Since there didn’t seem to be much of a backlash to last year’s slate of companies that conducted virtual-only annual meetings, I was beginning to think that the objections expressed a decade ago had dissipated. But as laid out by Jim McRitchie in his blog, many of the biggest active holders did object to Symantec’s recent virtual meeting – including CII, CalSTRS and CalPERS. Symantec is the first Fortune 500 company to conduct an all-electronic meeting.
Among other concerns, some of Symantec’s shareholders who attended electronically were not happy that they didn’t have their submitted question answered by management during the meeting (nor did 3 of the company’s 11 directors attend online), as laid out in this NY Times column. Suddenly, there has been a lot of negative press surrounding virtual-only meetings as here is yet another piece from Reuters that was published a few days before the NY Times piece…
Congrats to Keir Gumbs – a former Corp Fin Staffer, who has to rate among the most beloved in the history of the Division – for making Partner at his firm…
Pension Games Threaten Market
Since it doesn’t neatly fit into what most of our members deal with in their practice, I’ve been trying to resist blogging about the ongoing madness with state and local municipalities and how they may be the next domino that topple our markets. But this Bloomberg article with commentary from former SEC Chair Arthur Levitt and former SEC Chief Accountant Lynn Turner provides a great description of what is taking place there…
The video archive of last weeks’ pair of Conferences – the “5th Annual Proxy Disclosure Conference” & “7th 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.
The memo below from Wayne Carlin and David Anders of Wachtell Lipton describes the latest in the Mark Cuban insider trading saga:
On September 21, 2010, the Fifth Circuit Court of Appeals reversed the holding of the lower court and reinstated the SEC’s insider trading charges against entrepreneur Mark Cuban. This decision serves as an important reminder of the fact-intensive nature of insider trading inquiries and the perils of treading too close to the line when trading while in possession of non-public information.
Here, the SEC’s essential allegation is that Cuban violated the misappropriation theory of insider trading when, after receiving confidential information from the CEO of Mamma.com that the company was going to make a private investment of public equity (PIPE) offering, he sold his stake in the company in an effort to avoid losses from the expected fall in Mamma.com’s share price when the PIPE was announced. The district court found that the SEC’s complaint sufficiently alleged that Cuban had agreed to keep confidential information he received from the CEO, but that it had not alleged that Cuban agreed not to trade. Without that further agreement, the district court held, Cuban had not breached a duty, as required for insider trading liability. The district court therefore dismissed the case. On appeal, the Fifth Circuit disagreed, holding that it was at least plausible to conclude from the allegations in the complaint that, under the circumstances, Cuban was obligated not to trade. The appellate court therefore vacated the decision of the lower court and remanded the case to allow the SEC the opportunity to fully develop the factual record through discovery.
Although the appellate court opinion did not set forth any new legal principles, several important conclusions can be drawn from the decision. First, commentators who warned against reading the lower court decision as a change in the law of insider trading were correct: the Fifth Circuit decision makes clear that the bar for proving insider trading has not been raised. Second, the court made clear that insider trading cases are heavily fact-specific. Therefore, once the specter of insider trading is raised, it is difficult to avoid a detailed investigation into the facts. Third, even where the trial court was willing to decide the case at the motion-to-dismiss stage as a matter of law, the appellate court found that was erroneous in the presence of debatable issues of the interpretation and legal significance of certain facts.
This case is thus a reminder to proceed with caution and to seek guidance before trading while in possession of information that may be confidential. Careful analysis is essential before concluding that trading is permissible. If the circumstances surrounding a trade are likely to draw government scrutiny, there is every reason to expect the result to be a lengthy investigation (or litigation) with an uncertain eventual outcome.
SEC Issues Transitional Guidance for Broker Audits
On Friday, the SEC issued this 4-page interpretive release to provide transitional guidance on which auditing standards should be used by broker-dealers now that the PCAOB has authority to set auditing standards under Dodd-Frank. Since the SEC’s rules and the PCAOB’s standards have not yet been updated for this new legislation, the SEC’s guidance is that references in the SEC rules to auditing literature (ie. GAAS) should continue to be understood to mean auditing standards generally accepted in the US, plus any applicable SEC rules. This transitional guidance will be revisited when a rulemaking project is undertaken.
Financial Stability Oversight Council to Hold First Meeting
Last week, Treasury Secretary Tim Geithner, in his capacity as Chair of the Financial Stability Oversight Council, announced that the Council will hold its first meeting on October 1st. This press release lists all of the Council’s members.
Yesterday, the NYSE Commission on Corporate Governance issued its final report that identifies 10 core governance principles covering such topics as the fundamental objectives of the board, management’s responsibility for governance, and the relationship between shareholders’ trading activities, voting decisions and governance. The report is timely given the SEC’s proxy plumbing concept release was recently put out for comment.
While the the report formally concludes the work of the NYSE Commission on Corporate Governance, the NYSE announced that the group would, from time to time, continue to provide constructive input on corporate governance and the proxy reform process.
The SEC Inspector General’s Take on Goldman Sachs Enforcement Action: Not Favorable
Yesterday, I woke up at our Conference to a front-page WSJ article entitled “SEC Blasted on Goldman,” describing a Senate Banking Hearing where the SEC’s inspector general testified that the SEC’s fraud lawsuit against Goldman was “suspicious,” suggesting agency officials tried to distract attention from a report criticizing the SEC for failing to detect an alleged Ponzi scheme. The article included interesting Enforcement stats drawn from testimony provided by the SEC at the hearing – here is an excerpt of that:
According to a tally by the SEC, the agency has filed 634 civil cases since its fiscal year began last October, extracted $968 million in penalties and distributed nearly $2 billion to investors. Those figures “don’t capture the breadth and complexity of cases we’ve filed,” said Mr. Khuzami, who is shaking up the unit. The Justice Department said nearly 3,000 defendants were sent to prison between October and June for financial fraud. The number of criminal mortgage-fraud cases filed by the agency has more than doubled so far this year compared with 2007, while new corporate-fraud cases also have surged. Still, few criminal charges have been filed against high-ranking executives often blamed for the crisis.
And here is a telling excerpt as to why future cases might not be so forthcoming:
One reason for the small number of criminal cases so far, according to current and former regulators: Many of the highest-profile disasters of the crisis look increasingly like they were caused by too much risk-taking and bad decisions–not criminal behavior. “One of the challenges in this environment is there were such broad systemic failures that identifying the one or two people or the six enterprises that are quote responsible, which is what we see a broader appetite for, I don’t think that’s doable,” William McLucas, a former SEC enforcement chief, said in an interview. “There may be cases where the rules were broken. Are they all cases where you can or should put people in jail? Probably not, but that doesn’t satisfy the lust for accountability.”
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 plenary session on Tuesday (1900 attendees in person and many more online):
Our exhibitors like to make the Conferences fun – check out this pig race from Radford in our Exhibit Hall (attendees placed their business card on which pig they thought would win – and if your pig won, you earned a prize):
On Tuesday night, I sat in the right field bleachers of the Cubs game – behind me were a row of rooftops rented out by different exhibitors for various attendees of the Conferences (if you haven’t seen this phenomenon in person, this rooftop directory gives you an indication of its popularity):
Yesterday, Reuters ran the article below (entitled “US senator wants to reopen Wall St bill”) indicating that there is sentiment from some Republicans to revisit some of Dodd-Frank if they make gains in Congress during the mid-term elections:
Republicans will reopen the broad Wall Street reform law and overhaul the newly created consumer protection bureau if they regain control of Congress after the November elections, a leading lawmaker said on Monday. Richard Shelby, the top Republican on the powerful Senate Banking Committee, said lawmakers must revisit the legislation enacted this summer, which is the broadest overhaul of financial rules since the Great Depression. “The bill is so sweeping and such a game changer in many ways that it’s incumbent upon us to revisit it,” Shelby told the Reuters Washington Summit. The bill, one of the Obama administration’s legislative victories, will impose new restrictions on every aspect of Wall Street.
But lawmakers are already trying to change the bill, even though it was only signed into law in July. And that’s before the November midterm elections, which could see Republicans gaining further influence, if not control, over Congress. The House Financial Services Committee, which oversees financial regulators, is now considering tweaks to one of the bill’s provisions related to the Securities and Exchange Commission.
If Democrats lose control of Congress, Republicans may try to tear apart the contentious legislation they mostly all opposed. “The consumer agency bothers me the most,” said Shelby, who failed to reach a compromise with Democrats and voted against the bill. “I thought the creation of it and the way it was created was a mistake,” he said.
Under the Dodd-Frank bill, banking regulators are stripped of their consumer supervisory duties and the new Consumer Financial Protection Bureau gains the power to write and enforce rules for mortgages, credit cards and other financial products. “I don’t believe it’s good for business, it’s not good for the financial sector and ultimately I don’t believe it’s going to be good for credit for a lot of people who need it. It’s gonna cost,” Shelby said. But Sheila Bair, chairman of the Federal Deposit Insurance Corp, warned against Congress reopening the law, saying banks already face enough regulatory uncertainty.
“I think to go back and completely reopen it now with a whole other set of question marks and uncertainties about what people are supposed to be doing … I hope people would think hard about that,” Bair told the Reuters Washington Summit. Christopher Dodd, the chairman of the Senate Banking Committee and one of the bill’s main authors, said it may be hard for Republicans to rollback the bill or water down the consumer bureau as the Treasury Department has already begun to put it together.
“I think if they (Treasury) do it and it gets going then I think the job that Richard Shelby and others have in mind of undermining and gutting (the bureau) will be difficult,” Dodd told the Reuters summit. Dodd added that Republicans would likely target the bureau’s budget and “gut it financially.” Republicans despise the consumer bureau and have long argued that consumer protections should not trump the safety and soundness of banks. They fear that the bureau would hurt the availability of credit by burdening banks with piles of new regulations.
They were also upset with the appointment of Wall Street critic Elizabeth Warren, a Harvard professor, to help set up the consumer watchdog. “I believe she’s got a big ax to grind and she’s sharpening that ax,” said Shelby. “I don’t think that you need somebody in a position like that with all these preconceived ideas and I believe she has a lot of them.”
Nugget #1: Conduct Board Committee Evaluations Before Board Evaluations
I tend to get nostalgic as we get into our week of Conferences as I think back on our jam-packed year. It got me thinking about the series of “50 Nuggets in 50 Minutes” webcasts that Alan Dye and I used to hold when I first started with this organization nearly nine years ago. There was some good stuff in those programs and most of those nuggets still hold value today – so I thought I would begin blogging a number of them. Here is the first one:
Committee Evaluations – Conduct committee evaluations before board evaluations – Although many companies conduct both their board and committee evaluations at the same time for convenience, we like the idea of separating them by a few months – with committee evaluations being conducted first. This should help to provide time for directors to focus on each distinct group dynamic and more importantly, the results of committee evaluations can be considered as part of the subsequent board evaluation.
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:
– Study: Corporate Governance of the 100 Largest US Companies
– Director Searches: What Can You Tell a Recruiter
– The SEC Departs from an Important Safeguard
– SAS 70 and Internal Control Issues
– Dress Code for Delaware Courts
Today is the “7th Annual Executive Compensation Conference“; yesterday was the “5th Annual Proxy Disclosure Conference” and the video archive of that Conference is already 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 Today’s Conference” on the home pages of those sites will take you directly to today’s Conference.
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 Central.
– 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).
Corp Fin Issues Five New XBRL CDIs
On Friday, Corp Fin issued five new CDIs regarding interactive data (ie. XBRL) – three of them related to Regulation S-K and two related to Regulation S-T. It also withdrew two ’34 Act Form CDIs because they related to XBRL phase-in and were outdated (we are now through two phase-in periods with one more taking place next summer). Here are the new CDIs:
I saw this article from Fortune about whether the CEO title could be held by multiple persons at once. I’ll keep my opinion to myself and let you weigh in instead in this anonymous poll:
As noted by Mark Borges in his CompensationStandards.com “Proxy Disclosure Blog” on Saturday:
One of the more challenging aspects of analyzing the executive compensation provisions of the Dodd-Frank Act has been trying to predict how the SEC would approach its rulemaking obligations. As we know, many of the provisions are to become effective only upon the completion of SEC (and, in some cases, national securities exchange) rulemaking. While I’ve always expected that the SEC’s rulemaking activities would stretch into 2011 and, possibly, beyond, in the absence of any formal announcement I’ve had to caution clients that it was possible some of the rules would be in place for the 2011 proxy season.
Well, the SEC has just posted a tentative schedule for its Dodd-Frank Act rulemaking and, as I suspected, most of the executive compensation-related rules won’t be ready until next year. Here’s the schedule by provision:
1. Section 951 – Shareholder Approval of Executive Compensation
– Proposed rules: October – December 2010
– Final rules: January – March 2011
4. Section 954 – Recovery of Erroneously Awarded Compensation
– Proposed rules: April – July 2011
5. Section 955 – Disclosure Regarding Employee and Director Hedging
– Proposed rules: April – July 2011
6. Section 957 – Voting by Brokers
– Proposed rules: April – July 2011
Mark includes preliminary observations at the bottom of his blog, which I’m sure he’ll discuss today during the “How the Dodd-Frank Developments Impact You: All the Latest” panel that opens our “5th Annual Proxy Disclosure Conference.”
Today: “Tackling Your 2011 Compensation Disclosures: The 5th Annual Proxy Disclosure Conference”
Today is the “Tackling Your 2011 Compensation Disclosures: The 5th Annual Proxy Disclosure Conference“; tomorrow is the “7th 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 Today’s Conference” on the home pages of those sites will take you directly to today’s Conference.
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 Central.
– 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.
Short-Term Borrowings: SEC Proposes Rules and Issues Interpretive Guidance
On Friday, the SEC proposed new rules to elicit disclosures for short-term borrowings (here’s Chair Schapiro’s remarks).
In addition, the SEC issued an interpretive release providing guidance on existing MD&A requirements for liquidity and funding disclosures. Since this interpretive release will become effective immediately upon publication in the Federal Register, companies will need to review it now as it will apply to their next periodic filing. The interpretive release:
– Reiterates long-standing MD&A principles as they apply to disclosure of critical liquidity matters, so that MD&A disclosure keeps pace with the increasingly diverse and complex financing alternatives available to companies.
– Make clears that a registrant cannot use financing structures (whether “on-balance sheet” or “off-balance sheet”) designed to mask the registrant’s reported financial condition – transparent disclosure is required.
– Emphasizes that leverage ratios and other financial measures included in filings with the SEC must be calculated and presented in a way that does not obscure the company’s leverage profile or reported results.
– Addresses divergent practices that have arisen in the context of tabular disclosure of contractual obligations, to focus companies on providing informative and meaningful disclosure about their future payment obligations.
If you don’t register today with our HQ, you can still walk-up in Chicago and register by bringing a check or credit card to pay the applicable amount when you arrive. In addition, you can register online with a credit card as late as you want and get an ID/password sent to you automatically to enter the Conference and watch (in fact, you can even do so after Monday as the video of the panels will be archived for nine months – so you can watch them anytime if you have a conflict with the Conference schedule or whenever you want a refresher). Register Now.
Updated: “Printable Set of Course Materials”
For the most relevant of our voluminous set of Course Materials, we have created a single PDF of “Printable Set of Course Materials.” This set was updated today as we just received two last sets of charts that will be referred to during Tuesday’s Conference. [Note that these will be handed out in Chicago – no need to print and lug if you don’t want to.] If you have already printed off this set, these are the two new additions that you can print rather than printing the entire set again:
– for the 1:45 internal pay equity panel, this set of charts from Don Delves
– for the 2:20 inadvertent gains panel, this set of charts from George Paulin
A lot of members emailed me about Wednesday’s proxy access poll, mostly wondering about the SEC’s cat. The story goes that there has been a male cat named Felix that has roamed the SEC’s halls since the silent movie era (yes, Felix moved anytime the SEC changed the location of its HQ). Staffers are always trying to steal Felix’s magic bag. And I’ve heard that Felix is quite a ladies man…
More Blog Honors: LexisNexis Top 25 Business Law Blogs
We are proud to say that both this blog and our DealLawyers.com Blog has been nominated for LexisNexis’ Top 25 Business Law Blogs. Having already won the ABA Law Journal’s “Blawg 100” voting contest this year, I am not encouraging you to comment on the list of the LexisNexis nominees as once is enough. But if you are so inclined, here is the info that LexisNexis gave me:
To submit a comment, log on to your free web center account. If you haven’t previously registered, you can do so on the Corporate & Securities Law Community. Registration is free and does not result in sales contacts. The comment box is at the very bottom of the page. The comment period for nominations ends on October 8th.
Too funny. No sooner did I blog yesterday about the lengthy wait for the SEC’s proxy access rules to get published in the Federal Register, but the preview of today’s FR revealed that today would be the big day. Here is today’s FR with the access adopting release.
So since the adopting release was published in the Federal Register on September 16th, the new access rules will become effective on November 15th – which would mean that companies who mailed their 2010 proxy statement prior to March 15, 2010 would have a window period that fully pre-dated the effective date of the rules for this proxy season – thus meaning that these companies would not be subject to proxy access for the 2011 proxy season. The ides of March…
Dodd-Frank: SEC Adopts Internal Controls Amendments to Exclude Smaller Companies
Yesterday, the SEC posted this adopting release with amendments to its internal controls rules and regulations to conform them to Section 404(c) of Sarbanes-Oxley, as modified by Section 989G of Dodd-Frank, to state that 404(c) doesn’t apply to companies that are neither an accelerated filer nor a large accelerated filer.
SEC Receives PCAOB’s Proposed Changes to Risk Assessment Standards
Yesterday, the PCAOB filed proposed changes to eight auditing standards related to an auditor’s assessment of risk with the SEC. The proposed standards were approved by the PCAOB back in August and, if approved by the SEC, will become effective for audits of fiscal periods beginning on or after December 15, 2010.
I’ve received too many emails to count from members wondering if the SEC’s proxy access adopting release has been published in the Federal Register yet given that the SEC approved the adopting release at an open Commission meeting three weeks ago (answer: it has not). Even more folks have asked why it hasn’t yet, given that it seemed like the SEC was in a rush to do so so that the clock would start ticking towards when access would apply during the proxy season (answer: I don’t know, but the delay is unusual).
This email from a member gives the explanation of the math involved, tied to the final rules being published in the Federal Register:
As you are aware, the final proxy access rules indicate (pages 224-225) that if the window period for 14a-11 nominations has elapsed prior to the effective date of the rules (60 days following publication in the Federal Register), then shareholders of this company won’t be able to make 14a-11 nominations for the 2011 proxy season).
So, given the 120-150 day window period, by my math, if the rules were published in the Federal Register, say on September 15th, the rules would be effective on November 14th, which would mean that companies who mailed their 2010 proxy statement prior to March 14, 2010 would have a window period that fully pre-dated the effective date of the rules for this proxy season – thus meaning that these companies would not be subject to proxy access for the 2011 proxy season (this would include a fair number of calendar year-end companies, increasing by the day). While I don’t think the rules are ambiguous in their application, I find it surprising that the final rules have not yet been published, given the Commission’s previous stated desire that proxy access rules be in effect for the 2011 proxy season.
By the way, I do know that the access rules won’t be published in the Federal Register today because a preview of the following day’s content is made available each day on this site and it wasn’t listed yesterday…
Poll: Why Do You Think the Proxy Access Rules Haven’t Been Published Yet?
It looks like more companies are willing to take the risk of negative press – and shareholder anger – and hold virtual-only annual meetings. For example, check out this letter writing campaign against Symantec for planning to hold such a meeting, spearheaded by the “United States Proxy Exchange.” Here is Symantec’s proxy statement, which explains how it’s annual meeting will work (eg. questions will be permitted to submitted in ‘real time’).
The Big Four and Their Growing Consulting Practices: Deja Vu in Europe?
For those of us practicing more than a few years, you will recall how the largest auditing firms spun off their consulting practices in ’02 (post-Enron thing) since the risks of conflict of interests was too great when it came to the auditors doing their audit work (eg. see this article). According to this article in The Guardian, the Big Four has grown its consulting groups in Europe to the point where the revenue from these groups constitutes as much as a quarter of the firm’s revenue stream. Not a good thing…
PCAOB Extends “Communications with Audit Committees” Comment Period
Not only has the PCAOB extended its “communications with audit committee” comment period, it has calendared a roundtable for September 21st on the topic – and posted this briefing paper.
