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On June 20, 2012, the U.S. Securities and Exchange Commission (the “SEC”) released its final rules (the “Final Rules”) implementing Section 952 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).  Section 952 of the Dodd-Frank Act (“Section 952”) added Section 10C to the Securities Exchange Act of 1934 (the “Exchange Act”) and contains a number of provisions generally relating to the independence of compensation committees and their advisers.  The Final Rules are in most respects identical to the proposed rules released on March 30, 2011 (the “Proposed Rules”).[1]  Below is a summary of the provisions of the Final Rules, noting the key changes from the Proposed Rules. 
Continue Reading Dodd-Frank Corporate Governance Final Rules: Compensation Committee and Adviser Independence

  1. Introduction

On 14 March 2012, the UK Government published a consultation on shareholder voting rights in connection with “executive” pay.  The consultation follows an earlier discussion paper in which, among other questions, the Government asked whether a binding vote on remuneration would improve shareholders’ ability to hold quoted companies to account on pay and performance.  The proposals form part of a package of measures the Government intends will address failings in the UK corporate governance framework for executive remuneration.
Continue Reading UK Government Consults on Increasing Shareholder Voting Rights in Relation to Quoted Company Directors’ Pay

The U.S. Foreign Account Tax Compliance Act (“FATCA”), which was enacted by the U.S. Congress in 2010, has as its principal goal the prevention of tax evasion by U.S. taxpayers who hold non-U.S. assets.  Unfortunately, the rules implementing this goal have a very broad reach and may require many U.S.-taxpayer executives with compensation awards based on foreign company stock or guaranteed or provided by a foreign company to file a new form with the Internal Revenue Service (“IRS”) as part of their 2011 tax returns, which are generally due on April 15, 2012.
Continue Reading New IRS Filing Requirement for U.S. Executives with Non-U.S. Compensation

At its recent open meeting, the Public Company Accounting Oversight Board proposed for comment a new auditing standard concerning related parties and amendments to existing standards addressing a company’s significant unusual transactions and financial relationships with executive officers.[1]  The PCAOB noted the auditor’s privileged vantage point in detecting improprieties involving these relationships and transactions, which have played a prominent role in numerous corporate scandals.[2]  The proposals build on existing risk assessment standards and are intended to improve investor protection by requiring additional audit procedures.  Like many of the PCAOB’s recent initiatives, the underlying current of the proposals is the dual need to improve the auditor’s professional skepticism and the audit committee’s appreciation of matters that are particularly susceptible to abuse.
Continue Reading PCAOB Issues Proposals on Related Parties, Significant Unusual Transactions and Financial Relationships with Executive Officers

In its recent decision regarding the acquisition of El Paso Corporation by Kinder Morgan, Inc.,[1] the Delaware Chancery Court concluded that El Paso’s sale process may have been tainted by conflicts of interest affecting the company’s CEO and financial advisors.  The court nevertheless denied plaintiffs’ request for a preliminary injunction on the grounds that enjoining the deal in the absence of a competing bid would pose a significant risk for El Paso shareholders who would have their own chance to judge the merits of the deal at a shareholder meeting.  The opinion, authored by Chancellor Strine, provides guidance, and simultaneously raises a number of questions, regarding how to approach relationships and interests that risk giving rise to conflict of interest allegations against directors, officers and financial advisors involved in a sale of control.
Continue Reading The El Paso/Kinder Morgan Opinion: Further Delaware Guidance on Sell-side Conflicts

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On January 25, 2012, the New York Stock Exchange issued an Information Memo to its members announcing new restrictions on the ability of brokers to vote customer shares on certain governance proposals without specific instructions.  NYSE had previously treated these as “routine” matters on which brokers could exercise discretion under Rule 452 when the proposal was supported by company management.  NYSE indicated that it is changing its approach on these matters in light of recent congressional and public policy trends disfavoring broker voting of uninstructed shares.
Continue Reading NYSE Restricts Broker Discretionary Voting for Certain Corporate Governance Matters

An interpretive position recently taken by the Staff of the Securities and Exchange Commission in correspondence with Verizon Communications Inc. has potentially broad implications for reporting compensation in the Summary Compensation Table.  The correspondence involved the characterization of a performance-based equity award under which the compensation committee had significant discretion to adjust the payout based on non-objective criteria.  In the correspondence, the Staff took the position that a portion of the award should have been disclosed in the Summary Compensation Table in the year it was earned, rather than the year in which, based on Verizon’s accounting, the grant date occurred.  The conclusion is notable because:
Continue Reading New Considerations Regarding the Reporting of Equity Rewards in the Summary Compensation Table