The Race to the Bottom: Corporate Governance

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Corporate Governance

The Race to the Bottom

A student-faculty collaboration discussing all areas of corporate governance including: methods for improving, the role of the Securities and Exchange Commission, the role of Delaware, and independent directors, impact of Sarbanes-Oxley.
By J Robert Brown Jr et al.

Post Frequency: 21.6/day

Last Entry: April 01, 2011 at 09:00:35

Say on Pay and SEC Rulemaking (Substance not Process)

Posted on November 03, 2010
The SEC has put out a rule proposal designed to implement the say on pay provisions in Dodd-Frank. See Exchange Act Release No. 63124 (Oct. 18, 2010).? The SEC did not script the resolution that must be submitted to shareholders with respect to say on pay (compare that to the Chancery Court in Airgas where it found a drafting problem with a staggered board bylaw and set out the language that would eliminate the concern)...

Say on Pay and SEC Rulemaking (Mandatory Proxy Solicitations)

Posted on November 02, 2010
The SEC has put out a rule proposal designed to implement the say on pay provisions in Dodd-Frank. See Exchange Act Release No. 63124 (Oct. 18, 2010). The provision contains a number of new requirements, most noticeably the adoption of Rule 14a-21...

In re: DHB Industries, Inc. Derivative Litigation ? SOX § 304, Power lies with SEC

Posted on November 01, 2010
In a win for the Securities and Exchange Commission ('SEC') and Department of Justice ('DOJ'), the Second Circuit Court of Appeals, reversed a settlement in a shareholder derivative case against DHB Industries, Inc. ('DHB') because the settlement "impermissibly releases and indemnifies DHB's former Chief Executive Officer and Chief Financial Officer against all liability arising under § 304 of the Sarbanes-Oxley Act"...

Pleading Fraud with Scienter under Heightened Pleading Standards: IBEW Pension Fund v. AMEX Fraud Complaint Dismissed

Posted on October 29, 2010
In Local No. 38 IBEW Pension Fund v. Am. Express Co., 2010 WL 2834226 (S.D.N.Y. July 19, 2010), the United States District Court held Plaintiff did not adequately plead scienter under the Private Securities Litigation Reform Act's heightened pleading standards for its securities fraud claim against American Express ('AMEX')...

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SEC Releases Proposed Rules for Say-on-Pay and Golden Parachutes

Posted on October 29, 2010
On October 18, in accordance with Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act ('Dodd-Frank'), the Securities and Exchange Commission ('SEC') proposed rules that would enable shareholders to have a say on executive compensation and 'golden parachute' arrangements...

Selectica, the Delaware Supreme Court, and the Effort to Limit Access (The Impact on Access)

Posted on October 28, 2010
We are examining the Delaware Supreme Court's recent decision in Selectica. The opinion affirmed the validity of a poison pill with a 5% trigger. ?? As we have suggested, the true significance of this decision can be seen with respect to shareholder access...

Selectica, the Delaware Supreme Court, and the Effort to Limit Access (Absolutely Not Absolute)

Posted on October 27, 2010
We are examining the Delaware Supreme Court's recent decision in Selectica. The opinion affirmed the validity of a poison pill with a 5% trigger. ? The Court at some level understood the extraordinary nature of the opinion. Pills with 5% thresholds when coupled with staggered boards would in fact have a signficant impact on proxy contests...

Selectica, the Delaware Supreme Court, and the Effort to Limit Access (The Impact of the Staggered Board)

Posted on October 26, 2010
We are examining the Delaware Supreme Court's recent decision in Selectica. The opinion affirmed the validity of a poison pill with a 5% trigger. ? The low trigger for the poison pill in this case had to be considered in light of the company's staggered board...

Selectica, the Delaware Supreme Court, and the Effort to Limit Access

Posted on October 25, 2010
We are examining the Delaware Supreme Court's recent decision in Selectica. The opinion affirmed the validity of a poison pill with a 5% trigger. ? Unitrin also prohibited poison pills that had a preclusive effect on proxy contests. Preclusive meant that success was "realistically unattainable...

Selectica, the Delaware Supreme Court, and the Effort to Limit Access (The Impossibility Standard)

Posted on October 25, 2010
We are examining the Delaware Supreme Court's recent decision in Selectica. The opinion affirmed the validity of a poison pill with a 5% trigger. ? In effect, the Court in Selectica adopted an impossibility standard. A poison pill would not be deemed preclusive unless it was impossible to win an election contest...

Selectica, the Delaware Supreme Court, and the Effort to Limit Access (The Import of the Poison Pill)

Posted on October 22, 2010
We are examining the Delaware Supreme Court's recent decision in Selectica. The opinion affirmed the validity of a poison pill with a 5% trigger. Selectica put in place a poison pill with a 5% threshold in order to prevent the loss of NOLs (net operating loss carryforwards)...

Selectica, the Delaware Supreme Court, and the Effort to Limit Access (Introduction)

Posted on October 21, 2010
It was no big surprise that the Delaware Supreme Court affirmed the trial court's decision in Selectica. Selectica involved a poision pill with a 5% trigger. Plaintiffs bought through the pill and saw their holdings undergo significant dilution...

SEC v. Cuban: Dismissed Attorneys' Fees Case - Discovery Motions Denied

Posted on October 21, 2010
After the 5th Circuit Court of Appeals reinstated the Securities and Exchange Commission's ('SEC') insider trading case against Mark Cuban ('Cuban'), the District Court for the Northern District of Texas dismissed Cuban's Motion for Attorney's fees and several discovery motions ('the Motions') to avoid 'parallel litigation' with the remanded case...

The Goldman Case and the Inspector General: The Costs

Posted on October 20, 2010
We are dicussing the 77 page report issued by the Inspector General on the SEC's timing of the Goldman case and the settlement. The report entirely exonerated the SEC. What are the costs of this type of investigation? There are two...

The Goldman Case and the Inspector General: Exoneration for the SEC

Posted on October 19, 2010
The Inspector General issued a 77 page report containing the results of an investigation into the timing of the Goldman case. The report entirely exonerated the SEC. The report examined whether: SEC employees communicated or coordinated with the White House, Members of Congress, or Democratic political committees concerning the bringing, or the timing of bringing, an action against Goldman Sachs & Co...

Gentile v. Rossette: Even 95% Majority Shareholders Must Be Entirely Fair

Posted on October 18, 2010
In Gentile v. Rossette, C.A. No. 20213-VCN, 2010 WL 2171613 (Del. Ch. May 28, 2010), the Delaware Chancery court declared that defendant P. David Rossette, the largest shareholder of the now defunct company SinglePoint Financial, Inc. and one of two directors, had engaged in self-dealing through a debt conversion plan that benefitted him at the expense of fellow shareholders...

The Effect of Corporate Governance on High Frequency Trading Habits

Posted on October 15, 2010
The days of calling your broker to place a trade over the phone are over. In fact, the new breed of Wall Street traders that are under 30 years old have probably never placed a trade over the phone. In today's trading world, billions of dollars are moved in financial markets with the click of a mouse...

FEF v. PCAOB and the Threat to SEC Independence (Part 4)

Posted on October 14, 2010
In FEF v. PCAOB, Justice Breyer pointed out the statutory silence on any limitation on presidential removal of SEC commissioners. "As far as its text is concerned, the President's authority to remove the Commissioners is no different from his authority to remove the Secretary of State or the Attorney General...

FEF v. PCAOB and the Threat to SEC Independence (Part 5)

Posted on October 14, 2010
Justice Breyer in his dissent made a case that SEC commissioners are not removable "for cause." In other words, the President has plenary right to remove commissioners. He went on to conclude that this "does not mean it intended to create a dependent, rather than an independent agency...

FEF v. PCAOB and the Threat to SEC Independence (Part 3)

Posted on October 13, 2010
So, with all of that background, we return to FEF v. PCAOB. Congress, in creating the PCAOB, provided that Board members could only be removed by the Commission. Moreover, the Commission could only remove them "for cause." See 15 USC §7211(e)(6)...

FEF v. PCAOB and the Threat to SEC Independence (Part 2)

Posted on October 12, 2010
When the term "independence" is used with respect to federal agencies, it can have a multitude of meanings. Sometimes the term is descriptive, merely signifying a free standing agency that is not otherwise part of another bureaucracy. In other words, the concept of indepenence means independent of any other agency or bureaucracy...

FEF v. PCAOB and the Threat to SEC Independence (Part 1)

Posted on October 11, 2010
The Court's decision in FEF v. PCAOB turned out to be a mostly non-event. The majority (by a 5-4 vote), struck down the for cause restriction on the removal of PCAOB board members but otherwise left the Board (and more importantly for some critics, SOX) in place, otherwise unaffected...

Fulton County Employees? Retirement System v. MGIC Investment Corp.: Another Subprime Fraud Case Dismissed

Posted on October 08, 2010
In Fulton County Employees' Retirement System v. MGIC Investment Corporation, No. 08-C-0458, 2010 WL 601364 (E.D. Wis. Feb. 18, 2010), the Federal Court of the Eastern District of Wisconsin dismissed a stockholder fraud claim alleging misstatements "designed to mask the true impact of the [subprime] crisis on the companies' businesses...

Barnes & Noble Poison Pill Upheld [Yucaipa American Alliance Fund II, LP v. Riggio]

Posted on October 07, 2010
In Yucaipa Am. Alliance Fund II, L.P. v. Leonard Riggio, et. al., No. 5465-VCS, 2010 WL 3170806 (Del. Ch. Aug. 11, 2010), the Delaware Court of Chancery dismissed Yucaipa's claim for breach of fiduciary duties by the Barnes & Noble Board of Directors...

Barnes & Noble Proxy Fight After Delaware Ruling

Posted on October 07, 2010
The Delaware Court of Chancery, in Yucaipa Am. Alliance Fund II, L.P. v. Leonard Riggio, et. al., No. 5465-VCS, 2010 WL 3170806 (Del. Ch. Aug. 11, 2010), previously upheld a poison pill adopted by Barnes & Noble's Board of Directors to prevent Yucaipa American Alliance Fund ('Yucaipa') from purchasing more than a 20% stake in the company, which is discussed here, here, and here...

GyneConcepts v. Kim: A Rare Calculation of Damages in a Breach of Fiduciary Duty Claim

Posted on October 06, 2010
In the brief post-trial decision of GyneConcepts, Inc. v. Kim, No. 4820-CC (Del.Ch., Aug. 17, 2010), the Delaware Court of Chancery computed the damages incurred by GyneConcepts after finding a breach of fiduciary duties. The court set the total amount of damages at $ 1,181,708...

Staying Access

Posted on October 06, 2010
The SEC granted the stay requested by the Chamber of Commerce on the implementation of the access rule. The Chamber (and the Business Roundtable) have filed a legal challenge in the DC Circuit seeking to strike down the rule, mostly alleging that the Commission's decision was arbitrary and capricious under Section 706 of the APA...

SEC v. Cuban: Attorney?s Fees Battle Ends (For Now)

Posted on October 05, 2010
Incident to the Fifth Circuit's reinstatement of the Securities and Exchange Commission's ('SEC') insider trading case against Mark Cuban ('Cuban'), the District Court for the Northern District of Texas, Dallas Division, denied Cuban's motion for attorney's fees and expenses ('the Motion')...

Grayson v. Imagination Station, Inc: Contract Displaces Fiduciary Duties with Respect to Voting Agreement

Posted on October 04, 2010
In Grayson v. Imagination Station, Inc., C.A. No. 5051-CC, 2010 WL 3221951 (Del. Ch. Aug. 16, 2010), plaintiff George Grayson ('Grayson') brought an action to enforce a voting agreement between certain directors, the company Imagination Station ('iStation'), and himself, and to void certain transactions entered into between iStation and the Chairman of the Board, defendant Richard Collins ('Collins')...

TheRacetotheBottom.org Gets a New Look, and Gets Social!

Posted on October 04, 2010
As our loyal readers have unboundedly noticed, the blog's look has changed slightly in the past weeks. We hope you enjoy the fresh new style, while continuing to read our same great analysis. Blogs and social media go hand in and hand, and we have embraced theses tools to increase our readership, and spread the word about the important issues and topics we address daily here on theRacetotheBottom...

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