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IR Weekly - June 21, 2011


President’s Note

NIRI Annual Conference Recap and More

NIRI’s annual conference is done for another year, but I believe those who attended found the experience to be valuable on all levels – education, networking and visiting with service providers. Attendance exceeded last year's, and I received very positive feedback. Thanks to all who attended and spoke. Thanks also to our sponsors and service providers - you make the conference the great event that it is! Our next annual conference will be in Seattle, Washington from June 3-6, 2012, so mark your calendars.

Session handouts are available to conference attendees on the NIRI website. For those who did not attend, we appreciate NASDAQ hosting a recap tomorrow morning (Wednesday, June 22 from 8:45-10:00 a.m.). To register for online access or to attend in person, click here.

NYSE’s “This Week in the Boardroom” weekly on-demand webcast program covered the NIRI conference to provide insight for board members and other C-suite executives. This week’s program includes my thoughts from conference as relates to boards of directors. Next week’s program will be an interview with NIRI board member, and conference co-chair, Sally Curley of Cardinal Health, Inc.

I was pleased that several service providers announced new IR product launches at conference. NIRI also issued several press releases, and the first was to announce NIRI’s annual Leadership and Chapter Awards winners. NIRI would not be able to offer all we do for members without our volunteers. Thanks to all those involved, and I am especially proud of all the awards winners! A special thanks to those chapter leaders and NIRI stakeholders who attended the strategy summit on Sunday at conference. We will share the outcomes of that session as the year progresses.

NIRI also announced the launch of a “Global IR Practices Seminar” to be held in Miami, November 16-18, 2011. This new program will educate global members about engaging U.S. investors. The support of sponsors is important to many of our programs, and in this case we recognize and appreciate Ipreo in making this program possible.

NIRI will also host a new “Energy Oil and Gas Symposium” September 14-15, 2011 in Houston, thanks to a partnership with FTI Consulting.

Later this month, we have “Finance Essentials for IR” and “Crisis Communications and Media Management” seminars in New York City. And don’t forget the upcoming University of Michigan “Theory and Practice of IR” weeklong certificate program on August 14-19. For our entire upcoming lineup of programs, check our website. Several NIRI chapters also have excellent summer programs, like the Southwest Regional Conference on August 17-19 in San Antonio or the Capital Area Mock Proxy Battle on August 31 in McLean, Virginia.

Until next week,

Jeff Morgan, FASAE, CAE
President & CEO

Sponsored By:


Annual Conference Update
In-Person and Video Webcast Recap: Download Insight and Prepare to Lead

Professional Development
Crisis Communications and Media Management – Seminar June 28 in New York, NY
Finance Essentials for IR – Seminar June 29 & 30 in New York, NY
Fundamentals of Investor Relations – Seminar September 11 - 14 in Boston, MA

Member Services
NIRI Career Center

Industry Events
The 2011 Board Practice Survey

Chapter News
Upcoming Chapter Events

The Buzz
"Seven Myths of Executive Compensation"
"Analysis: High-Frequency Trade Sparks Flash Fires in Commodities"
"Networker Used Friends to Help 'Hedge Fund Paymasters,' U.S. Tells Jury"
"Raters Draw SEC Scrutiny"
"'Convergence' Hits a Bump"
"Investor 'Say on Pay' Is a Bust"
"Should Proxy Advisors Share Blame for Say-on-Pay's Failure?"
"Brokers Scramble as Naked Access Ban Nears"
"US Regulators: Working With Foreign Regulators on New Rules"
"Pay Down, Politics Up"
"Republicans Seek Economic Analysis of Dodd-Frank"
"Ghost of Enron Wreaks New Havoc on Exec Pay"
"HFT Under the Spotlight"

Sponsored By:
PRNewswire Banner May 2011

Annual Conference Update

In-Person and Video Webcast Recap: Download Insight and Prepare to Lead

Hear a Recap of the Buzz
Missed the world's largest and most comprehensive IR event? Hear a recap of insight from your peers and leaders in the IR Community.

June 22, 2011
8:45 - 10:00 am ET
Live at the NASDAQ MarketSite (4 Times Sq., NYC) or via video webcast

• Introducer: Demetrios Skalkotos, Senior Vice President, Global Corporate Services, The NASDAQ OMX Group, Inc.
• Moderator: Jeff Morgan, President & CEO, NIRI
• Douglas Wilburne, Vice President, Investor Relations, Textron Inc., and Chairman of the NIRI National Board of Directors
• Friederike Edelmann, Director, Investor Relations, SAP, and Vice President of Membership of the NIRI NY Chapter

This event is made possible by The NASDAQ OMX Group, Inc.

Professional Development

Crisis Communications and Media Management – Seminar June 28 in New York, NY

Gain insight into how to manage the media, especially in a crisis situation. Create a process to handle and prepare management for the media.
Finance Essentials for IR – Seminar June 29 & 30 in New York, NY

Let the experts help you understand the essentials of finance and communicate your company’s financial story.
Fundamentals of Investor Relations – Seminar September 11 - 14 in Boston, MA

This comprehensive seminar, held at The Boston Seaport Hotel offers a broad overview of all aspects of investor relations, including marketing, communication, and finance.

Member Services

NIRI Career Center

NIRI's Career Center is a highly valued member resource that is one of the most frequently visited web pages on the NIRI Web site. Members can search job listings and post resumes confidentially. Employers and recruiters can post a job for a 30-day period for a $350 fee, and search resumes.


Check out eGroups, NIRI's secure member-only online social networking forum. Log in now with your username and password and fill out your profile. Members have started discussions and new communities relevant to you. If you are a blogger, it only takes a few quick clicks to import your blog through NIRI eGroups

Industry Events

The 2011 Board Practice Survey

You are invited to participate in The 2011 Board Practice Survey, which is being jointly conducted by The Conference Board, NASDAQ OMX and NYSE Euronext. The survey is open to investor relations officers, general counsel, corporate secretaries and corporate governance officers of U.S. public companies. Findings will constitute the basis for a benchmarking tool searchable by company size (measured by revenue and asset value) and 22 industry sectors. In addition, they will be described in the new edition of The Directors’ Compensation and Board Practices Report, scheduled to be released jointly in the fall. In appreciation of your time, a hardcopy of the final report will be mailed to you at no cost.

The Buzz

Seven Myths of Executive Compensation
Hartford Business Journal (06/20/11) Larcker, David; Tayan, Brian

There are a number of popular myths related to the way in which executive pay should be structured, according to Stanford Graduate School of Business professor David Larcker and Stanford researcher Brian Tayan. One such myth is that it is useful to determine the ratio of a CEO's pay to the pay of an average worker at a company. These ratios, which companies are required to report under the Dodd-Frank Act, tend to vary from industry to industry, Larcker said. Larcker noted that boards need to consider the extent to which CEO pay will affect the ability of the company to hire the type of person it wants for the CEO job. Another myth associated with the structure of executive pay is that compensation consultants push pay up because they are beholden to management, Tayan said. But Tayan noted that the governance of a firm, not whether or not a compensation consultant is used or whether or not the compensation consultant is conflicted, pushes executive pay to excessive levels. For instance, executive pay can rise too high when board members are friends of the CEO, are appointed by the CEO, or when board members have to deal with a large number of board appointments, Tayan said.
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Analysis: High-Frequency Trade Sparks Flash Fires in Commodities
Reuters (06/17/11) Sheppard, David; Spicer, Jonathan

High-frequency traders are being blamed for the small flash crashes that have taken place in commodity markets over the last year and a half. Among the flash crashes that are being attributed to high-frequency traders is the one that took place on May 5, when the oil market recorded a record $13 intraday drop even though there were no major news events precipitating the decline. High-frequency traders have been trading in commodities markets for years now, but some say these firms are now using new, more aggressive techniques that leave traditional investors stunned. TABB Group senior analyst Paul Rowady said there are some new algorithms being used in the commodities market that are designed to try to detect the sell-stops in both directions when there is an event in the news that has an effect on the price of commodities. The result is that prices suddenly rise before quickly dropping again, leaving traders wondering what happened, Rowady said. Rowady added that high-frequency trading volume will likely double over the next two to three years, since oil and natural gas markets are well-suited for high-frequency trading firms. Traditional traders may simply have to learn to adapt to the increased presence of high-frequency traders, since regulators have not shown any inclination toward placing restrictions on their trading techniques.
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Networker Used Friends to Help 'Hedge Fund Paymasters,' U.S. Tells Jury
Bloomberg (06/17/11) Hurtado, Patricia

Prosecutors on June 16 gave their closing arguments in the trial of Winifred Jiau, the former Primary Global Research consultant who is accused of being at the center of an insider-trading scheme. According to prosecutors, Jiau befriended two employees at the technology companies Nvidia Corp. and Marvell Technology Group so she could obtain nonpublic information about the two firms. That information was then illegally sold to hedge fund managers, prosecutors said. Among those who testified for the prosecution was former SAC Capital Advisors Portfolio Manager Noah Freeman, who said he had a secret agreement with Barai Capital Management founder Samir Barai to pay Primary Global Research for exclusive access to Jiau. Prosecutors also submitted trading records showing that Barai Capital changed its position in Marvell stock from a short position of 25,000 shares to a long position of 118,400 shares after Jiau and Barai had a conversation on May 23, 2008. The move helped Barai Capital net more than $800,000 in profits and avoid more than $60,000 in losses, prosecutors said. However, the defense claimed Barai and Freeman had other sources of insider information besides Jiau, and that there was no evidence they based any trades upon the information she allegedly gave them. The defense also submitted trading records that showed Jiau lost tens of thousands of dollars when she bought and sold Marvell and Nvidia's stocks.
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Raters Draw SEC Scrutiny
Wall Street Journal (06/17/11) Eaglesham, Jean; Neumann, Jeannette; Ng, Serena; et al.

The Securities and Exchange Commission (SEC) continues to investigate the role of credit ratings firms in the financial crisis, and regulators are considering civil fraud charges against those firms for their role in developing certain mortgage-bond deals. Lawmakers have labeled the ratings firms as "key enablers" of the financial crisis, but thus far, the firms have avoided a regulatory crackdown and defended themselves successfully against private litigation. The SEC continues to focus on whether the ratings firms committed fraud by failing to conduct adequate research prior to issuing rates on pools of subprime mortgages and other loans packaged as mortgage-bond securities. The SEC could accuse the firms of using incomplete or out-of-date information or charge that they ignored signs of problems with subprime loans. Among the ratings firms under SEC scrutiny are Standard & Poor's and Moody's Investors Service, though the investigations may not lead to charges against the firms. A new wave of fraud cases against banks and other financial firms is expected shortly from the SEC, which could lead to further settlements in the fall and a possible third wave of litigation and settlements by the end of 2011.
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'Convergence' Hits a Bump
Wall Street Journal (06/16/11) P. C2 Rapoport, Michael

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have announced they will issue a revised proposed rule on revenue recognition in the third quarter of 2011, pushing the issuance of the rule into 2012 after a 120-day comment period for companies, investors, and others. The rule governs when and how companies can calculate revenue after making a sale, and it aims to simplify and align the booking of revenue with the transfers of products and services that generate revenue. The rule also is expected to eliminate special revenue recognition models, like those used in the software and construction industries. The initial proposal received nearly 1,000 comment letters, and the IASB and FASB have made a number of changes in response to those comments. The rule change is part of the "convergence" of U.S. and global accounting rules, which has been pushed to the end of this year.
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Investor 'Say on Pay' Is a Bust
Bloomberg Businessweek (06/16/11) Helyar, John

Shareholders could vote on executive pay for the first time this year thanks to the passage of the Dodd-Frank Act. But while Institutional Shareholder Services (ISS) has recommended nay votes on pay for 293 companies so far in 2011, through June 14 a majority has voted against pay plans at a mere 32 of 1,998 companies that have convened annual meetings this year. "Say-on-pay is at best a diversion and at worst a deception," says ISS founder Robert A.G. Monks. "You only have the appearance of reform, and it's a cruel hoax." The Center on Executive Compensation is considered partially responsible for the low incidence of no votes, because it advised firms that received negative ISS recommendations to send rebuttals to shareholders and cautioned the nation's 100 largest institutional investors about possible "bias and errors" in proxy advisers' recommendations. The center also published a white paper stating that ISS has published errors, is too powerful, and has conflicts of interest because it both consults with some firms on corporate governance and issues proxy voting recommendations on them. ISS executive director Patrick McGurn denies these allegations. Many companies' rebuttals against ISS recommendations in letters to shareholders, encouraged by the Center on Executive Compensation, have been effective.
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Should Proxy Advisors Share Blame for Say-on-Pay's Failure?
Wall Street Journal (06/16/11)

In a June 16 story, Bloomberg Businessweek declared say on pay a bust, highlighting the fact that shareholders rejected executive compensation at fewer than 2 percent of public companies in 2011. To be fair, negative votes were not the primary objective of say on pay, which aimed to integrate compensation with shareholder goals and discourage excessive corporate risk taking. But small victories along the way are likely little consolation to the major proxy advisory firms making recommendations to shareholders. Proxy firm Institutional Shareholder Services (ISS) suggested shareholders give negative votes to the pay plans at 293 companies, according to the Businessweek article. The overwhelming majority of those objections were not heeded. Some analysts, like David Larcker at the Stanford Graduate School of Business, believe the proxy firms are neglecting to make their case to investors because it is unclear how valuable their recommendations are. Part of the issue, he says, is how the firms justify their recommendations. For instance, ISS says it evaluates companies on a case-by-case basis, but frequently seems to make blanket objections to practices like income tax gross-up payments on C-suite perks and certain kinds of guaranteed bonuses. "Companies may be being held to a largely arbitrary standard," Larcker stated. "Sometimes you have to change your pay practices in a way that instills better incentives and that sometimes requires pay to go up. It's not obvious that this has bad consequences." ISS says it reviews academic studies to form its approach on stock options, option exchanges, tax gross-up payments, and shareholder transfer calculations, among others, and also meets with institutional investors to determine which compensation practices they are focused on when it brainstorms recommendations.
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Brokers Scramble as Naked Access Ban Nears
Traders Magazine (06/11) Armstrong, James

The practice of brokers offering unfiltered or "naked" access to exchanges and alternative trading systems will be prohibited with the enactment of the Securities and Exchange Commission's (SEC's) new market access rule on July 14, and this has brokers dashing to comply with a set of regulations that are bewildering to many and are likely to be costlier than originally expected. "There have been some questions as to interpretation of what the Commission is asking [brokers] to do and how they are going to approach doing it," says consultant Michael O'Conor. Brokers currently supplying naked access only monitor their clients' trades after the fact, if at all. In November, the SEC said the costs associated with compliance would be warranted by new market integrity and efficiency safeguards, and it calculated that the industry would have to spend about $22 million on hardware and software to implement the rule. Continuing annual compliance costs would amount to about $28.2 million. However, John Jacobs of Lime Brokerage says that for firms used to providing naked access the costs could be substantially more than those anticipated averages. Firms offering naked access have a tendency to cater to high-frequency traders, and providing pre-trade controls while also sustaining low latency will be expensive, Jacobs says. Under the new regulation brokers will not only be required to ensure that sponsored access clients are following procedures to prevent accidental or improper trades, but also to guarantee that clients adhere to exchange rules. SunGard Global Trading's Chris Lees warns that if a sponsored access client breaks a rule of one of the exchanges, the sponsoring broker would not only be liable for a fine from the exchange, it could also be hit with enforcement action from the SEC. Brokers will still be permitted to offer sponsored access under the new rule, but this access would have to be accompanied by certain restrictions imposed by the broker.
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US Regulators: Working With Foreign Regulators on New Rules
Dow Jones Newswires (06/16/11) Trindle, Jamila; Sparshott, Jeffrey

Officials from the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) say they are working with regulators overseas to develop new rules governing over-the-counter derivatives markets. Mary Schapiro, the chairwoman of the SEC, said in her testimony before a recent House Financial Services Committee hearing that her agency was working with foreign regulators to develop common frameworks that would prevent market participants from engaging in regulatory arbitrage. She added that the studies and rulemakings the SEC is required to perform under the Dodd-Frank Act could have an impact on U.S. companies and investors that are trying to obtain access to financial markets overseas. In fact, banks and firms that use swaps fear the regulatory framework being developed by the SEC and the CFTC will place a heavy burden on U.S. companies and will put them at a disadvantage in markets in other countries.
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Pay Down, Politics Up
Inside Investor Relations (06/16/11) Chambers, James

Shareholder proposals dealing with executive compensation have comprised just 12 percent of the total number of proposals tabled at the annual meetings of U.S. Fortune 100 firms so far this year, a decline of 30 percent, according to James Copland, a director of the Manhattan Institute for Policy Research. Copland attributed the findings to the Dodd-Frank Act's requirements for shareholders to hold say-on-pay votes at annual meetings. Meanwhile, shareholder proposals dealing with political spending accounted for nearly a third of the total number of proposals at annual meetings so far this year, an increase of 13 percent, Copland said. Most of these proposals were made by labor unions, social funds, and religious groups. None were approved by shareholders. The number of shareholder proposals related to political spending is likely to continue to increase as the 2012 presidential election approaches.
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Republicans Seek Economic Analysis of Dodd-Frank
Reuters (06/15/11) Wutkowski, Karey; Dobbyn, Tim

Republicans on the Senate Banking Committee will examine whether regulators are doing enough to study the economic repercussions of dozens of financial reforms. Chairman Richard Shelby (R-Ala.) and nine other Republicans said they will carry out "in-depth briefings" with the internal watchdogs of the Commodity Futures Trading Commission, the Securities and Exchange Commission, the Federal Reserve, and other regulators. The Republicans' call for the probe comes days after JPMorgan Chase CEO Jamie Dimon publicly took Fed Chairman Ben Bernanke to task on the issue. Republican legislators, along with those impacted by the 2010 Dodd-Frank reform law, have accused regulators of emphasizing speed over pragmatism in writing new rules.
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Ghost of Enron Wreaks New Havoc on Exec Pay
CFO (06/11) Liazos, Andrew

More than 30 public companies had negative say-on-pay votes as of June 6, and now Section 409A of the Internal Revenue Code is causing more problems. Enacted in response to the Enron debacle, Section 409A restricts when and how nonqualified deferred compensation may be paid without triggering immediate tax upon vesting. Enron was reported to have accelerated payment of unfunded retirement arrangements to its executives shortly before filing for bankruptcy. The rule with regard to compensation extended in "substitution" for forfeited or forgone payments of deferred compensation is particularly challenging because the Internal Revenue Service's (IRS's) final regulations may make it difficult to replace problematic deferred compensation arrangements without triggering adverse tax consequences for executives. In general, Section 409A covers an arrangement if the executive has a legally binding right to compensation in a later taxable year. Compensation subject to Section 409A includes excessive Supplemental Early Retirement Plans. Section 409A also applies to severance benefits subject to walk-away or liberal good reason provisions; certain types of tax gross-up provisions; delayed incentive payments due to adding or changing vesting conditions after grant; time-based restricted stock units with stock issued after March 15 of the year immediately following vesting; and perquisites in the nature of an employer reimbursement payable over more than one year. The IRS has not indicated whether it will provide relief that will be helpful in facilitating the restructuring of executive pay packages following negative or unfavorable say-on-pay votes.
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HFT Under the Spotlight
FOW (06/11) Coroneos, Elise

High-frequency trading (HFT) has come under increased scrutiny in the wake of the May 6, 2010, flash crash. A joint report from the Commodity Futures Trading Commission (CFTC)/Securities and Exchange Commission (SEC) Advisory Committee on Emerging Regulatory Issues in February 2011 made recommendations that included expanding the current single stock circuit breaker, imposing market-wide "limit up/limit down" features on trading, narrowing the band of prices able to be traded by rapidly declining stocks, and obligating futures exchanges to impose an additional tier of pre-trade risk protections against volatility. In April the SEC proposed supplanting circuit breakers with the limit up/limit down rule, which effectively would create a 15 second moving-window price collar. The first round of measures to address perceived inadequacies in the market system concentrated on trading pauses and the removal of unfiltered access, while it is expected that when the final mandates are disclosed in the United States and Europe, they will include liquidity incentives or obligations for HFT firms. The CFTC Technology Advisory Committee said separately that it plans to retain the advantages of electronic trading while also looking to check new risks that had been consequently generated. The report emphasized three areas of the electronic trading chain which could be subject to new requirements--trading firms, clearing firms, and exchanges. But rather than proposing an array of new rules which the CFTC would be responsible for regulating, the committee proposed using a series of checks by the three areas of the trading chain to guarantee that HFT did not damage the market. The report conceded that the ability to enforce new regulations would be too expensive, so instead it recommended the trading firms be required to demonstrate to the exchange the existence of "reasonable measures" in their processes and systems before being sanctioned to trade. HFT is evolving to make inroads into new markets such as commodities futures, FX, and energy. Moving ahead, the challenge will be to ensure regulation does not cover all markets with the same mandates.
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June 21, 2011