Corporate Governance

Selectica v. Versata Enterprises: A Poison Pill Triggered (Validating the 5% Threshold)(Part 3)

Posted on April 08, 2010
Under the traditional Unocal analysis, the court first had to determine whether the board adopted the poison pill in response to a threat.  The need to protect the net operating loss carryforwards (NOL) were considered a sufficient threat.  The next issue was whether the pill was reasonable in response to the threat posed...

Selectica v. Versata Enterprises: A Poison Pill Triggered (The Unusual Nature of the 5% Trigger) (Part 4)

Posted on April 08, 2010
In upholding the poison pill in Selectica, the court had to deal with an unusually low threshold for triggering the pill.  The board set the trigger at 5%.  How unusual is this?  The court described them as "fairly uncommon, although they have been employed with greater frequency in recent years...

Selectica v. Versata Enterprises: A Poisonous Pill Triggered (Part 1)

Posted on April 07, 2010
In teaching about poison pills, its common to emphasize their absolute show stopping nature.  Faculty can regal students with the blunt fact that no tender offer or acquisition effort would ever procede in the face of an outstanding pill.  The consequences (involving dilution of the percentage and value of the triggering shareholder's interest) are just too great...

Selectica v. Versata Enterprises: A Poison Pill Triggered (The Astounding Subjective Standard for Director Independence)(Part 2)

Posted on April 07, 2010
This case is about poison pills.  Plaintiffs, however, asserted that they were entitled to some additional "enhancement" in the review because the pill had been approved by independent directors.  The court noted that the standard for director independence was the 'subjective ‘actual person' standard' that turned upon the "individualized facts about the specific directors...

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Sarbanes-Oxley Whistleblower Protections Cover Employees of Mutual Fund Firms

Posted on April 06, 2010
Last week, Massachusetts federal district court judge, Douglas P. Woodlock ruled that whistleblower protections of the Corporate and Criminal Fraud Accountability Act of 2002 ('Sarbanes-Oxley') apply to employees of private firms that operate and advise mutual funds ('Mutual Fund Firms')...

Jones v. Harris: Misreading the Dynamics Inside the Boadroom

Posted on April 05, 2010
The Supreme Court in Jones v. Harris soundly rejected the opinion of Chief Judge Easterbrook and his conclusion that full disclosure and the market was enough to remedy any wrong in the compensation area.  Judge Easterbrook is still relying on the mantra that the market can correct all evils, a position that would seem hard to justify given the ubiquitous examples of market failure...

Jones v. Harris: Misreading the Dynamics Inside the Boardroom

Posted on April 05, 2010
The Supreme Court in Jones v. Harris soundly rejected the opinion of Chief Judge Easterbrook and his conclusion that full disclosure and the market was enough to remedy any wrong in the compensation area.  Judge Easterbrook is still relying on the mantra that the market can correct all evils, a position that would seem hard to justify given the ubiquitous examples of market failure...

MARK CUBAN v. SEC: Cuban Seeks Injunction Compelling SEC to Produce Records Under FOIA

Posted on April 02, 2010
Litigation relating to the Securities and Exchange Commission's ('SEC') insider trading case against Mark Cuban ('Cuban') continues.  This blog has followed Cuban's insider trading cases from its genesis in the district court and the current appeal to the 5th Circuit...

The BRIC [Brazil, India, Russia, and China] Project ? An overview (Part 1)

Posted on April 01, 2010
On this Blog, we mostly write about corporate governance.  In doing so, we typically focus on events, judicial proceedings, and corporate actions in  the United States, particularly those emanating from Delaware.  In an increasingly global economy, however, this may be too narrow a perspective...

The BRIC Project: Emerging Economies and Policy-Driven Growth (Part 3)

Posted on April 01, 2010
The BRIC economies are projected to account for approximately 50% of global GDP by 2050.  The growth will not happen, however, without institutional development.  Goldman Sachs' report, Dreaming with the BRICs: The path to 2050, noted that '[t]he key assumption underlying our projections is that the BRICs maintain policies and develop institutions that are supportive of growth...

Jay Brown, Jon Macey and Hedge Fund Compensation on CNBC

Posted on April 01, 2010
A CNBC discussion on whether hedge fund salaries are justified, with Jonathan Macey, Yale University and Jay Brown, University of Denver Sturm College of Law.?

The BRIC Project: An Introduction to the Future of Economic Influence (Part 2)

Posted on April 01, 2010
The BRIC nations (Brazil, Russia, India, and China), an acronym coined in 2001 by Goldman Sachs' chief economist, Jim O'Neil, represents four fast-growing developing nations.  In its 2009 report, 'The BRICs Nifty 50,' Goldman Sachs provided a deft summary of the BRICs' past and future: "Based on long-term data published by the OECD, Brazil, Russia, India and China made up more than 50% of world GDP back in 1800...

The BRIC [Brazil, Russia, India, and China] Project ? An overview (Part 1)

Posted on April 01, 2010
On this Blog, we mostly write about corporate governance.  In doing so, we typically focus on events, judicial proceedings, and corporate actions in  the United States, particularly those emanating from Delaware.  In an increasingly global economy, however, this may be too narrow a perspective...

Director Fees and Director Independence

Posted on March 31, 2010
We have often noted that neither Delaware nor the NYSE consider fees in determining director independence.  This leads to absurd results.  Directors who make in the vicinity of $700,000 in fees are considered independent by the NYSE while those who make substantially less (any amount over $120,000) are not independent if the amount is paid as consulting income rather than fees...

The Race to the Bottom Presents: Up-the-Ladder Reporting Rules under Section 307 of Sarbanes Oxley

Posted on March 31, 2010
One of the many changes wrought by SOX was the imposition of reporting obligations on securities lawyers when they learn facts that suggest a possible violation of the securities laws and fiduciary obligations.  Included in Section 307 of SOX and codified under 17 CFR 205 by the Securities and Exchange Commission, the requirements have been in place since 2003...

Kurz v. Holbrook: Record Ownership and the SEC

Posted on March 30, 2010
We did a lengthy discussion of the Chancery Court's recent opinion in Kurz v. Holbrook.  The decision contains a lengthy discussion of the voting system for street name owners.  One of the interesting asides concerns the interpretation of record ownership at the federal level...

Jones v. Harris Associates: Let the First Lawsuit Bloom

Posted on March 30, 2010
We are pleasantly surprised by the 9-0 Supreme Court decision today in Jones v. Harris Associates, 559 U.S. ___ (2010).  By vacating the 7th Circuit opinion and remanding the case, the Court ruled in favor of mutual fund shareholders who simply wanted their day in court to argue that when a money manager (Adviser) charges double the management fees to captive mutual funds that it charges large, independent institutional investors, there might be a breach of fiduciary duty...

Jones v. Harris, Compensation, and Fiduciary Obligations

Posted on March 30, 2010
The Supreme Court issued the much awaited opinion in Jones v. Harris, a case that involved compensation paid to investment advisors at mutual funds.  The lower court decision came from the 7th Circuit, with Judge Posner on one side (the dissent) and Judge Easterbrook on the other...

Restoring American Financial Stability Act of 2010 and the Preemption of the Rules of the NYSE

Posted on March 29, 2010
 As Riskmetrics reports, the Senate Banking Committee included some additional corporate governance provisions in the recently adopted version.  As the post notes: One amendment would require companies to provide new disclosure on internal pay disparity...

Amirsaleh v. Board of Trade of the City of New York: Merger Agreements and the Implied Covenant of Good Faith and Fair Dealing

Posted on March 27, 2010
In Amirsaleh v. Board of Trade of the City of New York, Inc., No. 2822-CC, 2010 WL 177681 (Del. Ch. Jan. 19, 2010), plaintiff Mahyar Amirsaleh ('Amirsaleh') sued defendants New York Board of Trade ('NYBOT') and IntercontinentalExchange, Inc. ('ICE') alleging breach of contract and breach of the implied covenant of good faith and fair dealing...

Reinforcing Corporate Bylaws through Shareholder Fiduciary Duties: Le v. Pham

Posted on March 26, 2010
In Le v. Pham, 180 Cal. App. 4th 1201 (Cal. Ct. App. 2010), the Les (Tien Le and his wife Dieu-Hoa Le)  sued Lieu Pham, seeking to affirm the validity of a stock transaction to a third party.  Pham filed a cross complaint arguing that Le breached a shareholder's fiduciary duty in conducting the transaction...

Women on the Board and Market Failure (Part 2)

Posted on March 25, 2010
What is the Economist's objection to legislation requiring boards to have at least 40% of each gender?  That it will fill boards with "inexperienced" directors.  As the Economist describes: Finding qualified women in a country where only 9% of board seats were held by women in 2003 and the vast majority of senior corporate jobs are filled by men proved challenging...

Women on the Board and Market Failure (Part 3)

Posted on March 25, 2010
The Michigan study referenced in the piece by the Economist, The Changing of the Boards: The Value Effect of a Massive Exogenous Shock, focuses on the Norwegian experience and concludes that when companies added a large number of women to the board,  they saw a decline in value...

Women on the Board and Market Failure (Part 1)

Posted on March 24, 2010
The Economist is a superb magazine, written in an erudite fashion with flashed of dry wit.  But as the recent article on women in the boardroom illustrates, sometimes even very smart people can get things entirely wrong.  As we have long noted on this Blog, women are terribly underrepresented in the boardroom...

Tax Breaks and Economic Reform

Posted on March 24, 2010
The WSJ reports today about tax savings taken by corporations as a result of language in the Worker Homeownership and Business Assistance Act passed in November 2009.  The language of the bill is here:  Essentially the bill allowed corporations to carryback losses for 2008 and 2009 for five years (as opposed to two) and, as a result, get an immediate tax benefit from those losses (assuming their were profits in 2003-2008, a period when pretty much everyone was making money)...

SEC v. Shanahan: A Backdating Case Survives Summary Judgment

Posted on March 23, 2010
In Securities Exchange Commission v. Shanahan et al., 2010 WL 148440 (E.D.Mo. Jan. 12, 2010), the Commission brought charges against Michael F. Shanahan, Sr. for options backdating.  The United States District Court for the Eastern District of Missouri granted in part and denied in part defendant's Motion for Summary Judgment...

In re Chiquita Brands International: Related Case Motion to Dismiss Opinion

Posted on March 22, 2010
The Race to the Bottom is following developments in In re Chiquita Brands International, Inc., specifically the claims brought by a class of plaintiffs represented by the Special Litigation Committee ('SLC').  Recently, the SLC and Chiquita filed a notice of settlement...

The Short Life of BigLaw Blogs

Posted on March 22, 2010
A somewhat dated post at 3 Geeks and a Law Blog set out what it describes as 73 dead or dying law blogs operated by BigLaw (a later check showed that a few of the dead/dying were in fact still breathing).  What happened to these blogs?  As the post notes:  "There are a few on here that are dead for good reason (e...

Kurz v. Holbrook: Shareholder Voting, Omnibus Proxies, and the Role of DTC: Having It Both Ways

Posted on March 19, 2010
Whatever the logic of the decision (and it is hard to complain about a decision trying to sidestep the formality of the omnibus proxy), the consequences are far reaching.   By merging the Cede breakdown with the stock ledger, the court effectively transformed the DTC participants into record owners...

Kurz v. Holbrook: Shareholder Voting, Omnibus Proxies, and the Role of DTC: The Avoidance of Equity

Posted on March 18, 2010
Before we discuss how VC Laster got to his decision, we will dwell a bit on how he didn't get there.  The Chancery Court in Delaware is a court of equity.  In this case, the votes collected by a group of insurgents (TBE) were threatened with disqualification because of the absence of an omnibus proxy...

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