March 14, 2006

ABA Committee Issues Majority Vote Report

Yesterday, the Committee on Corporate Laws of the ABA’s Section of Business Law released its Report containing proposed amendments to the Model Business Corporation Act. Now the 3rd comment opportunity commences, which ends on May 30th – so the Report isn’t quite “final.” We have posted a copy of the Report in our “Majority Vote Movement” Practice Area.

In the Report, the Committee concluded that the “failed election” consequences make it unwise to change the statutory plurality default rule – because it would apply universally to all companies governed by state statutes adopting the Model Act provisions. Rather, the Committee decided that the statutory framework should facilitate individual corporate action.

Among other proposals, the Committee would permit shareholders – or directors by private ordering – to adopt a bylaw providing for a form of majority voting. Thus, the heart of the Committee’s proposal is a carefully-tailored majority voting bylaw standard that can be adopted unilaterally by either the board of directors or the shareholders. This approach, coupled with other measures described in the Report, would normally have the effect of not seating, for more than a 90-day transitional period, a director whose election or reelection has effectively been rejected by a majority of votes cast.

In response to concerns regarding the validity of voluntarily-adopted board policies, the Committee also is separately proposing to adopt a statutory method expressly to facilitate and enforce resignations tendered by directors. The Report raises a number of specific questions that the Committee seeks input on – last chance to speak up!

Hear more about this important Report in the upcoming webcast – “Practical Considerations: Implementing a Majority Vote Standard” – whose panel includes the Committee Chair Norman Veasey.

FASB and IASB Seek Comments on Fair Value Accounting

As highlighted in this recent podcast with Jack Ciesielski, this is the year of fair value accounting. Last week, the FASB and IASB issued this request for comment about the financial analysis of companies that report some – or all – financial instruments at fair value. Here is some background on the request – and here is the related questionnaire. Responses are sought by April 14th.

Reminder: Careful with Your Voicemails!

I got a kick out of this voicemail that was discussed in Sunday’s NY Times column by Gretchen Morgenson. It was left by a retail investor for analyst Michael Krensavage.

Brought back memories from my days working in Corp Fin’s Office of Chief Counsel, where you spend hours each day talking to whomever calls OCC’s hotline and receive some quacky voicemails. Also reminded me of the voicemail left by an associate working on a deal that made the online rounds a few years back, as so eloquently blogged by Wilson Chu on the Blog.

Is Hiring A Defense Attorney Obstruction of Justice?

From the White Collar Crime Prof Blog: “The Second Superseding Indictment in the case of United States v. Singleton provides some fascinating language in Count Ten, an obstruction charge under 18 USC 1512(c)(2). It seems that comments made by an employee during an internal investigation are now being used to form the charge of obstruction. The indictment actually states that the defendant “informed the Outside Lawyers that he had retained an attorney and wanted to reschedule the interview for a time when his attorney could be present…..The attorney was a criminal defense attorney.”

This approach of using employee statements during an internal investigation to form the basis of a charge in an indictment was seen in the case of Computer Associates (see post here).

The ramifications of the government taking this approach is that employees will be less likely to participate in internal investigations. Such an approach will not be beneficial to the company, not assist the shareholders, and certainly destroys any trust between a company and its employees. And if the conversations will no longer take place, then the government will get nothing. This is not an impressive move by the government. Is it really worth getting the information in these two cases to cause such damage to the corporate environment?”