Corporate Governance

The Supreme Court and the PCAOB (Oral Argument): The Elephant in the Room (Part 3)

Posted on December 17, 2009
We have noted on this Blog that the source of the  "for cause" limits on the removal of SEC commissioners is at best unclear.  Unlike the FTC, the enabling statute is silent.  The parties largely assumed away the issue for purpose of the appeal...

The Supreme Court and the PCAOB (Oral Argument): A Prediction (Part 4)

Posted on December 17, 2009
The prediction? The PCAOB will not be found unconstitutional.  The transcript, briefs, and other primary materials can be found at the DU Corporate Governance web site.?

The Supreme Court and the PCAOB: Oral Argument (Part 2)

Posted on December 16, 2009
Oral argument generated considerable commentary.  Some saw the case as dividing along traditional conservative and liberal lines, with Justice Kennedy playing the traditional role of swing vote.  Moreover, the Washington Post went further and suggested an outcome:  "The questioning indicated that Justice Anthony M...

The Supreme Court and the PCAOB: Oral Argument (Part 1)

Posted on December 15, 2009
Oral argument was held in FEF v. PCAOB, a case challenging the constitutionality of the PCAOB.  The case has often been discussed as if it involved a frontal challenge to all of SOX.   Thus, the Wall Street Journal Law Blog asked:  "Whither Sarbanes-Oxley? Come June, will the law exist in its current form or will it have to be dismantled or reconstituted, the result of a hostile Supreme Court ruling?" The approach is little more than hyperbole...

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The Ultimate Harm of the Pay Czar

Posted on December 14, 2009
The Pay Czar has announced new plans to cut compensation for employees below the top layer of management, the so called "second tier" employees.  The ostensible toughness of the Pay Czar is generally overstated.  Moreover, his impact is a short term palliative that will have no long term effects...

And Then There Were Six

Posted on December 14, 2009
The Pay Czar oversees the compensation practices at seven companies: AIG, Citigroup, BofA, General Motors Corp., GMAC Financial Services, Chrysler Group, and Chrysler Financial.  In reviewing the compensation packages, the Pay Czar has had a reputation for toughness, cutting the compensation packages for top officers significantly...

In Re JQH: Entire Fairness Standard Will be Applied in Evaluating Acquisition of John Q. Hammon's Hotels

Posted on December 12, 2009
In Re John Q Hammons Hotels Inc. Shareholder Litigation, No. 758-CC 2009 Del. Ch. LEXIS 174 (Del. Ch. October 2, 2009), the Delaware Chancery Court granted plaintiffs' motion for summary judgment regarding the proper standard of review for trial, holding the entire fairness standard applied...

Goldman Sachs and the Case for Say on Pay

Posted on December 11, 2009
Say on Pay does nothing more than give an advisory vote to shareholders on the compensation of top officers.  Even if the compensation is voted down, boards are free to ignore the results.  Yet even this mild right has been sharply resisted by most public companies...

Limiting Executive Compensation and Lessons Learned from Abroad

Posted on December 10, 2009
As BofA pays off its TARP money, allowing it to avoid the oversight of the Pay Czar and to pay compensation essentially without limits, and Goldman opts to pay compensation that, on the present course, will equal more than $700,000 for every employee, it is clear that the US has done nothing to fix the problem of executive compensation...

SEC v. Chais: SEC's Own Failures as an Affirmative Defense to Alleged Violations of Federal Securities Laws

Posted on December 10, 2009
In a complaint filed on June 22, 2009 ('Complaint'), the SEC alleged Stanley Chais, a money manager who managed three funds ('Funds') that invested substantially all assets with Bernard Madoff, committed securities fraud by (1) misrepresenting involvement in managing investors' assets and (2) disseminating account statements containing false information...

Goldman Sachs and Executive Compensation

Posted on December 10, 2009
Street Signs carried a brief discussion today on executive compensation, including Goldman's decision to pay stock bonuses to some employees and the decision to implement say on pay.  I discussed the matter with Jon Macey at Yale.  Bonuses: Do They Get It? Airtime: Thurs...

SEC v. Private Investor: Publishing Insider Information

Posted on December 09, 2009
In SEC v. Pirate Investor, LLC, 2009 WL 2949091 (4th Cir., Sept. 15, 2009), the SEC filed suit against Pirate Investor, LLC ('Pirate'), alleging the publisher made fraudulent misrepresentations violating §10(b) of the 1934 Securities Exchange Act...

Chiquita?s Motion to Dismiss Met with Opposition Concerning Statutes of Limitations and the ATA

Posted on December 09, 2009
We have been following the Chiquita Brands, International, Inc. ('Chiquita') case since August 2007.  Chiquita filed a motion to dismiss in February 2009.  In September, plaintiffs filed a Response in Opposition to Chiquita's motion to dismiss...

SEC v. Pirate Investor: Publishing Insider Information

Posted on December 09, 2009
In SEC v. Pirate Investor, LLC, 2009 WL 2949091 (4th Cir., Sept. 15, 2009), the SEC filed suit against Pirate Investor, LLC ('Pirate'), alleging the publisher made fraudulent misrepresentations violating §10(b) of the 1934 Securities Exchange Act...

Restoring American Financial Stability Act of 2009: The Problem of Staggered Boards

Posted on December 08, 2009
The other place where the Act uses listing standards is with respect to staggered boards.  Section 974 would add a new subsection to Section 14 of the Exchange Act to require shareholders to approve staggered board provisions.  The provision relies on listing standards, thereby limiting its reach to public companies traded on an exchange...

Restoring American Financial Stability Act of 2009: The Need for Comprehensive Reform

Posted on December 07, 2009
The WSJ carried a story about five officials at AIG (two of whom later changed their minds) threatening to resign if the Pay Czar significantly cut their compensation.  The Pay Czar is cutting compensation and requiring larger portions to be paid in stock rather than cash...

Restoring American Financial Stability Act of 2009: Shareholder Access and the Consequences of Vituperative Opposition

Posted on December 07, 2009
The Act also grants to the Commission the authority to provide shareholders with 'access' to the proxy statement.  The Commission almost certainly has the authority already but because business organizations have threatened to challenge any access rule in court, Congress has moved ahead to clarify the authority and cut off resort to judicial challenge...

Restoring American Financial Stability Act of 2009: Federalizing the Compensation Standard

Posted on December 04, 2009
The Financial Stability Act largely seeks to "solve" the compensation problem through process.  It would require listed companies to rely on independent directors and independent consultants.  The Act allows the SEC to impose a stricter definition of "independence...

Restoring American Financial Stability Act of 2009: Separating the Chairman and CEO: The Battle Begins

Posted on December 04, 2009
One of the newest fronts in the corporate governance area has been the consistent decision on the part of most public companies to combine the positions of chairman and CEO.    The approach is facially inconsistent with the role of the board...

The Problem of Executive Compensation: The Excess Continues

Posted on December 03, 2009
The WSJ reported that Goldman has been visiting with shareholders in an attempt to justify its extraordinary compensation practices.  As the article notes:  "So far, Goldman has shown no signs of backing down to anger over the firm's pay and benefits, on track to hit a record high of about $717,000 per employee, consultant and temporary worker for 2009, nearly double last year's $364,000...

Restoring American Financial Stability Act of 2009: Majority Vote Provisions and Preemption of State Law

Posted on December 03, 2009
Buried within the bill are a host of corporate governance provisions.  Once again, the principal method of imposing the requirements is through the use of listing standards.  We have already discussed the problems associated with this form of regulation...

The Student Lawyer and The Race to the Bottom

Posted on December 02, 2009
The Race to the Bottom got a nice mention in this month's edition of the Student Lawyer Magazine, an ABA publication.   As the Student Lawyer describes:    The University of Denver Sturm College of Law –based corporate governance blog, The Race to the Bottom ( www...

Restoring American Financial Stability Act of 2009: Say on Pay and Golden Parachutes

Posted on December 02, 2009
The Dodd bill contains a provision that would require say on pay.  The vote is advisory and extends to all companies subject to the proxy rules (any company with 500 shareholdes of record and $10 million in assets).   The provision puts the SEC squarely in the middle of the governance process...

Merck v. Reynolds: Merck v. Reynolds: The Supreme Court, Rule 10b-5, and the Statute of Limitations (A Prediction)

Posted on December 01, 2009
It is difficult to predict the outcome of a case from the questions at oral argument.  Nonetheless, the tenor of the questioning makes this case possible to predict.  Most of the Justices were active in their questioning, particularly Justice Sotomayor...

Merck v. Reynolds: The Supreme Court, Rule 10b-5, and the Statute of Limitations (Faculty Amici and the Meaning of Lampf)

Posted on December 01, 2009
One of the most puzzling things about this area of law has been the judicial interpretation of the Supreme Court's analysis in Lampf.  Lampf held that under Rule 10b-5, the courts should look to the one year, three year limitations period in Section 9(e) of the Exchange Act...

Merck v. Reynolds: The Supreme Court, Rule 10b-5, and the Statute of Limitations (Faculty Amici and Plain Meaning)

Posted on December 01, 2009
The argument in the faculty amicus brief could be summed up in two words:  Plain meaning.  The language of the statute provided that the two year limitations period began to run after discovery.  It did not provide that the limitations period should begin to run after inquiry or investigation...

Merck v. Reynolds: The Supreme Court, Rule 10b-5, and the Statute of Limitations (The Role of Faculty Amici)

Posted on December 01, 2009
Its sometimes hard to determine the role of amici, particularly at oral argument.  Nonetheless, a number of the Justices on the Court specifically referred to arguments made by "amici" and used language almost precisely from the amicus brief written by law faculty...

Merck v. Reynolds: The Supreme Court, Rule 10b-5, and the Statute of Limitations

Posted on December 01, 2009
We will resume our examination of the Financial Stability Act tomorrow.  Today we will provide some thoughts on Merck v. Reynolds. The Supreme Court heard oral argument in the case yesterday.  Merck v. Reynolds involves the dull sounding but extremely important issue of the commencement of the statute of limitations under Rule 10b-5...

Merck v. Reynolds: The Supreme Court, Rule 10b-5, and the Statute of Limitations

Posted on November 30, 2009
The Supreme Court heard oral argument in Merck v. Reynolds, a case that involved the standard for determining the onset of the statute of limitations under Rule 10b-5.  The transcript of the oral argument is here. The primary materials in the case can be found at the DU Corporate Governance web site...

Restoring American Financial Stability Act of 2009: A More Meaningful Definition of Independent Director

Posted on November 30, 2009
Talk about an unexpected change in the compensation structure that is buried in the Financial Stability Act. The Financial Stability Act submitted by Senator Dodd also contains provisions that would reform the compensation process at the board level.  The provision does so, reminiscent of SOX, through the use of listing standards...

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