Corporate Governance

Delaware Validates "Just Say Never": Air Products v. Airgas (Part 1)

Posted on February 16, 2011
We will break from the posts about SEC v. Tourre and the Morrison case to discuss the recent opinion in Airgas.  Back in late January, I had this to say about the poison pill in Airgas:  "Either Chandler will uphold the pill or it will get reversed on appeal," said J...

Delaware Validates "Just Say Never:" Air Products v. Airgas (The Need for Shareholder Access) (Part 3)

Posted on February 16, 2011
This case (and its counterparts, Yucaipa and Selectica, the other recent poison pill decisions), contain some real irony.  Those who support the "enabling" approach to governance have traditionally relied on the market for corporate control to keep management in check...

Delaware Validates "Just Say Never": Air Products v. Airgas (Process and Kubuki Theater) (Part 2)

Posted on February 16, 2011
In Airgas, Chancellor Chandler specifically disavows that he is adopting the "just say never" approach to takeovers where management is allowed to oppose a takeover by doing little more than adopting a poison pill and refusing to withdraw the pill.  As he rhetorically asks:  Can "a board ...

The Merger of the NYSE and Deutsche Borse: The Appropriate Regulatory Model for Stock Exchanges

Posted on February 15, 2011
The NYSE is about to be acquired by Deutsche Borse AG.  NYSE is the junior partner and will end up with only a minority of the directors on the holding company.  The acquisition is a good time to once again reconsider the regulatory role for the NYSE...

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Morrison, Tourre, and the Misguided Interpretation of Rule 10b-5 (Introduction)

Posted on February 15, 2011
When the SEC settled the suit against Goldman, the public and the press mostly lost interest. Also potentially lost was the opportunity to definitively determine what happened in connection with the sale of ABACUS 2007AC1, a synthetic CDO.  But in fact the case continued against one Goldman employee, Fabrice Tourre...

SEC v. Schroeder: No Director Ban for KLA-Tenor CEO

Posted on February 14, 2011
Director bans have become common in SEC cases.  But when litigated, they are not automatic as the decsion in Securities and Exchange Commission v. Schroeder, No. C 07-03798 JW (N.D. Cal. Nov. 17, 2010) shows.  The district court denied the SEC's motion to bar Kenneth Schroeder ('Schroeder') from serving as an officer or director of a public company for five years...

eBay Domestic Holdings v. Craigslist: Wanted Enforcement of Fiduciary Duties to Minority Shareholder

Posted on February 14, 2011
In an earlier post, we reported that eBay had brought an action against Craigslist alleging breach of fiduciary duty in the Delaware Court of Chancery.  The Chancery Court decision is here.  In 2004, eBay became a minority shareholder in Craigslist when it purchased a 28...

Nacchio Reaches Settlement with SEC

Posted on February 13, 2011
In Securities and Exchange Commission ('SEC') v. Joseph P. Nacchio ('Nacchio'), the District Court for the District of Colorado entered final judgment against Nacchio pursuant to a settlement reached between Nacchio and the SEC. The settlement permanently enjoined Nacchio from violating any anti-fraud provisions of both the Securities Act and Securities Exchange Act...

Business Roundtable v. SEC: Law Professors Weigh In

Posted on February 11, 2011
The other interesting brief filed in the case was on behalf of 37 law professors (with a number of notables signing on, including Jim Cox at Duke and John Coffee at Columbia.  Many of those signing on were on the professors' brief filed in Matrixx v...

Business Roundtable v. SEC: Private Ordering and the Lack of Empirical Support

Posted on February 10, 2011
Opponents of access assert that the matter should be left to private ordering and that the recently added Section 112 of the Delaware General Corporate Law provides the requisite authority.  We have long argued on this brief that such provisions were authorized before the adoption of Section 112 (the Section simply clarified the limits that management could impose on the authority) and that, contrary to the private ordering argument, there in fact had not been any...

Business Roundtable v. SEC: The Shareholders Respond

Posted on February 09, 2011
The Council of Institutional Investors, TIAA-CREF and 14 other funds (including such notables as Calpers and NYCERF) filed an amicus brief supporting access and Rule 14a-11.  How big of a group is this?  As the brief notes: "Amici and their members cumulatively manage assets exceeding $3 trillion and make annual benefit payments totaling billions of dollars...

Business Roundtable v. SEC: Special Interest Shareholders and the "Phantom" Argument

Posted on February 09, 2011
Petitioners brief essentially asserts that access will be used by special interest shareholders.  In particular, the brief seems concerned with the use of access by union pension funds.  The amicus brief filed by the CII, TIAA-CREF and other funds had this to say about the argument: the   'special-interest'   shareholder   petitioners   purport   to   fear   is   a phantom...

Business Roundtable v. SEC: The SEC Responds

Posted on February 08, 2011
The SEC filed its response in Business Roundtable v. SEC.  We've posted a copy on the DU Corporate Governance web site.  Typical of the appellate division in the General Counsel's Office, the brief is a very straightforward discussion of the SEC's path in adopting Rule 14a-11...

Business Roundtable v. SEC: Shareholder Access and the Panel of Judges

Posted on February 07, 2011
We are examining the briefs in Business Roundtable v. SEC, the case filed in the DC Circuit challenging the SEC's access rule (14a-11). We take a minute to examine the decision makers who will hear this case.  The DC Circuit does something no other circuit in the country does...

The Implications of Dodd-Frank: Executive Compensation and Financial Regulators

Posted on February 07, 2011
The FDIC announced a rule proposal today that was co-sponsored by Treasury, the SEC, the Fed, the National Credit Union Administration, and the Federal Housing Finance Agency, that would impose limits on executive compensation for large financial institutions...

A "Prettier" Board and Gender Diversity: An Opportunity for a US Competitive Advantage

Posted on February 07, 2011
We are writing about the litigation brought by the Business Roundtable and Chamber of Commerce designed to challenge the SEC's shareholder access rule. One likely consequence of shareholder access will be more diversity on the board.  This will occur in part because access nominees will likely be chosen from a broader pool of candidates than is used by a typical board...

Shareholder Access and the Advocacy Role of Delaware in the Corporate Governance Debate: Conclusion (Part 7)

Posted on February 04, 2011
We are examining the Amicus Brief submitted by the State of Delaware in Business Roundtable v. SEC, the case challenging the SEC's rule providing certain shareholders with access for their nominees to the proxy statement. The Brief concludes that access does not "'facilitate shareholders' effective exercise of their traditional state law rights,' because "it expressly grants a non-traditional, inflexible right contrary to the 'traditional' rights that Delaware's General Assembly and Governor have determined to grant...

Shareholder Access and the Advocacy Role of Delaware in the Corporate Governance Debate: Preserving the Right to Restrict Access (Part 6)

Posted on February 03, 2011
We are examining the Amicus Brief submitted by the State of Delaware in Business Roundtable v. SEC, the case challenging the SEC's rule providing certain shareholders with access for their nominees to the proxy statement. In the end, the only real argument made in the Brief for opposing access (other than the inherent need to defer to Delaware) is a negative one...

Shareholder Access and the Advocacy Role of Delaware in the Corporate Governance Debate: Protecting Against Inequitable Conduct by Management (Part 4)

Posted on February 02, 2011
We are examining the Amicus Brief submitted by the State of Delaware in Business Roundtable v. SEC, the case challenging the SEC's rule providing certain shareholders with access for their nominees to the proxy statement. In contending that Delaware adequately protects the shareholder franchise, the Brief filed by the State also notes that "once a proxy contest is initiated," the "Delaware courts have guarded the stockholder franchise from inequitable conduct by corporate management...

Shareholder Access and the Advocacy Role of Delaware in the Corporate Governance Debate: The Legislative Non-Solution (Part 5)

Posted on February 02, 2011
We are examining the Amicus Brief submitted by the State of Delaware in Business Roundtable v. SEC, the case challenging the SEC's rule providing certain shareholders with access for their nominees to the proxy statement. Those arguing for "private ordering" with respect to shareholder access often point to Section 112 of the DGCL...

Shareholder Access and the Advocacy Role of Delaware in the Corporate Governance Debate: The Enabling Approach to Management Friendly Governance (Part 2)

Posted on February 01, 2011
We are examining the Amicus Brief submitted by the State of Delaware in Business Roundtable v. SEC, the case challenging the SEC's rule providing certain shareholders with access for their nominees to the proxy statement.  The Brief characterizes the law in Delaware as "enabling...

Shareholder Access and the Advocacy Role of Delaware in the Corporate Governance Debate: The Protection of Shareholders and Inspection Rights (Part 3)

Posted on February 01, 2011
We are examining the Amicus Brief submitted by the State of Delaware in Business Roundtable v. SEC, the case challenging the SEC's rule providing certain shareholders with access for their nominees to the proxy statement. Delaware, according to the Brief, also contains a body of law that "protects the ability of stockholders to choose and replace the directors...

Shareholder Access and the Advocacy Role of Delaware in the Corporate Governance Debate (Part 1)

Posted on January 31, 2011
In discussing the five worst shareholder cases decided in Delaware in 2010, we noted that the Delaware courts could be seen as advocates in the corporate governance debate rather than neutral arbiters.  As if to confirm these views, the State of Delaware has filed an amicus brief in Business Roundtable v...

Business Roundtable v. SEC: The Battle for Access (A Bit of Irony) (Part 9)

Posted on January 28, 2011
The Brief provides a bit of irony.  The Petitioners essentially assert that, instead of access, the Commission should have merely amended Rule 14a-8 to allow for access bylaws.  As the Brief states: In this rulemaking purportedly intended to empower shareholders, numerous commenters and the dissenting Commissioners argued that shareholders should have the authority to institute alternative, more demanding requirements for proxy access, or to bar it altogether...

Business Roundtable v. SEC: The Battle for Access (The Consequences of a No Prisoners Approach to Access) (Part 10)

Posted on January 28, 2011
We are done for now discussing the Brief submitted by the Business Roundtable and Chamber of Commerce in the shareholder access case. The litigation, it seems to us, is a continuation of the "no prisoners" approach to access. As we noted in a prior post, the "no prisoners" approach has resulted in adamant opposition to all efforts at access...

Business Roundtable v. SEC: The Battle for Access (The "Uneasy Relationship" with State Law) (Part 8A)

Posted on January 27, 2011
In addition to the argument that the Commission erred in computing costs, Petitioners also argue that it was arbitrary to adopt access.  Its not quite an argument that the Commission failed to consider alternatives.  Its more an argument that in considering all of the alternatives, the Commission should not have adopted access...

Business Roundtable v. SEC: The Battle for Access (The "Uneasy Relationship" with State Law) (Part 8B) (DRAFT)

Posted on January 27, 2011
In arguing that the Commission should not have adopted access, Petitioners take issue with the Commission's claim that access will "effectuate state law rights for director elections."  Instead, the provision will "nullify them, establishing a federal proxy access regime by fiat regardless what access mechanism an issuer's shareholders would adopt under the law of Delaware or another State...

Business Roundtable v. SEC: The Battle for Access (The Intensity of the Opposition) (Part 7)

Posted on January 26, 2011
The other argument about costs concerned the underestimation that occurred when the Commission "ignored the intensity with which access nominees would be opposed by issuers."  Intensity of course is not of itself a cost.  But Petitioners assert that by underestimating the intensity, the SEC underestimated the instances in which management would expend funds to resist an access challenge...

Business Roundtable v. SEC: The Battle for Access (The Need for More Data) (Part 6C)

Posted on January 25, 2011
To support the importance of unions and government pension funds, the Brief includes the following footnote: Union and government funds are larger institutions than many of the companies subject to the Rules. The average market capitalization of an S&P 500 company is $21...

Business Roundtable v. SEC: The Battle for Access (Specious and Self Serving) (Part 6D)

Posted on January 25, 2011
As for the analysis of the role of unions and public pension plans in the debate over access, here is the take by TIAA-CREF, a fund that fits into neither category.   Petitioners devote much of their brief to arguing that the proxy access rule is flawed because 'activist' shareholders—which allegedly include 'union pension funds' and 'government pension funds'—have 'special interests that may not represent shareholders' interests as a whole...

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