Corporate Governance

Opting Only In: The Exegisis of Waiver of Liability (Part 3)

Posted on January 31, 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.     Delaware became the first state to adopt an “opt-in” approach to waiver of liability in 1986...

Delaware and the Use of Process to Permit Unfair Compensation

Posted on January 31, 2008
One of the fallacies of Delaware law has been an excessive reliance on procedural mechanisms to avoid examining the merits of self interested transactions.  This has been particularly true in connection with the approval of these transactions by independent directors...

The SEC, Corporate Governance, and Executive Compensation (Part 2)

Posted on January 30, 2008
The staff of the Commission has been working hard at improving compliance with the new executive compensation disclosure requirements adopted last year so reports the WSJ.  A new round of comment letters on the inadequacy of the disclosure have been issued...

Opting Only In: Corporate Law and the View of Contractarians (Part 2)

Posted on January 30, 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.    A widespread view in the academy, and a source of support for Delaware's approach to corporate law, is the idea that corporations are best analyzed as a “nexus of contracts...

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Opting Only In: An Overview (Part 1)

Posted on January 29, 2008
We have posted a paper on SSRN titled Opting Only In:  Contractarians, Waiver of Liability, and the Race to the Bottom.  The paper does several things.  It examines waiver of liability provisions and examines the reasons why they came into existence...

The SEC, Corporate Governance and Executive Compensation (Part 1)

Posted on January 29, 2008
The staff of the Commission has been working hard at improving compliance with the new executive compensation disclosure requirements adopted last year, so reports the WSJ.  It seems that companies that disclose the amount of compensation is related to individual performance, but then lack adequate disclosure on how individual performance translates into the actual amounts paid...

Mealey's Subprime-Backed Securities Litigation Conference

Posted on January 29, 2008
Thursday, March 6, 2008 - The Harvard Club, NY co-chair David Grais of Grais, Grais & Ellsworth LLPe-mail: mealeyseminars@lexisnexis.com / phone: 1-800-MEALEYS Click here for the conference page 

Access and Unions: A Reply to Eugene Scalia

Posted on January 28, 2008
The Wall Street Journal published the following letter today:  Shouldn't Owners Control?In his op-ed "The New Labor Activism" (Jan. 23), it is clear that Eugene Scalia does not like shareholder activists. He calls on the Labor Department to investigate activism by unions and to look specifically into their efforts to "monitor or influence management...

Both Ways Atkins

Posted on January 28, 2008
Last week, the WSJ included an op ed piece written by Commissioner Atkins at the SEC.  We will not bother to analyze his position that shareholders and investors benefit from the Supreme Court's decision in Stoneridge.  Suffice it to say that  the vast categories of investors had different views as the amicus briefs filed on behalf of petitioners in Stoneridge illustrate...

A Hint of What's Coming in the Nacchio Appeal

Posted on January 26, 2008
Kevin O'Bien has written a three part series on the reversal by theTenth Circuit of the trial court's approval of a civil settlement in one of the suits against Qwest (New England Health Care Employees Pension Fund v. Woodruff).  While this has already been raised to some degree, we take a moment and emphasize the implications for the merit review of Joe Nacchio...

Commission Disclosure Requirements and a Private Right of Action for Violation of Listing Requirements

Posted on January 25, 2008
In Corporate Governance, the Securities and Exchange Commission, and the Limits of Disclosure I took the position that the Commission was increasingly using disclosure to affect substantive behavior by officers and directors.  One of the ways this has occurred has been through mandatory disclosure of a company's compliance with the listing standards of the relevant stock exchange...

Stock Exchanges and Director Independence

Posted on January 24, 2008
We have noted problems associated with enforcement of listing standards.  The issue comes up most clearly in the context of director independence.  The NYSE provides that directors will not be independent if they have a "material relationship with the listed company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company)...

Foreign Investment, SOX and the Litigation Explosion

Posted on January 24, 2008
Remember about this time last year when everyone seemed to blame SOX for the perceived harm to US competitiveness?  Those complaints have largely evaporated.  Now its litigation that is harming the competitiveness of the US.  Even the Supreme Court in Stoneridge bought off on that unproven saw...

Multiple Class Action Lawsuits Filed Against Crocs

Posted on January 23, 2008
Since Crocs, Inc. ("Crocs") reported its third quarter earnings at the end of October, 2007, at least three shareholder lawsuits have been filed against the company. The complaints charge Crocs and certain of its officers and directors with violations of the Securities Exchange Act of 1934...

Of Hedge Funds, Unions and Shareholder Access

Posted on January 23, 2008
In the debate on access, there are many who simply do not want to see shareholders have any right to elect directors to the board.  They are content with a system whereby almost all nominees come from the board, allowing existing directors to vet all prospective candidates...

Enron and Justice Delayed

Posted on January 23, 2008
The Supreme Court denied the petition for certiorari in the Enron litigation, the case involving the liability of a number of investment banking firms under the antifraud provisions.  In most instances, this type of action is the end, but maybe not in this case...

Enron, AOL, and Stoneridge

Posted on January 23, 2008
There has been considerable press attention to the Supreme Court's decision to deny certiorari in Regents v. Credit Suisse, the Enron case involving allegations against an assortment of investment banking firms.  Often missed and potentially more interesting was that the Supreme Court did grant the cert petition in Simpson v...

Nacchio Civil Class Action Appeal: Part 3 (Prejudice)

Posted on January 22, 2008
Part 3 of this three-part series addresses one of the two principal legal issues present in New England Health Care Employees Pension Fund v. Woodruff, No. 06-1482. In a 2 to 1 split decision, the 10th Circuit remanded the case to U.S. District Judge Robert Blackburn to determine whether the $400 million settlement by the plaintiffs and Qwest of the class-action case was “fair, reasonable, and adequate” when Nacchio and his CFO were excluded from the settlement...

Stoneridge and the Rule of Unintended Consequences

Posted on January 22, 2008
We don't often agree with Larry Ribstein but his criticisms of the Supreme Court's use of reliance to resolve the case in Stoneridge are sound (even if he would have affirmed the 8th Circuit on other grounds).  As he notes:My problem is that, instead of focusing on the type of conduct that should get a defendant into trouble under the securities laws, the Court focused on reliance...

Nacchio Civil Class Action Appeal: Part 2 (Insufficient Findings)

Posted on January 21, 2008
Part 2 of this three-part series addresses one of the two principal legal issues present in New England Health Care Employees Pension Fund v. Woodruff, No. 06-1482 , in which several Qwest shareholders originally brought a class action complaint in 2001 alleging various federal securities laws violations by Qwest and its employees...

Stoneridge v. Tellabs and Blog Prognostication

Posted on January 21, 2008
It's been a bad week for shareholders but a good week for predictions by the Race to the Bottom.  First, we predicted a 5-3 vote affirming the 8th Circuit in Stoneridge.  Now we go back to Tellabs v. Makor, the case interpreting the strong inference language and written by Justice Ginsburg...

Nacchio Civil Class Action Appeal: Part 1 (Judge Kelly)

Posted on January 19, 2008
On January 16th, 2008, the Tenth Circuit published its opinion in New England Health Care Employees Pension Fund v. Woodruff, No. 06-1482 , in which several Qwest shareholders brought a class action complaint on July 27, 2001 alleging various federal securities laws violations by employees of Qwest and Arthur Andersen...

Friday Editorial: SOX, Stoneridge and the Assault on Shareholder Rights

Posted on January 18, 2008
As we leave our commentary on Stoneridge, we ought to take one more effort to put it into context.  Maybe two years ago, and one reason for the creation of this Blog, there was a relentless attack on Sarbanes-Oxley, with commentators and academics alleging that the Act was more harmful than beneficial...

Diversity, the Board of Directors, and Access

Posted on January 17, 2008
We have discussed a number of times on this Blog the problems of lack of diversity on boards of directors.  The term diversity here is used not just to signify women or people of color, but also persons with backgrounds that differ from top management...

Reyes, Stoneridge, and the Criminalization of Corporate Law

Posted on January 17, 2008
Gregory Reyes, the former CEO of Brockade, wassentenced Wednesday in connection with his conviction in a backdating case to 21 months in prison and ordered to pay a $15 million fine.  We juxtapose the decision with the Supreme Court's opinion in Stoneridge...

Stoneridge Affirmed (Part 5)

Posted on January 16, 2008
The Supreme Court affirmed the 8th Circuit's decision in Stoneridge, concluding that the vendors in that case could not be sued in a private action under Rule 10b-5.  The opinion is here.In the end, the case can be explained by the majority's dissatisfaction with the judicial creation of a private right of action under Rule 10b-5...

Stoneridge Affirmed: The Impact on Enron (Part 4)

Posted on January 16, 2008
So, the lurking unanswered question is the impact of Stoneridge on Credit Suisse, the 5th Circuit case that exonerated the investment banking firms in Enron.  A petition for certiorari has been filed in the case and is pending.  In Credit Suisse, the Fifth Circuit held that "'deception' within the meaning of Sec...

Stoneridge Affirmed (Part 3)

Posted on January 15, 2008
This case is a loss for plaintiffs.  No dispute there.  But at least the Court unanimously disagreed with the 8th Circuit's reasoning.  The lower court held that to fall within Section 10(b), some type of "misstatement or a failure to disclose by one who has a duty to disclose" was required...

Stoneridge Affirmed (Part 2)

Posted on January 15, 2008
The Supreme Court affirmed the 8th Circuit's decision in Stoneridge, concluding that the vendors in that case could not be sued in a private action under Rule 10b-5.  The opinion is here.We offer a number of observations and will continue to do so over the next couple of days...

Stoneridge Affirmed

Posted on January 15, 2008
By a 5-3 vote, the US Supreme Court affirmed the 8th Circuit opinion in Stoneridge.  The opinion is here.  The Court broke along predictable lines, with Scalia, Kennedy, Alito, Roberts and Thomas in the majority (Scalia, Thomas and Kennedy were in the majority in Central Bank, the opinion that eliminated aiding and abetting liabilty in actions under Rule 10b-5) and Ginsburg, Souter and Stevens (all three in dissent in Central Bank) in dissent in this case...

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