ProfessorBainbridge.com

Spaghetti al Tonno with many shortcuts and a Daou Rose

This is about as easy as things get and very tasty:

• 8 ounces spaghetti cooked per package directions and drained. Do NOT rinse.
  • I have been using Rustichella D'Abruzzo lately and like it a lot.
• 1 6.7 ounce jar Tonnino Tuna Ventresca in olive oil, drained and flaked. Do NOT rinse.
  • Jarred tuna is much preferred over canned. The pieces are bigger and the tuna has better texture.
  • Ventresca is the belly of Bonito del Norte (albacore). It's the best part of a great tuna.
  • Oil packed is preferable to water packed or pouch tuna, as it has a moister texture and richer flavor.
  • Tonnino is my favorite brand. It's meaty, clean tasting, and has huge flakes. If you can't get the Ventresca a jar of Tonnino Tuna Filets makes a good substitute.
  • If you're made of money, Nardin Bonito Del Norte Ventresca Fillets is even better but I'm not sure it's worth paying 4x more than what you pay for Tonnino.
• ½ cup roasted tomato bruschetta mix 
  • This is a key time saver. Otherwise, you're dicing tomatoes, and garlic, and so on.
  • I got mine fresh from Bristol Farm's deli department.
  • DeLallo is a very acceptable jarred alternative. 
• 1 cup micro greens rinsed, dried, and loosely packed
• zest of 1 lemon
• ½ tablespoon of lemon juice
• big pinch of salt
• freshly ground black pepper to taste
• red pepper flakes to taste
• ½ teaspoon fish sauce
  • Red Boat is the brand of choice

While pasta is cooking, combine all the other ingredients in a medium to large bowl and lightly toss to combine. Add spaghetti and toss to combine. Add extra virgin olive oil to taste. Use a very good oil. I use California Reserve Miller’s Blend.

We drank a 2019 Daou Rose, which is a blend of Grenache and Sauvignon Blanc. Light. Well balanced. Easy to drink. Peach, melon, and citrus notes.

By the way, have you downloaded my cookbook?

Kevin LaCroix on the new Delaware captive insurance legislation

Kevin LaCroix of the outstanding D&O Diary blog addresses proposed DGCL Section 145(g):

As readers of this blog well know, in recent months, the D&O Insurance industry has been in a so-called “hard market,” characterized by rising prices, increased self-insured retentions, and reduced capacity. In light of the increased costs, many buyers have elected to purchase less insurance than they have in the past. As companies and their advisors considered alternatives, questions have arisen whether companies may use of alternative risk transfer mechanisms such as captives. One specific question with respect to these alternatives is whether a captive insurer could, as is the case with respect to traditional D&O insurance, provide insurance protection for liabilities that cannot be indemnified by the corporation itself. ....

The main purpose of the Bill is to authorize Delaware corporations to use captive insurance, which is described in the synopsis accompanying the Bill as insurance provided by or through a wholly-owned subsidiary funded by the corporation, to protect their directors and officers and other indemnifiable persons from liability. The Bill also clarifies that a Delaware corporation’s establishment or maintenance of a captive insurance company does not subject the corporation to the provisions of the Delaware Insurance Code.

Corporate lawyers will want to go read the whole thing. It's a great analysis.

Delaware to amend Section 145 to add captive insurance to indemnification

Richard, Layton & Finger reports:

The Delaware General Assembly has approved legislation amending Section 145 of the Delaware General Corporation Law (the “DGCL”) to authorize a Delaware corporation to use captive insurance, which is generally defined as insurance provided by or through a wholly-owned subsidiary funded by the corporation, to protect its current and former directors, officers and other indemnifiable persons (“covered persons”).  The captive insurance may be used to protect covered persons against liability even if the corporation would not be empowered to indemnify them, subject to a limited set of minimum exclusions.  The amendments, which are expected to be enacted in the near term, will afford Delaware corporations the opportunity to take advantage of captive insurance arrangements when designing their D&O insurance programs.  ...

RLF views this development as a reaction to the growing cost and reduced availability of D&O insurance. This is a problem because DGCL Section 145(g) allows companies to buy D&O insurance to provide directors and officers with coverage for non-indemnifiable expenses. With traditional D&O insurance drying up, Section 145(g) became less useful. The new legislation will restore 145(g)'s utility by clarifying that policies written by captive insurance companies will qualify.

Under new Section 145(g)(1), a captive insurance policy must exclude from coverage, and must provide that the insurer may not make payment in respect of any loss arising out of, based upon or attributable to a final adjudication with respect to: (i) any personal profit or financial advantage to which the covered person was not legally entitled, (ii) any deliberate criminal or deliberate fraudulent acts, or (iii) any knowing violation of law. 

An interesting wrinkle to all of this, however, is that Delaware is seeking to become the dominant domicile for captive insurance entities of all types. Christopher Bruner explains:

Naturally, Delaware would prefer to be the Delaware of insurance. So, it is unsurprising that Delaware, once again, followed another state's lead and expanded into this new field by building upon its preexisting advantage in corporate law and business organizations generally. In this area, Delaware was a relative latecomer, having begun to pursue captive insurance business only in 2005 when the General Assembly “moderniz[ed] Delaware law regarding the formation of these companies” with the aim of “positioning Delaware to become a home to the growing number of captive insurance companies being created by companies worldwide.” The legislative policy could not have been clearer, as the statute itself expressly states that “It is determined and declared as a matter of legislative finding that captive insurance companies can serve a valuable risk management function, and that their responsible utilization and the growth of the captive insurance industry in the State of Delaware are in the best interests of this State.” The provision adds that “the purpose and policy of this chapter” includes regulation of captive insurance entities, “provid[ing] flexibility and opportunity” to the market, and “foster[ing] economic development in this State through the growth of the captive insurance industry.”

Christopher M. Bruner, Leveraging Corporate Law: A Broader Account of Delaware's Competition, 80 Md. L. Rev. 72, 90 (2020). Presumably Delaware will aggressively market its captive insurance entities as the obvious choice for Delaware corporations to avail themselves of this new option.

Delaware is the global leader in corporate law--Israel as case in point

As regular readers know, I am a fan of Delaware corporate law (a Delophile?). So I was interested to learn that:

Israel has invested significant effort, over two decades, into approximating its corporate law to the corporate law of Delaware. Furthermore, Israel established a specialized court dedicated to corporate law disputes, shamelessly copycatting the Delaware Court of Chancery. The declared objectives of this tremendous legal effort were twofold: first, to draw domestic entrepreneurs away from choosing Delaware over Israel as the locus of incorporation, and second, to increase the willingness of foreign investors—especially U.S. and global investors—to choose or accept Israeli corporate law as the governing law in cross-border M&A transactions involving Israeli target corporations.

Which suggests that the Israeli government thinks corporate law is a race to the top that Delaware is winning.

Interestingly, however, the authors suggest that the emulation project may not be working and, in fact, may even be backfiring:

Our findings indicate that U.S.-based practitioners are skeptical about the possibility of other jurisdictions emulating Delaware, whereas practitioners in Israel are ambivalent regarding the success of the approximation project but nevertheless use it as a “sellingargument” when market actors are reluctant to buy into an unfamiliar governing law. To the extent that approximation of laws is undertaken in order to increase local incorporation and adoption of the unfamiliar law, our findings indicate that a countervailing effect may occur because local practitioners become more familiar and comfortable with the approximated jurisdiction.

Baum, Ido and Solomon, Dov, Delaware’s Copycat: Can Delaware Corporate Law Be Emulated? (January 12, 2022). 23 Theoretical Inquiries in Law 1 (2022), Available at SSRN: https://ssrn.com/abstract=4007605

I'd rather have the Wall Street Journal's readers running the SEC than the current majority

The WSJ reports:

The Securities and Exchange Commission voted 3-1 to issue a proposal that would increase the amount and timeliness of confidential information that private-equity and hedge funds report to the agency on a document known as Form PF.

The main goal, Chairman Gary Gensler said, is to allow regulators to better spot risks building up in private markets, stepping up an effort that began after the 2008 financial crisis.

Meanwhile, over on the editorial page, two of the Journal's readers proved they ought to be running the Commission:

While it is premature to judge the merits or validity of the proposal outlined in “SEC Eyes Stronger Oversight of Private Firms” (Page One, Jan. 11), some of the apparent motives are troubling. The Securities and Exchange Commission was established to administer securities laws for investor protection, orderly markets and capital access. Labor and environmental issues are important, and may be legitimate for regulation, but not by the SEC.

Using the SEC as a universal regulator draws resources away from the critical functions and core areas of responsibility entrusted to it by Congress. It also invites abuse if constituencies across the political spectrum come to see securities law as a legitimate tool for achieving their desired ends. Such an outcome would politicize securities law to the detriment of investors, the SEC and the country.

Brian Knight

 

There is no statutory authority for the SEC to provide such “oversight” to nonfinancial private firms. This unjustified power grab must be resisted.

As the head of a private firm that has underwritten IPOs since the late 1960s, I believe the more pertinent question is this: Why are so few firms availing themselves of the public markets when they need capital? The answer is obvious. Increased reporting requirements and costs discourage them, despite the better valuation metrics and liquidity in public markets versus private markets.

For Walmart’s 1970 IPO, the entire S-1 registration statement (the most detailed filing required by the SEC) was 26 pages. Everything one might need to assess this company was in the prospectus. The total offering raised less than $5 million.

This would be impossible today. The grinding increase in disclosure and costs over the decades and administrations of both parties is to blame. For example, the January 2022 IPO of TPG Inc. raised $1 billion, an impressive valuation. But the prospectus was 424 pages. No one has time to read that.

The SEC doesn’t need to expand its power. As Rep. Patrick McHenry of North Carolina says ..., the regulator would serve public markets better by revisiting its current, highly burdensome disclosure rules.

Warren A. Stephens

I couldn't have said it better myself.

The egregious errors of Wikipedia's entry on Dodge v. Ford Motor Co.

Here's how I would edit the first two paragraphs of the Wikipedia entry on Dodge:

The edited version would read:

Dodge v. Ford Motor Company, 204 Mich. 459, 170 N.W. 668 (Mich. 1919), is a case in which the Michigan Supreme Court held that Henry Ford had to operate the Ford Motor Company in the interests of its shareholders, rather than in a charitable manner for the benefit of his employees or customers. It is often correctly cited as affirming the principle of "shareholder primacy" in corporate America.[1] At the same time, the case affirmed the business judgment rule, leaving Ford an extremely wide latitude about how to run the company.

Despite a few subsequent opinions purporting to authorize corporate directors to pursue socially responsible courses of action,[2] the general rule of law today is that directors have an obligation “to attempt, within the law, to maximize the long-run interests of the corporation's stockholders” and, moreover, “that they may sometimes do so ‘at the expense’ of” other corporate constituencies.”[3] Having said that, however, management decisions will not be challenged where one can point to any rational link to benefiting the corporation’s shareholders.[4]

Here is how I would edit the paragraph under the “Judgment” subhead.

The Michigan Supreme Court held that Henry Ford could not conduct a for profit corporation as though it were an "eleemosynary institution.”

Notably, the opinion written by Russell C. Ostrander argued that the profits to the stockholders should be the primary concern for the company directors. Because this company was in business for profit, Ford could not turn it into a charity. This was compared to a spoliation of the company's assets. The court therefore upheld the order of the trial court requiring that directors declare an extra dividend of $19.3 million. It said the following:

A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction of profits, or to the non-distribution of profits among stockholders in order to devote them to other purposes...

Although some commentators have argued that that statement is mere dicta,[5] scholarship contemporaneous with the Dodge decision recognized it as holding.

Francis Pileggi's 17th Annual Review of Key Delaware Corporate and Commercial Decisions

Francis Pileggi's annual review of Delaware corporate and commercial law is essential reading for those of us who labor in this vineyard. You can read it here.

Cleary Gottlieb's Annual Selected Issues for Boards of Directors is Out

The annual report is always worth reading. You can download it here.

Do we really want ISS setting corporate climate policy?

Cahill Gordon identifies ISS new voting policies, two of which caught my eye:

Say on Climate. ISS has adopted two frameworks for analyzing Say on Climate proposals, one for proposals submitted by shareholders and another for those submitted by management. These new policies list the main, non- exhaustive criteria that will be considered in ISS’s analysis. Vote recommendations by ISS on such proposals will be made on a case-by-case basis, taking into account the completeness and rigor of the plan and disclosures and other relevant criteria, including with respect to shareholder proposals whether the request is unduly burdensome or overly prescriptive.

Climate Accountability. ISS has adopted a new policy applicable to companies that are significant greenhouse gas (GHG) emitters, defined for 2022 as those on the current Climate Action 100+ Focus Group list. Under the new policy, ISS generally will recommend voting against or withholding votes from the incumbent chair of the responsible committee (or other directors on a case-by-case basis) in situations where ISS determines that the company is not taking the minimum steps needed to understand, assess, and mitigate risks to the company and the larger economy relating to climate change. For 2022, ISS considers such “minimum steps” to be: detailed disclosure of climate-related risks (such as those published by the Task Force on Climate-Related Financial Disclosures (TCFD) framework), and appropriate GHG emissions reduction targets.

ISS is the largest proxy advisor, with over 1700 institutional investor clients that buy its advice on how to vote shares they hold. A substantial number of those clients robo-vote in lockstep with ISS recommendations.

This gives ISS "a bully pulpit from which to harangue corporate management and boards of directors on all matters of governance and compensation ...." Yet, as the Institute for Governance reports, there are some serious concerns about ISS:

• Lack of transparency as to the process by which they arrive at formulating their recommendations; • Inaccuracies in their analysis and unresponsiveness to corporate demands for corrections;
• Conflicts of interest, in particular for ISS, by their offering of several services to the same corporations which are the subject of their proxy recommendations;
• More subtle criticisms focus on their definition of «good» governance and the lack of (or very weak) empirical evidence that their kind of governance has any influence on the performance of companies;
• Proxy advisors have a vested interest in raising the bar of «good» governance from year to year to justify their continued employment;
• The influence of proxy advisers on corporate governance makes some, many, boards of directors overly preoccupied with ensuring favorable recommendations from proxy advisers, by taking pre-emptive steps to ensure that their policies on governance and executive pay will not trigger a negative score when fed into the proxy advisers’ standardized algorithm;
• Their business model is problematic. Because their clients, institutional investors, collectively own shares in all publicly listed companies, they have to provide «advice» for all these corporations. In Canada, some 1570 companies are listed on the TSX and another 2,200 are listed on the TSX Venture. The financial year of roughly 84% of companies listed on the TSX ends on December 31st. For some 80% of TSX listed companies, there were less than 50 days between the date the Management Information Circular is received by shareholders and the ultimate date for proxy voting. (IGOPP research, 2012). These statistics create a fundamental issue for these service providers and raise basic questions about their business model. How can they cope with this mass of data and come up with fair and thoughtful recommendations for thousands of corporations in a matter of a few weeks in the spring of each year;
• Surprising and puzzling is the role these proxy advisors are now playing in all cases of mergers, acquisitions, proxy contests and all other litigious matters. Proxy advisers offer their opinion on almost all litigious, contentious issues. As these issues often come about as a result of the actions of some activist hedge funds, a proxy advisor’s favourable opinion, from ISS particularly, is a highly prized input to the argumentation of activist funds. The potential for conflicts of interest is decupled in these highly charged confrontations with huge sums of money at stakes.

The Trump-era SEC tried to put some minimal restrictions on ISS and its fellow oligopolist Glass Lewis. Under woke SEC Chairman Gary Gensler, however, the Biden-era SEC is giving ISS a free pass.

It was bad enough when ISS confined its advice to legitimate issues of corporate governance, but it is increasingly injecting itself into controverted social and economic issues.

The Democrats in Congress and the White House have embraced ISS as part of their progressive a[[roach to business, so it's hard to expect them to take action. If the Republicans win back the Congress, however, they should use their influence to pressure ISS into sticking to its knitting.

Do State Antitakeover Provisions Matter?

Interesting new paper by Andrew Baker, Do State Antitakeover Provisions Matter? (January 2, 2022). Available at SSRN: https://ssrn.com/abstract=3998607 or http://dx.doi.org/10.2139/ssrn.3998607

A longstanding debate over the impact of state antitakeover provisions has emerged among scholars in law and finance. Corporate law practitioners and researchers argue that the second generation of antitakeover statutes were made redundant by the affirmation of rights plans, while empirical scholars have found wide-ranging impacts from their adoption when used as an exogenous shocks to managerial entrenchment. This paper subjects the standard approach used in the empirical literature to a series of straightforward sensitivity analyses, consistent with the present best practice in panel data analysis. Contrary to the majority of published research, there is scant evidence for a consistent and reliable impact of antitakeover statute adoption on common firm outcome measures. These findings are consistent with the legal argument that takeover statutes provide little additional takeover deterrence in the presence of a “shadow pill.”

The number crunching aspects of the paper are outside my wheelhouse, of course, but the result makes a certain amount of intuitive sense. Most second generation state antitakeover legislation was designed to deter the sort of hostile, junk bond funded, leveraged buyouts that got so much press back in the 1980s and early 1990s. (I discuss the three generations of takeover statutes at 463-82 of my book Mergers and Acquisitions; see also my articles Redirecting State Takeover Laws at Proxy Contests State Takeover and Tender Offer Regulations Post-Mite: The Maryland, Ohio, and Pennsylvania Attempts).

In contrast, the poison pill is effective against a wide range of takeover structures and is an effective negotiating device even in more or less friendly deals.

Today, of course, hostile LBOs are very rare. Indeed, for that matter, hostile takeover bids are rare. In 1988 there were about 160 hostile takeover bids; in 2019, there were about 15. Granted, there was a slight (very) uptick in 2020, but the longterm trend has been towards negotiated takeovers.

It would thus be surprising indeed if state takeover laws mattered all that much.

Having said that, of course, it is true that you see state takeover statutes representations and warranties in most acquisitions of public corporations. The target will typically represent that there is no state antitakeover statute applicable to the deal or, if there is such a statute potentially applicable, that the target has taken all necessary steps in order to ensure that the statute will not impact the deal. But these are uncontroversial boilerplate provisions.

Lynn LoPucki "Chapter 11's Descent into Lawlessness"

Most of his work is outside of my wheelhouse, but I always learn something from Lynn's scholarship. You will too:

The bankruptcy courts that compete for big cases frequently ignore the Bankruptcy Code and Rules. This Article documents that lawlessness through a detailed examination of the court file in the Belk one-day Chapter 11 and a series of empirical studies.

Chapter 11’s lawlessness reached a new extreme in Belk. Belk filed in Houston on the evening of February 23, 2021. The court confirmed the plan at ten o’clock the next morning, and the parties consummated the plan that same afternoon. Almost none of Chapter 11’s procedural requirements were complied with. The court did not give the creditors notice of the disclosure statement or plan confirmation hearings until after those hearings were held. Belk filed no list of creditors’ names and addresses, no schedules, no statement of financial affairs, and no monthly operating reports. No creditors’ committee was appointed, no meeting of creditors was held, and none of the professionals filed fee applications. The ad hoc groups that negotiated the plan failed to file Rule 2019 disclosures. Because no schedules were filed, no proofs of claim were deemed filed. Only eighteen of Belk’s ninety-thousand creditors filed proofs of claim, and Belk apparently just made distributions to whomever Belk considered worthy.

The procedural failures in Belk are just the tip of the iceberg. The competing courts are looking the other way on retention bonuses, refusing to appoint mandatory examiners, failing to monitor venue or transfer cases, granting every request to reject collective bargaining agreements, and providing debtors with critical-vendor slush funds.

LoPucki, Lynn M., Chapter 11's Descent into Lawlessness. Forthcoming 96 American Bankruptcy Law Journal (June 2022), UCLA School of Law, Law-Econ Research Paper No. 21-12, Available at SSRN: https://ssrn.com/abstract=3946577

James Park "Investor Protection in an Age of Entrepreneurship"

My friend and colleague at UCLAW Jim Park has another new article up on SSRN. As with all of Jim's work it is exceptional and worth reading:

The creation of trillions of dollars in shareholder wealth by emerging companies has challenged the investor protection policy of securities regulation. The Securities and Exchange Commission has not offered a coherent response to the question of why public investors can take on some risks but not others. This Article develops an investor protection framework based on the Knightian distinction between risk and uncertainty that better articulates the challenges of this entrepreneurial age. Securities regulation has traditionally permitted all investors to purchase public securities with measurable risks and restricted them from investing in private securities that are shrouded in immeasurable uncertainty. As private markets have become more sophisticated at valuing companies, it has become more difficult to maintain this traditional divide. Investors believe that the valuations of private companies have become more certain. As a result, emerging companies are going public through Special Purpose Acquisition Companies and direct listings without the use of an underwriter that typically assures investors that a company has a reasonable basis for its valuation. This Article argues that protecting investors from uncertainty is essential to distinguishing between investment and speculation. The SEC should be more cautious in permitting companies to access public markets without measures that protect investors from Knightian uncertainty.

Park, James J., Investor Protection in an Age of Entrepreneurship (January 2022). Harvard Business Law Review (forthcoming), UCLA School of Law, Law-Econ Research Paper No. 21-11, Available at SSRN: https://ssrn.com/abstract=3911454