What are the emerging legal trends for directors as we come to a close of 2010 and a year fraught with new laws and regulations?
The Honorable William B. Chandler, III, Chancellor, Delaware Court of Chancery
In today’s second plenary session, the Honorable William B. Chandler III from the Delaware Court of Chancery “held court” with William M. Lafferty, defense attorney with Morris, Nichols, Arsht & Tunnell LLP; Honorable Norman Veasey, senior partner with Weil, Gotshal & Manges LLP; and Jessica Zeldin, shareholder attorney, with Rosenthal, Monhait & Goddess, PA on “Emerging Legal Trends.”
The Honorable E. Norman Veasey
The general consensus among panelists is that the Delaware Law remains unchanged by the Dodd-Frank Act. Yes, there are now more compliance and disclosure regulations, but the judicial standards will not be affected. That said, directors should expect an increase in derivative litigation.
Lafferty, a practicing defense attorney in Delaware, stressed the importance of Delaware courts, despite the increase of lawsuits in other jurisdictions. Lafferty said that in Delaware, “you will get a fair opportunity to be heard” in a “non-jury trial” and in a “prompt and timely manner.”
William M. Lafferty
Lafferty also pointed out that boards can ensure that shareholder lawsuits be filed in Delaware with the adoption of a charter or bylaw provision. Jessica Zeldin, who jestingly said she was “the enemy in the room” as a shareholders’ attorney, countered that the use of a charter provision for this purpose may have an unintended backlash from shareholders.
Zeldin offered what she labeled the “special sauce” of how plaintiff attorneys go after boards. She highlighted M&A cases and situations where board and management have divergent interests from shareholders.
This led to a discussion about disclosure and ensuring that the proxy statement includes all required metrics. Otherwise, companies will be “on the hook” for the missing metrics thus triggering Revlon and other disclosure violations.
The panelists provided a wealth of information that all directors should hear. For those unable to attend the conference, all plenary sessions are available for viewing in our Conference-to-Go.
The panelists for “Just Do It! Board-Shareowner Communications for 2011” were CalSTERS’ Janice Hester Amey, The Corporate Library’s Nell Minow, Computer Associates’ Bill McCracken, and Broadridge’s Marvin Sims. The panel tackled the hot topic issues related to the Dodd-Frank Act such as say-on-pay, majority voting, executive compensation, and separation of the CEO and chairman. While consensus on these topics was elusive, panelists did agree that the next year will be a “bumpy ride” for both boards and shareholders.
The panelists agreed that the Dodd-Frank Act is intended to improve board-shareowner communications; however, the results will likely be mixed. For example, proxy access was a point of disagreement amongst the panelists; some believe it will help foster greater accountability to the shareholders, while others believe it is not well thought-out as presented by the SEC.
Conversation also turned towards executive compensation. Nell Minow believes “nothing is more central than compensation.” Countering Ms. Minow was Bill McCracken, who emphasized that there should not be over-reliance on compensation, as there is more to consider when anticipating the failure or success of the board.
Editor and Co-Founder, The Corporate Library
CEO, CA Technologies; Director, NACD
Portfolio Manager, California State Teachers’ Retirement System (CalSTRS)
Fifty years old and I still haven’t kicked the habit of the end-of-summer book report. Sad really.
I must admit I didn’t think that Steig Larsson’s first thriller would provide food for NACD thought, but listen up all you private company directors, nomination and governance chairs worried about CEO succession, and anyone concerned with boardroom ethics and director independence. This book review is for you.
He died before his trilogy of crime stories became best sellers.
He was Swedish.
He was a former journalist who was expert in covering right-wing extremism.
It is not known how much he knew or cared about fiduciary responsibility or the governance practices of the best-run family businesses, and midway through the book it becomes obvious that the corporation and the magazine company around which most of the action is set, have not based their governance practices on the NACD Key Agreed Principles. Sure, both are private (not public) companies and being based in the frozen north of Sweden and in Stockholm respectively, are not bound by U.S. law. Nonetheless, the conditions under which old man Vanger joins the magazine company board, and the threats subsequently made to the company co-founders, would raise the eyebrows of anyone with even a rudimentary knowledge of the Duty of Loyalty. Transparency is not a core value and self-interest rules the day.
The Vanger family who run the company—and, indeed, the community at the heart of the book—would benefit from attending the family business session at this year’s NACD conference. As usual, the session will be facilitated by Jack Moore, a member of the Benjamin Moore Paint family and well-seasoned in helping directors and executives of family-run companies deal with some very sensitive interpersonal issues. Jack will be joined by Linda Thomas, the CEO of Wilcox Farms, an egg distribution company based in the Pacific Northwest. Chris Wilcox, one of the family members now involved with running the 100-year-old egg farm, will be there too. This will be textbook—not crime thriller—corporate governance, but the panel have promised some lively stories even if they can’t manage mystery and intrigue. Don’t miss it.
Later in Larsson’s novel (and I must be careful not to give away the plot) there are serious questions about who should lead the Vanger empire, although the old man is still very much alive at the end of the story. It all comes out all right in the end, but there’s no doubt that their succession planning and executive evaluation process was sadly lacking. The company counsel, Frode, is pretty much a good guy throughout, but really questions must be asked about the board process and how he allowed it to become so compromised. HealthSouth director and law professor Charles Elson, Heidrick and Struggles’ Bonnie Gwin, and Peter Wiley, chairman and former CEO of Wiley and Sons, will discuss C-suite succession planning at the NACD Conference. Join them to find out how it should be done.
And if a girl with a dragon tattoo offers to invest in your latest venture, give her a wide berth. I have reason to believe her fortune was not made honestly.