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."
Join us for tomorrow’s webcast – “Last Minute Planning for the Proxy Season” – to hear Amy Goodman of Gibson, Dunn; Karl Groskaufmanis of Fried Frank; David Katz of Wachtell Lipton; and Michael Ullman of Johnson & Johnson to make sure you haven’t overlooked anything this proxy season!
Also, I just posted the announcement for our March 10th webcast – “The Evolution of Due Diligence Practices (and Securities Act Liability)” – during which Bob Buckholz of Sullivan & Cromwell; Joe McLaughlin of Sidley Austin; and Michael Kaplan of Davis Polk will analyze how diligence practices are evolving in the wake of the first major court opinion in decades.
Oh, They’re Real and They’re Spectacular
On CompensationStandards.com, I continue to analyze and post 8-Ks that make compensation disclosure in the “Form 8-K Disclosure” Practice Area. Some nice ones are being filed, including some that might be useful to review when drafting proxy disclosures.
This 8-K filed by Aetna last week provides a table of what salaries the Named Executive Officers will receive in 2005; what options and long-term performance units they were just granted (and disclosure that targets have not yet been set); as well as bonuses that were just awarded for 2004 performances. Interestingly, it is disclosed that these amounts were the byproduct of “ordinary course” executive compensation decisions.
And Mark Borges just blogged about Becton Dickinson’s proxy statement which – as I pointed out briefly during his webcast last month – includes several interesting disclosures, including a tally sheet. Mark has been blogging up a storm in his “The Compensation Disclosure Blog” and he pointed out on Friday that:
As part of the Board Compensation Committee Report (page 22), BD provides a “Value of Total Compensation” table that sets out the dollar value of the total annual compensation for the named executive officers. While it doesn’t quantify every component of NEO compensation (such as retirement benefits and perquisites), it does lay out the cash compensation (salary and bonus — as well as the amounts disclosed in the “Other Annual Compensation” and “All Other Compensation” columns of the Summary Compensation Table) and the dollar value of long-term incentives (stock options, performance units, and career shares) for each executive, and totals up these amounts.
Other interesting disclosures include:
– A supplemental table to the Summary Compensation Table specifying the voluntary elective deferrals of salary and bonus in each year for each NEO (page 24).
– A description of the methodology used to calculate the incremental cost of perquisites (note 2 to the SCT).
– The grant-date present value for stock option grants using BD’s SFAS 123 valuation methodology (see my February 2nd entry on “Disclosing Option Grant Values.”)
– Separate tabular disclosure of BD’s Career Share grants made in 2004 for fiscal 2005.
Rastaman Live Up!
Yesterday was Bob Marley’s 60th b-day and it reminded me of this little ditty:
Me listen to da drummer
Me listen to da bass
Me listen to Jah music
Make me wind up me waste
As the SEC nears the time to move into its new HQ, Bloomberg reports that “Securities and Exchange Commission Chairman William Donaldson has a decision to make that will determine the outlook at the SEC for years to come: Who among the four commissioners gets the room with a view when the agency moves to new headquarters in March.
Donaldson, 73, the U.S.’s top securities regulator, says the question of who gets what office is roiling the agency. The SEC is hardly a stranger to contentious issues: past votes have covered rewriting corporate-governance rules and overseeing the $973 billion hedge-fund industry.
“For anybody that has ever made office moves, they become hot subjects,” he said in an interview in Davos, Switzerland. “We will not be an exception.”
Commissioners Roel Campos and Cynthia Glassman have made it clear they want the only office besides Donaldson’s that overlooks the Capitol, according to people familiar with the matter. Commissioner Paul Atkins has said it’s unfair for any one official to get a better office, the people familiar said. Commissioner Harvey Goldschmid, who is recovering from surgery, has mostly stayed out of the squabble.
Of the four commissioners, the three who lose will get offices looking over train tracks at Washington’s Union Station in the new headquarters.”
I say split the baby and let them share an office, like most new Staffers do – that’s how you make the best of friends while working at the Commish anyways. Just kidding…
Impact of Internal Controls on M&A
On DealLawyers.com, we have posted the transcript from our webcast, “Impact of Internal Controls on M&A.”
XBRL Off and Running at the SEC
Yesterday, the SEC established its voluntary program for eXtensible Business Reporting Language (“XBRL”) filings. Registrants may voluntarily furnish XBRL data in an exhibit to specified EDGAR filings, beginning with the 2004 calendar year-end reporting season. The effective date is March 16, 2005, which is the final day for calendar year-end accelerated filers to file their 2004 10-Ks.
For the calendar year accelerated filers planning to make XBRL filings – not sure there will be many volunteers – note that the new rules do not become effective until March 16, the final day for filing the 10-K. If a company files before March 16, the new rules – including the limited protection from liability – would not yet be in effect.
Mike Holliday notes that those companies ready to experiment with XBRL should consider not making the XBRL filings until on – or after – March 16. Even if the 10-K is filed before March 16, the XBRL documents can be provided later in an amendment to the 10-K or in an 8-K.
Yesterday, the plaintiffs pulled out of the proposed settlement under which 10 former WorldCom directors would personally pay $18 million of a $54 million settlement. New York State Comptroller Alan Hevesi, the lead plaintiff, announced that the plaintiffs were pulling out of the deal after U.S. District Judge Cote struck down a key component of the agreement yesterday.
Judge Cote ruled in this order that any jury award resulting from the February 28 trial could not be reduced using a formula that would have taken into account the limited finances of the directors who settled. Some investment banks that were defendants in the case had objected to the settlement, telling the Judge that they would be unfairly prejudiced unless all the defendants stood trial together.
Here is a more technical explanation from Mike Holliday: The Stipulation of Settlement has a condition that the amount of the reduction of any verdict or judgment against a non-settling defendant in the action be limited to the greater of the “Settlement Credit” or the “Contribution Credit.” The “Settlement Credit” is simply the total settlement amount of $54 million to be paid by the settling directors ($18 million) and the insurers ($36 million) plus any interest. The other prong of the maximum reduction is more complicated. It would be the contribution claim non-settling defendants would be entitled to assert against settling directors equal to the aggregate proportionate shares of liability of settling directors (determined by the Court), BUT ADJUSTED to reflect any limitation on the financial capability of settling directors to pay their proportionate shares of liability. Absent Court approval of this provision relating to the Settling Director’s ability to pay, the Lead Plaintiff is entitled to terminate the Settlement.
Judge Cote’s order denied the application to approve the judgment reduction formula insofar as the “Contribution Credit” is “adjusted to reflect any limitation on the financial capability of the Settling Director Defendants, ” as a violation of 15 U.S.C. Sec. 78u-4(f)(7)(B)(i). There will be an opinion to follow that will explain the reasons.
Under Subsection (f)(7)(B), which is part of the Private Securities Litigation Reform Act, where a defendant (covered by the Subsection) enters into a settlement prior to final verdict or judgment, the verdict or judgment is to be reduced by the greater of (i) “an amount that corresponds to the percentage of responsibility of” that settling defendant; or (ii) “the amount paid to the plaintiff by” that settling defendant. In this case, the provision in question in the Settlement could have reduced the amount in (i). That could decrease the amount by which any final verdict or judgment is reduced, which would have the effect of increasing the amount of any final verdict or judgement required to be paid by non-settling defendants.
Yesterday, the NYSE released the 142-page Webb Report that details how Dick Grasso was paid when he ran the NYSE. Here is Grasso’s response.
The NYSE released the Webb report – named for attorney Daniel Webb who compiled it – after a judge overseeing New York Attorney General Eliot Spitzer’s suit against Grasso ruled last week that it was not subject to attorney-client privilege. Here are some comments on the report culled from a longer article in the Washington Post:
– The report in many ways tracks Spitzer’s complaint, although it offers no legal conclusions or analysis. The report generally concludes that Grasso’s pay was unreasonable and that Grasso had undue influence over his own compensation, chiefly by controlling appointments to the board and the compensation committee.
– The report concludes that Grasso’s pay was incorrectly based on compensation for chief executives at much larger, publicly traded companies. And it says the composition of the board and the compensation committee changed too often for directors to attain full understanding of the nature of Grasso’s complex pay arrangements.
– The report says Grasso’s executive assistant was paid $240,000 per year for the last three years of Grasso’s tenure and that Grasso used the services of two drivers on the NYSE payroll, each of whom earned about $130,000 per year.
I will blog further after I analyze the report myself. It will be interesting to see what Michael Melbinger blogs on CompensationStandards.com, since he is with the law firm, Winston & Strawn, that prepared the report.
Musical Lawyers and Accountants for Scrushy
Yesterday’s WSJ article about how the Scrushy defense team has rotated extensively over the past 20 months is one of the more fascinating “reveals” I have read lately.
My favorite quote from the article is from my pal Mike Mulligan, who served as a foresenic accountant for a period of time for the defense team: “I’ve never seen a case of this profile involve a shift from law firm to law firm and accounting firm to accounting firm,” said accountant Michael Mulligan, the executive director of FCL Advisors International LLC, Great Falls, Va., who was replaced as a forensic accountant on Mr. Scrushy’s team. The turnover, he added, “in some ways is even bizarre.”
On CompensationStandards.com, the transcript is available for the popular webcast: “What NOW Needs to Be Disclosed in the Proxy Statement.” Since the webcast lasted well over 2 hours, it is quite a sizable transcript.
Summary Sheets for NEO Compensation
On CompensationStandards.com, I answered a question yesterday in the Q&A Forum that has been asked more than once. The question was: In view of recent SEC guidance, we’re considering filing as exhibits to our next periodic report a summary sheet for comp arrangements for each NEO. Are others considering this as well? Has anyone seen examples filed for other companies? What categories need covered and at what level of detail?
After reading Alan Dye’s remarks from the transcript noted above, I answered that FAQ 5 is pretty clear regarding directors – and directors and NEOs are treated the same under both 8-K and Item 601, so I don’t know how you escape the conclusion (unless you just disagree with the Staff, as we hear some people do).
I like what American Express filed on a Form 8-K on January 28th. It includes details about salary levels and option and restricted stock awards for both 2005 and 2004; bonus levels for 2004 and 2003; LTIP payouts for recent performance periods – as well as what the directors fees will be for 2005. I imagine this is what some of the summary sheets might look like.
The Final Standard: Option Expensing is Here – Are You Ready?
Tomorrow, the NASPP will host a webcast – “The Final Standard: Option Expensing is Here – Are You Ready?” – featuring Mike Crooch, Board Member, FASB; Mike Tovey, Project Manager, FASB; Carlo Pippolo, Partner, Ernst & Young; and Ellie Kehmeier, Tax Director, Deloitte & Touche.
And the NASPP is nearly ready to announce two subsequent webcasts regarding equity planning in the wake of option expensing to be held during March and April.
The Oakland Tribune reports that a former E&Y partner – among the first charged with document destruction under SOX – has been sentenced to a year in federal prison for his role in falsifying or destroying documents to impede a SEC probe.
In pleading guilty in October, the partner acknowledged that in April 2003 he testified under oath to the SEC regarding audit work his team had performed on NextCard (a company whose collapse the SEC was investigating) and he didn’t bother to mention that documents related to NextCard’s audit and quarterly working papers had been altered, with considerable parts deleted in November 2001. The partner later admitted this was a cover-up meant to impede the SEC’s probe.
The comment period for the Securities Act Reform Project was originally scheduled to close today. There are reports that the comment period will be extended to February 15 – although no extension has been posted on the SEC website yet.
Also, The Financial Times is reporting that there has been opposition by some commenters to the proposal to open up internet roadshows to retail investors. Several fund managers have told the SEC that the proposal could damage the funds’ businesses – they appear to be concerned that either the companies will stop doing the roadshows or that the companies will put less informative roadshows together if they will have to file the information with the SEC. NetRoadShow, a provider of online roadroads to financial firms, has solicited comments in opposition to this proposal on its website.
Former Auditor Sentenced to One Year
One of the first auditing professionals charged with destroying documents in violation of the Sarbanes-Oxley Act has been sentenced to a year in federal prison and ordered to pay a $5,000 fine. A former partner in the San Francisco office of Ernst & Young, Thomas Trauger, plead guilty last October to tampering with the financial documents of online credit card issuer NextCard Inc. He admitted to altering audit records after the SEC raised doubts about the company’s accounting practices.
NASDAQ Non-Compliant Companies
Each trading day, NASDAQ publishes a list of companies that are non-compliant with its continued listing standards. The list can be found here. A company is added to the list five business days after NASDAQ notifies it of the deficiency and is removed from the list one business day after NASDAQ determines that it has regained compliance, or the company no longer trades on NASDAQ.
NASDAQ’s continued listing standards can be found here.
Yesterday, Rep. John D. Dingell, Ranking Member of the House Committee on Energy and Commerce, released a “commitment letter” from the GAO agreeing to perform a study and submit a report by June 17, 2005 on the SEC’s administration and enforcement of PUCHA. The work was requested by Reps. Dingell and Edward J. Markey in letters dated April 21, 2004 and August 18, 2004, partly in response to Enron’s collapse. In particular, the SEC’s December 2003 opinion denying Enron’s application for an exemption (two years after Enron filed for bankruptcy) appears to have troubled the Congressmen.
The GAO study will assess:
(1) the extent to which the SEC’s Office of Public Utility Regulation (OPUR) reviews registered holding companies and the results of the reviews;
(2) the extent to which OPUR reviews claims of exemption–filed as either self-certifications or applications for SEC order and the results of the reviews;
(3) OPUR’s process for issuing no-action letters; and
(4) how OPUR determines whether companies have a controlling influence in public utilities or public utility holding companies.
February Eminders Are Up!
Check out our latest edition of the monthly Eminders newsletter. If you wish to receive it via email, simply place your email address into this form.
The announcement on January 21 that Gemstar’s former General Counsel, Jonathan Orlick, will pay a fine of $306,000 and be barred from being a director or officer of a public company for 10 years is just the latest in a growing trend of SEC Enforcement actions that end with general counsels agreeing to fines and disgorgements.
In September 2004, Electro Scientific Industries, Inc.’s former General Counsel, John E. Isselmann, Jr., agreed to pay $50,000 to settle the SEC action against him. And in May 2004, former General Counsel for Warnaco, Stanley Silverstein, agreed to pay $165,000 to settle the SEC action against him.
As we blogged on January 14, SEC Enforcement Director Stephen Cutler addressed the increased interest in lawyers in a September 2004 speech by referring to the Enforcement Division’s “access theory” from the 1970s: if you ensure good behavior by those who control “access” to the capital markets, then you can achieve more than you would by going after every bad actor. At that time, Cutler noted that the Staff had named lawyers as respondents or defendants in more than 30 of the enforcement actions in the past two years, which were evenly split between in-house and outside counsel.
Cutler confirmed the Staff’s continuing interest in the behavior of lawyers in a December 2004 speech by noting that the Staff is looking for intentional, knowing misconduct on the part of lawyers. Additionally, he said that the Staff was “also looking hard at situations in which lawyer misconduct meets statutory scienter requirements that are short of actual knowledge.”
Director Compensation Info
Be sure to check out our most recent “Inside Track with Broc” – an interview with Paul Hodgson, Senior Research Associate of The Corporate Library. The interview provides helpful information on The Corporate Library’s Director Compensation Database.
Today, Alan Dye, Editor of Section16.net and Partner at Hogan & Hartson, will host his Annual Q&A on Section 16, starting at 4:00 eastern. Join Alan as he discusses:
– What are the latest issues that have arisen and how to resolve them
– What novel disclosure considerations exist for this proxy season
– How to tweak your compliance program
– Answers to the many questions you posed to Alan in advance of the program
Also on Section16.net, take a look at Alan’s updated popular year-end tools.
Foreign Filers’ Concerns to Be Addressed
The SEC is seeking ways to ease the burden on foreign companies of the (relatively) new U.S. corporate governance rules. Yesterday, in a speech at the London School of Economics, Chairman Donaldson said that:
– He has asked the Staff to consider whether to recommend that the Commission delay the effective date for internal controls for non-U.S. companies. International companies with U.S. listings are currently required to meet the requirements from July 15 onwards.
– He expects that the Commission will consider whether there should be a new approach to the deregistration process for foreign private issuers, as many do not feel prepared to meet the U.S. requirements.
– He expects that the Commission will consider adopting the proposed amendments to the reporting requirements that would facilitate foreign private issuers’ conversion to IFRS.
NYSE Year-End Reminders
Last week, the NYSE sent a letter to listed companies, reminding them of their obligations regarding notifications to the Exchange, as well as other filing requirements.
Thanks to Amy Seidel of Faegre & Benson, we have posted notes from Northwestern’s San Diego conference held late last week.
Among the many interesting points made, SEC Chief Accountant Don Nicholaisen stated that on the FASB’s option expensing standard – FAS 123r – the SEC has been asked to provide implementation guidance.
And on DealLawyers.com, we have posted notes from the M&A panel at the San Diego conference.
The Latest on Director Compensation
On TheCorporateCounsel.net, we have been trying to keep the “Director Compensation” Practice Area up-to-date with survey data. And this interesting interview with Paul Hodgson on Director Compensation Database should help those grappling with director pay levels too.
Also, on CompensationStandards.com, we have a “Director Compensation” Practice Area devoted to disclosure about director pay.
A Tribute to My Grandma
I will be working remotely the remainder of the week, as I attend the funeral of my 96 year-old grandma in Jacksonville. A woman with boundless energy – sneaking into Cuba purely to go dancing when she was in her 70s – Grandma’s passion was family, with 11 children of her own. She loved to recite the number of great-grandchildren and great-great-grandchildren she had; both numbering over 100. Now that is “old school” living and a full life!
From there, I am off to Orlando to speak at the ASCS’ Annual Essentials conference. By the way, the ASCS has officially changed its name to the “Society of Corporate Secretaries & Governance Professionals,” also known as the “Society.”
