– How long did the process take to produce this Report?
– What are the Report’s major findings?
– Any surprises in the Report?
– What do you hope will happen in response to the Report?
More on “Poll Results: How Do You Look Up a SEC Rule?”
Below is some member feedback on my poll results regarding how folks look up SEC rules:
– I have gotten used to using the CFR, even though it’s only updated once a year. I figure I keep up with Corp Fin stuff enough that I know where recent changes are. I teach with someone from a big firm and she is confounded when I use the CFR.
– Back in my youth, even the lowliest green goods associate at Big Law got a huge 7-volume set of CCHs. It was full of annotations and references and regulatory history and no-action and interpretation cites that were helpful, especially when you didn’t know anything. Not sure if those are still around, but so much more information is readily available (like on this site) that I imagine it isn’t used much anymore due to a hefty price tag.
More on “The Mentor Blog”
We continue to post new items daily on our new blog – “The Mentor Blog” – for TheCorporateCounsel.net members. This blog might be misnamed – it’s not just about mentoring – it covers all types of developments and practice pointers that can prove useful in your daily practice.
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:
– How Do We Turn the Legal Profession Around?
– Annual Report Distribution Service: Scam?
– The One-Year Law School
– How Common are “Risk Committees”?
– California Simplifies Requirements for Electronic Communications to Shareholders and Corporate Members
– The Original “Original Thinker”: Bob Monks
As noted by Gibson Dunn: Recently, the Nasdaq Listing and Hearing Review Council sent a paper to Nasdaq companies seeking comment on whether it should adopt a “comply or disclose” approach for certain corporate governance practices as an alternative to additional, substantive requirements, noting that some non-U.S. markets follow a “comply or disclose” model and that it “offers flexibility to companies and transparency to investors and allows practices to evolve in a logical manner.”
Accordingly, the Nasdaq paper solicits comment about a range of practices, including board leadership, resignation policies for directors that fail to receive majority votes, annual director elections, and shareholder ratification of a company’s outside auditor. Any required disclosures would appear either in a company’s proxy, in the case of most U.S. companies, or in its annual report filed with the SEC for all other companies. Comments are due by October 30th.
How to Sell a Division: Nuts & Bolts
Join us tomorrow for the DealLawyers.com webcast – “How to Sell a Division: Nuts & Bolts” – to learn more about one of the most popular methods to change a company’s focus – and raise much-needed cash: selling a division. Join these experts:
Last week, the SEC announced that three subcommittees of its newly-formed Investor Advisory Committee have been formed to address specific categories of regulatory issues. Here is the Committee’s new web page. And the PCAOB has announced the 19 members of its inaugural Investor Advisory Group. Only three members are duplicated among the SEC’s group of 17 (with another member “ex officio”). That’s not too bad…
A few weeks ago, the Aspen Institute released a report (here is the press release) entitled “Overcoming Short-Termism: A Call for a More Responsible Approach to Investment and Business Management,” signed off by a number of well-known governance experts on all sides of the governance debate. It’s short (6 pages) and comes when high-frequency and flash trading have come under regulatory attack (as I blogged about recently – and last week, the SEC proposed rules to ban flash trading).
The Aspen report makes recommendations for three basic problems:
1. Fees – High rate of portfolio turnover harms investor returns.
2. Short-Term Focus Harmful in Long Term – Short-term traders have little reason to care about long-term corporate performance – so are unlikely to exercise a positive role in promoting corporate policies and can lead to market failures, social and environmental degradation.
3. To Whom Do Executives/Boards Owe Duties? – If managers and boards pursue strategies to satisfy short-term investors, they can put the interests of shareowners seeking long-term growth and sustainable earnings and Corporate America’s future at risk.
This is a noble effort and should be helpful to assist the SEC and other regulators push investors towards longer-term thinking, if that is possible given how “buy and hold” investors got crushed in the recent downturn…
SEC Adopts (and Proposes) Rules to Further Strengthen Oversight of Credit Rating Agencies
Last week, at an open Commission meeting, the SEC adopted (and proposed) a bunch of rules changes designed to strengthen their oversight of the credit rating agencies (specifically, these rules). Here are Chair Schapiro’s opening remarks. Some of the proposals could impact the disclosure obligations that companies have – so this is not just news for rating agencies (I’ll leave it to Dave to blog about this point in the near future).
Some aren’t convinced that the SEC’s approach to reform of the rating industry is sound – they worry that the inherent conflicts of interest will continue to entice the agencies to give more favorable ratings than deserved since the SEC’s rule changes don’t alter that dynamic at all. For example, see Steve Pearlstein’s column from Friday’s Washington Post.
Full Steam Ahead: SEC Decides to Pursue BofA Bonus Disclosure Trial
Last week, I blogged about US District Court Judge Jed Rakoff’s refusal – with a stinging rebuke to both the SEC and Bank of America – to approve a $33 million settlement between the SEC and BofA over allegations of misleading proxy materials because the bonus obligations due to Merrill Lynch employees were not fully disclosed. I noted how the SEC had limited options because it argued before Rakoff that that there was insufficient evidence to charge individuals – and that the SEC’s best bet may be to dismiss the case and file an administrative claim that wouldn’t be heard in federal court.
Well, what do I know. Yesterday, the SEC filed a case management plan in Rakoff’s court and issued a statement that it would proceed “vigorously” to pursue its case against Bank of America, including:
“As we alleged in our complaint last month, Bank of America did not provide investors with complete and accurate information about the bonuses to be paid by Merrill Lynch to employees. We believe that this disclosure failure violated the federal securities laws.
We firmly believe that the settlement we submitted to the court was reasonable, appropriate and in the public interest. As we consider our legal options with respect to the court’s ruling, we will vigorously pursue our charges against Bank of America and take steps to prove our case in court. We will use the additional discovery available in the litigation to further pursue the facts and determine whether to seek the court’s permission to bring additional charges in this case.
In deciding how to proceed, we will, as always, be guided by what the facts warrant and the law permits.”
As part of it’s announcement, as noted in this Washington Post article, the SEC intends to broaden its investigation into alleged wrongdoing at the company and may seek additional charges as it prepares for the trial…
With the expiration of the comment period and rumblings of next proxy season heard in the not-so-far off distance (not to mention the huge attendance for our webcast on the topic last week; audio archive now available), a lot of members are wondering if the SEC indeed will adopt proxy access – and if so, when. Based on statements from the SEC, the short answers seem to be “yes” and “in time for next proxy season.” I’ve heard from quite a number of sources – bear in mind, all of them from outside the SEC – that the SEC will hold an open Commission meeting to adopt something in the mid-November range.
As noted by Prof. Lisa Fairfax in the “Conglomerate Blog,” SEC Chair Schapiro spoke last week and indicated that something would likely be adopted soon. Lisa then went on to provide some notes about what Schapiro said in reaction to some questions at the end of her speech – so it’s worth reading her blog in tandem with Schapiro’s speech…
Survey: Shareholders “Just Voting No” Rises
Over the weekend, as noted in this NY Times article, proxy advisor PROXY Governance released a survey showing a significant increase in the percentage of director nominees who received high percentages of shareholder votes cast in opposition in director elections during the first eight months of 2009. Here are the major findings:
– Although the vast majority of director nominees continue to be elected with little opposition, through August 2009, 9.8% of unopposed director nominees had at least 20% of shares voted against them or withheld, up from 5.5% in 2008.
– This trend was apparent at other threshold levels as well, with the percentage of directors having at least 40% of shares voted in opposition doubling from 1% in 2008 to 2.1% in 2009, and the percentage of directors failing to attain support from a majority of shares cast tripling to 0.6% in 2009 from 0.2% in 2008.
– Of all director nominees who had more than 20% of shares withheld or voted against them in board elections, nearly 60% served on compensation committees.
– Despite fewer organized “Vote No” campaigns against directors in 2009, at least 84 directors at 48 companies failed to attain majority support from shareholders through August 2009 at more than 2,400 companies where voting results were available.
– Beginning in 2010, discretionary voting by brokers will no longer be allowed in director elections. Because brokers control up to 20% of the vote at many companies and almost always vote with management’s recommendations in director elections, the new rules could result in many more directors failing to achieve majority support. For example, out of PROXY Governance’s universe of director votes through August 2009, there were 284 director nominees who were elected with less than 60% of shares cast in support and 473 nominees elected with less than 65% support of the shares cast. Many of these directors would likely not have received majority support if broker discretionary votes had not been counted.
Microsoft Becomes First Company to Adopt Triennial Alternative for Say-on-Pay
Late Friday, Microsoft announced that its board authorized moving forward with a triennial say on pay approach starting with this year’s meeting, being held on November 19th. On the “Microsoft on the Issues” Blog, the company’s General Counsel and Deputy General Counsel provide more background on the issue and details of the plan adopted.
You may recall that the Carpenters Union had been pushing this triennial alternative (as noted in this blog) – but that it had more recently withdrawn the proposals it had submitted to 20 companies on the topic in the wake of the House considering but rejecting the idea when it passed a say-on-pay bill in early August. Maybe Microsoft’s action will provide some momentum towards the idea, although it could be too late as the Senate plans to consider a bill in the coming months…
Effective September 1st, New York has a new law that imposes new requirements for the creation of valid power of attorneys, both statutory and non-statutory. While this likely will impact you on some level, a question was raised in our “Q&A Forum” as to how it impacts registration statements, Section 16 reports and Form 10-Ks – since they often have signatures affixed via POAs. Here is a response from Alan Dye:
My view is that the signature requirements for registration statements and other SEC filings (including Forms 4) are a matter of federal law, and aren’t affected by state laws governing power of attorneys (some of which require a notary). I cover this in his Section 16 Treatise, in the section dealing with signature requirements. I’ve never heard the SEC Staff address it – but also have never seen them request confirmation that a power of attorney conforms to state law or requires a notary.
Now that we have seen the SEC’s proposals and Congress’ say-on-pay legislation – that will force you to radically change your executive compensation disclosures and practices before next proxy season – we are wrapping up the ’10 version of Lynn, Borges & Romanek’s “Executive Compensation Disclosure Treatise and Reporting Guide,” which we will deliver to subscribers in early October.
Act Now for $100 (Or More) Discount: To obtain this hard-copy ’10 Treatise when its printed in October (as well as get online access to the ’09 version right now on CompensationDisclosure.com, as well as the valuable quarterly “Proxy Disclosure Updates”), you need to try a no-risk trial to the Lynn, Borges & Romanek’s “Executive Compensation Service” now.
If you order by October 1st, you can take advantage of a $100 or more discount. The many of you that currently subscribe can renew by October 1st to also receive this discount. Get the new Treatise hot off the press when it comes out in a few weeks!
Pay Czar Ken Feinberg Poised to Issue TARP Pay Rules
Yesterday, pay czar Ken Feinberg spoke at a FDIC conference on executive compensation here in DC (this Reuters’ article reports he has 8 speaking gigs before his end of October deadline) and, according to this BNET article, he said he would issue his blueprint for the top 25 employees at financial institutions receiving TARP funds within the next 30 days.
Here is a notable excerpt from the article:
Feinberg suggested the rules he lays out for these companies should serve as a precedent for the entire financial industry, said Jaret Seiberg, a policy analyst with Concept Capital’s Washington Research Group who attended the event. But how broadly the rules are applied is up to officials with the Federal Reserve and SEC, Feinberg noted.
Yesterday, the SEC announced the creation of a new Division – the Division of Risk, Strategy and Financial Innovation. The new division combines the Office of Economic Analysis, Office of Risk Assessment and “other functions to provide the Commission with sophisticated analysis that integrates economic, financial, and legal disciplines.” At least for starters, this Division will have quite a small staff.
As rumored, the SEC lured Professor Henry Hu from Texas to head the new Division. Henry has become famous for his writings on derivatives, including problems with proxy voting. The addition of his expertise comes at a critical time given that broker nonvotes are eliminated next year for director elections. I continue to expect numerous problems as votes become more hotly contested and wind up in court.
I wonder what catchy nickname this new Division will earn – nothing comes to mind like Corp Fin and Market Reg. Maybe just initials like IM?
When Was the Last Time the SEC Created a Division? 1972
Surprisingly, this question stumped me when I pondered this one. So I went to the first logical source I could think of – the SEC Historical Society’s site – and I got zip. Then I turned to a place that has been gathering dust on my bookshelf – the Louis Loss Treatise – and found these nuggets buried in a footnote:
– Current Divisional organization dates back to August 1972.
– Before then the SEC had three divisions: (i) Trading and Markets, (ii) Corporate Regulation (which administered PUHCA and John Huber informs me was the biggest and most important division during the Depression) and (iii) Corporation Finance (actually, Loss uses the term “Corporate Finance,” a common misspelling!).
– ’72 reorg divided Trading and Markets into a Division of Enforcement and a Division of Market Regulation.
– The ’72 reorg also created a new Division of Investment Company Regulation, spun off from the Division of Corporate Regulation.
– In January 1973, the Division of Investment Company Regulation was renamed the Division of Investment Management
– In December 1983, the SEC delegated authority to its General Counsel that ended the Division of Corporate Regulation (and became an Office within the Division of Investment Management).
– In November 2007, the SEC renamed the Division of Market Regulation back to its ’72 name: Division of Trading and Markets.
Note that the sizable Office of General Counsel has never been a Division.
Bonus Question: When was Corp Fin created? The SEC’s 1943 annual report says the agency was reorganized in 1942, creating the Corporation Finance Division. This new Corporation Finance Division was referred to that way in subsequent annual reports until the ’48 annual report, when the SEC (without explanation) referred to the division as the Division of Corporation Finance. Thanks to Alan Dye for digging this nugget out! It should be required learning as part of a new Staffer’s initiation…
More on “The Mentor Blog”
We continue to post new items daily on our new blog – “The Mentor Blog” – for TheCorporateCounsel.net members. This blog might be misnamed – it’s not just about mentoring – it covers all types of developments and practice pointers that can prove useful in your daily practice.
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:
– Delaware Chancery Court Mulls Lawsuit Over Director Resignations
– Tweaking Stock Ownership Guidelines
– Pricing Committees: Pros and Cons
– Law Firms Going Public: Crazy Talk?
– Rule 10b5-1 Plans: Still a Good Idea
– Nearly Complete: The Transition to a Paperless Stock Certificate World
Tune into our webcast tomorrow – “How to Prepare for a Proxy Access World” – to learn the list of tasks you need to perform now including scrubbing bylaws, understanding the demand for stockholder lists process, etc. This program is not a debate about the virtues of the SEC’s access proposal – rather, it will provide practical guidance about what you need to do now ahead of the SEC acting on its access proposal (because by the time the SEC acts, the window to scrub things may be a bit short before the proxy season).
Join these experts:
– Steve Bigler, President and Director, Richards Layton & Finger
– David Drake, President, Georgeson Shareholder
– David Katz, Partner, Wachtell Lipton Rosen & Katz
– Carol McGee, Partner, Alston & Bird
Redlined Version: Corp Fin’s Latest CDIs
With Corp Fin updating a bunch of CDIs over the past few months (egs. on Monday and in August), a number of members have sought redlined versions of the changes. You may want to check out the redlines on the ABA’s Disclosure and Continuous Reporting Subcommittee page, where WilmerHale’s Jonathan Wolfman and Carter Ledyard’s Guy Lander are now manning the fort.
The massive redline of the August CDIs comes courtesy of Jonathan, with the legwork done by WilmerHale’s Michelle Vervais and Alex Greene.
Input for Corp Fin’s Shareholder Proposal Process Meeting
Next Tuesday, Corp Fin is holding a meeting with representatives of some key stakeholders to discuss the process by which the Staff decides on no-action letters regarding shareholder resolutions, as noted by Jim McRitchie. Jim notes that Sanford Lewis and others have prepared a brief survey for shareholders who have had experience in that process to help provide input to the Staff. I think it’s a great idea that the Staff is conducting this meeting – it probably should be an annual pre-proxy season event…
Here’s my pitiful plea before today’s “meat.” Please drop a note and nominate “TheCorporateCounsel.net Blog” to be included in ABA Journal’s Top 100 Blogs. We were named last year and would like to be included in the list again. Yes, it’s vain – but this is a lot of work and peer recognition is appreciated!
Okay, on to the news. Yesterday, Corp Fin updated a slew of new Compliance & Disclosure Interpretations in a variety of topic areas (and issued new interps in one area). It looks like the Division will take advantage of the Web to quickly distribute updated guidance rather than relying on major overhauls every few years like the old days. That’s good news!
Going to Trial? Judge Rakoff Takes SEC to Task in Rejecting BofA Settlement
Yesterday, in a sternly-worded 12-page order, US District Court Judge Jed Rakoff’s refused to approve a $33 million settlement between the SEC and Bank of America over allegations of misleading proxy materials because the bonus obligations due to Merrill Lynch employees were not fully disclosed. As this Bloomberg article notes, even though a February 1st trial is scheduled, the SEC has limited options now because it argued before Rakoff that that there was insufficient evidence to charge individuals. The SEC’s best bet may be to dismiss the case and file an administrative claim that wouldn’t be heard in federal court.
The following excerpt from this NY Times article gives you a sense of how Judge Rakoff felt about the settlement:
He accused the S.E.C. of failing in its role as Wall Street’s top cop by going too easy on one of the biggest banks it regulates. And he accused executives of the Bank of America of failing to take responsibility for actions that blindsided its shareholders and the taxpayers who bailed out the bank at the height of the crisis.
The sharply worded ruling, which invoked justice and morality, seemed to speak not only to the controversial deal, but also to the anger across the nation over the excesses that led to the financial crisis, and the lax regulation in Washington that permitted those excesses to flourish.
Implicit in the judge’s remarks were broader questions on the anniversary of one of the most tumultuous weeks in Wall Street’s history: What do the giants of finance owe their shareholders and the investing public? And who will adequately oversee these behemoths?
As the drama of this case continues to unfold, Bank of America awaits the findings of NY Attorney General Andrew Cuomo as some expect him to file a complaint charging individuals at Bank of America in connection with the disclosure of Merrill Lynch bonuses in the near future.
Obama Speaks on Lehman’s Collapse Anniversary: Latest Timetable for Congressional Reform
Yesterday, President Obama was also stern as he delivered a speech near Wall Street in which he talked about the need for financial reform. As noted in this NY Times article, the window for true reform is quickly closing as the stock market climbs every day. Below is an excerpt from that article about the possible timeline for Congress taking legislative action:
Senior Congressional Democrats had originally planned to have the House complete its work on the financial overhaul before turning to the more recalcitrant Senate. But the tighter time schedule has forced lawmakers to rethink that approach.
Later this week, Barney Frank, Democrat of Massachusetts and the chairman of the House Financial Services Committee, is expected to announce a series of hearings for the coming days before his committee marks up legislation in October. Aides say he is hoping to get legislation to the floor by the end of next month or beginning of November.
There is less certainty in the Senate, where Christopher J. Dodd, Democrat of Connecticut and the chairman of the Senate Banking Committee, has been working to put together a package that could withstand the threat of a filibuster.
The world of venture capital is changing dramatically. Thanks in part to the global recession, VCs are contending with less-than-stellar returns, contracting investment levels, and a sluggish IPO market (previously a preferred VC exit strategy). Other sources of funding are so decimated that VCs are looking to Uncle Sam for assistance. This recent WSJ article explores the fact that VCs are hoping stimulus funds will help their fledgling companies survive.
Adding to these woes, VCs may be facing a significant tax set-back wrought by legislation. As described in this blog, the tax rate on carried interest may be increased from 15% to 38%.
Keep up with how much VC is evolving by joining us for tomorrow’s webcast – “Venture Capital: Facing a Changing World” – as Jonathan Axelrad of Goodwin Procter, Steve Bochner of Wilson Sonsini and Gordy Davidson of Fenwick & West discuss how deal structures are adapting to fundamental changes in the VC world.
Change Blowing Your Mind? A Simple Chart to the Rescue
To help you navigate the numerous proposals at hand these days, Bob Hayward and others at Kirkland & Ellis have put together this 32-page chart. And it’s good to see Marty Rosenbaum of Maslon Edelman launch a new blog – OnSecurities.com – which includes this nifty (and much shorter) cheat sheet to help you navigate these regulatory changes as well. Check it out!
Latest Trends of the M&A Environment
In this DealLawyers.com podcast, Bob Filek of PricewaterhouseCoopers discusses the state of the M&A market, including:
– What major deal trends have characterized 2009?
– What have been the biggest surprises?
– Why are cross-border deals at greatest risk due to the down market?
– What will restore CEO confidence?
– How big is the distressed M&A opportunity?
– What sectors are still consolidation hot spots?
Michelle Savage of XBRL US weighs in on my recent blogs expressing concerns over the SEC’s mandatory XBRL deadline and the mismatch caused by the FASB’s new codification of accounting standards:
There seems to be some confusion about the FASB codification as relates to XBRL and how it is used with the XBRL US GAAP Taxonomies. I wanted to see if I could help set the record straight – some of the recent blogs appear to imply that because of the FASB codification extension files, companies that reference it risk having their XBRL submissions rejected.
Here are a couple of points that will hopefully clear this up: the FASB codification is there for public company preparers simply to help them have as much information as they need to select the right element to match up with their financial statement captions. Typically a public company will first look at the taxonomy element label, then at the definition and then if they’re still not sure, they’ll look at the references to check the authoritative literature. It’s not needed as part of the EDGAR submission, it doesn’t even have to be used to complete an xbrl document.
Second, when a company submits their XBRL document to the SEC’s EDGAR system, they submit the XBRL files plus any extension taxonomy that they created (essentially, if there were line items in their financial statements that were not in the US GAAP taxonomy, they have the ability of creating a new one and they need to send their company extension taxonomy which gives end users the label, definition, etc. so they know what the data means). Anyone using the 2009 US GAAP Taxonomy has no reason to send anything else. And this will be the same in 2010, 2011, etc.
Therefore, there’s no reason for a preparer to submit the codification extension as part of their filing. To try to clarify this a bit further, we’ve revised the FAQ to explain further.
By the way, Dominic Jones recently gave kudos to Michelle for her remarks on the true meaning of XBRL for investor relations officers in this blog…
High-Frequency Trading: What’s the Board’s Fiduciary Duty to a Computer?
With AIG, Fannie and Freddie shooting to unpredicted heights in recent weeks – weeks when the volume of trading in their stocks represented a sizable chunk of the overall market’s volume – I’ve begun to wonder whether the high-frequency trading craze is the latest innovation by Wall Street that poisons our financial system. Computers trading with each other certainly is not new – program trading has been around for many years and now accounts for roughly half of the market’s daily trading volume. Even HFT has been around awhile; it’s not something that has sprung up over the past year.
But has HFT reached a height of popularity (eg. NY Times article) where it’s causing the market to be divorced so much from reality that it will scare retail investors away forever? AIG going to $50 makes me want to take my last dollar out of equities. The SEC and Congress recently have been delving into these concerns, including considering a ban on a subset of HFT, flash trading (see this “Zero Hedge” Blog).
I don’t know much about high-frequency trading, so I did some research (here is a WSJ primer) and there is a divergence of opinion as to its value – just like most things. Some argue it makes the market more efficient (or in simpler terms, enables investors to analyze real-time data faster, see the “Electronic Market Microstructure” Blog). Others argue that it’s a computer arms race that will just make the computer companies wealthy (eg. Rick Bookstaber).
Regardless of one’s opinion of whether high-frequency trading is a good thing, there are some governance issues to consider. One is whether it makes sense for boards to have fiduciary duties to a shareholder who essentially is a computer? Another is what happens if a voting record date happens to fall on one of those days when the computers are battling it out to move your stock price – does it make sense for 30% or more of your vote to fall in the hands of those that run these computers and don’t have a long-term interest in a company? Put another way, will high-frequency trading purposedly occur on voting record dates to gain leverage over a company? It may argued that this strategy already is employed by some.
Short-termism is growing by leaps and bounds as the “buy and hold” philosophy recently has taken its lumps. What that means for public companies and shareholder activism surely must be a prominient part of the governance reform debate. Let me know what you think.
More on “The Mentor Blog”
We continue to post new items daily on our new 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:
– Director Independence Standards: Confusing and Lax?
– Auditors Under Pressure: More Lawsuits on the Way?
– Some Thoughts on Using Twitter: My Experiences So Far
– Do You Need an Annual Meeting Transcript?
– How to Market Yourself Through Us
– Twitter This, Twitter That: Corporate & Securities Law Issues to Consider
– A Primer on “Overboarded” Directors
