Corporate Governance

TheRacetotheBottom.org: Our New Look

Posted on October 04, 2010
As our loyal readers have noticed, the blog's look has changed slightly in the past weeks.  We hope you enjoy the fresh, new style. In an effort to promote the symbiotic relationship between blogs and social media, we have embraced certain tools to increase our readership and share the important issues and topics we address daily...

MCG Capital v. Maginn: Preferred Stockholders and the Right to Bring Derivative Suits

Posted on October 01, 2010
In MCG Capital Corporation v. Maginn, Civil Action No. 4521-CC, 2010 Del. Ch. LEXIS 87 (Del. Ch. May 5, 2010), the Delaware Chancery Court addressed whether preferred stockholders have standing to bring derivative actions on behalf of the corporation in the same way that common stockholders do...

A Legal Challenge to Proxy Access

Posted on September 30, 2010
The fight continues. The Chamber of Commerce and the Business Roundtable filed a Petition in the DC Circuit challenging the shareholder access rule.  Attached is a motion addressed to the SEC asking for a stay of the rule.  To the extent that the Commission denies the motion for a stay, the Chamber and Business Roundtable have indicated that they will seek a stay from the DC Circuit...

Wall Street: Greed Never Sleeps

Posted on September 30, 2010
Those of us who flocked to movie theaters this past weekend to see Wall Street: Money Never Sleeps, inevitably left with the same question in mind: will the clean tech bubble be the next to burst?  Fans of the 1987 original film will be thrilled to see Michael Douglas reprise his role as Gordon Gekko, a Wall Street tycoon sentenced to eight years in prison for insider trading and securities fraud...

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The Race to the Bottom, Delaware, and LLCs: Waiver of Fiduciary Duties

Posted on September 29, 2010
In the realm of limited liability companies, Delaware allows the parties to waive all fiduciary duties by those managing the LLC (members if it is member managed; managers if it is manager managed) except the duty of good faith and fair dealing.  See 6 Del...

Related Westpac LLC v. JER Snowmass LLC: Implicit Waiver of Fiduciary Duties

Posted on September 29, 2010
In Related Westpac LLC v. JER Snowmass LLC, C.A. No. 5001-VCS (Del. Ch. July 23, 2010), Westpac sought damages from JER Snowmass' ('JER'), claiming that JER breached the operating agreement and its fiduciary duties by refusing to fund capital calls...

Related Westpac LLC v. JER Snowmass LLC: Implicit Waiver of Fiduciary Duties (Discouraging Investment into Delaware LLCs)

Posted on September 29, 2010
On the one hand, Westpac stands for the proposition that freedom of contract will ultimately prevail.  Parties can waive fiduciary duties if they so decide. This case, however, does not really stand for that proposition.  It is in fact a provision that makes investments into LLCs more uncertain and difficult and, as a result, discourages capital formation...

In re Chiquita Brands: Court Preliminarily Approves Settlement Agreement for Derivative Action

Posted on September 28, 2010
We have been following the Alien Tort Statute and the Shareholder Derivative Action for In re Chiquita Brands since August 2007.  This post pertains to the Shareholder Derivative Action.  In 2008, we reported that Chiquita shareholders filed four shareholder derivative lawsuits against Chiquita in several federal district courts...

SEC v. Mark Cuban - Insider Trading Case Reinstated - Opinion Summary

Posted on September 27, 2010
On September 21, 2010, the Fifth Circuit Court of Appeals reinstated the Securities and Exchange Commission's ('SEC') insider-trading case against Mark Cuban ('Cuban') and remanded the case for further proceedings. The appellate court believed the 'case should not have been dismissed [by the district court] and must proceed to discovery...

SEC v. Cuban: Law Professors Speak (In Favor of Cuban)

Posted on September 27, 2010
On Tuesday, September 21, 2010 the Fifth Circuit Court of Appeals reinstated the SEC's case against Mark Cuban.  The court declined to follow the arguments advanced by the professors in the post below. In doing so, the appellate court declined to follow the reasoning of four law faculty who participated in the case through an amicus brief...

Yucaipa and Barnes & Noble: The Facts on the Ground

Posted on September 25, 2010
We have been blogging about the Delaware decision to uphold a poison pill that effectively prevented Yucaipa, an insurgent shareholder, from reaching an agreement with other shareholders on a common slate of directors and a sharing of expenses.  In upholding the pill, the Delaware Chancery Court allowed the pill to tilt the playing field in the proxy contest in management's favor...

Diversity on Wall Street

Posted on September 24, 2010
As we discuss the issue of diversity, the WSJ has recently noted that women seem to be disappearing from Wall Street.  As the Journal noted: young women are becoming more rare in the country's banks, brokerage houses and insurance companies. Since 2000, the number of women between the ages of 20 and 35 working in finance has dropped by 315,000, or 16...

Curiouser and Curiouser: The Inspector General's Investigation of the Timing of the Goldman Case

Posted on September 23, 2010
The Inspector General of the SEC, David Kotz, testified before the Senate Banking Committee on his report about the SEC's failings in the Stanford case.  The webcast is here.  As part of the testimony, the timing of the Goldman case came up...

The SEC and Diversity in the Boardroom (Not to Mention the SEC) (Part 6)

Posted on September 23, 2010
Commissioner Aguilar did not limit his remarks to the corporate boardroom.  He likewise noted the need for greater diversity in the federal government.    The federal government, for example, could do better. Although, according to the Annual Equal Employment Opportunity Commission Report on the Federal Workforce, people of color represented a third of the Federal work force in fiscal year 2009- approximately on par with current U...

The SEC and Diversity in the Boardroom: Another Benefit of Access (Part 5)

Posted on September 23, 2010
We are discussing diversity in the boardroom and the speech given by Commissioner Aguilar on Sept. 16 at the SAIS Center for Transatlantic Relations (at Johns Hopkins), titled "Diversity in the Boardroom is Important and, Unfortunately, Still Rare...

The SEC and Diversity in the Boardroom: Global Concern and Board Diversity (Part 3)

Posted on September 22, 2010
We are discussing diversity in the boardroom and the speech given by Commissioner Aguilar on Sept. 16 at the SAIS Center for Transatlantic Relations (at Johns Hopkins), titled "Diversity in the Boardroom is Important and, Unfortunately, Still Rare...

The SEC and Diversity the the Boardroom: The Impact of SEC Disclosure Requirements (Part 4)

Posted on September 22, 2010
We are discussing diversity in the boardroom and the speech given by Commissioner Aguilar on Sept. 16 at the SAIS Center for Transatlantic Relations (at Johns Hopkins), titled "Diversity in the Boardroom is Important and, Unfortunately, Still Rare...

The SEC and Diversity in the Boardroom: Commissioner Aguilar Speaks (Part 1)

Posted on September 21, 2010
As the representation of women continue to grow in colleges and universities, their numbers also rise in graduate programs.   Women in 2008-2009 essentially tied men in the number of doctoral degrees awarded, although the aggregate statistics hid some pronounced subject area disparities (women obtain only 22% of engineering Phds)...

SEC v. Mark Cuban - Insider Trading Case Reinstated

Posted on September 21, 2010
In a ruling today, the Fifth Circuit Court of Appeals reinstated the SEC's 2008 insider trading case against Mark Cuban. In the ruling, the court stated, "The allegations, taken in their entirety, provide more than a plausible basis to find that the understanding between the CEO and Cuban was that he was not to trade, that it was more than a simple confidentiality agreement...

The SEC and Diversity in the Boardroom: The Interests of Investors (Part 2)

Posted on September 21, 2010
We are discussing diversity in the boardroom and the speech given by Commissioner Aguilar on Sept. 16 at the SAIS Center for Transatlantic Relations (at Johns Hopkins), titled Diversity in the Boardroom is Important and, Unfortunately, Still Rare...

Yucaipa American Alliance Fund II, LP v. Riggio: The Growing Use of Poison Pills to Preclude a Proxy Contest (The Impact on Access)

Posted on September 20, 2010
We have talked enough about Yucaipa.  There is plenty more to say in the 80 plus page opinion.  We stop more from exhaustion than completion.  In any event, the case is on appeal and will be resolved by the Delaware Supreme Court.  Because this case is not highly visible and does not raise the same risks of federal preemption as cases such as Axcelis, we predict that the Court will affirm the reasoning of the Vice Chancellor...

The LEXIS NEXIS Top 25 Law Blogs: Please Support RTTB by "Commenting"

Posted on September 20, 2010
As Managing Editor of The Race to the Bottom, I would like to thank all of you who read our work. The students and faculty involved with The Race to the Bottom spend a great deal of time on all aspects of the blog and appreciate being nominated to become one of the Top 25 Law Blogs by Lexis...

Yucaipa American Alliance Fund II, LP v. Riggio: The Growing Use of Poison Pills to Preclude a Proxy Contest (Sections 112 and 113 of the Delaware General Corporation Law)

Posted on September 17, 2010
Yucaipa tried to argue that the poison pill, by limiting proxy contests and agreements among shareholders, ran contrary to recent changes to the Delaware corporate law.  Specifically, Yucaipa pointed to Sections 112 and 113, the provisions that provide for shareholder access bylaws and proxy contest reimbursement bylaws...

Yucaipa American Alliance Fund II, LP v. Riggio: The Growing Use of Poison Pills to Preclude a Proxy Contest (Corporate Law Junkies and Law School Nerds)

Posted on September 17, 2010
As a law professor, we note one interesting characterization of law students in the case.  As the Vice Chancellor described:   At bottom, Yucaipa is simply positing an absurd scenario, at best fit for a discussion by a Red Bull fueled group of nerdy second year law school corporate law junkies, who find themselves dateless (big surprise) on yet another Saturday night...

Yucaipa American Alliance Fund II, LP v. Riggio: The Growing Use of Poison Pills to Preclude a Proxy Contest (Interested Involvement in the "Disinterested" Decision)

Posted on September 16, 2010
  Delaware courts defer to boards that have a majority of independent directors.  Determining whether a board is independent is a quantitative standard with no quantitative component.  For boards with the requisite majority, there is no need for the interested influence to actually be excluded from the decision making process...

Yucaipa American Alliance Fund II, LP v. Riggio: The Growing Use of Poison Pills to Preclude a Proxy Contest (Uncertain Factual Conclusions)

Posted on September 15, 2010
The legal analysis in the end allows for the use of poison pills in a way that tilts the playing field in favor of management.  The reasoning is, in places, supported by what is effectively factual findings by the court that may be accurate but are not entirely supported by the authority cited...

Yucaipa American Alliance Fund II, LP v. Riggio: The Growing Use of Poison Pills to Preclude a Proxy Contest (The Role of the Investment Advisory Firm)

Posted on September 14, 2010
One of the conclusions made by the Chancery Court in Yucaipa was that the proxy contest would turn upon the recommendation of RiskMetrics, the largest investment advisory firm.  As the court noted: Yucaipa admits that if it gets the support of Risk Metrics, it will likely win, ...

Yucaipa American Alliance Fund II, LP v. Riggio: The Growing Use of Poison Pills to Preclude a Proxy Contest (Tilting the Playing Field)

Posted on September 13, 2010
We are discussing the significance of Yucaipa American, a case that declined to invalidate a poision pill that prevented an insurgent shareholder from negotiating a common slate and expense sharing arrangement with other shareholders.  The legal analysis focused upon whether there was a threat to management and whether the response by management was proportionate...

Yucaipa American Alliance Fund II, LP v. Riggio: The Growing Use of Poison Pills to Preclude a Proxy Contest (Regulatory Disagreement Over the Definition of Director Independence)

Posted on September 10, 2010
We have, on a number of cases, noted issues with the standard used by the NYSE in determining director independence.  The standard by its terms applies only to material relationships between directors and the company, not between directors and executive management...

Yucaipa American Alliance Fund II, LP v. Riggio: The Growing Use of Poison Pills to Preclude a Proxy Contest (The Disproportionate Proportionality Analysis)

Posted on September 09, 2010
Unocal also commanded that the defensive tactic be reasonable in relationship to the threat posed.  Said another way, the defensive tactic must be proportionate to the particular threat. To the Chancery Court, threat and proportionality "bleed together...

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