Corporate Governance

SEC v. BofA: The Other Shoe Drops (The Merrill Lynch Losses)(Part 1)

Posted on January 18, 2010
This action is about disclosure during the proxy process.  Merrill Lynch had to approve the merger; shareholders of BofA had to approve the issuance of the shares used to acquire Merrill Lynch.  When the SEC brought the original action (the one where Judge Rakoff bounced the settlement), it contained two surprises...

Executive Compensation and the Failing of the Pay Czar

Posted on January 17, 2010
The weekend press was filled with stories about the executive compensation problem, a topic that has reached a fever pitch given the impending bonus announcements by financial institutions, many of whom benefited from government bailout funds...

Don?t Ask, Don?t Tell: Says Goldman Sachs to Shareholders, Part II

Posted on January 15, 2010
According to a January 12th news story, Goldman rejected the proposal due to factual errors. One of those included that the Shareholders' text treated a paraphrasing of a decision by Judge Richard Posner as if it were a direct quote. Goldman also claimed that reference to a 'legislative attempt' to rein in executive pay was misleading because it seemed that the act referred to had passed...

Don?t Ask, Don?t Tell: Says Goldman Sachs to Shareholders, Part I

Posted on January 15, 2010
In September of 2009, the Nathan Cummings Foundation and the Benedictine Sisters of Mt. Angel, shareholders of Goldman Sachs Group, Inc. ('Goldman')(the 'Shareholders'), submitted a resolution  on pay disparity. The Shareholders hoped that Goldman would produce a report by October of 2010 examining and explaining Goldman's pay practices...

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The Chicago School, the Conversion of Judge Posner, and the Delaware Courts (Part 3)

Posted on January 14, 2010
We return to Judge Posner's conversion.  Adhering to Mark Twain's observation in Connecticut Yankee (p. 58), the jurist allowed the facts to modify his views.  The same ought to be true of Delaware.  What are the facts?  Financial institutions engaged in excessive risk taking, resulting in the current economic carnage...

The Chicago School, the Conversion of Judge Posner, and the Delaware Courts (Part 2)

Posted on January 13, 2010
So, with the Chicago School in retreat and Judge Posner undergoing conversion, we turn to the Delaware model of corporate law.  Despite Chief Justice Steele's protestations to the contrary ("It's important to let people know about Delaware law and to correct the inaccurate view that some have that Delaware is pro-management...

The Chicago School, the Conversion of Judge Posner, and the Delaware Courts (Part 1)

Posted on January 12, 2010
The New Yorker has an article (Chicago School Betrayal) that highlights the conversion of Judge Posner away from the Chicago School of economic theory, particularly its disproportionate reliance on the market (rather than more invasive approaches such as increased regulation) as the solution for all problems...

Goldman, Executive Compensation, and Charitable Contributions (Part 2)

Posted on January 11, 2010
A NYT article reported that Goldman was considering a program designed to require some employees to contribute a portion of their compensation to charity.  The program was intended to reduce the anticipated criticism of what is likely to be record bonuses...

Goldman, Executive Compensation, and Charitable Contributions (Part 1)

Posted on January 11, 2010
With the end of the calendar year, financial institutions total up their profits and decide on the year end bonuses.  The market is girding for record numbers, with banks doling out huge bonuses in the middle of a brutal recession.  The financial institutions could pay less in bonuses but they won't...

Executive Compensation, Business As Usual, and the Need for Comprehensive Reform

Posted on January 10, 2010
The NYT reports that financial institutions are preparing to announce bonuses and they are likely to be large (Banks Prepare for Bigger Bonuses, and Public's Wrath).  According to the article: The bank bonus season, that annual rite of big money and bigger egos, begins in earnest this week, and it looks as if it will be one of the largest and most controversial blowouts the industry has ever seen...

The Homeless and Budget Cuts

Posted on January 08, 2010
Among other things, I sit on the board of the Colorado Coalition for the Homeless.  It is an organization that is in the eye of the storm when it comes to servicing the homeless population in the Denver metropolitan area.  Despite a recession that has put increased demands on the services provided by the Coalition (mostly housing and medical care), the organization has undergone severe budge cuts, mostly because of the shortfall in revenue at the state level...

Delaware's Top Five Worst Shareholder Decisions for 2009 (Conclusion)

Posted on January 08, 2010
The system of corporate governance in the United States has many positive aspects.  The degree of disclosure in this country likely exceeds all others.  But there is one place where the development of the law has bordered on the irrational.  In a country of 300 million people, the substance of most aspects of corporate governance are determined by the State of Delaware, a tiny place geographically (save Rhode Island, it is the smallest state in the country) and demographically (the 45th smallest state based upon the 2000 census)...

Executive Compensation, Sandy Weill, and Subservient Boards

Posted on January 07, 2010
Citigroup has always been an interesting story.  In Opening Japan's Financial Markets, a book I published back in 1994, I wrote a chapter on Citigroup's (ne Citibank) unique efforts to crack the otherwise very closed world of Japanese banking.  It has a rich history and while there have been many mistakes, it has also had a history of innovation...

Delaware's Top Five Worst Shareholder Decisions for 2009 (#1): The Delaware Courts and the Utter Lack of Diversity

Posted on January 07, 2010
There is a problem of diversity in the board room.  There are few women CEOs.  Only slightly more than 10% of the directors are women or people of color.  This compares with countries like Norway that have legislatively commanded companies to increase gender representation on their boards to at least 40% (a change that appears to be working)...

Delaware's Top Five Worst Shareholder Decisions for 2009 (#2): In re Citigroup

Posted on January 06, 2010
The Chancery Court in 2009 confronted the board's responsibility for the crisis plaguing the financial markets.  The crisis arose in part out of excessive risk taking by large financial institutions.  Few suffered more than Citigroup.  The financial conglomerate came close to failure and had to be rescued by a large capital infusion from the federal government...

Delaware's Top Five Worst Shareholder Decisions for 2009 (#3): City of Estland v. Axcelis Technologies

Posted on January 05, 2010
In the discussion over shareholder access -- the right of shareholders to include their nominees in the company's proxy statement -- opponents have often pointed to majority vote provisions as if their existence somehow eliminated the need for access...

Delaware's Top Five Worst Shareholder Decisions for 2009 (#4): San Antonio Fire & Policy v. Amylin

Posted on January 04, 2010
Delaware courts assert that boards have a duty to be informed, something that often goes under the label of a duty to monitor.  The duty was first discussed in a meaningful way in Caremark, although it took the Delaware Supreme Court 15 years to acknowledge that in fact boards had a duty to monitor...

Delaware's Top Five Worst Shareholder Decisions for 2009 (#5): Pfeffer v. Redstone

Posted on January 01, 2010
The courts in Delaware claim that the duty of loyalty "demands of a corporate officer or director, peremptorily and inexorably, the most scrupulous observance of his duty." It is the duty of loyalty that applies to transactions involving conflicts of interest, including executive compensation...

Delaware's Top Five Worst Shareholder Decisions for 2009 (Introduction)

Posted on December 31, 2009
Its that time of year when we go back over the last twelve months and point out the decisions rendered by the various Delaware courts that were the most disadvantagious to shareholders.  We did this for 2007 and 2008.  We do not look for decisions where shareholders simply lost...

Deregulation and the Declining Competitiveness of US Stockmarkets

Posted on December 30, 2009
The Economist reported on a study by Grant Thornton about a decline in US securities markets.  The Study, A Wake-up Call for America, is here.  It seems that as the number of listed companies decline, replacements are few and far between.  The lack of replacements comes from an IPO market that has yet to revive in any significant matter...

SOX and Protecting the NYSE from Itself

Posted on December 29, 2009
We haven't heard any good SOX bashing lately, particulary in an era when the need for more rather than less regulation of corporate governance is the order of the day.  Nonetheless, we were treated to a dose of criticism by Duncan Niederauer, the CEO of the NYSE...

Corporate Governance and IPOS

Posted on December 28, 2009
In the debate on corporate governance, its nice to know the facts.  Thus, when someone claims that the preferred system of regulation is one that involves private ordering, its nice to dispel the approach by noting that in practice it doesn't seem to work...

The SEC and the Ban on Short Sales

Posted on December 25, 2009
Its Christmas and not a time when most people are paying attention to their blog posts.  We use the opportunity to go back in time and reexamine the Commission's behavior during the onset of the financial crisis.  One of the more inexplicable steps taken by the SEC during the financial meltdown in the Fall of 2008 was the sudden ban on short sales...

Reinstating Glass-Steagall: The Harm of Inaction (Part 4)

Posted on December 24, 2009
Is the decline in the number of independent investment banking firms already having an impact on the IPO market?  The Economist reported on a study by Grant Thornton about a decline in the competitiveness of US securities markets.  The study, A wake-up call for America, looks to the decline in the number of listed companies since the 1990s...

Reinstating Glass-Steagall: A Brief History in the United States (Part 3)

Posted on December 23, 2009
Until the 1920s, private investment firms dominated the underwriting process. Because they lacked the economic clout of  commercial banks, however, the advantage shifted immediately once commercial banks decided to aggressively pursue underwriting activities...

Reinstating Glass-Steagall: The Problem with Bank Dominated Securities Markets (Part 2)

Posted on December 22, 2009
Bank dominated securities markets are those where banks control the primary distribution process.  This is the situation for example in Germany.  It was the situation in the United States before the adoption of Glass Steagall (we will explore the history in another post)...

Reinstating Glass Steagall: Part 1

Posted on December 22, 2009
We on this Blog opposed the repeal of Glass Steagall, predicting that it would result in the demise of independent investment banking firms.  The case was made in: The "Great Fall": The Consequences of Repealing the Glass-Steagall Act.  It seems that the sentiment for bringing back Glass Steagall has continued to grow...

Corporate Bonuses and a Lesson from Britain

Posted on December 21, 2009
As we continue to cogitate over the 50% tax announced by the British Government (and supported by the French Government) on bonuses paid by banks, we understand even better the wisdom of the decision. It will be during the next two months that boards throughout the financial system will meet to approve bonuses for officers and other employees...

The Influence of Law Blogs on the Judicial Process

Posted on December 21, 2009
The debate continues over the value of law blogs and their role in the continuum of scholarship.  We have written extensively on this topic, including the possible role for blogs in law school rankings.  See Of Empires, Independents, and Captives: Law Blogging, Law Scholarship, and Law School Rankings...

The Financial Crisis and Helping the Homeless

Posted on December 18, 2009
We talk often about executive compensation, particularly as financial institutions are in the process of calculating bonuses for the prior year.  President Obama has taken the "fat cats" in the financial sector to task.  As he noted on 60 Minutes: "They're still puzzled why is it that people are mad at the banks...

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