This is the 1st match of the 5th round – the battle among the Final Four! With two of the Final Four contestants consisting of beer taps, this community seems keen on winding down. As noted in these rules (and keep sending more pics for the next tourney), please vote for one of the following two cubes below:
Recently, Steve Quinlivan blogged this in the “Dodd-Frank.com Blog”:
The GAO has issued a report that examines among other things:
– Steps the SEC has taken toward issuing a conflict minerals disclosure rule; and
– Stakeholder-developed initiatives that may help covered companies comply with the anticipated rule.
The GAO concludes the continued delay in issuing a final rule has contributed to a lingering uncertainty among industry and other stakeholders who expect their actions to be guided by a final rule. Some of these industry and other stakeholders have engaged in the development of various initiatives that they hope may help covered companies comply with the anticipated rule, in part by helping foreign and domestic suppliers of those covered companies trace minerals in their supply chains. Without a final rule, it is unclear to what extent the initiatives currently being developed or implemented by industry and other stakeholders will achieve results consistent with those anticipated under the conflict minerals legislation. Moreover, in part because of the delay in the rule’s issuance, many companies across the tin, tantalum, tungsten, and gold supply chains are reluctant to participate in or support the global and in-region initiatives currently being developed or implemented because they are uncertain whether or not the initiatives will align with the anticipated rule.
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. 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. Here are some of the latest entries:
– Does the SEC Allow One-on-One Meetings After Earnings Calls?
– Practicing Safe IR Presentations
– Cybersecurity Risk Disclosures: One Year After SEC Guidance
– Posted: Pair of FCPA and Anti-Bribery Flowcharts
– Wal-Mart: Independence and Internal Investigations
– SEC’s Individual Cooperation Program Gets off the Ground
– And Even So Many More Board Trends That I Could Cry…
– Survey: D&O Insurance on the Rise
Although disruptions at annual meetings got a fair amount of press this proxy season – remember the “99% Power” movement? – including several blogs from me, I have not seen anyone capture actual stats of how prevalent they were. Surprising to me, this survey data that I just posted shows 18 of the Fortune 50 had protests. That is quite high – over 35%! This data was gathered based on media accounts of the protests, most of which were drawn from local newspapers. Links to those articles are included in the survey…
ISS has issued its policy survey for 2013. The survey seeks input from institutional investors, issuers and other corporate governance participants, with 31 questions of relevance to the US market. After the survey closes on August 17th, ISS will publish its draft policies and seek public comments. Final policy changes will be released in November and apply beginning in February 2013. The survey is detailed, and the following summary includes some of the key areas that may be of concern for issuers.
Directors. The survey includes 3 questions which, if changed unfavorably, could cause substantially more negative recommendations for boards and directors. ISS has asked whether it should also include other significant directorships (private, non-profit, subsidiaries) as part of its overboarding policy and whether investors expect boards to implement a shareholder proposal that received a majority of votes cast in the previous year (currently, ISS will recommend against the entire board for failure to implement such a proposal that received a majority of votes cast in 2 out of 3 years). The survey also asks about combining the “insider” and “affiliated outsiders” into one category, which would equate an executive director with a director who has certain types of transactions with the company, possibly making it difficult for investors to apply judgment to individual situations.
Executive Compensation. The 10 questions that relate to executive compensation were more open-ended and there were no obvious indications of how the policies may change, as follows:
– Peer groups. ISS has stated it will change its peer group formulation. The survey asks whether ISS should use a company’s peer group without exception, modify the group for size, create its own, or create its own but provide company’s peers as an alternative. In addition, ISS asks a series of questions about what informs investors regarding a company’s peers (for example, whether peers that the target company selected or ones that selected the target company should be illustrative).
– Performance metrics. Whether metrics other than total shareholder return should be used, and whether non-financial performance metrics should be evaluated, is being considered.
– Analyzing pay. The value of examining “granted,” “realized” or “realizable” pay is questioned.
– “Problematic” pay. The survey asks about features of termination packages and change in control provisions that may be deemed “problematic,” as well as pledging of company stock by directors and officers.
Shareholder Proposals. Only 3 questions pertain to policies on proposals: the importance of corporate lobbying, the features of proxy access proposals and the factors in evaluating recommendations for independent chair proposals. One possible favorable outcome is that the survey asks about the relevance of the TSR test as one of the factors for examining independent chair proposals. This has long been a sore point for many corporate issuers that otherwise meet all the criteria for receiving a favorable recommendation.
Podcast: Personal Use of Aircraft
In this CompensationStandards.com podcast, Ruth Wimer of McDermott, Will & Emery explains the latest on personal use of aircraft, including:
– Have companies changed their use of personal aircraft practices since the FAA final guidance on reimbursement in 2010?
– How typical is it for companies to have personal use of aircraft policies? What typically is in those policies? Who approves those policies – full board or compensation committee?
– What are common snafus when it comes to personal use of aircraft disclosures?
Yesterday, Bloomberg ran this article entitled “Best Buy Pay Expert Said to Quit Over Retention Bonuses” about how compensation consultant Don Delves quit his engagement at Best Buy after the company awarded more than 100 managers retention bonuses without tying them to performance. Don has been a regular speaker at our annual responsible pay practices conference. I have not spoken to Don about this situation, but I can imagine quitting a client of Best Buy’s magnitude is not an easy thing to do. One has to make a living.
But it appears Don felt this was the right thing to do. For years, I have been noting how some compensation consultants are standing up to boards – that they are not always the excessive pay facilitator that they sometimes are painted out to be. In fact, I have heard of CEOs who want less pay – but yet their boards give them more because that is what the faulty peer surveys indicate they should do. This is precisely how bad processes have gotten in the way of common sense.
At some point, boards really need to be held accountable. Too many directors think that more conversation in the boardroom means they have done a better job. But there continues to be just incremental change and not the widespread change in pay dynamics that is necessary to overcome decades of bad practices.
If more advisors show more backbone, it might wake up some of the remaining pay apologists out there who spend more time fighting change than being concerned about whether they are engaging in sound governance practices. [I’m still waiting to hear about a lawyer who quits an engagement rather than go along with a bad pay arrangement – all I ever hear about are comp consultants doing this.] And hopefully those advisors who show backbone will be rewarded by being retained by those boards that are truly interested in doing the right thing. Kudos to Don! Now we wait and see if Best Buy’s board gets the message…
I guess Congress is not satisfied that it’s approval rating is down to single digits. As noted in this CNN article, the House Ethics Committee came up with a 14-page memo to interpret the STOCK Act differently than its Senate counterpart and found that spouses and children are exempt from the new law that had banned insider trading in Congress. The Office of Government Ethics, which oversees all federal executive branch employees, sided with the House.
So there you have it. A different standard for Congress compared to other federal employees. A group of ethics officials who have no understanding of beneficial ownership (guess they should have read our new “Beneficial Ownership Table Handbook“). And back to Square #1 in providing some integrity on the Hill. House Majority Leader Eric Cantor now claims that his office inadvertently created the loophole. Thanks to Martha Steinman, who’s recently moved over to Hogan Lovells, for the heads up…
A Conflict Minerals Preview?
Here’s information from Cooley’s Cydney Posner: Someone at the WSJ apparently found a willing leaker with knowledge of the version of the conflict minerals rules currently being circulated among the SEC commissioners. The proposal is scheduled for a vote on August 22.
The WSJ characterized the draft as, contrary to some expectations (including my own), tougher than the original proposal: “Compared with the original proposal, a final draft circulated to SEC commissioners would outline a series of items for companies to review before they can assume their goods don’t contain minerals from the area, people familiar with the document said. If adopted, the rule could create more costs for companies trying to determine whether they need to submit a ‘conflict-minerals report’ to the SEC….The draft tightens the standards for an independent audit that must be conducted on the report and would require top executives to sign off on the report, something companies believe could subject them to greater liability.
“Under the draft, the SEC would give companies a two-year transition period to determine if certain goods contain conflict minerals, one of several concessions sought by business groups. The details of the final rule could change ahead of next month’s vote, but people familiar with the matter said they didn’t expect major negotiations among the SEC’s five commissioners.”
As you may recall, the proposal has been subject to a lot of lobbying on both sides: nonprofits, corporations, legislators and even clergy. According to the article, the U.S. Chamber of Commerce is once again threatening to intercede: “in a July letter to the SEC, [the Chamber] warned the rule could be overturned by the courts if the agency doesn’t fix certain flaws. The trade group’s letter cast doubt on the SEC’s roughly $71 million cost estimate for all U.S. public companies that need to comply with the rule and said the agency needs to include in its estimate the costs for corporate suppliers and vendors.” Remember that that kind of argument was a winner for the Chamber in connection with proxy access.
Dodd-Frank Turns Two
Dodd-Frank celebrated it’s second birthday over the weekend as noted in this Washington Post article. Meanwhile, the WaPo reports how the statute of limitations is approaching for cases relating to the financial crisis as we approach the five-year mark on that…
On Friday, the SEC delivered this report to Congress on decimalization as required by the JOBS Act.
Deal Cube Tournament: Elite Eight; 4th Match
This is the last match of the 4th round – the battle among the Elite Eight! Then on to the Final Four! As noted in these rules (and keep sending more pics for the next tourney), please vote for one of the following two cubes below:
Who would ever think that signing a SEC filing would ever become an issue in a Presidential campaign? That’s what has happened as Mitt Romney states that he wasn’t actively managing Bain Capital during a period when he signed at least 6 filings, according to this Huffington Post article. As noted in this article by “The Nation,” former SEC Chair Harvey Pitt has been leading the charge defending Romney – and this NY Times article tries to hash out the timeline of Romney’s activities during the period in question. But the purpose of this blog isn’t to wade into that debate. For one, I am not a ’40 Act lawyer (I hear this type of thing is common in the ’40 Act world – but I don’t know if that’s true nor if it’s lawful just because others do it).
Rather, I mention it to make a comparison with the rules for public operating companies (ie. those that file Form 10-Qs and 10-Ks under the ’34 Act) to those that apply to private equity funds. I think that it would be problematic if someone was listed as the CEO – for example, under Item 401 of Regulation S-K in a proxy statement or 10-K – but they weren’t. A related – but perhaps distinct – issue relates to someone signing a ’33 or ’34 Act filing as a CEO when they really weren’t acting in that capacity. Consider these issues in context of the era before CEO certifications – which didn’t exist until ’02 and Sarbanes-Oxley – what do you think would be the repercussions? Any regulatory response? What do you think the investor reaction would be? Shoot me an email and let me know what you think – I won’t attribute any comments to you unless you provide permission.
If you enjoy “The Daily Show,” you must check out Jon Stewart’s take on this “retroactive retirement” situation from Monday’s episode.
Our New “Audit Committee Disclosure Handbook”
Spanking brand new. Posted in our “Audit Committees” Practice Area, this comprehensive “Audit Committee Disclosure Handbook” provides a heap of practical guidance about Item 407 of Regulation S-K (as well as the NYSE and Nasdaq financial expertise requirements). This is a real gem – 35 pages of practical guidance…
Deal Cube Tournament: Elite Eight; 3rd Match
This is the third match of the 4th round – the battle among the Elite Eight! As noted in these rules (and keep sending more pics for the next tourney), please vote for one of the following two cubes below:
I know. This is low-hanging fruit for those in the disclosure business but the mass media is actively batting this question around in the wake of the revelation that Yahoo!’s new CEO is six months pregnant – but that fact wasn’t disclosed when her hiring was announced. My take on this issue is in Francine McKenna’s Forbes article. It’s clearly not required to be disclosed – nor is voluntary disclosure something that is a sound practice. It’s none of anyone’s business – and it shouldn’t be an issue for investors.
And on the employment law side of it, federal law prohibits sex discrimination (most states have comparable laws). So just like an employer should not ask a prospective hire about age or religion, companies should steer clear of asking about pregnancy. Thanks to Mike Cramer of Ogletree Deakins for his employment law expertise…
With the media’s focus on new CEO Melissa Mayer, we haven’t heard yet whether the folks at Yahoo! consider their say-on-pay to have technically passed, but either way the company’s comp committee has some work to do given the voting results filed on Tuesday: Votes “For” = 50.12% of Votes “For” + “Against.” But the company’s proxy statement discloses that abstentions will be counted as a vote against – so votes “For” = 49.86% of Votes “For” + “Against” + “Abstain.” Thanks to Karla Bos of ING for pointing this out!
JOBS Act: Under Fire
Lately, there have been a number of mass media articles critical of certain aspects of the JOBS Act. Here are a few:
This July-August issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:
– Proxy Access Proposals: 2012 Review & 2013 Outlook
– M&A Indemnification Provisions: What Drafters May Be Critically Missing
– Private Equity Clubs Today: Keeping It In The Family
– Boilerplate Matters: Severability Clauses
This is the second match of the 4th round – the battle among the Elite Eight! As noted in these rules (and keep sending more pics for the next tourney), please vote for one of the following two cubes below:
– Average quorum levels were 82.7% as shares voted with shareholders’ instructions partially offset a decline in broker votes
– Over 95% of all of the shares voted through Broadridge were voted electronically through ProxyEdge, ProxyVote.com and automated voice response
– Over 60% of all mailings were either delivered through electronic platforms or consolidated, by specialized processing, into a single delivery or e-delivery for households and managed accounts, a 13% increase over last season
– Mobile voting grew to over 445,000 shareholders, a fourfold increase over last season
As noted in this press release, the Securities Transfer Association released a study last week on proxy fees. This STA study evaluated 33 Broadridge invoices for proxy distribution services from 2010-2012. The STA then applied the proxy fee schedule proposed by the NYSE Proxy Fee Advisory Committee in May to these 33 invoices. The study concludes that this new proxy fee schedule will increase costs for issuers in several fee categories – with cost increases will be more dramatic for small cap and mid cap issuers.
Transcript: “Proxy Season Post-Mortem: The Latest Compensation Disclosures”
We have posted the transcript from the recent CompensationStandards.com webcast: “Proxy Season Post-Mortem: The Latest Compensation Disclosures.”
Deal Cube Tournament: Elite Eight; 1st Match
This is the first match of the 4th round – the battle among the Elite Eight! As noted in these rules (and keep sending more pics for the next tourney), please vote for one of the following two cubes below:
I’m going off-script to blog about a personal experience. The USA Olympic Basketball teams played Brasil in exhibition games here in DC last night and it was magical. Not just because Lebron, Kobe, Durant, Chris Paul, etc. were on the same team. Nor because the President, First Lady, Malia and VP Biden sat just across the way from us. But because the crowd was in such a state of excitement that you could hardly sit still. I now “get” what it feels like to go to the Olympics in your home country. Here are a bunch of photos I snapped:
Brasil’s National Anthem (they spell it “Brasil”; not “Brazil”)
Our Team’s Introduction w/ Members of Military (everyone was screaming!)
The President & Vice President (place went wild when President arrived; chanting “USA”!)
Brasil’s Women’s Team Sat Right Behind Us (they played the game before; they cheered loudly in Portuguese)
The President & First Lady on “Kiss Cam” (she had just arrived & they didn’t know what to do; they had a “do-over” later in the game)
From “The Daily Beast“: Guess Michelle’s not a fan of on-cue PDA. The First Lady rejected a kiss from President Obama at the Olympic basketball team tune-up game against Brazil Monday night. The couple was shown getting cozy on the Jumbotron during the first half of the game, but when the “kiss cam” video display prompted some smooching, Michelle failed to comply. The audience booed as the president appeared to lean in for a kiss, only to get Michelle shaking her head with a smile. Obama broke her down in the 4th quarter though, when the couple leaned in for a crowd-pleasing kiss. Maybe the campaign ran some numbers? Or maybe Michelle just likes to keep the romance alive by making the Commander-in-Chief work for his sugar. Either way, it was a confidence-boosting night for the U.S. men’s team, with a 80-69 win against Brazil.
On Friday, the SEC’s Office of Chief Accountant issued its final IFRS work plan report. Since the SEC has no timeframe now to decide whether to switch to IFRS – and since its a Presidential election year – it’s truly uncertain when that decision will be made.
Sleeper Alert: CFTC’s New Rule Might Force You to Get Special Board Approval for Interest-Rate Swaps
As Nate Endrud blogged last week, the CFTC has approved its final rule on the so-called “end-user exception” to Dodd-Frank’s mandatory clearing requirement applicable to swaps required to be cleared (roughly, standardized swaps). Under the exception, as provided by the Act, a swap counterparty may elect not to clear a swap if the counterparty:
(i) Is not a “financial entity” (e.g., swap dealer, major swap participant, investment fund, bank, or pension plan);
(ii) Is using the swap to “hedge or mitigate commercial risk,” as further defined; and
(iii) Provides certain information along with the swap to a swap data repository or the CFTC.
I don’t think many companies realize they are going to need special board approval to deal with run-of-the-mill interest rate swaps – and this could be applicable before you know it.
Transcript: “How to Cope with the M&A Litigation Explosion”
We have posted the transcript for our recent DealLawyers.com webcast: “How to Cope with the M&A Litigation Explosion.”
Society of Corporate Secretaries Annual Conference: Fun in DC
Back from this year’s conference – in my hometown – and in keeping with last year’s tradition of posting a picture illustrating some class, below are Martin Bischoff and Laurent Rouyres of Labrador at Friday’s Newseum event (here are conference notes from Davis Polk’s Ning Chiu):
Spanking brand new. Posted in our “Risk Factors” Practice Area, this comprehensive “Risk Factors Disclosure Handbook” provides a heap of practical guidance about the disclosure obligations under Item 503(c) of Regulation S-K. This one is a real gem – 37 pages of practical guidance…
Corp Fin Updates Financial Reporting Manual (Again)
A few days ago, Corp Fin indicated that it has updated its Financial Reporting Manual for issues related to age of interim financial statements, use of pro forma information in MD&A, age of financial statements for smaller reporting companies, periods required for financial statements filed by Canadian issuers on Form 40-F, as well as other changes.
Insider Traders Beware! SEC Votes to Strengthen Trading Audit Trail
Yesterday, in a 3-2 vote, the SEC adopted a rule that directs the national securities exchanges and FINRA to establish a market-wide consolidated audit trail that will significantly enhance regulators’ ability to monitor and analyze trading activity. This serves as a good reason to remind insiders of their obligations under the law and corporate insider trading policies.
Deal Cube Tournament: Sweet Sixteen; 4th Match
This is the last match of the 3rd round – the battle among the Sweet Sixteen! As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:
