The Race to the Bottom: Corporate Governance

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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.
By J Robert Brown Jr et al.

Post Frequency: 21.6/day

Last Entry: April 01, 2011 at 09:00:35

In re Centerline Holdings Co., Sec. Litig. and Scienter

Posted on February 18, 2009
In 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, 2009
On 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, 2009
In 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, 2009
The 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...

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The Race to the Bottom and Shareholder Accessibility to Information: Norfolk County Retirement v. Jos. A Bank Clothier (Part 2)

Posted on February 17, 2009
We 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, 2009
We 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, 2009
We 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, 2009
We 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, 2009
We 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, 2009
The 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, 2009
We 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, 2009
We 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, 2009
We 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, 2009
The 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, 2009
We 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, 2009
The 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, 2009
With 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, 2009
A 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, 2009
The 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, 2009
After 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, 2009
We 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, 2009
Today, 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...

Reforming the Auto Industry

Posted on February 06, 2009
A New American Energy Policy by S. Lee Terry, Jr. When the price of oil was near its 2008 peak, oilman T. Boone Pickens proposed a plan for weaning our country from its insatiable thirst for imported oil. Pickens’ plan does not go far enough to stem the tide of American wealth going to oil producing nations (according to Pickens, approximately $700 billion in 2007 and presumably much higher in 2008)...

Executive Compensation, Treasury Reforms, and the Consequences of the Delaware Model

Posted on February 06, 2009
In 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, 2009
The 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, 2009
We'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, 2009
As 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, 2009
Thursday, 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, 2009
Stock 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, 2009
Last 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...

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