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Dodd-Frank

Preliminary 2011 Proxy Season Checklist

by   |   October 26, 2010

There is no doubt  there are a lot of  moving pieces for the upcoming year end SEC reporting cycle.  Unfortunately, planning cannot wait until everything comes to rest.  The rule proposals are likely to affect not only proxy statements, but Forms 10-K, 10-Q and 8–K as well.  We have set forth a checklist below to aid in that process.

 Issuers must consider a number of important decisions while rule proposals are pending, and plan for the eventuality that rule proposals might not be finalized.  Items to consider at this time include:

  •  Whether to include an optional advisory vote on golden parachutes.  Our thoughts are until the SEC finalizes the rules any such effort may be fruitless if final rules are different than what is proposed.  Longer term, the benefits appear minimal because if disclosure items change, the new items must be put to a vote in the event of a change of control under the SEC’s proposed rules.
  • Issuers should begin to consider what frequency they will recommend to shareholders for the advisory vote on how often a say-on-pay vote should be held.
  • Under the SEC say-on-pay proposal, the next Form 10-K or 10-Q, as applicable, will require disclosure on how frequently the company will include a shareholder vote on the compensation of executives.  As a result, a quick decision may need to be made.
  • Issuers will be able to exclude certain shareholder proposals on further advisory votes on executive compensation matters if they adopt a policy that is consistent with the plurality of votes cast in the most recent say-on-pay frequency vote.  Thus issuers should consider whether to adopt such a policy.

 Our preliminary checklist is as follows: 

Item Status
   
Currently Effective Rules or Suggested Actions  
   
1.   Consider general Dodd-Frank disclosures

        –Forward-looking statements

        –Risk factors

        –Business and regulatory disclosures

        –Internal controls (for non-accelerated filers)

N/A-no direct rule
   
2.  Say-on-pay vote and related “frequency of vote” required pursuant to Section 951 of the Dodd-Frank Act.  Items to be considered

–Form of resolutions

–Board recommendation on frequency of vote

–Changes to proxy card

Required for any meeting held on or after January 21 2011.
   
3.   Revisit CD&A in light of say-on-pay N/A-no direct rule
   
3.   Update D&O Questionnaires

       –Elicit information to determine if compensation committee members are independent pursuant to rules expected to be adopted under Section 952 of the Dodd-Frank Act

N/A-no direct rule
   
4.   Guidance on Presentation of Liquidity and Capital Resources Disclosure in MD&A (Release 33-9144).  This guidance is applicable to both Forms 10-K and 10-Q.

          –Liquidity disclosure

          –Leverage Ratio Disclosures

          –Contractual Obligations Table Disclosures

Effective
   
5.    Proxy Access and Rule 14a-11  (Release 33-9136)

        –Cover page to Schedule 14A

        –Rule 14a-4—Form of proxy

        –Rule 14a-5—Deadline for 14a-11 proposals

        –Item 7—Inclusion of nominee

         –Consider appropriate disclosures as a result of the stay

Implementation stayed pursuant to SEC order; “smaller reporting companies” are not subject to Rule 14a-11 for three years after the effective date (November 15, 2010)
   
6.    Internal Control Over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers (Release 33-9142)

         –Provides Sarbanes-Oxley Section 404(b) does not apply to non-accelerated filers

         –No disclosure requirements imposed by SEC rule unless an auditor’s attestation report is included

Effective
   
7.  Prepare to make XBRL filings Effective
   
8.  Operators of mines are required to make certain disclosures regarding mine safety under Section 1503 of the Dodd-Frank Act Effective.  Further proposed rules expected April to July 2011.
   
Pending Rule Proposals  
   
Proxy Statements  
   
1.   Say-on-Pay and frequency vote (Release No. 33-9143)

      –Rule 14a-21(a):  Resolution for an advisory vote on compensation of named executive officers as disclosed pursuant to the CD&A (or other required disclosures for smaller reporting companies)

      –Rule 14a-21(b): Resolution on advisory vote as to whether say-on-pay vote shall be held every one, two or three years

      –Item 5 of Schedule 14A:  Required disclosure that advisory votes under 14A-21 are included pursuant to Section 14A of the Exchange Act and the general effect of each such vote

      –S-K 402(b):  Disclose in CD&A the extent to which previous shareholder say-on-pay votes has been considered (would not seem applicable to 2011 proxy season)

      –Rule 14a-4:  Form of proxy

      –Rule 14a-8:  Board should consider adopting a policy on frequency of say-on-pay votes to prevent shareholder proposals

Pending rule proposal
   
2.  Optional vote on golden parachutes

      –S-K 402(t) provides required disclosure

      –Item 5 of Schedule 14A:  Required disclosure that advisory votes under 14A-21 are included pursuant to Section 14A of the Exchange Act and the general effect of each such vote

Pending rule proposal
   
Form 10-K  
   
1.   Short-Term Borrowings Disclosure (Release No. 33-9143) Pending rule proposal
   
2.   Say-on-Pay and frequency vote (Release No. 33-9143)

      –Item 9B:  If a frequency vote on say-on-pay was held during the fourth quarter, disclose the company’s decision as to how frequently the company will include a shareholder vote on executive compensation

Pending rule proposal
   
Form 10-Q  
   
1.   Short-Term Borrowings Disclosure (Release No. 33-9143) Pending rule proposal
   
2.   Say-on-Pay and frequency vote (Release No. 33-9143)

–Item 5(c):  If a frequency vote on say-on-pay was held during the period covered by the report, disclose the company’s decision as to how frequently the company will include a shareholder vote on executive compensation

Pending rule proposal
   
Awaiting SEC Action  
   
1.   Compensation committees, consultants and advisers  (Section 952 of the Dodd-Frank Act)

       –Independent compensation committee (deadline – July 16, 2011)

       –Authority of committee to retain consultants and advisers

       –Compensation consultants conflict of interest (for meetings held on or after July 21, 2011)

Proposed rules expected November-December 2010; Final rules expected April to July 2011
   
2.   Pay for performance disclosures (Section 953 of the Dodd-Frank Act)

       –Demonstrate relationship between compensation actually paid and the financial performance of the issuer

Proposed rules expected April to July 2011
   
3.   Pay disparity ratio (Section 953 of the Dodd-Frank Act)

      –Annual compensation of CEO

      –Median total compensation of all employees other than the CEO

      –Ratio of median total compensation to CEO compensation

Proposed rules expected April to July 2011
   
4.   Clawback requirements  (Section 954 of the Dodd-Frank Act)

      –Disclosure of policy on incentive-based compensation based on financial information

      –Clawback in the event of an accounting restatement

Proposed rules expected April to July 2011
   
5.   Disclosure of hedging policy (Section 955 of the Dodd-Frank Act)

      –Disclose whether directors or employees are permitted to hedge company securities

Proposed rules expected April to July 2011
   
6.   Disclosures regarding Chairman/CEO Structure (Section 972 of the Dodd-Frank Act)

      –Disclose why the issuer has chosen the same or different  persons as chairman of the board or CEO (Deadline–January 11, 2011)

SEC has not indicated a timeline
   
7.   Conflict mineral disclosure (Section 1502 of the Dodd-Frank Act) (Deadline—April 15, 2011) Proposed rules expected April to July 2011
   
8.   Disclosures of payments made by resource extraction issuers (Section 1504 of the Dodd-Frank Act) (Deadline—April 15, 2011) Proposed rules expected April to July 2011
   
Other reminders  
   
Form 8-K

1.  Proxy Access and Rule 14a-11  (Release 33-9136)

–Item 5.08 Form 8-K reporting obligation if no annual meeting is held in the previous year of if date changed by more than calendar days.

Implementation stayed pursuant to SEC order
   
   
Derivatives  
1.  Public companies will need special board approvals to enter into uncleared swaps N/A
   
2.  Information related to pre-enactment swaps must be preserved. N/A
   

 Check dodd-frank.com frequently for updates on the Dodd-Frank Act.