October 24, 2008

Rock Bottom: Here We Come…

As I get on the plane to leave our Conferences in New Orleans, CNBC has this headline on its site: “Furious Stock Selloff Takes Historic Tone.” I believe we are just at the beginning of a dramatic restrucuring of our financial markets, particularly our regulatory framework. I know this is not going out on a limb at this point, but it bears repeating as we all think about our own career paths and immediate situations.

Yesterday’s US Senate Committee on Oversight and Government Reform hearing on the future of regulation was predictably sobering. Former Fed Reserve Alan Greenspan was grilled by angry Senators and Greenspan said he made a mistake for being too deregulatory. Here is the testimony from SEC Chair Chris Cox.

I know there is plenty to blog about regarding daily headline developments, but we are going to try to blog about the many other developments that impact the “bread and butter” of our members’ daily practices – partly to keep the tone from being so darn depressing…

Despite Conviction: Advancement Rights Continue Through Appeal

Travis Laster notes: In Sun Times Media Group v. Black, issued back on July 30th, Delaware Vice Chancellor Strine resolved a single question: Is a guilty verdict a “final disposition” for purposes of mandatory advancement rights, or do advancement rights continue through post-conviction proceedings and appeal? In a thorough 47-page opinion, the Vice Chancellor holds that advancement rights continue until the decision is truly final and not subject to potential reversal on appeal.

This decision resolves an issue that has arisen with increasing frequency in recent years, as corporations have bridled at providing advancements to individuals they believed had breached their fiduciary duties or engaged in bad or even criminal conduct. After a series of decisions from the Court of Chancery making clear that the corporation’s beliefs as to such matters were not a basis to cut off mandatory advancement rights, corporations began to focus on events that might otherwise provide a cutoff point, with guilty pleas and criminal convictions serving as the leading candidates.

In Sun Times, Vice Chancellor Strine holds that advancement rights continue through appeal based on the plain language of Section 145, Delaware public policy, and the unworkable regime that would result from advancement rights that started or stopped at each phase of a proceeding. Prior to this opinion, practitioners had only the language of Section 145 and two transcript rulings from scheduling conferences for guidance. Although these authorities pointed strongly in favor of the outcome reached in Sun Times, the issue has now been definitively resolved.

As I noted in discussing the recent CA decision, the next round on mandatory advancement rights likely will involve a board arguing that a mandatory advancement bylaw cannot compel the directors to provide advancements if they believe that by doing so they would breach their fiduciary duties. This argument was not viable under prior advancement decisions, but it could be asserted in good faith after the Supreme Court’s broad language against mandatory bylaw provisions set forth in CA. The argument also could be made to challenge a contract-based advancement right, but in my view remains non-viable against charter-based advancement rights.

Introducing the Lead Director Network

In this podcast, Jeff Stein of King & Spalding discusses a new group for lead directors, presiding directors and non-executive board chairs, called the “Lead Director Network” (see the LDN’s first issue of Viewpoints) including:

– What is the Lead Director Network?
– What is the exact purpose of the Network? For example, will the Network engage in advocacy on behalf of corporate directors or boards? Why do members choose to participate in the Network?
– So who are the initial members of the Network?
– How does the Lead Director Network differ from other director organizations (for example, NACD and the Millstein Center’s independent chair’s group)?
– What topics did the members of the Network cover in their first meeting, held this past July?
– What are the some of the topics that may be addressed by the Lead Director Network in the future? What do you see on the horizon for the Lead Director Network?

– Broc Romanek