As Ted Allen blogged yesterday, Regis Corporation received more than 71% opposition to its say-on-pay at its annual meeting, which is the greatest dissent seen so far this year. We have added the Regis Form 8-K to our list of failed say-on-pays in our “Say-on-Pay” Practice Area on CompensationStandards.com.
Venture-Backed Companies: Corporate Governance & Disclosure Practices in IPOs
Recently, Wilson Sonsini wrote this 19-page report on the governance and disclosure practices of 50 venture-backed companies that went public from January 2010 through June 2011, including those related to directors and independence, board committees and policies, stock plans, key metrics and non-GAAP measures and defensive measures.
You may also want to check out this presentation by Mark Suster called “The State of Venture Capital and the Internet,” as well as this recent Davis Polk survey on IPO governance practices.
Webcast Transcript: “Lyin’, Cheatin’ and M&A Stealin’: Negotiating the Fraud Exception”
We have posted the transcript for the DealLawyers.com webcast: “Lyin’, Cheatin’ and M&A Stealin’: Negotiating the Fraud Exception.”
Next Thursday – November 17th – is the Society of Corporate Secretaries’ “Issues Update,” which is an online event. Check it out!
We have posted the survey results regarding the latest D&O questionnaires and director independence trends, repeated below:
1. Regarding the level of information that we request from directors in connection with their professional and personal affiliations (excluding immediate family member information):
– We ask each director to submit a list (at least annually) of their professional and personal affiliations – 47.9%
– We do not request a list of their affiliations, but ask specific questions related to the NYSE/SEC independence rules and have them confirm that there are no related issues – 50.0%
– Other – 2.1%
2. Regarding the level of information that we request from directors for their immediate family members:
– We ask each director to submit a list (at least annually) of their entire immediate family – 4.2%
– We ask each director to submit a list (at least annually) of their entire immediate family, including certain other information (such as the place of employment and/or job title) – 22.9%
– We define “immediate family members” and provide a list of the company’s subsidiaries and then ask each director to list any immediate family members doing business with these entities – 16.7%
– We define “immediate family members” and provide a list of the company’s subsidiaries and then ask each director to confirm that there are no related issues – 18.8%
– We do not request a list related to the immediate family members, but ask specific questions related to the NYSE/SEC independence rules and have them confirm that there are no related issues – 37.5%
– Other – 0%
3. Regarding the method(s) of due diligence review that we perform for director independence:
– We rely solely on each director to alert us to any potential independence issues – 36.2%
– We conduct a review (at least annually) of our accounts payable and receivable for ALL professional/personal affiliations (excluding immediate family member relationships) provided by our directors – 8.5%
– We conduct a review (at least annually) of our accounts payable and receivable for ALL transactions related to professional/personal affiliations and immediate family member relationships provided by our directors – 23.4%
– We conduct a review (at least annually) of our accounts payable and receivable for certain transactions related to professional/personal affiliations and/or immediate family member relationships; however, we only perform such a review of selected affiliations/relationships (i.e., we may not conduct a detailed review of certain relationships, such as that in connection with an immediate family member who is employed by WalMart and not in an executive position) – 12.8%
– All – or some combination – of the above – 19.2%
The video archive of last weeks’ pair of Conferences – the “6th Annual Proxy Disclosure Conference” & “Say-on-Pay Workshop: 8th Annual Executive Compensation Conference” – are posted. Hopefully, you’ve talked to some of the many that attended this event and heard how much practical guidance was imparted. Our panels really delivered this year – and it’s not too late to watch them as you can still register and watch the panels now or when you are gearing up to draft your proxy materials.
Our Week of Conferences: Sights & Sounds
Here are three short videos from our week of Conferences this week – this first one shows the sheer size of our “Investors Speak” panel on Wednesday (2000 attendees in person and many more online):
A groovy exhibit from E*Trade in our Exhibit Hall:
Also liked this set-up in the Exhibit Hall from Bank of America/Merrill Lynch:
Last Thursday, as noted in this blog by Jim Hamilton, the House passed the “Access to Capital for Job Creators Act” (H.R. 2940) and the “Entrepreneur Access to Capital Act” (H.R. 2930). The first bill would remove the prohibition against general solicitation for private offerings of securities if all purchasers were accredited investors – and the second bill would require those seeking crowdfunding to notify the SEC, who would then notify state regulators, of any new offerings (but registration would not be required).
Also, as noted in this press release, on Wednesday, the House passed the “Small Company Capital Formation Act of 2011” (H.R. 1070), which would increase the Regulation A offering threshold from $5 million to $50 million (another pending bill is HR 2671, which would increase the total assets threshold from $1 million to $10 million – and the class of equity security holders of record threshold from 500-750 to 1000 – before companies would be required to register under the ’34 Act). The House also passed a bill with no name as far as I can tell (H.R. 1965), which would modify the threshold for ’34 Act registration and deregistration for bank and bank holding companies.
Given that all four of these bills were presented in the magical name of “job creation,” they passed with flying color margins. If they become law (after being combined in some fashion when reconciled with any similar Senate bills that pass), then guys like Angel from Rockford Files can run around selling stock in local brewpubs without looking over their shoulders so much…
On Saturday, the Breeders Cup featured this race that is one of the most exciting ever. Watch the light grey horse in the back of the pack named “Turallure.” And don’t stop laughing about the one called “Compliance Officer”…
DOJ Won’t Probe Ex-SEC General Counsel David Becker
Here’s a Bloomberg article with the latest on the David Becker- SEC IG saga (here’s my last blog on this):
Federal prosecutors have told former U.S. Securities and Exchange Commission General Counsel David Becker that they won’t open an investigation into whether he violated ethics laws, his attorney said. The SEC’s inspector general, H. David Kotz, in September called for the Justice Department to review whether Becker should be criminally charged for having a financial interest in a policy he worked on relating to Bernard Madoff’s Ponzi scheme. Becker inherited profits from the fraud through an account held by his late mother. “We are gratified at the decision, and it’s consistent with our view that Mr. Becker did exactly what he was supposed to do under the circumstances,” Becker’s attorney, William Baker III, said in an interview today.
Becker, who left the SEC in February to return to private legal practice, has said he had no financial interest in the agency’s Madoff policy. He had received clearance from the regulator’s ethics counsel to work on the matter in 2009. He had also informed SEC Chairman Mary Schapiro about the account. Kotz referred his report to the Justice Department’s public integrity section, which reviewed it and concluded a formal probe wasn’t warranted. A department spokeswoman, Laura Sweeney, declined to comment; Kotz didn’t respond to a request for comment.
Also check out this Bloomberg article entitled “SEC Enforcers Frozen as Internal Watchdog Kotz Unleashes ‘Chilling’ Probes.”
PCAOB Chair Speaks: Challenge Our Culture
Last week, PCAOB Chair Jim Doty delivered this speech entitled “Prizes Captured, Shops Sold, Et Cetera: Importance of Keeping Investors Properly Informed.”
We have posted the remarks from Albert Meyer of Bastiat Capital regarding “Egregious Executive Pay Via Stock Options” that were made in connection with yesterday’s “Say-on-Pay Workshop:8th Annual Executive Compensation Conference” for general consumption (the video archive of that Conference is now posted). It’s great to see investors speaking out.
Australia’s New “Two Strikes” Say-on-Pay Law
As roughly 40 companies in the US face the prospect of failing say-on-pay for a second time (and perhaps one company already has, depending on the math – also see this blog about the large number of abstentions), this article about Australia’s new “two strike” law bears reading, repeated below:
Australia’s new “two strikes” law giving shareholders more power to curb excessive executive pay packets, promises to shake up some businesses. Homewares company GUD Holdings has already been hit with a protest vote from 42% of shareholders over the company’s remuneration report, under the new legislation introduced in July.
Under the new amendment to the Australian Corporations Act, if 25% or more of votes cast at two consecutive AGMs oppose the adoption of a remuneration report, then the company must formally respond by asking all board members except the managing director to stand for re-election within 90 days. In addition, key management personnel whose remuneration is disclosed in the remuneration report are excluded from voting, ensuring those with an obvious interest in the outcome cannot vote.
There are few more controversial issues than executive pay. Here in Australia, Qantas chief executive Alan Joyce found himself in the firing line for his large pay increase despite a damaging industrial dispute. Last week, the Australian Shareholders Association indicated it would oppose the remuneration package of Wesfarmers chief Richard Goyder and financial officer Terry Bowen at the company’s AGM in November.
Non-binding vote
Since 2005, Australian shareholders have had the right to vote on the remuneration report of their companies at an AGM. The tougher Australian laws parallel similar moves in the Netherlands, Norway, Sweden and the United Kingdom which have responded to public outrage about executive pay levels. The US has also introduced similar legislation effective from the 2011 proxy season in the wake of public concern about the role of excessive remuneration in the global financial crisis.
New research
Our new research backs the idea that shareholder voting is an effective way to discipline boards over unsatisfactory executive pay arrangements. Using a sample of 240 ASX listed firms between 2001 and 2009, fellow UQ researchers Peter Clarkson, Shannon Nicholls and I investigated the pay-for-performance relationship and its effect on governance. Pay-for-performance is an important metric because it measures how much executive pay changes or varies with firm’s performance. That is, it captures the incentive effect of the remuneration structure. Not surprisingly, a weak pay-for-performance relationship is a focus for shareholder dissent.
Research around the effects of the UK advisory vote, for instance, showed shareholders were more likely to vote “no” on remuneration packages that are excessively high, had a weak pay-for-performance link or were greatly dilutive. We found the average “no” vote on the remuneration report for our sample has increased steadily from 5.4% in 2005 (the first year of the vote) to 11.4% in 2009.
Pay-for-performance
The pay-for-performance relation strengthened across the nine year period, with enhanced remuneration disclosure and the non-binding shareholder vote the most important avenues to achieve greater monitoring and greater shareholder control of the executive remuneration process. Our research findings have important implications for Australian regulators and company directors. Shareholders are increasingly voicing their concerns about excessive executive pay and have used the advisory vote effectively to flag inappropriate remuneration packages to the board.
Our research suggests that boards of directors have listened to their shareholders and have adapted pay packages to be more in line with shareholder expectations. This season, the two-strikes rule gives shareholders an even stronger say on pay and there is every reason to believe that shareholders will use it. For their part, company boards need to listen closely to what shareholders have to say about the remuneration report and respond accordingly. Transparent and careful disclosure about remuneration is more critical than ever this reporting season if company boards are to avoid “striking out” with their shareholders.
Today is the “The Say-on-Pay Workshop: 8th Annual Executive Compensation Conference”; yesterday was the “6th Annual Proxy Disclosure Conference” and the video archive of that Conference is posted. Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our staff. Both Conferences are paired together; two Conferences for the price of one.
– How to Attend by Video Webcast: If you are registered to attend online, just go to the home page of TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive (note that it will take about a day to post the video archives after it’s shown live). A prominent link called “Enter the Conference Here” on the home pages of those sites will take you directly to today’s Conference (and on the top of that Conference page, you will select a link matching the video player on your computer: Windows Media or Adobe Flash Player).
Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). If you are experiencing technical problems, follow these webcast troubleshooting tips. Here is today’s Conference Agenda; times are Pacific.
– How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online – and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic “prompts” all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except for a few – but hours for each state vary; see the CLE list for each Conference in the FAQs.
IPOs for Private Equity Firms
In this DealLawyers.com podcast, Ken Favaro of Booz & Co. provides some insight into why a private equity firm would go public, including:
– Why have private equity firms gone public?
– Why have private equity firms diversified into new asset classes?
– What is the outlook for their core business?
Corp Fin Comments on Regulation G
In the “Dodd-Frank.com Blog,” Anne Cotter of Leonard, Street and Deinard provides this recent analysis of Reg G comments from Corp Fin:
Prior to Sarbanes-Oxley, it was fashionable for public companies to issue press releases with “pro-forma earnings,” which generally excluded certain GAAP charges from the income calculation. To some, this measure was known as EBBS, or “Earnings Before Bad Stuff.” As a response, Sarbanes-Oxley required, and the SEC issued, Regulation G. Regulation G addresses “non-GAAP financial measures” and requires the most directly comparable GAAP measure be presented and a reconciliation of the most comparable GAAP and non-GAAP measures.
We reviewed some recent SEC comment letters on Regulation G. For the most part, the comments were not surprising on a technical level. One interesting point we noted is that the SEC, when conducting periodic reviews of issuers, is not shy about reviewing Form 8-Ks, including earnings announcements, and commenting on Regulation G deficiencies.
Some of the general categories of comments we noted were:
– The non-GAAP operating statement conveys undue prominence.
– All non-GAAP financial information (including forward looking information) was not reconciled to GAAP.
– Requests to present non-GAAP financial information consistent with Securities Act filings, with an explanation of why the information is useful.
– Where multiple non-GAAP financial measures are reported, a comment to reconcile each non-GAAP measure to the most directly comparable GAAP measure.
– A comment to present more information as to why certain matters are not representative of future performance and are non-recurring in nature.
We also noted several comments on issuers’ Schedule 14D-9s, which an issuer files in response to a third party tender offer. Those comments uniformly addressed projections which were presented on a non-GAAP basis (usually EBITDA) and required reconciliation to GAAP.
Today is the “Tackling Your 2012 Compensation Disclosures: The 6th Annual Proxy Disclosure Conference”; tomorrow is the “The Say-on-Pay Workshop: 8th Annual Executive Compensation Conference.” Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our staff. Both Conferences are paired together; two Conferences for the price of one.
– How to Attend by Video Webcast: If you are registered to attend online, just go to the home page of TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive (note that it will take about a day to post the video archives after it’s shown live). A prominent link called “Enter the Conference Here” on the home pages of those sites will take you directly to today’s Conference (and on the top of that Conference page, you will select a link matching the video player on your computer: Windows Media or Adobe Flash Player).
Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). If you are experiencing technical problems, follow these webcast troubleshooting tips. Here is today’s Conference Agenda; times are Pacific.
– How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online – and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic “prompts” all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except for a few – but hours for each state vary; see the CLE list for each Conference in the FAQs.
The “FINRA Disciplinary Actions Database”
Recently, FINRA initiated a web-based searchable system called the “FINRA Disciplinary Actions Database” that makes its disciplinary actions accessible online. A long time coming, the documents appear to be posted shortly after issuance and each document has a link to other related documents, such as the complaint when you access an Offer of Settlement. This new database will make it much easier for litigation attorneys to search for relevant FINRA cases and obtain copies of the relevant documents.
Before this development, one would have to dig hard to find these documents. The two avenues were taking a look at FINRA’s monthly listing of disciplinary actions and then trying to obtain a hard copy from FINRA with a “per page” copying charge or subscription services that took the time to copy these documents and upload them, and they were still often incomplete. Thanks to Suzanne Rothwell for her insights!
Our November Eminders is Posted!
We have posted the November issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
Last week, the International Integrated Reporting Committee (IIRC) announced that over 40 leading companies from around the world – including some in the US – have been chosen as participants in the IIRC Pilot Programme initiative. The Pilot Programme will run for two years as companies network, exchange knowledge and share experiences to help develop the Framework, which ultimately is intended to result in innovative reporting and investor practices and drive convergence in international reporting guidance.
ISS has extended the comment period by a week for its ’12 policies, with a deadline of next Monday.
A Dodd-Frank Sleeper? Large Trader Reporting
Section 13(h) of the ’34 Act was amended by Dodd-Frank to include “large trader” reporting requirements, and persons who exercise investment discretion over an account are required to file certain reports with the SEC if they trade (i) two million shares or $20 million during any day or (ii) 20 million shares or $200 million during any month. Recently, the SEC finalized rules implementing this Section and there does not appear to be an exception for operating companies that trade as part of ordinary course balance sheet management activities – thus, this could be a sleeper for many. Learn more in our “Large Trader Reporting” Practice Area.
SEC Staff Guidance: SEC and DOL Advertising Rules Interpreted Similarly
Last week, the SEC’s Division of Investment Management issued this no-action letter, at the request of the Department of Labor, confirming that disclosures made in compliance the DOL’s regulation concerning investment-related disclosures to plan participants will be treated as being consistent with the SEC’s restrictions on advertising under Rule 482. The no-action letter resolves a number of potential inconsistencies between DOL and SEC rules. Thanks to Amy Moore of Covington & Burling for the heads up!
According to a report released this morning by the CPA-Zicklin Index of Corporate Political Disclosure and Accountability – a joint effort of the Center for Political Accountability and Wharton’s Zicklin Center for Business Ethics Research – the S&P 100 are voluntarily moving to disclose their corporate expenditures on politics. This report is important in the wake of calls upon the SEC to enhance disclosure requirements in this area in the wake of the controversial Citizens United decision. Among the report’s finding are:
– Disclosure & Board Oversight – 57 companies, or almost three-fifths, disclose on their websites their direct corporate political spending and have adopted board oversight, or they prohibit spending corporate cash on politics.
– Limits on Political Spending – Almost one-third place some limits on how they spend corporate dollars on politics. Nearly one in four companies declines to make independent political expenditures, which Citizens United permits. Colgate-Palmolive and IBM decline to spend corporate funds on political activity completely.
– Top 10 Best Disclosure Companies – Based on seven key indicators, the top 10 for political transparency and accountability: Colgate-Palmolive, Exelon, IBM, Merck, Johnson & Johnson, Pfizer, UPS, Dell, Wells Fargo and EMC.
– Indirect Spending – 43 companies disclose some information about their indirect spending through trade associations or other tax-exempt groups, including 501(c)(4)s.
– Independent Expenditures – 24 companies, or one-quarter, state on their websites that they will not make independent expenditures, as Citizens United allows.
Last month, a different Zicklin Center – the Robert Zicklin Center for Corporate Integrity – was behind this report based on “The Baruch Index,” which rates the S&P 100 companies from “transparent” to “opaque,” with a system of 57 items measuring corporate political activity at all levels and branches of government.
The Latest Anti-Corruption Developments (and Benchmarking)
In this podcast, Jeff Kaplan of Kaplan & Walker explains the latest developments in the anti-corruption area including the results of a benchmarking study conducted with the FCPA Blog, including:
– What’s new in anti-corruption enforcement?
– You’ve recently completed a benchmarking survey in this area. Why did you do it?
– What are some of the interesting findings from this survey?
Judge Rakoff Questions the Citigroup-SEC Settlement: Hearing Scheduled
As covered well by Kevin LaCroix today in his “D&O Diary Blog,” Southern District of New York Judge Jed Rakoff has scheduled a November 9th hearing at which the SEC and Citigroup are directed to be prepared to answer 9 specific questions about the settlement that they reached a few days ago. Yes, this is the same judge who refused to accept a prior settlement of the SEC”s action against BofA a few years back…
This blog from Dominic Jones of IR Web Report is a “must” read. I’m going to tease it out by excerpting the first few paragraphs below:
ALAN Meckler, CEO of WebMediaBrands Inc. (NASDAQ: WEBM), may be single-handedly redefining how corporate executives in the buttoned-down world of public companies communicate with their investors. The 64-year-old media entrepreneur, whose company owns interests in a number of online businesses and blogs, has been using Twitter to talk about his micro-cap company in ways that have stunned some observers and even drawn questions from the SEC.
While some in the conservative world of corporate disclosure have speculated about how Twitter might meet the SEC’s Reg FD requirements, Meckler appears to have made up his mind that Twitter is as good a channel as any to break news about everything from pending acquisitions to his next quarter’s results. The result is that investors in WEBM are being treated to a new level of access to their chief executive and board chairman, as well as unprecedented commentary and news about the company’s business in a real-time, abbreviated format that was previously unheard of.
It’s worth noting that Dominic just helped launch a free online IR ranking service – Investis Online IR Rankings – that should help companies gauge how they are doing with their online presence in investor relations. The initial launch includes the S&P 100, as well as a bunch of European companies. The US companies do not do well…
Time to Vote: Vote for This Blog Today
I’m excited to note that this blog was selected by LexisNexis yesterday as a “Top 25 Business Law Blog” – and that there is a voting contest among the 25 that ends on November 5th (we won the voting contest last year!) Here is the announcement – and more importantly, here’s where you can vote. Simply scroll down and click on the circle to the left of “TheCorporateCounsel.net” (it’s the 3rd bullet from the bottom) – then click “Vote” at the bottom of the page. I’m also excited that my DealLawyers.com Blog made the Top 25…
Mailed: September-October Issue of “The Corporate Executive”
We just mailed the September-October Issue of The Corporate Executive and it includes pieces on:
– What’s in Store for Say-on-Pay in 2012?
– Modifying Awards in Response to Say-on-Pay
– Trap for Unwary Executives: Cost-Basis Reporting Going Into Effect in 2012
– Tax Deposits for RS/RSUs
Act Now: Get this issue for free when you try a 2012 No-Risk Trial today.
Below are some interesting thoughts from Vince Pisano of Troutman Sanders:
Last week, the SEC announced the settlement with Citigroup Capital Markets of an action related to the formation and marketing of a largely synthetic collateralized debt obligation, with the collateral consisting primarily of credit default swaps referencing other collateralized debt obligations, themselves collateralized by subprime residential mortgage backed securities. Similar to the case of the SEC’s earlier action against Goldman Sachs involving the same general allegations, Citi, as the arranging bank, selected many of the assets underlying the CDO with, according to the SEC, misleading disclosure.
Also as in the case of the earlier action against Goldman Sachs, the SEC brought an individual action against the senior banker on the transaction, which has not been settled. Without delving into the intricacies of these transactions, which are very clearly designed for extremely sophisticated investors, all securities and other lawyers should take note of some important points highlighted by these actions.
The first is that we have an obligation to our clients to understand their transactions completely and to assure that the details of which we are aware are disclosed properly. We are the ones who are entrusted with understanding and explaining the details and risks of any securities transaction in which participate. We are advisors to market participants and not just deal execution assistants. It is a principle that applies to everything we do as corporate lawyers.
Second, we need to more actively help our clients engage in risk management, whether we are in house or outside counsel. There are deals that probably should not be done. When a transaction has no obvious connection to any corporate purpose, when it raises no capital or at least serves as an aide to the production of capital, we should at least make sure the proper people at our client appreciate the risks and rewards. We are not simply in place to help minimize risk in any transaction, but to help the institution understand whether any level of risk is acceptable. It is one of the things that separates the great corporate lawyers from the field.
Finally, two individual bankers, one at Goldman and one at Citi, have been charged by the SEC individually for disclosure issues. We as lawyers cannot lose sight of the fact that we must intercede to protect our clients, even over the objections of our clients. We cannot afford not to challenge and question and counsel those with whom we work. It’s what makes us part of a profession.
Chinese Regulators Battle SEC Over Document Production
According to this Reuters article, China’s Ministry of Finance and Securities Regulatory Commission have asked auditors to review their US-listed company work and provide details of any information the China-based offices may have given to foreign regulators in an effort to reminding them of Chinese confidentiality laws in the face of the SEC’s efforts to compel document production by the Shanghai office of Deloitte Touche Tohmatsu concerning a Chinese company audit.
How to Conduct Stock Repurchase Programs
In this podcast, Rachel Smydo of Thorp Reed & Armstrong discusses what to consider when conducting a stock repurchase program, including:
– Which action items should be considered ahead of a stock repurchase program?
– Through whom can a company execute actual repurchases? Does it have to be a third party?
– What type of documentation (eg. SEC filings) is the company required to prepare every time there is an actual repurchase?
– Is any documentation required when repurchases are completed?
