Posts Tagged ‘Fiduciary duties’

Reliance by Directors: What’s a Conscientious Director to Do?

Posted by Peter Atkins, Skadden, Arps, Slate, Meagher & Flom LLP, on Friday April 11, 2014 at 9:01 am
  • Print
  • email
  • Twitter
Editor’s Note: Peter Atkins is a partner of corporate and securities law matters at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a Skadden, Arps memorandum by Mr. Atkins. The views expressed in this post are those of Peter Atkins, a senior partner of the firm, and are not presented as those of the firm. 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 its recent decision in In Re Rural Metro Corporation Stockholders Litigation, [1] the Delaware Court of Chancery, in a footnote, touches on what it means for directors to be “fully protected” by §141(e) of the Delaware General Corporation Law when they rely on information, opinions, reports or statements provided to them by officers, employees, board committees or experts. While not central to the Rural Metro decision, this is an issue that should be of interest to conscientious public company directors. Below I suggest that, as currently applied, §141(e) does not sufficiently protect conscientious directors, examine why that may be so, highlight the need for alternative approaches to provide truly full protection without undermining other important conduct imperatives Delaware law imposes on directors and others, and offer some suggestions toward that end.

…continue reading: Reliance by Directors: What’s a Conscientious Director to Do?

The Use and Abuse of Labor’s Capital

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday April 7, 2014 at 9:23 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from David H. Webber of Boston University Law School.

Across the country, public employee retirement systems are investing in companies that privatize public employee jobs. Such investments lead to reduced working hours and often job losses for current employees. [1] Although, in some circumstances, pension fund participants and beneficiaries may benefit from these investments, their actual economic interests might also be harmed by them, once the negative jobs impact is taken into account. But that impact is almost never taken into account. That’s because under the ascendant view of the fiduciary duty of loyalty, pension trustees owe their allegiance to the fund first, rather than to the fund’s participants and beneficiaries. Notwithstanding the fact that ERISA and state pension codes command trustees to invest, “solely in the interests of participants and beneficiaries and for the exclusive purpose of providing benefits,” the United States Department of Labor declared in 2008 that the plain text of the quoted language means that the interests of the plan come first. [2] Under this view, plan trustees should de facto ignore the potentially negative jobs impact of privatizing investments because that impact harms plan members, and not, purportedly, the plan itself. Thus, in the name of the duty of loyalty, the actual economic interests of plan members in plan investments are subverted to the interests of the plan itself (or, at a minimum, to an unduly constrained version of the plan’s interests that excludes lost employer and employee contributions). As a result, public pension plans make investments that harm the economic interests of their members. This turns the duty of loyalty on its head.

…continue reading: The Use and Abuse of Labor’s Capital

Court Finds Financial Advisor Liable for Aiding and Abetting Fiduciary Duty Breaches

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday March 30, 2014 at 9:00 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Michael Kaplan, co-head of Davis Polk’s global Capital Markets Group, and is based on a Davis Polk client memorandum. 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 March 7, 2014, Vice Chancellor Travis Laster of the Delaware Court of Chancery found a financial advisor liable for aiding and abetting breaches of fiduciary duties by the board of Rural/Metro Corporation in connection with the company’s 2011 sale to an affiliate of Warburg Pincus LLC. In its 91-page, post-trial opinion, the Court concluded that the financial advisor allowed its interests in pursuing buy-side financing roles in both the sales of Rural/Metro and Emergency Medical Services (“EMS”) to negatively affect the timing and structure of the company’s sales process, that the board was not aware of certain of these actual or potential conflicts of interest, and that the valuation analysis provided to the board was flawed in several respects. Both the Rural/Metro board of directors and a second financial advisor to Rural/Metro settled before trial for $6.6 million and $5.0 million, respectively.

…continue reading: Court Finds Financial Advisor Liable for Aiding and Abetting Fiduciary Duty Breaches

Financial Advisor Liable for Aiding Board’s Breach of Fiduciary Duty

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday March 25, 2014 at 9:20 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from James T. Lidbury, partner and co-head of the Investment Management practice group at Ropes & Gray LLP, and is based on a Ropes & Gray publication. 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 March 7, the Delaware Court of Chancery published a post-trial opinion in In Re Rural Metro Corporation Stockholders Litigation (Rural Metro) finding Rural/Metro’s financial advisor RBC liable for aiding and abetting the Rural/Metro’s board of directors’ breach of its fiduciary duties in connection with the acquisition of Rural/Metro by Warburg Pincus. The decision is the latest in a series of Delaware opinions concerning conflicts of interest of banks and investment firms in advising companies in buy-out transactions.

…continue reading: Financial Advisor Liable for Aiding Board’s Breach of Fiduciary Duty

Court of Chancery Stresses Need for Board Monitoring of Advisors and Potential Conflicts

Editor’s Note: Paul Rowe is a partner in the Litigation Department at Wachtell, Lipton, Rosen and Katz. This post is based on a Wachtell Lipton memorandum by Mr. Rowe, David A. KatzWilliam Savitt, and Ryan A. McLeod. 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.

Last week, the Delaware Court of Chancery reached the rare conclusion that an independent, disinterested board breached its fiduciary duties in connection with an arm’s-length, third-party, premium merger transaction. The decision, In re Rural Metro Corp. Stockholders Litig., C.A. No. 6350-VCL (Del. Ch. Mar. 7, 2014), which relies heavily on findings that the board’s financial advisor had undisclosed conflicts of interest, holds the advisor liable for aiding and abetting the breaches, but does not reach the question of whether the directors themselves could have been liable, as they settled before trial. The decision sends a strong message that boards should actively oversee their financial advisors in any sale process.

…continue reading: Court of Chancery Stresses Need for Board Monitoring of Advisors and Potential Conflicts

Corporate “Free Exercise” and Fiduciary Duties of Directors

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday March 4, 2014 at 9:15 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Mark A. Underberg, retired partner of Paul, Weiss, Rifkind, Wharton & Garrison LLP, and an Adjunct Professor of Law at Cornell Law School and the Benjamin N. Cardozo School of Law.

This Spring, the Supreme Court will decide whether a for-profit corporation can refuse to provide insurance coverage for birth control and other reproductive health services mandated by the Affordable Healthcare Act (or “Obamacare”) when doing so would conflict with “the corporation’s” religious beliefs. Although the main legal issue in Sibelius v. Hobby Lobby Stores, Inc., et al. and Conestoga Wood Specialties Corp., et al. v. Sibelius concerns the extent to which the guarantee of free exercise of religion under the Constitution and the Religious Freedom Restoration Act may be asserted by for-profit corporations, the Court’s decision may also have important—and unsettling—implications for state corporate laws that define the fiduciary duties of boards of directors.

…continue reading: Corporate “Free Exercise” and Fiduciary Duties of Directors

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

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

Court Finds No Breach of Fiduciary Duties in Proxy Contest

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday November 14, 2013 at 9:30 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Robert B. Schumer, chair of the Corporate Department at Paul, Weiss, Rifkind, Wharton & Garrison LLP, and is based on a Paul Weiss client memorandum. 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 Red Oak Fund, L.P. v. Digirad Corp., the Delaware Court of Chancery held that the Digirad board of directors did not breach its fiduciary duties or create an unfair election process where: (i) preliminary election results that showed the incumbents in the lead were accidentally disclosed to a large stockholder; (ii) certain preliminary proxy reports inaccurately reported a large lead by management; (iii) the company delayed disclosure of negative financial results until after the election; and (iv) management proxy materials did not disclose that the board was considering a stockholder rights plan (a “poison pill”).

Plaintiff, owner of 5.6% of Digirad’s outstanding common stock, nominated a slate of five directors to replace the company’s incumbent board, but lost the ensuing proxy contest. Plaintiff filed suit, alleging that the incumbent directors breached their fiduciary duties and created an unfair election process.

The court found no breach of fiduciary duties and no valid claim of an unfair election process, holding that:

…continue reading: Court Finds No Breach of Fiduciary Duties in Proxy Contest

Is the Independent Director Model Broken?

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday November 14, 2013 at 9:28 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Roberta S. Karmel, Centennial Professor of Law at Brooklyn Law School, and is based on Professor Karmel’s paper, forthcoming in the Seattle University Law Review.

At common law, an interested director was barred from participating in corporate decisions in which he had an interest, and therefore “disinterested” directors became desirable. This concept of the disinterested, director developed into the model of an “independent director” and was advocated by the Securities and Exchange Commission (SEC or Commission) and court decisions as a general ideal in a variety of situations. The SEC’s view of the need for independent directors should be understood in the context of Adolph Berle’s theory of the 1930s that shareholders had abdicated control of public corporations to corporate managers, and fiduciary duties needed to be imposed upon corporate boards in order to compensate for this loss of shareholder control. Berle’s writings laid the foundation for shareholder primacy as the theory of the firm, a theory embraced by the SEC, which viewed itself as a surrogate for investors.

The SEC has generally succeeded in imposing its corporate governance views in the wake of scandals. Following the sensitive payments enforcement program of the 1970s, the SEC embarked on an activist corporate governance reform program. During the merger and acquisition frenzy of the 1980s, the SEC used the Williams Act to foster the view that the market for corporate control constrained incompetent managers. After the bursting of the technology bubble in 2000, and the financial reporting scandals that ensued, the SEC was able to incorporate its views on independent directors into the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley). Following the financial crisis of 2008, the SEC further enforced its views on the requirements for independent directors in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

The composition and behavior of securities markets and investors has changed drastically since the SEC was established in 1934. Yet, the SEC has persisted in its path-dependent view that independent directors, ever more stringently defined, should dominate the boards of public companies.

…continue reading: Is the Independent Director Model Broken?

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