Combination of local and US counsel eases regulatory burden
A problem shared is a problem halved. This old proverb may not literally be true but there is no doubt that sharing the experiences of the 2007 proxy season and taking a look ahead at the possible challenges of 2008 was of great use to the attendees of the most recent Corporate Secretary Chicago Think Tank.
Held at the Jenner and Block office in Chicago the event saw approximately 50 corporate secretaries and general counsel gather to mull over the first year under new compensation disclosure requirements, new changes to proxy delivery rules and the impact these may have on shareholder communications and the rapidly changing world of global compliance risk. The event was supported by Jenner and Block, Merrill Corporation, Directors Desk, Pearl Meyer and Partners and Bank of New York Mellon.
Worldly wisdom
The morning started with an evaluation of the changing global governance environment. Many overseas jurisdictions have implemented significant changes to compliance and regulatory regimes similar to those that have taken place in the United States in the past few years. This presents a massive challenge to any large US corporation because they must now be compliant not only with US rules but also those in each and every country in which they operate. Because the rules within some countries are very new there is a broad lack of understanding about the best way to ensure compliance and to manage the process internally.
Who better to discuss this topic than the global head of compliance at one of the largest companies in the US and one which has faced a number of high-profile cases in Europe in the past few years – Odell Guyton from Microsoft. Guyton was joined by Burkard Goepfert, a lawyer with one of Germany’s most prominent law firms, Gleiss Lutz and Larry Schaner, partner, Jenner and Block.
The panel stressed the need for acquiring an understanding not only of the local laws but also cultural custom within each jurisdiction. This is best achieved by employing a combination of experienced US counsel and local counsel in each country. This structure requires constant oversight to ensure coordination and smooth operation but at least some people present believed it was the best system.
One of the largest issues comes when one national law or custom directly contradicts another. It is often impossible to comply with both sets of laws. If this occurs, then managing each regulators’ expectations and careful explanation of the situation is required.
With class-action shareholder suits threatening to spread around the world, a lot of attention was given to internal investigations and the vexing problem of document retention and recovery. Many countries do not have specific laws in this area and subsidiaries may be destroying data in compliance with local laws. This is extremely dangerous and companies must ensure they review retention policies, along with mergers and acquisitions rules and compliance with the Foreign Corrupt Practices Act.
The compensation cavalcade
The group’s attention then shifted to the hottest topic of 2007: executive compensation disclosure. There were only a handful of companies in attendance that had yet to file extended compensation discussion and analysis CD&A and they were extremely interested in learning from the experience of those that had already been through this sometimes painful process.
Pulling together the experience of Marc Howze, corporate secretary and associate general counsel, Deere & Company, Matt Renaud, partner at Jenner and Block and member of the firm’s employee benefits and executive compensation practice, and Matthew Stinner, managing director, Pearl Meyer & Partners. Most panelists and attendees spoke of being overwhelmed by the amount of work required to comply with the new rules.
Yet most companies felt they had done a good job explaining the compensation story. Unfortunately, many had consequently received comment letters from the SEC which felt disclosures were still, in many cases, incomplete.
The most challenging areas were construction of peer groups for use in performance comparisons, disclosure of pay versus performance metrics and incomplete or confusing guidance from the SEC. Many attendees expressed frustration that not a single shareholder had commented on the disclosure, giving people the impression that this may all have been for nothing.
Group mentality
Perhaps the most entertaining part of the day was a short session by Odell Guyton describing his rise from a bounty hunter to prospective FBI agent, state and federal prosecutor to compliance officer at Microsoft. During the story he highlighted the need for compliance and ethics process at both a corporate and personal level and the importance of building teams and getting everyone with any responsibility involved. No doubt his advice was of great interest to many in the group.
It was only fitting that the event ended with a close examination of shareholder communications. Many problems and challenges that are facing companies are, at their heart, communications issues. The ability to establish closer, more trusting relationships with investors will lead to fewer proxy battles, shareholder proposals and other expensive and unpleasant confrontations.
Maria Green, associate general counsel and assistant secretary, Illinois Tool Works and David Prichard, director of investor relations, Corn Products International provided unique insight into the different approaches to the task of communications taken by a corporate secretary and an IRO. Perhaps the most salient offering was an explanation of how a company went from receiving seven shareholder proposals in 2005, to three in 2006 and none in 2007. The pair were joined by outside experts Bob Stensby, vice president sales/marketing, Merrill Corporation and Rob Folinus, vice president, The Bank of New York Mellon who offered practical tips on working with transfer agents, proxy solicitors, printers and others involved in the communications process to achieve a better relationship with investors.
This panel continued the general theme of the day and stressed the importance of getting a broad team of people, both within and outside the company involved, in all compliance operations and dividing ownership to ensure effective cooperation. These are good lessons to take into the 2008 proxy season, shaping up to be even more active and controversial than this year’s. Working with peers and learning from their experiences will put corporate secretaries and others in good standing for the year to come.
