Transcript Slide 1

Update on Proxy Statement
Disclosures and Strategies for
2011 Annual Stockholder Meetings
March 17, 2011
Presented by:
Christine Daly, Partner at Holme Roberts & Owen LLP
Jennifer D’Alessandro, Senior Counsel at Holme Roberts & Owen LLP
Edgar J. Lewandowski, Senior Associate at Holme Roberts & Owen LLP
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Director Qualifications
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Since February 2010, Item 401(e) of Regulation
S-K has required disclosure of the qualifications
of each director and nominee, including the
particular experience, qualifications, attributes or
skills that:
 qualify that person
 to serve on your company’s board
 at the time of that particular filing
 in light of the company’s then-current
business and structure
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Director Qualifications
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Frequent SEC comments regarding this
disclosure, often related to the following areas:
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aggregated disclosure regarding the board as a whole
or groups of directors
generic references to “business experience, skills, or
knowledge”
directors in board classes not currently up for election
directors nominated or elected by specific
stockholders or classes of stock
not simply why the person was chosen as a director in
the first place, but why he or she should be one now
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Compensation Committee Independence
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Dodd-Frank requires SEC to adopt rules
regarding independence of compensation
committee members and compensation
consultants / other advisors
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Committee member independence rules are expected
to relate to additional affiliations of directors (similar to
enhanced standards for audit committee members)
Consultant independence is not required, but process
for evaluating and disclosing independence of
consultants is required
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Compensation Committee Independence
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Committee must consider matters to be
specified by SEC including disclosure of:
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Other services provided by the advisor
Fees paid to the advisor as a percentage of the
advisor’s revenue
Policies and procedures used by committee designed
to prevent conflicts of interest
Business and personal relationships between the
advisor and committee members
Advisor’s ownership of company stock
Rules will apply equally to compensation
consultants, attorneys and other advisors
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Compensation Committee Independence
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Current SEC timetable:
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Proposed rules: March 2011
Final rules: April – July 2011
Action Items:
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Begin considering importance of consultants and their
independence
Review current compensation committee member
independence in light of strict audit-committee-style
requirements
Review and revise compensation committee charter to
comply with final rules (when available)
Controlled companies are exempt
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Board Diversity
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Since February 2010, public companies must disclose
whether the nominating committee considers diversity in
identifying board nominees
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Not required to consider diversity, just whether it is considered,
and if so, how – which leads to an odd disclosure if not
considered
If there is a policy, how it is implemented, as well as how the
nominating committee (or the board) assesses its effectiveness
“Diversity” not defined by rules - each company
must disclose how it defines diversity
 Experience
 Expertise
 Background
 Gender / Ethnic Origin
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Board Diversity
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In a September 2010 speech, SEC
Commissioner Aguilar indicated his
disappointment with most disclosures to date in
response to this rule and suggested
improvements:
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Disclose actual diversity on board (number of women,
minorities, etc.)
Describe concrete steps taken by the board to
increase its diversity
 adopt policy of interviewing women/minority
candidates for each board vacancy
 disclose number of interviews conducted with
diverse candidates
 instruct search firms to seek out diverse candidates
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Proxy Disclosure of Risk Oversight
www.CartoonStock.com
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New Disclosures Rules in Practice
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New proxy disclosures have been in places
since February 28, 2010:
 Disclosure of compensation policies and
practices as they relate to the company’s risk
management practices (Item 402(s) of
Regulation S-K)
 Disclosure of the board’s role in risk oversight
of the company, such as how the board
administers its oversight function, and the
effect this has on the board’s leadership
structure (Item 407(h) of Regulation S-K)
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New Disclosures Rules in Practice
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Deloitte Study of 398 of the S&P 500 (Jan. ‘11):
 58% of disclosures note that the audit
committee is primarily responsible for risk
 53% of disclosures note that compensation
committee is responsible for overseeing
compensation-related risks
 34% discussed how risk
oversight/management aligns with strategy
 19% noted a management-level risk
management committee, but only 4% have
board-level risk committee
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Best Practice Recommendations
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Best Practice Recommendations
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Evaluate Role of Board Committees
Consider Forming a Risk Committee
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Dodd-Frank §165(h) requires some financial service
companies to form them
Approximately 4-6% of companies have them
(ArcelorMittal, Genzyme, La-Z-Boy, Duke Energy and
others)
A new best practice?
Evaluate Lines of Communication and
Information Flow
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Are “risk dashboards” enough?
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Best Practice Recommendations
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Examine Board Composition and Director
Education Programs
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Dodd-Frank will require some financial companies to
have a risk management expert on the board
Site visits? Review analyst reports?
Consult Recognized Sources of Guidance for
Risk Governance
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NACD and COSO reports
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Executive Compensation
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Say-on-Pay and Say-on-Golden Parachutes
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Final Rule – January 25, 2011
Smaller reporting companies – delayed effective date
until January 21, 2013
Includes SEC “model” resolution for SOP
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CD&A mandatory disclosure re consideration of SOP
results
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Form 8-K disclosure of frequency of SOP decision
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Executive Compensation
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Dodd-Frank planned guidance
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Comp Committee Independence – Mar 2011
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Clawback policy – Aug-Dec 2011
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Pay for performance – Aug-Dec 2011
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Internal pay equity – Aug-Dec 2011
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Hedging policy – Aug-Dec 2011
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Chair and CEO positions – None planned
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Executive Compensation
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Compliance Disclosure Interpretations (CDIs)
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How and when to report modifications to awards
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How to report awards payable in cash or stock
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How to report awards declined or not accepted
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Performance award disclosures
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SOP, frequency and golden parachutes
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Executive Compensation
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SEC Comments
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Performance goals
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Peer groups and benchmarking
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How amounts were determined
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Compensation risk assessment process
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The “Why” of compensation
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Executive Compensation
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Disclosure “best practices:”
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Compensation Discussion and Analysis (CD&A)
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Pay for performance
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Selection of peer groups and benchmarking
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Compensation risk assessment
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Plain English – simple and clear disclosures
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Check it one more time – do the math
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Conclusion – Q&A
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