Law Firm Disclosures Under Stock Exchange Compensation Committee Independence Requirements

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The NYSE and Nasdaq have recently adopted rules which will require compensation committees to consider certain enumerated factors before selecting, or receiving advice from, a compensation consultant, legal counsel or other adviser to the compensation committee, other than in-house legal counsel.  We expect many compensation committees will require information in writing to satisfy their consideration of the required factors.  For legal counsel the letter could take a form like this:

[Name

Chair of Compensation Committee

ABC Corporation

Address]

Dear  [          ]:

You have asked us to provide you with certain information to satisfy the requirements of your Compensation Committee Charter and related rules of the [stock exchange].  Where the applicable Compensation Committee Charter provision or stock exchange rule requires an assessment with respect to “legal counsel,” the disclosures made herein relate to [list attorneys names] (the “Relevant Attorneys”), which we anticipate will be the attorneys providing services to the Compensation Committee.  [Note:  SEC Adopting Release 33-9330 (page 40) states the stock ownership disclosure applies only to “individuals providing services to the compensation committee and their immediate family members.” It therefore appears logical to apply this guidance to other provisions of the rule which use the same term.   Apparently, changes in team members can trigger a new assessment by compensation committees which could be challenging, especially in fast-moving situations.]

            1.         Other services we have provided to ABC Corporation [for the 12 months ended December 31, 201X.]:  [List services.] [Note:  The rules do not specify an appropriate look-back period.  The SEC stated in Release No. 34-68640 that it expects the assessment to be made annually. That, coupled with disclosure 2 below on fees, suggests a 12 month look-back would be appropriate.]

            2.         The fees received from ABC Corporation for the 12 months ended December 31, 201X represented [   ]% of our total revenues during that period.

            3.         As attorneys licensed in the State of Minnesota, the Relevant Attorneys are required to comply with Rules 1.7, 1.8, 1.9 and 1.13 of the Minnesota Rules of Professional Conduct which govern conflicts of interest and other matters.  The Relevant Attorneys receive periodic training in the ethical requirements required by the Minnesota Rules of Professional Conduct.

            4.         The Relevant Attorneys have the following business or personal relationships with a member of the Compensation Committee:  [List relationships.]  [Note the exchanges declined to further define “business and personal relationships” in response to comment letters.]

            5.         The Relevant Attorneys and their immediate family members own stock in ABC Corporation: [List stock ownership.]

            6.         The Relevant Attorneys have the following business or personal relationships with executive officers of ABC Corporation:  [List relationships.] 

            Should you have any questions regarding the foregoing, please contact the undersigned.

Check dodd-frank.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.

Topics:  Compensation Committee, Dodd-Frank, Nasdaq, NYSE

Published In: Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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