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."
For a short glossary of the 75+ acronyms in the White Paper, check out Mike O’Sullivan’s “Provided However” Blog.
Microsoft’s Legal Department Enters the Blogosphere
Several months ago, Microsoft launched a new blog – entitled “Microsoft On The Issues” – that includes the company’s “Law and Corporate Affairs” department among the contributors. The company uses the blog as a forum to communicate about issues important to it. For example, here’s a blog about how the company’s board recently recommended amendments to the company’s articles of incorporation that would give shareholders representing 25% or more of outstanding shares the right to call special shareholder meetings.
Hopefully this development will help nudge companies to be more outspoken, including submitting comments during the SEC’s rulemaking process – as well as draw outside counsel into the blogosphere. If in-house lawyers aren’t afraid to blog, I don’t see how law firms can continue to be so reluctant…
Survey Results: Compliance Committees
We recently wrapped up our Quick Survey on Compliance Committees practices. Below are our results:
1. Does your company have a Chief Compliance Officer:
– Yes, and with that title – 57.8%
– Yes, but not with that title – 26.7%
– No – 15.6%
2. Does your board have a Compliance Committee, with that or a similar title:
– Yes – 31.1%
– No – 68.9%
3. If the answer to #2 is “yes,” how old is the compliance committee:
– Less than one year – 14.3%
– 1-2 years – 28.6%
– 3-4 years – 35.7%
– More than 4 years – 21.4%
4. If the answer to #2 is “yes,” how often does the compliance committee meet:
– Once a year – 14.3%
– 2-3x per year – 50.0%
– More than 3x per year – 35.7%
– As needed – 0.0%
Please take a moment to participate in our new “Quick Survey on Audit Committee Oversight and Subsidiaries.”
When the SEC’s proposing release finally becomes available – it’s already been three weeks since the open Commission meeting and still no release! – the hunt will be “on” to start writing comment letters and meet the 60-day deadline since the SEC will need to act fairly shortly after the deadline if they truly want something effective before the beginning of the next proxy season. Here are some resources that already have identified issues that will undoubtedly be featured in numerous comment letters:
– JW Verret on the Conglomerate blog regarding bylaw complications and on the DealLawyers.com blog regarding Chinese Menu ballot concerns
Obama Requires Federal Agencies to Review Preemption Policies
In a bizarre coincidence, at the same time that the “state law vs. federal law” debate will rage in the proxy access context, President Obama has sent a memo to all federal agencies asking that they review all of their regulations aimed at preempting state laws issued during the past ten years in an effort to determine whether the preemption is justified – and ensure that statements of preemption be included in future rulemakings only when there is a sufficient legal basis.
A Member’s Thoughts: North Dakota Reincorporation
During the SEC’s open Commission meeting on proxy access, the North Dakota Publicly Traded Corporations Act was mentioned quite a bit. I have blogged before that the first company – American Railcar Industries – has proposed reincorporating from Delaware to North Dakota.
Recently, a member sent me this note: “Shareholders have submitted their own proposals at more than a dozen companies. It appears that in every case, the proponent has been an individual, mostly John Chevedden (Continental Airlines, Southwest Airlines, and Lowes). Many of these companies have not yet had their annual meetings. At those meetings already concluded, there has been only minimal support for these proposals. It will be interesting to the results at American Railcar’s meeting on June 10th where the proposal has the board of director’s approval.”
When Will the SEC’s Proxy Access Proposing Release Be Posted?
Who knows? A proposing release typically is posted anywhere between a few days and two weeks after the related open Commission meeting. Now that we are three weeks from the proxy access meeting, I believe we are approaching record “still waiting” territory. Give us your anonymous opinion as to when you think the release will become available:
Tune into our CompensationStandards.com webcast tomorrow – “The Latest Compensation Disclosures: A Proxy Season Post-Mortem” – to hear Dave Lynn, Mark Borges and Ron Mueller analyze how the executive compensation disclosures looked during this proxy season.
In his “Proxy Disclosure Blog” last night, Mark does a great job of summarizing the recent news that Treasury may finally issue its executive compensation guidance this week – and that it may apply to all financial institutions, not just TARP participants. Mark also raises some good questions, such as whether the new “pay czar” will be responsible for interpreting ARRA guidance or whether it will be Treasury or someone else. Chaos reigns supreme.
PCAOB Chair Olson Resigns
Yesterday, the PCAOB announced that its Chair – Mark Olson – resigned for personal reasons, effective July 31st. Mr. Olson has been in the job nearly three years and was the PCAOB’s 2nd Chair. He didn’t mention whether he had any concrete plans for the future. This CFO.com article recaps Mark’s PCAOB tenure.
I imagine he’s glad to avoid being at the PCAOB when the US Supreme Court decides the regulator’s fate this October. This NY Times article notes that the SEC will need to fill three of the five PCAOB Board slots in the coming months. I wonder who would agree to take a job on the Board now given that the future of the PCAOB is uncertain.
Introducing “The Mentor Blog”
We recently launched a new blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Launching this blog was something I’ve been mulling over for quite some time, well before the financial meltdown led to so many scrambling for new jobs (and careers). Now that the transformation of the legal profession, the corporate secretary and IR worlds – and more – is in full swing, the time is “now” to help foster the conversation that hopefully will lead you to better manage your career. The goals of this blog are threefold:
– Provide practice pointers in the area of career development, regardless of the stage of your career
– Provide guidance on how to use technologies to make you more efficient and market yourself
– Provide guidance to newbies on basic areas of the law
As with our other blogs, this is a community blog. Contributions are welcome and encouraged from each and every one of you! 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 (just like you can accomplish that functionality for this blog). Here are topics covered in the blog so far:
– Networking with Your Legal Recruiter
– A Guide to Public Company Auditing
– Do Your Corporate Policies Consider Social Media?
Below is some important reading that has recently been brought to our attention that we commend to each of you. It shows that this country has some pretty amazing leaders:
1. Pepsi’s CEO Indra Nooyi, who was educated in India and then the Yale Business School, recently gave these impressive remarks about corporate values (you can watch Ms. Nooyi deliver them on this video).
2. JPMorgan’s CEO Jamie Dimon annual letter to shareholders is a “must” read, particularly starting on page 13. Note what Mr. Dimon says about compensation: “It also is clear that excessive, poorly designed and short-term oriented compensation practices added to the problem by rewarding a lot of bad behavior.” And see the steps he has taken at JPMorgan (at pg 26). When I saw the bullet about no special severance provisions, I remembered that he had a huge severance provision in his contract when he went from BankOne to JPMorgan in 2004. Well, I did a little research and sure enough, it turns out that he voluntarily gave it up in ’06 without any fanfare.
3. Roger Martin, Dean of the Rotman School of Management at Toronto puts a fresh lens on compensation and metrics in “Undermining Staying Power: The Role of Unhelpful Management Theories.” His important observations recently were summarized in this Financial Times article.
4. Finally, one of this year’s best media articles is this one entitled “The Executive Pay System is Broken” by Alistair Barr of MarketWatch. It explores possible solutions to fix executive pay and answers why it’s important to do so…
By the way, on the right side of the CompensationStandards.com home page, we still maintain a group of complimentary videos of prominent leaders speaking out about excessive pay under the caption of “Respected Leaders Speak Out for Responsible Practices.” We just posted an extended video (i.e. 6 mins) of when Jesse Brill spoke out on how to fix pay practices recently on “The Today Show.”
Protecting Non-Qualified Deferred Compensation: Why is it Suddenly an Issue?
On his “Melbinger’s Compensation Blog” on CompensationStandards.com, Mike Melbinger has been blogging a series about how Section 409A intersects with bankruptcy filings and causes a number of problems. Check it out.
May-June Issue of The Corporate Counsel
We just published the May-June issue of The Corporate Counsel. This issue includes pieces on:
– SEC Guidance on Shell Companies
– Augmenting the Schedule 13D/G Disclosure Requirements—Enhanced Advance Notice Bylaws
– Filing Form 10-Q With Non-Reviewed Financials—Impact on S-3/8 Eligibility
– Earnings Release and 10-Q Filing on Same Day—Impact on 8-K Item 2.02
– Merger Lock-Ups and Written Consents—Staff Iterates/Firms Up Its Position on Pre-Proxy Solicitation
– Voluntary Filer CDIs
– Staff Review Update
– The Staff’s Nine-Month IPO Dormancy “Rule”—Some Relief in Today’s Market
– Even if IFRS Roadmap Adopted, Don’t Expect Voluntary Early Switching to IFRS
– NSMIA Blue Sky Pre-Emption—Litigation Update
– Some Reverse Engineering of the Facebook and WorleyParsons RSU No-Action Letters
As noted in this WSJ article, the SEC intends to roll out new proposals to change its executive compensation disclosure rules sometime in early July. Mark Borges did a great job of recapping what the proposals will likely look like in his blog.
With the SEC’s goal to have its rule changes effective before next proxy season – combined with the real likelihood of say-on-pay legislation and the loss of broker nonvotes for director elections – our the “4th Annual Proxy Disclosure Conference” (whose pricing is combined with the “6th Annual Executive Compensation Conference”) will be more important than ever.
These Conferences will be held at the San Francisco Hilton and via Live Nationwide Video Webcast on November 9-10th; here is the agenda. And many also attend the NASPP Annual Conference that follows directly thereafter – the full Conference program was justed posted. Take advantage of reduced rates that will expire on June 26th by registering now.
Check out this article from yesterday’s Washington Post regarding SEC Chair Schapiro’s first days in office and the challenges she faced.
Survey Results: Governance Trends for IPO Companies
David Westenberg of WilmerHale sent over some IPO governance trend stats, uncovered during research for his upcoming PLI book, “IPOs: A Practical Guide to Going Public.” Here is the data based on his review of all US IPOs by operating companies (i.e., excluding SPACs, REITs, etc.) in 2007 and 2008 (total sample size was about 185 companies; 93% of companies were incorporated in Delaware):
1. Number of Executive Officers:
– Median – six
– 25% Percentile – five
– 75% Percentile – seven
2. Percentage of IPO companies that identified “key” employees beyond executive officers – 15%
3. Separation of Chair and CEO:
– Separate Chair and CEO – 52%
– Same Chair and CEO – 48% (of these, 8% appointed a lead director)
4. Compensation Consultants – Percentage of IPO companies that disclosed use of compensation consultant – 24%
5. Number of Directors:
– Median – seven
– 25% Percentile – six
– 75% Percentile – eight
– 50% of IPO companies had more than one employee-director.
6. Takeover Defenses:
– Classified board – 60%
– Supermajority voting requirements to approve mergers or change corporate charter and by laws – 53%
– Prohibition of stockholders’ right to act by written consent – 69%
– Limitation of stockholders’ ability to call special meetings – 74%
– Advance notice provisions – 80%
– Section 203 of the Delaware corporation statute* (chose not to opt out) – 90%
– Blank check preferred stock – 76%
– Stockholder rights plan (“poison pill”) – 6%
FASB Issues FAS No. 165 re: Subsequent Events
Last week, the FASB issued FAS No. 165, “Subsequent Events.” FAS 165 is effective for interim and annual periods ending after June 15th – and is intended to establish general standards of accounting for (and disclosure of) events that occur after the balance sheet date – but before financial statements are issued or are available to be issued.
Members will be excited to know that we have moved the video archives – and more importantly, the critical course materials, including lots of sample letters, instructions and memos – from our popular conference “Rule 144: Everything You Need to Know – And Do NOW” to our “Rule 144″ Practice Area. Previously, this content was just available to those that paid for the Conference.
As always, we continue to post useful sample documents, either in the relevant Practice Area or in our “Sample Documents” Portal. For example, we just posted this updated chart comparing NYSE and Nasdaq listing requirements.
Latest on Mark-to-Market Accounting
In this podcast, Steve Henning of Marks, Paneth & Shron discusses the latest on mark-to-market accounting, including:
– What is mark-to-market accounting and what is the impact?
– Is mark-to-market subject to flexibility?
– Where do regulators find themselves in the debate?
Thanks to the many members who have sent me the link to this YouTube sensation in which a Southwest flight attendant amuses the company’s annual meeting audience with a disclaimer about non-gaap in the form of rap:
Just because we haven’t been blogging much about the SEC’s pursuit of Mark Cuban on insider trading charges doesn’t mean we’re not interested. It’s just that insider trading is not a big focus for Corp Fin-types like us. Plus, Mark Astarita of SECLaw.com is covering the saga quite well, such as his latest blog about how Mark Cuban has turned around and sued the SEC for violating the Freedom of Information Act.
NBA fans know Cuban well as the prolific owner of the Dallas Mavericks, a guy not afraid to get fined by the league due to being quite outspoken. He’s unlike any other sports owner – he’s extremely active with fans and with the team. Cuban is an entrepreneur, having made billions during the Internet boom and he’s always trying new endeavors – his latest being innovative distribution of films and a failed ShareSleuth.com (which was covering stock fraud stories before it went under). As you might expect from such a personality, Cuban regularly blogs, including this stab at the SEC.
By the way, a loyal Dallas fan noted that I confused sports teams because it was none other than Terrell Owens, formerly of the Cowboys, who famously told the media and fans to “get your popcorn ready.” When I wrote my title for this blog, I completely forgot that T.O. said that…
SEC vs. Cuban: Now Comes the Weird Part…
As noted way back when this story first broke, a complicated aspect of the Cuban case is the strange involvement of a SEC Enforcement Staffer who hadn’t been working on the investigation into Cuban’s alleged insider trading – but yet felt compelled to send emails to Cuban about various aspects of his life while the case was being put together. This eventually led to Cuban responding to this rogue Staffer via email, copying then-SEC Chair Chris Cox.
Yesterday, the WSJ ran this article noting that the Staffer may be subject to discipline. For those that are alumni of the SEC (or any government agency for that matter), memories of former rogue colleagues must surely come to mind. I can think of more than a few. Those curious experiences truly are one of the beauties of working for the Gov…
SEC Approves NYSE’s Reduced Listing Standards Requirements on Pilot Basis
On Monday, the SEC posted an order approving the NYSE’s proposed changes to its listing standards that reduced its $75 million stockholders’ equity and market cap requirements to a $50 million/$50 million standard. These changes are on a pilot program basis through October 31 – and became effective on May 12th.
Companies that are below compliance with the $75 million standard – but above the $50 million Pilot Program standard will be deemed to have returned to compliance. This will be welcome news to those companies that were “below compliance” but are working on remediation plans.
As I blogged recently, majority voting may be forced upon all public companies through Senator Schumer’s governance legislation. Although the voluntary movement to adopt majority voting – although “voluntary” may be a misnomer since many companies adopted those standards under heavy pressure from shareholders – has had long legs over the past few years with larger companies, a study by The Corporate Library indicates that smaller companies have been slow to change and that nearly 75% of the Russell 3000 still use a straight plurality voting standard. In comparison, nearly 50% of the S&P 500 have switched to pure majority voting – and another 18% have adopted the plurality-plus-resignation approach (leaving 32% of the S&P 500 with a straight plurality standard).
When it comes to plurality-plus-resignation – also known as “majority voting light” or “Pfizer-style” – the first lawsuit has been filed against a company that refused to unseat some directors who didn’t receive a majority. According to this complaint filed in the Delaware Chancery Court against Axcelis Technologies, a municipal pension fund has demanded to inspect the company’s books and records relating to the board’s decision to not to accept the resignations of three directors after they failied to receive a majority vote. The backdrop of this case is a failed acquisition.
Mechanics of Broker Discretionary Votes
In this podcast, Steve Bigler of Richards Layton & Finger provides some insight into the mechanics of broker discretionary votes, including:
– What is the difference between “broker discretionary votes” and “broker nonvotes”?
– Can companies tell which votes are being cast by broker discretionary votes?
– How would companies remove broker discretionary voting from their voting results? What is the technical process for a company (i.e. through a bylaw or a charter provision)?
– How might this differ for companies with a majority voting standard that have a director resignation policy?
The Problem with Blank Votes
Broker nonvotes is not the only voting issue being debated these days. A petition for rulemaking was filed recently with the SEC by Jim McRitchie of CorpGov.net to tackle the problems associated with blank votes. Jim writes: “The problem is that when retail shareowners vote but leave items on their proxy blank, those items are routinely vote by their bank or broker as the subject company’s soliciting committee recommends. Current SEC rules grant them discretion to do so. … We believe that when voting fields are left blank on the proxy by the shareowner, they should be counted as abstentions.”
More information on this issue is included in the rulemaking petition and on CorpGov.net.
On Friday, Corp Fin issued two new batches of “CD&Is” (which is an easier acronym than the more accurate term of “C&DIs” that Corp Fin uses) and updated five sets of older CD&Is. The new CD&Is relate to XBRL and Regulation S-T. [The SEC’s Office of Interactive Disclosure also posted this new set of XBRL FAQs.]
As noted in this National Law Journal article, the SEC has settled the trademark infringement lawsuit brought against it by CaseWare International by agreeing to stop using “IDEA.” As I blogged a while back, Caseware has been using the IDEA name for twenty years and registered the name with the Patent and Trademark Office in ’01, well before the SEC began using the term.
In my opinion, this is a blessing in disguise for the SEC since Edgar is well-branded with investors and I thought it was a huge mistake to change the name last year. It looks like the SEC already has purged any vestiages of “IDEA” from its website. I sure hope they just stick with “Edgar” and not pick another new name. Long live Edgar!
If you need a laugh, check out TweetingTooHard.com. Some of these tweets can’t be real! But sadly they can…
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!
I spoke at a MidAtlantic Chapter meeting of the Society of Corporate Secretaries on this topic in Philly last week, so I thought I’d share my thoughts with you. For quite some time, I’ve been warning companies to be prepared for heated online campaigns related to their annual meetings (remember to read this free issue of InvestorRelationships.com on the topic). As I noted yesterday in my blog about Target’s campaign site, this didn’t happen much during this proxy season – but there were a number of developments that lead me to believe that next year could be a watershed one.
Here are ten things that happened this proxy season worth noting:
1. First Use of Live Internet Voting – In his “IR Web Report,” Dominic Jones brought us the news (and analysis) that Intel decided to tackle the challenges of allowing for “live” voting online at its annual shareholders meeting this season. Intel also has this “Stockholder Forum” to allow shareholders to submit queries in advance.
2. Soliciting Shareholder Feedback on Compensation Practices – Taking a page from Schering-Plough’s efforts to survey investors about pay practices, Amgen is inviting its shareholders to offer comments on TIAA-CREF’s “Ten Questions for Evaluating CD&As.” The invitation is presented on page 51 of the company’s proxy statement (page 59 of the PDF), directing shareholders to a survey questionnaire on the company’s site.
3. Soliciting Shareholder Feedback on Disclosures – Barclays used this “2009 Annual Report Survey” to solicit feedback on its annual report. The company promised provide responses directly to the questioners – and intends to post a selection of them.
4. Emergence of Proponent Sites Designed to Solicit Mutual Funds – ExxonMutualFundShares.org is a new type of site, jointly created by the proponents of four ExxonMobil shareowner proposals (Bob Monks among them). Mutual fund holders who are concerned that ExxonMobil has not done enough to address climate change and address certain corporate governance issues can send a message to the 25 largest mutual fund families through the site.
5. Easier Ability to Track Voting Results – Smart companies like to predict how their voting results will be at shareholders’ meetings so that their board and senior managers are not surprised. Hiring a proxy solicitor that has shareholder intelligence abilities is the most common way to accomplish this – but some of the tools that solicitors use are now freely available. For example, a relatively new site – FundVotes.com – tracks how mutual funds vote on specific types of proposals. And it’s free. The site tracks both management and shareholder proposals – and it tracks voting trends by specific fund families.
6. Use of “RSS Street” to Follow Developments – Dominic Jones blogged about the rise of a group of web monitoring services that help investors track online mentions of companies they follow. Companies should be doing the same to understand what is being said about them as the online media gradually displaces traditional mainstream media.
7. Use of Corporate Blogs (and Third-Parties) to Solicit Questions – As noted by Dominic Jones in his blog, Microvision used its blog to solicit queries for its upcoming earnings call. The same can be done for annual meetings. In fact, Warren Buffett tried something novel this year – soliciting queries by asking Berkshire Hathaway shareholders to send them to three reporters via email. As described in Warren’s annual letter to shareholders, these reporters – independent third parties – then choose the ones they deemed most interesting and important and posed them during the meeting.
8. Use of Twitter to Describe Live Events – Ebay became a pioneer when its resident corporate blogger tweeted the details of its earnings call as it happened, as described by Dominic Jones in his blog. Again, this can be done for annual shareholder meetings – and it helps if the company controls the messaging rather than only have third-parties tweeting during the event (which is becoming more common, like it was during Banc of America’s annual meeting this year. I’m not sure how they enforced it, but I hear that live-tweeting and blogging was banned from Target’s annual meeting yesterday. If it’s true, I think it’s not a good idea as that can garner bad publicity and will happen anyways).
9. Investors Communicating Through Social Sites – Another area where companies increasingly are going to have to keep an eye on are the social sites. Beyond the obvious ones – Facebook and MySpace – there is a new player, Broadridge’s “Investor Network.” It’s too early to tell if their social site will really take off, but it’s safe to say that social sites generally are here to stay and the likely place will a lot of shareholders will be venting in the future.
10. Much Easier Use of Video Changes Everything – With everyone now walking around with a camcorder in their pocket (ie. their cell phone), no one should presume that what happens at the annual meeting, stays at the annual meeting. As brought to my attention by this blog, an embarrassing moment at an annual meeting could cost an inhouse lawyer or corporate secretary their job. Be prepared for zaniness at meetings by being prepared.
This video below from Fortis’ annual meeting – held a few weeks ago – is real and is a “must” viewing. The meeting was delayed a half hour after the management team was pelted with shoes, coins, etc. I particularly liked the dismissive shake of the Chair’s head. Sometimes it’s uncanny the way that corporate life imitates Monty Python (remember this “Stoning” sketch):
