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Previously, I posted about the grumbles of discontent from the corporate bar regarding several recent Delaware Court of Chancery rulings, resulting in proposals for statutory amendments that seemed somewhat hasty and poorly thought-out.  Sujeet Indap had a piece in the Financial Times about it; before that, there was coverage in a local Delaware outlet.

Now, Law360 reports on a new memo issued by Wilson Sonsini, reminiscent of Martin Lipton’s famous Interco memo, warning that Delaware may no longer be as friendly to business.  From the memo:

In recent months, a conversation has emerged as to whether Delaware should remain the favored state of incorporation for business entities. Indeed, many of our clients have asked us whether they should remain in Delaware or choose Delaware as the state of incorporation for their new ventures. In this discussion, we provide our reflections on that question and various factors that entrepreneurs, investors, and companies should consider when weighing incorporation in Delaware against incorporation in another state. …

In the conversations that we have had with clients, businesspeople, and others in the corporate bar, we have heard the following reasons given for reconsidering incorporation in Delaware:

  • A growing

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In September, I was honored to deliver the Boden Lecture at Marquette Law School; a video of that lecture is available here.  (I also gave a vaguely similar, but not identical, talk at College of the Holy Cross earlier this month, which is available here).

Anyway, the Boden Lecture, in a more formalized form, will be published in the Marquette Law Review.  Here is the abstract:

Of Chameleons and ESG

Ever since the rise of the great corporations in the late nineteenth and early twentieth centuries, commenters have debated whether firms should be run solely to benefit investors, or whether instead they should be run to benefit society as a whole. Both sides have claimed their preferred policies are necessary to maintain a capitalist system of private enterprise distinct from state institutions. What we can learn from the current iteration of the debate—now rebranded as “environmental, social, governance” or “ESG” investing—is that efforts to disentangle corporate governance from the regulatory state are futile; governmental regulation has an inevitable role in structuring the corporate form.

The paper is available on SSRN at this link.

The Department of Labor recently released its new fiduciary rule.  I covered the initial announcement here.  These are direct links to the parts of the rulemaking package:

FINAL RULE: https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/laws/erisa/retirement-security/final-rule.pdf

PTE 2020-02: https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/laws/erisa/retirement-security/prohibited-transaction-exemption-2020-02.pdf

PTE 84-24: https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/laws/erisa/retirement-security/prohibited-transaction-exemption-84-24.pdf

Other PTE Amendments: https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/laws/erisa/retirement-security/prohibited-transaction-exemptions-75-1-77-4-80-83-83-1-and-86-128.pdf

The New York Times has also covered the release.  I contributed my view to the piece.  As I see it, if printing a financial adviser’s disclosers will run your printer out of toner, you should just find a different financial adviser.  

The simplest way to buy advice is to hire a “fee-only” independent certified financial planner who is a registered investment adviser, which means they are required to act as fiduciaries when providing investment advice about securities (stocks, mutual funds and the like). As part of that fiduciary duty, they must eliminate conflicts or disclose them.

“Your odds of conflicts go up, the longer their disclosures are,” said Benjamin Edwards, a professor at the William S. Boyd School of Law at the University of Las Vegas.

There will be much more on this to come.  The rule is great for ordinary people because it uniformly raises standards for advice about their retirement account money.  One of the major problems…

Samantha Prince, Timothy G. Azizkhan, Cassidy R. Prince, and Luke Gorman recently released an interesting paper on the effects of 401(k) vesting schedules. With defined-contribution plans, employees always get to keep the contributions withheld from their paychecks.  Whether the employee will always keep the employer contributions depends on the vesting schedule in play, if any.

And vesting schedules really matter.  The authors found that in the 909 2022 filings they reviewed at least 1.8 million employees lost out on at least a portion of their employer contributions.  After the employees forfeit employer contributions on termination, the employers get to recycle the funds within the plan, avoiding the need for additional contributions. The filings indicated that employer contributions that were recycled were over $1.5 billion. This large sum represents money failing to follow the employee out the door because employment terminated before employees “vested” under the plans.

The analysis shows a partial picture of the broader American landscape because they analyzed 909 different single employer plans.  Still, the plans analyzed covered some major employers such as Amazon and Home Depot.

There are two main types of vesting schedules–graded vesting and cliff vesting.  In graded plans, the employee gradually gets to keep…

Yup, we have another opportunity for Elon Musk to make new law.

This time, it comes in the form of an extraordinary proxy statement recommending that shareholders vote to ratify the compensation package that Chancellor McCormick invalidated in Tornetta v. Musk, and that they vote to reincorporate the company in Texas.

There are many many questions raised and I’m sure I’ll be revisiting a bunch of them over the next couple of months, but I’m zeroing in on one in particular: the pay package ratification vote.  Can they really do that?

And hoo boy did this get long, so behind a cut it goes; however, I personally find the most interesting part to be the realpolitik of it all if it ends up in a courtroom, so knowledgeable readers may want to skip to that part at the end.

More under the jump

Dear BLPB Readers:

“The American Business Law Journal invites ALSB members who are interested in serving on the Editorial Board of the ABLJ to apply for the position of Articles Editor.

The ABLJ is widely regarded, nationally and internationally, as a premier peer-reviewed journal. Serving as an Articles Editor provides an opportunity to serve the Academy of Legal Studies in Business and broader academic discipline at the highest levels of service. 

The incoming Articles Editor will begin to serve on the Board in August 2024. Board members commit to serve for three years: two years as Articles Editor and one year as Senior Articles Editor. After that, Articles Editors have the option of continuing to serve two more years—one as Managing Editor and another as Editor-in-Chief. 

Articles Editors supervise the review of articles that have been submitted to the ABLJ to determine which manuscripts to recommend for publication. If a manuscript is accepted, the Articles Editor is responsible for working with the author to oversee changes in both style and substance. If a manuscript is believed to be publishable but in need of further work, the Articles Editor outlines specific revisions and further lines of research that the author should pursue. The Articles Editor’s recommendations for works-in-process are perhaps the most important and creative aspect of the job…

I’ve frequently posted about omissions liability under the federal securities laws; you can read many of those posts, in reverse chronological order, here, here, and here.  But, here’s the CliffsNotes version of where we are now, after the Supreme Court’s decision today in Macquarie Infrastructure Corp. v. Moab Partners, L. P..

 

Once upon a time, there was a statute, Section 10(b) of the Exchange Act. That statute made it unlawful:

 

To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

The Commission did, in fact, adopt those rules and regulations, in the form of Rule 10b-5, which made it unlawful:

 

(a) To employ any device, scheme, or artifice to defraud,

(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light

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Just posting the obligatory plug of a couple of new things.  First up, I reviewed Stephen Bainbridge’s book, The Profit Motive: Defending Shareholder Value Maximization for the Harvard Law Review.  Here is the abstract:

Professor Stephen Bainbridge’s new book, The Profit Motive: Defending Shareholder Value Maximization, uses the Business Roundtable’s 2019 statement of corporate purpose as a jumping off point to offer a spirited defense of shareholder wealth maximization as the ultimate end of corporate governance. Beginning with an analysis of classroom standards like Dodge v. Ford Motor Co., and continuing through the modern era, Bainbridge argues both that shareholder value maximization is the legal obligation of corporate boards, and that it should in fact be so, partly because of wealth maximization’s prosocial tendencies, but also because of the lack of a viable alternative. Drawing on his decades of work as one of America’s most influential corporate governance theorists, Bainbridge offers up sharp critiques of the kind of enlightened managerialism reflected in the Business Roundtable’s statement, and advocated by academics like Professor Lynn Stout and practitioners like Martin Lipton. Along the way, he also has harsh words for trendy alternatives such as “environmental, social, and governance” (ESG) investing

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Andrew Jennings recently featured Nicole Iannarone and her work on the Business Scholarship Podcast.  You can access the episode here.  It focuses on a paper on securities arbitration and some of her recent work.  I’d like to direct your attention to the last five minutes or so.  It discusses being appointed as an arbitrator.  

If you’re a business law professor, you’re probably pretty well qualified to serve as arbitrator.  It might also give you insight into what happens in these kinds of disputes.  Because I’m involved with a securities arbitration bar association, I’m deemed to be a non-public arbitrator so I don’t get selected often.

But if you’re fair-minded and not in a major city, there is a real need for more competent arbitrators.  The paperwork and training doesn’t take all that long, and it’s pretty interesting if you get selected.

It’s the moment we’ve all been waiting for and – the Delaware Supreme Court holds that all conflicted controller transactions require MFW protections to win business judgment review.

It also appears that the special committee must be composed completely of independent directors – none of this, oh, well, one turned out to be conflicted but it didn’t matter much business, which to me actually tightens the standard that I kind of assumed was being employed, and was employed in the Chancery decision in Match itself.

Also, I have previously remarked on the disjunction between requiring MFW for conflicted transactions, but only board independence for considering litigation demands against controlling shareholders.  In my paper, After Corwin: Down the Controlling Shareholder Rabbit Hole, I said:

litigation demands are, in a real sense, different from ordinary conflict transactions. If directors are too conflicted to consider the merits of a transaction, the court evaluates its fairness. By contrast, if directors are too conflicted to consider the merits of bringing litigation, shareholders themselves are permitted to assume control of corporate machinery to bring the action in their stead. For that reason, demand excusal may legitimately be viewed as its own category of problem.

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