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."
As we do every year, we have updated our “Proxy Season” Practice Area (thanks to Julie Hoffman) – including posting these memos that raise considerations for this proxy season.
Tune in early next month to hear Pat McGurn of RiskMetrics’ ISS Division discuss these new policies in the webcast: “Forecast for 2009 Proxy Season: Wild and Woolly.” Note that the webcast date has been moved up to Monday, January 12th. Since all memberships expire at the end of this month, you will need to renew by January 7th to access any content on TheCorporateCounsel.net, including this webcast.
Doing IPOs in a Troubled Market
In this podcast, Steve Pidgeon and David Lewis of DLA Piper discuss the recent IPO for Grand Canyon Education, including:
– Why was Grand Canyon able to go public in this market?
– How long did it take the company to get to market? In other words, were there delays along the way?
– What sort of celebration ensued when the IPO finally happened?
– What words of wisdom do you have for other companies considering going public in a down market?
– Jeff Karpf, Partner, Cleary Gottlieb Steen & Hamilton
– Deanna Kirkpatrick, Partner, Davis Polk & Wardwell
– Mark Welshimer, Partner, Sullivan & Cromwell
If you’re not a member of TheCorporateCounsel.net, try a ’09 no-risk trial to access this webcast for free. If you are a member, please renew your membership today since all memberships are on a calendar-year basis.
Survey Results: CEO Succession Planning
We recently wrapped up our Quick Survey on CEO succession planning, an important and often overlooked area. Below are our results:
1. Our company:
– Has a written CEO succession plan in a formal document or policy – 21.4%
– Has a written CEO succession plan in the form of a board resolution or as part of the board minutes – 1.4%
– Has a CEO succession plan, but its not memorialized in writing – 42.8%
– Doesn’t have a CEO succession plan – 34.3%
2. Our company:
– Reviews and updates the CEO succession plan at least annually – 44.3%
– Reviews and updates the CEO succession plan on occasion – 21.4%
– Doesn’t reviews the CEO succession plan (but it does have one) – 1.4%
– Doesn’t have a CEO succession plan – 32.9%
Please take a moment to participate in our new “Quick Survey on Advance Notice Bylaws.”
“Food Fight”: National Lampoon Loses a Battle
Take a gander at yesterday’s “SEC News Digest” – National Lampoon’s stock has been suspended from trading due to lack of current information (and the CEO has been charged with paying folks to buy stock in the company to make it appear there is a market for it; here’s the SEC’s litigation release). This is the first time I ever recognized one of the companies whose stock has been suspended. As one member emailed me, surely there is some pun or (ahem) lampoon that can be skewered here.
What happened to National Lampoon? The first time I took a date to the movies was to see “Animal House.” A true classic. Now a review of their site revewals that their next movie will be “The Beach Party at the Threshold of Hell.” Actually, the trailer for that movie doesn’t look too bad…
Anyways, here is a poll to vote on your favorite quote from “Animal House”:
Comprehensive Price List: Here is a PDF that is a universal order form with the 2009 prices for all of our publications and web sites.
Registered Direct Offerings: An Alternative to Underwritten Deals
As noted in this CFO.com article, the unprecedented turmoil in the capital markets have caused many companies to consider alternatives to traditional underwritten public offerings. In this podcast, Lora Blum of Jones Day discusses registered direct offerings, including:
– What is a registered direct offering, and how is it different from a PIPE?
– Do you need an underwriter or placement agent to do a registered direct offering?
– Why might a company consider doing a registered direct offering?
– What kind of company could benefit from doing a registered direct offering, and what are the pitfalls a company considering such an offering should be aware of?
Delaware Court of Chancery Disapproves Class and Derivative Settlement
From Travis Laster: Opinions disapproving settlements are usually worth noting, since no one wants to work out a deal and then have it fail to pass muster. In a recent decision – Off v. Ross (Del. Ch. Ct.; 11/26/08) – Vice Chancellor Parsons disapproved a class and derivative settlement. Several factors led to settlement disapproval:
1. Timing – The case settled four days after the plaintiff moved for expedited proceedings. A blindingly fast settlement often raises questions. I once had a case that settled in a week, and it took us 3 hearings to get it approved.
2. Lack of confirmatory discovery – The plaintiffs did not take any discovery pre-settlement and, amazingly, did not take any confirmatory discovery after settling. In my experience, defendants are sometimes pleased when plaintiffs are willing to forgo confirmatory discovery, particularly the standard 1 or 2 confirmatory discovery depositions. This is penny wise and pound foolish, as it contributes significantly to the risk of disapproval.
3. Minimal consideration for seemingly strong claims – The plaintiffs settled claims that arguably invoked the entire fairness standard in return for an agreement that the company would proceed with a rights offering that the record strongly suggested was what the company planned to do all along. In other words, the value of the settlement was suspiciously weak. This is a recurring issue with disclosure-only settlements, when it’s best to think at least twice.
4. Objectors to the settlement and a competing action in another jurisdiction — The weaknesses of the settlement were laid bare by two objectors to the settlement, one of whom was a plaintiff in a competing action in another jurisdiction. Although the parties tried to carve out the other action from the release, the defendants reserved the right to seek dismissal of the action based on the settlement. The existence of motivated objectors always heightens the risk that a settlement will not be approved.
5. A significant attorneys fee of $800,000.
With this confluence of factors, this was a high risk settlement to present.
With so many important action items impacting your proxy disclosures right now, you will want to read the Fall 2008 Issue of the Compensation Standards print newsletter that covers some key issues regarding proxy disclosures to consider now.
As a bonus, the issue includes a feature entitled “The Box” that provides an important “heads-up” regarding insiders’ margin accounts and a related D&O questionnaire pointer – which alone are examples of the invaluable, timely preventive guidance that this newsletter provides.
Since members of CompensationStandards.com get a free subscription to the Compensation Standards print newsletter, we have posted the Fall issue online. If you’re not a member, try a ’09 no-risk trial and get this issue rushed to you today.
And since all memberships are on a calendar-year basis, members should renew for ’09 today to continue getting this guidance.
Smaller Company Governance
Man, I’ve never seen so many good people get laid off in our field. One of them is Steve Shapiro, who has been in-house counsel for four companies. I recently caught up with Steve in this podcast to learn the corporate governance challenges that smaller companies face, including:
– What are the particular challenges of being a GC/CS at a smaller company?
– What could be easier?
– What resources are helpful?
– Are there differences in dealing with other executives? Boards? Outside advisors like accountants and counselors?
FINRA Issues Guidance on Broker/Dealer Obligations regarding SPACs
Recently, FINRA issued Regulatory Notice 08-54, which provides guidance on the structure, trends and broker/dealer conflicts of interest associated with SPACs. The Notice discusses broker/dealer suitability and disclosure obligations in connection with a SPACs’ IPO, after-market trading and any subsequent acquisitions. The Notice also refers to compliance with NASD Rule 2720, the NASD conflict-of-interest rule, in connection with an acquisition by a SPAC.
As noted in this recent Washington Post article, the SEC will be spending the next six months reshuffling the offices in its new building (price tag = $4.1 million). When the SEC moved into its new building a few years ago, someone in charge of such things had a not-so-brilliant idea – mix up Staffers from the various Divisions on each floor rather than maintain the Divisions on their own floors. End result of that: folks from the same Division communicated far less with each other because they rarely saw each other (and communication already had been reduced due to the popularity of working from home).
Some of the Corp Fin Operation groups are already moving – and this project likely will change the Mail Stops for some of them in the near future. This “restacking” is a great idea, but the timing of it puzzles me given that there is some likelihood of the SEC merging with the CFTC (or other agencies), but I’m sure they have their reasons.
– Why was this survey undertaken?
– What were the major findings of the Survey?
– Were any findings surprising?
– What advice do you have for companies in the wake of the Survey?
Nasdaq’s New Process for SEC Filing Deficiencies
Recently, Nasdaq filed a proposed rule change which would provide more lenient treatment for companies that are delinquent in making periodic filings to the SEC. Under current Nasdaq rules, companies receive a delisting letter immediately upon missing a filing due date. Late filers are not given a compliance period in which to make a late filing – nor is the Nasdaq staff permitted to grant the delinquent companies additional time to comply with the filing requirements. Although the rule change has been filed as a proposed rule, Nasdaq has asked the SEC to waive the normal 30-day waiting period and approve the rule change to go effective immediately.
Under the modified rules, late filers would have 60 calendar days after receiving a Nasdaq notice of delinquency to submit a plan to regain compliance. The plan would have to address the reasons for the late filing, the likelihood of making the filing within the exception period, the company’s past compliance history, corporate events that might occur within the exception period, and disclosures to the market. After reviewing this (and other relevant information), the Nasdaq Staff may grant the company up to 180 calendar days from the date of the first missed filing to fulfill the filing requirement and regain compliance.
Nasdaq’s rationale for the proposed change is a recognition of the fact that, when a company delays a filing, the formal procedures required to investigate the underlying issues causing the delay and, if necessary, to restate its financial statements, can be a laborious time-consuming process. In these situations, companies often publish whatever financial information they can and inform investors of the reasons for the delay. Nasdaq believes that delisting a company that is taking all appropriate steps to regain compliance and file financial statements – while keeping the public informed – is not in the best interest of the company or its investors.
About ten days ago, the FDIC issued its Final Rule regarding its Temporary Liquidity Guarantee Program (known as “TLGP”), which includes the debt guarantee program under which the FDIC is guaranteeing the unsecured senior debt of eligible entities. The TLGP is an opt-out program with an opt-out deadline of December 5th.
In connection with the FDIC’s final rule, Corp Fin has issued an interpretive letter clarifying that offerings of TLGP-guaranteed debt don’t need to be registered under the ’33 Act (since the guaranteed debt will be exempt under Section 3(a)(2)). We have posted memos regarding TLGP in our “Debt Financings” Practice Area.
The first offerings of debt guaranteed under the program have already been launched – and it has been estimated that as much as $300 billion of debt may ultimately be issued under the TLGP. To help you prepare for this wave, we have just announced a new webcast – “How to Issue FDIC-Guaranteed Debt under the TLGP” – to be held on December 17th. With all the big issues being hashed out right now, our panel of Wall Street lawyers will be able to give you the latest developments. This is a “biggie.”
If you’re not a member of TheCorporateCounsel.net, try a ’09 no-risk trial to access this webcast for free. If you are a member, please renew your membership today since all memberships are on a calendar-year basis.
Yesterday, Mark Borges blogged about the GAO’s preliminary assessment of the compliance with TARP so far, particularly as it relates to executive compensation. It’s a great blog entry.
The NYSE Speaks ’08: Latest Developments and Interpretations
We have posted the transcript from our recent webcast: “The NYSE Speaks ’08: Latest Developments and Interpretations.”
Financial Viability Exception: Nasdaq Issues New Staff Interpretive Letters
Recently, Nasdaq posted three new letters (2008-18, -19 and -20) written to companies seeking to utilize the financial viability exception in Rule 4350(i)(2), the rule that provides an exception to the shareholder approval rules for companies in financial distress. A company may not use this exception without obtaining specific approval from Nasdaq; the company must also comply with certain other requirements. But these new letters – and this series of FAQs on the financial viability exception – may help companies thinking about requesting the exception to understand the factors Nasdaq will consider in deciding whether to approve it.
I know that a lot of companies are rethinking their executive compensation arrangements right now. We just sent the Nov-Dec ‘08 issue of The Corporate Executive to the printer. This issue contains the definitive guidance on repricings (and related compensation restructuring issues) and how to implement hold-through-retirement provisions that will help comply with Treasury’s “excessive risk” limitations.
Act Now: To receive a non-blurred version of this issue right away (and on a complimentary basis), enter a No-Risk Trial for ‘09 today.
Note that last week, the Council of Institutional Investors issued a statement warning companies not to reset the bar for CEO pay because of the market meltdown. We have posted this statement – and other memos regarding underwater options – in CompensationStandards.com’s “Stock Options” Practice Area. In addition, we have posted other memos about executive compensation restructuring in our “Rolling Back Compensation” Practice Area.
Believe It or Not: Sarbanes-Oxley Lawsuit Marches On
With the markets collapsing and a new appetite for regulatory reform, it was surprising to see this article that reports that the Free Enterprise Fund was dealt another setback in its attempt to find the Sarbanes-Oxley Act unconstitutional. By a 5-4 decision, the US Court of Appeals for Washington DC voted not to review the case recently. Apparently, the plaintiffs now plan to appeal to the US Supreme Court.
Even more surprising is the occasional mention in the process of Paulson’s ’07 “blueprint” to modernize the financial markets as a possible stepping stone for regulatory change. As you may recall, that was a blueprint to deregulate, not re-regulate. We’ll be posting reform proposals in our “Regulatory Reform” Practice Area.
SEC’s “IDEA” Not a Great Idea? Accusations of Trademark Infringement
As noted by Dominic Jones in his “IR Web Report” a while back, the SEC’s plan to launch a new online database (dubbed “IDEA”) may have hit a wall when a Canadian tech company – CaseWare International – claimed it already had been using the name for 20 years. The SEC filed a trademark application back in May with the US Patent and Trademark Office, while CaseWare claims it registered its trademark with the US PTO back in 2001. It will be interesting to see how this plays out…
Last week, Corp Fin updated its “’33 Act Sections” CD&Is. I’m sure that this is welcome news to Corp Fin Director John White, who had Chief Counsel Tom Kim and Deputy Director Brian Breheny stand up and affirm their intent to update the portions of the old Telephone Manual into CD&Is by the end of the year during the recent ABA Fall meeting of the Federal Regulation of Securities Committee.
During his last remarks as Corp Fin Director, John reviewed the numerous changes during his two-plus year tenure – including noting that now over 20,000 of the Staff’s comment letters have been posted – and he identified big rulemakings that have been tee’d up for the near future, including:
– IFRS roadmap now proposed, along with proposed timetable
– Further implementation of certain CIFiR recommendations
– Proxy matters, including a reconsideration of shareholder access
– Technology, including XBRL and the “21st Century Disclosure Initiative”
– Beneficial ownership reporting regime, in the wake of the CSX decision and the SEC’s short-selling efforts
Recently, I wondered in this blog whether SEC Chairman Cox would get across the finish line with mandatory XBRL before he left. Listening to John’s remarks, I got the sense that the SEC would adopt mandatory XBRL before Cox departed (although John didn’t mention what type of transitionary timetable would be adopted). Bolstering this effort, XBRL US announced last week that they have completed a new draft of the XBRL US GAAP Taxonomies – as well as the initiation of a public review.
Recently, I blogged that Broadridge was leading the way on proxy statement XBRL taxonomies. This changed last month when Broadridge donated its draft proxy taxonomies to XBRL US. However, XBRL US’s new draft taxonomy doesn’t include tags for proxy statements – thus making it highly unlikely the SEC would include executive compensation data in its initial adoption of mandatory XBRL.
Our December Eminders is Posted!
We have posted the December issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
Speaking of RiskMetrics, I have heard that they are contemplating an overhaul of their corporate rating service, the “Corporate Governance Quotient” (known as “CGQ”). Although their plans could change, I understand that there will not be a single numerical score as there is today. [You may recall that today, each company’s CGQ score is available from their Yahoo! Finance page, among other places.]
Instead, there would be multiple scores for each company, each score dependent on a major area of governance (egs. board independence, board structure, compensation, auditing and financial integrity). The idea is to make the results less “black-and-white” and allow users to reach their own conclusions more readily.
I’m not sure if a change in methodology will make the CGQ more popular with investors – studies have shown they are not considered particularly relevant for investment decisions today – but I imagine some companies will welcome this development (particularly corporate secretaries who have directors that closely follow the scores – although I believe the number of those have dwindled over the years).
Bebchuk v. Electronic Arts: Transcript Posted
Recently, I blogged how Judge Hellerstein of US District Court (SDNY) dismissed Bebchuk v. Electronic Arts, Inc. (which involves Professor Lucian Bebchuk’s attempt to use Rule 14a-8 to establish new “shareholder access” procedures). I mentioned that once we find a copy of the decision, we’d post it in our “Shareholder Proposals” Practice Area.
Apparently, the Judge didn’t feel like writing a decision because he figured that the 2nd Circuit would handle that upon appeal – so we’ve posted his 1-page order as well as the transcript from the hearing.
Yesterday, SEC Chief Accountant Conrad Hewitt announced that he will leave the SEC in January. This is a day after Alexander Cohen announced he would leave as Deputy Chief of Staff. And a week after General Counsel Brian Cartwright announced his departure plans – and two weeks from Corp Fin John White’s announcement.
While it’s not unusual for these positions to be filled by a new Chairman (other than the Corp Fin Director, who typically doesn’t “rotate” with a new Administration), it’s a little unusual for these departure announcements to come so close to each other. Looks like President-elect Obama will need to pick a new SEC Chair soon, so that these positions can be filled in short-order during these trying times.
Why is SEC Chairman Cox a Short-Timer?
It’s been widely reported that SEC Chairman Chris Cox will leave office soon himself, even though his five-year term doesn’t expire until June 2010. Some members have asked: “What if Cox didn’t want to leave office? Does the President have the authority to fire an SEC chair?”
The answer is “no.” The law with respect to independent – so-called “alphabet” – agencies is that the SEC Commissioners including the Chair are appointed for a specific term and can only be removed “for cause.” However, the President can tap someone else as Chair – and have an existing Chair serve as a “mere” Commissioner instead. This setup is supposed to insulate those agencies from political pressure. Historically though, the SEC Chair has tendered a resignation when a new party comes into power.
CFIUS Issues Final Regulations
Last week, the Department of the Treasury’s Committee on Foreign Investment in the United States (known as “CFIUS”) issued final regulations governing national security reviews of foreign investments in US companies. The new regulations – issued to implement amendments adopted by the “Foreign Investment and National Security Act of 2007” – largely track the proposed regulations issued in April – and are the most significant changes to the CFIUS rules since their adoption in ‘91.
The new rules encourage parties to consult with CFIUS in advance of filing formal notification (an existing CFIUS “best practice”). Significantly, the new rules do not define “national security,” or what constitutes “control” by a foreign investor; nor do they provide special rules for sovereign wealth funds. CFIUS retains the flexibility to review each transaction on a case-by-case basis.
