Yesterday, RiskMetrics’ ISS Governance Services unit issued updates for its US, Canadian, International and UK proxy voting policies. These new policies will be applied to all companies with shareholder meeting dates starting February 1st. RiskMetrics intends to release summary policy guidelines in mid-December and its full proxy manual after the new year. We have posted the policy updates in our “Proxy Advisors” Practice Area.
Among other topics, the policy updates deal with the following (note these brief descriptions were written by ISS):
1. Say on Pay – With several U.S. companies having committed to shareholder advisory votes on executive compensation, and several successful shareholder resolutions and the possibility of legislative action on the subject, the Say on Pay issue has arrived in the US. ISS has developed a framework for evaluating remuneration reports according to five global principles that emphasize linking pay and performance, board independence in the pay-setting process – and sufficient disclosure to allow shareholders to evaluate both the package and the process. From these global principles, we have developed market-specific guidelines that reflect local best practices in the U.S. and internationally.
2. Poor Pay Practices – Our U.S. Poor Pay Practices policy has been updated to reflect the better information available in new compensation disclosures – identifying specific poor compensation practices that may trigger withhold recommendations, including egregious employment contracts, severance and make-whole provisions, perks and retirement benefits, and poor disclosure practices.
3. Equity Plan Costs – A majority of our Policy Survey respondents indicated support for plans where employees have been holding vested in-the-money options for a significant amount of time. As such, ISS Governance Services will consider carving out a portion of cost attributable to overhang for companies with sustained positive stock performance and high overhang cost attributable to in-the-money options outstanding in excess of six years. ISS will adopt a case-by-case approach considering the following criteria: company performance, overhang disclosure, dilution, and compensation practices.
4. Independent Chairs – Since over 45% of companies in our Board Practices study now separate the chair and CEO positions, and investors show strong support for separation of CEO/chair positions, ISS will continue to support shareholder resolutions calling for an independent chair at U.S. companies. However, if a company meets certain performance tests and good governance practices, including the appointment of an independent lead director, we will recommend on a case-by-case basis. We are also adding two additional factors for consideration in this analysis: first, the disclosed comparison of the specific duties of the lead director and chair, and second, the company’s disclosed rationale for combining the two positions. These additional disclosures will aid in evaluating board independence in the case there is a combined CEO/chair.
5. Product Safety – Heightened attention to product safety, plus strong investor interest for companies to disclose their social and environmental practices led us to enhance our policy to support shareholder proposals requesting that companies report on policies and oversight mechanisms related to toxic materials across their supply chains. In fact, 66-75 percent of Policy Survey respondents believe it is very important or somewhat important to report performance on social and environmental criteria to shareholders as part of routine disclosure.
Latest Rumors: Democratic Commissioner Nominees?
We try to stay away from rumors on this blog – as they often don’t pan out – but it’s noteworthy that the Washington Post ran this article last week noting that Luis Aguilar and Elisse Walter may be tapped to fill the SEC Commissioner vacancies since the shareholder access proposals are so controversial and there won’t be any Democratic Commissioners once Annette Nazareth leaves her post (which is expected next month). Some members of Congress (and a score of investors) have asked SEC Chairman Cox to hold off on acting on shareholder access – since it appears that the current Cox plan is to hold a meeting on November 28th to deal with the AFSCME decision and then revisit shareholder access next year.
Citing unnamed sources, the Post reports that Senate Majority Leader Harry Reid has submitted both names to the White House for approval. Under federal law, two of the SEC’s five Commissioner spots must be filled by members of the political party that doesn’t control the White House.
Luis Aguilar is a securities lawyer at McKenna Long & Aldridge in Atlanta and a former SEC Staffer. Elisse Walters rose through the Corp Fin ranks to serve as Deputy Director and also served in the SEC’s Office of the General Counsel and has been the General Counsel of the CFTC; for quite some time, she has worked at the NASD (now FINRA), where she now serves as Senior Executive Vice President, Regulatory Policy & Programs.
FINRA Looking for Marketing Bang?
I couldn’t resist repeating the following entry from Mark Astarita’s “SECLaw Blog“:
“In what some believe is a marketing ploy and an attempt to increase its Google search ranking, FINRA is requiring all member firms to provide a hyperlink to www.finra.org. The deadline for compliance is November 17, so get your web designers moving. While I am certain that this is not a Google-driven event, but rather an attempt to brand their corporate identity, it is a bit strange. The NTM simply requires a link, not any special language, or the logo, and it is not an attempt to educate customers of the existence of a regulator.
It appears that FINRA is spending way too much time worrying about its name. At a SIFMA conference yesterday, a senior FINRA executive repeatedly referred to “legacy-NASD” every time he referred to the NASD. It was so cumbersome and silly, that he had to explain that if he didn’t do that, he would “have to put a dollar in the jar” indicating that the organization thinks “NASD” is a bad word. Seems to me that the time could be better spent addressing a new rule book, or investigating firms that caused this massive $400 billion subprime scandal. How long before that filters down to investors?”
This “Auditing Profession Discussion Outline” from the Treasury Department’s Advisory Committee on the Auditing Profession (co-chaired by Arthur Levitt and Donald Nicolaisen) is an eye-opening list of topics that the Committee expects to take up, obtain comment and issue a report on next summer. Among other broad topics, the Committee will consider: how to improve the quality of audits; whether auditors should be provided caps on their legal liability; whether auditors should be able to organize in structures that would seek private or public capital; governance and transparency of the firms; independence rules; how to attract more students into accounting as opposed to seeing them go into other professions; the dwindling supply of college professors; and how to improve the competitiveness among the small and large firms. The Committee seeks input for its outline, with comments due by November 30th.
Meanwhile, the SEC’s Advisory Committee on Improvements to Financial Reporting continues to plug along, holding its latest meeting a few weeks ago. The SEC has posted a host of reports from various subcommittees (scroll down to November 2nd meeting). There are some pretty interesting ideas being kicked around – particularly those in this report on restatements.
Restatements: Timing and Disclosure Issues
Speaking of restatements, a recent study from the Huron Consulting Group found:
– average filing time between initial filing of a Form 8-K and restated financial statements was 7 weeks (and the median was 3 weeks)
– One out of every 6 restatements analyzed was filed within one day of a Form 8-K being filed (while one-third of the restatements were filed within two weeks of the initial Form 8-K filing)
– 20% of the companies reviewed took more than 4 months to complete the process (typically missing at least one timely filing of a Form 10-K or Form 10-Q)
– 4 out of 5 restatements are filed within 4 months of the initial filing of the Form 8-K announcing the existence of a material error
– Most prevalent accounting issues were: Equity and Debt; Capitalization and Expense of Assets; Reserves/Accruals/Contingencies; Revenue Recognition; and Taxes
– Neither company size nor industry appeared to be significant factors in the length of the restatement process
– 19% of Form 8-K filings announcing the existence of a material error reported fewer accounting issues than were ultimately included in the restated financial statements.
In our “Restatements” Practice Area, we have posted a copy of the Huron Consulting Group study – as well as a recent PCAOB working paper regarding changes in market responses to restatements.
SEC’s Concept Release: Disclosure of Business Activities in Terrorist Countries
On Friday, the SEC issued a concept release regarding how the public should access disclosures about material business activities in the five countries on the State Department’s list of State Sponsors of Terrorism. This is a follow-up to the SEC’s discontinued practice of listing companies that disclosed certain matters relating to the countries (the concept release explains the filters that the Staff had used before – long story).
Given the topic, we might see more comments than one would think – even though this potential rulemaking only impacts how the SEC would list information filed through Edgar and not require companies to do anything differently than they already do. Personally, I think the reputational stakes are too high if a mistake is made by the SEC and a company is inadvertantly placed on this type of a list. Let the media and others do Edgar searches to create their own list…
At yesterday’s open meeting, the SEC adopted the most significant amendments to Rule 144 in over a decade, largely as they were proposed. The SEC decided not to combine Form 4 and Form 144 at this time – even though the concept was favorably received by commenters – but the Staff did say that they will continue to consider the issue and may take it up soon as a separate project. The final rules will not include the proposed provision that would have tolled the holding period for up to six months while a security holder is engaged in hedging transactions. Here are Corp Fin’s opening remarks.
As noted in this press release, under the final rule amendments (to be effective 60 days after publication), the holding period for restricted securities of reporting companies will be shortened to six months. In addition, under the substantially simplified conditions of the amended rule, non-affiliates of reporting companies will be able to freely resell restricted securities after satisfying a six-month holding period (subject only to the Rule 144(c) public information requirement until the securities have been held for one year), while non-affiliates of non-reporting companies will be able to freely resell restricted securities after satisfying a 12-month holding period.
For affiliates’ sales, the SEC amended the manner of sale requirements for equity securities – while eliminating them for debt securities – and relaxed the volume limitations for debt securities. In addition, the Form 144 filing requirements for affiliates’ sales will be raised to 5,000 shares or $50,000. A number of Staff interpretations will be codified as proposed, and the preliminary note to Rule 144 will be streamlined.
In connection with the Rule 144 amendments, Rule 145 will be changed to eliminate the presumptive underwriter provision – except with respect to transactions involving blank check or shell companies. The resale provisions of Rule 145(d) will also be revised.
While the revisions to Rules 144 and 145 will certainly provide much needed relief in terms of liquidity for those purchasing restricted securities, the opening up of the rules may also potentially increase the possibility for non-compliance. As a result, issuers, brokers and transfer agents will need to significantly change – and tighten – their procedures.
We will be providing detailed guidance in The Corporate Counsel over the next few issues on everything you will need to know to address these changes to Rules 144 and 145. Stay tuned…
Smaller Public Company Reporting System and Compensatory Options Exemption Adopted
The SEC also adopted two other components of its efforts to improve the small business regulatory regime. The proposals to drop Regulation S-B – and to expand the universe of smaller reporting companies that may use a scaled reporting regime – were adopted largely as proposed. As a result of these changes, an additional 1,500 smaller companies will now be able to utilize, on an “a la carte” basis, the “scaled” disclosure requirements incorporated into Regulation S-K. The SEC Staff said that it plans to issue a short guide on how to prepare filings under this new regime. These rule changes will be effective 30 days after publication.
Amendments to Exchange Act Rule 12h-1 were also adopted to provide an exemption for private non-reporting issuers from the registration requirements under Exchange Act Section 12(g) for compensatory employee stock options issued under employee stock option plans, as well as an exemption for reporting issuers from Section 12(g) registration for compensatory employee stock options. These rules will be effective immediately upon publication, so that the exemptions can be in place by the end of 2007 for calendar year-end companies. Here is the Staff’s opening statement on all of the small business proposals, including Rule 144.
The Staff indicated that the other small business-oriented proposals are still being actively considered and should come up for adoption soon.
GAAP Reconciliation Eliminated for IFRS Financial Statements
The SEC eliminated the requirement for a US GAAP reconciliation when foreign private issuers file financial statements prepared using International Financial Reporting Standards as issued by the International Accounting Standards Board. Here are Chief Accountant Hewitt’s opening remarks.
As noted in this press release, Chairman Cox also announced that the SEC will hold two roundtables on December 13th and 17th to discuss the concept of permitting US issuers to use either IFRS or US GAAP. For an in-depth discussion of yesterday’s proceedings on the IFRS changes, take a look at Edith Orenstein’s FEI Financial Reporting Blog.
Yesterday, the Senate Committee on Banking, Housing and Urban Affairs conducted a hearing on shareholder rights and proxy access. SEC Chairman Cox testified at the hearing, as did representatives of business and shareholder groups.
In his testimony, Chairman Cox indicated that while the SEC would go back to the drawing board on the broader question of establishing a means for shareholders to nominate directors and get them on the company’s ballot, action was still needed before the upcoming proxy season to deal with the uncertainty arising from last year’s AIG v. AFSCME decision. Based on these remarks (and similar remarks over the past few months), it now appears likely that the proposed amendments to Rule 14a-8(i)(8) seeking to clarify the SEC’s interpretation of that rule will be adopted in the coming weeks, probably during the week after Thanksgiving. If adopted, then the Staff could again express the view during the proxy season that shareholder proposals seeking to establish an access procedure are excludable from the proxy statement under Rule 14a-8(i)(8). As noted in the Bloomberg article, “Democrats on the banking panel criticized Cox for saying the agency might pass a rule this year and revise it in 2008. Senator Robert Menendez, a New Jersey Democrat, said he was ‘perplexed and deeply disturbed’ by that possibility.”
Chairman Cox noted in his testimony that “there is a widespread assumption that having published the two proposals, the Commission has only a binary choice — that we must adopt one of them, or do nothing. But in fact we may also adopt a rule that is different than either of those proposed. The only requirement is that the proposed rule, and the questions the agency has asked, provide fair notice to the public of what the Commission is contemplating and the issues involved. So long as the final rule or rules are a logical outgrowth of what was proposed, we are free to amend the proposals and to consider improvements that the public comment process has brought to our attention.” That is true enough, but it raises the question of whether there is really that much wiggle room with the access proposals to address all of the concerns coming from the shareholder and business groups sitting at opposite ends of the spectrum. Cox told reporters after the hearing that the much-maligned 5% threshold contemplated in the proposal was one of the “fundamental” areas that needed to be addressed.
Interestingly, at the end of his prepared testimony, Chairman Cox noted that “none of the 22 SEC Chairmen since the agency first looked at this issue in 1942 has successfully taken this step” of going back to the drawing board and taking a fresh look. That is an awful lot of history to overcome.
And Now We Are Off to See the Wizard
At last week’s PLI Annual Institute on Securities Regulation, Professor Joseph Grundfest gave this entertaining speech advocating for majority voting over shareholder access. Just as Dorothy learned from Glinda the Good Witch of the North, the solution to our governance problems may already be in our own backyard. Grundfest notes that at least 63% of the S&P 500 have already adopted bylaws or board guidelines that either implement or come reasonably close to implementing what is effectively the same as the “advice and consent” model for appointments under Article II, Section 2 of the US Constitution. [For the 63% figure, Grundfest cites the RiskMetrics Group 2007 Postseason Report at 17.] Under Grundfest’s analogy to the federal government system, shareholders can be cast in the role of the Senate and the incumbent board can be cast in the role of the Executive. The resulting set of checks and balances “forces incumbent boards to pay careful attention to shareholder concerns, and induces incumbent directors to reflect the shareholder sensitivities as the price of re-election.”
Grundfest argues that we should give majority voting a chance before going down the road of shareholder access. He notes that if there are recalcitrant companies out there that do not voluntarily adopt majority voting, then the SEC could adopt regulations that impose additional disclosure requirements and filing liabilities on corporations that fail to implement effective advice and consent regimes – and these regulations could replace the flawed shareholder access proposals that are currently pending.
In the immortal words of the melting Wicked Witch of the West: “Ohhhhh… What a world! What a world!”
Market Reg Goes Retro: Re-Introducing the Division of Trading and Markets
The SEC announced that it has changed the name of the Division of Market Regulation to the Division of Trading and Markets, in an effort to “better reflect the Division’s full range of responsibilities.” This “new” name is actually the Division’s old name, which was changed in connection with a restructuring back in 1972.
Floyd Norris of the NY Times notes in his blog that it is odd how the word “regulation” is being removed from the Division’s title, amidst the announcements of huge losses at major broker-dealers that the Division regulates and at a time when the bond rating agencies that the Division oversees are being blamed for the collapse of some securitization markets.
Will Corp Fin be next? Perhaps in the near future your 10-K might be reviewed by the Division of Registration, which was Corp Fin’s name from 1935 to 1941.
Recently, we have been seeing a number of questions in our Q&A Forum regarding issuer and affiliate share repurchase programs. When share prices are down and issuers have available excess cash or credit, buybacks can be a very effective tool to consider. One concern with share buybacks, however, has been that they are often perceived as unfriendly to an issuer’s bondholders because they use up cash or credit that the bondholders would rather see available for debt service.
Moody’s Investors Service recently conducted a study of 100 buyback programs announced over the last 19 months and determined that – in their sample – the announcement of a share repurchase program prompted no rating action 56 percent of the time. However, there was a change in rating outlook or a downgrade of the issuer’s credit rating in 44 percent of the situations that Moody’s sampled.
Moody’s notes that some of the factors which may potentially head off downgrades or changes in outlook following announcement of a repurchase program include:
– the funding for the share repurchases comes from excess cash on the balance sheet, predictable future operating cash flow, or asset sales (so long as the asset sales have no impact on collateral values or future earnings), rather than from incremental debt;
– the buyback program is too small to be material to credit quality;
– the buyback program leaves the issuer still adequately positioned at the current rating; or
– the repurchases will only place temporary pressure on credit metrics (for example for only one or two years).
Beyond the ratings concerns, there are of course a number of legal issues to consider when designing and implementing a share buyback program. For example, structuring the program under Exchange Act Rule 10b-18 is important in order to have a safe harbor from manipulation claims, and the issuer must be cognizant of potential anti-fraud liability for trading on material nonpublic information when it is buying back in its own securities. Issuers also need to consider any Williams Act or Regulation M implications of a buyback program, and disclosure of repurchases is now required in periodic reports under Item 703 of Regulation S-K. For more information, check out our “Stock Repurchases” Practice Area.
Are You DRS-Eligible?
As noted in this recent memo from Skadden Arps Slate, Meagher & Flom LLP, by January 1, 2008 all issuers whose securities are listed on the NYSE, Nasdaq and Amex must ensure that their listed securities are eligible for participation in the Direct Registration System – also known as DRS. Given the amount of time necessary to complete the process of becoming DRS-eligible, any issuers who are not already DRS-eligible have less than a month to take all of the necessary actions.
In this podcast, Allison Land of Skadden describes the latest issues with DRS, including:
– When is the DRS-eligible deadline and what happens if a company misses the deadline?
– What do companies need to do to become DRS-eligible?
– What are the common pitfalls that you are seeing for companies trying to become DRS-eligible?
The November-December issue of Deal Lawyers has just been dropped in the mail – and includes articles on:
– The Demise of the Broadly Written MAC: Will the Plain Language Standard Replace the Reasonable Acquiror Standard?
– Full “Walk-Away” Values at Termination and Change in Control
– How to Calculate the Full Walk-Away Value
– Merging Qualified Plans: Five Steps to Eliminate Post-Closing Headaches
– Due Diligence Review of Internal Controls: Focusing Beyond the Numbers
As all subscriptions are on a calendar year basis, it is time for you to renew your subscription. If you are missing these critical issues, try a 2008 no-risk trial to get a non-blurred version of this issue for free.
SEC Enforcement Director Linda Thomsen recently announced a surprising 14 percent jump in enforcement cases in fiscal 2007. As noted in this Bloomberg article, the 656 cases in fiscal 2007 represented the first increase in Enforcement’s new case tally in four years.
One contributing factor to the big increase in cases was options backdating, with 24 cases brought in 2007. Cases alleging improper financial disclosures (a category which includes options backdating cases) made up 33 percent of the 2007 total, up from 24 percent in 2006. 47 insider trading cases were brought in 2007, as compared to 46 such cases in 2006. Among these insider trading cases was one of the largest since the 1980s, involving employees at several investment banks. Cases against financial advisers and delinquent filers represented less of a share of total cases in 2007 as compared to 2006.
With Section 404 Deadline Fast Approaching, Chamber of Commerce Calls for Delay
Despite the SEC, PCAOB and COSO efforts to make the internal controls assessment process more manageable for smaller companies, the US Chamber of Commerce is calling for yet another one year delay in Section 404 implementation. The Chamber of Commerce is asking Congress to hold hearings on the issue. In this press release, Michael Ryan of the Chamber notes that their recently conducted survey of Section 404 costs demonstrates “why small companies complying for the first time with SOX 404 should not be the guinea pigs for the improved rules adopted by the SEC and the PCAOB.”
As recently as this past summer, the SEC has rebuffed attempts to push back the Section 404 implementation timetable. As it now stands for non-accelerated filers, management must begin providing its own internal control assessment in the annual report filed for the fiscal year ending on or after December 15, 2007, however an auditor’s internal control attestation is not required until the annual report filed for the fiscal year ending on or after December 15, 2008.
The Chamber of Commerce survey of smaller companies attempts to show that compliance costs are expected to be high for these issuers. Over half of the survey respondents with a public float of less than $75 million except costs to implement the management assessment portion of the requirement to exceed $200,000, while slightly less than half of the respondents expected implementation of the auditor attestation component to also exceed $200,000. Despite the “staged” implementation approach adopted by the SEC, over 80% of the non-accelerated filer respondents have already engaged an auditor as part of their preparations for rendering management’s assessment.
Not surprisingly, 79% of the respondents to the Chamber’s survey indicated that a delay in the compliance deadline for Section 404 would be helpful to their company.
Annual Reports: How to Create Them for an Online World
Tune in for Thursday’s webcast – “Annual Reports: How to Create Them for an Online World” – to learn how to create more effective – and more “usable” – annual reports. Too many companies continue to make the same mistakes with their online documents and put themselves at a disadvantage when soliciting votes, particularly if a third-party mounts a counter-solicitation or a “just vote no” campaign.
Broc makes this case in point: “For those companies doing voluntary e-proxy so far, the proxy materials they are posting are merely “dumb” PDFs. Not even a linked table of contents. These are far less usable than the HTML filings made on EDGAR. Why have we gone backwards in this age of interactive documents – particularly given the SEC’s push for interactive data? As one member emailed me, ‘I think it passes regulatory muster, but only barely?’”
The FASB has decided to postpone the effective date of Interpretation 48, Accounting for Uncertainty in Income Taxes (June 2006), for those nonpublic entities that have not yet applied the interpretation. Under the postponement, FIN 48 would be applied by those nonpublic entities for periods beginning after December 15, 2007. The FASB’s proposal to delay effectiveness of the Interpretation is now out for a 30-day comment period.
Interpretation 48 will continue to be effective for public companies for fiscal years beginning after December 15, 2006. For more on FIN 48, check out our “Tax Uncertainties” Practice Area.
XBR-what?
In a recent national survey of chief financial officers and senior comptrollers conducted by Grant Thornton, 47 percent of the CFOs polled said that they were not aware of XBRL. About half of the responding CFOs believed that XBRL would not become mandatory for SEC filings until 2010 and beyond. Apparently these CFOs are not big followers of Captain XBRL.
The CFOs may be in for a surprise, as the interactive data momentum clearly continues to build at the SEC. On Friday, the SEC announced that Chairman Cox had been holding bilateral talks at the International Organization of Securities Commissions (IOSCO) conference on the timetable for implementation of XBRL for regulatory filings. Cox noted that “[w]ithout question, 2008 will be a watershed year for interactive data.”
The Grant Thornton survey also found that a surprisingly high 43 percent of the CFOs polled said that they did not want to be CEO of a company in the future. In the survey, 61 percent of the CFOs felt that their CEO was paid at a level that is appropriate, while approximately 16 percent believed that their CEO was underpaid.
Good News for Portal
A few months ago, I blogged about the “summer of alternative trading platforms for unregistered securities” (kind of like the “Summer of Love” for traders), noting that a number of investment banks were developing platforms for trading in Rule 144A securities. As noted in this article from today’s Wall Street Journal, those efforts have now been abandoned in favor of revamping Nasdaq’s Portal system. Efforts have been underway for some time to make Portal a useful trading system, and now it looks like the threat of competition from Wall Street will not undermine those efforts.
Corporate Governance Lawsuits
Lawsuits remain a means for compelling corporate governance reform, especially in situations where other methods for accomplishing reform have not worked. In this podcast, Stuart Grant of the law firm Grant & Eisenhofer describes the latest developments in corporate governance reform lawsuits, including:
– What are examples of companies that have been targeted for governance reform through lawsuits in the past year or two?
– Typically, how does the filing of a governance lawsuit impact whether the company’s management will consider governance changes?
– What do you recommend that management groups faced with these lawsuits consider when entering a dialogue with those that file the lawsuit?
We’ve been getting quite a few questions about whether D&O questionnaires should be tweaked for this proxy season. Alan Dye notes that, other than the possible NYSE independence issues if they get adopted in time, he’s not aware of any new rule or regulation that would cause the questionnaire to change (assuming it was up-to-date last year).
The Corp Fin Report on executive compensation (and John White’s “Where’s the Analysis?” speech) is more for drafters of the proxy statement, and doesn’t necessarily impact the questionnaire. However, Alan notes that some companies continue to uncover perks they hadn’t known about – so some companies may need to beef up their questions regarding perks to cover more examples, including spousal travel and matching charitable gifts. And reviewing the February and August Corp Fin interpretations of S-K 402 (and our compilation of Staff comments) vis a vis your questionnaire is a good idea.
Anyone else have items to consider for this year’s questionnaire? Please email me if you do…
E-Proxy and California Law
In our “Q&A Forum,” we continue to receive follow-on questions related to the issues raised by California law as it intersects with the SEC’s new e-proxy rules – so I decided to go to the source who first raised the issue in this blog.
In this podcast, Keith Bishop of Buchalter Nemer, and a former California Commissioner of Corporations, describes how the SEC’s new e-proxy rules might conflict with California law, including:
– I understand that the SEC’s new e-proxy rules may conflict with California law. What might the conflict be? And which companies might it impact?
– Can the problem be solved by mailing annual reports only to actual shareholders of record?
– Should companies ignore the California conflict if the risk of enforcement is low?
– Any other potential conflicts that companies should be aware of when they implement e-proxy?
My Midlife Facebook Crisis? Nah…
I make my living primarily on the Web these days, but I still feel too old for the social networking craze (although I would argue that all of our sites are “closed” social networks since they are all community-themed). Last Saturday, the WSJ ran this great article – “My Midlife Facebook Crisis” – on what it’s like for us old-timers to join the social networking bandwagon.
In the middle of last year, Facebook began allowing anyone to join its network and start accumulating “friends.” So I spent a few minutes – very few – creating a profile for my alter ego, “Billy Broc Oxley.” A friend of mine took one look at Billy Broc’s profile and promptly said “it probably violates the laws of all states but Utah and Nevada (for different reasons).” Not sure how he got that, but I don’t think this experiment is gonna go anywhere…
[Boo-yah! For the past several months, whenever I have appeared on the speaking circuit, I have said “if you don’t get anything else out of this seminar, buy Broadridge stock.” Based on what Broadridge has done over the past two days, I can say “I told you so!” And thus ends my stock-picking career.]
Five brave souls have volunteered for our latest contest (and one anonymous contributor), setting forth some practice pointers regarding “Preparing Your Form 10-K.” Each contributor took a moment out of their busy life to write up something that might help you during the proxy season; they had no restrictions on what they could submit, so the format and nature of their pointers vary. Thanks to Carrie Darling, Linda DeMelis, John Newell, Jeff Taylor and Mike Woodard for entering our inaugural contest; each deserves much praise for giving this a try!
How to Vote: Now, you need to do your part and cast a vote. You are free to vote more than once – and when you vote, you can vote for as many of the contributors as you wish (even all six contributors if you want). Voting is completely anonymous.
[Dave “The Animal” was bounced before the competition even started when he submitted these pointers:
1. First, get yourself a six-pack. In fact, you might need a case if you are one of them there large accelerated filers.
2. Don’t be making yourself a fool by filing your 10-K under an 8-K header submission type – it hurts.
3. Speaking from experience, its not a good idea to file the CEO’s credit card numbers and social security numbers as as an exhibit.
4. I don’t like too many commas.
5. Don’t listen to all those pesky little voices coming out of your refrigerator when you are trying to draft some disclosure. My tin foil hat tends to drown them out.]
The SEC’s “Small Business-ish” Open Commission Meeting: Next Thursday
Late yesterday, the SEC published a Sunshine Act notice to announce an open Commission meeting for next Thursday to consider adoption of these proposals:
– Streamlined Smaller Public Company Reporting
– Amended Rules 144 and 145
– Stock Option Registration Exemption
– Financials prepared in accordance with IFRS without Reconciliation
Note that these three proposals are not on the agenda: shareholder access; Form-Reg D; simplified Form S-3 – so there may be another open Commission meeting around the corner (or maybe there won’t be – we don’t know yet).
At next Thursday’s meeting, the Commission will also consider proposing new rules to improve mutual fund disclosure by requiring more plain English – and enhancing the availability of more detailed fund information on the Web.
Some CD&A Guidance
As I alluded to yesterday, we have just wrapped up our just-completed “Special Fall/Winter 2007 Supplement” of the Compensation Standards newsletter, which should help you (and your board) address the CD&A disclosures that the SEC will be looking for this proxy season. Don’t forget to renew – or try a no-risk trial.
The community has spoken! On CompensationStandards.com, we have posted the 51 executive compensation disclosure tips that we received in response to our contest seeking ideas from our members. We will be announcing awards for these tips soon – take a look at them and let me know which ones you like best. Here’s the strange thing – I billed the contest as “51 tips” and I received exactly that number!
What is a “Severance Package”?
In the wake of Merrill Lynch CEO Stanley O’Neal’s resignation, there were some articles noting that he didn’t have a severance agreement with the company. Here are some thoughts from The Corporate Library on the topic:
“In a study released last week, The Corporate Library reports that the “non-severance” package awarded to O’Neal is not what it seems. Long rated a high concern board by The Corporate Library, Merrill Lynch’s actions are deemed too little, too late, by Paul Hodgson. ‘Stanley O’Neal’s departure from Merrill Lynch with ‘no severance’ and no 2007 bonus would seem to present a picture of a decisive board in control. Yet, when ‘no severance’ equals $161.5 million and an office and executive assistant for three years, what else did they think they needed to give him?’” Notably, Mr. O’Neal’s separation package comes in at #5 on a list of 10 of the most excessive severance packages this decade.
In addition to the severance panel discussion during the recent “4th Annual Executive Compensation” Conference, we have written quite a bit on severance and steps you should be taking to fix outstanding arrangements (and not make the same mistakes going forward) – look for more in a Special Supplement to the Compensation Standards print newsletter coming out very soon. Sign up for complimentary copies!
CII on CD&A
Back in September, the Council of Institutional Investors sent this letter to the SEC explaining what it seeks from companies when it comes to the “Compensation Analysis & Disclosure” section of the proxy statement. It’s interesting to compare CII’s letter to John White’s speech and the Corp Fin Staff Report that came out subsequently. For the Jan-Feb issue of The Corporate Executive, we are busily writing analysis (and model language) about what CD&As should look like next year – we hope to have that available within a month.
