Author Archives: Broc Romanek

Although the facts of the recent Disney opinion from Delaware Chancellor Chandler were “easy” perhaps, they follow a number of public speeches and articles from the Delaware judiciary about the need for directors to make executive compensation more carefully. We expect compensation consultants and lawyers to provide new guidance on how compensation packages should be structured – and the first law firm memos drafted in the wake of the Disney opinion bear that out.

As usual, we will post these memos under “Latest Developments” under GreatGovernance.com – as well as under “Sarbanes-Oxley Law Firm Memos – Executive Compensation” on TheCorporateCounsel.net. For TheCorporateCounsel.net subscribers, a copy of the Disney opinion is available at http://www.thecorporatecounsel.net/member/FAQ/MA/Disney.pdf.

Executive compensation is up (what else is new) as borne out by TheCorporateLibrary.com in an excellent 24 page report. This report covers the proxy disclosure made by over 1000 companies over the past 2 years – and breaks out data in a variety of categories (but no director comp). The report is at http://www.thecorporatelibrary.com/company_research/reports/CEOpay2002_061903.pdf.

Compensation committees should heed the warning from Delaware Chancellor Chandler in the recent Disney opinion who indicated that directors might have personal liability for a breach of “good faith” if they approve compensation packages without exercising proper diligence. More to come on the Disney opinion soon…

For TheCorporateCounsel.net subscribers, we have posted an interview with Ken Winer of Foley & Lardner on the Improper Influence of Auditors at http://www.thecorporatecounsel.net/Member/InsideTrack/06_16_03_Winer.htm.

A NIRI survey conducted to determine whether new disclosure rules were negatively impacting the flow of information to shareholders and analysts reveals that companies are attempting to avoid use of pro forma numbers in earnings statements. 43% of respondents present results strictly in accordance with GAAP – all of which cited Regulation G as the reason. See more at http://www.niri.org/mediaCenter/pressReleases/NIRI%20PRcomm_prac_su0603.pdf.

For Section16.net subscribers, the transcript of last Thursday’s webcast – “Alan Dye on the Latest Section 16 Developments” – is at http://www.section16.net/member/Webcast/06_12_03_transcript.htm.

Last Friday was the deadline for comments on the SEC’s concept of easier shareholder access to the ballot – although not yet posted on the SEC’s web site, here is the ABA’s Task Force comment letter – http://www.abanet.org/buslaw/fedsec/comments/03/20030613.pdf.

For TheCorporateCounsel.net subscribers, today is our webcast – “Burden of SOX on Mid- and Small-Cap Companies” – which promises to be interesting as its the only one of its kind that we are aware of – see the agenda at http://www.greatgovernance.com/programs.html#smallercompanies. If you are not a subscriber, you can get access with a “no-risk” trial at https://www.thecorporatecounsel.net/subscribe/CCNET_NEW/login.asp.

A quick survey of the Fortune 100 IR webpages reveals that only about a third comply with the upcoming requirement to break out Section 16 filings on corporate websites (filings made on – and after – June 30 have to be posted). Of those that do, most do it as part of their outsourcing agreement with an investor relations’ provider.

Very few provide a link to their Section 16 reports as they reside in the Edgar database on the SEC website (eg. Morgan Stanley at http://www.morganstanley.com/about/ir/sec_filings.html?page=inv).

Last month, the SEC tweaked Edgar so that companies can link directly to their insider’s Section 16 reports to facilitate compliance with the upcoming requirement. This is important because if companies decide to link to their Section 16 reports, it must be a separate link only for the Section 16 filings – not a link to all of the company’s filings. To create such a link, you can use the following URL and insert the company’s CIK code for the string of 10 z’s: http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=zzzzzzzzzz&owner=only (don’t forget the link must be clearly captioned to indicate that it is a link to the Section 16 filings).

For TheCorporateCounsel.net subscribers, we have provided links to the various ways that companies have chosen to comply with the new requirement at http://www.thecorporatecounsel.net/member/FAQ/Disclosure/disclosure_websites.htm.

In what has to be one of the most highly anticipated set of interpretations of all time, the SEC staff has finally posted its Reg G FAQs – 33 of them at http://www.sec.gov/divisions/corpfin/faqs/nongaapfaq.htm.

Apria Healthcare has filed its definitive proxy with its policy regarding shareholder access as an appendix – interestingly, the only discussion of the policy in the proxy statement is under the Nominating Committee heading. The policy is at http://www.sec.gov/Archives/edgar/data/882289/000089256903001480/a90655ddef14a.htm#059.

For TheCorporateCounsel.net subscribers, we have posted an interview with Marie Oh Huber of Agilent on Preparing for Internal Control Attestations at http://www.thecorporatecounsel.net/Member/InsideTrack/06_12_03_Huber.htm.

We have also posted a good memo from Debevoise & Plimpton on 11-Ks and 906 certifications at http://www.thecorporatecounsel.net/member/Memos/Debevoise/06_12_03_section302.PDF.

As the June 30 deadline for 11-Ks looms, its becoming increasingly apparent that the SEC is unlikely to give any firm guidance on whether 906 certifications are required (despite the paragraph in the internal control report adopting release issued Friday that noted that the SEC and DOJ were in discussions). As the due diligence for these certifications is likely to take a lot of time – because there is likely to be so many different third-party entities involved – companies should start figuring out what they will do to support the certification now.

The question remains – who should sign the 11-K certification. The answer likely is whoever signs the 11-K: the company’s CEO and CFO – or the plan adminstrator (if that is a natural person) or whoever has the highest responsibility for the plan.

The next question is whether the certification should have the “fairly presents” language since there is no income statement involved – some companies have changed the certification to read that the fairly presents language relates to the “net assets available for benefits and changes in net assets available for benefits of the Plan.” See the two 11-Ks filed by Intel this morning – one of these is at http://www.sec.gov/Archives/edgar/data/50863/000005086303000185/pr1165ex99.htm.

For Section16.net subscribers, today is a webcast program “Alan Dye on the Latest Section 16 Developments” – try a “no-risk trial” subscription (refund at any time – and for any reason) to listen at https://www.section16.net/subscribe2/new/login.asp?.

Under the leadership of board chair Ralph Whitworth (whose day job is principal of Relational Investors, one of the few groups that have used short slates in the past decade), Apria became the 1st company to voluntarily allow shareholders to nominate directors directly (last month, Hanover Compresser did it as part of a lawsuit settlement). Holders of 5% or more will be able to nominate up to 2 directors which will be placed on the ballot opposite 9 management nominees.

In the wake of the recent actions at Freddie Mac and new revelations at WorldCom (not to mention items like E&Y classifying janitorial inspection services as “audit related” at HealthSouth), it looks like it might be an uphill battle for those that wish the SEC will “go slow” to facilitate the ability of shareholders to nominate directors.

For TheCorporateCounsel.net subscribers, we have posted an interview with Jim McRitchie and Les Greenberg regarding shareholder access for retail investors at http://www.thecorporatecounsel.net/member/InsideTrack/06_10_03_McRitchie.htm.

Yesterday, the SEC posted the adopting rules regarding internal control reports at http://www.sec.gov/rules/final/33-8238.htm.

The SEC also issued a concept release on whether it should regulate credit rating agencies more – or not at all – at http://www.sec.gov/rules/concept/33-8236.htm.

For TheCorporateCounsel.net subscribers, we have added an “Internal Controls Portal” full of resources and practice pointers regarding getting ready for internal control attestations and reports at http://www.thecorporatecounsel.net/member/faq/internalcontrols/index.htm.