Posts Tagged ‘Contracts’

The Benefits of Limits on Executive Pay

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday March 26, 2015 at 9:07 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Peter Cebon of the University of Melbourne and Benjamin Hermalin, Professor of Economics at the University of California, Berkeley. Work from the Program on Corporate Governance about CEO pay includes: The CEO Pay Slice by Lucian Bebchuk, Martijn Cremers, and Urs Peyer (discussed on the Forum here); Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here); and Lucky CEOs and Lucky Directors by Lucian Bebchuk, Yaniv Grinstein and Urs Peyer (discussed on the Forum here).

Our paper, When Less Is More: The Benefits of Limits on Executive Pay, forthcoming in the Review of Financial Studies, addresses the question of whether limits on executive compensation harm or benefit shareholders. In particular, our model shows that if regulation limits executive compensation, this can make it possible for the board to give the CEO incentives that are both more effective and less costly, and for the two parties to create a relationship that is more collaborative. Among the implications—some of which we are exploring in a companion paper in progress—is this collaborative relationship makes it more attractive for the CEO to pursue long-run strategies (e.g., organic growth) that are more profitable than the short-run strategies (e.g., mergers and acquisitions) they would have pursued if firms had to rely on stock-based compensation for their executives.

…continue reading: The Benefits of Limits on Executive Pay

Forum-Selection Bylaws Refracted Through an Agency Lens

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday January 27, 2015 at 9:00 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Deborah A. DeMott, David F. Cavers Professor of Law at Duke University School of Law. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Director-adopted bylaws that affect shareholders’ litigation rights have attracted both praise and controversy. Recent bylaws specify an exclusive judicial forum for litigation of corporate-governance claims, require that shareholder claims be arbitrated, and (most controversially) impose a one-way regime of fee shifting on shareholder litigants. To one degree or another, courts have legitimated each development, while commentators differ in their assessments. My paper, Forum-Selection Bylaws Refracted Through an Agency Lens, brings into clear focus issues so far blurred in the debate surrounding these types of bylaws.

…continue reading: Forum-Selection Bylaws Refracted Through an Agency Lens

2014 Amendments Affecting Delaware Alternative Entities and the Contractual Statute of Limitations

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday August 31, 2014 at 9:00 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Scott E. Waxman, founding partner in the Delaware office of K&L Gates LLP, and is based on a K&L Gates alert authored by Mr. Waxman, Eric N. Feldman, Nicholas I. Froio, Andrew Skouvakis, and Zachary L. Sager. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

On August 1, 2014, amendments to Delaware’s alternative business entity statutes, [1] as well as the statute of limitations applicable to Delaware contracts, [2] became effective. These amendments (the “2014 Amendments”) represent a continuing effort by Delaware to create a flexible statutory framework for alternative business organizations and transactions involving business entities generally. This post briefly summarizes the more significant 2014 Amendments.

…continue reading: 2014 Amendments Affecting Delaware Alternative Entities and the Contractual Statute of Limitations

The Siren Song of Unlimited Contractual Freedom

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday August 22, 2014 at 9:00 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post is based on a recent article, forthcoming in Elgar Handbook on Alternative Entities (Eds. Mark Lowenstein and Robert Hillman, Edward Elgar Publishing 2014)., earlier issued as a working paper of the Harvard Law School Program on Corporate Governance, by Leo Strine, Chief Justice of the Delaware Supreme Court and a Senior Fellow of the Program, and J. Travis Laster, Vice Chancellor, Delaware Court of Chancery. The article, The Siren Song of Unlimited Contractual Freedom, is available here.

Leo Strine, Chief Justice of the Delaware Supreme Court Review and a Senior Fellow of the Harvard Law School Program on Corporate Governance, and J. Travis Laster, Vice Chancellor, Delaware Court of Chancery, recently issued an essay that is forthcoming in Elgar Handbook on Alternative Entities (Eds. Mark Lowenstein and Robert Hillman, Edward Elgar Publishing 2014). The essay, titled The Siren Song of Unlimited Contractual Freedom, is available here.

The abstract of Chief Justice Strine’s and Vice Chancellor Laster’s essay summarizes it briefly as follows:

One frequently cited distinction between alternative entities—such as limited liability companies and limited partnerships—and their corporate counterparts is the greater contractual freedom accorded alternative entities. Consistent with this vision, discussions of alternative entities tend to conjure up images of arms-length bargaining similar to what occurs between sophisticated parties negotiating a commercial agreement, such as a joint venture, with the parties successfully tailoring the contract to the unique features of their relationship.

…continue reading: The Siren Song of Unlimited Contractual Freedom

An Economic Theory of Fiduciary Law

Posted by Robert Sitkoff, Harvard Law School, on Monday February 24, 2014 at 9:07 am
  • Print
  • email
  • Twitter
Editor’s Note: Robert H. Sitkoff is the John L. Gray Professor of Law at Harvard Law School.

I’ve recently posted to SSRN a book chapter called “An Economic Theory of Fiduciary Law,” which will be published in Philosophical Foundations of Fiduciary Law by Oxford University Press. The editors are Andrew Gold and Paul Miller.

The purpose of my chapter is to restate the economic theory of fiduciary law. In doing so, the chapter makes several fresh contributions. First, it elaborates on earlier work by clarifying the agency problem that is at the core of all fiduciary relationships. In consequence of this common economic structure, there is a common doctrinal structure that cuts across the application of fiduciary principles in different contexts. However, within this common structure, the particulars of fiduciary obligation vary in accordance with the particulars of the agency problem in the fiduciary relationship at issue. This point explains the purported elusiveness of fiduciary doctrine. It also explains why courts apply fiduciary law both categorically, such as to trustees and (legal) agents, as well as ad hoc to relationships involving a position of trust and confidence that gives rise to an agency problem.

…continue reading: An Economic Theory of Fiduciary Law

Sealing the Deal

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday February 14, 2014 at 9:02 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Frederick H. Alexander, Chair of the Executive Committee and partner in the Delaware Corporate Law Counseling Group at Morris, Nichols, Arsht & Tunnell LLP, and is based on a Morris Nichols publication by Melissa A. DiVincenzo. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

In many jurisdictions, a statute of limitations may not be extended by contract. [1] Delaware follows this rule, so its three-year statute of limitations for contract claims generally may not be extended. [2] Moreover, under Delaware’s borrowing statute, contract claims arising outside of Delaware but litigated in a Delaware court are subject to the shorter of that three-year period or the time established by the jurisdiction where the cause of action arose. [3] Notwithstanding these default rules, the statutory limitations period can be reduced by contract. [4] While many private company acquisition agreements do in fact shorten the statute of limitations for many breaches of certain representations and warranties by providing that such representations and warranties “survive” for a shorter period, it is also often the case that buyers want certain representations and indemnification obligations to “survive” longer, and in some cases, beyond the statutory period. [5] In order to achieve such a result, parties may, under Delaware law, use a so-called “specialty” contract, i.e., a contract that is entered into under seal, which will be subject to a twenty-year limitations period. [6]

…continue reading: Sealing the Deal

Practice Tips for M&A Practitioners for 2014

Posted by Kerry E. Berchem, Akin Gump Strauss Hauer & Feld LLP, on Sunday February 2, 2014 at 9:00 am
  • Print
  • email
  • Twitter
Editor’s Note: Kerry E. Berchem is partner and co-head of corporate practice at Akin Gump Strauss Hauer & Feld LLP. The following post is based on an Akin Gump Client Alert. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Based on a number of cases decided by the Delaware courts in 2013, below we summarize practice tips regarding careful drafting of contractual provisions and complying with technical and statutory requirements.

Disclaimers of Reliance and Accuracy Clauses Likely Do Not Bar Fraud Claims

The Delaware courts have had several opportunities to examine a range of disclaimer provisions in agreements, usually an integration (or “entire agreement”) clause and a disclaimer of extra-contractual statements, to determine if they were adequate in barring fraud claims. Although in the past the courts have disallowed fraud claims based on rather thinly worded disclaimers of extra-contractual statements (i.e., disclaimers that do not include an express statement of non-reliability or non-reliance), recently the courts seem to be requiring an express statement that the buyer was not relying on extra-contractual statements to bar such fraud claims. See, for example, the decisions of the Court of Chancery in Anvil Holding Corporation v. Iron Acquisition Company, Inc. (May 17, 2013), and of the Superior Court in Alltrista Plastics, LLC v. Rockline Industries (September 4, 2013) and TEK Stainless Piping Products, Inc. v. Smith (October 14, 2013).

…continue reading: Practice Tips for M&A Practitioners for 2014

NY Court: Claims for Breach of RMBS Representation & Warranties Accrue on Issuance

Editor’s Note: Theodore N. Mirvis is a partner in the Litigation Department at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton memorandum by Mr. Mirvis, George T. Conway III, Elaine P. Golin, Jeffrey D. Hoschander, and Justin V. Rodriguez.

In an important decision last week, a New York appellate court ruled that claims for breach of representations and warranties made in connection with residential mortgage-backed securities (RMBS) accrue when the representations and warranties are made, which typically occurs when the securitization closes. ACE Securities Corp. v. DB Structured Products, Inc., No.650980/12 (N.Y. App. Div. 1st Dep’t Dec. 19, 2013). The court held that the six-year contract statute of limitations begins to run at that time, instead of when a defendant refuses to comply with a plaintiff’s demand for a contractual remedy.

…continue reading: NY Court: Claims for Breach of RMBS Representation & Warranties Accrue on Issuance

Supreme Court Reaffirms that Forum-Selection Clauses Are Presumptively Enforceable

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday December 19, 2013 at 9:23 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from J. Paul Forrester, partner focusing in corporate finance and securities at Mayer Brown LLP, and is based on a Mayer Brown Legal Update by Mr. Forrester, David K. Duffee, John F. Lawlor, Richard B. Katskee, and James F. Tierney. The complete publication, including footnotes, is available here.

Forum-selection clauses are common, and highly useful, features of commercial contracts because they help make any future litigation on a contract more predictable for the parties and, in some cases, less expensive. But what procedure should a defendant use to enforce a forum-selection clause when the defendant is sued in a court that is not the contractually selected forum?

On December 3, 2013, the US Supreme Court issued a decision in Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas that answers this question. The Court held that, if the parties’ contract specifies one federal district court as the forum for litigating any disputes between the parties, but the plaintiff files suit in a different federal district court that lawfully has venue (and therefore could be a proper place for the parties to litigate), the defendant should seek to transfer the case to the court specified in the forum-selection clause by invoking the federal statute that permits transfers of venue “[f]or the convenience of the parties and witnesses, in the interest of justice.” If the contract’s forum-selection clause instead specifies a state court as the forum for litigating disputes, the defendant may invoke a different federal statute that requires dismissal or transfer of the case.

…continue reading: Supreme Court Reaffirms that Forum-Selection Clauses Are Presumptively Enforceable

Ex-Ante Severance Pay Contracts and Optimal Executive Incentive Schemes

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday February 11, 2013 at 9:16 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from P. Raghavendra Rau, Professor of Finance at the University of Cambridge, and Jin Xu of the Finance Area at Purdue University.

In recent years, large severance payouts to executives who have been fired from poorly performing firms have attracted a great deal of attention in the popular press. There is a considerable degree of popular outrage on what seem to be egregious ex post payments that are unrelated to the executive’s performance during his tenure at the firm. However, though severance agreements are potentially important elements of executives’ compensation contracts, there is little empirical evidence on the incidence and terms of ex ante severance agreements negotiated by executives, let alone on how these contracts fit into executives’ overall incentive compensation schemes.

In our paper, How Do Ex-Ante Severance Pay Contracts Fit into Optimal Executive Incentive Schemes?, forthcoming in the Journal of Accounting Research, we analyze a unique hand-collected sample of 3,688 severance contracts in place at 808 firms in 2004. Based on the full list of S&P1500 firms, this sample is the most comprehensive of any work in this area, including firms of all sizes, ages, and industries, and executives of a wide range of ranks including the Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Operating Officer (COO), and other executives. Around 68% of the firms list explicit severance contract terms with their executives. Most contracts list up to three sets of benefits: explicit cash payments as multiples of salary and bonus (most common benefit); medical and life insurance benefits, and benefits covering the payment of legal fees, outplacement, and other perks.

…continue reading: Ex-Ante Severance Pay Contracts and Optimal Executive Incentive Schemes

Next Page »
 
  •  » A "Web Winner" by The Philadelphia Inquirer
  •  » A "Top Blog" by LexisNexis
  •  » A "10 out of 10" by the American Association of Law Librarians Blog
  •  » A source for "insight into the latest developments" by Directorship Magazine