Organizations Law Commons^™

Speaking With Complete Candor: Shareholder Retification And The Elimination Of The Duty Of Loyalty, J. Robert Brown Jr.

Sturm College of Law: Faculty Scholarship

Few corporate law doctrines matter more than the duty of loyalty. Designed to protect the shareholders from the consequences of improper self-dealing, the duty applies to transactions with the corporation that benefit officers, directors, or other fiduciaries.

Despite the central importance of fairness to the duty of loyalty, however, the trend has been to eliminate any analysis of fairness, replacing substantive review with procedural safeguards. This has been particularly true with respect to ratification by disinterested shareholders. If done properly, disinterested ratification results in the application of the business judgment rule. In those circumstances, courts will not examine the fairness …

Shareholder Proposals And The Limits Of Encrypted Interpretations, J. Robert Brown Jr.

Sturm College of Law: Faculty Scholarship

Shareholders have the right under Rule 14a-81 to include proposals in a company’s proxy statement. Almost always precatory, proposals advise rather than command.4 The provision provides a mechanism for obtaining the collective views of shareholders.5 Typically opposed by management, proposals generally engender discussions on matters that companies would prefer to avoid.6 Moreover, although advisory, propos- als can impose meaningful constraints on managerial discretion.

The Proxy Rules And Restrictions On Sharegolder Voting Rights, J. Robert Brown Jr.

Sturm College of Law: Faculty Scholarship

Shareholders in public companies vote not by attending the meeting but by exercising their rights under the federal proxy rules. Recognizing this, the Securities and Exchange Commission has at times described the proxy rules as neutral in effect, designed only to provide shareholders with the same rights accorded under state law. In fact, this has often not been the case. Over their eighty-year development, the rules have often reduced rather than complemented the rights otherwise available to shareholders at these meetings.

This can be seen with particular clarity in connection with the erosion of shareholder voting rights. Under the proxy …

The Demythification Of The Board Of Directors, J. Robert Brown Jr.

Sturm College of Law: Faculty Scholarship

In the debate over corporate governance, the relationship between shareholders and the directors rests at the epicenter. Management has a legal obligation to act in the best interests of shareholders but sometimes does not. Shareholders have an interest in overseeing the actions of management but often cannot.

Reforms designed to address these issues frequently take the form of structural changes to the board. These reforms have not always generated the anticipated results. This may occur in part because of an emphasis on structural reform unaccompanied by necessary changes in process. It may also occur, however, because of misconceptions about board …

Shifting Back The Focus: Fee Shifting Bylaws And A Need To Return To Legislative Intent, J. Robert Brown Jr.

Sturm College of Law: Faculty Scholarship

In ATP, the Delaware Supreme Court upheld as facially valid a bylaw that required owners in a non-stock corporation to pay all legal fees in any action against the entity, its members or owners, unless owners obtained substantially all the relief sought in the complaint. While the Supreme Court has not yet expressly applied the analysis to public companies, the expansive breadth of its reasoning provided boards of “for profit” businesses with an immediate weapon that could be, and has been, used to prevent shareholders and investors from filing actions seeking to expose malfeasance by corporations and their directors. Unsurprisingly, …

The Proxy Plumbing Release Revisited And The Need For Version 2.0, J. Robert Brown Jr.

Sturm College of Law: Faculty Scholarship

Congress assigned the Securities and Exchange Commission (SEC or Commission) responsibility over the proxy process in the Securities Exchange Act of 1934. The Act gave little guidance but left the Commission with broad authority to adopt rules that were “necessary or appropriate in the public interest or for the protection of investors.” The Commission found itself thrown into the middle of a complex regulatory environment already inhabited by other decision makers. State law governed the substantive rights of shareholders, determining who could vote, the matters subject to their approval, and the percentages needed for adoption. Stock exchanges regulated the relationship …

The Jewish Law Firm: Past And Present, Eli Wald

Sturm College of Law: Faculty Scholarship

The rise and growth of large Jewish law firms in New York City during the second half of the twentieth century was nothing short of an astounding success story. As late as 1950, there was not a single large Jewish law firm in town. By the mid-1960s, six of the largest twenty law firms were Jewish, and by 1980, four of the largest ten prestigious law firms were Jewish firms. Moreover, the accomplishment of the Jewish firms is especially striking because, while the traditional large White Anglo-Saxon Protestant law firms grew at a fast rate during this period, the Jewish …

Shareholder Access And Uneconomic Economic Analysis: Business Roundtable V. Sec, J. Robert Brown Jr.

Sturm College of Law: Faculty Scholarship

Business Roundtable v. SEC, arose out of a legal challenge to what is probably the most controversial rule ever adopted by the Securities and Exchange Commission (SEC or Commission). Rule 14a-11 mandated that public companies allow long term shareholders to include nominees for the board of directors in the company’s proxy statement. The rule held out the promise that shareholders would be able to more easily nominate and elect their own candidates to the board. Access was popular among shareholders and strenuously opposed by public companies.

The DC Circuit struck down the rule, imposing a “nigh impossible” standard with respect …

Returning Fairness To Executive Compensation, J. Robert Brown Jr.

Sturm College of Law: Faculty Scholarship

The current waive of turmoil in the financial markets has cast attention on the problem of executive compensation. Companies that have failed or disappeared in shot-gun mergers have nonetheless paid exorbitant sums to officers who arguably played a substantial role in their demise. In response, Congress for the first time established federal standards for determining compensation, including clawbacks and limits on golden parachutes.

The congressional efforts, although mild, represent a deep frustration with the system used by the Delaware courts in assessing executive compensation. With the CEO on the board, executive compensation has traditionally been examined under the duty of …

Opting Only In: Contractarians, Waiver Of Liability Provisions, And The Race To The Bottom, J. Robert Brown Jr., Sandeep Gopalan

Sturm College of Law: Faculty Scholarship

Corporate law scholarship is replete with those who favor an enabling approach to regulation, with companies having the right to opt in to particular requirements or regimes. Opting in (or out) permits private ordering and allows for efficient relationships that are a product of bargaining between owners and managers.

This paper tests the core claim of scholars in the nexus of contracts tradition - that private ordering as a process of bargaining creates optimal rules. We do this by analyzing empirical evidence in the context of waiver of liability provisions. The article examines the history of these provisions, emphasizing that …

The Sec, Corporate Governance, And Shareholder Access To The Board Room, J. Robert Brown Jr.

Sturm College of Law: Faculty Scholarship

In the shareholder governance area, one of the most contentious issues concerns the right of shareholders to nominate directors and include the nominees in management's proxy statement.

This article examines the conflict in the context of the growing importance of independent directors. State law and the Securities and Exchange Commission (SEC) have increasingly relied upon independent directors to protect shareholders and ensure the integrity of the financial disclosure process. Yet because of weak definitions and problems of enforcement, these directors are often not truly independent. One method of addressing these concerns is to allow shareholders to nominate and elect their …

Corporate Governance, The Securities And Exchange Commission, And The Limits Of Disclosure, J. Robert Brown Jr.

Sturm College of Law: Faculty Scholarship

This article explores the role of the Securities and Exchange Commission in the corporate governance process. Traditionally, most have viewed substance as a matter for the states and disclosure for the Commission. This "neat" dichotomy has been long accepted but little examined.

The Commission was always meant to play a role in the governance process. Congress assigned to the SEC the authority to regulate disclosure in part to prevent various abusive practices by management, including the payment of excessive compensation and self perpetuation. Disclosure largely eliminated secrecy but did end self interest. Instead, pressure built on states to loosen substantive …

The Irrelevance Of State Corporate Law In The Governance Of Public Companies, J. Robert Brown Jr.

Sturm College of Law: Faculty Scholarship

Weak state regulation of corporate governance process and the race to the bottom resulted in federal intervention in the 1930s and the adoption of the securities laws. The laws largely ousted the states from the corporate disclosure and proxy process. The duties of directors, however, remained subject to state regulation.

The race to the bottom, therefore, continued. One example was the adoption of waiver of liability provisions. It took less than two decades after Delaware adopted the first such provision in the aftermath of Van Gorkom for all 50 states to have something similar in place. Likewise, fiduciary obligations gradually …

Regulatory Intervention In The Market For Corporate Control, J. Robert Brown Jr.

Sturm College of Law: Faculty Scholarship

No abstract provided.

The Shareholder Communication Rules And The Securities And Exchange Commission: An Exercise In Regulatory Utility Or Futility?, J. Robert Brown Jr.

Sturm College of Law: Faculty Scholarship

One of the most difficult problems of corporate governance concerns the relationship between a company and its indirect owners, those who mostly hold shares in street name accounts. Voting rights under state law rests with the record owner (usually a broker, bank or depository), not the beneficial owner. Yet the rules of the Securities and Exchange Commission and the stock exchanges provide a mechanism for ensuring that street name owners in fact can vote their shares. The system is, however, built mostly around the notion that brokers and banks must forward proxy and other materials to beneficial owners, a circuitous, …