Daniel Summerfield and I recently presented a paper to the Shareholder Forum Program on Reconsidering “Say on Pay” Proposals, held recently at the Columbia School of Journalism. We address arguments put forth by opponents of shareholder “Say on Pay”. The paper cites benefits produced by Say on Pay in Britain and analyzes points where debate in the United States has been framed in ways that obscure many Say on Pay benefits. Points include:

• Recognition that success of Say on Pay in other markets cannot be evaluated over a short time frame and must acknowledge the ongoing cross-border effect of executive compensation practices in the United States;

• While Say on Pay gives shareholders more influence, its most important effect is empowerment of directors;

• Say on Pay fosters improved communication between shareholders and boards, creating opportunities for both to increase their understanding of market sentiment and enhance their respective roles in corporate governance;

• Advisory votes on compensation practices would allow shareholders to send a message to boards without throwing qualified directors off the board at companies where a majority vote standard has been adopted for director elections;

• Say on Pay encourages boards to focus greater attention on succession planning, which has been a dangerously low priority for many boards;

• Both excessive executive compensation and pay without performance present risks to shareholders that Say on Pay could legitimately address.

The paper is available here.

This post has been prepared by my partner John H. Sturc.

The SEC’s Division of Enforcement recently issued its first-ever manual. Intended as a reference for Enforcement Division staff, the Manual provides important insight into SEC decision-making and processes on such key matters as evaluating possible investigations, opening and closing matters, issuing Wells letters, communicating with senior SEC officials, responding to document subpoenas, “witness assurance” letters, contacting current and former employees, and respecting the attorney-client privilege during an investigation. It will be an essential guide for anyone with a matter before the Division of Enforcement.

The Manual memorializes in one place staff policies that have developed over decades but which were applied principally on the basis of oral tradition or internal, unpublished memoranda. A few highlights of the Manual follow. The full text is available on the SEC website here.

Purpose and Scope

The Enforcement Manual is designed as a reference for Division of Enforcement staff. The Manual states that it is “not intended to, does not, and may not be relied upon to create any rights, substantive or procedural, enforceable at law by any party in any matter civil or criminal.” Nevertheless, the Manual serves two very useful purposes. First, it informs persons requested to provide information to the SEC staff of the staff’s expectations. Second, it also provides boundaries that, for the first time, publicly define normative behavior for the SEC staff itself and that potential reviewing courts can use to determine whether agency action is appropriate, whether under an “arbitrary and capricious” or other standard of legal review.

…continue reading: SEC Adopts Enforcement Manual

(Editor’s Note: The NACD, in its report, acknowledges the extraordinary and pro bono efforts of Ira Millstein and Holly Gregory and their colleagues at Weil, Gotshal & Manges LLP for their assistance with preparation of the principles.)

The National Association of Corporate Directors, with the support of the Business Roundtable, recently released Key Agreed Principles for Strengthening Corporate Governance. The Principles identify the core areas that boards, management and shareholders agree should be the basis for good corporate governance and cover topics including independent board leadership, protecting against entrenchment of the board, shareholder participation in corporate decision making, and board communication with shareholders. In recognition of the legitimate concerns that exist about the rigid and prescriptive use of best practice recommendations by some proponents, the Principles are intended to reflect a distillation and articulation of fundamental principles-based aspects of governance on which there appears to be broad consensus. They are also intended to stimulate informed debate about issues on which consensus does not yet exist.

The International Corporate Governance Network, a global network of institutional investors, has welcomed the Principles, emphasizing that “[t]his is a good start which we believe should encourage further discussion on how to improve practice in corporate governance and develop much better understanding between companies and the shareholders who own them. The ICGN believes this is a constructive way towards long term value creation, which has become all the more important in the light of the current economic crisis.”

The principles are available here. A comparison of Significant Views on Corporate Governance Best Practice, which is Appendix A to the report, is available here. A comparison of Sarbanes Oxley, SEC and Listing Rule provisions related to the composition and functioning of the board of directors of a publicly traded company, Appendix B to the report, is available here.

(Editor’s Note: This post comes from Eitan Goldman at Indiana University Bloomington, Jörg Rocholl at ESMT European School of Management and Technology in Berlin, and Jongil So at the University of North Carolina at Chapel Hill.)

In our paper “Do Politically Connected Boards Affect Firm Value?” which is forthcoming in the Review of Financial Studies, we explore how pervasive is the impact of political connections on the value of publicly traded U.S. companies. To address this question, the paper focuses on analyzing the value impact of political connections of major U.S. companies, including all companies in the S&P500. Testing for whether political connections impact value requires addressing two basic challenges. The first challenge is to identify and define an exogenous measure of political connections. Given a definition of political connections, the second challenge is to find a setting that would allow one to test whether they do indeed affect company value.

To address the first challenge, the paper employs a unique definition of a company’s political connections based on new hand-collected data, detailing the former political positions held by each of the board members of all companies that are in the S&P500 during the years 1996 and 2000. Information about the political background of board members is then used to sort companies into those that are connected to the Democrats and those that are connected to the Republicans. To address the second challenge, the paper looks at two different events. The first is the 2000 Presidential Election. The second is the announcement of the board nomination of all of the directors that are identified as having a political connection. The hypothesis is that if political connections matter then: 1) companies with political connections to the Republican Party will increase in value upon the Republican win while companies connected to the Democratic Party will suffer a drop in value; and 2) the nomination of a politically connected director to the board will result in an increase in firm value due to the anticipation of future political benefits.

We find that a portfolio of S&P500 companies classified as having a Republican board significantly outperforms in the post-election period a portfolio of S&P500 companies classified as having a Democrat board. We also find that, considered separately, the Republican portfolio exhibits a positive and significant cumulative abnormal return (CAR) following the election. Conversely, the Democrat portfolio exhibits a negative CAR following the election. In addition, we find that a company experiences a positive and statistically significant abnormal stock return following the announcement of a board nomination of a politically connected individual. The positive announcement effect holds true both for Republican and Democrat connected directors. In sum, these results indicate the following two points: First, a company’s value goes up in anticipation of future benefits following the nomination of politically connected individuals. Second, when the director’s political party gains control of the presidency, the value generated by her increases while the value generated by a director connected to the opposing party decreases.

The full paper is available for download here.

In “A Personal FAQ on the Financial Crisis of 2008“, I muse about the magnitude of the mortgage losses, some of the problems that caused the current financial mess, and some potential remedies.

First, the financial crisis is not caused just by bad mortgages, although the crisis started with them. Reasonable estimes of the potential losses due to bad mortgages are on the magnitude of perhaps “only” about $300 billion. By now, the financial crisis has moved much beyond the subprime and alt-A mortgages. Moreover, even economists often forget that value is unique only in a perfect market. If the market for assets is not liquid (as is the case now), their values are a range, not a point. Thus, lamenting over the low values of bad bank assets right now is misleading: when the market for mortgage loans will return to normal liquidity, these assets will be worth more than a firesale right now would bring.

Second, there are multiple layers of causality of the crisis. Most economists have focused on shallow and middle layers, such as the fact that banks are not lending, that markets are illiquid and values are tough to come by, or (deeper) that real-estate prices have fallen and mortgages are defaulting. They have made many good suggestions on how to deal with these problems, especially when it comes to schemes to recapitalize banks and renegotiate loans with homeowners.

However, there are much deeper causes, and they need to be fixed after the immediate crisis is over. In order of importance:

Governance: Punishing bank shareholders, now or in the future, will not impose a market discipline that will prevent similar crises in the future. The fact is that shareholders have no real oversight over management, including their risk-taking activities. The Chairmen of the Boards did not see it in their interests to learn how much risks CEOs were really taking on, and firing CEOs that took on too much. After all, the CEOs were themselves these Chairman. The main culprits of the current crises will all walk away very rich, even though it is the shareholders that will ultimately be the losers.

Sidenote: It also makes no sense to limit the executive compensation of incoming CEOs. It punishes the wrong party. It is not future CEOs and bankers who have caused the crisis, but past ones. For discipline to be effective, it must punish those that are responsible for creating a mess, not those who are put in charge for cleaning it up.

Tax Code: Our tax code continues to encourage levered ownership over equity ownership.

Bankruptcy code: Our bankruptcy code is not equipped to deal with systemic financial institution failure. As a result, financial liquidity crises become self-fulfilling prophesies.

Rating agencies and mortgage qualification: Like banks, these are rife with agency conflicts. The agencies made bundles of derivative securities appear safer than the underlying mortgages—and earned more in fees by doing so.

Related causes, such as mortgage buyer stupidity, are not easy to fix. Intelligent buyers of mortgage securities could have understood the conflicts of the rating industry. (This does not absolve the rating agencies.)

Third, it is naive to argue for or against regulation. Zero or infinite regulations are inferior to an intermediate amount of regulation. We need good, efficient, and effective regulation—and not too much and not too little. We know from experience that good government regulation is not an easy thing to come by. On the one hand, over-hasty regulation right now may only lead to more bad choices, as it did in the case of SOX. On the other hand, waiting too long may allow the lobbyists in Washington to torpedo good and meaningful governance reforms.

In my judgment, we should execute two corporate governance reforms:

[1] We should establish a “Corporate Governance Standards Board” (similar to FASB) in charge of “Generally Acceptable Corporate Governance Standards” (similar to GAAP). This board should be endorsed by the SEC, with additional safe-harbor provisions for firms following these standards and fewer protections for CEOs not following these standards.

[2] We should appoint a (legal) economist as head of the SEC, rather than a politician or pure lawyer. The SEC focus needs to tilt away from its traditional focus on enforcement and pure rule-based thinking and more towards effective economic regulation.

Clearly, reforms of the tax and bankruptcy codes are similarly important. However, I am less optimistic that our political system can manage these.

(Editor’s Note: This post is based on a client memorandum by Adam Emmerich, Mark Gordon, Sabastian V. Niles, Shaun J. Mathew, and Jason M. Williams from Wachtell, Lipton, Rosen & Katz.)

With the explosion in natural resource prices and trade surpluses, the corresponding
increase in the size and investing profile of sovereign wealth funds (SWFs), and the unprecedented stress on the global financial system, SWFs have faced substantial and increasing political and popular suspicion and pressure from the international community to address concerns that their investment decisions may be motivated by political, rather than economic, considerations. (See our December 2007 and June 2008 memos.) In a much-anticipated response, on October 11, a group of 26 nations with SWFs (the “International Working Group”) unveiled a set of 24 non-binding best practices, known as the “Santiago Principles,” designed to safeguard the operational independence of SWFs from political influences, promote greater transparency and accountability, and enhance internal investment and management frameworks, thereby encouraging continued political and popular acceptance of SWF investment in the developed world.

Intended to demonstrate that SWFs are soundly established and that investment decisions will be made on an economic and financial basis, the Santiago Principles address three broad areas of concern regarding SWFs: (i) their legal structure and relationship with the state, policy and investment objectives, and degree of coordination with their sovereign’s macroeconomic policies; (ii) their institutional structure and governance mechanisms; and (iii) their investment and risk management framework. While much will turn on how SWFs actually implement these aspirational guidelines (and it is worth noting that all of the principles are well caveated and subject to home country laws, regulations, requirements and obligations), the Santiago Principles may help reduce political influence in SWF investing and encourage the flow of sovereign wealth across borders.

Notably, the Santiago Principles provide for public disclosure of an SWF’s legal relationship with state bodies, general investment policies and goals, details of funding, withdrawal and spending arrangements, and audited financial information compliant with international or national auditing standards. In addition, the guidelines call for public disclosure of relevant financial information to demonstrate the SWF’s economic and financial orientation. Preferred governance frameworks would establish clear divisions of responsibilities to facilitate the operational independence of the SWF, and governing bodies would be appointed in accordance with defined procedures and with adequate authority to function in an independent manner. Disclosure regarding the SWF’s approach to exercising ownership and voting rights is provided for as is an explicit prohibition on seeking or taking advantage of privileged information or inappropriate influence by the broader government in competing with private entities. The Santiago Principles also make explicit that SWFs will comply with applicable recipient country regulatory and disclosure requirements. Of course, the capacity of the Santiago Principles to allay concerns about the transparency of SWF operations and objectives and their investment motivations will ultimately depend on the level and robustness of each SWF’s compliance with the letter and spirit of these voluntary guidelines.

…continue reading: Sovereign Wealth Funds Adopt Voluntary Best Practices

(Editor’s Note: This post comes from Ryan Bubb of Harvard University.)

This week in the Law, Economics, and Organization Seminar at Harvard Law School I presented my paper Consumer Biases and Firm Ownership (joint with Alex Kaufman). In the paper we examine the role of firm ownership in mitigating incentives of firms to exploit consumer biases. Recent work has explored the implications of behavioral biases among consumers and has documented that profit-maximizing firms exploit consumer biases in the contracts they offer consumers. This behavior can result in substantial social costs as the resulting contracts distort decision-making from the social optimum.

In the paper we show how ownership of the firm can be used as a commitment device to avoid using contracts that exploit consumer biases. In particular, if customers of the firm own the firm, as in a consumer cooperative, or if the firm has no owners, as in a nonprofit, then firm managers have less incentive to offer contracts that exploit consumer biases. We thus identify a “governance strategy” of shaping the incentives of firm management through assignment of ownership of the firm, rather than a regulatory strategy of dictating contractual terms or processes, as a way to reduce the social costs that result from consumer biases.

As a paradigmatic example, consider a bank that offers credit card services to consumers. Because of the complexity of the contractual relationship between banks and their customers, consumers have trouble understanding all of the charges, penalties, and other payments they are obliged to make to the bank under their credit card contract in various contingencies, such as the penalty interest rate that applies if they fail to make a minimum payment on time. Furthermore, many consumers have self-control problems that lead them to trigger commonly charged fees and penalties. Consequently, investor-owned for-profit banks have a strong incentive to charge high fees and penalties. The use of penalties in credit card contracts can persist even in competitive markets, since banks simply compete on the salient, easily observable and understood features of accounts (e.g., the introductory interest rate and rewards programs), and then cover their costs through penalty income.

…continue reading: Consumer Biases and Firm Ownership

Several noteworthy developments recently occurred regarding director independence. First, on August 8, 2008, the Securities and Exchange Commission (the SEC) approved amendments to the definition of “independent director” under the NASDAQ Stock Market Rules, which have gone into effect. Second, on August 12, 2008, the New York Stock Exchange (the NYSE) filed rule changes with the SEC to amend two of its director independence tests; these rules do not require SEC approval and apply beginning September 11, 2008. Finally, on August 5, 2008, the SEC announced the settlement of an enforcement action involving a former director who failed to disclose a business relationship with the auditor of three companies on whose boards he served, thereby causing the companies to violate the federal securities laws.

NASDAQ Amendments

The SEC approved an amendment to NASDAQ Rule 4200(a)(15), which sets forth several tests to determine whether a director of a listed company is independent.[1] Prior to the amendment, Rule 4200(a)(15)(B) provided that a director would not be considered independent if the director or an immediate family member accepted any compensation from the listed company in excess of $100,000 during any period of 12 consecutive months within the three years preceding the determination of independence (excluding compensation for board or board committee service, compensation paid to an immediate family member as a non-executive employee, benefits paid under a tax-qualified retirement plan and non-discretionary compensation). The amendment increased the dollar threshold from $100,000 to $120,000. This amendment was adopted in response to the SEC’s 2006 amendment to Item 404 of Regulation S-K, which increased to $120,000 the dollar threshold applicable to disclosure of related party transactions. The NASDAQ rule change has gone into effect.

New York Stock Exchange Amendments

The NYSE amendments modify the bright line independence tests set forth in Section 303A.02(b) of the NYSE Listed Company Manual in two respects.[2] The first amendment modifies Section 303A.02(b)(ii) to increase from $100,000 to $120,000 the amount of direct compensation (other than director or committee fees and pension or other forms of deferred compensation for prior service), that a director or members of a director’s immediate family may receive from a listed company in a 12-month period within the prior three years and still be considered an independent director. As with the similar NASDAQ amendment, the NYSE’s amendment was adopted to align the NYSE rules with the disclosure requirements set forth in Item 404 of Regulation S-K.

…continue reading: Recent Developments Regarding Director Independence

(Editor’s Note: This post comes to us from Christian Leuz of the University of Chicago, NBER and ECGI, Karl V. Lins of the University of Utah, and Francis E. Warnock of the University of Virginia and NBER.)

In our forthcoming Review of Financial Studies paper entitled Do Foreigners Invest Less in Poorly Governed Firms? we investigate the factors that make investors shy away from providing capital to foreign firms. Poor corporate governance is one factor that draws considerable attention from outside investors and regulators. Institutional investors frequently claim that they avoid foreign firms that are poorly governed. In addition, regulators are concerned that weak governance and low transparency hinder foreign investment and impede financial development. At the same time, outside investors who fear governance problems and expropriation by insiders can reduce the price they are willing to pay for a firm’s shares. As a result of price protection, even poorly governed firms should offer an adequate return, raising the questions of whether and why governance concerns manifest themselves in fewer holdings by foreign outside investors.

Our sample consists of 4,409 firms from 29 countries for which we have comprehensive data on foreign holdings by U.S. investors in 1997. As there can be a host of reasons why foreign investors avoid or seek stocks from a particular country, such as the degree of market integration, benefits from diversification, transaction costs, restrictions on capital flows, proximity, and language, we control for country fixed effects in our tests. Thus, we analyze which stocks U.S. investors choose within a given country. We find strong evidence that U.S. investors hold significantly fewer shares in firms with high levels of managerial and family control when these firms are domiciled in countries with weaker disclosure requirements, securities regulations, and outside shareholder rights, or in code-law countries. In contrast, firms with substantial managerial and family control do not experience less foreign investment when they reside in countries with extensive disclosure requirements and strong investor protection. This effect is particularly pronounced when earnings are opaque, indicating that information asymmetry and monitoring costs faced by foreign investors likely drive the results.

Our results across countries with different institutions are consistent with the interpretation that, for foreign investors, information problems for firms with potentially problematic governance structures play an important role. Stringent disclosure requirements make it less costly to become informed about potential governance problems. They level the playing field among investors making it less likely that locals have an information advantage. Strongly enforced minority shareholder protection reduces the consumption of private control benefits and thus decreases the importance of information regarding these private benefits. In contrast, low disclosure requirements and weak investor protection exacerbate information problems and their consequences.

The full paper is available for download here.

(Editor’s Note: This post is based on a memorandum by Michael Kaplan and Janice Brunner of Davis Polk & Wardwell.)

FINRA has issued and is requesting comment on Proposed Research Registration and Conflict of Interest Rules. The proposed rules would replace the existing NYSE and NASD Rules governing research analyst conflicts of interest and would also supersede the proposed changes to those rules published by the SEC in January 2007.

Significantly, the proposed rules would shorten, and in some cases eliminate, the “quiet period” during which a member firm participating in an offering cannot publish or distribute research reports about the issuer, and the firm’s research analyst cannot make public appearances relating to the issuer.

Under current rules, the quiet period is:

• 40 days following the date of the initial public offering for lead underwriters and 25 days after the offering for other underwriters or dealers;

• 10 days following a follow-on offering; and

• 15 days before and after expiration, waiver or termination of a lock-up agreement.

Under the proposed rules, the quiet period would be limited to a single 10-day period following an IPO. Follow-on offerings and lock-up expirations, waivers and terminations would no longer trigger a quiet period. Note that the 25-day prospectus delivery period for an IPO may lead to all underwriters continuing to maintain a 25-day quiet period.

FINRA is requesting comment on the proposed rules by November 14, 2008. If, after receiving comment, FINRA determines to proceed with the proposed rules, it would need to file them with the SEC for approval. The SEC would publish the proposed rules in the Federal Register and subject them to an additional public comment period.

The proposed rules are available here.

I have recently completed two working papers that address issues related to the adoption of International Financial Reporting Standards (IFRS).

In the first paper, entitled Market Reaction to the Adoption of IFRS in Europe, my co-authors and I examine the European stock market reaction to sixteen events associated with the adoption of International Financial Reporting Standards (IFRS) in Europe. European IFRS adoption represented a major milestone towards financial reporting convergence yet spurred controversy reaching the highest levels of government. We find a more positive stock market reaction for firms with lower quality pre-adoption information, which is more pronounced in banks, and with higher pre-adoption information asymmetry, consistent with investors expecting net information quality benefits from IFRS adoption. We also find that the reaction is less positive for firms domiciled in code law countries, consistent with investors having concerns over enforcement of IFRS in those countries. Finally, we find a positive reaction to IFRS adoption events for firms with high quality pre-adoption information, consistent with investors expecting net convergence benefits from IFRS adoption. Overall, the findings suggest that investors in European firms perceived net benefits associated with IFRS adoption. This paper is available for download here.

In the second paper, entitled Consequences of Voluntary and Mandatory Fair Value Accounting: Evidence Surrounding IFRS Adoption in the EU Real Estate Industry, my co-authors and I examine the causes and consequences of European real estate firms’ decisions to provide investment property fair values prior to the required disclosure of this information under International Financial Reporting Standards (IFRS). We find evidence that investor demand for fair value information—reflected in more dispersed ownership—and a firm’s commitment to transparency increase the likelihood of providing fair values prior to their required provision under International Accounting Standard 40 – Investment Property. We also find that firms not providing these fair values face higher information asymmetry. However, we fail to find that the relatively higher information asymmetry was reduced following mandatory adoption of IFRS. Rather, we find that differences in information asymmetry largely remain. Taken together, this evidence suggests that common adoption of fair value accounting due to the mandatory adoption of IFRS does not necessarily level the informational playing field. This paper is available for download here.

(Editor’s Note: This post comes to us from Lauren Cohen and Christopher Malloy of the Harvard Business School, and Andrea Frazzini of the Graduate School of Business at the University of Chicago)

In our recent working paper entitled Hiring Cheerleaders: Board Appointments Of “Independent” Directors, we test the hypothesis that boards appoint independent directors who, while technically independent according to regulatory definitions, nonetheless may be overly sympathetic to management. Rather than adopting the typical approach in the literature, which seeks to relate measures of board independence (e.g., increases in the number of independent directors on a board) to future performance of the firm, we investigate a subset of independent directors for whom we have detailed, micro-level data on their views regarding the firm prior to being appointed to the board. We use these track records to compare the roles of optimism (i.e., hiring a cheerleader for management) versus skill (i.e., hiring an objective and able observer) in the board appointment process.

The agents we examine are former sell-side analysts who end up serving on the board of companies they previously covered. Unlike former CEOs or other senior executives who sometimes end up on corporate boards, for whom past performance attribution is complicated by the fact that firm performance is difficult to disentangle from individual performance, sell-side analysts can be easily assessed. We can explicitly compute measures of skill/ability and optimism by examining the composition and stock return performance of analysts’ past buy/sell recommendations, coupled with the accuracy of their earnings forecasts. In doing so we find evidence that boards appoint overly optimistic analysts who exhibit little in the way of skill in terms of evaluating the firm itself, other firms within the firm’s industry, or other firms in general. In particular, board-appointed analysts issue significantly more positive recommendations on companies for whom they end up on the board of directors; both relative to the other stocks they cover, and relative to other analysts covering these stocks. The magnitude of this result is large: 80.4% of these recommendations are strong-buy or buy recommendations, compared to 56.9% for all other analyst recommendations. By contrast, we find little evidence that board-appointed analysts’ recommendations are more profitable, or that their earnings forecasts are more accurate. Finally, when predicting the probability of a board appointment, optimism on the firm is a strong predictor of appointment while accuracy is not. Taken together, these results challenge the conventional view that appointing independent directors necessarily adds objectivity to the board of a firm.

The full paper is available for download here.

We call your attention to a special M&A event, “M&A Perspectives - The Failure of Private Equity,” which will be accessible at no cost by web seminar on October 30, 2008 in Wilmington, DE, from 3:00 p.m. - 4:30 p.m. Eastern Time.

With the Lyondell Chemical case on appeal, and with the Huntsman/Hexion merger still generating litigation activity, M&A lawyers are looking forward to the presentation next Thursday afternoon by Professor Steven M. Davidoff (Click here for more information and to register). His principal topic (The Failure of Private Equity), on which he writes in a forthcoming article, is expected to focus on highlights from Delaware court decisions and proceedings in the past, tumultuous year, particularly as they reflect ambiguous contracting that has often proven ineffective to address the now-evident potential for market reversals. Additionally, Vice Chancellor Leo E. Strine, Jr. will join Professor Davidoff as commentator.

Writing as The Deal Professor, Davidoff is a commentator for the New York Times DealBook on the legal aspects of mergers, private equity and corporate governance. A former corporate attorney at Shearman & Sterling, he is a professor at the University of Connecticut School of Law. His columns are available at The Deal Professor blog.

This event is sponsored by the Widener University School of Law, Corporation Service Company, and The Delaware Counsel Group, LLP.

Click here for more information and to register for online or in-person attendance. Email Contactus@cscinfo.com if you have any questions.

(Editor’s Note: This post is based on a memorandum by Paul Vizcarrondo and Michael Winograd of Wachtell, Lipton, Rosen & Katz.)

The Third Circuit recently upheld the validity of two clarifying amendments adopted by the SEC in 2005. The amendments clarified two important exemptions from shortswing-profit liability under Section 16(b) of the Securities Exchange Act: (1) Rule 16b-3, which exempts certain transactions between an issuer and its officers or directors; and (2) Rule 16b-7, which exempts certain mergers, reclassifications, and consolidations. In so doing, the Court expressly overruled a prior decision of the Third Circuit that imposed novel restrictions on the applicability of the two exemptions.

In Levy v. Sterling Holding Co., 314 F.3d 106 (3d Cir. 2002) (“Levy I”), the Third Circuit held that grants, awards, and other issuances to officers or directors must be compensation-related to be eligible for exemption under Rule 16b-3(d). The Third Circuit also suggested that Rule 16b-7 would not exempt reclassifications that involve classes of securities with different risk-return characteristics (such as an exchange of non-convertible preferred stock for common stock) or that increase shareholders’ percentage of common-stock ownership. (See our memo dated March 10, 2003.)

In response to the Third Circuit’s holding in Levy I, the SEC adopted clarifying amendments to Rules 16b-3 and 16b-7. The amendment to Rule 16b-3 made clear that the exemption would apply regardless of whether a compensation-related purpose could be demonstrated. The amendment to Rule 16b-7 made clear that the only condition for exempting a reclassification is that the company whose securities are acquired or disposed of owns 85% or more of the equity or assets of all companies that are parties to the transaction. Thus, where a single issuer reclassifies one class of its securities into another, there is effectively 100% “crossownership” and the exemption is available. (See our memo dated August 8, 2005.)

…continue reading: Third Circuit Upholds Validity of SEC: Amendments Clarifying Exemptions from Section 16 Liability

It looks like the folks at AIG have taken “tone at the top” to heart. Unfortunately, their tone isn’t of the type that is good news for taxpayers, who now own 80% of AIG. As this Washington Post article describes, two former AIG CEOs were grilled during a House Committee on Oversight and Government Reform hearing this week (one of whom received a $5 million performance bonus just before he left - in addition to a $15 million golden parachute - and another AIG executive was fired still receives $1 million per month for consulting services). The former CEOs expressed no remorse for their actions that drove AIG into the arms of the government and didn’t acknowledge making any mistakes. Rather, they blamed the accounting. The House committee members were visibly disturbed by the sheer audacity of these so-called corporate leaders. Given the long list of troubling practices at AIG described in this front-page WSJ article, we may well see these two in pinstripes someday.

The topper is the fact that AIG is now getting an additional $37.8 billion loan from the taxpayers, which is lumped on top of the $80 billion load the government provided last month. This came a day after it was revealed that the company held a junket for sales reps at a resort, spending unbelievable amounts of the taxpayer’s money. How exactly does one spend $23,000 on spa treatments or $5,000 at the bar? The story is outrageous and listening to the radio, it’s fair to say that AIG already has become the posterchild of all that is broken in Corporate America. If this doesn’t get you mad, nothing will.

…continue reading: The Trust Has Left the Building: $23,000 on Spa Treatments

(Editor’s Note: This post comes from Dhammika Dharmapala of the University of Connecticut, and Vikramaditya Khanna of the University of Michigan Law School.)

Recently in the Law and Economics Seminar here at Harvard Law School, we presented our paper entitled Corporate Governance, Enforcement, and Firm Value: Evidence from India. This paper analyzes the connections between corporate governance, stock market development and firm value using a sequence of reforms to India’s corporate governance regime as a source of exogenous variation. Despite the widespread interest in this area of research, finding evidence that corporate governance causes changes in firm value has posed a significant challenge since most governance reforms in the US have applied to all firms, making it difficult to isolate a credible control group. For this reason, and because of the relatively limited variation in governance practices in an economy such as the US, attention has increasingly been directed to the relationship between governance and firm value outside the US, especially in emerging markets.

There were a number of reforms enacted in India that were phased in over the period 2000‐2003, and severe financial penalties for violations were subsequently introduced in 2004. The exemption of a large number of firms from the new rules and the complex criteria for their application give rise to treatment and control groups of firms with overlapping characteristics. Using a large sample of over 4000 firms from 1998‐2006, a difference‐in‐ difference approach (controlling for various relevant factors and for firm‐ specific time trends) reveals a large and statistically significant positive effect (amounting to over 10% of firm value) of the reforms in combination with the 2004 sanctions. A regression discontinuity approach focusing on the thresholds for the application of these reforms leads to similar conclusions. In addition, the estimated effect of the initial announcement of the sequence of reforms in 1999 is weaker than the effect of the 2004 sanctions, highlighting the importance of sanctions. Some channels through which the 2004 effect may have occurred are explored, but the results are preliminary because there are only two years of post‐2004 reform data. There is some evidence of improvements in accounting performance and increases in foreign institutional investment, but this is not robust across specifications. In addition, the 2004 reforms are not associated with a reduction in tunneling within business groups.

Our results, taken together, present a strong case for a causal effect of the reforms on firm value. They also underscore the importance of the enactment of severe sanctions, though it is not entirely clear whether this effect operates through formal enforcement alone or in conjunction with some additional channel.

The full paper is available for download here.

As discussed in our recent Webcast on Developments in Takeover Defenses, Latham & Watkins LLP has prepared a new model of advance notice bylaw provisions that have been updated and modernized, not only to address the issues raised in the recent decisions in JANA Master Fund, Ltd. v. CNET Networks, Inc. and Levitt Corp. v. Office Depot, but also to address significant related problems posed by activist investors’ frequent use of undisclosed derivative securities and/or “wolf pack” tactics as weapons in threatened or actual proxy contests. We have also included provisions that establish more robust and protective procedures for shareholders to call special meetings or act by written consent. The text of our model advance notice bylaw provisions is now available on our Web site here.

The evolving forms of equity ownership in U.S. publicly traded companies, the recent Delaware decisions refusing to apply ambiguously drafted advance notice bylaws and recent strategies deployed by activist and other “event driven” investors, have caused many U.S. publicly traded companies to reexamine their advance notice bylaw provisions to, among other things, assess whether the required procedures and disclosures adequately address the interests of the corporation and its shareholders. In particular:

• The attributes of equity ownership in U.S. publicly traded companies has expanded dramatically due to the proliferation of derivative, swap and other transactions now available in the marketplace. For example, “total return equity swaps” allow an investor to create the economic equivalent of ownership of common stock without ever acquiring ownership of the security itself. Historically, investors have taken the position that these economic relationships do not confer beneficial ownership of the underlying equity under the federal securities laws and, for that reason, are not required to be disclosed. Conversely, investors also now have the ability to use derivatives to establish record ownership and thus the right to vote the shares without any exposure to economic ownership. This can be achieved, for example, by purchasing shares and simultaneously entering into offsetting put and call options or more simply by “borrowing” shares just prior to the record date for a shareholders’ meeting and returning the borrowed shares shortly thereafter, a strategy often called “record date capture.”

…continue reading: Developments in Takeover Defenses

(Editor’s Note: This post comes from Gustavo Manso at the MIT Sloan School of Management)

I recently presented a pair of papers on the topic of “Incentives for Innovation” at the Finance Department Seminar at Harvard Business School.

In the first paper, entitled “Motivating Innovation”, I model the process of innovation using a class of Bayesian decision models known as bandit problems. Innovation in this setting is the discovery, through experimentation and learning, of actions that are superior to previously known actions. I focus on the tension between the exploration of new untested actions and the exploitation of well known actions. Exploration of new untested actions reveals information about potentially superior actions, but is also likely to waste time with inferior actions. Exploitation of well known actions ensures reasonable payoffs, but may prevent the discovery of superior actions.

I find that the optimal contracts that motivate exploitation and exploration are fundamentally different. Since exploitation is just the repetition of well known actions, the optimal contract that motivates exploitation is similar to standard pay-for-performance contracts used to motivate repeated effort. On the other hand, since with exploration the agent is likely to waste time with inferior actions, the optimal contract that motivates exploration exhibits substantial tolerance (or even reward) for early failures. Moreover, since exploration reveals information that is useful for future decisions, the optimal contract that motivates exploration relies on long-term incentives. Under the optimal exploration contract, an agent that obtains an early failure followed by a success earns more than an agent that obtains an early success followed by a failure. Even an agent that fails twice may earn more than an agent that obtains a success followed by a failure. The institution of tenure, debtor-friendly bankruptcy laws, and golden parachutes are examples of schemes that protect the agent when failure occurs and thereby encourage exploration.

In the second paper, entitled “Is Pay for Performance Detrimental to Innovation“, which was co-written with Florian Ederer, I outline the results of a controlled laboratory experiment which provides evidence that the combination of tolerance for early failure and reward for long-term success is effective in motivating innovation.

In our experiment, subjects control the operations of a lemonade stand for 20 periods. In each period of the experiment, subjects make decisions on how to run the lemonade stand and observe the profits produced by their inputs. Subjects must choose between fine-tuning the product choice decisions given to them by the previous manager (“exploitation”) or choosing a different location and radically altering the product mix to discover a better strategy (“exploration”). To study the impact of different incentive schemes on productivity and innovation, we consider three different treatment groups. Subjects in the first group receive a fixed-wage in each period of the experiment. Subjects in the second treatment group are given a standard pay-for-performance (or profit sharing) contract. Subjects in the third treatment group are allocated a contract that is tailored to motivate exploration. Their compensation is 50% of the profits produced during the last 10 periods of the experiment.

…continue reading: Incentives for Innovation

(Editor’s Note: This post comes to us from William Russell-Smith of AQ Research.)

One of the features of the current financial crisis is the comparative lack of comment from the bulk of the market participants. Certain high profile investors such as George Soros and Warren Buffett have been widely quoted, but might not be regarded as typical industry participants. We also have the recent testimony by some of the major figures of failed institutions given to the Congressional Committee on Oversight and Government Reform. But a more broadly based view of what the financial services is thinking seems to be lacking thus far. This might be due to the hectic times that the markets have recently witnessed, or else a desire to keep heads down at a time when the industry is under fire.

In response to this, the recently formed finance professionals’ think tank, Network for Sustainable Financial Markets, in partnership with AQ Research, has launched a global survey of investment sector professionals. The goal is to ensure the voice of ordinary investment professionals is heard in the debate about the future of financial markets, not just about today’s debate but also about the underlying dynamics which affect both the crisis response but also the longer-term rehabilitation.

The Network includes some of the world’s most high-profile sustainable investment supporters, including corporate governance expert Dr Robert Eccles from the Harvard Business School, Professor Keith Ambachstheer, Director of Rotman International Centre for Pension Management, University of Toronto and world renowned expert on pensions and Professor Frank Partnoy, one of the world’s leading experts on the complexities of modern finance and financial market regulation.

We believe that an evidence based approach is important. It is clear that we are already entering a period of intense and fundamental debate about the future of the financial services industry, how it is regulated and its role in economic life. Concerned industry participants should be want their voice to be heard, particularly as they will be most affected by the future restrictions.

The survey asks investment professionals for their opinion on fundamental questions on the causes, cures and consequences of the credit crisis.

The survey, which is completed anonymously, can be found here. It will close on 31 October 2008. We estimate that it will take approximately 15 minutes to complete. The results will be extensively reported in financial media and will also be available to participants.

The organizers invite you to complete the survey and forward it to contacts you may have who are investment professionals.

I have recently written a memo entitled “Managing In Today’s Troubled Environment: A Primer For Directors and Senior Managements,” which highlights for directors and senior management key matters they should consider as they address in the current troubled environment their role as overseers of the business and affairs of the public companies they serve. In it, I discuss how fiduciary duties should be applied in current conditions, focusing particularly on risk oversight, and outline a number of specific actions directors and senior management should consider today. The memo also highlights, also against the backdrop of the current market pressures, the existence of significant disclosure issues and the appropriate use of experts by directors and senior management.

The memo is available here.

(Editor’s Note: This post comes from Henock Louis, Guojin Gong, and Amy X. Sun at the Smeal College of Business at Pennsylvania State University)

In a forthcoming Journal of Accounting and Economics paper entitled Earnings management, lawsuits, and stock-for-stock acquirers’ market performance, we analyze whether postmerger announcement lawsuits are associated with pre-merger abnormal accruals and the potential effects of lawsuits on acquirers’ market performance. We posit that, by subjecting stock-for-stock acquirers to lawsuits, pre-merger earnings management can have an indirect effect on acquirers’ performance around and after the merger announcement, in addition to the direct effect associated with post-merger accrual reversals.

After analyzing the association between pre-merger announcement abnormal accruals and post-merger announcement lawsuits, we examine whether the market anticipates the potential lawsuits and their consequences at the merger announcement. It is well documented that the average stock-for-stock acquirer experiences significant market losses at the merger announcement. In a fully efficient market, the probability of a lawsuit should be reflected in the market reaction to the merger announcement. To examine the association between the merger announcement abnormal return and the probability of a lawsuit, we use an instrumental variable approach. In a first step, we estimate the probability that an acquirer would be sued, using ex-ante predictors of lawsuits. In a second step, we analyze the association between the merger announcement abnormal return and the probability of a lawsuit. We use the two-stage estimation process because of the potential endogeneity in the relation between lawsuits and performance.

Consistent with our conjectures, we find that pre-merger abnormal accruals are a strong determinant of post-merger lawsuits. The effect of abnormal accruals is significant even after controlling for the post-merger abnormal return, which suggests that pre-merger earnings management has a first order effect on the likelihood of a lawsuit. We also find evidence that the market anticipates the lawsuits at merger announcements. There is a significantly negative association between the market reaction to a merger announcement and the probability that a stock-for-stock acquirer is subsequently sued. Further analyses suggest, however, that the market reaction to the merger announcement only partially reflects the probability of a lawsuit. First, we find that stock-for-stock acquirers’ long-term market under performance is largely limited to litigated acquisitions. Second, and more importantly, we find a very strong negative association between the likelihood of a lawsuit and the long-term market performance over the four years after the merger announcement. Therefore, post-merger announcement long-term market performance can be predicted using lawsuit-related information that is available at the time of the merger announcement. We do not claim that lawsuits are the only cause of the post-merger announcement long term under performance. The evidence only indicates that lawsuits are a contributing factor to the under performance.

The full paper is available here.

My firm has issued a memo entitled “Financial Markets in Crisis: Overview of FDIC’s Authority With Respect to Bank Failures,” which focuses on the receivership and conservatorship authority of the Federal Deposit Insurance Corporation. It is an executive summary of a longer document available here. The memo provides a brief overview of key issues and background on the legal framework governing FDIC resolutions and the FDIC’s methods for handling receiverships. The longer summary goes into greater detail, comparing six distinctive aspects of the FDIC approach with the bankruptcy law provisions; and illustrating issues and uncertainties in the FDIC resolutions process by discussing in greater depth two examples - treatment of loan securitizations and participations, and standby letters of credit. The materials underscore the importance of credit analysis and rigor of documentation and legal risk mitigation in connection with potentially troubled financial institution counterparties.

The memo is available here and the longer summary is available here.

(Editor’s Note: This post comes to us from Davis Polk & Wardwell partners Samuel Dimon, Randall D. Guynn, Michael Kaplan, Mark Mendez, Margaret E. Tahyar, and William L. Taylor who advised the Federal Reserve Bank of New York on the plan discussed in the memo.)

In the wake of intense pressure in the global credit markets and continued turmoil in the stock markets, the US Treasury Department, in coordination with other G-7 governments, recently expanded its plan to restore confidence in the US banking system.

Wielding the extraordinary discretion recently granted to it by Congress, the US government announced a plan to inject $250 billion of capital directly into the US banking system, to guarantee the short-term debt of most US banks and thrifts and to eliminate FDIC insurance limits for noninterest bearing accounts. Under the plan, the Secretary of the Treasury, the Chairman of the FDIC and the Chairman of the Federal Reserve Board jointly announced the following:

• Treasury will use the full $250 billion it currently has available under the Troubled Asset Relief Program (”TARP”) to purchase preferred stock and warrants for common stock of the nine US bank holding companies that are systemically important and of other healthy regional and community banks;
• The FDIC will use its emergency powers to guarantee through June 30, 2012 certain senior unsecured debt issued by eligible banking institutions; and
• The FDIC will provide unlimited insurance through 2009 for non-interest bearing deposit accounts, a move primarily designed to protect the payroll and working capital accounts of small and medium-sized businesses.

This memorandum analyzes the implications of these developments and the federal government’s evolving response to the financial crisis.

The memo is available here.

(Editor’s Note: This post is based on a memorandum by Michael J.
Segal, Jeannemarie O’Brien, Adam J. Shapiro, and Jeremy L. Goldstein of Wachtell, Lipton, Rosen & Katz.)

The President recently signed into law the Emergency Economic Stabilization Act of 2008 (the “Act”), which aims to restore liquidity and stability to the financial system, to protect the value of Americans’ homes and savings and to promote economic growth. The Act includes a number of provisions relating to executive compensation, which have important implications for financial institutions selling troubled assets under the Act.

The Act subjects financial institutions that sell assets to the Treasury to restrictions on executive compensation based on the nature of the sale. In a recent Memorandum, my colleagues and I identify several items that demand immediate attention from institutions that may become subject to these restrictions:

• Severance Agreements. Financial institutions that have previously determined to enter into severance agreements with senior executive officers or individuals who may become senior executive officers should execute these agreements prior to engaging in sales of troubled assets under the Act, although it is unclear whether the prohibition on new golden parachute agreements will apply retroactively to cover arrangements entered into after enactment of the Act but prior to such sales.

…continue reading: Executive Compensation and the Emergency Stabilization Act of 2008

The Delaware Chancery Court’s decision in Hexion Specialty Chemicals, Inc. v. Huntsman Corp. represents a strong statement by the Delaware courts that they will not tolerate efforts by buyers who have changed their minds about deals, or have been pressured by their lenders to change their minds, to avoid their contractual obligations on the basis of contrived arguments. Following previous Delaware cases, the Court rejected the buyer’s claim that a material adverse effect excused its obligation to close, holding that the buyer had not met its burden of showing “the occurrence of unknown events that substantially threaten the overall earnings potential of the target in a durationally-significant manner.”

My partner William Kucera has written a memorandum discussing the court’s reasoning and offering detailed suggestions and observations for drafting MAE clauses in future deals. In particular, it discusses provisions — other than MAE clauses — on which buyers could rely as a means to avoid closing a transaction. Against the backdrop of the decision, the memo also explains the continued relevance of MAE clauses in deals and describes how threats by the buyer to invoke such a clause have played out in a number of recent transactions.

The memorandum is available here.

Recently, in the Mergers, Acquisitions, and Split-Ups course here at Harvard Law School, two preeminent M&A practitioners discussed The Merger Agreement as a Contract. Richard Climan, head of the M&A group at Cooley Godward Kronish, and Eileen Nugent, co-head of the private equity group at Skadden and a member of the advisory board of the Harvard Law School Program on Corporate Governance, went through all the components of an acquisition agreement, from the description of the deal to the deceptively labelled “boilerplate”. They stressed the role of the acquisition agreement for allocating risk between the parties, and as a roadmap for the transaction between signing and closing (and beyond). Mock negotiations between Climan and Nugent served to demonstrate what is at stake in certain key provisions. Climan and Nugent discussed the impact of recent events and court decisions with Vice Chancellor Leo Strine, Jr., who is one of the class’s teachers and who has authored many of those decisions himself on the Delaware Court of Chancery. Professor Robert Clark, Strine’s co-teacher and former Dean of Harvard Law School, added some perspective from the boardroom. The video of the panel is available here.

My colleagues Phillip R. Mills and Justine Lee and I have prepared the following post on the Delaware Chancery Court’s recent decision in Hexion Specialty Chemicals, Inc., v. Huntsman Corp., C.A. No. 3841-VCL (Del. Ch. Sept. 29, 2008).

The Delaware Chancery Court ruled that Hexion Specialty Chemicals, Inc. must specifically perform its covenants under its merger agreement with Huntsman Corporation, including taking all actions necessary to consummate the financing of the transaction and to satisfy antitrust regulators, but the Court stopped short of requiring Hexion, a portfolio company of Apollo Global Management, to consummate the transaction. The Court rejected Hexion’s claim that Huntsman had suffered a “Material Adverse Effect” or MAE (as discussed more fully below), and found that Hexion deliberately breached its obligations under the merger agreement and that any damages caused by such breach will not be subject to the $325 million liquidated damages cap in the contract.

While this decision is a clear victory for Huntsman and stands out from other recent instances where private equity buyers have successfully negotiated or litigated to extricate themselves from highly leveraged transactions entered into before the credit crunch, when contemplating its wider implications, the Court’s rulings must be analyzed in the context of a merger agreement that was particularly favorable to the seller. The merger agreement was negotiated in a competitive “deal jump” situation, with an industrial counterparty, after Huntsman had already entered into a signed agreement to sell itself to a third party.

…continue reading: Delaware Court Orders Hexion to Pursue Financing of Huntsman Acquisition

In our forthcoming Journal of Finance article, Mandatory Disclosure and Operational Risk: Evidence from Hedge Fund Registration, we use the SEC rule adopted on December 2, 2004 that required hedge fund managers to register as investment advisers by February 1, 2006 as an opportunity to test the potential value and materiality of operational risk and conflict of interest variables disclosed by a large number of hedge funds in February 2006. On June 23, 2006, the U.S. Court of Appeals for the District of Columbia Circuit vacated this rule change, with the result that far fewer hedge fund managers have been required to register as investment advisors. As a result, the February 2006 ADV filings by a large number of hedge fund managers present a rare opportunity to examine the fundamental question of whether such disclosure is necessary or warranted.

We find that operational risk indicators are conditionally correlated with conflict of interest variables, indicating a potential value of disclosing such conflicts to investors. Operational risk factors are also correlated with lower leverage and concentrated ownership, suggesting that the 2006 disclosure requirements may have been redundant for lenders and equity investors in hedge funds. In contrast, operational risk factors had no ex-post effect on the flow-performance relationship, suggesting that investors either lack this information or do not regard it as material. The results of our analysis provide a framework for the cost-benefit analysis of regulatory disclosure. Our findings suggest that any consideration of disclosure requirements should take into account the endogenous production of information within the industry, and the marginal benefit of required disclosure on different investment clienteles.

The full paper is available for download here.

(Editor’s Note: This post is based on a memorandum by Edward D. Herlihy and Theodore A. Levine of Wachtell, Lipton, Rosen & Katz)

Recently the SEC announced that its ban on short selling in financial company stocks would expire three (3) days after the enactment by Congress of the Troubled Asset Relief Program. It was an arbitrary decision to tie the expiration of the ban to the Congressional action and, even if it made sense when the SEC announced it, it does not make sense now for the SEC ban to be lifted at midnight on Wednesday, October 8, 2008, especially given the recent market turmoil and instability.

The worldwide credit and securities markets are experiencing a serious meltdown with significant disruptions and dislocations. A substantial number of market regulators have, in one fashion or another and for varying lengths of time, banned short selling in financial company stocks. The SEC should coordinate its efforts, including the length of the short selling ban with the major international regulators and marketplaces in order to have a consistent and coordinated approach. It makes no sense for the SEC to impose the shortest ban or to unilaterally lift it.

…continue reading: The Ban and the TARP

The SEC recently issued a statement announcing that it was extending certain temporary emergency orders and describing other actions relating to short selling rules. The following temporary orders are being extended:

• The order prohibiting short selling in public financial companies specified by the securities exchanges on which the shares of those companies are listed. This order will be extended to 11:59 p.m. ET on the third business day after enactment of the legislation currently pending in Congress to stabilize credit markets and the financial system, but in no event later than 11:59 p.m. ET on October 17, 2008.

• The order requiring that institutional money managers report to the SEC their new short sales of certain publicly traded securities. This order will be extended to 11:59 p.m. ET on October 17, 2008, but the SEC intends that the order will continue in effect after that date without interruption in the form of an interim final rule. While the SEC will seek comments on the anticipated rulemaking, the rules will remain in effect during the comment period. The October 1 statement also provides that disclosure under the emergency order will be made only to the SEC.

• The order easing restrictions on the ability of securities issuers to repurchase their securities. This order will be extended to 11:59 p.m. ET on October 17, 2008.

…continue reading: SEC Announces Extension of Emergency Short Selling Orders and Related Action

Corporation Service Company’s publishing division has released the Fall 2008 Edition of Delaware Laws Governing Business Entities, a two-volume set containing annotated Delaware business statutes and other useful research features.

The books, which are published in collaboration with legal publisher LexisNexis, are updated every six months to ensure that readers have access to current statutory information and recent cases, and contain the most recent annotations of judicial decisions applying Delaware business entity law around the country.

The Fall 2008 Edition has been updated to include the latest legislation from the 2008 Regular Session of the Delaware General Assembly, with summaries of all amended statutes describing the changes made, as well as over 50 new case annotations of judicial decisions in all U.S. jurisdictions applying Delaware business entity law. The chapter entitled “Amounts Payable by Business Entities under Delaware Law” reflects changes made to many of Delaware’s filing fees.

…continue reading: CSC Publishing Releases Fall Update of Delaware Laws Governing Business Entities