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Corporate Governance
Our Corporate Governance Group guides clients through the ever changing maze of rules and regulations that complicate the day-to-day management, structure and direction of their companies. We help clients to meet the challenges of state and federal rules, the Sarbanes-Oxley Act and stock exchange listing standards. We provide counsel to boards of directors and their committees on fiduciary duties, executive compensation, company policies and procedures, insurance, whistleblower complaints, auditor independence, internal control over financial reporting and other compliance issues. With experienced lawyers from multiple departments within the firm, we represent management, boards, audit and other committees, as well as individual executives, employees and directors. We also provide corporate governance counseling for mutual funds and their directors through our Investment Management Group. View our Public Company Compliance Manual (PDF) Representative Client Work
News and Updates
Below are the most recent updates from our Corporate Governance Group. 2/22/10: SEC proposes revisions to e-proxy rulesThe SEC (without a meeting) approved these rules today largely as proposed. See: http://www.sec.gov/rules/final/2010/33-9108.pdf. They will be effective 30 days after publication in the Federal Register. The main changes from the proposals described below are to (1) require that an issuer or other soliciting person indicate that the Notice of Internet Availability is not a form for voting, (2) permit (in addition to an explanation of the process of receiving and reviewing the proxy materials and voting) an explanation of the reasons for the use of the notice and access rules, and (3) confirm that the Notice need not directly mirror the proxy card. 2/19/10: SEC to publish statement on IFRSOn February 24, 2010 the SEC will consider whether to publish a statement regarding its continued support for a single-set of high-quality globally accepted accounting standards and its ongoing consideration of incorporating International Financial Reporting Standards into the financial reporting system for U.S. issuers. 1/27/10: SEC Approves Guidance on Climate Change DisclosuresThe SEC today voted (in a divided 3-2 vote) to provide public companies with interpretive guidance on existing SEC disclosure requirements as they apply to business or legal developments relating to the issue of climate change. The interpretive release does not create new legal requirements nor modify existing ones, but is intended to provide clarity and enhance consistency for public companies and their investors. The interpretive release approved today provides guidance on certain existing disclosure rules that may require a company to disclose the impact that business or legal developments related to climate change may have on its business. The relevant rules cover a company's risk factors, business description, legal proceedings, and management discussion and analysis. Specifically, the SEC's interpretative guidance highlights the following areas as examples of where climate change may trigger disclosure requirements:
* * * 12/17/09: SEC adopts additional proxy disclosure rulesThe SEC adopted "proxy disclosure enhancements" designed to elicit more information about risk, compensation and corporate governance. The rules are effective February 28, 2010, which means most calendar fiscal year end companies will need to include the new disclosures in their upcoming proxy statements. In particular, the new rules require disclosures in proxy and information statements about:
The new rules will also require companies to disclose on a Current Report on Form 8-K the results of a shareholder vote within four business days after the end of the meeting at which the vote was held. This replaces the requirement to disclose voting results in Forms 10-K and 10-Q. 12/17/09: SEC fees to increase on 12/21/09SEC fees for the registration of securities will increase on December 21 from $55.80 per million dollars registered to $71.30 per million dollars. For more information, click here. 12/1/09: NYSE proposalsThe proposals below were approved by the SEC last week, substantially in the form proposed. They will be effective January 1, 2010, which means that for calendar fiscal year end companies, these changes will impact some of the disclosures in upcoming proxy statements and annual reports (and in a couple of cases give companies the option to move some disclosure out of their proxies to their Web sites). The full approving release can be found here. 11/23/09: Risk Metrics governance updatesRiskMetrics (formerly known as ISS) has just released its corporate governance core policy updates for the 2010 proxy season. As many institutional shareholders look to RiskMetrics for guidance on voting, their views continue to carry a lot of weight in influencing governance practices and developments by public companies. In particular this year, in the area of director elections, now that brokers will no longer be able to vote in their discretion on nominees, a negative recommendation by RiskMetrics may carry even more weight. Here's a link to the new materials. 10/28/09: More shareholder proposals to be allowed into proxy statementsThe SEC has changed its policy on allowing certain shareholder proposals into proxies, namely a few that companies had previously been able to regularly exclude as falling within an exception covering matters in the ordinary course of business that were deemed management functions not appropriate for shareholder action. As described in more detail in new Staff Legal Bulletin No. 14E, the SEC Staff will no longer necessarily view shareholder proposals relating to environmental, financial or health risks, as well as succession planning, as falling within this exception where the underlying subject matter of the proposal involves significant policy issues. The net result will be an increase in shareholder proposals appearing in company proxy statements on these matters. 10/16/09: SEC proposes revisions to e-proxy rulesThe SEC today proposed changes to the proxy rules intended to improve the notice and access model for furnishing proxy materials to shareholders. The SEC has been concerned about the lower shareholder response that has resulted for issuers that have used the "notice only" method (i.e., only mailing notice of internet availability rather than full hard copies of annual meeting materials). The SEC attributes this partly to confusion by shareholders regarding the operation of the notice and access model. The proposals would: (1) provide additional flexibility regarding the format and language of the Notice of Internet Availability of Proxy Materials that is sent to shareholders. The revised rule would specify the topics that would need to be addressed, but no longer require exact language to be used; (2) provide guidance about the current requirement for the Notice to identify the matters intended to be acted on at the shareholders' meeting; (3) permit issuers and soliciting shareholders to include explanatory materials regarding the process (but only the process) of receiving and reviewing proxy materials and voting. It is expected that some standard explanatory educational materials will be developed by industry representatives (e.g., Broadridge); and (4) revise the timeframe for delivering a Notice to shareholders when a soliciting person other than the issuer relies on the notice-only option. The SEC has not proposed any revision to the 40-day deadline for issuers. The proposals are subject to a 30 day comment period. The full text of the SEC's proposing release can be found here. 10/2/09: SOX deadline extended for smaller companiesIn a somewhat surprising move, the SEC further extended the compliance date for smaller reporting companies to get their internal control over financial reporting (so-called "SOX 404") audited. Until today's announcement, smaller reporting companies with fiscal years ending after December 15, 2009 were going to have to start providing annual audit reports on their internal controls in addition to the already required annual management assessment. In other words, a calendar year company would have needed to provide an audit report on internal controls in its 10-K due in March 2010. In light of a new study the SEC just released by the SEC's Office of Economic Analysis on whether prior SEC guidance has helped reduce SOX 404 compliance costs, the SEC extended the smaller company audit deadline to annual reports for fiscal years ending on or after June 15, 2010. View the SEC's release (which also contains a link to the study). 9/18/09: New rules for credit rating agenciesThe SEC voted yesterday to take several rulemaking actions to bolster oversight of credit ratings agencies by enhancing disclosure and improving the quality of credit ratings. In particular, the SEC voted to adopt or propose measures intended to improve the quality of credit ratings by requiring greater disclosure, fostering competition, helping to address conflicts of interest, shedding light on rating shopping, and promoting accountability. While most of the rules and proposals relate to new duties imposed on the agencies, a couple of the proposals would impact the companies that are rated, including:
For a further summary on the new rules and new proposals, see: http://www.sec.gov/news/press/2009/2009-200-factsheet.htm 9/1/09: NYSE ProposalsThe New York Stock Exchange has proposed some changes to its corporate governance rules, mostly in the nature of clarifications. Some of these changes repeat prior proposals that were never adopted, others seek to harmonize existing NYSE rules with subsequently adopted SEC rules. The full text of the proposals can be found here. Highlights include:
NYSE proposes to have these effective as of January 1, 2010. 7/1/09: SEC proposes additional proxy disclosures, eliminates broker discretionary voting in director electionsThe SEC today voted on three measures that are intended to better inform and empower investors to improve corporate governance and help restore investor confidence. The SEC voted to: (1) Require public companies receiving money from the Troubled Asset Relief Program (TARP) to provide a shareholder vote on executive pay in their proxy solicitations (this was mandated by Congress). (2) Approve a New York Stock Exchange rule change to prohibit brokers from voting proxies in corporate elections without instructions from their customers. This change will apply to shareholder meetings held on or after January 1, 2010. (3) Propose additional disclosures in proxy statements. The new proposed proxy disclosures, which are subject to a 60-day comment period before approval will be considered, would require increased information about:
In addition, the proposals would also require:
6/11/09: Executive compensationYou've probably heard some of the headlines on possible changes to the executive comp. rules, including possible say-on-pay legislation. While this will take a couple of months to play out, in the meantime, it's worth noting the broad principles that the Obama administration is focused on. Secretary Geithner summarizes them fairly succinctly here. More specifically, his remarks indicate that the Obama administration will call for say-on-pay legislation and propose legislation that will give compensation committees greater independence - fact sheets describing these further are linked to in the remarks. On a related note, the SEC will likely propose rules as early as July relating to disclosures about how boards manage risks, companies' overall compensation approaches, especially as they relate to risk taking, potential conflicts of interest by consultants and greater details on director nominees' qualifications. 5/19/09: Proxy accessThe SEC voted today to put out proposed proxy rule changes that would, among other things, give shareholders (holding 1%, 3% or 5%, depending on company size) the ability to get their own nominees directly into company proxy statements. The proposing release isn't out yet (though the meeting is on line and has some drama since 2 of the 5 Commissioners opposed the proposals due to concerns about intrusion on state law). The SEC will likely put out a press release today or tomorrow. In the meantime, here are the Chairwoman's opening remarks. 4/14/09: Nasdaq revamps rule formatEffective yesterday, Nasdaq has rearranged its rules to try to make them more clear and more transparent, though purportedly not making any substantive changes.
Here is a link to the newly organized rules: http://www.nasdaq.com/about/Listing_Rules_041309.pdf
Nasdaq has also provided a helpful reference table to assist in finding where the old rules now appear in the new rules (along with selected commentary): Useful ResourcesBelow are some third party resources that you may find useful. Sullivan & Worcester did not prepare the items linked to below and is not responsible for their content. The updates, publications and resources above primarily relate to public companies and mature private companies. These materials generally relate to U.S. federal securities laws and rules and regulations of U.S. agencies, such as the SEC and the Public Company Accounting Oversight Board, and self-regulatory organizations, such as the New York Stock Exchange, American Stock Exchange and Nasdaq. Sullivan & Worcester also advises smaller private companies on all matters relating to corporate governance. In addition, our Corporate Governance Group assists clients in complying with corporate governance requirements and other rules and regulations under state law, including in Delaware, Massachusetts and New York, among others.
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