(Editor’s note: We have received other memoranda on the proposed amendments to Statement of Financial Accounting Standards No. 5 by Eric Roth of Wachtell, Lipton, Rosen & Katz and our guest contributor Holly Gregory of Weil, Gotshal & Manges LLP. The memoranda are available here and here.)

My colleagues and I have prepared a memorandum summarizing the serious concerns raised for public companies by proposed amendments to the Financial Accounting Standards Board’s Statement of Financial Accounting Standards Number 5, dealing with loss contingencies. Boards of directors, particularly audit committee members, and those who advise boards should become familiar with the proposed amendments and the potential consequences, which include earlier, more detailed public disclosure and, including liability estimates, for litigation and other claims, even in cases where the company expects to prevail or does not believe there will be a material cost to settle the matter. Comments in writing are due on this proposed amendment by August 8, 2008 and FASB will thereafter host an open forum on the issue at which those who have submitted comments may testify. We welcome reactions to the concerns we have expressed.

The memorandum is available here.

As regulators increasingly embrace cooperative approaches to governance, voluntary public-private partnerships and self-regulation programs have proliferated. However, because few of these partnerships and programs have been subjected to robust evaluation, little is known about their effects. In my paper with Mike Toffel, “Coming Clean and Cleaning Up: Is Voluntary Disclosure a Signal of Effective Self-Policing?” we ask whether and in what ways self-regulatory practices at a subset of regulated facilities enhance the effectiveness of the regulatory scheme.

In the context of a program sponsored by the U.S. Environmental Protection Agency that encourages regulated entities to voluntarily self-police and self-disclose regulatory violations, we analyze whether such voluntary disclosures are a good signal of a facility’s effective self-policing practices. There are two components to this question. First, do facilities that send the self-regulation signal outperform those that do not? Second, what is the agency’s response to the signal? Are regulators effectively sorting the good facilities from the bad, and are they leveraging this information in a way that enhances the effectiveness of their enforcement efforts?

We find that, on average, self-policing facilities improved their environmental performance, as measured by a decline in the number and probability of abnormal events resulting in toxic pollution. However, upon closer examination, we find this effect to be significant only among “good apples,” or facilities with clean past compliance records. We find no evidence of improvement among facilities with more problematic compliance histories. In other words, it appears that voluntary disclosure is an effective signal for distinguishing the “great” apples from the merely “good” apples, but not for determining whether a “bad” apple has turned good.

With respect to the behavior of the regulatory agency, we find that regulators are interpreting these signals with a high degree of accuracy and responding accordingly. Our analysis shows that regulators significantly reduced their scrutiny of self-disclosers that were “good apples” (or those that improved their environmental performance) but continued to keep a watchful eye on the “bad apples” (who did not improve).

Taken together, these findings support the theoretical promise of meaningful self-policing practices and suggest that voluntary disclosure can serve as a reliable signal of future compliance under certain circumstances. But, at the same time, they highlight the way in which self-regulation outcomes are contingent on the organizational contexts into which self-regulatory practices are adopted. Our analysis also highlights the possibilities for gaming that self-regulation introduces into the regulatory system, but we demonstrate that, at least in this context, regulators do not appear to be fooled.

The full paper is available for download here.

On June 25, I presented a paper entitled “Shareholder Activism and the “Eclipse of the Public Corporation”: Is the Current Wave of Activism Causing Another Tectonic Shift in the American Corporate World?” at the 2008 Directors Forum of The University of Minnesota Law School. The paper discusses the pressures that have been pervasively eroding the centrality of the board of directors and transforming its role in the governance structure of public companies, with the end game being a new conception of the corporate organization. Against the backdrop of the subprime and leveraged loan financial crisis and other recent events, the paper addresses what I regard as the crux of the issue affecting public companies today: whether the institution of the corporate board can cope with these pressures and survive as the vital governing organ of public companies. Or, will a forced migration from director-centric governance to shareholder-centric governance, along with a concomitant transformation of the role of the board from guiding and advising management to ensuring compliance and performing due diligence, simply overwhelm American business corporations?

The paper is available here.

Although this blog uses the name Harvard Law School Corporate Governance Blog, I want to introduce a new but closely related topic – uncorporate governance.

By uncorporate I mean partnership-type business associations (i.e., general partnerships, limited liability companies and limited partnerships) and the default rules and norms that are associated with these business forms.

One might say that looking at uncorporations moves away from this blog’s focus on publicly held firms. But as I show in my Uncorporating the Large Firm, uncorporations are increasingly important in governing large, publicly held firms. Examples include not only publicly traded partnerships, limited liability companies and real estate investment trusts, but also private equity, venture capital and hedge funds that exercise critical control powers in firms that are large, publicly traded, or both.

All of these firms are characterized by their substitution of discipline and incentives for corporate-type monitoring as ways to control managerial agency costs. Specifically, uncorporations (1) loosen managers’ grip on the firm’s cash through distributions and liquidation rights; and (2) give managers high-powered owner-like incentives. The trade-off is that uncorporations rely much less on high-cost but often ineffective monitoring devices such as fiduciary duties, owner voting and the market for control.

Corporate scholars and practitioners have been complaining for generations about the inadequacy of corporate monitoring devices in controlling agency costs. Tweaks of conventional corporate governance, such as majority voting for directors, are more band-aids than solutions. Defenders of the corporate status quo argue that the benefits of strong managerial power are worth the costs. But whether that is true depends on whether there are cheaper and more effective alternatives. My paper shows that there are, and that market forces have been substituting these alternatives for traditional corporate governance.

So research on corporate governance needs to start paying more attention to uncorporate governance. This means, among other things, more focus on the distinct role of uncorporate structures in producing value. For example, many articles discuss activist hedge funds’ role in unlocking corporate value, but not why they produce these results. My work suggests that hedge funds’ uncorporate structure – that is, use of typical limited partnership and LLC governance devices – is a big part of the answer. Similarly, many attribute the success of private equity to factors such as the escape from securities regulation and the use of debt. Again, I suggest that private equity’s uncorporate structure plays a critical role. The public policy implication is that disabling critical private equity features through tax or regulation may have significant costs.

The role of uncorporations in large firms may increase as new uses are found for these devices. For example, I’ve tried to make the case for publicly traded law firms (which, of course, would involve changes in current ethical rules). See MacEwen, Regan & Ribstein, Law Firms, Ethics and Equity Capital: A Conversation. I show in my “Uncorporating” paper that uncorporate structures are the likely vehicles for such firms.

The future of the uncorporation in large firms depends critically on the courts and Congress. The courts need to enforce contracts in uncorporations, particularly including fiduciary duty waivers, in order to effectuate the uncorporate substitution of discipline and incentives for monitoring. I show in The Uncorporation and Corporate Indeterminacy that the Delaware courts are, indeed, doing that. Francis Pileggi wrote about one recent such case on this Blog, Chancery Gives Victory to Freedom of Contract, May 23, 2008.

As for Congress, we can expect calls by interest groups to stunt the expansion of private equity and other uncorporate governance devices. These devices increase managers’ incentives to respond to owners’ interests and eliminate the shareholder meeting as a mechanism for non-owner interest groups to be heard. As I’ve discussed on my blog (The SEIU and Private Equity, June 4, 2008) the unions are aware of this and fighting back. The political question boils down to the appropriate balance between managerial accountability and managers’ power to allocate some of the corporate pie to non-owner groups. Congress could try to stunt the growth of the uncorporation through tax and regulation. On the other hand, such moves as eliminating the corporate tax or relaxing publicly traded firms’ ability to be taxed as partnerships could pave the way to really significant changes in the way corporations are governed.

In short, managers’ agency costs in large corporations has for a long time been a lot like the weather. Politicians and interest groups talk about it a lot, but the results, like umbrellas and galoshes, don’t change the basic scenery. The uncorporation could make a basic change if we’re willing to unleash its potential.

Ernst & Young recently released its 10th Global Fraud Survey “Corruption or Compliance – Weighing the Costs“.

As the US Foreign Corrupt Practices Act (FCPA) becomes the de facto anti-corruption standard worldwide, over 50% of US executives — and 84% globally — still know little to nothing of its key provisions, according to the survey. Another survey finding with governance implications suggests that companies increasingly rely on internal audit to find and address fraud and compliance risk—but internal audit departments may not have the tools, techniques, or resources to do so. Only 28% of US respondents say their internal audit departments are highly successful at detecting bribery and other corrupt practices.

The results show a marked lack of knowledge and preparedness on the part of C-suite executives and other risk management personnel, including internal auditors, about FCPA, which prohibits bribery of government officials by US companies and US-traded foreign companies. More than two-fifths of survey respondents (43%) say their companies do not have specific provisions in place for dealing with government officials—presenting an enormous risk of FCPA non-compliance.

Another key finding is that companies engaged in M&A may not be conducting necessary due diligence on target companies. Nearly half of FCPA prosecutions in 2007 arose during mergers or acquisitions. But fewer than half of survey respondents report that their companies routinely review the risk of bribery in advance of an acquisition—presenting significant risk of so-called “successor liabilities” that expose the buyer to unnecessary risk.

In sum, Ernst & Young’s 10th Global Fraud Survey demonstrates that corruption and bribery remain a significant exposure for US companies, especially as they conduct business across borders. The survey included senior in-house counsel and chief risk officers, along with other corporate executives from the C-suite to internal audit, and surveyed 1,186 respondents in 33 countries from November 2007 to February 2008.

The survey is available here.

(Editor’s note: This post is by Angela Priest and Eric Wilensky of Morris, Nichols, Arsht & Tunnell LLP.)

Over the past year, the areas of corporation law impacting how transaction attorneys guide their clients developed at a significant pace. This trend emerged with Vice Chancellor Strine’s Netsmart, Topps, and Lear opinions, issued during the height of the private equity-led LBO boom and continued through Chancellor Chandler’s United Rentals opinion, in which the Court addressed issues associated with the break up of a transaction entered into during that boom. In between the Court addressed a number of issues, including permissible board actions in the context of seeking stockholder approval; when a company must include management projections in its proxy solicitation materials; and how to value a company in an appraisal proceeding.

In this article, we discuss these developments in the order that a transaction attorney would likely need to consider them-starting with the exploration of strategic alternatives and ending with litigating a busted deal. We do not intend to conduct an exhaustive analysis on any particular topic or any particular case. Instead, we intend to raise awareness of certain guidelines that these cases suggest.

What our experience has taught us over the past year, and what we hope becomes clear, is that although each opinion issued by the Delaware courts provide guidelines to transaction planners, each opinion is decided based on a particular set of facts. Thus, the opinions issued by the Delaware courts should be taken for what they are–guidelines for shaping a transaction–and not bright-line rules to be followed in all instances.

The article is available here.

It’s the height of proxy season, and with the high-profile shareholder meetings taking place at Exxon last week and Yahoo later this summer, a new website ProxyDemocracy.org offers tools to help individual investors take part in the process.

Although individuals own over 25% of US equity, institutional investors run the show when it comes to proxy voting. Driven by a mix of corporate governance zeal and fiduciary duty, mutual funds, pension funds, and other institutions invest in proxy voting research and vote their shares almost 100% of the time. By contrast, only about 20% of individual investors bother to vote; it’s safe to assume that even fewer read the proxy statement and know what they’re voting on.

Given the difficulty of researching the issues on the ballot and the ease of free riding, it’s not surprising that individual investors generally pass up their voting rights as owners. But it has a cost. Though many retail investors don’t realize it, their brokers vote on their behalf when they fail to send in a ballot. The standard approach brokers have taken is to cast all of these “uninstructed” shares for management, which tends to stack the deck against governance reform. Some brokers have recently enacted a “proportional voting” policy, which means that the votes for all of a broker’s clients are cast to reflect the votes of the minority who submitted a vote. But this only increases the importance of informed investor participation: if 20% of retail investors do the voting for the rest, it’s important that they know what they’re doing.

ProxyDemocracy.org, which I developed part-time over the past few years with help from a few other programmers, helps individual investors piggy-back on the research and judgment of respected institutional investors. We collect the intended votes of a handful of institutions (CalPERS, CBIS, Domini, and Calvert) that currently disclose their votes in advance of meetings. Users can sign up for free email alerts on our site to find out how those institutions plan to vote on stocks they own. Just as citizen voters take account of endorsements from respected groups like the Sierra Club or the NRA (depending on one’s political persuasion), individual investors can use these cues from known institutional investors to arrive at a principled vote more cheaply.

The site also provides tools for mutual fund owners. Around half of US households own mutual funds, and mutual funds own about a quarter of US equity. We have processed hundreds of SEC filings to help investors compare the voting records of leading mutual funds and determine whether their fund represents their interests at shareholder meetings. Not surprisingly, SRI funds tend to be much more activist than mainstream funds, but the differences among mainstream funds are significant as well: our fund profiles indicate that Schwab’s S&P 500 fund has a much more activist record than Vanguard’s, for example.

In the coming months, we plan to add more mutual fund profiles and collect intended votes from additional institutions. I encourage you to have a look at the site and pass along your thoughts and suggestions, either in the comments here or by email to andy [at] proxydemocracy.org.

At EXXON’S Shareholders Meeting on Wednesday, Resolution #5 received 39.5% of the vote, marginally shy of last year’s 40%. I was relieved as we early learned that the company was seriously soliciting investors to vote against our resolution. The realities of the proxy process are that an issuer has vast advantage. There are many large holders who want to provide 401(k) or other services or who have analysts who want continued favorable access. It is difficult under existing conditions for such holders to consider seriously their fiduciary obligations. Under those conditions, it is gratifying that we can – in a year in which EXXON’s recorded financial performance may be the best ever recorded – hold steady at 40%. If this is a base, we can work on expanding it.

A letter in support of the proposal by myself and members of the Rockefeller family, filed with the SEC on May 13, 2008, is availabe here. A CNBC video featuring my discussing the proposal is available here. The text of the proposal was as follows:

“RESOLVED, that the shareholders urge the Board of Directors to take the necessary steps to amend the by-laws to require that, whenever possible and subject to any presently existing contractual obligations of the Company, an independent director shall serve as Chairman of the Board of Directors, and that the Chairman of the Board of Directors shall not concurrently serve as the Chief Executive Officer.”

A summary of the 2008 proxy proposal votes is available here.

I recently co-authored an article with Chief Justice Myron T. Steele of the Supreme Court of Delaware, “Delaware’s Guidance: Ensuring Equity for the Modern Witenagemot,” 2 Virginia Law & Business Review 189 (2007), previously explored here, and a subject of the Chief Justice’s keynote luncheon address to the
Business Law Section at the ABA’s 2007 annual meeting. This article was the subject of recent criticism from Jay Brown of racetothebottom.org. Brown opposes the phenomenon we explored in which Delaware’s judges write articles, dicta, and give speeches on emerging issues in corporate governance, as well as participate as advisors to ABA Business Law Section committees. We called it Delaware’s “Guidance Function” and noted some of the more insightful examples from articles and dicta over the last twenty years. That someone of his stature would work on this important topic with a law clerk eager to get published is a testament to his 20 years of dedication mentoring law clerks and spent in tireless service to Delaware’s bench and bar. I should note that this post represents only my own personal response to Brown’s criticism and my understanding of Delaware’s Guidance Function.

Brown’s principle objection is that it represents an impermissible method for a judge to influence the law. He has, unfortunately, missed the point. Delaware’s Guidance Function is about informing Boards of Directors, and the attorneys of the Negotiated Acquisitions bar who advise them, of trends in corporate governance requiring special focus. Advice from neutral and informed jurists at the center of the maelstrom is valuable for Boards and corporate lawyers faced with inevitable uncertainty in the law that previously litigated fact patterns have yet to fully illuminate. Views of Delaware Judges in this medium are, as we were sure to note, clearly non-binding. Whether it is Justice Holmes’s The Common Law, former Chief Justice Rehnquist’s predictive insights into detention jurisprudence in All The Laws but One, or Judge Posner’s voluminous work on a variety of subjects, judges sharing insights outside the four corners of opinion writing has long been a respected pursuit central to American legal history.

Brown also begins from the assumption, central to his sensationalist “race to the bottom” blog, that Delaware’s law and judges favor management at the expense of shareholder value. Yet he noticeably avoids comment on the substance of the article. For instance, three of the more compelling examples of the Guidance Function, which we chose from among literally thousands of Westlaw citations to Delaware dicta and speeches, offer a general sense of our argument. Consider, for instance, former Chancellor Allen’s delphic observation in 1990 that “[I]n a sale context, counsel for a special committee must accept from the outset that as a practical matter she will have to demonstrate that the special committee’s process had integrity; that the committee was informed, energetic and committed in this transaction to the single goal of maximizing the shareholders’ interest….This is not a call to pay even greater attention to appearances; it is advice to abandon the theatrical and to accept and to implement the substance of an arm’s-length process.” William T. Allen, Independent Directors in MBO Transactions: Are They Fact or Fantasy?, 45 BUS. LAW. 2055, 2056 (1990). Kahn v. Lynch, decided in 1994, rewarded advisers who heeded the Chancellor’s call and spawned a line of cases representing one of the more litigated questions today. We also highlighted roughly a dozen other examples, including Chancellor Chandler’s admonitions about termination fees in Louisiana Mun. Police Employees’ Ret. Sys. v. Crawford and the compensation committee best practices offered by Justice Jacobs in the Disney case.

The Guidance Function has been embraced by Delaware’s judges, who travel around the world to remain engaged in the corporate governance debate. Indeed, the Chief Justice joined various experts on May 16, including former Senator Paul Sarbanes, to address the Institutional Investor Education Foundation’s Annual European Conference on vital issues of shareholder rights. The Delaware Guidance Function is a useful service working to the equal benefit of Boards of Directors, corporate counsel, and shareholders in Delaware corporations.

As noted in an article by Floyd Norris of the New York Times, a panel of the Seventh Circuit Court of Appeals unanimously ruled in Jones v. Harris Associates that courts should play a limited role in reviewing fees charged by mutual fund advisors. In an opinion by Judge Frank Easterbrook, the court relied on what it called a “careful study” by Harvard Law School Professor John C. Coates IV and Columbia Business School Dean R. Glenn Hubbard that found that market forces and existing regulations provide powerful constrains on mutual fund fees, as well as an article by Ohio State Finance Professor René M. Stulz showing that hedge fund compensation regularly exceeds mutual fund fees.

The following summary and memorandum concerning the decision is by John Baumgardner of Sullivan & Cromwell LLP.

In Harris Assocs. v. Jones, No. 07-1624 (7th Cir. May 19, 2008), the United States Court of Appeals for the Seventh Circuit ruled that as long as a mutual fund investment adviser does not breach the fiduciary duty owed to shareholders by failing to disclose all of the pertinent facts or otherwise hindering the fund’s directors from negotiating a favorable price, no judicial review of the reasonableness of the adviser’s fee is required to dismiss a claim under Section 36(b) of the Investment Company Act of 1940. This decision rejects the long-followed Second Circuit decision in Gartenberg v. Merrill Lynch Asset Management, Inc., 694 F.2d 923 (2d Cir. 1982), which, while respecting the deliberations of independent directors, required courts to consider those deliberations in light of multiple factors in determining whether investment adviser fees were excessive. The Seventh Circuit examined the definition of fiduciary duty, rather than the amount of the fee itself, to evaluate whether the adviser complied with the duty created under Section 36(b), and held that a court should not substitute its judgment of what is “reasonable” for a fee determined by marketplace competition, absent lack of disclosure, deceit or some other breach of a fiduciary duty. (c) Sullivan & Cromwell LLP

A memorandum summarizing the decision is available here.

Together with Adam O. Emmerich, David A. Katz, James Cole, Jr. and Sabastian V. Niles, I have recently distributed a memorandum entitled Cross-Border M&A - SEC Proposes Revisions to Cross-Border Transaction Exemptions, which discusses proposed revisions by the SEC to the current regulatory regime for cross-border transactions. The revisions represent a modest advance toward clarifying existing exemptions and, if implemented, would provide US and non-US bidders with somewhat greater certainty and flexibility in structuring deals for non-US targets. The release also requests comments on a number of additional possible changes that could further broaden the exemptions. The proposed revisions do not address a key concern that under existing regulations foreign issuers are subject to potential exposure under the anti-fraud, anti-manipulation and civil liability provisions of the US federal securities laws for transactions with relatively modest US entanglements. The risk of such exposure has persuaded many international issuers to avoid US markets and US investors altogether, to the detriment of global capital markets in general and US investors in particular. The present amendments may thus be a way-station to a more comprehensive future revision of the cross-border rules.

The memorandum is available here.

President Bush recently announced the appointment of law professor Troy A. Paredes as a Commissioner of the Securities and Exchange Commission. Pending confirmation by the Senate, Paredes will commence a five-year term on 6 June 2008, filling the seat Paul Atkins will vacate after almost six years in office.

Professor Paredes’ CV outlines his broad experience teaching, writing and practicing in the areas of corporate and securities law. After five years with major law firms in San Francisco and Los Angeles, in 2001 Paredes joined the Washington University School of Law. His scholarship has spanned a broad and varied mix of topics in law and related disciplines. The topics include: securities regulation; corporate governance; corporate control transactions; corporate finance; the theory of the firm; law and economics; behavioralism; and intellectual property transactions. Paredes joins Harvey J. Goldschmid as one of the few Commissioners who have been appointed from the legal academy.

In his writing, Paredes’ supports the use of market discipline - rather than mandatory rules - to protect investor interests, and has recommended that SEC Commissioners attempt to shape market practices through speeches, op-ed pieces, and other public statements. His recent papers, entitled Hedge Funds and the SEC: Observations on the How and Why of Securities Regulation (2007) and On the Decision to Regulate Hedge Funds: The SEC’s Regulatory Philosophy, Style, and Mission (2006), deserve attention since, in many respects, they reflect his approach to securities regulation more broadly. He says that concerns about “empty voting” and other “abuses” by hedge funds should be “kept in proper perspective”. Rather than engaging in illicit behavior, “the vast majority of hedge fund managers are disciplined traders who make informed, although risky, trades.” He takes issue with the SEC’s 2004 decision to regulate hedge funds and expresses concern that the SEC “will at some point regulate venture capital and private equity funds”. Instead, he recommends that the SEC facilitate market discipline of hedge funds by adopting default rules or expressing its view on best practices, leaving the final decision to hedge funds themselves on which practices to adopt. As to the role played by SEC Commissioners, Paredes explains:

“Imagine the potential impact on the industry if the SEC chairman, particularly if joined by other commissioners and the directors of the Divisions of Investment Management and Corporate Finance, pushed a set of hedge fund best practices in a series of speeches, interviews, and op-eds in publications such as the Wall Street Journal and the Financial Times.”

Paredes also explains that when making rules the SEC - like other regulators - may exhibit unconscious biases that can frustrate good decision making. To guard against this and to avoid over-regulation, he recommends more rigorous use of cost-benefit analysis and “new organizational structures that might be mined from the experiences of companies,” among other tools.

In another relevant paper, The Firm and the Nature of Control: Toward a Theory of Takeover Law (2003), Paredes outlines his views on Delaware corporate law and his respect for greater shareholder choice in some contexts. He advocates greater respect for shareholder control in change of control transactions and limits on defensive tactics by target boards. More specifically, he advocates that Revlon duties be stiffened; that in considering Unocal’s “threat prong” Delaware courts should “take a hard look at a target board’s determination that a hostile bid poses a threat to the company” and thereby limit the “just say no” defense; and that “a change of board control should trigger Revlon, even without a change of ownership or voting control at the shareholder level.” These changes, Paredes argues, would result in a more robust takeover market, making directors and officers “more accountable for their actions” and “curb any future outbreaks of greed, disloyalty, and mismanagement on the scale of the [Enron, WorldCom, etc] abuses.”

His current research includes an empirical and theoretical assessment of what causes CEO overconfidence.

Many of Paredes’ other papers may be accessed here.

On May 5, 2008, The Millstein Center for Corporate Governance and Performance at the Yale School of Management and the Mutual Fund Directors Forum partnered with independent leaders of mutual fund boards of trustees to found the Conference of Fund Leaders (CFL), a permanent new body composed of independent board chairs and lead independent directors of mutual funds in the United States. The CFL will provide a unique opportunity for the independent leaders of fund boards to come together with their peers to discuss governance issues that board leaders and their funds face; proactively present their views on policy matters important to fund investors and independent directors, regulators and lawmakers; and promote research into the value and impact of effective, independent leadership at mutual funds.

Mutual funds account for about one-third of equity ownership in North America and hold over $10 trillion in assets on behalf of American investors and savers. Fund boards negotiate the contracts that establish the price fund investors pay to have their assets managed, oversee critical aspects of their funds’ operations and work to protect fund investors from any conflicts of interest that may arise in the management of funds. The success of fund boards is thus crucial to fund shareholders’ ultimate success and their work is increasingly drawing public scrutiny. The CFL, which plans to convene two meetings a year, intends to serve as a unique peer network for sharing ideas and prompting independent collective action where appropriate.

The members of the CFL’s Steering Committee are: John Hill, independent chair of the Putnam Funds and founding chair of the CFL; Peter Clapman, independent chair of the AARP funds and vice-chair of the CFL; Ira Millstein, senior associate dean for corporate governance at the Yale School of Management; David Ruder, chairman of the Mutual Fund Directors Forum Board; Dwight Crane, independent lead director for Legg Mason Partners Equity Funds; William Foulk, independent chair of AllianceBernstein funds; Virginia Stringer, independent chair of First American Funds; and Roger Vincent, independent chair of ING Mutual Funds.

The CFL will be jointly administered by the Millstein Center for Corporate Governance and Performance at the Yale School of Management, which originated the project, and the Mutual Fund Directors Forum, the independent professional body representing U.S. independent fund directors.

The launch event is scheduled for late October in New York City. The agenda will focus on shareholder rights, board leadership and other current topics.

The founding of the CFL comes against the backdrop of recently adopted regulations by the U.S. Securities and Exchange Commission requiring mutual fund boards to be chaired by an independent. Until this SEC initiative, few such boards featured leadership separate from that of the fund family. The regulation itself remains in limbo after court rejection. The SEC has promised to restore it. Meanwhile, an estimated 65% of U.S. mutual funds have already acted to install independent chairs in anticipation of the rule becoming formalized. Most other funds have named independent lead directors.

Contact:
John Hill, chairman of the Conference of Fund Leaders and chairman of the Putnam Funds,
+1 203 625 2503, JohnHill@firstreserve.com

Stephen Davis, project director, Millstein Center for Corporate Governance and Performance,
+1 203 432 9689, Stephen.m.davis@yale.edu

Susan Wyderko, executive director, Mutual Fund Director Forum,
+1 202 521 6754, susan.wyderko@mfdf.com.

I have recently distributed a memorandum entitled “A United Nations Proposal Defining Corporate Social Responsibility For Human Rights,” which discusses a report by a Special Representative to the U.N. Secretary-General. The report has broad implications for global business and particularly for companies operating on a global basis, in emerging markets, in underdeveloped countries, or in countries that lack a democratic system. The report, which will be considered in a June session of the U.N. Human Rights Council, proposes that corporations bear the “responsibility to respect human rights,” that the State has a “duty to protect” against human rights abuses by companies, and that both the State and businesses must provide more effective access to remedies for human rights violations. In the memorandum, we explain that the framework recommended to the U.N. could impose on businesses an array of expansive obligations requiring close attention by corporate management and boards. The memorandum sets forth the core principles which the U.N. Human Rights Council may endorse to guide corporate responsibilities for human rights and additionally considers their implications for directors.

The memorandum is available here.

Electronic Arts, Inc. recently submitted to the SEC a no-action request seeking concurrence of the SEC Staff that a shareholder proposal I submitted may be excluded from the company’s proxy materials for the 2008 annual meeting. In response to the company’s no-action request, I filed a complaint, through my counsel, in the United States District Court for the Southern District of New York. The complaint seeks, among other things, a declaratory judgment that Electronic Arts may not exclude my proposal from the company’s proxy materials and an injunction requiring the company to include the proposal.

My proposal is precatory and recommends that the board of directors submit to a shareholder vote an amendment to the company’s charter or by-laws. The suggested amendment, if adopted, could facilitate by-law amendments initiated by shareholders. In particular, the suggested amendment could require the company to submit to a shareholder vote shareholder-initiated proposals for changing the by-laws that meet certain procedural and substantive requirements. The suggested amendment could also require the company to include such proposals in the company’s proxy materials for the annual meeting.

I view my precatory proposal as rather moderate and believe that its passage and implementation could well benefit the company’s shareholders. Many shareholders, I believe, would vote for the proposal if given the opportunity to do so. I also believe that, for the reasons indicated in the complaint, the company’s attempt to exclude the proposal from the company’s proxy materials is entirely without merit. I hope that the company will change its position and allow shareholders to vote on my precatory proposal. The text of my proposal is available here, the company’s no-action request is available here, and my complaint is available here.

I would like to express my appreciation to the law firm of Grant & Eisenhofer for its invaluable legal advice and representation in this matter. I also wish to thank Greg Taxin and Julie Gresham of Spotlight Capital, and my Harvard Law School colleagues Victor Brudney, Allen Ferrell, Howell Jackson, Reinier Kraakman, and Mark Roe, for helpful comments and conversations on my shareholder proposal.

You are cordially invited to a very special symposium that marks and celebrates the 40th anniversary of the landmark 1967 revision of the Delaware General Corporation Law:

The Delaware General Corporation Law for the 21st Century

The Symposium will be held on May 5th at Widener University School of Law in Wilmington, Delaware. The event has been approved for 6 CLE credits in Pennsylvania and 6.3 CLE credits in Delaware (no ethics). Materials will be provided for self-reporting CLE for other states. We hope you will join us either in person, or remotely via a Live Video Webcast. There is no charge for participants attending remotely who do not need DE or PA CLE. (There is a $100 fee for remote attendance where DE or PA CLE is provided, and for in-person attendance).

For further information and to register, please click here. Corporation Service Company is the principal sponsor of the event.

In the current issue of The Delaware Lawyer, a variety of practitioners and academics (including Lucian Bebchuk, Robert Thompson, Michael Dooley and Charles Elson) present brief appeals for reform of Delaware’s corporate statutes. Many of these individuals, joined by Professors Jennifer Hill, Brett McDonnell, Faith Kahn, Elizabeth Nowicki, and Ann Conaway), will present more extended remarks about their proposals for reform at the Symposium. Vice Chancellor Leo E. Strine, Jr. will present the keynote address. Panels will address these subjects: The Delaware General Corporation Law and Takeovers; Stockholder Litigation Under the
DGCL; Stockholders in Corporate Governance; and What We Can Learn From Other Statutory Schemes.

(Editor’s note: This post is by John Savarese of Wachtell, Lipton, Rosen & Katz.)

My colleague David B. Anders and I have written a memorandum commenting on the guidance recently provided by the Acting Deputy Attorney General Craig S. Mortford concerning principles that DOJ will now consider when negotiating and finalizing monitor provisions for deferred prosecution arrangements. The DOJ guidance addresses, among other matters, possible criteria for monitor selection, the independent nature of the monitor, procedures for resolving disputes over the monitor’s suggestions, and ways to determine the appropriate terms of any monitorship.

The memorandum is available here.

(Editor’s note: This post is by Randall D. Guynn of Davis Polk & Wardwell.)

Treasury Secretary Henry M. Paulson, Jr. has proposed a sweeping overhaul of the U.S. financial regulatory system that, for the first time, would bring insurance companies, hedge funds, private equity funds, venture capital funds and mortgage originators under direct federal supervision. The proposals, contained in a Blueprint for Financial Regulatory Reform officially released on March 31, would also reorganize the existing financial regulatory infrastructure in ways more fundamental than the United States has seen since the enactment of the Glass-Steagall Act of 1933 and the Securities Exchange Act of 1934.

Although some commentators are suggesting that the details of the Blueprint reflect an effort to limit the federal government’s role in the financial markets, the fact that these proposals have been put forward by a Republican administration in the middle of a financial crisis in the last months of its tenure may indicate that a shift of thought has occurred among federal policymakers. In addition, the Administration can expect both the Federal Reserve and Democratic members of Congress to insist that the Federal Reserve have a broader and more permanent regulatory role with respect to the activities and capital requirements of any groups that have access to the discount window.

The Blueprint acknowledges the practical hurdles to achieving its objectives. Factors such as traditional notions of federalism, the existing Congressional committee structure, the agencies’ powerful instincts for self-preservation and organized pressure from industry lobbyists, are likely to substantially delay or paralyze any attempt at a fundamental overhaul of the U.S. financial regulatory system.

A Davis Polk memorandum describing the highlights of the recommendations in the Blueprint is available here.

Chancellor Chandler in litigation captioned TravelCenters of America LLC v. Brog, et al., C.A. No. 3516-CC decided, among other issues, two significant legal questions worthy of broader publication. Since both rulings are contained in memorandum opinions, they will not be reported officially. The first ruling was contained in a pre-trial memorandum opinion and dealt with the admissibility of a law professor’s expert testimony on matters of state and federal law. The second, contained in a bench memorandum delivered at the end of the trial, decided whether provisions contained in an LLC Agreement were required to comport with concepts of “good corporate governance.”

I. Law Professor Testimony
In the pre-trial ruling, the Chancellor held that expert testimony from a law professor (a) could not be presented on the question as to whether, under Delaware law, the LLC’s provisions regarding advance notice were consistent with good corporate governance practices but (b) could be presented as to whether the Notice complied with the Agreement’s incorporation of federal securities law disclosure. The first holding was based on an unreported opinion in the Court’s earlier Disney litigation which had held that “‘in this Court, witnesses do not opine on Delaware corporate law.” The pre-trial ruling foreshadowed the result of the case in chief by stating that: “Delaware does not impose a legal requirement on LLCs to draft their bylaws to be consistent with some abstract notice of good corporate governance. LLCs are creatures of contract designed to afford the maximum amount of freedom of contract, private ordering and flexibility to the parties involved.”

The Court did allow expert testimony (a) on the requirements of federal securities law and, (b) citing an unreported opinion in the Court’s Wells Fargo v. First Interstate Banking litigation, as to the materiality of omissions as measured by the standards of federal securities law. Wells Fargo, relying on TSC v. Northway, had held that “issues of materiality are generally held to be mixed questions of law and fact but predominantly questions of fact.”

The pre-trial ruling is available here.

II. LLC Agreement Provisions
In the case in chief, the Chancellor granted TravelCenters’ declaratory judgment that the activist stockholder plaintiff’s notice of intended nomination of board members at the annual meeting (the “Notice”) was contrary to the LLC Agreement and “of no force or effect.”

The Court found that the Notice violated a requirement in the Agreement that such notices disclose all the information that the Exchange Act would require to be disclosed in a proxy solicitation. The decision was based on the legal proposition that LLC’s are “creatures of contract” and are not limited by general rules applicable to corporate governance. Since valid notice was required for the nominations to be accepted at the meeting, the management slate would be expected to be unopposed.

The bench memorandum is available here.

It is often said of Congress that it can’t act on anything important except in a crisis. What is seldom noticed is the corollary that Congress puts off acting until ordinary problems develop into crises. For years, Congress has had before it two serious problems—the gradual loss of U.S. preeminence in financial transactions and the inadequate regulation of Fannie Mae and Freddie Mac—and has done nothing about either. This gives rise to a suspicion that we face these crises because a dysfunctional Congress can’t act until a crisis actually occurs. The developing situation with Fannie Mae and Freddie Mac is a test of this proposition. If the Senate Banking Committee doesn’t act on the current GSE legislation, which would give their regulator receivership powers, the outcome will be a crisis in which the necessary congressional action will be devastating for the taxpayers.

These issues are addressed in a recently circulated AEI Financial Services Outlook entitled “Dangerous Dithering: Congressional Inaction Plants the Seeds of Crisis”. It is available here.

Vice Chancellor Lamb’s recent memorandum opinion in the Delaware Court of Chancery, In Re SS&C Technologies, Inc. Shareholders Litigation, adds an interesting twist to the “readily available plaintiff” question.

The SS&C opinion and order imposes sanctions on the plaintiffs and their counsel for filing, in bad faith, a motion to withdraw. The defendants contended, and the Court found, that the motion was filed in an effort to cover up the discovery record relating to the “litigation spawning purpose” of a web of partnerships alleged to have been formed to provide plaintiffs in derivative and class litigation against publicly traded companies.

In the recent and well known Lerach and Weiss cases, the lawyers had ensured a stable of potential representative plaintiffs by paying them about ten percent of the attorney’s fees awarded by the court. In SS&C, the defendants allege that the managing partner of one of the plaintiff partnerships manages “a web of small investment partnerships – for the sole purpose of bringing stockholder lawsuits through his attorney.” Each of the nine investment partnerships cited “owns only a few shares … in roughly 60 to 80 public companies.” That would amount to about 500-700 companies subject to suit. Although the managing partner denied that the partnerships served only to bring stockholder lawsuits, he admitted that they were “economically irrelevant to him.” He acknowledged that he had, himself, been a party in fourteen proceedings and had been involved in “bringing roughly 30 stockholder lawsuits on behalf of himself and many of … [the partnerships].” The partnerships are consistently represented by the same law firm.

The Court’s opinion is highly skeptical of the managing partner’s claims. He and his counsel were found to have made a number of statements in documents filed with the Court which, the Court wrote, “are easily susceptible to the inference that they were made to conceal the existence of this web of partnerships and their evident litigation spawning purpose.” (emphasis supplied) The defendants, for their part, characterized the entire operation as “a litigation kennel.”

To support its findings, the Court sets out an extensive series of misstatements, mischaracterizations, inconsistencies and misrepresentations which the plaintiffs described at argument as “honest mistakes.” Although the Court could not find, based on the “sparse record before it,” that the partnerships could never serve as representative plaintiffs, it nevertheless sanctioned the plaintiffs for bad faith and abuse of judicial process in filing a spurious motion to withdraw as counsel.

The full opinion can be found here.

In a decision issued on March 13, 2008, the Delaware Chancery Court in JANA Master Fund, Ltd. v. CNET Networks, Inc. held that CNET’s advance notice bylaw applied only to shareholder proposals that are sought to be included in the company’s proxy materials pursuant to Rule 14a-8 under the Securities and Exchange Act of 1934, as amended, and therefore did not apply to independently financed shareholder proxy solicitations. The decision is based upon the somewhat unusual wording of the CNET advance notice bylaw, the relevant portion of which is quoted below. Chancellor Chandler cited three principal reasons based on the specific language for limiting the bylaw’s applicability: (i) the language that “any stockholder…may seek to transact other corporate business at the annual meeting” does not make sense outside of the context of Rule 14a-8 because shareholders using their own proxy materials do not need management approval; (ii) the bylaw’s deadline for shareholder notice to the company is tied to the mailing date of the company’s prior year’s proxy materials, as is the deadline under Rule 14a-8 and unlike most advance notice bylaws; and (iii) in the Court’s view, most importantly, the final sentence of the bylaw (which states that “such notice must also comply with any applicable federal securities law establishing the circumstances under which [CNET] is required to include the proposal in its proxy statement…”) makes it clear that the scope of the bylaw is limited to proposals that shareholders seek to have included in the company’s proxy materials.

A memorandum summarizing the decision is available here.

The Delaware Chancery Court has issued its decision in the closely watched trial between Barry Diller and John Malone and their respective companies, IAC and Liberty Media.

Liberty owns all the high-voting stock and a majority of the votes in IAC but it has granted Diller, IAC’s CEO, an irrevocable proxy to vote these shares. IAC has proposed to spin-off four of its subsidiaries as independent public companies, and the dispute between IAC’s management (including Diller) and Liberty (including its Chairman, John Malone) is whether or not to replicate the IAC two-tiered voting structure in these spin-offs. Diller is contemplating voting Liberty’s shares in favor of the proposal which Liberty vehemently opposes.

The clear winner in this round seems to be Diller. The court concluded that Liberty failed to demonstrate that Diller breached or threatened to breach any contractual duty he owes to Liberty, and rejected Liberty’s claim that the proposed single-tier spin-off gives rise to any right of consent on Liberty’s part. The court held that it was premature to rule on claims relating to the fiduciary duties of the IAC board of directors. IAC was represented by our frequent blog contributor Theodore Mirvis and his partners at Wachtell Lipton Rosen & Katz.

The full opinion can be found here.

JCPenney became the third company this proxy season to reach an agreement with me to amend its by-laws to limit the adoption of poison pills.

The adopted by-law is based on a shareholder proposal to amend the company’s by-laws that I submitted for the company’s upcoming annual meeting. Following my agreement with the company, the company’s board adopted the new by-law and I withdrew the shareholder proposal. The company’s amended by-laws were filed yesterday and are available here.

Under the new by-law provision, any extension of a poison pill plan not ratified by the shareholders must be approved by at least 75% of the members of the board of directors, and a pill not so extended will expire one year after its adoption or last such extension. An article about my model pill by-law on which this provision is based is available here.

JCPenney’s adoption of my poison pill by-law was preceded in this proxy season by an adoption by Safeway and an adoption by CVS Caremark, as well as an earlier adoption by Disney and an adoption by Bristol-Myers Squibb. Disney amended its by-laws after my proposal won 57% of the votes in Disney’s annual meeting. Safeway, CVS Caremark, and Bristol-Myers Squibb, like JCPenney now, amended their by-laws following an agreement with me that made a shareholder vote unnecessary. I hope that other public companies will follow the example set by these five companies.

I would like to express my appreciation again to Michael Barry and Ananda Chaudhuri from the law firm of Grant & Eisenhofer for their valuable legal advice and legal representation in connection with my shareholder proposals in general and the pill by-law proposals in particular. I also wish to thank again Greg Taxin and Julie Gresham of Spotlight Capital Management for advising me on engagement with companies.

The materials generated in the drafting of the 1967 revision to the Delaware General Corporation Law (including the report by Professor Ernest Folk to the Corporation Law Revision Committee and the minutes of that committee’s deliberations) are now available online here.

These materials, not widely available before, provide extensive background about the substance and process of the major 1967 corporate law revision project. Janet Lindenmuth and the staff of the Widener Law School Legal Information Center arranged to gather, scan and post this material.

The recent acquisition of Bear Stearns by J.P. Morgan has cast a spotlight on the reliability of fairness opinions. On March 16, when the board of Bear Stearns agreed to sell the company for $2 a share, the investment banking firm Lazard Ltd., who was acting as Bear Stearns’ main adviser, provided the board with a fairness opinion that $2 a share was a fair price for the company, which was then teetering on the brink of bankruptcy. Eight days later, on March 24, when J.P. Morgan agreed to raise its offer to $10 a share to address shareholder discontent, the same investment bank issued a fairness opinion indicating that $10 a share was a fair price. If $10 a share is a fair price, how could $2 be a fair price as well?

This turn of events vividly illustrates how little has changed in the world of fairness opinions since the publication in 1989 of the first critical academic study of fairness opinions, Fairness Opinions: How Fair Are They and What Can Be Done About It? by Lucian Bebchuk and Marcel Kahan. This study highlighted two issues that generate serious problems with fairness opinions. First, investment banks have significant discretion in arriving at the fair price. Second, investment banks do not have incentives to provide an accurate valuation and might have incentives to provide a fairness opinion supporting the position of the party inviting the opinion. The study went on to advocate a judicial approach that takes these issues into account.

The Bear Stearns event suggests that the problems identified by the academic critics of fairness opinions might well persist. It also highlights the limits on the ability of investors and courts to rely on such opinions.

Safeway and I have reached an agreement under which the company adopted a by-law provision I proposed for limiting the adoption of poison pills. Safeway is the second company in this proxy season, and the fourth overall, to adopt a poison pill bylaw I proposed.

The adopted by-law is based on a shareholder proposal to amend the company’s by-laws that I submitted for the company’s upcoming annual meeting. Following my agreement with the company, the company’s board adopted the new by-law and I withdrew the shareholder proposal. The amended by-laws of Safeway, including the new section 9 of Article VI, were filed yesterday and are available here.

Under the new by-law provision, any extension of a poison pill plan not ratified by the shareholders must be approved by at least 75% of the members of the board of directors, and a pill not so extended will expire one year after its adoption or last such extension.

My shareholder proposal and the by-law adopted by Safeway are based on a model by-law that was the subject of a court decision in the CA case, which led CA to abandon its attempt to exclude my proposal from the corporate ballot. An article about this case and my model by-law is available here.

Safeway’s adoption of my poison pill by-law was preceded by an adoption last month by CVS Caremark, an adoption by Disney, and an adoption by Bristol-Myers Squibb. Disney amended its by-laws after my proposal won 57% of the votes in Disney’s annual meeting, while CVS Caremark and Bristol-Myers Squibb, like Safeway now, amended their by-laws following an agreement with me that made a shareholder vote unnecessary.

I commend Safeway’s board of directors for agreeing to adopt the pill-limiting by-law. I hope that other public companies will follow the example set by Safeway, CVS, Disney, and Bristol-Myers and adopt similar by-law provisions.

I would like to thank Michael Barry and Ananda Chaudhuri from the law firm of Grant & Eisenhofer for their valuable legal advice and legal representation in connection with my shareholder proposals in general and the pill by-law proposals in particular. I also wish to thank Greg Taxin and Julie Gresham of Spotlight Capital Management for advising me on engagement with companies.

The Program on Corporate Governance has recently released a new discussion paper entitled Perpetuities, Taxes, and Asset Protection: An Empirical Assessment of the Jurisdictional Competition for Trust Funds, which I co-wrote with Max Schanzenbach. The paper abstract is as follows:

This chapter provides an accessible overview of our previous work on the impact of the abolition of the Rule Against Perpetuities (RAP) on trust fund situs. The implementation of the Generation Skipping Transfer (GST) Tax by the Tax Reform Act of 1986 sparked a movement to repeal the RAP. Since 1986, nearly half the states have abolished or effectively abolished the RAP as applied to interests in trust. Prior to 1986, only three states had abolished the RAP. We find no evidence that abolishing the RAP prior to the 1986 GST tax attracted trust business. By contrast, between 1986 and 2003, abolishing states reported an average increase in trust assets of $6 billion (a 20 percent increase). In addition, average account size in abolishing states increased by $200,000, implying that abolishing the rule attracted relatively larger trusts. Our findings imply that roughly $100 billion in trust funds have moved to take advantage of the abolition of the RAP. Further, we can trace these results to the subset of abolishing states that did not levy a tax on income accumulated in trusts attracted from out of state. This finding, which implies that abolishing the RAP does not directly increase state tax revenue, bears on the scholarly debate over the mechanisms of jurisdictional competition. Our analysis also controls for whether a state validated the so-called self-settled asset protection trust (APT). We did not find consistent evidence that validating APTs increases a state’s reported trust business, but in the period studied few states had validated APTs, so we draw no firm conclusions.

We conclude that the jurisdictional competition for trust funds is real and intense, with the primary margin of competition being the rules that bear on trust duration, and that the enactment of the GST tax sparked the rise of the perpetual trust. In future work using more refined data, we intend to revisit the jurisdictional competition for trust funds and to expand our inquiry to include directed trustee statutes and the recent reforms to trust-investment laws.

On February 14, the SEC Advisory Committee on Improvements to Financial Reporting presented its interim report to the Securities and Exchange Commission. The report includes 12 developed proposals, conceptual approaches representing the Committee’s initial views on matters, and currently identified matters for further consideration. The key themes of the report are the following: increasing emphasis on the investor perspective in the financial reporting system; consolidating the process of setting and interpreting accounting standards; promoting the design of more uniform and principles-based accounting standards; creating a disciplined framework for the increased use of professional judgment; and taking steps to coordinate Generally Accepted Accounting Principles (GAAP) in the US with International Financial Reporting Standards (IFRS).

Formed by the SEC in July 2007, the Committee was tasked to examine the US financial reporting system and to recommend changes to increase the usefulness of financial information to investors, while reducing the financial reporting system’s complexity. The Committee’s final report is some months away. The Committee includes representatives from the Financial Accounting Standards Board and the Public Company Accounting Oversight Board.

The interim report is available here.

Does a Director Qua Director Have Standing to Sue Derivatively? No, so said the Delaware Supreme Court yesterday in Schoon v. Smith. The Supreme Court affirmed the Court of Chancery’s little-noticed ruling last year that dismissed a derivative claim brought by a director against the company’s other directors, including its controlling stockholder. The plaintiff-director, who was not a stockholder of the company, charged his fellow directors with, among other things, breach of fiduciary duty and unjust enrichment. The court held that, notwithstanding the equitable origins of derivative suits, the issue of director standing today is best left to the legislature. “Although the Delaware General Assembly has the prerogative to confer standing upon directors by statute,” the court wrote, “it has not chosen to do so.” Rejecting the American Law Institute Principles that give individual directors standing to sue on behalf of their corporations, the court continued that, “[b]ecause a stockholder derivative action is available to redress any breach of fiduciary duty, we decline to extend the doctrine of equitable standing to allow a director to bring a similar action.” The court concluded, however, by leaving itself a little room to permit directors to bring derivative suits, but only where the failure to do so would result in a “complete failure of justice”—a seemingly high standard.

As a practical matter, the decision is unlikely to have much significance because most directors are also stockholders. But the decision is still significant and may draw criticism with respect to its implications for corporate governance and director duties. In particular, the court noted that the concept of being an “independent director” does not mandate “a duty to sue on behalf of the corporation.”

The opinion is available here.

I posted previously here on Vice Chancellor Strine’s decision in Mercier v. Inter-Tel (Delaware), Inc., and I continue to believe that it was probably the most important decision issued by the Delaware Court of Chancery in 2007. I recently wrote an article for the Securities Litigation Report discussing Inter-Tel and explaining its potential significance. In particular, Vice Chancellor Strine’s reasonableness standard in reviewing a decision to move a stockholders meeting date — if endorsed by the Delaware Supreme Court — would provide much clarity to practitioners and boards of directors. The decision is also notable for, among other things, its discussion of the roles of ISS and arbitrageurs in influencing merger votes.

The article, which originally appeared in the November 2007 issue of the Securities Litigation Report, is available here and is being reproduced with the permission of Thomson West.