National Conference Los Angeles June 22-26, 2005 Mini-Essentials -- June 21 Ethics Workshop -- June 22

The National Conference Committee, under the leadership of Chairman Kathleen Salmas, has assembled expert speakers, relevant panels and targeted breakout sessions for this year's National Conference. The theme of the conference is "New Beginnings -- New Opportunities," and it will be reflected in sessions such as:

• The Corporate Governance Professional
• Trends & Issues in Executive Compensation
• Trends & Issues in Director Compensation, Recruiting & Liability
• Disclosure & Reporting Challenges -- What Have We Learned?
• The Evolving Proxy Process

Plus, there will be opportunities to socialize and have fun, especially at our night on Santa Monica Pier.

And, in a first for the Society, a full, single-day version of our Essentials Course will be held on Tuesday, June 21 at the Conference location. This is a great way for new corporate secretaries to ground themselves in the basics of their jobs -- or for experienced secretaries to brush up on fundamental skills.

And, as we usually do, we will be holding a pre-Conference workshop on ethics on Wednesday, June 22, immediately preceding the Conference.

The Society is looking forward to a great Conference at the Century Plaza Hotel and Spa in Los Angeles. If you haven't done so already, visit:

www.governanceprofessionals.org

or phone 212-681-2009 for more information.

From the Chairman

Dear Fellow Member,

It's hard to believe that I'm already writing my third letter to you as Society Chairman and that we're only three months away from our National Conference and the completion of my term. Most Chairmen probably feel their terms fly by; all of the work involved in changing the Society's name certainly made mine seem to pass in a blur.

The different aspects of the name change have kept the National Office staff and me very busy, but the important thing is that the change has gone well. The new logo made its debut on our redesigned website, on the January issue of our newly named newsletter, and at the Essentials Course in January. (By the by, it was our most successful Essentials ever, with more than 190 people in attendance!)

That was just the beginning of an ongoing process in changing our name and our public appearance. Less than two months after being launched, the new-look website has already had more than a dozen refinements added in both content and navigation, including a new section for the press. And our site underwent a significant design revision in late February, as the entire National Office staff put together a list of suggestions to improve it.

Hand-in-hand with our name-change campaign, we've had two terrific teleconferences this winter:

• The Worldcom directors settlement, and
• Former SEC Chairman Harvey Pitt with a pragmatic look at compliance.

Each call had more than 200 people participating, and each was extraordinarily successful by any measure. Thanks to our Houston Chapter for setting up the Harvey Pitt teleconference. (Highlights are on our site.)

Switching gears, let me discuss director education. This has been an area of interest in the Society recently, and we have formed an ad hoc committee on director education with Lydia Beebe as the Chair. Lydia, Society President David Smith and Vice President Geoff Loftus have been exploring our options to deliver director education through a partnership of some kind, and they recently crafted an arrangement with The Conference Board. We'll be collaborating with the Board's Directors Institute on an ongoing basis starting immediately.

The Society and the Board have been partnering on projects for years, but this is the first time we've joined in a more formal arrangement. Society members Peggy Foran, Rich Koppes, Lydia Beebe and Bob Lamm have all been faculty members for the Directors Institute, and Society member Alan Rudnick is the Institute's program director.

This arrangement gives our members access to a high-quality, ISS-accredited director education program at the same discount that Conference Board members receive. And, if your organization is interested in an in-house program, that can be arranged.

A final note on director education: We don't want to rest on our (or The Conference Board's) laurels, so we'll continue to explore other opportunities.

Returning to the topic of governance, the Society's executive steering committee, acting as our nominating committee, is reviewing a number of great candidates for our next chairman-elect and new directors for our board. You'll be hearing more about the nominees before our Annual Meeting, held as part of the National Conference in June.

On the committee front, you've probably observed one of our annual rituals taking place recently: The online sign-up for committee work. And our Securities Law Committee is arranging its traditional spring meeting with the SEC to discuss current topics that are important to all of our public-company members.

Finally, as you've seen on the front page of this newsletter, our National Conference will be held in Los Angeles this June. The theme of the conference is "New Beginnings -- New Opportunities." Along with the usual superlative programs and fun social events, we're taking the Conference theme to heart and doing something new this year: Holding a 1-day version of our Essentials Course on Tuesday, June 21 at the same hotel as the Conference, the Century Plaza Hotel and Spa.

You may recall that David Smith and Vice President Suzanne Walker arranged a 1-day Essentials Course with the World Bank in Washington last fall, and it was such a success that it was decided to add it to the "front-end" of this year's Conference. Essentials is a great way to introduce someone to the basics of the corporate secretary's job or to refresh the memory of anyone who hasn't taken the course in a while.

I hope many of you will enjoy the Conference.

- Kathy Gibson

Sentencing Guidelines: A New Look

On January 11th the United States Supreme Court changed federal criminal-sentencing by restoring to judges much of the discretion that Congress had taken away 21 years ago when it put sentencing guidelines in place.

In a two-part decision, the court held that the guidelines, intended to make sentences more uniform, should be treated as advisory. In the first part, five justices declared that the current guidelines system violated defendants' rights to trial by jury by giving judges the power to make factual findings that increased sentences beyond the maximum that the jury's findings alone would support.

The second part of the decision -- the remedy -- will shape the continuing debate over sentencing policy. A different alignment of five justices (only Justice Ruth Bader Ginsburg was part of the majority in both decisions) said the problem could be fixed if the guidelines were treated as discretionary rather than mandatory. The majority opinion said that judges "must consult" the guidelines and "take them into account" in imposing sentences. But at the end of the day, the guidelines will be advisory only, with sentences to be reviewed on appeal for "reasonableness."

The Society's Geoff Loftus asked veteran defense attorneys Charles A. Stillman and Nathaniel Marmur for their reactions to the Supreme Court decisions.

Charles Stillman has been in practice for more than forty years, concentrating in litigation, with a focus on white-collar criminal defense. After beginning his career as a law clerk to the Honorable Irving R. Kaufman (in both the Southern District of New York and the Second Circuit Court of Appeals), Mr. Stillman joined the United States Attorney's Office for the Southern District in 1962. Mr. Stillman established the firm of Stillman & Friedman in 1977.

Mr. Stillman has represented numerous public figures, including a former head of state of a leading industrial nation, a former U.S. Defense Secretary, the Mayor of the City of New York, the former Chief Judge of the New York Court of Appeals, and many other civic and political figures. He has represented several Fortune 500 corporations and other major international business entities, as well as the Chief Executives and other senior officers of such companies and the controlling stockholders of privately held conglomerates. He has taught trial skills curricula to students at Fordham, Emory and Harvard Law Schools.

Nathaniel Marmur joined Stillman & Friedman in 1997 and became a member of the firm in 2003. He has argued cases before the United States Court of Appeals for the Second Circuit and the New York Court of Appeals.

After working as an intelligence analyst for the New York County District Attorney's Office Rackets Bureau, Mr. Marmur attended Fordham University School of Law. Following his graduation, he was a corporate finance associate at a large, international law firm. He then served as law clerk to the Honorable Jerome Turner of the United States District Court for the Western District of Tennessee and the Honorable Ellsworth Van Graafeiland of the United States Court of Appeals for the Second Circuit.

Mr. Marmur is on the board of editors of the Federal Bar Council News, to which he is a regular contributing author. He has published articles on fraud, money laundering, and the sentencing guidelines in the New York Law Journal and in the Government Law and Policy Journal. He is a co-author of the Securities Fraud chapter of the 2003 revised edition of White Collar Crime. Mr. Marmur is also an adjunct professor at Fordham University School of Law.

Did you agree with the Court's reasoning in the decisions?

Stillman & Marmur: The Court's decision in Booker was a straightforward application of the rule in Blakely: facts that increase a defendant's sentence must be found by a jury and proved beyond a reasonable doubt. Although Blakely itself was somewhat unexpected, it was well reasoned and based on a series of Supreme Court cases that reinvigorate the role of juries in the criminal justice system. The right to a jury trial is fundamental to our notions of fairness, and the Supreme Court has now made clear that legislatures cannot erode that right by broadly defining crimes and then directing judges to make important sentencing decisions based on hearsay and civil standards of proof.

What additional legal issues do you think will be litigated in light of these cases?

Stillman & Marmur: The majority and dissenting opinions in Booker frame what will be a source of major litigation in the near future, namely how much discretion trial judges will have in imposing sentence and the ability of the appellate courts to review those sentences.

Another issue lurking in the background is whether mandatory minimum sentences are still constitutional if they are based on facts found only by the trial judge to a preponderance of the evidence (Booker applies only to the authorized maximum sentence). And some believe that the Supreme Court may revisit whether a defendant's criminal history must also be proven to a jury beyond a reasonable doubt.

As defense attorneys, are you pleased with the decisions?

Stillman & Marmur: A qualified yes. These cases remove the straightjacket of the sentencing guidelines and allow prosecutors, defense attorneys and judges to determine what is the appropriate sentence in a specific case.

Cases that have been resolved in the weeks since Booker have confirmed that these various parts of the criminal justice system can and do work effectively together to reach an appropriate disposition. These cases have also confirmed that the guidelines remain an invaluable starting point in plea discussions, but are not necessarily the final answer. Our "yes" is qualified, however, because we fear that Congress may act precipitously, that it may seek a legislative "fix" to Booker without giving the system enough time to demonstrate that advisory guidelines and discretionary sentencing work well.

How does this affect the corporate sentencing guidelines?

Stillman & Marmur: It appears that the corporate sentencing guidelines will also become advisory. Although not much has been written about a corporation's right to a jury trial, for the most part a corporation is a legal "person" and enjoys the protections of the Constitution. What little has been written on the subject suggests that corporations do have jury trial rights, and thus Booker presumably invalidates the mandatory aspect of the corporate sentencing guidelines.

Will legal strategies be different in light of the Supreme Court's decisions?

Stillman & Marmur: Undoubtedly. Defense attorneys will take advantage of judges' newfound discretion by arguing that a sentence should be based on a complete picture of the defendants' life, not just the narrow issues related to the offense conduct. In addition, defendants may be less likely to accept onerous plea agreements and more willing to plead guilty to an indictment. In other words, courts, and not prosecutors, will sentence defendants, which is the way the system was meant to work.

Will this change judges' behavior come sentencing time?

Stillman & Marmur: I certainly hope so! Most judges have been clamoring for discretion, and more still were openly critical of the harshness of the guidelines. To be sure, some judges will generally sentence within the guidelines, and that might be even appropriate in some cases. Others, though, will use the guidelines as a useful tool to evaluate the severity of a defendant's conduct, but will also rely on their own experience and evaluation of the defendant in reaching the appropriate sentence.

Will defendants have recourse if they feel the judge has followed the guidelines too slavishly (and not in the defendants' best interests)?

Stillman & Marmur: That is a tough question. The extent of judicial discretion post-Booker is yet to be seen and is no doubt a fertile ground for further litigation. But if a judge believes that he or she must sentence within the guidelines range, or can only depart if certain factors are found, then that belief would seem to run afoul of Booker and should be subject to reversal.

Will Congress return with a new set of guidelines?

Stillman & Marmur: There are several theories floating around about what Congress will do. It may pass statutes calling for mandatory minimum sentences, or it may take other steps to make the criminal statutes comply with Booker's holding that will ultimately lead to decreased judicial discretion and higher sentences.

Most experienced practitioners -- including us -- think that Congress would be wise to wait and see how the current situation plays out. It may be pleasantly surprised to learn that the system can effectively regulate itself. Put differently, Congress may find that leaving sentencing in the able hands of experienced prosecutors, defense attorneys and, most importantly, judges -- with the advice of the Sentencing Commission -- will yield the best model for effective criminal sentencing.

Q&A with the PCAOB

The Society's Geoff Loftus interviewed J. Gordon Seymour, Deputy General Counsel and Acting Secretary, Public Company Accounting Oversight Board via e-mail.

What is the relationship between public companies and the PCAOB?

Seymour: The PCAOB was created by the Sarbanes-Oxley Act to oversee the auditors of public companies and has no direct jurisdiction over public companies. Accounting firms that audit, or play a substantial role in the audits of, public companies are required to register with the PCAOB and follow PCAOB standards when auditing public companies.

While the Board's mission has obvious implications for public companies, the only direct relationship between the PCAOB and public companies was established by Sarbanes-Oxley, which provides that public companies and mutual funds pay accounting support fees to finance the operations of the PCAOB.

The accounting support fees are based on the average monthly U.S. equity market capitalization of publicly traded companies, investment companies and other equity issuers. The fees are paid by publicly traded companies with average monthly U.S. equity market capitalization of more than $25 million each and by investment companies with average monthly net asset value or U.S. equity market capitalization of more than $250 million each.

How does a public company address fulfilling the PCAOB standards -- or is that something only auditors need to be concerned with?

Seymour: The Sarbanes-Oxley Act and the Board's rules require registered public accounting firms to follow PCAOB auditing, quality control, ethics, and related professional standards, as well as independence rules.

On April 16, 2003, the Board adopted certain existing standards as its interim auditing standards. Most of these standards were promulgated by the American Institute of Certified Public Accountants and pre-date the Board's formation. These interim standards are incorporated into the Board's rules. Registered public accounting firms are subject to the same obligation to comply with the interim standards while they are in effect, as with permanent standards adopted by the Board.

The Board has adopted three permanent standards that apply to audits of public companies. Auditing Standard No. 1 requires references in audit reports to PCAOB standards in lieu of references to Generally Accepted Auditing Standards, or GAAS. Auditing Standard No. 3 sets out the requirements for auditors to maintain work papers and other documents to support the conclusions reached in an audit report.

Auditing Standard No. 2, regarding an audit of internal control over financial reporting, may have had the most impact on public companies because it was required by Section 404 of the Sarbanes-Oxley Act – the same section that requires management of public companies to assess the companies' internal control over financial reporting.

The Board's auditing standards, including the interim standards, are available free of charge on the Board's Web site, www.pcaobus.org.

The Sarbanes-Oxley Act calls for inspections of registered public accounting firms. How will those inspections affect public companies?

Seymour: The Sarbanes Oxley Act requires the Board to conduct annual inspections of registered accounting firms with more than 100 public company audit clients. At this time, there are eight such firms in the United States and one in Canada. Accounting firms with more than one but less than 100 public company audit clients must be inspected once every three years. The Board can order additional inspections at any time.

The Sarbanes-Oxley Act requires that an inspection include a review of selected audit and review engagements of the accounting firm, performed at various offices and by various associated persons of the firm.

In the course of examining audit engagements at a registered accounting firm, PCAOB inspectors may identify possible departures from Generally Accepted Accounting Principles (GAAP) in a company's financial statements. In that case, the inspectors encourage the accounting firm to consider the issue and review it with the company and its audit committee. In appropriate circumstances, the PCAOB may also report that information to the SEC, which has ultimate authority for determining a company's compliance with GAAP.

Through discussions with a firm or through reporting to the SEC, the Board's inspection work may sometimes start a process that results in an issuer restating its financial statements. Indeed, the Board is aware that some issuers have publicly described restatements as related to issues raised by the Board while reviewing the issuers' audits as part of the inspection process.

During the process, including the public report on the inspection of an individual accounting firm, the PCAOB does not publicly identify the public company whose audit was examined in the course of a PCAOB inspection.

Committee News

Securities Law Committee

On January 29, the Securities Law Committee filed a comment letter on the Securities and Exchange Commission's Securities Offering Reform proposal. The comment letter is on the Society's website, www.governanceprofessionals.org.

In an e-mail to Committee members after the letter was submitted to the Commission, Chairman Pauline Candaux thanked committee members Sean Dempsey, Amy Goodman, Cary Klafter, Broc Romanek and Ken Wagner for drafting sections of the comment letter, and Brian Lane for his guidance.

The Commission has announced the date for their roundtable discussion on Section 404 of the Sarbanes-Oxley Act. The Committee has indicated to the Commission the Society's interest in being a participant in this event, planned for April 13, 2005. The Commission has also solicited written feedback on the Internal Controls process by April 1, 2004, and the Securities Law Committee plans to organize a submission.

For those interested in the event, the roundtable will be open to the public, and will be webcast. See the SEC website for details.

The annual spring meeting with the SEC is being planned for May.

- Pauline Candaux, Securities Law Committee Chairman

Corporate Practices Committee

The Committee held a conference call on February 24 to discuss current projects and to share proxy season experiences among members.

Current projects for the committee include a revision of the Society's Minutes publication and Annual Meetings publication, a monograph on lead directors, a Web article on governance websites, and a monograph on director intranets.

As the Committee has discovered again, this year is "another record year" on the number of shareholder proposals. Several Committee members had received the majority vote proposal, as well as proposals on executive compensation. Methods of disclosing compensation in the proxy statement were also discussed on the call.

The Committee will continue to gather and post to the Society's website brief surveys, benchmarking exercises, and model policies. In the near future, categorical standards of director independence will be collected and posted on the site.

- Lydia Beebe, Corporate Practices Committee Chairman

Public Company Affairs

Work is continuing on efforts to have the Delaware corporate code revised to eliminate the requirement that companies provide paper stock certificates upon stockholder request.

Representatives of the Public Company Affairs Committee have teamed with representatives from the Securities Industry Association, clearing agencies, transfer agents, exchanges and others to engage with the committee of the Delaware Bar that proposes revisions to the State legislature. All movement is positive, and it is currently expected that this revision would be considered by the legislature before summer.

- Cary Klafter, Public Company Affairs Committee Chairman

Proxy-Season Resource

The Society offers members a proxy-season resource with a personal touch.

Mercedes Rodriguez, Office Manager at the National Office, tracks proxy proposals and will provide members with information about a proposal, as well as help them get in touch with other members who have received similar proposals. So, fax in your "Form Ones" and copies of proposals received, and -- to paraphrase Jerry Maguire -- "help the Society help you."

Earl Franklin, Vice President & Secretary of Eaton Corporation, had this to say about the Society's database. "I asked Mercedes about a proposal, and who had dealt with the same proposal last year. She gave me the names of 17 companies, and I contacted each one of them, and I heard back from every one. People were just more than happy to help. The input was extremely valuable, and we had a happy, successful conclusion in our case."

The database of shareholder proposals that Mercedes maintains from the faxes received goes back to 1993, and there are hundreds of proposals on file. In addition to information submitted by Society members, Mercedes adds to the file by reading newsletters and checking online resources.

You will be adding to a database that will help everyone learn which companies received similar proposals, who were the proponents of these proposals, and what was the outcome (including withdrawals, no-action letter omissions and votes).

For more information, or to submit your proposal, please e-mail: hotline@governanceprofessionals.org.

The Corporate Secretary & Governance Professional is published quarterly throughout the year as a service to members of the Society of Corporate Secretaries and Governance Professionals. Articles or statements appearing herein do not constitute legal opinion, advice or judgment and should not be relied upon as such.

Inquiries regarding the content of this newsletter should be directed to Geoff Loftus: (212) 681-2000, gloftus@governanceprofessionals.org; or Hilary Johnson: (212) 681-2013, hjohnson@governanceprofessionals.org. Inquiries regarding membership or publication orders should be addressed to:

Society of Corporate Secretaries and Governance Professionals
521 Fifth Avenue New York NY 10175
212-681-2000 - Fax 212-681-2005

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