Corporate Governance

Rule 14a-8, the Ordinary Business Exclusion, and the Need for Reform: Bank Policies and Loan Foreclosures (Part 4)

Posted on April 01, 2011
The proposal submitted to Citigroup and Bank of America called for a review of, and a report on, legal compliance and internal controls relating to loan modifications, foreclosures and securitizations.  There were sound policy reasons for not challenging the proposal and, in fact, two banks (Wells Fargo and JP Morgan) apparently took that path...

Rule 14a-8, the Ordinary Business Exclusion, and the Need for Reform: Bank Policies and Loan Foreclosures (Part 3)

Posted on March 31, 2011
We are discussing the "ordinary business" exclusion in Rule 14a-8 in the context of the staff's recent decision not to permit Citigroup and Bank of America to exclude proposals that requested reports connected to the current mortgage foreclosure crisis...

Rule 14a-8, the Ordinary Business Exclusion, and the Need for Reform: Bank Policies and Loan Foreclosures (Part 2)

Posted on March 30, 2011
The NYC Pension Funds submitted a proposal to at least three financial institutions, Citigroup, Bank of America, JP Morgan and Wells Fargo.  The proposals contained a preamble reviewing the mortage crisis in the US (the entire resultion is set out below) then provided the following operative resolution: Resolved, shareholders request that the  Board have its Audit Committee conduct an independent review of the Company's internal controls related to loan modifications, foreclosures and securitizations,  and report to shareholders,  at reasonable cost and omitting  proprietary information, its findings and  recommendations by September 30,  2011...

Rule 14a-8, the Ordinary Business Exclusion, and the Need for Reform: Bank Policies and Loan Foreclosures (Part 1)

Posted on March 29, 2011
We just spent much of the week talking about the SEC staff's approach to proposals under Rule 14a-8 with respect to shareholder approval of auditors.  The position -- which we assert is incorrect -- arises in part because of the lack of objective standards under the "ordinary business" exclusion in the rule...

To access this complete feed in the blog feed reader login or register for free.

The SEC, Rule 14a-8, and Shareholder Approval of the Auditor: Time for a Change in Administrative Policy (and Let 1000 Private Ordering Proposals Bloom) (Part 5)

Posted on March 28, 2011
Where does this position leave shareholders? It is likely the case that the position was approved by the Commission in a back handed way in 2005.  When companies or shareholders appeal a ruling in a no action letter, the practice is to circulate a memorandum to the Commission suggesting that the body deny the appeal...

The SEC, Rule 14a-8, and Shareholder Approval of the Auditor: Time for a Change in Policy (The Unexplained Shift) (Part 4)

Posted on March 25, 2011
It seemed clear, therefore, that proposals seeking to induce companies to submit the auditor to shareholders for approval could not be deleted under the "ordinary business" exclusion.  The exclusive authority of the board in this area was not ordinary...

The SEC, Rule 14a-8, and Shareholder Approval of the Auditor: Time for a Change in Policy (The Longstanding Position) (Part 3)

Posted on March 24, 2011
We are discussing the application of the "ordinary business" exclusion to proposals seeking to encourage management to submit the outside auditor to shareholders for approval.   Likewise the Commission took a dim view toward attempts to apply the exclusions in Rule 14a-8 to proposals calling for auditor approval by shareholders and in at least one case sought to enjoin a company from doing so...

The SEC, Rule 14a-8, and Shareholder Approval of the Auditor: Time for a Change in Policy (Part 1)

Posted on March 23, 2011
Rule 14a-8, the shareholder proposal rule, is often in the eye of the storm of the corporate governance storm.  The rule has been around since the 1940s (for a history see The SEC, Corporate Governance, and Shareholder Access to the Board Room)...

The SEC, Rule 14a-8, and Shareholder Approval of the Auditor: Time for a Change in Policy (The Administrative History) (Part 2)

Posted on March 23, 2011
Shareholder ratification of outside auditors is a common practice.  Approximately 90% of the companies in the S&P 500 and the Russell 3000 engage in the practice.  Unlike the laws in other common law countries, however, states do not mandate shareholder approval, despite occasional calls that they do so...

Coppinger-Martin v. Solis: 90-Day Whistleblower Time Limit Begins at Firing

Posted on March 22, 2011
In Coppinger-Martin v. Solis, No. 09-73725 (9th Cir. Nov. 30, 2010), the Ninth Circuit Court of Appeals dismissed an employee's whistleblower claim under the Sarbanes-Oxley Act of 2002 ('SOX') as untimely filed.  Carole Coppinger-Martin ('Coppinger-Martin') was Chief Technical Architect of Nordstrom's Business Information Systems Strategic Planning Group...

Matrixx v. Siracusano: The Opinion is In

Posted on March 22, 2011
The Supreme Court ruled in Matrixx v. Siracusano, the case that had the potential to revisit the materiality standard set out in Basic v. Levinson.  The case specifically examined whether adverse event reports filed by those taking a drug would be material only if "statistically significant...

SV Investment Partners, LLC v. ThoughtWorks, Inc.: Court Interprets "Funds Legally Available" for Redemption

Posted on March 22, 2011
In SV Investment Partners, LLC v. ThoughtWorks, Inc., 7 A.3d 973 (Del. Ch. 2010), preferred shareholders sought to enforce a mandatory redemption of their shares.  The provison required redemption from "funds legally available."  Preferred shareholders filed a declaratory action asserting that the phrase meant "surplus" and that the company was obligated to redeem the shares...

In re Royal Bank of Scotland Group PLC Securities Litigation: Interpreting the "Spirit" of Morrison

Posted on March 21, 2011
In In re Royal Bank of Scotland PLC Securities Litigation, S.D.N.Y., 09 Civ. 300 (DAB) 1/11/2011, the court dismissed the plaintiffs' claims on the basis of the Supreme Court's decision in Morrison.  Royal Bank of Scotland ('RBS'), a British bank, has two U...

Directors and FOCs (Friends of CEO)

Posted on March 19, 2011
There are very different views on the appropriate compositon of boards of directors.  A recent memorandum from Wachtell Lipton took issue with the contention that friends of the CEO (or other directors) should not serve as independent directors.  As the memorandum stated:   friends can and should be independent directors...

John Q. Hammons Hotel and the Fairness of the Merger

Posted on March 19, 2011
In  John Q. Hammons Hotels Inc. S'holder Litig., No. 758-CC, 2011 WL 227634 (Del. Ch. Jan. 14, 2011), the plaintiffs made several allegations in connection with the merger of John Q. Hammons Hotels, Inc. ('JQH') into an acquisition vehicle owned by Jonathan Eilian (the 'Merger')...

Patel v. Patel: Loss Causation and Supervening Market Forces

Posted on March 18, 2011
In Patel v. Patel, 2011 WL 198418, No. 1:09-CV-3684-CAP (N.D. Ga. Jan. 14, 2011), plaintiffs brought suit against defendants based on eight counts, including violations of the Georgia Securities Act, Rule 10b-5, control person liability, and negligent misrepresentation...

SOX Whistleblower Protections Extend Beyond the Employer-Employee Relationship

Posted on March 18, 2011
In Sharkey v. J.P. Morgan Chase & Co., No. 10 Civ. 3824, 2011 WL 135026 (S.D.N.Y. Jan. 14, 2011), the Southern District of New York held the Sarbanes-Oxley Act of 2002 ('SOX') protects not only whistleblowers who report the illegal conduct of their employers, but also those who report the illegal conduct of their clients...

The Myth of an Independent System for Nominating Directors (and Another Reason Why Shareholder Access Is Necessary) (Part 5)

Posted on March 17, 2011
Marty Lipton also took issue with the ISS Report.  Wachtell Lipton distributed a memorandum commenting on the issue.  The only name on the memo was Marty Lipton. The memo characterized the ISS position as "another mechanistic decision undermining the ability of a board to function in a collegial fashion...

Law School, Declining Applications, and Diversity

Posted on March 17, 2011
The WSJ reports that the number of law school applications is down.  According to the article: The number of law-school applicants this year is down 11.5% from a year ago to 66,876, according to the Law School Admission Council Inc. The figure, which is a tally of applications for the fall 2011 class, is the lowest since 2001 at this stage of the process...

The Myth of an Independent System for Nominating Directors (and Another Reason Why Shareholder Access Is Necessary) (Part 6)

Posted on March 17, 2011
The events discussed in these posts illustrate why shareholder access is so important.  The main defense by HP (and one supported by the memorandum from Marty Lipton) is that everyone does it (indeed, the Wachtell memorandum more or less asserts that everyone should do it)...

The Myth of an Independent System for Nominating Directors (and Another Reason Why Shareholder Access Is Necessary) (Part 3)

Posted on March 16, 2011
What the rules of the exchange do not do, however, is ensure that management has reduced influence on the nomination process.  While the committee is the one that actually nominates the candidates, the sources can come from anywhere, including the CEO...

The Myth of an Independent System for Nominating Directors (and Another Reason Why Shareholder Access Is Necessary) (Part 4)

Posted on March 16, 2011
HP took issue with the ISS Report.  A letter from the Chairman of the Board asserted that "[a]ll of our Board nominees have been subject to the same robust vetting process that has been used to identify and evaluate previous director candidates—consistent with the Nominating and Governance Committee charter, our bylaws and our corporate governance guidelines...

Scully v. Nighthawk: Reverse Auctions and A Vice Chancellor's Unlikely Efforts at Reform (Part 1)

Posted on March 15, 2011
We are in the middle of a series on the independence of the director nomination process, focusing on the recent events connected to the board of Hewlett-Packard.  But in the name of topicality, we will pick the subject up tomorrow and instead briefly touch on a different matter...

Scully v. Nighthawk: Reverse Auctions and A Vice Chancellor's Unlikely Efforts at Reform (Part 4)

Posted on March 15, 2011
So where does this leave VC Laster?  With a problem that he cannot solve.  The Brief of Special Counsel essentially told him to stay out of the matter.  Indeed, the Brief reminded the court of the consequences of intervention.  "There is also the danger that an attempt by a single court to solve these multijurisdictional issues will be resisted by other courts or avoided by litigants...

Scully v. Nighthawk: Reverse Auctions and A Vice Chancellor's Unlikely Efforts at Reform (Part 3)

Posted on March 15, 2011
Special Counsel was also asked to apply any analysis to the circumstances in Nighthawk.  Special Counsel, therefore,  examined whether the evidence established that the settlement in the case was collusive.  The Brief concluded that it was not...

Scully v. Nighthawk: Reverse Auctions and A Vice Chancellor's Unlikely Efforts at Reform (Part 2)

Posted on March 15, 2011
The Brief of Special Counsel contains a thoughtful and detailed discussion of the court's authority to approve a settlement as well as an analysis of the factors that should be used to determine whether a settlement was collusive.  But with regards to the concerns expressed at the December hearing, it provided little help to the Vice Chancellor...

The Myth of an Independent System for Nominating Directors (and Another Reason Why Shareholder Access Is Necessary) (Part 1)

Posted on March 14, 2011
The central problem of corporate governance is the need to ensure that officers and directors manage in a manner that benefits shareholders.  To address this issue, companies put in place various safeguards designed to ensure that the interests of shareholders at the board level are adequately protected...

The Myth of an Independent System for Nominating Directors (and Another Reason Why Shareholder Access Is Necessary) (Part 2)

Posted on March 14, 2011
The NYSE requires listed companies to have a nominating committee that consists entirely of independent directors.  See Rule 303A.04.  Nasdaq does the same.  The purpose of the Committee, according to the NYSE is, "at minimum," to: identify individuals qualified to become board members, consistent with criteria approved by the board, and to select, or to recommend that the board select, the director nominees for the next annual meeting of shareholders; develop and recommend to the board a set of corporate governance guidelines applicable to the corporation; and oversee the evaluation of the board and management; See 303A...

Corporate Disclosure and the Role of Outside Directors: SEC v. Krantz (The Board's Obligation to Supervise Internal Investigations) (Part 4)

Posted on March 13, 2011
Another interesting aspect to the Complaint concerned the internal investigations authorized by the outside directors.  The Complaint alleges (the outside directors have not settled or otherwise resolved the case so the allegations in the Complaint are unproven) that the outside directors became aware of possible disclosure issues...

Corporate Disclosure and the Role of Outside Directors: SEC v. Krantz (The Duty of Audit Committee Directors to Respond to Auditor Concerns) (Part 3)

Posted on March 12, 2011
The Complaint in this case sets out a list of what not to do as a member of the audit committee.  The Complaint (which contains only allegations since the case hasn't settled or otherwise been resolved on the merits) criticized the outside directors on the audit committee because they did not understand their function...

Bloggers, promote your law blog by nominating your blog for inclusion in USLaw.com's Law Blog Directory and RSS Reader. Benefits described.