Posts Tagged ‘Fiduciary duties’

Delaware Court Denies Attorneys’ Fees for Alleged Dodd-Frank Disclosure Deficiencies

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday July 18, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Stewart D. Aaron, partner in the Securities Enforcement and Litigation practice at Arnold & Porter LLP, and is based on an Arnold & Porter publication by Mr. Aaron and Robert C. Azarow. 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.

Under Delaware’s corporate benefit doctrine, a stockholder who presents a meritorious claim to a board of directors may be entitled to attorneys’ fees if the stockholder’s efforts result in the conferring of a corporate benefit. [1] On June 20, 2014, the Delaware Chancery Court considered in Raul v. Astoria Financial Corporation [2] whether attorneys’ fees are warranted under this doctrine when a stockholder identifies potential deficiencies in executive compensation disclosures required by the SEC pursuant to the Dodd-Frank Act “say on pay” provisions. [3] The court held that the alleged omissions at issue failed to demonstrate any breach of the Board of Directors’ fiduciary duties under Delaware law and accordingly the Plaintiff did not present a meritorious demand to the Board. This decision makes clear that the courts will not shift fees to a stockholder (and the stockholder’s law firm) who “has simply done the company a good turn by bringing to the attention of the board an action that it ultimately decides to take.” [4]

…continue reading: Delaware Court Denies Attorneys’ Fees for Alleged Dodd-Frank Disclosure Deficiencies

Delaware Court Declines to Dismiss Class Action Challenging Going-Private Transaction

Editor’s Note: Allen M. Terrell, Jr. is a director at Richards, Layton & Finger. This post is based on a Richards, Layton & Finger publication, and 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 Hamilton Partners, L.P. v. Highland Capital Management, L.P., C.A. No. 6547-VCN, 2014 WL 1813340 (Del. Ch. May 7, 2014), the Court of Chancery, by Vice Chancellor Noble, in connection with a challenge to a going-private transaction whereby American HomePatient, Inc. (“AHP”) was acquired by an affiliate of one of its stockholders, Highland Capital Management, L.P. (“Highland”), refused to dismiss breach of fiduciary duty claims against Highland. The Court held that, for purposes of defendants’ motion to dismiss, plaintiff alleged facts sufficient to support an inference that Highland, which owned 48% of AHP’s stock and 82% of AHP’s debt, was the controlling stockholder of AHP and that the merger was not entirely fair.

…continue reading: Delaware Court Declines to Dismiss Class Action Challenging Going-Private Transaction

Delaware Court: Lack of Fairness Opinion Not Necessarily Constitute Bad Faith

Posted by Allen M. Terrell, Jr., Richards, Layton & Finger, on Monday July 7, 2014 at 9:07 am
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Editor’s Note: Allen M. Terrell, Jr. is a director at Richards, Layton & Finger. This post is based on a Richards, Layton & Finger publication, and 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 Houseman v. Sagerman, C.A. No. 8897-VCG, 2014 WL 1600724 (Del. Ch. Apr. 16, 2014), the Court of Chancery, by Vice Chancellor Glasscock, in addressing defendants’ motion to dismiss claims related to the 2011 acquisition of Universata, Inc. (“Universata”) by HealthPort Technologies, LLC (“HealthPort”), held that the failure to obtain a fairness opinion in connection with the acquisition did not rise to the level of bad faith on the part of the board of directors of Universata (the “Board”) and did not support an aiding and abetting claim against the Board’s financial advisor.

…continue reading: Delaware Court: Lack of Fairness Opinion Not Necessarily Constitute Bad Faith

Evaluating Pension Fund Investments Through The Lens Of Good Corporate Governance

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Tuesday July 1, 2014 at 9:04 am
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Editor’s Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at the recent Latinos on Fast Track (LOFT) Investors Forum; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I understand today’s participants include a number of trustees and asset managers for some of the country’s largest public and private pension funds. Without a doubt, pension funds play an important role in our capital markets and the global economy. This is due, in part, to the fast growth in pension fund assets, both in the public and private sectors.

For example, since 1993, total public pension fund assets have grown from about $1.3 trillion to over $4.3 trillion in 2011. Over that same period, total private pension fund assets more than doubled from roughly $2.3 trillion to over $6.3 trillion by 2011. As of December 2013, total pension assets have reached more than $18 trillion. This growth was fueled by many factors, including the rise in government support of retirement benefits, and the increased use by companies of pension plans as a way to supplement wages.

…continue reading: Evaluating Pension Fund Investments Through The Lens Of Good Corporate Governance

Comparing Insider Trading in the US and Europe

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday June 19, 2014 at 9:24 am
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Editor’s Note: The following post comes to us from Marco Ventoruzzo of Pennsylvania State University, Dickinson School of Law, and Bocconi University.

In the European Union insider trading has been regulated much more recently than in the United States, and it can be argued that, at least traditionally, it has been more aggressively and successfully enforced in the United States than in the European Union. Several different explanations have been offered for this difference in enforcement attitudes, focusing in particular on resources of regulators devoted to contrasting this practice, but also diverging cultural attitudes toward insiders. This situation has evolved, however, and the prohibition of insider trading has gained traction also in Europe. Few studies have focused on the substantive differences in the regulation of the phenomenon on the two sides of the Atlantic.

…continue reading: Comparing Insider Trading in the US and Europe

The Fed’s Wake-Up Call to Bank Directors

Posted by Edward D. Herlihy and Lawrence S. Makow, Wachtell, Lipton, Rosen & Katz, on Wednesday June 18, 2014 at 4:00 pm
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Editor’s Note: Edward D. Herlihy and Lawrence S. Makow are partners in the Corporate Department at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton memorandum by Mr. Herlihy and Mr. Makow; the complete publication, including footnotes, is available here.

The Dodd-Frank Act was undoubtedly a thorough re-working of the regulatory paradigm for banks and other financial institutions. But no less resolute are the intentions of U.S. banking regulators to carry regulatory reform further, based in significant part on perceived “macroprudential” authority after Dodd-Frank. The new regulatory paradigm will increasingly leave behind bank regulation’s traditional moorings in the protection of federally insured deposits and safe and sound operation of banking organizations. Instead, “macroprudential” regulation will rest on the goals of protecting U.S. financial stability and reducing systemic risk—broad, malleable concepts that elude precise definition. It will seek to influence activities not just of banking organizations but also activities conducted by non-bank entities not traditionally subject to prudential regulation. And, according to an important speech given last week by Federal Reserve Governor Daniel K. Tarullo, the new regulatory paradigm embraces consideration of a potentially unprecedented expansion of the fiduciary duties of directors of banking institutions. This would give such directors very potent incentives to prioritize supervisory goals—including macroprudential objectives.

…continue reading: The Fed’s Wake-Up Call to Bank Directors

To Whom are Directors’ Duties Really Owed?

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday May 28, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Martin Gelter, Associate Professor of Law at Fordham University, and Geneviève Helleringer of ESSEC Business School Paris-Singapore and Oxford University.

In the paper, Lift not the Painted Veil! To Whom are Directors’ Duties Really Owed?, which we recently posted on SSRN, we identify a fundamental contradiction in the law of fiduciary duty of corporate directors across jurisdictions, namely the tension between the uniformity of directors’ duties and the heterogeneity of directors themselves. The traditional characterization of the board as a homogeneous, often largely self-perpetuating body is far from universally true internationally, and it tends to be increasingly less true even in the United States. Directors are often formally or informally selected by specific shareholders (such as a venture capitalist or an important shareholder) or other stakeholders of the corporation (such as creditors or employees), or they are elected to represent specific types of shareholders (e.g. minority investors). The law thus sometimes facilitates the nomination of what has been called “constituency” directors, or even requires their appointment (e.g. employee directors in some European systems). However, even in systems that require the appointment of such directors, legal rules tend nevertheless to treat directors as a homogeneous group that is expected to pursue a uniform goal. We explore this tension and ask why a director representing a specific shareholder cannot advance this shareholder’s interests on the board?

…continue reading: To Whom are Directors’ Duties Really Owed?

Rights Plans and Proxy Contests: Chancery Court Denies Activist’s Motion to Enjoin Sotheby’s Shareholder Meeting

Editor’s Note: Victor Lewkow is a partner at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum by Benet J. O’Reilly and Aaron J. Meyers, and 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 May 2, 2014, the Delaware Chancery Court denied a motion to preliminarily enjoin Sotheby’s annual stockholder meeting based on allegations by an activist stockholder, Third Point LLC, that the Sotheby’s board of directors violated its fiduciary duties by adopting a rights plan (or “poison pill”) and refusing to provide a waiver from its terms in order to obtain an advantage in an ongoing proxy contest. Applying the two-prong Unocal test, Vice Chancellor Parsons held that the plaintiffs failed to demonstrate a reasonable probability of success on the merits of their claims. Notably, the Chancery Court accepted that the threat of “negative control” (i.e., disproportionate influence over major corporate decisions) by a stockholder with less than 20% ownership and without any express veto rights may constitute a threat to corporate policy justifying responsive action by a board, including the adoption and retention of a right plan.

…continue reading: Rights Plans and Proxy Contests: Chancery Court Denies Activist’s Motion to Enjoin Sotheby’s Shareholder Meeting

Chen v. Howard-Anderson

Editor’s Note: James C. Morphy is a partner at Sullivan & Cromwell LLP specializing in mergers & acquisitions and corporate governance. The following post is based on a Sullivan & Cromwell publication by Mr. Morphy, Alexandra Korry, Joseph Frumkin, and Brian Frawley. The complete publication, including footnotes, is available here. 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. Additional reading about Chen v. Howard-Anderson is available here.

In a summary judgment opinion issued on April 8, the Delaware Court of Chancery (VC Laster) held that in a change of control case governed by enhanced scrutiny, directors and officers could incur personal liability for a breach of their duty of loyalty if it is established that they acted unreasonably in conducting the sale process and allowed interests other than the pursuit of the best value reasonably available, i.e. an improper motive, to influence their decisions. The Court expressly rejected arguments that directors (or officers) could only be found to have acted in bad faith and thereby be personally liable for a breach of the duty of loyalty if it were determined that they were motivated by an intent to do harm or had consciously disregarded known obligations and utterly failed to attempt to obtain the best sale price, as articulated by the Delaware Supreme Court in Lyondell Chemical Company v. Ryan. Applying the new standard to the case before it, the Court concluded that the evidence against the director defendants was not sufficient to impose personal liability under the new standard, but that the evidence was sufficient to proceed to trial against the officers on the same theory.

…continue reading: Chen v. Howard-Anderson

Risk Management and the Board of Directors—An Update for 2014

Editor’s Note: Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton, Daniel A. Neff, Andrew R. Brownstein, Steven A. Rosenblum, and Adam O. Emmerich.

Introduction

Overview

Corporate risk taking and the monitoring of risks have remained front and center in the minds of boards of directors, legislators and the media, fueled by the powerful mix of continuing worldwide financial instability; ever-increasing regulation; anger and resentment at the alleged power of business and financial executives and boards, including particularly as to compensation during a time of economic uncertainty, retrenchment, contraction, and changing dynamics between U.S., European and emerging market economies; and consistent media attention to corporations and economies in crisis. The reputational damage to boards of companies that fail to properly manage risk is a major threat, and Institutional Shareholder Services now includes specific reference to risk oversight as part of its criteria for choosing when to recommend withhold votes in uncontested director elections. This focus on the board’s role in risk management has also led to increased public and governmental scrutiny of compensation arrangements and their relationship to excessive risk taking and has brought added emphasis to the relationship between executive compensation and effective risk management. For the past few years, we have provided an annual overview of risk management and the board of directors. This overview highlights a number of issues that have remained critical over the years and provides an update to reflect emerging and recent developments.

…continue reading: Risk Management and the Board of Directors—An Update for 2014

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