New Binding Bylaw Amendment Proposal to Create Shareholder Committee
The IRRC reports that AFSCME has submitted a binding bylaw proposal to Eastman Kodak that would create a “majority vote shareholder committee.” The proposal seeks – following a majority vote that is not adopted by the company – the creation of a committee comprised of the proposal’s proponents and other interested shareholders to communicate with the board regarding the proposal that got the majority vote.
Kodak has received majority votes on non-binding shareholder proposals for a number of consecutive years. Note that a similar type of proposal submitted to Kroger last year received the support of 47% of the votes cast.
First Credit Rating Agency Announces the Use of CGQ
Last week, Fitch announced that it will pay ISS to use its CGQ database as part of its creditworthiness assessment.
This is significant for ISS as all of the various rating agencies have been wooing the rating agencies for their business for quite some time. As to how much CGQ will mean to Fitch’s overall analysis, that remains to be seen.
Clean-Up on Sample D&O Questionnaire for NYSE Companies
We have done a little clean-up on the first sample D&O questionnaire for NYSE companies that is posted in our “Sample D&O Questionnaires.” This word file has been revised to remove the question as to whether the person has participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three (3) years (this applies to Nasdaq companies; not NYSE companies). In addition, there is a new question dealing specifically with relationships with charitable organizations.
Following up on the superb analysis on SRO certifications in the Jan-Feb issue of The Corporate Counsel – which had just left the printers and should be in your mailbox very soon – Nasdaq just posted a Form of Corporate Governance Certification to be used by listed companies to certify as to a number of matters as required by its new governance rules.
This certification is not required by any single Nasdaq rule; rather it serves to address a number of rule requirements, including the nature of the audit committee’s composition; adoption of the requisite audit committee and nominating committee charters; that the board has executive sessions for its independent directors; and that the company has – or will have – adopted a code of conduct.
Nasdaq-listed companies must file this certification with Nasdaq’s Listed Qualification Department immediately following the company’s next annual meeting after January 15, 2004, but no later than October 31, 2004 (foreign private issuers and small business companies have until July 31, 2005).
Alan Dye’s Section 16 Transcript is Up!
Members of the NASPP or Section16.net can access the transcript from the annual webcast that Alan Dye held recently regarding the latest developments on Section 16. Always an incredibly popular program – now in its 12th year – the transcript covers 36 distinct topics!
For TheCorporateCounsel.net members, we have posted the transcript from our “50 Nuggets in 50 Minutes II” webcast featuring Alan Dye and myself.
Categorical Standards for Director Independence
As discussed during the webcast, the topic for which I currently am getting the most questions involve categorical standards for director independence. Under new Section 303A.02(a) from the NYSE Listed Company Manual, listed companies must disclose that each independent director has no material relationships with the company – and the basis for any determination regarding any immaterial relationships. Alternatively, companies can disclose that they have adopted categorical standards to assist them in making independence determinations and make a general disclosure that the independent directors satisfy them.
Even though the new NYSE standards are not technically applicable yet, some of the NYSE companies that recently have filed proxy statements have addressed director independence determinations in their disclosure – and I have compiled these samples in “Determination of Director Independence” in our “Disclosure Analysis & Samples” Practice Area.
These samples also include Nasdaq companies, who must simply identify which directors are independent under Rule 4200 (this rule technically is applicable to these proxy statements – as the NYSE and Nasdaq have split as to effective dates of its new standards).
Probably the most controversial aspect of the proposals is to require that at least 75% of a fund’s board be independent directors – and that the fund board chairman be an independent director.
Last month at the AICPA conference, SEC Enforcement Director Stephen Cutler said that the SEC was preparing nearly a dozen cases against audit firms. Yesterday, the SEC started making good on that speech and charged two accounting firms of aiding and abetting a client’s fraud and ignoring their professional duties.
In an administrative order, the SEC claimed that Grant Thornton “rented’ out its name and prestige” to a small firm, Doeren Mayhew & Co. and that both firms failed to make a client – MCA Financial Corp. – disclose improper deals with related parties.
Don’t forget tomorrow’s webcast – “50 Nuggets in 50 Minutes II” – for members of TheCorporateCounsel.net. Broc and Alan Dye will be covering a host of proxy season & governance matters, among other timely items.
An audio archive and transcript will be posted following the live webcast. The non-member fee for this special webcast is $295. If you’re not a member and you wish to access this important program and hear from Broc and Alan, you may simply take advantage of a no-risk trial to TheCorporateCounsel.net.
If you have not renewed your TheCorporateCounsel.net membership for 2004, you will not be able to access the webcast. You can renew online – or by fax by using this order form for TheCorporateCounsel.net. If you have renewal questions, send an email to info@thecorporatecounsel.net or call our HQ at 925.685.5111.
Corporate Executives are Apparently Not Eager to Repay Their Loans
A study put out last Friday by the Corporate Library reports that executives continue to owe their companies millions of dollars from loans that predated Sarbanes-Oxley’s prohibition of the practice. (SOX put a stop to almost all corporate loans to insiders but did not require that pre-existing loans be repaid.) Interestingly, the Corporate Library found that of 23 companies in its study that were operating split-value life insurance programs, only 10 have suspended that benefit.
The study also evaluates the types of loans outstanding and circumstances under which companies have forgiven loans to insiders. Although outright loans are pretty easy to identify as now forbidden by SOX, there are a number of more difficult questions that have been left in the statute’s wake. Broc will be hosting another webcast in three weeks that will explore cashless exercise and other murky areas arising out of SOX Section 402.
Under the new NYSE listing standards, prior to their 2004 annual shareholder meetings, listed companies must create a corporate governance page on their websites. The bare minimum for compliance is a page that contains links to the company’s governance guidelines, code of conduct, and the charters of the key board committees. The next tier of compliance is to include additional information (egs. list of directors, committee assignments), corporate documents (egs. articles, bylaws, policies). Top tier companies also include instructions for submitting accounting and whistleblowing complaints.
Thanks to Michael Goldblatt, we have posted a new “Corporate Governance Websites” Portal, which has links to various governance webpages that comply with some or all of the new NYSE requirements already.
In late December, the FASB issued a revised FAS 132 regarding employers’ disclosure about pensions and other postretirement benefit plans. The new standard requires that companies provide the public with more details about their plan assets, benefit obligations, cash flows, benefit costs and other relevant information. This disclosure now is required in quarterly and annual financial statements – since the new guidance is effective for fiscal periods after December 15, 2003, companies will need to comply in their next quarterly and annual report.
For the first time, companies are required to give a breakdown of plan assets by category, such as equity, debt and real estate. A description of investment policies and strategies and target allocation percentages – or target ranges – for these asset categories also are required in financial statements. The new FAS doesn’t change required disclosures about defined contribution or multi-employer plans.
The FASB has advised that when prior periods are presented for comparability purposes, those periods should be restated to comply with the new guidance. The FASB also acknowledges, however, that it’s not always practical to obtain the prior period information; but in that situation, a company should disclose in its financial statement footnotes all information that is available and describe the information that was excluded.
SEC Issues Guide for Investors on Executive Compensation
The SEC has posted a brochure for investors designed to help them locate compensation information in company reports, including types of compensation and what is filed with the SEC, and where to locate information about executive pay (e.g. proxy statements, 10-Ks).
More on Preparing Executive Compensation Tables
In Broc’s interview with Alan Kailer on Preparing the Executive Compensation Tables, the complexities of preparing the compensation tables for the proxy statement are explored. In addition to this useful interview, in the “Proxy Season Resource Center,” we have posted an updated memo on this topic from Alan with contains more extensive analysis – with excellent charts – on how to prepare the executive compensation tables.
Even though the SEC already has delayed the effective date once, my money is that the SEC will again delay the effective date of the Section 404 internal control reports. Right now, “accelerated filers” are required to file their first report for fiscal years ending after June 15, 2004 (all others can wait until their fiscal years end after April 15, 2005).
Since the PCAOB still has not acted on its proposal to set attestation standards, “something’s has gotta give” as Jack Nicholson would say. [personal note – due to a receding hairline, back in college days I would pretend that my name was “Pat Nicholson” and Jack was my uncle – no girls bit that I can recall.]
Not surprisingly, the number of companies that are disclosing that they have deficiencies in their internal controls has slowly grown. In fact, there have been rumblings that the SEC would be disappointed if there failed to be a significant number of these disclosures. We have updated our list of sample disclosures in this area at Internal Controls – Deficiencies and Weaknesses Identified in the “Disclosure Analysis and Samples” Practice Area.
Don’t forget tomorrow’s special webcast – “Alan Dye on the Latest Section 16 Developments” – for members of the NASPP and Section16.net. You can ask questions and learn the latest Section 16 practice tips from Alan Dye!
An audio archive and transcript will be posted following the live webcast. The non-member fee for this special webcast is $495. If you wish to access this important program, you may simply take advantage of a no-risk trial to Section16.net or the NASPP.
If you have not renewed your Section16.net or NASPP membership for 2004, you will not be able to access the webcast – scroll down to yesterday’s blog for info about how to renew right away!
ISS Releases Updated Voting Policies
As Pat McGurn predicted in our October webcast – “The Wildest Proxy Season Ever: Forecast for 2004” – ISS has amended its voting guidelines for this year. This update includes many significant changes, the most drastic of which will affect stock-based incentive plans. The new policies are effective for shareholder meetings held on – and after – February 1, 2004.
