My new Essay Should Angel-Backed Start-ups Reject Venture Capital? challenges the conventional wisdom that venture capital is a necessary – and even desirable – source of financing for all start-ups. In particular, this Essay argues that some start-ups that attract angel investors should stop there, rejecting proffers of venture capital that may follow. The Essay challenges the notion that venture capital is a necessary condition for start-up success, and argues the counterintuitive proposition that venture capital may actually be harmful to entrepreneurs and angel investors in some situations.
At the outset, I observe that angels are now able to fund … Read more
My draft article, Blocking the Ax: Shielding Corporate Counsel from Retaliation as an Alternative to White Collar Hypercriminalization, recommends that the NYSE and Nasdaq amend their corporate governance listing standards to require that termination of a public company’s general counsel and lead outside corporate transactional and securities regulatory counsel be approved in advance by the company’s independent audit committee.
The article is written from the perspective of one who worked for many years in private practice as full equity partner at two major AmLaw 100 firms and during 2005-2006 served in a senior capacity with the Securities and Exchange … Read more
More and more companies appear with strange abbreviations behind their business name. Consider Chrysler Group LLC (instead of Inc.) or LVMH Montres & Joaillerie France SAS. Some even speak about the “endangered corporate form” and point to the rise of the uncorporation. In the paper, “A Primer on the Uncorporation, ” Erik Vermeulen, Priyanka Priydershini and I examine how the uncorporation has evolved in the United States and, more recently, in other economies around the world. The growth in non-listed business forms in Europe, Latin America and Asia has been shaped by a mixture of learning and professional advice arising … Read more
A shareholder typically brings a derivative suit on behalf of a corporation against the company’s current or former officers or directors in one of two contexts: either after the shareholder has demanded that the board cause the company to bring suit on its own and the board refuses, or when the shareholder brings the suit directly on the basis that demand on the board would have been futile because a majority of the board is not sufficiently disinterested to make the decision as to whether to sue. In either case, the company’s board (or board committee, such as a special … Read more
With the 2013 proxy season now well underway, two recent decisions emphasize the potential litigation risks public companies face under federal and state disclosure law. These decisions highlight the need for companies to focus on disclosure requirements as they prepare their proxy statements.
In a highly anticipated opinion issued this past Friday, the federal court for the Southern District of New York has enjoined a vote on a management-sponsored proposal at Apple’s upcoming annual shareholder meeting. Greenlight Capital, L.P. v. Apple, Inc., No. 13 Civ. 900 (RJS) (S.D.N.Y. Feb. 22, 2013). Two of Apple’s shareholders (including an activist shareholder … Read more
In the next few months, thousands of public companies will hold their annual shareholder meetings. I would like to take this opportunity to emphasize the importance of robust proxy disclosure to shareholders and to highlight areas in which the disclosure can be substantially improved. I share the desire expressed by many investors for additional information that would enhance their ability to make informed voting and investment decisions.1
The annual meeting is an opportunity for shareholders, who are the true owners of public companies, to exercise the right to vote, in person or by proxy,2 for the election of … Read more
The accepted wisdom is that a lawyer who represents herself—by acting as both a lawyer and a director—has a fool for a client. In our working paper, Lawyers and Fools: Lawyer-Directors in Public Corporations, my co-authors, Lubomir Litov and Simone Sepe, and I explain why the accepted wisdom is outdated. The benefits of lawyer-directors in today’s world significantly outweigh the costs. Beyond monitoring, they help manage litigation and regulation, as well as structure compensation to align CEO and shareholder interests. On average, a lawyer-director increases firm value by 9.5 percent, and when the lawyer is also a company executive, … Read more
My forthcoming article, Interbank Discipline, draws attention to the important role that banks play monitoring and disciplining other banks. To understand the significance of interbank discipline, the Article proposes a new way of thinking about market discipline more generally. In the first wave, advocates of market discipline viewed it as a basis for deregulation. Why expend government resources duplicating the efforts of market participants, the rationale went, particularly considering that regulation can discourage market discipline and markets are often more effective than regulators? The 2007-2009 financial crisis, and numerous scandals preceding it, largely brought an end to such reasoning. … Read more
Poor corporate governance is a pervasive problem in the charitable nonprofit sector. Prominent examples of mismanagement and abuse include instances of intentional misconduct, such as embezzlement and unauthorized self-dealing, and negligent conduct, such as failure to diversify the organization’s investment assets. In numerous cases, the lack of good corporate governance has led to the financial distress or failure of a charitable nonprofit firm. A rich literature on nonprofit law has considered the need for better corporate governance and enforcement of fiduciary duties, but the scholarship has yet to address the implications of financial distress and insolvency on corporate governance.
My … Read more
Last week, Professor Robert J. Jackson, Jr. sat down with Bloomberg Law’s Lee Pacchia to discuss his SEC petition to require public companies to disclose their political spending. The SEC has received more than 300,000 comments on the petition, more than any other rulemaking proposal in the Commission’s history. SEC staff members have suggested that they plan to propose rules by April. Jackson tells Pacchia that, because “this is investors’ money,” shareholders have a right to know when the companies they own spend money on politics.
The full interview can be viewed here. Jackson’s recent Blue Sky Blog post … Read more
When a business enterprise is confronted with a situation that suggests that there has been a violation of law, the judgments made at the outset may well be critical to the ultimate outcome. Indeed, poor choices concerning how the matter should be handled— perhaps made in a rush and almost certainly without full facts—may prove even more prejudicial and damaging to the enterprise than the underlying conduct. As has often been said, corporations get into real trouble more often due to “flunking the investigation” than due to the conduct being investigated.
The objective of the article, The Corporate First Responder: … Read more
Commissioner Daniel M. Gallagher delivered the below remarks before the Corporate Directors Forum at the University of San Diego, San Diego, California, on January 29, 2013:
Thank you Anne [Sheehan] for your very kind introduction. I am honored to be here today. Conferences like this are critically important, and all too rare, opportunities for directors, executives, shareholders, and regulators to interact.
Before I go any further, I need to provide the standard disclaimer that my remarks today are my own and do not necessarily reflect the views of the Commission or my fellow Commissioners.
Today I would like to talk … Read more
A committee of law professors that I co-chair with Lucian Bebchuk has petitioned the SEC to develop rules requiring public companies to disclose the use of shareholder money on politics. The petition has received unprecedented support, including comments from more than 300,000 individuals, institutional investors, and members of the U.S. Senate and House of Representatives. The SEC’s Division of Corporation Finance recently confirmed that the SEC is actively considering the petition, and the SEC’s entry in the Administration’s Unified Regulatory Agenda indicates that the SEC plans to propose rules by April.
In response, opponents of such rules are … Read more
William Cary’s opinion for the SEC in In re Cady, Roberts & Co. built the foundation on which the modern law of insider trading rests. Today, we have a stable framework of three distinct legal theories—the classical theory, the misappropriation theory, and Rule 14e-3—each of which is well understood as to its basic elements. Most insider trading cases handed down in any given year say nothing particularly new about the state of the law, but rather simply apply familiar principles to sometimes challenging facts. But every so often we do discover something new about the core conception(s) of insider trading. … Read more
Increasing amounts of communications by and relating to companies are taking place through social media. Broadly defined, social media refers to forms of electronic communication through which users share information, ideas and other content (using text, audio, video and images). This includes not only platforms such as Facebook, Twitter and LinkedIn, but also various blogs, discussion forums and company websites. As with any form of communication, social media presents both strategic opportunities and risks for companies. Social media also poses special challenges due to:
- The speed with which social media can disseminate a message.
- The tendency for social media to
… Read more
Since 2010, when the U.S. Supreme Court unleashed corporate political spending in Citizens United v. Federal Election Commission, shareholder advocates have been warning of the dire consequences of secret campaign contributions and demanding that corporations reveal their political spending. The Coalition for Accountability in Political Spending, among other groups, called upon the Securities and Exchange Commission to mandate the disclosure of corporate campaign spending, but the SEC has so far sidestepped the issue. Activists working with groups such as the Center for Political Accountability have used the threat (and occasionally the fact) of proxy votes on disclosure to pressure … Read more
This is the eighth year that we have provided an annual review of key Delaware corporate and commercial decisions. During 2012, we reviewed and summarized over 200 decisions from Delaware’s Supreme Court and Court of Chancery on corporate and commercial issues on the Delaware Corporate and Commercial Litigation Blog. (We also provided partial lists of key cases throughout 2012.) Among the decisions with the most far-reaching application and importance during 2012 include those that we are highlighting in this short overview. We are providing links below to the more complete blog summaries, and the actual court rulings, for each … Read more
In 2002, the UK began requiring an advisory shareholder vote on the annual executive and non-executive director compensation practices of UK-incorporated quoted companies (“UK Companies”). Eight years later, in July 2010, the US followed suit when President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), providing for an advisory say-on-pay vote for most large US public companies.
The UK government has now gone one step further by proposing to reform the approval process for director remuneration, including through the introduction of a binding shareholder vote for all UK Companies that must occur … Read more