Corporate Governance

McPadden v. Sidhu and the Absence of Director Duties

Posted on October 15, 2008
We have been talking in recent days about the Bailout Bill and the failure of Congress to fix a serious systemic problem with the current state of corporate governance.  Financial firms have been failing in large numbers apparently from having taken excessive risk...

Bad Faith and Exculpating Gross Negligence: McPadden v. Sidhu

Posted on October 15, 2008
In McPadden v. Sidhu, No. 3310-CC, 2008 Del. Ch. LEXIS 123 (Del Ch. Aug. 29, 2008), the Delaware Court of Chancery held the board of directors of i2 Technologies, Inc. (?i2?) grossly negligent in the sale of Trade Services Corporation (?TSC?). The exculpatory provision in the certificate of incorporation, however, shielded the board from liability but the officer who coordinated the sale did not have the same protection...

AIG, Cuomo and the Board of Directors

Posted on October 15, 2008
Andrew Cuomo, the AG of New York, is angry about the behavior at AIG.  Some of this may be politics but he is doing something no other regulator or government official so far has had the temerity to undertake.  He is focusing on the role of the board of directors...

Delaware Courts and the Tolerance for Bad Faith: McPadden v. Sidhu

Posted on October 15, 2008
It was Delaware that invented waiver of liability provisions (Indiana preceded Delaware by changing the standard of fault for directors).  Delaware did so, not because of Van Gorkom, as most commentators suggest, but because of the so called "insurance crisis" and the need to encourage competent directors to serve...

To access this complete feed in the blog feed reader login or register for free.

Henry Paulson and Government Service: The Ultimate Tax Shelter

Posted on October 14, 2008
Wealthy individuals sometimes join the government out of a sense of noblesse oblige.  That is, they give up high paying jobs in the private sector and serve the public for a relative pittance, perhaps a tradition begun by George Washington who declined his $25,000 salary as the first President of the United States...

Governance and the Government's Purchase of Equity (Part 2)

Posted on October 14, 2008
Treasury has announced the compensation restrictions that will apply to companies selling equity interests to the government.  These include: The financial institution must meet certain standards, including: (1) ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution; (2) required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains, or other criteria that are later proven to be materially inaccurate; (3) prohibition on the financial institution from making any golden parachute payment to a senior executive based on the Internal Revenue Code provision; and (4) agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive...

Governance and the Government's Purchase of Equity (Part 1)

Posted on October 14, 2008
As we have noted, Treasury has led the charge to require Sovereign Wealth Funds (government investment funds) to adopt standards designed to promote good corporate governance and transparency.  Will Treasury live up to these standards? Treasury plans to invest some $250 billion in the form of equity, with half invested in the largest financial institutions...

In search of corporate boards with chutzpah

Posted on October 14, 2008
As I think about the recent bailout and the discussions about curbing CEO compensation (see here, for example)--and as I think about AIG's recent corporate retreat (here)--I have to wonder exactly why corporate boards (and C-level officers) are so darn concerned about making sure that (1) their CEOs get paid the "going rate" for top executives and (2) rats don't abandon sinking ships (i...

Wachovia and the Issue of Adequate Enforcement of Listing Standards by the Stock Exchange (Part 2)

Posted on October 13, 2008
Wachovia agreed to lock the transaction on behalf of Wells Fargo by turning over 40% of the Bank's voting power to the purchaser (by issuing ten shares of supervoting stock, perhaps a new record for the number of votes per share).  With that percentage, Wells Fargo need not worry about any other suitor swooping in and making a better offer...

Wachovia and the Issue of Adequate Enforcement of Listing Standards by the Stock Exchange (Part 1)

Posted on October 13, 2008
The WSJ contained a somewhat confusing article indicating that Wachovia would not submit its "deal to be acquired" by Wells Fargo to shareholders "because delaying the transaction to get shareholder approval would seriously jeopardize the financial viability of the bank...

Corporate Fraud Initiative?Bad for Colorado Companies or Good for Colorado Investors? (Part 4)

Posted on October 12, 2008
The proposal to extend criminal liability to officers for corporate violations has been withdrawn.  It arises, however, out of a frustration that corporate officers ought to be more responsible for the actions of the company.  The reality is that civil liability against the company and the responsible individuals ought to provide sufficient incentive to ensure that legal violations did not occur...

Plagiarism and the Supreme Court

Posted on October 11, 2008
We have noted (in an analysis borrowed from Steve Bainbridge) that the Supreme Court is usually unable to figure out securities issues on its own and, as a result, has a habit of tracking the reasoning of the government.  Certainly this was true in Stoneridge where the Supreme Court adopted the reasoning of the Solicitor General, including the odd theory that Rule 10b-5 only extended to vendors where there was actual reliance...

Out of Control at Treasury

Posted on October 10, 2008
First, AIG spends $400,000 to entertain sales people following an agreement to be bailed out by the US government.  Not illegal but poor leadership.Second, the SEC issues a report on its supervision of Bear Stearns, a report that is highly critical of the agency...

Corporate Fraud Initiative?Bad for Colorado Companies or Good for Colorado Investors? (Part 3)

Posted on October 10, 2008
The Colorado Corporate Fraud Initiative, or Amendment 53 to the Colorado Revised Statutes, would hold business executives criminally liable if they break the law or stand by as others commit crimes.  This means that accomplices to criminal fraud cannot plead ignorance...

Corporate Fraud Initiative?Bad for Colorado Companies or Good for Colorado Investors? (Part 1)

Posted on October 10, 2008
In addition to being in the eye of the storm with respect to presidential politics (Colorado is a purple state targeted by both sides), the citizens of Colorado will also vote on, as usual, a raft of ballot proposals, at least one of them directly applicable to officers and directors...

Corporate Fraud Initiative?Bad for Colorado Companies or Good for Colorado Investors? (Part 2)

Posted on October 10, 2008
The Colorado Corporate Fraud Initiative, or Amendment 53 to the Colorado Revised Statutes, would hold an executive officer criminally liable for failure to discharge a specific duty imposed on the business entity by law.  Liability occurs, for example, when the executive knew or should have known of the specific duty to be performed...

Executive Compensation, Lehman Brothers, and the Delaware Courts: An Absence of Meaningful Standards and the Consequences

Posted on October 09, 2008
It seems that Lehman Chief Executive Richard Fuld Jr. and members of the House Committee on Oversight and Government Reform got into a dispute on Monday over the amount of compensation paid to Mr. Fuld since 2000.  As the WSJ noted:Meanwhile, lawmakers estimated that Mr...

Lehman Brothers and the Pesky Short Sellers

Posted on October 09, 2008
Wonder what brought down the investment banking industry?  Richard Fuld, the CEO of the now bankrupt Lehman Brothers, has an explanation and its not his approach to management or his excessive risk taking.  What brought down Lehman (and Bear Stearns, for that matter) was naked short selling...

The SEC, Bear Stearns and the Failure of Regulatory Oversight: The Unredacted Version (Part 6)

Posted on October 09, 2008
We have been writing about the differences between the complete and redacted version of the report by the SEC's Inspector General on the Agency's supervision of Bear Stearns.  A very nice post on the subject is up on Concurring Opinions, with Larry Cunningham at GW providing both additional examples of the deletions, appropriately noting the following: The failed cover up is ironic for an agency charged with promoting transparency in corporate America...

The SEC, Bear Stearns and the Failure of Regulatory Oversight: The Unredacted Version (Part 5)

Posted on October 09, 2008
We are discussing the differences in the Report issued by the Office of Inspector General at the SEC on the SEC's Oversight of Bear Stearns, comparing the redacted and unredacted version.   The vast majority of the deletions go to references to staff memoranda, staff notes, and staff conclusions...

The SEC, Bear Stearns and the Failure of Regulatory Oversight: The Unredacted Version (Part 4)

Posted on October 09, 2008
What is going on at the top levels of the SEC? As we have discussed, the Office of Inspector General at the SEC published a report on the SEC's Oversight of Bear Stearns and Related Entities. The report was relatively sharp, taking the Commission to task for a failed process...

The SEC, Bear Stearns and the Failure of Regulatory Oversight: The Unredacted Version (Part 3)

Posted on October 08, 2008
The Report put out by the SEC's Office of the Inspector General on the supervision of Bear Stearns was heavily redacted.  Senator Grassley has, however, put out an unredacted version of the report.  It can be found here.  According to Bloomberg:Before it was released to the public on Sept...

In re Lear Corporation: Tough on Shareholders, Not So Tough on Management (Part 6)

Posted on October 08, 2008
Last night, in the debate, Barak Obama made a point of emphasizing the $400,000 spent by AIG executives in lavish entertaining in the aftermath of Treasury's decision to provide an $85 billion loan.  According to published reports:  As it happens, congressional investigators released AIG documents earlier in the day showing that the company paid more than $440,000 for the event, including nearly $200,000 for rooms, $150,000 for meals, $23,000 in spa charges and almost $7,000 for golf outings...

In re Lear Corporation: Waiver of Liability Provisions and the Myth of Van Gorkom (5)

Posted on October 08, 2008
We are discussing In re Lear, an opinion by VC Strine.  He implies that Delaware authorized waiver of liability provisions because of the Van Gorkom decision (implicitly criticizing the case).  As his opinion notes: After Van Gorkom met an unenthusiastic reception, the General Assembly adopted Sec...

In re Lear: Its Tough to Be a Proxy Advisory Service In VC Strine's Court (Part 4)

Posted on October 08, 2008
VC Strine doesn't like proxy advisory services, with ISS at the forefront.  ISS of course provides recommendations on matters voted upon by shareholders.  That he views the influence of ISS in negative terms has been clear from his extra curricular activities...

In re Lear Corporation: Its Tough Being a Plaintiff's Lawyer in Delaware (Part 3)

Posted on October 07, 2008
VC Strine is at it again.  In In re Lear Corporation, plaintiffs were before the Chancery Court in their fourth amended complaint.  The Vice Chancellor couldn't help but criticize the efforts.  With respect to the plaintiffs' theory that the board violated its fiduciary obligations by approving a termination fee for a merger agreement that they allegedly viewed as unlikely to pass, VC doesn't like it...

In re Lear: A Series (Part 1)

Posted on October 07, 2008
We begin a series on a case decided in Delaware last month, In re Lear.  We start with a thorough post by Laura Almquist.  We will follow with some commentary on some of the biases evident in the decision.

In re Lear Corp: Delaware Upholds No-Vote Termination Fee (Part 2)

Posted on October 07, 2008
On September 2, 2008 the Delaware Court of Chancery dismissed a claim for breach of fiduciary duty after Lear Corporation?s board agree to pay a potential bidder a no-vote termination fee in exchange for a higher bid. In re Lear Corp. Shareholder Litigation, No...

Corporate Governance, the Bailout and a Lost Opportunity (Part 4)

Posted on October 06, 2008
The one corporate governance provision left in the Bailout Bill (say on pay and access were stripped out) was a limitation on executive compensation.  As experts note, these will likely be difficult to implement.  First, they only apply where the government takes a "meaningful" debt or equity position in a company...

Corporate Governance, the Bailout and a Lost Opportunity (Part 3)

Posted on October 06, 2008
So what could Congress have done in the Bailout Bill?  The model already exists.  The approach might be labeled "SOX Plus."  Congress could have mandated that the boards of all companies participating in the bailout form a committee designed to assess risk (something that could be assigned to the audit committee)...

Bloggers, promote your law blog by nominating your blog for inclusion in USLaw.com's Law Blog Directory and RSS Reader. Benefits described.