Investment Banking

• Skip The Block Party, Since Big Profits Await In Smaller Equity Deals

Financial Reporting, Taxation, & Accounting

• Establishing A New Internal Control Function: Tough But Essential Task

• Sarbanes-Oxley Rule 404 Now A Costly, Time-Consuming Reality Show

• Sarbanes-Oxley 404 Software Helps To Bridge Compliance Gaps

Equity & Debt Offerings

• Allowing The Use Of Unregistered Finders Would Help Small Businesses

• Going Public With A Commercial Bank May Reduce IPO Underpricing

Corporate Governance & Directors' Duties

• Board Work Is Tougher These Days, But Precautions Can Minimize The Risk

• Canadians Consider National Compliance Guidelines

Corporate Entities & Structures

• Public To Private: The New Small And Mid-Cap Choice

Mergers & Acquisitions

• Acquiror’s Shareholders Tend To Approve Mergers, But Not With A Rubber Stamp

• Structure Deals With Earnouts Clearly And Carefully To Avoid Future Trouble

Download a .pdf of this issue

Securities regulators draft compliance guidelines. America’s neighbor to the north is at last catching up on compliance and disclosure requirements for public companies. The securities regulatory authorities in Alberta, British Columbia, Ontario, and Quebec recently issued proposals for regulating corporate governance disclosure for Canadian public companies. Two proposals, one on disclosure of corporate governance practices and the other on governance best practices, have been harmonized and melded into a single document, which is representative of separate initiatives undertaken by every securities regulator in Canada. Similar to the NYSE’s corporate governance standards and to provisions in the Sarbanes-Oxley Act, the new Canadian best practices are meant to provide guidance for dealing with corporate governance issues. Canadian corporate lawyers Simon Romano and Andrew Grossman explain that the new national approach will ease the process of reviewing, monitoring, and enforcing corporate governance disclosure requirements in Canada. Not yet in force, the guidelines upon adoption will apply to public corporations, publicly traded income trusts, and limited partnerships.

Best practices follow stock exchange rules. The new proposal is designed to provide greater transparency of corporate governance practices. While the rules will require some mandatory filings on SEDAR (Canada’s EDGAR counterpart), they actually reduce disclosure requirements for companies not listed on the Toronto Stock Exchange. One new element in the best practices section is the shift away from a negative focus—such as explaining compliance slips—and toward the positive—such as describing corporate governance practices. Where company policies and these best practices diverge, the company must describe what it is doing to bring its policies into line with the guidelines. The proposal incorporates the Toronto Stock Exchange’s existing corporate guidelines, and it also resembles the new regulations and exchange rules governing post-Sarbanes America. Government officials hope that the proposal will lead to more effective enforcement of securities violations.

Independence and duties of the board. The authors have summarized some of the major best practices, pointing out which will be new to formal Canadian governance practices. For instance, in addition to the usual mandates that a majority of the board’s directors and the chair be independent, boards will now be asked to create written acknowledgments of the directors’ responsibility for stewarding the company, ensuring the integrity of the CEO, adopting strategic plans and communication policies, and identifying principal business risks. The board will also have to develop written job descriptions for its chair, each committee chair, and the CEO. It will be responsible for the orientation of all new directors and their continuing education, as well as for drafting and adopting a written business code. The code should cover conflicts of interest, proper use of corporate assets, compliance with regulations, and reporting of illegal or unethical behavior.

Focus on directors. The best practices include guidelines for nominating and recruiting directors and determining their skill sets. Any compensation committee should hereafter contain only independent directors, who will be responsible for determining compensation for the directors and officers of the company and for reviewing the compensation disclosure in any proxy materials. Along with the best practices, the authors write, the new harmonized proposal offers amendments to a prior law on audit committees, clarifying the term "independence" as it pertains to directors. A director is independent who has no direct or material relationship with the corporation. Independent directors may not be company employees and cannot work for the external auditor. They may not receive more than $75,000 in direct compensation for services other than board meetings and duties. While share ownership does not compromise independence, family relationships may do so.

Abstracted from Wall Street Lawyer, published by Glasser LegalWorks, 150 Clove Road, Little Falls, NJ 07424. To subscribe, call (973) 890-0008; or visit www.wallstlawyerreport.com.