Corporate Governance

Starbucks, Social Responsibility, and the Right to Free Internet

Posted on February 18, 2008
We have noted on this Blog that a greater dose of social responsibility (and better marketing) might help Starbucks compete against the baristas about to be inserted in the 14,000 McDonalds in the United States.  We also noted that, unlike many other coffee shops (not to mention commercial districts, sandwich shops, and the like), Internet was not free at Starbucks...

Shareholders and Sleeping Boards

Posted on February 18, 2008
The WSJ reports that the subprime meltdown has spurred shareholders to take action.  The article suggests that investors are focussing on the board and the failure to monitor the activies of management.  We have long noted that companies like Countrywide provided director compensation in thevicinity of $500,000, providing directors with a nice sinecure and considerable incentive not to rock the boat (not to mention an incentive to approve lucrative compensation packages for top management)...

SOX and Restatements

Posted on February 18, 2008
We've already noted that while securities fraud suits had a bit of an uptick in 2007, they were still the second lowest number of filings (with 2006 the lowest) since 1996.  Similarly, Section 404(b) imposed on auditors an obligation to attest to management's assessment of internal controls...

Confidential Witnesses and Showing a Strong Inference of Scienter in the Seventh Circuit

Posted on February 18, 2008
In the aftermath of the Supreme Court's opinion in Tellabs (which construed the "strong inference" language in the PSLRA), the Seventh Circuit has issued two, arguably conflicting, opinions, both addressing the right to use confidential sources to overcome the scienter standard...

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Chipotle v. Starbucks

Posted on February 17, 2008
We have been writing a bit about the competitive threat about to be unleashed on Starbucks as McDonalds inserts baristas in its 14,000 resturants in the United States.  We have suggested that Starbucks move away from providing a commodity to providing an experience...

TheRacetotheBottom and the Addition of Harry Gerla

Posted on February 15, 2008
We are pleased to add as a contributor to the RacetotheBottom, Harry S. Gerla, Professor of Law at the University of Dayton School of Law.   Professor Gerla clerked for John C. Godbold, U.S. Court of Appeals for the Fifth Circuit and is an alum of the Securities and Exchange Commission (the Division of Market Regulation)...

Caremark?The Failed Revolution

Posted on February 15, 2008
When Chancellor Allen put out his decision in In Re Caremark International, Inc. Litigation in 1996 many scholars and other commentators regarded it as revolutionary. Unfortunately, if the decision was meant to be revolutionary, the revolution it began was largely a failed one...

Access and the 2008 Proxy Season

Posted on February 14, 2008
The Commission's decision to amend Rule 14a-8 to deny access to the proxy statement for bylaws that would sometime require management to insert shareholder nominees into the company's proxy statement was a bad one, effectively denying shareholders their state law rights to nominate directors...

Portnoy v. Cryo-Cell: Vote Buying, Manipulation of the Voting Process, and the Race to the Bottom -- The Last Word

Posted on February 14, 2008
We just completed a five part series on Portnoy v. Cryo-Cell.  This was a case where management learned it was losing a reelection bid to dissident shareholders and pulled out the stops to defeat the dissidents, encouraging allies to buy up dissident votes, offering board seats to supportors, and filibustering their own meeting to make sure certain shares were voted properly...

Richard Koppes - Corporate Governance Expert

Posted on February 13, 2008
University of Denver - Daniels School of Business presents:Richard Koppes - Of Counsel, Jones Day law firm in San FranciscoTuesday February 26, 2008 - 4:00 - 6:00 PM (free and open to the public)Named one of the nation’s top 100 most influential lawyers by the National Law Journal, Richard is one of the nation’s leaders in corporate governance...

Portnoy v. Cryo-Cell: Vote Buying, Manipulation of the Voting Process, and the Race to the Bottom (Part 6)

Posted on February 13, 2008
We are discussing Portnoy v. Cryo-Cell, CA No. 3142-VCS, Del. Ch., Jan. 15, 2008, a 73 page tome issued by the Delaware Chancery Court.  Primary materials, including the case, can be found at the DU Corporate Governance web site. Plaintiff challenged a number of practices used by management to succeed in a proxy contest...

Portnoy v. Cryo-Cell: Vote Buying, Manipulation of the Voting Process, and the Race to the Bottom (Part 4)

Posted on February 12, 2008
An odd portion of the opinion concerns the conduct of the CEO at the meeting.After calling one of Plaintiff's arguments at the meeting "carp[ing]", the court found that the CEO had improperly delayed completion of the meeting. She did so in two ways...

Portnoy v. Cryo-Cell: Vote Buying, Manipulation of the Voting Process, and the Race to the Bottom (Part 5)

Posted on February 12, 2008
We are discussing Portnoy v. Cryo-Cell, CA No. 3142-VCS, Del. Ch., Jan. 15, 2008, a 73 page tome.  Primary materials, including the case, can be found at the DU Corporate Governance web site. One of the more interesting aspects of the opinion was the criticism heaped on Plaintiff for talking to a former employee...

Portnoy v. Cryo-Cell: Vote Buying, Manipulation of the Voting Process, and the Race to the Bottom (Part 3)

Posted on February 11, 2008
We are continuing the discussion of Portnoy v. Cryo-Cell, CA No. 3142-VCS, Del. Ch., Jan. 15, 2008, a 73 page tome.  Primary materials, including the case, can be found at the DU Corporate Governance web site. Among the many allegations in the case, Plaintiff also challenged the arrangement where management obtained the agreement from a shareholder to buy shares (and vote them for management) in return for a second position on the board of directors...

The WSJ and a Lesson in Administrative Law

Posted on February 11, 2008
Alead editorial from the WSJ last week complained about the perceived efforts by the Democrats in the Senate to not approve a large number of appointees submitted by the Bush Administration.  The article asserted that the Democrats in the Senate were sitting on 180 vacancies in the Executive Branch and another 28 judges...

Former President and CFO of SafeNet, Sentenced for Part in Backdating Scheme

Posted on February 10, 2008
On January 28, 2007 Carole Argo, former President and CFO of SafeNet, was sentenced to 6 months in jail and fined $1 million for her involvement in a backdating scheme. As wereported in November of last year, Ms. Argo plead guilty to one count of securities fraud admitting she “intentionally and systematically set out in a course of action to create opportunities for her and others to benefit financially through the backdating of stock option grants...

The Continuing Consequences of SOX

Posted on February 09, 2008
In thinking about the impact of SOX, the data is growing that the Act has reduced the amount of fraud in public companies.  This can at least tentatively be seen from a reduction in the number of fraud suits over the last two years.  It also arises from a dose of common sense...

Executive Compensation, Disney and Delaware Law (Part 5)

Posted on February 08, 2008
So what is the bottom line on executive compensation?  Delaware courts will uphold executive compensation as long as it is approved by independent directors.  In so doing, Delaware courts will not examine the terms of the compensation, only the process used to approve it...

Portnoy v. Cryo-Cell: Vote Buying, Manipulation of the Voting Process, and the Race to the Bottom (Part 2)

Posted on February 08, 2008
We are discussing Portnoy v. Cryo-Cell, CA No. 3142-VCS, Del. Ch., Jan. 15, 2008, a 73 page tome written by VC Strine. Primary materials, including the case, can be found at the DU Corporate Governance web site. Plaintiff challenged a number of actions by management...

Executive Compensation, Disney and Delaware Law (Part 4)

Posted on February 07, 2008
We have been writing about the recent decision by Disney to give Michael Iger, the CEO and president, a new five year contract.  As part of that, we have been reminiscing about one of the worst, most anti-shareholder decisions ever issued by a Delaware court, In re The Walt Disney Co...

Portnoy v. Cryo-Cell: Vote Buying, Manipulation of the Voting Process, and the Race to the Bottom (Part 1)

Posted on February 07, 2008
As the new year progresses, we have our first candidate for next year's list of the most anti-shareholder cases decided by the Delaware Court of Chancery, Portnoy v. Cryo-Cell, CA No. 3142-VCS, Del. Ch., Jan. 15, 2008, a 73 page tome written by VC Strine...

Executive Compensation, Disney and Delaware Law (Part 3)

Posted on February 06, 2008
We have been writing about the recent decision by Disney to give Michael Iger, the CEO and president, a new five year contract.  We would be remiss if we didn't take a moment to note one of the worst, most anti-shareholder decisions ever issued by a Delaware court, In re The Walt Disney Co...

Opting Only In: The Bottom Line (Part 7)

Posted on February 06, 2008
The nexus of contracts approach is a worthy theoretical framework for the examination of issues relating to corporate governance. This is particularly true in emphasizing the importance of private ordering in the regulatory process. The usefulness, however, breaks down when the approach is used to explain the relationship between diffused shareholders and management...

Executive Compensation, Disney and Delaware Law (Part 2)

Posted on February 05, 2008
We are discussing the decision by Disney to give Michael Iger, the CEO and president a new five year contract. The terms themselves ($2 million in compensation, a minimum $10 million in bonus and 3 million stock options, vesting over five years) do not in themselves seem unreasonable...

Opting Only In: Waiver of Liability in Practice (Part 6)

Posted on February 05, 2008
We are discussing a paper recently posted on SSRN titledOpting Only In: Contractarians, Waiver of Liability, and the Race to the Bottom and examining the development and use of waiver of liability provisions.So what is the bottom line? Does "private ordering" result in the most efficient arrangements, as the contractarians would predict? Not in connection with waiver of liability provisions...

Executive Compensation, Disney and Delaware Law (Part 1)

Posted on February 04, 2008
We couldn't help but notice that Robert Iger, the CEO and President of Walt Disney Corporation, recently received a five year contract.   According to Disney's Current Report on Form 8-K filed on Friday, the contract replaced an existing one that would expire in 2010...

Opting Only In: The Race to the Bottom (Part 5)

Posted on February 04, 2008
We are discussing a paper recently posted on SSRN titledOpting Only In: Contractarians, Waiver of Liability, and the Race to the Bottom and examining the development and use of waiver of liability provisions. As we noted, Section 102(b)(7), which allowed companies to amend their articles to waive liability for the breach of the duty of care, arose in a purported effort to fix the crisis in the D&O insurance crisis...

Denial of Access and the Rule of Unintended Consequences Continues

Posted on February 02, 2008
In allowing management to exclude proposals that would sometimes require the inclusion of shareholder nominees in the company's proxy statement, the Commission did nothing to abate the pressure by shareholders for a greater role in the nomination process or to alleviate the requirements of the proxy rules as impediments to the exercise of a state law right to nominate directors...

Opting Only In: Delaware and the Race to the Bottom (Part 4)

Posted on February 01, 2008
We are discussing a paper recently posted on SSRN titledOpting Only In: Contractarians, Waiver of Liability, and the Race to the Bottom and examining the development and use of waiver of liability provisions. According to the legislative history of Section 102(b)(7), the impetus for waiver of liability was the D&O insurance crisis and the potential impact on corporate governance...

Failure to Meet Demand Execusal Requirements Proves Fatal to Backdating Case

Posted on February 01, 2008
Delaware’s demand requirement can be an insurmountable obstacle facing a plaintiff in a shareholder derivative suit even when there is evidence of wrongdoing by board members. This was the case in Risberg v. McArdle, 2008 WL 54815 (D. Mass., Jan...

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