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With SEC Chairman Cox quoted widely in yesterday’s papers about the SEC planning to adopt the executive compensation disclosures rules by the end of the Summer (see this WSJ article and Wash Post article), we have moved up our conference – “Implementing the SEC’s New Executive Compensation Disclosures: What You Need to Do Now!” – by two weeks so that it will be held on September 13-14th.

We recognize that two weeks matters when your directors and clients are clammering for the practical consequences of the new rules – so we have bumped up the conference dates to meet your needs. Of course, if the SEC doesn’t act that fast, we can easily push back the dates – that’s the beauty of the videoconference format as I blogged about a few days ago.

If you have questions about the Conference, check out our FAQs, e-mail me or contact our HQ. I will continue to flesh out the FAQs as I am getting many good queries, such as how long will the video archive be up? (answer: the end of ’07, which is roughly 15 months) or will the video archive be posted in modules? (answer: yes, each panel will have its own archive, so it will be easy to refer to later when you are drafting and reviewing disclosures).

[By the way, quite a few members have already submitted their vote for “Most Outdated Photo” in our Speaker Bios – hands down winner is Alan Kailer. Alan wins a full body massage and facelift after the Conference to maintain that youthful glow.]

Analysis of the Delaware Supreme Court’s Disney Decision

As I blogged last week, the Delaware Supreme Court has delivered its long-awaited opinion – written by Justice Jacobs – affirming the Chancery Court’s decision in the Disney litigation. Clearly affirming the business judgment rule, the Supreme Court flatly rejected the notion that a lack of good faith could be equated with gross negligence, which is the standard for finding a violation of the duty of care.

Most observers were not surprised by the outcome as the embattled plaintiffs’ counsel – Steven Schulman, the Milberg Weiss lawyer who was recently indicted for allegedly paying plaintiffs in class action cases – did a poor job of trying the case and basically failed to prove their claims factually.

Moreover, it is quite difficult to win a compensation case where the directors are not self-interested. Some commentators view the Valeant v. Panic case as a much more winnable compensation case compared to Disney. The decision in this case is expected sometime in the Summer of ’06.

On CompensationStandards.com, we have just announced this webcast – “Director Liability and Responsiblities: After Disney” – featuring John Olson and Charles Elson. And we have begun to post law firm memos on the Delaware Supreme Court’s decision in the “Liability Issues” Practice Area of CompensationStandards.com.

Where Do We Stand on the Duty of Good Faith?

A lot has been written about the duty of good faith since Chancellor Chandler’s opinion last year in the Disney litigation. In its opinion, the Delaware Supreme Court acknowledged that the contours of the duty of good faith remained “relatively uncharted” and were not well developed.

Addressing this hot topic, the Supreme Court identified two categories of fiduciary behavior that do constitute a breach of the duty of good faith. The first category is the so-called “subjective bad faith,” which is evidenced by “fiduciary conduct motivated by an actual intent to do harm” to the company or its stockholders.

The other category has been a focal point of the Disney litigation: “intentional dereliction of duty, a conscious disregard for one’s responsibilities.” In concurring with the Chancellor and determining that such conduct was neither exculpable nor indemnifiable, the Supreme Court explained as follows:

“The universe of fiduciary misconduct is not limited to either disloyalty in the classic sense … or gross negligence. Cases have arisen where corporate directors have no conflicting self-interest in a decision, yet engage in misconduct that is more culpable than simple inattention or failure to be informed of all facts material to the decision. To protect the interests of the corporation and its shareholders, fiduciary conduct of this kind, which does not involve disloyalty (as traditionally defined) but is qualitatively more culpable than gross negligence, should be proscribed. A vehicle is needed to address such violations doctrinally, and that doctrinal vehicle is the duty to act in good faith.”

The Court left open the possibility that the duties of good faith and due care could overlap – and the Court also pointed out that its opinion did not address the issue of whether the duty of good faith can serve as an independent basis for imposing liability on directors or officers. As evident from the law firm memos written so far – and the blogs from academics – there are many issues that will continue to be debated. For example, here is a list of issues to consider from Professor Larry Ribstein:

1. The future of due care and Van Gorkom. What does this case say about the nature of gross negligence?

2. What are the case’s implications for bad faith and the application of 102(b)(7)? What kinds of facts might constitute bad faith? Given the court’s view of bad faith, is there any longer a meaningful role for gross negligence?

3. What, if anything, does the case say about how it might address the undecided questions, such as the application of the bjr to officers.

4. What does the case imply about Roe’s thesis concerning federal law’s impact on Delaware?

5. What can be said now about the relation between Delaware and the federal law of corporate governance? Has federal law taken over the Caremark business just as it has disclosure?

6. What, if any, role do theories of “good governance” and best practices have on directors’ liabilities after Disney?

7. What are the decision’s implications for the executive compensation debate?

8. What’s likely to be the single biggest effect of this decision?

SEC to Push Ahead on Considering Mutual Fund Governance Rules

On Tuesday, the SEC filed a status report with the US Court of Appeals for DC in connection with its embattled board independence and independent chair rules. In April, that court held that the SEC violated the Administrative Procedure Act by failing to seeks comments on the cost estimates of those two rules – but instead of vacating the rules, the Court ordered the SEC to file a status report within 90 days and reopen the rulemaking record for comments on the costs.

With a month to spare, the SEC issued this proposal, with comments due by August 21st. The five Commissioners unanimously voted to solicit comment – but reportedly are split on whether to finalize the rules again (here are the dissents by two Commissioners from the last go around; although we will soon have Commissioner Casey in the mix, replacing Commissioner Glassman). No doubt the US Chamber of Commerce and other commentators will be furiously battling this rulemaking again…