117 th annual illinois banker’s conference june 25-27, 2008 corporate governance best practices

Silver, Freedman & Taff, L.L.P.Silver, Freedman & Taff, L.L.P. 11

117th Annual Illinois Banker’s Conference

June 25-27, 2008

Corporate Governance Best Practices Presented By:Dave Muchnikoff

Silver, Freedman & Taff, L.L.P.3299 K Street, N.W., Suite 100

Washington, D.C. 20007(202) [email protected]


Corporate GovernanceCorporate Governance

USA Today, 2-18-08



Why Corporate Governance – other Why Corporate Governance – other than because banking and than because banking and

securities laws and regulations securities laws and regulations says you must?says you must?



What is your bankWhat is your bank’’s legal status? s legal status? The rules on corporate governance The rules on corporate governance are different depending on that are different depending on that legal status:legal status:

Non-publicly reporting bank or bank Non-publicly reporting bank or bank holding companyholding company

Publicly-reporting bank or bank Publicly-reporting bank or bank holding companyholding company

Stock listed on NASDAQ or NYSE or Stock listed on NASDAQ or NYSE or AmExAmEx

Assets of less than $500 millionAssets of less than $500 million Assets of $500 million or moreAssets of $500 million or more Assets of $3 billion or moreAssets of $3 billion or more



Fiduciary ObligationsFiduciary Obligations

Directors have Directors have ““a duty to attempt in good faith to a duty to attempt in good faith to assure that a corporate information and reporting assure that a corporate information and reporting system, which the board concludes is adequate, exists…system, which the board concludes is adequate, exists…failure to do so…may…render a director liable for losses failure to do so…may…render a director liable for losses causes by non-compliance with legal standards. causes by non-compliance with legal standards.””

In re Caremark IntIn re Caremark Int’’l. Inc. Deriv. Litig., l. Inc. Deriv. Litig., 698 A. 2d 959, 698 A. 2d 959, 970970 (Del. Ch. 1996)(Del. Ch. 1996)

Board liability exists if, after Board liability exists if, after ““having implemented having implemented [a reporting or information system or controls, the [a reporting or information system or controls, the Board] consciously fail[s] to monitor or oversee its Board] consciously fail[s] to monitor or oversee its operation, thus disabling themselves from being informed operation, thus disabling themselves from being informed of risks or problems requiring their attentionof risks or problems requiring their attention””

Stone v. Ritter, 911 A.2d 362, 370 Stone v. Ritter, 911 A.2d 362, 370 (Del 2006)(Del 2006)



Federal Sentencing Guidelines – Federal Sentencing Guidelines – OverviewOverview

Culture of Compliance – Culture of Compliance – §8B2.1(a): company must §8B2.1(a): company must exercise due diligence to prevent and detect criminal exercise due diligence to prevent and detect criminal conduct and otherwise promote a culture that encourages conduct and otherwise promote a culture that encourages ethical conduct and a commitment to compliance with lawethical conduct and a commitment to compliance with law

Director/senior management visible commitment Director/senior management visible commitment to clearly articulated values is vitalto clearly articulated values is vital

Companies/executive penalized when corporate Companies/executive penalized when corporate culture found to be unethicalculture found to be unethical

Board Leadership/Oversight – Board Leadership/Oversight – §8B2.1(b)(2): §8B2.1(b)(2): directors must take an active leadership role, be directors must take an active leadership role, be knowledgeable about the content and operation of knowledgeable about the content and operation of the ethics and compliance program and exercise the ethics and compliance program and exercise reasonable oversight over it implementation and reasonable oversight over it implementation and effectivenesseffectivenessTrain Everyone – Train Everyone – §8B2.1(b)(4): compliance and §8B2.1(b)(4): compliance and ethics training includes the board and senior ethics training includes the board and senior managementmanagement


What Did Sarbanes-Oxley What Did Sarbanes-Oxley Give Us?Give Us?

Greater transparencyGreater transparency

Increased scrutinyIncreased scrutiny

More vocal shareholder More vocal shareholder activistsactivists

Unprecedented media visibilityUnprecedented media visibility


Shareholder Shareholder frustration and frustration and anger.anger.

Majority voting and Majority voting and proxy access proxy access

Executive Executive Compensation and Compensation and Option BackdatingOption Backdating

Section 404 Section 404 refinementrefinement


Rise of shareholder activismRise of shareholder activism Acceptance, proliferation of Acceptance, proliferation of governance ratingsgovernance ratings

CEO compensation and successionCEO compensation and succession Ratcheting up involvement in director Ratcheting up involvement in director successionsuccession

Classified vs. annual electionsClassified vs. annual elections Majority voting vs. pluralityMajority voting vs. plurality Targeting of individual director Targeting of individual director nominees for withhold/no votesnominees for withhold/no votes

Say on PaySay on Pay

What Did Sarbanes-Oxley Give What Did Sarbanes-Oxley Give Us?Us?



Danco & Jonovic 1990


Corporate Governance Best Practices

Topics: Board Self-EvaluationsBoard Self-Evaluations Majority Voting and Other Director Election DevelopmentsMajority Voting and Other Director Election Developments Tally Sheets and Other Compensation Committee Best PracticesTally Sheets and Other Compensation Committee Best Practices Equity Grant ProceduresEquity Grant Procedures CEO Succession PlanningCEO Succession Planning Reminders Reminders



Board Self-EvaluationsBoard Self-Evaluations


General Process by which a board or board committee Process by which a board or board committee assesses its own performance with the goal assesses its own performance with the goal of enhancing future effectiveness by of enhancing future effectiveness by identifying strengths and weaknesses in the identifying strengths and weaknesses in the primary areas of the board’s or committee’s primary areas of the board’s or committee’s responsibilities.responsibilities.

Required for NYSE-listed companies, Required for NYSE-listed companies, optional for all others.optional for all others.

As with most things, there are pros and As with most things, there are pros and cons.cons.



Benefits Compels directors to identify strengths and Compels directors to identify strengths and weaknesses and assess how the board or committee weaknesses and assess how the board or committee has actually been functioning compared to how it has actually been functioning compared to how it should be functioning.should be functioning.

Can identify potential problem areas before they Can identify potential problem areas before they become real problems.become real problems.

Fosters better communication among directors.Fosters better communication among directors. Helps re-focus directors on long-term goals and Helps re-focus directors on long-term goals and strategies.strategies.

Assists with director nomination process.Assists with director nomination process. Improves directors’ sense of personal Improves directors’ sense of personal accountability.accountability.



RisksRisks Information gathered discoverable in Information gathered discoverable in litigation.litigation.

Ways to mitigate:Ways to mitigate: Limit retention of written materials.Limit retention of written materials. Follow-up and take corrective action.Follow-up and take corrective action.

Can negatively affect board Can negatively affect board collegiality and discourage board collegiality and discourage board service.service.



Oversight of ProcessOversight of Process For NYSE-listed companies, must be For NYSE-listed companies, must be nominating/corporate governance committee.nominating/corporate governance committee.

Audit, compensation and Audit, compensation and nominating/corporate governance committees nominating/corporate governance committees of NYSE-listed companies must conduct of NYSE-listed companies must conduct their own self-evaluations.their own self-evaluations.

For non-NYSE-listed companies, should be For non-NYSE-listed companies, should be committee charged with corporate committee charged with corporate governance matters or some other governance matters or some other independent body of the board.independent body of the board.

Use of outside parties (e.g., counsel, Use of outside parties (e.g., counsel, consultants).consultants).



How to ConductHow to Conduct No requirements – board/committee No requirements – board/committee needs to decide what’s right for it.needs to decide what’s right for it.

QuestionnairesQuestionnaires InterviewsInterviews Board discussionBoard discussion Summary reportSummary report Follow up!!Follow up!!



Performance ObjectivesPerformance Objectives Again, no “one size fits all.” Typical Again, no “one size fits all.” Typical areas of coverage include:areas of coverage include: Role of the board.Role of the board. Board organization and composition.Board organization and composition. Board meetings.Board meetings. Board compensation.Board compensation.

Committee evaluations should cover same Committee evaluations should cover same areas plus check how well committees areas plus check how well committees are performing their obligations are performing their obligations outlined in committee charters.outlined in committee charters.



Individual Director EvaluationsIndividual Director Evaluations Controversial.Controversial. Benefits include:Benefits include:

More direct feedback to directors.More direct feedback to directors. Early warning system for problem directors; Early warning system for problem directors; opportunity to turn things around.opportunity to turn things around.

Instills stronger sense of personal Instills stronger sense of personal accountability.accountability.

Risks include:Risks include: Negative effect on board collegiality.Negative effect on board collegiality. Reluctance of directors to criticize peers.Reluctance of directors to criticize peers. Discourage new directors from joining board and Discourage new directors from joining board and may lead existing directors to leave board.may lead existing directors to leave board.

Encourage counterproductive participation.Encourage counterproductive participation. Liability risk.Liability risk.



Methods of Conducting Individual Methods of Conducting Individual Director EvaluationsDirector Evaluations

Chairman or lead director evaluates Chairman or lead director evaluates each director.each director.

Self-assessment questionnaires.Self-assessment questionnaires. Peer evaluations.Peer evaluations.



Public Disclosure of EvaluationsPublic Disclosure of Evaluations Only the fact that they’re Only the fact that they’re performed, but not the results.performed, but not the results.

Can be communicated in proxy Can be communicated in proxy statement or in corporate governance statement or in corporate governance guidelines, if company has them.guidelines, if company has them.



Director Director NominationsNominations

Ongoing board evaluation Ongoing board evaluation is the keyis the key

Selection and replacement Selection and replacement of directorsof directors Should reflect the Should reflect the

strategic direction of strategic direction of the companythe company

Are competencies Are competencies continuously aligned with continuously aligned with strategic challenges?strategic challenges?

Do directors spend the Do directors spend the necessary time?necessary time?


Do directors feel they Do directors feel they automatically stay automatically stay until retirement?until retirement?

Do you have a Do you have a formalized selection formalized selection process?process?

Do directors have Do directors have first-hand experience first-hand experience with characteristics of with characteristics of high-performing high-performing companies?companies?

Are board members Are board members engaged?engaged?


Majority Voting and Other Majority Voting and Other Director Election Director Election DevelopmentsDevelopments


OverviewOverview Historically, most companies used a plurality Historically, most companies used a plurality standard – whoever gets the most votes for the standard – whoever gets the most votes for the position wins.position wins.

Critics say not meaningful where election Critics say not meaningful where election uncontested, as it only takes one vote to get uncontested, as it only takes one vote to get elected.elected.

Under majority voting, number of votes cast for Under majority voting, number of votes cast for must exceed number withheld (or cast against, if must exceed number withheld (or cast against, if applicable).applicable).

Majority of companies in S&P 500 have adopted Majority of companies in S&P 500 have adopted majority voting.majority voting.

Companies without significant institutional Companies without significant institutional shareholder bases less likely to feel pressure to shareholder bases less likely to feel pressure to follow suit.follow suit.

Majority Voting and Majority Voting and Other Director Election Other Director Election

DevelopmentsDevelopments


Implementation OptionsImplementation Options PolicyPolicy Bylaw amendmentBylaw amendment Charter amendmentCharter amendment




Legal/Practical IssuesLegal/Practical Issues Resignation of directors who don’t Resignation of directors who don’t receive requisite majority vote.receive requisite majority vote.

Board can find itself in Catch-22 Board can find itself in Catch-22 situation.situation.

Contested elections.Contested elections.




Other Important ConsiderationsOther Important Considerations Proposed elimination of broker voting Proposed elimination of broker voting discretion for uncontested elections.discretion for uncontested elections.

E-proxy (notice and access model) now E-proxy (notice and access model) now available for companies available for companies and dissident and dissident stockholdersstockholders starting. Can make it starting. Can make it easier for dissidents to wage proxy easier for dissidents to wage proxy contests.contests.

Movement for shareholder access to Movement for shareholder access to management’s proxy materials.management’s proxy materials.




Related Initiatives by Corporate Related Initiatives by Corporate Governance Reform ActivistsGovernance Reform Activists

Board declassification.Board declassification. Elimination of “shark repellants” Elimination of “shark repellants” and other supermajority vote charter and other supermajority vote charter provisions.provisions.




Tally Sheets and Other Tally Sheets and Other Compensation Committee Compensation Committee

Best PracticesBest Practices


Wall Street Journal, 4-14-08

Tally Sheets and Other Tally Sheets and Other Compensation Committee Best Compensation Committee Best

PracticesPractices


What is a tally sheet?What is a tally sheet? Centerpiece of best compensation committee Centerpiece of best compensation committee practices.practices.

Identification and quantification of all Identification and quantification of all elements of the executive’s pay, including elements of the executive’s pay, including compensation that would be owed to him or her compensation that would be owed to him or her upon retirement or other termination of upon retirement or other termination of employment.employment.

Shouldn’t just be an annual exercise – tally Shouldn’t just be an annual exercise – tally sheet should be reviewed and discussed before sheet should be reviewed and discussed before making making any any decision on the executive’s pay. decision on the executive’s pay.


PracticesPractices


What should go into the tally sheet?What should go into the tally sheet? Tailored to fit each executive’s Tailored to fit each executive’s compensation package.compensation package.

Should capture all elements. Should capture all elements. Can generally track SEC compensation Can generally track SEC compensation disclosure rules, but not a perfect fit.disclosure rules, but not a perfect fit.

Numerical components of tally sheet will be Numerical components of tally sheet will be reflected in various areas of compensation reflected in various areas of compensation disclosures.disclosures.

Disclosure of compensation committee Disclosure of compensation committee practices should include discussion of practices should include discussion of tally sheet exercise. tally sheet exercise.


PracticesPractices


Other Things Compensation Committees Should Be DoingOther Things Compensation Committees Should Be Doing Reevaluate compensation philosophies and Reevaluate compensation philosophies and

components of existing program.components of existing program. Accumulated wealth analysisAccumulated wealth analysis Survey use – don’t cherry pick.Survey use – don’t cherry pick. Internal pay equity.Internal pay equity. Employment agreement provisions:Employment agreement provisions:

Evergreen ProvisionsEvergreen Provisions Definition of “termination for cause”Definition of “termination for cause” Change in Control payoutsChange in Control payouts Gross UpsGross Ups

Compensation consultants should be engaged by and Compensation consultants should be engaged by and report directly to the compensation committee.report directly to the compensation committee.

Annually review compensation committee charter.Annually review compensation committee charter. Director Compensation:Director Compensation:

Trend away from meeting fees in favor of annual Trend away from meeting fees in favor of annual retainersretainers

Increased proportion of pay in equityIncreased proportion of pay in equity General disdain for director “retirement” plansGeneral disdain for director “retirement” plans Reduction or discontinuation of perquisitesReduction or discontinuation of perquisites


PracticesPractices


(New Math) (New Math) (SEC Rules) +(SEC Rules) +

Proxy=ConfusionProxy=Confusion

* * ** * *

Firms Disclose FormulasFirms Disclose FormulasBehind Executive Pay,Behind Executive Pay,Leaving Many BaffledLeaving Many Baffled

(New Math) (New Math) (SEC Rules) +(SEC Rules) +

Proxy=ConfusionProxy=Confusion

* * ** * *

Firms Disclose FormulasFirms Disclose FormulasBehind Executive Pay,Behind Executive Pay,Leaving Many BaffledLeaving Many Baffled

Wall Street Journal, 3-21-08


Washington Post, 5-5-08


Equity Grant ProceduresEquity Grant Procedures


Washington Post, 5-14-08


GeneralGeneral Still a white hot area – numerous SEC Still a white hot area – numerous SEC investigations ongoing and shareholder investigations ongoing and shareholder lawsuits filed, and guilty pleas lawsuits filed, and guilty pleas continuing to roll-in for backdating. continuing to roll-in for backdating. Recent Broadcom enforcement action Recent Broadcom enforcement action shows SEC’s interest has not waned.shows SEC’s interest has not waned.

Restatements.Restatements.



Practices Being ScrutinizedPractices Being Scrutinized BackdatingBackdating - choosing a grant date with the - choosing a grant date with the benefit of hindsight so that the date benefit of hindsight so that the date selected is earlier than the date on which selected is earlier than the date on which the grant was actually approved, with the the grant was actually approved, with the selected grant date usually being a date on selected grant date usually being a date on which the market price is lower than the date which the market price is lower than the date on which the grant is actually approved.on which the grant is actually approved.

Spring-LoadingSpring-Loading - the granting of equity - the granting of equity awards in anticipation of the issuer’s awards in anticipation of the issuer’s disclosure of material information that is disclosure of material information that is likely to have a positive effect on the likely to have a positive effect on the issuer’s stock price.issuer’s stock price.

BulletBullet DodgingDodging - purposefully waiting until - purposefully waiting until material negative information is publicly material negative information is publicly disclosed before granting an equity award.disclosed before granting an equity award.



Why are these practices problematic?Why are these practices problematic? Effectively results in discounted options; Effectively results in discounted options; most shareholder-approved plans require most shareholder-approved plans require options to be granted “at the market” or at options to be granted “at the market” or at a premium.a premium.

Potentially a breach of directors’ fiduciary Potentially a breach of directors’ fiduciary duties.duties.

Potential restatements.Potential restatements. Big potential tax problems if options Big potential tax problems if options purporting to be granted “at the market” are purporting to be granted “at the market” are later determined to be below market:later determined to be below market: Lose ISO treatment, if intended.Lose ISO treatment, if intended. Won’t qualify as “performance-based compensation” Won’t qualify as “performance-based compensation” under Internal Revenue Code Section 162(m).under Internal Revenue Code Section 162(m).

Constitutes deferred compensation under Internal Constitutes deferred compensation under Internal Revenue Code Section 409A, potentially resulting Revenue Code Section 409A, potentially resulting in excise tax on executive.in excise tax on executive.



What should be done to minimize risk What should be done to minimize risk of problems?of problems?

Review existing equity grant Review existing equity grant practices.practices.

Tighten internal controls.Tighten internal controls. Adopt formal written grant policy.Adopt formal written grant policy.



Adopting an Equity Grant PolicyAdopting an Equity Grant Policy No “one size fits all” approach.No “one size fits all” approach. Determine role played by equity grants in Determine role played by equity grants in overall compensation programs.overall compensation programs.

Key components:Key components: Frequency and timing of grants – consider limiting to Frequency and timing of grants – consider limiting to fixed dates or during open trading windows.fixed dates or during open trading windows.

Designate equity grants compliance person(s).Designate equity grants compliance person(s). Delegation of grant authority to officers – critical Delegation of grant authority to officers – critical to ensure permissibility of delegation under state to ensure permissibility of delegation under state law and plan documents. Delegation should not cover law and plan documents. Delegation should not cover grants to Section 16 reporting persons (i.e., Form 4 grants to Section 16 reporting persons (i.e., Form 4 filers).filers).

Limit grant approvals to in-person or telephonic Limit grant approvals to in-person or telephonic meetings of board or compensation committee and avoid meetings of board or compensation committee and avoid written consents if possible. If written consents written consents if possible. If written consents must be utilized, do not use “as of” dating.must be utilized, do not use “as of” dating.

Forms of equity award agreements. Should be approved Forms of equity award agreements. Should be approved by compensation committee before grants are made and by compensation committee before grants are made and executed as soon as possible after grants are made. executed as soon as possible after grants are made. If multiple forms of agreements are used depending on If multiple forms of agreements are used depending on level of employee, critical to have controls in place level of employee, critical to have controls in place to ensure right form of agreement used. to ensure right form of agreement used.



SEC Compensation Disclosure ImplicationsSEC Compensation Disclosure Implications CD&A should include disclosure of any CD&A should include disclosure of any practices of timing equity grants in practices of timing equity grants in coordination with public release of coordination with public release of material information.material information.

Disclosure required in “Grants of Plan-Disclosure required in “Grants of Plan-Based Awards” table if date on which Based Awards” table if date on which compensation committee approves award compensation committee approves award differs from grant date or if exercise differs from grant date or if exercise price of a stock option differs from price of a stock option differs from closing price on grant date. closing price on grant date.



CEO Succession PlanningCEO Succession Planning


Why Is It Important?Why Is It Important? CEO plays critical role in implementation and CEO plays critical role in implementation and development of strategic policy.development of strategic policy.

Company always needs to be prepared for a Company always needs to be prepared for a change in top executive position, regardless change in top executive position, regardless of CEO’s age. of CEO’s age.

CEO’s departure could be sudden and CEO’s departure could be sudden and unexpected or known well in advance – company unexpected or known well in advance – company needs to prepare for either contingency.needs to prepare for either contingency.

Delays in replacing CEO may raise investor Delays in replacing CEO may raise investor and employee angst. and employee angst.

Important to plan for succession of other key Important to plan for succession of other key senior executive positions for many of the senior executive positions for many of the same reasons.same reasons.



What Should a Succession Plan Entail?What Should a Succession Plan Entail? Prepare early: 3-5 years outPrepare early: 3-5 years out No “one size fits all.”No “one size fits all.” Determine who will lead process. Usually an Determine who will lead process. Usually an independent committee, such as compensation or independent committee, such as compensation or nominating/corporate governance.nominating/corporate governance.

Communicate/partner with CEO.Communicate/partner with CEO. Should cover CEO and other senior executive Should cover CEO and other senior executive positions.positions.

Reflect board’s understanding of critical factors Reflect board’s understanding of critical factors to company’s future success, direction and to company’s future success, direction and culture.culture.

Identify and periodically update qualities and Identify and periodically update qualities and characteristics for effective CEO.characteristics for effective CEO.

Should cover sudden and unexpected departures as Should cover sudden and unexpected departures as well as planned successions.well as planned successions.

Tie succession planning to the strategic business Tie succession planning to the strategic business plan.plan.

Stockholder preferencesStockholder preferences Consider insiders before going outside.Consider insiders before going outside.



Succession Planning at Community Succession Planning at Community BanksBanks

Hiring leaders from the outside is riskyHiring leaders from the outside is risky Lack of continuityLack of continuity Less loyaltyLess loyalty Can be disruptive, hurt morale and change the culture – Can be disruptive, hurt morale and change the culture –

sometimes for the better but often for the worsesometimes for the better but often for the worse Outside candidates are far more likely to fail than Outside candidates are far more likely to fail than

internally developed candidatesinternally developed candidates Easier for the board to make the wrong choice with an Easier for the board to make the wrong choice with an

outside candidate, particularly if selection criteria outside candidate, particularly if selection criteria are not definedare not defined

Promoting leaders from the inside can have its issuesPromoting leaders from the inside can have its issues Reward longevity or loyalty, not talentReward longevity or loyalty, not talent Lack of development program or processLack of development program or process Lose opportunity for Lose opportunity for ““cross-pollinationcross-pollination”” from other from other institutionsinstitutions

But still generally better to grow and develop But still generally better to grow and develop leadersleaders


Succession Planning at Succession Planning at Community BanksCommunity Banks


Reminder AreasReminder Areas


RemindersReminders Executive Sessions of DirectorsExecutive Sessions of Directors Approval of Related Party Approval of Related Party TransactionsTransactions

Insider Trading MattersInsider Trading Matters Regular Review of Committee Charters Regular Review of Committee Charters and Other Corporate Governance and Other Corporate Governance Documents and Additional Documents and Additional ConsiderationsConsiderations



Executive SessionsExecutive Sessions Under NYSE rules, non-management directors must Under NYSE rules, non-management directors must meet at regularly scheduled executive sessions meet at regularly scheduled executive sessions outside management’s presence, and if any non-outside management’s presence, and if any non-management director is not independent, management director is not independent, independent directors must meet in executive independent directors must meet in executive session at least annually.session at least annually.

Under NASDAQ and AMEX rules, independent Under NASDAQ and AMEX rules, independent directors must meet in regularly scheduled directors must meet in regularly scheduled executive sessions.executive sessions.

““Regularly” not defined in NYSE or NASDAQ Regularly” not defined in NYSE or NASDAQ rules, but should be at least twice a year. rules, but should be at least twice a year. AMEX requires at least one executive session AMEX requires at least one executive session annually.annually.

No limit on potential topics of discussion, but No limit on potential topics of discussion, but can’t act in lieu of full board. can’t act in lieu of full board.

Who should lead sessions?Who should lead sessions? Minutes of executive sessions and feedback Minutes of executive sessions and feedback given to management. given to management.



Related Party TransactionsRelated Party Transactions Under NYSE, NASDAQ and AMEX rules, audit Under NYSE, NASDAQ and AMEX rules, audit committee or other “independent body” of committee or other “independent body” of directors must review and approve related directors must review and approve related party transactions.party transactions.

SEC disclosure threshold raised from $60,000 SEC disclosure threshold raised from $60,000 to $120,000, but must identify any to $120,000, but must identify any transactions below this level involving transactions below this level involving independent directors.independent directors.

SEC rules also now require discussion of SEC rules also now require discussion of policies and procedures for review and policies and procedures for review and approval of related party transactions.approval of related party transactions.

Must identify any transaction where policies Must identify any transaction where policies and procedures not followed.and procedures not followed.



Insider Trading MattersInsider Trading Matters Insider trading “alive and well.”Insider trading “alive and well.” If don’t have a written insider trading policy, If don’t have a written insider trading policy, adopt one now.adopt one now.

Appropriate window/blackout periods.Appropriate window/blackout periods. Directors and Section 16 officers not only ones Directors and Section 16 officers not only ones who should be subject to window/blackout periods who should be subject to window/blackout periods – – anyoneanyone with regular access to material inside with regular access to material inside information should have to follow them.information should have to follow them.

10b5-1 plans – for insiders and issuers. SEC 10b5-1 plans – for insiders and issuers. SEC closely scrutinizing for abuse.closely scrutinizing for abuse.

Regularly review who Section 16 reporting Regularly review who Section 16 reporting officers are; consider having board adopt officers are; consider having board adopt resolution designating these persons.resolution designating these persons.

Require all directors and Section 16 officers to Require all directors and Section 16 officers to notify filing coordinator in advance to ensure notify filing coordinator in advance to ensure timely Form 4 filing timely Form 4 filing andand avoidance of short-swing avoidance of short-swing profit liability.profit liability.



Regular Review of Committee Charters and Other Regular Review of Committee Charters and Other Corporate Governance Documents and Additional Corporate Governance Documents and Additional ConsiderationsConsiderations

Use as checklists to make sure board and key Use as checklists to make sure board and key committees doing what they’re supposed to be doing committees doing what they’re supposed to be doing and update as needed. Also review codes of conduct and update as needed. Also review codes of conduct for same purpose.for same purpose.

When rotating committee assignments, make sure When rotating committee assignments, make sure members satisfy applicable independence and other members satisfy applicable independence and other membership requirements: membership requirements: Audit: general NYSE/NASDAQ/AMEX independence Audit: general NYSE/NASDAQ/AMEX independence definition, heightened independence standard of SEC definition, heightened independence standard of SEC Rule 10A-3 and financial sophistication requirements.Rule 10A-3 and financial sophistication requirements.

Compensation: general NYSE/NASDAQ/AMEX independence Compensation: general NYSE/NASDAQ/AMEX independence definition plus “Non-Employee Director” definition of definition plus “Non-Employee Director” definition of SEC Rule 16b-3 and “Outside Director” definition of SEC Rule 16b-3 and “Outside Director” definition of Internal Revenue Code Section 162(m).Internal Revenue Code Section 162(m).

Corporate governance guidelines not required unless Corporate governance guidelines not required unless listed on NYSE; if adopting voluntarily, don’t set listed on NYSE; if adopting voluntarily, don’t set too many rules to follow.too many rules to follow.



Dave M. MuchnikoffDave M. Muchnikoff

Former Senior Attorney Former Senior Attorney and Assistant Branch and Assistant Branch Chief, SEC Division of Chief, SEC Division of CorporationCorporation

Selected to 2005 BTI Selected to 2005 BTI Client All-Star Team Client All-Star Team level on a Survey of level on a Survey of Fortune 1000 companiesFortune 1000 companies

Certified Public Certified Public AccountantAccountant

Frequent contributor on Frequent contributor on financial institution financial institution issues to financial issues to financial services organizations.services organizations.

Specializing in SEC Specializing in SEC reporting, corporate reporting, corporate governance, public and governance, public and private debt and equity private debt and equity offerings, mergers and offerings, mergers and acquisitions, charter acquisitions, charter alternatives, bulk loan alternatives, bulk loan sales and purchases and sales and purchases and securitizations.securitizations.


Silver, Freedman & Silver, Freedman & Taff, L.L.P.Taff, L.L.P.

Our attorneys Our attorneys regularly regularly practice in the practice in the financial financial institutions area institutions area with many having with many having governmental governmental experience. We experience. We have represented have represented over 300 over 300 financial financial institutions over institutions over the past 30 the past 30 years. years.

Debt and Equity Securities Debt and Equity Securities OfferingsOfferings

SEC and Shareholder ReportingSEC and Shareholder Reporting RecapitalizationsRecapitalizations Compensation and Employee Compensation and Employee

Benefit MattersBenefit Matters SecuritizationsSecuritizations Credit Union to Thrift Credit Union to Thrift

ConversionsConversions Mergers and Acquisitions Mergers and Acquisitions Charter ConversionsCharter Conversions Holding Company and MHC Holding Company and MHC

Formations/ReorganizationsFormations/Reorganizations Bank and Thrift De Novo Bank and Thrift De Novo

FormationsFormations Regulatory and Enforcement Regulatory and Enforcement

MattersMatters


THANK YOUTHANK YOUTHANK YOUTHANK YOU

117 th annual illinois banker’s conference june 25-27, 2008 corporate governance best practices

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