Yesterday, Corp Fin Director John White announced he will be leaving the SEC at the end of the year, after working at the SEC for nearly three years. I understand that John will return to the law firm for which he spent over 30 years, Cravath Swaine & Moore. Like his predecessor, John has overseen an enormous amount of regulatory change on his watch – and we thank John for all he has done for the corporate community, including speaking out about responsible executive compensation disclosures.
Rumors: Who Will be the Next SEC Chair?
With the Democrats about to take over the White House, the media has commenced to guessing who will be the next Treasurer, SEC Chair, etc. As noted in this WSJ article that muses on regulatory reform, SEC Chairman Cox will likely leave in February.
When it comes to the next SEC Chair, I’ve seen some suggestions that I know are a non-starter – but others that may very well happen. Here’s some rumor fodder from the Legal Times:
– John Olson, Senior Partner, Gibson, Dunn & Crutcher
– New Jersey Governor Jon Corzine
– Mary Schapiro, FINRA CEO and Former SEC Commissioner and CFTC Chair
– Former SEC Commissioner and General Counsel Harvey Goldschmid
– MFS Investment Management Chair Robert Pozen
35% of Professionals Would Choose BlackBerry Over Spouse
Dave sent me this ABA Journal article that reveals the awful truth about many of you BlackBerry addicts out there. Although I’m proud to not own one, trust me that I have my own problems and work way too much. I mean waaay too much. Maybe I need a BlackBerry to keep me company…anyways, here is our own poll:
For those financial institutions participating in the Treasury’s TARP Capital Purchase Program, you will be disturbed to learn that I have heard through the grapevine that some companies might take the opportunity to play it “cute” with how they revise their executive compensation arrangements in response to EESA.
In a perverse irony, these companies would amend their existing “double trigger” change of control arrangements to make them pure single triggers. Single triggers have been widely discredited in recent years and most companies have replaced them with more investor-palatable double triggers (ie. compensation is payable only (i) after a control change actually takes place and (ii) if a covered executive’s job is terminated because of the control change).
Apparently, some view single trigger payments as not being prohibited “golden parachute payments” under the Treasury’s program. I find it hard to believe that a movement back to single triggers is the result that Congress wanted – and I doubt investors will take kindly to this development if it indeed occurs.
Coming Soon: Mandatory E-Proxy
Since the end of last year, larger US companies (ie. large accelerated filers) have been required to post their proxy materials on their corporate websites. Soon, all companies engaging in proxy solicitations will need to do so as the SEC’s mandatory e-proxy rules for smaller companies become effective commencing on – or after – January 1st of ’09.
In this podcast, Matt Dallett of Edwards Angell discusses how smaller companies need to get ready to comply with mandatory e-proxy for the first time, including:
– What is mandatory e-proxy?
– What will be absolutely required and what is still voluntary?
– What do smaller companies need to do to get ready for mandatory e-proxy?
Reforming Securities Class Actions Via Shareholder Proposals
Bruce Carton’s “Securities Docket” includes this interesting piece on how Professor Adam Pritchard has developed this model proposal to reform the class action process through the Rule 14a-8 process (here is a paper on this topic too).
From Davis Polk: Last week, Treasury completed its investment in the nine systemically important banks – and, on October 31st, Treasury posted standardized final documents on its website. The final documents, reflecting comments from the nine systemically important banks, clarify a number of points and contain certain differences from the Term Sheet originally published on October 14th.
Although the final Term Sheet is little changed from the Term Sheet that Treasury originally published, an analysis of the underlying documents – the securities purchase agreement, the Warrant and the certificate of designations for the Preferred Stock – reveals some significant differences between those documents and the published Term Sheet. A revised Term Sheet, which has been marked to reflect the important differences between the Term Sheet and the final documents for the Capital Purchase Program, is set forth as Annex A of this memo (which also reviews those differences and certain other significant issues that financial institutions should consider before applying for funding under the program).
Treasury has stated that it will invest in each publicly-traded financial institution that participates in the program on the same terms in a “one-size-fits-all” approach, without change for individual financial institutions. We believe, however, that Treasury will consider modifications to accommodate important institution-specific issues, but otherwise will not agree to changes. Each financial institution will need to review carefully the final terms and the underlying documents to see if it can and would want to comply with them.
The application deadline for publicly-traded financial institutions is 5:00 pm Eastern next Friday, November 14th. Treasury has stated that it will post application information for privately-held financial institutions at a later date and establish a reasonable application deadline for them. Learn more from this memo (and the many others) posted in our “Credit Crunch” Practice Area.
Also note that Treasury – once the investment agreements are complete and the investment is authorized – will publicly disclose the name and capital purchase amount for each participating financial institution within two business days. The information will be posted here and updated daily at 4:30 pm Eastern as needed.
The Form 8-Ks: Participating in Treasury’s Capital Purchase Program
Below are some of the Form 8-Ks filed so far that relate to the EESA and the CPP. They include all nine of the original banks who “signed on” (the first six were filed on 10/30, the last three were filed on 10/31). Already more institutions have sought government money and their Form 8-Ks are included in our ongoing list in the “Credit Crunch” Practice Area:
During the past few months, a number of members have asked us about the SEC’s ability to rulemake during the White House’s ongoing moratorium on new rules by federal agencies. This moratorium was explained in our blog back in May. The extraordinary exception to the moratorium clearly isn’t responsible for all the SEC’s rulemaking during the past few months because some took place before the heightened crisis.
The issue of the applicability of an executive order to independent regulatory agencies has been a topic that recurs at the beginning – and the end – of every Presidential administration. The SEC has repeatedly tried to walk a fine line by taking the position that executive orders don’t apply, but that the Commission would adhere to the policy to the extent possible. For example, during early 2001, Laura Unger – when she was acting Chair at the start of the Bush Administration – announced that the SEC would abide by a rule moratorium imposed to freeze pending changes issued under the Clinton Administration. At the time, the SEC said that while the moratorium didn’t apply to independent regulatory agencies, the SEC would adhere to it to the extent possible (in fact, I thought that boilerplate for these types of executive orders typically requested that independent agencies follow it, but I don’t see that language in Bush’s May moratorium memo).
What About Rulemaking Before the New President Takes Office?
With the Presidential election upon us, the Congressional Review Act may now play a role (as this article notes, Bush is trying to cram down as many rules as possible now). It’s the law that created the Congressional rescission of an agency’s “major rule.” After rule adoption and publication, major rules must be submitted to Congress for a 60-day review period prior to becoming effective. The 60-day period is tolled
if Congress goes out of session for a 3-day or longer period. Since this is an election year, it’s possible that Congress will go “sine dei” until January, although Congress may well convene a lame duck session given the economic crisis. I think that for a rule to be effective, the SEC has to adopt it and the 60-day period has to run. This could cause a delay if there is no lame duck session.
Note there may be ways around the 60-day delay, such as an exigencies exception where the SEC can show a compelling reason to shorten the delay (there always seems to be this kind of exception). And bear in mind that this entire issue only arises if the rulemaking is “major” – there are alternate criteria, but “major” usually means a greater than $100 million annual economic effect in the aggregate. For example, to apply this litmus test to the SEC’s outstanding XBRL rulemaking, the efficiencies and benefits may be hard to quantify (and Chairman Cox likes to say that XBRL won’t cause much of an adverse impact to corporate bottom lines).
The art of rulemaking is not my area of expertise so some blanks may need to be filled in. If you scroll down on this “OMB Watch,” this legal quagmire may be better explained.
Regarding Bush’s push to adopt new rules before he leaves office, I couldn’t tell from the media reports whether the rules being pushed had been proposed back in June, in which case they would be consistent with his moratorium – or whether they were proposed by independent agencies that could make the same argument as the SEC. To me, aside from all of the technicalities, it’s just bad government to rush regulations just because the clock is ticking. Usually, that ends up with disastrous results…
Our November Eminders is Posted!
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With the SEC’s proposed XBRL mandatory phase-in timeline looming – and SEC Chairman Cox likely a short-timer – it’s quite possible that the SEC will adopt final rules pretty soon. As you may recall, the SEC’s proposal would require the 500 largest US companies to start filing XBRL-tagged financial statements in the spring of 2009. A few weeks ago, Chairman Cox was a “no-show” as the keynote for the big XBRL International conference, but that likely had more to do with the demands of the credit crisis than the fate of XBRL. However, if final rules are not adopted soon, they may not get finalized on Cox’s watch (much to his chagrin) – and the SEC almost certainly will need to push back its timeline even they do.
Approximately 100 comment letters were submitted to the SEC on its XBRL proposal. A quick review reveals that the nature of the comments appear to be all over the lot. For example, CII’s comment letter voices concerns about the accuracy and reliability of XBRL (ie. the assurance issue) as well as the weaker standard of investor protection for XBRL compared to the financial data contained in traditional financial reports. Auditing firms – perhaps best reflected in this Deloitte letter – are understandably worried about their potential role in the assurance process.
In comparison, the 20-page comment letter from the ABA’s Federal Regulation of Securities Committee contains much commentary on the proposal’s liability provisions – and this Sullivan & Cromwell letter focuses squarely on this topic – and how they may expose companies to excessive liability. It will be interesting to see if Cox can pull off adopting something before he leaves.
Remember way back when the SEC decided it wouldn’t use “XBRL” anymore and instead use “interactive data” (because “XBRL” is too scary)? The SEC has held true to this change as the term “xbrl” is hardly used in the proposing release…
Whether the SEC Should Mandate Executive Compensation Data in XBRL?
Last week, Dave blogged about a company that has placed executive compensation data in XBRL for 4000 companies. As you may recall, in its XBRL proposing release, the SEC did not officially propose that executive compensation data be filed in XBRL, but it did solicit comment on this concept. Since it did solicit comment, the SEC arguably does have the latitude to adopt rules mandating XBRL for comp data without having to issue a re-proposing release under the Administrative Procedures Act (which is one of the many laws that govern agency rulemaking).
In footnote 94 of its proposing release, the SEC notes that Broadridge issued an XBRL taxonomy for proxy statements way back in December. I’m a member of many of the groups that would normally comment on SEC rulemakings of this nature and I don’t believe this Broadridge initiative hit many radars. Even now I haven’t reviewed this draft taxonomy, mainly because it’s not available unless you give Broadridge information about yourself – and I think that defeats the purpose of trying to obtain public comment on an idea. To date, Broadridge hasn’t provided any indication of what types of comments were collected (nor have I otherwise seen any evidence that anyone submitted comments to them).
Plus I find this reference odd because Broadridge is widely recognized as the leader in fulfillment, but it’s not considered an expert in drafting proxies. This is apples and oranges. In fact, Broadridge just went public last year and is so new of a public company, that it didn’t try e-proxy for its first annual meeting (nor will it do so for its upcoming second annual meeting).
Given the hubbub over the lack of “usability” for Broadridge’s e-proxy notices used during the past proxy season, I’m even more uncomfortable that the SEC is pointing to Broadridge to lead the way here. And it’s unusual that the SEC would seemingly use a third-party to solicit comments on its behalf. For all these reasons, the SEC should exercise restraint and not adopt rules mandating XBRL for executive compensation data until taxonomy in this area is more fully developed and that a more solid proposal is considered and commented upon.
Note that I remain a big Broadridge fan, as I continue to urge you to buy its stock, even though its been clobbered in this market downturn.
Some More XBRL Tools and Guidance
Hitachi has an “XBRL Blog,” which contains a bit of technical commentary. A lot of good stuff there if you want more information on the technical side.
On TryXBRL.com, RR Donnelley has partnered with EOL to tag ten years of data for all public companies. Once a company files financials (on either Form 10-Q or 10-K), this site tags the filings in XBRL within a 24-48 hour period and the information is available thru an Excel-based viewer.
XBRL Survey: Relative Levels of Preparedness
Recently, Compliance Week conducted a survey that revealed that of the 236 companies surveyed:
– 44% – just begun researching XBRL and their companies had done no previous testing
– 15% – no knowledge of XBRL at all
– 79% – no XBRL expert on staff at all
– 19% – have expert on the financial reporting team
– 2% – have expert in the IT department
– 7% – already participate in the SEC’s voluntary filer program
– 6% – done some small pilot tests
– 2% – testing their own systems comprehensively
– 30% – haven’t yet tested XBRL, but been following the topic closely
Depressed stock prices inevitably raise the temptation for stock buybacks, and recently a number of large buybacks have been announced. Further, the SEC recently sought to encourage repurchase activity by temporarily relaxing the timing and volume conditions of Rule 10b-18. Stock buybacks remain controversial, however, and it is likely that the benefits and costs of buybacks will continue to be debated in these volatile times.
One approach to buybacks that has emerged over the past few years is the “accelerated share repurchase program” or “ASR.” (For a description of ASR programs, take a look at this blog from earlier this year.) In a recent research piece, Michael Gumport, Founding Partner of MG Holdings/SIP, notes that counterparty credit risk is potentially a big consideration in entering into ASR programs. In the piece, Mike notes that “[i]n light of current economic dislocations, companies contemplating execution of complex ASRs (or with ASRs in progress) ought to weigh whether counterparty risk is attached and, if so, the adequacy of compensation.”
I think that this piece highlights the need to evaluate counterparty credit risk in a wide variety of transactions where previously the future performance of the institutional counterparty was pretty much taken as a given. Today, the assessment of counterparty credit risk is complicated by concerns about credit ratings, which often serve as the basis for evaluating risk, and (as demonstrated by Bear Stearns and Lehman Brothers) the extent to which circumstances can change very rapidly. As companies consider their overall risk management practices, the continuous evaluation of counterparty risks of all kinds needs to be high on the list of priorities.
Mark-to-Market Roundtable
On Wednesday, the SEC held its first of two roundtables on mark-to-market accounting. The purpose of the two roundtables is to develop information for the study of fair value accounting that was mandated by the Emergency Economic Stabilization Act. Wednesday’s roundtable was focused on how fair value is used by financial institutions.
In his opening remarks at the roundtable, Chairman Cox noted:
“As we begin our panel discussions, it is important to keep firmly in mind the primary role of financial reporting as a direct communication with investors. Financial reporting serves several other purposes as well, including its use by safety and soundness regulators of financial institutions. Because of the many uses of financial information, today’s topic is not simply an accounting matter. It is important that these differences between the uses of financial information by investors, regulators, and businesses themselves, among others, be recognized and appreciated.”
Earlier this week, Robert Denham, Chairman of the Financial Accounting Foundation (which is responsible for oversight of the FASB) sent a letter to Chairman Cox asking that the SEC not bow to the pressure being put on fair value accounting, noting that “it would be detrimental to investor confidence to overturn a FASB standard or otherwise suspend or restrict independent standard-setting activities of the FASB in the current environment and in response to political pressure from some financial industry groups.”
A Blow to F-Cubed Litigation?
We have posted several memos in our “Securities Litigation” Practice Area concerning the recent decision of the Second Circuit Court of Appeals in the case of Morrison v. National Australia Bank Ltd., No. 07-0583-cv, 2008 (Oct. 23, 2008). This case is notable because it has now provided some clarification on issues concerning the extraterritorial reach of the US federal securities laws that have arisen in a recent rash of “f-cubed” litigation, where foreign investors sue foreign issuers over losses incurred on foreign securities exchanges.
At the invitation of the Second Circuit, the SEC filed an amicus brief in this case which supported the views of the plaintiffs.
As noted in this WSJ article, a Section 16(b) claim has been filed against the two hedge funds that were locked in a dispute with CSX Corp. earlier this year. A CSX shareholder has filed suit against The Children’s Investment Fund Management and 3G Capital Partners, seeking to recover (on behalf of CSX and its shareholders) alleged short swing profits arising from the funds’ transactions in CSX securities and derivatives. This could be a very interesting case, as was the earlier litigation, which focused attention on the funds’ use of derivatives in the contest for control of CSX.
Posted: More Memos on Expiring Shelf Registrations
As Broc noted in the blog last summer – and as we recently covered in the latest issue of The Corporate Counsel in the context of the recent sharp decline in stock prices – the clock is ticking on issuers who will have shelf registrations expire soon under the 3-year sunset provision of Rule 415(a)(5). We have been posting lots of memos on this topic in our “Form S-3” Practice Area. Be sure to check them out before it is too late!
The Rise of Sovereign Fund Investing
We have posted the transcript from our popular DealLawyers.com webcast: “The Rise of Sovereign Fund Investing.”
What Are You Going to Be for Halloween?
Sadly, Halloween has become almost a non-event in my household this year. I think that this is the first time in a few years that I did not get a Halloween costume for myself, so I won’t be wandering around the neighborhood tomorrow as Jack Sparrow, Darth Vader or Chewbacca. Plus, I was disappointed that my local costume shop didn’t have any Hank Paulson masks. Maybe next year…
With November just around the corner and, for many companies, perhaps the last compensation committee meeting of the year scheduled in the next two months, it is now critically important to start thinking about your Compensation Discussion & Analysis for the 2009 proxy statement. There is still time for companies and compensation committees to take appropriate actions that can serve as the foundation for the analytical disclosure in the CD&A that the SEC and others expect. Many of these actions were discussed in detail last week at our two conferences, “Tackling Your 2009 Compensation Disclosures: The 3rd Annual Proxy Disclosure Conference” and the “5th Annual Executive Compensation Conference,” as well as at the “16th Annual NASPP Conference.”
To kick off the CD&A panels at the 3rd Annual Proxy Disclosure Conference, I noted my view that CD&A is really at a crossroads this coming proxy season. In many ways, the 2009 proxy season will likely determine whether CD&A slides into irrelevance like its predecessor, the old Board Compensation Committee Report, or whether it will finally provide the crucial analytical background to the compensation numbers that was intended all along. I don’t think that the possibility for irrelevance is overblown – complaints are surfacing that institutional investors are skipping over CD&A and going straight to the compensation tables, because they are not finding useful information presented in the CD&A. This trend was confirmed by Pat McGurn and others on “The Investors and Proxy Advisors Speak” panel at the 3rd Annual Proxy Disclosure Conference. This trend, in my view, can only lead to trouble, because investors are only getting part of the story if they skip the explanation and rationale that is supposed to be included in the CD&A.
Several factors will certainly contribute to the focus on CD&A in 2009 and beyond. If some form of say-on-pay is enacted and investors are given the opportunity to cast an advisory vote on the CD&A and the other compensation disclosures, then what is said this next proxy season will be an important backdrop for voting decisions, even if mandatory say-on-pay votes don’t occur until 2010. Further, while the recent Emergency Economic Stabilization Act and the TARP program implementing that legislation included executive compensation provisions that are only applicable to participating financial institutions, the existence of these provisions in the federal legislation are reason enough to compel companies to consider taking action now on executive pay concerns – whether analogous to the Act’s provisions or in other areas that remain a significant focus of investor criticism. As Broc noted in the blog last week, John White’s speech at our 3rd Annual Proxy Disclosure Conference included White’s views on how the executive compensation provisions of the TARP may be instructive for other companies on how they should approach their executive compensation programs. Finally, with 2008 being a year when many companies faced significant challenges given the markets and the economy, all eyes will be on the CD&A in the 2009 proxy to see what compensation committees did do – or did not do – to address executive pay in the face of difficult conditions.
It may be that we now find ourselves at a broader tipping point on executive pay, marked by the recognition of some pay excesses in recent federal legislation and a clearly rising level of anger among investors over how compensation decisions may have contributed to the current situation.
Now it is up to all boards and their advisors to take the public and shareholder anger to heart when making compensation decisions. These developments make this year very different from what we have been dealing with in the past. As a result, disclosures must be different, and the company and compensation committee actions described in those disclosures need to be different. I don’t think that this is a situation where you can just look at the disclosure in a vacuum and try to tweak it here are there – there needs to be some deep consideration in the next two months as to how the compensation policies and decisions are going to be explained to investors in 2009.
For more on John White’s speech and how executive compensation disclosure should be changing in 2009, take a look at Mark Borges’ initial blog and follow-up blog on the 3rd Annual Proxy Disclosure Conference.
Waxman Seeks Wall Street Compensation Data
In a sure sign of how much things have changed, the focus on excessive compensation seems to be shifting from the executive suite to the broader employee population at those major financial institutions receiving an infusion of government money. In the wake of press reports on Monday about the size of Wall Street bonuses this year, Henry Waxman (D-CA), Chairman of the House Committee on Oversight and Government Reform, sent letters to nine major banks seeking detailed data about overall employee compensation at the banks. In the letter, Waxman states: “While I understand the need to pay the salaries of employees, I question the appropriateness of depleting the capital that taxpayers just injected into the banks through the payment of billions of dollars in bonuses, especially after one of the financial industry’s worst years on record.” Chairman Waxman asks that the information be provided no later than November 10, 2008.
For more on this development, see Broc’s entry today in The Advisors’ Blog on CompensationStandards.com.
More Executive Compensation Data in XBRL Format
Last week, a company by the name of Xtensible Data announced that its recently released interactive data website now includes 2006 and 2007 executive compensation data reported in XBRL for more than 4000 companies. This is a significantly greater data set than the SEC provides in its own executive compensation viewer, which only includes 2006 data for 500 large companies.
Like the SEC’s viewer, Xtensible Data’s Corporate Pay interactive tool focuses on the information provided in the Summary Compensation Table. The data is based on information from public filings, and the company has converted the data from HTML or standard text into an interactive XBRL format. The database can be searched based on company name and ticker, stock index, and industry, and the results can be sorted by each column of the Summary Compensation Table, and filtered by executive type and fiscal year. The method used to determine the value of stock and option awards may also be selected by the user. The Corporate Pay tool also allows users to graph the executive compensation information (including comparative graphs) and the data may be downloaded into Excel.
One of the topics discussed several times at last week’s “Tackling Your 2009 Compensation Disclosures: The 3rd Annual Proxy Disclosure Conference” and the “5th Annual Executive Compensation Conference” was pledging of securities by executives, typically done under margin arrangements. A NY Times article from last week was among the latest media reports to note the rise in insider sales of securities necessary to satisfy margin requirements. The article notes the inadequacy of disclosure regarding pledged securities, despite the fact that the SEC specifically required disclosure of pledged shares in the Beneficial Ownership Table when it adopted the 2006 amendments to the executive compensation disclosure requirements.
Volatility in the stock market will continue to drive this trend – along with all of its potential pitfalls for executives and their companies. Because company stock may be pledged as collateral for margin on an account where an executive maintains a more diversified portfolio of securities, broad market swings can result in margin calls and the forced liquidation of company securities even in situations where the company’s share price remains relatively stable. Unfortunately, this issue may often be a “blind spot” in company policies on stock ownership, insider trading, codes of conduct, etc. As a result, many companies will need to re-examine this issue in light of the current turmoil – and before year-end – so that any necessary changes can be highlighted in the Compensation Discussion & Analysis for the 2009 proxy statement.
Look for more on this critical topic in the upcoming issue of The Corporate Executive. If you aren’t a subscriber to The Corporate Executive, take advantage of a “Rest of ’08 for Free” no-risk trial. If you are a current subscriber, be sure to renew for ’09 since all subscriptions are on a calendar-year basis.
A Banner Year for SEC Enforcement?
Last week, the SEC announced that the agency had the second highest number of enforcement actions take place in fiscal 2008, with 671 actions brought through the September 30, 2008 end of the fiscal year. The glowing press release notes that the SEC brought the highest number ever of insider trading cases during fiscal 2008, as well as a sharp increase in the number of market manipulation cases. The press release also notes the obvious uptick in Foreign Corrupt Practices Act cases, with 15 such cases filed in 2008 and a total of 38 FCPA cases brought since January 2006. Interestingly, the press release does not note how many cases the agency brought to suspend trading in and/or revoke the registration of delinquent filers, which has been a significant focus (in terms of the number of cases) over the past few years. The SEC notes that, for a second year in a row, more than $1 billion was returned to harmed investors through Fair Funds distributions.
The Division of Enforcement and the Commission’s attitude toward Enforcement matters have been under quite a lot of scrutiny recently, so it is good to still see these impressive numbers. While much might be made of the mix of cases that the SEC has brought (i.e., too much insider trading and not enough accounting fraud), it is important to keep in mind that priorities change over time and the agency always has to make due with its limited resources by focusing its enforcement efforts. Further, the Enforcement process – even with the many improvements made in recent years – remains relatively slow and will lag to a great extent the issues that are in the immediate public consciousness. All in all, these results should be taken as a positive sign that the SEC remains “on the beat.”
Unfortunately, the same might not be said for the FBI in its efforts to investigate financial fraud. This NY Times article notes that the FBI’s staff of white collar investigators shrank as the agency’s role shifted toward terrorism and intelligence. Most disturbing is the possibility that the shrinking ranks of white collar investigators may have thwarted efforts to investigate financial fraud occurring in the housing market in 2003 and 2004, when perhaps the criminal authorities could have made a real difference in how the financial crisis ultimately played out.
PCAOB Proposes Audit Risk Standards
Last week, the Public Company Accounting Oversight Board announced seven proposed auditing standards relating to “the auditor’s assessment of and responses to risk.” The PCAOB notes that these proposed standards would supersede the interim auditing standards related to audit risk and materiality, audit planning and supervision, consideration of internal control in an audit of financial statements, audit evidence, and performing tests of accounts and disclosures before year end. These new standards are all built around the concept of audit risk, which is the risk that an auditor will express an inappropriate opinion when financial statements are materially misstated. The titles of the proposed standards are:
– Audit Risk in an Audit of Financial Statements
– Audit Planning and Supervision
– Identifying and Assessing Risks of Material Misstatement
– The Auditor’s Responses to the Risks of Material Misstatement
– Evaluating Audit Results
– Consideration of Materiality in Planning and Performing an Audit
– Audit Evidence
The proposals are out for a generous 120-day comment period, ending February 18, 2009.
During our Conferences, I announced that my co-blogger – Dave Lynn – would be taking on a new role as a Partner for Morrison & Foerster, working out of their DC office. We are happy for Dave, particularly because he also will continue to work with us. So you will continue to see him on our sites and print publications – just like Alan Dye splits time with Hogan & Hartson and us.
Not only is Dave a great guy, but he truly is a securities law genius. In my unique role setting up numerous conferences and panels over the years, I’ve worked with all the greats and I can honestly say I’ve never seen anyone quite like Dave. And I’m not the only one who thinks so, many of the greats regularly confer with Dave even though they have more experience. So seek Dave out in his new capacity if you need smart counsel.
Catch-Up Now: Register for Video Archive of the Executive Compensation Conferences
Not only was John White’s speech noteworthy, but every panel made an effort to provide practical implementation guidance for the challenges ahead of us. And given the likelihood that say-on-pay legislation will be adopted soon that will require shareholder votes on executive pay in 2010, the importance of your upcoming proxy disclosure can’t be overstated as investors will use that when they decide whether to include your company on a “watch list” and set your company on a path to not earn shareholder approval. You can still catch-up and register to watch the archived video of the Conferences (and obtain the critical Course Materials).
The Sights & Sounds of the Executive Compensation Conferences
Over 1800 Watch John Olson and Crew
The plenary session for the “5th Annual Executive Compensation Conference” was large (with several thousand more online):
The “We Want Heat” Chant
It got a little nippy during the “3rd Annual Proxy Disclosure Conference,” so I led the audience in a chant:
Baker & McKenzie’s Voodoo Dolls
Our Conference swag is always among the best; this year’s breakout hit was Baker & McKenzie’s voodoo dolls. Attendees were trading them like crazy:
Shiny Swag from Citi Smith Barney
Perfect for New Orleans – so shiny:
Merrill Lynch’s Photos
Many service providers took out clients after our receptions (one hired Howie Mandel for a private gig; another hired the singer Jewel). On Wednesday night, three different parades with marching bands left the hotel to private events. The hotel said that was two more than any other conference held there. Merrill Lynch provided keepsakes for their clients:
‘Living Room’ Exhibit Space
This exhibit booth from Stock & Options Solutions was the coolest I’ve seen in years:
Dude Singing ‘Time to Go’
My personal favorite moment was this dude telling the folks in the exhibit hall that the panels were back in session. Rather than ring a bell, he sang the schedule and more:
