Corporate Governance Update and Shareholder Questions - 2006

BDO Seidman, LLP prepared this Financial Reporting Reporting letter to help our clients anticipate and respond to the key governance issues of 2006.

Introduction

Mounting demands for transparency in boardroom dealings are transforming the world of corporate governance. Here are the key trends to consider in 2006:

• Management is being pressured to balance short and long term plans.
• Directors are being pressured to balance monitoring and strategy.
• Hedge funds have become active in pushing companies for change.
• Internal control weaknesses and restatements continue to drive the need for audit committee effectiveness.
• Boards and investors are reacting to a year of record-breaking restatements.
• Shareholder litigation is focusing more on financial reporting and forecasts.
• Fines imposed by the SEC for accounting fraud have soared to record levels.
• Executive pay continues to be a flash point.
• Dozens of companies have voluntarily adopted majority voting for directors.
• Shareholders are withholding votes for directors at companies with poor compensation practices or ineffective audit committees.
• An SEC-led initiative for electronic proxies could soon open the door for companies to communicate more directly with investors.

To keep pace with the changing environment, this year’s update provides more background on the current issues and the steps that companies can take to come to grips with these issues. Our traditional lists of timeless shareholder questions are presented as an appendix. We hope you find this approach useful.

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