Category Archives: Corporate Governance

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SEC Stays New Proxy Access Rules

On October 4, 2010, the Securities and Exchange Commission exercised its discretion to grant a stay of its controversial new proxy access rules and related amendments that were scheduled to take effect on November 15, 2010. As we previously blogged (see our posts here and here), the SEC’s disputed proxy access rules would grant shareholders … Continue Reading

ALERT: Legal Challenge To SEC’s Recently Adopted Proxy Access Rules

Today, Business Roundtable and the Chamber of Commerce of the United States filed a Petition for Review in the U.S. Court of Appeals for the District of Columbia Circuit challenging the legality of the SEC’s recently-adopted proxy access rules (See our blog posts here and here.) The proxy access rules grant shareholders who have held … Continue Reading

ALERT: Proxy Access Notice Dates For 2011 Proxy Season Established

On September 16, 2010, the SEC’s final rules for proxy access were published in the Federal Register.  The proxy access rules are effective 60 days after such publication, and accordingly, will be effective on November 15, 2010.  In order to take advantage of the new proxy access rules, nominating shareholders must file a Schedule 14N with the … Continue Reading

SEC Adopts Mandatory Proxy Access Rule for Shareholder Director Nominations — Applicable for 2011 Proxy Season

On August 25, 2010, the Securities and Exchange Commission voted 3-to-2 along party lines to adopt a controversial proxy access regime to facilitate shareholders’ ability to nominate a limited number of candidates for election as directors. The new rules, which are primarily contained in new Rule 14a-11 promulgated under the Securities Exchange Act of 1934, will … Continue Reading

Recent Court Ruling Exposes Mutual Funds to Whistleblower Suits

Mutual fund companies have traditionally argued that they are exempt from the whistleblower protections of the Sarbanes-Oxley Act (“SOX”) because the funds themselves do not have any employees. Massachusetts District Court Judge Douglas P. Woodlock soundly rejected that argument in a ruling issued March 31 and, in so doing, may have opened the door to a … Continue Reading

United States Supreme Court Clarifies Standard For Determining Corporate Citizenship For Purposes Of Federal Court Diversity Jurisdiction

In Hertz Corp. v. Friend, No. 08-1107, 2010 U.S. LEXIS 1897 (Feb. 23, 2010), the United States Supreme Court reversed the United States Court of Appeals for the Ninth Circuit’s holding that New Jersey-based Hertz Corporation (“Hertz”) was a citizen of the State of California for purposes of federal court diversity jurisdiction, rejecting the Ninth … Continue Reading

California Court of Appeal Clarifies Fiduciary Duties When a Company is Insolvent or Nearing Insolvency

Directors of California corporations have, for years, struggled to understand the scope of their fiduciary duties when a corporation is insolvent versus when a corporation is in the “zone of insolvency.” While other states (particularly Delaware) have provided some recent guidance in this area[1], the California Court of Appeal recently provided some much needed clarification … Continue Reading

First SEC enforcement action under Regulation G for Misleading Non-GAAP Financial Measures

On November 12, 2009, the SEC announced that it had settled charges against SafeNet, Inc. and some of its former officers, employees and accountants, in connection with earnings management and options backdating schemes. This case represents the SEC’s first enforcement action brought under Regulation G, and it provides important reminders to issuers on financial reporting … Continue Reading

IRS Issues Final Regulations Regarding Annual ISO/ESPP Reporting Requirements

The Internal Revenue Service (the "IRS") has issued final regulations regarding the information return and information statement requirements under Section 6039 of the Internal Revenue Code.  Section 6039 was amended in 2006 to require corporations to file an information return with the IRS (the "Return") and furnish a written information statement (the "Statement") to each … Continue Reading

California Supreme Court Holds Corporation Liable for Delivery of Unclaimed Stock

Corporations, including publicly-traded companies may wish to review their procedures for addressing unclaimed stock in light of a recent California Supreme Court decision. In Azure Limited v. I-Flow Corp (Dkt. No. S164884, July 16, 2009), the Court held that a corporation holding unclaimed stock, which failed to send a shareholder notice of potential escheat prior to … Continue Reading


In Biltmore Assocs., LLC v. Twin City Fire Insurance Co., 2009 WL 1976071 (9th Cir. July 10, 2009), the United States Court of Appeals for the Ninth Circuit applied the “insured versus insured” exclusion, common in directors’ and officers’ insurance policies (“D&O insurance”), to prevent a creditors’ trust from collecting on a D&O insurance policy … Continue Reading

Delaware Court Confirms LLC Managers And Members Owe Fiduciary Duties And Duties Of Good Faith And Fair Dealing

A recent Delaware Court opinion, Bay Center Apartments Owner, LLC v. Emery Bay PKI, LLC, Case No. 3658-VCS (Del. Ch. Apr. 20, 2008), provides important guidance regarding whether and to what extent managers and members of a limited liability company (“LLC”) organized in Delaware owe duties to the LLC and its members. Section 18-1101(c) of … Continue Reading

Governor Vetoes California Legislation Allowing Directors to Consider Factors in Addition to the Interests of Shareholders

Governor Schwarzenegger today vetoed AB2944. The bill would have provided that directors may consider the interests of specific corporate constituencies in addition to the shareholders. For a more detailed description of this legislation, see our earlier article here. In his veto message to the California State Assembly, the Governor noted that        "[w]hile this bill proposes … Continue Reading

NYSE and Nasdaq Amend Tests for Director Independence

The NYSE and Nasdaq each recently amended the definition of "independent director" to increase from $100,000 to $120,000 the amount of compensation that an independent director may receive from a listed company in a 12-month period.  In addition, the NYSE amended the definition of "independent director" to allow an immediate family member of an independent … Continue Reading

The Best Lawyers in America 2009

Seven Sheppard Mullin Corporate Partners have been named Best Lawyers in America for 2009.  David Bosko, Larry Braun, Robert Copeland, Tom Hopkins, Richard Kintz, Peter Menard and Mike Moore received this distinguished honor.  In addition to our Corporate Partners, 39 Partners from our Antitrust; Entertainment, Media and Technology; Finance and Bankruptcy; Government Contracts and Regulated Industries; … Continue Reading

Delaware Chancery Court Denies Advancement Claim Brought By Former Director Where Subsequent By-Law Amendment Retroactively Limited Advancement Rights Of Former Directors

In Schoon v. Troy Corporation, 948 A.2d 1157 (Del. Ch. 2008), the Delaware Chancery Court held that a former director is not entitled to advancement rights where a later board-approved amendment to the corporation’s by-laws cut off such rights. This case is important for all directors and officers who are concerned about liability coverage after … Continue Reading

Proposed California Legislation Would Allow Directors To Consider Factors In Addition to the Interests of Shareholders

Proposed legislation in California would expressly provide that directors may consider the interests of specific corporate constituencies in addition to the shareholders.  This legislation seeks to promote corporate social responsibility by removing the threat of shareholder lawsuits against directors who consider the interests of certain constituencies which may be inconsistent with the interests of the … Continue Reading

Stanford University Study Casts Doubt On The Validity Of Governance Ratings

A recent Stanford University study casts doubt on the validity of the corporate governance ratings provided by Institutional Shareholder Services (ISS) and its principal competitors. Governance rating firms seek to measure the effectiveness of a public company’s corporate governance.  They maintain that this rating is predictive of the company’s future performance. Stanford’s study claims to … Continue Reading

Delaware Chancery Court Criticizes Small-Cap Company’s Board For Failing To Fulfill Revlon Duties When Selling Company To Private Equity Firm

In In re Netsmart Technologies, Inc. Shareholders Litigation, C.A. No. 2536-VCS (Del. Ch. Mar. 14, 2007), Vice Chancellor Strine held that the shareholder plaintiffs demonstrated a probability of success on the merits of their claim that the Netsmart board of directors failed to fulfill their Revlon duties in considering and approving a cash sale of … Continue Reading

Section 404 Updates: SEC Adopts New Interpretative Guidance And Rules, And PCAOB Adopts New Auditing Standard No. 5

The SEC and PCAOB have taken significant new steps to implement promised reforms to the implementation of Section 404 of the Sarbanes-Oxley Act, which has been widely perceived to be unduly expensive and burdensome.  On May 23, 2007, the SEC approved new interpretive guidance for management’s assessment of internal controls, and amendments to certain Section … Continue Reading

SEC to Revisit Proxy Access

The SEC today announced that the staff would recommend an amendment to the proxy access rules to respond to the issues raised in AFSCME v. AIG, and scheduled an open meeting on October 18 to consider the recommendation. In making the announcement, the chairman of the SEC noted that shareholder rights in the proxy process "are … Continue Reading

Court Revives Proxy Access Debate

In AFSCME v. AIG, the Court of Appeals for the Second Circuit today provided a powerful impetus to the efforts of institutional shareholders to expand proxy access. The court’s decision does not directly grant shareholders the right to present their own slates of director nominees in the company’s proxy statement. However, it does challenge the long-standing interpretation … Continue Reading

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