Corporate Governance

Excessive Compensation and the Responsibility of the Delaware Courts (Part 2)

Posted on November 21, 2008
As the issue of executive compensation continues to occasionally surface (most recently in connection with some financial institutions foregoing bonuses), it is worth noting the role that the Delaware courts have played in the problem. Delaware allows shareholders to inspect corporate documents but requires that they have a proper purpose...

Excessive Compensation and the Role of the Delaware Courts (Part 1)

Posted on November 21, 2008
The WSJ published a study of compensation paid to top executives at finance and home building companies (a number of which have since filed for bankruptcy) in the five year period preceding the current turmoil.  It is pile on in a way.  The article doesn't tell us anything new but does supply a bit more hard information...

General Motors, The Bailout, and Corporate Governance Reform

Posted on November 21, 2008
There is much talk in Washington about possibly bailing out the automobile manufacturers, the three large ailing car companies in the United States.  In particular, General Motors seems to be hemorrhaging money.  It recently announced short term efforts to raise cash but appears to be running out...

The Obama Administration and the Chairman of the SEC

Posted on November 20, 2008
Politico, which seems to have a pretty good ear to the ground on political developments, has put up an article speculating on possible replacements for Chris Cox at the SEC.  The article atributes the names to the inside the beltway rumor mill.  The list includes: Bill Brodsky, the chairman and CEO of the Chicago Board Options Exchange who has also served as president and CEO of the Chicago Mercantile Exchange...

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Jeff Skilling Comes to Jefferson County Colorado

Posted on November 20, 2008
In December 2006, Jeffrey Skilling, former CEO of Enron, started serving a twenty-four year sentence at a federal prison in Waseca, Minnesota.  Recently, Skilling was moved to a low-security federal prison in Jefferson County, Colorado because the Minnesota institution began its conversion to a women’s prison...

In re Loral and the Entire Fairness Standard

Posted on November 20, 2008
In the case In re Loral Space and Communications Inc., Consolidated Litigation, 2008 WL 4293781 (Del. Ch., Sept. 19, 2008), shareholders of Loral Space and Communications Inc. (“Loral”), sued the board of Loral and MHR Fund Management LLC (“MHR”)...

Trainer v. Betz: The Supreme Court, Deregulation, and Rule 10b-5 (Part 2)

Posted on November 19, 2008
Why is the Supreme Court interested in this case?  It might be because Judge Kozinski and counsel for defendants have managed to convince the Court that the circuits are hopelessly divided and that the 9th Circuit is, as Judge Kozinski put it, again in left field...

Trainer v. Betz: The Supreme Court, Deregulation, and Rule 10b-5 (Part 1)

Posted on November 19, 2008
We have posted on the overlooked role of the courts in the current turmoil.  But for the DC Circuit's decision in Goldstein, there would be far more information about hedge funds, large players in the financial markets.  Today we write about what may be a good example of the legislative role of the Supreme Court, particularly its mission to cut back on private law suits under Rule 10b-5, and what President Obama will confront...

Rule 10b-5 and the Statute of Limitations: The Supreme Court Shows Interest

Posted on November 19, 2008
A decision from the Ninth Circuit has attracted the attention of the U.S. Supreme Court after the court adopted an “inquiry plus reasonable diligence” standard to trigger the running of the limitations period for securities fraud claims under Section 10 (b)...

FEF v. PCAOB: The Supporting Material

Posted on November 18, 2008
Yesterday we noted that the DC Circuit denied en banc review of the case upholding the constitutionality of the PCAOB.  The decision was by a razor thin margin of 5-4.  We note only that all of the filings/pleadings in the case, including the materials filed before the DC Circuit in connection with the petition for rehearing en banc can be found on the DU Corporate Governance web site.

The Financial Turmoil and Judicial Responsibility (Part 2)

Posted on November 18, 2008
We are discussing the problem of a federal court system hostile towards regulation, something that Barack Obama will have to confront during his first term.  (According to one report, he will get enough appointments in his first term to "create a Democratic majority in eight circuits, leaving three with a Republican majority and the remaining two evenly split...

The Financial Turmoil and Judicial Responsibility (Part 1)

Posted on November 18, 2008
The House Oversight Committee held a hearing last week on hedge funds. It is an industry that cannot even be readily identified. One study defined hedge funds as “any pooled investment vehicle that is privately organized, administered by professional managers, and not widely available to the public...

FEF v. PCAOB: En Banc Review Denied, On to the Supreme Court

Posted on November 17, 2008
The DC Circuit decided, by a 5-4 vote, not to hear the PCAOB case en banc (we have produced the order below).  Judge Kavanaugh, who dissented in the panel opinion got support for en banc review from Chief Judge Sentelle, and Judges Ginsburg and Griffith, one shy short of the number needed...

Goldman Sachs, Bonuses and the Compensation Committee

Posted on November 17, 2008
Goldman Sachs disclosed that the top seven executive officers would receive no bonuses for 2008.  According to the WSJ, they will only receive their $600,000 base salary.  By comparison, the total compensation for the CEO, Lloyd Blankfein, was $68...

Exxon-Mobile, Mirror-Image Boards, and Comeuppance in the Market

Posted on November 17, 2008
Exxon-Mobile is an oil company, as it likes to say.  As such, it has had a history of resisting pressure to do more in the area of alternative energy sources and the reduction of green house gasses.  In 2008, the company confronted a shareholder revolt over the issue, led by the Rockefellers...

Obama, the Transition Team, and the SEC

Posted on November 16, 2008
The Obama Transistion team has designated the individuals responsible for reviewing the SEC.  They are all from the Economics and International Trade Team Leads and will include:  Former Treasury Under Secretary for Domestic Finance Gary Gensler who will lead the review...

Virtual Reality and the Obama Administration

Posted on November 16, 2008
Blogging has a number of downsides, not the least is a certain willingness to accept abuse from those who object to a post.  Now it turns out your online persona can be a factor in whether or not you can work for the Obama Administration. The NY Times had a short article on the application used by the Obama Team for anyone seeking a position in the Obama Administration...

US v. David Stockman: Denying Stockman?s Request for Production of Audit Committee Report and Investigative Work Plan

Posted on November 14, 2008
On October 8, 2008, U.S. District Court Judge Barbara S. Jones filed an order finding that two documents requested by David Stockman’s defense team, (1) the final Audit Committee Report relating to the 2005 Audit Committee Investigation and (2) the Investigative Work Plan created by Davis Polk & Wardwell, were not discoverable either as Brady material or as documents material to defense preparation...

Schering-Plough and Shareholder Input on Executive Compensation

Posted on November 14, 2008
We have been a bit remiss for failing to note sooner the post over at RiskMetrics on the Schering-Plough decision to make an effort at systematically improving communications with shareholders.  The company has done so by circulating a survey on director and executive pay in an effort to assist the compensation committee...

The Demise of Merrill Lynch and the Need for Corporate Governance Reform

Posted on November 13, 2008
The New York Times had a piece in the weekend edition on the fall of Merill Lynch.  The piece is not very insightful, doing little more than noting that Merrill piled into the mortgage business and took on too much risk.  The pieces notes, for example, that "it was never clear how well Merrill’s management understood the risks in the mortgage business...

The Tellabs Excuse (A Recap)(Part 4)

Posted on November 13, 2008
We are conducting a recap of the Supreme Court's analysis in Tellabs and, a year later, examining the lower court interpetation of the case. We noted that one consequence of the decision was the command to consider all inferences of scienter raised by plaintiff...

The Tellabs Excuse (A Recap)(Part 3)

Posted on November 12, 2008
We noted that one of the discipling effects of Tellabs was to require courts to consider all inferences raised by plaintiffs in determining whether they had produced a "strong inference" of scienter.  The analysis has already caused some courts to reconsider their approach to allegations that defendants, by virtue of their position, were aware of the company's core operations...

The Tellabs Excuse (A Recap)(Part 2)

Posted on November 12, 2008
We are conducting a recap of the Supreme Court's analysis in Tellabs and, a year later, examining the lower court interpretation of the case.  The results to a large degree bear out the Tellabs Excuse.  Some circuits have, in the aftermath of Tellabs, cited the case as authority for a relatively harsh interpretation of the pleading standards for scienter...

The Tellabs Excuse (A Recap)(Part 1)

Posted on November 12, 2008
It has been a year or so since the Supreme Court's decision in Tellabs.  The case construed the requirements in the PSLRA for pleading scienter.  Congress inserted into the Act a requirement that plaintiffs "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind...

Shareholder Participation in Governance and Precatory Proposals

Posted on November 11, 2008
The entire SEC approach under Rule 14a-8 needs revision, a task that should be taken up quickly by the new Chairman.  On Friday, the staff of the Division of Corporation Finance issued Legal Bulletin No. 14D, informing market participants of, among other things, a new email address for submitting no action requests under the rule...

The Inevitable Disappearance of Investment Banking Firms

Posted on November 11, 2008
We noted back in 1995 that investment banks would disappear, an inevitable result of the repeal of Glass Steagall.  See The "Great Fall": The Consequences of Repealing the Glass-Steagall Act.  As those following the markets already know, the current financial turmoil has resulted in the disappearance of a separate class of large investment banking firms...

Law Blogs, Scholarship, and The Race to the Bottom

Posted on November 10, 2008
The debate over blogs and legal scholarship continues.  As we have described, blogs are appropriately viewed as part of the continuum of legal scholarship, a place to debate ideas or apply more traditional scholarship in practice.   We have discussed this in much greater length in the paper, Of Empires, Independents, and Captives:  Law Blogging, Law Scholarship, and Law School Rankings...

AIG and an Even Bigger Bailout: Conditioning Payments on Corporate Governance Reforms

Posted on November 10, 2008
The WSJ reports that AIG will get an even bigger bailout than previously announced, one that will amount to $150 billion.  The package will involve a $60 billion loan, $40 billion in preferred stock (under the Bailout Bill), and $50 billion in the form of asset purchases...

Chiquita and the Alien Tort Statute

Posted on November 10, 2008
In March 2008 Chiquita Brands International admitted to illegally supporting guerrillas in Colombia. As part of the plea agreement, Chiquita agreed to pay the U.S. government $25 million in fines over five years. (Reported here).   In addition to the derivative suits that will be followed by this Blog, several groups of plaintiffs have filed Alien Tort Statute (“ATS”), Antiterrorism Act (“ATA”), and shareholder derivative litigation claims against Chiquita in an effort to hold Chiquita responsible for the terrorist acts of the guerrilla groups...

Communicating with the Division of Enforcement (Part 5)

Posted on November 09, 2008
We recently discussed the Report issued by the SEC's Inspector General that addressed communication between top officials and Morgan Stanley about the status of an insider trading investigation against John Mack, who eventually became the financial institution's CEO...

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