Corporate Governance
The Race to the Bottom 
A student-faculty collaboration discussing all areas of corporate governance including: methods for improving, the role of the Securities and Exchange Commission, the role of Delaware, and independent directors, impact of Sarbanes-Oxley.
Post Frequency: 4/day Last Entry: November 20, 2009 at 09:00:02 Recent Entries: 1289
By J Robert Brown Jr et al.
Go to The Race to the Bottom, find other Corporate Governance blogs, or browse all law blogs.
Search
Posts
In re MIVA, Inc. Securities Litigation and the Problem of Loss Causation
Posted on November 20, 2009In the securities fraud class action In re MIVA, Inc. Securities Litigation, No. 2:05-cv-00201-JES-DNF (M.D. Fla. Aug. 25, 2009), Magistrate Judge Douglas N. Frazier recommended the United States District Court of the Middle District of Florida grant the defendants' motion for summary judgment...
Compensation Contracts and Plain Language: The Limits of Golden Parachutes (Martinez v. Regions Financial Corp)
Posted on November 19, 2009In Martinez v. Regions Financial Corporation, No. 4128-VCP, 2009 WL 2413858, *1 (Del. Ch. Aug. 6, 2009), an executive was discharged without cause after refusing to enter into a new employment agreement. The Delaware Court of Chancery determined the former executive was entitled to her 'golden parachute' severance package, but also found she was not entitled to salary and benefits for the remainder of her employment agreement...
City of Westland Police & Fire Retirement System v. Axcelis Technologies, Inc: A Summary
Posted on November 18, 2009In City of Westland Police & Fire Retirement System v. Axcelis Technologies, Inc., No. 4473-VCN, 2009 Del. Ch. LEXIS 173, at *1 (Del. Ch. Ct. September 28, 2009), the Court of Chancery of Delaware dismissed a books and records action brought by a shareholder against Axcelis Technologies, Inc...
Another Voice for Resurrecting Glass Steagall
Posted on November 18, 2009Congressman Conyers has announced that he will introduce legislation to provide for a "modernized and updated version of the Glass-Steagall Act." It is part of the growing recognition that complete repeal was a mistake, something pointed out in The "Great Fall": The Consequences of Repealing the Glass-Steagall Act, a piece published before repeal occurred...
Dreiling v. America Online: Ninth Circuit Rejects an Attempt to Expand Liability Under Section 16(b)
Posted on November 17, 2009In Dreiling v. America Online Inc., 578 F.3d 995 (9th Cir. 2009), the Ninth Circuit Court of Appeals rejected an attempt to expand the scope of liability under §16(b) of the Securities Exchange Act of 1934. The court held that strict liability under § 16(b) required plaintiffs to clearly prove insider status...
Inside the Delaware Chancery Court
Posted on November 17, 2009This Blog has engaged in a variety of innovative practices, including the reliance on both faculty and students to write posts. This week and last, for example, have been mostly devoted to student posts. One of the other innovative steps has been trial coverage...
Yahoo! Loses its Activist Director
Posted on November 16, 2009Activist shareholders sometimes seek board positions. Statistics show that the presence of a non-management director on the board can be beneficial to shareholders. At the same time, however, the dissident directors may not need indefinite tenure...
Women of Worth: Chief ALJ Brenda Murray
Posted on November 16, 2009The employees of the SEC are often in the news when it comes to the regulation of the securities markets. Less often do they get there because of civic involvement unrelated to these markets. An exception is the recent nomination of Brenda Murray, the Chief ALJ at the Commission, for an award titled "Women of Worth" and sponsored by L'Oreal...
SPAM and § 10(b): SEC v. Pirate Investor
Posted on November 14, 2009In SEC v. Pirate Investor, LLC, 580 F.3d 233 (4th Cir. 2009), the SEC filed suit against Pirate Investor, LLC ('Pirate'), alleging the publisher made fraudulent misrepresentations violating §10(b) of the 1934 Securities Exchange Act. The Fourth Circuit upheld the trial court's determination that the Appellants' conduct amounted to securities fraud and that the First Amendment to the Constitution did not shield them from the SEC...
Reconsidering the Demise of Glass Steagall
Posted on November 13, 2009In the midst of this financial crisis, many seem to be reconsidering the wisdom of completely repealing Glass Steagall (in this 10th year anniversary). Apparently those are the views of two former Chairmen of Citigroup and Paul Volkers...
The Foreign Corrupt Practices Act and Control Person Liability: SEC v. Nature's Sunshine Products
Posted on November 13, 2009In SEC v. Nature's Sunshine Products, Inc. ('NSP'), and SEC v. Douglas Faggioli and Craig Huff (collectively 'Nature's Sunshine'), the SEC brought a suit in the Federal District Court of Utah under control person liability based on an unprecedented extension of the Federal Corrupt Practices Act ('FCPA')...
Compensation, Competitive Disadvantages, and a Concerned Pay Czar
Posted on November 12, 2009The pay restrictions at the seven companies overseen by the Pay Czar are apparently causing discomfort and posing the possibility that there will be an outflow of talent to less regulated (or non-regulated) firms. The Pay Czar has, according to reports, expressed "concern" over this possibilty...
Protecting the Whistleblower under SOX: Van Asdale v. International Game Technology
Posted on November 12, 2009In Van Asdale v. International Game Technology (IGT), plaintiffs sued defendant for retaliatory discharges under the Whistleblower protection provision in the Sarbanes Oxley Act (SOX) and Nevada state law. IGT moved for summary judgment. The U...
SEC v. Tambone: Specificity, Scienter, and 10b-5 violations; Part 2
Posted on November 12, 2009In a previous post this blog covered the First Circuit's decision in SEC v. Tambone, the case against James R. Tambone and Robert Hussey, executives of Columbia Funds Distributor, Inc., for violations of federal securities laws. Neither defendant made false statements, but the SEC alleged that they distributed prospectuses that they knew were misleading...
Foreign Private Issuer Exemptions: NASDAQ Rule 5615(a)(3) - Israel
Posted on November 11, 2009This post represents the final post of a three part series focused on NASDAQ's exemption rule for foreign private issuers. Israel has the second largest number of foreign issued securities listed on the NASDAQ. The rules Israeli companies most commonly deviate from are: Rule 5605(b) and (e) – Nomination and Composition of Board of Directors Rule 5605-6 – Executive Compensation Rule 5620(c) – Quorum Requirements Under Israeli law, public companies are not required to have the majority of their boards be independent nor are companies required to have a nominating committee...
Foreign Private Issuer Exemptions: NASDAQ Rule 5615(a)(3) - China
Posted on November 10, 2009This post is the second part of a three part series exploring NASDAQ's rules regarding foreign private issuer exemptions. In this post, we look at China. The country with the largest amount of foreign securities listed on NASDAQ is China. Please note of the securities used for sampling, all were incorporated in the Cayman Islands or British Virgin Islands and followed home country practices of the incorporating country...
Foreign Private Issuer Exemptions: NASDAQ Rule 5615(a)(3) and Canada
Posted on November 10, 2009This post represents the first of a three part series that examines NASDAQ's rules for foreign private issuer exemptions. Canadian private issuers listed on the NASDAQ most widely utilize home country practices for quorum requirements. The quorum requirement, found in NASDAQ Rule 5620(c), provides: 'Each Company ...
Foreign Private Issuer Exemptions: NASDAQ Rule 5615(a)(3)
Posted on November 10, 2009Founded in 1971, the NASDAQ stock exchange currently lists approximately 3,200 domestic and foreign companies. Domestic issuers must comply with the corporate governance standards set forth in the NASDAQ 5600 rule series. Foreign issuers may deviate from NASDAQ's corporate governance standards under Rule 5615(a)(3)...
The Irrelevancy of Interested Influence on the Board: In re Nat'l City Corp. Shareholders Litigation
Posted on November 09, 2009In Delaware, courts consider boards independent if they contain a majority of independent directors. That the board might include some percentage of interested or non-independent directors, who can influence the decision making process, appears to have little relevancy to the court's analysis...
Separating Chairman and CEO: Importing Change from Norway
Posted on November 07, 2009We are commenting on the efforts of Norges Bank Investment Management, a branch of the Norwegian central bank, among other things manages the Norwegian Government Pension Fund, to influence governance practices in the United States. NBIM has submitted four shareholder proposals calling for the separation of chairman and CEO...
Separating Chairman and CEO: Importing Change from Norway
Posted on November 06, 2009Norway provides an example of how to diversify boards without waiting for the "market" to effectuate change. The country requires each board to consiste of at least 40% of each gender. The experience is only in its early stages but appears to be functioning effectively...
Corporate Governance and Chief Justice Steele: A Final Comment
Posted on November 05, 2009The interview by Chief Justice Myron Steele was interesting, insightful and, above all else, honest. He essentially argues for the preeminence of Delaware and the Delaware courts. He views the SEC as having failed miserably and many on the federal courts as unfit to engage in oversight of corporate governance...
Corporate Governance and Delaware Chief Justice Steele: Red Flags and Reporting Systems
Posted on November 05, 2009We are discussing the recent interview with Myron Steele, the Chief Justice of the Delaware Supreme Court. The interview be found here. The final question concerned the recent trend by the Delaware courts to impose liability on directors for willfully failing to respond to danger signals...
Corporate Governance and Delaware Chief Justice Steele: Those Unfit Federal Judges
Posted on November 04, 2009We are discussing the recent interview with Myron Steele, the Chief Justice of the Delaware Supreme Court. The interview be found here. Chief Justice Steele doesn't view the SEC or the federal courts as having sufficient resources or "familiarity" with corporate governance to oversee the process...
Jones v. Harris Associates: Let 8,000 Lawsuits Bloom, Part 2
Posted on November 03, 2009Let's return to Attorney Donovan's suggestion during oral argument, that the Supreme Court 'consign 8,000 mutual funds to trial.' Given that Donovan spoke as counsel for Harris Associates, L.P. (the fund manager), this is a startling recommendation...
Jones v. Harris Associates: Let 8,000 Lawsuits Bloom, Part 1
Posted on November 03, 2009'I suggest you consign 8,000 mutual funds to a trial,' declared Attorney John Donovan during oral argument at the U.S. Supreme Court on Monday. Before the Court was Jones v. Harris Associates on appeal from the 7th Circuit. Plaintiffs Jerry N. Jones, Mary F...
Corporate Governance and Delaware Chief Justice Steele: The Miserable Failure of the Securities and Exchange Commission
Posted on November 02, 2009We are discussing the recent interview with Myron Steele, the Chief Justice of the Delaware Supreme Court. The interview be found here. Chief Justice Steele was asked about the plans to increase the powers of the SEC, an extraordinarily vague question...
Corporate Governance and Delaware Chief Justice Steele: Executive Compensation as a Redecoration Problem
Posted on October 30, 2009We are discussing the recent interview with Myron Steele, the Chief Justice of the Delaware Supreme Court. The interview be found here. The Chief Justice was asked about the "executive compensation scandals." We know that there have been excessive amounts of compensation paid over the years, with most outrage in recent years aimed at the practices of extraordinary bonuses paid at financial institutions...
Corporate Governance and Delaware Chief Justice Steele: The Problem of Federal Reguation
Posted on October 29, 2009We are discussing the recent interview with Myron Steele, the Chief Justice of the Delaware Supreme Court. The interview be found here. One of the questions was about the proposals to federalize aspects of the corporate governance process, including "such powers as voting on executive pay, more freedom to launch proxy battles [presumably this is a reference to shareholder access] and the power to separate the roles of a chairman and chief executive officers"...
Corporate Governance and Delaware Chief Justice Steele
Posted on October 29, 2009We have been discussing some of the recent cases arising out of Delaware that take a predictably harsh view towards shareholder rights. Sometimes in trying to explain these things, we are unable to do so with the same clarity and erudition of others, particularly those in the middle of this debate...
Elisse Walter, Commissioner
Posted on October 29, 2009Elisse Walter is one of the three democrats on the SEC and a certain supporter of shareholder/investor rights. Elisse was also my boss at the SEC (although there were several layers between me and her). US Today did a nice and well deserved article on her...
Corporate Governance and Delaware Chief Justice Steele: The Problem of Federal Regulation
Posted on October 29, 2009We are discussing the recent interview with Myron Steele, the Chief Justice of the Delaware Supreme Court. The interview be found here. One of the questions was about the proposals to federalize aspects of the corporate governance process, including "such powers as voting on executive pay, more freedom to launch proxy battles [presumably this is a reference to shareholder access] and the power to separate the roles of a chairman and chief executive officers...
San Antonio Fire & Police v. Amylin: Delaware and the Ostrich Approach to Governance (Judicial Speculation in Place of Board Consideration)
Posted on October 28, 2009Amylin potentially raised important issues about what the board needed to know when it made important decisions. In particular, the case turned upon whether the board had to know about anti-takeover provisions in indentures that potentially eliminated the ability of shareholders to replace the board...
San Antonio Fire & Police v. Amylin: Delaware and the Ostrich Approach to Governance (A Know Nothing Approach to Decision Making)
Posted on October 27, 2009What was the issue in the case? Counsel for Plaintiffs, Joel Friedlander, summed it up this way: The problem is that the Vice Chancellor did not apply the standard that you need to have all material information to make a decision, and that's the standard laid down by this Court on numerous occasions...
San Antonio Fire & Police v. Amylin: Delaware and the Ostrich Approach to Governance (Reading Every Page of Every Agreement)
Posted on October 27, 2009There were a number of issues in the case. The most critical from a governance perspective was the board's obligation with respect to the approval of the poison puts. What is clear from the pleadings and the oral argument, is that the board was unaware of the poison put...
Government Intrusion into Executive Compensation: It's Not the Solution
Posted on October 26, 2009The publicity swirling around the Pay Czar's apparent decision to drastically cut the compensation at seven companies receiving the most bailout money needs to be put into perspective. First, it is the Pay Czar, not the board of directors, who is ensuring that the compensation is fair...
San Antonio Fire & Police v. Amylin: Delaware and the Ostrich Approach to Governance
Posted on October 26, 2009Amylin is a startling case even by Delaware standards. The case raises extraordinarily important issues about the board's obligations with respect to the adoption of contractual provisions that significantly limit the shareholder franchise. Delaware courts have often claimed that there is nothing more important than this franchise, recognizing that while shareholders have no say in management they at least ought to have a say over who serves as management...
Executive Compensation and Board Behavior: Integrity, Candor and Courage
Posted on October 23, 2009BNA has issued a report (apologies that the link requires a password) on some remarks given at the conference of the National Association of Corporate Directors. It includes remarks by Kenneth Feinberg, the Pay Czar who, as rumors would have it, plans to cut the compensation for the top executives at the seven largest recipients of bailout funds by 50-90%...
City of Westland v. Axcelis Technologies: The Myth of Majority Vote Provisions and the Further Need for Preemption of Delaware Law (The Solution)
Posted on October 23, 2009Shareholders simply wanted the minutes/agendas of the meetings where the board considered how to handle the resignations of the three directors who did not receive the requisite support from shareholders and the documents distributed at the meetings...
The Car Czar Makes the Case for Access
Posted on October 22, 2009In the earlier post, we discussed how the Delaware Chancery Court made the case, convincingly, for shareholder access. The court discounted majority vote provisions, essentially making clear that they enhanced the board's authority not shareholders...
City of Westland v. Axcelis Technologies: The Myth of Majority Vote Provisions and the Further Need for Preemption of Delaware Law (The Chancery Court Makes the Case for Access)
Posted on October 22, 2009As we have noted, shareholders in this case merely sought board minutes/agendas and materials considered by the board in deciding whether to accept the letters of resignation by the three directors. Shareholders presumably wanted to ensure that the letters were accepted in a manner that conformed with the board's fiduciary obligations...
City of Westland v. Axcelis Technologies: The Myth of Majority Vote Provisions and the Further Need for Preemption of Delaware Law (Credible Evidence As An Excessive Pleading Standard)
Posted on October 21, 2009Despite being the owners of the company, shareholders in Delaware are not allowed to examine the books and records unless they have a proper purpose. A proper purpose, one might think, would merely require a good reason. In fact, Delaware courts have interpreted the phrase to essentially require allegations of wrongdoing...
The Pay Czar: Dividing the Haves and the Have Nots
Posted on October 21, 2009It was an awfully stark week for news on the compensation front. On the one hand, the WSJ has reported that financial firms as a group are on course to pay a record amount of compensation. While the data included a few companies subject to the restrictions imposed under TARP (Citigroup, for example), most of the companies in the study were subject to no regulatory restrictions on the amount of compensation they paid...
City of Westland v. Axcelis Technologies: The Myth of Majority Vote Provisions and the Further Need for Preemption of Delaware Law (An Introduction)
Posted on October 20, 2009Delaware courts are, in general, extraordinarily predictable, as we see in Westland Police & Fire Retirement System v. Axcelis. This case ought to have been a simple one. Axcelis has in place a majority vote provision, one of those new requirements trumpeted by opponents of access as evidence of the benefits of private ordering between management and shareholders (for a rebuttal, go here)...
Delaware and Corporate Governance: The Current Stance
Posted on October 20, 2009The interplay between Delaware, particularly the courts, and the SEC, is becoming more pronounced and more complex. We will examine over the next week or two some Delaware decisions that demonstrate the need for a federal response, particularly from the Securities and Exchange Commission...
SEC v. Dorozhko: Second Circuit Closes Insider Trading Loophole for Computer Hacking?
Posted on October 19, 2009In SEC v. Dorozhko, 574 F.3d 42 (2d. Cir. 2009), Oleksandr Dorozhko allegedly hacked into IMS Health, Inc.'s ('IMS') earnings report and used the information to make net profits of $286,456.59 in one day of trading in IMS put options. In this case, the Second Circuit held that computer hacking may be considered 'deceptive' under Section 10(b) of the Securities Exchange Act of 1934 depending on how the hacker infiltrated a company's computer system...
Operating Agreements and Advancement of Legal Fees: The Need for Careful Drafting (Ficus Investment v. Private Capital Management)
Posted on October 19, 2009LLCs are relatively new entities. They rely largely on principles of contract, with the rights and responsibilities of the participants usually reflected in an operating agreement. State law allows operating agreements wide discretion in setting out the respective rights of the participants...
The Limits of the Pay Czar
Posted on October 16, 2009The stories were rampant that the Pay Czar, Kenneth Feinberg, caused Ken Lewis, the departing CEO of BofA to remit about $1 million received so far this year and to forgo the remainder of his salary for the year, $1.5 million. The Pay Czar is assigned the task of reviewing compensation practices for the largest companies receiving bailout funds...
Compensation in the Financial Sector: Returning to the Halcyon Days of Yore
Posted on October 16, 2009There have been many developments over the last several weeks in the corporate governance area, some in Delaware (mostly predictable bad news) and some at the federal level, including an Inspector General's report on supervision by the Fed (out of New York) and Treasury over AIG's compensation practices...
Boyd v. Novastar Financial: Subprime Lending, the PSLRA, and the Need to Specify the Misstatements
Posted on October 15, 2009The PSLRA imposes a number of procedural hurdles in bringing a class action fraud suit under Rule 10b-5. The need for a "strong inference" of scienter is perhaps the best known, but there are others, including the need to plead fraud with particularly, as the plaintiff in this case discovered...
DiLorenzo v. Norton: The Hurdles in Derivative Suits for Backdated Stock Options
Posted on October 14, 2009On August 3, 2009, a District of Columbia federal judge dismissed a shareholder derivative suit alleging that ePlus Inc. ('ePlus') officers and directors backdated stock options in violation of ePlus's stock option plan. The judge ruled that the plaintiff failed to adequately plead standing to pursue his claims and failed to adequately plead demand futility...
Loss Causation Under Rule 10b-5: Separating Fraud From Bad News
Posted on October 14, 2009In Fener v. Belo Corp., 2009 WL 2450674 (5th Cir. Aug. 12, 2009), the Fifth Circuit Court of Appeals affirmed the district court's decision to deny class certification to shareholders of Belo Corporation. The court held that the shareholders' motion for class certification failed to show the loss causation element required to establish securities fraud-on-the-market theory...
Reforming Executive Compensation Regulation and Avoiding an International Race to the Bottom (Part 4)
Posted on October 13, 2009This is the final post regarding the Financial Services Authority's (FSA) adoption of a new 'Remuneration Code' to regulate, for the first time, executive compensation in the UK's financial sector. Without question, the FSA understands its actions have international consequences...
Regulating Executive Compensation in the UK?s Financial Sector: The Financial Services Authority Shows its Teeth (Part 3)
Posted on October 13, 2009This blog recently addressed 'Reforming remuneration practices in financial services,' a Policy Statement (PS) issued by the United Kingdom's Financial Services Authority. Primarily, the new regulation is the FSA's response to the perceived role that the immediate payment of large cash bonuses played in incentivizing bank executives to pursue the extreme risks that eventually led to the recent market crisis...
Reforming Executive Compensation: A Clear Purpose and a Blank Canvass (Part 2)
Posted on October 12, 2009We are discussing the recent decision by the the Financial Services Authority (FSA) in the United Kingdom to regulate executive compensation in the wake of the current financial crisis. In its August Policy Statement, the FSA identified that reforming the current system of unchecked executive compensation was a necessary step in establishing and maintaining economic stability...
The United Kingdom?s Financial Services Authority Takes Action: Regulating Executive Compensation in the UK?s Financial Sector (An Overview)
Posted on October 12, 2009On this blog, we track issues regarding executive compensation practices and regulations. We take some time to examine the recent actions of the United Kingdom's Financial Services Authority (FSA). In this four post series, we will analyze the FSA's August Policy Statement (PS) which revealed the adoption of a new 'Remuneration Code' for executive compensation in the UK's financial sector...
The SEC Responds to Mark Cuban's Motion for Attorney's Fees: The Commission Did Not Act in Bad Faith
Posted on October 10, 2009On September 30, 2009, the Securities and Exchange Commission ('SEC') filed a Memorandum of Law in Opposition to Defendant Mark Cuban's Motion for Attorneys' Fees and Expenses ('the Response') in the Northern District of Texas – Dallas Division...
SEC v. Mark Cuban: Notice of Appeal
Posted on October 09, 2009On Wednesday October 7th, the SEC filed a Notice of Appeal to the Fifth Circuit Court of Appeals in the case against Mark Cuban. Today's notice did not provide much detail, but we will post on subsequent details as they develop. A copy of the Notice of Appeal can be found on the DU Corporate Governance website.
SEC v. Tambone: Specificity, Scienter, and 10b-5 violations
Posted on October 09, 2009In a previous post this blog covered SEC v. Tambone, the case against James R. Tambone and Robert Hussey, executives of Columbia Funds Distributor, Inc.. Neither defendant made false statements, but the SEC alleged that they distributed prospectuses that they knew were misleading...
Reyes' Conviction Reversed: Pocedural Misconduct Warrants New Trial
Posted on October 08, 2009In January, this blog reported the $15 million fine and sentencing of Gregory Reyes ('Reyes'), former CEO of Brockade Communication Systems, Inc., for backdating options. On August 18, the Ninth Circuit Court of Appeals reversed Reyes' conviction due to prosecutorial misconduct and remanded for a new trial...
Easterbrook v. Posner and Losing Faith in the Market: Jones v. Harris Associates
Posted on October 08, 2009The Supreme Court recently scheduled oral arguments in Jones v. Harris Associates, 527 F.3d 627 (7th Cir. 2008), for November 2nd. The Seventh Circuit's decision has been widely discussed, including a series of posts by Professor Birdthistle on The Conglomerate...
Reforming the SEC: Relevancy and Reallocating Resources
Posted on October 01, 2009Robert Khuzami, the Director of the Division of Enforcement, has wasted little time in disrupting the status quo. He has proposed a series of reforms, many of them set out in a speech before the New York City Bar back in early August. One of the critical problems and goals is to increase the relevancy of the Commission...
Reforming the SEC: Turnover at the Top
Posted on September 30, 2009All of the heads of the SEC's operating divisions have changed either shortly before or shortly after the arrival of Mary Schapiro. That in fact is not a particularly unusual phenomena at the Commission. Those running the Divisions use the change in supervisor as a catalyst to move on, usually into the private sector...
Reforming the SEC: A List of the Directors of the Division of Enforcement
Posted on September 30, 2009We are discussing reform at the SEC. The prior post discussed the appointment of Robert Khuzami, only the second head of the Division of Enforcement to have no direct experience inside the Division. We thought it would be appropriate to provide a list of all of the Division Directors and a bit of information about their background before they joined the Commission...
Reforming the SEC: Large Settlements
Posted on September 29, 2009We are discussing the condition of the SEC and some proposed reforms. We'll have a number of posts on the subject over the next week or so. While much of this discussion is about things that have gone wrong, we take a moment to note some things that have gone right...
Reforming the SEC: Dodging A Legislative Bullet
Posted on September 29, 2009The SEC did not cause the current financial crisis. Nonetheless, there was some sense that the SEC was fiddling while Rome burned. The five large investment banking firms that were at the heart of the crisis -- Morgan, Goldman, Merrill, Lehman and Bear Stearns -- were subject to the oversight of the SEC...
Reforming the SEC: The Humbling of a Proud Agency
Posted on September 28, 2009Bureaucracies, over time, become, well, bureaucratic. As William O. Douglas, the third chairman of the SEC, wrote in a speech only four years after the creation of the SEC (the SEC only came into existence with the adoption of the Exchange Act; the Securities Act of 1933 left to the FTC the initial obligation to enforce the securities laws): 'Flexibility in any institution is difficult to obtain...
Shareholder Access and the Charade of Majority Voting Provisions
Posted on September 28, 2009In arguing against shareholder access, commentators and pundits often point to majority vote provisions. These are given as an example that private ordering really works. It is used to suggest that access should be left to private ordering rather than a mandatory rule issued by the Commission...
The Race to the Bottom and "Fodder for those Who Seek a Federal Takeover of Delaware Corporate Law"
Posted on September 25, 2009The debate on Blogging and its role in the academy is an ongoing one. Nonetheless, it seems clear to The Race to the Bottom that blogging can play an important role on the continuum of scholarship. It provides a mechanism for commenting on legal developments on a semi-real time basis...
Foreign-Cubed Securities Actions and the Supreme Court: A Petition for Certiorari Is Filed In Morrison v. Nat'l Austl. Bank (Introduction)
Posted on September 24, 2009In the coming weeks and months, The Race to the Bottom will feature a series of posts that will discuss the petition for certiorari, merit, and amicus briefs filed to the Supreme Court in Morrison v. Nat'l Austl. Bank Ltd., No. 07-0583-cv, 2008 U.S. App...
Morrison v. Nat'l Austl. Bank Petition for Certiorari: An Opportunity to Fix the Circuit Split
Posted on September 24, 2009This post is the first of a series looking into the certiorari, merit, and amicus briefs filed in Morrison v. Nat'l Austl. Bank Ltd., No. 07-0583-cv, 2008 U.S. App. LEXIS 21986, (2d Cir. 2008). As mentioned in my introduction, the blog covered the decision of the Second Circuit...
Limited Partnership Units As Securities: Liberty Property Trust v. Republic Properties Corp.
Posted on September 23, 2009In Liberty Property Trust v. Republic Properties Corporation, 2009 U.S. App. LEXIS 18880 (D.C. Cir. Aug. 21, 2009), plaintiffs sued Republic Properties Corporation and its only two shareholders, Grigg and Kramer, alleging securities fraud under Rule 10b-5, control person liability, and various infractions under state law...
SEC v. BofA: Let the Litigation Begin
Posted on September 22, 2009We called it (although, in fairness, we had a 50-50 chance). The SEC plans to litigate the case against Bank of America in connection with the non-disclosure of the bonuses paid by Merrill Lynch. And, from the statement issued about the matter, will consider adding defendants (read individuals) if the facts uncovered in discovery warrant it...
SEC v. Cuban and Mark Cuban's Patriotism
Posted on September 22, 2009We have a nice student post today on the motion filed by Mark Cuban for attorneys fees against the Commission alleging bad faith in connection with the investigation. In the brief, there are the following quotes which the brief represents came from emails sent by an SEC attorney to Cuban: March 28, 2007 – '...
Mark Cuban Wants Attorneys' Fees and Expenses for SEC's Bad Faith Lawsuit
Posted on September 22, 2009On August 28, 2009, Mark Cuban filed a Motion for Attorneys' Fees and Expenses ('the Motion') in the Northern District of Texas – Dallas Division. The Motion contends Cuban is entitled to Attorneys' fees and expenses he incurred defending against the Securities and Exchange Commission's ('SEC') complaint against Cuban for insider trading...
Churchill v CU: Judge Denies Churchill's Motion to Amend Judgment
Posted on September 21, 2009Not surprisingly, Judge Naves denied Churchill's Motion to Amend Judgment Pursuant to C.R.C.P 59. The two-sentence Order issued September 18th came after the motion and response summarized by this Blog and posted on the DU Corporate Governance site...
Overturning the Delaware Model: Going Beyond Financial Institutions
Posted on September 21, 2009The current proposals to regulate executive compensation, particularly the Fed's efforts to regulate compensation practices that threaten financial soundness, are limited to banks. The same limits ought to apply to all public companies, not just those operating in the financial markets...
The Fed Proposals and Upending the Delaware Model
Posted on September 21, 2009The Fed is considering rules that would effectively regulate compensation practices by the 5000 or so banks subject to its oversight. Federalization of the compensation process, in short, and a death knell to the Delaware model of determining compensation...
Bank of America and Judge Rakoff: A Strategic Profession of Innocence?
Posted on September 20, 2009We have noted on this Blog the curious decision by BofA to adopt a strategy of complete innocence when attempting to explain the agreement to pay a $33 million penalty. Its nothing new for a company to think that it has the better of the merits in any case and there is plenty of room to make that case here...
Bank of America and Judge Rakoff: A Strategic Profession of Innocence?
Posted on September 19, 2009We have noted on this Blog the curious decision by BofA to adopt a strategy of complete innocence when attempting to explain the agreement to pay a $33 million penalty. Its nothing new for a company to think that it has the better of the merits in any case and there is plenty of room to make that case here...
The Role of Stock Exchanges in Corporate Governance: The Matter of Enforcement (Part 8)
Posted on September 18, 2009We are discussing The Role of Stock Exchanges in Corporate Governance, a report issued by the OECD. As we noted in the last post, most exchanges eschew mandatory listing standards and instead rely on "comply or explain." In these countries, a voluntary code of corporate governance exists and companies may "opt in" if they like...
The Role of Stock Exchanges in Corporate Governance: A Conclusion of Sorts
Posted on September 18, 2009The study indicates a wide variation of practices. There is, however, a significant split, not between common and civil law jurisdictions but between the US and the rest of the world. It seems that the US is the one country that consistently looks, on an exclusive basis, to the stock exchanges to establish and enforce mandatory listing standards...
The Role of Stock Exchanges in Corporate Governance: Shielding the Regulatory Function from Profit Maximization (Part 6)
Posted on September 17, 2009We are discussing The Role of Stock Exchanges in Corporate Governance, a report issued by the OECD. What about listing standards, particularly in a "for-profit" environment? For those that do retain a regulatory role, the model varies. The NYSE relies on a separate non-profit subsidiary, NYSE Regulation, for surveillance and enforcement...
The Role of Stock Exchanges in Corporate Governance: The Source of the Cross-Listing Premium (Part 7)
Posted on September 17, 2009We are discussing The Role of Stock Exchanges in Corporate Governance, a report issued by the OECD. The table on p. 11 of the report also notes whether the various exchanges impose mandatory disclosure requirements on listed companies. Of course, in the US, Section 12(b) requires exchange traded companies to conform to the reporting regime under Section 13...
The Role of Stock Exchanges in Corporate Governance: The Regulatory Role of For Profit Exchanges (Part 4)
Posted on September 16, 2009We are discussing The Role of Stock Exchanges in Corporate Governance, a report issued by the OECD. The role of the stock exchanges varies considerably. Some are little more than trading platforms, with regulatory requirements largely emanating from the government...
The Role of Stock Exchanges in Corporate Governance: The Role in Determining Listing Standards (Part 5)
Posted on September 16, 2009We are discussing The Role of Stock Exchanges in Corporate Governance, a report issued by the OECD. On p. 11 of the report is a table showing a number of stock exchanges and their role in the governance process. The table explains whether the stock exchange has any role in setting listing standards and in surveillance...
SEC v. BofA: Judge Rakoff Rejects the Settlement (part 2)
Posted on September 15, 2009Judge Rakoff's concern were two fold. First, was his concern with the Commission's side of things, centering on the decision to charge the Bank but not any responsible individuals. He did not buy the Commission's justification for imposing the penalty on Bank of America...
SEC v. BofA: Judge Rakoff Rejects the Settlement (Part 1)
Posted on September 15, 2009In what has to be a stinging rebuke to both sides, Judge Rakoff refused to approve the settlement between the Securities and Exchange Commission and the Bank of America over the alleged failure to adequately disclose the Merrill Lynch bonuses paid just before the merger...
SEC v. BofA: Judge Rakoff Rejects the Settlement (Part 5)
Posted on September 15, 2009The opinion was remarkable in its candor. In characterizing what he believed really happened, Judge Rakoff had this to say: Overall, indeed, the parties' submissions, when carefully read, leave the distinct impression that the proposed Consent Judgment was a contrivance designed to provide the S...
SEC v. BofA: Judge Rakoff Rejects the Settlement (Part 4)
Posted on September 15, 2009Judge Rakoff's second concern was the explanation for the settlement provided by the Bank. The Bank adopted a somewhat belligerent tone, loudly proclaiming its complete innocence ('vigorously' asserting innocence in the language of the opinion)...
SEC v. BofA: Judge Rakoff Rejects the Settlement (Part 3)
Posted on September 15, 2009So why didn't the Commission charge the individuals? The Commission largely relied on an absence of intent. With the officers relying on counsel, the Commission could not show that they knew or were reckless in not knowing about the false statements...
The Role of Stock Exchanges in Corporate Governance: The Dominant Players (Part 2)
Posted on September 14, 2009We are discussing The Role of Stock Exchanges in Corporate Governance, a report issued by the OECD. The study examined ten exchanges (some of which were, in turn, clusters of exchanges, such as Euronext), ranging from NYSE/Nasdaq, to Warsaw to Tokyo...
The Role of Stock Exchanges in Corporate Governance (Introduction)
Posted on September 14, 2009In the corporate governance area, there are few issues quite as important as the role of stock exchanges in the governance process. Stock exchanges can play a substantial or limited role in the process. In the United States, they are major players, requiring boards with a majority of independent directors and various committees, likewise staffed with independent directors...
The Role of Stock Exchanges in Corporate Governance: Demutualisation and the Retention of Regulatory Responsibility (Part 3)
Posted on September 14, 2009We are discussing The Role of Stock Exchanges in Corporate Governance, a report issued by the OECD. The precise role of stock exchanges in the regulatory process has been an often discussed issue. Demutualisation and the conversion to for-profit companies has, however, raised the importance of the discussion to a new level...
The Case for Access: The British Experience
Posted on September 12, 2009Those who allege that access will cause substantial disruption in the corporate governance process have a serious weakness: the facts. Access has been in place in Great Britain for years with no apparent harm. Indeed, we note that in a letter submitted by the Association of British Insurers, Peter Montagnon, Director of Investment Affairs, had this to say: Experiences in the UK and other markets have shown that the ability to nominate directors does not lead to frivolous nominations...
Corporate Governance Reform and the ABA (Part 1)
Posted on September 11, 2009The ABA Task Force on Delineation of Governance Roles and Responsibilities came out with a Report that received some mention but otherwise disappeared into the morass that is corporate governance. There is so much going on, between the SEC, the Delaware courts, and Congress, that reports unconnected to specific developments get much play...
Churchill's Motion to Amend Judgment to Dismiss
Posted on September 11, 2009On July 21, 2009, Churchill attorney Qusair Mohamedbhai filed a motion under C.R.C.P. Rule 59 to amend the trial court judgment to dismiss the case. Followers of this case will remember that after the jury verdict finding Churchill's First Amendment rights had been violated and awarding $1...
Corporate Governance Reform and the ABA (Part 2)
Posted on September 11, 2009We are discussing a Report produced by the ABA Task Force on Delineation of Governance Roles and Responsibilities. The Report is a good overview of the roles played by three interest groups in the governance debate, shareholders, directors, and regulators...
Stockman v. Heartland Industrial Partners: In the Case of Indemnification, Goals Trump Contract
Posted on September 10, 2009This blog extensively covered United States v. Stockman, involving criminal charges brought against officers and directors of Collins & Aikman Corporation ('C & A') for defrauding investors, banks, and creditors. The U.S. Attorney dropped its charges on January 9, 2009, providing a cursory explanation for its decision...
Foreign Listings and the US: Sarbanes Oxley to the Rescue
Posted on September 09, 2009How things have evolved. Two years ago, the corporate governance debate was about the competitive harm of Sarbanes-Oxley (see Criticizing the Critics: Sarbanes Oxley and Quack Corporate Governance) and the need to restrict shareholder litigation in order to return the US to the pinnacle in global markets...
Executive Compensation: The Excess and the Agony
Posted on September 08, 2009The Institute for Policy Studies has put out a report on executive compensation called "America's Bailout Barons," which more or less reveals the content. Among other things, the report concluded: The 20 US financial firms that have received the most bailout dollars from taxpayers awarded their top five executive officers, in the three years through 2008, pay packages worth a combined $3...
Not Always a Paradise
Posted on September 08, 2009Great Britain has sometimes been labeled a shareholders paradise. Unlike the United States, large shareholders have access to the company's proxy statement for their nominees. They also get a say on pay and directors must be elected by a majority of the votes cast...
Justice Stevens and the Federal Securities Laws
Posted on September 07, 2009Articles have begun to speculate that Justice Stevens is ready to announce his resignation from the Supreme Court. The speculation is based his hiring of a single clerk, rather than the usual four. Retired Justices apparently get one clerk...
The Madoff Report is Out
Posted on September 05, 2009After releasing the executive summary earlier this week, the Commission released the full report of the Inspector General on the Madoff debacle. The report can be found here. The report is full of nuggets. We mention one of them...
The Full Madoff Report is Out
Posted on September 05, 2009After releasing the executive summary earlier this week, the Commission released the full report of the Inspector General on the Madoff debacle. The report can be found here. The report is full of nuggets. We mention one of them...
SEC v. Bank of America: A Dissatisfied Judge Rakoff and A Questionable Stance on Privilege
Posted on September 04, 2009Last week or so, the SEC and Bank of America filed with Judge Rakoff their views of the case. In some respects, the two documents represented irreconcilable versions of the same case. For Bank of America, it had done nothing wrong. The disclosure was entirely accurate...
Barristers Best and The Race to the Bottom
Posted on September 04, 2009Ranking law blogs is notoriously hard to do. Do you rank by traffic, an approach used by Paul Caron when he does a quarterly list? If you rank by traffic, do you go with individual IP addresses or page views? Do you rely on the number of links to your blog, a method used for example by Google? (Ranking of blogs, including the influence of blogs on US News rankings, is examined in greater detail in Of Empires, Independents, and Captives: Law Blogging, Law Scholarship, and Law School Rankings)...
Madoff and the Report of the Inspector General: The Failure to Look Around the Corner
Posted on September 03, 2009We discussed yesterday, briefly, the Summary of the Report of the Inspector General on its "Investigation of Failure of the SEC To Uncover Bernard Madoff's Ponzi Scheme." As we noted, the SEC received a number of credible reports and complaints over the years and conducted three examinations (run by OCIE and/or examiners from regional offices) and two investigations (conducted by the Division of Enforcement) of Madoff between 1992 and 2008 when the scheme finally collapsed...
Madoff and the Report of the Inspector General: The Failure to Look Around the Corner (Part 2)
Posted on September 03, 2009We are discussing the executive summary of the report ("Investigation of Failure of the SEC To Uncover Bernard Madoff's Ponzi Scheme") by the Inspector General on the failure of the SEC to uncover the Madoff ponzi scheme sooner. The Enforcement Division conducted two investigations (and probably should have conducted a third)...
Public Pension Plans, Labor Unions, and the Benefits of Shareholder Activism
Posted on September 02, 2009Remember in the prior administration the complaints that surfaced because of shareholder activism by pension plans, particularly ones sponsored by unions? We recall, in particular, the editorial written by Justice Scalia's son (Eugene) criticizing union shareholder activism and calling on the Department of Labor to do something about it, a position that engendered a reply from this Blog...
Public Pension Plans, Labor Unions, and the Benefits of Shareholder Activism (Continued)
Posted on September 02, 2009Institutional investors (including union pension plans) achieve fewer dismissals and greater settlement amounts. What else? According to Institutional Monitoring Through Shareholder Litigation, they also generate improvements in governance...
The SEC and the Madoff Report
Posted on September 02, 2009A summary of the Report by the Inspector General of the SEC has been posted on the Commission's web site, a long with a comment by Chairman Mary Schapiro. The full 450 page missive will eventually follow. The study concludes that there was no impropriety by anyone working on the case, including the SEC official who had a relationship with Madoff's niece...
Access and the Opposition: Be Careful What You Wish For
Posted on September 01, 2009We've noted before the often short sighted approach taken by opponents to shareholder access. The Cox Commission proposed a wholly ineffective form of access (requiring an access bylaw to pass first) yet it was opposed with enormous vehemence. The consequence has been a change in administration and an even more invasive form of access (one that is much better and promises to be more effective)...
Access and Its Opponents: The Inevitability of Access
Posted on August 31, 2009Access is inevitable. As we have written (The SEC, Corporate Governance, and Shareholder Access to the Board Room), the denial of access only occurred because, in the early days of the proxy rules, issuers opposed it and, frankly, so did shareholders...
Access and Its Opponents: The Vital Role of the Nominating Committee
Posted on August 29, 2009We are the first to note that access upsets the current state of the law. Delaware allows any shareholders to nominate directors, the proxy rules effectively take that right away. Many of the letters, therefore, contained pleas to leave things as they were, as if this supported the state law role in the governance process...
Access and Its Opponents: The Ostensible Improvement in Corporate Governance
Posted on August 28, 2009One of the much repeated arguments against access has been that corporate governance has so improved over the last few years (since SOX), that this additional right is not needed. The letters usually refer to the same developments: The adoption of majority vote provisions (which we address in a separate post), the increase in the number of independent directors on the board, and the use of independent chairmen/lead directors...
Access and Its Opponents: The Ostensible Evidence of Majority Voting Provisions
Posted on August 27, 2009One of the main arguments made in opposition to access has been the widespread adoption of majority vote provisions. Somehow, the evidence implies, access will undergo something similar and, in the corporate governance realm, a thousand access flowers will bloom...
Access and Its Opponents: The Ostensible Benefits of Private Ordering
Posted on August 26, 2009Many have taken the position that the SEC is taking a "one size fits all" approach that should be eschewed in favor of private ordering. Private ordering is a concept that suggests companies ought to put in place provisions that uniquely fit their own needs and circumstances and, that, presumably, includes the views of management and owners...
BofA and the Merger with Merrill Lynch: Heroics Not Weakness
Posted on August 26, 2009The Atlantic Monthly has an article about the pressure put on BofA and its CEO, Ken Lewis, to close the deal to purchase Merrill Lynch. See The Final Days of Merrill Lynch. Treasury Secretary Henry Paulson apparently threatened Lewis with removal if he tried to use the material adverse condition clause to get out of the merger...
Access and Its Opponents: An Overview
Posted on August 25, 2009There are once again hundreds of letters submitted to the SEC on its access proposal. A number of letters are unusual, including one by the Delaware Bar Association, another by 80 law professors (including this one), and one by seven major law firms (with Wachtell agreeing to the group approach rather than file its own letter)...
BofA, the SEC, and the Merrill Lynch Bonuses: The Costs of Legal Representation
Posted on August 25, 2009Attached to the BofA memorandum filed yesterday was an affidavit from Morton Pierce, the chairman of the Mergers and Acquisitions Group at Dewey & LeBoeuf LLP. He was asked "to analyze how compensation disclosures of the type that are the subject of the Complaint are customarily made in transaction documents of this nature...
Wayne County Employee's Retirement v. Corti: The Conflict of Interest that Wasn't (Part 1)
Posted on August 24, 2009In the compensation area, we have often talked about how the Delaware courts took a traditional duty of loyalty claim (compensation paid to another director, the CEO) and transformed it into a duty of care case. The effect was to eliminate any examination of the substantive fairness of the payments...
Wayne County Employee's Retirement v. Corti: The Conflict of Interest that Wasn't (Part 2)
Posted on August 24, 2009We are discussing Wayne County Employees' Retirement System v. Corti, a recent Delaware case that concluded that directors simultaneously negotiating over the sale of the company and subsequent employment arrangements did not have a conflict of interest...
BofA, the SEC, and the Merrill Lynch Bonuses: BofA Responds
Posted on August 24, 2009BofA has filed its "MEMORANDUM OF LAW ON BEHALF OF BANK OF AMERICA CORPORATION", a document filed at the court's direction in connection with the proposed settlement between the SEC and BofA over the disclosure of the bonuses paid by Merrill Lynch just before the merger closed...
Liquidity and the Collapse of Bear Stearns
Posted on August 22, 2009We have followed the financial crisis in part because of the relationship to executive compensation and current efforts at reform. We have also followed it because of the structural shift that has occurred in the securities markets, particularly the elimination of indepependent investment banks as financial intermediaries, an inevitable byproduct of the repeal of Glass-Steagall...
Department of Justice Declines to Pursue Nacchio Resentencing Appeal
Posted on August 21, 2009As part of the Race to the Bottom's continuing coverage of Joseph Nacchio's legal saga, Professor O'Brien posted on the 10th Circuit's decision on Nacchio's sentence. A three-judge panel remanded the calculation of Nacchio's sentence to U.S. District Court for being excessive...
Access and the Delaware Bar Association
Posted on August 20, 2009The Delaware State Bar Association has written a comment letter on the SEC's proposal to give shareholders access to the company's proxy statement for nominees to the board. The letter was apparently unique ("To the best of our knowledge, this is the first time that the Delaware State Bar Association or any of its membership groups has ever submitted a formal written comment to the Commission...
Corporate Profits and Corporate Political Spending: Why Companies Care and Corporate Legal Academics Should Too
Posted on August 20, 2009First, I applaud the Harvard Corporate Governance blog for posting the Cooper, Gulen & Ovtchinnikov paper on Corporate Political Contributions and Stock Returns. Documenting the ways that companies influence federal Congressional campaigns -- and hence shape the broader political and legal system to maximize corporate profit -- is a crucial endeavor if we are going to have a meaningful discussion of what we mean by "free markets...
It?s a Wonderful Lie: Mutual Fund Advocacy for Shareholders? Rights, part 5
Posted on August 19, 2009Seventy-five years after Berle and Means, we still examine corporate governance problems within their agency framework. Specifically, we see shareowners at the mercy of distant managers. Yet, the mutual fund example should show us at least one more layer...
The Chancery Court Decision Is In: Travis Laster
Posted on August 19, 2009Reports percolating around indicate that Travis Laster has been designated as the replacement for Vice Chancellor Lamb on the Delaware Chancery Court. While there is little dispute about his intellect or his disposition, there is also little dispute that he meets the traditional profile of those on the Delaware Chancery Court...
It?s a Wonderful Lie: Mutual Fund Advocacy for Shareholders? Rights, part 3
Posted on August 18, 2009Many investors are surprised to learn that they profit from genocide in Sudan through mutual fund investments. You might be one of those investors. Accordingly you might expect your mutual fund adviser to challenge the corporations for you. But this happens rarely, if at all...
It?s a Wonderful Lie: Mutual Fund Advocacy for Shareholders? Rights, part 4
Posted on August 18, 2009Approximately 77.7 million individuals in the United States invest in equities through stock mutual funds. When these investors put their money to work and at risk, they depend upon strong corporate governance structures at corporations (portfolio companies) held by the mutual funds that they own...
Jennifer Taub Posts on The Race To the Bottom
Posted on August 17, 2009For the second time in two weeks, we are please to announce another contribututor to The Race To the Bottom. Jennifer Taub is a a Lecturer and Coordinator of the Business Law Program within the Isenberg School of Management at the University of Massachusetts, Amherst...
It?s a Wonderful Lie: Mutual Fund Advocacy for Shareholders? Rights, part 1 (UNPUBLISHED)
Posted on August 17, 2009Halfway through the American film classic, It's a Wonderful Life, there is a run on the Bailey Building and Loan in fictional Bedford Falls. The lobby teems with panicked customers, demanding cash for their shares. Attempting to discourage redemptions, George Bailey, played by Jimmy Stewart, implores: No, but you...
It?s a Wonderful Lie: Mutual Fund Advocacy for Shareholders? Rights, part 2
Posted on August 17, 2009Mutual funds benefit market participants differently. For direct shareholders who hold shares through the retail or intermediary channel, and for indirect shareholders who hold fund shares through a retirement plan, benefits include the ability to invest a relatively small amount of money and yet have access to the expertise of professional money managers...
The Continuing Problem of Executive Compensation
Posted on August 15, 2009The House has passed an executive compensation reform proposal and the SEC has continued to bring enforcement actions. In the real world, however, things seem little different than before the crisis began. As the London Times noted, "Big bonuses, small changes...
Overturning Stoneridge and the Symbolic Passing of an Era
Posted on August 14, 2009Stoneridge, as we have written, was an overt policy decision made by the conservative justices on the Supreme Court who interpreted Section 10(b) and Rule 10b-5 in a manner divorced from Congressional intent, the language of the statute, and common law fraud principles...
The Nominees for the Chancery Court Are In
Posted on August 14, 2009According to the Delaware Grapevine, the nominees for the Chancery Court are Travis Laster, Judge Mary Johnston, and Richard Forsten. We called two of the three, with Joel Friedlander not making the cut. The loss of Friedlander is likely a disappointment for the plaintiff's bar...
The Inevitability of Say on Pay
Posted on August 13, 2009Whatever happens with respect to corporate governance reform, the most likely piece to emerge is "say on pay." Its included in HR 3269, the ‘‘Corporate and Financial Institution Compensation Fairness Act of 2009," which recently passed the House of Representatives...
Reform Efforts in Shareholder Paradise
Posted on August 13, 2009Those fighting governance reform must confront the fact that many of the proposed changes are already in use overseas. This is particularly true in Great Britain, a country sometimes derisively called a "shareholder's paradise." Great Britain allows access and provides say on pay...
The SEC Requests Chief Judge Close Case Against Mark Cuban
Posted on August 13, 2009Yesterday the SEC requested Chief Judge Sidney Fitzwater close the case against Mark Cuban. Last month the Chief Judge ruled against the agency in its insider trading charges and granted Cuban's motion to dismiss. However, the SEC had thirty days to re-file a new complaint with stronger charges...
The Permanent Solution: HR 3269 and the Regulation of Executive Compensation (Part 1)
Posted on August 12, 2009With so much activity and so little time, we have not had a chance to comment on the ‘‘Corporate and Financial Institution Compensation Fairness Act of 2009," legislation introduced by Barney Frank in the House and recently passed by the House Committee on Financial Affairs but what was apparently a relatively straight party vote of 40 to 28...
The Permanent Solution: HR 3269 and the Regulation of Executive Compensation (Part 2)
Posted on August 12, 2009We are examining HR 3269, corporate governance legislation that recently passed the House of Representatives by a vote of 230 to 185. The broad approach of the legislation is to solve the excessive compensation problem by reforming the process...
Changing the Guard in the Delaware Chancery Court
Posted on August 11, 2009Vice Chancellor Lamb has opted to step down from the Chancery Court. Francis Pileggi at the Delaware Corporate and Commercial Litigation Blog has listed the seven folks who have apparently applied for the position. They include: Richard ForstenJoel FriedlanderJudge Mary JohnstonRichard KigerTheodore "Ted" Kittila Travis LasterBruce Silverstein The number will apparently be narrowed to three and sent to the governor for the final appointment...
The SEC, Enforcement Actions, and Substantive Regulation of Executive Compensation
Posted on August 11, 2009We have noted often on this Blog that executive compensation is a matter of state law. That means Delaware. The amount of compensation is a discretionary decision by the board of directors and is tested under the board's fiduciary obligations...
The SEC, Public Pressure and a Case of Bad Timing for Bank of America
Posted on August 10, 2009Last week, the SEC brought an action against Bank of America in connection with the bonuses paid to Merrill Lynch officials shortly before completion of the merger. It was, however, a case of bad timing for Bank of America rather than real evidence of improper behavior...
Another Bad Day for the Bank of America
Posted on August 10, 2009For an almost transcript like rendition of the hearing on the settlement by BofA with the SEC in connection with the bonuses paid by Merrill before the merger closed, see the report by Thom Weidlich at Bloomberg. Judge Rakoff refused to approve the settlement, indicating that he needed additional information...
SEC Investigates Staff Members for Insider Trading
Posted on August 08, 2009Two United States SEC employees are currently under investigation for suspected insider trading and other SEC regulatory violations. The investigation, which the SEC Office of the Inspector General ('SEC OIG') turned over to the United States Attorney's Office and the Federal Bureau of Investigation, focuses on two currently unnamed Enforcement Division attorneys...
Berger v. Pubco: What does Pubco add to our understanding about the interconnectedness of corporate law substantive rights and corporate law procedural rules? And where does this decision come out in adjusting process rules so they are strongly or weakly ?minority friendly??
Posted on August 07, 2009Corporate litigators, I am sure, would never miss the fact that substantive rights mean little apart from the process through which they can be asserted, defended and elaborated in court (and by implication, in settlement negotiations). Remarkably, this is something that corporate legal academics often overlook in discussing the nature of corporate law rights...
Berger v. Pubco: What does Pubco say about appraisal versus fiduciary remedies (and the difference between ?fair price? and ?fair value?)?
Posted on August 07, 2009Despite the comments above, it's clear that Pubco is a finely calibrated decision, even a cautious one in asserting minorities' rights in the face of short form mergers. Put most dimly, on Pubco's facts, what we have is an adjudicated fiduciary (disclosure) breach, where the court has denied the minorities a genuine fiduciary remedy...
Berger v. Pubco: What does Pubco tell us about the larger arc of the fiduciary duty of disclosure?
Posted on August 06, 2009The Delaware courts have long wrestled with the Fiduciary Duty of Disclosure (FDD), though its roots, and its relevance to controllers, date back (as a 'duty of complete candor') to 1978 with the Supremes' Lynch v. Vickers Energy decision. Out of concern for staying out of the Feds' way, in 1997 then Vice Chancellor (now Chief Justice) Steele in essence sought to kill off the FDD with his ruling in Malone v Brincat: that even knowing misrepresentation of earnings by a board would not constitute a fiduciary breach...
Berger v. Pubco: What does Pubco mean for ?federalism? ? the federal-state line in regulating corporate affairs?
Posted on August 06, 2009As many commentators have noted (with different views of its import), federal laws and regulations and especially the Sarbanes Oxley Act (along with changes they inspired in stock exchanges' regulations), taken cumulatively, are impinging on territory once safeguarded to corporate internal affairs and hence state corporate law...
Berger v. Pubco: An Introduction
Posted on August 05, 2009Some corporate cases scream out their importance from the get go, but Berger v Pubco wasn't one of them. Now we know better. The Supreme Court, en banc, has just (this July, 2009) reversed the Court of Chancery, holding not only that the fiduciary duty of disclosure remains alive and well in §253 short form mergers; but also that a more minority-friendly, more practicable and affordable 'quasi-appraisal' process will be available, in equity, to give it force...
Faith Stevelman Blogs on the Race to the Bottom
Posted on August 05, 2009We are pleased to have Faith Stevelman begin a series of six posts today on Berger v. Pubco, a Delaware Supreme Court decision defining the remedies for minority shareholders in a short form merger when they have not received the information needed to decide whether to exercise appraisal rights...
Berger v. Pubco: What does Pubco tell us about how Glassman has been interpreted?
Posted on August 05, 2009Pubco is the most important statement from Delaware on fiduciary review in short form mergers since Glassman (decided by the Delaware Supreme Court in 2001) -- it's interesting that eight years have gone by without a meaningful revisiting by Delaware's highest court of the open issues therein, but that's for another day...
Corporate Governance and the SEC: The Remaining Problems
Posted on August 04, 2009We are discussing Exchange Act Release No. 60280 (July 10, 2009), the SEC's recent set of rule proposals designed to improve disclosure in connection with the corporate governance process. The proposals leave two critical issues unaddressed. The first concerns blank voting...
Corporate Governance and the SEC: Rapid Disclosure of Interim Results and Improving the Integrity of the Voting Process
Posted on August 03, 2009We are discussing Exchange Act Release No. 60280 (July 10, 2009), the SEC's recent set of rule proposals designed to improve disclosure in connection with the corporate governance process. Public companies have to report the voting results of shareholder meetings...
Nacchio Gains a 10th Circuit Court Victory on his Sentence and Forfeiture
Posted on August 01, 2009Yesterday, the 10th Circuit panel reversed Nottingham's 'gain' and forfeiture determinations and remanded the case back to the district court to follow the 10th circuit's instructions on the proper calculations. These instructions could have the effect of reducing the 'gain' for federal sentencing purposes to reduce Nacchio's six year sentence to 3 to 4 years and of reducing his forfeiture of approximately $52,000,000 to $44,600,000 representing the gross proceeds of $52,000,000 less the brokerage expenses and perhaps the cost of exercising the options...
Corporate Governance Reform and the SEC: Separating the CEO and Chairman of the Board
Posted on July 31, 2009We are discussing Exchange Act Release No. 60280 (July 10, 2009), the SEC's recent set of rule proposals designed to improve disclosure in connection with the corporate governance process. One of the most obvious areas of abuse concerns the resolute insistence by most public companies to have the CEO serve as chairman of the board...
Corporate Governance Reform and the SEC: Imposing Qualifications on the Board
Posted on July 30, 2009We are discussing Exchange Act Release No. 60280 (July 10, 2009), the SEC's recent set of rule proposals designed to improve disclosure in connection with the corporate governance process. The Commission has proposed significant increases in the amount of disclosure that must be provided for directors and nominees to the board...
Corporate Governance Reform and the SEC: Diversity on the Board
Posted on July 30, 2009We are discussing Exchange Act Release No. 60280 (July 10, 2009), the SEC's recent set of rule proposals designed to improve disclosure in connection with the corporate governance process. We have written a great deal on this Blog about the lack of diversity on corporate boards and the need to expand the applicable pool of candidates...
Corporate Governance Reform and the SEC: Reversing In re Citigroup
Posted on July 29, 2009We are discussing Exchange Act Release No. 60280 (July 10, 2009), the SEC's recent set of rule proposals designed to improve disclosure in connection with the corporate governance process. A significant portion of the release addresses the need to enhance disclosure of practices that relate to corporate risk taking...
Corporate Governance Reform and the SEC: Affecting the Stubstantive Behavior of the Board
Posted on July 28, 2009The SEC has put out a relatively massive proposal to improve corporate governance disclosure. Exchange Act Release No. 60280 (July 10, 2009) prints off at a hefty 137 pages. The release contains a number of proposals, some centering around compensation, some around director disclosure...
Corporate Governance Reform and the SEC: Affecting the Substantive Behavior of the Board
Posted on July 28, 2009The SEC has put out a relatively massive proposal to improve corporate governance disclosure. Exchange Act Release No. 60280 (July 10, 2009) prints off at a hefty 137 pages. The release contains a number of proposals, some centering around compensation, some around director disclosure...
Broker Non-Voting and the SEC: The Next Steps
Posted on July 27, 2009With Rule 452 amended, are matters finished? Not exactly. First, the rule applies to members of the NYSE. Brokers that are not subject to the requirement are outside the rule's boundaries. That means that brokers who hold shares for NYSE or Nasdaq companies but are not members of the NYSE (only members of FINRA) can vote in uncontested elections (or on any other matter)...
Starbucks and Social Responsibility: Redux
Posted on July 26, 2009We have occasionally written on this Blog about Starbucks. Starbucks has had a rough time financially recently, even before the current crisis caused cutbacks among latte drinking professionals. We noted that part of the problem came from the apparent decision by Starbucks to market itself as a commodity...
Broker Non-Voting and the SEC: The Rationale
Posted on July 24, 2009We are discussing the SEC's decision (by a 3-2 vote) to approve amendments to NYSE Rule 452 that prohibited brokers from voting uninstructed shares held by beneficial owners in uncontested elections for the board of directors. Was there any good reason for opposing the amendment to Rule 452? The only potential issue was, that by depriving brokers of the right to vote in uncontested elections, the shares would not be present at the meeting, making it harder to obtain a quorum...
Broker Non-Voting and the SEC: Background
Posted on July 23, 2009We are a bit late (as usual) in commenting on the Commission's decision (by a thin 3-2 margin) to amend Rule 452 of the NYSE to designate the uncontested election of directors as a controversial matter not subject to discretionary voting by brokers. Discretionary voting covers shares owned by broker clients where the clients do not submit voting instructions...
Broker Non-Voting and the SEC: The Incumbent Advantage
Posted on July 23, 2009It took the SEC until July 2009 to authorize the proposed amendment to NYSE Rule 452 to designate uncontested elections to the board as a non-routine matter (thereby preventing brokers from voting uninstructed shares held by beneficial owners on the matter)...
City of Westland v. Axcelis Technologies: Majority Voting and Delaware Law (The Beginning of the Evisceration)
Posted on July 22, 2009We are discussing CITY OF WESTLAND POLICE & FIRE RETIREMENT SYSTEM v. AXCELIS TECHNOLOGIES, INC., a case involving the invocation of inspection rights to investigate the reasons why the board of directors of Axcelis did not accept the resignation of three directors who failed to receive majority support from shareholders voting in the election...
City of Westland v. Axcelis Technologies: Majority Voting and Delaware Law (Plurality Plus v. Majority Vote)
Posted on July 21, 2009We are discussing CITY OF WESTLAND POLICE & FIRE RETIREMENT SYSTEM v. AXCELIS TECHNOLOGIES, INC., a case involving the invocation of inspection rights to investigate the reasons why the board of directors of Axcelis did not accept the resignation of three directors who failed to receive majority support from shareholders voting in the eleciton...
City of Westland v. Axcelis Technologies: Majority Voting and Delaware Law (The Demand to Inspect)
Posted on July 20, 2009We are discussing CITY OF WESTLAND POLICE & FIRE RETIREMENT SYSTEM v. AXCELIS TECHNOLOGIES, INC., a case involving the invocation of inspection rights to investigate the reasons why the board of directors of Axcelis did not accept the resignation of three directors who failed to receive majority support from shareholders voting in the eleciton...
City of Westland v. Axcelis Technologies: Majority Voting and Delaware Law (Defendant's Response)
Posted on July 20, 2009We are discussing CITY OF WESTLAND POLICE & FIRE RETIREMENT SYSTEM v. AXCELIS TECHNOLOGIES, INC., a case involving the invocation of inspection rights to investigate the reasons why the board of directors of Axcelis did not accept the resignation of three directors who failed to receive majority support from shareholders voting in the election...
SEC Investigates Staff Members for Insider Trading
Posted on July 18, 2009Two United States Securities and Exchange Commission ('SEC') employees are currently under investigation for suspected insider trading and other SEC regulatory violations. The investigation, which the SEC Office of the Inspector General ('SEC OIG') turned over to the United States Attorney's Office and the Federal Bureau of Investigation, focuses on two currently unnamed Enforcement Division attorneys...
City of Westland v. Axcelis Technologies: Majority Voting and Delaware Law (The Facts)
Posted on July 17, 2009Axcelis "designs, manufactures and services ion implantation, dry strip and other processing equipment used in the fabrication of semiconductor chips." See Annual Report on Form 10-K, March 31, 2009. The company has a staggered board. (A proposal to repeal the provision passed in 2008 by about 76 million votes for, about 6 million against, but failed because it obtained less than 75% of the outstanding shares)...
SEC v. Cuban: Case Dismissed (The Analysis)
Posted on July 17, 2009The trial judge dismissed the Cuban case because the confidentiality agreement alleged to have been executed by Cuban did not inclue a ban on trading. There are several problems with the analysis. Despite the prodigious effort by the court to separate the concept of confidentiality and use, the two are not so clearly separated...
SEC v. Cuban: Case Dismissed (The Rational)
Posted on July 17, 2009The issue was whether the alleged confidentiality agreement orally executed by Cuban before trading in the Company's shares was enough to create a duty of "trust and confidence" that meant he couldn't trade on the information. The trial court found first that the matter was not controlled by state law (concerning the definition of duty)...
SEC v. Mark Cuban: Dismissed
Posted on July 17, 2009The district court dismissed the SEC's case against Mark Cuban today. A copy of the opinion is posted on the DU Corporate Governance web site. The case involved allegations that Cuban violated the prohibitions on insider trading when he received material non-public information from the CEO of Mamma...
City of Westland v. Axcelis Technologies: Majority Voting and Delaware Law (Introduction)
Posted on July 16, 2009In the Phyrric battle over access back in 2007, the Commission declined to allow an extremely mild form of access. No one was talking about direct access to the company's proxy statement. Shareholders merely wanted the right to submit a bylaw that if it passed, would allow inclusion of nominees the following year...
A Vice Chancellor Plans to Step Down
Posted on July 15, 2009Vice Chancellor Lamb is stepping down from the Chancery Court in Delaware. Although pro-management in his outlook, we have been less critical of his decisionsthan others on the Chancery Court. There is, apparently, great interest in the opening. We don't know who will be selected but wehave a prediction: the replacement will look like all the rest...
Stock Exchange Practices in Iraq
Posted on July 14, 2009The need for capital markets have become di rigueur everywhere, including in some unexpected emerging markets. Apparently one legacy of the US presence in Iraq will be US style capital markets. The WSJ reported back in April that the Iraq Stock Exchange (ISX) started electronic trading for five of the 91 exchange traded companies...
Treasury and the Regulation of Executive Compensation
Posted on July 13, 2009There is simply not enough time to write about the corporate governance issues that seem to surface on a daily basis. A few weeks back, Treasury issued an interim regulation dealing with executive compensation. There are a few gems in the regulation that are interesting and extraordinary...
The SEC and California and Solving the Mortgage Crisis
Posted on July 10, 2009One issue that remains yet to be addressed is how to prevent the mortgage crisis from happening again. One of the many problems was the origination of loans by putting homeowners into mortgages that they couldn't afford. Well, it seems that two organizations taking lumps these days may have developed a solution...
Executive Compensation and the Need for a Permanent Solution
Posted on July 09, 2009Ten or so financial institutions have paid back their TARP money. The most immediate effect is that they have gotten out from underneath the temporary restrictions on compensation. It seems from reports that some of them (Goldman and Morgan Stanley) have taken advantage of this freedom to go back to their old ways...
Board Diversity and the Norwegian Experience
Posted on July 08, 2009We have discussed from time to time the sad state of board diversity in the United States. Boards in the US are often mirror image boards, with membership looking much like the CEO. The boards tend to be male, with members having similar experiences, and tend to be undiverse in age...
A Ruling in the Churchill Case
Posted on July 08, 2009The trialjudge has ruled for the University of Colorado, declining to reinstate Ward Churchill or award him front pay. The case is here. We will have more commentary later.
Judge Naves Rules in the Churchill Case
Posted on July 08, 2009Kevin O'Brien has a post on Judge Naves' decision in the Churchill trial. It can be found here. The opinion is posted on the DU Corporate Governance web site.
The SEC's Access Proposal: Some Observations (The Need for Proxy Rule Reform)
Posted on July 07, 2009The access proposal does more than provide access. It fixes a gaping hole in the securities laws that the prior administration left in place in its rush to eliminate shareholder access. The prior administration prohibited access bylaws. It did not, however, resolve the disclosure requirements that needed to be met whenever a shareholder included a nominee in the company's proxy statement...
The SEC, TARP, and the Expanded Role in the Corporate Governance Process
Posted on July 07, 2009Section 111 of TARP (as amended by the Stimulus Bill) mandated say on pay for all TARP recipients. The Obama Administration has indicated that it intends to make say on pay mandatory for all companies. At the open meeting held on July 1, 2009, the Commission proposed Rule 14a-20 in an effort to implement say on pay...
The SEC's Access Proposal: Some Observations (The Confusion of a Control Motive)
Posted on July 06, 2009The provision limits the number of directors to 25% of the board. Nonetheless, the Commission proposed that no one relying on Rule 14a-11 can "acquire or hold the securities for the purpose of or with the effect of changing control of the company or to acquire more than a limited number of seats on the board...
The SEC's Access Proposal: Some Observations (Preempting Director Qualification Requirements)
Posted on July 06, 2009The access proposal does more than provide for access. It overturns an untransparent system of rendering nominees ineligible through board imposed qualifications. Delaware permits the setting of qualifications for the board of directors. See 8 Del...
Commissioner Paredes and His Anti-Governance Stance: Opposition Rather than Cooperation
Posted on July 03, 2009We are discussing the recent speech given by Commissioner Paredes before the conference sponsored by the Center for Capital Markets Competitiveness at the Chamber of Commerce. The speech is conveniently posted on the Harvard Corporate Governance site...
Commissioner Paredes and His Anti-Governance Stance: Rule 452 and the Inconvenience of State Law
Posted on July 02, 2009We take a break from the commentary on the Commission's shareholder access proposal to discuss some of the events from the open meeting yesterday. The Commission considered a long overdue amendment to Rule 452 of the NYSE to classify the election of directors as non-routine...
Commissioner Paredes and His Anti-Governance Stance: Opposition Rather than Cooperation
Posted on July 02, 2009Commissioner Paredes was appointed by President Bush, a compromise arrangement that also brought Commissioners Walters and Aguilar to the Commission. As such, its no great surprise that he doesn't particularly favor the corporate governance agenda of the current Chairman and the Democratic Administration...
The SEC's Access Proposal: Some Observations (The Impact on Board Nomination of Insurgent Directors)
Posted on July 01, 2009Access is designed not to affect control. The number of access nominees is limited to 25% of the board and nominees can only be submitted by those shareholders without a control purpose. On the other hand, there is at least one circumstance where access could still result in a change of control...
The SEC's Access Proposal: Some Observations (Preempting the NYSE)
Posted on July 01, 2009We have been talking about the SEC's access proposal and its efforts to preempt state law. The proposal also, however, overrides the requirements of the NYSE, effectively "preempting" them. The effort highlights the weaknesses in the standards used to determine director independence...
Coverage of the Trial of Ward Churchill (Continued)
Posted on July 01, 2009Charlene Hunter attended the hearing today on the motion filed by Churchill for reinstatement. She has written two excellent posts located in the tab on the Churchill trial. For coverage of the hearing, go here. For a prognostication, go here.
The SEC's Access Proposal: Some Observations (The Myth of Private Ordering)
Posted on June 30, 2009We have been discussing the SEC's access proposal and its impact on state law. Some who oppose access (Commissioner Paredes for one) give as a justification the dislike for a federal requirement that imposes uniform standards on all companies (put aside that access has multiple standards depending upon the size of the company)...
The SEC's Access Proposal: Some Observations (The Relationship to State Law)
Posted on June 30, 2009The most interesting issue concerns the SEC's efforts to preempt state law in the area of access. It is a partial but likely effective approach. Delaware recently amended its state statute to permit access bylaws. Many have represented that this is a positive step whereby Delaware will permit companies to voluntarily allow access...
The SEC's Access Proposal: Some Observations
Posted on June 29, 2009We are overdue in commenting on the SEC's access proposal. We will provide some thoughts over the next few days. The SEC has put out a lengthy release (250 pages) that addresses access. The release involves a new rule, 14a-11, that would allow large shareholders to include nominations in the company's proxy statement...
Shareholder Access: The High Cost of Proxy Solicitations
Posted on June 29, 2009This Blog often comments on the cost imposed on shareholders of mounting a proxy campaign. These costs make a proxy contest prohibitively expensive, largely eliminating the ability of shareholders to nominate directors. It is one reason why the current rule proposal to give certain shareholders access to the company's proxy statement for nominees to the board makes sense...
Regime Change and Rule 10b-5: Betz v. Trainer
Posted on June 26, 2009We have been writing about Merck v. Reynolds, a case addressing the commencement of the statute of limitations under Rule 10b-5. The same day the Supreme Court took cert in Merck, it denied cert in Betz v. Trainer Wortham. Both cases to some degree asserted that the law governing the commencement of the statute of limitations was hopelessly confused (the petitioners in Betz received an assist from Judge Kozinski who wrote a colorful dissent in the case)...
The Supreme Court and the Mission to Restrict Investor Protection: Merck v. Reynolds (Part 9: An Initial Conclusion)
Posted on June 25, 2009We are discussing the decision by the Supreme Court to grant cert in Merck v. Reynolds to address the statute of limitations under Rule 10b-5. The case will now go before the US Supreme Court. We will do our best to follow it, acquiring the relevant briefs...
The Financial Crisis and Executive Compensation: The Word from Istanbul
Posted on June 25, 2009On Friday, I will give a talk on the financial crisis and the problem of executive compensation. A link to the conference is here.
The Supreme Court and the Mission to Restrict Investor Protection: Merck v. Reynolds (Part 8: The Importance of Justice Sotomayor)
Posted on June 24, 2009The Supreme Court granted cert in Merck v. Reynolds to address the statute of limitations under Rule 10b-5. We take a minute to observe the importance of the most recent nomination to the Supreme Court, Judge Sotomayor. She will be replacing Justice Souter on the Court...
The Race to the Bottom, the Royal Bank of Scotland, and the Law and Economics Movement
Posted on June 24, 2009We will resume our discussion of Merck, the case pending before the Supreme Court on the standard for determining the onset of the statute of limitations under Rule 10b-5. In the 20 or so years before the new millennium, the corporate law area was overrun by the law and economics movement...
The Supreme Court and the Mission to Restrict Investor Protection: Merck v. Reynolds (Part 7: The Misguided Notion of Inquiry Notice)
Posted on June 23, 2009The Supreme Court granted cert in Merck v. Reynolds to address the statute of limitations under Rule 10b-5. To the extent any of the Justices want to shorten the statute of limitations by hastening the onset of the two year period, they will need to address unaccommodating language in the statute and the legislative history...
The Supreme Court and the Mission to Restrict Investor Protection: Merck v. Reynolds (Part 6: The Misguided Concept of Inquiry Notice)
Posted on June 22, 2009We are discussing Merck v. Reynolds, a case in which the Supreme Court recently accepted cert. This case will likely turn on when "storm warnings" put plaintiffs on notice of the possibility of fraud. The broader issue in the case, however, is the entire storm warnings standard...
Suing the SEC over Access: Short Sightedness Reigns in the Anti-Access Community
Posted on June 22, 2009We are doing a series of posts on the Merck case, a decision recently taken by the Supreme Court that will examine the standard for commencing the statute of limitations under Rule 10b-5. Nonetheless, we have been hearing rumblings of a law suit by business interests against the SEC should the current access proposal be adopted...
TARP and Some Statistics
Posted on June 20, 2009We take a one post breather from our coverage of Merck, the case recently taken on by the Supreme Court that will help determine when the statute of limitations begins to run under Rule 10b-5. The GAO in May put out a report that included some stats on TARP...
The Supreme Court and the Mission to Restrict Investor Protection: Merck v. Reynolds (Part 5: An Initial Assessment of the Arguments)
Posted on June 19, 2009We are discussing the decision by the Supreme Court to grant cert in Merck v. Reynolds to address the statute of limitations under Rule 10b-5. We take a minute to discuss the implications of the analysis put forward by the defendants in this case. They, along with the district court and Judge Roth on the Third Circuit, would presumably begin the statute of limitations at the time when investors became aware that the statements by Merck concerning the naproxen hypothesis might be wrong...
The Supreme Court and the Mission to Restrict Investor Protection: Merck v. Reynolds (Part 4: The Arguments on Appeal)
Posted on June 18, 2009We are discussing the decision by the Supreme Court to grant cert in Merck v. Reynolds to address the statute of limitations under Rule 10b-5. Merck sought cert and argued that there was considerable dispute among the assorted circuits about the standard for commencing the statute of limitations under Rule 10b-5...
The Pay Czar and Government Intervention: Further Evidence on the Need for Federal Preemption
Posted on June 18, 2009We are doing a series of posts on the Merck case, a decision recently accepted by the Supreme Court that will examine the standard for starting the statute of limitations period under Rule 10b-5. The WSJ reported a poll that suggested the American people had concern with government involvement in the economy...
The Supreme Court and the Mission to Restrict Investor Protection: Merck v. Reynolds (Part 3: The Third Circuit Decision)
Posted on June 17, 2009We are discussing the decision by the Supreme Court to grant cert in Merck v. Reynolds to address the statute of limitations under Rule 10b-5. The district court dismissed the case, concluding that plaintiffs had been on inquiry notice at least since the date of the FDA letter...
The Supreme Court and the Mission to Restrict Investor Protection: Merck v. Reynolds (Part 2: The Facts)
Posted on June 16, 2009We are discussing the Supreme Court's decision to grant cert in Merck v. Reynolds, a case addressing the statute of limitations under Rule 10b-5. Merck disclosed the results of a study about the effects of Vioxx in March 2000. The study, a comparison between Vioxx and naproxen, showed that Vioxx users had a higher incidence of cardiovascular events (a category that can include heart attacks) than the users of naproxen...
The Supreme Court and the Mission to Restrict Investor Protection: Merck v. Reynolds (Part 1)
Posted on June 15, 2009Vioxx has been in the news recently but not because of the alleged adverse health effects of their pain medication drug. The Supreme Court granted cert in Merck v. Reynolds to address the statute of limitations under Rule 10b-5. The plaintiff class filed suit in November 2003...
Shareholder Access and the SEC
Posted on June 13, 2009The Commission voted 3-2 to make a rule proposal that would provide certain shareholders with the company's proxy statement. The Agency has just issued the proposal release. We will provide some comments in later posts.
Director Compensation and the "Best Interests of Shareholders"
Posted on June 12, 2009We return to an issue that we have raised a number of times on this Blog. Directors of public companies make hefty fees. This is born out by data from larger samplings. In one study of 300 companies, directors saw their compensation increase by 4...
Executive Compensation and the Search for a Solution: Its the Board of Directors Stupid
Posted on June 11, 2009The debate over the right framework for regulating executive compensation has drawn increasing attention from regulators. There have been proposals designed to cap compensation but those seem to have fallen by the wayside. Instead, as we have written time and time again on this Blog, the focus seems to be on improving the process at the board level...
Board Diversity and Governance Reform
Posted on June 11, 2009As we debate increased regulation, we return to one of the most common shibboleths raised by opponents. Additional regulation will cause the pool of eligible directors to shrink. Certainly, the stories of departing directors have increased, with companies like General Motors and AIG cleaning house...
Shareholder Access and Shareholder Value: The Benefit of Dissident Directors on the Board (Part 2)
Posted on June 10, 2009We are discussing recent data on the value of dissident directors on the board. There have been plenty of studies done on the value of "independent" directors on the board but as we have noted, these directors are legally independent but often not independent in fact...
Shareholder Access and Shareholder Value: The Benefit of Dissident Directors on the Board (Part 1)
Posted on June 09, 2009There have been plenty of studies that have purported to study the "value" of independent directors on the boards of public companies. The evidence is, predictably, uneven. This is no surprise. For one thing, there is no guarantee that "independent" directors are in fact independent...
Law Schools and the Goliath Syndrome
Posted on June 08, 2009While this is a corporate governance blog, we also occasionally touch on matters pertaining to legal education, particularly rankings. With that in mind, we turn to a recent piece in The New Yorker, How David Beats Goliath. The article indicates, counter intuitively, that David often beats Goliath but mostly when David responds to Goliath with unconventional strategies...
The Shareholder Bill of Rights of 2009
Posted on June 06, 2009We have written posts on this piece of legislation and each time linked to a draft version of the bill. For anyone wanting to look at the actual language of the bill, it is labeled Senate Bill 1074, May 19, 2009, and is posted here.
The Cox Commisson and the Legacy of Anti-Shareholder Bias: In re Intech Investment Management (A Perspective)
Posted on June 05, 2009We are discussing In re Intech Investment Management, a recent administrative proceeding brought by the Commission against an adviser with pro-shareholder voting practices. Intech put in place a system of voting that tracked an approach apparently developed by ISS in consultation with the AFL-CIO...
Churchill: The Replies to the Responses to the Motions
Posted on June 05, 2009We have previously summarized the motions and responses filed in the Churchill v. CU case. Churchill has a motion for reinstatement that CU objects to on the basis, primarily, that litigation has irreparably damaged the relationship between the parties...
The Cox Commisson and the Legacy of Anti-Shareholder Bias: In re Intech Investment Management (The Law)
Posted on June 04, 2009We are discussing In re Intech Investment Management, a recent administrative proceeding brought by the Commission against an advser with pro-shareholder voting practices. The case involved the first apparent enforcement action under Rule 206(4)-6 (adopted back in 2003)...
The Cox Commisson and the Legacy of Anti-Shareholder Bias: In re Intech Investment Management (The Facts)
Posted on June 04, 2009We are discussing In re Intech Investment Management, a recent administrative proceeding brought by the Commission against an adviser with pro-shareholder voting practices. According to the release, Intech had responsibility for voting shares of an assortment of clients, some connected to public companies (pension plans and the like) and others connected to unions...
The Director Compensation Project: Verizon
Posted on June 03, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
The Cox Commisson and the Legacy of Anti-Shareholder Bias: In re Intech Investment Management (Introduction)
Posted on June 03, 2009By now it is clear that the Commission under the prior Chairman tied the hands of enforcement, interfering with the Division's ability to perform its function. Certainly this was the point of an article in the Washington Post (In Cox Years at the SEC, Policies Undercut Action)...
Poison Puts, Shareholder Voting Rights and the Need for an Even Stronger Shareholder Bill of Rights: San Antonio Fire & Policy v. Amylin Pharmaceuticals (The Lessons)
Posted on June 02, 2009This case contains several lessons. It shows the resolute refusal of the Delaware courts to make the obligations of the board meaningful. Under the rational of the opinion, boards can approve transactions that have serious adverse consequences on the voting rights of shareholders without being aware of these consequences...
Poison Puts, Shareholder Voting Rights and the Need for an Even Stronger Shareholder Bill of Rights: San Antonio Fire & Policy v. Amylin Pharmaceuticals (Upholding The Puts)
Posted on June 02, 2009We are discussing San Antonio Fire & Policy v. Amylin Pharmaceuticals, a Delaware court that upheld the use of coercive contractual terms that effectively denied shareholders their voting rights. Management of the company negotiated an indenture in 2007...
Poison Puts, Shareholder Voting Rights and the Need for an Even Stronger Shareholder Bill of Rights: San Antonio Fire & Policy v. Amylin Pharmaceuticals (The Fiduciary Out)
Posted on June 01, 2009We are discussing San Antonio Fire & Policy v. Amylin Pharmaceuticals, a Delaware court that upheld the use of coercive contractual terms that effectively denied shareholders their voting rights. The Chancellor concluded that the inclusion of a poison put in an indenture did not implicate the duty of care because the board had outside counsel and the provision was common place...
"Crazy Compensation" and the Source of the Problem
Posted on May 30, 2009On Thursday, Alan Blinder, an economics professor and former vice chairman of the Fed, published an editorial in the WSJ titled "Crazy Compensation and the Crisis." In the course of his challenge to the system of executive compensation, he rhetorically asked, "Whoever dreamed up this crazy compensation system?" In later characterizing the problem, he describes the system this way: "The source of the problem is really quite simple: Give smart people go-for-broke incentives and they will go for broke...
Crazy Compensation and the "Solution"
Posted on May 29, 2009We are doing a series on San Antonio Fire & Policy v. Amylin Pharmaceuticals, a decision by the Delaware Chancery Court approving poison puts. Nonetheless, we couldn't help but notice the editorial in the WSJ yesterday by Alan Blinder on "Crazy Compensation and the Crisis...
Poison Puts, Shareholder Voting Rights and the Need for an Even Stronger Shareholder Bill of Rights: San Antonio Fire & Policy v. Amylin Pharmaceuticals (Introduction)
Posted on May 28, 2009We have been writing about the Shareholder Bill of Rights, legislation soon to be introduced by Senator Schumer. As we have noted, the legislation would largely preempt large segments of Delaware corporate law. Among other things, it constitutes a recognition that Delaware and its courts have put in place a system of corporate governance that does not protect shareholders and results in excessive risk taking designed to maximize short term executive compensation...
Poison Puts, Shareholder Voting Rights and the Need for an Even Stronger Shareholder Bill of Rights: San Antonio Fire & Policy v. Amylin Pharmaceuticals (The Facts)
Posted on May 28, 2009We are discussing San Antonio Fire & Policy v. Amylin Pharmaceuticals, a Delaware court that upheld the use of coercive contractual terms that effectively denied shareholders their voting rights. In 2007, the Amylin board assigned to members of senior management to negotiate the terms and conditions for the 2007 Notes (terms ultimately approved by the Finance Committee of the board)...
The Myth of Majority Vote Provisions
Posted on May 27, 2009Last week, when Commissioner Paredes voted against submitting an access proposal for comment, he gave as one of the reasons the raft of majority vote provisions that have been put in place by a majority of the largest companies. Likewise, in opposing The Shareholder Bill of Rights, the memorandum issued by Wachtell Lipton pointed to the same development...
The Problem of Blank Votes
Posted on May 26, 2009As we debate access, it seems like every time shareholders turn around they find another design flaw in the system that, oddly, favors management. The latest is blank votes. It seems that when a shareholder executes a proxy and decides not to cast a vote for a particular matter, the proxy tabulator apparently fills it in in a pro-management manner (or, more accurately, in conformity with the recommendations of the soliciting committees)...
Director Compensation Project: 2009 Perquisites Comparison
Posted on May 25, 2009As part of this Blog's student created Director Compensation Project, we have created a series tables on corporate compensation. Below is a table compiling some of the more infamous CEO perquisites. The chart covers the 2009 Fortune 100's top 20 companies, Wells Fargo, Goldman Sachs, and Chesapeake Energy Company...
Churchill Case: The Responses to Motions
Posted on May 24, 2009Attorneys for CU and Churchill have filed responses to each other's motions, which we will summarize briefly: Plaintiff's Response to Defendant's Motion for Judgment as a Matter of Law: Motion must be denied as quasi-judicial immunity only applies to individuals sued in their individual capacities and not governmental defendants...
Director Compensation Project: 2009 Compensation Comparison
Posted on May 23, 2009Over the last several weeks, The Race to the Bottom has covered corporate compensation through its Director Compensation Project. In an effort to compile the mass of information, we are providing a series of charts to compare how these corporations are compensating their executives and directors...
Director Compensation Project: Chesapeake Energy Corporation
Posted on May 22, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 500 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
Access: The Commission's Proposal (Introduction)
Posted on May 21, 2009The Commission today voted to issue an access proposal (by a 3-2 vote). The open meeting can be heard by webcast here. A description of the proposal can be found here. Chairwoman Schapiro and Commissioners Walter and Aguilar were vigorous supporters of the proposal...
Access is Here: Proposed Rule 14a-11 and Amendments to 14a-8
Posted on May 21, 2009Yesterday, Chairman Shapiro announced Proposed Exchange Act Rule 14a-11, to give shareholders access to management's proxy materials. The release, as well as the speech are available here. In her speech, Chairman Shapiro stated: 'This proposal represents nearly seven years of debate about whether the federal proxy rules should support — or stand in the way of — shareholders exercising their fundamental right to nominate directors...
Access: The Commission's Proposal (Some Thoughts)
Posted on May 21, 2009The Commission, by a 3-2 vote, today approved a rule proposal that would provide shareholders with access to the company's proxy statement. There are a few interesting observations that can be made at this point. First, under Rule 14a-11, shareholders (the percentage is tiered based upon the size of the company) can nominate directors if they have held the requisite number of shares for one year...
The Director Compensation Project: Walgreens
Posted on May 20, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
The Director Compensation Project: Morgan Stanley
Posted on May 19, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
The Director Compensation Project: Boeing
Posted on May 19, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2008 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
Access and the New Regime: The Countdown Begins
Posted on May 19, 2009My how a few months can change around the corporate governance agenda. Under the prior regime, the SEC considered whether to give shareholders some access to the company's proxy statement for their nominees. The proposal considered by the Commission was complicated and inefficient...
Director Compensation Project: Target
Posted on May 18, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
The Constitutionality of the PCAOB Goes to the Supreme Court
Posted on May 18, 2009The Supreme Court has agreed to hear the case arguing against the constitutionality of the PCAOB. The case raises issues about the limits that can be imposed on presidential removal authority for officials in the executive branch. The PCAOB members can only be removed for cause by the Securities and Exchange Commission...
The Director Compensation Project: COSTCO
Posted on May 16, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
Wachtell, Lipton and the Opening Salvo Against the Shareholder Bill of Rights (Introduction)
Posted on May 15, 2009Wachtell, Lipton is an outstanding and wealthy firm with a definite point of view in the corporate governance debate. It is the firm that represents management. In the takeover era, no one was better at fighting off unwanted overtures than Marty Lipton, the inventor of the poison pill, the devise that he, in conjunction with the Delaware courts, used to end hostile tender offers as a meaningful acquisition method...
Wachtell, Lipton and the Opening Salvo Against the Shareholder Bill of Rights (The Criticisms)
Posted on May 15, 2009We are discussing the anticipated Shareholder Bill of Rights that willl be introduced soon by Senator Schumer and the arguments made by Wachtell Lipton for opposing the efforts. The main argument is that the current crisis is the fault of shareholders and the legislation will make things worse by giving shareholders more authority...
Wachtell, Lipton and the Opening Salvo Against the Shareholder Bill of Rights (Short Termism)
Posted on May 15, 2009Senator Schumer is about to introduce a Shareholder Bill of Rights. As an opening salvo, Wachtell Lipton has gotten out front criticizing the efforts. We are taking a bit of time to examine these criticisms. The legislation will apparently require public companies to implement say on pay, provide access (although in a way that ironically reduces rather than augments the Commission's authority in the area), separates the positions of chairman and CEO (and requires that it be filled with an independent director), eliminates staggered boards, require majority vote, and mandate some degree of risk assessment at the board level...
Shareholder Rights Act of 2009
Posted on May 14, 2009We have finally found online a copy of the draft legislation that will be submitted next week by Senator Schumer, the Shareholder Rights Act of 2009. We will post a copy at the DU Corporate Governance web site shortly. The legislation calls for say on pay, access, a majority vote requirement, the separation of chairman and CEO, and a required board committee to assess risk...
Director Compensation Project: Procter & Gamble
Posted on May 14, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
The Director Compensation Project: Marathon Oil
Posted on May 14, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
Director Compensation Project: Cardinal Health
Posted on May 13, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
Director Compensation Project: CVS Caremark Corporation
Posted on May 13, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
Counseling Boards in the Current Crisis: Rocky Mountain Securities Conference
Posted on May 13, 2009The highlight of the day for me was the panel on counseling boards of directors, moderated by Cathy Krendl, including James Doty, John Olson, and Josiah Hatch. This panel covered a wealth of topics including fiduciary duties, mergers and acquisitions, deal protection devices, say on pay, disclosure, broker-dealer voting, and access...
Special Litigation Committee Report Supports Chiquita Motion to Dismiss
Posted on May 12, 2009The Special Litigation Committee ('SLC') for the Chiquita Brands International, Inc. ('Chiquita') submitted its Report on September 25, 2008 along with its motion for dismissal ('Motion'). The Motion is based on the Report's factual allegations and argues, in essence, that the SLC has investigated the facts and determined in the exercise of its independent business judgment that dismissal of the claims in the derivative action is in the best interests of Chiquita...
Planned Initiatives for Division of Corporation Finance: Rocky Mountain Securities Conference
Posted on May 12, 2009The second panel addressed important corporate governance issues such as executive compensation and shareholder access. Jeffrey Sherman of Holland & Hart moderated this panel including Acting Director of the Division of Corporation Finance Shelley Parratt, Holland & Hart partner Scott Berdan, and Jones & Keller partner Reid Godbolt...
SEC Enforcement Priorities: Rocky Mountain Securities Conference
Posted on May 12, 2009The first panel of speakers included SEC Deputies of Enforcement George Curtis and Scott Friestad, moderated by Hogan & Hartson partner, Daniel Shea. First, Mr. Curtis and Mr. Friestad spoke about the SEC's attempt to streamline the Wells Process, indicating that at times this process can take as long, or longer than the actual investigation...
Nacchio v. US: An Update (The Race to the Bottom Makes an Appearance)
Posted on May 11, 2009We are in the middle of the "director compensation project," a series of posts exclusively by students who show the amount of compensation paid to directors and the amount of compensation to the CEO (including perks). Is there a relationship? You decide...
41st Annual Rocky Mountain Securities Conference
Posted on May 11, 2009On Friday, Denver hosted the 41st Annual Rocky Mountain Securities Conference. The event featured presentations from numerous SEC attorneys, including Commissioner Luis A. Aguilar and Acting Director of the Division of Corporate Finance Shelley E. Parratt as well as Denver locals Josiah Hatch and Cathy Krendl...
Nasdaq Listing Requirements Suspension Continued, Joined by NYSE
Posted on May 11, 2009We wrote on Feb 4th that Nasdaq received an extension of its request to suspend the one dollar minimum listing standards until April 19th. That request has now been extended through July 19, 2009, and the NYSE filed a proposed rule to adopt a similar suspension until June 30...
The Director Compensation Project: JP Morgan
Posted on May 09, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
The Director Compensation Project: IBM
Posted on May 08, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
Director Compensation Project: McKesson Corporation
Posted on May 08, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
The Director Compensation Project: Citigroup
Posted on May 07, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
Director Compensation Project: Berkshire Hathaway
Posted on May 07, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2008's Fortune 100 and using information found in their 2008 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
The Director Compensation Project: Valero Energy
Posted on May 06, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
Delaware Good Faith Decision Reassures Management
Posted on May 06, 2009On March 25, 2009, the Delaware Supreme Court reassured directors and officers by reversing the Court of Chancery's Lyondell decision. Specifically, the higher court rejected the lower court's determination that 'unexplained inaction' in the context of a merger transaction permits a reasonable inference that directors may have consciously disregarded their fiduciary duties...
The Director Compensation Project: Bank of America Corporation
Posted on May 06, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
The Director Compensation Project: AT&T
Posted on May 05, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
The Director Compensation Project: Hewlett-Packard
Posted on May 05, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
Director Compensation Project: ConocoPhillips
Posted on May 04, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
Churchill Files Motion for Reinstatement of Employment
Posted on May 04, 2009Ward Churchill's attorneys filed their Motion for Reinstatement of Employment on May 1. The Motion lists six reasons why Churchill should be reinstated (quotations are taken from the Motion): 1. Reinstatement is the preferred remedy – 'Reinstatement is the preferred remedy, unless the employer has demonstrated such hostility that there is little or no hope that a working relationship would be possible...
Director Compensation Project: Ford
Posted on May 04, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
The Director Compensation Project: General Electric
Posted on May 04, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
Churchill Trial: CU's Motion for Judgment as a Matter of Law
Posted on May 04, 2009CU has filed a motion to dismiss the unlawful termination claim on the basis that the Board of Regents are a constitutionally created—and therefore governmental—body which was acting in its quasi-judicial capacity, and is therefore immune from lawsuit...
Director Compensation Project: Chevron Corporation
Posted on May 03, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
Director Compensation Project: Wal-Mart
Posted on May 02, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
The Need for Broader Federal Preemption of Executive Compensation Decisions
Posted on May 01, 2009We have long noted on this Blog that the Delaware model of corporate governance does not provide any meaningful limitations on executive compensation. We have likewise noted that while a number of federal reforms have been adopted, they have a limited horizon...
Director Compensation Project: ExxonMobil
Posted on May 01, 2009This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
2009 Director Compensation Project: Introduction
Posted on May 01, 2009As part of this Blog's student-teacher format, The Race to the Bottom is bringing back the student developed Director Compensation Project. Over the next several weeks, this blog will post on director and executive compensation for all top 20 Fortune 100 companies for 2009...
The Director Compensation Project: 2009
Posted on May 01, 2009Last year, we examined the compensation paid to directors of some top companies. The posts also included the executive compensation paid to the CEO. We have decided to repeat the project again this year. The Compensation Posts have mostly been written by students who only this semester joined the staff of the Blog...
Separating Chairman and CEO: The Shareholders of BofA Have Spoken
Posted on April 30, 2009Kenneth Lewis was reelected to the board of Bank of America, apparently with around 67% of the votes cast. The same shareholders, however, also voted to separate the positions of chairman and CEO, as we suggested. It was a singular event. As the Journal noted, "[t]he vote marked the first time that a company in Standard & Poor's 500-stock index has been forced by shareholders to strip a CEO of chairman duties, according to RiskMetrics Group...
The Children's Investment Fund v. CSX:
Posted on April 30, 2009We followed TCI's efforts to gain representation on the board of CSX. The case raised serious and complex issues about the concept of beneficial ownership, particularly for shares that are acquired by a counterparty as part of a hedge in a swap transaction...
Executive Compensation and the Best Interests of Shareholders
Posted on April 30, 2009It seems that published reports suggest that Chrysler Financial (described as the financial arm to Chrysler) turned down additional bailout funds because of the limits on executive compensation. As the article noted: The official said Monday that the Treasury Department denied Chrysler Financial's request for more aid because some of its top 25 executives would not waive their rights to legal claims against the government and Chrysler Financial regarding new caps on executive compensation...
SEC v. Mark Cuban: Reply Brief of Mark Cuban Argues a Confidentiality Agreement does not Establish a Fiduciary Duty
Posted on April 29, 2009On March 20, 2009, Mark Cuban filed a reply brief in support of a Motion to Dismiss ('the Reply') in the northern district of Texas – Dallas division. This filing is in response to the SEC's Law in Opposition to Mark Cuban's motion to dismiss. The Reply contends Cuban did not engage in inside trading when he sold his Mamma...
SEC v. Mark Cuban: Oral Argument Set for May 26, 2009
Posted on April 29, 2009On April 16, 2009, Chief Judge Sidney Fitzwater filed an order granting Cuban's request for oral argument of his Motion to Dismiss. See also Memo in Support of Cuban's Motion to Dismiss. We discussed Cuban's Motion to Dismiss as well as the SEC's response in previous posts...
Citigroup, Bonuses, and the Obama Administration in the Hot Seat
Posted on April 29, 2009Reports in the WSJ indicate that Citigroup is asking Timothy Geithener, the Secretary of the Treasury, for permission to pay certain employee bonuses. Some of the sought after bonuses would compensate employees in the financial institution's energy trading unit...
Corporate Governance, AIG and the Obama Administration: The Meaningless of Majority Vote Provisions
Posted on April 28, 2009Imagine a shareholder who owns 80% of a company but can't get effective control of the board of directors. That would describe the situation in place now with respect to the government and AIG. How so? The federal government owns almost 80% of AIG's voting power...
Corporate Governance, the Obama Administration, and AIG: The Proper Way to Excercise Governance Rights
Posted on April 28, 2009As the Obama administration finds itself owning large blocks of stock in public companies, the issue of governance becomes something of more immediate importance. Nowhere is it more important than with respect to AIG. Moreover, shareholders, particularly the unions, are seeking to test the Administration's mettle...
The North Dakota Publicly Trade Corporations Act: A Race to the Top?
Posted on April 27, 2009We have commented on this Blog about the North Dakota Publicly Traded Corporations Act, an attempt by North Dakota to elevate the standards of corporate governance for public companies. Companies that incorporate under the Act must extend to shareholders rights rarely if ever in Delaware...
The SEC, Regime Change and Congress
Posted on April 27, 2009It is a pleasure to watch some of the changes taking place at the Securities and Exchange Commission. With regime change at the top, a corporate governance agenda is quickly taking place. We expect to see an access proposal shortly (for a history of access, from the 1940s through the present, take a look at The SEC, Corporate Governance, and Shareholder Access to the Board Room)...
The Delaware Model and Preemption: Congress Begins to Act
Posted on April 25, 2009We have long noted that the problems with corporate governance (most noticeably in the realm of executive compensation and risk oversight) have arisen because of the refusal of Delaware courts to impose meaningful standards on directors. The problem has called for a federal solution, preempting the role of states incapable or unwilling to take the necessary governance steps...
Kistefos AS v. Trico Marine Services: A Lesson for the Securities and Exchange Commission
Posted on April 24, 2009One of the most anti-shareholder actions taken by the Commission under the prior regime was to refer a shareholder proposal to the Delaware Supreme Court for an advisory opinion. This occurred in connection with CA v. AFSCME. The staff confronted a shareholder proposal that required mandatory reimbursement of proxy expenses for shareholders who nominated a short slate of directors and succeeded in electing at least one to the board...
The SEC, Access and the Need to Preempt Delaware Law
Posted on April 23, 2009As the SEC considers an access proposal, Delaware has acted to cut off the anticipated federal right. As we have discussed, legislative proposals were drafted (and recently adopted) that would allow companies to put in place bylaws that permit shareholders to have access to the proxy statement for their own nominees...
Majority Voting Requirements and Pyrrhic Victories
Posted on April 23, 2009One of the most rapid shifts in corporate governance has been the side spread shift to majority rather than plurality voting for directors. Plurality voting, still the common rule in US corporate law, allows directors to win as long as they are the recipients of the highest number of votes...
Personal Use of Corporate Aircraft: The Debate
Posted on April 22, 2009Justified or not, business aircraft use has become a symbol of corporate excess, and is generally under attack. The National Business Aviation Association, an industry trade group, is on the defensive. We have Blog opinions on the matter. But first, in the interest of clarifying the issues, it is useful to distinguish between private airplane use for business purposes and corporate plane use for personal travel...
Personal Use of Corporate Aircraft: What the Numbers Mean
Posted on April 22, 2009As part of SEC disclosure requirements, public companies are required to publish compensation for the top five executives and directors, including the value of personal use of corporate aircraft. For the most highly compensated executives, airplane use amount can be well over $100,000...
Separation of Chairman and CEO: The Case of BofA
Posted on April 21, 2009Shareholders of Bank of America will consider a binding resolution to require the separation of chairman and CEO. According to the proposal in the proxy statement: 'The Chairman of the Board shall be a director who is independent from the Corporation...
US News: Combining Full and Part Time
Posted on April 21, 2009As expected, US News did combine full time and part time statistics (despite the separate ranking for part time divisions). This may explain some of the movement in the rankings (the relatively large drop for George Washington, for example). It suggests that next year, there will be yet another adjustment as law schools unprepared for this combination (many throw weaker students into the part time division) adjust and raise the median for that division.
Makor v Tellabs Class Certification
Posted on April 21, 2009The Race to the Bottom has been covering the ongoing case of Tellabs and its progeny, a case mostly known for providing content to the pleading standards in the PSLRA. You can can find the posts here. Although the Supreme Court reversed the Seventh Circuit, the appellate court on remand reaffirmed its decision to allow the case to go forward...
US v. Nacchio: The Final Chapter?
Posted on April 20, 2009Joe Nacchio went to prison last Tuesday in Pennsylvania after the 10th Circuit and Justice Breyer denied his petition for certiorari. The only remaining issue, therefore, is whether the Supreme Court will hear the case. A tantalizing suggestion in the Tenth Circuit opinion suggests that it will not...
US News Rankings
Posted on April 20, 2009We thought that we'd at least have a day to start the discussion on the latest version of the rankings before they came out. Wrong. They have been leaked. A copy can be found here. While these may be fakes (this kind of thing happens all the time), they look real...
US News and Law School Rankings: The Countdown
Posted on April 20, 2009The law school rankings put out by US News will be published this week (April 23), with leaks probably taking place around Wednesday. These rankings have been vociferously criticized and Brian Leiter has called on blogs to avoid posting them when they come out...
SEC v. Tambone: Broadening Section 17(a) Beyond Rule 10b-5 (Imposing Primary Liability on a Non-Disclosing Participant)
Posted on April 18, 2009In SEC v. Tambone, 550 F.3d 106 (1st Cir. 2008) the SEC filed a complaint against James R. Tambone and Robert Hussey, executives of Columbia Funds Distributor, Inc., for violations of § 17(a)(1) of the Securities Exchange Act of 1933, § 10(b) of the Securities Exchange Act of 1934, and SEC Rule 10(b)-5...
In re Chiquita Brands: Judge Marra Establishes Schedule for Discovery on Issues Raised by Motion to Dismiss
Posted on April 17, 2009Plaintiffs and the Special Litigation Committee ('SLC') of Chiquita Brands International, Inc. filed a joint motion on March 11, 2009 requesting an order setting discovery relating to the SLC's motion to dismiss and a briefing schedule. Judge Marra granted the joint motion the same day that it was filed...
The Eulogy for Diane Sanger at the Securities and Exchange Commission
Posted on April 17, 2009I went to the eulogy for Diane Sanger, my former boss from the SEC who passed away last December at the age of 55. It was held at the SEC's office in Washington at 100 F St. Back in the 1980s, I was a staff attorney in the counseling section of the General Counsel's Office...
Special Litigation Committee of Chiquita Files Motions
Posted on April 17, 2009On February 25, 2009, the Special Litigation Committee ('SLC') of nominal defendant Chiquita Brands International, Inc. ('Chiquita') filed motions to dismiss, to hold oral arguments in support of dismissal, and to file under seal unredacted portions of the Special Litigation Committee Report ('Report')...
SEC v. Mark Cuban: Memorandum in Support of Cuban's Motion to Dismiss
Posted on April 16, 2009This post discusses the Memorandum of Law of Mark Cuban in Support of Motion to Dismiss for the case of SEC v. Cuban. In previous posts we introduced the case, discussed the complaint and summarized insider trading law. Cuban received information regarding an upcoming private investment in public equity ('PIPE') during a phone conversation with the CEO of Mamma...
Law in Opposition to Defendant Mark Cuban?s Motion to Dismiss -- A Review of the SEC?s Arguments
Posted on April 16, 2009The SEC responded to Mark Cuban's motion to dismiss by taking the position that this case involved a well-settled application of insider trading principles and that Cuban traded on material, non-public information after he agreed to keep the information confidential...
Jon Macey and Socializing the American Economy: A Missed Opportunity
Posted on April 15, 2009Jon Macey at Yale published an editorial in this weeks WSJ contending that the recent spate of congressional interference in the economy (mostly bailout money) was the "first step in an ongoing porcess to socialize American finance." Its a provocative thesis...
Heightened Pleading Standards Under Section 11 of the Securities Act of 1933: Rubke v. Capitol Bancorp, Ltd.
Posted on April 15, 2009In Rubke v. Capitol Bancorp, Ltd., 551 F.3d 1156 (9th Cir. 2009), the Ninth Circuit Court of Appeals held plaintiff Rubke did not plead any claims with the level of specificity required by F.R.C.P 9(b) or the pleading standards of the Private Securities Litigation Reform Act ('PSLRA')...
Mutual Funds, Management Support, and Fiduciary Obligations
Posted on April 14, 2009Shareholder proposals challenging excessive compensation practices often fail. One would think that in general, shareholders are not overly concerned with these practices. Yet the public outcry belies that notion. What explains, then, this lack of success?One answer has been provided by AFSCME...
Recession Proof Profession
Posted on April 14, 2009We have noted already that there is a recession free industry: Graduate School. With the economy in full recession, the WSJ reports that one strategy is to go to law school. As the Journal notes: In seeming defiance of logic, many law schools are surging in popularity...
The SEC and Corporate Governance: Separating Chairman and CEO
Posted on April 13, 2009Chairman Schapiro gave a speech to the Council of Institutional Investors and outlined some of the SEC's corporate governance agenda. Some are important but relatively uncontroversial. She mentioned the possibility of stepped up disclosure about director nominees, something long overdue...
US v. Nacchio: The Bail Petition and "A Hope of Attracting the Interest of the Supreme Court"
Posted on April 13, 2009We have not been following closely the back and forth on whether Joe Nacchio should be released on bail pending the outcome of his petition for ceriorari in the US Supreme Court. Nonetheless, we were aware of the 34 page opinion issued by Judge Krieger (federal district court in Denver and successor to Judge Nottingham) denying Nacchio bail and ordering him to appear at prison on Tuesday of this week...
Goldman Sachs and Challenging the Delaware Model
Posted on April 11, 2009Lloyd Blankfein, the CEO of Goldman, gave a speech to the Council of Institutional Investors on Tuesday. The speech recognized that, going forward, there had to be changes in the way executive compensation was set (noting that some of them might be forced on industry in the form of legislation)...
Private Use of Corporate Aircraft: The Case of Sprint
Posted on April 10, 2009So Sprint disclosed, as it must, the personal use of corporate aircraft by the CEO and CFO. The number for the CFO was an eyepopping $609,530. That's a lot of trips to Palm Springs to play golf. The board had to approve the practice...
Executive Compensation, AIG and the Consequences of the Delaware Model
Posted on April 09, 2009By now, the payment of some $165 million in bonuses by AIG (apparently 73 people received bonuses of at least $1 million) has become widely known and generated enormous outrage. The payments were apparently made, in many cases, under contracts that guaranteed bonuses similar to those paid in 2007 irrespective of performance...
No Salary for Vail CEO
Posted on April 09, 2009As a Colorado blog, we take an interest in the actions of local corporations. On March 11th, Vail Resorts released a statement explaining changes in its employee, executive, and director compensation. The compensation reductions include 2.5% for seasonal employees, 10% for executives, and 20% for independent directors...
Executive Compensation: What Goes Up Hardly Comes Down
Posted on April 08, 2009The WSJ has produced a study of executive compensation for 2008. The big news was that executive compensation had fallen. The study notes that total compensation for CEOs (including salary, bonsues, the awarded value of stock, stock options and other long-term incentives), dropped 3...
Executive Compensation and Perks
Posted on April 08, 2009The WSJ did a study of executive compensation by CEOs. One of the items examined was the payment of perks. They were, in the study of 200 companies with sales over $5 billion, common, with, as usual, personal use of corporate aircraft the most common...
Say on Pay, Great Britain, and the Real Basis for Objection in the United States
Posted on April 07, 2009There have been plenty of corporate governance reforms that have been vigorously opposed in the United States but are common practice overseas. The separation of chairman and CEO is one example. So is access to the proxy statement for shareholder nominees, a practice permitted in Great Britain...
The Class Action Fairness Act of 2005 Supersedes §22 of the Securities Act of 1933: Katz v. Gerardi
Posted on April 07, 2009In Katz v. Gerardi, 2009 WL 18137 (7th Cir. Jan. 5, 2009), the class of plaintiffs ('plaintiffs') contributed real property to Archstone, a real estate investment trust. In exchange for the real estate, plaintiffs received interests called 'A-1 Units...
Executive Compensation, the Delaware Model and a Proposed Solution (Part 5)
Posted on April 06, 2009We have proposed a solution to the executive compensation problem. It entails an amendment to Section 13 of the Exchange Act to prohibit the payment of excessive compensation. The provision defines excessive and contains a safe harbor that requires the board to implement meaningful procedures for ensuring the integrity of the executive compensation approval process...
Permitting Excessive Compensation
Posted on April 06, 2009So the House passed another bill designed to limit executive compensation in those companies that receive public funds. Rather than cap salary, the Bill (HR 1664) took a different tact. It prohibited excessive or unreasonable compensation (to be defined by Treasury)...
Gantler v. Stephens
Posted on April 04, 2009In Gantler v. Stephens, 2009 WL 18828 (Del. Jan. 27, 2009), plaintiffs sued First Niles' ("Company") officers and directors, claiming that they breached a fiduciary duty to shareholders by rejecting a merger offer, abandoning the Company's sales process, and distributing a materially false and misleading reclassification proxy statement...
Executive Compensation, the Delaware Model and a Proposed Solution (Part 3)
Posted on April 03, 2009We have proposed a solution to the executive compensation problem. It entails an amendment to Section 13 of the Exchange Act to prohibit the payment of excessive compensation. The provision defines excessive and contains a safe harbor that requires the board to implement meaningful procedures for ensuring the integrity of the executive compensation approval process...
Executive Compensation, the Delaware Model and a Proposed Solution (Part 4)
Posted on April 03, 2009We have proposed a solution to the executive compensation problem. It entails an amendment to Section 13 of the Exchange Act to prohibit the payment of excessive compensation. The provision defines excessive and contains a safe harbor that requires the board to implement meaningful procedures for ensuring the integrity of the executive compensation approval process...
Executive Compensation, the Delaware Model and a Proposed Solution (Part 1)
Posted on April 02, 2009There is a serious executive compensation problem, something obvious from the daily reportage in the business press. The problem as we have noted often, arises from the standards (or lack of standards) adopted by the Delaware courts in connection with the approval of executive compensation...
Executive Compensation, the Delaware Model and a Proposed Solution (Part 2)
Posted on April 02, 2009So what is the solution to the executive compensation problem?One solution is a vigorous system of access. If shareholders can elect their own representatives to the board, they will be able to break up the cozy system for approving CEO compensation...
The US Government and Corporate Governance
Posted on April 01, 2009The big news on Sunday was that the Obama Administration insisted on the removal of Rick Wagoner, the CEO at General Motors as a precondition for any additional bailout money. As the article summarized: Mr. Wagoner has been CEO since 2000 and has managed the company through some of its most difficult moments...
General Motors CEO Rick Wagoner Removed By Obama Administration
Posted on April 01, 2009The Wall Street Journal reported the Obama administration has forced the resignation of General Motors CEO Rick Wagoner. Wagoner served as CEO since 2000, but has been with the company for 31 years. Although he has overseen GM during some of the company's most turbulent times, GM's stock price has fallen from $70 per share at his appointment in 2000 to $2...
CEO Influence over Board Membership: In re: Affiliated Computer Services, Inc. Shareholders Litigation
Posted on March 31, 2009There are many many problems with the Delaware model of corporate governance. We have noted that Delaware applies the business judgment rule to duty of loyalty decisions (read executive compensation) when the board consists of a majority of independent directors...
AIG and Stockholders Join Forces Against Former Officers
Posted on March 31, 2009On February 10, 2009, Vice Chancellor Leo E. Strine denied motions to dismiss filed by Maurice Greenberg, AIG's CEO and Chairman since the late 1960s, and members of his 'Inner Circle.' The claims against the AIG executives assert breach of the duty of loyalty and breach of other fiduciary duties...
AIG, the Delaware Model, and the US Government
Posted on March 31, 2009The US Government owns 80% of the equity of AIG but if standard rules apply, it cannot successfully sue to get back the hundreds of millions of bonuses paid out to employees. This is the point made by Carl Icahn in a recent editorial in the Sunday NYT...
Nacchio and the Supreme Court: The Cert Petition (The Ghost of Judge Nottingham Returns)
Posted on March 30, 2009Judge Nottingham continues to be the additional judge in the decision making process. After laying out a series of legal arguments about the reasons for reversal, Nacchio's cert petition takes direct aim at the trial judge. As the brief notes: As the en banc dissenters explained in detail, the majority mischaracterized the district court's decision, ignored settled law, and ducked meritorious issues to gloss over obviously prejudicial errors by a district judge whose 'sense of fairness toward this defendant' was very much in doubt, App...
Nacchio and the Supreme Court: The Cert Petition (A Prediction)
Posted on March 30, 2009Predicting what will happen to a cert petition is not always easy. This case has a couple of things going for it. Maureen Mahoney is well known to the justices and anything she authors will likely get a serious examination. Likewise, the advocacy of Judge McConnell on the Tenth Circuit, a smart and conservative judge, will likewise cause some on the Court to pause over the case...
Nacchio and the Supreme Court: The Cert Petition (Officers Cannot Buy or Sell Shares "Ever")
Posted on March 28, 2009The cert petition takes the position that, based upon the 10th Circuit's holding, insiders "cannot buy or sell company shares ever." This is another example of hyperbole masgarading as analysis. The sentence is only potentially correct if in fact an insider always knows inside information and cannot disclose the inside information to the public...
Lyondell Chemical v. Ryan: Yawn
Posted on March 28, 2009Alerted by Steve Bainbridge, we have become aware that the Delaware Supreme Court has issued the much awaited decision in Lyondell Chemical. The Chancery Court caused a ruckus by denying a motion for summary judgment on whether the board acted in bad faith (and thereby leaving the board unprotected by the waiver of liability provision) by failing to fulfill its duties under Revlon...
Nacchio and the Supreme Court: The Cert Petition (The Basic Argument)
Posted on March 27, 2009The main substantive argument is presented in a confusing fashion. According to the brief: The Tenth Circuit's materiality analysis conflicts with several other circuits, which have held that internal predictions and interim operating results are immaterial as a matter of law unless they establish a very strong likelihood that the company's eventual reported performance will be substantially below what the market is expecting...
Nacchio and the Supreme Court (The Case of Discouraging Disclosure)
Posted on March 27, 2009The brief for certiorari also trots out the position that the 10th Circuit decision will result in less disclosure, discouraging the use of projections. It will also seriously discourage companies from issuing projections at all. Nacchio's inside information was supposedly 'material' here only because Qwest had first made public projections...
Nacchio and the Supreme Court: The Cert Petition (Strategy)
Posted on March 26, 2009Joe Nacchio has filed a cert petition with the US Supreme Court. In it, he raises three issues. These include: 1. Whether the defendant is entitled to acquittal or a new trial because the Tenth Circuit, in conflict with the standards applied in other circuits, erred by upholding the jury instructions bearing on the materiality of the type of information at issue, and by holding that there was sufficient evidence that the defendant failed to disclose material information and knew it...
Nacchio and the Supreme Court: The Cert Petition (Liability for Excessive Disclosure)
Posted on March 26, 2009The oddest position taken in the brief is that had Nacchio disclosed internal projections that he would might have been liable. Finally, in at least the Seventh and Ninth Circuits an internal projection cannot be released unless it is 'reasonably certain,' a standard plainly not met here...
Southern District of New York keeps Accounting firms on their toes-- In re Parmalat
Posted on March 25, 2009In re Parmalat Sec. Litig. , 2009 WL 179920 (S.D.N.Y. Jan., 2009). Paramalat SpA collapsed in 2003 after the discovery of immense understatements of debt and overstatements of assets. The international extent of the fraud has garnered a lot of attention from accounting firms worldwide, with the latest U...
Executive Compensation Beyond the Bailout: The Delaware Problem Redux
Posted on March 25, 2009Much of the current criticism about executive compensation has focused on the bonuses paid by Merrill Lynch and AIG. They are in the eye of the storm because they have accepted public money (Merrill indirectly when Bank of America received government money to facilitate the merger)...
Using Loss Causation to Repeal Rule 10b-5: In re: Williams Securities Litigation (Part 5)
Posted on March 24, 2009We are discussing the loss causation analysis in In re Williams Securities Litigation. This case invovles a spin off by The Williams Companies, Inc. ('WMB') of its Communications Subsidiary (Subsidiary). Plaintiff essentially alleged that WMB had misrepresented the adequacy of the Subsidiary's capital at the time of the spin off...
Churchill v. University of Colorado: Interview on Colorado NPR
Posted on March 24, 2009We have assiduously kept the Churchill posts off the home page of the Race to the Bottom since they do not involve issues of corporate governance. Nonetheless, we break our rule this once to note for anyone interested an interview for Colorado Matters on the coverage of the Churchill trial by the Race to the Bottom...
Using Loss Causation to Repeal Rule 10b-5: In re: Williams Securities Litigation (Part 4)
Posted on March 23, 2009We are discussing the loss causation analysis in In re Williams Securities Litigation. This case involve a spin off by The Williams Companies, Inc. ('WMB') of its Communications Subsidiary (Subsidiary). Plaintiff essentially alleged that WMB had misrepresented the adequacy of the Subsidiary's capital at the time of the spin off...
Using Loss Causation to Repeal Rule 10b-5: In re: Williams Securities Litigation (The Impact of Dura)(Part 3)
Posted on March 21, 2009We are discussing In re Williams and the court's loss causation analysis. Any discussion of loss causation today must start with the Supreme Court's decision in Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (2005), a fairly benign case that, in a sign of moderation, was a unanimous decision written by Justice Breyer...
Using Loss Causation to Repeal Rule 10b-5: In re: Williams Securities Litigation (The Facts)(Part 2)
Posted on March 20, 2009We are discussing the loss causation analysis in In re Williams Securities Litigation. This case invovles a spin off by The Williams Companies, Inc. ('WMB') of its Communications Subsidiary (Subsidiary). WMB described the spin off as 'the best way to ensure that both our energy and communications businesses have the efficient and effective access to the capital necessary to pursue the substantial growth that each enjoys...
Using Loss Causation to Repeal Rule 10b-5: In re: Williams Securities Litigation
Posted on March 20, 2009We don't write about the elements of Rule 10b-5 all that often. Rule 10b-5 is the small acorn that became the tall oak almost accidentally. This hasn't made everyone happy. The Supreme Court in Stoneridge essentially held that the prohibition on deceptive behavior did not extend to vendors because there never should have been a private right of action to begin with and it was time to draw a line in the sand over which no plaintiff would ever be allowed to step...
SLUSA and securities fraud class action litigation
Posted on March 20, 2009In In re Lord Abbett Mutual Funds Fee Litigation, 2009 WL 117002 (3rd Cir. Jan. 20, 2009), the Third Circuit Court of Appeals considered whether the Securities Litigation Uniform Standards Act of 1998 (SLUSA) requires the court to dismiss an entire action when it includes claims SLUSA preempts and claims it does not preempt...
The Chamber of Commerce and Reforming the SEC (Structural Reforms)
Posted on March 19, 2009The Center for Capital Markets of the Chamber of Commerce issued a report recently titled "Examining the Efficiency and Effectiveness of the US Securities and Exchange Commission." Of the 23 recommendations, seven of them call for an assortment of structural reforms...
The Chamber of Commerce and Reforming the SEC (The No Action Process and a Reduction in Flexibility)
Posted on March 19, 2009The Center for Capital Markets of the Chamber of Commerce issued a report recently titled "Examining the Efficiency and Effectiveness of the US Securities and Exchange Commission." Among the proposed reforms were changes to the system of issuing no action letters...
Hybrid Securities and the Bifurcated Approach to Section 16(b) Liability
Posted on March 18, 2009In Analytical Surveys, Inc. v. Tonga Partners, L.P., 2008 WL 4443828 (S.D.N.Y. 2008), Plaintiff, Analytical Surveys, Inc. ('Plaintiff' or 'ASI') brought a claim under Section 16(b) of the Exchange Act, seeking disgorgement of short-swing profits realized by Tonga Partners, L...
ECA v. JP Morgan Chase Securities Fraud Complaint Dismissed
Posted on March 18, 2009In ECA v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009), the Second Circuit Court of Appeals dismissed a securities fraud claim because Plaintiffs failed to adequately plead materiality and scienter under the heightened pleading requirements of the Private Securities Litigation Reform Act...
Delaware Courts and Exonerating the Board from Supervising Risk: In re Citigroup Derivative Litigation (The Judicial Defense of a Mirage)
Posted on March 17, 2009We are discussing In re Citigroup. The case contains a fair amount of "speechifying", instances where the Chancellor chose to lecture both the parties and, presumably, the American public. It is clear that he views derivative suits, including the ones against Citigroup, as little more than whining by investors who made bad business decisions...
Interview with Eric Cohen, Co-Founder of Investors Against Genocide
Posted on March 17, 2009Interview with Eric Cohen, Co-Founder and Chairperson of Investors Against Genocide on 3/7/09. CH -- While the Congressional Act is titled the Sudan Accountability and Divestment Act, your organization, Investors Against Genocide, has not emphasized divestment but rather genocide-free investment...
Delaware Courts and Exonerating the Board from Supervising Risk: In re Citigroup Derivative Litigation (The Refusal to Impose Meaningful Standards for Reporting Standards)
Posted on March 17, 2009We are discussing In re Citigroup. Today is our final post, for now. The case didn't involve the traditional Caremark allegations. Caremark, as repeated in Stone v. Ritter, analyzed the possibility of liability for a breach of the duty to monitor under two prongs: (a) the directors utterly failed to implement any reporting or information system or controls; or (b) having implemented such a system or controls, consciously failed to monitor or oversee its operations thus disabling themselves from being informed of risks or problems requiring their attention...
Delaware Courts and Exonerating the Board from Supervising Risk: In re Citigroup Derivative Litigation (Compensation and the Effort to Avoid Further Preemption)
Posted on March 16, 2009We are discussing In re Citigroup. Despite having dismissed the causes of action related to the board's oversight of the excessive risk taking by the financial institution, the decision managed to find a way to keep alive the one claim of waste related to the severence package paid to Citigroup's departing CEO...
Diane Sanger and the SEC
Posted on March 15, 2009Back in the 1980s, I worked in the counseling side of the General Counsel's Office at the SEC. My boss was Diane Sanger, then an Assistant General Counsel. She was one of, if not the smartest person I knew at the Commission and tough as nails, not something that earned her kudos with everyone in the Agency...
Nacchio and Prison
Posted on March 15, 2009Joe Nacchio lost his appeal, with the en banc court ruling against him by a 5-4 vote. He is doing his best to stay out of prison pending appeal to the Supreme Court, so far to no avail. He has been instructed by the federal district court to go to prison, with the arrival date scheduled for March 23...
The Hedge Fund Transparency Act
Posted on March 14, 2009In prior posts, The Race to the Bottom has discussed the growth, influence, and lack of regulation of hedge funds. Similar discourse occurred on the Harvard Corporate Governance Blog and the Wall Street Journal. On January 29, 2009, Senators Carl Levin (D-MI) and Chuck Grassley (R-IA) introduced The Hedge Fund Transparency Act...
Delaware Courts and Exonerating the Board from Supervising Risk: In re Citigroup Derivative Litigation (The Weakness of the Caremark Standard)
Posted on March 13, 2009We are discussing In re Citigroup Derivative Litigation. As we have noted, the Chancellor in this case took an almost derisive approach towards plaintiffs' allegations that the board potentially should have played a larger role in the oversight of the risk undertaken by Citigroup that ultimately resulted in "staggering" losses and near nationalization of the financial institution...
Delaware Courts and Exonerating the Board from Supervising Risk: In re Citigroup Derivative Litigation (The Facts)
Posted on March 13, 2009We are discussing In re Citigroup Derivative Litigation. In late 2007, Citigroup began to announce large losses relating to subprime related assets, particularly those associated with structured investment vehicles. Without repeating the details, the court conceded that the losses were "staggering...
Misunderstanding the Role of a Relationship of Trust and Confidence in O'Hagan
Posted on March 12, 2009The recent action brought by the SEC against Larry Cuban for allegedly violating SEA Rule 10b-5 by selling stock in Mamma.com on the basis of information he allegedly expressly promised to keep confidential has drawn an amicus brief from five distinguished securities law professors urging dismissal of the complaint...
Delaware Courts and Exonerating the Board from Supervising Risk: In re Citigroup Derivative Litigation (Introduction)
Posted on March 12, 2009Anyone other than the comatose knows that Citigroup is in deep trouble. The financial institution has suffered massive losses and has seen its share prices fall to below $3. Citigroup has probably survived this long only because of the government bailout...
SEC v. Mark Cuban: Insider Trading Claims
Posted on March 11, 2009This post discusses insider trading law and the specific claims contained in the complaint against Mark Cuban. The SEC alleged that Cuban violated 10b of the Exchange Act and Rule 10b-5 by selling his entire holding of stock in Mamma.com while he possessed material, non-public information...
SEC v. Mark Cuban: Amicus Argues that the SEC Has Overstepped Its Regulatory Authority
Posted on March 11, 2009The Securities and Exchange Commission ('SEC') has filed suit against Mark Cuban for insider trading. In brief, the SEC complaint alleged that Cuban, a large shareholder in Mamma.com, learned of an upcoming PIPE offering in Mamma.com. He agreed to keep that information confidential and to not sell his shares until after the company made the information public...
The Race to the Bottom and Covering Cases: SEC v. Cuban
Posted on March 10, 2009The Race to the Bottom still has the rare distinction of combining the work of faculty and students. For students, working on the Blog provides an opportunity to write in a pithy fashion about important developments in the corporate governance area...
SEC v. Mark Cuban: Introduction
Posted on March 10, 2009The Race to the Bottom will be covering the SEC charges against Mark Cuban, the billionaire entrepreneur. Cuban is famous for being the charismatic owner of the Dallas Mavericks, the NBA team he has owned since 2000, and his recent attempt at purchasing the Chicago Cubs...
Churchill v. University of Colorado: The Times They Are A Changing (Part 2)
Posted on March 10, 2009Want further evidence that things have changed since 2005 when, as David Lane put it, it was "All Churchill, All the Time?" The Denver Post (now the only daily newspaper in Denver) had a very brief article (maybe 120 words and written by Joe Aguilar at the Daily Camera) on page 2B indicating that opening arguments would begin today...
SEC v. Mark Cuban ? The Complaint
Posted on March 10, 2009In a complaint filed on November 7, 2008 (the 'Complaint'), the SEC charged Mark Cuban with committing securities fraud by engaging in unlawful insider trading. According to the Complaint, Cuban violated §17(a) of the Securities Act, §10(b) of the Exchange Act and Rule 10b-5 thereunder because he used material, nonpublic information to avoid losses in excess of $750,000 when he sold shares of Mamma...
Sudan and a Shari'a Compliant Stock Exchange
Posted on March 09, 2009We enjoy, on this Blog, occasionally writing about governance issues that arise in other countries. We have posted on the Saudi system of governance that includes the mandatory payment of zakat (alms) by corporations. Today we are pleased to have a post from Fayha Suleman, a student at the University of Denver Sturm College of Law about the Islamic influences on the Khartoum Stock Exchange in Sudan.
The Sudan Accountability and Divestment Act (SADA); Part 2
Posted on March 09, 2009On the last day of 2007, President Bush signed the Sudan Accountability and Divestment Act (SADA), 50 U.S.C. § 1701, which has several provisions. First, it 'supports the decision' of state and local governments to divest from companies with 'direct' business operations in oil, mineral extraction, power production or production of military equipment in Sudan when information about those companies is from 'credible information available to the public...
Churchill v. University of Colorado: The First Morning
Posted on March 09, 2009The doors of the Denver Courthouse opened as usual at 8:00 am. In courtroom 6 (on the second floor), the law suit brought by Ward Churchill against the University of Colorado got off to a quiet start. The morning was spent with examinations of prospective jurors apparently in chambers (none of the interviews took place in open court)...
Sudan Accountability and Divestment Act of 2007 (SADA); Part 1
Posted on March 09, 2009The International Court of Justice issued an arrest warrant for Sudanese President Omar Hassan al-Bashir on charges of crimes against humanity. This development warrants an examination of U.S. government response to various crisis in Sudan, leading up to and including the Sudan Accountability and Divestment Act of 2007...
Covering Churchill v. University of Colorado
Posted on March 06, 2009This Blog has undertaken a number of innovative tasks. One is that it continues to serve as a rare example of student-faculty collaboration. As part of that approach, the Blog looks for unique content that has pedagogical value. One way to do this is to have students cover important trials and blog about them...
Proposed Amendments to the Delaware General Corporation Law and the Resulting Reduction in Shareholder Rights
Posted on March 05, 2009Section 304 of SOX and Officer Certification: Digimarc and the Absence of a Private Right of Action
Posted on March 04, 2009Corporate Governance and the SEC: The Impact of the Stimulus Bill (President Obama and the State of the Union) (Part 6)
Posted on March 02, 2009Corporate Governance and the SEC: The Impact of the Stimulus Bill (State Law Preemption) (Part 5)
Posted on February 28, 2009Corporate Governance and the SEC: The Impact of the Stimulus Bill (Part 3)
Posted on February 27, 2009Corporate Governance and the SEC: The Impact of the Stimulus Bill (The Requirement of Independent Directors)(Part 4)
Posted on February 27, 2009US v. Nacchio: A Modest Ruling by a Modest Majority
Posted on February 26, 2009As we more or less predicted, the full court vacated the panel opinion which had overturned the verdict of Joe Nacchio and ordered a new trial. The affect of the en banc opinionis to reinstate the conviction. The majority opinion was written by Judge Holmes who also wrote the dissent in the panel opinion...
US v. Nacchio: Ineffective Assistance of Counsel?
Posted on February 26, 2009Judge Henry wrote a separate dissent and suggested that the case would be back, with the courts having to resolve whether Nacchio received ineffective assistance of counsel. As he noted: And, though I fear for today’s result, I do not believe this case is over...
US v. Nacchio: The Death Knell for Special Treatment of Economic Analysis in Securities Cases?
Posted on February 26, 2009For a time, it seemed as if economic analysis (often bad economic analysis) was the sin qua non of legal analysis in the corporate law area. There were plenty of scholars who wanted to see corporate and securities law become entirely a matter of contract...
US v. Nacchio: The Tenth Judge on the En Banc Panel
Posted on February 26, 2009The case was decided by a 5-4 vote. Nonetheless, there was a tenth judge involved in the decision making process, Judge Nottingham, the trial judge. There is little doubt that his presence was felt by the dissenting judges in the en banc decision...
The Rocky to Close
Posted on February 26, 2009The Nacchio case came down yesterday and I received a call from Sara Burnett at the Rocky Mountain News for my thoughts. It didn't earn me a quote but it resulted in a thoughtful, interesting conversation with someone who had followed the trial from the very beginning...
Corporate Governance and the SEC: The Impact of the Stimulus Bill (Part 1)
Posted on February 25, 2009When the Exchange Act was adopted back in 1934, Congress intended to give the SEC a prominant role in the corporate governance process. Congress mostly limited that authority to disclosure. As the legislative history illustrates (and is set out in much greater detail in Essay: Corporate Governance, the Securities and Exchange Commission, and the Limits of Disclosure) Congress mistakenly thought that governance problems (excessive compensation, management self perpetuation), would be corrected if shareholders received sufficient disclosure to remedy any abuse...
Corporate Governance and the SEC: The Impact of the Stimulus Bill (Part 2)
Posted on February 25, 2009We are examining the changing role of the SEC in the corporate governance process. The Leviathan that is the Stimulus Bill included some corporate governance provisions on p. 402 in Part B, Title VII. Section 111 of the Act contains most of the operative restrictions on executive compensation...
The Tenth Circuit Affirms: Comments by John Holcomb, Daniels College of Business
Posted on February 25, 2009As an initial matter, we offer the following comments from John Holcomb at the Daniels College of Business. John has commented considerably on this case and attended the trial. As several predicted, the en banc panel has reversed the 3-judge panel and reinstated the Federal District Court ruling and verdict...
Tenth Circuit Affirms Conviction of Joe Nacchio
Posted on February 25, 2009The 10th Circuit has affirmed the conviction of Joe Nacchio by a 5-4 vote. We will have commentary on the case later.
Limiting the Duty of Loyalty: Pfeffer v. Redstone (Disclosing the Identity of the Special Committee)
Posted on February 24, 2009We are discussing Pfeffer v. Redstone, a recent Delaware Supreme Court decision examining the law suit challenging Viacom's spin off of Blockbuster. The case involved a number of disclosures alleged to be false. One of them in particular caught our attention...
In re: Salomon Analyst Metromedia Litigation and the Presumption of Reliance
Posted on February 24, 2009In In Re: Salomon Analyst Metromedia Litigation, 544 F.3d 474 (2d Cir. 2008), defendants appealed a New York District Court holding that the Basic v. Levinson reliance presumption applied to misrepresentations made by research analysts. Additionally the court addressed whether the defendants were entitled to rebut the Basic presumption prior to class certification...
Limiting the Duty of Loyalty: Pfeffer v. Redstone (Introduction)
Posted on February 23, 2009We will do a series of posts today on Pfeffer v. Redstone. The case involves the spin off of Blockbuster by Viacom. Viacom was largely owned by National Amusements, Inc. (NAI), which held 71% of the voting interests of Viacom. Viacom, in turn, held most of the shares of Blockbuster...
Limiting the Duty of Loyalty: Pfeffer v. Redstone (Student Post)
Posted on February 23, 2009Last year we covered the Court of Chancery’s decision in Pfeffer v. Redstone, No. 2317-VCL, 2008 WL 308450 (Del. Ch. 2008). On January 23, the Delaware Supreme Court upheld the Court of Chancery’s dismissal of the plaintiff’s claims...
The Schapiro Shift Continues
Posted on February 23, 2009The NYT has a piece on Mary Schapiro's first weeks in office, generally written in a laudatory tone. In general, we agree. She has made some good appointments, taken off some of the restrictions on Enforcement, and indicating strong support for access and say on pay (although we await specific initiatives)...
Limiting the Duty of Loyalty: Pfeffer v. Redstone (The Evisceration of the Duty of Loyalty)
Posted on February 23, 2009We are discussing Pfeffer v. Redstone, a recent Delaware Supreme Court opinion involving the spin off of Blockbuster by Viacom. Delaware courts purport to apply a higher standard when it comes to transactions that implicate the duty of loyalty. But in fact this would interfere with managerial discretion and potentially cause corporations to eschew Delaware as the jurisdiction of choice...
Changing of the Guard at the Division of Enforcement
Posted on February 21, 2009As predicted, the new director of the Division of Enforcement is Robert Khuzami. We have already commented on his appointment.
The SEC and Corporate Governance: The Schapiro Shift Is Underway
Posted on February 20, 2009Mary Schapiro comes to the SEC aware that there is pent up demand for corporate governance reform. Some, such as access, will likely need to be addressed through rulemaking. Others can happen more quickly. One place where changes can be seen quickly is with respect to no action letters under Rule 14a-8...
Commissioner Walter and Access
Posted on February 20, 2009Elisse Walter (who, by the way, was the Associate General Counsel of Counseling at the SEC when I was in the General Counsel's Office) has given a talk on the SEC and corporate governance, specifically access. Commissioner Walter not only indicated support for access but more or less suggested that the access proposal put out by the Commission (and not adopted) in 2007 was flawed, at least in part because of the high percentage threshold necessary to submit an access proposal...
Fiduciary Duties of Officers and Directors: Gantler v. Stephens (The Supreme Court Again Misreads Section144)(Part 8)
Posted on February 19, 2009We are examining the recent decision by the Delaware Supreme Court in Gantler v. Stephens. One of the oddest confusions in Delaware law is the improper reliance on Section 144 to determine the standard of review for conflict of interest transactions involving directors...
Personal Use of the Corporate Aircraft, the Super Bowl, and the Need for Additional Disclosure Requirements
Posted on February 19, 2009There has been a great deal written, including on this Blog, about the use of private aircraft by corporate CEOs. Corporate aircraft is an expense, often a significant one, and, as a result, ought to be undertaken only if in the interests of the corporation...
In re Centerline Holdings Co., Sec. Litig. and Scienter
Posted on February 18, 2009In In re Centerline Holdings Co., Securities Litigation, No. 08 Civ. 505 (S.D.N.Y. Jan. 12, 2009) the court granted Centerline’s motion to dismiss because the plaintiffs failed to argue particularized facts sufficient to demonstrate scienter. Plaintiffs alleged that Centerline Chairman Stephen M...
TARP Reform and Limits on Executive Compensation
Posted on February 18, 2009On January 21, the House passed a bill to reform the Troubled Asset Relief Program (TARP) provisions of the economic bailout. The TARP Reform and Accountability Act of 2009 (the “Act”) would strengthen accountability, close loopholes, increase transparency, and require the Treasury to take steps toward foreclosure mitigation...
The Race to the Bottom and Shareholder Accessibility to Information: Norfolk County Retirement v. Jos. A Bank Clothier (Part 1)
Posted on February 17, 2009In teaching about the race to the bottom in a class on corporate law, its easy to point to instances where state law became so weak and so unable to protect the interests of shareholders that Congress had to step in and federalize the area. This happened, for example, in 1934 in connection with the inadequate disclosure regime that had developed under state law...
The Race to the Bottom and Shareholder Accessibility to Information: Norfolk County Retirement v. Jos. A Bank Clothier (Part 3)
Posted on February 17, 2009The case involves a derivative suit involving behavior that was also subject to a federal securities suit. The Special Litigation Committee found that the derivative claims and the securities claims had no merit. Nonetheless, the federal court hearing the securities suit declined to dismiss the case, concluding that plaintiffs had met the high pleading standards for scienter set out in the PSLRA...
The Race to the Bottom and Shareholder Accessibility to Information: Norfolk County Retirement v. Jos. A Bank Clothier (Part 2)
Posted on February 17, 2009We are discussing Norfolk County Retirement System v. Jos A. Bank Clothiers. This would, at first blush, seem to be an ordinary matter, involving little controversy. The Company was sued under federal law for assorted statements alleged to have been false made during late 2005 through mid-2006...
Fiduciary Duties of Officers and Directors: Gantler v. Stephens and the Problem of Stock Exchange Rules on Director Independence (Part 7)
Posted on February 16, 2009We are examining the recent decision by the Delaware Supreme Court in Gantler v. Stephens. The case is a state law matter, turning on Delaware's interpretation of fiduciary obligations. Nonetheless, the facts raise concerns that go beyond state law and suggest weaknesses in the rules of the stock exchange or in the enforcement of the rules of the stock exchanges...
Fiduciary Duties of Officers and Directors: Gantler v. Stephens (A Final Comment)(Part 9)
Posted on February 16, 2009We are examining the recent decision by the Delaware Supreme Court in Gantler v. Stephens. Ganlter was mostly a victory for shareholders. The Court may be signaling that it is easing up on the standards for establishing director independence and certainly opted for an approach to shareholder ratification that was less extreme than what the Chancery Court was suggesting...
Fiduciary Duties of Officers and Directors: Gantler v. Stephens (The Impact of Shareholder Ratification)(Part 6)
Posted on February 15, 2009We are examining the recent decision by the Delaware Supreme Court in Gantler v. Stephens. The Court clarified one aspect of shareholder ratification that has caused considerable confusion in the Chancery Court. Ratification of a conflict of interest transaction by disinterested shareholders presumably must have some affect...
Fiduciary Duties of Officers and Directors: Gantler v. Stephens (The Importance of Shareholder Ratification)(Part 5)
Posted on February 14, 2009We are examining the recent decision by the Delaware Supreme Court in Gantler v. Stephens. The Supreme Court touched upon the standard for determining the independence of directors and the fiduciary obligations of officers. The Court also discussed the impact of disinterested shareholder approval...
Executive Compensation and the Stimulus Package: The Problem of Non-Comprehensive Solutions
Posted on February 14, 2009The WSJ reports that the stimulus package includes some severe limitations on executive compensation for firms receiving federal money. The most severe restriction is a cap on bonuses for top officials. They cannot equal more than one-third of an officer's total salary (the bonus could, therefore, equal 50% of the non-bonus compensation, with the result that the bonus would be one-third of the total)...
Fiduciary Duties of Officers and Directors: Gantler v. Stephens (Fiduciary Duties of Directors)(Part 4)
Posted on February 13, 2009We are examining the recent decision by the Delaware Supreme Court in Gantler v. Stephens. One area where the Court clarified the law in relatively unequivocal terms was to hold that officers had fiduciary duties and the duties were the same as directors...
Fiduciary Duties of Officers and Directors: Gantler v. Stephens (The Facts)(Part 2)
Posted on February 12, 2009We are examining the recent decision by the Delaware Supreme Court in Gantler v. Stephens. The action was brought by six shareholders of First Niles Financial for breach of fiduciary duties arising out a decision to not sell the company and instead engage in a reclassification of the company's shares...
Fiduciary Duties of Officers and Directors: Gantler v. Stephens (Evolving Standards for Director Independence?) (Part 3)
Posted on February 12, 2009We are examining the recent decision by the Delaware Supreme Court in Gantler v. Stephens. Plaintiffs alleged that the board had an entrenchment motive for turning down a merger and opting for a reclassification instead. It wasn't enough to show that the merger would deprive the directors of their position...
Enron Executive Facing Double Jeopardy or Evading Justice?
Posted on February 11, 2009The fallout of the Enron collapse is still with us. In November 2004, the government indicted F. Scott Yeager, an Enron Broadband Services executive, on charges relating to securities and wire fraud, insider trading, and money laundering. The jury acquitted Yeager on some of the counts, but did not reach a verdict on others...
Fiduciary Duties of Officers and Directors: Gantler v. Stephens (An Introduction) (part 1)
Posted on February 11, 2009We are a bit behind on our review of cases arising out of Delaware. Over the next few posts we take a look at Gantler v. Stephens, a recent decision by the Delaware Supreme Court. It is a rare victory for shareholders, with the Supreme Court overturning the decision of the Chancery Court to dismiss the suit...
Comverse Technology Derivative Shareholder Litigation
Posted on February 10, 2009The New York Supreme Court, Appellate Division, recently reinstated a shareholder derivative complaint because the plaintiff successfully plead that demand was futile despite the board’s creation of a special committee. In re Comverse Tech., Inc...
Commissioner Paredes, the SEC, and the Subterfuge of Cost Benefit Analysis
Posted on February 10, 2009With all of the turmoil surrounding the SEC these days, Commissioner Paredes at the SEC gave a very curious speech at SEC Speaks on Friday, Feb. 6. It did two things. First, it was an apology for his vote to ban short selling last Fall. As we noted on this Blog, the SEC used its emergency authority under Section 12 of the Exchange Act to ban all short selling...
Linda Thomsen: Scapegoat
Posted on February 09, 2009A scapegoat in Leviticus was the goat released on the day of atonement. Although itself innocent, the scapegoat bore the responsibility of the sins of others and was sent out into the wilderness to perish. The WSJ reports that Linda Thomsen, the current director of the Division of Enforcement will resign this week...
Mary Schapiro and the Developing Agenda
Posted on February 09, 2009The Chairman of the SEC, Mary Schapiro, gave a speech on Friday that struck the right tone. First, in an agency demoralized, one just put through the irascible testimony of Harry Markopolos, who lambasted the SEC and suggested that "the people who are coming to the SEC are too young" and the agency should look to hire "old foxes," she recalled the SEC that has long been known in the industry...
Linda Thomsen Departs
Posted on February 09, 2009After the rumors began flying late last week, the word has become official. Linda Thomsen, Director of the Division of Enforcement, has resigned. The SEC press release is here. Her accomplishments are extensive and she operated under trying times.
Madoff the Murderer?
Posted on February 07, 2009We look back on the extraordinary testimony given by Harry Markopolos. There are a number of interesting comments in his written testimony. One of them concerns his belief that the investigation into the Madoff Ponzi scheme might result in harm to his family or his team...
Reforming the Auto Industry
Posted on February 06, 2009Today, we offer today an unusual post. We are always interested in what those in practice think about the issues affecting our corporate and financial markets. The future of the auto industry is one of them. We have touched on it here, particularly in connection with the efforts to obtain bailout money from the Government...
Executive Compensation, Treasury Reforms, and the Consequences of the Delaware Model
Posted on February 06, 2009In the aftermath of President Obama's description of the payment of bonuses by companies participating in the bailout as "shameful," Treasury has rushed out new standards. One of them required boards to set out policies with respect to the approval of luxury expenditures...
Executive Compensation and Treasury
Posted on February 05, 2009The WSJ reported that, as predicted on this Blog, the Obama Administration would quickly come down with tougher rules on executive compensation in the aftermath of President Obama describing bonuses by companies participating in the bailout as "shameful...
Starbucks Selling A Plane
Posted on February 05, 2009We've been talking about Treasury's efforts in the area of executive compensation. The use of private aircraft illustrate the problems in this area. Starbucks and Citigroup both opted to do without a corporate aircraft. Needless to say, the interesting thing is not the decision itself but the lateness in the day for opting to do something seemingly obvious...
Exxon and Corporate Aircraft
Posted on February 05, 2009As we watch those companies subject to the bailout get rid of their corporate jets (this was required as part of the bailout of the auto companies), we have noted that other companies not obtaining government largess are still operating the planes. Exxon-Mobile recently reported that it had a record year of profits (setting a record for a US company)...
Minnesota Public Radio and Executive Compensation
Posted on February 05, 2009Thursday, February 5, 2009 9:06 a.m. As public anger grows, Obama calls for a ceiling on executive pay Minnesota Public Radio For the audio of the show, go here. President Obama proposes to overhaul executive compensation, not just for the companies accepting federal bailout funds, but all public companies...
Stock Exchanges, Rule Enforcement, and the SEC
Posted on February 04, 2009Stock exchanges like Nasdaq and the NYSE are for profit companies that have a fiduciary obligation to maximize earnings. Sometimes enforcing the rules of the exchange is inconsistent with this. In some cases, non-enforcement requires permission of the SEC...
Nasdaq Listing Requirements Suspended Until (at least) April
Posted on February 04, 2009Last October Nasdaq requested that the SEC allow it to suspend the listing requirement that requires companies to have a minimum bid price of $1. Nasdaq rules classify a security as “deficient” if it has a closing bid price of less than $1 for thirty consecutive business days...
No Limit on Reverse Termination Fees: Pfizer to pay out $4.5 billion to Wyeth if Financing Fails
Posted on February 04, 2009This post discusses whether Delaware courts would uphold the $4.5 billion, 6.6% reverse termination fee in Pfizer's proposed acquisition of Wyeth if shareholders were to challenge the fee. The WSJ reported that Pfizer will pay Wyeth the break-up fee if “Pfizer’s ratings are cut and the banks don’t lend...
GMAC, Treasury and the Answer to the Corporate Compensation Conundrum
Posted on February 03, 2009As we have discussed on this Blog, the bailout bill contained provisions that regulated executive compensation. Treasury drafted regulations that implemented these provisions. The Treasury regulations are, however, noticeable in their vagueness...
Shameful, Perhaps, But Treasury's Response Will Likely Cause More Harm Than Good
Posted on February 02, 2009Barack Obama labeled the bonuses paid to officials at financial institutions taking funds under TARP as "shameful." Senator McCaskill introduced a bill to cap compensation at the amount paid to the President ($400,000). On Saturday, he described the payments this way: “we learned this week that even as they petitioned for taxpayer assistance, Wall Street firms shamefully paid out nearly $20 billion in bonuses for 2008...
Treasury and Limitations on Executive Compensation: The Board's Responsibility
Posted on February 02, 2009Treasury (before Geithner's arrival) recently issued an updated "interim final rule" updating a similar provision that had been issued in October. The rule contains technical amendments and imposes specific time periods on certain certification obligations...
Treasury and Limitations on Executive Compensation: The CEO's Responsibility
Posted on February 02, 2009The Treasury rules implementing the executive compensation provisions of TARP essentially impose on the compensation committee the obligation to consider the arrangements and to determine whether they cause excessive risk taking. Nonetheless, the rules go further and essentially impose on the CEO the obligation of certifying that the compensation committee has performed its prescribed task...
Shameful, Perhaps, But Treasury's Response Will Likely Cause More Harm Than Good (Redux)
Posted on February 02, 2009Treasury is considering new limits on executive compensation for certain companies participating under TARP. Treasury is considering limits on bonuses and severance paid at companies that receive "exceptional" aid under TARP. The problem is not the limitations but the companies subject to the limitations...
The SEC and CFTC Merger: An Uphill Struggle?
Posted on February 01, 2009The Speculative Debauche has a nice post on the source of possible opposition to an SEC/CFTC merger. There is some potential opposition from agricultural interests in the US Senate. Mary Schapiro has her work cut out for her.
Shameful (The Growing Consequences)
Posted on January 31, 2009The fallout from President Obama's reference to the payment of bonsues as "shameful" is already being felt. Claire McCaskill, Senator from Missouri, has already introduced legislation that would limit salaries of all company officials to no more than the salary of the President of the United States (which is $400,000 by the way)...
Thain, Fiduciary Duties, and the Problem of an Effective Regulator
Posted on January 30, 2009The latest on Merrill Lynch is that Andrew Cuomo is barrelling ahead in his investigation of the unexpectedly large losses in December and the payment of employee bonuses. As part of the investigation, he has already sent a subpoena to John Thain, the former CEO...
Shameful
Posted on January 30, 2009When would one imagine a president of the United States describing executive compensation using the word "shameful"? President Obama did so on Thursday. It came after a study was issued by Tomas P. DiNapoli, the NY State Comptroller, indicating that $18...
Derivatives and Lead Plaintiff Status: In re Crocs Securities Litigation
Posted on January 29, 2009In the class action suit In re Crocs, Inc. Securities Litigation, No. 07-cv-02351-REB-KLM, 2008 U.S. Dist. LEXIS 87524 (Colo. Dist. Ct. Sept. 17, 2008), the United States District Court of Colorado held the presumptive lead plaintiff adequate to represent the class because its “contracts for difference” (“CFD) were “securities” under the Securities Exchange Act...
Access is Coming
Posted on January 29, 2009As we have discussed at length on this Blog (and in this Paper: The SEC, Corporate Governance, and Shareholder Access to the Board Room), the Commission's decision to not provide shareholders with access to the proxy statement was an incorrect interpretation of the law, inconsistent with the Agency's pro-investor, shareholder mission and, in the end, short sighted...
Summary of United States v. Stockman
Posted on January 28, 2009This post concludes and summarizes our coverage of the case United States v. Stockman. The government filed the Indictment in March of 2007 in the Southern District of New York. The named Defendants were David Stockman, Paul Barnaba, David Cosgrove, and J...
South Africa and Stakeholder Rights
Posted on January 28, 2009This Blog tries, when the opportunity is presented, to shed light on corporate governance practices from other countries that vary from those in the United States. In part this illustrates the lack of uniformity in the area. In addition, however, it demonstrates that there may be ways the US can learn from the experience in other countries in reforming its own governance process...
Starbucks and Social Responsibility: The Right Direction
Posted on January 27, 2009We have written often on this Blog about the wrong headed business approach by Starbucks in combating its declining revenues. In addition to a decline of business from the recession, Starbucks has had to confront growing competition, most noticeably from McDonalds...
Delaware Courts and the Continued Erosion of Fiduciary Duties
Posted on January 27, 2009In the world of fiduciary duties for corporate directors, Delaware courts diminish them case by case. Take a look at the evisceration of the duty of loyalty with respect to decisions on executive compensation. (Returning Fairness to Executive Compensation)...
Executive Compensation and John Thain
Posted on January 26, 2009By now, everyone is aware of John Thain's dismissal from B of A last week, at least in part, according to the press, because of "poor communications" about Merrill's unexpectedly large losses in December. As he departs, its safe to say that his press is getting worse...
Compensation without Limits
Posted on January 26, 2009Does it ever stop? Executive compensation is determined by the board of directors. The obligations of the board of directors are determined mostly by state law. State law in this area means Delaware. Delaware benefits from having companies incorporate in its state, a form of tax revenue from entities that otherwise make little or no use of local services...
Executive Compensation and John Thain (Part 2)
Posted on January 26, 2009We wrote earlier today about John Thain's remodeling of his office. Our post raised fewer questions about his behavior and more about the board's. We note that he has issued a memorandum where he has agreed to repay the expenses associated with the remodeling...
A Recession Proof Area of Legal Practice
Posted on January 26, 2009The WSJ notes that the recession is coming to law firms, listing the litany of firms laying off lawyers. One thing of note. While plenty of areas were hard hit, including corporate, securities is not one of them. Perhaps we all have Sarbanes-Oxley to thank for this...
Funding the Race to the Bottom
Posted on January 25, 2009The Race to the Bottom is dedicated to providing our readers with high quality content while remaining advertisement free. Nonethless, we are not revenue neutral but have occasional modest expenses. We pay for this platform and have to maintain our URL...
Corporate Governance, Iceland and Independent Directors
Posted on January 23, 2009This Blog tries, when the opportunity is presented, to shed light on corporate governance practices from other countries that vary from those in the United States. In part this illustrates the lack of uniformity in the area. In addition, however, it demonstrates that there may be ways the US can learn from the experience in other countries in reforming its own governance process...
Eliminating Fairness from the Duty of Loyalty: Hokanson v. Petty
Posted on January 23, 2009We have often discussed on this Blog the gradual elimination of fairness by the Delaware Courts in the context of the duty of loyalty. The courts often cite Guth v. Loft, 5 A.2d 503 (Del. 1939) for the proposition that the duty of loyalty is "broad and encompassing" and demands from the director "the most scrupulous observance...
Steve Jobs, Health Issues, and the SEC
Posted on January 22, 2009Apparently the SEC has opened an "inquiry" into the disclosure by Steve Jobs concerning his health issues. Inquiry here likely means an investigation that has not yet reached the formal order stage. Formal orders must be approved by the full Commission and give the staff, among other things, the power to issue subpoenas...
Obama, the Courts, and Governance
Posted on January 22, 2009We have noted on this Blog on several occasions that one of the biggest impediments to improved investor protection and corporate governance is the judiciary. It is the DC Circuit that struck down the SEC's nascent attempts to regulate hedge funds in Goldstein by requiring increased reporting, leaving the market and regulators largely in the dark when the crash came...
A Securities Lawyer in the Senate?
Posted on January 22, 2009With Caroline Kennedy bowing out of the contest for the New York Senate seat vacated by Hillary Clinton, Kristen Gillibrand, a congresswoman from upstate, is one of the front runners. She is a former partner at Boies Schiller. The NY Times described her as a "securities attorney...
Stay of Proceedings in Chiquita Derivative Actions
Posted on January 21, 2009This post updates the Derivative Actions against Chiquita Brands International, Inc. (“Chiquita”). In sum, the Derivative Actions remain stayed until February 28, 2009, when Chiquita is required to report to the Court on its investigation of the claims filed in the Verified Consolidated Shareholder Derivative Complaint (“Complaint”)...
Chairman Cox Departs
Posted on January 21, 2009With little fanfare, Chairman Cox has stepped down. There is no press release posted on the SEC web site but his picture no longer appears on the site. His term went until the summer but his tenure as chairman was over (the chair of the Commission serves at the discretion of the President)...
Fifth Circuit Affirmed Skilling?s Conviction
Posted on January 21, 2009Last week, the United States Court of Appeals for the Fifth Circuit affirmed Jeffrey Skilling’s convictions for conspiracy, securities fraud, making false representations to auditors, and insider trading. The court, however, vacated his 24-year sentence and remanded it for resentencing...
Corporate Jets and Corporate Compensation (redux)
Posted on January 20, 2009The Economist has a nice little piece on the current waive of companies selling their corporate jets. Corporate jets have become the current example of wastefulness by corporations. The result has been public pressure on companies, particularly those with their hands out in Washington, to get rid of the luxury...
Board Oversight and CEO Dismissals
Posted on January 20, 2009The Journal reports that the number of CEO firings is on the rise. The article doesn't have much perspective, merely noting that there has been a spate of dismissals since the first of the year. William Watkins, ousted Monday at Seagate Technology LLC, is the sixth CEO of a publicly held company to be replaced in just the last eight days...
Regime Change, President Obama, and the SEC
Posted on January 20, 2009The new administration has come to Washington. President Obama gave his inaugural address today. He made no mention, in the relatively short speech, of corporate governance or the Securities and Exchange Commission. He did, however, make this one statement: "Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age...
The Tellabs Excuse: Zucco v. Digimarc (Part 1)
Posted on January 19, 2009We have been following the lower court implementation of Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499 (2007), a case that interpreted language in the PSLRA that required plaintiffs to produce evidence establishing a "strong inference" of scienter...
Donations and The Race to the Bottom
Posted on January 19, 2009The Race to the Bottom is dedicated to providing our readers with high quality content while remaining advertisement free. If you enjoy our publication, please show your support by donating to our organization.
The Tellabs Excuse: Zukko v. Digimarc (Part 2)
Posted on January 19, 2009We are discussing Judge Bybee's decision in Zukko, a decision that was deliberately designed to resurrect the largely discredited standard for scienter set out in the 9th Circuit decision In re Silicon Graphics Inc. Securities Litigation, 183 F.3d 970 (9th Cir...
Report of the 21st Century
Posted on January 17, 2009The staff at the Commission has issued the Report of the 21st Century Disclosure Initiative. The Report does not recommend any change in the content of the current system of periodic reports. Rather, it is the opening salvo in a comprehensive technological update of the SEC's system of filings...
Executive Compensation and the Upcoming Shareholder Proposal Season
Posted on January 16, 2009To no great surprise, it looks like the upcoming shareholder proposal season will to a large degree focus on executive compensation. The year 2008 was a period of high compensation and disastrous economic performance, with a number of high profile examples of executives receiving substantial exit packages despite having managed their company into oblivion...
Brace for Another Madoff
Posted on January 16, 2009Politico suggests that the Obama Administration is concerned that during the current financial turmoil matters may become even more destabilized by the surfacing of additional frauds. One commentator noted that there was probably "another Bernie Madoff out there...
Steven Jobs and His Health Issues: Overview (Part 1)
Posted on January 15, 2009It may be one of the most common law school exam questions ever written. Rule 10b-5 prohibits securities fraud. One of the elements of the cause of action is materiality. Moreover, in non-disclosure cases, the issue is often whether a company had a duty to disclose...
Mary Schapiro and the Confirmation Hearings
Posted on January 15, 2009Mary Schapiro went before the Senate Banking Committee yesterday. In her written testimony, she made a number of pledges. These included reinvigoration of the enforcement process, reengagement with the investor community, and structural reform...
Steven Jobs and His Health Issues: Corporate Governance (Part 3)
Posted on January 15, 2009We are examining the news that Steve Jobs is taking medical leave at Apple. He issues a letter on Jan. 14 announcing the decision. This came a bit over a week after he issued a letter suggesting that his health problems were under control and that he would remain as CEO during the recovery period...
Steven Jobs and His Health Issues: The Antifraud Provisions (Part 2)
Posted on January 15, 2009In early January, Steve Jobs announced that he had health issues but indicated that he was under treatment and would remain in office. A bit over a week later, he issued a second letter indicating that his health problems were more complex than expected and that he was taking medical leave until the end of June...
Shameless plug for our new textbook on corporate scandals
Posted on January 15, 2009The second edition of our textbook (for law schools, business schools, and other organizations) on corporate scandals is about to hit the shelves (see here). We're calling this edition Enron and Other Corporate Fiascos: The Corporate Scandal Reader, 2d (Nancy B...
Exxon and the Environment
Posted on January 14, 2009One of the most tone deaf companies when it came to the environment (specifically global warming) had to be Exxon. Perhaps the most profitable company in the world (at least when gas prices were over $3 a gallon), the company almost managed to lose a shareholder revolt (spearheaded by the Rockefellers) over environmental practices and the need to separate the chairman and CEO...
The Ban on Short Selling and the Failure of Regulatory Intervention
Posted on January 14, 2009When the market was plummeting and investment banking firms were dropping like stones, criticism began to mount about the role (or non-role) of the Commission. The Agency gave the appearance it was standing on the sidelines while the financial markets burned...
Regime Change and the SEC's Corporate Governance Agenda: A Recap
Posted on January 13, 2009So, in this last post, we list the top 10 most important corporate governance reforms that require action by the Commission. These include: #10 Strengthen disclosure of environmental policies and practices; #9 Reform of the shareholder communication rules to facilitate direct communications with beneficial owners; #8 Reform of the NYSE 10 day rule to allow brokers to vote shares present for quorum purposes but not for unopposed directors; #7 Enforce the corporate governance disclosure requirements of Item 407 of Regulation S-K; #6 Disavow any further use of a willingness to referr proposals submitted under Rule 14a-8 to the Delaware Supreme Court; #5 Adopt disclosure requirements designed to ensure the independence of compensation consultants; #4 Adopt disclosure requirements designed to highlight corporate social responsibility; #3 Amend the rules implementing Section 13(d) to require disclosure of equity swap and other derivative positions that result in an investor exceeding the 5% threshold; #2 Adopt disclosure requirements designed to ensure better governance and independent sources of information to the board; and #1 Access...
The Race to the Bottom and Wikipedia
Posted on January 13, 2009We are not sure where this fits into the debate on blog scholarship, but The Race to the Bottom was recently cited in the Wikipedia entry for Henry Paulson, the soon to be former Secretary of the Treasury. One suspects that more people will learn about The Race to the Bottom from that citation than any other.
The Trend in Securities Class Action Lawsuits
Posted on January 13, 2009The number of securities suits filed in 2008 increased to 210, an uptick of 19% over 2007. The Cornerstone has, as usual, published an analysis of the data. The D&0 Diary has a great post on the data. We offer only one observation. Although an increase, the number represents something around average for the new millenium (an average computed without 2001 since the 498 number was aberrationally high)...
Regime Change and the SEC's Corporate Governance Agenda: #1 Access
Posted on January 12, 2009We have been setting out a top ten list of items that should be considered by the new Commission in the realm of corporate governance. The single most important issue that requires immediate SEC attention is access. On this issue, it is almost hard to know where to begin...
The Stockman Dismissal: What Really Happened?
Posted on January 12, 2009The decision of the government to drop the case came as a surprise. We can only speculate on the reasons for the decision but we present some of our thoughts on the matter. The criminal case against David Stockman had been ongoing for almost two years (the indictment was filed in March 2007)...
Getting the Commission Out of the Way of Corporate Responsibility
Posted on January 10, 2009Its one thing to promote an affirmative, positive agenda for the Commission that is designed to assist shareholders and investors. It is an entirely other thing to ask the Commission to stop interfering with existing governance rights. This occurs with unfortunate frequency in connection with Rule 14a-8 and proposals sought to be included by shareholders in a company's proxy statement...
Regime Change and the SEC's Corporate Governance Agenda: #2 Governance and Independent Sources of Information for the Board of Directors
Posted on January 09, 2009One way that the United States is an outlier in the realm of corporate governance is that public companies generally allow the CEO to also hold the position of chairman of the board. The practice is widespread. It is also inconsistent with good corporate governance...
Stockman (et al) Indictment Dismissed
Posted on January 09, 2009The Government announced today that it is dismissing the criminal case against David Stockman and the other three defendants. According to the nolle prosequi filed today, the Government made the decision after a "renewed assessment of the evidence" including "information acquired after filing the indictment"...
Public Offerings and the Disappearance of Investment Banking Firms
Posted on January 09, 2009As we have noted many times on this Blog (and in the article, The "Great Fall": The Consequences of Repealing the Glass-Steagall Act), the disappearance of independent investment banking firms will have a harmful effect on US capital markets. With Lehman bankrupt, Bear Stearns and Merrill Lynch reduced to subsidiaries of commercial banks, and Goldman and Morgan Stanley converting to commercial banks (while struggling to remain independent), investment banks as a separate class of financial institutions have disappeared...
Regime Change and the SEC's Corporate Governance Agenda: #3 Beneficial Ownership Disclosure
Posted on January 08, 2009As the CSX case illustrates, it is time to reform the disclosure requirements under Section 13(d) to address some of the more exotic methods of acquiring shares, particularly in connection with derivative transactions. There is an increasing recognition that derivatives securities play a role in determining the influence of shareholders...
Mary Schapiro and Congressional Hearings
Posted on January 08, 2009Senate hearings for the confirmation of Mary Schapiro as chair of the Securities and Exchange Commission will be held on January 15. With the President Elect having passed over persons viewed as more likely advocates for shareholders and investors, suspicion and concern has begun to surface over her appointment...
Should Congress Regulate Executive Compensation?
Posted on January 08, 2009An editorial in the NYTimes from Sunday asks the intriguing question whether Congress should regulate executive compensation. The answer that it provides, however, is disappointing and reflects a misunderstanding of many aspects of corporate governance...
Regime Change and the SEC's Corporate Governance Agenda: #4 Social Responsibility Disclosure
Posted on January 07, 2009Let's face it. The SEC regulates corporate governance but has a limited repertoire of weapons. With some exceptions, the Agency can do little more than require disclosure. But at least with disclosure, shareholders have the information necessary to bring pressure on management for reform...
FEF v. PCAOB: Off to the Supreme Court
Posted on January 07, 2009As expected, plaintiffs have filed a cert petition in the PCAOB case. Reading it over, one would think this the single most important case of constitutional magnitude in a lifetime. In fact, it largely turns on whether Congress can limit the removal authority of persons within independent agencies...
Prolix v. Brobdingnagian: A suggestion for the Delaware courts
Posted on January 07, 2009We have noted that the Delaware courts often use the word "prolix" (or some variation thereof) to describe submissions by plaintiffs but never defendants. Indeed, the reference in Wood v. Baum earned the case the award for the most anti-shareholder decision of 2008...
The SEC and the Madoff Investigation
Posted on January 06, 2009Hearings were held on Monday before the House Committee on Financial Services concerning the failure of the SEC to uncover the Madoff Ponzi scheme sooner. It was a relatively staid affair, including testimony from academics, government officials and at least one investor...
Delaware's Top Five Worst Shareholder Decisions for 2008 (A Response)
Posted on January 06, 2009As he did last year, Francis Pileggi at the Delaware Corporate and Commercial Litigation Blog has responded to my list of the five most anti-shareholder decisions by the Delaware courts in 2008 (a five part series beginning with this post). He has offered a list of cases designed to "counterbalance" those in my list...
Regime Change and the SEC's Corporate Governance Agenda: #5 Compensation Consultant Disclosure
Posted on January 06, 2009There are few more pressing areas of regulatory concern these days than executive compensation. The SEC systematically amended the disclosure requirements in Item 402 back in 2006. The result has been far greater emphasis on the process for determining compensation and greater sunlight cast on assorted perqs including club memberships and personal use of corporate aircraft...
The SEC and Responsibility for the Financial Crisis (Part 4)
Posted on January 05, 2009We are discussing the editorial in the NYT ("The End of the Financial World As We Know It") that contends that the SEC is partly to blame for the current turmoil because it has excessively close relations with Wall Street. So what is the solution? Close the revolving door between the S...
The SEC and Responsibility for the Financial Crisis (Part 3)
Posted on January 05, 2009We are discussing the editorial in the NYT ("The End of the Financial World As We Know It") that contends that the SEC is partly to blame for the current turmoil because it has excessively close relations with Wall Street. In addition to contending that those in Enforcement were excessively close to Wall Street in order to parlay their position into a high paying job, the editorial also noted that the staff at the SEC was afraid to bring cases that might "roil the markets" by driving down share prices...
The SEC and Responsibility for the Financial Crisis (Part 2)
Posted on January 05, 2009We are discussing the editorial in the NYT ("The End of the Financial World As We Know It") that contends that the SEC is partly to blame for the current turmoil because it has excessively close relations with Wall Street. The article claims that those in the Enforcement Division want to "maintain good relations with Wall Street" in order to "be paid huge sums of money to be employed by it...
The SEC and Responsibility for the Financial Crisis (Part 1)
Posted on January 05, 2009We are examining the top ten corporate governance agenda items for the SEC under the Obama Administration. We will continue this tomorrow (with #5) but today have a slightly different mission. The NYT contains an editorial titled "The End of the Financial World As We Know It...
Delaware's Top Five Worst Shareholder Decisions for 2008 (A Recap)
Posted on January 03, 2009#1 Wood v. Baum, 953 A.2d 136 (Del 2008): Supreme Court encouragement of intemperate behavior towards shareholders. #2 Portnoy v. Cryo-Cell Int'l, Inc., 940 A.2d 43 (Del. Ch. 2008): Discouraging shareholders from vindicating their rights...
Delaware's Top Five Worst Shareholder Decisions for 2008 (#1)
Posted on January 02, 2009Wood v. Baum, 953 A.2d 136 (Del 2008) We chose this case not because of its legal reasoning, which was bad enough, but because of the tone set by the state Supreme Court with respect to the treatment of parties who appear in the Delaware courts. In that case, the Court, in a completely gratuitous fashion, chose to include in the opinion a disparaging reference by the Chancery Court to plaintiff's complaint...
Regime Change and the SEC's Corporate Governance Agenda: #6 Disavow Delaware Referral Authority
Posted on January 02, 2009Perhaps the only lasting legacy of Paul Atkins, a commissioner relentlessly hostile to shareholder interests (he opposed access) and strong enforcement (particulary his antagonism towards the imposition of penalites on companies), was to induce the Commission to refer the legality of a shareholder proposal to the Delaware Supreme Court...
Delaware's Top Five Worst Shareholder Decisions for 2008 (#2)
Posted on January 01, 2009Portnoy v. Cryo-Cell Int'l, Inc., 940 A.2d 43 (Del. Ch. 2008). This was a case where plaintiff challenged management's efforts to manipulate the process for electing directors. With a proxy contest underway and management apparently about to lose, the court descirbed the CEO of Cryo-Cell as "desperate" and tried to get the FBI to intervene...
Regime Change and the SEC's Corporate Governance Agenda: #7 Enforcing Item 407
Posted on January 01, 2009The SEC has become increasingly involved in the governance process for public companies. The agency has largely been limited to disclosure and has used this authority to try to affect substantive behavior of officers and directors. For more on this subject, take a look at Corporate Governance, the Securities and Exchange Commission, and the Limits of Disclosure...
Delaware's Top Five Worst Shareholder Decisions for 2008 (#3)
Posted on December 31, 2008In re Transkaryotic Therapies, Inc., 954 A.2d 346 (Del. Ch. 2008). The case involved a merger. It turns out that during an appraisal action, plaintiffs discovered that in fact the votes for the merger may have been miscounted and the merger never approved...
Regime Change and the SEC's Corporate Governance Agenda: #8 Broker Votes and Directors
Posted on December 31, 2008Another area of necessary reform concerns NYSE Rule 452, the so called ten day rule. First adopted in 1937, the rule permits brokers to vote uninstructed shares, but not for controversial matters. Approximately 19% of votes cast at a shareholder meeting are from brokers...
Delaware's Top Five Worst Shareholder Decisions for 2008 (#4)
Posted on December 30, 2008McPadden v. Sidhu, 2008 Del. Ch. LEXIS 123 (Del. Ch. June 17, 2008) There has been much written about the Delaware Court's exploration of the board's duty of good faith. The doctrine has an accentuated importance. Because bad faith behavior is not covered by waiver of liability provisions, the doctrine has the potential to significantly increase the exposure for directors...
Regime Change and the SEC's Corporate Governance Agenda: #9 Shareholder Communication Rules
Posted on December 30, 2008The shareholder communication rules represent another area demanding reform. These rules, as my article of 20 years ago noted (The Shareholder Communication Rules and the Securities and Exchange Commission: An Exercise in Regulatory Utility or Futility?) are a disaster...
The Dismissal of a Law School Dean and the Role of Law School Rankings
Posted on December 29, 2008Don Guter, the dean of Duquesne Law School was recently removed by the president of the University. He had been in the position since August 1, 2005. On this Blog, we do not particularly view personnel changes at law schools to be part of our intellectual mission...
Delaware's Top Five Worst Shareholder Decisions of 2008 (Introduction)
Posted on December 29, 2008We will devote the afternoon posts this week (the morning posts are on the agenda for the SEC once regime change occurs) to our annual review of the most anti-shareholder, anti-plaintiff decisions by the Delaware courts in 2008. We did something similar last year (in a single post, which is here)...
Delaware's Top Five Worst Shareholder Decisions for 2008 (#5)
Posted on December 29, 2008CA, Inc. v. AFSCME Emples. Pension Plan, 953 A.2d 227 (Del. 2008) This was the case that came to the Supreme Court via the SEC. It was a case without an adequate factual record and taken in violation of the Supreme Court's own rules. The issue was the validity of a bylaw that would require the board to pay reasonable expenses incurred by shareholders in a proxy contest but only if one or more of the shareholder candidates actually won...
Regime Change and the SEC's Corporate Governance Agenda: A Prologue
Posted on December 29, 2008The President Elect has announced his choice for chairman of the SEC, Mary Schapiro. The choice seems to suggest that President Obama had structural reform high on his list. After all, Schapiro is a former acting chairman of the SEC and former chairman of the CFTC, indicating that she is particularly well positioned to engineer a merger of the two agencies...
Regime Change and the SEC's Corporate Governance Agenda: #10 Disclosure of Environmental Policies and Practices
Posted on December 29, 2008Is there much doubt that investors want greater corporate consideration of the impact of business on the environment, particularly on global warming? Certainly Exxon found out that it was on the minds of its investors, including the Rockefellers...
Iceland and Madoff: Private and Public Ponzi Schemes
Posted on December 28, 2008The WSJ has a nice article on the collapse of the Icelandic banking system (and the global consequences). Essentially, Icelandic banks offered attractive interest rates overseas (in the vicinity of 7%), attracted deposits in large quantities and was able to sell bonds, then collapsed...
Regime Change and the Delaware Courts
Posted on December 28, 2008The Deal.com has an interesting article about possible regime change at the Delaware courts. In Change Comes to the Chancery, the Deal notes that "as many as four of the [Chancery] court's five judges may move on." VC Strine, according to the piece: is poised to make the most significant jump from Chancery...
Billing Rates and A Tale of Two Cities
Posted on December 27, 2008We happen to come across the latest survey of billing rates by the National Law Journal for 2008. A partner in one firm billed at over $1200 an hour. The Journal sells the complete results but provides free public access to a sampling of the data...
CEO Use of Private Aircraft and the Delaware Approach to Compensation (Part 2)
Posted on December 26, 2008So it seems that the market for private aircraft has gotten soft, what with the auto makers and others bowing to public pressure (and mandatory terms of a bailout) and selling their jets. The auto companies aren't alone. As the NYT notes: To control costs, companies including Citigroup and Time Warner are selling their jets...
The Decline in Criminal Prosecutions of Securities Fraud
Posted on December 26, 2008The NYT reports, based upon a study out of Syracuse, that the number of prosecutions for securities fraud has declined precipitously in recent years. According to the article: There were 133 prosecutions for securities fraud in the first 11 months of this fiscal year...
Blaming SOX (Again)
Posted on December 25, 2008Fitting that on Christmas morning we find ourselves back at the beginning. This Blog began as a prosoxblog, dedicated to ensuring accurate and complete discussion of Sarbanes Oxley. We return to the subject because of an editorial in the WSJ on the topic from earlier in the week...
CEO Compensation: Plus Ca Change, Plus C'est La Meme Chose
Posted on December 24, 2008Executive Compensation has been a growing source of public concern. Limits were included in TARP. The bailout of the auto makers proposed by the White House contained restrictions, including the obligation to sell corporate aircraft. But are these changes superficial? As the Washington Post noted: If you're angry that so many executives got paid so much for screwing up so spectacularly, you might take solace in the fact that shares they still hold have lost value, too...
Madoff and Stoneridge
Posted on December 24, 2008As the debacle of the Madoff ponzi scheme continues to unravel, there is a delicious potential irony in all of this. It now seems clear that investors will apparently find somewhere in the vicinity of $50 billion gone. The investors include not only individuals and charities but also hedge funds (according to one source, the "two most prominent hedge funds that invested with Madoff were the $7...
CEO Use of Private Aircraft and the Delaware Approach to Compensation
Posted on December 23, 2008One of the more interesting things included in the term sheet for the auto bailout was the ban on the ownership and lease of private aircraft. This was a unique penalty imposed on the auto makers for having the temerity to come to Washington, ask for a $25 bllion bailout then fly back to Washington in private jets...
VC Strine and Access
Posted on December 23, 2008We have devoted a number of posts on this Blog to criticisms of VC Strine's views, whether expressed in law review articles, speeches, or opinions. So we also deem it appropriate to disclose moments of agreement. VC Strine is nothing but prolific...
The Bailout and Executive Compensation: Further Evicence of the Toothlessness of Toothless Restrictions
Posted on December 22, 2008The Washington Post points out the toothless nature of the executive compensation provisions in TARP. The requirements (clawbacks, limits on golden parachutes, restrictions on compensation that encouraged excessive risk taking) apply to companies that received bailout funds through the purchase of troubled assets...
The Bailout of the Automakers
Posted on December 20, 2008The White House has agreed to a short term bailout of Chrysler and GM. In addition to providing around $17 billion in loans, the terms require the car companies to accept limits on executive compensation and eliminate perks such as corporate jets...
US v. Stockman: Agreement (Sort Of) on the Briefing Schedule
Posted on December 19, 2008At a status hearing held in October, the main topic once again was the problem of discovery, the concern arising out of the need to review something like 15 million documents. In addition, the trial judge (Barbara S. Jones) took care of a number of housekeeping measures...
US v. Stockman: Discovery Issues Resolved
Posted on December 19, 2008The Stockman case has involved millions of document (fifteen million to be semi-precise). The fight over discovery in contrast has involved a relatively modest number. According to an order filed in early Novemember, the government has conceded one discovery issue and agreed to provide: (1) the entire set of interview memoranda from the 2005 Audit Committee Investigation, and (2) the notes of witnesses interviewed during the Government's investigation...
Obama and the First Hundred Days: Institutional Investors Weigh In
Posted on December 18, 2008With the new Chairman of the SEC decided, the next issue is the Agency's reform agenda. A collection of 60 or so institutional investors have sent a letter to President Elect Obama addressing this matter. The letter asked the president elect to take actions in the first 100 days designed to increase the voice of shareholders in risk disclosure, including not only credit risks associated with the mortgage crisis, but also environmental and social issues that have large financial implications...
Corporate Governance and Carly Fiorina
Posted on December 18, 2008Corporate governance got a bit of a plug from an unexpected source, Carly Fiorina, the former CEO of HP who was rumored to be one of the people considered as a possible running mate for John McCain. For one thing, she called for an increased role by shareholders in the compensation process...
The SEC, Inspections, and Bernard Madoff: The Chairman Speaks
Posted on December 17, 2008As we have noted, the SEC is taking considerable heat for the failure at having picked up the massive fraud by Bernard Madoff despite a number of investigations and inspections. The Chairman has spoken on the matter, calling for an investigation by the Inspector General of the SEC...
Obama and the Chairman of the SEC
Posted on December 17, 2008It seems likely that when the transition team started its job, filling the top position at the SEC was rather low on the list. While the SEC was one of the major players in the financial markets, it had no real role in the financial turmoil, including the bailout of banks and auto makers...
The SEC, Inspections, and Bernard Madoff
Posted on December 17, 2008The WSJ noted that the SEC had looked into the activities of Bernard Madoff on a number of occasions without spotting the alleged fraud that public sources are describing as a $50 billion ponzi scheme. The article noted that Madoff's market making business had been inspected by the SEC in 2005...
The New Chair(wo)man of the SEC
Posted on December 17, 2008Reports are floating around that the new chair of the SEC will be Mary Schapiro, a former chair of the CFTC and a former acting chair of the SEC. She knows the SEC and the CFTC and from her current perch as CEO of FINRA, she knows regulated industries (read Madoff)...
Delaware Courts and the Influence of Federal Preemption (part 3)
Posted on December 16, 2008We are discussing whether we will see, as we did in the aftermath of SOX (take a look at footnote 382 in The Irrelevance of State Corporate Law in the Governance of Public Companies), a shift in the Delaware courts that suggests it will temporarily reduce its pro-management bias in an effort to head off possible federal preemption...
Delaware Courts and the Influence of Federal Preemption (part 2)
Posted on December 16, 2008As an example, lets take a quick look at Oss v. Ross, 2008 Del. Ch. LEXIS 175 (Del. Ch. Nov 26, 2008). This was not a traditional corporate law case but a derivative suit for breach of fiduciary duty by the Board of Trustees of a Delaware statutory trust...
Delaware Courts and the Influence of Federal Preemption (part 4)
Posted on December 16, 2008Are there other examples of a reduced managerial bias? Lyondell is another possibility. In that case, the Chancery Court held that the waiver of liability provision did not apply to the alleged conduct (approval of a merger involving a 45% premium)...
Delaware Courts and the Influence of Federal Preemption (part 1)
Posted on December 15, 2008Many who pay attention to the Delaware courts noted that, in the aftermath of Enron (and, more importantly, federal intervention in the form of SOX), that the decisions seemed to have a somewhat less pro-management bias. It was during this period that Disney for the first time gave content to the concept of "good faith," largely defining the standard as "conscious disregard...
Chris Cox and the Financial Bailout
Posted on December 15, 2008The Chairman of the SEC, Chris Cox, gave a speech last week on the need for the government to have an exit strategy in connection with its current spate of involvement in the market place. The speech was given before a Joint Meeting of the Exchequer Club and Women in Housing and Finance in Washington, DC...
Bear Stearns, the Shotgun Merger, and Fiduciary Duties
Posted on December 13, 2008The NY Supreme Court ruled on the class action brought by shareholders alleging that the forced merger between Bear Stearns and JP Morgan violated the board's fiduciary duties. The case dismissed the suit on a motion for summary judgment. It is hard to argue with the decision and, frankly, presents a good example of how the business judgment rule ought to work...
Shareholder Proposals and the North Dakota Public Corporations Act
Posted on December 12, 2008North Dakota, as we have written about on this Blog, has taken a unique approach to the corporate governance race. Rather than following Delaware in the downward spiral (the so called race to the bottom), it has tried to go in the other direction...
Starbucks and Social Responsibility: Free Flavors Aren't Working
Posted on December 12, 2008The news at Starbucks keeps getting worse. Starbucks has been suffering, with declining sales and anticipated competition from the likes of McDonalds. How has the company been doing? Not well. As the WSJ has noted: New figures released by the company show that, instead of the bottoming out Starbucks predicted in October, the company's same-store sales have gotten worse...
Law Teaching and Technology: Views from the Academy (More Specifically Steve Bainbridge)
Posted on December 11, 2008Steve Bainbridge at UCLA has a short paper out, Reflections on Twenty Years of Law Teaching. There are a host of interesting observations, including his conclusion that "the Socratic Method does not really teach one to think like a lawyer. At best it teaches one to think like a litigator...
The Auto Bailout and Corporate Governance
Posted on December 11, 2008As the showdown over the Auto Bailout Bill continues (it passed in the House but Republican opposition in the Senate seems to be on the increase, a particular problem given the potential for a filibuster), most of the attention is on the amount involved and the authority of the Car Czar...
The Oversight Committee Studies the Implementation of TARP (And Doesn't Like What It Sees)
Posted on December 10, 2008TARP included a provision for periodic review by an Oversight Committee. The Committee has issued its first report and has found that Treasury has administrated the program "without seeking to monitor the use of funds provided to specific financial institutions...
The GAO Studies TARP
Posted on December 10, 2008The GAO has issued a preliminary report on the implementation of TARP. It is a bit early to make much of an assessment but the report contains a list of the financial institutions receiving capital infusion and a list of consultants hired to assist with implementation...
Executive Compensation and CEO Involvement in the Process
Posted on December 10, 2008As we have noted (and as has been discussed in the paper, Returning Fairness to Executive Compensation), both the Delaware courts and the NYSE rely on approval of independent directors to validate executive compensation decisions. Delaware courts extend the protections of the business judgment rule to decisions approved by independent directors...
IPOs and Executive Compensation
Posted on December 10, 2008The Journal has noted that some companies incur "culture shock" when they decide to go public and have to confront the executive compensation disclosure requirements. The article compared the level of compensation disclosure in the MasterCard IPO (before the 2006 changes) and the Visa IPO (after the 2006 changes), with the former providing 15 pages of disclosure, the latter 30 pages...
Jon Macey on Corporate Governance (Part 9)
Posted on December 09, 2008Jon Macey, Deputy Dean and Sam Harris Professor of Corporate Law, Corporate Finance, and Securities Law at Yale, has recenlty published a book titled Corporate Governance, Promises Kept, Promises Broken. This is the last post. Macey rightfully views the central problem of corporate governance as capture of the board by management...
Jon Macey on Corporate Governance (Part 8)
Posted on December 09, 2008Jon Macey, Deputy Dean and Sam Harris Professor of Corporate Law, Corporate Finance, and Securities Law at Yale, has recenlty published a book titled Corporate Governance, Promises Kept, Promises Broken. We are discussing the book in a series of posts...
Automobile Manufacturers and Corporate Governace Reform
Posted on December 08, 2008The planned bailout for the auto makers looks like it may include a seat on the board for the unions, a payback for worker concessions. This was done back in the era of the bailout of Chrysler when Douglas Fraser sat on the Chrylser board from 1980 until 1984...
The Automobile Manufacturers Return to Washington (Pressure Builds for Regime Change) (Part 3)
Posted on December 08, 2008The auto companies have been seeking a bailout. The first trip to Washington was a public relations disaster, arriving with no plan and leaving in private jets after asking for $25 billion in loans. On the second trip, the heads of the three auto makers came with a plan...
The Auto Manufacturers and the Failure of the Market for Corporate Control
Posted on December 08, 2008We are talking about a recent book written by Jon Macey at Yale titled Corporate Governance, Promises Kept, Promises Broken. Ultimately Macey believes that the solution to the corporate governance problems in the United States is a more vigorous market for corporate control...
Jon Macey on Corporate Governance (Part 7)
Posted on December 06, 2008Jon Macey, Deputy Dean and Sam Harris Professor of Corporate Law, Corporate Finance, and Securities Law at Yale, has recenlty published a book titled Corporate Governance, Promises Kept, Promises Broken. According to Macey, the board of directors cannot be counted on to keep the promises made to shareholders because of the problem of caputure...
Jon Macey on Corporate Governance (Part 6)
Posted on December 05, 2008Jon Macey, Deputy Dean and Sam Harris Professor of Corporate Law, Corporate Finance, and Securities Law at Yale, has recenlty published a book titled Corporate Governance, Promises Kept, Promises Broken. Macey forcefully shows that boards of directors are "captured" by management...
Jon Macey on Corporate Governance (Part 5)
Posted on December 05, 2008Jon Macey, Deputy Dean and Sam Harris Professor of Corporate Law, Corporate Finance, and Securities Law at Yale, has recenlty published a book titled Corporate Governance, Promises Kept, Promises Broken. We are discussing the book in a series of posts...
Jon Macey on Corporate Governance (Part 5)
Posted on December 04, 2008Jon Macey, Deputy Dean and Sam Harris Professor of Corporate Law, Corporate Finance, and Securities Law at Yale, has recenlty published a book titled Corporate Governance, Promises Kept, Promises Broken. We are discussing the book in a series of posts...
Jon Macey on Corporate Governance (Part 4)
Posted on December 04, 2008We are discussing Corporate Governance, Promises Kept, Promises Broken, the provocative book by Jon Macey, Deputy Dean and Sam Harris Professor of Corporate Law, Corporate Finance, and Securities Law at Yale. Singularly the most provocative portion of the book is the discussion of the board of directors in Chapter 4...
The Automobile Manufacturers Return to Washington (Better Prepared) (Part 2)
Posted on December 03, 2008We are looking at the corporate governance commitments made by the automobile companies should they receive federal funds. Chrysler is not a public company, but is mostly owned by Cerberus Capital Management, a private equity firm. The company has agreed to "comply with all conditions relating to executive compensation established under the Emergency Economic Stabilization Act of 2008 ("EESA") and such other conditions as the Government may require...
The Automobile Manufacturers Return to Washington (Better Prepared) (Part 1)
Posted on December 03, 2008We are taking a short break from the discussion of the book by Jon Macey on corporate governance to discuss the recent proposals submitted by the automobile companies in connection with their renewed request for federal funds. General Motors, Ford and Chrysler have presented Congress with plans on what would happen if they receive a bailout...
Jon Macey on Corporate Governance (Part 3)
Posted on December 03, 2008We are discussing Corporate Governance, Promises Kept, Promises Broken, the provocative book by Jon Macey, Deputy Dean and Sam Harris Professor of Corporate Law, Corporate Finance, and Securities Law at Yale. As we have noted, Macey views corporations as a nexus of contracts...
Jon Macey on Corporate Governance (Part 2)
Posted on December 03, 2008We are discussing Corporate Governance, Promises Kept, Promises Broken, the provocative book by Jon Macey, Deputy Dean and Sam Harris Professor of Corporate Law, Corporate Finance, and Securities Law at Yale. Macey defines corporate governance in terms of promises...
GM, the Bailout and the Role of the Board
Posted on December 02, 2008It seems that after the disastrous appearance of Rick Wagoner, the CEO of General Motors, in Washington to ask for a bailout without any real plan and flying back to Detroit on a private jet, has had one potential benefit. The "mirror image" board at GM seems to have woken up...
A Regional Director for the SEC Office in Denver
Posted on December 02, 2008 DONALD M. HOERL NAMED REGIONAL DIRECTOR OF SEC’S DENVER REGIONAL OFFICE Washington, D.C., Dec. 2, 2008 – Securities and Exchange Commission Chairman Christopher Cox today named Donald M. Hoerl as the Regional Director of the SEC’s Denver Regional Office...
Jon Macey on Corporate Governance (Part 2)
Posted on December 02, 2008We are discussingCorporate Governance, Promises Kept, Promises Broken, the provocative book by Jon Macey, Deputy Dean and Sam Harris Professor of Corporate Law, Corporate Finance, and Securities Law at Yale. Macey defines corporate governance in terms of promises...
Jon Macey on Corporate Governance (Part 1)
Posted on December 02, 2008Jon Macey, Deputy Dean and Sam Harris Professor of Corporate Law, Corporate Finance, and Securities Law at Yale, has recently published a book titled Corporate Governance, Promises Kept, Promises Broken. The book is, as expected, thorough, thoughtful, and provocative...
Returning Fairness to Executive Compensation
Posted on December 01, 2008The current waive of turmoil in the financial markets has cast attention on the problem of executive compensation. Companies that have failed or disappeared in shot-gun mergers have nonetheless paid exorbitant sums to officers who arguably played a substantial role in their demise...
Shareholder Rights and Executive Compensation: The Growing Fight Over Gross-Ups
Posted on December 01, 2008We have noted that executive compensation is a matter of state law. Delaware, a state that earns considerable income by attracting large corporations to form in the state, has an incentive to appeal to management to induce them to enter the jurisdiction...
Starbucks, Social Responsibility and the Global Fund
Posted on November 29, 2008We have long pointed out that Starbucks needed to recast its strategy if it intended to fight back from the declining sales and the onslaught of competition, most noticeably McDonalds. We have criticized the emphasis on gold cards (although we were rewarded with one during an experiment in Denver) and free flavors, noting that the approach did little more than treat lattes as commodities, a losing strategy...
Director Duties and the Delaware Standards: The View from Wachtell Lipton
Posted on November 28, 2008We received a memorandum drafted by Wachtell Lipton titled "Risk Management and the Board of Directors." In the memorandum, the firm describes the oversight responsibilities of directors under Delaware law. The memorandum has this to say about director oversight obligations: "The cases that followed [Caremark] made clear that there would be no liability under a Caremark theory unless the directors intentionally failed entirely to implement any reporting or information system or controls or, having implemented such a system, intentionally refused to monitor the system or act on any warnings it provided...
The UK, AIM and the Decline of Regulatory Lite
Posted on November 28, 2008Remember when one of the attacks on SOX was the loss of cross-listings by foreign companies? The main evidence was the increase in cross listings in London. Turned out that the growth in London came at Alternative Investment Market or AIM...
US News, Rankings, and the Possible Change to the Formula
Posted on November 27, 2008US News is considering changing the formula for computing rankings of law schools. Right now, the magazine uses the median LSAT and GPA from the full time divison. The magazine is considering using the median from the combined full time and part time divisions...
Wachovia and Golden Parachutes
Posted on November 26, 2008Wachovia Bank has been one of the casualties of the current financial crisis. Trading in the $40s a year ago, the stock has plummeted to somewhere around $5. Perhaps the third quarter said it all. According to the Washington Post, Wachovia: posted a $23...
General Motors, The Bailout, and Corporate Governance Reform (Part 2)
Posted on November 26, 2008The three auto makers came to Washington for a bailout. They had no plan and arrived with no commitments that would ensure careful use of any funds received from Congress. AIG gets a $65 billion bailout and throws a $400,000 party for sales people...
No Bright-line Test for "Foreign-Cubed" Securities Fraud Actions
Posted on November 25, 2008Cases continue to arise involving efforts by foreign shareholders to seek recourse for fraud and mismanagement in US courts. The efforts reflect the relative ease in suing in the US compared with other jurisdictions. In Morrison v. Nat'l Austl. Bank Ltd...
The Ninth Circuit and Scienter: South Ferry LP v. Killinger
Posted on November 25, 2008In the aftermath of Tellabs, the circuit courts continue to revisit the analysis of the pleading standards under the PSLRA for scienter. A recent example emanated from the 9th Circuit. In South Ferry LP v. Killinger, 542 F.3d 776 (9th Cir. 2008) Washington Mutual, Inc...
US News and Law School Rankings
Posted on November 24, 2008Law schools live and die by rankings. The mother of all rankings are those prepared and published by US News & World Report. The scourge of these rankings may, however, soon be over. US News recently announced that it was shifting from publishing every other week (it had already ceased to be a weekly) to monthly...
US v. Stockman: Barnaba Wants to Sever
Posted on November 24, 2008As we have discussed in previous posts, Paul Barnaba has been pushing for an early trial and previously filed a Motion for Severance in May. The first motion was denied during a status conference on August 25, 2008, but the court invited Barnaba to supplement the motion because “it’s a motion that needs to be looked at in terms of where we’re at...
What if Contract Replaced Fiduciary Duties? A Lesson from Amirsaleh v. Board of Trade of the City of New York
Posted on November 24, 2008Amirsaleh v. Board of Trade of the City of New York is a case that illustrates what can happen if Delaware gets its way in the evolution of corporate law. It shows what can happen to shareholder rights if they become entirely a matter of contract...
Merger Agreements, the Duty of Good Faith and Fair Dealing, and the Duty to Provide Notice to Shareholders
Posted on November 24, 2008The Race to the Bottom focuses on Delaware decisions, particularly those that affect shareholders. In Amirsaleh v. Board of Trade of the City of New York, Inc., Del. Ch., C.A. No. 2822-CC, Chandler, C. (Sept. 11, 2008)(Mem. Op.), an owner sued alleging that the company failed to distribute an election form required by a merger agreement...
The Obama Administration and the Chairman of the SEC (Part 2)
Posted on November 23, 2008More names in the rumor mill for Chairman. We confess that none of these names came from anyone directly associated with the Obama Administration. Moreover, the plethora of names suggests that the incoming Administration has not really focused on the issue...
Director Resignations and Board Diversity
Posted on November 22, 2008The WSJ reports that the number of directors resigning from public company boards has increased, highlighting particularly the resignation of CEOs who are otherwise too busy to sit on board of companies in trouble. The numbers in the article are actually quite small...
Excessive Compensation and the Responsibility of the Delaware Courts (Part 3)
Posted on November 21, 2008We are always pleased to have converts to the need to reform governance in an effort to make corporate management act in a manner designed to better promote the interests of shareholders. One of the more interesting converts has been Henry Paulson, the very person who originally tried to block any limits on executive compensation in the Bailout Bill...
Excessive Compensation and the Responsibility of the Delaware Courts (Part 2)
Posted on November 21, 2008As the issue of executive compensation continues to occasionally surface (most recently in connection with some financial institutions foregoing bonuses), it is worth noting the role that the Delaware courts have played in the problem. Delaware allows shareholders to inspect corporate documents but requires that they have a proper purpose...
Excessive Compensation and the Role of the Delaware Courts (Part 1)
Posted on November 21, 2008The WSJ published a study of compensation paid to top executives at finance and home building companies (a number of which have since filed for bankruptcy) in the five year period preceding the current turmoil. It is pile on in a way. The article doesn't tell us anything new but does supply a bit more hard information...
General Motors, The Bailout, and Corporate Governance Reform
Posted on November 21, 2008There is much talk in Washington about possibly bailing out the automobile manufacturers, the three large ailing car companies in the United States. In particular, General Motors seems to be hemorrhaging money. It recently announced short term efforts to raise cash but appears to be running out...
The Obama Administration and the Chairman of the SEC
Posted on November 20, 2008Politico, which seems to have a pretty good ear to the ground on political developments, has put up an article speculating on possible replacements for Chris Cox at the SEC. The article atributes the names to the inside the beltway rumor mill. The list includes: Bill Brodsky, the chairman and CEO of the Chicago Board Options Exchange who has also served as president and CEO of the Chicago Mercantile Exchange...
Jeff Skilling Comes to Jefferson County Colorado
Posted on November 20, 2008In December 2006, Jeffrey Skilling, former CEO of Enron, started serving a twenty-four year sentence at a federal prison in Waseca, Minnesota. Recently, Skilling was moved to a low-security federal prison in Jefferson County, Colorado because the Minnesota institution began its conversion to a women’s prison...
In re Loral and the Entire Fairness Standard
Posted on November 20, 2008In the case In re Loral Space and Communications Inc., Consolidated Litigation, 2008 WL 4293781 (Del. Ch., Sept. 19, 2008), shareholders of Loral Space and Communications Inc. (“Loral”), sued the board of Loral and MHR Fund Management LLC (“MHR”)...
Trainer v. Betz: The Supreme Court, Deregulation, and Rule 10b-5 (Part 2)
Posted on November 19, 2008Why is the Supreme Court interested in this case? It might be because Judge Kozinski and counsel for defendants have managed to convince the Court that the circuits are hopelessly divided and that the 9th Circuit is, as Judge Kozinski put it, again in left field...
Trainer v. Betz: The Supreme Court, Deregulation, and Rule 10b-5 (Part 1)
Posted on November 19, 2008We have posted on the overlooked role of the courts in the current turmoil. But for the DC Circuit's decision in Goldstein, there would be far more information about hedge funds, large players in the financial markets. Today we write about what may be a good example of the legislative role of the Supreme Court, particularly its mission to cut back on private law suits under Rule 10b-5, and what President Obama will confront...
Rule 10b-5 and the Statute of Limitations: The Supreme Court Shows Interest
Posted on November 19, 2008A decision from the Ninth Circuit has attracted the attention of the U.S. Supreme Court after the court adopted an “inquiry plus reasonable diligence” standard to trigger the running of the limitations period for securities fraud claims under Section 10 (b)...
FEF v. PCAOB: The Supporting Material
Posted on November 18, 2008Yesterday we noted that the DC Circuit denied en banc review of the case upholding the constitutionality of the PCAOB. The decision was by a razor thin margin of 5-4. We note only that all of the filings/pleadings in the case, including the materials filed before the DC Circuit in connection with the petition for rehearing en banc can be found on the DU Corporate Governance web site.
The Financial Turmoil and Judicial Responsibility (Part 2)
Posted on November 18, 2008We are discussing the problem of a federal court system hostile towards regulation, something that Barack Obama will have to confront during his first term. (According to one report, he will get enough appointments in his first term to "create a Democratic majority in eight circuits, leaving three with a Republican majority and the remaining two evenly split...
The Financial Turmoil and Judicial Responsibility (Part 1)
Posted on November 18, 2008The House Oversight Committee held a hearing last week on hedge funds. It is an industry that cannot even be readily identified. One study defined hedge funds as “any pooled investment vehicle that is privately organized, administered by professional managers, and not widely available to the public...
FEF v. PCAOB: En Banc Review Denied, On to the Supreme Court
Posted on November 17, 2008The DC Circuit decided, by a 5-4 vote, not to hear the PCAOB case en banc (we have produced the order below). Judge Kavanaugh, who dissented in the panel opinion got support for en banc review from Chief Judge Sentelle, and Judges Ginsburg and Griffith, one shy short of the number needed...
Goldman Sachs, Bonuses and the Compensation Committee
Posted on November 17, 2008Goldman Sachs disclosed that the top seven executive officers would receive no bonuses for 2008. According to the WSJ, they will only receive their $600,000 base salary. By comparison, the total compensation for the CEO, Lloyd Blankfein, was $68...
Exxon-Mobile, Mirror-Image Boards, and Comeuppance in the Market
Posted on November 17, 2008Exxon-Mobile is an oil company, as it likes to say. As such, it has had a history of resisting pressure to do more in the area of alternative energy sources and the reduction of green house gasses. In 2008, the company confronted a shareholder revolt over the issue, led by the Rockefellers...
Obama, the Transition Team, and the SEC
Posted on November 16, 2008The Obama Transistion team has designated the individuals responsible for reviewing the SEC. They are all from the Economics and International Trade Team Leads and will include: Former Treasury Under Secretary for Domestic Finance Gary Gensler who will lead the review...
Virtual Reality and the Obama Administration
Posted on November 16, 2008Blogging has a number of downsides, not the least is a certain willingness to accept abuse from those who object to a post. Now it turns out your online persona can be a factor in whether or not you can work for the Obama Administration. The NY Times had a short article on the application used by the Obama Team for anyone seeking a position in the Obama Administration...
US v. David Stockman: Denying Stockman?s Request for Production of Audit Committee Report and Investigative Work Plan
Posted on November 14, 2008On October 8, 2008, U.S. District Court Judge Barbara S. Jones filed an order finding that two documents requested by David Stockman’s defense team, (1) the final Audit Committee Report relating to the 2005 Audit Committee Investigation and (2) the Investigative Work Plan created by Davis Polk & Wardwell, were not discoverable either as Brady material or as documents material to defense preparation...
Schering-Plough and Shareholder Input on Executive Compensation
Posted on November 14, 2008We have been a bit remiss for failing to note sooner the post over at RiskMetrics on the Schering-Plough decision to make an effort at systematically improving communications with shareholders. The company has done so by circulating a survey on director and executive pay in an effort to assist the compensation committee...
The Demise of Merrill Lynch and the Need for Corporate Governance Reform
Posted on November 13, 2008The New York Times had a piece in the weekend edition on the fall of Merill Lynch. The piece is not very insightful, doing little more than noting that Merrill piled into the mortgage business and took on too much risk. The pieces notes, for example, that "it was never clear how well Merrill’s management understood the risks in the mortgage business...
The Tellabs Excuse (A Recap)(Part 4)
Posted on November 13, 2008We are conducting a recap of the Supreme Court's analysis in Tellabs and, a year later, examining the lower court interpetation of the case. We noted that one consequence of the decision was the command to consider all inferences of scienter raised by plaintiff...
The Tellabs Excuse (A Recap)(Part 3)
Posted on November 12, 2008We noted that one of the discipling effects of Tellabs was to require courts to consider all inferences raised by plaintiffs in determining whether they had produced a "strong inference" of scienter. The analysis has already caused some courts to reconsider their approach to allegations that defendants, by virtue of their position, were aware of the company's core operations...
The Tellabs Excuse (A Recap)(Part 2)
Posted on November 12, 2008We are conducting a recap of the Supreme Court's analysis in Tellabs and, a year later, examining the lower court interpretation of the case. The results to a large degree bear out the Tellabs Excuse. Some circuits have, in the aftermath of Tellabs, cited the case as authority for a relatively harsh interpretation of the pleading standards for scienter...
The Tellabs Excuse (A Recap)(Part 1)
Posted on November 12, 2008It has been a year or so since the Supreme Court's decision in Tellabs. The case construed the requirements in the PSLRA for pleading scienter. Congress inserted into the Act a requirement that plaintiffs "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind...
Shareholder Participation in Governance and Precatory Proposals
Posted on November 11, 2008The entire SEC approach under Rule 14a-8 needs revision, a task that should be taken up quickly by the new Chairman. On Friday, the staff of the Division of Corporation Finance issued Legal Bulletin No. 14D, informing market participants of, among other things, a new email address for submitting no action requests under the rule...
The Inevitable Disappearance of Investment Banking Firms
Posted on November 11, 2008We noted back in 1995 that investment banks would disappear, an inevitable result of the repeal of Glass Steagall. See The "Great Fall": The Consequences of Repealing the Glass-Steagall Act. As those following the markets already know, the current financial turmoil has resulted in the disappearance of a separate class of large investment banking firms...
Law Blogs, Scholarship, and The Race to the Bottom
Posted on November 10, 2008The debate over blogs and legal scholarship continues. As we have described, blogs are appropriately viewed as part of the continuum of legal scholarship, a place to debate ideas or apply more traditional scholarship in practice. We have discussed this in much greater length in the paper, Of Empires, Independents, and Captives: Law Blogging, Law Scholarship, and Law School Rankings...
AIG and an Even Bigger Bailout: Conditioning Payments on Corporate Governance Reforms
Posted on November 10, 2008The WSJ reports that AIG will get an even bigger bailout than previously announced, one that will amount to $150 billion. The package will involve a $60 billion loan, $40 billion in preferred stock (under the Bailout Bill), and $50 billion in the form of asset purchases...
Chiquita and the Alien Tort Statute
Posted on November 10, 2008In March 2008 Chiquita Brands International admitted to illegally supporting guerrillas in Colombia. As part of the plea agreement, Chiquita agreed to pay the U.S. government $25 million in fines over five years. (Reported here). In addition to the derivative suits that will be followed by this Blog, several groups of plaintiffs have filed Alien Tort Statute (“ATS”), Antiterrorism Act (“ATA”), and shareholder derivative litigation claims against Chiquita in an effort to hold Chiquita responsible for the terrorist acts of the guerrilla groups...
Communicating with the Division of Enforcement (Part 5)
Posted on November 09, 2008We recently discussed the Report issued by the SEC's Inspector General that addressed communication between top officials and Morgan Stanley about the status of an insider trading investigation against John Mack, who eventually became the financial institution's CEO...
Online Traffic and The Race to the Bottom
Posted on November 08, 2008How are we doing as a Blog? The Race to the Bottom has been up and running for a bit over 18 months, not long relative to the other corporate governance blogs. One way to measure success is through traffic. Our platform keeps the statistics...
Chiquita Shareholder Derivative Action: Summarizing the Complaint
Posted on November 07, 2008The Race To The Bottom is following developments in actions against Chiquita Brands International, Inc., including a number of shareholder derivative actions that are being treated as a consolidated action in the Southern District of Florida. This is a summary of the allegations contained in the Shareholder Derivative Complaint...
Covering the Chiquita Derivative Litigation
Posted on November 07, 2008The Race to the Bottom is a collaboration between faculty and students. One of the roles played by students is to follow ongoing cases that address important issues in the realm of corporate governance. Students form a team and monitor any activity in the case...
Derivative Actions Against Chiquita
Posted on November 07, 2008We will be following the multidistrict litigation In re: Chiquita Brands International, Inc., pending in the Southern District of Florida. The multidistrict litigation consists of four shareholder derivative lawsuits (“Derivative Actions”), five tort lawsuits brought under the federal Alien Tort Statute and various state laws, and one tort lawsuit brought under the federal Antiterrorism Act and state tort laws...
SEC Proposes Roadmap Toward Global Accounting Standards
Posted on November 06, 2008On August 27th, 2008, in a long anticipated move, the U.S. Securities and Exchange Commission voted unanimously to issue a proposed roadmap for the potential transition by U.S. issuers from U.S. Generally Accepted Accounting Principles (“ GAAP ”) to International Financial Reporting Standards (“ IFRS ”)...
Regime Change and Executive Compensation
Posted on November 06, 2008We have already noted that Barak Obama is a strong supporter of say on pay. Pundits are, however, already calling for more with respect to executive compensation. Calling the current state of affairs an "ethical embarrassment to our country," an editorial in Business Week by Leo Hindery Jr...
SOX and Private Equity
Posted on November 06, 2008With impending regime change in the White House, we take a moment to reminisce. The one significant corporate governance accomplishment of the Bush administration was the adoption of Sarbanes Oxley. Its almost hard to remember the vehement outpouring of criticism that swirled around Sarbanes-Oxley for the first three or four years after its adoption...
In re: American Express Co. Securities Litigation
Posted on November 05, 2008In a case that may become increasingly important as the market crisis continues, the Southern District of New York in In re: American Express Co. Sec. Litig., 02 cv 5533 (S.D. N.Y. Sept. 26, 2008) dismissed a shareholder complaint that alleged Amex fraudulently misrepresented its high risk - high yield investments...
Anjan Sahni Joins the Prosecution Against Stockman
Posted on November 05, 2008United States v. Stockman, 07-0220 (S.D.N.Y. filed Mar. 21, 2007), is moving forward. Recently, Judge Barbara set the trial date for May 4, 2009. On September 4, the United States Attorney's office for the Southern District of New York filed a Notice of Appearance and Request for Electronic Notification...
Regime Change and Corporate Governance
Posted on November 05, 2008Regime change has arrived. The Democrats have taken the White House and increased their margins in the House and Senate. What impact will it have for the corporate governance debate? It's unlikely to be a high priority in the short term (although economic reform and reform of the financial markets might be)...
Communicating with the Division of Enforcement (Part 4)
Posted on November 04, 2008So what did the Inspector General conclude about these communications between Morgan Stanley and the top echelons at the SEC? The Report concluded that "relevant information was imparted to representatives of Morgan Stanley by both Berger and Thomsen regarding the nature of the evidence that the Enforcement Division had aagainst Mack in connection with the Pequot investigation...
Communicating with the Division of Enforcement (Part 3)
Posted on November 04, 2008The Inspector General's Report contained a section that discussed Morgan Stanley's access to the top levels of the Division of Enforcement. Some officials noted that "this practice is not actually that uncommon." Indeed, Mary Jo White noted that it was "known to the securities bar" that "if you've got an issue and you do not think you are getting a fair hearing on something ...
Communicating with the Division of Enforcement (Part 2)
Posted on November 03, 2008Berger's comments (whatever they were) were, apparently, not comforting enough. Mary Jo White opted to reach out to the Director of the Division of Enforcement, Linda Thomsen. The call came after Berger and Dinallo had spoken. According to White: I told [Thomsen] that what my assignment was [and] who I was representing...
Communicating with the Division of Enforcement (Part 1)
Posted on November 03, 2008We have been slow in digesting the reports issued by the Inspector General at the SEC. Today we look at the report on Gary Aguirre, the staff attorney who was working on an insider trading investigation centering around purchases of shares by Pequot Capital Management, a hedge fund...
The Internet and Political News
Posted on November 02, 2008We are always interested in the online universe and so read with interest the analysis by the Pew Research Center on the source of campaign information. Turns out that the percentage of those describing the Internet as the "principal source" of campaign news has grown from 10% in 2004 to 33% in 2008, second only to television...
The Director Compensation Project: Wells Fargo
Posted on November 01, 2008This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2007’s Fortune 100 and using information found in their 2008 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
In re Loral Communications and the Possible Antipathy Towards Activist Shareholders (Part 3)
Posted on October 31, 2008We are discussing In re Loral and examining the trial judge's search for a fifth director who failed to meet the independence standard and therefore resulted in a board with a majority of non-independent directors. The court found a fifth director, John Harkey, to be too connected to MHR to be independent...
Shareholder Communications Coalition
Posted on October 31, 2008We are pleased to note the entry of the Shareholder Communications Coalition to the blogosphere. The Coalition is an advocacy organization "dedicated to improving the ability of individual investors to vote their shares and communicate with the publicly traded companies in which they invest...
In re Loral Communications and the Possible Antipathy Towards Activist Shareholders: A Prognostication (Part 4)
Posted on October 31, 2008We don’t disagree with the determination about independence in Loral. The evidence, even if conclusory, suggested at least the possibility that the directors were too closely connected to MHR to be considered independent. There were preexisting personal relationships and some (albeit conclusory) evidence of outside business relationships...
In re Loral Communications and the Possible Antipathy Towards Activist Shareholders (Part 1)
Posted on October 30, 2008Perhaps we have an excessively jaundiced eye when it comes to Delaware decisions. In In re Loral Space and Communications, VC Strine produced a 91 page opinion essentially allowing shareholders to recover where the board allegedly entered into a sweetheart financing deal with the company's largest shareholder, MHR Fund Management...
In re Loral Communications and the Possible Antipathy Towards Activist Shareholders (Part 2)
Posted on October 30, 2008We are discussing the Chancery Court's opinion in In re Loral. In Delaware, the standard of review doesn’t depend upon the conduct involved but on the approval mechanism. For plaintiffs to successfully challenge the board’s behavior, they have to show that the board was not independent...
Corporate Governance Practices and the Failure of the Delaware Model: The Evidence (Part 1)
Posted on October 29, 2008The current financial turmoil challenges the Delaware model of governance. This is an approach that declines to impose meaningful standards on directors and takes a highly deferential approach to the decisions of management. As Alan Greenspan noted in his testimony last week, this approach has not worked to protect shareholders...
Corporate Governance Practices and the Failure of the Delaware Model: The Last Word (For Today)
Posted on October 29, 2008The transcript of Greenspan's testimony before the House Committee on Oversight and Government Reform is posted. Here is what he said on Thursday about the Delaware model: Mr. GREENSPAN. I made a mistake ín presuming that the self-interest of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms...
Corporate Governance Practices and the Failure of the Delaware Model: The Need for Reform
Posted on October 29, 2008When this Blog started almost two years ago, we listed ourselves as a Pro-SOX Blog. In other words, one of our stated purposes was to defend Sarbanes Oxley against the withering criticism from much of the legal blogosphere. The efforts generated an article: Criticizing the Critics: Sarbanes Oxley and Quack Corporate Governance...
Corporate Governance Practices and the Failure of the Delaware Model: An Example
Posted on October 29, 2008By now, the saga of AIG is familiar to almost everyone. The Company teetered on the edge of failure until the government had to agree to a bailout in return for an almost 80% interest in the company. Despite the need for public assistance, AIG has been in the news constantly because of its policies with respect to executive compensation and other seemingly extravagant expenditures...
Corporate Governance Practices and the Failure of the Delaware Model: The Evidence (Part 2)
Posted on October 29, 2008Sherman and Sterling conducts periodic surveys of corporate governance practices among the 100 largest companies that have shares traded on an exchange. The firm has come out with one for 2008. It is a highly useful survey. The data allows those debating corporate governance issues to operate on a firm empirical footing...
The "Benefits" of Repealing Glass Steagall
Posted on October 28, 2008It's always nice to take a counterintuitive approach. Doing so will often attract attention and may sometimes even be right. With that in mind, we noticed the editorial by Charles Calomiris, a professor at the Columbia Business School, who contends that in fact, repealing Glass Steagall was, according to an editorial in the WSJ, a good thing...
Director Compensation Survey
Posted on October 28, 2008Here at Race to the Bottom we frequently discuss director compensation, as in The Compensation Project (Reprise) and The Race to the Bottom and Student Participation: The Director Compensation Project . This post concerns a recent study by independent compensation consulting firm Frederic W...
The Director Compensation Project: Citigroup
Posted on October 28, 2008This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2007’s Fortune 100 and using information found in their 2008 proxy statements...
Covering the Criminal Trial of David Stockman
Posted on October 27, 2008The Race to the Bottom is a collaberation between faculty and students. One of the roles played by students is to follow ongoing cases that address important issues in the realm of corporate governance. Students form a team and monitor any activity in the case...
The United States' Response to Barnaba's Motion to Dismiss
Posted on October 27, 2008The claims of Paul C. Barnaba and the problems with the discovery process have delayed prosecution of United States v. Stockman, 07-0220 (S.D.N.Y. filed Mar. 21, 2007) . On April 8th, Paul C. Barnaba filed a motion to dismiss the conspiracy to commit securities fraud, wire fraud, and bank fraud in the United States v...
The Director Compensation Project: Freddie Mac
Posted on October 27, 2008This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2007’s Fortune 100 and using information found in their 2008 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
The Almost Disappearance of Goldman
Posted on October 27, 2008We learn in the WSJ today that back in September, Goldman approached Citigroup about a possible merger. The call apparently came shortly after Lehman filed for bankruptcy. Nothing apparently came of the effort. In some respects, Goldman, as an indepedent investment banking firm, has already disappeared...
The Director Compensation Project: JPMorgan Chase
Posted on October 26, 2008This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2007’s Fortune 100 and using information found in their 2008 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
Corporate Governance Quote of the Week
Posted on October 25, 2008According to presidential candidate Barak Obama: "Let's be clear who John McCain is fighting for. He is not fighting for Joe the Plumber. He's fighting for Joe the Hedge Fund Manager."
The Director Compensation Project: Fannie Mae
Posted on October 25, 2008This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2007’s Fortune 100 and using information found in their 2008 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
Joe Biden, Director Self Interest, and a Challenge to the Delaware Model
Posted on October 24, 2008Politico has a nice piece (taking mostly from earlier posts on blogs like the Delaware Corporate and Commercial Litigation Blog written by Francis Pileggi) on the impact on corporate governance of Joe Biden leaves the Senate for the White House. The article focuses mostly on Biden's efforts to protect Delaware's interests in the bankruptcy area...
Chairman Cox, Director Self Interest, and a Challenge to the Delaware Model
Posted on October 24, 2008The Chairman of the SEC yesterday again forcefully indicated in his testimony before the House Committee on Oversight and Government Reform that "voluntary" regulation doesn't work. As he noted: We have learned that voluntary regulation does not work...
Chairman Levitt, Director Self Interest, and a Challenge to the Delaware Model
Posted on October 24, 2008Earlier today, we comment on Alan Greenspan's testimony. In it he more or less took the position that the Delaware approach that excessive deference to management was the best way to protect shareholders. We turn to the views of Arthur Levitt, the former Chairman of the SEC...
Alan Greenspan, Director Self Interest, and a Challenge to the Delaware Model
Posted on October 24, 2008Alan Greenspan, the former head of the Federal Reserve Board, testified yesterday before the House Committee of Government Overisght and Reform. The testimony was extraordinary both in his admission to having misjudged basic premises of the US economy and, most importantly for this Blog, the acknowledgement that the pro-management bias evidenced in our system of corporate governance was completely inadequate to protect shareholders...
The Director Compensation Project: AIG
Posted on October 23, 2008This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2007’s Fortune 100 and using information found in their 2008 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence...
The Compensation Project (Reprise)
Posted on October 23, 2008Last spring, students on The Race to the Bottom examined the proxy statements of some of the largest companies in the United States and stripped out the information about director and CEO compensation. The Director Compensation Project was made possible by amendments to Item 402 of Regulation S-K that now required compensation tables (and the "total compensation" column) for directors...
The Resignation of Judge Nottingham and the Nacchio Appeal
Posted on October 23, 2008So, what impact with Judge Nottingham's resignation have on the Nacchio appeal? Following oral argument before the en banc court, the tradition is for the judges to take a tentative vote on the outcome. The case has, therefore, probably been decided, with the delay coming from the need to draft an opinion (and the inevitable dissent)...
Nacchio Judge Resigns
Posted on October 22, 2008Judge Edward W. Nottingham, the federal judge who presided over the insider trading trial of former Qwest Communications CEO, Joseph Nacchio, has resigned effective October 29, 2008. The resignation comes amidst an investigation by the 10th Circuit's judicial counsel regarding complaints of judicial misconduct...
Backdating, Apple, and Legal Counsel
Posted on October 22, 2008Scott James, a student editor on The Race to the Bottom, has written a post about the recent settlement in the Apple backdating case with Nancy R. Heinen, the former General Counsel of Apple. It is a case that illustrates, among other things, that while CFOs have probably been in the eye of the backdating storm, responsibility has sometimes fallen on counsel...
Former Apple General Counsel Settles for $2.2 Million After SEC Backdating Allegations
Posted on October 22, 2008This post is about former Apple General Counsel, Nancy R. Heinen’s $2.2 million settlement stemming from the SEC's complaint alleging fraudulent stock option backdating. Former CFO, Fred D. Anderson was also allegedly involved. Heinen and Anderson received some of the backdated options, along with other high level Apple executives including Steve Jobs...
The SEC, the APA and Naked Short Selling: A Continued Failure to Follow Legal Requirements
Posted on October 22, 2008The SEC recently promulgated Rule 10b-21, Exchange Act Release No. 58774 (Oct. 14, 2008), an antifraud rule designed to prevent abusive naked short selling. Specifically, the Rule makes it a violation for a short seller to deceive a broker about the ability to deliver the shares needed to cover the short position...
Corporate Governance Failures and the Bailout Bill
Posted on October 22, 2008With the US Government willing to bailout financial institutions through capital infusions, it is becoming increasingly apparent that the largess will not be accompanied by reform of the corporate governance process. As noted in a recent issue of MarketWatch: But the Treasury isn't replacing any of the directors on the boards of the banks it's investing in, or adding new directors to represent taxpayer interests...
Bear Stearns and the SEC: The Enforcement Proceeding that Never Was (Part 4)
Posted on October 21, 2008We are discussing the Report issued by the Inspector General at the SEC on the decision by the Miami Office to drop a case involving Bear Stearns. A copy can be found at the Miami Herald web site. With a $500,000 settlement against Bear Stearns in hand, why did the Enforcement Division decide to terminate the case? The two reasons given the Report were litigation risk and delay...
Bear Stearns and the SEC: The Enforcement Proceeding that Never Was (Part 3)
Posted on October 21, 2008We are discussing the Report of the Inspector General of the SEC on the termination of a case against, among others, Bear Stearns, by the Miami Office. A copy can be found at the Miami Herald web site. Much of the Report explores the reasons for the decision not to bring the case...
Bear Stearns and the SEC: The Enforcement Proceeding that Never Was (Part 2)
Posted on October 20, 2008We are discussing the Report of Investigation by the Inspector General at the SEC on the decision by Miami Office of the SEC to not bring an action against, among others, Bear Stearns. The Report is a must read for anyone wanting some insight into the investigatory process...
Bear Stearns and the SEC: The Enforcement Proceeding that Never Was (Part 1)
Posted on October 20, 2008Ten days or so ago the Inspector General of the SEC issued yet another critical report involving the SEC's interaction with Bear Stearns. Titled "Failure to Vigorously Enforce Action Against W. Holding and Bear Stearns at the Miami Regional Office," the Report has yet to be posted on the SEC's web site...
Lessons from the Crisis
Posted on October 19, 2008The Denver Post has a nice article on the current financial turmoil and corporate governance, titled "Lessons from the Crisis."
Graduate Education: The Recession Free Profession
Posted on October 18, 2008As the economy pitches into a recession, applications to business school, according to the WSJ, seem to be climbing. With the assorted layoffs and bankruptcies, apparently some in the financial industry are deciding that this is a good time to go back to school...
Bank Charters and Forum Selection
Posted on October 17, 2008Banks in the United States can be chartered by the federal government or the state government. Banks, therefore, can select among multiple possible regulators. This choice allows for the possibility of a regulatory race to the bottom. Whether this in fact is taking place is unclear...
Executive Compensation Limits and the Likely Effect
Posted on October 17, 2008The Journal has suggested that the compensation limits in the bailout could "cost wall street." Aside from some tax consequences, the limits involve clawbacks (the return of compensation if it turns out the metric used to determine the amount was wrong) and limits on golden parachutes (payments to departing CEOs)...
Blogs and Profitability
Posted on October 16, 2008We normally write about law blogs. We were, however, tipped off (from our ever vigilant librarian at the University of Denver Sturm College of Law) about the annual survey of the blogosphere (not just those with legal subject matter) undertaken by Technorati...
Delaware and Responsibility for the Current Financial Turmoil
Posted on October 16, 2008Marcia Coyle from the National Law Journal has written a nice piece, Delaware in the Crosshairs, an examination of the responsibility of Delaware and its courts for the current crisis in the financial markets. As the article notes: "The federal financial bailout contained a small inroad on the national dominance by Delaware law and courts on corporate governance issues, but that state and its courts soon may see larger federal vehicles barreling toward them because of the economic crisis...
Connolly v. Gasmire and Director Independence
Posted on October 16, 2008The Race to the Bottom presupposes that while Delaware controls in its anti-shareholder decision making, other jurisdictions will follow suit in order to hold onto the modest number of companies who have opted to remain incorporated in the jurisdiction...
Connolly v. Gasmire: ?Independent and Disinterested? Under the Aronson Test
Posted on October 16, 2008In Connolly v. Gasmire, 2008 Tex. App. LEXIS 4930 (July 2, 2008) shareholders John Connolly and Anne Molinari filed a derivative suit against several current and former Odyssey Healthcare, Inc. board members. The 14th District Court in Dallas County dismissed the suit because plaintiffs failed to show that demand was futile...
McPadden v. Sidhu and the Absence of Director Duties
Posted on October 15, 2008We have been talking in recent days about the Bailout Bill and the failure of Congress to fix a serious systemic problem with the current state of corporate governance. Financial firms have been failing in large numbers apparently from having taken excessive risk...
Bad Faith and Exculpating Gross Negligence: McPadden v. Sidhu
Posted on October 15, 2008In McPadden v. Sidhu, No. 3310-CC, 2008 Del. Ch. LEXIS 123 (Del Ch. Aug. 29, 2008), the Delaware Court of Chancery held the board of directors of i2 Technologies, Inc. (?i2?) grossly negligent in the sale of Trade Services Corporation (?TSC?). The exculpatory provision in the certificate of incorporation, however, shielded the board from liability but the officer who coordinated the sale did not have the same protection...
AIG, Cuomo and the Board of Directors
Posted on October 15, 2008Andrew Cuomo, the AG of New York, is angry about the behavior at AIG. Some of this may be politics but he is doing something no other regulator or government official so far has had the temerity to undertake. He is focusing on the role of the board of directors...
Delaware Courts and the Tolerance for Bad Faith: McPadden v. Sidhu
Posted on October 15, 2008It was Delaware that invented waiver of liability provisions (Indiana preceded Delaware by changing the standard of fault for directors). Delaware did so, not because of Van Gorkom, as most commentators suggest, but because of the so called "insurance crisis" and the need to encourage competent directors to serve...