Wow. Back in February of this year, I passed the decade mark since I launched my maiden site, RealCorporateLawyer.com (here’s how that site looked when I first launched). As the year ends and I wind down on blogging for the holidays, I am going to toot my own horn as a lot has happened since the beginning including these milestones:
1. Created a total of 14 sites – a few of which never saw the light of day.
2. Became one of the first lawyers to blog, starting in May 2002. Now I blog daily on five blogs.
3. One of the first lawyers to conduct webcasts, starting in 2002. 175 webcasts and counting.
4. One of the first to show a conference live via video webcast, starting in 2004.
5. One of the first to post podcasts, starting in 2005. For the three years before that, I posted text transcripts of interviews. Over 400 podcasts and counting.
6. Been actively fostering a vibrant Q&A Forum dialogue with members since 2003. Across all our sites, 20,000 questions and counting.
7. Been actively benchmarking practices online since 2003, either directly on our sites or in our blogs. 125 surveys and counting.
8. Through “The Blue Justice League,” became the first lawyer – as far as I am aware of – to create an online business casual game in 2008.
I’ve also been one of the first lawyers to actively use LinkedIn (since ’06), Twitter (since ’07, using different account than my primary one now), Quora (since ’10), etc. Maybe one day I will grow up to be a “Legal Rebel“…
It looks like Congress has narrowly averted a government shutdown once again. In case final negotiations fall through, here are the SEC’s plans in the event of a shutdown. And here is the SEC’s Enforcement Director’s statement about the agency’s decision to appeal Judge Rakoff’s decision about the Citi settlement in the US Court of Appeals for the Second Circuit….
How to Get a Job
In this podcast, James Martin of DHR International explains how to tweak the board evaluation process to make them more effective, including:
– With the most pronounced legal hiring recession over the last few years in modern history, is there a trend in legal hiring?
– Are law firms hiring again and if so what are they looking for?
– Should I stay with my existing firm or is now the time to start to look for that perfect in-house position?
– Should I stay with my existing in-house position or is not the time to look for a better opportunity?
– Should I stay with my existing firm or is not the time to look for a law firm with a better platform for my practice?
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:
– Watch Those Other Broker Charges
– Evidence: Effects of Prescribing Majority Voting as the Default Voting Standard
– Investors Back Majority Voting as Default Legal Standard
– Another Interview with Bob Monks
– #occupywallstreet: Live!
Yesterday, the US Chamber of Commerce released a 135-page report that proposes a reorganization of the SEC. This new set of recommendations follows up on a proposed overhaul by the Chamber back in early ’09. Authored by former SEC Secretary Jack Katz, the report does have some good ideas – the most important being more resources provided to the SEC and facilitating the ability of the SEC to hire the right people. Hat tip of the Society of Corporate Secretaries for spotting this new report.
Unfortunately, the report doesn’t tackle the most glaring problem of the SEC – that it’s forced to cater to a Congress bent on the SEC not fulfilling its mission to protect investors. Often due to business lobbyists like the Chamber influencing Congress. In my opinion, that needs to be the starting part of any reform (and came ‘oh, so close’ to happening when Dodd-Frank was being negotiated by the House and Senate)…
Even More Proxy Access Proposals: Up to 15
Here is a blog from ISS’s Ted Allen describing 2 more access proposals, one from Amalgamated Bank at HP and two from Jim McRitchie at Goldman Sachs. And then this blog from Ted describes a group of public pension funds that have filed an access proposal at Nabors Industries. Overall, investors have publicly announced 15 access resolutions for the upcoming proxy season.
D&O Insurance: “Disgorgement” Paid in SEC Settlement Not Covered
Check out this recent blog from Kevin LaCroix on his “D&O Diary Blog” where the “New York Supreme Court, Appellate Department, First Division, held that amounts Bear Stearns paid in settlement of SEC late trading and market timing allegations represented a disgorgement that is not covered under its insurance program. Because the appellate court’s decision reversed the lower court ruling that the settlement payment did not constitute a disgorgement, the case provides an interesting perspective of the question of what makes a particular payment a “disgorgement” for purposes of determining insurance policy coverage.”
In the “Davis Polk Governance Blog” recently, Ning Chiu gave us this recap: During its 2012 North American Proxy Season review, proxy advisory services firm Glass Lewis looked back to the 2011 proxy season and also gave insights as to what we can expect from them in 2012. Highlights included:
Say-on-Pay. Glass Lewis recommended against 17.5% of say-on-pay proposals in 2011. They use a proprietary model to evaluate companies and come up with “A” to “F” grades. 10% of companies that they reviewed received “F”s in 2011, with the average say-on-pay results at those companies at 73%. While, like ISS, they cite pay for performance issues as the primary reasons for causing negative recommendations, Glass Lewis also tends to cast an unusual focus on CD&A disclosure that sometimes surprises companies. According to Glass Lewis, they find it problematic when companies disclose performance measures but not the rationale for the selection or the weighting of the measures, or when they perceive inadequate discussion of a compensation committee’s exercise of discretion. Glass Lewis grades CD&A disclosure as “poor, fair and good,” and 5% of companies received “poor” citations in 2011. They mentioned Amazon as an example of a company that, in their view, both performs and has appropriate executive compensation, but has poor CD&A disclosure. In terms of evaluating company responses to prior year say-on-pay votes, Glass Lewis will examine those companies that received at least 75% negative votes for whether to recommend against either the chairman of the compensation committee or the entire committee, depending on companies’ engagement efforts with shareholders and then the level of responses.
Shareholder Proposals, Including Proxy Access. Glass Lewis data shows that there were 443 shareholder proposals in 2011, a decrease from 591 in 2012, mainly attributable to the absence of compensation proposals in light of mandatory say-on-pay. This year’s most popular proposal, given the election year, will likely be on political contributions and related topics. As for proxy access shareholder proposals, similar to ISS, Glass Lewis will review those on a case-by-case basis before making recommendations, including the percentage ownership requested and holding period requirement. Their list of factors that they will consider is much longer than the ISS policy, including an analysis of the company’s shareholder base in both percentage of ownership and type of shareholders, responsiveness of board and management to shareholders as evidenced by “progressive shareholder rights policies” such as annual elections and majority voting, and company performance and steps taken to improve bad performance.
Exclusive Forum Provisions. Glass Lewis discussed the selection of Delaware as an exclusive forum for shareholder derivative suits by 80 companies as of November, adopted either after seeking shareholder approval or by board action alone. We recently blogged about ISS policies on this matter. Like ISS, Glass Lewis generally recommends against an exclusive forum provision and a company will need to demonstrate that it has a long history of suffering from frivolous lawsuits to justify the proposal. But Glass Lewis also takes it a step further and will recommend against the chairman of the governance committee if the company adopts exclusive forum provisions either without shareholder approval or pursuant to a bundled bylaw or charter amendment (where exclusive forum is coupled with other changes). If a company adopts an exclusive forum provision before a company’s IPO, Glass Lewis will recommend against the chairman of the governance committee or the board chairman if there is not a governance committee chairman.
Talk to Us Now. Glass Lewis reiterated that they do not engage with companies during the proxy season, long a frustrating policy for companies after they receive negative Glass Lewis reports, but they are available for discussions during the off-season. At times during the proxy season, they will sponsor “proxy talks” involving a specific company and invited clients.
Next-Generation LTIPs
In this CompensationStandards.com podcast, Larry Cagney of Debevoise & Plimpton explains a new idea for an executive compensation program – Debevoise & Plimpton Retention Incentive Bonus (the “DEEP RIB”) – that takes a slice of an executive’s future short-term incentive compensation and converts it into a long-term investment in the company’s stock (essentially, it is a mandatory executive stock purchase program that pre-funds an executive’s purchase out of future bonuses, but in a way that does not implicate the personal loan provisions of SOX), including:
– What is the “DEEP RIB”?
– How does it stack up to long-term incentives in place today?
– What types of companies should consider this?
– What are the reactions from clients so far?
Take Our Survey on Pay Ratios
Yesterday, I posted this survey about pay ratios ahead of the SEC’s required rulemaking about this topic under Dodd-Frank. Please take a moment to participate – all responses are anonymous.
I have also posted this new survey on blackout periods. Please participate in that too…
In an interesting response to some recent FDIC rules, Mike Melbinger blogged recently that a major insurance broker plans had begun offering “policies that would cover financial firms against both their legal costs in the event that they underwent investigation by the FDIC and any compensation that their executives had to hand back as a result of action by the agency.” I’m not sure that the FDIC, SEC or other regulatory agency would let this fly (nor should they). Anyone else out there hear of any developments in this area? Or have thoughts on the topic? Ping me. I will maintain confidentiality as always…
New Insurance for FCPA Investigation Costs?
As this Willkie Farr memo notes: “the insurance industry has begun to develop insurance products intended to protect companies against the costs of FCPA investigations. These products serve a different purpose from that of existing D&O insurance policies. Some D&O policies do not provide any coverage for FCPA investigation costs. Even if a D&O policy does cover FCPA investigation costs, such D&O coverage is limited to costs incurred by individual company officers and directors and does not cover the company’s costs. The new FCPA insurance products, on the other hand, provide coverage for the company itself. To the extent that there is overlap between a D&O policy and an FCPA policy, the FCPA policy would provide primary coverage in the event of an FCPA investigation, preserving the D&O policy for other suits.”
The memo goes on to describe a new product from Marsh USA that “provides coverage for legal, accounting, auditing, and consulting expenses incurred as a result of an FCPA investigation, but does not cover any fines or penalties that might be imposed. Entities and individuals covered by FCPA Corporate Response include the insured company, all subsidiaries, and all persons employed by or otherwise affiliated with or acting at the direction of the company, including independent contractors and consultants. Significantly, FCPA Corporate Response also provides coverage for costs incurred as a result of investigations conducted by foreign regulators pursuant to foreign laws and regulations, such as the U.K. Bribery Act, to the extent that such laws and regulations are compatible with the anti-bribery provisions of the FCPA.”
Survey: How Prepared Are Companies for a Crisis?
This set of survey results prepared by Pillsbury and Levick Strategic Communications provides interesting insights into how prepared companies think they are for a crisis (here’s the related press release). The findings include:
– Only 60% have a formal crisis response plan
– Only 21% have a reputation management plan for social media
– 64% don’t conduct annual training drills
– The following types of crises were thought to most negatively impact the company: security failure (62%); natural disaster (51%); and blackout (40%)
Ever since e-proxy’s implementation has dramatically reduced voter participation rates, practitioners have been trying to figure out new ways to encourage shareholders to vote. Although I don’t think the SEC would like kindly on companies paying shareholders to vote – not necessarily to vote with management, just to vote period to ensure quorum is reached – I’m sure that conversation has been had more than once.
But what might this look like if it was tried? A member emailed in this: I just happened to come across pages 3-4 of this proxy statement for an incorporated village in Alaska that is somehow subject to the securities laws and involved in a contested solicitation. The solicitation offers a chance to win cash prizes for those that send in their proxy including an “Early Bird Special.” Pretty wild.
Green Bay Packers: More Stock Sold
In tune with all my recent blogs about crowdfunding and novel stock offerings comes this article noting that the Green Bay Packers conducted their fifth offering in their 92-year history last week. This offering had to be approved by NFL and it’s good timing considering that the Packers may well go undefeated this year. 28,000 shares were sold in first 2.5 hours at $250 per pop (plus a $25 handling charge). This article notes how this stock has no resale value and thus is bordering on shady…
Alan Singer of Morgan Lewis notes: In connection with its last offering of common stock, the Packers submitted a no-action request, asking the staff to confirm that it would not recommend enforcement action if the Packers sold the stock without registration under the Securities Act or the Exchange Act. (Green Bay Packers, Inc.,11/13/97). The SEC Staff granted the no-action request.
I have not read the most recent offering document, although I noted the following legend on the cover:
COMMON STOCK DOES NOT CONSTITUTE AN INVESTMENT IN “STOCK” IN THE COMMON SENSE OF THE TERM. PURCHASERS SHOULD NOT PURCHASE COMMON STOCK WITH THE PURPOSE OF MAKING A PROFIT.
Two pages back, another legend adds the following:
PARTICULARITY (sic) IN LIGHT OF THE TRANSFER RESTRICTIONS AND REDEMPTION RIGHTS OF THE CORPORATION DESCRIBED IN THIS OFFERING DOCUMENT, IT IS VIRTUALLY IMPOSSIBLE FOR ANYONE TO REALIZE A PROFIT ON A PURCHASE OF COMMON STOCK OR EVEN TO RECOUP THE AMOUNT INITIALLY PAID TO ACQUIRE SUCH COMMON STOCK.
I read the prior offering document when it came out, and my impression at that time was that a loyal fan who read the document would understand that while a purchaser would receive a stock certificate that was suitable for framing, he or she could not expect to get much else out of his or her purchase.
Transcript: “Updating Your Whistleblower Procedures: How to Apply Six Sigma and Lean Methodologies”
We have posted the transcript for our recent webcast: “Updating Your Whistleblower Procedures: How to Apply Six Sigma and Lean Methodologies.”
Historically, Corp Fin has allowed foreign private issuers (FPIs) to submit initial drafts of registration statements – for their IPO or other first-time filings – on a “draft” confidential basis. Yesterday, Corp Fin released this new policy that notes its position is being changed, effective immediately. Yes, immediately – there is language in the new policy that addresses those FPIs that have already filed and what it means for their amendments.
Here’s analysis from Alex Cohen of Latham & Watkins:
Under the new policy, FPIs that are only listing securities in the United States – as opposed to FPIs that are listed or concurrently listing outside the United States – will in most cases no longer be able to submit confidentially. So, to take an example, a Chinese company doing an IPO on Nasdaq only will from now on likely have to file its F-1 registration statement publicly on EDGAR, and will not be able to submit initial rounds of the F-1 on a confidential basis.
According to the new policy, confidential submission is still allowed under the following circumstances:
– Foreign government that is registering its debt securities;
– FPI that is listed or is concurrently listing its securities on a non-U.S. securities exchange;
– FPI that is being privatized by a foreign government; or
– FPI that can “demonstrate that the public filing of an initial registration statement would conflict with the law of an applicable foreign jurisdiction.”
Under certain circumstances, Corp Fin may request a non-US issuer to publicly file its registration statement even though it would otherwise fall within the new policy. Also note that shell companies, blank check companies and “issuers with no or substantially no business operations” will also not be permitted to use confidential submission.
How does this affect ongoing deals? Let’s say you are currently in the middle of the confidential submission process but don’t meet the new policy — e.g., you are working on a Form F-1 for an FPI listing only in the United States. In that case, the SEC Staff will require the next draft of the F-1 to be filed publicly on EDGAR.
As for my thoughts, I suspect this new policy operating in conjunction with the new reverse merger limitations will limit the number of ‘not ready for prime time’ companies seeking to access the U.S. markets (and may disproportionately affect companies from certain countries). I imagine some foreign companies typically have more substantial comments and revisions in response to SEC comments than a comparable US company. Multiple rounds of F-1/As with heavy revisions to the financials will probably not instill potential IPO investors with a lot of confidence and, also, comment letters would eventually become public – whereas, I am not sure they did before with a confidential review. Extensive comments probably don’t look good in the eyes of creditors even if a FPI decided to withdraw its registration statement which I think quite a few of the foreign confidential filers eventually do.
So this change in Staff’s prior policy, which allowed FPIs to get ready for an IPO without publicly revealing their plans until they were ready to solicit, may affect whether non-US issuers decide to list their shares in the United States…
A Delicate Situation: Stock Buybacks and Meeting Executive Pay Targets
With a down market and companies sitting on boatloads of cash, many are already think stock repurchases as noted in this recent NY Times article entitled “As Layoffs Rise, Stock Buybacks Consume Cash.” As intimated by the title of this article, buyback programs likely will be subject to more scrutiny than in the past. In particular, the purpose the buyback may be called into question – is there a relationship to achievement of an executive compensation target? The optics of a buyback are important these days.
Here’s an excerpt from the NY Times article to consider:
The principle behind buybacks is simple. With fewer shares in circulation, earnings per share can rise smartly even if the company’s underlying growth is lackluster. In many cases, like that of the medical device maker Zimmer Holdings, executives are able to meet goals for profit growth and earn bigger bonuses despite poor stock performance.
“It’s clear there’s a conflict of interest,” said Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “Unless earnings per share are adjusted to reflect the buyback, then to base a bonus on raw earnings per share is problematic. It doesn’t purely reflect performance.” In addition, executives, who are often large shareholders, stand to benefit from even a small, short-term jump in stock prices.
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:
– Post-Proxy Access Decision: Which Way Forward? Part II
– Delaware: Settlement of Multi-Forum Litigation & Fee Negotiations
– Avoid Monoculture. Travel. Read Widely. Let Experience be Your Compass.
– Oil & Gas: SEC Doubts Ability to Book PUDs Beyond 5 Years
– Post-Proxy Access Decision: Which Way Forward?
I felt honored to sit down and tape a podcast with Mike Mayo, now a Banking Analyst for CLSA, who is widely recognized as one of the few honest analysts on Wall Street, a trait that has cost him a half dozen jobs over the years. In this podcast, Mike provides some insight into his new book “Exile on Wall Street – One Analysts Fight to Save the Big Banks from Themselves,” including:
– Why did you write this book?
– Any surprises in reactions to it so far?
– What are your thoughts about executive compensation?
– Any advice for corporate & securities lawyers in general?
Notes from the ABA’s FINRA Corporate Financing Rules Subcommittee Meeting
Here is a Skadden memo with notes from the recent meeting of the ABA’s Business Law Section’s FINRA Corporate Financing Rules Subcommittee, during which a member of FINRA Corporate Financing Department covered the latest rulemakings, interpretations, etc.
Dave Lynn and Mark Borges just wrapped up the Lynn, Borges & Romanek’s “2012 Executive Compensation Disclosure Treatise & Reporting Guide.” For those that want to access it online, it’s now posted on CompensationStandards.com. For those that like a hard copy, it will be finished being printed in a few weeks.
How to Order a Hard-Copy: Remember that a hard copy of the 2012 Treatise is not part of a CompensationStandards.com membership so it must be purchased separately – however, CompensationStandards.com members can obtain a 40% discount by trying a no-risk trial now. This will ensure delivery of this 1200-plus page comprehensive Treatise as soon as it’s done being printed.
Yesterday, Ted Allen of ISS blogged about how Norges Bank Investment Management (NBIM) became the first institutional investor to submit proxy access shareholder proposals this proxy season. NBIM filed them at Wells Fargo, Charles Schwab, Western Union, Staples, Pioneer Natural Resources and CME Group as noted in its press release. Rumor has it that these proposals are in the form of a binding bylaw.
– What sorts of proxy access alternatives do companies have now?
– What is the optimal time for companies to implement something in response to private ordering?
– How complex is your model form of access bylaw?
Last week, CII issued this statement about access proposals.
Compensation Lawsuits: They Keep Coming
Here is something that I blogged on CompensationStandards.com’s “The Advisors’ Blog“: Recently, I blogged about the spate of Section 162(m)-based lawsuits that increasingly are in vogue. The latest one of those was filed against Allergan in Delaware last week (here’s the complaint).
Now we have a new breed of lawsuit – or perhaps it’s more accurate to call it a retread of a vein of old-fashioned pay suits – because it’s not a say-on-pay or Section 162(m) lawsuit, but rather a breach of fiduciary duty – with a helping of alleged self-dealing – suit filed against Ralph Lauren last week in the New York Supreme Court. Even though there was a negative ISS recommendation, the company’s say-on-pay received 96% support (84% when backing out management’s ownership) Founder Ralph Lauren has voting control of the company though Class B shares and it’s deemed a “controlled company” under NYSE rules. The complaint is posted in our “Comp Litigation” Portal. Steven Kittrell notes these allegations in his “Just Compensation” Blog:
– Ralph Lauren Company made a large donation to a charity “affiliated” with a member of the compensation committee;
– One compensation committee member is a “Class B” director. Class B directors are elected solely by Class B stock that is owned only by Ralph Lauren and his family;
– The compensation committee did not hire a compensation consultant in the last year, but got recommendations from management’s compensation consultant for review.
Steven concludes that this case is unlikely to go to trial – and while that is always the best assumption because these cases rarely do, the complaint has a load of allegations that don’t pass the “stink” test giving this case somewhat of a “Disney-esque” quality to it…
Tune in tomorrow for the webcast – “iPads in the Boardroom: 20 Issues to Consider” – to hear Jennifer McGarey of Northrop Grumman, Gina Merritt-Epps of South Jersey Industries, Alicia Myara of Freddie Mac and Kerry Radich of Chevron provide practical guidance about issues to consider and obstacles to overcome involving the use of iPads in the boardroom.
Here’s news from Lynn Turner: On Wednesday, the European Commission proposed new legislation that would result in much greater oversight of the auditing profession within the European Union. Much of the legislation catches Europe up to the current status of regulation of the profession in the U.S. This is interesting in that ten years ago, politicians, Ambassadors, businesses, audit firms, etc. from the EU vehemently opposed Sarbanes-Oxley. Now in many regards, they are embracing it – but only after their investors have paid a very serious price for past lack of action.
The “devil is in the details” of the proposal, such as:
– While in the US investors have been asking for a separate report from the auditors providing information the auditors know, the EC would require such a report but prohibit it from being made available to investors.
– The EC proposal discusses the “client” of the auditor being the company, rather than investors.
– The EC would require substantial expansion of the audit report, in what appears to be a very positive development, including requiring the auditor to set forth how they assessed materiality. The PCAOB has also taken up this topic, but not yet issued a proposal.
– The EC would require auditors to disclose financial information. But that information is very, very limited such as to revenues, which the firms already disclose. It does not require disclosure of basic financial information necessary for any regulator to assess the financial stability, liquidity, viability or performance of the firms they are charged with regulating. In 2008, The U.S. Treasury Committee made a recommendation with respect to increasing transparency of the audit firms, which the PCAOB has yet to act on.
– While mandatory rotation is proposed every 6 years, there are mechanisms put in place to extend this out for up to 12 years. The PCAOB has previously taken up this topic in the US and issued a concept release, but has not yet issued a proposal.
– The EC proposes that non-CPA’s be allowed to own audit firms. This is a change the large audit firms have been requesting for over a decade, as a way to monetize their stock and let the older partners reap the benefit. This is a very dangerous proposal as it would allow for outside investors, or allow the firm to go public, putting the profit motive far ahead of the public interest obligation, and likely resulting in significantly lower audit quality. This idea has been debated and rejected here in the US. It also raises very serious independence issues, for example, when a private equity or hedge fund invests in a CPA audit firm, would the audit firm be able to audit other companies the investment firm holds? If so, could investors ever believe the audit firm would ever bring to light a problem in the company, such as an Olympus, if it would have negative consequences for the investment fund?
Ultimately, the real problem is the fact the company being audited still pays the bill. That is not changing under the EC proposal and will remain as the real problem, just as it is for credit rating companies. Until that problem is directly addressed it is likely audits will remain problematic, although some of the proposals may be beneficial.
EU Proposes Disclosure Requirements for Payments to Governments for Natural Resources Development
It’s not only Sarbanes-Oxley that is being somewhat cloned in Europe. As this memo summarizes, the EU recently issued two proposals to amend the European Union Transparency Directive that together contain new requirements for the disclosure of payments to governments by certain companies engaged in natural resource extraction or logging. This is a big deal for companies in the extractive industry with operations in the EU a la Dodd-Frank.
In the “Dodd-Frank Blog,” Jill Radloff of Leonard Street & Deinard provides an update on the OECD Conflict Minerals Project, including this new OECD report that establishes a baseline of current due-diligence practices of downstream companies.
EU Summarizes Comments on its Governance Green Paper
Recently, the European Union issued a summary of the 400+ comments submitted in response to its corporate governance green paper that it proposed back in April.
As expected, SIFMA and International Swaps and Derivatives Association filed this complaint on Friday in US District Court for DC to challenge the CFTC’s new rule that seeks to curb excessive speculation (like proxy access, this rule was approved 3-2 by the CFTC Commissioners). The groups have petitioned the higher US Court of Appeals for the DC Circuit to hear the case – which is the court that ruled against the SEC in the proxy access lawsuit filed by the Business Roundtable and US Chamber of Commerce a few months back. And like that lawsuit, this one claims the CFTC didn’t conduct a proper cost-benefit analysis. Here’s a Reuters article – and here’s a NY Times’ DealBook article.
Senate Bill to Encourage Small Company Capital Formation
Catching up to the House activity in this area, Senators Charles Schumer (D-N.Y.) and Pat Toomey (R-Pa.) issued this press release last week about their new bill that would establish a new category of issuers – “emerging growth companies” – that would have less than $1 billion in revenues before the IPO and less than $700 million in public float after the IPO, along with scaled regulatory burdens – egs. freed from say-on-pay and just two years of financials rather than three – as part of a transitional “on-ramp” status that could last as long as 5 years, and more.
Auditor Tenure, Financial Officer Turnover and Financial Reporting Trends
Audit Analytics just wrapped up this study that provides data that should help to facilitate commentary on the PCAOB’s concept release regarding auditor independence and rotation. Highlights from the research include the following:
– Both the Russell 1000 and the Russell 2000 companies with auditor tenure of five years or less paid more in audit fees (per million dollars in revenue) than companies with longer tenure.
– 16.1% of the Russell 1000 companies have engaged the same auditor for 40 or more years. This percentage drops to 4.1% for the Russell 2000.
– About 50% of both the Russell 1000 and Russell 2000 companies experienced a CFO departure during the six-year period from 2005 to 2010.
– Over 96% of both the Russell 1000 and Russell 2000 companies with 40 or more years of auditor tenure experienced a turnover in an audit committee member during the six years under review.
– US accelerated filers were first required to provide SOX 404 certifications in annual reports for fiscal years ending on or after November 15, 2004. Ineffective ICFRs (SOX 404) for the Russell 1000 have significantly declined, from 8.21% in 2005 down to .83% in 2010. Adverse SOX 302 disclosures have declined in a similar fashion.
– During the six years under review, quantitative data concerning restatements and late filings (NT disclosures) reflect a steady and substantial improvement in financial reporting.
– Pursuant to Section 408(c) of Sarbanes-Oxley, the SEC is reviewing a company’s filings every three years; an analysis of SEC comment letters, however, show a more frequent oversight of the larger companies, particularly in the last three years, with over 65% of the Russell 1000 receiving a letter in each calendar years and over 50% of the Russell 2000 receiving a letter.
Last week, the PCAOB approved its 2011-2015 Strategic Plan and 2012 fiscal-year budget of approximately $227.7 million, which is a 11.4% hike from last year. Now the budget must be approved by the SEC…
