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."
Yesterday, the FASB’s Board held a meeting and discussed a number of Staff recommendations regarding “Disclosure of Certain Loss Contingencies,” which would amend FASB Accounting Standard No. 5 “Accounting for Contingencies” as first proposed back June 2008. That proposal resulted in a large number of comments from professional organizations and others opposed to the proposal.
As I’ve blogged before, attorneys in particular have expressed significant concerns that the proposed mandated disclosures could result in admissions against the interests of companies as well as result in waivers of the attorney-client privilege and attorney work product protection (here is a blog about other views). Because of the comments received, the FASB decided in September 2008 to “re-deliberate” the issues raised by the proposal.
As indicated in these notes to yesterday’s meeting, the FASB now has reached many decisions on this proposal – and plans to issue a new Exposure Draft sometime in May with only a 30-day comment period. Based on the notes, it appears that the concerns
With Congress moving quickly on financial regulatory reform, huge changes are afoot for executive compensation practices and the related disclosures – that will impact every public company. We are doing our part to help you address all these changes – and avoid costly pitfalls – by offering a special early bird discount rate to help you attend our popular conferences – “Tackling Your 2011 Compensation Disclosures: The 5th Annual Proxy Disclosure Conference” & “7th Annual Executive Compensation Conference” – to be held September 20-21st in Chicago and via Live Nationwide Video Webcast (both of the Conferences are bundled together with a single price). Here is the agenda for the Proxy Disclosure Conference.
Special Early Bird Rates – Act by Tomorrow, April 15th: Register by April 15th to take advantage of this discount.
US Sentencing Commission: Changes Requirements for Effective Compliance & Ethics Programs
Last week, the US Sentencing Commission voted to modify the Federal Sentencing Guidelines for organizations, including the provisions that set forth the attributes of an effective compliance and ethics program. These changes take effect on November 1st.
As noted in this Gibson Dunnmemo, after considering a number of proposed changes to these Guidelines, the Commission voted to:
– Enhance the report obligations from a compliance officer to the board of directors in order for the compliance program to be deemed effective in all circumstances;
– Clarify the steps a corporation must take to meet the Commission’s requirement for proper remediation in the event criminal conduct occurs;
– Reject the proposed language that would have mentioned, for the first time, the appointment of monitors as a possible component of the remediation requirement or, separately, as a possible condition of probation for a convicted corporation; and
– Reject language under consideration that would have given document retention policies unique prominence in the list of compliance program requirements.
The Carol Burnett Show: Takes On Discount Airlines
I got nostalgic watching this skit from the fantastic Carol Burnett Show from my youth about the experience of “no frills” airline travel. Carol, Tim Conway, Harvey Korman. I love it when Carol kicks Tim for having his foot on the carpet…
Every year or so, we survey the practices relating to blackout and window periods (there are results from nine others in our “Blackout Periods” Practice Area). Here are the latest survey results, which are repeated below:
1. Does your company ever impose a “blanket blackout period” for all or a large group of employees?
– Regularly before, at, and right after the end of each quarter – 67.7%
– Only in rare circumstances – 17.2%
– Never – 15.1%
2. Does your company allow employees (that are subject to blackout) to gift stock to a charitable, educational or similar institution during a blackout period?
– Yes, but they must preclear the gift first – 31.9%
– Yes, and they don’t need to preclear the gift – 9.6%
– No – 33.0%
– Not sure, it hasn’t come up and it’s not addressed in our insider trading policy – 25.5%
3. Does your company allow employees (that are subject to blackout) to gift stock to a family member during a blackout period?
– Yes, but they must preclear the gift first – 24.5%
– Yes, and they don’t need to preclear the gift – 8.5%
– No – 33.0%
– Not sure, it hasn’t come up and it’s not addressed in our insider trading policy – 34.0%
4. Are your company’s outside directors covered by blackout or window periods and preclearance requirements?
– Yes – 96.8%
– No – 3.2%
5. Our company’s insider trading policy defines those employees subject to a blackout period by roughly:
– Stating that all Section 16 officers are subject to blackout – 1.1%
– Stating that all Section 16 officers “and those employees privy to financial information” are subject to blackout – 10.6%
– Stating that all Section 16 officers “and others as designated by the company” are subject to blackout – 27.7%
– Stating that all Section 16 officers “and those employees privy to financial information and others as designated by the company” are subject to blackout – 41.5%
– All employees – 13.8%
– Some other definition – 5.3%
– Our company doesn’t have an insider trading policy – 0.0%
Please take a moment to respond anonymously to our “Quick Survey on ‘Code of Ethics and the Board’.”
Big Changes Afoot: How to Handle a SEC Enforcement Inquiry Now
Tune in tomorrow for the webcast – “Big Changes Afoot: How to Handle a SEC Enforcement Inquiry Now” – to hear former senior SEC Enforcement Staffers Colleen Mahoney of Skadden Arps, Chris Mixter of Morgan Lewis, Russ Ryan of King & Spalding and Linda Chatman Thomsen of Davis Polk discuss how the Division of Enforcement’s investigative process works now that the SEC has dramatically overhauled some of its Enforcement processes and procedures, and what that means for you.
Recession Did Not Substantially Alter Institutional Investment Strategies
It’s not the normal type of thing I blog about, but this struck me so I thought I’d share if you didn’t see it otherwise. Recently, The Conference Board issued this press release noting a study that all major categories of institutional investors (including pension funds, mutual funds, insurance companies, savings institutions and foundations) have remained fundamentally committed to the same investment policies they were adopting prior to the credit crunch.
I’m not sure whether to believe the study’s findings or be happy that perhaps I can beat the market after all. More likely is that it doesn’t even matter at the end of the day. It just struck me so I put it out there…
When Corp Fin’s comment letters (and responses) became publicly available a few years back, it was natural to think that this blog would be regularly analyzing this important back-and-forth process. For a number of reasons, we haven’t gone in that direction.
But once in a while, a comment letter comes to your attention, one that can’t be ignored. Last year, North American Galvanizing & Coatings filed this preliminary proxy statement with an innovative (and problematic) proposal that would restate the company’s certificate of incorporation with a provision that sought to make large shareholders “liable” for the consequences of voting in favor a shareholder proposal (see Proposal 5 on page D-34). In other words, the restated charter would have essentially saddled 1% or greater shareholders with the same responsibility as directors.
As noted in the company’s response, this proposal was withdrawn from the proxy statement in response to this Corp Fin comment letter. As the comment letter notes, this proposal would have to overcome a heap of state and federal law issues – and likely would be subject to a heated legal challenge from activists.
Interestingly, Joe Morrow – well-known founder of proxy solicitor Morrow & Co. – is Chair of North American Galvanizing & Coatings’ board and a major shareholder of the company. I have no idea whether Joe was involved in coming up with the idea for this proposal.
Justice Stevens and the Loss to Investors/Shareholders
In his “Race to the Bottom Blog,” Prof. Jay Brown continues to write interesting stuff. His latest is analysis of the impact caused by Justice Stevens’ retirement on the securities law cases heard in the US Supreme Court.
More on our “Proxy Season Blog”
With the proxy season in full gear, we are posting new items regularly on 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:
– Microsoft’s Video Interview with a Director
– Annual Meeting Scripts: The Skinny (and Samples)
– Fixing the Problems with Client Directed Voting
– 2010 AFL-CIO Key Vote Scorecard
– Preparing the New Proxy Disclosures: Some Examples and Analysis
Yesterday, the PCAOB issued this Practice Alert reminding independent auditors about their responsibilities to assess and respond to the risk of material misstatements of financials due to error or fraud posed by significant unusual transactions. Notably, the Practice Alert states:
Significant unusual transactions, especially those close to period end that pose difficult “substance over form” questions, can provide opportunities for companies to engage in fraudulent financial reporting. Further, the auditor’s evaluation of whether the company’s financial statements are presented fairly, in all material respects, in conformity with the applicable financial reporting framework, includes the consideration of the financial statement presentation and disclosure of significant unusual transactions.
This is a practice alert because as the alert notes, the standard on auditing for fraud already requires auditors to consider these unusual transactions. As I recall, the Auditing Standards Board has also issued Practice Alerts on this same issue in the past. It is quite likely this may become a topic of discussion between auditors and audit committees in the near future.
The Ratings Game: Association of Corporate Counsel Gets In
A few months ago, the Association of Corporate Counsel announced that it would start producing “value index” ratings of law firms, based on evaluations provided confidentially by its members (it’s called the “ACC Value Challenge“). It’s a good idea on its face – but as you could imagine, it is likely to create a heap of controversy. That’s already starting with this ABA Journal report that some of the ACC’s ratings have already been leaked prematurely (and here is an earlier blog – and another article).
Given that peer remarks can be one of the most influential factors in getting hired, this may prove to be a powerful tool. My problem with the ACC rating system is that – based on this demo evaluation form – it seems to allow only firms themselves to be evaluated – not individual attorneys like Avvo does. Since most folks hire lawyers for their own abilities and not so much for the law firm’s own brand (except for the most strongly-branded firms perhaps), the ACC framework might not be as useful as it could be…
The Socially Irresponsible Investor: A Video Parody
Here is a video parody about Wormwood Bayne, the stock fund for socially irresponsible investors. Hat tip to Jim McRitchie, who tipped his hat to Cliff Feigenbaum…
English may be the first language of business, but when it comes to M&A, you won’t get very far without a thorough grounding in the unique English dialect known as “Bankerspeak.”
Bankerspeak owes its existence in large part to the most productive jargon generation machine ever invented: the American business school. (Whatever else they’ve accomplished, business schools have been teaching future MBA’s to “proactively leverage synergies” for more than a century!) But Bankerspeak also couldn’t exist without significant contributions from marketing consultants, who’ve helped professionals learn to frost their b-school jargon with a heavy coating of smarminess.
Now, before the bankers in the audience get all huffy, let me concede the obvious point that lawyers take second place to no profession when it comes to generating incomprehensible gibberish. But, our crimes against the English language tend to be in written form, while the bankers’ offenses are almost always verbal.
The biggest reason for the difference between the professions on this point is the extraordinary efforts that law schools make to transform literate liberal arts graduates into the “legal literati.” If, like most lawyers, you were a liberal arts major, then chances are you were a pretty decent writer when you went to law school. Come to think of it, if you were a liberal arts major, chances are that the ability to write an English sentence was about the only skill you had, which is why you ended up in law school in the first place.
But I digress.
Anyway, if you saw someone get off a bus and cross the street prior to your first legal writing class, you would probably have written the following description of what you saw: “I saw a woman get off the bus and cross the street.” After you took legal writing and joined the legal literati, that description probably looked more like this: “I observed a female (the “Person”) egress the multi-passenger vehicle (sometimes hereinafter referred to as the “Bus”) and traverse the thoroughfare.”
The other reason that Bankerspeak tends to be a spoken dialect is that most bankers wouldn’t be caught dead actually drafting something that didn’t consist almost exclusively of numbers. This is actually okay, because most lawyers can’t do math well enough to balance a checkbook.
At any rate, Bankerspeak is pretty ubiquitous in the transactional world, and those who aren’t fluent in it are at a real disadvantage. So, as a public service, here’s a handy guide to interpreting some commonly used Bankerspeak phrases:
– Bankerspeak: It’s a turnaround scenario, but we’re very high on management.
– English: The business looks like the 21st Century answer to Penn Central, but the CEO plays golf with one of our Managing Directors.
– Bankerspeak:This deal is very time sensitive.
– English: I leave for the Caribbean in two weeks.
– Bankerspeak: We understand your concern, and we’ll leave that as an open issue for now.
– English: No.
– Bankerspeak: At this point, how visible are the assumptions behind your projections?
– English: Seriously, do you have any idea what you’re talking about?
– Bankerspeak: We need you to give some thought to our position on this issue
– English: Think of me as the Voice of God.
– Bankerspeak: The market is a little choppy right now. We may want to wait until things settle down.
– English: Your deal is dead.
– Bankerspeak: We view this as potentially a positive from a marketing standpoint.
– English: Your deal is dead, but we haven’t figured out how to break the news to you yet.
– Bankerspeak: There’s a lot of hair on this deal.
– English: I’m impressed. You must have really worked overtime to screw the company up this badly.
– Bankerspeak: We need to give some thought to the optics of this.
– English: My God, this looks horrible! Your business ethics would make Bernie Madoff blush.
I don’t care what William Shatner says — Bankerspeak is the real “language of the deal!”
Ringing the NYSE Bell: What Does It Feel Like?
On his “IR Musings” Blog, John Palizza gives a great account of what it feels like to ring the NYSE bell. I’ve never done it myself and have now added it to my bucket list…
SEC Proposes Changes to Regulation AB
Yesterday, at an open Commission meeting, the SEC proposed changes to its regulations impacting asset-backed securities. Here’s the press release and Chair Schapiro’s opening remarks – and here is the proposing release.
Probably not the best indicator of morale since the survey took place at the end of ’08 – and the SEC’s reputation has been significantly sullied since then – the SEC recently posted the results of a biannual job satisfaction survey. The SEC’s survey is based on a subset of a much larger “Federal Human Capital Survey.”
Here are a few thoughts:
– For starters, I am surprised to see these results made publicly available. I don’t recall seeing something like this before, but I may be remiss. Not a big deal that they are – it’s just not the type of thing you normally see posted.
– 1605 out of a possible 3125 Staffers (51%) responded to the survey, with an equal mix of supervisors and subordinates participating.
– This survey provides data compared to the last two surveys (’06 and ’04), as well as the responses of all government employees to the ’08 survey.
– Overall, morale seemed pretty good at the SEC as of the end of ’08. There were 63 questions asked – and typically, a majority were positive when answering a query. Overall, the SEC Staff’s level of positiveness often were in line with the government as a whole.
– As could be expected – given that the crisis was in full force at the end of ’08 – the SEC scored lower in this survey for many questions compared to the last two biannual surveys. But not as much as you would expect given the circumstances.
– The area that seems like it needs the most work is “complaints, disputes or grievances are resolved fairly in my work unit” (question #44 on page 12). Positive answers were 32% – but in line with prior two surveys and not far below the government-wide average. Similar ratios existed for “promotions based on merit” (question #22) and “steps are taken to deal with a poor performer” (question #23). I know how hard it is to discipline someone in the government – supervisors are sued all the time for the smallest things, so these don’t really surprise me.
As an aside, note that at least one version of the regulatory reform bills floating on Capitol Hill calls for a GAO study regarding the SEC’s revolving door (personally, I don’t see a problem with it – having a government background allows folks to better serve clients and also is one of the reasons why the government is able to recruit good people on the cheap). This WSJ article from yesterday was critical of this difficult issue for the Staff.
I’d be curious to see how law firms rate in a number of these categories. My guess is not too well. Good management is tough to accomplish. And supervisors in both the government and law firms often are not properly trained in this art…
The SEC Hires a “Kathy Griffin”: Freed from the “D” List?
While I was on vaca, the SEC announced that Kathleen M. Griffin has been named the agency’s first Chief Compliance Officer – the latest in a series of measures undertaken to strengthen the SEC’s internal compliance program. The announcement came on April Fool’s Day, so naturally I thought that Kathy Griffin had finally been taken off the “D” list. But alas, the SEC was not joking – nor has Kathy been freed from her semi-celebrity status as the SEC hired a different Ms. Griffin.
By the way, there is precedent for the SEC issuing a press release in the form of a joke on April Fool’s Day, as I blogged about in ’07.
Marty Rosenbaum has his ONSecurities.com Blog up and running again. Check out his recent analysis of the intersection of baseball and proxy statements.
Just Mailed: Romeo & Dye Section 16 Deskbook
Peter Romeo and Alan Dye just completed the 2010 edition of the Section 16 Deskbook and it’s now in the mail to those that subscribe to the Romeo & Dye Section 16 Annual Service. To receive this critical Section 16 resource, try a ’10 no-risk trial to the “Section 16 Annual Service.”
One of my “throw-in’s” in a recent blog created quite a stir – in the blog, I noted this “Steak for Stock” promotion from Smith & Wollensky. As one member noted: “If they accept their own stock (are they public?), do you suppose it is a tender offer? Or is there an exception if the steak is ordered well-done?”
Smith & Wollensky’s competitors have taken notice. Maloney & Porcelli have now weighed in with this promotion…
Directors and Officers as Broker-Dealers? California Weighs In
From Keith Bishop: The California case of People v. Cole has caused some concern about whether officers and directors of issuers must be licensed as broker-dealers. Last October, the California Commissioner issued this release in an attempt to allay these concerns. Note that the Commissioner is considering – but has not yet formally proposed – a rule to mirror SEC Rule 3a4-1, which sets forth the conditions for a non-exclusive safe harbor for persons associated with an issuer who are not deemed to be brokers.
Just Mailed: March-April Issue of The Corporate Executive
The March-April Issue of The Corporate Executive was just mailed and includes analysis of:
1. IFRS 2, Income Statement Volatility, and Tax Expense
– Warning: Tax Expense Under IFRS 2 Could Be Significantly Higher
– A Slight Reprieve But, IFRS Marches On
– Accounting for Tax Effects Under IFRS 2
– Comparing the Two Approaches
2. Understanding the ESPP $25,000 Limitation
– The Controversy
– More Complexities
– A Humdinger of a Spreadsheet
– Penalties
3. Follow-Up: ESPP Expense When Purchases Are Limited
4. Cost-Basis Reporting
– Are You (and Your Brokers and Transfer Agents) Ready?
– A Primer on Cost Basis for Stock Compensation
– Transitioning to Cost-Basis Reporting
– Companies Need to Begin Preparing Now
5. IRS Audits
– IRS Stepping Up Audit Activity
– 409A Audits Started Already?
6. The SEC’s New Compensation-Risk Evaluation: Is “Process” Disclosure Required?
Act Now: Try a no-risk trial to have this issue rushed to you.
A few weeks ago, the SEC approved changes to Nasdaq’s rules regarding press releases to reduce duplicative disclosures by allowing more disclosures to be made by the filing of a Form 8-K or a press release. The rule changes became effective on March 15th.
Climate Change & Bowling
A member pointed out the following disclosure – in the form of a Risk Factor – about the possible impact of climate change on bowling from the Form 10-K filed recently by Brunswick:
Adverse weather conditions can have a negative effect on marine and retail bowling center revenues.
Weather conditions can have a significant effect on the Company’s operating and financial results, especially in the marine and retail bowling center businesses. Sales of the Company’s marine products are generally stronger just before and during spring and summer, and favorable weather during these months generally has a positive effect on consumer demand.
Conversely, unseasonably cool weather, excessive rainfall or drought conditions during these periods can reduce demand. Hurricanes and other storms can result in the disruption of the Company’s distribution channel. In addition, severely inclement weather on weekends and holidays, particularly during the winter months, can adversely affect patronage of the Company’s bowling centers and, therefore, revenues in the retail bowling center business. Additionally, in the event that climate change occurs, which could result in environmental changes including, but not limited to, severe weather, rising sea levels or reduced access to water, the Company’s business could be disrupted and negatively impacted.
S&P 100 Sustainability Report Comparison
Speaking of climate change disclosures, the Sustainable Investment Research Analyst Network (known as “SIRAN”) has issued its latest review about how the S&P 100 are reporting on their sustainability. As noted by Dominic Jones, 93 of the S&P 100 firms reported on their sustainability programs in 2008, compared to only 58 in 2004.
Heading out on spring break vaca – catch you after Easter…
Recently, the SEC filed partially settled charges against Presstek and its former CEO for Regulation FD and other disclosure violations. The SEC’s complaint alleges that the CEO selectively disclosed material non-public information regarding the company’s financial performance to the managing partner of an investment adviser who then traded on that information. The company settled by paying a $400,000 civil penalty to the SEC, after the company took some remedial measures. The SEC is still pursuing the former CEO.
This is the second Reg FD action that the SEC’s Enforcement Division has brought in the past six months after silence in this area for a while (here’s a blog about the last one). We are posting memos regarding this action in our “Regulation FD” Practice Area.
With Congress moving quickly on financial regulatory reform, huge changes are afoot for executive compensation practices and the related disclosures – that will impact every public company. We are doing our part to help you address all these changes – and avoid costly pitfalls – by offering a special early bird discount rate to help you attend our popular conferences – “Tackling Your 2011 Compensation Disclosures: The 5th Annual Proxy Disclosure Conference” & “7th Annual Executive Compensation Conference” – to be held September 20-21st in Chicago and via Live Nationwide Video Webcast (both of the Conferences are bundled together with a single price). Here is the agenda for the Proxy Disclosure Conference (we’ll be posting the agenda for the Executive Compensation Conference in the near future).
Special Early Bird Rates – Act by April 15th: Register by April 15th to take advantage of this discount.
More on our “Proxy Season Blog”
With the proxy season in full gear, we are posting new items regularly on 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:
– SEC Allows Banks to Omit AFSCME’s “Bonus Banking” Proposal
– Even More on “Diversity Policies: Do You Need One? Samples Available”
– Companies Allowed to Omit Proposals on CEOs on Pay Panels
– Why So Many Preliminary Proxy Statements This Year?
– Note to SEC: “Reasonably Likely to be Enacted”? You Have Got to Be Kidding!
