On January 25, 2011, the Securities and Exchange Commission adopted new rules that apply to public companies, as mandated by Dodd-Frank Act. These rules require that at least once every three years (starting with this year’s annual meetings) shareholders of a public company vote on the executive compensation arrangements, the so called “say-on-pay” vote. Also, shareholders get to vote (at least once every six years) on the frequency of the say-on-pay vote. Further, public companies have to provide additional disclosure regarding executive “golden parachute” arrangements in connection with merger and other transactions. A separate shareholder advisory vote to approve certain golden parachutes will be required starting on April 25, 2011.
Smaller reporting companies (with a public float of less than $75 million) are exempt from conducting the “say-on-pay” and frequency votes until annual meetings occurring on or after January 21, 2013. However, they are not exempt from conducting the shareholder advisory vote on golden parachute compensation.
The votes are only advisory, non-binding. Shareholders get to say “yes” or “no” to the executive compensation, as disclosed pursuant to Rule 402 of Regulation S-K, including the Compensation Discussion & Analysis, but not anything in between, such as how they would like to see the compensation packages changed. However, the rules do not preclude the companies from asking for more specific votes from their shareholders, such as a vote on cash compensation, a separate vote on equity compensation, severance and/or bonus. Also, shareholders can still submit their proposals to the company to be included in the proxy statements that relate to those aspects of compensation arrangements that are not covered by the new rules. The SEC has also required adding disclosure in the proxy statements about whether the company considered results of the most recent vote and if yes, how that has affected the company’s compensation practices. Time and required disclosure will show whether shareholder advisory votes will in fact be effective in getting the board of directors to alter executive compensation packages.
Even though the say-on-pay votes are only advisory, I believe they would be effective in getting the board of directors to change executive compensation policies, if necessary. After all, what public company would want to get a vote of disapproval from their shareholders? A negative vote would affect the company’s share price and raise brows especially from those investors that are looking to invest in companies that receive a vote of confidence from the existing shareholders.
Sunday, January 30, 2011
Wednesday, January 26, 2011
New York City M/WBE Business Certification – Don’t Miss the Opportunity to Grow Your Business
This blog is for all those NYC business owners who are either women or minorities. If you qualify, - M/WBE Certification can help grow your revenues by facilitating bidding for government contracts.
Why get this Certification?
M/WBE certified businesses get mentorship services, opportunities to network with potential clients and a listing in the directory of businesses certified by NYC. Most importantly, this certification allows businesses to know when NYC agencies announce bids for contracts. The Local Law 129 (2005) sets goals (not legally binding) that New York City agencies should strive to assign a certain percentage of smaller contracts (between $5,000 and $1 million in expenditure amount per contract) to minority or women-owned businesses. For example, for smaller construction contracts, Black Americans should receive 12.63% of total annual agency expenditures on such contracts and Hispanic Americans – 9.06%; whereas for professional services contracts under $1 million, Black Americans should receive 9%, Hispanic Americans – 5% and Caucasian females – 16.5% of total annual agency expenditures on such contracts. For more information, follow this link to the Local Law 129: http://ddcftp.nyc.gov/inet/pdf/LocalLaw129.pdf. To achieve these goals, the Small Business Services contacts certified businesses to inform them of the opportunities to bid.
However, according to City Council Report (2010), also described in the article “Minority Businesses Struggle to Secure City Contracts” by Shane Dixon Kavanaugh (New York Times, Sept 7, 2010), the number of contracts that went to M/WBE-certified businesses is less than half of the targeted goals. The City set 368 contracting goals across 35 agencies, but met only 49 of them, or 13%. Out of more than $5.3 billion in contracts in July-December 2009, only $87 million, or 1.6%, went to M/WBE-certified businesses.
Regardless of the setbacks, the program is there to assist M/WBE-certified businesses. Business owners that qualify for the certification should seriously consider taking advantage of this opportunity.
Who is eligible?
Your business has to be selling products or services for at least one year and have a real and substantial presence in the geographic market of New York City (such as an office, or at least one full-time employee, or at least 25% of gross receipts for each of the last three years should come from the City). The geographic market includes Nassau, Putnam, Rockland, Suffolk and Westchester counties in New York and Bergen, Hudson and Passaic counties in New Jersey.
Your business has to be at least 51% owned, controlled and operated by US citizen or permanent resident who is a woman or a minority (Black, Hispanic, Asian-Pacific or Asian-Indian). Note that Portuguese and Spanish ethnicities are not considered Hispanic.
Application Process
Applying businesses have to register with New York City as a vendor, complete the application and provide supporting documentation. If application is denied, the applicant has 60 days to file an appeal. If this deadline is missed, the application has to wait two years before he or she can submit another application.
Even though the application is straightforward, the list of supporting documentation is extensive and may take a while to put together. It includes proof of immigration status, all licenses and permits, leases, tax returns for three years, copies of agreements that show business activity, contracts with clients, as well as purchase receipts, loan agreements, payroll records, etc.
Other Similar Certifications
In addition to the certification offered by New York City, there is a number of other state, federal and private agencies that offer similar certifications. One of them is New York State (more information is available at http://nylovesmwbe.ny.gov/). Another set of certifications is offered by the Small Business Administration (more information is available at http://www.mwbe.com/cert/certification.htm ). In the past, a business owner could submit one application to a number of agencies at once to obtain several certifications. However, currently all certifications require separate applications and private agencies charge application fees (City, State and Federal applications are free). Also, once qualified in New York State, it is possible to get your application expedited in New York City through Fast Track program.
On one hand, the process seems to be onerous and the current statistics are not in favor of M/WBE-certified businesses in terms of getting government projects. But the good news is that the business owners do not have to navigate this process alone. The Department of Small Business Services offers free M/WBE Certification workshops where all your questions get answered. Contact (212) 513-6311 or mwbe@sbs.nyc.gov for more information. As the certification program expands, more M/WBE business will get their fair share of government contracts.
Why get this Certification?
M/WBE certified businesses get mentorship services, opportunities to network with potential clients and a listing in the directory of businesses certified by NYC. Most importantly, this certification allows businesses to know when NYC agencies announce bids for contracts. The Local Law 129 (2005) sets goals (not legally binding) that New York City agencies should strive to assign a certain percentage of smaller contracts (between $5,000 and $1 million in expenditure amount per contract) to minority or women-owned businesses. For example, for smaller construction contracts, Black Americans should receive 12.63% of total annual agency expenditures on such contracts and Hispanic Americans – 9.06%; whereas for professional services contracts under $1 million, Black Americans should receive 9%, Hispanic Americans – 5% and Caucasian females – 16.5% of total annual agency expenditures on such contracts. For more information, follow this link to the Local Law 129: http://ddcftp.nyc.gov/inet/pdf/LocalLaw129.pdf. To achieve these goals, the Small Business Services contacts certified businesses to inform them of the opportunities to bid.
However, according to City Council Report (2010), also described in the article “Minority Businesses Struggle to Secure City Contracts” by Shane Dixon Kavanaugh (New York Times, Sept 7, 2010), the number of contracts that went to M/WBE-certified businesses is less than half of the targeted goals. The City set 368 contracting goals across 35 agencies, but met only 49 of them, or 13%. Out of more than $5.3 billion in contracts in July-December 2009, only $87 million, or 1.6%, went to M/WBE-certified businesses.
Regardless of the setbacks, the program is there to assist M/WBE-certified businesses. Business owners that qualify for the certification should seriously consider taking advantage of this opportunity.
Who is eligible?
Your business has to be selling products or services for at least one year and have a real and substantial presence in the geographic market of New York City (such as an office, or at least one full-time employee, or at least 25% of gross receipts for each of the last three years should come from the City). The geographic market includes Nassau, Putnam, Rockland, Suffolk and Westchester counties in New York and Bergen, Hudson and Passaic counties in New Jersey.
Your business has to be at least 51% owned, controlled and operated by US citizen or permanent resident who is a woman or a minority (Black, Hispanic, Asian-Pacific or Asian-Indian). Note that Portuguese and Spanish ethnicities are not considered Hispanic.
Application Process
Applying businesses have to register with New York City as a vendor, complete the application and provide supporting documentation. If application is denied, the applicant has 60 days to file an appeal. If this deadline is missed, the application has to wait two years before he or she can submit another application.
Even though the application is straightforward, the list of supporting documentation is extensive and may take a while to put together. It includes proof of immigration status, all licenses and permits, leases, tax returns for three years, copies of agreements that show business activity, contracts with clients, as well as purchase receipts, loan agreements, payroll records, etc.
Other Similar Certifications
In addition to the certification offered by New York City, there is a number of other state, federal and private agencies that offer similar certifications. One of them is New York State (more information is available at http://nylovesmwbe.ny.gov/). Another set of certifications is offered by the Small Business Administration (more information is available at http://www.mwbe.com/cert/certification.htm ). In the past, a business owner could submit one application to a number of agencies at once to obtain several certifications. However, currently all certifications require separate applications and private agencies charge application fees (City, State and Federal applications are free). Also, once qualified in New York State, it is possible to get your application expedited in New York City through Fast Track program.
On one hand, the process seems to be onerous and the current statistics are not in favor of M/WBE-certified businesses in terms of getting government projects. But the good news is that the business owners do not have to navigate this process alone. The Department of Small Business Services offers free M/WBE Certification workshops where all your questions get answered. Contact (212) 513-6311 or mwbe@sbs.nyc.gov for more information. As the certification program expands, more M/WBE business will get their fair share of government contracts.
Wednesday, January 19, 2011
New Form ADV Rules for Registered Investment Advisers
On July 28, 2010, the Securities and Exchange Commission (“SEC”) amended Part 2 of Form ADV and certain rules under the Investment Advisers Act of 1940 to require registered investment advisers (“RIAs”) to provide clients with a brochure and brochure supplements written in plain English. See Final Release http://www.sec.gov/rules/final/2010/ia-3060.pdf.
Starting in in the summer of 2011, RIA’s clients will receive new and more extensive disclosure. According to the SEC, currently in the United States there are more than 11,000 RIAs that manage more than $38 trillion for more than 14 million clients. 81% of RIAs have 10 or fewer advisors. Over 65% have five or fewer advisors. The new rules are warranted. RIAs owe fiduciary duties to their clients and clients have to receive sufficient information about the RIAs (their affiliates, compensation, disciplinary actions, etc.) to be able to make informed decisions when choosing an adviser.
Form ADV has two parts. Part 1(A and B) is used to register RIAs with state and federal authorities. Part 2A contains the requirements for the disclosure “brochure” that advisers must provide to prospective clients initially and to existing clients annually, and Part 2B contains information about the advisory personnel providing clients with investment advice.
Part 2A contains 18 disclosure items about the advisory firm itself. It is now required to be provided in narrative form in a specified format rather than “check the box” format. There need to be headings and narrative answers with respect to each of the 18 items. Much of the disclosure required in Part 2A addresses RIA’s conflicts of interest with its clients. Importantly, new Item 8 requires that advisers describe their investment strategies and how strategies involving frequent trading can affect portfolio performance, as well as the material risks involved with each significant investment strategy. There are concerns that such disclosure requirement may cause some RIAs to lose their competitive advantage.
Part 2B contains six items and focuses on disclosure regarding supervisory personnel of the RIAs, including their educational and professional background, disciplinary actions, and other substantial business activities. The disclosure is made more meaningful given that the clients will receive information about specifically those supervisors who formulate their investment advice, have direct client contact with them or make discretionary investment decisions for such client’s assets. Unlike Part 2A, Part 2B will not be made publicly available.
Complying with the new rules will not be easy or cheap. The SEC estimates that, on average, a small RIA will spend about 15 hours putting together the initial revised Form ADV, a medium-sized adviser – 97.5 hours, and a large adviser - 1,989 hours. Given that there are more small advisers than large ones, this would average to 36.24 hours per adviser. A small adviser will also have to spend about $3,200 for legal services on Part 2, medium-sized adviser - $4,400 and large adviser - $10,400. It remains to be seen whether these estimates accurately reflect the reality.
On December 28, 2010, the SEC extended the compliance dates for delivering brochure supplements. In particular, all existing RIAs that are registered with the SEC as of year-end 2010 have until July 31, 2011 to begin delivering brochure supplements to new and prospective clients and until September 30, 2011 to deliver brochure supplements to existing clients. New RIAs (that file applications for registration in January-April 2011) have until May 1, 2011 to begin delivering brochure supplements to new and prospective clients and until July 1, 2011 to deliver brochure supplements to existing clients.
As with any new rule, this one strives to preserve a balance between the necessity for additional and more accurate disclosure while not placing undue financial burden on the RIAs. After all, the burden of complying with the new ADV rules will be mostly felt during the first year of compliance, when the brochure and its supplement have to be written from scratch. The following years, advisers will be able to update and supplement the information without having to re-write it (that is, of course, if the disclosure requirements do not change again).
This article is not a legal advice, and was written for general informational purposes only. If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga. Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.
Starting in in the summer of 2011, RIA’s clients will receive new and more extensive disclosure. According to the SEC, currently in the United States there are more than 11,000 RIAs that manage more than $38 trillion for more than 14 million clients. 81% of RIAs have 10 or fewer advisors. Over 65% have five or fewer advisors. The new rules are warranted. RIAs owe fiduciary duties to their clients and clients have to receive sufficient information about the RIAs (their affiliates, compensation, disciplinary actions, etc.) to be able to make informed decisions when choosing an adviser.
Form ADV has two parts. Part 1(A and B) is used to register RIAs with state and federal authorities. Part 2A contains the requirements for the disclosure “brochure” that advisers must provide to prospective clients initially and to existing clients annually, and Part 2B contains information about the advisory personnel providing clients with investment advice.
Part 2A contains 18 disclosure items about the advisory firm itself. It is now required to be provided in narrative form in a specified format rather than “check the box” format. There need to be headings and narrative answers with respect to each of the 18 items. Much of the disclosure required in Part 2A addresses RIA’s conflicts of interest with its clients. Importantly, new Item 8 requires that advisers describe their investment strategies and how strategies involving frequent trading can affect portfolio performance, as well as the material risks involved with each significant investment strategy. There are concerns that such disclosure requirement may cause some RIAs to lose their competitive advantage.
Part 2B contains six items and focuses on disclosure regarding supervisory personnel of the RIAs, including their educational and professional background, disciplinary actions, and other substantial business activities. The disclosure is made more meaningful given that the clients will receive information about specifically those supervisors who formulate their investment advice, have direct client contact with them or make discretionary investment decisions for such client’s assets. Unlike Part 2A, Part 2B will not be made publicly available.
Complying with the new rules will not be easy or cheap. The SEC estimates that, on average, a small RIA will spend about 15 hours putting together the initial revised Form ADV, a medium-sized adviser – 97.5 hours, and a large adviser - 1,989 hours. Given that there are more small advisers than large ones, this would average to 36.24 hours per adviser. A small adviser will also have to spend about $3,200 for legal services on Part 2, medium-sized adviser - $4,400 and large adviser - $10,400. It remains to be seen whether these estimates accurately reflect the reality.
On December 28, 2010, the SEC extended the compliance dates for delivering brochure supplements. In particular, all existing RIAs that are registered with the SEC as of year-end 2010 have until July 31, 2011 to begin delivering brochure supplements to new and prospective clients and until September 30, 2011 to deliver brochure supplements to existing clients. New RIAs (that file applications for registration in January-April 2011) have until May 1, 2011 to begin delivering brochure supplements to new and prospective clients and until July 1, 2011 to deliver brochure supplements to existing clients.
As with any new rule, this one strives to preserve a balance between the necessity for additional and more accurate disclosure while not placing undue financial burden on the RIAs. After all, the burden of complying with the new ADV rules will be mostly felt during the first year of compliance, when the brochure and its supplement have to be written from scratch. The following years, advisers will be able to update and supplement the information without having to re-write it (that is, of course, if the disclosure requirements do not change again).
This article is not a legal advice, and was written for general informational purposes only. If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga. Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.
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