With the SEC’s reconsideration of shareholder access looming (which would likely include a minimum ownership threshold to place nominees on a ballot), the issue of whether one investor can combine ownership of multiple shareholders to meet a minimum threshold under the SEC’s rules becomes an increasingly important issue.
So far, this issue has been debated mostly in the Rule 14a-8(b) context, where a number of companies have sought exclusion of shareholder proposals submitted by individuals represented by John Chevedden. I have heard complaints from a number of members who worry that the combined effect of recent no-action responses may lead to potentially abusive results.
With a few exceptions in prior proxy seasons, the Corp Fin Staff consistently has rejected arguments that nominal proponents are merely strawmen and that the “agent” is the real party-in-interest. And the Staff often allows (eg. this recent AMR no-action letter) co-proponents – none of whom owned sufficient shares to qualify under Rule 14a-8(b) on their own – to aggregate their shares to satisfy the minimum requirements. Remember that the Staff’s no-action responses depend on the particular facts presented – and the arguments made.
I’m hearing from a lot of members worried about the risk that these Staff positions impose, particularly a position that could be viewed to allow anyone to essentially “borrow” shares from passive individual shareholders and submit a proposal on behalf of those holders. In addition, they are worried that anyone can – via the representation of other shareholders – submit multiple proposals to the same company in a single year. These members note that these activities arguably violate Rule 14a-8.
Given that the SEC will likely address this issue in its upcoming shareholder access rulemaking (as it has done as part of its prior access proposals), it seems appropriate that the SEC request comment on this issue in both the Rule 14a-8 and shareholder access contexts due to its importance.
A First: Reincorporating to North Dakota
Thanks to Michelle Leder of footnoted.org for pointing out the first company – American Railcar – to reincorporate to North Dakota. Here’s the proposal from the company’s preliminary proxy statement; note that Carl Icahn owns a majority stake in the company.
As we have blogged about before, North Dakota changed its laws in ’07 so that they are among the most shareholder-friendly. And some shareholders have urged a group of companies to reincorporate there, through the shareholder proposal process, etc.
Last Day for Early Bird Rates: “4th Annual Proxy Disclosure Conference” & “6th Annual Executive Compensation Conference”
You need to register by the end of today to obtain the very reasonable Early Bird rates our popular conferences – “Tackling Your 2010 Compensation Disclosures: The 4th Annual Proxy Disclosure Conference” & “6th Annual Executive Compensation Conference” – that will be held in San Francisco on November 9-10th (and via Live Nationwide Video Webcast). Warning: These reasonable rates will NOT be extended beyond today!
Here is the Conference registration form – and here is the agenda. These Conferences have been accredited by RiskMetrics for director education.
With so much going on, it’s hard to keep up. Here is another worthy development that hasn’t been addressed yet in this blog – this GAO report from March about the role of regulators in the current financial crisis, particulary regarding risk assessment by the banking and securities regulators. GAO’s report provided little in way of surprise, but it is another document that folks will consider when deciding how our regulatory structure will look like after the coming reform.
The battle for this reform is being waged now and it’s probably the most important one since the major reforms instituted during the Great Depression. Last month, SEC Chair Schapiro urged the Senate to not sacrifice investor protector (nor the SEC’s role) as Congress considers creating one entity to oversee all risk in the financial system (see the related Reuters article). There clearly are high stakes involved in this debate.
By the way, I found it interesting that Jon Stewart had Elizabeth Warren, head of the TARP oversight board, on The Daily Show last week (here is the archived video). Overall, I wasn’t too keen on her commentary – but I did like her closing remarks, when she highlighted how important it was to not continue watering down our regulatory framework. She explained how this country went through 150 years of “boom and bust” cycles and how those disappeared for 50 years after FDR instituted strong regulations during the Great Depression. Then those cycles reappeared in the form of the late ’80s S&L crisis, the late ’90s Long Term Capital scare, the Enron and related frauds in ’02 and now this serious credit meltdown. She believes the last 20 years of boom and bust can be attributed to weaker regulations. Food for thought…
I can relate to Elizabeth’s senior moment when she forgot what PPIP stood for! She can take a refresher during next Thursday’s webcast – “Tripping the PPIP – and TALF – Fantastic” – featuring Alan Beller of Cleary Gottlieb, Tony Nolan of K&L Gates and Meg Tahyar of Davis Polk.
Today’s Webcast: “XBRL: What Lawyers Need to Know”
Please print off these “Course Materials” prior to catching today’s webcast: “XBRL: What Lawyers Need to Know.” John Huber and Dave Lynn will go over what types of issues lawyers need to know – then, Louis Matherne of Clarity Systems will give a short demo tailored to lawyers so you can see how XBRL will change the document production workflow for creating disclosure documents.
As I mentioned in this blog on Monday, companies will need to change their 10-Q and 10-K cover pages, even if they aren’t impacted by the XBRL rule changes yet – there continues to be a lot of follow-up questions in our “Q&A Forum” on this topic. And on Tuesday, XBRL US published its 2009 version of the US GAAP XBRL taxonomies.
Special Meetings Called By Shareholders: GE Lowers Its Threshold
Been meaning to blog about this WSJ article entitled:“GE Gives Shareholders More Power.” The article notes that the company has reduced the threshold allowing shareholders to call a special meeting from 40% to 25%. And even though a 25% threshold for a company the size of General Electric is huge, it’s still a notable development. Here’s GE’s Form 8-K regarding the change.
As noted in this article, it looks like GE’s annual meeting held yesterday had a bit of drama when one of Fox News’ employees used the microphone reserved for shareholders to ask questions – without identifying himself as a reporter. When it comes to concerns about old-style journalists being replaced by bloggers, I also get worried about them – but then I think about incidents like this to remind me that there are so many folks pretending to be journalists in the mainstream press these days that the glory days of that medium clearly are long gone.
I know it’s late, but I’ve been meaning to gloat about my March Madness picks. Not only did I pick three of the Final Four (only missed Duke), I did pick North Carolina to win. Check out this bracket that captures the expected average salaries of graduates from schools that were in the tourney field.
In recognition of the many changes impacting the practice of law, we will be devoting more resources to helping you cope – and keep abreast – of how the changes will impact your career. For example, tune in next month for our webcast: “Looking Out for #1: How to Manage Your Career.” We’ll also be expanding the resources in our “Career Development” Practice Area.
In this podcast, Mike O’Horo, Founder and President of Sales Results, provides some insight into how lawyers can best position themselves to gain clients, including:
– What is your general training philosophy?
– If lawyering skills are sales tools, what can lawyers do to best use them to sell?
– What do you recommend that young lawyers do to sell themselves?
PCAOB Staff Weighs In: Auditor Considerations for Fair Value, Etc.
Yesterday, the PCAOB Staff issued this Staff Audit Practice Alert to inform auditors about the potential implications on reviews of interim financial information and annual audits caused by the FASB’s three recently-issued Staff Positions on fair value measurements and OTTI.
Closings Then and Now
On the DealLawyers.com Blog, John Jenkins of Calfee Halter & Griswold continues to provide some great analysis of recent developments. Below is a more personal anecdote that he recently blogged that rang true to an old-timer like me:
I started practicing law in 1986, but so much has changed since then that I often feel like I’m a complete relic. For instance, it boggles my mind when I think about the fact that there’s an entire generation of lawyers out there who’ve never hand-marked an SEC filing, never dealt with trying to clear Blue Sky merit review, and never hand-delivered a filing package to the SEC reviewer and then raced to the bank of pay phones next to the file room to let the rest of the team know that the deal was effective.
Those events were rites of passage for generations of young deal lawyers, and I think that today’s lawyers have actually missed out on something by not being able to take part in them. Sitting bleary-eyed in the Judiciary Plaza Roy Rogers forcing down another cup of coffee while waiting for the SEC’s file desk to open – along with a bunch of other sleepy junior associates toting overstuffed deal bags – was a shared experience that built a kind of camaraderie among young deal lawyers. Regardless of where you worked, misery loved company, and after a couple of all nighters at the printer, those early mornings at Judiciary Plaza were definitely miserable!
But I think the biggest thing that most young lawyers miss out on today is what an epic event a deal closing used to be. Today, it seems every closing is done by e-mail and overnight delivery. I can’t tell you the last time that I went to a closing or sent someone to physically attend a closing. Closings with actual people signing actual documents are increasingly rare events. Things were sure different back in the day.
Closing a public offering wasn’t a big deal – the closing was over in a couple of hours at most, and was pretty anti-climactic in light of everything that came before it. However, there was nothing anticlimactic about the closing of a big M&A transaction. These closings were elaborate, multi-day, round-the-clock affairs that involved lots of paper, little sleep, all the boredom, stress, caffeine, and nicotine that you could handle, and all the cold pizza and warm deli trays you could eat.
Oh yeah, I almost forgot – this drama usually played itself out across a bunch of dreary conference rooms that featured fluorescent lighting that sometimes looked like it came straight out of the office scene in Joe Versus the Volcano (okay, maybe it just seemed that way at the time). The M&A people were in one room, the Bank people were in another, then there were often war rooms and usually a much nicer room where the client’s executives were ensconced. This last room was definitely for the grownups. Aside from the client’s senior people, nobody who wasn’t a senior investment banker or partner spent much time in this sanctuary. You only went into this room to get signature pages signed, and you rarely spoke above a whisper.
Today, closing a deal still involves a tremendous amount of work, but most of the time is spent writing and responding to e-mails, revising closing documents at your desk and generally staring at a computer screen. Sure, there may be cold pizza and caffeine involved, but there’s definitely no nicotine unless it’s contained in a stick of gum. What’s more, there’s just not the commotion. No conference rooms full of people, nobody rushing around calling back to their office to find out what happened to the tax clearance certificate from Massachusetts, no big shot partners arguing face-to-face over last minute changes to somebody’s legal opinion (or an eleventh hour request for a new opinion).
Of course, all of those things still happen; it’s just that they happen in cyberspace or on conference calls. In many respects, that’s a real benefit. Don’t get me wrong; 99% of everything I’ve just described stunk worse than Battlefield Earth, but the other one percent represents the kind of shared experience that helps lawyers develop a little empathy for one another. Personally, I think we could use more of those kinds of experiences.
You need to register by this Friday, April 24th, to obtain the very reasonable Early Bird rates our popular conferences – “Tackling Your 2010 Compensation Disclosures: The 4th Annual Proxy Disclosure Conference” & “6th Annual Executive Compensation Conference” – that will be held in San Francisco on November 9-10th (and via Live Nationwide Video Webcast). Warning: These reasonable rates will NOT be extended beyond this Friday!
We know that many of you are hurting in ways that we all never dreamed of – and going to a Conference is the last thing on your mind. But with huge changes afoot for executive compensation and the related disclosures, we are doing our part to help you address all these critical changes—and avoid costly pitfalls—by offering a “half-off” early bird discount rate for those that attend in San Francisco and nearly half-off for those that attend via the Web (both of the Conferences are bundled together with a single price). Here is the Conference registration form – and here is the agenda.
The Latest TARP Oversight Report: Concerns Over Fraud
As we all know too well, where there is money – there is bound to be fraud. Yesterday, Neil Barofsky, TARP’s Special Inspector General sent a 247-page quarterly report to Congress detailing a long list of concerns about government efforts, including the lack of safeguards in handing out the money. Unlike the Congressional Oversight Panel led by Harvard Professor Elizabeth Warren, Barofsky’s office is focusing on criminal and civil wrongdoing in addition to more general recommendations and audits.
As this Washington Post article notes, the report states that Treasury Department lawyers have determined that companies participating in a $1 trillion program to relieve banks of toxic assets could be subject to limits on executive compensation (see page 110 of the report), contradicting the Obama Administration’s public position. It will be interesting to see what Treasury Geithner says about the report this morning when he testifies before TARP’s Congressional Oversight Panel (this letter was sent to the Panel ahead of the hearing).
Man, this report was hard to find. Treasury makes a big splash announcing its new “FinancialStability.gov” site – but it doesn’t bother to timely post its own reports. Rather, I found it on the SIGTARP site.
Update: Attorney Liability Under Rule 10b-5
From Keith Bishop: Some may believe that in light of the U.S. Supreme Court’s holding in Central Bank of Denver v. First Interstate Bank of Denver, lawyers may not face liability under Section 10(b) and Rule 10b-5. While the Supreme Court did hold that a private plaintiff may not maintain an aiding and abetting suit under Section 10(b), it also said “Any person, or entity, including a lawyer, accountant, or bank, who employs a manipulative device or makes a material misstatement (or omission) on which a purchaser or seller of securities relies may be liable as a primary violator under 10b-5, assuming all of the requirements for primary liability under Rule 10b-5 are met.” 511 U.S. at 191. In a decision issued recently, the Ninth Circuit Court of Appeals illustrates how lawyers may face liability.
In Thompson v. Paul (9th Cir. No. 06-15515, Oct. 27, 2008), the plaintiff entered into a settlement pursuant to which she received stock of an issuer. The plaintiff alleged that she did so based on the false representation that there was no criminal investigation of the issuer’s CEO. These attorneys jointly represented the issuer and CEO but withdrew before the final settlement agreement was signed. After new attorneys were found, the settlement agreement was signed and three days later the CEO was indicted on 29 counts fraud, conspiracy, money laundering and orchestrating a ponzi scheme.
The Ninth Circuit applied federal law to hold that “An attorney who undertakes to make representations to prospective purchasers of securities is under an obligation, imposed by Section 10(b), to tell the truth about those securities. That he or she may have an attorney-client relationship with the seller of the securities is irrelevant under Section 10(b).” While this case seems to be a straightforward application of the Supreme Court’s statement regarding primary liability, it should serve as a warning that a bar card is not a license to misstate facts to the other side – particularly when securities are being purchased and sold.
It should also be noted that the attorneys have not yet been found liable – the Court of Appeals was considering an appeal from the attorneys’ successful motion to dismiss. It remains to be seen whether the plaintiff can prove her allegations. It is also interesting to consider whether attorneys in this situation could be liable if they had simply failed to disclose, rather than affirmatively misrepresented the facts.
With the effective date of the SEC’s XBRL rules coming up for larger companies fairly soon, it’s time to bone up on their impact. Lawyers are mistaken if they don’t think XBRL will impact their practice. Not only are there new liability standards to learn, but XBRL will change how they conduct due diligence and deal with internal control issues. Even more fundamental – there might be a change in the workflow process of how disclosure documents get drafted.
All lawyers should tune into our webcast on Thursday – “XBRL: What Lawyers Need to Know” – to hear John Huber and Dave Lynn go over these types of issues; this program will not be a re-hash of the SEC’s new rules. In addition, I’ve asked Clarity Systems to give a short demo tailored to lawyers during the webcast, so you can see the potential changes in document production workflow for yourself (ie. it will not be a demo about how to set XBRL up, rather it will cover how it looks when it’s up and operating; course materials for the demo will be posted on Wednesday).
At a minimum, lawyers need to be aware of the new rules because they impact the cover pages of Forms 10-Q and 10-K. Effective April 13th, the SEC added a new box to the cover page of those forms regarding compliance with the XBRL rules (the purpose of the statement is so third parties can determine whether Rule 144 is available). Thanks to Amy Seidel of Faegre & Benson, we have updated the Form 10-Q cover page – which is in a Word file – posted in our “Form 10-Q” Practice Area (as well as the 10-K cover page in our “Form 10-K” Practice Area).
What should you do with the box now since the rules won’t impact filings until June? Tune into the webcast to learn how to deal with this – or read the chain of answers in #4743 of our “Q&A Forum” if you want to learn about how to deal with this issue now…
Recently, the SEC published this “Small Entity Compliance Guide” on XBRL. It’s just a summary of the new rules, akin to a law firm memo – we have plenty of those posted in our “XBRL” Practice Area.
Triskaidekaphobia?
I recently received this note from a member: I’m finding that it is a Sisyphean task to try to keep up with all of the exchange name changes. The most recent change in appellation occurred on April 13th, when the NYSE Alternext US LLC changed its name to the “NYSE Amex LLC.”
You may recall that the NYSE Alternext US LLC was christened only last Fall, when the SEC approved the acquisition of the American Stock Exchange by NYSE Euronext. Apparently, the NYSE has now decided that – for “branding” purposes – it is a good idea to retain the AMEX moniker. Another recent, albeit less drastic name change, was the change last April from “Pink Sheets LLC” to “Pink OTC Markets Inc.” That change reflected the change from a limited liability company to a corporation.
Noisy Withdrawals: Factor in Stanford Bust?
From Linda DeMelis: Although details are still somewhat murky, the SEC’s recent enforcement action against Allen Stanford may have been triggered by the withdrawal from representation of one of Stanford’s attorneys (as noted in this article). In a Memorandum of Law accompanying the complaint, the SEC cited the withdrawal, together with the attorney’s statement that he and his law firm disaffirmed all prior written and oral representations with respect to Stanford, as a basis for emergency action. The SEC did not mention the attorney by name, but he was later identified.
As this article points out, prior to Sarbanes-Oxley, attorneys in this situation often had to deal with a confused, and sometimes contradictory, morass of state laws and bar regulations covering attorney-client confidentiality. As part of its rulemaking after passage of Sarbanes-Oxley, the SEC proposed the option of a “noisy withdrawal,” where the attorney would notify the SEC of a withdrawal from representation. The “noisy withdrawal” proposal generated some controversy when it was proposed – and it was never adopted. But just such a withdrawal might have been the “tipping point” for the SEC’s enforcement action in this case.
In the lead-off piece of our “Spring ’09 Issue” of InvestorRelationships.com entitled “Facing an Unpredictable World: How to Change Earnings Guidance Practices,” I mention how the NYSE recently filed a proposed rule change that would amend Section 202.05 and 202.06 of the Listed Company Manual to allow listed companies to comply with its “immediate release policy” by disseminating the information “by any Regulation FD compliant method.” This follows a similar change that the Nasdaq made back in ’02 (as discussed in #4777 of our “Q&A Forum” yesterday). The NYSE’s rule change is immediately effective subject to a 30-day operative delay – since it was filed on April 8, I suppose the operative delay will elapse on May 7.
In his IR WebReport Blog yesterday, Dominic Jones picked up the ball on this story and ran. Check it out.
More Sample Documents Posted
We’re constantly post new sample documents in our various Practice Areas, we well as in our “Sample Documents” Portal. For example, we recently posted a sample memo to companies considering repurchasing their own stock in our “Stock Repurchases” Practice Area. And in our “IPOs” Practice Area, we’ve posted a bunch of documents, including a sample lock-up agreement and a sample confidential treatment request. As always, our sample documents (and everything else on our site) come with a disclaimer that you need to make your own legal analysis.
Feeling Glum About Life?
At least you don’t have over 1000 rejection letters from the past few months, this poor – and motivated – third-year is having troubles. If you have some free time, check out this blog’s list of 25 free tools to find out “who knows what about you.”
I’m thinking of doing a webcast on how lawyers can use technology in their practice, including using it to network and find a job. Here is a poll to see if there is any interest:
We just posted the “Spring ’09 Issue” of InvestorRelationships.com (we are maintaining this publication as complimentary thru ’09 as a “Thank You” to our loyal members in a down economy). The “Spring ’09” issue includes articles on:
– Facing an Unpredictable World: How to Change Earnings Guidance Practices
– The Box: Updating Guidance Mid-Quarter—and the Duty to Update
– Implementing Mandatory Retirement Ages for Directors: Practice Pointers
– Web Archival Practices: Answering “How Long?”
– Chair Schapiro Announces the SEC’s New Corporate Governance Agenda
– Draft E-Proxy Standards: NIRI Seeks Comment
If you’re not yet a member of InvestorRelationships.com, simply provide your contact information in this sign-up form and gain free and immediate access to the issue. If you signed up last year, your ID/password will continue to work – if you forgot what those are, you can get a reminder.
It’s Only a Matter of Degree
From Keith Bishop of Allen Matkins: Although Item 401 of Regulation S-K doesn’t specifically require disclosure of whether or not an executive as received a college or graduate degree, many companies do include this information with respect to directors and officers. In the past few months, the press has reported allegations of misstatements of educational background at four different companies (Broadcom Corporation, Microsemi Corporation, Intrepid Potash and MGM Mirage). Here is a press release filed by Microsemi Corporation last month and here is the press release filed by Intrepid Potash.
Note that the while Microsemi did not terminate the executive, it required him to pay $100,000 and forgo his annual bonus. Microsemi also extended by one year the vesting on the executive’s restricted stock award. The company also announced that it would also be taking the following remedial actions:
– Background checks on all current and future Section 16 officers and directors;
– Board confirmation that the HR Department is continuing to verify credential prior to making employment offers in connection with acquisitions;
– Amending the Code of Ethics to specify that misrepresentation of credentials is a breach of the Code; and
– Review and verification of press releases.
From what I can tell, Barry Minkow (from ZZZZ Best fame) has been doing background checks. Whatever the source, companies should be aware that someone may be checking up on them.
More Proxy Season Developments
If you haven’t signed up to get our new “Proxy Season Blog” pushed out to you, here are a few of the items you’ve missed during the past week:
– Tracking Voting Results: FundVotes.com
– Examples: The Latest Efforts by Activists to “Just Vote No”
– Five Cool Web Sites: UK-Style
– E-Proxy Questions: Meeting Directions on Notice
– More Governance Proposals Survive No-Action Challenges
– Amgen’s Compensation Survey for Investors
– “Books & Records” Being Used to Check Compensation Committees
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 (just like you can accomplish that functionality for this blog).
We just announced that our popular conferences – “Tackling Your 2010 Compensation Disclosures: The 4th Annual Proxy Disclosure Conference” & “6th Annual Executive Compensation Conference” – will take place at the Hilton San Francisco on November 9-10th (and via Live Nationwide Video Webcast). Here is the Conference registration form – and here is the agenda.
To make your reservations at the Hilton, register for the hotel online or call 800.445.8667. When you register for the hotel, it is important to mention the National Association of Stock Plan Professionals Conference, Executive Compensation Conference or the Proxy Disclosure Conference (or just mention the Group Code of “SPP”) to receive the discounted rate.
Special Early Bird Rates: Only One Week Left – Act by April 24th: We know that many of you are hurting in ways that we all never dreamed of – and going to a Conference is the last thing on your mind. But with huge changes afoot for executive compensation and the related disclosures, we are doing our part to help you address all these critical changes—and avoid costly pitfalls—by offering a “half-off” early bird discount rate for those that attend in San Francisco and nearly half-off for those that attend via the Web (both of the Conferences are bundled together with a single price).
You need to register by next Friday, April 24th, to obtain these reasonable rates.
SEC Staff Issues SAB 111 re: Temporary Impairment
Yesterday, Corp Fin and the Office of Chief Accountant jointly issued SAB 111 regarding impairments of equity and debt securities (i.e. OTTI). Here is the related press release.
Meanwhile, the PCAOB voted yesterday to issue a concept release regarding possible revisions to the board’s standard on audit confirmations. Learn more from FEI’s “Financial Reporting Blog.”
Survey Results: Advance Notice Bylaws
We recently wrapped up our Quick Survey on advance notice bylaw practices. Below are our results:
1. Has your company revised its advanced notice bylaw provisions this year?
– We reviewed them and decided no revisions were necessary – 11.9%
– We reviewed them and made revisions – 66.7%
– Our bylaws don’t contain advance notice provisions – 3.6%
– We haven’t reviewed our bylaws, but we plan to do so in the near term – 15.5%
– We haven’t reviewed our bylaws and have no plans to do so at this time – 2.4%
2. If your company revised its advance notice bylaw provisions, what changes did it make?
– We changed the deadlines for receipt of shareholder proposals – 40.7%
– We created separate provisions for shareholder proposals for director nominations and shareholder proposals for other business – 49.2%
– We added specific advance notice provisions for special meetings – 42.4%
– We added disclosure requirements for shareholder proponents to address derivative securities – 81.4%
– We made other changes to the advance notice provisions – 50.9%
3. Have (or will) your company submit the amended bylaws for shareholder approval?
– Yes – 6.9%
– No – 93.2%
4. How did (or will) your company disclose its amended bylaws?
– Form 8-K – 88.7%
– Form 10-Q – 5.6%
– Form 10-K – 1.4%
– Press Release – 2.8%
– We don’t intend to disclose the changes – 1.4%
Please take a moment to participate in our new “Quick Survey on Compliance Committees.”
Yesterday, Meredith Cross was named the new Director of the SEC’s Division of Corporation Finance. She had served in Corp Fin as Deputy Director, Chief Counsel and a few other capacities back in the ’90s – and has been working at WilmerHale since then. Having personally worked under Meredith at the SEC, I know she will be a great asset to help Chair Schapiro accomplish her vast regulatory agenda as she is quite able and really knows her stuff.
DGCL Amendments Become Law: Proxy Access, Reimbursement Bylaws, Etc.
After having been approved by the Delaware House last month and by the Senate last Wednesday, I understand that House Bill #19 was signed into law by the Delaware Governor on Friday. As stated in the legislation (assuming no changes), the amendments to the Delaware General Corporation Law will be effective August 1st.
From a prior blog (and this podcast), you will recall that these amendments deal with, among other items, new statutes on proxy access and reimbursement bylaws, indemnification matters, judicial removal of directors and authorization to separate record dates for notice and voting at shareholder meetings. More to come…
Compensation Arrangements in a Down Market
We have posted the transcript from our recent CompensationStandards.com webcast: “Compensation Arrangements in a Down Market.”
While I was on holiday last week, the President and his economic advisor, Lawrence Summers, made a splash by announcing the economy had a “glimmer of hope.” The stock market has been behaving like it sees more than a glimmer. Here are five things gleaned from my very full inbox that give me pause:
1. According to this story, there will be $4 trillion in losses in the financial institutions. It notes $1.29 trillion in losses have been already booked, meaning $2.71 trillion in losses have not yet been recorded – more than twice the amount already recorded.
When I read articles like these, I still worry that banks aren’t giving us the full story in their disclosure (see this article) – although part of the problem is that the government is now in cahoots with banks in obscuring transparency. Banks aren’t allowed to disclose how they fare in the soon-to-be-completed stress tests until later this month. I imagine this will result in a spot of insider trading.
2. Some academics say that there is “little evidence that suggests these markets are experiencing fire sales” when it comes to whether the government needs to be tinkering with the pricing of toxic assets. This article concludes: “The problem is that highly leveraged financial firms own assets that are worth far less than they thought they would be, and the firms are insolvent as a result. This is why the latest bailout plans secretly give huge subsidies to banks – because the only way to keep the insolvent zombies afloat is to transfer billions of dollars to banks, bank stockholders, and bank creditors.”
3. Read this interview with a former S&L regulator, William Black, who criticizes the recovery efforts. This quote gives me chills: “We have failed bankers giving advice to failed regulators on how to deal with failed assets. How can it result in anything but failure?”
4. Politics continue to get in the way of serious reform efforts. There is ample evidence that our “independent” regulators aren’t given the freedom to do their job (or cave too quickly; Canada’s regulator just said “no” to loosening mark-to-market). Exhibit A is Congress bullying the FASB into changing accounting standards. But that is only the start. While I was gone, Rep. Barney Frank criticized Moody’s for being too negative? [Although Frank was not criticizing Moody’s for doing its job, so-to-speak, when rating municipal borrowers, but for applying a double standard that favored corporate borrowers.]
In addition, according to this article, the Administration seems to be willing to skirt the bailout restrictions that were just implemented. With these types of games going on, it feels like any rule can be avoided if you know the right people.
By the way, this is a worldwide problem. As noted in this article, the EU Commissioner stated recently at a IASB monitoring group meeting that he had indeed let Spanish banks break the law and fail to comply with IASB accounting standards. An amazing instance of a European government official condoning breaking of the law and securities fraud.
5. It still appears that boards are paying big pay packages (including bonuses) to CEOs despite poor performance. Read this new commentary by Bud Crystal about the pay lavished on the homebuilders. Until this vital governance area truly gets reformed, senior managers will be incentivized to play fast and loose – and boards will continue to show a lack of backbone, resulting in poor oversight.
There are plenty more of these types of stories filed every day (eg. this Rolling Stone story), leaving me with a lack of confidence that we will come out of this mess any better than before we went into it. Maybe I need a vacation from my vacation…
As an aside, Nasdaq’s new Listing Rulebook goes into effect today.
FASB Issues Three Fair Value Staff Positions
On Thursday, the FASB issued three final Staff Positions that provide application guidance and enhance disclosures regarding fair value measurements and impairments of securities (here is the related press release):
Note that the last one contains the dissent registered by the two FASB Board members (Linsmeier and Siegel) who voted against the recent rule change by the FASB regarding fair value accounting.
Madoff Spotted in London?
One of the more peculiar things I saw during my vacation in London? I swear I spotted Bernie Madoff in Trafalgar Square. He’s supposed to be in a Manhattan jail pending a June sentencing hearing. Here is the video where I captured a glimpse of the slightly younger look-alike (compare to this photo of the real deal):
