Corporate Governance

The Appeal of Joe Nacchio: En Banc (Oral Argument)

Posted on September 25, 2008
There was a healthy crowd for the oral argument at the Byron White Courthouse in downtown Denver, standing room only.  The metal detector process revealed Herbert Stern for the Defense wearing a dapper set of suspenders and Cliff Strickland, the former lead attorney for the government, sporting Texas Ranger Cowboy boots...

FEF v. PCAOB: Plaintiffs Seek Reconsideration (In a Non-Gender Neutral Manner)

Posted on September 24, 2008
The DC Circuit consists of 13 judges, three of whom are women.  The plaintiffs in this case, however, have trouble recognizing this.  At oral argument, there was a small repartee over the improper use of the male pronoun by plaintiff.  With that in mind, we were a bit surprised to see the motion for reconsideration written without regard to gender neutrality...

FEF v. PCAOB: Plaintiffs Seek Reconsideration

Posted on September 24, 2008
The challenge to the constitutionality of the PCAOB lives on.  Plaintiffs lost at the trial level and lost at the court of appeals.  Before taking a stab at cert, they have filed a petition for rehearing and rehearing en banc.  The missive is mostly a rehash of the issues already litigated and resolved, with special prominence given to the only judge so far to agree with their arguments (Judge Kavanaugh)...

Executive Compensation and Federal Preemption of Delaware Law: Proposed Governance Provisions and in Henry Paulson's Opposition (Part 4)

Posted on September 24, 2008
Henry Paulson is leading the charge against the regulation of executive compensation in the Bailout Bill.  We wondered what kind of compensation he earned while at Goldman Sachs.  Paulson resigned as Chairman of the Board of Directors and Chief Executive Officer, effective June 28, 2006...

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Corporate Governance, the Bailout Bill, and Opposition from the Executive Branch

Posted on September 24, 2008
Apparently efforts to include corporate governance provisions in the Bailout Bill have caused a firestorm, with fierce opposition emanating from the White House and Treasury.   The White House put out the following statement on the efforts: We certainly understand and are sympathetic to the sentiment regarding the pay of CEOs and senior management of these firms, but we have to focus on the problem, and the problem is that we need these firms to participate in the program and sell us this debt...

Executive Compensation and Federal Preemption of Delaware Law: Proposed Governance Provisions in the Draft Bailout Bill (Part 3)

Posted on September 23, 2008
We noted yesterday that the draft of the House Bill on the Bailout Bill included limitations on executive compensation and say on pay.  The version of the Senate bill posted on the Senate Banking Committee's web site includes limitations on executive compensation but not say on pay...

The SEC and the Use of Emergency Authority to Circumvent the APA

Posted on September 23, 2008
We wrote last Wednesday about the rules adopted by the SEC governing short sales (not the complete ban but the rules imposing consequences for failed delivery and making it an antifraud provision to lie about having arranged for shares to cover a short position) and suggested that they may have violated the APA...

And Then There Were None: The End of Independent Investment Banking Firms in the United States

Posted on September 23, 2008
As we have chronicled on this Blog, the days of independent investment banking firms were numbered with the repeal of Glass Steagall.  (This is discussed at length in The "Great Fall": The Consequences of Repealing the Glass-Steagall Act) Once commercial banks were allowed to invade investment banking, their superior competive advantage (better funding sources, particularly deposits, and regulatory oversight that was more trusted by the market) would eventually result in their seizing control of the investment banking sector of the market...

The SEC, the Ban on Short Sales, and A Vote of No Confidence in the Efficient Market: An Unprecedented and Possibly Unauthorized Action (Part 2)

Posted on September 23, 2008
We have wondered whether the SEC had the authority under Section 12(k)(2) of the Exchange Act to take the extraordinary step of banning short sales for ten days in 799 companies. The authority was given to the SEC back in the Market Reform Act of 1990...

Executive Compensation and Federal Preemption of Delaware Law: Proposed Governance Provisions in the Draft Bailout Bill (Part 2)

Posted on September 23, 2008
  Yesterday, we noted talk about the inclusion in the bailout bill of corporate governance provisions.  We attributed the sentiment to the utter failure of state law to impose meaningful regulations with respect to executive compensation and the resulting impetus for federal preemption...

The Ban on Short Selling Spreads

Posted on September 22, 2008
The SEC's ban on short selling was supported by a similar measure enacted by the FSA in Great Britain.  Other countries have followed suit, although not always in the same heavy handed way.  According to the Journal, Australia and Taiwan have banned short selling, with Taiwan limiting the practice to the 150 largest companies...

Executive Compensation and Federal Preemption of Delaware Law

Posted on September 22, 2008
We have discussed often on this Blog about  the resolute failure of Delaware courts to impose meaningful standards in connection with the determination of executive compensation.  Under Delaware law, the compensation of the CEO, who is invariably on the board of directors, ought to involve application of the duty of loyalty...

The Financial Crisis and the Finger of Blame

Posted on September 22, 2008
The NYT had an article over the weekend that discussed the assignment of blame for the recent financial crisis.  There isn't much content, with blame apportioned among democrats and republicans.  We note a few observations, however.   The article gave as one example the repeal of Glass Steagall...

The SEC, Outside Directors, and the Preemption of Delaware Law: Mercury Interactive

Posted on September 22, 2008
We have noted that the SEC has increasingly been turning its attention to outside and independent directors. It may be an aberration but more likely it reflects the failure of Delaware law to impose meaningful standards on these directors. Increasingly, therefore, the SEC has gotten into the business of defining and enforcing director independence and imposing more meaningful standards on their behavior...

Testing timed entry

Posted on September 20, 2008
Squarespace test

NYSE and NASDAQ to Change Director Independence Standards

Posted on September 20, 2008
Last month the SEC approved a proposal by NASDAQ to change the definition of director independence. The NYSE is seeking approval for an identical change to its independence tests, which is still in the comment phase. While the rule change does not significantly alter independence requirements, we follow all developments in this area with great interest...

The SEC, the Ban on Short Sales, and A Vote of No Confidence in the Efficient Market: An Unprecedented and Possibly Unauthorized Action

Posted on September 19, 2008
The Commission has, for the next ten days, banned short sales, an extraordinary intervention by the government into the financial markets. The step impairs liquidity and represents a bureaucratic decision to interfere with the efficient market theory...

The SEC, the Ban on Short Sales, and A Vote of No Confidence in the Efficient Market

Posted on September 19, 2008
We were treated to the Feds (and Treasury's) decision to purchase 80% of AIG, an extraordinary intervention by the government into the private sector.  This morning we see an equally unprecedented regulatory step, the decision by the SEC to ban short selling in almost 800 companies...

The PCAOB and the Constitutionality of Restrictions on Removal

Posted on September 19, 2008
The most significant constitutional question in the case concerns the double layer of removal restrictions. As the DC Circuit described:   "[T]he President is two levels of for-cause removal away from Board members, a previously unheard-of restriction on and attenuation of the President's authority over executive officers...

Independent Agencies and "Firing" the Chairman: The Chairman Responds

Posted on September 18, 2008
We have discussed John McCain's comments indicating that he would "fire" Christopher Cox as Chairman of the SEC.  This is the Chairman's response:Press Release"While I have great respect for Senator McCain, we have sometimes disagreed, and this is one such occasion...

Independent Agencies and "Firing" the Chairman

Posted on September 18, 2008
One this is now certain with respect to the Securities and Exchange Commission in November.  The president has the power to designate the chair of the Commission and to fill any openings.  There is no power to remove existing commissioners; the president must wait until their terms expire...

Reform, the Presidential Campaign, and Oversight of the Financial Markets: The Delaware Responsibility

Posted on September 18, 2008
The massive unrest in the financial markets has caught the attention of the two presidential candidates. Both essentially call for increased oversight of the financial markets and the streamlining of the regulatory system.  As the Journal noted: Despite the rhetoric, both candidates are looking at generally similar solutions...

The Financial Crisis, Reform, and the SEC: The Need For Access

Posted on September 18, 2008
With the current financial meltdown, Washington is overrun with calls for increased regulation, a far cry from a few years ago when the city seemed to be awash in efforts to repeal SOX. The SEC has largely remained on the sidelines but it has been trying to get in the game...

And Then There Was One? Morgan Stanley and Wachovia

Posted on September 17, 2008
Published reports indicated that Morgan Stanely and Wachovia have been involved in merger discussions.  Ironically, talks with Wachovia likely contributed to Stan O'Neal's departurre at Merrill.  The details are sketchy and Wachovia has its own exposure to the mortgage crisis...

Regulatory Reform, the SEC, and the Violation of the Administrative Procedures Act

Posted on September 17, 2008
In an effort to get in the game, the SEC announced new rules (effective on Thursday) designed to restrict naked short selling. According to the SEC press release, the rules would requre: that short sellers and their broker-dealers deliver securities by the close of business on the settlement date (three days after the sale transaction date, or T+3) and imposing penalties for failure to do so...

The Government Bailout of AIG and Sovereign Wealth Funds

Posted on September 17, 2008
As we have been discussing, Secretary of the Treasury Paulson has spearheaded the government's effective acquisition of AIG, the largest insurance company in the world.  The deal involved an $85 billion loan and the acquisition by the federal government in return for a 79...

The Government Bailout of AIG and the Failure of a Theory of Regulation

Posted on September 17, 2008
When Secretary of Treasury Paulson entered office, he was on a mission to scale back regulation.  It was only a little over a year ago that he criticized the existing regulatory framework as having gone too far and, indeed, indicated that the administration was considering "a more business-friendly approach to regulation...

The PCAOB and Its Unique Regulatory Function

Posted on September 16, 2008
We are discussing the constitutionality of the PCAOB, a matter recently (if not temporarily) resolved by the DC Circuit.  I have been teaching administrative law this semester and recently discussed this case as well as the relevant Supreme Court cases with students...

And Then There Were Two: The Fate of the Remaining Independent Investment Banking Firms

Posted on September 16, 2008
With Merrill and Lehman gone, the market is down to two independent investment banking firms.  The new weak link is Morgan Stanley, the one more deeply mired in the current financial crisis.  Indeed, Goldman released numbers today indicating that, while not unaffected, it had been able to make money in the prior quarter...

And Then There Were Two: Lehman, the Board, and the Need for Access

Posted on September 16, 2008
Here is a summary by the WSJ Deal Blog of the board of directors of Lehman Brothers.  Nine of them are retired. Four of them are over 75 years old. One is a theater producer, another a former Navy admiral. Only two have direct experience in the financial-services industry...

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