Author Archives: Broc Romanek

As noted in this CFO.com article, FASB Chair Bob Herz noted in a recent Financial Crisis Advisory Group meeting, consisting of accounting regulators from around the world, how hard it would be to push the convergence of global accounting standards in the US, mainly due to politics in the wake of the financial crisis. Herz’ statement that it make take 10-15 years to pull it off surprised the room since the so-called Norwalk Agreement, a memorandum of understanding between the FASB and IASB, calls for the completion of all “major joint projects” by 2011.

And who knows, that might be conservative when you read this other CFO.com article in which it notes that CFOs are urging the SEC to drop a proposal mandating US companies to adopt IFRS. Here are the comments made on the SEC’s IFRS proposal; the extended deadline ended last Monday.

IASB: IFRS Rules Are Freely Available

It’s good to see that the International Accounting Standards Board is following the FASB’s lead and allowing free access to summaries of its core International Financial Reporting Standards. Unfortunately, the IASB’s additional guidance – which includes its rationale for its conclusions – are still subscription-based.

An IFRS’ E-Learning Website: This can be useful for those of you struggling to get up to speed on IFRS: Deloitte has an IFRS’s e-learning website. The site contains a series of IFRS training modules which are offered free once you register.

More Proxy Season Developments

If you haven’t signed up to get our new “Proxy Season Blog” pushed out to you, here are a few of the items you’ve missed during the past week or so:

– Swine Flu: Time to Have Electronic Shareholder Meetings?
– Survey Results: Number of Section 16 Officers
– Latest Trends: CEO-Chair Separation
– Barclay’s 2009 Annual Report Survey
– Dissecting the Citigroup Annual Meeting
– My Ten Cents: NACD’s “New” Key Agreed Principles
– Broadridge’s Latest Implementation of Householding
– Proxy Season Update
– Facing an Unpredictable World: How to Change Earnings Guidance Practices

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).

– Broc Romanek

As a “thank you” to members – and due to the importance of the analysis included in it – we have decided to share a complimentary copy of the March-April issue of The Corporate Executive with you. This issue includes pieces on:

– Grant Guidelines and Declining Stock Prices
– Excessive Windfalls in Compensation Once Stock Prices Recover
– Two Fundamental—and Very Relevant—Considerations for High Level Executives
– Executives Surrendering Underwater “Mega” Grants
– Important, Timely Guidance on the Accounting Treatment of Acceleration of Vesting—Including Ramifications for Underwater Options
– Important, Timely Suggestions from a Respected CEO

In addition, you should read this supplement as it contains our recommended key fixes to the SEC’s executive compensation rules.

Act Now: To continue receiving the practical guidance imparted in The Corporate Executive, try a no-risk trial now.

Congrats to Jesse Brill for appearing on “The Today Show” this morning during a piece on executive pay. Here is a video archive of the segment.

SEC May Reverse “December Surprise”: Equity Compensation Disclosure Methodology for the Summary Compensation Table

In her AP article, Rachel Beck notes how the SEC may be considering reversing the rules from the December ’06 “surprise” – this relates to equity compensation disclosure methodology for the Summary Compensation Table.

Here is some commentary from Cleary Gottlieb on this development:

Many of you will recall that when the SEC comprehensively revised the executive compensation disclosure rules in August 2006, equity awards were to be presented in the Summary Compensation Table based on the full grant date fair value of each year’s awards, computed in accordance with FAS 123R. This was the methodology set forth in the proposed rules in February 2006, and there was full consideration of the approach as part of the comment process before the final rule was adopted.

In an unexpected release on December 22, 2006, the SEC changed the rules to require that the grant date fair value of an equity award be reflected in the Summary Compensation Table based on the recognition of accounting expense in the reporting company’s financial statements as required by FAS 123R in respect of the award, typically over an amortization schedule that corresponds to the award’s vesting period. That revision was adopted without a public meeting, without notice and comment and without any adequate explanation as to why the change was being made. Beyond the procedural concerns, many considered that the revision undercut the purpose of the Summary Compensation Table by obfuscating the value of equity-based grants, which are of course a principal element of executive compensation, and led to unnecessary last-minute changes to the composition of the named executive officers, primarily because amortization under the accounting rules was typically not permitted for “retirement eligible” executives.

Fast forward two-plus years, and we learn that the SEC is considering a reversal back to the original August 2006 rule. Press reports on Friday stated, based on an interview with SEC Chairman Mary Schapiro, that the SEC “is considering changing a formula that critics say often allows public companies to low-ball in regulatory filings just how much top executives are paid.” If the reversal happens, it in fact should be a welcome development for critics and reporting companies alike. The inclusion in the Summary Compensation Table of the grant date fair value of equity awards granted in each year to named executive officers presents a clearer picture of compensation decisions in a given year, and makes the determination of the named executive officers more predictable and sensible.

If the press reports are correct, interesting questions arise as to the transition from the current rule to the new rule. Will unamortized awards from prior years be entirely excluded from the Summary Compensation Table? Will companies be required or permitted to recompute the amounts disclosed for prior years, as if the changed rule had been in effect in the past? Could the basis of disclosure for 2009 (if that is the first fiscal year for which the change is effective) equity awards be different than the basis for the amounts set forth in the Table for earlier years? We would expect the SEC to address these and other transition issues as part of any rule change or in accompanying guidance. Stay tuned.

SEC Filing Fees: Going Up 28% for Fiscal Year 2010

Last week, the SEC issued its first fee advisory for the year. Right now, the filing fee rate for Securities Act registration statements is $55.80 million (the same rate applies under Sections 13(e) and 14(g)). Under the fee advisory, this rate will rise to $71.30 per million, a hefty 28% price hike. The new fees will not go into effect until five days after the date of enactment of the SEC’s 2010 appropriation – which often is delayed well beyond the October 1st start of the government’s fiscal year as Congress and the President battle over the government’s budget.

You might be asking, “How are the SEC’s fees set?” The SEC sets its filing fees annually under the “Investor and Capital Markets Fee Relief Act of 2002.” The SEC’s budget is not dependent on its fees; it’s not a self-funded agency. In fact, the SEC wishes it could use those fees as it brings much more in for the government than it’s allowed to spend. Learn more how this all works in this blog.

– Broc Romanek

I recognize that the heavy media attention paid to last week’s Banc of America annual meeting of shareholders is an anomaly and will never be the norm for all companies- or even the norm for an individual company from year-to-year. Still, the heightened level of attention paid to the meeting – including details that many of us in the business would consider minor – should serve as a “wake-up call” to all companies that annual meetings are indeed changing.

Here are a few facts about the BofA meeting: four hours long; 2000 in attendance, with many disgruntled shareholders turned away (and some complaints that “insiders” displaced shareholders who traveled far to attend); two directors with over 30% withhold votes and four more with more than 20% (with those numbers likely higher if broker nonvotes were removed, per this article); and a binding “split the Chair/CEO” proposal garnering 50.3% support.

Here are some takeaways from the BofA meeting that relate to growing trends:

1. People Expect Immediate Voting Results – As just mentioned last week in this blog, there is a growing expectation that the voting results will be announced at the conclusion of the meeting – since the general public is conditioned by the immediacy of the results produced by our political elections.

I watched numerous news accounts on the day of Banc of America’s meeting and every single reporter spent considerable time about their frustration over how the voting results were not announced at the conclusion of the meeting. Can you imagine what those reporters would have said if they knew that the typical timeframe for reporting voting results from an April meeting was mid-August? Wisely, BofA recognized the public relations danger of waiting that long – and a few hours after the meeting, the company released its results in a press release.

2. The Nature of the Media is Changing – There was quite a bit of “live blogging” at the meeting (including live tweeting); this type of live coverage will undoubtably grow for many companies. Live bloggers/tweeters included: SEIU Blog; Rick Rothacker of the Charlotte Observer; and radio station WFAE (click on live blog link). And of course, other blogs covered the meeting after-the fact (eg. DealBreaker).

One consequence of coverage provided by others than the mass media is that the more interesting parts of the meeting were covered. For example, there was considerable commentary about Evelyn Y. Davis, who apparently was in classic form. Evelyn talked so much that people were shouting “Order!” at her – and at one point, the entire packed theatre started clapping in the middle of her antics in the hopes of getting her to sit down. Here is one blog that focused on Evelyn – and here is another blog.

3. Lack of Attention to CEO Succession Can Be News – As noted in this WSJ article, a reporter was able to sleuth that the board meeting held after the shareholders’ meeting did not include a discussion of CEO succession planning. CEO succession planning continues to be the least understood part of a board’s job – yet, probably the most important. Learn more about how to implement a succession plan during our June 17th webcast: “How to Plan for CEO (and Other Senior Manager) Succession.”

4. CEO Lewis Loses His Chair Title – As noted in this WSJ article, BofA’s shareholders voted in favor of a binding bylaw amendment requiring the board to split the CEO and Chair jobs at the company, mostly aimed at Ken Lewis who held both titles. After the shareholder meeting, BofA’s board acted in the wake of the vote and split the jobs (and a longtime director became the board chair). According to RiskMetrics, the vote marked the first time that a S&P 500 company was forced by shareholders to strip a CEO of his Chair duties.

5. The Media Might Push Shareholder for More Withholds – Check out this Bloomberg article entitled “Bank of America Owners Declare War on Taxpayers,” in which Jonathan Weil rails against those BofA shareholders that didn’t withhold their votes (despite the quote from Prof. Charles Elson in the article, who properly recognizes that the level of withhold votes here was quite significant compared to historical norms).

6. Coming Soon: Online Battle for Board Seats – Even though BofA knew in advance that its meeting would be contentious – a group of seven unions had announced a “just vote no” campaign beforehand – it still didn’t have a notable online campaign against it (other than a few efforts to get similarly-minded people together like this “call to action” to have BofA stop funding coal). Based on continuing trends in the political arena (see this Washington Post article about how the current Virginia Governor’s race is being waged primarily online), I think it’s worth reading my article – “The Coming Online IR Campaigns: The Future of Director Elections” – from the Spring ’08 issue of InvestorRelationships.com well before the 2010 proxy season so you can be prepared for some possible changes next year.

It’s worth wrapping up my thoughts on BofA with an excerpt from this commentary from Beth Young of The Corporate Library:

A second shareholder proposal, to give holders of 10% of B of A’s shares the ability to call a special shareholder meeting, nearly passed, garnering over 49% of the vote. What’s surprising about this proposal’s near-passage is that B of A, unlike the majority of companies we cover, already allows shareholders to call a special meeting, although it requires that holders of 25% of shares make the demand. Often, the fact that a company has gone a good part of the way toward implementing a proposal undercuts shareholder support for it because many shareholders are reluctant to micromanage. That was not the case at B of A this year, however.

Finally, B of A was required to put up a management proposal for an advisory vote on executive compensation as a result of its participation in TARP. About 71% of shares voted in favor of this proposal, a high proportion given the extent of shareholder anger. The ability of brokers to fill in votes for their customers who did not vote, the so-called “broker-vote,” likely boosted the vote on this proposal. (Broker voting, a creature of stock exchange rules, is not available on shareholder proposals.)

Although the SEC appears poised to approve changes to the broker-may-vote rule that will prevent its use in uncontested director elections—broker votes accounted for some of the support for Mr. Lewis and the other embattled B of A directors—those changes would not extend to the shareholder advisory vote on executive compensation. It seems likely that shareholders will press the SEC to keep broker votes from being cast on advisory votes in the 2010 proxy season.

Happy Anniversary Baby! #7 and Counting

Yes, today marks seven years of my blither and blother on this blog (note the DealLawyers.com Blog is nearly six years old – not shabby!). It’s the one time of the year that I feel entitled to toot my own horn – as it takes stamina and boldness to blog for so long. A hearty “thanks” to all those that read this blog for putting up with my personality. I’m sure I won’t get more refined with age.

I’m excited about our upcoming webcast – “Looking Out for #1: How to Manage Your Career” – because it will enable me to share some insights about blogging that I have gleaned over the years. It will hopefully enable you to feel more “blog proud” rather than “blog tolerant,” two nice terms-of-art coined by “3 Geeks and a Law Blog” in this recent piece.

I’m excited to see that another of the old-timer bloggers, Mike O’Sullivan of Munger, Tolles & Olson, is back on the scene blogging again after a five year hiatus. Give his new “Provided However” Blog a try…

Our May Eminders is Posted!

We have posted the May issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!

– Broc Romanek

We just sent the March-April issue of The Corporate Executive to the printer. This issue includes pieces on:

– Grant Guidelines and Declining Stock Prices
– Excessive Windfalls in Compensation Once Stock Prices Recover
– Two Fundamental—and Very Relevant—Considerations for High Level Executives
– Executives Surrendering Underwater “Mega” Grants
– Important, Timely Guidance on the Accounting Treatment of Acceleration of Vesting—Including Ramifications for Underwater Options
– Important, Timely Suggestions from a Respected CEO

To have this issue rushed to you, try a no-risk trial to The Corporate Executive today.

Corp Fin’s Latest CD&I: XBRL Boxes for 10-Q/10-K Cover Pages

As we flagged early last week in this blog, companies need to place a new box on their Form 10-Q and Form 10-K cover pages, even if they won’t be filing in XBRL anytime soon (see our new cover pages available in Word). Yesterday, Corp Fin issued a new “Exchange Act Form” Compliance and Disclosure Interpretation – CD&I 105.04 – to deal with the many questions being asked on this new box.

The SEC’s New Risk Identification & Assessment Initiative

Yesterday, the SEC announced an enhanced effort to identify and assess risks in the markets by getting help for its Office of Risk Assessment through a new “Industry and Markets Fellows Program.”

Back in ’04, under former SEC Chair Donaldson’s tenure, the Office of Risk Assessment was created (after getting the idea from former Chair Pitt) – but it was only staffed with a handful of folks and the office chief left after a few years and was never replaced. Now it looks like this Office will be staffed more appropriately.

– Broc Romanek

We recently wrapped up our Quick Survey on D&O Questionnaires practices. Below are our results:

1. When we update our D&O questionnaire each year, the following groups review it before it’s sent to the D&Os:
– Outside law firm – 37.1%
– Independent auditor – 5.7%
– Finance department – 1.4%
– General counsel – 57.1%
– Executive compensation department – 4.29%

2. Our _______ has overall responsibility for the “master” D&O Questionnaire to be sent out each year:
– Legal department – 64.9%
– Finance department – 0%
– Corporate secretary – 21.1%
– Outside counsel – 14.0%

3. Before we distribute our D&O Questionnaires, the company “pre-completes” responses in the following sections for review and acknowledgement by each individual respondent:

– We ask respondents to provide all information without pre-completing – 9.0%
– Compensation information, except for the perks – 16.7%
– Compensation information, including the perks – 16.7%
– Equity ownership, including beneficial ownership – 53.9%
– Section 16 compliance – 24.4%
– Biographical information – 59.0%
– Related-party transactions – 18.0%
– Independence – 16.7%
– Audit committee financial expertise – 18.0%

4. To assist respondents in identifying related-party transactions, we provide the respondents with a list of the company’s vendors, customers or other counterparties:
– Yes – 14.6%
– No – 85.5%

5. To assist in identifying related-party transactions, we compare known information about respondents’ affiliations with a list of the company’s vendors, customers or other counterparties:
– Yes – 59.6%
– No – 40.4%

6. After sending the D&O Questionnaire, the company’s follow-up with respondents consists of:
– Reviewing responses with all respondents individually – 1.8%
– Reviewing some responses with respondents individually if questions or issues arise – 86.0%
– Answering questions from respondents about particular questions or issues if they arise – 66.7%
– Little or no interaction with the respondents – 10.5%

7. After receiving the D&O Questionnaire responses, the company reviews the responses (or a summary report) with the following:
– Full board of directors – 23.4%
– Governance and nominating committee – 57.5%
– Compensation committee – 4.3%
– Disclosure controls committee – 14.9%
– Relevant departments – 36.2%
– Outside counsel – 42.6%

8. Our company retains the D&O questionnaire responses for a period of:
– Until the proxy statement is filed (we essentially don’t retain them) – 1.8%
– For about one year (roughly until the next year’s questionnaire is drafted) – 5.3%
– Between 1 and 3 years – 21.1%
– Between 3 and 5 years – 19.3%
– Between 5 and 7 years – 28.1%
– More than 7 years – 24.6%

Use of Corporate Plane for Directors to Attend Board Meetings

As we are reminded by this recent note from the “The Race to the Bottom” Blog – and this DealBook piece on how Verizon is ending free plane use for ex-CEOs ahead of next week’s shareholders meeting – personal use of corporate aircraft continues to be a controversial issue. But what about when outside directors get flown to – and/or from – board meetings? How do companies deal with that?

That is the subject of our latest “Quick Survey – Corporate Airplane Use by Outside Directors.” Please take a moment to answer the question posed.

“4th Annual Proxy Disclosure Conference”: Early Bird Follow-Up

The early bird offer that expired Friday resulted in great momentum, with a record number of members signed up so far for the “4th Annual Proxy Disclosure Conference” (whose pricing is combined with the “6th Annual Executive Compensation Conference”) – that will be held in San Francisco and via Live Nationwide Video Webcast on November 9-10th.

Our New “Early Bird” Rates – Expires May 22nd: Still recognizing the hard economic times we face—and in response to requests from members who were not able to submit their registrations by the deadline—we are offering a reduced rate for the Conferences through May 22nd.

For example, you can attend in San Fran for only $995 if you register by May 22nd (reg. rate is $1295) – and it’s only $495 if you also attend the “17th Annual NASPP Conference” (which starts right after the Proxy Disclosure Conference). Here is the Conference registration form – and here is the agenda.

With Congress poised to consider legislation mandating say-on-pay (expected to be introduced by Sen. Schumer soon) – and SEC Chair Schapiro recently stating that there will be new proposals to change the executive compensation rules in the near future – this year’s Conferences are a “must.” Register now and take advantage of these favorable rates.

– Broc Romanek

Many are still figuring out whether – and how – to do deals under the new “Public-Private Partnership Investment Program.” And only a handful of deals have been done so far under TALF. Join these experts tomorrow in our webcast – “Tripping the PPIP – and TALF – Fantastic” – as they analyze the issues presented under both government programs:

– Alan Beller, Partner, Cleary Gottlieb Steen & Hamilton LLP
– Tony Nolan, Partner, K&L Gates LLP
– Meg Tahyar, Partner, Davis Polk & Wardwell

How to Repay TARP Funds

One of the hot TARP topics is how can companies repay them if they so wish – quite a few companies have already expressed an interest in repaying. Last week, Treasury Secretary Timothy said that Treasury will support early repayment of Capital Purchase Program funds and will apply standards that consider the banking industry’s financial health and lending levels (despite evidence that Treasury is taking its time in assessing applications to repay once they are submitted).

Last month, Treasury posted a form of acknowledgement of repurchase equity to be utilized for public companies desiring to make such repurchases – although any repurchases must be approved by the institution’s federal regulators (here are Treasury’s FAQs about repayment; here is the form to repurchase warrants). It’s unclear from the form of agreement whether Treasury will impose some minimum requirement for partial repurchases of an institution’s preferred. In our “TARP” Practice Area, we have posted memos specifically about repaying TARP funds.

John Grossbauer on Delaware’s Final Legislation

In this podcast, John Grossbauer of Potter Anderson provides some follow-up to his podcast from last month now that the new Delaware legislation has been finalized. We have been posting numerous memos analyzing these amendments in our “Delaware Law” Practice Area.

– Broc Romanek

Yesterday, Apple announced that it filed a corrected Form 10-Q to clean up some “human errors” that happened during the course of tabulating voting results from its recent annual shareholders meeting. The reversed error now shows that Apple received a majority vote on a non-binding shareholder proposal that sought to have the company to conduct say-on-pay votes. The company incorrectly counted abstentions as “no” votes. [As an aside, some proxy statements say some strange things about effect of abstentions. But that’s a story for another day.]

Apple initially claimed victory in its initial Form 10-Q filed last week. Now with egg on its face – and in the wake of two consecutive years of a majority vote in favor of doing so – the company says it will place say-on-pay on the ballot next year. The reversal comes on the heels of the tabulation math being examined by Mercury News’ “SiliconBeat” on Friday.

Unfortunately, bad tabulation math happens all too often after annual meetings (eg. last year’s Yahoo meeting). Once again, I urge all those that deal with annual meetings to read this important piece from last Fall’s issue of InvestorRelationships.com: “An Insider’s Perspective: How to Avoid a Yahoo-Like Tabulation Nightmare.” You can get receive it for free – you just need to input some basic contact information.

Voting results have become too important for companies to not have truly independent tabulators (often, a company’s transfer agent serves as the tabulator). And I believe that the SEC should adopt rules requiring companies to file voting results on a Form 8-K within 4 business days of the results being certified (or at least requiring disclosure on a press release or posted on corporate websites within that timeframe).

The existing standard of having shareholders wait until the next Form 10-Q is simply too long – for many of the calendar-year companies that hold their annual meetings in April and May, we won’t see voting results until mid-August. If I make an effort to vote, it’s nice to know the results as soon as possible – it’s a vital part of the voter experience. Think election night.

And clearly people really need to evaluate how they treat tabulation from a disclosure controls and procedures perspective – and make sure the disclosure committee is involved in the process. Don’t just rely on the tabulators if you value your job (not to imply that the tabulators were at fault in Apple; we don’t yet know what the “human error” was)…

Corp Fin Updates Numerous CD&Is

On Friday, Corp Fin updated a bunch of its “Compliance and Disclosure Interpretations,” including some in these categories: ’33 Act Sections; ’33 Act Rules; ’33 Act Forms; ’34 Act Rules; Section 16 Rules & Forms; ’34 Act Forms; Form 8-K; and Regulation S-K. The Staff has marked each of the specific CD&Is that have been updated. I imagine Dave might provide us with analysis about some of these changes when he blogs towards the end of next week.

FINRA’s New Limited Representative Category for Investment Bankers

A few weeks ago, the SEC approved FINRA’s rule change that creates a new limited representative category – Limited Representative-Investment Banking – for persons whose activities are limited to investment banking, including those who work on the equity and debt capital markets and syndicate desks. The new registration category, which has long been requested by the securities industry, permits persons who function solely in the investment banking area to avoid having to pass the Series 7 examination.

– Broc Romanek

According to this WSJ article from Saturday, Sen. Schumer intends to introduce legislation this week that would overhaul a number of governance areas. This is the legislation that we all have been expecting since the financial crisis broke – and, with a few exceptions, its components should come as no surprise since most of them have been proposed before in one form or another before.

According to the article – whose authors saw a draft of the legislation – it will include these significant provisions (bear in mind that actual proposals could change from the draft):

1. Say-on-Pay – require companies to give shareholders an annual nonbinding vote on executive pay practices
2. Say-on-Severance – give shareholders a nonbinding vote on severance packages for executives following mergers or acquisitions
3. Proxy Access – buttress potential SEC rules that would make it easier and cheaper for investors to nominate their own directors (article says SEC is considering a number of “proxy access” techniques and could issue a proposal in mid-May)
4. No More Classified Boards – require companies to hold annual director elections rather than putting only a portion of the board up to vote each year
5. Majority Vote Standard for Director Elections- require directors to resign if they don’t win a majority of shares voted
6. Independent Board Chairs – require board chair to be independent
7. Risk Management Board Committees – require boards to appoint special committees to oversee risk management

The article says that House Financial Services Committee Chair Barney Frank is working on say-on-pay legislation as well. And we already have seen SEC Chair Schapiro’s ambitious agenda for governance rulemaking that will take place in the near term.

This is all quite notable, particularly when combined with the high likelihood that the SEC will approve the NYSE’s proposal to eliminate broker non-votes in director elections which, according to this WSJ article, may come as soon as this week!

It will be interesting to see how hard corporate lobbying groups will fight the pay components of Schumer’s bill. There are numerous examples that reflect little change in executive compensation practices. For example, see today’s Bud Crystal note on Six Flags.

And speaking of Sen. Schumer, he and Sen. Shelby introduced an amendment to an existing anti-fraud bill last week that would increase the SEC’s budget by $20 million to allow it to hire 60 additional Enforcement Staffers and upgrade its technology.

Ca-Ca-Catfight! Banc of America vs. the Gov

Good heavens, who knows where to start commenting on the latest mess related to fixing this crisis. According to this WSJ article from Thursday, BofA’s CEO Ken Lewis says he was urged to lie to investors as part of testimony before New York Attorney General Andrew Cuomo. The NY AG’s office has released a slew of documents related to this testimony, including this letter to Congress.

Probably best to just fire off a few quick thoughts (mine and others) and not drone on:

– The obvious: If proven true, it would mean the Treasury Secretary and Federal Reserve Chairman urged a CEO to break US federal securities laws. And if true, these type of actions taken by senior government officials raise serious questions as to whether citizens can trust their government, and what can be done to hold them accountable and increase transparency such that they can no longer engage in such actions behind closed doors, even during a financial crisis.

– On December 4th, then-SEC Chair Chris Cox delivered this speech, in which the he warned of the danger of such actions by the government and how it would undermine the enforcment and regulatory regime in the US. It is notable this speech came during the timeframe the questionable practices were alleged to have occurred.

– WSJ’s article entitled, “Are Ken Lewis, Ben Bernanke and Hank Paulson Heroes or Goats?”

– D&O Diary’s blog entitled, “Ken Lewis, BofA and the Fed Strong-Arm: Ten Questions”

– This might have happened more than once. Last month, this Washington Post article outlined how the head of FHFA (which oversees Fannie Mae, Freddie Mac and the FHLB) urged Freddie and Fannie to make misleading disclosures.

– BofA, under the leadership of the CEO, has the ultimate responsibility for ensuring compliance with its obligations to provide disclosure to investors. Notwithstanding what he was told to do by government officials, it was ultimately the company’s decision as to whether or not to break the law. In the Freddie and Fannie case, it appears that they chose not to break the law and did make the required disclosures.

– Don’t leave the investigating to Congress or even the NY AG in this case. The SEC should investigate, subpoena all people in the discussions and all the relevant emails, documents and telephone records and get to the bottom of this and get us the truth. Anyone, including any government officials, that are found to have broken securities laws, should be held accountable by the SEC so they can ensure the investing public that this is not a rigged market.

– BofA’s annual shareholder meeting – to be held this Wednesday – surely will be one for the ages! Ken Lewis – and other BofA directors – already were the subject of a “just vote no” campaign before this latest maelstorm.

Here is a video clip of the “Seinfeld” scene where Kramer goes into his “catfight” routine. Classic. Perhaps not as good though as this “Friends” catfight. Or if you want some “cat love,” this “Christian the Lion” reunion video will surely make you weep with joy.

The Bank Stress Tests: Fed’s White Paper Outlines Standards

On Friday, the Federal Reserve issued a “Design and Implementation” White Paper, which includes the stress test standards for the 19 banks that are being subjected to the tests. While the stress test results will not be released until next Monday, the White Paper helps us somewhat understand how those tests are being carried out – particularly Table 1 which spells out the scenarios, etc. I indicate “somewhat” because some critics say the White Paper is too vague (eg. Bloomberg’s article, “Fed’s White Paper Leaves Questions Unanswered, Analysts Say.”).

For the most part, it seems like the government’s tests are based on two potential economic scenarios – a baseline scenario – based on a early ’09 consensus among economic forecasters – and a more “worser case” scenario, based on a longer, more severe recession. Here is the Fed’s related press release – and here is a list of the 19 banks.

Condolences to those that knew Professor Louis Lowenstein, who passed away last week and was a founder of Kramer Levin. Here is an obituary from the NY Times.

– Broc Romanek

With the SEC’s reconsideration of shareholder access looming (which would likely include a minimum ownership threshold to place nominees on a ballot), the issue of whether one investor can combine ownership of multiple shareholders to meet a minimum threshold under the SEC’s rules becomes an increasingly important issue.

So far, this issue has been debated mostly in the Rule 14a-8(b) context, where a number of companies have sought exclusion of shareholder proposals submitted by individuals represented by John Chevedden. I have heard complaints from a number of members who worry that the combined effect of recent no-action responses may lead to potentially abusive results.

With a few exceptions in prior proxy seasons, the Corp Fin Staff consistently has rejected arguments that nominal proponents are merely strawmen and that the “agent” is the real party-in-interest. And the Staff often allows (eg. this recent AMR no-action letter) co-proponents – none of whom owned sufficient shares to qualify under Rule 14a-8(b) on their own – to aggregate their shares to satisfy the minimum requirements. Remember that the Staff’s no-action responses depend on the particular facts presented – and the arguments made.

I’m hearing from a lot of members worried about the risk that these Staff positions impose, particularly a position that could be viewed to allow anyone to essentially “borrow” shares from passive individual shareholders and submit a proposal on behalf of those holders. In addition, they are worried that anyone can – via the representation of other shareholders – submit multiple proposals to the same company in a single year. These members note that these activities arguably violate Rule 14a-8.

Given that the SEC will likely address this issue in its upcoming shareholder access rulemaking (as it has done as part of its prior access proposals), it seems appropriate that the SEC request comment on this issue in both the Rule 14a-8 and shareholder access contexts due to its importance.

A First: Reincorporating to North Dakota

Thanks to Michelle Leder of footnoted.org for pointing out the first company – American Railcar – to reincorporate to North Dakota. Here’s the proposal from the company’s preliminary proxy statement; note that Carl Icahn owns a majority stake in the company.

As we have blogged about before, North Dakota changed its laws in ’07 so that they are among the most shareholder-friendly. And some shareholders have urged a group of companies to reincorporate there, through the shareholder proposal process, etc.

Last Day for Early Bird Rates: “4th Annual Proxy Disclosure Conference” & “6th Annual Executive Compensation Conference”

You need to register by the end of today to obtain the very reasonable Early Bird rates our popular conferences – “Tackling Your 2010 Compensation Disclosures: The 4th Annual Proxy Disclosure Conference” & “6th Annual Executive Compensation Conference” – that will be held in San Francisco on November 9-10th (and via Live Nationwide Video Webcast). Warning: These reasonable rates will NOT be extended beyond today!

Here is the Conference registration form – and here is the agenda. These Conferences have been accredited by RiskMetrics for director education.

– Broc Romanek

With so much going on, it’s hard to keep up. Here is another worthy development that hasn’t been addressed yet in this blog – this GAO report from March about the role of regulators in the current financial crisis, particulary regarding risk assessment by the banking and securities regulators. GAO’s report provided little in way of surprise, but it is another document that folks will consider when deciding how our regulatory structure will look like after the coming reform.

The battle for this reform is being waged now and it’s probably the most important one since the major reforms instituted during the Great Depression. Last month, SEC Chair Schapiro urged the Senate to not sacrifice investor protector (nor the SEC’s role) as Congress considers creating one entity to oversee all risk in the financial system (see the related Reuters article). There clearly are high stakes involved in this debate.

By the way, I found it interesting that Jon Stewart had Elizabeth Warren, head of the TARP oversight board, on The Daily Show last week (here is the archived video). Overall, I wasn’t too keen on her commentary – but I did like her closing remarks, when she highlighted how important it was to not continue watering down our regulatory framework. She explained how this country went through 150 years of “boom and bust” cycles and how those disappeared for 50 years after FDR instituted strong regulations during the Great Depression. Then those cycles reappeared in the form of the late ’80s S&L crisis, the late ’90s Long Term Capital scare, the Enron and related frauds in ’02 and now this serious credit meltdown. She believes the last 20 years of boom and bust can be attributed to weaker regulations. Food for thought…

I can relate to Elizabeth’s senior moment when she forgot what PPIP stood for! She can take a refresher during next Thursday’s webcast – “Tripping the PPIP – and TALF – Fantastic” – featuring Alan Beller of Cleary Gottlieb, Tony Nolan of K&L Gates and Meg Tahyar of Davis Polk.

Today’s Webcast: “XBRL: What Lawyers Need to Know”

Please print off these “Course Materials” prior to catching today’s webcast: “XBRL: What Lawyers Need to Know.” John Huber and Dave Lynn will go over what types of issues lawyers need to know – then, Louis Matherne of Clarity Systems will give a short demo tailored to lawyers so you can see how XBRL will change the document production workflow for creating disclosure documents.

As I mentioned in this blog on Monday, companies will need to change their 10-Q and 10-K cover pages, even if they aren’t impacted by the XBRL rule changes yet – there continues to be a lot of follow-up questions in our “Q&A Forum” on this topic. And on Tuesday, XBRL US published its 2009 version of the US GAAP XBRL taxonomies.

Special Meetings Called By Shareholders: GE Lowers Its Threshold

Been meaning to blog about this WSJ article entitled:“GE Gives Shareholders More Power.” The article notes that the company has reduced the threshold allowing shareholders to call a special meeting from 40% to 25%. And even though a 25% threshold for a company the size of General Electric is huge, it’s still a notable development. Here’s GE’s Form 8-K regarding the change.

As noted in this article, it looks like GE’s annual meeting held yesterday had a bit of drama when one of Fox News’ employees used the microphone reserved for shareholders to ask questions – without identifying himself as a reporter. When it comes to concerns about old-style journalists being replaced by bloggers, I also get worried about them – but then I think about incidents like this to remind me that there are so many folks pretending to be journalists in the mainstream press these days that the glory days of that medium clearly are long gone.

I know it’s late, but I’ve been meaning to gloat about my March Madness picks. Not only did I pick three of the Final Four (only missed Duke), I did pick North Carolina to win. Check out this bracket that captures the expected average salaries of graduates from schools that were in the tourney field.

– Broc Romanek