Corporate Governance

Delaware's Preeminence and the Internal Affairs Doctrine (Part 2)

Posted on April 01, 2008
In the last post, I discussed the reasons why Delaware’s chartering franchise is vulnerable to other states’ choosing not to adhere to the internal affairs doctrine. Aware of this threat, the Delaware Supreme Court has acted to protect the state’s interests in an unconventional, and, in terms of judicial norms, questionable fashion...

Bush to Nominate Two Democrats to the Commission

Posted on March 31, 2008
The White House announced that it would nominate the two Democrats submitted by Harry Reid, Luis Aguilar and  Elisse Walter to the Securities and Exchange Commission.  Approval by the Senate will bring the Commission up to its full complement of 5...

Delaware's Preeminence and the Internal Affairs Doctrine (Intro)

Posted on March 31, 2008
We are pleased to have a pair of posts from Timothy Glynn, a professor at Seton Hall Law School.  His recent piece is entitledDelaware's VantagePoint:  The Empire Strikes Back in the Post-Post-Enron Era, 102 Nw. U. L. Rev. 91 (2008) .We have written often on this blog that the lack of standards by the Delaware courts is good for business but will ultimately lead to increased federal preemption, with Say on Pay the current example...

Delaware's Preeminence and the Internal Affairs Doctrine (Part 1)

Posted on March 31, 2008
Delaware ’s fear of a federal takeover of corporate law is once again in thenews and in the blogs (seehere, here, andhere). In a related series of posts, this Blog has explored the temperament of Delaware judges and their efforts to promote the state’s chartering franchise...

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Bear Stearns, Glass Steagall and the Disappearance of Independent Investment Banking Firms

Posted on March 30, 2008
We have noted in an earlier post that the Bear Stearns acquisition illustrates a phenomena set into motion in the 1990s with the repeal of Glass Steagall.  With banks allowed to expand into the securities business, they will sooner or later dominate the area and the independent investment banking firms will all disappear...

Bloggings, Rankings, and Lateral Movement

Posted on March 29, 2008
Paul Secunda (of Work Place Prof Blog fame) has written a piece on lateral movement by law professors (Tales of a Law Professor Lateral Nothing), a commonly discussed but rarely implemented concept (he notes that there were 7,618 law professors in 2006-2007 and 125 lateral moves during 2007)...

Bear Stearns, Corporate Governance, and the Capital Markets: Bring Back Glass Steagall (Part 5)

Posted on March 28, 2008
We are discussing the collapse of Bear Stearns and the significance for the financial markets.  One of the consequences not yet discussed concerns the elimination of a separate class of broker dealers, with investment banking functions becoming a subsidiary operation of commercial banks...

Henry Paulson and the Shift in Attitude about Regulation

Posted on March 27, 2008
It was almost exactly a year ago that Treasury Secretary Paulson questioned whether regulators had “struck the right balance between investor protection and market competitiveness.”  What did he mean?  Too many lawsuits, too many rules (not enough principles)...

Bear Stearns, Corporate Governance, and the Capital Markets: The Regulatory Response (Part 4)

Posted on March 27, 2008
Many are calling for a regulatory response. It is quite a shift from this administration. Recall that Paulson was behind the Committee on Capital Markets Regulation, which issued a series of interim recommendations. Despite including a few tepid proposals for reform that favored shareholders (it refused to recommend access), the report was an unabashedly anti-regulatory diatribe, favoring principles over rules (this is code for regulatory lite), the adoption of rules only if supported by "empirical evidence to the extent possible," something that would have undone most of SOX and prevented regulators from heading off anticipated problems (how can you quantify the benefits of reduced fraud or increased integrity of the markets), and restrictions on shareholder litigation...

More on ?Say on Pay? Initiatives

Posted on March 26, 2008
The push to allow shareholders a “say on pay” continues to gain momentum in the wake of Aflec’s recent announcement last month that it was giving its shareholders a non- binding vote on executive pay. On March 4th, Apple Inc.’s shareholders approved a non-binding resolution urging Apple to give its shareholders input into executive compensation...

Bear Stearns, Corporate Governance, and the Capital Markets: The Need for Access (Part 3)

Posted on March 26, 2008
We've been talking about the Bear Stearns debacle and the role of the board of directors.  We noted that the dynamics of the board suggested one very deferential to management.  We found evidence of this in the board's favorable compensation packages given to top management...

Bear Stearns, Corporate Governance, and the Capital Markets: The Role of the Board (Part 2)

Posted on March 26, 2008
So let's ask the Enron question. Where was the board in all of this? We don't have complete information. Bear Stearns had not filed its proxy statement for its upcoming meeting so we are largely left with the2007 proxy statement and the Company's web site...

NYSE, Bear Stearns and Concerns About Lax Enforcement

Posted on March 25, 2008
We have noted numerous times that the for profit status of the NYSE (and Nasdaq) creates an disincentive to rigorously enforce its rules, including listing standards.  It is not a phenomena limited to the US, as we noted in a post about the Nordic Stock Exchange...

Bear Stearns, Corporate Governance, and the Capital Markets: Overvew (Part 1)

Posted on March 25, 2008
We have been watching the unraveling of the capital markets, the efforts to rescue Bear Stearns, and the efforts of complete flip by the Secretary of Treasury on the merits of regulation.  We begin a multi-part series on the transaction.  In particular, we will ask about the proper direction of regulation, with a novel response, and the role of the board of directors in the debacle...

Starbucks, Social Activism and A Loyalty Program

Posted on March 24, 2008
I was in DC the other day and wanted a latte.  On one corner stood a Starbucks, on the other a Caribou.  Caribou had free Internet, Starbucks did not.  Needless to say, it was Caribou that received my pittance. The latest from Starbucks is that it plans to introduce new coffee blends, some kind of improved espresso equipment, and a loyalty program for regular customers...

Removing a Director and Delaware Law: Postorivo v. AG Paintball

Posted on March 24, 2008
Postorivo v. AG Paintball, Civ. Act. No. 2991, Del. Ch., Feb. 29, 2008 is a relatively straightforward application of the Aronson/Rales standard for determining demand futility.  But it really illustrates what happens to dissident directors and the legal hurdles imposed by Delaware courts in challenging a dissident director's removal...

Limiting the Rights of Preferred Shareholders: Matulich v. Aegis Communications Group, Inc.

Posted on March 23, 2008
In January, the Delaware Supreme Court ruled that a preferred shareholder who held a contractual right to ?approve and consent? to a merger did not have "statutory" voting rights. As a result, the preferred shares did not have to be included in determining whether a controlling shareholder owned enough shares to engage in a short form merger...

Director Elections, Institutional Investors, and Shareholder Rights

Posted on March 22, 2008
Efforts by institutional investors to establish some type of system of majority voting has engendered criticism, some coming from a Vice Chancellor on the Delaware Chancery Court.  But in fact those criticizing the effort never mention that majority voting was apparently the rule until the 1980s...

Sudan Accountability and Divestment Act ? Shareholders, Social Activism, and Government Encouragement

Posted on March 21, 2008
The War in Darfur, otherwise known as the Darfur Genocide, is a military conflict in the Darfur region of western Sudan. The Sudanese government has provided support to a large Arab militia known as the Janjaweed, a violent force operating in the region...

Chiquita and the Costs of Doing Business

Posted on March 21, 2008
We have discussed on this Blog the plea deal by Chiquita Brands International made in connection with payments to an organization in Columbia designated by the US State Department as a terrorist organization.  The sentencing memorandum described the payments as a "business decision...

Refco and the Criminal Plea of Phillip Bennett

Posted on March 20, 2008
We have, to some degree, followed the claims arising out of the collapse of Refco.  It is an example of a fraud uncovered in the post-SOX era, a consequence of a more active audit committee.  Please refer to our previous posts for information on the topic...

Limiting the Rights of Preferred Shareholders: Matulich v. Aegis Communications Group, Inc.

Posted on March 20, 2008
The post below by Mathew Shecter involves a relatively dull issue, whether preferred shares with limited voting rights should be aggregated with common shares in determining the percentage ownership necessary to effectuate a short form merger.   But buried in the opinion is a significant issue...

Japan, the Ministry of Finance, and Bureaucratic Authority (Part 3)

Posted on March 19, 2008
The retiring governor, Toshihiko Fukui, was a career official at the BoJ.  As a result, the position next belonged to a former MoF official, with the appointment going to Toshiro Muto.  Muto was the former vice minister of the Ministry of Finance, the highest career position in the Ministry and a position of considerable power and influence...

Japan, the Ministry of Finance, and Bureaucratic Authority (Part 1)

Posted on March 19, 2008
We include two posts today on a topic that involves governance only tangentially.  Last week, the Upper House refused to approveToshiro Muto as the new Governor of the Bank of Japan.  In the post-war era, it is the first time a candidate for Governor has been rejected by the Diet...

Japan, the Ministry of Finance, and Bureaucratic Authority (Part 2)

Posted on March 19, 2008
Japan has a powerful bureaucracy.  The bureaucracy, particularly the Ministry of International Trade and Industry or MITI (later reorganized as the Ministry of Economy, Trade and Industry), was given the lions share of the credit for managing the country's recovery after the devastation of World War II...

US v. Nacchio: The Last Word (For Now)

Posted on March 18, 2008
The good news for Joe Nacchio is that the conviction was reversed. The bad news is almost everything else in the opinion. On appeal, the defendant challenged various jury instructions and argued that the evidence was insufficient to sustain a conviction...

US v. Nacchio: The SEC Wins One

Posted on March 18, 2008
One thing is for certain about the decision in US v. Nacchio, the SEC came out a winner. In reviewing the sufficiency of the evidence, the main issue was the materiality of the non-public information known to Nacchio at the time he traded. undisclosed information, an amount equal to 4...

US v. Nacchio: Curing an Affront to the Law and Economics Movement

Posted on March 18, 2008
The dispositive issue in the case was the decision to exclude Daniel Fischel, the former dean of the University of Chicago Law School as an expert. Ultimately, the two judges in the majority (Michael McConnell and Paul J. Kelly) concluded that the trial judge erred by not holding a hearing on whether to exclude the testimony...

US v. Nacchio: Replacing the Trial Judge

Posted on March 18, 2008
The panel voted to replace the trial judge, Judge Nottingham. The reasoning was not lucid. Here is the entire discussion of the issue.Finally, the defendant asks us to assign any new trial to a new district judge. In this Circuit, we exercise our power to do so only where we find either that the judge harbored “personal bias” or on the basis of circumstances laid out in a three-part test:  (1) whether the original judge would reasonably be expected upon remand to have substantial difficulty in putting out of his or her mind previously-expressed views or findings determined to be erroneous or based on evidence that must be rejected, (2) whether reassignment is advisable to preserve the appearance of justice, and (3) whether reassignment would entail waste and duplication out of proportion to any gain in preserving the appearance of fairness...

US v. Nacchio: Government Options

Posted on March 18, 2008
The following is a list of my initial reactions to the Tenth Circuit’s split decision to grant Joe Nacchio a new trial based upon the improper exclusion of his expert witness. 1.  While a victory for Nacchio, he would have preferred a finding by the 10th Circuit that the evidence at trial was insufficient to convict him...

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