FEI Introduces New 'Associate' Member Category

Yesterday, Financial Executives International issued a press release announcing a new 'Associate Member' category:

The Board of Directors of Financial Executives International (FEI), the association of choice for CFOs and other senior-level finance executives, today approved the addition of a new class to its membership structure through the addition of the 'Associate' category.

This new category, which will take effect immediately, was established to enable talented, motivated financial professionals to have ongoing opportunities for personal and professional growth as their careers advance. The result of this addition will be a larger, more influential association in the finance and accounting community....

... Associate members will enjoy many of the rights, privileges and services of the existing FEI membership. All applicants for membership for this category must possess a minimum of seven years work experience in the finance profession and a minimum four year University/College Bachelors degree, which is subject to verification.

All interested applicants can obtain a full description of criteria requirements and download an application at www.financialexecutives.org/join .

When Litigation Kills the Accounting Profession-Don't Say You Weren't Warned!-GUEST POST by Jim Peterson

NOTE: While I am on vacation, I invited some guest posts from popular bloggers. Following is a guest post from Jim Peterson, a former senior in-house lawyer and partner with a then-Big Four accounting firm, and author of the blog Re:Balance. He formerly wrote a column for the International Herald Tribune and has taught MBA-level courses in risk management at business schools in the U.S. and in Paris. Jim's guest post follows.

With the devilish details of the Dodd-Frank Act now to be worked out and many special interests weighing in, legislative activity in the American financial sector returns to a standstill – probably until after the elections of November 2012.

So what would bring to the forefront a topic that to most is sleep-inducing, although it keeps some few from sleep: namely, the very viability of the large accounting firms and their fragile franchise to audit the world’s global companies?

Nothing less, presumably, than an existential shock to the stability of one of the Big Four tetrapoly – an unresolvable criminal investigation or a “bad case” outcome in one of their nightmare civil cases.

The firms are on a fortunate streak: the credit-crisis cases resolved so far are within their pain tolerance – namely, KPMG’s Countrywide settlement of $ 24 million, and its $ 44.74 million shareholder settlement and reported trustee resolution in New Century (on which, don’t miss Francine McKenna last week). And the Seidman firm has at least a temporary reprieve from its adverse $ 521 million verdict in the Bankest litigation in Miami (here).

Sadly it is not strategy, but wishfulness, to think that a further shock won’t or can’t happen, just because it hasn’t – at least since Arthur Andersen’s post-Enron disintegration in 2002. This “induction flaw” was illuminated by Nassim Nicholas Taleb in "The Black Swan" -- widely bought, and equally widely misunderstood or simply ignored.

Just as it would be naïve not to be actively concerned for another terrorist attack on American soil, or the next financial bubble already in gestation, so too the prospect of a disruptive blow to the audit market is too real to ignore. Recent bullets may have missed KPMG, but among the many loaded chambers in the game of Russian roulette are Washington Mutual (Deloitte), Glitnir Bank (PwC) and Lehman - particularly Lehman's Repo 105 transaction (Ernst & Young).

The 500 pound gorilla lurking in the room -- where lively debate really should be on-going -- is that the accounting firms’ organizations and capital structure are incapable of withstanding financial outflows greater than about $ 1 to $ 2 billion – a small fraction of the damages claimed in the largest of their big cases.

If this topic is not faced explicitly and head-on – both by the profession’s critics whose howling takes no account of its limited resources, and by its advocates whose potential “solutions” have lacked feasibility and credibility (here) – then a discussion not only goes nowhere, it doesn’t even start.

[Notes: (Jim Peterson: Under then-US Secretary Henry Paulsen, the U.S. Treasury formed an advisory committee called the Advisory Committee on the Auditing Profession (ACAP), of which I was a vigorous critic – e.g., here, here and here -- for its squandering a unique opportunity for real leadership.) (Editor (EO): See the FEI blog's most recent post relating to implementation of ACAP recommendations here which links to earlier posts on that ACAP.]

I’ve unpacked these numbers before – here and here. The chance to dust them off was reason enough to take up Edith Orenstein’s kind invitation to offer a guest post. She will join me, I am sure, in welcoming your feedback – either on my post directly on the FEI blog, or or on my own Main page at my blog, Re:Balance

SEC's Approves 3% Solution For Proxy Access

Earlier today, consistent with the provisions of the Dodd-Frank Act, the SEC approved what I'll refer to as the "three percent" solution for the contentious issue of proxy access. As summarized in detail by James Hyatt of Business Ethics Magazine:

Under the new rule approved by the Commission, shareholders seeking access to corporate proxy materials would:

--have to own at least 3% of the total voting power entitled to vote at the meeting.
--be able to aggregate holdings to meet the 3% requirement.
--be required to have held their shares for at least three years.
--not be able to use the new rule "if they are holding the securities for the purpose of changing control of the company."
--be able to include one nominee or a number up to 25% of the board, whichever is greater. (If a board had three members, shareholders could nominate one; if a board had eight members, up to two nominees could be proposed)....

The SEC said "'smaller reporting companies" would be subject to the rule only after a three-year phase-in period. Commission staff said the three-year delay would enable smaller companies to see how the rule works at larger companies and how it would affect them. It would also let the commission determine whether changes in the rule might be required, the staffers said....

The new rule -- called Rule 14a-11 -- requires shareholders to submit nominees no later than 120 days before the anniversary date of the mailing of the prior year proxy statement. Thus, if the rule becomes effective on Nov. 1, 2010, it would be available at companies that mailed their last annual meeting proxy statement no earlier than March 1, 2010....

As had been widely expected, the SEC acted on a 3-2 vote to adopt the new procedures, with Republican commissioners Troy Paredes and Kathleen Casey voting no.

Here is a link to SEC's press release issued after the open meeting, which includes a link to the 451-page final rule. As noted in the press release, the rule becomes effective 60 days after it is published in the Federal Register.