Corporate Governance

Plaintiffs and Prolixity: Wood v. Baum (Part 2)

Posted on July 16, 2008
We did an earlier post on Wood v. Baum, a recent Delaware Supreme Court upholding the dismissal of a derivative claim, emphasizing the unnecessary decision to accuse the plaintiff of engaging in "prolixity."  As is often the case, however, the tone telegraphs the outcome...

Will ?Say on Pay? Become Mandatory?

Posted on July 15, 2008
Despite some news reports that say-on-pay, the practice of giving shareholders a non-binding vote on executive compensation, is not proving extremely successful, some executive compensation experts suggest that the practice will become mandatory with the inauguration of a new administration...

As Predicted: The SEC and the Further Denial of Shareholder Access (The Anticipated Result) (Part 14)

Posted on July 15, 2008
We have been listening to the oral argument in CA v. AFSCME and offer some comments. The oral argument is publicly available and can be found on the Delaware Supreme Court web site. So where will the Court go with this case?  The Court most likely expected this to be a straightforward example of a bylaw that lacked a fiduciary out...

As Predicted: The SEC and the Further Denial of Shareholder Access (The Myth of Amendments to the Certificate of Incorporation) (Part 13)

Posted on July 15, 2008
We have been listening to the oral argument in CA v. AFSCME and offer some comments. The oral argument is publicly available and can be found on the Delaware Supreme Court web site. Some of the discussion indicated that the mandatory reimbursement provisions were better off in the certificate rather than the bylaws, as if this was a good thing for shareholders (by making them more permanent)...

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The Difficulty of Technology

Posted on July 14, 2008
We have discovered a technological problem with one of the features on The Race to the Bottom.  The blog allows readers to send emails directly to us.  For some reason, that feature has not been working properly over the last few weeks.  Apologies to anyone who made inquiries...

As Predicted: The SEC and the Further Denial of Shareholder Access (Oral Argument and the Payment of Money) (Part 12)

Posted on July 14, 2008
We listened to the oral argument in CA v. AFSCME and are providing comments. The oral argument is publicly available and can be found on the Delaware Supreme Court web site. The Court will have a tough time concluding that the bylaw can, without a fiduciary out, potentially result in payments that are illegal or improper...

As Predicted: The SEC and the Further Denial of Shareholder Access (Oral Argument and the Illegal Payment Problem) (Part 11)

Posted on July 14, 2008
We have had the opportunity to listen to the oral argument in CA v. AFSCME. The oral argument is publicly available and can be found on the Delaware Supreme Court web site. How else might the board prevent the bylaw from requiring improper or illegal payments (that is payments to those who start a contest for personal or political reasons)...

As Predicted: The SEC and the Further Denial of Shareholder Access (Oral Argument and the Illegal Payment Problem) (Part 10)

Posted on July 13, 2008
We have listened to the oral argument in CA v. AFSCME and are providing comments. The oral argument is publicly available and can be found on the Delaware Supreme Court web site. As we have been discussing, CA argued that the mandatory nature of the bylaw made it illegal under Delaware law, that directors were turned into robots and would be required to make payments even if they violated Delaware law (for proxy contests initiated for personal or political reasons)...

As Predicted: The SEC and the Further Denial of Shareholder Access (Oral Argument and the Illegal Payment Problem) (Part 9)

Posted on July 12, 2008
We had the benefited of listening to the oral argument in CA v. AFSCME. The oral argument is publicly available and can be found on the Delaware Supreme Court web site. Both sides wanted to avoid the interplay between section 141(a) and 109(b), each essentially arguing that the bylaw was per se valid or per se invalid...

As Predicted: The SEC and the Further Denial of Shareholder Access (Oral Argument Before the Delaware Supreme Court)(Part 8)

Posted on July 12, 2008
We had the benefit of listening to the oral argument in CA v. AFSCME.  The oral argument is publicly available and can be found on the Delaware Supreme Court web site.  It was a bad idea for the SEC to certify this to the Supreme Court, as we have already noted...

Plaintiffs and Prolixity: Wood v. Baum and the Anti-Plaintiff Bias of the Delaware Courts (Part 1)

Posted on July 11, 2008
Recently, the Supreme Court of Delaware in Wood v. Baum, 2008 Del. LEXIS 301  (Del. July 1, 2008), issued an opinion affirming the Chancery Court's dismissal of a derivative suit.  The case involves an LLC with a board of directors.  We will note the substantive content of the opinion in subsequent posts...

A Friday Editorial: Board Independence and the Separation of Chairman and CEO

Posted on July 11, 2008
We couldn't help but read with great interest the editorial in the Journal written by Gary Wilson called "How to Reign in the Imperial CEO."  He should know about the subject.  He was one of the directors on the Disney board  found to be "independent" by the Delaware court in the 1990s (the same board labeled by Business Week as the "worst" two years in a row, with the article noting that it was packed with "Eisner chums...

Say on Pay and the First 100 Days

Posted on July 10, 2008
BNA reports that Brian Foley, managing director of Brian T. Foley & Co., White Plains, N.Y., said at an ALI-ABA conference on executive compensation that he expects "say on pay" to become law within 100 days of the next administration, irrespective of who wins...

Boards and the Benefits of Diversity

Posted on July 10, 2008
A few Sundays ago, the NYT Magazine contained a story titled “Childless Europe.” At first, the story seemed to be another harbinger of doom about the declining birthrate in Europe. But in fact, the article was more sophisticated and more insightful...

Independent Investment Banking Firms and their Disappearing Act

Posted on July 09, 2008
The Commission and the Fed announced the execution of an MOU providing for increased information sharing between the two agencies.  As the press release described:Under the MOU between the two agencies, the SEC and the Board would share information and cooperate across a number of important areas of common interest including anti-money laundering, bank brokerage activities under the Gramm-Leach-Bliley Act, clearance and settlement in the banking and securities industries, and the regulation of transfer agents...

Free Enterprise Fund v. PCAOB: Regulation, the Free Market, and the Constitution (Be Careful What You Wish For)(Part 12)

Posted on July 09, 2008
FEF v. PCAOB is a case that tests a new model of self regulation.  To the extent that the DC Circuit strikes down the model, the Plaintiffs may well find the consequences not to their liking.  When the suit was filed, there was no doubt hope that a decision finding the PCAOB unconstitutional would have spelled the demise in the organization...

As Predicted: The SEC and the Further Denial of Shareholder Access (VC Strine and the Appearance of Bias)(Part 7)

Posted on July 08, 2008
We have taken the position that Delaware jurists sometimes fail to demonstrate an adequate judicial temperament by speaking on issues that might come before them. In CA v. AFSCME, we see some of the consequences of this approach. The Company took the position that there was no consensus that a short slate of directors was beneficial, that it could lead "to dissent but no real change in policy...

As Predicted: The SEC and the Further Denial of Shareholder Access (The Difficulty Finding Qualified Directors Shibboleth)(Part 6)

Posted on July 08, 2008
CA presented a litany of horrors that can result from AFSCME's proposal. It would "undoubtedly . . . increase the number of short-slate proxy contests" and in so doing, this could "impair CA’s ability to attract accomplished candidates to serve as directors...

As Predicted: The SEC and the Further Denial of Shareholder Access (A Prediction) (Part 5)

Posted on July 08, 2008
We should probably wait to make a prediction but this is Delaware and the outcome is easy to surmise.  This is a traditional battle between the rights of the board in Section 141 and shareholders in 109(b).  The Company argues that the bylaw interferes with the board's authority to manage; shareholders allege that the bylaw addresses the election of directors and is an appropriate subject for a bylaw (whether by shareholders or the board)...

As Predicted: The SEC and the Further Denial of Shareholder Access (Delaware Supreme Court and the Lack of Jurisdiction)(Part 4)

Posted on July 08, 2008
We take a moment to point out that the decision by the Delaware Supreme Court to consider the certified question in this case violates its own rule.  Rule 41 of the rules of the Supreme Court lays out the standard for certifying questions of law...

Starbucks, Store Closings and Social Responsibility

Posted on July 07, 2008
We write regularly about Starbucks on this Blog. The latest news from the mandrake of the three dollar (or more) cup of coffee is that it will close 500 more stores, apparently in recognition that some stores are cannibalizing the sales of others. We have no opinion on this, lacking any expertise into, or insight about, the management of 11,000 outlets...

Free Enterprise Fund v. PCAOB: Regulation, the Free Market, and the Constitution (The Independence of the SEC)(Part 11)

Posted on July 07, 2008
An interesting little aside concerns the independence of the SEC.  Through out the case, it has been assumed that the President may only remove commissioners for cause.  But is this true?The Commission was created in the Securities Exchange Act of 1934, replacing the Federal Trade Commission as the oversight body for the securities markets...

As Predicted: The SEC and the Further Denial of Shareholder Access (The Parties Make Their Case) (Part 3)

Posted on July 07, 2008
AFSCME and CA filed their briefs on Monday as required by the Delaware Supreme Court.  It was, as is usually the case, a contest between Sections 141 and 109(b) of the Delaware General Corporation Law.  The position of CA was predictable, not because of the absence of creativity on the part of counsel but because there was no need...

As Predicted: The SEC and the Further Denial of Shareholder Access (Part 2)

Posted on July 06, 2008
The wrongheaded decision by the SEC to refer a shareholder proposal on the payment of proxy expenses to the Delaware Supreme Court has proceeded apace. According to the WSJ, the parties must submit briefs by Monday, July 7, with oral argument scheduled two days later...

Free Enterprise Fund v. PCAOB: Regulation, the Free Market, and the Constitution (The Amici Speak) (Part 10)

Posted on July 05, 2008
Similarly, a number of amicus briefs were filed on behalf of the Plaintiffs, including the Mountain States Legal Foundation, a relatively short brief dealing with the Appointments Clause issue.  More entertaining was the one filed by the Washington Legal Foundation which described itself as a center devoting "substantial resources to litigating constiutional and statutory cases over the last 30 years in support of the free enterprise system and in opposition to unlawful and excssive government regulation of business...

The Growing Influence of Law Blogs

Posted on July 04, 2008
In addition to all matters of corporate governance, this Blog chronicles the growing influence of Law Blogs. We have run posts on the number of law review and court citations by Law Blogs sponsored by faculty. So we note the story from Linda Greenhouse at the NYT on mistake appearing in the opinion by Justice Kennedy striking down the death penalty in the case of rape of a child...

Free Enterprise Fund v. PCAOB: Regulation, the Free Market, and the Constitution (Amici Speak) (Part 9)

Posted on July 04, 2008
Two amicus briefs were filed in support of the positions taken by the Justice Department and the PCAOB.  One was from the Council on Institutional Investors, the other from seven former chairmen of the Securities and Exchange Commission.  Unanimity by the Chairmen is not always easy to come by as the split in the Stoneridge case illustrated...

Free Enterprise Fund v. PCAOB: Regulation, the Free Market, and the Constitution (The DC Circuit) (Part 8)

Posted on July 03, 2008
 In classroom discussions and in written assignments from students, professors often seek to impose a gender neutral approach to the discussion.  Not all CEOs are male (although most of course are), nor are all judges.  There may be an element of political correctness to the approach but it likewise recognizes that students, as lawyers, will confront plenty of judges and clients who are women and they had better start thinking in gender neutral terms, otherwise they risk causing offense...

Free Enterprise Fund v. PCAOB: Regulation, the Free Market, and the Constitution (Arguments before the DC CIrcuit) (Part 7)

Posted on July 03, 2008
Oral argument at the DC Circuit was spirited, with published reports suggesting that the most pointed questions came from Judge Kavanaugh.  The judges did not seem particularly concerned with the Appointments Clause issue, particularly the status of the SEC as a department...

Access, Arthur Levitt and the SEC

Posted on July 02, 2008
Arthur Levitt, former Chairman of the SEC, writes in the WSJ today about the need for the Commission, now up to full complement, to turn back to shareholder access.  As he noted:All 40 of the largest markets outside of our own give shareholders the ability to nominate and remove directors...

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