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."
On May 25th, the DOJ’s Acting Deputy Attorney General, Gary Grindler, sent around this memo requesting that federal prosecutors to be more clear on what help they can offer companies having issues with corporate monitors assigned to them under federal prosecution agreements. The memo states that if a company considers a monitor recommendation “unduly burdensome, impractical, unduly expensive, or otherwise inadvisable,” it need not adopt the recommendation immediately. In addition, if the company and monitor disagree on the recommendation, “the views of both shall promptly be brought to the attention of the department.”
The SEC as a Republican Target: Potshots Galore
Last month, House Oversight and Government Reform Committee Ranking Member Darrell Issa (R-Ca) released a 33-page report which recommends a number of SEC reforms not included in the financial reform legislation being considered by Congress (see pages 29-31). Given the tight timeline that Congress has for bill reconciliation, I doubt this report will have much influence. But the bulk of the report is not pretty for the SEC as it consists of a series of potshots taken at the SEC – in fact, the report’s title is “The SEC: Designed for Failure.”
In a way, the rebuttal would be that the SEC hasn’t had adequate resources for it’s massive tasks – and that Congress has been the one holding it back. See Lynn Turner’s excellent entry on our “The Mentor Blog” entitled “A Self-Funded SEC: Making the Case” from earlier this week…
The US Citizenship Ceremony: An Emotional Experience
I thought I’d share my recent experience of attending the US citizenship ceremony for my good friend Deng Juac. Deng is a 22-year whom the United Nations brought over here about six years ago from a Kenyan refugee camp (after his dad carried him on his back across a desert from Sudan to save his life when he was 11). My family has been involved in sheltering Deng and helping him through school for the past few years. He truly is a gentle soul.
Recently, Deng received his naturalization certificate and became a US citizen. As you can imagine, this is a big deal for immigrants. At the risk of being verbose, here is a play-by-play of Deng’s citizenship ceremony – some of it was quite emotional despite its bureaucratic nature:
1. Security at the federal immigration building is much tighter than any other federal building I have been in. There is a long line out the door at all times – and security is tight within as well. No wandering the halls.
2. After Deng turned in his green card (which had an incorrect name that they gave him when he arrived 6 years ago, “Juac Juac”), we waited as 10 folks at a time were brought upstairs. After some explanatory remarks, there was a rollcall of countries represented by the folks to be sworn in. It was quite a diverse group including Afghanistan, Pakistan and Somalia. Here is a video of that.
3. We listened to a recording of the Star-Spangled Banner and then we sang the Pledge of Allegiance.
4. Then came the swearing-in ceremony which officially gets you into the “club” – here is the first-half video and here is the second half.
5. We then watched a “welcome” video from President Obama that was great (my dad says he has attended citizen ceremonies in the past and the sitting President didn’t bother to do this). This was followed by a short presentation that showed past ceremonies.
6. Then came the presentation of the naturalization certificates – the photo-op that took a while as each new citizen got their photo taken with the Section Head of the immigration office we were in. Here is a video of a Iranian who need a translator – we’re talking “old country” here. And here is a video of Deng with one of his priceless smiles.
On May 27th, the New York County District Attorney’s Office (“DANY”) issued written guidelines for determining whether to bring criminal charges against business organizations. The District Attorney’s guidelines identify a number of factors prosecutors must consider before deciding to charge or not to charge an organization for violating New York State criminal laws.
Most of the factors to be considered closely follow the principles used by the U.S. Department of Justice for prosecuting business organizations. There are, however, important distinctions between the two sets of principles. As summarized in the attached, the DANY corporate charging guidelines incorporate additional factors to be considered, including (i) whether a corporation complied with the District Attorney’s request to waive attorney-client privilege and work product protections; (ii) the potential impact of a charging decision on the public’s confidence in the fairness of prosecutors’ decisions; (iii) the views of victims of misconduct; and (iv) the feasibility of prosecuting responsible individuals.
Because the DANY Guidelines establish a uniform framework for criminal charges against organizations, and incorporate considerations not found in the analogous federal guidelines, companies doing business in New York County should familiarize themselves with these new provisions and consider whether to modify their business practices or compliance programs in light of the new guidelines.
Timeframe for SEC Adopting Proxy Access Rules? Still Gunning for ’11 Proxy Season
On Tuesday, SEC Chair Schapiro delivered this speech and noted this about proxy access:
I can confirm that I am committed to bringing a proposal back to the Commission to consider final adoption, within a timeframe that would put the rules into effect for the 2011 proxy season.
As I blogged earlier this week, don’t forget that Congressional negotiations over the reform bill get televised starting today on C-SPAN…
Summer Issue of Compensation Standards Print Newsletter
We have posted the Summer Issue of our Compensation Standards print newsletter, which provides some examples of CEOs who have taken a stand on executive pay including their guidelines and motivations. We have posted this issue free to encourage others to become more responsible.
If you’re not yet a member of CompensationStandards.com, try our “Rest of ’10 for half price” no-risk trial to catch issues of this Compensation Standards newsletter. A membership gets you online access to this newsletter, including one hard copy of the newsletter.
Congrats to the Chicago Blackhawks, my childhood hockey team. They hadn’t won the Stanley Cup since the year I was born. Stan Mikita and I share a birthday…
Does Reg FD Prohibit Directors from Speaking Privately with Shareholders?
One area that continues to generate a slew of misinformation from some practitioners is Reg FD. So I was happy to see Corp Fin issue this new CDI:
Question 101.11
Question: Does Regulation FD prohibit directors from speaking privately with a shareholder or groups of shareholders?
Answer: No. Regulation FD prohibits a company or a person acting on its behalf — such as directors, executive officers and investor relations personnel — from selectively disclosing material, non-public information to a shareholder under circumstances in which it is reasonably foreseeable that the shareholder will purchase or sell the company’s securities on the basis of that information. If a company’s directors are authorized to speak on behalf of the company and plan on speaking privately with a shareholder or group of shareholders, then the company should consider implementing policies and procedures intended to help avoid Regulation FD violations, such as pre-clearing discussion topics with the shareholder or having company counsel participate in the meeting.
In addition, because Regulation FD does not apply to disclosures made to a person who expressly agrees to maintain the disclosed information in confidence, a private communication between an independent director and a shareholder would not present Regulation FD issues if the shareholder provided such an express agreement.
FINRA Proposals: Conflicts of Interest and Fixed Price Offering Rules
As part of its initiative to incorporate the NASD’s rules into the FINRA Rulebook, FINRA recently issued two proposals. In this proposal, FINRA proposes to incorporate its conflict of interest rule – NASD Rule 2720 – into the Rulebook as Rule 5121 without change except for references to other rules.
And in this rule filing with the SEC, FINRA proposes to codify what are known as the “Papilsky” or “fixed priced offering” rules (NASD Rules 2730, 2740 and 2750) into the Rulebook as new Rule 5141. This proposal includes numbers of changes to the prior rules.
In this follow-up podcast, Prudential’s Peggy Foran and Ed Ballo explain how their company’s novel initiative that tied its environmental/sustainability program to bringing in the vote for its annual shareholders meeting fared (here is their earlier podcast from before the meeting), including:
– What were the results of Pru’s experiment to engage registered holders?
– Where there any surprises?
– For other companies considering doing this type of program, what issues would you tell them to consider?
Closed Deal: RiskMetrics Acquired by MSCI – Will ISS Be Sold Again?
As noted in this press release, MSCI closed its purchase of RiskMetrics last week. I blogged about the deal when it was first announced. The word on the street is that MSCI will be selling off the ISS unit and keeping the remainder of the RiskMetrics assets. We’ll see if that comes to pass. Meanwhile, we can all go back to calling it “ISS” and drop the RiskMetrics label…
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net 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:
– Whether Earnings Calls Transcripts Are Worth Producing?
– No Surprise: Wires Bashing Google’s Recognized Channel Approach
– More on “The Problem with IFRS: Little Independence for the IASB”
– What Boards Need to Know About SEC Comment Letters
– Canada Proposes Its Own E-Proxy Rules
Thanks to Michele Kulerman of Hogans Lovell for this rundown on how the timeline and processes of passing Congress’ financial reform bill – the “Restoring American Financial Stability Act of 2010” – goes from here:
The Congress returns to Washington this week, anticipating an intense month of negotiations to complete consideration of sweeping financial services regulatory reform. Because each chamber must pass identical bills before the President can sign reform into law, an ad hoc “conference committee” will be named to work through the differences between the House and Senate bills.
Members of the conference committee are selected independently by House and Senate leaders from both parties, and drawn from senior members of the House Financial Services Committee and the Senate Banking Committee. They are expected to be named Tuesday, June 8th. Party ratios in the conference reflect the parties’ ratio in each chamber. The conference on this bill will be chaired by the House, so Barney Frank (D-MA), who chairs the House Financial Services Committee will preside.
The first public meeting of the conference will take place Thursday, June 10 and this session and all subsequent meetings will likely be broadcast live via C-SPAN. The opening session will be devoted to member statements and may provide insight into possible avenues of compromise on open issues.
Staffers have been working for the past two weeks on the text which the conferees will use. The Senate amendment to the House bill, HR 4173, will serve as the base text, with added House-approved language related to mortgage reform and the hiring of minorities and women by the regulatory agencies. In addition, a side-by-side comparison of provisions in both bills is usually prepared. Both documents should be publicly available sometime next week.
The conferees will meet again June 15-17 and June 22-23 in open session to rewrite the text. Obviously, a lot of the work will take place behind the scenes, and the public meetings are as likely to highlight political differences in an election year as they are to debate differences in a spirit of compromise.
The conferees hope to conclude their work by the 24th by filing the conference report that day. The report – the text of the compromise bill – is usually accompanied by a Statement of Managers which reviews the need for the legislation, details the differences between the two versions, and explains the agreed-upon compromise.
The plan is for the House to act first, starting June 28th, and for the Senate to act in time to send the bill to the President by the end of the week.
Trends in Audit Fees and Non-Audit Fees
Recently, Audit Analytics released its annual “Audit Fees and Non-Audit Fees” report, a seven-year analysis focusing on fiscal years 2002 through 2008. The report examines the fees paid by 2,924 accelerated filers that disclosed fees in each year covered by the study, with the findings including:
– After 4 years of steady decline from 2002 to 2006, non-audit fees as a percentage of total fees have leveled off in 2007 and 2008.
– For the third year in a row, non-audit fees represented only about 21% of the total fees paid by accelerated filers, down from 51% in 2002.
– While the total audit fees increased steadily over the period examined, audit fees as a percentage of revenue decreased since 2005 and now stand at $556 per million dollars of revenue.
Navigating Corp Fin’s Comment Process
We have posted the transcript of our recent webcast: “Navigating Corp Fin’s Comment Process.”
On Wednesday, the SEC announced it had charged Diebold and three former finance officers for engaging in a fraudulent accounting scheme to inflate the company’s earnings. The SEC separately settled an enforcement action (here’s the litigation release – and here’s the complaint) against Diebold’s former CEO Walden O’Dell, obtaining reimbursement of certain financial benefits that he received while Diebold was committing the accounting fraud. The SEC used the clawback provision under Section 304 of Sarbanes-Oxley to get the former CEO to agree to reimburse the company $470,016 in cash bonuses, 30,000 shares of Diebold stock and stock options for 85,000 shares of Diebold stock.
Notably, the SEC didn’t allege that the former CEO engaged in the fraud (or any other violation of the securities laws) – something the SEC did last year in an action against the former CEO of CSK Auto Corp. (ie. Maynard Jenkins), who pushed back in a motion to dismiss last September as I noted in this blog. Jenkins’ motion has not yet been ruled upon (oral arguments were heard on April 30th; here’s the transcript from that hearing posted in CompensationStandards.com’s “Clawback Policies” Practice Area) – but a ruling is expected soon…
Smaller Company Proxy Disclosures: The Latest Developments
We have posted the transcript from the recent CompensationStandards.com webcast: “Smaller Company Proxy Disclosures: The Latest Developments.”
More on “Picking Kentucky Derby Winners Based on the Economy”
A few weeks ago, I noted how Mark Coller successfully picks his Derby winners based on current events. Another member took the ball and ran with it as we head into the Belmont leg of the Triple Crown. This member has made up some horse names to fit the times:
– Banker Bailout – this horse is so last year
– Public Malaise – this one has a shot, the horse is so well-aligned with the American psyche, I don’t see how he can be overlooked
– Shop and Spend – with a name like this filly, it looks unbeatable
– Rational Investment- not a chance in a million
– Retire Rich – see Rational Investment
– Trusted Advisor – are you serious?
– Conservative Banker – might have had a chance during Glass-Steagall
– Greedy Banker – ding, ding, ding this one has to be a lock, the surest shot in the history of the sport, cash in your 401k because this horse is the only way to retire rich and don’t forget to include Churn and Burn for the exacta
I don’t know why, but this video that features a lip-syncing of Carol Channing and Liza Minnelli spliced together on a Larry King episode cracks me up (here is the original video).
In this 11-minute podcast, Ning Chiu of Davis Polk does a great job of boiling down the corporate governance and executive compensation provisions that apply to all US public listed companies in the recently passed Senate reform bill, the “Restoring American Financial Stability Act of 2010.”
Not only does Ning compare the differences between the Senate and House bills, but she identifies which provisions aren’t all that clear – and she notes which provisions are more likely to sail through and which may be altered before Congress reconciles the two bills. Finally, Ning notes the practical consequences for companies of these provisions.
Timing News about IFRS and GAAP Convergence Project
Yesterday, the IASB and FASB issued a joint statement about the status of their project to converge US GAAP and IFRS. As noted in the statement, in November 2009, the two standard setters set June 2011 as the target date to complete all major convergence projects. Stakeholders expressed concerns about their ability to provide input on the large number of exposure drafts of standards that are planned for publication in the second quarter of this year. The standard setters therefore are developing a modified strategy to prioritize projects and stagger the publication of exposure drafts. The result is that completion of some projects will be extended past June 2011.
Shortly afterward, SEC Chair Schapiro issued a statement. She indicated that she did not believe these modifications to the timetable for the convergence project will impact the SEC Staff’s ability to execute its work plan issued in February 2010. She also stated that these developments would not affect the SEC’s ability to make a determination in 2011 about whether to incorporate IFRS into the financial reporting system for US issuers.
More on our “Proxy Season Blog”
With the proxy season wrapping up, we are winding down our “Proxy Season Blog” for TheCorporateCounsel.net 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:
– Notes From Google’s Annual Meeting: Good Food!
– Will Google Sidewiki Change IROs’ E-Communication Patterns?
– SEC Not Swayed by Companies’ Post-Apache Arguments
– Study: Electing Directors
– More on “Surfing Champion Surfaces in a Proxy Filing”
– A New Site for Shareholders: Lemonjuice.biz
A few months ago, I blogged about how Google may have taken the first step towards creating a “recognized channel” under the SEC’s 2008 Regulation FD guidance. In this podcast, David Calusdian of Sharon Merrill Associates analyzes this, including:
– What did Google recently do?
– For those that might consider doing something similar, what issues should they analyze?
– Do you foresee other companies following Google’s lead?
The Rise of Web Disclosure: Thomson Reuters and Nasdaq OMX Set to Launch
Recently, I blogged about concerns regarding how the traditional business wires might unevenly distribute the news. Over the past week or so, Dominic Jones has been conducting experiments to illustrate a different point – the potential ineffectiveness of traditional PR wire distribution.
Earlier this morning, Dominic blogged about a development that has “the potential to substantially streamline and reshape disclosure practices at thousands of US companies.” Thomson Reuters and Nasdaq OMX are set to launch platforms to help companies use web disclosure more extensively – which may dramatically reduce the use of PR newswires. Thomson Reuters and Nasdaq OMX provide IR webpage hosting services for about 2700 and 1078 companies, respectively – and intend to charge a flat annual fee (in comparison to the standard PR newswire practice of charging by the word).
Thomson Reuters has posted a fact sheet and white paper about its upcoming product offering – and here’s Nasdaq’s press release on its new DIY service.
PCAOB: New FAQs for Non-US Auditors Due to EU’s Directive on Statutory Auditors
Yesterday, the PCAOB issued staff guidance – in the form of FAQs – related to the registration process for applicants from non-U.S. jurisdictions where the PCAOB is prevented from inspecting PCAOB-registered firms. The affected jurisdictions currently are the 30 European countries that are required to follow the European Union’s Directive on Statutory Auditors, China, Hong Kong, and Switzerland.
Maybe these are more common than I realize – but the SEC announced a while back this settled C&D order against ECO2 Plastics, a Pink Sheet company for not disclosing effective disclosure controls as well as the lack of effective internal controls. The order states that the company failed to comply with Item 307 of Regulation S-K in its ’08 and ’07 annual reports and Item 308T of Regulation S-B in ’07.
I can’t recall seeing a case where lack of disclosure controls disclosure was the primary charge alleged; usually it is a tack-on to some other charges. The order doesn’t provide much in the way of details, so I can’t quite figure out how egregious were the circumstances that led to these charges. In September ’09, the company filed an amended Form 10-K for 2008 (after it had already filed a prior amended Form 10-K in August) to include the Item 9A disclosure control disclosures that it omitted from the company’s 2008 Form 10-K (and it omitted the Item 8A disclosures in its 2007 Form 10-KSB). This new 9A disclosure includes a paragraph describing how the company couldn’t perform an adequate assessment of internal controls in ’07.
Based on all this, I think the case is predicated on failing to provide the required disclosure control disclosures for two years and failing to have effective internal controls in one. So lesson learned…
Lawyers as Actors
In this podcast, Howard Kline discusses his new acting activities, including:
– What new hobby have you picked up over the last few years?
– What led you to try something new?
– Do you think being a lawyer helped you in your acting career?
– And vice versa, does acting help your lawyering?
Our June Eminders is Posted!
We have posted the June issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
On the heels of the passing of “The Financial Services Act 2010,” the United Kingdom’s new coalition government announced that it will not disband the Financial Services Authority – sparing the country’s financial regulator from abolishment. Learn more in this memo in our “European Law” Practice Area.
Sometime today, the UK’s Financial Reporting Council is likely to announce changes to the UK’s “Combined Code on Corporate Governance.”
First DOJ Opinion in ’10 Permits Payment to Foreign Official
Last month, the DOJ issued its first opinion of the year – Opinion Procedure Release No. 10-01 – in which it announced that it would not take enforcement action under the Foreign Corrupt Practices Act against a U.S. company that proposed to pay a foreign official for services the foreign official would provide on behalf of the US company. Learn more in this memo posted in our “Foreign Corrupt Practices Act” Practice Area.
