Corporate Governance

The SEC and the Madoff Investigation

Posted on January 06, 2009
Hearings were held on Monday before the House Committee on Financial Services concerning the failure of the SEC to uncover the Madoff Ponzi scheme sooner. It was a relatively staid affair, including testimony from academics, government officials and at least one investor...

Delaware's Top Five Worst Shareholder Decisions for 2008 (A Response)

Posted on January 06, 2009
As he did last year, Francis Pileggi at the Delaware Corporate and Commercial Litigation Blog has responded to my list of the five most anti-shareholder decisions by the Delaware courts in 2008 (a five part series beginning with this post).  He has offered a list of cases designed to "counterbalance" those in my list...

Regime Change and the SEC's Corporate Governance Agenda: #5 Compensation Consultant Disclosure

Posted on January 06, 2009
There are few more pressing areas of regulatory concern these days than executive compensation.  The SEC systematically amended the disclosure requirements in Item 402 back in 2006.  The result has been far greater emphasis on the process for determining compensation and greater sunlight cast on assorted perqs including club memberships and personal use of corporate aircraft...

The SEC and Responsibility for the Financial Crisis (Part 4)

Posted on January 05, 2009
We are discussing the editorial in the NYT ("The End of the Financial World As We Know It") that contends that the SEC is partly to blame for the current turmoil because it has excessively close relations with Wall Street. So what is the solution?  Close the revolving door between the S...

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The SEC and Responsibility for the Financial Crisis (Part 3)

Posted on January 05, 2009
We are discussing the editorial in the NYT ("The End of the Financial World As We Know It") that contends that the SEC is partly to blame for the current turmoil because it has excessively close relations with Wall Street. In addition to contending that those in Enforcement were excessively close to Wall Street in order to parlay their position into a high paying job, the editorial also noted that the staff at the SEC was afraid to bring cases that might "roil the markets" by driving down share prices...

The SEC and Responsibility for the Financial Crisis (Part 2)

Posted on January 05, 2009
We are discussing the editorial in the NYT ("The End of the Financial World As We Know It") that contends that the SEC is partly to blame for the current turmoil because it has excessively close relations with Wall Street.  The article claims that those in the Enforcement Division want to "maintain good relations with Wall Street" in order to "be paid huge sums of money to be employed by it...

The SEC and Responsibility for the Financial Crisis (Part 1)

Posted on January 05, 2009
We are examining the top ten corporate governance agenda items for the SEC under the Obama Administration.  We will continue this tomorrow (with #5) but today have a slightly different mission. The NYT contains an editorial titled "The End of the Financial World As We Know It...

Delaware's Top Five Worst Shareholder Decisions for 2008 (A Recap)

Posted on January 03, 2009
#1     Wood v. Baum, 953 A.2d 136 (Del 2008):  Supreme Court encouragement of intemperate behavior towards shareholders. #2     Portnoy v. Cryo-Cell Int'l, Inc., 940 A.2d 43 (Del. Ch. 2008):  Discouraging shareholders from vindicating their rights...

Delaware's Top Five Worst Shareholder Decisions for 2008 (#1)

Posted on January 02, 2009
Wood v. Baum, 953 A.2d 136 (Del 2008) We chose this case not because of its legal reasoning, which was bad enough, but because of the tone set by the state Supreme Court with respect to the treatment of parties who appear in the Delaware courts.  In that case, the Court, in a completely gratuitous fashion, chose to include in the opinion a disparaging reference by the Chancery Court to plaintiff's complaint...

Regime Change and the SEC's Corporate Governance Agenda: #6 Disavow Delaware Referral Authority

Posted on January 02, 2009
Perhaps the only lasting legacy of Paul Atkins, a commissioner relentlessly hostile to shareholder interests (he opposed access) and strong enforcement (particulary his antagonism towards the imposition of penalites on companies), was to induce the Commission to refer the legality of a shareholder proposal to the Delaware Supreme Court...

Delaware's Top Five Worst Shareholder Decisions for 2008 (#2)

Posted on January 01, 2009
Portnoy v. Cryo-Cell Int'l, Inc., 940 A.2d 43 (Del. Ch. 2008). This was a case where plaintiff challenged management's efforts to manipulate the process for electing directors. With a proxy contest underway and management apparently about to lose, the court descirbed the CEO of Cryo-Cell as "desperate" and tried to get the FBI to intervene...

Regime Change and the SEC's Corporate Governance Agenda: #7 Enforcing Item 407

Posted on January 01, 2009
The SEC has become increasingly involved in the governance process for public companies.  The agency has largely been limited to disclosure and has used this authority to try to affect substantive behavior of officers and directors.  For more on this subject, take a look at Corporate Governance, the Securities and Exchange Commission, and the Limits of Disclosure...

Delaware's Top Five Worst Shareholder Decisions for 2008 (#3)

Posted on December 31, 2008
In re Transkaryotic Therapies, Inc., 954 A.2d 346 (Del. Ch. 2008). The case involved a merger. It turns out that during an appraisal action, plaintiffs discovered that in fact the votes for the merger may have been miscounted and the merger never approved...

Regime Change and the SEC's Corporate Governance Agenda: #8 Broker Votes and Directors

Posted on December 31, 2008
Another area of necessary reform concerns NYSE Rule 452, the so called ten day rule. First adopted in 1937, the rule permits brokers to vote uninstructed shares, but not for controversial matters. Approximately 19% of votes cast at a shareholder meeting are from brokers...

Delaware's Top Five Worst Shareholder Decisions for 2008 (#4)

Posted on December 30, 2008
McPadden v. Sidhu, 2008 Del. Ch. LEXIS 123 (Del. Ch. June 17, 2008) There has been much written about the Delaware Court's exploration of the board's duty of good faith.  The doctrine has an accentuated importance.  Because bad faith behavior is not covered by waiver of liability provisions, the doctrine has the potential to significantly increase the exposure for directors...

Regime Change and the SEC's Corporate Governance Agenda: #9 Shareholder Communication Rules

Posted on December 30, 2008
The shareholder communication rules represent another area demanding reform.   These rules, as my article of 20 years ago noted (The Shareholder Communication Rules and the Securities and Exchange Commission: An Exercise in Regulatory Utility or Futility?) are a disaster...

The Dismissal of a Law School Dean and the Role of Law School Rankings

Posted on December 29, 2008
Don Guter, the dean of Duquesne Law School was recently removed by the president of the University.  He had been in the position since August 1, 2005.   On this Blog, we do not particularly view personnel changes at law schools to be part of our intellectual mission...

Delaware's Top Five Worst Shareholder Decisions of 2008 (Introduction)

Posted on December 29, 2008
We will devote the afternoon posts this week (the morning posts are on the agenda for the SEC once regime change occurs) to our annual review of the most anti-shareholder, anti-plaintiff decisions by the Delaware courts in 2008.  We did something similar last year (in a single post, which is here)...

Delaware's Top Five Worst Shareholder Decisions for 2008 (#5)

Posted on December 29, 2008
CA, Inc. v. AFSCME Emples. Pension Plan, 953 A.2d 227 (Del. 2008) This was the case that came to the Supreme Court via the SEC.  It was a case without an adequate factual record and taken in violation of the Supreme Court's own rules. The issue was the validity of a bylaw that would require the board to pay reasonable expenses incurred by shareholders in a proxy contest but only if one or more of the shareholder candidates actually won...

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

Posted on December 29, 2008
The President Elect has announced his choice for chairman of the SEC, Mary Schapiro.  The choice seems to suggest that President Obama had structural reform high on his list.  After all, Schapiro is a former acting chairman of the SEC and former chairman of the CFTC, indicating that she is particularly well positioned to engineer a merger of the two agencies...

Regime Change and the SEC's Corporate Governance Agenda: #10 Disclosure of Environmental Policies and Practices

Posted on December 29, 2008
Is there much doubt that investors want greater corporate consideration of the impact of business on the environment, particularly on global warming?  Certainly Exxon found out that it was on the minds of its investors, including the Rockefellers...

Iceland and Madoff: Private and Public Ponzi Schemes

Posted on December 28, 2008
The WSJ has a nice article on the collapse of the Icelandic banking system (and the global consequences).  Essentially, Icelandic banks offered attractive interest rates overseas (in the vicinity of 7%), attracted deposits in large quantities and was able to sell bonds, then collapsed...

Regime Change and the Delaware Courts

Posted on December 28, 2008
The Deal.com has an interesting article about possible regime change at the Delaware courts.  In Change Comes to the Chancery, the Deal notes that "as many as four of the [Chancery] court's five judges may move on."  VC Strine, according to the piece: is poised to make the most significant jump from Chancery...

Billing Rates and A Tale of Two Cities

Posted on December 27, 2008
We happen to come across the latest survey of billing rates by the National Law Journal for 2008.  A partner in one firm billed at over $1200 an hour.  The Journal sells the complete results but provides free public access to a sampling of the data...

CEO Use of Private Aircraft and the Delaware Approach to Compensation (Part 2)

Posted on December 26, 2008
So it seems that the market for private aircraft has gotten soft, what with the auto makers and others bowing to public pressure (and mandatory terms of a bailout) and selling their jets.  The auto companies aren't alone.  As the NYT notes: To control costs, companies including Citigroup and Time Warner are selling their jets...

The Decline in Criminal Prosecutions of Securities Fraud

Posted on December 26, 2008
The NYT reports, based upon a study out of Syracuse, that the number of prosecutions for securities fraud has declined precipitously in recent years.  According to the article: There were 133 prosecutions for securities fraud in the first 11 months of this fiscal year...

Blaming SOX (Again)

Posted on December 25, 2008
Fitting that on Christmas morning we find ourselves back at the beginning.  This Blog began as a prosoxblog, dedicated to ensuring accurate and complete discussion of Sarbanes Oxley.  We return to the subject because of an editorial in the WSJ on the topic from earlier in the week...

CEO Compensation: Plus Ca Change, Plus C'est La Meme Chose

Posted on December 24, 2008
Executive Compensation has been a growing source of public concern.  Limits were included in TARP.  The bailout of the auto makers proposed by the White House contained restrictions, including the obligation to sell corporate aircraft.  But are these changes superficial?  As the Washington Post noted: If you're angry that so many executives got paid so much for screwing up so spectacularly, you might take solace in the fact that shares they still hold have lost value, too...

Madoff and Stoneridge

Posted on December 24, 2008
As the debacle of the Madoff ponzi scheme continues to unravel, there is a delicious potential irony in all of this.  It now seems clear that investors will apparently find somewhere in the vicinity of $50 billion gone.  The investors include not only individuals and charities but also hedge funds (according to one source, the "two most prominent hedge funds that invested with Madoff were the $7...

CEO Use of Private Aircraft and the Delaware Approach to Compensation

Posted on December 23, 2008
One of the more interesting things included in the term sheet for the auto bailout was the ban on the ownership and lease of private aircraft.  This was a unique penalty imposed on the auto makers for having the temerity to come to Washington, ask for a $25 bllion bailout then fly back to Washington in private jets...

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