On Tuesday, the PCAOB issued a proposed auditing standard that would change how an auditor evaluated a client’s identification of, accounting for, and disclosure about its relationships and transactions with related parties. As noted in this Towers Watson alert, this proposal could bring added involvement of independent auditors into executive pay decisions. Under this proposal, a company’s auditor would have to review its client’s pay programs and determine if they might encourage excessive risk-taking.
I haven’t read the proposal yet myself, but it seems that going down that slippery slope, might it be possible that an auditor would say to a company, “too risky, we can’t sign off on the financials” – so auditors could possibly play a role of essentially pre-approving pay programs? Comments are due by May 15th.
Survey Results: Pay Ratios
We have posted the survey results regarding how companies are preparing now for the SEC’s upcoming pay disparity rulemaking, repeated below:
1. At our company, the board:
– Does not consider internal pay equity when setting the CEO’s compensation – 51.8%
– Does consider internal pay equity as a factor by comparing the CEO’s pay to all employees – 1.8%
– Does consider internal pay equity as a factor by comparing the CEO’s pay to other senior executives – 44.6%
– Does consider internal pay equity as a factor by comparing the CEO’s pay to a formula different than the two noted above – 1.8%
2. Ahead of the SEC’s mandated pay disparity disclosure rulemaking under Dodd-Frank, our company:
– Has not yet considered how we would comply with the rules – 58.9%
– Has begun considering the impact by assessing whether we could comply with the precise prescriptions in Dodd-Frank but we have not yet tested statistical sampling – 35.7%
– Has begun considering the impact by assessing whether we could comply with the precise prescriptions in Dodd-Frank including assessing whether we could use statistical sampling – 5.4%
3. As one of the companies that have assessed the impact of the SEC’s mandated pay disparity disclosure rulemaking, our company:
– Believes we could comply with the precise prescriptions in Dodd-Frank without too great a burden – 13.5%
– Believes we could comply with the precise prescriptions in Dodd-Frank but it would be too burdensome unless statistical sampling is allowed – 13.5%
– Believes we could comply with the precise prescriptions in Dodd-Frank but it would be burdensome even if statistical sampling is allowed – 45.9%
– Believes we wouldn’t be able to ever comply with the precise prescriptions in Dodd-Frank – 27.0%
4. In your own opinion, do you think that statistical sampling would have too high a potential for manipulation or material error:
– Yes – 38.2%
– No – 29.1%
– I don’t have an opinion – 32.7%
Please take a moment to participate in this “Quick Survey on Board Minutes & Auditors” – and this “Quick Survey on GRC Software.”
Transcript: “The Dynamics of Disclosure Claims”
We have posted the transcript for the recent DealLawyers.com webcast: “The Dynamics of Disclosure Claims.”
I was very sad to learn that Ella Phelps passed away on Sunday after a long illness. Ella worked in Corp Fin as a secretary for 15 years – and then worked in the Office of Economic Analysis for another decade – before retiring last year. Ella was one of the secretaries in the banking group when I first started at the SEC out of law school in ’88.
And Ella ran the place. With her great wit, she was always entertaining us. Her desk geographically was in the center of the group – so you joked around constantly with Ella throughout the day. But more importantly, Ella spoke to all of our loved ones as this was in the era before voicemail (and computers) and she knew more about our personal lives than we did! For a while, I dated someone down in Chapel Hill and Ella – hailing from North Carolina – got to know her so well that they remained friends even after we broke up! I remember Ella telling many loving stories about her husband Charles and her two children, as well as her fabulous cooking adventures. She will be missed.
Here is a picture of Ella in the midst of a banking pod party in ’90. And here is a guest book where friends & family can post comments, as well as information about tomorrow’s viewing.
Last week, SEC Commissioner Luis Aguilar delivered this speech – entitled “Shining a Light on Expenditures of Shareholder Money” – urging the SEC to act in the newly hot area of political contribution disclosures (Vanessa Schoenthaler’s blog notes Chair Schapiro’s comments on the topic). Here are other speeches delivered during PLI’s “SEC Speaks” Conference:
I have blogged other notes from the conference, both on “The Mentor Blog” (accounting, enforcement and litigation perspective) – and on CompensationStandards.com “The Advisors Blog” (Corp Fin on Form S-3 waivers for failure to amend Form 8-Ks and report say-on-pay frequency voting results).
By the way, the SEC has redesigned its “Speeches and Public Statements” page so that you can more easily sort out speeches by a specific speaker, etc.
Transcript: “The Exploding World of Political Contributions”
We have posted the transcript for our recent webcast: “The Exploding World of Political Contributions.”
Webcast: “Conduct of the Annual Meeting”
Tune in tomorrow for the webcast – “Conduct of the Annual Meeting” – to hear Kathy Gibson of Campbell Soup, Carl Hagberg of The Shareholder Service Optimizer, Bob Lamm of Pfizer, Barbara Mathews of Edison International and Carol Ward of Kraft Foods explain how they handle the many challenges of running an annual shareholders meeting.
How old were you when you when you found out that ‘Leap Day William‘ wasn’t real? A classic from “30 Rock” if you missed it. Up there with Seinfeld’s creation of Festivus…
Meanwhile, Keith Bishop blogs about a proposed California bill that would allow general solicitations in that state. And his blog today is entitled “Bill Proposes Another Reason Not To Incorporate In California.”
Report: How ESG Will Fare This Proxy Season
Today, Sustainable Investments Institute and As You Sow release their annual Proxy Preview Report. Their proxy season forecast primarily deals with social and environmental proposals and a smattering of governance ones (those with a social twist) and it includes profiles of a bunch of different shareholder activists, plus commentaries from a few other key proxy season players. In addition to the Report, they are holding a webcast later today.
Highlights of the 2012 ESG shareholder proposals include:
– Political Spending: Investors are increasingly concerned about corporate political spending disclosure and have filed twice as many resolutions on this topic for 2012 (109) as they did just three years ago. New is a large group of proposals that focus on spending after elections, through lobbying. Another new feature in 2012 is a call for ending any campaign spending at a couple of companies (3M, Target, and Bank of America), and a few requests for shareholder votes on companies’ political spending practices. Contributions through intermediaries are a critical focus of all the proposals, highlighting public worries about cash and influence in the 2012 election.
– Environment and Sustainability: Shareholder proponents still want companies to address climate change, reduce their impacts on natural resources, and use fewer toxic chemicals. The 117 environmental/sustainability resolutions filed in 2012 express these concerns as part of a roadmap for a new energy future. Coal and fracking dominate the group of 44 natural resource management proposals, with worries about the financial risks of relying on coal-based energy and the implications of shale gas development. A shareholder resolution from the New York City pension funds has helped prompt deals with Apple and other big electronics firms to be more open about conditions in their supply chains, even as investors tell companies they want environmental and social policies that are sustainable over the long term.
– Mortgage Foreclosures: Investors at four of the country’s biggest banks will vote on whether they want more information on loan modifications, foreclosures, and securitization – on the heels of the recent $26 billion settlement that benefits homeowners.
– Diversity: The country’s largest institutional investors want more diverse boards, as the report highlights. And companies increasingly are establishing non-discrimination policies for lesbian, gay, bisexual, and transgender (LGBT) employees, even as they face 38 proposals on this subject. Combined, the board and employee diversity proposals account for 11% of the total number of proposals filed so far, about even with the 2011 tally.
– Labor and Human Rights: About two dozen resolutions request action on labor and human rights, mostly at companies active in global conflict zones, from faith-based investors. But several also raise concerns at private U.S. prison companies, Corrections Corp. of America, and GEO Group. An AFL-CIO proposal to a few companies is about worker safety on oil rigs and refineries, following up on safety audit issues sparked by Gulf of Mexico spill two years ago. And a new Securities and Exchange Commission interpretation just issued means investors now can vote on whether they think companies should provide equal access to all on the Internet.
Transcript: “Alan Dye on the Latest Section 16 Developments”
We have posted the transcript for the recent Section16.net webcast: “Alan Dye on the Latest Section 16 Developments.”
Last week, I received this from a member: Just when you thought it was safe to do business in New York State, here comes along a New York Executive Order that is intended to apply solely to health care providers but it’s so poorly drafted that it arguably applies to all companies doing any services business with New York State. Many of us still recall the New York State Power of Attorney debacle of 2009-2010. The state legislature had amended New York State’s power of attorney (POA) law in a commendable attempt to protect the elderly from unscrupulous financial advisors using broad POAs to clean out their bank accounts.
Unfortunately, because of poor drafting, it had the unintended consequence of applying to ordinary course POAs given in the corporate context. Among other things, that law required that when corporate directors were signing POAs in New York authorizing SEC filings for their companies (regardless of whether the company at issue was incorporated in New York, Delaware or elsewhere), the POA had to include language stating that the directors were giving the company the power to spend the director’s personal funds and sell the director’s personal property. The legal and corporate communities spent significant time and money over the course of a year to address this legislative snafu, resulting in the governor signing a technical corrections bill in September 2010, with retroactive effect to the date of the original amendment a year earlier, to make it clear that this law did not apply in the corporate context.
Governor Cuomo Signs Broad Order to Address Espada Scandal
Against that backdrop, you might naively think that the state legislature, and in particular the Governor’s office, would be more careful in their drafting endeavors. Apparently not. The latest gift from New York to the corporate community is in response to the scandal-plagued health-care clinics founded by Pedro Espada, former member of New York State Senate. In April 2010, then State Attorney General Andrew Cuomo alleged that Espada used his health care clinics as a “personal piggy bank,” for e.g., submitting expense bills for $20,000 in sushi deliveries. And this January, now Governor Andrew Cuomo signed New York Executive Order No. 38 (Limits on State-Funded Administrative Costs and Executive Compensation).
Why the Corporate Community is Concerned
Specifically, this executive order would prohibit any entity that falls within its purview from (i) paying “any executive” more than $199,000 per year from “state authorized payments” (not defined) and (ii) using more than 25% of state-authorized payments for “administrative costs”. Unfortunately, the executive order raises more questions than it answers, including which companies fall within its scope and whether “state authorized payments” should be broadly read as meaning any payments by the state as an ordinary course customer of vendors including public companies. The most reasonable interpretation of this short executive order is that it does not apply to large public companies, for e.g., who act as vendors providing financial, consulting or IT services to New York State. However, we are told that the Governor’s office has refused to agree, even informally, with that assessment, instead suggesting it may apply to public companies who provide any services to NY State as a customer. (Note to Delaware companies: There is no language in this executive order limiting it to service providers incorporated in New York — so this is an issue for any and all companies who provide services to New York State).
The New York Business Council has taken the laboring oar in trying to focus attention on the broad scope and unintended impact this order could have on the corporate community. Unfortunately, however, the order has already been signed, with various state agencies being provided 90 days (until mid-April) to issue their own implementing regs. From our perspective, the best “fix” would be a simple clarification that this does not apply to public companies that are subject to SEC reporting obligations. Instead, it is limited to service providers like nursing homes, hospitals, etc. who receive state funding like Medicaid payments. If we do not get this reasonable fix, the corporate community will have to spend more time and money debating the applicability of the implementing regs issued by various state agencies.
Message from New York State to the Corporate Community?
All this really raises the question of what message New York State is trying to send to companies that do business here. Is it: “We believe that you have unlimited time and resources, and we rely on you to correct our huge mistakes”? Or perhaps, “We want to make sure the corporate community never mistakes us for Delaware – a state that may give you laws you don’t always agree with but at least you can understand them and see they were intended to apply to you in the first place.” Hopefully, the Governor’s office will step up to the plate and issue a simple technical correction to narrow the scope of this order to the legitimate situations it was originally intended to cover.
Why Aren’t There Women or Minorities on Facebook’s Board?
Professor Usha Rodrigues recently wrote this blog on the “Conglomerate Blog” about one of the numerous governance question marks about Facebook as it prepares to go public. Unfortunately, gender – and racial – disparity in the boardroom, Wall Street and many other places continues to be a big problem that never seems to get better. Of the 54 guests on the Sunday morning talk shows for the month of February, do you know how many were men? 51. Here is more on that topic…
Congrats to our own Randi Morrison for being among the distinguished women selected for DirectWomen’s Board Institute! As I’ve blogged before, DirectWomen is an organization devoted to helping qualified women – who also are lawyers – get recruited to sit on boards…
The Largest FCPA Case in US History
In this podcast, Stephen Bronis of Carlton Fields provides some insight how a client – Stephen Giordanella – was acquitted in the largest foreign bribery case in US history (since I taped this with Stephen, all sting charges have been dropped for the remaining defendants under this court order), including:
– What is the background of the case?
– What did the court find?
– What are the lessons learned for executives?
Earlier this week, I blogged about a quartet of bills that the House Financial Services Committee approved. Ted Allen of ISS blogged yesterday that one of the bills would exempt newly public companies from holding say-on-pay votes for five years. A similar bill has been introduced in the Senate and has attracted bipartisan support.
The House bill, the “Reopening American Capital Markets to Emerging Growth Companies Act,” H.R. 3606, would create a new class of issuers, “emerging growth companies,” that would be exempt from the Dodd-Frank Act-mandated advisory votes for five years, or until they reach $1 billion in annual revenue or $700 million in public float. These companies also would be exempt from holding separate shareholder votes on “golden parachute” severance arrangements.
The bill would also excuse these emerging companies from Section 953(b) of Dodd-Frank, which would require disclosure of the ratio between a CEO’s total compensation and that of the firm’s median employee. These companies also would be spared from Sarbanes-Oxley’s requirement to hire an outside auditor to attest to the sufficiency of their internal financial controls.
ISS Extends GRiD Verification Period (and Delays Final Release Date)
On the heels of software glitches and more (eg. many members have complained about an inability to reach anyone at ISS to discuss GRiD score corrections), ISS has pushed back the deadline for companies to verify their GRiD scores until the end of Monday (8 pm eastern on February 27th) – and won’t release the final GRiD scores to the public until the following Monday, March 5th. Here is ISS’s GRiD page – and here is my initial blog on this topic…
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:
– The IPO Dutch Auction: Should Facebook Have Done a Google?
– Punitive Bill Proposes Giant Step Backwards On Capital Formation
– LLC Manager Liability to Minority Members
– 7th Circuit Ruling Expands Rights of Whistleblowers to RICO
– Delaware Weighs In: Indemnification and Advancement of Expenses
This Bloomberg article notes that Senator Patrick Leahy and others have written the SEC Chair objecting to proposed language in the SEC’s conflict minerals rule proposal which would allow firms to “furnish” instead of to “file” required disclosures. As noted in this Akin Gump memo, the letter also indicates that a final conflict minerals rule may be imminent.
Check it out! Bill Gates – in his capacity as head of his foundation – has sent a comment letter to the SEC regarding the resource extraction proposal…
Could the World Move on IFRS Without the SEC? And If So, What are the Ramifications?
This CFO.com article entitled “Foot-Dragging on IFRS Decision Could Strip SEC of Power” is worth a read…
Investors Press SEC on Financial Market Reform
As noted in this ISS blog, CalPERS – on behalf of a group of 14 institutional investors – has written a letter to SEC Chair Schapiro asking the SEC to prioritize these six initiatives:
– Appoint an Investor Advisory Committee to provide the commission with investors’ perspectives on regulatory issues; appoint an Investor Advocate to champion investor rights.
– Renew rulemaking for universal proxy access so that investors can propose directors for boards on a level playing field with management.
– Adopt final rules on the remaining executive compensation reforms under the Dodd-Frank Act.
– Continue work on International Financial Reporting Standards to ensure high quality accounting in global markets.
– Provide for an accountable and transparent ratings system with full disclosure on data and models used to develop securities ratings. Develop an independent mechanism to track the accuracy and effectiveness of the ratings process and complete the study of financing alternatives for credit rating agencies.
– Clarify and ensure compliance with the commission’s interpretive guidance on climate risk disclosures. Direct the new Investor Advisory Committee to provide advice and recommendations on climate change disclosure and the process for including diversity considerations into the corporate board nomination process. Ensure that sustainability issues and diversity reporting are integrated into financial reporting frameworks.
We are excited to announce that we have just posted the registration information for our popular conferences – “Tackling Your 2013 Compensation Disclosures: 7th Annual Proxy Disclosure Conference” & “Say-on-Pay Workshop: 9th Annual Executive Compensation Conference” – to be held October 8-9th in New Orleans and via Live Nationwide Video Webcast. Here is the agenda for the Proxy Disclosure Conference (the Executive Compensation Conference’s agenda will be posted soon).
Early Bird Rates – Act by April 13th: Huge changes are afoot for executive compensation practices and the related disclosures – that will impact every public company. We are doing our part to help you address all these changes – and avoid costly pitfalls – by offering a special early bird discount rate to help you attend these critical conferences (both of the Conferences are bundled together with a single price). So register by April 13th to take advantage of the 25% discount.
The NYSE Sends Its Annual Letter to Listed Companies
Ahead of annual shareholder meetings being held, the NYSE has sent its 8-page annual letter to companies listed on the exchange, full of reminders about actions that companies need to take as part of the annual meeting process – including a reminder about the NYSE’s change to Rule 452 (here’s the version for foreign private issuers). No real changes from last year’s letter…
Webcast: “Company Buybacks: Best Practices”
Tune in tomorrow for the webcast – “Company Buybacks: Best Practices” – to hear Kady Ashley of Skadden Arps, Rob DelPriore of Baker Donelson and Jim Rothwell of Davis Polk provide practical guidance about how to conduct a stock repurchase program, including analysis over whether such a program is the best use of corporate funds.
Last Thursday, as noted in this Bloomberg article and this Reuters article, the House Financial Services Committee passed four bills that are either Dodd-Frank related or would impact the capital markets, including (the Committee’s site has all four bills posted):
1. H.R. 3606: “Reopening American Capital Markets to Emerging Growth Companies Act,” the small business capital formation bill (that is described in Jim Hamilton’s blog)
2. H.R. 2308: “SEC Regulatory Accountability Act,” which would require the SEC to conduct enhanced cost-benefit analyses before adopting new rules
3. H.R. 1838: “Swaps Bailout Prevention Act,” which would remove “push-out” provision of Dodd-Frank so over-the-counter swaps tied to high-quality credit transactions would remain on the books of insured banks
4. H.R. 4014: still unnamed, would give CFTC power to compel production of documents without it constituting a waiver of attorney work product privilege
The first bill was approved 54-1, the second narrowly by 30-26 and the last two were unanimously approved.
ISS Makes GRid 2.0 Preview Available to Companies Before It Goes “Live”
As I’ve blogged before, ISS has changed its corporate governance ratings process again – it’s now called “GRId 2.0.” Yesterday, ISS began allowing companies to verify what ISS will be disclosing about them publicly – and Russell 3000 companies should take advantage of this opportunity before the general public gets to read ISS’ analysis starting next Monday, February 27th. So there is less than a week to review these ‘draft’ analyses – tough timing given its the heart of ‘drafting the proxy’ season for many.
One of my favorite topics to blog about is the art of writing disclaimers. Remember these examples. The Contango Oil & Gas Company seems to inject humor into their forward-looking disclosure disclaimers quite often. Here is one from their latest investor presentation:
Lawyer Stuff
The future is unknowable. We have good intentions but all of our projections and estimates will be wrong, and could be materially wrong. Wildcat exploration is expensive, speculative and potentially dangerous. An offshore spill or explosion would be enormously expensive. We have insurance but it may not be enough. You could lose your entire investment. Don’t be lazy – read our 10-Q’s, 10-K’s and press releases, and if you lose money – please no tears.
“Don’t forget about risk-free T-bills in your portfolio…After inflation and taxes you’ll likely only lose 5-10% of your investment.”
…. And More Lawyer Stuff
“There are three reasons why lawyers are replacing rats as laboratory research animals. One is that they’re plentiful, another is that lab assistants don’t get attached to them, and the third is that there are some things rats just won’t do”
-Unknown
Our “Best Practice” Disclosure for Say-on-Pay in 2012
We recently mailed the January-February Issue of The Corporate Executive and it includes pieces on:
– Our “Best Practice” Disclosure for Say-on-Pay in 2012
– Model CD&A Disclosure for a Company Receiving Strong Say-on-Pay Support
– Model CD&A Disclosure for a Company that Received Weak Say-on-Pay Support, or Failed to Achieve Majority Support
– When Is a Tax Cut Not a Tax Cut?
– Follow-Up: Modifying Awards in Response to Say-on-Pay
– Trap for the Unwary: Retirement Provisions in Performance Awards
– Cost-Basis Reporting Update
Act Now: If you are not yet a subscriber, get this issue rushed to you when you try a 2012 No-Risk Trial today.
Insider Trading Compliance Training
In this podcast, Bruce Brumberg of “Think Twice Training Videos” provides some insight into how companies can conduct insider trading compliance training, including:
– What is your training module like?
– How do companies use your insider trading training?
– Do companies supplement the use of your video with other training?
– How – and why – did you start producing these?
– How did the SEC get involved?
– The original “Twice Twice” video just had its 20 year anniversary. Are you surprised it’s still popular?
