The SEC has begun to issue comments on Dodd-Frank disclosures included in SEC filings. While perhaps the comments to date are not great in number, they demonstrate the SEC is capable of asking difficult questions about the impact of Dodd-Frank on an issuer’s operations. We recommend that issuers consider the impact of Dodd-Frank when preparing their Form 10-Ks and other disclosure documents. The more significant comments we noted are set forth below.
FXCM Inc.: The SEC comment stated in part “Based on your description of your CFD business in the prospectus, it appears that the CFDs would fall within the definition of swap under the current language of Section 206A of Gramm-Leach-Bliley and would fall within the definition of a swap under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Please explain in a detailed legal analysis how your proposed plan of business would operate under both the federal securities law and the Commodity Exchange Act.”
The issuer’s response, in part, stated “To the extent that CFDs were deemed to be swaps, futures, forwards or other instruments over which the CFTC has jurisdiction or will, as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, have jurisdiction in the future, the CFDs offered and sold by the Company’s non-U.S. subsidiaries would be fully outside of such jurisdiction since they are offered exclusively outside the U.S. and exclusively to non-U.S. persons. . . [citations omitted] Further, Congress provided in Dodd-Frank that the CFTC’s jurisdiction over swaps would not generally reach swap transactions outside the U.S. Specifically, Dodd-Frank provides that the provisions of the Commodity Exchange Act relating to swaps shall not apply to transactions outside the U.S. unless they ” have a direct and significant connection with activities in, or effect on, commerce” in the U.S. or contravene rules promulgated by the CFTC to prevent the evasion of provisions of the Commodity Exchange Act related to swaps. Section 722(d) of Dodd-Frank (to be codified in Section 2(i) of the Commodity Exchange Act).”
Randgold Resources Limited: The SEC comment stated “We note your operations in the Democratic Republic of the Congo (DRC) produce gold which is defined as a conflict mineral in the recent Dodd-Frank Wall Street Reform and Consumer Protection Act. With a view toward possible disclosure, tell us whether or not your mining operations acquire or purchase gold and/or other conflict minerals from local mining companies and/or artisanal miners.” The issuer responded “The Company respectfully advises the Staff that the Company’s Kibali Project in the Democratic Republic of the Congo is a development project which is currently at the feasibility stage, and consequently is not yet an operating mine and does not produce any gold. Furthermore, the Company does not purchase gold or other conflict minerals from any local mining companies and/or artisanal miners.”
First Horizon National Corporation: This issuer responded to a comment requesting the issuer provide a “more robust discussion of your trust preferred loans.” In part the issuer’s response stated “Since the vast majority of trust preferred issuers to which FHN has extended credit have less than $15 billion in total assets, the passage of the Dodd-Frank Act is not expected to significantly affect future payoff rates for these loans.”
A Transcript of Berkshire Hathaway’s Loooong Annual Meeting
Most companies hold annual meetings that are over in a manner of minutes. Berkshire Hathaway is an anomaly was its annual meeting is the cause for pilgrimages for 30,000 investors to Omaha every year. Thousands – if not millions – in merchandise is sold at the event. With a hat tip of Jim McRitchie’s CorpGov.net, here is a 24-page transcript of some of the remarks made by Warren and Charlie Munger from the all-day event.
Francine McKenna of re:theauditors also made the trip this year and here is her blog about the event (and here’s a piece from Francine raising questions about the format of journalists screening the questions submitted). The Q&A period was held during the first 7-plus hours of the meeting, with the formal business being covered during the last half hour (which many in the crowd decided not to stay for)…
The SEC’s Foreign Private Issuer Stats
Here’s some good stuff from Vanessa Schoenthaler and her “100 F Street Blog“:
Recently, the SEC released its updated list of registered and reporting foreign private issuers for the year ended December 31, 2010. Of the 970 issuers accounted for approximately:
– 35.8%, or 347 issuers, were organized in Canada;
– 12.9%, or 125 issuers, were organized in the Cayman Islands;
– 7.6%, or 74 issuers, were organized in Israel; and
– 5.0%, or 49 issuers, were organized in the British Virgin Islands;
The remaining 38.7 % of issuers were organized in 47 different countries.
Most foreign private issuers, 46.5% of them, were listed on the NYSE/Amex/Arca markets, 27.1% were listed on the Nasdaq markets and the remaining 26.4% were quoted in the over the counter markets.
By the way, SEC Chair Schapiro already has provided the first in what is likely a long line of testimonies before Congress on the SEC’s 2012 budget even though the agency’s 2011 budget was just approved. She wants to add over 700 new Staffers for fiscal ’12…
Here is something that I blogged last week on CompensationStandards.com’s “The Advisors’ Blog”:
Recently, TK Kerstetter of Corporate Board Member expressed his opinion that directors are underpaid. Earlier this week, he wrote this blog entitled “Directors Still Shy About Giving Themselves Raises.” I’m not sure where TK is getting his data from, but we haven’t seen any studies for this proxy season yet as the proxy disclosures are just rolling in now – and the data from last year (comparing 2010 to 2009 levels) revealed that boards received double digit (11%) raises on average when comparing total values of director compensation. That surely isn’t bad in a poor economy – and I predict the 2010-2011 comparison will also reveal a significant move upwards. [My data is pulled from Frederic W. Cook & Co.’s latest report on director compensation that compares the Nasdaq 100 vs. NYSE 100 for 2010.]
As reflected in TK’s blog, some argue that boards are doing more now so their pay levels should be adjusted upwards. But that doesn’t take into account that boards likely were overpaid in the past – so perhaps now they are finally earning what they make. $228,00 per year for a very part-time job isn’t bad (this is the median amount for 2010 noted in the Cook report). Go back a decade and talk to anyone who spent significant time in the boardroom and you’ll hear plenty of stories about how boards did very little before the advent of governance reforms and shareholder pressures directed towards them since the turn of the century. Consider that only a handful of companies had written procedures & policies (ie. corporate governance guidelines) about how their boards operate a decade ago. That says a lot about how seriously many boards took their role back then in my opinion.
And I strongly urge boards not to fall into the trap of relying solely on peer group studies to determine how much they should pay themselves. This would be repeating history as this type of benchmarking is one of the major causes of excessive CEO pay – the slippery slope upwards as everyone wants to be paid in the top quartile (who would say “we are a bad board and so should be paid at the bottom”?). Not to mention all the other perils of peer benchmarking, such as manipulating the data (as noted in the recent study). Common sense needs to prevail. Boards don’t need raises because “everyone else is doing it” without considering the sizable amounts they already earn for the fairly limited tasks they perform.
Shareholder Proposals: Real Celebrities Get Into the Mix
Those of us that come to love (and hate) the proxy season know the names “Evelyn Y. Davis” and “John Chevedden” all too well. They are among our celebrities. As I touched upon in this blog, real-life celebrities are now entering into our small world – Mike Diamond of the Beastie Boys has become a shareholder proponent, using the Rule 14a-8 process to weigh in on net neutrality. I wouldn’t be surprised to see more celebrities get involved with their causes by submitting shareholder proposals to companies.
Also note how much more litigation there is over shareholder proposals compared to prior seasons – see this complaint filed by the People for the Ethical Treatment of Animals against Merck after Corp Fin allowed the company to exclude PECA’s proposal on eligibility grounds.
Impact of Dodd-Frank on States
In this podcast, Allen Goolsby of Hunton & Williams discusses how Dodd-Frank has impacted state law, including:
– How does Dodd-Frank erode state corporate law?
– What should companies be thinking about with respect to the laws of their states of incorporation?
– What other state law concerns does Dodd-Frank raise?
We have posted the results of our survey regarding CEO succession planning, repeated below (compare to similar survey from ’08):
1. Our company:
– Has a written CEO succession plan in a formal document or policy – 6.7%
– Has a written CEO succession plan in the form of a board resolution or as part of the board minutes – 6.7%
– Has a CEO succession plan, but its not memorialized in writing – 60.0%
– Doesn’t have a CEO succession plan – 26.7%
2. Our company:
– Reviews and updates the CEO succession plan at least annually – 46.7%
– Reviews and updates the CEO succession plan on occasion – 20.0%
– Doesn’t reviews the CEO succession plan (but it does have one) – 6.7%
– Doesn’t have a CEO succession plan – 26.7%
Please take a moment to participate on this “Quick Survey on Regulation FD Practices.”
Recent Corp Fin Comments on Disclosures of Loss Contingencies
Recently, Anne Cotter of Leonard Street & Deinard blogged about recent comments issued on loss contingency disclosures in the “Dodd-Frank.com Blog.” Before listing sample comments, Anne notes: “If the SEC notes a significant potential loss, they may ask pointed questions about it. And if you talk about it during your earnings call, but do not mention it in your periodic report, they may still ask about it.”
Happy Anniversary Baby! 9 Years of Blogging and Counting
Today marks nine years of my blither and bother on this blog (note the DealLawyers.com Blog is nearly eight years old – not shabby!). It’s one time of the year that I feel entitled to toot my own horn – as it takes stamina and boldness to blog for so long. A hearty “thanks” to all those that read this blog for putting up with my personality. I’m sure I won’t get more refined with age.
Interestingly enough, I am spending my anniversary speaking at a PLI conference about social media. Check it out if you are curious about all the fuss…
Last week, MDC Holdings filed this Form 8-K to report that it became the 11th company to fail to gain majority support for its say-on-pay, with only 34% voting in favor. In addition, Janus Capital Group filed this Form 8-K – with only 41% voting in favor – to become the 12th company with a failed say-on-pay. We continue to maintain our list of links to Form 8-Ks filed by companies with a failed SOP in our “Say-on-Pay” Practice Area on CompensationStandards.com.
Dodd-Frank: Another Rulemaking Progress Report
Here is the 2nd progress report from Davis Polk regarding all of the various agencies engaged in Dodd-Frank rulemaking. This one visually illustrates the regulatory burden imposed by Dodd-Frank, noting that all 26 rulemaking requirements in April were missed, increasing the backlog of missed rulemakings to 30.
The Changing Society of Corporate Secretaries
In this podcast, Ken Bertsch, President & CEO of the Society of Corporate Secretaries & Governance Professionals, explains how he envisions the future of the Society, including:
– How do you like your new position so far? Any surprises?
– What types of changes do you foresee for the Society in the near term? Further out?
– How will this year’s annual conference program differ from prior years?
Last week, Cogent Communications filed this Form 8-K to report that it became the 10th company to fail to gain majority support for its say-on-pay, with only 39% voting in favor. Ted Allen’s blog provides some analysis, including noting significant levels of “no” votes at Pfizer and Johnson & Johnson (both of whom are S&P 500 companies).
Less Than Two Weeks Left for Early Bird: Our Say-on-Pay Intensive Conference Lineup – We have announced the line-up for our annual package of executive pay conferences to be held on November 1st-2nd in San Francisco and by video webcast: “Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference” and “The Say-on-Pay Workshop Conference: 8th Annual Executive Compensation Conference.” Save 25% by registering by May 13 at our early-bird discount rates.
Webcast “Tackling Social Media Issues”
As I blogged last week, there are so many novel issues to consider with social media right now (and cool stuff like this blog from Johnson & Johnson’s Doug Chia regarding the company’s voting results). Tune in tomorrow to hear these issues discussed during the webcast – “Tackling Social Media Issues” – by Tom Kim, Chief Counsel of the SEC’s Division of Corporation Finance, Eddie Best of Mayer Brown, Karen Dempsey of Orrick, Herrington & Sutcliffe, Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster and Dominic Jones of IR Web Report. Note the new time of this webcast from 12:00 – 1:00 pm eastern.
Our May Eminders is Posted!
We have posted the May issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
We have posted the survey results regarding director recruitment and training trends, repeated below:
1. When your company recruits new directors, do you conduct a background check on the candidates:
– Yes – 82.4%
– No – 17.6%
2. If you answered “yes” to #1, does your company:
– Use a third-party to conduct the background check (e.g. private investigator) – 76.9%
– Use internal resources to conduct the background check – 38.5%
3. If you answered “yes” to #1, does your company:
– Check the background of the candidate’s professional life – 100%
– Check the background of the candidate’s personal life – 69.2%
4. If you answered “yes” to #1, has your company ever decided not to nominate a director based on the results of a background check:
– Yes – 0%
– No – 100%
5. Does your company require Audit Committee members to complete ongoing training to stay current with GAAP and PCAOB standards for financial reporting and internal controls:
– Yes – 6.3%
– No – 93.7%
Please take our new “Quick Survey on Director Resignations.”
More Dodd-Frank Rulemakings Delayed
Recently, I blogged about a slew of Corp Fin rulemakings that have been delayed under the SEC’s “Dodd-Frank Implementation Timeline.” Given that we are at the end of April and a few rulemakings slotted to be adopted before now have not happened, the SEC recently adjusted the timeline to move them to the “May-July” bucket. This includes these three rulemakings:
– §926: Propose rules disqualifying the offer or sale of securities in certain exempt offerings by certain felons and others similarly situated
– §951: Adopt rules regarding disclosure by institutional investment managers of votes on executive compensation
– §922: Adopt rules to implement a Whistleblower Incentives & Protection Program
On Wednesday, the SEC proposed rules that would remove references to credit ratings in several rules under the ’34 Act. Here’s the press release – and here’s the proposing release.
More on our “Proxy Season Blog”
With the proxy season in full swing, we are posting new items regularly on our “Proxy Season 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:
– A Look Ahead at Peak Meeting Dates
– Adjournment and Circulation of Proxy Cards
– Annual Meeting Survey Results: Part I
– ISS’s “25th Anniversary Book”
– The Aging of US Corporate Boards
Why Do Surfers Have Published Etiquette Rules, But Not the Rest of Us?
The explosion in social media these days is evident by any number of ways. One obvious way are the usage statistics themselves – check out these stats. Another is reading the amazing things that companies and investors are doing, mostly courtesy of Dominic Jones’ “IR Web Report” (eg. “Surprise as investor relations YouTube video goes viral”). For me, a sure sign is the high volume of panels on the topic that I have been kindly invited to over the next few months.
But even if you never envision yourself as a blogger or conversing via Twitter, you can’t ignore that your clients are. To best understand how fast the use of social media by public companies – and investors – has grown, I encourage you to read Dominic’s blog entitled “Social media investor relations reaches tipping point” and then tune in on Tuesday for our webcast – “Tackling Social Media Issues” – during which the panel (including the SEC’s Corp Fin Chief Counsel Tom Kim) will discuss a myriad of issues that likely will catch you off guard, including:
– Can a tweet make information public for purposes of Reg FD?
– Who is a “senior official” or company representative for Reg FD purposes when it comes to social media?
– Have companies implemented the SEC’s web disclosure guidance? How? Or why not?
– How have companies made inadvertent premature disclosure through their own website leaks (or leaks through third-parties)?
– How has social media been used for annual meetings? By third-parties soliciting?
– Are e-Forums being used? And how?
– Are there issues if a company is selectively tweeting only positive news?
– How about if companies are tweeting their own earnings guidance over and over again?
– Can tweeting about products & services raise securities law issues?
– What issues can social media pose for ’33 Act offerings? How about for pre-IPO companies?
I’m not sure how we will cover so much in the span of an hour, but you can see how many issues there are to consider. I rarely talk up a webcast so much before it happens – and I am biased since social media is near and dear to me (follow me on Twitter) – but I do believe this is a groundbreaking program. Tune in and find out. Note the new time of the program of 12:00 – 1:00 pm eastern.
Book Review: Social Marketing to the Business Customer
Recently, I wrapped up one of the first books of its kind – “Social Marketing to the Business Customer” – courtesy of one of the authors, Eric Schwartzman. For law firms and others that covet other professionals as clients, this is a good resource to understand how vital social media is to your future – and how best to leverage that opportunity. Using social media certainly requires a different approach than what firms have been accustomed to in the past since it requires you to be part of the “conversation.” Red tape is a hazard here.
The book contains nice examples of how companies have used social media to reach out to their clients (and potential clients) in ways that were always dreamed about, but not realized until now. And it has a great section on how to overcome internal objections to embracing this future (particularly helpful for law firms, who are notorious to be among the last to embrace new technology to their advantage). I’ll be blogging more in this area as I wind my way through my speaking gigs over the next few months…
Study: Rate of CEO Turnover
Recently, Equilar issued this study on CEO turnover in the S&P 1500. A few key findings:
– 381 companies in the S&P 1500 changed CEOs once from 2007 to 2009; 33 changed CEOs twice or more.
– Three-quarters of incoming CEOs were internal hires, while a quarter came from outside the firm.
– Women are gaining ground as executives: 17 outgoing male CEOs were replaced by women.
Last July, Corp Fin Director Meredith Cross announced the creation of three new offices in the Division. Then in December, the heads of these new offices were selected, but the offices were not fully staffed due to budget concerns. Now that the SEC’s budget finally has been set for the year, Corp Fin recently begun to fill in these new offices by promoting Staffers from other groups as follows:
1. Office of Capital Market Trends – Special Counsels Damon Colbert, John Harrington and Andy Schoeffler; Analyst David Walz
2. Office of Structured Finance – Senior Special Counsel Rolaine Bancroft and Special Counsels David Beaning, Robert Errett and Jay Knight
3. Financial Services II, AD12 – Accounting Branch Chief Kevin Vaughn; Special Counsels Sebastian Gomez Abero and Michael Seaman; Attorneys Eric Envall and Celia Soehner; Accountants Angela Connell, Yolanda Crittendon, Brittany Ebbertt, Rebekah Lindsey, Lindsay McCord and Staci Shannon
Yesterday, Navigant Consulting filed this Form 8-K to report that it became the 9th company to fail to gain majority support for its say-on-pay, with only 45% voting in favor. Ted Allen’s blog provides some analysis.
Transcript: “What the Top Compensation Consultants Are NOW Telling Compensation Committees”
We have posted the transcript for the CompensationStandards.com webcast: Transcript: “What the Top Compensation Consultants Are NOW Telling Compensation Committees.”
Probably the most interesting development that happened while I was on vaca last week was the one noted by Mike Melbinger in his blog on CompensationStandards.com. Mike blogged about how some of the first companies to fail to receive majority support on their SOP have been sued (as well as their compensation committee members and even their compensation consultants) in shareholder derivative suits. Not only have the early failures of this proxy season been sued, but two of the companies that failed last year were sued (one case has been settled and one is still pending). We have begun to collect the pleadings from these cases for CompensationStandards.com’s “Say-on-Pay” Practice Area.
With the ante continuing to go up, take advantage of the early bird discount now for our pair of conferences – “The Say-on-Pay Workshop: 8th Annual Executive Compensation Conference” and the “6th Annual Proxy Disclosure Conference” (here’s the agendas) – which will be held on November 1st-2nd in San Francisco and via video webcast. Register now to obtain a 25% Early Bird Discount!
Delaware Chancellor Chandler Retires
In his “Delaware Corporate & Commercial Litigation” Blog, Francis Pileggi notes that Delaware Chancellor William Chandler has retired before the completion of his term and explains the process by which a replacement will be chosen. Francis also notes the importance of not having a full bench of five members of the Delaware Court of Chancery.
AFL-CIO Launches 2011 “Executive PayWatch”
Last week, as ISS’s Ted Allen notes in this blog, the AFL-CIO began a campaign to urge shareholders to vote on say-on-pay. The blog is repeated below:
The AFL-CIO has launched the 2011 version of its Executive PayWatch Web site and is urging investors to help rein in CEO pay by participating in the advisory votes on compensation that all large and mid-cap companies will hold this year. “Although non-binding, it’s the first time that shareholders have had this opportunity,” Richard Trumka, president of the AFL-CIO, said at a press conference on Tuesday. The labor federation is analzying corporate pay disclosures and plans to vote against the compensation practices at some companies, but hasn’t publicly identified those firms. An AFL-CIO affiliate, the American Federation of State, County, and Municipal Employees, has launched a “vote no” campaign against the pay practices at Pfizer and Johnson & Johnson.
The PayWatch site features a searchable database that includes CEO pay information from 299 S&P 500 companies that have filed proxy materials. According to the labor federation, the average 2010 compensation at those firms was $11.4 million, up 23 percent from 2009. On average, these pay packages included $3.8 million in stock awards, $2.4 million in stock options, $2.4 million in non-equity incentive plan compensation, $1.2 million in pension and deferred compensation, $1.1 million in salary, a $251,413 bonus, and $215,911 in other compensation. Trumka said the average total compensation for S&P 500 CEOs is now about 343 times that of the average American worker, up from 42 times in 1980. “We believe that executive pay has gotten out of whack,” he said.
AFL-CIO officials also expressed concern that House Republicans had introduced legislation to repeal another Dodd-Frank Act provision that would require companies to disclose the ratio between the total compensation received by the CEO and the median pay received by the firm’s employees. Corporate advocates have denounced this provision, arguing that it would be extremely costly to collect this data, and that the foreign and part-time employees should be excluded from this calculation. Trumka denounced this attempt to “water down” Dodd-Frank and said this pay ratio disclosure “would have a profound impact” and prod boards to set compensation based on a company’s own organizational needs, rather than based on the pay at other companies.
The SEC has not yet proposed rules to implement this provision but plans to do later during the second half of the year. The AFL-CIO is urging the commission to require companies to include both their foreign and part-time workers in the pay ratio calculations. The AFL-CIO’s Paywatch site specifically criticized the pay practices of six companies: Occidental Petroleum, Hewlett-Packard, Reynolds American, Rite Aid, Abercrombie & Fitch, and PulteGroup.
Last week, Stanley Black & Decker filed this Form 8-K to report that it became the seventh company to fail to gain majority support for its say-on-pay, with only 39% voting in favor. Not only did shareholders reject the company’s SOP, they also came down hard on the board – two directors had 49% withheld. Cooley’s Amy Muecke analyzes why the company failed in this memo.
Then on Friday – in a midst of a flurry of filings on a day when the markets were closed – Umpqua Holdings Corporation filed this Form 8-K to report it became the eighth failed say-on-pay with only 35% voting in support. Umpqua’s Form 8-K is unique in that it chose to include a narrative on why it believed it failed (ie. ISS recommended against the company and the company disagrees with ISS’s analysis).
In his “Proxy Disclosure Blog,” Mark Borges gives us the latest say-when-on-pay stats: with 2177 companies filing their proxies, 43% triennial; 4% biennial; 51% annual; and 4% no recommendation.
Dodd-Frank: The SEC’s Internal Controls Study for Smaller Companies
On Friday, the SEC released an internal controls study mandated by Section 989G(b) of Dodd-Frank regarding the impact of Section 404(b) of Sarbanes-Oxley on smaller reporting companies (those with a public float between $75 and $250 million). The study didn’t find that these smaller companies have unique characteristics that would provide sufficient reasons for differentiating them from accelerated filers as a whole – so it didn’t recommend Section 404(b) relief for them. The study also found that internal controls costs have been going down.
Last week, as noted in this CFO.com article, the FASB and IASB will extend “by a few additional months” their target date for completing their four highest-priority joint convergence projects.
Scenes from Spring Break
Here are a few random videos from my vacation last week. This first one is from UC-Berkeley campus, where group of students sang The Who’s “Behind Blue Eyes” a cappella style:
This one is from the Santa Cruz Boardwalk and features “Ask the Brain”:
