Corporate Governance

Kicking Off Coverage of the Joe Nachio Resentencing Hearings

Posted on February 22, 2010
Yesterday, counsel for former Qwest CEO Joseph P. Nacchio ('Nacchio'), and for the U.S. Attorney's Office, appeared in the United States District Court for the District of Colorado before the Honorable Judge Kreiger to begin the process of resentencing...

Judge Rakoff Approves the BofA Settlement

Posted on February 22, 2010
Judge Rakoff issued a 15 page opinion approving the settlement between the SEC and BofA.  We predicted that he would. His main concern, as it had been all along, was with the failure to charge the individuals responsible for any false disclosure...

United States v. Joseph Nacchio: Evidentiary Hearing Needed for the Court to Properly Determine Gain

Posted on February 22, 2010
As part of the Race to the Bottom's continuing coverage of Joseph Nacchio's criminal trial, a group of student contributors attended the first hearing in his resentencing on February 18, 2010.  This hearing was at the United States District Court for the District of Colorado, before Judge Krieger...

Kicking Off Coverage of the Joe Nacchio Resentencing Hearings

Posted on February 22, 2010
Last Thursday, counsel for former Qwest CEO Joseph P. Nacchio ('Nacchio'), and for the U.S. Attorney's Office, appeared in the United States District Court for the District of Colorado before the Honorable Judge Kreiger to begin the process of resentencing...

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SEC v. Bank of America: Material Misrepresentation in Acquisition of Merrill

Posted on February 21, 2010
The Race to the Bottom discussed here the SEC's original complaint against Bank of America ('BofA'), in which the SEC alleged that BofA failed to disclose bonuses to Merrill Lynch ('Merrill') executives and employees.  We have also examined a portion of the proposed settlement here...

SEC v. Bank of America: The Issue of Material Misrepresentation of Losses in the Acquisition of Merrill

Posted on February 21, 2010
The Race to the Bottom discussed here the SEC's original complaint against Bank of America ('BofA'), in which the SEC alleged that BofA failed to disclose bonuses to Merrill Lynch ('Merrill') executives and employees.  We have also examined a portion of the proposed settlement here...

Collapsed Joint Venture Deal Between Kuwait and Dow Leads to Shareholder Suit

Posted on February 19, 2010
Shareholders of the Dow Chemical Company ('Dow'), brought an action against current directors and officers of Dow, alleging that the defendants breached their fiduciary duties to the company.  See In re Dow Chemical, 2010 Del. Ch. Lexis 2 (Del. Ch...

Delaware, Director Independence, and the Impossibility of Proving Actual Control

Posted on February 19, 2010
Delaware courts make liberal use of the demand requirement to dismiss derivative suits.  At the pleading stage, without the benefit of any discovery, shareholders carry the burden of showing reasonable doubt about the board's independence or the failure to engage in a valid exercise of business judgment...

Cuts in Executive Compensation: Its Only A Question of Time before the Excess Returns

Posted on February 18, 2010
We've been meaning to comment on the compensation decisions by Goldman Sachs.  This is typically the poster child for excess.  Once the Goldman numbers come in, every other company can pay excessive rates, blaming it on the need to keep people from bailing and going to Goldman...

Toyota and the Need for Diverse Views on the Board

Posted on February 18, 2010
The Economist has at least a partial explanation for the crisis currently befalling Toyota:  Bad corporate governance.   A piece in the erudite magazine noted that companies in Japan have "a rigid system of seniority and hierarchy in which people are reluctant to pass bad news up the chain...

The Board of Directors and a Review of Corporate Disclosure

Posted on February 17, 2010
When the Commission inked the settlement with Bank of America (yet to be approved by Judge Rakoff), it included some corporate governance reforms.  One of them was to require the audit committee to retain disclosure counsel who would review the company's disclosure and report to the audit committee...

The SEC and the State of Delaware: Larry Hamermesh Goes to Washington

Posted on February 17, 2010
We missed the note that Larry Hamermesh, Ruby R. Vale professor of corporate and business law and the director of the Institute of Delaware Corporate and Business Law at Widener, joined the Securities and Exchange Commission for two years as an attorney fellow in CorpFin...

The Board of Directors and Super-Independence

Posted on February 16, 2010
The Commission, in settling the case with Bank of America (which still must be approved by Judge Rakoff), negotiated some corporate governance provisions, some of which were designed to add integrity to the compensation process.  One of the changes was to require greater independence on the compensation committee...

Director Independence and Friendship: The Evidence

Posted on February 15, 2010
Corporate governance places heavy reliance on the use of "independent" directors to protect the interests of shareholders.  The stock exchanges require that listed companies have a majority of independent directors.  Delaware, in turn, provides legal benefits to boards with a majority of independent directors, either by facilitating the dismissal of derivative suits or by allowing conflict of interest transactions to be reviewed under the duty of care...

Stone v. Instrumentation Laboratory: SOX, Whistleblowing, and the Plain Language of the Statute

Posted on February 15, 2010
In Stone v. Instrumentation Laboratory Co., No. 08-2196, 2009 WL 5173765 (4th Cir. Dec. 31, 2009), the Fourth Circuit reversed the district court's determination that a Sarbanes-Oxley Act ('SOX') whistleblower suit was precluded under the doctrine of collateral estoppel by a decision of an Administrative Law Judge ('ALJ')...

SEC v. Mark Cuban: Extension for Discovery and Supplemental Briefing

Posted on February 13, 2010
In a motion filed January 22, both the SEC and Mark Cuban jointly requested an extension to complete discovery and to submit supplemental briefing on Mr. Cuban's motion for attorney's fees and expenses. Prior to this motion, the Court ordered discovery to be completed by February 1, 2010 and supplemental briefing within 21 days of that date...

The SEC Appeals: Mark Cuban Decieved Mamma.com

Posted on February 13, 2010
On January 22, 2010, the Securities and Exchange Commission ('SEC') filed an appellate brief in the Fifth Circuit appealing the Northern District of Texas' dismissal of the insider-trading case against Mark Cuban. The district court granted Cuban's motion to dismiss because the SEC's complaint failed to allege Cuban owed a duty to keep the information about Mamma...

Corporate Governance and Campaign Finance: Citizens United v. FEC (The Need for Federal Intervention)(Part 1)

Posted on February 12, 2010
We are discussing Citizens United v. Federal Election Commission,  No. 08–205,  Jan. 21, 2010, the Supreme Court's recent decision on campaign finance. So what is Congress to do?  We don't have any conclusions with respect to a specific federal regulatory regime, although presumably it would include substantial disclosure of the expenses and at least the type of disclaimers upheld by the majority...

Corporate Governance and Campaign Finance: Citizens United v. FEC (The Need for Federal Intervention)(Part 2)

Posted on February 12, 2010
As discussed in the last paragraph, shareholder approval of campaign expenditures is not an adequate solution to the issue, at least from a corporate governance perspective. Another possibility would be to place the authority to approve expenditures on the board of directors...

Corporate Governance and Campaign Finance: Citizens United v. FEC (The Politics of Judicial Activism, Part 1)

Posted on February 11, 2010
Whatever the merits of Citizens United, it was a fairly clear example of judicial activism.  There was at least one obvious way to avoid the constitutional question through statutory analysis. The specifics of the case involved a movie created by Citizens United about Hillary Clinton...

Corporate Governance and Campaign Finance: Citizens United v. FEC (The Politics of Judicial Activism, Part 2)

Posted on February 11, 2010
There is a second example of judicial activism in the majority opinion. In interpreting the statute at issue, the majority characterized the prohibition on electioneering communications as a "complete ban."  In doing so, the majority addressed other avenues potentially open to corporations to influence elections, including political action committees, or PACs...

Corporate Governance and Campaign Finance: Citizens United v. FEC (The Role of the SEC)

Posted on February 10, 2010
We are discussing Citizens United v. Federal Election Commission, No. 08–205,  Jan. 21, 2010, the Supreme Court's recent decision on campaign finance. The first thing that needs to happen in this area is to require complete disclosure of campaign expenditures by public companies...

Diane Sanger Memorial Lecture

Posted on February 10, 2010
I worked for Diane Sanger in Washington back in the 1980s and may have learned more from her than any other securities lawyer.  Her passing away in 2008 was a considerable personal and professional loss (we had maintained some degree of sporadic communication over the years)...

Corporate Governance and Campaign Finance: Citizens United v. FEC (The Role [or Non-Role] of Delaware)

Posted on February 09, 2010
We are discussing Citizens United v. Federal Election Commission,  No. 08–205,  Jan. 21, 2010, the Supreme Court's recent decision on campaign finance. While Congress cannot abridge the right of corporations to expend funds on electioneering communications, states apparently can...

Corporate Governance and Campaign Finance: Citizens United v. FEC (Introduction)

Posted on February 08, 2010
We don't ordinarily delve into campaign finance issues but  the Supreme Court's recent decision in Citizens United v. Federal Election Commission,  No. 08–205,  Jan. 21, 2010, merits some unique attention.  As everyone who has not lived under a rock for the last several weeks knows, the Supreme Court largely threw out a provision of McCain-Feingold that restricted the right of corporations to expend funds on political campaigns, concluding that the restrictions interfered with the first amendment rights of corporations...

Corporate Governance and Campaign Finance: Citizens United v. FEC (A Bit of History)

Posted on February 08, 2010
We are discussing Citizens United v. Federal Election Commission, No. 08–205,  Jan. 21, 2010, the Supreme Court's recent decision on campaign finance.  It is a rare case that examines the corporate form with an exegesis that begins with the founding of the United States (or at least the adoption of the First Amendment)...

The Don Quixote of Anti-Delaware Scholarship

Posted on February 06, 2010
The Race to the Bottom and my posts are criticized often enough (including by the Delaware courts) but I have to say I have never been disparaged through reference to a fictional literary character.  That honor has now been bestowed upon me.  JW Verret, an assistant professor at George Mason recently referred to me as "the Don Quixote of anti-Delaware scholarship"...

Deloitte LLP v. Flanagan: Big Four Partner Breaches Fiduciary Duty

Posted on February 05, 2010
In Deloitte LLP v. Flanagan, No. 4125-VCN, 2009 WL 5200657 (Del. Ch. Dec. 29, 2009), plaintiffs Deloitte LLP and Deloitte & Touche LLP (collectively 'Deloitte' or the 'Partnerships') accused defendant Thomas P. Flanagan ('Flanagan'), a partner in the international accounting firm partnership Deloitte, of trading in the securities of some of the firm's clients in breach of his partnership agreement and the general fiduciary duties he owed his partners...

SEC v. BofA: A Settlement (Part 2)

Posted on February 04, 2010
So will Judge Rakoff approve the settlement?  Most likely he will. First, of course, it is, to some degree, a clear victory for the judge.  He rejected a $33 million dollar settlement that did not address the failure to disclose the mounting losses by Merrill in connection with shareholder approval of the acquisition...

SEC v. BofA: A Settlement (Part 1)

Posted on February 04, 2010
The SEC filed a motion today seeking approval of a settlement with Bank of America.  The news papers have already reported on the settlement amount.  The SEC is seeking approval of $1 in disgorgement and $150 million in a penalty.  In addition, the SEC is seeking a number of corporate governance reforms in the form of undertakings...

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