Corporate Governance

The SEC and Quorum Requirements

Posted on June 21, 2010
The Supreme Court, in New Process Steel v. National Labor Relations Board, 2010 US Lexis 4973 (June 17, 2010), just invalidated an attempt by the NLRB to put in place a two person quorum requirement.  The Court held, in a surprisingly close vote, that a quorum had to be at least three (out of five) commissioners...

The Elimination of Glass Steagall, the Harm to the US Capital Markets, and the Decline in IPOs

Posted on June 21, 2010
As Congress debates how to handle derivatives by large financial institutions, lost in the debate is the structural harm to the capital markets that resulted from the repeal Glass Steagall.  Glass-Steagall separated commercial banking and securities activities...

Starbucks and the Internet

Posted on June 18, 2010
We have written a number of times on this Blog about Starbucks.  Our main thrust was that to profit maximize, the Company should place greater emphasis on social responsibility.  It is our belief that coffee drinkers will pay a bit more if they know some of the money is going to socially responsible causes...

The SEC, the Inspector General, and Political Pressure

Posted on June 18, 2010
David Kotz, the Inspector General at the SEC, has a relatively broad mandate.  He can largely investigate what he wants.  That investigatory authority, however, needs to be wisely used and foremost ought to be designed to work to the benefit of the Commission...

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BP, the Dividend and the Board (Part 3)

Posted on June 17, 2010
With all of that background, where does it leave the dividend issue?  It is unequestionably a political problem.  Clearly, the nonpayment of the dividend will annoy shareholders and may result in a decline in share prices (although in theory it shouldn't; if the company keeps the money, the value of the shares ought not to decline; nonetheless, shareholders expecting dividends may sell and these sales will exert downward pressure on share prices, at least in the short term)...

Blog Readership and Chatchkis

Posted on June 17, 2010
One way to increase traffic on a blog is to write interesting posts that people want to read.  Another way to do it, apparently, is to give out chatchkis.  A Race to the Bottom Calendar, anyone?

BP, the Dividend, and the Board (Part 1)

Posted on June 16, 2010
BP has been under pressure from the President, Barak Obama, to not pay a dividend.  The decision is one that falls to the BP board.  The board consists of 15 directors, five from management.  The CEO and Chair are, as is typical, separated, with the current chair (Carl-Henric Svanberg) coming from the ranks of the non-executive directors...

BP, the Dividend and the Board (Part 2)

Posted on June 16, 2010
The Company has a long history of paying dividends, having done so on "ordinary shares in each year since 1917."  Moreover, BP has committed to continued payment of dividends.  See Form 20-F, March 3, 2010, at 94 ("In 2000 and thereafter, dividends were, and are expected to continue to be, paid quarterly in March, June, September and December...

Interlocking Directors and the Failure of Fiduciary Duties (Part 3)

Posted on June 15, 2010
As the WSJ reported, the case ultimately settled.  According to the proxy statement issued by Sears, the Company considered the suit to be without merit but settled "to avoid the cost of litigation."  The terms of the settlement?  Sears executed a memorandum of understanding whereby one director, who also sat on the board of Auto Nation, would not stand for reelection and would resign as an executive officer...

Interlocking Directors and the Failure of Fiduciary Duties (Part 2)

Posted on June 14, 2010
The defendants moved to dismiss the action on interlocking directors for failing to have made demand.  The court applied the analysis from Aronson in determining whether demand had been excused.  Robert F. Booth Trust v. Crowley, 2010 U.S. Dist...

Interlocking Directors and the Failure of Fiduciary Duties (Part 1)

Posted on June 11, 2010
Directors have fiduciary obligations.  If these duties have any meaning, it is that officers and directors cannot compete with the same business.  See Brown v. Fenimore, 1977 Del. Ch. LEXIS 189 (Del. Ch. 1977)("A similar rule applies to corporate officers and directors who engage in competition with the corporation at the expense of the corporation,")...

Abercrombie, Compensation, and the Need for Access (Part 4)

Posted on June 11, 2010
In an earlier post, we noted that the board paid the CEO of Abercrombie $4 million in return for the elimination of unlimited personal use of the corporate aircraft.  We noted that the total amount of personal use in the prior four years did not exceed $4 million ($3,188,191)...

Abercrombie, Compensation, and the Need for Access (Part 3)

Posted on June 10, 2010
We are examining the Board at Abercrombie and its decisions with respect to the personal use of the aircraft by the CEO, Michael Jeffries.  In April 2010, Mr. Jeffries agreed to forego the unlimited personal use of the aircraft, accepting a cap of no more than $200,000 of personal use each year during the life of the employment contract...

Abercrombie, Compensation, and the Need for Access (Part 1)

Posted on June 09, 2010
Abercrombie Fitch filed its proxy statement not long ago.  It is a Company with a CEO that has a controversial profile when it comes to compensation.  Michael S. Jeffries is the CEO.  It is clear that he took over a moribund product back in the 1990s and made Abercrombie into a popular and successful brand...

Abercrombie, Compensation, and the Need for Access (Part 2)

Posted on June 09, 2010
What really stands out is not the total compensation or the stock appreciation rights, but the treatment with respect to the personal use of the corporate aircraft.  The CEO has made extensive use of this benefit.  The proxy statement for 2009 revealed that Mr...

Gender Diversity on the Board of Directors: An International Comparison and the Need for Access

Posted on June 08, 2010
As we discuss the board of directors and independence, its never a bad idea to revisit the issue of diversity.  In this post, we look at things from a global perspective. GovernanceMetrics has produced a fascinating report on gender diversity, Women on Boards, A Statistical Review by Country, Supersector and Sector, GovernanceMetrics International®, March 11, 2010...

The Declining Regulatory Role of the Stock Exchanges

Posted on June 07, 2010
The NYSE is a for profit public company.  It has had that status since 2006.  See Exchange Act Release No. 53382 (Feb. 27, 2006).  As with all for profit corporations, the board has traditional fiduciary obligations that require it to act in the best interests of shareholders and to maximize profits...

Financial Reform and Preempting the Rules of the NYSE: Transferring the Regulation of Discretionary Voting by Brokers to the Commission

Posted on June 04, 2010
The legislation just adopted by the Senate (Restoring American Financial Stability Act) contain a number of provisions that, if they survive, can only be seen a preempting some of the authority of the stock exchanges in the area of corporate governance...

Financial Reform and Preempting the Rules of the NYSE: Transferring the Regulation of Independent Directors to the Commission

Posted on June 04, 2010
The concept of independent director has become the lynch pin of most corporate governance systems.  Independent directors are expected to protect the interests of shareholders (minority shareholders in most other countries) by approaching matters in a neutral manner, unaffected by managerial influence...

Director Independence, Fees, and the Rules of the Stock Exchanges

Posted on June 03, 2010
We have often noted that neither Delaware nor the stock exchanges consider fees in determining director independence.  This leads to absurd results.  Directors who make in the vicinity of $700,000 in fees are considered independent while those who make substantially less (any amount over $120,000) are not independent if the amount is paid as consulting income rather than fees...

The NYSE and the Problems of Director Independence: The Non-Transparent Interpretation (Part 3)

Posted on June 02, 2010
The NYSE definition of director independence, by its plain meaning, requires boards considering director independence to determine whether directors have a "material relationship with the listed company".  NYSE 303A.02.  Under the obvious meaning of the language, Black & Decker not unreasonably asserted that "[p]ersonal business relationships between individuals (as opposed to relationships with the company) generally are not relevant to the independence tests under the New York Stock Exchange rules because they do not create a material relationship between a director and the company...

The NYSE and the Problems of Director Independence: The Need for SEC Reform (Part 4)

Posted on June 02, 2010
In determining whether directors are independent, the rules of the NYSE require boards to consider material relationships with the company, not with officers and directors.  When Black & Decker took this position publicly, the NYSE intervened and Black & Decker issued a correcting press release...

The NYSE and the Problems of Director Independence (Part 1)

Posted on June 01, 2010
We have noted before on this Blog that the definition of independent director used by the NYSE does not in fact ensure that directors are independent (the definition doesn't take friendship into account). The definition also disqualifies from independent any director with a material financial relationship...

The NYSE and the Problems of Director Independence: The Plain Meaning of NYSE 303A.02 (Part 2)

Posted on June 01, 2010
We are examining problems with the NYSE definition of independent director in the context of the merger between Black & Decker and Stanley Works.  The merger was approved by 99% of the shares voted at the meeting. The NYSE has a definition of director independence that, on its face, turns entirely upon the director's relationship to the company...

The Need for Reform of the Director Nomination Process

Posted on May 31, 2010
The system for electing directors in the United States is skewed against shareholders.  Its bad enough that shareholders have no real say in board membership.  Most slates are nominated by the existing board and almost always run unopposed.  Majority vote provisions are a myth, giving authority not to shareholders but to the board...

Critics of Access and Congressional Action: The Boomarang Threats

Posted on May 29, 2010
As Congress moves forward on financial reform, one things seems certain.  The SEC will get the rulemaking authority to allow shareholders access to the company's proxy statement for their nominees.  It is clear that this is the result of critics of access, particularly those that threatened to challenge the SEC's rulemaking authority in the area...

Critics of Access and Congressional Action: The Boomerang Effect

Posted on May 29, 2010
As Congress moves forward on financial reform, one things seems certain.  The SEC will get the rulemaking authority to allow shareholders access to the company's proxy statement for their nominees.  It is clear that this is the result of critics of access, particularly those that threatened to challenge the SEC's rulemaking authority in the area...

The Continued Federalization of Corporate Law

Posted on May 28, 2010
Larry Ribstein has been posting on the corporate governance provisions in the financial reform legislation and has lamented the continued creeping federalization of corporate law.  Steve Bainbridge laments that the evolution of the law is increasingly a "struggle to keep the federal government from steadily encroaching on corporate governance to the point that we might as well adopt a federal corporations law...

BRIC Project -- China -- Regulatory Structures in China (Part 1)

Posted on May 28, 2010
Introduction Part one of the Race to the Bottom's BRIC Project: China Series seeks to illuminate the regulatory structures, agencies, and institutions that make up the Chinese system of corporate governance ('gongsi zhili').  While this discussion is not comprehensiave, it does provide sufficient detail to grasp the complexities and nuances of this blossoming market...

BRIC Project -- China -- Regulatory Structures in China (Part 1 cont.)

Posted on May 27, 2010
Introduction Part one of the blog's BRIC Project's China Series seeks to illuminate the regulatory structures, agencies, and institutions that make up corporate governance (gongsi zhili) in China.  This continued posting on the regulatory structures in China looks at the (A) Board of Directors and the (B) Board of Supervisors in Chinese companies and their role in corporate governance, as well as (C) China's definition of director independence...

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