August 26, 2008

Delaware Chancery Court Forces Director Compensation Disgorgement

Good to see more securities law blogs emerge. Joe Wallin’s new “Corp Fin Blog” recently ran this item:

In Julian v. Eastern States Construction Service, Inc. (Del. Ch. July 8, 2008), the Delaware Chancery Court ordered the disgorgement of director compensation bonuses after its determination that the bonuses did not pass the entire fairness standard.

“Self-interested directorial compensation decisions made without independent protections, like other interested transactions, are subject to entire fairness review. Directors of a Delaware corporation who stand on both sides of a transaction have “the burden of establishing its entire fairness, sufficient to pass the test of careful scrutiny by the courts.” They “are required to demonstrate their utmost good faith and the most scrupulous inherent fairness of the bargain.” The two components of entire fairness are fair dealing and fair price. Fair dealing “embraces questions of when the transaction was timed, how it was initiated, structured, negotiated, disclosed to the directors, and how the approvals of the directors and the stockholders were obtained.” Fair price “assures the transaction was substantively fair by examining ‘the economic and financial considerations.’

SEC Approves PCAOB’s “Communication with Audit Committee re: Independence” Proposal

Yesterday, the SEC issued this order approving the PCAOB’s proposal regarding communications with audit committees regarding independence.

– Broc Romanek