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."
I blogged on June 1st about NYSE’s new forms of 303A affirmations. In case you file the unrevised form by accident, I have heard that the NYSE staff’s position is that you do not need to re-file the 303A affirmations using the newest version of the form (as the revisions made no significant changes to the affirmation forms). Of course, this applies assuming you filed the 2nd generation version of 303A affirmations, as opposed to the old 1st generation affirmations that were not applicable at all for this year.
Withhold Votes Continue
Although a few weeks old, I would be remiss if I didn’t note how Federated Department Stores registered the highest withhold vote levels for this proxy season. More than 61% of the votes cast were withheld from 4 directors at Federated’s May 21 annual meeting. A noteworthy aspect of this record level is that there was no organized “vote-no” campaign.
The following excerpt from Stephen Deane of ISS analylzes why this happened: “So why the record number of withhold votes at Federated? True, the company has repeatedly ignored majority votes on shareholder resolutions calling for annual elections. But that hardly makes Federated unique.
Instead, the share ownership structure–which overwhelmingly comprises institutional investors–may well hold the key to understanding the vote results. According to one source who asked not to be identified, institutional investors own nearly 95 percent of Federated’s shares, and the company’s top 10 institutional investors alone hold 43 percent of the shares. And those institutional investors are precisely the ones most likely to withhold votes from directors who ignore majority votes.”
Yesterday, the House Financial Services Committee approved – by 45-13 – a bill that would restrict any FASB option expensing standard to options granted to a company’s top five officers. The bill would also delay implementing any standard for a year, until completion of a study. The legislation is HR 3574, that was passed by the subcommittee in mid-May. This comes on the heels of the Financial Accounting Foundation issuing a statement opposing all legislative proposals desinged to curb FASB independence.
Although there still is a lot of lobbying activity on the Hill and this bill might get traction in the House, it doesn’t appear that the Senate would go along with it. At this point, expensing is still a sound bet for next year.
SEC Addresses Proxy Advice Conflicts
In late May, the SEC’s Division of Investment Management issued a no-action response that said mutual funds should be aware of potential conflicts of interest on the part of proxy-voting companies that provide advice on how to vote at annual meetings. The no-action response requires mutual funds to know who the advisers’ clients are and how much they are being paid.
On its face, it appears that this position by IM could impact ISS – but ISS has posted a statement explaining how the SEC’s guidance buttresses its position that the fact that a proxy advice firm provides services and receives compensation from issuers doesn’t – by itself – impact the firm’s independence.
Another Virtual Shareholders Meeting
It’s been quite a few years since the last company held its annual shareholders meeting solely online – but ICU Medical did just that a few weeks ago, as described in its proxy statement.
Even though Delaware law has permitted electronic only meetings since 2000 – and Inforte was the first (and only, until ICU) company to do so right after Delaware changed its law – Delaware companies have been loath to go that route due to fear of shareholder wrath. Last year, Seibel Systems backed off plans to conduct an e-only meeting after shareholders saw the proxy materials filed by Seibel and complained.
Learn more about electronic only meetings from some FAQs that I wrote a while back on my old site.
We have posted the transcript from our popular webcast, “The Latest on Evolving 10b5-1 Plan Practices.”
Nasdaq’s Two New FAQs
The Nasdaq has issued two new FAQs regarding continuing waivers of codes of conduct as follows:
1. Is disclosure required of a waiver to the Code of Conduct granted to an officer or director before the May 4, 2004 effective date for Marketplace Rule 4350(n)?
If the pre-existing waiver relates to a matter concluded before May 4, 2004, then disclosure is not required. If the waiver relates to a matter not concluded by such date or to an ongoing matter without a specific end-date, then disclosure is required, notwithstanding the fact that the waiver was granted prior to the effective date of the Rule. In view of the potential for company confusion as to the applicability of the disclosure requirement to pre-existing waivers, companies will be afforded up to June 15, 2004 to disclose waivers to officers and directors that preceded May 4, 2004.
2. What disclosure is required for a waiver to the Code of Conduct for an officer or director that extends beyond one year?
For ongoing matters or matters extending beyond one year, disclosure is required at least annually.
More on Shareholders’ Agreements
Here is this month’s installment of Carl’s Corner features more commentary by Carl Schneider on Shareholders’ Agreements.
As noted in this press release, the Service Employees International Union is appealing Corp Fin’s exclusion of a shareholder proposal to the full Commission. The precatory proposal urged Crescent Real Estate Equities’s board to implement a comprehensive policy governing related party transactions between Crescent and any officer or director, which would require annual disclosure in a separate report to shareholders. Corp Fin had excluded the proposal as ordinary business under Rule 14a-8(i)(7).
Impact of Friday Holiday on Tender Offers?
A reader asked if the Presidential declaration of an unscheduled federal holiday is not a business day for purposes of the 20 business day period that tender offers must remain open, like Friday’s memorial day for President Reagan. [In addition to the memorial day for President Reagan, the day before or after Christmas is sometimes declared to be a federal holiday by a Presidential executive order.]
It is my understanding that the SEC staff takes the position that if the offer is ongoing, you can still count the unscheduled Friday holiday in the 20 days. But you shouldn’t have ended the offer or started it on Friday.
One of the more fascinating stories of the year is Google’s decision to forego traditional distribution methods for its IPO and utilize a Dutch Auction process instead. Learn more about Dutch Auctions from my interview with Maria Gabriela Bianchini on Google’s Dutch Auction.
PCAOB Adopts Document Retention and Non-US Review Standards
At yesterday’s meeting, the PCAOB adopted Auditing Standard No. 3 that require auditors to retain their records for seven years – and in sufficient detail so that an experienced auditor with no previous connection to the engagement could read them and understand clearly what work had been performed, who performed the work and why the auditor reached its conclusions.
In addition, the PCAOB adopted rules that call for the PCAOB to take into account the rigor and independence of non-US oversight groups when deciding how to review the work of non-US accountants who have audit clients with stock trading in U.S. markets. To date, 103 foreign audit firms in 42 countries have registered with the PCAOB, with nearly 250 more in the pipeline.
Executive Compensation Trends
You will soon be getting an earful from us on executive compensation in the next issue of The Corporate Counsel. But if you can’t wait, I suggest you check out this IOMA webinar being held next Tuesday featuring Dick Wagner, an experienced compensation consultant who isn’t afraid to speak his mind.
Dick just joined an executive compensation task force that I have been helping set up in connection with our October 20th major compensation conference. More about that later…
It looks like Corp Fin’s position on 302 certifications for amended filings has evolved a bit. Now, if an amended filing contains an amendment to the Reg. S-K Item 307 & 308 disclosure about the company’s evaluation of disclosure controls and procedures and internal controls for financial reporting (and accordingly, the paragraph 4 certifications regarding controls and procedures are made), the CEO/CFO must also make the paragraph 5 certifications. In other words, paragraphs 4 and 5 go together when it comes to amended filings.
Yesterday, the SEC instituted two separate public administrative proceedings against 31 companies to determine whether to revoke the registration of their securities under the ’34 Act (the SEC also temporarily suspended trading in the securities of 26 of these companies).
This really is not newsworthy, except that it’s the first time that the SEC has brought this type of action. Even though the SEC appropriately is going after these shell companies to prevent market manipulation, I couldn’t help but think how this will help reduce Corp Fin’s review burden under Section 408 of Sarbanes-Oxley (i.e. each ’34 Act filer must be reviewed once every 3 years), even though 31 companies is merely a drop in the bucket…
Yesterday, Korn/Ferry International filed an 8-K reporting that it has been advised that the SEC staff is conducting an informal inquiry into independence issues arising out of payments made by Ernst & Young, the company’s auditors, to a company affiliated with a former director of the company for marketing services.
The Wall Street Journal reports today that Best Buy and TeleTech Holdings also are subject to the same SEC inquiry, as the same consultant sits on their boards and also use E&Y as their auditor (but these two companies have not yet filed a 8-K regarding the investigation). The WSJ points out the major difference between this inquiry and the recent PeopleSoft one (which led to E&Y being barred from obtaining new public clients for 6 months) – this new investigation involves only $377,000 for the director’s marketing consulting; the PeopleSoft matter involved $500 million.
Apparently the provision on auditor independence that the Staff is looking at is Rule 2-01(c)(3) of Regulation S-X. Rule 2-01(c) sets forth a non-exclusive specification of circumstances inconsistent with auditor independence:
“3. Business relationships. An accountant is not independent if, at any point during the audit and professional engagement period, the accounting firm or any covered person in the firm has any direct or material indirect business relationship with an audit client, or with persons associated with the audit client in a decision-making capacity, such as an audit client’s officers, directors, or substantial stockholders. The relationships described in this paragraph do not include a relationship in which the accounting firm or covered person in the firm provides professional services to an audit client or is a consumer in the ordinary course of business.”
According to the 8-K, E&Y conducted an internal review and confirmed its independence to Korn/Ferry – and based on that confirmation and its current knowledge, Korn/Ferry believes that E&Y’s independence was not impaired. Thanks to eagle eye Mike Holliday for helping out on this one!
Disclosure about SalesForce.com’s IPO Cooling Off Period
On May 25th, I blogged about how SalesForce.com’s IPO was delayed due to gun-jumping concerns. The company has filed an amended S-1 with a risk factor related to this potential gun-jumping and we have added it to our laundry list of “Risk Factors Regarding Gun-Jumping” in our “Disclosure Samples & Analysis” Practice Area. So far, the cooling off period appears to be nearly 4 weeks and counting…but some of this period might be attributed to the company’s own timetable for going to market.
No EDGAR on Friday
Out of respect for President Reagan, the SEC will be closed this Friday – and EDGAR will not be accepting filings.
Dan Mahoney of Rogers & Theobald LLP reports that he has had success getting his clients delisted from the Berlin-Bremen Exchange after sending a communcation to Julia Hädicke at Berliner Freiverkehr. Her contact information is: (Aktien) AG – Kurfürstendamm 119 – 10711 Berlin / Phone: +49-30-890 21 143 – / Fax: +49-30-890 21 198 / email – jhaedicke@freiverkehr.de.
To find out if a company has been delisted – go to Yahoo-Finance and enter the company’s ticker symbol and then “.be” after it, the listing on the Berlin-Bremen Exchange will come up. It will show whether they were dropped or not. Some are simply pending, so they display all zeroes.
Dan notes that the Berlin-Bremen Exchange is the same as the so-called “Unofficial Regulated Market”, which is one of the three organized and regulated markets of the German exchanges (the other two are the Official (“Amtlicher Markt”) and the Regulated (“Geregelter Markt”) Markets). The Berlin-Bremen Exchange listing process is simple as an authorized broker merely needs to file an application for a permit with the administration of the exchange for trading the stocks.
For trading on this exchange, there are fewer requirements (egs. there are no annual fees and no publication and, of course, no consent requirement by the company) – because the stocks are already listed on other exchanges that have more extensive review criteria.
Recently, the SEC’s Enforcement Division has signaled a change in philosophy – from a reactive approach (i.e. investigations of individuals or companies were initiated after evidence of a possible violation surfaced) to “seeing around the corner.”
In this interview with Bill Baker on the SEC Staff “Wildcatting” for Fraud, Bill – who recently left as an Associate Director in Enforcement to join Latham & Watkins – explains how Director Stephen Cutler has a desire to foster a cultural change within the enforcement program to encourage more risk taking when pursuing investigations where, at the outset, it is not clear that a securities violation has occurred. This also is known as “wildcatting.”
Hats Off to Cecilia Blye!
Yesterday, Cecilia Blye was promoted to head Corp Fin’s new Office of Global Security Risk. As Cecilia has been a staple in the Office of Chief Counsel for some time, many of you might have dealt with her over the years. She is an absolute sweetheart and I bet many staffers will be applying to serve under her experienced and steady hand.
Here is a pretty interesting interview with Chris Ford and Scott Stevenson on Impact of Internal Controls on Outsourcing. Not only is the topic timely, but the impact of 404 on outsourcing can be significant, particularly for more mature companies that have outsourced functions or processes that affect controls over financial reporting.
What is the Berlin-Bremen Stock Exchange? And Why is Your Company Listed There (Without Your Knowledge)?
Here is a question I answered yesterday on our Q&A Forum: “One of our smaller publicly held clients received notice that its shares have been listed for trading on the Berlin-Bremen stock exchange, without the company’s prior knowledge, consent or authorization. From a quick search on the internet, it looks like this has happened to a number of other smaller publicly held companies and that the concern in that due to the unregulated nature of this exchange, a company’s stock could be targeted for naked shorting. Has anyone had any experience with this issue and procedures with the de-listing process?”
For the answer, check out our Q&A Forum, which is available from a button at the top of the home page on TheCorporateCounsel.net (hint – this development is affecting hundreds, and perhaps, thousands of companies!)
