisition, capital expenditure, procurement, etc.) – 70.0%
– Strategic impact – 0%
– Business risk – 15.0%
-Time/resource commitment – 2.5%
– Other non-monetary considerations – 7.5%
3. Which best describes your company’s approach to delegation of authority?
– We have a single policy that uniformly applies to the parent company and subsidiaries – 57.5%
– We have a single policy with unique thresholds for the parent and/or particular subsidiaries – 25.0%
– We do not have a single policy and separately address delegation of authority at each subsidiary – 10.0%
– Not applicable as our company isn’t structured into parent and subsidiaries – 5.0%
– Other – 2.5%
Please take a moment to participate in this “Quick Survey on Rules of Order for Board Meetings & Annual Meetings” and this “Quick Survey on Conflict Minerals.”
September-October Issue of “The Corporate Counsel”
Last week, we wrapped up the September-October Issue of The Corporate Counsel and it includes pieces on:
– JOBS Act Update: SEC Proposes the General Solicitation Changes to Rule 506
– The Rule 144 Aggregation Tail–Donees’ Sales Don’t Affect Affiliate’s Form 144 Filing Obligation
-Three-Month Form 144 Look-Back Includes Sales Covered by Prior Form 144
– Standing in the Affiliate’s Shoes–Our Interpretive Request
– 2012 Year-end Tax Tip for Gifts of Stock and Other Charitable Giving
– Say-on-Pay Litigation 2.0
– The Staff’s Annual SLAB on Shareholder Proposals
– Nasdaq Research Keeps Getting Easier (and Better)
– Compensation Consultant Fee Disclosure–“Additional Services” Include Those Rendered to Compensation Committee
– Farewell to XBRL Limited Liability for LAFs
Act Now: Get this issue for free when you try a 2013 No-Risk Trial today.
In the “Dodd-Frank Blog,” David Jenson of Leonard, Street & Deinard gives us some indication of what the comment letters submitted to the SEC look like regarding its general solicitation proposal. Interesting stats from the states – as well as anonymous rants and personal attacks – are among those in the comment letters. And as noted in this Business Insider article, even Sen. Carl Levin (D-MI) submitted a terse comment letter (see this Cooley news brief on the Senator’s letter)…
SEC Brings 1st Enforcement Action Against Emerging Growth Company
As noted in this NY Times article, the SEC recently brought an enforcement action against an emerging growth company that looks like was a complete fraud perpetrated by a disbarred lawyer. For those like me that thought Congress rushed the JOBS Act, “we told you so”…
Transcript: “Secrets of the Corporate Secretary Department”
We have posted the transcript for our popular webcast: “Secrets of the Corporate Secretary Department.”
– How Much – General Counsel’s pay reaches $1.4 million. The median total compensation for General Counsels at Fortune 1000 companies, as reported in Equilar’s 2012 Top 25 Survey, was $1,409,982. Chief executives’ pay calculated for 2011 among S&P 500 companies revealed a median total pay figure of $9.6 million.
– Growth Rate – General Counsel’s pay growth outpaces CEOs and CFOs in 2011. For the 136 General Counsels at Fortune 1000 companies that participated in both Equilar’s 2012 and 2011 Top 25 Surveys, median total compensation increased 2.4 percent in 2012 compared to the previous year. In 2011, the increase was 12.8 percent. That growth is more than the 6.2 and 8.9 percent growth of S&P 500 chief executive and chief financial officers over the same time frame, respectively.
– Industry Breakdown – Technology and Media CEOs replace Finance as highest paid industry. Companies in the Technology, Media, & Telecom industry ($1,679,000), Food & Beverage industry ($1,527,000) and Finance & Insurance industry ($1,521,000) paid their General Counsels more than any other industry. Last year, the Finance & Insurance industry had the highest pay. The lowest paid industries in 2012 were Retail & Consumer ($1,146,000) and Business Services ($1,161,000).
– GC vs. Others – The General Counsel role is replacing operational executives in importance. The number of General Counsels identified as named executive officers among the S&P 1500 index has grown from 494 individuals in 2007 to 591 individuals in 2011, a 20.9 percent increase. The importance of the legal position appears to be pushing out the operational executives from the five highest paid positions as the number of chief operating officers and vice presidents of operations have fallen by 13.3 percent, a decrease from 835 in 2007 to 724 in 2011.
– Equity Levels – Most GCs receive at least two types of equity vehicles. 49.9 percent of General Counsels received two unique award vehicles, while 28.6 percent received three unique vehicles. The most common vehicles are time-based stock, time-based options, and performance-based stock which were granted to 63.5, 61.0, and 62.7 percent of the General Counsels, respectively.
– Law School Matters? – Harvard tops all law schools with the most alumni serving in General Counsel roles. The top 3 law schools attended by Fortune 500 General Counsels were Harvard, Georgetown University, and the University of Virginia with 16, 12, and 9 alumni, respectively. Those Law Schools are ranked as number 3, 13, and 7 by U.S. News and World Reports’ Best Law Schools Rankings, respectively. The top ranked schools, Yale and Stanford, did not appear in the top 10.
– Gender Breakdown – More women serve as General Counsels than as Chief Executive Officers. Of the 175 General Counsels disclosed in public proxy filings, 148 were male and 27 were female (15 Percent). 3 percent of chief executive officers among S&P 1500 companies are female .
– Gender Pay Gap? – Male General Counsels receive 6.7 percent more pay than their female counterparts. The difference between median total compensation for male and female General Counsels at Fortune 500 companies was 6.7 percent, $2,263,577 for males and $2,120,764 for females.
Craziest Idea of All Time? “Human Capital Discussion & Analysis”
I’ve held off blogging on this “Human Capital Discussion & Analysis” proposal by the Society for Human Resource Management because the thing was so laughable that I couldn’t take it seriously. But last month, the SHRM issued a second draft of its proposal. Wow!
The SHRM’s proposal would need to be adopted by the American National Standards Institute and would require public companies to prepare a Human Capital Discussion & Analysis, along the lines of the CD&A and MD&A except the focus would be disclosure of almost every corporate cost associated with the hiring, retention, and training of employees and contingent workers, plus detailed information regarding how the company is organized and staffed. I’m not sure exactly how they would pressure the SEC to require this. The HR Policy Association has been keeping track of comment letters submitted on this, etc.
Our New “Business Disclosure Handbook”
Spanking brand new. Posted in our “Business Disclosure” Practice Area, this comprehensive “Business Disclosure Handbook” provides a heap of practical guidance about Item 101 of Regulation S-K. This one is a real gem – 31 pages of practical guidance…
If you’ve interacted with anyone up in the NYC or New Jersey areas, you know how bad it still is for those impacted by Hurricane Sandy. Late yesterday, the SEC posted the following announcement:
In a continuing effort to provide assistance to individuals and entities attempting to comply with filing and other obligations under the federal securities laws in the aftermath of Hurricane Sandy, the SEC today said it is preparing relief measures that would extend filing deadlines for those affected by Hurricane Sandy and its aftermath.
On October 29, 2012, the Commission posted notice on its website that it understood filers may have difficulty making filings and that the staff would handle requests for filing date adjustments on a case-by-case basis. SEC staff are preparing relief measures that are expected to include extensions of filing deadlines for any filing due during the period from October 29, 2012 to November 20, 2012 for publicly traded companies, investment companies, investment advisers, other persons with filing obligations, accountants, brokerage firms, and transfer agents, among others. It is anticipated that the deadline for any such filing would be extended to November 21, 2012, and the scope of the relief measures would extend to any individual and entity with a filing obligation that cannot file timely due to Hurricane Sandy and its aftermath. The staff will also consider requests for additional relief on a case-by-case basis.
Political Spending Disclosure (Like Political Spending) Is on the Rise
Here’s news culled from this Blank Rome newsletter (I know I blogged about this before but bears repeating on Election Day):
The 2010 Supreme Court decision in Citizens United unleashed political spending by corporations and the 2012 elections are expected to be the most expensive ever. The Center for Political Accountability (CPA) and The Zicklin Center for Business Ethics Research recently issued their 2nd Annual Index of Corporate Political Accountability and Disclosure. The Index analyzes the manner in which S&P 200 companies are navigating corporate political spending after Citizens United based on the practices and policies of these companies as publicly disclosed on their websites. The Index sponsors believe that disclosure of corporate spending gives investors the facts needed to evaluate whether such spending is in the best interests of shareholders, identifies possible sources of risk and helps ensure meaningful and effective board oversight.
Highlights of the 2012 Index include:
– Many companies have increased their level of disclosure; of the 88 companies studied both in 2011 and 2012, 85% improved their overall scores for political accountability and disclosure, with the most improved, Costco, going from a score of 3 (out of 100) in 2011 to 85 in 2012;
– Almost half (47%) of the companies studied reported their contributions to candidates, parties and “super-PACS,” 11% reported that they make no such contributions and 42% made no disclosures;
– More than half (57%) provided a full political spending policy on their website, 32% gave brief policy statements and 11% made no such disclosures;
– More than half (56%) reported that the board of directors regularly oversees political spending, 48% reported that a board committee regularly reviews company policy on political spending and 46% said that a board committee reviews company political expenditures;
– Smaller companies were less likely to provide full disclosure of political spending and board oversight;
– The highest scoring companies (based on a scale of 0 to 100) were Merck (97), Microsoft (94), AFLAC (93), Gilead (92) and Exelon and Time Warner (each tied with 88); and
– 18 companies were tied for last with a score of 0.
After all the data is in, we can expect that the amount of corporate political spending in 2012 will surpass all previous records and that there will be continued calls for disclosure. Accordingly, we expect that corporate governance “best practices” will soon require public companies to voluntarily disclose on their websites or through their SEC reports, information on their policies on political contributions and the amounts of such contributions. Companies not presently making such disclosures should consider “electing” to make them in the future.
