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NEWS AND VIEWS, TRENDS AND TACTICS, STRATEGIES,
INSIGHTS, ADVICE, LEGISLATION, REGULATIONS AND MORE
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“At a minimum, companies are probably going to have to justify
their compensation policies and provide additional disclosure.”
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More Scrutiny for CEO Pay?
Even as business continues to adjust to
Sarbanes-Oxley, there may be another wave of reforms on the way—this time,
focusing on CEO compensation.
A number of commentators have pointed out that
executive compensation has spun out of control—especially when it comes to
executives who are paid handsomely even as their companies underperform.
As Berkshire Hathaway CEO Warren Buffett recently wrote: “Forget the old maxim
about nothing succeeding like success. Today, in the executive suite, the
all-too-prevalent rule is that nothing succeeds like failure.”
“I think we’re going to see more attention being paid
to CEO compensation by stockholders, the media, politicians and regulators,”
says Robert Bearman,
a partner with Patton Boggs in Denver. He points out that such attention has
already led to new proposed compensation disclosure rules from the SEC, as well
as the American Jobs Creation Act of 2004’s Section 409A regulations, which
change many of the rules around deferred compensation.
The pressure is not likely to abate anytime soon,
Bearman continues. “Executives need to educate themselves and be aware that
it’s far more likely that they will hear about this at shareholder meetings,”
he says. “At a minimum, companies are probably going to have to justify their
compensation policies and provide additional disclosure.” “When you operate a
public company, you live in a glass house,” Bearman adds. “People are probably
going to be peering in more frequently as a result of the executive
compensation issue.” CT
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Don’t Get Taken to the Cleaners:
The Accidental Money-Launderer
As antiterrorism concerns ratchet up oversight of banks and
traditional financial institutions, criminals are turning to other methods of
cleaning their cash, says Patton Boggs partner
Stephen J. McHale.
A former chief enforcement counsel for the U.S. Treasury Department, McHale
says businesses can avoid inadvertently becoming a criminal cash laundromat by
following these guidelines:
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1
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Businesses that handle large cash transactions or high value commodities such as
gemstones, artwork and other luxury goods should be particularly wary.
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2
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Look out for customers who return for a series of cash transactions just below
the $10,000 IRS reporting requirement.
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3
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Suspicious activity includes refusal to provide identification on a large cash
transaction or willingness to buy or sell at a significant discount just to
close the deal.
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4
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File a suspicious transaction report with the U.S. Treasury Department if
something seems amiss. If you are truly suspicious, don’t close the deal. By
ignoring red flags, you risk criminal or civil liability.
CT
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New Markets:
Doha and Dubai
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In the 1970s, oil production elevated Qatar from poverty. Today, the country’s
natural gas resources alone promise a dazzling future.
Leigh Hall, a partner with Patton Boggs
based in Qatar’s capital, Doha, foresees “phenomenal wealth” ahead. The Qatar
Financial Center in Doha has already licensed several international financial
institutions and is encouraging fund registration. The watchword, though, is
selectivity. “Applicants should expect significant dialogue,” says Hall. “The
QFC does not want to be seen as a simple registration office.”
A decade ago, Hall notes, Bahrain started losing ground to Dubai as the Gulf’s
leading financial center. “There’s a Bahrain renaissance now,” he says, “but
Dubai is really taking off.” Less oil-dependent, the politically moderate city
is evolving into a major business and leisure destination, strengthened by a
recent influx of international financial institutions. Cosmopolitan and
prosperous, Dubai is working hard, in the words of a Dubai International
Financial Center spokesman, “to become the missing piece in the financial
center puzzle between Frankfurt and Singapore.” CT
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Hidden Risks in Transactions:
You need more than due diligence
When one company is about to buy another or a hedge fund is
going to make a large investment in a privately held company, due diligence is
necessary action, but it’s not sufficient, says
Eric Kuwana,
a partner at Patton Boggs.
During a normal due diligence process, a law firm might look
at employment agreements for key people and check reps and warrants to make
sure no products are subject to recall.
“In highly regulated areas where there is a nexus to
Washington, these things may impact the valuation of a deal.”
But in the rush to complete a deal, impending shifts in the
policy landscape can be missed. Are there policy changes in the works or a bill
making its way through Congress that will change the way business is done? This
is especially critical if the deal involves an industry where the federal
government is either a regulator or a major customer. “In highly regulated
areas where there is a nexus to Washington,” says Kuwana, “these things may
impact the valuation of a deal.” CT
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