As I mentioned in my opening post, I’m a big fan of Jay
Brown.  So, I plan on routinely passing
on what he’s blogging about.  This week,
I’ve got two items:

In Corporate Governance, the SEC, and the Declining
Importance of Delaware Law, Jay suggests that “the SEC, rather than Delaware,
may increasingly be the driving force behind the development of substantive
duties for directors.”  Here’s an
excerpt:

[In] In re Alderman … the Commission settled an action
against directors of a mutual fund.  The
Commission first found a duty — 
"Under the Investment Company Act, directors had an obligation to
make good faith efforts to ensure that certain below-investment grade debt
securities for which market quotations were not readily available were valued at fair
value."  The Commission then
concluded that this duty had not been fulfilled…. Likewise, the Commission has
sanctioned companies and boards for failing to adequately disclose the process
used in reaching a decision…. Unlike the law in Delaware where less board
involvement usually reduces the risk of liability (and encourages the ostrich
approach to governance), these cases suggest that greater involvement by
directors will in fact reduce the risk of an enforcement proceeding by the
SEC.  

In Wall Street, Risk Reduction and the Case for Glass
Steagall, Jay opines:

In reducing the amount of risk taking, bank regulators are
focusing on the protection of deposits not the collateral consequences to the
capital markets. Perhaps the US capital markets permitted too much risk
taking.  Certainly the financial crisis
demonstrated that independent investment banks required some additional oversight.  But the steps taken by bank regulators are
not done with the interests of the capital markets in mind. A re-separation of
investment and commercial banking (some form of Glass Steagall) would allow for
the rise of independent intermediaries that are regulated not as banks but as
brokers.  This in turn would allow some
of the lost risk at places like Morgan Stanley to remain in the capital
markets.

I encourage you to check out both posts in their entirety.