Last week, the FASB voted to add a comprehensive project to reexamine FAS 5. As described in this handout, the project will have three phases. Phase 1 will address inconsistencies between proposed FAS 141R regarding business combinations and FAS 5. Phase 2 relates to eliciting enhanced disclosures under FAS 5. Phase 3 is “a long-term project to comprehensively reconsider all accounting models for contingencies.” See more on FEI’s “Financial Reporting Blog.”
What Does a New World Accounting Order Mean for Audit Committees?
KPMG’s Audit Committee Institute has conducted this interesting interview with former FASB Chair Dennis Beresford (who is the audit committee chair for Kimberly-Clark Corp., Legg Mason and Fannie Mae). Dennis believes it’s unlikely that many U.S. companies will begin using IFRS in the next few years – but that this could change over time.
Speaking of Broadridge, don’t forget the panel – “Solicitation, Media, and IR Strategies: After E-Proxy and the Loss of Broker Non-Votes” – which will include an update from Broadridge about what challenges (and opportunities) have been faced by companies trying voluntary e-proxy so far. This will help you to avoid the obstacles and mistakes incurred by those companies that were “early movers.”
You can choose to attend solely this Conference – or for just a little bit more, you can also take in these two Conferences – the “Tackling Your 2008 Compensation Disclosures: The 2nd Annual Proxy Disclosure Conference” and “4th Annual Executive Compensation Conference” – online via our “Member Appreciation Package.”
Hat tip to Mike Melbinger’s blog on this: Yesterday, the IRS released Notice 2007-78 offering transition relief for certain provisions of Code Sec. 409A that previously had a December 31, 2007 deadline. Specifically, Notice 2007-78:
– Extends to December 31, 2008, the deadline to adopt documents and amendments that comply with Section 409A, subject to limited requirements regarding the timely written designation of a time and form of payment.
– Provides guidance and additional relief addressing certain issues raised by the application to employment agreements and cashout features of Section 409A and the final regulations (Mike promises to blog more on this later today).
– Announces that the Treasury Department and the IRS anticipate issuing guidance containing a limited voluntary compliance program that will permit taxpayers to correct certain unintentional operational violations of 409A.
How Much Do You Know? The SEC’s Executive Compensation Comment Letters
People dug the “Pro or Troll” quiz on TheCorporateCounsel.net, so I thought we would post one on CompensationStandards.com devoted to the SEC’s executive compensation letters. Give it a whirl – “Are You a Pro or Troll?”
It will take you less than a minute to complete the five-question quiz. It will score your answers as you go—and let you know how you compare against your peers. All participation is completely anonymous.
Don’t Miss the Fancy Course Materials
Fyi, there will be a bunch of these fun quizzes available as part of the online experience when you watch the video webcast of “Tackling Your 2008 Compensation Disclosures: The 2nd Annual Proxy Disclosure Conference.” There will be a quiz that goes along with each panel, so you will be able to evaluate how much you learned compared to the other several thousand watching online.
In addition, each panel will include a set of the popular “Essential Practice Tips You Oughta Know” – as well as a compilation of the Staff’s comments that pertain to that panel’s topic area. No other conference provides as much practical information as this one. Register today!
The Evolution of Deal Rooms
In this DealLawyers.com podcast, Joel Lessem, the CEO of Firmex, explains how deal rooms are evolving, including:
– How are your deal rooms different from your competitors?
– How do you see the use of deal rooms evolving?
– What are some surprising ways that deal rooms are being used?
Thanks to Stephen Davis of Davis Global Investors for allowing us to blog this article from a recent issue of his “Global Proxy Watch“:
“Behind the scenes, the world’s two biggest proxy advisors are in a fit of restructuring that promises again to reshape the global governance industry and, possibly, ignite a regulatory backlash, GPW has learned. Among fast-paced developments:
Xinhua Finance (XF) has secretly decided to sell Glass Lewis (GL) just nine months after buying it for US$45 million. The move comes hard on the heels of the Shanghai-based firm’s own in-house governance scandal, which triggered a stock plunge and brand damage at XF, and key staff and client defections at GL (GPW XI-21, 22, 25, 27). CEO Fredy Bush has apparently hired a merchant banker to shop the proxy advisor, with eyes on a deal as early as next month. The frontrunning contender so far: none other than RiskMetrics (RM), owner of rival industry giant Institutional Shareholder Services (ISS). At least one other unidentified company is also mulling a bid, while a private equity firm has pushed Xinhua to sell it GL at about half the purchase price.
RiskMetrics has the cash and ISS the motive to take over GL. Ex-CEO John Connolly had made serial efforts to buy the four-year old competitor. But if ISS and GL now combine, the unit will dominate more than 80% of the market—gaining potential new pricing power and clout. Experts predict such a deal would likely draw scrutiny by securities regulators, antitrust authorities and politicians in North America, Europe and, possibly, Australia. They could join those in the market worried that a single US firm could hold a near monopoly in the highly sensitive business of advising how shareowners vote on everything from board elections to mergers and acquisitions worldwide.
Still, GL-ISS nuptials could boost proxy firms that remain—such as Proxy Governance and Egan-Jones in the US, and ECGS in Europe. Equally, a takeover could spur market interest in specialist stewardship firms such as F&C, Governance for Owners and Hermes EOS. They would all be trolling for fund clients bent on service alternatives to the industry leader.
RiskMetrics, meanwhile, is rumored to have taken another transformative step. Sources say it opened confidential talks with US Securities and Exchange Commission officials in advance of filing formal IPO documents that would allow it to launch as a publicly traded company. Perhaps in preparation, RM will inform clients Monday that, as part of internal integration, all its products will carry the RiskMetrics label as of Sept. 17. The move, in effect, demotes the 27-year old ISS brand. Governance services will now be marketed under the RiskMetrics name.
Expect an IPO to rekindle debate about whether public ownership—or another buyer—might affect the quality or content of RM advice. Last month the US Government Accountability Office (GAO) concluded in a report that “potential conflicts of interest can arise” at proxy firms, but that the SEC had “not identified any major violations.” It also asserted that it is relatively easy for rivals to enter the industry, so fears of ISS monopoly power are overblown. Some industry watchers dismissed the GAO report as superficial. But expect its findings to fortify defenders of any RM takeover of GL.”
The Board’s Role for Internal Investigations
In this podcast, Dave Taylor of Perkins Coie provides some insight into what the board’s role for internal investigations, including:
– Why are there more board-directed investigations?
– How do whistleblower complaints change the nature of an investigation?
– What is the board’s role in an investigation?
– What are pitfalls that boards should avoid during an investigation?
Court Upholds SEC’s Refusal to Comply with FOIA Request
A few weeks ago, CFO.com ran this article that notes that the US District Court of Minnesota sided with the SEC regarding the agency’s refusal to comply with a FOIA request that had been submitted by SEC Insight. This case had been going on for a few years; here is an old blog noting how the SEC lost the first round of this litigation.
In this appeal – although the SEC ultimately turned over some of the requested documents – the US District Court upheld the agency’s refusal to produce the rest. However, Judge Paul Magnuson said the SEC’s behavior in the case caused the court “great frustration.” We’ve posted a copy of the court opinion in our “Confidential Treatment Requests” Practice Area.
[Saturday’s WSJ had a funny “Salt and Pepper” cartoon featuring three cavemen around a fire: “Someday you be household name, Blog.” Hmm, archive of the cartoon seems to be have removed – offensive to cavemen?]
On Wednesday, SEC Chairman Cox spent the first three of his six minutes on CNBC’s Squawk Box talking about the SEC Staff’s first wave of comment letters related to its executive compensation review project. Here is the archived video.
Note that the Chairman didn’t specify how many “hundreds” of comment letters will ultimately be sent by Corp Fin. That’s something that isn’t clear now, but probably will be mentioned in the Staff’s upcoming Report.
Also note that not all of the Staff’s comment letters have been faxed out yet. So far, just a first wave has been sent – another wave should be coming in the near future. That should keep some of you on edge…
The Corporate Executive: A Special September-October Issue
Our Sept-Oct issue of the The Corporate Executive is being dropped in the mail today. It provides comprehensive analysis and guidance regarding the Staff’s comment letters. The issue includes sections on:
– Analysis and Guidance: The Staff’s Executive Compensation Comment Letters
– How to Respond to the Comments
– Overall Observations on the Staff’s Comments
– Putting the “A” Back Into CD&A
– Performance-Based Pay Disclosure
– Benchmarking
– Termination and Change-in-Control Arrangements
– Notable Comments on Compensation Tables, Corporate Governance Disclosures and Related Person Transaction Policies
Here is a blurred copy of the issue so non-subscribers can get a sense of what its like. Try a No-Risk Trial for 2008 and get this issue (and rest of 2007) for free. If you are a subscriber, you should be receiving your issue early next week – please don’t call us to get it rushed…
Canada Delays Adopting New Executive Compensation Rules
Recently, the Canadian regulators issued this delaying notice, announcing that it was postponing the adoption of amended executive compensation rules. The proposed rules are fairly similar to what the SEC adopted last summer (see our “International” Practice Area on CompensationStandards.com for firm memos regarding the proposals).
Canadian regulators still hope to adopt new rules, it just needs more time to analyze the comment letters it has received – and they won’t finish that review in time to get new rules out for next year’s proxy season. Looks like about 50 comment letters were submitted, a drop in the bucket compared to the thousands that the SEC’s rulemaking garnered…
I’ve started doing the prep calls with the panels for our “Tackling Your 2008 Compensation Disclosures: The 2nd Annual Proxy Disclosure Conference” – and it’s amazing how much there will be to cover, even though we all have a year under our belt under the SEC’s new rules. And that doesn’t even take into account the flurry of SEC comment letters that just came out.
For example, during the “Analyzing the Equity-Based Tables” panel (featuring the SEC’s Paula Dubberly, Howard Dicker, Alan Kailer and Martha Steinman), you will learn:
– How to properly classify an equity award from an accounting perspective (lots of companies made errors) – and what to do next year, if you got it wrong this year
– How many of your numbers will change columns from one year to next – and how to avoid pitfalls
– What are the latest trends in grant practices – and how that impacts your disclosure
– What are the SEC comments (and latest positions) on the equity-based tables, including the challenging comments regarding performance targets
You can catch this critical Conference either live in San Francisco or via video webcast. Remember how practical last year’s Conference was – this year will be no different: Register today!
In the SEC’s Enforcement Division’s Crosshairs: General Counsels
Following up on my blog that linked to an article that blamed lawyers for option backdating, Keith Bishop has compiled this lengthy list of SEC Enforcement actions against general counsels so far this year. As you can see, the actions aren’t limited to backdating:
– On January 10th, the SEC announced that it had settled civil fraud charges against the former general counsel of Comverse Technology, William Sorin, under an agreement which provides for the payment of over $3 million in civil penalties, disgorgement, and prejudgment interest, a permanent injunction, a permanent officer-and-director bar, and suspension from appearing or practicing before the SEC as an attorney.
– On February 28th, the SEC filed a complaint charging Kent Roberts, the former general counsel and corporate secretary of McAfee, with securities fraud for wrongfully re-pricing McAfee stock option grants awarded to him and others in an effort to secretly increase the value of the grants.
– On March 1st, the SEC filed a complaint against Randi Collotta, a compliance officer and lawyer, alleging that she provided material, nonpublic information concerning upcoming corporate acquisitions involving Morgan Stanley’s investment banking clients to a registered representative at a Florida broker-dealer.
– On March 28th, the SEC charged two former in-house attorneys of Enron Corp., Jordan Mintz, a former Enron Vice President and General Counsel of Enron’s Global Finance group and Rex Rogers, a former Enron Vice President and Associate General Counsel, in connection with a fraudulent scheme to make material misrepresentations in, and to omit material disclosures from, Enron’s public filings.
– On April 2nd, the SEC filed suit against Christi Sulzbach, the former general counsel at Tenet Healthcare. The suit charges that Tenet, through the general counsel and other executives, misled the investing public by failing to disclose Tenet’s strategy, its impact on revenues and earnings, and its unsustainability in the portion of its public filings with the Commission known as MD&A.
– On April 5th, the SEC issued an Order Instituting Administrative Proceedings pursuant to Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions against Myron Olesnyckyj. Olesnyckyj served as General Counsel of Monster Worldwide.
– On April 18th, the SEC filed a civil injunctive action against Kevin Heron, the former general counsel, corporate secretary, and chief insider trading compliance officer of Amkor Technology. The complaint alleges that alleges that over a two-year period, Heron illegally traded in Amkor securities prior to five Amkor public announcements relating to financial results and company business transactions.
– On April 24th, the SEC filed a civil suit against Nancy Heinen, the former general counsel at Apple, saying her actions led to “fraudulent” stock option backdating at the company.
– On May 31st, the SEC filed civil fraud charges against California-based software maker Mercury Interactive and four former senior officers of Mercury, including its former General Counsel, Susan Skaer. The SEC alleges that the former senior officers perpetrated a fraudulent and deceptive scheme from 1997 to 2005 to award themselves and other employees undisclosed, secret compensation by backdating stock option grants, failing to record hundreds of millions of dollars of compensation expense, and falsifying documents to further this scheme.
– On June 6th, the SEC instituted Rule 102(e) administrative proceedings against Chris Gunderson, the General Counsel of Universal Express. The SEC’s proceedings are based upon an injunction issued in February 2007 by the U.S. District Court for the Southern District of New York.
– On August 3rd, the SEC announced that a federal jury found Michael Pietrzak and Maurice Furlong liable for securities fraud and other charges in their operation of Hexagon Consolidated Companies of America, a development stage mining company headquartered in Reno. Pietrzak was HCCA’s general counsel, CFO, and executive secretary, as well as a director. (The SEC filed this case in 2003).
– On August 28th, the SEC charged Lisa Berry with routinely backdating option grants from 1997 to 2003, first as General Counsel of KLA-Tencor Corporation and then as General Counsel of Juniper Networks. The Commission alleges that Berry’s misconduct caused the two companies to conceal hundreds of millions of dollars in stock option compensation expenses relating to undisclosed in-the-money options provided to company executives and employees.
The D&O Insurance Market Is Soft
This month’s Directors & Boards’ e-briefing includes a piece by Holland & Knight about “The D&O Insurance Market Is Soft.” Funny how everything has its cycles – not too long ago, the D&O insurance market was rock hard…
It will take you less than a minute to complete this five-question quiz: “Pro” or “Troll”? Test Your Knowledge. It will score your answers as you go—and let you know how you compare against your peers.
Simply read each statement and decide whether you agree with it (by clicking “Ah Yes”) or disagree (by clicking “That’s Ridiculous”). Then, you will be told whether you were correct—and we also provide some analysis if you wish to learn more about each answer.
Survey Results: Lead/Presiding Directors
Here are the results from our recent survey about lead and presiding directors:
1. Does your board have a lead or presiding director?
– Yes – 84.4%
– No – 15.6%
2. What is the term of the lead/presiding director?
– 1 year – 25.9%
– 2 years – 18.5%
– 3-4 years – 11.1%
– More than 4 years – 0.0%
– Undetermined – 44.4%
3. Are there “term limits” for the lead/presiding director?
– Yes – 3.7%
– No – 96.3%
4. What are the responsibilities of the lead/presiding director:
– Chairs non-management director meetings – 85.2%
– Chairs executive sessions – 81.5%
– Input on board agendas – 59.3%
– Liaison between management and independent directors – 70.4%
– Works on governance and compliance matters – 33.3%
5. Does the lead/presiding director receive extra compensation for these additional responsibilities?
– Yes – 40.7%
– No – 59.3%
Our September Eminders is Posted!
We have posted the September issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
In what should be a stark reminder of how shareholders may increasingly use the Web under e-proxy, a website recently was launched to serve as a clearinghouse for those opposed to certain facets of the SEC’s recent shareholder access proposals. The site is SaveShareholderRights.org.
The primary goals of the site are to enlist 500 institutions and financial professionals to sign a joint statement – and facilitate the filing of several thousand comment letters from individual investors (with copies of the comments going to members of the House and Senate). In particular, the site aims to ensure that the following three proposals aren’t adopted:
1. the “opt-out” option that would allow the most unresponsive companies – those with the worst records when it comes to good corporate conduct and governance – to drop out of the shareholder resolution process and isolate themselves further;
2. the unilateral substitution of the electronic petition model or “chat room” for the vibrant and public 14a-8 shareholder resolution process; and
3. the raising of shareholder resolution resubmission levels from the current 3%, 6% and 10% vote levels to 10%, 15% and 20% levels, thus effectively killing many important shareholder resolutions.
In a press conference last Wednesday, the heads of the organizations that launched the site held a press conference (Walden Asset Management’s Senior VP Tim Smith, Interfaith Center on Corporate Responsibility’s Executive Director Laura Berry and Ceres’ Director of Investor Programs Chris Fox – note that Ceres didn’t launch the site, but did participate in the press conference) and announced support for the ability of shareholders to nominate directors, urging that the SEC use “a reasonable level of shares required for the nomination process.”
An Incredible 5000!
I recently checked the two Q&A Forums on Section16.net (in response to a member’s request to help convince an ignorant judge that Romeo & Dye were the Section 16 authorities) and was shocked to see that Alan has now answered over 5000 questions on them. That’s amazing! Congrats Mr. Dye!
Also amazing is that Alan now has been blogging over three years on Section16.net. Time flies…
SEC Speeches: Going Way Back!
The SEC has been busy posting old SEC speeches on its web site – all the way back to 1965! (Looks like the new SEC Archivist has been doing his job.) It appears that Commissioners “back in the day” gave as many speeches as the SEC Commissioners do today.
Some familiar themes existed back then, such as this one on “The SEC’s Role in Changing Patterns in Financial Reporting” before a conference entitled “The Age of the Conglomerate.” It’s interesting to note that the rules were so few and simpler back then that a Commissioner could deliver a speech that delved deeply into the intricacies of a specific rule, such as this 1970 speech on “Another Look at Shareholder Proposals in Proxy Statements” by Commissioner Richard Smith.
Lynn Turner notes: The Honorable Senator Charles Schumer’s efforts described in this letter to the Big 4 are greatly misplaced (ed. note: the letter is posted in our “Credit Arrangements” Practice Area). Auditors did not make the problematic subprime loans, did not rate them or decide the terms on which the loans were made and certainly do not collect the loans. Now the Senator thinks auditors should fix the problem of subprime loans through greater obfusction and a lack of transparency by keeping these loans “off-balance sheet” in SPEs when the loans are restructured, as he pushes new accounting positions taken as a result of the credit and liquidity problems affecting the markets. He is also arguing auditors should get into the management of the loan portfolio and insist the loans be restructured. A unique role for independent auditors.
The Senator has jointly issued a report saying the US capital markets are not competitive. The current crisis also indicates they do not always act in a reasoned fashion, with appropriate pricing of risks. As a result, they are now requiring federal government intervention.
Unfortunately, some home owners and investors are both being hurt by the recent developments. Yet the reality of it is that borrowers will either have the ability to repay the required cash payments or some portion of the payments, or go into full default. If the borrowers can’t pay all the required payments, someone (the ultimate lendor/investor) has incurred a loss, which is less than transparent in these SPEs. If a home owner in default doesn’t make their payments, there is no way it doesn’t result in an economic loss for investors.
(Interestingly, it was Senator Schumer who inserted the language into Sarbanes-Oxley requiring a study of off-balance sheet financings and their magnitude so there would be increased transparency. He initially discussed language that would have required all the SPEs to be on the balance sheet, but ultimately went the study route.)
When it comes to contributing factors to the subprime credit and liquidity problems, it was the Senate Banking committee – of which the Senator is a member – that stood idly by, after being forewarned a year ago about the lax underwriting standards that existed and which have directly contributed to the problem. Unfortunately, it is perhaps worth remembering that USA Today reported that Senator Schumer took very substantial sums of money from Enron – and returned it after being embarrassed by the company’s scandal.
Perhaps even more important, on a going forward note, the banking regulators are considering a new regulation that will determine the amount of capital banks keep on hand, which provides them with a “cushion” of assets in the event of a financial crisis. This new regulation is called Basel II. However, the Chairman of the FDIC, which uses the backing of taxpayers to ensure deposits, has warned the new regulations if adopted without safeguards will INCREASE – not DECREASE – the susceptability of the financial system to a future crisis.
Will the Subprime Meltdown Affect the D&O Marketplace?
I feel like I could blog about the subprime meltdown continuously for weeks. Kevin LaCroix continues to do a great job as he analyzes how the meltdown might impact the D&O insurance market in his “D&O Diary” Blog.
Next Financial Crisis Starts Here
This Financial Times column by Clive Crook from last Thursday is worth reading:
“Washington is deserted in August, so demands for a political response to the financial-market debacle have been muted. Rest assured, this will change. The problem will not be dealt with by next month – things could easily get worse before they get better – and some appealing suspects are just asking for a regulatory beating. Enron and the other corporate scandals begat Sarbanes-Oxley. What will the subprime mortgage meltdown bring forth?
Observers of the subprime mortgage business (not counting those who work for it) had been predicting a breakdown for quite a while. Regulated banks do little if any such lending. Bank affiliates or independent mortgage companies have built the business – and they are, respectively, lightly regulated or virtually unregulated. They lent eagerly to borrowers of limited means, often on patently reckless terms (initially low “teaser” rates switching to expensive variable rates; interest-only loans; loans whose principal increased over time). Everything was premised on perpetually rising house prices.
The Federal Reserve was worried, but mainly on consumer-protection, not systemic-risk grounds. Lacking the will and the authority, it mostly failed to act and the business boomed. A lot of people who otherwise would have been unable to buy a house did so, which is good. How many of them hang on to their houses as this credit cycle unwinds, however, remains to be seen. Legislation will be needed to bring all mortgage lenders under the Fed’s supervision, so that basic standards of prudence can be enforced. This much seems likely to happen.
The harder question is whether new rules are needed for the wider financial system. On the face of it, the answer is Yes. One rationale for excluding non-bank lenders from Fed scrutiny is that they pose no systemic risk. So much for that. Wall Street financed the subprime boom by buying the loans – repackaged as securities, stamped AAA by the credit-rating agencies – and selling them on. This model, of course, made the original lenders even less attentive to loan quality. On the other hand, it spread the risk throughout the system, which was also thought to be a good thing – until the loans started to go bad. Then, it turned out, investors wanted to know where the risk was and nobody could say. Arriving as if from nowhere, that fear led to the freezing up of the credit system.
How are regulators to grapple with this? If the opacity of the system is the problem, then new scrutiny and disclosure requirements for secretive investors such as hedge funds and private-equity firms must be part of the remedy. But it could be that complexity, more than lack of transparency in its own right, is the issue. The accelerated pace of financial innovation and the ever-proliferating complication of modern financial instruments seem to defy the ability even of the products’ designers to fathom what is going on. And the new instruments are often thinly traded, if at all, so values are guessed by simulation or calculation, not in the market. Sophisticated investors are left poorly informed about the risks they are bearing; unsophisticated investors have not got a clue. Desirable as fuller disclosure by hedge funds and private equity firms may be, it is hard to believe that it will be enough.
In other words, financial innovation itself is the problem. This poses a dilemma. The benefits of modern finance are real: as its champions rightly say, it deserves much of the credit for the relative stability of the world economy in the past two decades. Stifling this innovation, or attempting to manage it, looks unpromising.
Part of the answer – and, along with fuller scrutiny, perhaps the best that can be done – is to create a climate where excessive risk-taking is more effectively discouraged, and punished when things go wrong. Here the role of the Fed is crucial, both in the boom phase of speculative cycles and in the bust. Fast-rising house and other asset prices have been buoyed by very low interest rates. It was enough for the Fed that consumer-price inflation was low; asset prices, in their own right, were not its concern. This set the scene for America’s remarkable debt-fuelled house-price surge – whose inevitable end was the proximate cause of the subprime collapse. The Fed’s long-maintained reluctance to weigh asset prices in its monetary policy calculations needs to go.
Then, when financial markets seize up, the Fed must take care, as far as possible, to avoid bailing out the culprits. As the economists, Willem Buiter and Anne Sibert, have argued, the Fed was wrong to cut the discount rate last week, and will compound the error if it soon cuts the more important Fed funds rate as many now expect – unless there is evidence of harm spreading to the real economy. Instead, honouring Walter Bagehot’s maxim, it should provide liquidity at a penalty rate (against conservatively valued collateral) to those so lacking in liquidity that they are willing to pay it. That memorably costly help should be available not just to banks, as now, but to hedge funds and other financial firms willing to accept the Fed’s terms.
It is a cliché, but nonetheless true, that the end of each financial crisis sows the seeds of the next. Better regulation has a place, but the Fed is the key to attacking that cycle.”
On August 15th, Delaware Chancellor Chandler again refused to dismiss a lawsuit against Tyson Foods directors over the alleged “spring-loading” of stock options. Kevin LaCroix notes in his “D&O Diary” Blog that the Tyson ruling is noteworthy because of Chancellor Chandler’s conclusion the directors may have failed to provide the disclosure required by their fiduciary duties. The Chancellor’s first refusal to dismiss came in February. Both court opinions are posted in our “Backdated Options” Practice Area on CompensationStandards.com.
More than 100 companies face lawsuits over option grant practices – and over 220 companies have disclosed that they are being investigated by regulators. Most lawsuits alleged backdating of option grants to coincide with share price declines; very few allege spring-loading. And, so far, all SEC Enforcement activity has challenged backdating, not spring-loading.
Backdating: Are the Lawyers to Blame?
Lately, the SEC has been charging quite a few lawyers over their roles in option backdating. In fact, the SEC charged one lawyer yesterday for her role in backdating at two different companies. Yesterday, CFO.com ran this interesting article entitled “Backdating: Are the Lawyers to Blame?”
Backdated Options: AFL-CIO Pressures Big 4 Directly
Here is a copy of the letter that I understand went to each of the heads of each of the Big 4 accounting firms from the AFL-CIO. It provides a view on what auditors should know about option procedures and processes – and steps auditors should be performing when auditing issues related to options.
Last week, the SEC Staff began sending the first wave of comment letters on proxy statements, as part of Phase One of its compensation disclosure review project. We thank the many of you that sent your comment letters to us on a confidential basis. We have read all of them and have been busy putting pen to paper.
You will not want to miss the upcoming Sept-Oct issue of The Corporate Executive. In this issue, we will be providing important analysis and guidance regarding the SEC’s comments and concerns – in other words, specific guidance about how to respond and what types of changes most companies will need to make to their disclosures. This critical issue will be mailed right after Labor Day.
Act Now: If you are not currently a subscriber to The Corporate Executive, just take advantage of the no-risk trial—which will enable you to receive the balance of this year’s issues at no charge as part of the 2008 no-risk trial. You may also now renew your subscription to The Corporate Executive for 2008.
Introducing the “New” Herb Scholl
In Corp Fin, Patti Dennis is taking over Herb Scholl’s old job as Chief of the Office of Disclosure Support (formerly known as the “Office of EDGAR and Information Analysis”). Patti had been serving as one of the Special Counsels in Corp Fin’s Office of Enforcement Liaison.
Wanna New Client? Take Your Law Firm Public
Bruce MacEwen’s “Adam Smith” Blog contains an interview with the Managing Partner of Australia’s Slater & Gordon, the first law firm to do an IPO.
[Fyi, if you are interested in lawyers that blog, this annual free BlawgWorld guide contains representative samples from 77 leading law-related blogs, including yours truly.]
