Corporate Governance

Diversity and the Delaware Courts

Posted on September 15, 2008
We read with great interest the brief interview of Chief Justice Steele of the Delaware Supreme Court conducted by J.W. Verret from George Mason on The Conglomerate.  We were struck by one particular passage.  When asked about what was unique about Delaware's approach to corporate law, the Chief Justice had this to say:   First, our specialized Court of Chancery...

And Then There Were Two: The Disappearance of Independent Investment Banking Firms and the New Weakest Links

Posted on September 15, 2008
With Lehman and Merrill gone, two independent investment banking firms remain:  Goldman and Morgan.  Which will be next for rumors and expressions of concern from the market?  Morgan Stanley, most likely.  But in either event, both may well have a tough time of things...

And Then There Were Two: An End to Independent Investment Banking Firms in the United States

Posted on September 15, 2008
With the demise of Lehman Brothers (the firm announced it would file for bankruptcy), the number of independent banking firms in the United States will have fallen from five to three.  But elimination of the weakest link only created a new weak link, with attention then shifting to Merrill Lynch...

And Then There Were Three: The End of Independent Investment Banking Firms in the United States

Posted on September 13, 2008
As we have said on this Blog multiple times (and written since the 1990s, see The "Great Fall": The Consequences of Repealing the Glass-Steagall Act), the elimination of Glass Steagall and the wall that separated commercial from investment banking had all but spelled the elimination of independent investment banks in the United States...

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Ryan v. Lyondell Chemical Company and Waiver of Liability Provisions (Interlocutory Appeal Denied)(The Need for Gender Diversity and Gender Neutrality)

Posted on September 12, 2008
One of the things we in the ivory tower like to stress is the need for students to act in a gender neutral manner when writing briefs or making arguments.  After all, the days when the bench was a male dominated bastion are largely over.  Insensitivity to the issue can, therefore, be embarrassing...

Ryan v. Lyondell Chemical Company and Waiver of Liability Provisions (Interlocutory Appeal Denied)(But a Road Map for Success)

Posted on September 11, 2008
The case turned on a "thin" record that did not show, to the Vice Chancellor's satisfaction, that the directors had sufficiently fulfilled their duties under Revlon.  It is of course altogether possible that on the next motion for summary judgment, the defendants will returned armed with facts that show a board that actively and diligently shopped the company and eventually accepted the highest possible offer...

Ryan v. Lyondell Chemical Company and Waiver of Liability Provisions (Interlocutory Appeal Denied)(An Annoyed Vice Chancellor)

Posted on September 11, 2008
VC Noble was unquestionably annoyed at the defendants for filing their motion for summary judgment too early.  In effect, the defendants were arguing that the Vice Chancellor had gotten the law wrong.  Instead, he chose to lecture them on matters of bad timing and blame them entirely for the outcome of the decision...

Ryan v. Lyondell Chemical Company and Waiver of Liability Provisions (Interlocutory Appeal Denied)(Introduction)

Posted on September 11, 2008
Lyondell, a recent case out of the Delaware Chancery Court, has generated a great deal of attention, mostly because the Vice Chancellor had the temerity to find, on motion for summary judgment, that the ubiquitous waiver of liability provision (and by ubiquitous, we mean ubiquitous, see Opting Only in: Contractarians, Waiver of Liability Provisions, and the Race to the Bottom) did not apply to the facts of the case...

Stoneridge and the Search for Reliance: In re Bristol Myers

Posted on September 10, 2008
Stoneridge involved vendors but the Supreme Court did not limit the analysis to those participants in the transaction.  The case, therefore, arguably left open the need to establish actual reliance on others who participated in the disclosure process but did not actually make the false statement...

Stoneridge Without Stoneridge: SEC v. Wolfsen

Posted on September 10, 2008
The first Stoneridge opinion of the day doesn't even cite Stoneridge.  The Tenth Circuit recently issued an opinion (SEC v. Wolfsen) finding that a non-employee consultant was primarily liable under Rule 10b-5.   The case illustrates the gaps left by the Supreme Court in Stoneridge...

Stoneridge and the Consequences of Unprincipled Reasoning

Posted on September 10, 2008
Stoneridge had the potential to be a ground breaking case or, as Don Langevoort put it, a Roe v. Wade for shareholders.   The decision was result oriented.  The Supreme Court as a political rather than legal matter wanted to send a strong message that litigation under Rule 10b-5 was disfavored...

US v. Nacchio (En Banc): The Defendant Speaks (In A Churlish Matter)

Posted on September 09, 2008
In a prior post, we noted that the Government was a bit churlish for throwing back at Herbert Stern, counsel for Defendant Joe Nacchio, quotes from one of his publications suggesting that he understood the need to request a hearing.  Likewise the Defendant was churlish in taking a shot at the trial judge, Judge Nottingham...

US v. Nacchio (En Banc): The Defendant Speaks (A Precedented Unprecedented Case)

Posted on September 09, 2008
We note one odd aspect of the Defendant's brief.  The brief begins by a statement about the unprecedented nature of the prosecution of Joe Nacchio.  As the brief notes: Most insider trading cases involve accusations of trading ahead of merger news or earnings releases, or other ?hard? nonpublic information that anyone would recognize as material...

US v. Nacchio (En Banc): The Defendant Speaks

Posted on September 09, 2008
As we have come to expect, the Defense has written a powerful brief.  It mostly takes the position that the testimony offered by Daniel Fischel was extraordinarily relevant.  It was, after all, the "heart of Nacchio's defense."   As the brief describes:  The heart of Nacchio?s defense, indeed the only substantive defense witness on the key issues, was Professor Daniel Fischel, one of the nation?s leading experts on these subjects who is frequently retained by the government, including DOJ, and has testified more than 200 times and never before been excluded...

US v. Nacchio (En Banc): The Government Speaks (In A Churlish Manner)

Posted on September 08, 2008
The brief takes some shots directly at Herbert Stern, counsel for Defendant, Joe Nacchio.  To support its position, it cites Herbert Stern, lead counsel for the Defendant.  As the brief notes: Nacchio?s trial counsel has written that Kumho ?makes it clear that whether to hold a hearing * * * is left to the discretion of the trial judge...

US v. Nacchio (En Banc): The Government Speaks (And Disagrees with the Order to Change the Trial Judge)

Posted on September 08, 2008
One of the oddities in the case was the decision by the majority on the panel to change trial judges.  The Defense asked for the change but provided little rational, simply requesting that the court "exercise its inherent power ? to reassign this case to a different district judge...

US v. Nacchio (En Banc): The Government Speaks

Posted on September 08, 2008
On August 29, the parties in the en banc hearing of US v. Nacchio filed briefs.  The briefs are, as usual, posted on the DU Corporate Governance web site. The Government argued, unsurprisingly, that the trial judge did not commit error in excluding the testimony of Daniel Fischel, relying primarily on the failure of the Defendant to request a hearing...

Fannie Mae, Freddie Mac and the Problem of Assigning Government Regulation to "For Profit" Businesses

Posted on September 08, 2008
The government has seized control of Fannie Mae and Freddie Mac, with both having gotten themselves into serious financial trouble during the current crisis in the financial markets.   The decision by the government to seize control of Fannie Mae and Freddie Mac eliminates an uncomfortable fiction...

The Chamber of Commerce and Excessive Litigation: Be Careful What You Wish For (Part 7)

Posted on September 06, 2008
So, what are the proposed reforms that could solve the excessive litigation problem?  As we have noted, the Chamber Study nowhere suggests the imposition of liability directly on those responsible for the false disclosure, despite noting that this is a failing of the system...

The Chamber of Commerce and Excessive Litigation: Be Careful What You Wish For (Part 6)

Posted on September 05, 2008
We are discussing the recent report put out by the Chamber of Commerce on the problems of excessive securities litigation in the United States.  We have already noted that the Chamber addressed the issue without ever once mentioning the impact of the subprime problem or without discussing one of the most critical issues in the securities litigation area, the impact of D&O insurance...

The Chamber of Commerce and Excessive Litigation: Be Careful What You Wish For (Part 5)

Posted on September 04, 2008
We are discussing the recent report,  ?Securities Class Action Litigation: The Problem, Its Impact, and The Path to Reform,? published by the Institute for Legal Reform of the Chamber of Commerce. The Report also mentions that the lawsuits "pointlessly transfer money from one innocent investor to another...

The FSA and the Retreat from Regulation Lite

Posted on September 03, 2008
We have noted from time to time the difference in the regulatory approach between the US and the UK.  The UK relies on a "regulation lite" approach, with the Financial Services Authority (the British SEC equivalent) taking a less aggressive hand in the area of enforcement...

The Chamber of Commerce and Excessive Litigation: Be Careful What You Wish For (Part 4)

Posted on September 03, 2008
We are discussing the recent report,  ?Securities Class Action Litigation: The Problem, Its Impact, and The Path to Reform,? published by the Institute for Legal Reform of the Chamber of Commerce. Perhaps the greatest irony in the report is the shots it takes at institutional investors...

The Chamber of Commerce and Excessive Litigation: Be Careful What You Wish For (Part 3)

Posted on September 02, 2008
We are discussing the recent report,  ?Securities Class Action Litigation: The Problem, Its Impact, and The Path to Reform,? published by the Institute for Legal Reform of the Chamber of Commerce.  The report is a collection of arguments, not all consistent...

The Chamber of Commerce and Excessive Litigation: Be Careful What You Wish For (Part 2)

Posted on September 02, 2008
We are discussing the recent report,  ?Securities Class Action Litigation: The Problem, Its Impact, and The Path to Reform,? published by the Institute for Legal Reform of the Chamber of Commerce. The Report emphasizes the increase in the number of class action suits that have been filed in the first half of 2008...

The Chamber of Commerce and Excessive Litigation: Be Careful What You Wish For (Part 1)

Posted on September 01, 2008
Now that SOX has faded as the whipping post for everything wrong with regulation and the US capital markets, the problem of excessive litigation has become the replacement.  These were addressed in my piece, Criticizing the Critics: Sarbanes Oxley and Quack Corporate Governance...

Bear Stearns: A Litigation Update

Posted on August 30, 2008
The Race to the Bottom previously discussed the board of directors' role in Bear Stearns demise.  Bear Stearns' troubles began in 2007 when two of its hedge funds failed.  They culminated in an acquisition of the investment bank by JP Morgan Chase...

The SEC and the Erosion of Corporate Governance

Posted on August 29, 2008
BNA reports that the SEC has approved a rule change by the NYSE in connection with corporate governance requirements. The changes would eliminate the need for an opinion of counsel in connection with any application to list securities. The opinion mainly attested to the legality of the shares and the qualification to do business...

The SEC and the Erosion of Director Independence (Part 2)

Posted on August 28, 2008
We are reviewing Exchange Release No. 58367 (August 15, 2008), where the SEC approved changes to the NYSE definition of director independence.  The changes weaken the definition.  The first change was to raise the amount of "direct compensation" a director could earn and still remain independent...

The SEC and the Erosion of Director Independence (Part 1)

Posted on August 28, 2008
The NYSE has proposed and the Commisson has approved amendments to the listing standards governing the definition of director independence.  Before the amendment, Section 303A.02(b)(ii) of the NYSE contained a categorical rule providing that directors lose their independence if they receive more than $100,000 in direct compensation...

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