Corporate Governance

Business Roundtable v. SEC: The Battle for Access (Unions and Leverage) (Part 6B) (DRAFT)

Posted on January 24, 2011
Petitioners also assert that another cost omitted by the SEC was the intended use of access as leverage by unions and public pension plans to gain unique benefits unrelated to their interests as shareholders.  According to the Brief, "union and government pension funds are the most activist shareholders and would impose costs by, among other things, using Rule 14a-11 as leverage to obtain concessions from the company not related to shareholder value...

Diversity on the Board of Directors and the Pool of Qualified Candidates

Posted on January 22, 2011
We are on the mailing list for the memos produced by Wachtell Lipton and they always make for interesting reading.  One of the more recent ones was titled "director pay."  It was, essentially, a call for increased pay for directors.  ("levels of director compensation have not kept pace with the realities of the current marketplace...

Business Roundtable v. SEC: The Battle for Access (Unions and their Soapbox) (Part 6A)

Posted on January 21, 2011
The other argument about costs seemed to be less a legal argument than an attempt to thrash unions and public pension plans.  The approach makes for good reading in the boardroom but is less legally.    The SEC failed to take into account costs associated with nominations made "not in an attempt to gain election, but as a 'soapbox' to address their special interests"...

Business Roundtable v. SEC: The Battle for Access (Assessing the Costs) (Part 5A)

Posted on January 20, 2011
In challenged the SEC's calculation of costs, Petitioners assert that the SEC understated the anticipated number of access challenges.  The Commission estimated the number at 51.  See Release ("For purposes of this analysis, we estimate that 45 companies other than registered investment companies will receive nominees from shareholders n805 for inclusion in their proxy materials...

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Business Roundtable v. SEC: The Battle for Access (Assessing the Costs of Distraction) (Part 5B)

Posted on January 20, 2011
In addition to erroneously computing the total number of access challenges, Petitioners assert that the Commission understated the costs associated with the actual use of access.   The paperwork reduction, cost benefit, competition analysis goes on for page after page in the release...

Business Roundtable v. SEC: The Battle for Access (The Administrative Law Basis for the Challenge)(Part 4)

Posted on January 19, 2011
Without a meaningful challenge to rulemaking authority, the suit against Rule 14a-11 is really a matter of administrative law.  Rules adopted under the APA must be done pursuant to notice and comment.  In adopting the final version, after notice and comment, the rule must not be arbitrary and capricious...

Business Roundtable v. SEC: The Battle for Access (The Battle Lines Form) (Part 2)

Posted on January 18, 2011
The case is likely to be a repetition of the rulemaking process, with issuers (and their supporters) and investors (and their supporters) lining up on each side of this case.  Briefs have already been filed by the Business Roundtable/Chamber, ICI and the State of Delaware (more on that later)...

Business Roundtable v. SEC: The Battle for Access (The Source of Data) (Part 3)

Posted on January 18, 2011
The Business Roundtable and Chamber of Commerce have filed an opening brief in the challenge to the Commission's access rule, Rule 14a-11.  Noticeably absent is any challenge to the Commission's regulatory authority to adopt an access rule.  Dodd-Frank put paid to that argument...

Business Roundtable v. SEC: The Battle for Access (Introduction) (Part 1)

Posted on January 17, 2011
In August of 2010, the SEC adopted Rule 14a-11, requiring public companies to provide shareholders with access to the proxy statement for there nominees.  See Exchange Act Release No. 62764 (August 25, 2010).  For a letter written by this Blog supporting the adoption of the access rule, go here...

Will Bad Funds Make Good Law?: Janus v. First Derivative Traders Part VIII

Posted on January 15, 2011
At oral argument in the Janus case, Justice Ruth Bader Ginsburg placed Janus Capital Management LLC ('JCM') in the 'driver's seat' for purposes of primary liability under Section 10(b) of the Securities Exchange Act. Shortly thereafter, Justice Antonin Scalia put David Frederick, counsel for Respondent in the hot seat...

Will Bad Funds Make Good Law?: Janus v. First Derivative Traders Part VII

Posted on January 14, 2011
To get a sense as to how the Justices might rule in Janus v. First Derivative Traders, a visit to the Oyez.org website is helpful. There, one can listen to the audio of the December 7, 2010 oral argument while the transcript scrolls down. And, as an added benefit, the photo and name of the Justice or attorney speaking appears along side each of their respective comments...

Will Bad Funds Make Good Law?: Janus v. First Derivative Traders Part V

Posted on January 13, 2011
Janus v. First Derivative Traders was argued December 7, 2010 before the US Supreme Court. The case involves certain purchasers of stock in Janus Capital Group ('JCG') who watched the JCG stock price (NYSE: JNS) drop by nearly 24% in a matter of weeks...

Will Bad Funds Make Good Law?: Janus v. First Derivative Traders Part VI

Posted on January 13, 2011
Reviewing the briefs and the December 7, 2010 argument before the Supreme Court in Janus v. First Derivative Traders is quite challenging and slightly surreal. Commonly litigants articulate the 'questions presented' to the Court differently in order to guide the reviewing court toward a particular outcome...

Will Bad Funds Make Good Law?: Janus v. First Derivative Traders Part III

Posted on January 12, 2011
Presumably, that news in early September of 2003 of the 'widespread illegal trading' made shareholders of Janus Capital Group ('JCG') unhappy and nervous. Thus, the sell off and price decline. The owners of  the NYSE-listed JCG stock understood that JCG was a holding company that derived over 90% of its revenue from its mutual fund operations...

Will Bad Funds Make Good Law?: Janus v. First Derivative Traders Part IV

Posted on January 12, 2011
The underlying factual allegations in Janus v. First Derivative Traders – that the operators of the Janus mutual funds permitted market timing by a dozen favorite investors  - gave rise to other legal actions. For example, in 2004 Janus Capital Management LLC ('JCM'), a wholly-owned subsidiary of Janus Capital Group, Inc...

Will Bad Funds Make Good Law?: Janus v. First Derivative Traders Part I

Posted on January 11, 2011
As the saying goes, 'bad facts make bad law.' But, depending upon the outcome of Janus Capital Group, Inc. v. First Derivative Traders, it may well be that bad funds will make good law. The facts and issues underlying the Janus case are complex. Indeed, during oral argument on December 7, 2010, an exasperated Supreme Court Justice, Stephen Breyer implored Petitioners' counsel: '[Y]ou have to explain it to me more...

Will Bad Funds Make Good Law?: Janus v. First Derivative Traders Part II

Posted on January 11, 2011
The market-timing stories are much more than allegations. According to the 4th Circuit, Petitioners Janus Capital Group, Inc. ('JCG') and Janus Capital Management, LLC ('JCM') have admitted that they "had, for years, entered into secret arrangements to allow several hedge funds to engage in market timing transactions in various Janus Funds...

The Supreme Court, Rule 10b-5 and Matrixx v. Siracusano (Part 1)

Posted on January 10, 2011
The NYT reportsed that the Roberts Court has evidenced a decidedly pro-business bias, with the Chamber of Commerce increasingly coming out on the winning side.  The article relied on a study by the Constitutional Accountability Center.   The study is here; the methodology here...

The Supreme Court, Rule 10b-5, and Matrixx v. Siracusano (Part 2)

Posted on January 10, 2011
There was no good reason for the Supreme Court to take Matrixx.  The case involved the materiality of Adverse Effect Reports received by the manufacture of a drug about potential side effects.  Petitioners argued that the Reports would only be material if statistically significant...

The Supreme Court in Matrixx: Materiality and Satanic Susceptibility

Posted on January 10, 2011
Oral argument was held today in Matrixx.  While it is hard to predict the outcome of a case from oral argument, this one seems straightforward.  Respondents will win and the Supreme Court will reject the "statistical significance" test, reaffirming the traditional Northway/Basic analysis...

Oral Argument in Matrixx

Posted on January 10, 2011
The transcript of the oral argument in Matrixx before the Supreme Court can be found here.  We'll have comments shortly.

Delaware's Top Five Worst Shareholder Decisions for 2010 (#1: Airgas v. Air Products)

Posted on January 07, 2011
Airgas v. Air Products, 2010 Del. LEXIS 585 (Del. Nov. 17, 2010), represents the worst shareholder decision in 2010.  We did a series on this case back in November. The case itself is not particularly profound from a legal perspective.  Airgas had a staggered board...

Delaware's Top Five Worst Shareholder Decisions for 2010 (Conclusion)

Posted on January 07, 2011
Shareholders in Delaware have a hard time getting a break.  It is highly likely that the law will continue to evolve in a management friendly fashion.  Moreover, as federal law increasingly intervenes into areas heretofore left to the states, the courts seem ready to respond...

Delaware's Top Five Worst Shareholder Decisions for 2010 (#2: Versata Enterprises v. Selectica)

Posted on January 06, 2011
Our second most anti-shareholder case for the year is Versata Enterprises v. Selectica, 5 A.3d 586 (Del. 2010).  We did a series of posts on this case, both at the Chancery Court and the Supreme Court.  The case has historical significance.  It represents the first time a poison pill was triggered in a manner that resulted in dilution of the acquirer's interest (one was also triggered back in the 1980s in connection with the acquisition of Crown Zellerbach but resulted in no dilution)...

Delaware's Top Five Worst Shareholder Decisions for 2010 (#3: Yucaipa American Alliance Fund v. Riggio)

Posted on January 05, 2011
Yucaipa American Alliance Fund v. Riggio, 1 A.3d 310 (Del. Ch. 2010) is the second worst decision for shareholders in Delaware in 2010.  We did a series of posts on the case back in September.  B&N put in place a poison pill with a 20% trigger...

Delaware's Top Five Worst Shareholder Decisions for 2010 (#4: City of Westland Police v. Axcelis Technologies)

Posted on January 04, 2011
Majority vote provisions have been trumpeted as a source of shareholder rights.  They give shareholders the right, in the absence of a proxy contest, to defeat directors nominated by management.  As we have noted, however, these rights are a myth...

Delaware's Top Five Worst Shareholder Decisions for 2010 (#5: In re Revlon)

Posted on January 03, 2011
VC Laster is the newest member of the Chancery Court.  He has made a number of bold decisions and will be an interesting figure to watch.  It remains to be seen whether his decision making flair will gradually dim as he incurs reversals by the less colorful approach of the Delaware Supreme Court...

Delaware's Top Five Worst Shareholder Decisions for 2010 (Introduction)

Posted on January 01, 2011
We like to bring in the new year with our own countdown.  For the fourth year in a row (for prior listings, see 2009, 2008, and 2007), we conduct a retrospective on the decisions that emerged from the Delaware courts over the last year and rank the five most anti-shareholder in analysis and result...

The SEC, Social Responsibility, and Conflict Minerals: Crossing the Disclosure Rubicon (Part 5)

Posted on December 31, 2010
The SEC's assignment to develop and enforce the conflict minerals disclosure requirements entails the possible crossing of a disclosure Rubicon.  In effect, it is sending the SEC into a new and uncharted area of disclosure.  As we have noted, the Agency has in the past used disclosure to affect substantive behavior...

The SEC, Social Responsibility, and Conflict Minerals: Crossing a Disclosure Rubicon (Part 4)

Posted on December 31, 2010
Disclosure requirements apply to any public company that mine conflict minerals, manufacture products that use conflict minerals, or contract to mine/manufacture products that use the minerals.  Moreover, this is true even if the conflict minerals do not originate in the Congo or surrounding countries...

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