Corporate Governance

Board Oversight and CEO Dismissals

Posted on January 20, 2009
The Journal reports that the number of CEO firings is on the rise.  The article doesn't have much perspective, merely noting that there has been a spate of dismissals since the first of the year. William Watkins, ousted Monday at Seagate Technology LLC, is the sixth CEO of a publicly held company to be replaced in just the last eight days...

Regime Change, President Obama, and the SEC

Posted on January 20, 2009
The new administration has come to Washington.  President Obama gave his inaugural address today. He made no mention, in the relatively short speech, of corporate governance or the Securities and Exchange Commission.  He did, however, make this one statement:  "Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age...

The Tellabs Excuse: Zucco v. Digimarc (Part 1)

Posted on January 19, 2009
We have been following the lower court implementation of Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499 (2007), a case that interpreted language in the PSLRA that required plaintiffs to produce evidence establishing a "strong inference" of scienter...

Donations and The Race to the Bottom

Posted on January 19, 2009
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The Tellabs Excuse: Zukko v. Digimarc (Part 2)

Posted on January 19, 2009
We are discussing Judge Bybee's decision in Zukko, a decision that was deliberately designed to resurrect the largely discredited standard for scienter set out in the 9th Circuit decision In re Silicon Graphics Inc. Securities Litigation, 183 F.3d 970 (9th Cir...

Report of the 21st Century

Posted on January 17, 2009
The staff at the Commission has issued the Report of the 21st Century Disclosure Initiative.   The Report does not recommend any change in the content of the current system of periodic reports.  Rather, it is the opening salvo in a comprehensive technological update of the SEC's system of filings...

Executive Compensation and the Upcoming Shareholder Proposal Season

Posted on January 16, 2009
To no great surprise, it looks like the upcoming shareholder proposal season will to a large degree focus on executive compensation.  The year 2008 was a period of high compensation and disastrous economic performance, with a number of high profile examples of executives receiving substantial exit packages despite having managed their company into oblivion...

Brace for Another Madoff

Posted on January 16, 2009
Politico suggests that the Obama Administration is concerned that during the current financial turmoil matters may become even more destabilized by the surfacing of additional frauds.  One commentator noted that there was probably "another Bernie Madoff out there...

Steven Jobs and His Health Issues: Overview (Part 1)

Posted on January 15, 2009
It may be one of the most common law school exam questions ever written.  Rule 10b-5 prohibits securities fraud.  One of the elements of the cause of action is materiality.  Moreover, in non-disclosure cases, the issue is often whether a company had a duty to disclose...

Mary Schapiro and the Confirmation Hearings

Posted on January 15, 2009
Mary Schapiro went before the Senate Banking Committee yesterday.  In her written testimony, she made a number of pledges.  These included reinvigoration of the enforcement process, reengagement with the investor community, and structural reform...

Steven Jobs and His Health Issues: Corporate Governance (Part 3)

Posted on January 15, 2009
We are examining the news that Steve Jobs is taking medical leave at Apple.  He issues a letter on Jan. 14 announcing the decision.  This came a bit over a week after he issued a letter suggesting that his health problems were under control and that he would remain as CEO during the recovery period...

Steven Jobs and His Health Issues: The Antifraud Provisions (Part 2)

Posted on January 15, 2009
In early January, Steve Jobs announced that he had health issues but indicated that he was under treatment and would remain in office.  A bit over a week later, he issued a second letter indicating that his health problems were more complex than expected and that he was taking medical leave until the end of June...

Shameless plug for our new textbook on corporate scandals

Posted on January 15, 2009
The second edition of our textbook (for law schools, business schools, and other organizations) on corporate scandals is about to hit the shelves (see here).  We're calling this edition Enron and Other Corporate Fiascos: The Corporate Scandal Reader, 2d (Nancy B...

Exxon and the Environment

Posted on January 14, 2009
One of the most tone deaf companies when it came to the environment (specifically global warming) had to be Exxon.  Perhaps the most profitable company in the world (at least when gas prices were over $3 a gallon), the company almost managed to lose a shareholder revolt (spearheaded by the Rockefellers) over environmental practices and the need to separate the chairman and CEO...

The Ban on Short Selling and the Failure of Regulatory Intervention

Posted on January 14, 2009
When the market was plummeting and investment banking firms were dropping like stones, criticism began to mount about the role (or non-role) of the Commission.  The Agency gave the appearance it was standing on the sidelines while the financial markets burned...

Regime Change and the SEC's Corporate Governance Agenda: A Recap

Posted on January 13, 2009
So, in this last post, we list the top 10 most important corporate governance reforms that require action by the Commission.  These include: #10    Strengthen disclosure of environmental policies and practices; #9       Reform of the shareholder communication rules to facilitate direct communications with beneficial owners; #8       Reform of the NYSE 10 day rule to allow brokers to vote shares present for quorum purposes but not for unopposed directors; #7       Enforce the corporate governance disclosure requirements of Item 407 of Regulation S-K; #6       Disavow any further use of a willingness to referr proposals submitted under Rule 14a-8 to the Delaware Supreme Court; #5       Adopt disclosure requirements designed to ensure the independence of compensation consultants; #4       Adopt disclosure requirements designed to highlight corporate social responsibility; #3       Amend the rules implementing Section 13(d) to require disclosure of equity swap and other derivative positions that result in an investor exceeding the 5% threshold; #2       Adopt disclosure requirements designed to ensure better governance and independent sources of information to the board; and #1       Access...

The Race to the Bottom and Wikipedia

Posted on January 13, 2009
We are not sure where this fits into the debate on blog scholarship, but The Race to the Bottom was recently cited in the Wikipedia entry for Henry Paulson, the soon to be former Secretary of the Treasury.  One suspects that more people will learn about The Race to the Bottom from that citation than any other.

The Trend in Securities Class Action Lawsuits

Posted on January 13, 2009
The number of securities suits filed in 2008 increased to 210, an uptick of 19% over 2007.  The Cornerstone has, as usual, published an analysis of the data. The D&0 Diary has a great post on the data. We offer only one observation.  Although an increase, the number represents something around average for the new millenium (an average computed without 2001 since the 498 number was aberrationally high)...

Regime Change and the SEC's Corporate Governance Agenda: #1 Access

Posted on January 12, 2009
We have been setting out a top ten list of items that should be considered by the new Commission in the realm of corporate governance. The single most important issue that requires immediate SEC attention is access.  On this issue, it is almost hard to know where to begin...

The Stockman Dismissal: What Really Happened?

Posted on January 12, 2009
The decision of the government to drop the case came as a surprise. We can only speculate on the reasons for the decision but we present some of our thoughts on the matter. The criminal case against David Stockman had been ongoing for almost two years (the indictment was filed in March 2007)...

Getting the Commission Out of the Way of Corporate Responsibility

Posted on January 10, 2009
Its one thing to promote an affirmative, positive agenda for the Commission that is designed to assist shareholders and investors.  It is an entirely other thing to ask the Commission to stop interfering with existing governance rights.  This occurs with unfortunate frequency in connection with Rule 14a-8 and proposals sought to be included by shareholders in a company's proxy statement...

Regime Change and the SEC's Corporate Governance Agenda: #2 Governance and Independent Sources of Information for the Board of Directors

Posted on January 09, 2009
One way that the United States is an outlier in the realm of corporate governance is that public companies generally allow the CEO to also hold the position of chairman of the board.  The practice is widespread.  It is also inconsistent with good corporate governance...

Stockman (et al) Indictment Dismissed

Posted on January 09, 2009
The Government announced today that it is dismissing the criminal case against David Stockman and the other three defendants.  According to the nolle prosequi filed today, the Government made the decision after a "renewed assessment of the evidence" including "information acquired after filing the indictment"...

Public Offerings and the Disappearance of Investment Banking Firms

Posted on January 09, 2009
As we have noted many times on this Blog (and in the article, The "Great Fall": The Consequences of Repealing the Glass-Steagall Act), the disappearance of independent investment banking firms will have a harmful effect on US capital markets.  With Lehman bankrupt, Bear Stearns and Merrill Lynch reduced to subsidiaries of commercial banks, and Goldman and Morgan Stanley converting to commercial banks (while struggling to remain independent), investment banks as a separate class of financial institutions have disappeared...

Regime Change and the SEC's Corporate Governance Agenda: #3 Beneficial Ownership Disclosure

Posted on January 08, 2009
As the CSX case illustrates, it is time to reform the disclosure requirements under Section 13(d) to address some of the more exotic methods of acquiring shares, particularly in connection with derivative transactions. There is an increasing recognition that derivatives securities play a role in determining the influence of shareholders...

Mary Schapiro and Congressional Hearings

Posted on January 08, 2009
Senate hearings for the confirmation of Mary Schapiro as chair of the Securities and Exchange Commission will be held on January 15.  With the President Elect having passed over persons viewed as more likely advocates for shareholders and investors, suspicion and concern has begun to surface over her appointment...

Should Congress Regulate Executive Compensation?

Posted on January 08, 2009
An editorial in the NYTimes from Sunday asks the intriguing question whether Congress should regulate executive compensation.  The answer that it provides, however, is disappointing and reflects a misunderstanding of many aspects of corporate governance...

Regime Change and the SEC's Corporate Governance Agenda: #4 Social Responsibility Disclosure

Posted on January 07, 2009
Let's face it.  The SEC regulates corporate governance but has a limited repertoire of weapons.  With some exceptions, the Agency can do little more than require disclosure.  But at least with disclosure, shareholders have the information necessary to bring pressure on management for reform...

FEF v. PCAOB: Off to the Supreme Court

Posted on January 07, 2009
As expected, plaintiffs have filed a cert petition in the PCAOB case.  Reading it over, one would think this the single most important case of constitutional magnitude in a lifetime.  In fact, it largely turns on whether Congress can limit the removal authority of persons within independent agencies...

Prolix v. Brobdingnagian: A suggestion for the Delaware courts

Posted on January 07, 2009
We have noted that the Delaware courts often use the word "prolix" (or some variation thereof) to describe submissions by plaintiffs but never defendants.  Indeed, the reference in Wood v. Baum earned the case the award for the most anti-shareholder decision of 2008...

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