Corporate Governance

Say on Pay, Great Britain, and the Real Basis for Objection in the United States

Posted on April 07, 2009
There have been plenty of corporate governance reforms that have been vigorously opposed in the United States but are common practice overseas.  The separation of chairman and CEO is one example.  So is access to the proxy statement for shareholder nominees, a practice permitted in Great Britain...

The Class Action Fairness Act of 2005 Supersedes §22 of the Securities Act of 1933: Katz v. Gerardi

Posted on April 07, 2009
In Katz v. Gerardi, 2009 WL 18137 (7th Cir. Jan. 5, 2009), the class of plaintiffs ('plaintiffs') contributed real property to Archstone, a real estate investment trust. In exchange for the real estate, plaintiffs received interests called 'A-1 Units...

Executive Compensation, the Delaware Model and a Proposed Solution (Part 5)

Posted on April 06, 2009
We have proposed a solution to the executive compensation problem. It entails an amendment to Section 13 of the Exchange Act to prohibit the payment of excessive compensation. The provision defines excessive and contains a safe harbor that requires the board to implement meaningful procedures for ensuring the integrity of the executive compensation approval process...

Permitting Excessive Compensation

Posted on April 06, 2009
So the House passed another bill designed to limit executive compensation in those companies that receive public funds.  Rather than cap salary, the Bill (HR 1664) took a different tact.  It prohibited excessive or unreasonable compensation (to be defined by Treasury)...

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Gantler v. Stephens

Posted on April 04, 2009
In Gantler v. Stephens, 2009 WL 18828 (Del. Jan. 27, 2009), plaintiffs sued First Niles' ("Company") officers and directors, claiming that they breached a fiduciary duty to shareholders by rejecting a merger offer, abandoning the Company's sales process, and distributing a materially false and misleading reclassification proxy statement...

Executive Compensation, the Delaware Model and a Proposed Solution (Part 3)

Posted on April 03, 2009
We have proposed a solution to the executive compensation problem.  It entails an amendment to Section 13 of the Exchange Act to prohibit the payment of excessive compensation.  The provision defines excessive and contains a safe harbor that requires the board to implement meaningful procedures for ensuring the integrity of the executive compensation approval process...

Executive Compensation, the Delaware Model and a Proposed Solution (Part 4)

Posted on April 03, 2009
We have proposed a solution to the executive compensation problem. It entails an amendment to Section 13 of the Exchange Act to prohibit the payment of excessive compensation. The provision defines excessive and contains a safe harbor that requires the board to implement meaningful procedures for ensuring the integrity of the executive compensation approval process...

Executive Compensation, the Delaware Model and a Proposed Solution (Part 1)

Posted on April 02, 2009
There is a serious executive compensation problem, something obvious from the daily reportage in the business press.  The problem as we have noted often, arises from the standards (or lack of standards) adopted by the Delaware courts in connection with the approval of executive compensation...

Executive Compensation, the Delaware Model and a Proposed Solution (Part 2)

Posted on April 02, 2009
So what is the solution to the executive compensation problem?One solution is a vigorous system of access.  If shareholders can elect their own representatives to the board, they will be able to break up the cozy system for approving CEO compensation...

The US Government and Corporate Governance

Posted on April 01, 2009
The big news on Sunday was that the Obama Administration insisted on the removal of Rick Wagoner, the CEO at General Motors as a precondition for any additional bailout money.  As the article summarized: Mr. Wagoner has been CEO since 2000 and has managed the company through some of its most difficult moments...

General Motors CEO Rick Wagoner Removed By Obama Administration

Posted on April 01, 2009
The Wall Street Journal reported the Obama administration has forced the resignation of General Motors CEO Rick Wagoner. Wagoner served as CEO since 2000, but has been with the company for 31 years. Although he has overseen GM during some of the company's most turbulent times, GM's stock price has fallen from $70 per share at his appointment in 2000 to $2...

CEO Influence over Board Membership: In re: Affiliated Computer Services, Inc. Shareholders Litigation

Posted on March 31, 2009
There are many many problems with the Delaware model of corporate governance.  We have noted that Delaware applies the business judgment rule to duty of loyalty decisions (read executive compensation) when the board consists of a majority of independent directors...

AIG and Stockholders Join Forces Against Former Officers

Posted on March 31, 2009
On February 10, 2009, Vice Chancellor Leo E. Strine denied motions to dismiss filed by Maurice Greenberg, AIG's CEO and Chairman since the late 1960s, and members of his 'Inner Circle.' The claims against the AIG executives assert breach of the duty of loyalty and breach of other fiduciary duties...

AIG, the Delaware Model, and the US Government

Posted on March 31, 2009
The US Government owns 80% of the equity of AIG but if standard rules apply, it cannot successfully sue to get back the hundreds of millions of bonuses paid out to employees.  This is the point made by Carl Icahn in a recent editorial in the Sunday NYT...

Nacchio and the Supreme Court: The Cert Petition (The Ghost of Judge Nottingham Returns)

Posted on March 30, 2009
Judge Nottingham continues to be the additional judge in the decision making process.  After laying out a series of legal arguments about the reasons for reversal, Nacchio's cert petition takes direct aim at the trial judge.  As the brief notes: As the en banc dissenters explained in detail, the majority mischaracterized the district court's decision, ignored settled law, and ducked meritorious issues to gloss over obviously prejudicial errors by a district judge whose 'sense of fairness toward this defendant' was very much in doubt, App...

Nacchio and the Supreme Court: The Cert Petition (A Prediction)

Posted on March 30, 2009
Predicting what will happen to a cert petition is not always easy.  This case has a couple of things going for it.  Maureen Mahoney is well known to the justices and anything she authors will likely get a serious examination.  Likewise, the advocacy of Judge McConnell on the Tenth Circuit, a smart and conservative judge, will likewise cause some on the Court to pause over the case...

Nacchio and the Supreme Court: The Cert Petition (Officers Cannot Buy or Sell Shares "Ever")

Posted on March 28, 2009
The cert petition takes the position that, based upon the 10th Circuit's holding, insiders "cannot buy or sell company shares ever."  This is another example of hyperbole masgarading as analysis.  The sentence is only potentially correct if in fact an insider always knows inside information and cannot disclose the inside information to the public...

Lyondell Chemical v. Ryan: Yawn

Posted on March 28, 2009
Alerted by Steve Bainbridge, we have become aware that the Delaware Supreme Court has issued the much awaited decision in Lyondell Chemical.  The Chancery Court caused a ruckus by denying a motion for summary judgment on whether the board acted in bad faith (and thereby leaving the board unprotected by the waiver of liability provision)  by failing to fulfill its duties under Revlon...

Nacchio and the Supreme Court: The Cert Petition (The Basic Argument)

Posted on March 27, 2009
The main substantive argument is presented in a confusing fashion.  According to the brief: The Tenth Circuit's materiality analysis conflicts with several other circuits, which have held that internal predictions and interim operating results are immaterial as a matter of law unless they establish a very strong likelihood that the company's eventual reported performance will be substantially below what the market is expecting...

Nacchio and the Supreme Court (The Case of Discouraging Disclosure)

Posted on March 27, 2009
The brief for certiorari also trots out the position that the 10th Circuit decision will result in less disclosure, discouraging the use of projections. It will also seriously discourage companies from issuing projections at all. Nacchio's inside information was supposedly 'material' here only because Qwest had first made public projections...

Nacchio and the Supreme Court: The Cert Petition (Strategy)

Posted on March 26, 2009
Joe Nacchio has filed a cert petition with the US Supreme Court.  In it, he raises three issues.  These include: 1. Whether the defendant is entitled to acquittal or a new trial because the Tenth Circuit, in conflict with the standards applied in other circuits, erred by upholding the jury instructions bearing on the materiality of the type of information at issue, and by holding that there was sufficient evidence that the defendant failed to disclose material information and knew it...

Nacchio and the Supreme Court: The Cert Petition (Liability for Excessive Disclosure)

Posted on March 26, 2009
The oddest position taken in the brief is that had Nacchio disclosed internal projections that he would might have been liable. Finally, in at least the Seventh and Ninth Circuits an internal projection cannot be released unless it is 'reasonably certain,' a standard plainly not met here...

Southern District of New York keeps Accounting firms on their toes-- In re Parmalat

Posted on March 25, 2009
In re Parmalat Sec. Litig. , 2009 WL 179920 (S.D.N.Y. Jan., 2009).   Paramalat SpA collapsed in 2003 after the discovery of immense understatements of debt and overstatements of assets. The international extent of the fraud has garnered a lot of attention from accounting firms worldwide, with the latest U...

Executive Compensation Beyond the Bailout: The Delaware Problem Redux

Posted on March 25, 2009
Much of the current criticism about executive compensation has focused on the bonuses paid by Merrill Lynch and AIG.  They are in the eye of the storm because they have accepted public money (Merrill indirectly when Bank of America received government money to facilitate the merger)...

Using Loss Causation to Repeal Rule 10b-5: In re: Williams Securities Litigation (Part 5)

Posted on March 24, 2009
We are discussing the loss causation analysis in In re Williams Securities Litigation. This case invovles a spin off by The Williams Companies, Inc. ('WMB') of its Communications Subsidiary (Subsidiary). Plaintiff essentially alleged that WMB had misrepresented the adequacy of the Subsidiary's capital at the time of the spin off...

Churchill v. University of Colorado: Interview on Colorado NPR

Posted on March 24, 2009
We have assiduously kept the Churchill posts off the home page of the Race to the Bottom since they do not involve issues of corporate governance.  Nonetheless, we break our rule this once to note for anyone interested an interview for Colorado Matters on the coverage of the Churchill trial by the Race to the Bottom...

Using Loss Causation to Repeal Rule 10b-5: In re: Williams Securities Litigation (Part 4)

Posted on March 23, 2009
We are discussing the loss causation analysis in In re Williams Securities Litigation. This case involve a spin off by The Williams Companies, Inc. ('WMB') of its Communications Subsidiary (Subsidiary).  Plaintiff essentially alleged that WMB had misrepresented the adequacy of the Subsidiary's capital at the time of the spin off...

Using Loss Causation to Repeal Rule 10b-5: In re: Williams Securities Litigation (The Impact of Dura)(Part 3)

Posted on March 21, 2009
We are discussing In re Williams and the court's loss causation analysis.  Any discussion of loss causation today must start with the Supreme Court's decision in Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (2005), a fairly benign case that, in a sign of moderation, was a unanimous decision written by Justice Breyer...

Using Loss Causation to Repeal Rule 10b-5: In re: Williams Securities Litigation (The Facts)(Part 2)

Posted on March 20, 2009
We are discussing the loss causation analysis in In re Williams Securities Litigation. This case invovles a spin off by The Williams Companies, Inc. ('WMB') of its Communications Subsidiary (Subsidiary).  WMB described the spin off as 'the best way to ensure that both our energy and communications businesses have the efficient and effective access to the capital necessary to pursue the substantial growth that each enjoys...

Using Loss Causation to Repeal Rule 10b-5: In re: Williams Securities Litigation

Posted on March 20, 2009
We don't write about the elements of Rule 10b-5 all that often.  Rule 10b-5 is the small acorn that became the tall oak almost accidentally.  This hasn't made everyone happy.  The Supreme Court in Stoneridge essentially held that the prohibition on deceptive behavior did not extend to vendors because there never should have been a private right of action to begin with and it was time to draw a line in the sand over which no plaintiff would ever be allowed to step...

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