ProfessorBainbridge.com

A very unusual dumping on Goldman Sachs by a departing top director Tom Smith

This suggests Goldman really has lost its way.

"A knee in the nuts."

via rightcoast.typepad.com

100 Year Bonds

Apparently the UK is considering issuing 100 year sovereign debt bonds to lock in current low interest rates. Buttonwood pans the idea. Given the lessons of Vanished Kingdoms: The Rise and Fall of States and Nations, which I've been reading with great interest, it's hard to imagine a prudent investor being willing to commit to a 100 year bond even for a state as seemingly permanent as the UK. After all, as Buttonwood notes, Scotland could be out of there in three years. Who knows what 100 will bring?

On the other hand, the UK's national debt still includes consols dating back to the 1700s, which are effectively perpetual bonds. So maybe I'm being too pessimistic (or, OTOH, maybe the English were too optimistic back in those days).

Hill Democrats push quack CEO-worker pay ratio disclosure

BNA's very useful Corporate Counsel Weekly (sub req'd) reports that:

 

Democratic lawmakers March 9 called on the Securities and Exchange Commission to “prioritize” rulemaking for a statutory mandate that would require companies to disclose a ratio comparing the compensation for their chief executive officers with that of employees. In a letter addressed to SEC Chairman Mary Schapiro, the lawmakers said that CEO pay has “skyrocketed,” while that for ordinary workers has “stagnated.”

The Hill further reports that:

The letter said "income inequality is a growing concern among many Americans," and cited press reports that put CEO pay at an average of nearly $11 million a year, more than 300 times the average worker's pay. ... "

Some companies have publicly voiced their concern with the calculation of these figures," it said. "In our view — as well as that of the testimony of Lynn Turner, former Chief Accountant of the SEC — this calculation should not be difficult for any well-organized company."

Stuff and nonsense.

I discuss this Dodd-Frank requirement in my my book Corporate Governance after the Financial Crisis, where I argue that:

The rules are unlikely to provide investors with meaningful information. Instead, they are intended to shame corporations by highlighting the disparity between CEO and shop floor employee pay.

I further explain that:

This requirement is going to be hugely burdensome:

[It] means that for every employee, the company would have to calculate his or her salary, bonus, stock awards, option awards, nonequity incentive plan compensation, change in pension value and nonqualified deferred compensation earnings, and all other compensation (e.g., perquisites). This information would undoubtedly be extremely time-consuming to collect and analyze, making it virtually impossible for a company with thousands of employees to comply with this section of the Act.[1]

In sum, this is another pointless and useless but incredibly costly regulation of the sort that Washington has been loading on business on a bipartisan basis ever since George Bush decided to cave and sign Sarbanes-Oxley into law. It ought to be high on the list of rules to be repealed if the GOP gets control of DC.

---

[1] Warren J. Casey & Richard Leu, United States: New Executive Compensation Disclosures Under Dodd-Frank (August 3, 2010), Mondaq.com, http://www.mondaq.com/unitedstates/ article.asp?articleid=106962. See also Jean Eaglesham & Francesco Guerrera, Pay Law Sparks “Nightmare” on Wall St, Fin. Times, Aug. 31, 2010, at 1 (“The rules’ complexity means multinationals face a “logistical nightmare” in calculating the ratio, which has to be based on the median annual total compensation for all employees, warned Richard Susko, partner at law firm Cleary Gottlieb. “It’s just not do-able for a large company with tens of thousands of employees worldwide.”).

 

Coffee is the new broccoli

Amusing WSJ op-ed on some other health-care mandates that government should impose on employers

Presentation on Nonprofit Boards of Directors' Fiduciary Duties

I recently gave a talk on "The New Normal in Governance: The Current Environment for Nonprofit Directors," which focused on the fiduciary duties of members of nonprofit boards of directors:

Pileggi on The Moral Aspects of a Lawyer’s Fiduciary Duty

FOTB Francis Pileggi has written an interesting essay entitled The Moral Aspects of a Lawyer’s Fiduciary Duty,in which he discusses the "the religious origins of the foundation for many obligations of a lawyer (and others in a position of trust)." Recommended reading.

Greek bond swap triggers credit default swaps

Statement from the International Swaps and Derivatives Association:

The EMEA DC resolved that a Restructuring Credit Event has occurred under Section 4.7(a) of the ISDA 2003 Credit Derivatives Definitions (as amended by the July 2009 Supplement) following the exercise by The Hellenic Republic of collective action clauses to amend the terms of Greek law governed bonds issued by The Hellenic Republic such that the right of all holders of the Affected Bonds to receive payments has been reduced.

The Committee determined that an auction will be held in respect of outstanding CDS transactions on March 19.

Buttonwood explains:

Honour should be satisfied all round. The Greeks have reduced their debt pile and those who insured themselves against debt default will receive due payment for that eventuality. Negating that insurance might have made some politicians feel better but would just have made international investors even more wary of owning European bonds.

ISDA reckons that the net exposure of those who have sold insurance on Greek debt is around $3.2 billion, not a sum to cause the system to collapse. The payout will be determined in an auction (to be held on March 19); if the writedown is 75% (as suggested when the deal was announced) the payout will be $2.4 billion. Sellers of insurance will already have had to put up collateral to cover the bulk of that obligation. So this is not a Lehman moment.

The market for sovereign CDSs would never have recovered if the Greek default hadn't been acknowledged as an event of default. Plus, there would have been years and years of litigation.

For all the weenies who bitch and moan about swaps and derivatives, here is a valuable lesson in why they work. Greek defaulted. despite fig leafs of voluntariness, the basic fact is that Greece's bondholders got screwed by a coercive restructuring. They had insured against precisely such an event and the insurers are paying off. The system works, despite the nay-saying of the nattering nabobs of negativity in government and academe.

Proxy Access Shareholder Proposals

David Lynn has a useful roundup of SEC staff no-action positions on shareholder proposals under Rule 14a-8 regarding proxy access (i.e., shareholder ability to nominate directors via the company's proxy materials).

Review of Veasey and Di Guglielmo's "Indispensable Counsel: The Chief Legal Officer in the New Reality"

Today's WSJ reviews Indispensable Counsel: The Chief Legal Officer in the New Reality by former Delaware Supreme Court Chief Justice E. Norman Veasey and his associate/frequent co-author Christine T. Di Guglielmo. Over at Amazon, we read that:

Legislation and case law following the relatively recent corporate scandals have increased scrutiny on the ethics and integrity of individuals, and the culture they create, at the highest levels within the corporate structure. The corporate General Counsel (GC) is a key member of that group. This enhanced attention increases the already substantial tensions facing the GC, who must navigate the demands and interests of various corporate stakeholders-including the board of directors, officers (particularly the CEO), stockholders, and employees-while also serving the best interests of the client, which is-and should only be-the corporation itself. 

In light of these heightened expectations on ethics, integrity, and other liability concerns,  Indispensable Counsel: The Chief Legal Officer in the New Reality  examines the key role of the independent, yet business-oriented, chief legal officer.  Indispensable Counsel provides readers with the foundations of corporate representation followed by practical guidelines on how the multiple roles of GC are, or should be, resolved, with best practices as the goal.

The Journal opines that:

With "Indispensable Counsel: The Chief Legal Officer in the New Reality," E. Norman Veasey and Christine T. Di Guglielmo have written a field manual to aid CLOs with their new tasks [occasioned by Sarbanes-Oxley and Dodd-frank]. More important, the authors have illuminated how Congress, primarily through Sarbanes-Oxley, has inserted the long arm of federal law into executive suites and boardrooms to influence private-sector decision making, using the CLO as cat's paw.

BTW, the emphasis on the growing federal role makes Indispensable Counsel a very useful companion to my book Corporate Governance after the Financial Crisis. Indeed, the Journal reports that:

The authors quote Stephen Bainbridge, a UCLA law professor, who writes [in Corporate Governance after the Financial Crisis]: "Are Dodd-Frank's governance provisions quackery, as were Sarbanes-Oxley's? In short, yes. Without exception, the proposals lack strong empirical or theoretical justification." Nonetheless they are now the law of the land.

Anyway, the Journal further reports that:

Judge Veasey and Ms. Di Guglielmo are of course lawyers themselves, and their book is not only a how-to manual but also a sort of inspirational guide. They style the in-house counsel as the conscience of the corporation, implying that lawyers operate on a higher moral plane than the money-grubbers who actually run corporations.

Whether or not lawyers in fact operate on a higher moral plane than other corporate managers, it is clear that in-house lawyers play a critical role as corporate gatekeepers. (For my take on that issue, see Corporate Lawyers as Gatekeepers (January 6, 2012).)

Anyway, kudos to Veasey and Di Guglielmo for this very important new title.

I'm on Google Play

Stephen M. Bainbridge - Books on Google Play.

You can now buy my books on "The New Corporate Governance in Theory and Practice" and "The Complete Guide to Sarbanes-Oxley" on Google Play - http://bit.ly/xHwvBs

Leo Strine: Rock Star?

I recently compared Leo Strine to the minor prophets of the Bible. Now the Delaware Inc. blog is comparing him to a "rock star":

Leo Strine has become something of a rock start in law circles lately, partly because of his sometimes startling rulings, partly because of the frank language he uses in his opinions. The national spotlight fell on Strine again this month, when The American Lawyer magazine published a lengthy profile of the chancellor, noting his “cultlike following among the ranks of America’s top corporate lawyers.”

...

But, as the article asks, is a chancellor who “shakes things up” really what the corporate world wants from the nation’s top business court? “How will Strine balance corporate America’s desire for comfort with his own penchant for boldness? …  It will be a fascinating story to watch.”

The preliminary injunction game in Delaware corporate law cases

Alison Frankel has a typically insightful column on how plaintiff's lawyers can win in the long run despite losing a preliminary injunction motion, drawing on Delaware Chancellor Leo Strine's recent opinion in the El Paso case and Vice Chancellor Sam Glasscock's opinion in the Delphi litigation. BTW, she quotes yours truly as follows:

Strine wrote, "the traditional tools of equity may not provide the kind of fine instrument that enables optimal protection of stockholders in this context." But "singling out the sinners for opprobrium," as UCLA Law professor Stephen Bainbridge put it in a column on the El Paso ruling, can serve as a blunt instrument to bludgeon defendants into settling.

Memo to Jeff Bezos re Kindle iPad App: In short, it needs improvement

The release of the new Applie iPad 3 today got me to thinking about Kindle. I'm done buying Kindles. Between my iPhone and my iPad, there's just no need for a third device.

But that brings me to Amazon's Kindle app for iPad. Lately, if an ebook is available at Apple's iTunes bookstore, I've been buying it there instead of at Amazon.

It's not that I love Apple's bookstore. I don't. It stinks. It's hard to browse. Books pages lacks virtually all of the useful features of the equivalent Amazon page.

The problem is that the iBooks app is just so much better than the Kindle app for the iPad.

In iBooks, you can organize books into collections. The iBooks app is more attractive to look at. The bookshelf layout makes great intuitive sense. The interface is easy to use. The search function is incredibly useful. Did I mention that you can organize books into collections? This is really key when your ebook library starts to get into the hundreds of books, as mine has.

None of this is true of the Kindle app. It's ugly. The interface is clunky. There are no tools for organizing your books. Let me emphasize that: The Kindle app has no--nada, zilch, none--tools for organizing books. That's a dealbreaker in and of itself.

I assume you're keeping the Kindle app lousy so as to encourage people to buy the Kindle. Well, at least in my case, it's not going to work. So if you want to sell me ebooks, Mr. Bezos, take a long hard look at the iBooks app and get your software engineers to write a Kindle app's that an improvement instead of a laggard.

Citing tweets

i09 reports that:

Devotees of arbitrary style guidelines, rejoice! According to the Modern Language Association, there is now a designated format for citing a tweet in an academic paper:

Begin the entry in the works-cited list with the author's real name and, in parentheses, user name, if both are known and they differ. If only the user name is known, give it alone.

 

Next provide the entire text of the tweet in quotation marks, without changing the capitalization. Conclude the entry with the date and time of the message and the medium of publication (Tweet).

 

And provides the following example:

Gonzalez, Robert (rtg0nzalez). "Can anyone recommend a good doctor for a bite wound? This thing is starting to look pretty gruUUBRAINS." 3 June 2017, 6:17 p.m. Tweet.

Somehow I have the feeling that the Bluebook will come up with something way more complicated.

Corporate liability under the Alien Tort Statute

The Supreme Court has held Kiobel v. Royal Dutch Petroleum over to the 2012-13 Term and ask the parties to brief additional questions. Lyle Denniston has a great work up of the posture of the case and implications of the Court's non-decision. Apparently, the narrow question of whether corporations are proper subjects of international law is to be subsumed into the broader question of whether US law can even deal with extraterritorial torts.

Friend of PB (FOPB, for short) Tony Arend says: "Interesting. This was not what I was expecting at all." Tony expected the court to rule on the narrow question and to hold that:

... there is ample evidence to support the proposition that international law clearly recognizes that juridical persons, such as corporations, can violate international law. ...

But at the end of the day, whether corporate violations of international law can be punished in domestic courts through the remedy provided by a civil suit is a question that international law leaves to individual states. It does not matter whether there is an international law “standard” for civil liability for such violations....

In short, ... I believe that the Supreme Court will, in fact, reject the majority’s conclusion in the divided panel in Kiobel and hold that there is civil liability under the ATS for corporations that commit torts in violation of the law of nations.

As I've said many times, I have great respect for Tony's well-known expertise in international law and his analysis makes a lot of sense. But, as a policy matter, I still think that the ATS results mainly in “Lawsuits that benefit only lawyers”.