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Silver, Freedman & Taff, L.L.P.1 117 th Annual Illinois Banker’s Conference June 25-27, 2008 Corporate Governance Best Practices Presented By: Dave Muchnikoff.

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Presentation on theme: "Silver, Freedman & Taff, L.L.P.1 117 th Annual Illinois Banker’s Conference June 25-27, 2008 Corporate Governance Best Practices Presented By: Dave Muchnikoff."— Presentation transcript:

1 Silver, Freedman & Taff, L.L.P th Annual Illinois Banker’s Conference June 25-27, 2008 Corporate Governance Best Practices Presented By: Dave Muchnikoff Silver, Freedman & Taff, L.L.P K Street, N.W., Suite 100 Washington, D.C (202)

2 Silver, Freedman & Taff, L.L.P.2 Corporate Governance USA Today,

3 Silver, Freedman & Taff, L.L.P.3 Corporate Governance Why Corporate Governance – other than because banking and securities laws and regulations says you must?

4 Silver, Freedman & Taff, L.L.P.4 Corporate Governance What is your bank’s legal status? The rules on corporate governance are different depending on that legal status: What is your bank’s legal status? The rules on corporate governance are different depending on that legal status: Non-publicly reporting bank or bank holding company Non-publicly reporting bank or bank holding company Publicly-reporting bank or bank holding company Publicly-reporting bank or bank holding company Stock listed on NASDAQ or NYSE or AmEx Stock listed on NASDAQ or NYSE or AmEx Assets of less than $500 million Assets of less than $500 million Assets of $500 million or more Assets of $500 million or more Assets of $3 billion or more Assets of $3 billion or more

5 Silver, Freedman & Taff, L.L.P.5 Corporate Governance Fiduciary Obligations Directors have “a duty to attempt in good faith to assure that a corporate information and reporting system, which the board concludes is adequate, exists…failure to do so…may…render a director liable for losses causes by non-compliance with legal standards.” Directors have “a duty to attempt in good faith to assure that a corporate information and reporting system, which the board concludes is adequate, exists…failure to do so…may…render a director liable for losses causes by non-compliance with legal standards.” In re Caremark Int’l. Inc. Deriv. Litig., 698 A. 2d 959, 970 (Del. Ch. 1996) Board liability exists if, after “having implemented [a reporting or information system or controls, the Board] consciously fail[s] to monitor or oversee its operation, thus disabling themselves from being informed of risks or problems requiring their attention” Board liability exists if, after “having implemented [a reporting or information system or controls, the Board] consciously fail[s] to monitor or oversee its operation, thus disabling themselves from being informed of risks or problems requiring their attention” Stone v. Ritter, 911 A.2d 362, 370 (Del 2006)

6 Silver, Freedman & Taff, L.L.P.6 Corporate Governance Federal Sentencing Guidelines – Overview Culture of Compliance – §8B2.1(a): company must exercise due diligence to prevent and detect criminal conduct and otherwise promote a culture that encourages ethical conduct and a commitment to compliance with law Culture of Compliance – §8B2.1(a): company must exercise due diligence to prevent and detect criminal conduct and otherwise promote a culture that encourages ethical conduct and a commitment to compliance with law Director/senior management visible commitment to clearly articulated values is vital Director/senior management visible commitment to clearly articulated values is vital Companies/executive penalized when corporate culture found to be unethical Companies/executive penalized when corporate culture found to be unethical Board Leadership/Oversight – §8B2.1(b)(2): directors must take an active leadership role, be knowledgeable about the content and operation of the ethics and compliance program and exercise reasonable oversight over it implementation and effectiveness Train Everyone – §8B2.1(b)(4): compliance and ethics training includes the board and senior management

7 Silver, Freedman & Taff, L.L.P.7 What Did Sarbanes-Oxley Give Us? What Did Sarbanes-Oxley Give Us? Greater transparency Greater transparency Increased scrutiny Increased scrutiny More vocal shareholder activists More vocal shareholder activists Unprecedented media visibility Unprecedented media visibility Corporate Governance Shareholder frustration and anger. Shareholder frustration and anger. Majority voting and proxy access Majority voting and proxy access Executive Compensation and Option Backdating Executive Compensation and Option Backdating Section 404 refinement Section 404 refinement

8 Silver, Freedman & Taff, L.L.P.8 Rise of shareholder activism Rise of shareholder activism  Acceptance, proliferation of governance ratings  CEO compensation and succession  Ratcheting up involvement in director succession  Classified vs. annual elections  Majority voting vs. plurality  Targeting of individual director nominees for withhold/no votes  Say on Pay What Did Sarbanes-Oxley Give Us? What Did Sarbanes-Oxley Give Us? Corporate Governance

9 Silver, Freedman & Taff, L.L.P.9 Danco & Jonovic 1990

10 Silver, Freedman & Taff, L.L.P.10 Corporate Governance Best Practices Topics: Board Self-Evaluations Board Self-Evaluations Majority Voting and Other Director Election Developments Majority Voting and Other Director Election Developments Tally Sheets and Other Compensation Committee Best Practices Tally Sheets and Other Compensation Committee Best Practices Equity Grant Procedures Equity Grant Procedures CEO Succession Planning CEO Succession Planning Reminders Reminders Corporate Governance

11 Silver, Freedman & Taff, L.L.P.11 Board Self-Evaluations

12 Silver, Freedman & Taff, L.L.P.12 General Process by which a board or board committee assesses its own performance with the goal of enhancing future effectiveness by identifying strengths and weaknesses in the primary areas of the board’s or committee’s responsibilities. Process by which a board or board committee assesses its own performance with the goal of enhancing future effectiveness by identifying strengths and weaknesses in the primary areas of the board’s or committee’s responsibilities. Required for NYSE-listed companies, optional for all others. Required for NYSE-listed companies, optional for all others. As with most things, there are pros and cons. As with most things, there are pros and cons. Board Self-Evaluations

13 Silver, Freedman & Taff, L.L.P.13 Benefits Compels directors to identify strengths and weaknesses and assess how the board or committee has actually been functioning compared to how it should be functioning. Compels directors to identify strengths and weaknesses and assess how the board or committee has actually been functioning compared to how it should be functioning. Can identify potential problem areas before they become real problems. Can identify potential problem areas before they become real problems. Fosters better communication among directors. Fosters better communication among directors. Helps re-focus directors on long-term goals and strategies. Helps re-focus directors on long-term goals and strategies. Assists with director nomination process. Assists with director nomination process. Improves directors’ sense of personal accountability. Improves directors’ sense of personal accountability. Board Self-Evaluations

14 Silver, Freedman & Taff, L.L.P.14 Risks Information gathered discoverable in litigation. Information gathered discoverable in litigation. Ways to mitigate:  Limit retention of written materials.  Follow-up and take corrective action. Can negatively affect board collegiality and discourage board service. Can negatively affect board collegiality and discourage board service. Board Self-Evaluations

15 Silver, Freedman & Taff, L.L.P.15 Oversight of Process For NYSE-listed companies, must be nominating/corporate governance committee. For NYSE-listed companies, must be nominating/corporate governance committee. Audit, compensation and nominating/corporate governance committees of NYSE-listed companies must conduct their own self- evaluations. Audit, compensation and nominating/corporate governance committees of NYSE-listed companies must conduct their own self- evaluations. For non-NYSE-listed companies, should be committee charged with corporate governance matters or some other independent body of the board. For non-NYSE-listed companies, should be committee charged with corporate governance matters or some other independent body of the board. Use of outside parties (e.g., counsel, consultants). Use of outside parties (e.g., counsel, consultants). Board Self-Evaluations

16 Silver, Freedman & Taff, L.L.P.16 How to Conduct No requirements – board/committee needs to decide what’s right for it. No requirements – board/committee needs to decide what’s right for it. Questionnaires Questionnaires Interviews Interviews Board discussion Board discussion Summary report Summary report Follow up!! Follow up!! Board Self-Evaluations

17 Silver, Freedman & Taff, L.L.P.17 Performance Objectives Again, no “one size fits all.” Typical areas of coverage include: Again, no “one size fits all.” Typical areas of coverage include:  Role of the board.  Board organization and composition.  Board meetings.  Board compensation. Committee evaluations should cover same areas plus check how well committees are performing their obligations outlined in committee charters. Committee evaluations should cover same areas plus check how well committees are performing their obligations outlined in committee charters. Board Self-Evaluations

18 Silver, Freedman & Taff, L.L.P.18 Individual Director Evaluations Controversial. Controversial. Benefits include: Benefits include:  More direct feedback to directors.  Early warning system for problem directors; opportunity to turn things around.  Instills stronger sense of personal accountability. Risks include: Risks include:  Negative effect on board collegiality.  Reluctance of directors to criticize peers.  Discourage new directors from joining board and may lead existing directors to leave board.  Encourage counterproductive participation.  Liability risk. Board Self-Evaluations

19 Silver, Freedman & Taff, L.L.P.19 Methods of Conducting Individual Director Evaluations Chairman or lead director evaluates each director. Chairman or lead director evaluates each director. Self-assessment questionnaires. Self-assessment questionnaires. Peer evaluations. Peer evaluations. Board Self-Evaluations

20 Silver, Freedman & Taff, L.L.P.20 Public Disclosure of Evaluations Only the fact that they’re performed, but not the results. Only the fact that they’re performed, but not the results. Can be communicated in proxy statement or in corporate governance guidelines, if company has them. Can be communicated in proxy statement or in corporate governance guidelines, if company has them. Board Self-Evaluations

21 Silver, Freedman & Taff, L.L.P.21 Director Nominations Ongoing board evaluation is the key Ongoing board evaluation is the key Selection and replacement of directors Selection and replacement of directors  Should reflect the strategic direction of the company Are competencies continuously aligned with strategic challenges? Are competencies continuously aligned with strategic challenges? Do directors spend the necessary time? Do directors spend the necessary time? Board Self-Evaluations Do directors feel they automatically stay until retirement? Do directors feel they automatically stay until retirement? Do you have a formalized selection process? Do you have a formalized selection process? Do directors have first-hand experience with characteristics of high-performing companies? Do directors have first-hand experience with characteristics of high-performing companies? Are board members engaged? Are board members engaged?

22 Silver, Freedman & Taff, L.L.P.22 Majority Voting and Other Director Election Developments

23 Silver, Freedman & Taff, L.L.P.23 Overview Historically, most companies used a plurality standard – whoever gets the most votes for the position wins. Historically, most companies used a plurality standard – whoever gets the most votes for the position wins. Critics say not meaningful where election uncontested, as it only takes one vote to get elected. Critics say not meaningful where election uncontested, as it only takes one vote to get elected. Under majority voting, number of votes cast for must exceed number withheld (or cast against, if applicable). Under majority voting, number of votes cast for must exceed number withheld (or cast against, if applicable). Majority of companies in S&P 500 have adopted majority voting. Majority of companies in S&P 500 have adopted majority voting. Companies without significant institutional shareholder bases less likely to feel pressure to follow suit. Companies without significant institutional shareholder bases less likely to feel pressure to follow suit. Majority Voting and Other Director Election Developments

24 Silver, Freedman & Taff, L.L.P.24 Implementation Options Policy Policy Bylaw amendment Bylaw amendment Charter amendment Charter amendment Majority Voting and Other Director Election Developments

25 Silver, Freedman & Taff, L.L.P.25 Legal/Practical Issues Resignation of directors who don’t receive requisite majority vote. Resignation of directors who don’t receive requisite majority vote. Board can find itself in Catch-22 situation. Board can find itself in Catch-22 situation. Contested elections. Contested elections. Majority Voting and Other Director Election Developments

26 Silver, Freedman & Taff, L.L.P.26 Other Important Considerations Proposed elimination of broker voting discretion for uncontested elections. Proposed elimination of broker voting discretion for uncontested elections. E-proxy (notice and access model) now available for companies and dissident stockholders starting. Can make it easier for dissidents to wage proxy contests. E-proxy (notice and access model) now available for companies and dissident stockholders starting. Can make it easier for dissidents to wage proxy contests. Movement for shareholder access to management’s proxy materials. Movement for shareholder access to management’s proxy materials. Majority Voting and Other Director Election Developments

27 Silver, Freedman & Taff, L.L.P.27 Related Initiatives by Corporate Governance Reform Activists Board declassification. Board declassification. Elimination of “shark repellants” and other supermajority vote charter provisions. Elimination of “shark repellants” and other supermajority vote charter provisions. Majority Voting and Other Director Election Developments

28 Silver, Freedman & Taff, L.L.P.28 Tally Sheets and Other Compensation Committee Best Practices

29 Silver, Freedman & Taff, L.L.P.29 Wall Street Journal, Tally Sheets and Other Compensation Committee Best Practices

30 Silver, Freedman & Taff, L.L.P.30 What is a tally sheet? Centerpiece of best compensation committee practices. Centerpiece of best compensation committee practices. Identification and quantification of all elements of the executive’s pay, including compensation that would be owed to him or her upon retirement or other termination of employment. Identification and quantification of all elements of the executive’s pay, including compensation that would be owed to him or her upon retirement or other termination of employment. Shouldn’t just be an annual exercise – tally sheet should be reviewed and discussed before making any decision on the executive’s pay. Shouldn’t just be an annual exercise – tally sheet should be reviewed and discussed before making any decision on the executive’s pay. Tally Sheets and Other Compensation Committee Best Practices

31 Silver, Freedman & Taff, L.L.P.31 What should go into the tally sheet? Tailored to fit each executive’s compensation package. Tailored to fit each executive’s compensation package. Should capture all elements. Should capture all elements. Can generally track SEC compensation disclosure rules, but not a perfect fit. Can generally track SEC compensation disclosure rules, but not a perfect fit. Numerical components of tally sheet will be reflected in various areas of compensation disclosures. Numerical components of tally sheet will be reflected in various areas of compensation disclosures. Disclosure of compensation committee practices should include discussion of tally sheet exercise. Disclosure of compensation committee practices should include discussion of tally sheet exercise. Tally Sheets and Other Compensation Committee Best Practices

32 Silver, Freedman & Taff, L.L.P.32 Other Things Compensation Committees Should Be Doing Reevaluate compensation philosophies and components of existing program. Reevaluate compensation philosophies and components of existing program. Accumulated wealth analysis Accumulated wealth analysis Survey use – don’t cherry pick. Survey use – don’t cherry pick. Internal pay equity. Internal pay equity. Employment agreement provisions: Employment agreement provisions:  Evergreen Provisions  Definition of “termination for cause”  Change in Control payouts  Gross Ups Compensation consultants should be engaged by and report directly to the compensation committee. Compensation consultants should be engaged by and report directly to the compensation committee. Annually review compensation committee charter. Annually review compensation committee charter. Director Compensation: Director Compensation:  Trend away from meeting fees in favor of annual retainers  Increased proportion of pay in equity  General disdain for director “retirement” plans  Reduction or discontinuation of perquisites Tally Sheets and Other Compensation Committee Best Practices

33 Silver, Freedman & Taff, L.L.P.33 (New Math)  (SEC Rules) + Proxy=Confusion * * * Firms Disclose Formulas Behind Executive Pay, Leaving Many Baffled Wall Street Journal,

34 Silver, Freedman & Taff, L.L.P.34 Washington Post,

35 Silver, Freedman & Taff, L.L.P.35 Equity Grant Procedures

36 Silver, Freedman & Taff, L.L.P.36 Washington Post,

37 Silver, Freedman & Taff, L.L.P.37 General Still a white hot area – numerous SEC investigations ongoing and shareholder lawsuits filed, and guilty pleas continuing to roll-in for backdating. Recent Broadcom enforcement action shows SEC’s interest has not waned. Still a white hot area – numerous SEC investigations ongoing and shareholder lawsuits filed, and guilty pleas continuing to roll-in for backdating. Recent Broadcom enforcement action shows SEC’s interest has not waned. Restatements. Restatements. Equity Grant Procedures

38 Silver, Freedman & Taff, L.L.P.38 Practices Being Scrutinized Backdating - choosing a grant date with the benefit of hindsight so that the date selected is earlier than the date on which the grant was actually approved, with the selected grant date usually being a date on which the market price is lower than the date on which the grant is actually approved. Backdating - choosing a grant date with the benefit of hindsight so that the date selected is earlier than the date on which the grant was actually approved, with the selected grant date usually being a date on which the market price is lower than the date on which the grant is actually approved. Spring-Loading - the granting of equity awards in anticipation of the issuer’s disclosure of material information that is likely to have a positive effect on the issuer’s stock price. Spring-Loading - the granting of equity awards in anticipation of the issuer’s disclosure of material information that is likely to have a positive effect on the issuer’s stock price. Bullet Dodging - purposefully waiting until material negative information is publicly disclosed before granting an equity award. Bullet Dodging - purposefully waiting until material negative information is publicly disclosed before granting an equity award. Equity Grant Procedures

39 Silver, Freedman & Taff, L.L.P.39 Why are these practices problematic? Effectively results in discounted options; most shareholder-approved plans require options to be granted “at the market” or at a premium. Effectively results in discounted options; most shareholder-approved plans require options to be granted “at the market” or at a premium. Potentially a breach of directors’ fiduciary duties. Potentially a breach of directors’ fiduciary duties. Potential restatements. Potential restatements. Big potential tax problems if options purporting to be granted “at the market” are later determined to be below market: Big potential tax problems if options purporting to be granted “at the market” are later determined to be below market:  Lose ISO treatment, if intended.  Won’t qualify as “performance-based compensation” under Internal Revenue Code Section 162(m).  Constitutes deferred compensation under Internal Revenue Code Section 409A, potentially resulting in excise tax on executive. Equity Grant Procedures

40 Silver, Freedman & Taff, L.L.P.40 What should be done to minimize risk of problems? Review existing equity grant practices. Review existing equity grant practices. Tighten internal controls. Tighten internal controls. Adopt formal written grant policy. Adopt formal written grant policy. Equity Grant Procedures

41 Silver, Freedman & Taff, L.L.P.41 Adopting an Equity Grant Policy No “one size fits all” approach. No “one size fits all” approach. Determine role played by equity grants in overall compensation programs. Determine role played by equity grants in overall compensation programs. Key components: Key components:  Frequency and timing of grants – consider limiting to fixed dates or during open trading windows.  Designate equity grants compliance person(s).  Delegation of grant authority to officers – critical to ensure permissibility of delegation under state law and plan documents. Delegation should not cover grants to Section 16 reporting persons (i.e., Form 4 filers).  Limit grant approvals to in-person or telephonic meetings of board or compensation committee and avoid written consents if possible. If written consents must be utilized, do not use “as of” dating.  Forms of equity award agreements. Should be approved by compensation committee before grants are made and executed as soon as possible after grants are made. If multiple forms of agreements are used depending on level of employee, critical to have controls in place to ensure right form of agreement used. Equity Grant Procedures

42 Silver, Freedman & Taff, L.L.P.42 SEC Compensation Disclosure Implications CD&A should include disclosure of any practices of timing equity grants in coordination with public release of material information. CD&A should include disclosure of any practices of timing equity grants in coordination with public release of material information. Disclosure required in “Grants of Plan-Based Awards” table if date on which compensation committee approves award differs from grant date or if exercise price of a stock option differs from closing price on grant date. Disclosure required in “Grants of Plan-Based Awards” table if date on which compensation committee approves award differs from grant date or if exercise price of a stock option differs from closing price on grant date. Equity Grant Procedures

43 Silver, Freedman & Taff, L.L.P.43 CEO Succession Planning

44 Silver, Freedman & Taff, L.L.P.44 Why Is It Important? CEO plays critical role in implementation and development of strategic policy. CEO plays critical role in implementation and development of strategic policy. Company always needs to be prepared for a change in top executive position, regardless of CEO’s age. Company always needs to be prepared for a change in top executive position, regardless of CEO’s age. CEO’s departure could be sudden and unexpected or known well in advance – company needs to prepare for either contingency. CEO’s departure could be sudden and unexpected or known well in advance – company needs to prepare for either contingency. Delays in replacing CEO may raise investor and employee angst. Delays in replacing CEO may raise investor and employee angst. Important to plan for succession of other key senior executive positions for many of the same reasons. Important to plan for succession of other key senior executive positions for many of the same reasons. CEO Succession Planning

45 Silver, Freedman & Taff, L.L.P.45 What Should a Succession Plan Entail? Prepare early: 3-5 years out Prepare early: 3-5 years out No “one size fits all.” No “one size fits all.” Determine who will lead process. Usually an independent committee, such as compensation or nominating/corporate governance. Determine who will lead process. Usually an independent committee, such as compensation or nominating/corporate governance. Communicate/partner with CEO. Communicate/partner with CEO. Should cover CEO and other senior executive positions. Should cover CEO and other senior executive positions. Reflect board’s understanding of critical factors to company’s future success, direction and culture. Reflect board’s understanding of critical factors to company’s future success, direction and culture. Identify and periodically update qualities and characteristics for effective CEO. Identify and periodically update qualities and characteristics for effective CEO. Should cover sudden and unexpected departures as well as planned successions. Should cover sudden and unexpected departures as well as planned successions. Tie succession planning to the strategic business plan. Tie succession planning to the strategic business plan. Stockholder preferences Stockholder preferences Consider insiders before going outside. Consider insiders before going outside. CEO Succession Planning

46 Silver, Freedman & Taff, L.L.P.46 Succession Planning at Community Banks Hiring leaders from the outside is risky Hiring leaders from the outside is risky  Lack of continuity  Less loyalty  Can be disruptive, hurt morale and change the culture – sometimes for the better but often for the worse  Outside candidates are far more likely to fail than internally developed candidates Easier for the board to make the wrong choice with an outside candidate, particularly if selection criteria are not defined Easier for the board to make the wrong choice with an outside candidate, particularly if selection criteria are not defined Promoting leaders from the inside can have its issues Promoting leaders from the inside can have its issues  Reward longevity or loyalty, not talent  Lack of development program or process  Lose opportunity for “cross-pollination” from other institutions But still generally better to grow and develop leaders But still generally better to grow and develop leaders

47 Silver, Freedman & Taff, L.L.P.47 Succession Planning at Community Banks

48 Silver, Freedman & Taff, L.L.P.48 Reminder Areas

49 Silver, Freedman & Taff, L.L.P.49 Reminders Executive Sessions of Directors Executive Sessions of Directors Approval of Related Party Transactions Approval of Related Party Transactions Insider Trading Matters Insider Trading Matters Regular Review of Committee Charters and Other Corporate Governance Documents and Additional Considerations Regular Review of Committee Charters and Other Corporate Governance Documents and Additional Considerations Reminder Areas

50 Silver, Freedman & Taff, L.L.P.50 Executive Sessions Under NYSE rules, non-management directors must meet at regularly scheduled executive sessions outside management’s presence, and if any non-management director is not independent, independent directors must meet in executive session at least annually. Under NYSE rules, non-management directors must meet at regularly scheduled executive sessions outside management’s presence, and if any non-management director is not independent, independent directors must meet in executive session at least annually. Under NASDAQ and AMEX rules, independent directors must meet in regularly scheduled executive sessions. Under NASDAQ and AMEX rules, independent directors must meet in regularly scheduled executive sessions. “Regularly” not defined in NYSE or NASDAQ rules, but should be at least twice a year. AMEX requires at least one executive session annually. “Regularly” not defined in NYSE or NASDAQ rules, but should be at least twice a year. AMEX requires at least one executive session annually. No limit on potential topics of discussion, but can’t act in lieu of full board. No limit on potential topics of discussion, but can’t act in lieu of full board. Who should lead sessions? Who should lead sessions? Minutes of executive sessions and feedback given to management. Minutes of executive sessions and feedback given to management. Reminder Areas

51 Silver, Freedman & Taff, L.L.P.51 Related Party Transactions Under NYSE, NASDAQ and AMEX rules, audit committee or other “independent body” of directors must review and approve related party transactions. Under NYSE, NASDAQ and AMEX rules, audit committee or other “independent body” of directors must review and approve related party transactions. SEC disclosure threshold raised from $60,000 to $120,000, but must identify any transactions below this level involving independent directors. SEC disclosure threshold raised from $60,000 to $120,000, but must identify any transactions below this level involving independent directors. SEC rules also now require discussion of policies and procedures for review and approval of related party transactions. SEC rules also now require discussion of policies and procedures for review and approval of related party transactions. Must identify any transaction where policies and procedures not followed. Must identify any transaction where policies and procedures not followed. Reminder Areas

52 Silver, Freedman & Taff, L.L.P.52 Insider Trading Matters Insider trading “alive and well.” Insider trading “alive and well.” If don’t have a written insider trading policy, adopt one now. If don’t have a written insider trading policy, adopt one now. Appropriate window/blackout periods. Appropriate window/blackout periods. Directors and Section 16 officers not only ones who should be subject to window/blackout periods – anyone with regular access to material inside information should have to follow them. Directors and Section 16 officers not only ones who should be subject to window/blackout periods – anyone with regular access to material inside information should have to follow them. 10b5-1 plans – for insiders and issuers. SEC closely scrutinizing for abuse. 10b5-1 plans – for insiders and issuers. SEC closely scrutinizing for abuse. Regularly review who Section 16 reporting officers are; consider having board adopt resolution designating these persons. Regularly review who Section 16 reporting officers are; consider having board adopt resolution designating these persons. Require all directors and Section 16 officers to notify filing coordinator in advance to ensure timely Form 4 filing and avoidance of short-swing profit liability. Require all directors and Section 16 officers to notify filing coordinator in advance to ensure timely Form 4 filing and avoidance of short-swing profit liability. Reminder Areas

53 Silver, Freedman & Taff, L.L.P.53 Regular Review of Committee Charters and Other Corporate Governance Documents and Additional Considerations Use as checklists to make sure board and key committees doing what they’re supposed to be doing and update as needed. Also review codes of conduct for same purpose. Use as checklists to make sure board and key committees doing what they’re supposed to be doing and update as needed. Also review codes of conduct for same purpose. When rotating committee assignments, make sure members satisfy applicable independence and other membership requirements: When rotating committee assignments, make sure members satisfy applicable independence and other membership requirements:  Audit: general NYSE/NASDAQ/AMEX independence definition, heightened independence standard of SEC Rule 10A-3 and financial sophistication requirements.  Compensation: general NYSE/NASDAQ/AMEX independence definition plus “Non-Employee Director” definition of SEC Rule 16b-3 and “Outside Director” definition of Internal Revenue Code Section 162(m). Corporate governance guidelines not required unless listed on NYSE; if adopting voluntarily, don’t set too many rules to follow. Corporate governance guidelines not required unless listed on NYSE; if adopting voluntarily, don’t set too many rules to follow. Reminder Areas

54 Silver, Freedman & Taff, L.L.P.54 Dave M. Muchnikoff Former Senior Attorney and Assistant Branch Chief, SEC Division of Corporation Former Senior Attorney and Assistant Branch Chief, SEC Division of Corporation Selected to 2005 BTI Client All- Star Team level on a Survey of Fortune 1000 companies Selected to 2005 BTI Client All- Star Team level on a Survey of Fortune 1000 companies Certified Public Accountant Certified Public Accountant Frequent contributor on financial institution issues to financial services organizations. Frequent contributor on financial institution issues to financial services organizations. Specializing in SEC reporting, corporate governance, public and private debt and equity offerings, mergers and acquisitions, charter alternatives, bulk loan sales and purchases and securitizations. Specializing in SEC reporting, corporate governance, public and private debt and equity offerings, mergers and acquisitions, charter alternatives, bulk loan sales and purchases and securitizations.

55 Silver, Freedman & Taff, L.L.P.55 Silver, Freedman & Taff, L.L.P. Our attorneys regularly practice in the financial institutions area with many having governmental experience. We have represented over 300 financial institutions over the past 30 years. Debt and Equity Securities Offerings Debt and Equity Securities Offerings SEC and Shareholder Reporting SEC and Shareholder Reporting Recapitalizations Recapitalizations Compensation and Employee Benefit Matters Compensation and Employee Benefit Matters Securitizations Securitizations Credit Union to Thrift Conversions Credit Union to Thrift Conversions Mergers and Acquisitions Mergers and Acquisitions Charter Conversions Charter Conversions Holding Company and MHC Formations/Reorganizations Holding Company and MHC Formations/Reorganizations Bank and Thrift De Novo Formations Bank and Thrift De Novo Formations Regulatory and Enforcement Matters Regulatory and Enforcement Matters

56 Silver, Freedman & Taff, L.L.P.56 THANK YOU


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