To me, among the big “sleepers” in the race for who is most to blame for what went wrong with financial regulation are those Congressional overseers who failed to direct sufficient resources to the SEC and other financial regulators – and you won’t see them calling themselves before a committee to be subjected to a public flogging. In over 10 years of working at the SEC, I recall that a substantial portion of that time was spent under one sort of hiring freeze or another, and the general question on everyone’s mind was always “how do we do more with less?” Granted, in the wake of Sarbanes-Oxley, the agency got the opportunity to beef up, but it amazes me to this day how quickly that advantage eroded. Within only 5 years of enactment of Sarbanes-Oxley, there was a risk that lawyers would become an endangered species in Corp Fin, as Staffers left and a prolonged hiring freeze prevented acquiring any replacements. I myself oversaw an office that had more than doubled in size after 2002, only to shrink again to back to its prior size just a few short years later. During just the first two years of former Chairman Cox’s tenure, Corp Fin’s Staff shrank by a whopping 13%! In short, the budget has a huge impact on the effectiveness of regulators – in many instances, budgetary pressures mean doing less, because doing more with less is no longer an option.
As Broc mentioned in the blog last week, the SEC is seeking a significant increase in its budget, which very well may be too little, too late. In testimony yesterday before the House Appropriations Committee’s Subcommittee on Financial Services and General Government, Chairman Schapiro set out in more detail how the SEC intends to utilize an increased budget (including a $17 million “reprogramming request”). Among the top priorities are to:
1. add staff to the SEC’s Enforcement program to focus on pursuing tips, complaints, and other leads;
2. add new positions in the Examination program to expand its inspections of credit rating agencies, and to strengthen risk-based surveillance and examination oversight of investment advisers;
3. increase the number of staff in the Office of Risk Assessment specifically dedicated to deepening the SEC’s understanding of risk, and incorporating risk assessment into all aspects of the agency’s operations; and
4. enhance technology, including improved systems for: handling tips, complaints and referrals; monitoring risks; and managing cases and exams.
Now we will just have to wait and see what the SEC ends up getting for fiscal year 2010. If past practice is any indicator, we should know that some time in 2011.
Say-on-Pay Proposal Defeated at Disney
As noted in this LA Times article, a shareholder proposal asking Disney’s board to provide for an advisory vote on executive compensation received 39% support earlier this week. If you back out abstentions, the level of support was 42%. While not a majority, these numbers clearly represent significant support for the measure, and may foreshadow the possibility some majority votes on these proposals coming up this proxy season.
Disney shareholders were apparently less enamored with a shareholder proposal seeking to address so called “golden coffin” benefits. Several of these proposals are likely to be on ballots this year, courtesy of AFSCME and other proponents. At Disney, the proposal only got 27% of the vote. It was a nice touch, however, that Scott Adams from AFSCME handed the Disney board members a golden nail to hammer into the golden coffin benefits, but apparently such theatrics were not enough to carry the day on the proposal.
Aligning Compensation Incentives with Corporate Objectives
In this CompensationStandards.com podcast, David Koenig, Founding Partner of Ductilibility, discusses how companies can align their compensation incentives with risk management objectives, including:
– How work regarding risk and pay ties into today’s environment
– How a compensation incentive system with objective performance metrics might actually lead to misalignment between an employee’s incentives and the company’s operational objectives
– Whether corporate codes of ethics are effective in preventing risky behavior, including the “risk manager’s dilemma”
It would be nice to see (for once) some sort of orderly, coordinated effort to move us to where we have to be on reforming the financial regulatory system. There is obviously a great sense of urgency, whether real or manufactured, and no one good answer seems to exist for how best to tackle the multitude of concerns about the quality and effectiveness of our regulatory structure.
I firmly believe that rushing toward political solutions on regulatory reform may be the worst thing that we could do at this point, particularly if the result is implementation of a new regulatory structure just at the time when institutions and companies are turning the corner toward improvement. As we all learned from the Sarbanes-Oxley Act, a rush job on regulatory reform can have some near term benefits for restoring confidence, but also some long term costs and concerns.
Unfortunately, we may not get the chance to actually see any orderly effort toward reform. Late last week, for instance, Congressman Ed Perlmutter (D-CO) and Congressman Frank Lucas (R-OK) introduced H.R. 1349, the “Federal Accounting Oversight Board Act of 2009.” As this CFO.com article points out, the bill contemplates that the SEC would cede its accounting oversight to a newly created five member board consisting of the Federal Reserve Chairman, the Treasury Secretary, the SEC Chairman, the FDIC Chairman and the PCAOB Chairman.
This Federal Accounting Oversight Board (FAOB) would get its funding from assessments on accounting firms, and would have the power to “approve and oversee accounting principles and standards for purposes of the Federal financial regulatory agencies and reporting requirements required by such agencies.” Among the things that the FAOB would need to consider in the course of approving and overseeing accounting standards would be “the extent to which accounting principles and standards create systemic risk exposure for (i) the United States public; (ii) the United States financial markets; and (iii) global markets.” Based on the other standards outlined, the bill is clearly seeking to get at fair value accounting standards through the authority of the proposed Board.
The bill has been referred to the House Committee on Financial Services and will be discussed at a hearing scheduled for tomorrow on the topic of mark-to-market accounting.
Recovering Costs: This is the Big One
Earlier this month, the US Court of Appeals for the Tenth Circuit affirmed a district court award of $611,964.20 in costs against the plaintiffs in a securities class action lawsuit (In re: Williams Securities Litigation – WCG Subclass (Docket Number 08-5100)). The plaintiffs in this case claimed that the district court’s award represented the highest costs award in the history of American jurisprudence. As discussed in this Gibson Dunn & Crutcher memo:
The Tenth Circuit acknowledged that the costs awarded were “undoubtedly higher than the norm,” but the size was not particularly surprising “given the massiveness and complexity of the litigation at issue” and the fact that the Plaintiffs sought almost $3 billion in damages. Slip Op. at 12. “Defendants’ costs were, quite plainly, driven upward by the cold, hard facts of this case,” and in particular, “Plaintiffs’ litigation choices; including the number of defendants, the high amount of damages sought, the broad allegations asserted, the complexity of the claims at issue, and Plaintiffs’ aggressive course of discovery …” Slip. Op. at 13. No abuse of discretion was found in awarding over $610,000 in costs: “In this case, the stakes were indisputably high, and ‘it was incumbent on [De]fendants to fully prepare their case on the merits.'”
Guidance on Exiting ’34 Act Reporting
The March-April issue of The Corporate Counsel was just mailed. This issue includes pieces on:
– Exiting 1934 Act Reporting—Recent CDIs Provide Much-Needed Guidance
– Getting Into the Reporting System—The Easy Part
– Getting Out—The Hard Part
– Significant Negative Numbers in the Summary Compensation Table This Year
– More on Issuers’ Ability to Eliminate Non-Binding Shareholder Proposals
– FAS 5 Follow-Up
– Shareholder Approval of Cash Incentive Plans—Not Always “Routine” under NYSE Rule 452
– New Oil and Gas Rules Not Applicable to 2008—But, SAB 74/Topic 11:M
– Goodwill Impairment MD&A Disclosure Not Just for the Impaired!
Act Now: Get this issue on a complimentary basis when you try a 2009 no-risk trial today. As all subscriptions are on a calendar-year basis, renew now to continue receiving upcoming issues during a time of great change.
Recently, Corp Fin updated its guidance on Securities Act Forms with a new set of Compliance and Disclosure Interpretations. This now makes a complete set of Compliance and Disclosure Interpretations on Securities Act Sections, Rules and Forms. Included among the interpretations are no less than 55 interpretations dealing with Form S-8, which is a form that never ceases to generate a lot of questions in my experience. The latest Securities Act Forms guidance includes interpretations that were previously published in the Manual of Publicly Available Telephone Interpretations and in other guidance, as well as new interpretations.
SEC Seeks to Streamline the Form ID Process
Monday is going to be “D-Day” for EDGAR, as the new electronic Form D submission rules go into effect. As Broc mentioned in the blog last week, the SEC is expecting a flood of Form ID applications, as issuers who have never had anything to do with the EDGAR system rush to get their access codes. In anticipation of the big rush, the SEC adopted rule changes yesterday (effective Monday, March 16) that will permit a person submitting a Form ID online to attach the “authenticating document” in a PDF format, rather than having to submit the authenticating document separately by fax.
The authenticating document is a notarized document containing the same information as contained in the Form ID application. Historically, the SEC Staff has had to match the information provided in the online submission with the faxed authenticating document before approving the Form ID application and generating EDGAR access codes, which can sometimes lead to delays. When this new optional method is used, a prospective filer can use a fillable PDF version of Form ID on the Commission’s website to create and print the document, and then attach a notarized version of that document as a PDF. For online Form ID applications submitted with the authenticating documents attached, the Staff will no longer have to match the faxed authenticating documents manually with the online submissions.
If attaching a PDF of the authenticating document is too much for you, and you still want to have a reason to use your old fax machine, then that “legacy” method will still exist after these rule changes go into effect. The new process, however, will hopefully speed the process for all of those nerve-wracking times where you run into a last minute need for EDGAR filing codes.
The Politics of Corporate Aircraft
Companies are facing unprecedented negative publicity these days with respect to corporate aircraft. In this CompensationStandards.com podcast, Terry Kelley, CEO of corporate aviation consulting firm GoldJets, discusses recent challenges for companies owning aircraft, including:
– What steps are companies taking to counter the current “image” problem with their aircraft?
– How are companies changing their corporate aviation policies To deal with this?
– What pitfalls should the company be aware of in revising their aircraft policies?
– What is 91Plus and how can it help companies with their corporate aviation needs?
The NYSE’s proposed amendment regarding broker discretionary voting on director elections is on the fast track (as Broc mentioned in the blog a couple of weeks ago), and that fast track means that interested parties only have a very short time to comment on the proposal. As is typical with these sorts of SRO proposals, comments are due only 21 days after publication in the Federal Register. With the Federal Register publication occurring last Friday, that means comments are due by March 27th.
Unlike your typical SRO rulemaking, this one has the potential for a broad impact on companies – changing the voting dynamics in uncontested director elections across the board. While it seems that, given the current environment, commenters won’t be able to stop this proposal from happening now, it is nonetheless important that concerns about – and support for – this proposal be aired through the public comment process, so comment if you can. For more on the topic, check out our “Broker Non-Vote” Practice Area.
Note that Exhibit 2 to the 4th Amendment includes the 39 comment letters regarding Rule 452 that the NYSE received in response to its Proxy Working Group Report, which predated the October 2006 submission of the initial notice of proposed Rule 452 changes. The NYSE typically does not solicit comments prior to filing a Section 19(b)(1) notice or any amendment to such a notice, so there are no other publicly available comments on the NYSE’s website (or on the SEC’s website). One of the main concerns raised by commenters on the Proxy Working Group’s recommendation was the potential difficulty in achieving a quorum if director elections become non-routine.
Corp Fin’s Guidance for Smaller Reporting Company IPOs
While what we think of as the traditional IPO market continues to be virtually non-existent, smaller companies still keep filing first-time registration statements, whether it be for the purpose of raising capital or to register the resale of shares already issued. (Since the old “SB” forms have been phased out, smaller reporting companies now file on Form S-1 for an “initial public offering.”)
Last week, the Corp Fin Staff released “Staff Observations in the Review of Smaller Reporting Company IPOs” to highlight some of the typical comments raised on smaller reporting company registration statements. Many of the comments referenced in this report are equally applicable to registration statements – and other filings – for companies that do not qualify as smaller reporting companies. Topics covered include: the cover page and summary, risk factors, use of proceeds, description of business, MD&A, disclosure about directors, officers and control persons, related person transaction disclosure, the plan of distribution, selling security holders and financial statements.
Developments in Debt Restructurings & Debt Tender/Exchange Offers
We have posted the transcript for the DealLawyers.com webcast: “Developments in Debt Restructurings & Debt Tender/Exchange Offers.”
I just LOVE this one! Apparently, there are fraudsters out there impersonating actual SEC employees – and the problem is serious enough that the SEC issued this press release earlier this week. I imagine some of the fraudulent phone calls go something like this podcast.
Note that the frumpy dude in the “Willy Wonka” costume is not me. I may be a little “off,” but I do have my pride…
A Few Items on Policing TARP
As noted in this NY Times article, a Senate hearing yesterday consisted of angry Senators wondering where its AIG bailout money went. I imagine this will be a consistent theme from Capitol Hill as the government ramps up to give away another trillion dollars.
Anyways, we’ve seen a few reports from the Congressional TARP Oversight Panel – consisting of five members – since it was created a few months ago. Now, we’re learning more about the inner machinations of the Oversight Panel. For example, I found this WSJ article entitled “Policing TARP Proves Tricky” pretty interesting. Here is an excerpt:
The short-staffed panel is drawing heavily on the Harvard University law students and colleagues of its chairwoman, law professor Elizabeth Warren, as it churns out reports at a break-neck pace. Most of the staffers are 20-something aides from the Obama campaign, though an executive director and two banking lawyers were hired recently.
The panel’s other members have had to hustle for a chance to weigh in, or, in the case of the body’s two Republicans, to dissent altogether, something that isn’t supposed to happen on a panel dubbed “bipartisan.”
In the “Conglomerate Blog,” David Zaring has this interesting entry entitled “How Powerful is Elizabeth Warren?” – she used to be his law school teacher so he has a unique insight.
Has former Senator John Sununu lost his mind? He’s one of the TARP overseers – and just joined the board of a company affiliated with a TARP bank. No common sense. Perception matters. Then again, he’s rushed to become “overboarded” ever since he lost his re-election bid. It’s hard to keep track, but my count shows that he’s joined at least three boards over the past few months.
A Code of Conduct for Proxy Advisors?
Recently, Yale’s Millstein Center released its final report entitled “Voting Integrity: Practices for Investors and the Global Proxy Advisory Industry.” It proposes the first industry-wide code of conduct for proxy advisors, which includes a ban on advisors performing consulting work for any company on which it provides voting recommendations or ratings – and also asks the SEC to create a Blue Ribbon Commission to provide recommendations about how to modernize the voting framework.
The report also urges institutional investors to be more transparent about the way they act by disclosing how they vote, what ownership policies they follow and what resources they put into engagement efforts.
Congrats to Felicia Kung for being named as the new head of Corp Fin’s Office of Rulemaking. She takes over for Betsy Murphy, who recently became the SEC’s Secretary. Felicia has been on the Staff for many years, toiling in Corp Fin’s Office of International Corporation Finance as Senior Special Counsel (ie. #2) to Paul Dudek for the past seven years. She’ll be a great asset during a time of intense rulemaking.
“Hear, hear” to the promotion of Jamie Brigagliano as Deputy Director of the Division of Trading and Markets. Great guy and great choice…
Podcast on Delaware’s Proposed Legislation
Recently, I blogged about new proposed amendments to the Delaware General Corporation Law. Yesterday, I caught up with John Grossbauer of Potter Anderson for this podcast, in which John provides some analysis of the new bill, including:
– How do the proposed DGCL changes address proxy access and reimbursement bylaws?
– What about authorization to separate record dates for notice and voting at shareholder meetings do?
– Any other noteworthy proposals?
California and the “Delaware Carve-Out”
Keith Bishop reports on this development: A few weeks ago, the 9th Circuit Court of Appeals – in Madden v. Cowen & Company – delivered an opinion regarding a lawsuit filed in California state court by 63 shareholders against an investment banking firm. The suit alleged that the investment banking firm misled the plaintiffs in connection with the sale of their shares in a closely held California corporation (St. Joseph) to a publicly traded Delaware corporation (FPA Medical Management) that went bankrupt shortly after the sale. The plaintiffs’ suit was removed to federal court pursuant to the Securities Litigation Uniform Standards Act of 1998. The federal district court denied the plaintiffs’ motion to remand the case back to state court and granted the defendant’s motion to dismiss.
On appeal, the 9th Circuit concluded that the suit fell within the so-called “Delaware Carve-Out” that preserves certain actions based on the statutory or common law of the state in which the issuer is incorporated if certain conditions are met. 15 U.S.C. Sec. 77p(d). In this case, the issuer of the shares sold by the plaintiffs, St. Joseph, had been incorporated in California.
Thus, it is somewhat ironic that the Delaware Carve-Out was being applied to a California corporation. The defendant argued that the Delaware Carve-Out applied only to the acquiring company (in this case, FPA, a Delaware corporation) because it was the issuer of the covered security. The 9th Circuit rejected this argument finding that the issuer in the Delaware Carve-out refers to the corporation that is the issuer of the securities described in the carve-out and was not limited to the issuer of a “covered security”.
The 9th Circuit also addressed the defendant’s argument that it did not act on behalf of the issuer because it was not an officer, director or employee of the issuer (referring to the Private Securities Litigation Reform Act of 1995) which defines the phrase “person acting on behalf of an issuer”. The 9th Circuit rejected this argument as well.
Accordingly, the court found that the Delaware Carve-Out applied and the case should be remanded to state court. The case is significant because it adopts an expansive reading of the Delaware Carve-Out and opens the door to more state court suits involving issuers and persons acting on their behalf who are not the issuers of covered securities.
Implementing the New Cross-Border Rules
We just posted the DealLawyers.com transcript for our recent webcast: “Implementing the New Cross-Border Rules.”
A few days, we held the prep call for this newly-scheduled CompensationStandards.com webcast to be held today – “Say-on-Pay: A Primer for TARP Companies” – and I know it’s gonna be a “biggie.” Our panelists have a lot to say – with much practical guidance to provide. Join these experts:
– Mark Borges, Principal, Compensia
– Ning Chiu, Counsel, Davis Polk & Wardwell LLP
– Dave Lynn, Editor, CompensationStandards.com and Partner, Morrison & Foerster LLP
– Carol Bowie, Head, RiskMetrics’ Governance Institute
On CompensationStandards.com’s “The Advisors’ Blog,” I’ve posted links to two dozen say-on-pay preliminary proxy statements filed in the past few days.
And shortly after the say-on-pay webcast ends, tune into this important webcast on TheCorporateCounsel.net today: “How Boards Should Manage Risk.”
Mandatory E-Filing of Forms Ds: Commences March 16th
In anticipation of the impending March 16th start-date when all Form Ds must be electronically filed, the SEC issued this notice warning those that have not ever filed electronically before to obtain their EDGAR access codes from the SEC well in advance of a filing deadline – since the SEC expects a deluge of last minute requests that it may not be able to handle. In our “Regulation D” Practice Area, we have posted numerous memos on this new e-filing requirement.
A Market Regulation Reform Group
There is a lot of high-wattage star power in a new investor task force announced by the Council of Institutional Investors and CFA Institute last month. The Investors’ Working Group is a diverse, non-partisan panel of experts, led by former SEC Chairs Bill Donaldson and Arthur Levitt. It intends to issue an initial report with recommendations by late spring. Add another set of proposals to the pile…
Tomorrow’s webcast – “How Boards Should Manage Risk” – should be a “biggie” given the events of the past year. The focus will be on how boards should now deal with risk management, including analysis of the important Citigroup decision decided last week in Delaware (and noted below).
Part of the course materials is this recent thought leadership survey produced by KPMG International, in cooperation with the Economist Intelligence Unit. This survey reveals industry insight into how institutions are addressing the risk management shortfalls. Some of the key findings include:
– Main areas of focus are risk governance, risk culture, and the reporting and measurement of risk, with over 75% of respondents indicating increased attention in each of these areas
– While 71% surveyed believe their organization’s risk function has more influence now than two years ago and a full 81% consider risk management to be an essential source of competitive advantage, 76% say that risk management is still stigmatized as a support function
– Fewer than half the banks in the survey acknowledge that their Boards are short of risk knowledge and experience – a surprisingly low figure given the recent troubles. It is of some concern that many are not even planning to address this issue – particularly at the non-executive level where the need for expertise is at its most acute. Almost eight out of ten respondents are seeking to improve the way risk is measured and reported, a clear recognition that previous models did not give sufficiently accurate forecasts
– Incentive and remuneration issues are cited more than any other aspect for creating the preconditions for the credit crisis, followed closely by risk governance and risk culture
The research included a survey of over 400 professionals involved in risk management (30% at the C-level) in 79 countries, as well as several in-depth interviews with senior executives, undertaken in the fall of 2008.
Delaware Dismisses Caremark Claims Against Citigroup: CEO Pay “Waste” Claim Survives
From Travis Laster of Abrams & Laster: Delaware Chancellor Chandler’s opinion in In re Citigroup Inc. Shareholder Litigation came out last week. The complaint alleged Caremark claims against the Citigroup directors based on Citi’s subprime losses. The Chancellor dismissed all but one aspect of the case – a waste claim based on former Citi CEO Charles Prince’s exit compensation agreement. [We have posted memos regarding this case in our “Risk Management” Practice Area.]
The opinion confirms that existing principles of Delaware law apply even in the midst of an unprecedented financial crisis, and that the Delaware courts will not go looking to hold directors up as examples for the economy’s current difficulties. It provides a good summary of existing Delaware law principles governing Caremark claims, which I won’t repeat.
Here are a few nuances worth highlighting:
1. The Chancellor distinguishes between (i) a Caremark monitoring system designed to protect against financial fraud and criminal wrongdoing and (ii) the identification of and protection against business risk. He holds that Citi’s problems fell squarely under the heading of unanticipated business risk. This will be a helpful distinction for other companies faced with similar problems brought on by the current financial crisis.
2. The Chancellor makes clear that “Directors with special expertise are not held to a higher standard of care in the oversight context.” (n.63). Likewise, for directors who sit on committees with oversight responsibility, “such responsibility does not change the standard of director liability under Caremark and its progeny.” (Id.)
3. Prior experience with scandals at other companies is not sufficient to make a director “sensitive to similar circumstances” and hence susceptible to a Caremark claim. (37).
4. In a point of interest to those who litigate in Delaware and face competing litigation in other fora, the Chancellor questions whether a lower standard should apply to a motion to stay in favor of a prior pending action versus a motion to dismiss, noting correctly that both have the same practical effect. (n.16).
5. In what I view as the most noteworthy section of the opinion, the Chancellor holds that the plaintiffs stated a claim for waste based on former CEO Prince’s $68M exit package. He explains: “[T]he discretion of directors in setting executive compensation is not unlimited. Indeed, the Delaware Supreme Court was clear when it stated that ‘there is an outer limit’ to the board’s discretion to set executive compensation, ‘at which point a decision of the directors on executive compensation is so disproportionately large as to be unconscionable and constitute waste.'” (55-56). The Chancellor held that there was a reasonable doubt as to whether the exit package awarded compensation that is beyond the “outer limit.” (56).
It used to be said that waste claims were easy to plead – but difficult to prove. Then for a long time they were also hard to plead. This one survived. It’s too early to say whether the Delaware courts will now be more receptive to compensation challenges based on waste theories, but I feel safe predicting that this aspect of the decision will not go unnoticed by members of the plaintiffs’ bar. Look for more waste claims to come based on big exit comp numbers.
Our March Eminders is Posted!
We have posted the March issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
Although SEC Chair Schapiro issued this statement on Thursday saying that a 13% budget increase would help the SEC, I couldn’t help but think that the SEC wanted more, particularly after years of flat budgets under Chairman Cox’s tenure (see my rant on this topic last year). Unfortunately, 13% just catches the SEC up to where it should be under normal circumstances – it doesn’t reshape the SEC as it needs to be.
Certainly, a much greater increase seems warranted given the crazed circumstances of the financial markets – and the need for the government to help re-establish trust between investors and Wall Street. A strong cop on the beat is a “must” right now and I don’t think 13% can do it, as the Staff needs some reorganization, including hiring folks with expertise in the areas that failed us (eg. derivatives) – as well as a much larger Enforcement Division. Ten cent thoughts are cheap…what are yours?
Warren Buffett’s Annual Letter to Shareholders
We now have the always fascinating annual shareholders’ letter from Warren Buffett. Among other topics, he waxes about the free-fall in the economy and the human condition. Here is a NY Times article about the letter (and even better analysis from the “D&O Diary”) – and here is Mad Money’s Jim Cramer taking Warren to task for urging Americans to buy stock at the same time that Warren was selling American…
Auditor Inspections: EU Commissioner Threatens US Regulators
As noted in this recent statement, EU Commissioner Charlie McCreevy infers that unless the US accepts the EU inspection process – which has not been proven effective or independent – they will not work with the PCAOB. It appears to be a shot across the bow of new SEC Chair Schapiro who just said in this recent speech that she is once again dedicating the SEC to protecting investors. McCreevy worked at one of the Big 4 firms some time ago and has a term that expires this summer.
My Recent Obama Experience
One of the beauties of living in DC. My son and I were at the Washington Wizards’ basketball game on Friday night, with President Obama in attendance – and sitting in the crowd. He was accessible by anyone and he did a lot hand-shaking. No real security in sight, even though I’m sure they were there. Below is my video when he first emerged from a tunnel – he’s not visible due to a gaggle of a hundred reporters, but you get a sense of the excitement (and here is a video from a real news organization):
As I blogged on Tuesday, the SEC’s first batch of “say-on-pay” guidance wasn’t very clear. Yesterday, Corp Fin issued these updated CD&Is, which adds two new CD&Is to the ones issued on Tuesday. The new CD&Is now make it clear that the SEC is following the timeline outlined in Senator Dodd’s letter – and therefore all TARP companies will be required to conduct a “say-on-pay” advisory vote if they didn’t file their preliminary proxy materials before February 18th.
This is huge. Over 400 companies will now be doing “say-on-pay” this year! For TARP companies that have filed preliminary (and definitive) proxy materials since February 17th, I imagine they are freaking out. Shoot, I imagine all TARP companies are freaking out even if they haven’t filed yet – since their proxy materials must be close to final. Back to the drawing board. Chaos reigns supreme…how will RiskMetrics’ ISS suddenly come up with 400 recommendations they didn’t expect? Their say-on-pay determinations are case-by-case and fairly complicated. We’re posting memos on this new development in our “Say-on-Pay” Practice Area on CompensationStandards.com.
Wednesday Webcast: “Say-on-Pay: A Primer for TARP Companies”
To say there still are a number of open issues in how to frame say-on-pay in proxy materials this year is an understatement. But our experts will do their best to help you during this newly scheduled CompensationStandards.com webcast to be held on Wednesday: “Say-on-Pay: A Primer for TARP Companies.”
On the Fast Track! NYSE’s Rule 452 Amendment to Eliminate Broker Non-Votes
Yes, the Schapiro SEC is a “new” SEC. Yesterday, the NYSE filed a fourth amendment to its Rule 452 proposal (there was also a third amendment filed accidentally the same day) – regarding the elimination of broker nonvotes in director elections – after the last amendment languished for nearly two years.
The 3rd amendment states the proposed effective date would be one that applies to shareholder meetings held after January 1st, 2010. It has a contingency that if the NYSE’s proposal is not approved by the SEC by September 1st, the effective date is then delayed for at least four months after the SEC’s approval – but it would not fall within the first six months of a calendar year. And it’s my feeling that the SEC is ready to approve the NYSE’s proposal, based on recent comments from a number of Commissioners.
This means that companies would not have the benefit of broker nonvotes for next year’s (ie. 2010) proxy season. This is even a bigger development than the item above! A “sleeper” in the sea of regulatory reform as this could be the “last straw” that alters the power struggle between shareholders and boards. However, note this recent NY Times article that brokers may be voting broker nonvotes against management this year! We’ll be posting memos on the NYSE’s proposal in our “Broker Non-Vote” Practice Area.
– Suspends the $1 average closing price requirement (requirement is couched in terms of being below a buck for a consecutive 30-trading day period) until June 30th. This may provide relief for companies now in the 180-day compliance period following notification of a $1 closing price deficiency.
– Extends existing temporary reduction of the $25 million average market capitalization requirement to $15 million (which was set to expire on April 22rd) to June 30th
