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June 20, 2014

Delaware: Fee-Shifting Legislation Punted to 2015

Last month, I blogged about how the Delaware legislature was barreling towards passing legislation to reverse the impact of the ATP Tour v. Deutscher Tennis Bund decision. In the wake of this Delaware Senate resolution, here’s comes news from this WSJ blog:

Score this round for the U.S. Chamber of Commerce. The group representing business interests has won, at least for now, a fight in the Delaware legislature over whether companies can foist their legal bills onto shareholders who sue them and lose.

The Delaware legislature has postponed until early 2015 discussion of a proposed bill that had drawn heat from the Chamber, among others, the bill’s sponsor confirmed Wednesday. The bill would have banned companies from shifting the costs of losing cases onto the stockholders who bring them. “I certainly believe that we should not permit companies carte blanche to adopt these kinds of bylaws,” Sen. Bryan Townsend, who sponsored the bill, said in an interview. “But we have heard from a broad group of stakeholders and thought it best to take the coming months to continue our examination of the issue.”

The fight bubbled up after Delaware Supreme Court ruling last month that upheld a fee-shifting bylaw adopted by a private company, ATP Tour Inc. Some corporate lawyers said the ruling might open the door to public companies adopting similar “loser pays” provisions in an effort to deter shareholder litigation, which has skyrocketed in recent years. Such cases are now nearly automatic after the announcement of a merger, and rarely result in substantial gains for shareholders.

A section of the state bar quickly crafted legislation to ban companies from adopting such bylaws, and presented the measure to the legislature, which had been set to vote last week. But the Chamber opposed the bill, which it said “takes away a new tool … [that] businesses could use to reduce the amount of unnecessary litigation that accompanies corporate mergers,” according to a letter sent to Mr. Townsend June 5 and reviewed by The Wall Street Journal.

Others joined the fray. Dole Foods Co. also sent a letter to Mr. Townsend, the News Journal has reported. And more quietly, E. I. du Pont Nemours & Co., one of Delaware’s biggest and most influential companies, has quietly lobbied against the legislation, according to people familiar with its efforts. A DuPont spokesman confirmed that the company opposes the bill, but declined to comment further. DuPont’s intervention likely carried considerable weight in Delaware, where it was founded in 1802 as a gunpowder maker along the banks of the Brandywine Creek. It is the only Fortune 250 company based in the state, despite the dozens that claim it as their legal home, and its name is plastered around Wilmington, where its headquarters take up an entire city block.

XBRL Filings: 8-12% Contain Errors!

Here’s an excerpt from this piece by Compliance Week:

Calcbench, a technology firm promoting XBRL, says 8 to 12 percent of all filings provide the wrong scale for a number – such as reporting a number as 15 when the correct figure is 15,000. That mistake was most common in the fourth quarter of 2012, when one in eight filings contained a scaling problem, the firm says. Scaling most often occurs in tags associated with shares, but “a non-trivial number of errors” also occur in areas that are watched closely by analysts and investors, like revenue, net income, and assets. “Errors in these accounts may cause potentially wrong investment recommendations and decisions which may lead to increased liability by filing firms,” the report says. That makes them a high priority for correction, according to Calcbench.

Even more common, says the report, are sign switches, a problem in 40 to 60 percent of filings over the period analyzed by the firm. Sign switches are not as right or wrong as scaling errors, the firm says, but they can be confusing. As an example, cost of goods sold might be presented as a negative number that is added to revenue, or as a positive number that is subtracted from revenue. The analysis also finds a correlation between the presence of sign switches and the average number of tags in a filing. “The more tags you use, the more likely you are to have a sign switch,” the report says.

Transcript: “Proxy Season Post-Mortem: The Latest Compensation Disclosures”

We have posted the transcript for the recent CompensationStandards.com webcast: “Proxy Season Post-Mortem: The Latest Compensation Disclosures.”

- Broc Romanek