January 15, 2010

Shareholder Proposals: Corp Fin’s New “Magic Sentence” Responses

It looks like Corp Fin is making good on its promise to provide more detail in its responses to exclusion requests under Rule 14a-8, the shareholder proposal rule. See this Bank of America letter and this Verizon letter issued recently under (i)(7) – and this General Electric letter issued under (i)(2).

There is not much detail, just an extra sentence or two for the rationale of the Staff’s decision. This is understandable as the SEC doesn’t have the resources to write full blown opinions like judges do…

In California: Fiduciary Duty of Shareholders under Bylaws

Keith Bishop of Allen Matkins notes:

Last week, a California court of appeal held – in Tien Le v. Lieu Pham – that when the bylaws provide that one stockholder must give another a right of first refusal with respect to a sale of shares, it is a breach of fiduciary duty for the selling shareholder to attempt to sell in violation of the right of first refusal. Notably, the stockholder who sold his share was not a majority owner (holding only 50% of the outstanding shares).

The case involved a pharmacy corporation and the court based its holding in part on this fact and the public policy of requiring a “reasonably snug fit” between ownership and licensed pharmacists. However, the court also applied corporate common law “involving protection of vulnerable stockholders from other stockholders who have the power, by the choice of to whom shares will be sold, to affect the actual conduct of the corporation”. In this case the licensing of the corporation as a pharmacy was impacted by the sale. The principle enunciated by the court could be extended to other situations, such as transfer restrictions to preserve NOLs, gaming licenses, or contractual rights.

Readers may wish to compare the California court’s holding with the following observation by Delaware Vice Chancellor Lamb in Latesco v. Wayport, Del. Ch., No. 4167-VCL (July 24, 2009): “The performance of a Stockholder Agreement giving corporations or corporate insiders rights of first refusal over the shares of other stockholders is not governed by any generalized fiduciary duty of disclosure nor is it governed by any generalized application of the duty of loyalty. Instead, the contours of such an insider’s duty to the selling stockholder is defined by the terms of the agreement itself and the normal prohibitions against fraud.”

Board Priorities for 2010

In this podcast, Jeff Stein of King & Spalding discusses the latest developments in boardroom thinking, including:

– How would you describe the mood in the boardroom these days?
– Why are boards suddenly focusing on strategy? Hasn’t this always been a priority?
– What are boards doing in the area of risk management as we start 2010?
– Tell us what boards are thinking about when they talk about “board management” or when we hear about the renewed interest in board performance?
– How significant are the SEC’s new rule changes for 2010 proxy statements from the board perspective?
– Is there any fundamental change in the way in which directors view their roles with public companies?

– Broc Romanek