Securities Mosaic® Blogwatch
December 28, 2010
HP Severance Case Raises Governance Concerns
by Joseph E. Bachelder III

Editor's Note: Joseph Bachelder is founder and senior partner of the Bachelder Law Firm. This post is based on an article by Mr. Bachelder that first appeared in the New York Law Journal. An earlier column by Mr. Bachelder regarding severance at Hewlett-Packard is available here.

On Aug. 6, 2010, Mark Hurd stepped down as chairman, president and chief executive officer of Hewlett-Packard Company. His resignation was at HP's request. He was provided, among other things, a severance payment of approximately $12 million. Today's column considers whether the severance payment, given the circumstances involved in Mr. Hurd's departure, can be reconciled with the HP Severance Plan for Executive Officers pursuant to which it was paid. Specifically, the question is whether the separation qualified as one "not for cause," a condition to payment under that plan.

A severance of another HP CEO, Carly Fiorina, involving entirely different circumstances, was the subject of this column on March 24, 2005.

The Background

On April 1, 2005, Mr. Hurd became CEO of HP. Between that date and June 30, 2010, the market value of HP rose approximately $38 billion. This, together with dividends, represents a total shareholder return (TSR) of approximately 105 percent for the period between April 1, 2005, and June 30, 2010 (compared with a median TSR over the same period of 24 percent for the HP comparator group (55 percent for the 75th percentile)). [1] For this purpose, HP comparator group means the comparator group as identified in the current HP proxy statement.

In late June of this year, Mr. Hurd received a letter alleging he had sexually harassed Jodie Fisher, a consultant to HP. He is reported to have promptly furnished the letter to the general counsel of HP. Ms. Fisher had been hired by the office of the CEO in late 2007 or early 2008 to assist in the hosting of certain HP meetings. It appears these included meetings that provided customers and prospective customers with an opportunity to meet and talk directly with Mr. Hurd. The letter, it has been reported, alleged that Mr. Hurd met with Ms. Fisher on numerous occasions and at different locations within and outside the United States and that a number of these meetings were not business-related.

Reports also have indicated that Mr. Hurd and Ms. Fisher were reimbursed for expenses in connection with their meetings and that at least some of their meetings were not business-related. Mr. Hurd is reported to have offered to pay HP back any erroneous reimbursements for his meetings with Ms. Fisher. During July and into the first week of August, Mr. Hurd apparently engaged in discussions with members of the HP Board of Directors regarding what happened in the Fisher matter. There appears to have been a growing concern on the part of at least some members of the board as to whether they were getting a complete picture from Mr. Hurd of what actually had occurred. [2]

The board retained an outside law firm to investigate the Fisher matter. The firm reported to the board at a meeting which took place in late July (apparently the meeting began on July 28 and continued into July 29). According to a Nov. 6, 2010, article in The Wall Street Journal:

  • After its July meeting, the board "waited for a mediation session they had scheduled for a week later with Ms. Fisher's lawyer."
  • On Aug. 5, lawyers for Mr. Hurd and Ms. Fisher settled the dispute raised by her letter.
  • Also on Aug. 5, lawyers for HP were told of the settlement.

On Aug. 6, Mr. Hurd stepped down. [3] Concurrently, he and HP entered into a Separation Agreement and Release. [4]

The Separation Agreement

Following are certain of the economic benefits provided Mr. Hurd in connection with his separation:

  • (a) Mr. Hurd received a severance payment of $12,224,693.
  • (b) Mr. Hurd was permitted to exercise those options that were already vested and exercisable during a window period commencing Aug. 23, 2010, and ending Sept. 7, 2010. The spread in the options on the date of Mr. Hurd's termination was approximately $9.5 million. Between Mr. Hurd's date of termination and the window period, the HP stock value declined significantly.
  • (c) He was allowed to continue to hold certain performance-based restricted stock units, subject to applicable conditions, following termination; these stock units had a value at the time of termination of approximately $15.3 million.
  • (d) He became entitled to the settlement of certain time-vested restricted stock units on Dec. 11, 2010; these shares had a value at the time of termination of approximately $700,000. [5]

Mr. Hurd Joins Oracle

On Sept. 6, 2010, Oracle Corporation announced that Mr. Hurd had joined Oracle as president and a member of its Board of Directors. Oracle is a direct competitor of HP. [6]

On Sept. 7, 2010, HP sued Mr. Hurd (and 25 "Does") in the Superior Court of California for damages and injunctive relief as a result of his appointment at Oracle. [7] It claimed that he possessed highly confidential information regarding HP, that he was under obligation not to disclose such confidential information, that by joining Oracle he was putting himself in a position of inevitably disclosing such information and that "HP has been injured and faces irreparable injury." On Sept. 20, HP filed a Form 8-K announcing that it had settled the lawsuit. In that filing, HP states that Mr. Hurd agreed, among other things, that he would forfeit his performance-based and time-vested restricted stock units noted above. Mr. Hurd apparently retained his severance payment and his gains from exercise of stock options.

Issues Raised

Was there cause to terminate Mr. Hurd?

The Form 8-K filed by HP on Aug. 6 states that Mr. Hurd received "a severance payment of $12,224,693 under the HP Severance Plan for Executive Officers." The separation agreement provides that the payment (less applicable withholdings) is "in full satisfaction of the Company's obligations under the Severance Plan."

The severance plan specifically provides that severance under it is limited to an involuntary termination without cause. [8] Cause is defined by the plan to mean a participant's

  • "Material neglect (other than as a result of illness or disability) of his or her duties or responsibilities to HP; or
  • "Conduct (including action or failure to act) that is not in the best interest of, or is injurious to, HP." [9]

The severance plan provides that cause shall not be deemed to exist unless determined by a majority vote of the members of HP's board or an "independent committee thereof." It is not known whether a vote was taken by the board or by an independent committee of the board. By approving the payment of severance, at least a majority of the board (or a committee of independent members) presumably concluded that the circumstances did not warrant a finding of cause. [10]

Comments by HP executives and directors made on or after Aug. 6 are difficult to reconcile with a conclusion that conduct of the sort covered by "cause" for purposes of the severance plan was not involved.

Ray Lane (non-executive chairman of HP, appointed after the resignation of Mr. Hurd) in a letter to the editor for The New York Times, on Oct. 11, 2010, as set forth in "All Things Digital" (Oct. 11, 2010) and "Business Insider" (Oct. 12, 2010) wrote: "The bottom line is: Mr. Hurd violated the trust of the Board by repeatedly lying to them in the course of an investigation into his conduct. He violated numerous elements of HP's Standards of Business Conduct and he demonstrated a serious lack of integrity and judgment."

Cathie Lesjak (CFO of HP; Interim CEO following Mr. Hurd's resignation) wrote in an e-mail to HP employees on Aug 6: "Based on the [board's] investigation it was determined that... [Ms. Fisher's] claim of sexual harassment was not supported by the facts... The investigation did reveal, however, that [Mr. Hurd] had engaged in other inappropriate conduct. Specifically, based on the facts that were gathered it was found that [Mr. Hurd] had failed to disclose a close personal relationship he had with the contractor that constituted a conflict of interest, failed to maintain accurate expense reports, and misused company assets. Each of these constituted a violation of HP's Standards of Business Conduct, and together they demonstrated a profound lack of judgment that significantly undermined [Mr. Hurd's] credibility and his ability to effectively lead HP."

According to the transcript of an HP conference call with analysts on Aug. 6, Mike Holston (EVP and general counsel of HP) said: "The findings of the [Board's] investigation were as follows. [Mr. Hurd] had a close personal relationship with an HP contractor who was hired by the office of the CEO and [Mr. Hurd] never disclosed that relationship to the Board of Directors. The investigation revealed numerous instances where the contractor received compensation and/or expense reimbursement where there was not a legitimate business purpose. And the investigation found numerous instances where inaccurate expense reports were submitted by [Mr. Hurd] or on his behalf that [sic] intended to or had the effect of concealing [Mr. Hurd's] personal relationship with the contractor... [The] Board concluded, and [Mr. Hurd] agreed, it would be impossible for him to be an effective leader moving forward and that he had to step down." [11]

In the same conference call, Marc Andreessen (director of HP) said: "[Mr. Hurd's] conduct undermined the standards we expect of our employees, not to mention the standards to which the CEO must be held..."

In an HP press release on Aug. 6, Mr. Hurd said: "As the investigation progressed, I realized there were instances in which I did not live up to the standards and principles of trust, respect and integrity that I have espoused at HP and which have guided me throughout my career."

If there was not cause, what was the basis for Mr. Hurd's abrupt termination on Aug. 6? The board may have been very upset by the Fisher matter, including Mr. Hurd's discussions with board members during the board's investigation into that matter. Nonetheless, it may have concluded the circumstances involved something less than cause. But if the board concluded it lacked a basis for cause, how could Mr. Hurd's employment have been so abruptly terminated considering the positive accomplishments under his leadership at HP? The abrupt action by the board is at least difficult to reconcile with a conclusion that there was not cause within the meaning of the severance plan.

Shareholder Lawsuits

Since the announcement of Mr. Hurd's departure and the separation agreement, there have been a number of shareholder lawsuits directed at the termination arrangements with Mr. Hurd. [12]

Under the circumstances surrounding Mr. Hurd's termination, why was there such a prompt payment of severance?

HP could have provided that the severance payment would be made over a longer period than the 30 days following Mr. Hurd's termination date. In that event, it could have conditioned the payments on Mr. Hurd's not doing something during such longer period that would be inimical to the interests of HP, as it asserted in the complaint in its lawsuit, Hewlett-Packard Company v. Mark V. Hurd, et al., noted above.

If such a provision had been included, HP presumably would have caused the remaining portion of his severance payments to be forfeited when Mr. Hurd accepted the position of president at Oracle. HP would have been in a strong position to defend against any legal challenge to the forfeiture by Mr. Hurd. In addition to such forfeiture provision, HP might have provided in the separation agreement for a "clawback" of any severance payments already made to Mr. Hurd if he did something contrary to the interests of HP, as just noted.

Conclusion

Five years ago this column discussed discrepancies between the HP severance plan and the separation payments made to Carly Fiorina. (As noted at the outset of the column, the circumstances were entirely different from those in Mr. Hurd's case.) Accurate reporting to shareholders of plan provisions, such as the severance plan, and taking actions consistent with those provisions is a very important part of good corporate governance.

Judgment of governance in actual practice must allow some latitude for the realities of time and business pressures within which corporate actions are taken. But it certainly seems to this author that, for the second time in about five years, HP has pushed the limits of good corporate governance in its handling of separation arrangements with its CEO.

Endnotes:

[1] Mr. Hurd was named "CEO of the Year" by the San Francisco Chronicle in 2008. This was based on a survey of the 200 largest companies (measured by revenue) in the San Francisco Bay Area. Mr. Hurd also was ranked as one of the top 25 CEOs for 2009 by Brendan Wood International, based on a review of 317 U.S. companies by 2,500 asset managers. This was reported in Forbes.com June 23, 2009.

[2] According to news reports, Ms. Fisher had a film career that included a role in at least one so-called "adult" film. Apparently, a question arose over when Mr. Hurd learned of Ms. Fisher's film background. Also reported as being a concern to the board was the extent to which Mr. Hurd may have had conversations with Ms. Fisher that included discussion of confidential HP business information. The author is not aware of any direct evidence on this point. A report on both these matters appeared in an article in The Wall Street Journal, Nov. 6, 2010, p. A1.

[3] In its announcement on Aug. 6, the HP board stated that "[t]he investigation determined that there was no violation of HP's sexual harassment policy, but did find violations of HP's Standards of Business Conduct."

[4] As of March 29, 2005, effective April 1, 2005, HP and Mr. Hurd entered into an employment agreement. Statements contained in the current proxy statement, filed in connection with the March 17, 2010, annual meeting of HP stockholders, refers in several places to Mr. Hurd's employment agreement, suggesting that, at least as of the filing of the proxy statement in early 2010, the employment agreement continued in effect. The Separation Agreement and Release, entered into by HP and Mr. Hurd on Aug. 6, 2010, refers in Section 15 to "your prior employment agreement dated March 29, 2005." Thus, it appears that the 2005 employment agreement continued in effect for a period into 2010 but may have expired, or have been terminated, prior to Aug. 6.

[5] Taking into account applicable plans and forms of awards that are available from SEC filings, following appear to be relevant provisions regarding the outstanding equity awards referred to in Sections 2(b), (c) and (d) of the text:

  • a. Stock options. Unvested awards are forfeited. Vested awards are forfeited if the termination is not one that qualifies under the plan (retirement, death or disability). However, the Board or a Committee of the Board may modify the option, including acceleration of its vesting and exercisability.
  • b. Performance-based restricted stock units. These would be forfeited upon a termination (other than retirement, death, disability or a "reduction in work force") but the Board or a Committee of the Board appears to have the authority to provide for accelerated vesting in the case of other terminations, such as a termination without Cause.
  • c. Restricted stock units. These would be forfeited upon a termination other than retirement, death or disability but the Board or a Committee of the Board appears to have the ability to provide for accelerated vesting in the case of other terminations, such as a termination without Cause.

[6]. Both corporations are headquartered in California. Mr. Hurd's Separation Agreement provides that it is subject to California law. Under the California Business and Professions Code Section 16600, no-compete agreements generally are unenforceable. Section 16600 states, "Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." As discussed in the text, HP sought to avoid this restriction by claiming it would be damaged as a result of inevitable disclosure of confidential information by Mr. Hurd in his role as president and a director at Oracle.

[7] Hewlett-Packard Company v. Mark V. Hurd, et al., 1-10-CV-181699 (Cal. Super. Ct., filed Sept. 7, 2010). The action appears to have been dismissed Sept. 28, 2010.<

[8] The Compensation Discussion and Analysis of executive compensation in the current HP proxy statement states that "[u]nder the HP Severance Plan for Executive Officers, participants who incur an involuntary termination, not for cause, and who execute a full release of claims following such termination, are eligible to receive severance benefits in an amount determined as a multiple of base pay and the average of the actual bonuses paid under the PfR Plan in the preceding three years." The CD&A also notes that the multiple is two in the case of the CEO.

[9] A California Court of Appeals decision has held that, under California law, an employer can terminate an employee for cause, taking away benefits to which he might otherwise be entitled, under circumstances in which inappropriate behavior may jeopardize the employee's own reputation and be injurious to the employer. The case involved employment without a specific contract provision like that contained in the HP Severance Plan. See Waymire v. Placer Joint Union high School Dist., 29 Cal. Rptr. 459 (Cal. App. 3rd Dist. 1963).

[10] As stated in its Aug. 6 announcement of Mr. Hurd's resignation (see footnote 3 above), the HP board took into account HP's Standards of Business Conduct. Those standards provide that, among other things, "we maintain accurate business records...[we] create business records that accurately reflect the truth of the underlying transaction or event." It also provides that "[we] cooperate with all internal investigations..." Cathie Lesjak, in her Aug. 6, 2010, e-mail to HP employees, excerpts from which are quoted in the text, stated that the board's investigation also revealed failure to disclose a close personal relationship with an independent contractor (Ms. Fisher) that constituted a conflict of interest, that the investigation also revealed a misuse of company assets and that these circumstances violated HP's Standards of Business Conduct.

[11] The transcript can be found at http://h30261.www3.hp.com/phoenix.zhtml?c=71087&p=irol-EventDetails&EventId=3282080.

[12] Shareholder lawsuits have been filed in Delaware and California. These include:
In Delaware:

  • a. Espinoza v. Hewlett-Packard, CA 6000 (Del. Ch., filed Nov. 18, 2010)
  • b. Zucker v. Andreessen, et al., CA 6014 (Del. Ch., filed Nov. 24, 2010).

The complaints in both Delaware cases, as of the writing of this column, were under seal.

In California:

  • a. Brockton Contributory Retirement System v. Andreessen, et al., and Hewlett-Packard, 1-10-CV-179356 (Cal. Super. Ct., filed Aug. 10, 2010). This action was consolidated with two other state court actions into In re Hewlett-Packard Company, 1-10-CV-179356 (Cal. Super. Ct., consolidated Sept. 21, 2010).
  • b. Levine v. Andreessen, et al., 10-CV-03608 JW (U.S.D.C., N.D. Ca., filed Aug. 16, 2010). This action was consolidated with three other federal court actions into In re HP Derivative Litigation, 10-CV-03608 JW (U.S.D.C., N.D. Ca., consolidated Nov. 1, 2010).
December 28, 2010
R.I.P. Alfred Kahn (1917-2010)
by Josh Wright

A remembrance from David Henderson,and Kahn's entry in the Concise Encyclopedia of Economics on Airline Deregulation.

An excerpt from the WSJ/ AP obituary:

A leading scholar on public-utility deregulation, Mr. Kahn led the move to deregulate U.S. airlines as chief of the now-defunct Civil Aeronautics Board in 1977-78. The board had to give its approval before airlines could fly specific routes or change fares.

"Historically, the board has insisted on second-guessing decisions by individual carriers to offer price reductions," Mr. Kahn said in early 1978 as so-called "super-saver fares" swept the industry. "During the last several months we have been abandoning the paternalistic role, leaving the introduction of discount fares increasingly to the management."

President Jimmy Carter embraced deregulation as a means of stimulating economic growth. Mr. Kahn was largely instrumental in garnering the support needed to push through the Airline Deregulation Act of 1978 the first thorough dismantling of a comprehensive system of government control since 1935.

"I open my mouth and a fare goes down," he quipped to The Washington Post in 1978.

By letting airlines instead of the government decide routes and fares, Mr. Kahn is credited above anyone else with enabling a dramatic drop in airline fares and a boom in air travel over the last 30 years.

Deregulation opened the way for such carriers as People Express and JetBlue, and allowed low-cost Southwest Airlines which had up until then operated only within Texas, outside of CAB's reach to expand nationwide.

But the move also contributed over the years to the death of such storied names as Pan American and the erosion of in-flight amenities.

"While the resulting competitive regime has been far from perfect, it has saved travelers more than $10 billion a year," Mr. Kahn wrote in a 1998 New York Times essay.

December 28, 2010
Bubbles Happen: Partisan Divide, the Minority Report, and the Financial Crisis Inquiry Commission (Part 2)
by J Robert Brown Jr.

We are discussing the Report of the Republican Minority on the Financial Crisis Inquiry Commission. The Report was issued on December 15 in an effort to meet the deadline set out in the enabling statute. While meeting the deadline is a laudatory goal, it should not come at the expense of quality. This is not a good report. Despite more than a year of work and investigatory authority, it adds little to the debate over the causes of the financial crisis.

The Minority Report begins inauspiciously by noting that "[b]ubbles happen" as if the explanation is in part the inevitability of these things. Indeed, in describing bubbles, the Minority Report notes that "[t]he recent housing bubble was no different" than prior instances.

True enough that bubbles are recurring events but this particular "bubble" was anything other than ordinary. It was unique (at least since the Great Depression) in its severity and, having been particularly centered on housing, in its impact on ordinary people. The high tech boom in the late 1990s and early years of the new century also had the attributes of a bubble but one that was far less severe and painful than the current example. Had the Minority Report been describing the high tech bubble, the introduction would have been more fitting.

Much of the blame in the Minority Report for the current "bubble" is placed on Fannie Mae and Freddie Mac. See Report at 2 ("Through the GSEs [government-sponsored enterprises], FHA loans, VA loans, the Federal Home Loan Banks, and the Community Reinvestment Act, among other programs, the government subsidized and, in some cases, mandated the extension of credit to high-risk borrowers, propagating risks for financial firms, the mortgage market, taxpayers, and ultimately the financial system."). There is no doubt that Freddie and Fannie contributed to the crisis. But did they cause it? Not everyone thinks so. See Testimony of Thomas H. Stanton, Committee on Oversight and Government Reform U.S. House of Representatives, Dec. 9, 2008 ("That said, it is useful to note that Fannie Mae and Freddie Mac did not cause the housing bubble or the proliferation of subprime and other mortgages that borrowers could not afford to repay."). Pinning blame for the crisis on these pseudo-government agencies required far more thorough analysis than what appeared in the Minority Report.

As for the private sector participants, they mostly provided a positive service. See Report, at 3 ("However, important financial firms principally involved in pure credit intermediation-that is, providing the link between investors and borrowers-were exposed to the downturn as well, but did not understand the risks they were taking at the time."). Their failure? They ultimately, "did not understand the risks they were taking at the time." Report, at 4. As for credit rating agencies, they could be compared to ordinary investors and, as a result, "made many of the same mistakes as mortgage investors." As the Report sums up: "Put simply, the risk of a housing collapse was simply not appreciated. Not by homeowners, not by investors, not by banks, not by rating agencies, and not by regulators." Id. at 5.

As for the immediate cause of the crisis, here is the explanation:

  • Following the successive collapses of Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, and American International Group (AIG), what had begun in the second half of 2007 as a run on those firms that the market identified as having large mortgage exposures and acute liquidity risks exploded into a generalized market panic. Depository institutions had failed. Investment banks had failed. A major insurance holding company was rescued by the U.S. government. Even the GSEs, with their implicit guarantee, were taken into conservatorship by their regulator. Few firms were considered safe, and if they were, it was only because they had a government backstop.

Certainly the market was, by September 2008, edgy from many of the examples given in the prior paragraph. But the Minority Report more or less ignored the singular importance of the collapse of Lehman. Most of the examples mentioned in the paragraph above resulted in direct or indirect government bailouts. In other words, the crisis was largely averted as long as the government stood ready to intervene. The market was assured that despite the uncertainty, the government would step in and prevent large failures.

That belief went out the window when Lehman was allowed to fail. Only then did the financial system freeze, the interbank market effectively shut down, and commercial paper markets dried up. In other words, it was the absence of government intervention that set off the crisis. Yet the Report has little to say about this. Instead, it concludes:

  • These were the best of a series of bad options, and policymakers had extremely limited information to work with. While we believe that the government deserves quite a lot of the blame for getting our financial system and our nation into trouble in the first place, we applaud the quick and decisive actions taken by our nations leaders during the panic.

There are differing views on the cause of the crisis. The debate can benefit from multiple viewpoints, as long as they are well reasoned. This Report, however, provides little insight into what actually happened and why. It provides little help to policy makers should similar circumstances arise again.

One can hope that when the Majority Report is issued in January it will provide more insightful analysis.

December 28, 2010
"The Other Guys" ends on a serious note
by Gordon Smith

Catching up on email, I found another video that may be of interest, this one courtesy of Joan Heminway. The credits for "The Other Guys" show "How a Ponzi Scheme Works," offer some graphics on TARP/bailouts/the financial crisis, and highlight executive compensation. See the story here.

December 28, 2010
Bubbles Happen: Partisan Divide, the Minority Report, and the Financial Crisis Inquiry Commission (Part 1)
by J Robert Brown Jr.

The Financial Crisis Inquiry Commission was created in 2009 in the Fraud Enforcement and Recovery Act of 2009 and tasked with the responsibility for examining the causes of the financial crisis. The membership was to be bipartisan, with six appointed by the majority parties in the House and Senate (controlled by the Democrats at the time) and four by the minority (Republican appointees). The effort was to be a serious one. The FCIC could even compel testimony through the use of subpoenas.

The Act created a December 15, 2010 deadline for any report by the Commission. The deadline passed without a report by the entire Commission. This was not a surprise. A majority of the Commission had voted in November to delay the Report until sometime in January 2011.

Nonetheless, the 15th did not come and go without activity. The four Repulican members issued a Report titled "Financial Crisis Primer" presumably in an effort to meet the statutory time period. The Minority Report begins in an inauspicious manner, noting that "[b]ubbles happen."

The decision to issue the Minority Report apparently came as a surprise to the remaining members of the Commission. See FCIC Press Release, Dec. 15, 2010 (noting that "some members of the Commission made public their personal views on the financial crisis. The Commission had not previously seen or had an opportunity to review what was released today.").

The action and reaction reflect an obvious partisan divide on the FCIC. This is unfortunate. What is needed is serious reflection on the causes of the worst financial crisis since the Great Depression, not a forum for partisan discord. On the other hand, Congress gave to the majority/minority leaders in Congress the authority to appoint the members so perhaps it was to be expected that the partisan divide in Congress would likewise be reflected on the FCIC.

In the next post, we will take a look at the contents of the Minority Report.

December 28, 2010
More Work Needs to be Done on Risk Appetite Frameworks, Senior Supervisors Report
by Barbara Black

Senior financial supervisors from 10 countries - collectively, the Senior Supervisors Group (SSG) - issued a report on December 23 that evaluates how financial institutions have progressed in developing formal risk appetite frameworks and in building out highly developed IT infrastructures and firm wide data aggregation capabilities.

The report - Observations on Developments in Risk Appetite Frameworks and IT Infrastructures - concludes that while firms have made progress in developing risk appetite frameworks and have begun multi-year projects to improve IT infrastructure, considerably more work must be done to strengthen these practices. In particular, the aggregation of risk data remains a challenge, despite its criticality to strategic planning, decision making, and risk management.

The observations and conclusions in the report reflect the findings of initiatives undertaken by two SSG working groups. The risk appetite working group conducted a series of interviews with boards of directors and senior management of global financial institutions to gauge progress in risk appetite frameworks, while the working group that focused on IT infrastructure based its views on observations from a number of existing supervisory efforts.

This report represents a joint effort on the part of twelve supervisory agencies: the Canadian Office of the Superintendent of Financial Institutions, the French Prudential Control Authority, the German Federal Financial Supervisory Authority, the Bank of Italy, the Japanese Financial Services Agency, the Netherlands Bank, the Bank of Spain, the Swiss Financial Market Supervisory Authority, the U.K. Financial Services Authority, and, in the United States, the Office of the Comptroller of the Currency, the Securities and Exchange Commission, and the Federal Reserve.

December 28, 2010
Abercrombie goes to Ohio
by Larry Ribstein

Steve Davidoff has the story, and it's an interesting exercise in corporate contracting complicated by jurisdictional choice.

Abercrombie's proposed reincorporation is essentially a takeover defense. Unlike Delaware, Abercrombie's current state of incorporation, Ohio

  • Has a business combination statute that's triggered by a 10% acquisition rather than 15% as in Delaware.
  • Has a control share acquisition statute requiring shareholder approval of an acquisition of shares that would put the acquirer over the statutory level of control.
  • Would disenfranchise shareholders (i.e., arbs) who acquire a more than .5% block after an acquisition proposal.
  • Does not have a "Revlon rule" subjecting director decisions to sell the company to a higher scrutiny level.
  • Is Abercrombie's home state, and therefore a friendly forum in a takeover battle.

This situation illustrates how jurisdictional choice makes contractual what would otherwise seem to be mandatory takeover rules.

Is it a problem that Abercrombie is changing the original statutory "bargain" based on Delaware incorporation its shareholders may have relied on? Steve notes that Abercrombie proposed the reincorporation after the announcement of buyouts for competitors J. Crew and Jo-Ann Stores which may have put Abercrombie in play.

It would be interesting to do an event study on Abercrombie shares. I wonder if they (1) took a hit from reducing the probability of a bid; (2) got a boost because any takeover will be after an auction and possibly at a higher price; (3) got a boost because the move communicates information about the likelihood of a bid; (4) didn't move because a reincorporation was already priced in; or (5) didn't move because the shareholders still have to vote on the reincorporation, and proxy advisors may weigh in against it.

Finally, was there adequate disclosure to shareholders about the reason for and implications of the move? Does it matter if there were enough sophisticated or well-advised institutional shareholders to help ensure an informed vote?

The bottom line is that the Law Market is a significant part of the transactional environment.

December 28, 2010
The securities laws and the First Amendment
by Larry Ribstein

Attorney John Olson has posted a discussion and copy of a brief for the Chamber of Commerce and the Business Roundtable challenging the SEC's recent proxy access rule, Rule 14a-11. That's the rule that requires corporations to include in their proxy materials candidates for director election nominated by 3%/3-year shareholders. (Here's my discussion of some issues regarding the rule).

The brief claims the rule is ill-considered. One argument particularly caught my attention:

By forcing public companies to carry campaign speech of certain activist investors, the Commission violated the First Amendment.

The brief relies primarily on Pac. Gas & Elec. Co. v. Pub. Util. Comm'n, 475 U.S. 1 (1986) which, as the brief notes

invalidated a state regulatory order that required a utility to carry the message of a third party in its customer billing envelope. 475 U.S. at 13 (plurality opinion). The third-party "[a]ccess" to the billing envelope was "limited to persons or groups who disagree[d] with [the utility's] views and who oppose[d] [the utility] in" certain proceedings before the agency. Id. Applying strict scrutiny, the plurality concluded that the agency's access requirement impermissibly burdened the utility's "right to be free from government restrictions that abridge its own rights in order to enhance the relative voice' of its opponents." Id. at 14.

The brief says the lower standard of scrutiny applicable to commercial speech (Cent. Hudson Gas & Elec. Corp. v. Public Serv. Comm'n of New York, 447 U.S. 557, 564 (1980)) is inappropriate in this case

because a company's proxy materials do not merely "propose a commercial transaction," id. at 409, and Rule 14a-11 would fail for the reasons stated here even under the "commercial speech" standard.

The brief argues that the proxy access rules fail the compelling interest standard. They restrict free speech by forcing force firms to fund opposition candidates and to respond to the opposition. They reject less restrictive ways to achieve the government's purpose, including relying solely on the amendment to Rule 14a-8(i)(8) and deferring to state law.

PGE attempted to distinguish the billing insert in that case from the SEC's shareholder proposal rules on the grounds that management lacked interest in corporate property, the shareholder proposal rule involves "speech by a corporation to itself," and the rule "do[es] not limit the range of information that the corporation may contribute to the public debate." The brief argues those distinctions don't apply to 14a-11 because that rule gives rights to individual institutional shareholders and may operate to trump opposition even by a majority of the shareholders.

I'm not sure I agree with the brief's attempted distinction of PGE. In any event, there's a more direct route to the First Amendment not discussed in the brief: Citizens United. The majority opinion in that case noted that "[t]he First Amendment protects speech and speaker, and the ideas that flow from each" and that "[t]he First Amendment does not permit Congress to make these categorical distinctions based on the corporate identity of the speaker and the content of the political speech." The opinion's breadth suggests the CU majority would be impatient with details like whether the corporation was talking to itself and whether the managers own corporate property.

By the way, the PGE plurality opinion made its attempted distinction between billing inserts and shareholder proposals in response to the dissent's argument claiming that they were comparable and both valid. The dissent in that case, as in Citizen's United, was written by Justice Stevens.

I noted shortly after Citizens United, discussing an SEC interpretive guidance on global warming disclosures, that

One possible implication of Citizens United is that corporations will finally be able to challenge excessive restrictions not only on their clearly political speech, but also on speech like that covered by the SEC release. For a review of the issues here, see my article with Butler, Corporate Governance Speech and the First Amendment, 43 U. Kans. L. Rev. 163 (1994).

The article just cited seems less fanciful today than it did 16 years ago.

The commercial speech rule discussed in the Olson brief is also in play. Distinguishing ideas under the First Amendment based on whether or not they are commercial never made much sense. It makes even less sense now that the Court has decided to protect the speech of for-profit corporations. As the Citizens United dissent noted, even the "political" speech of such firms is essentially transactional, which would make it "commercial," but nevertheless protected.

Even if the Court retains some distinction between commercial and other speech, it may reject a distinction for corporate governance speech, particularly in the wake of Citizens United. After all, if corporations are to be full-fledged participants in political debates, their internal discussions concerning participation in these debates also should be protected.

In short, the ramifications of Citizens United may be even broader than were initially supposed. Speech about capitalism finally may get the same protection as, say, pornography. And one of the first casualties of this approach may be ill-considered and unnecessary SEC restrictions on truthful speech.

December 28, 2010
SEC Obtains TRO Alleging Insider Trading in Martek Acquisition
by Barbara Black

On December 22, 2010, the U.S. District Court for the Southern District of New York entered a Temporary Restraining Order freezing assets and trading proceeds of certain unknown purchasers of the securities of Martek Biosciences Corporation (the "Unknown Purchasers"). The Commission filed a complaint alleging that the Unknown Purchasers engaged in illegal insider trading in the days preceding the December 21, 2010 announcement that Royal DSM N.V., a Dutch company, and Martek, a Columbia, Maryland company, had entered into an agreement under which DSM would acquire all of the outstanding common stock of Martek at a 35% premium over the previous day's closing price. According to the SEC, between December 10, 2010 and December 15, 2010, the Unknown Purchasers bought 2,615 Martek call option contracts through a UBS account. The Unknown Purchasers' buys comprised over 90% of the volume for these contracts on those days. The complaint further alleges that, after the acquisition announcement, the price of Martek common stock increase 36% from the previous day's closing price. The value of the call options held by the Unknown Purchasers rose dramatically during the day. In one instance, the options increased 2,500% in value. The complaint alleges that, as a result, the Unknown Purchasers are in a position to realize total profits of approximately $1.2 million from the sale of the call options.

In addition to freezing the assets relating to the trading, the Temporary Restraining Order requires the Unknown Purchasers to identify themselves, imposes an expedited discovery schedule, and prohibits the defendants from destroying documents.

December 28, 2010
Religion, capitalism and compassion
by Larry Ribstein

My most avid fans may have noticed I've been away from blogging for a few days. In fact, I've been traveling for a lot of that time in Israel (among other things, giving a talk at Hebrew University in Jerusalem).

Given my recent travels to the Holy Land I thought it might be appropriate for my first post on returning be about religion.

Eric Felten, reviewing Karen Armstrong's book "Twelve Steps to a Compassionate Life" in the WSJ, describes the book as a discussion of how "at their best, all religious, philosophical, and ethical traditions are based on the principle of compassion." Felten notes "that would have been news" to those who have suffered from some non-compassionate religious outbursts. Nevertheless, religion is the hero of this book.

The villain, in Felten's summary (I haven't read the book) is capitalism.

According to Armstrong, capitalism drives people to greed and self-seeking from which they need to be rescued by religion.

Felten notes that Milton Friedman sees capitalism as embodying something like Christianity's golden rule that we should allow others to do what we want to do. Felten concludes that

those nasty old capitalists, with their vigor, risk-taking, animal spirits and reptilian brains, have created so much wealth for so many societies over so many centuries and have raised the standard of living for so many people who would otherwise live in grinding poverty that their efforts, easily considered merely selfish, begin to look downright compassionate.

I would add that compassion is not only a product of capitalism but at its core. As I pointed out in a recent paper:

business is about helping others to express themselves by buying things. A successful businessperson must understand the buyer's wants and needs and be willing to cater to them, even at the cost of obscuring her own personality. Businesspeople sacrifice their souls to make our lives happier by making products or providing jobs that enrich our leisure or give us more of it.

While religions preach brotherly love, they seem to create a lot of enmity with their claims of exclusive paths to God. Meanwhile, capitalists' pursuit of gains from trade makes friends out of would-be enemies.

Felten quotes Armstrong as recognizing that "[w]e are not going to develop an impartial, universal love overnight." Apparently her plan is to distribute enough copies of her manifesto to eventually change humanity.

Maybe she'd be better off, instead of rejecting capitalism, using it to sell compassion to people as they exist today.

December 28, 2010
Alcatel Settles FCPA Charges for $137 Million
by Barbara Black

The SEC and Alcatel-Lucent, S.A. (Alcatel) settled charges that Alcatel violated the anti-bribery, books and records, and internal controls provisions of the Foreign Corrupt Practices Act (FCPA) by paying bribes to foreign government officials to obtain or retain business in Latin America and Asia.

Alcatel, the provider of telecommunications equipment and services, has offered to pay a total of $137.372 million in disgorgement and fines, including $45.372 million in disgorgement to the SEC. In a related action, Alcatel will pay a $92 million criminal fine to the U.S. Department of Justice.

The SEC's complaint, filed in the Southern District of Florida, alleges that Alcatel's bribes went to government officials in Costa Rica, Honduras, Malaysia, and Taiwan between December 2001 and June 2006. An Alcatel subsidiary provided at least $14.5 million to consulting firms through sham consulting agreements for use in the bribery scheme in Costa Rica. Various high-level government officials in Costa Rica received at least $7 million of the $14.5 million to ensure Alcatel obtained or retained three contracts to provide telephone services in Costa Rica.

The SEC alleges that the same Alcatel subsidiary bribed officials in the government of Honduras to obtain or retain five telecommunications contracts. Another Alcatel subsidiary made bribery payments to Malaysian government officials in order to procure a telecommunications contract. An Alcatel subsidiary also made illegal payments to various officials in the government of Taiwan to win a contract to supply railway axle counters to the Taiwan Railway Administration.

According to the SEC's complaint, all of the bribery payments were undocumented or improperly recorded as consulting fees in the books of Alcatel's subsidiaries and then consolidated into Alcatel's financial statements. The leaders of several Alcatel subsidiaries and geographical regions, including some who reported directly to Alcatel's executive committee, either knew or were severely reckless in not knowing about the misconduct.

Without admitting or denying the SEC's allegations, Alcatel has consented to a court order permanently enjoining it from future violations of these statutory provisions; ordering the company to pay $45.372 million in disgorgement of wrongfully obtained profits, and ordering it to comply with certain undertakings, including an independent monitor for a three year term.

December 28, 2010
Chancellor Chandler Interviewed
by Francis G.X. Pileggi

The Delaware Court of Chancery's Chancellor William B. Chandler III was interviewed on the NACD's Directorship site here. For anyone interested in gaining insights into the Court's top judicial officer as well as internal aspects of the Court itself, this interview is must reading. The Chancellor's comments include an indication that not all important Chancery cases involve disputes among Fortune 100 companies. Among my favorite excerpts is the reference to cases that involve "smaller companies", in response to a question about which cases the Chancellor regards as defining his legacy. His Honor replied, in part, as follows:

Whether it's Disney or the dissolution of a failed start-up company - all of my cases are equally important. Some of the smaller disputes involving micro-cap companies frequently generate some of the most important principles and ideas in our jurisprudence.

December 28, 2010
Webcast: 2010 Year in Review- Securities Enforcement, Litigation & Compliance
by Kevin LaCroix

On Wednesday December 29, 2010 at 1 p.m. EST I will be participating in a free webcast sponsored by Securities Docket, entitled "2010 Year in Review: Securities Enforcement, Litigation & Compliance."

The webcast panel, which will include Compliance Week editor Matt Kelly, Francine McKenna (re: The Auditors) , Mike Koehler (aka the "FCPA Professor"), Francis Pileggi (Delaware corporate law guru), Tracy Coenen (The Fraud Files), Lyle Roberts (The 10b-5 Daily) and Securities Docket's Bruce Carton, will look back at 2010's most significant events and trends in the areas of corporate compliance, auditor issues, the Foreign Corrupt Practices Act, Delaware corporate law, D&O insurance issues, white collar fraud issues, securities class actions and SEC enforcement.

For further information and to register, please visit the Securities Docket webinar webpage, here.

December 28, 2010
Alcatel-Lucent Settles FCPA Cases
by Tom Gorman

The Department of Justice and the SEC settled FCPA cases with Alcatel-Lucent S.A., a company formed in a November 30, 2006 merger involving Paris, France based Alcatel, S.A. and U.S. based Lucent Technologies, Inc. U.S. v. Alcatel-Lucent S.A., (S.D.Fla. Dec. 27, 2010); U.S. v. Alcatel-Lucent France S.A., (S.D.F.a. Dec. 27, 2010); SEC v. Alcatel-Lucent, S.A., Case No. 1:10-cv-24620 (S.D.Fla. Dec. 27, 2010). The cases allege violations of the anti-bribery, books and records and internal control provisions of the FCPA between December 2001 and June 2006. Until November 30, 2006 Alcatel's ADRs were registered with the Commission and traded in New York.

Prior to the 2006 merger Alcatel, a French telecommunications equipment and services company, conducted much of its business through subsidiaries. Those subsidiaries in turn retained local business agents who helped the company secure business. Using this business model the company paid bribes in Costa Rica, Honduras, Malaysia and Taiwan. It also violated the internal control provisions of the FCPA related to hiring third party agents in Kenya, Nigeria, Bangladesh, Ecuador, Nicaragua, Angola, Ivory Coast, Uganda and Mali.

Specifically, during the time period, the court filings stated that:

In Costa Rica Alcatel CIT (now known as Alcatel-Lucent France S.A.) obtained three contracts worth more than $300 million which yielded profits of over $23 million. About $18 million was paid to two consultants retained by Alcatel Standard A.G. (now known as Alcatel-Lucent Trade International A.G.). About half of that sum was passed to government officials. Phony invoices were used to conceal the scheme.

In Honduras Alcatel CIT was able to retain contracts worth about $47 million which yielded profits of about $870,000. Those contacts resulted from payments made to a local consultant who was personally selected by the brother of a senior Honduran government official. Significant portions of the payments made to the consultant, a perfume distributor with no experience in the telecommunications business, went to government officials.

In Malaysia bribes were paid through agents to obtain or retain a telecommunications contract valued at about $85 million.

In Taiwan Alcatel Standard retained two consultants on behalf of another subsidiary in Taiwan to assist in obtaining an axle counting contract worth about $19.2 million. The two consultants were paid about $950,000 despite the fact that neither had telecommunications experience. The consultants were retained so that Alcatel SEL A.G. (now known as Alcatel-Lucent Deutschland A.G.) could funnel payments through them to Taiwanese legislators to influence the award of the contract which yielded profits of about $4.34 million.

All of these payments were improperly recorded in the books and records of the subsidiaries and the parent company. This resulted, according to the court papers, from a lax system of internal controls.

To settle with DOJ the parent company entered into a deferred prosecution agreement. The two count information charged violations of the FCPA internal controls and books and records provisions. Under the terms of the agreement the company will pay a $92 million criminal fine and a monitor will be installed for three years. In addition, subsidiaries Alcatel-Lucent France S.A., Alcatel-Lucent Trade International A.G., and Alcatel Centroamerica S.A. (formerly known as Alcatel de Costa Rica S.A.) each agreed to plead guilty to a one count information charging conspiracy to violate the anti-bribery, books and records and internal control provisions of the FCPA.

The parent company settled with the SEC by consenting to the entry of a permanent injunction prohibiting future violations of Exchange Act Sections 30A, 13(b)(2)(A), 13(b)(2)(b) and 13(b)(5). The company also agreed to pay disgorgement of $45.372 million and to comply with its undertakings including the appointment of an independent monitor for three years.

According to DOJ the settlement reflects the cooperation of the company after the merger. Prior to the merger there was "limited and inadequate" cooperation. Following the merger cooperation improved significantly. In addition, the company on its own initiative and at substantial cost undertook an "unprecedented pledge" to alter its business model and stop using third-party sales and marketing agents in its world wide business.

Previously, two former Alcatel executives were charged with FCPA violations. One, Christian Sapsizian, a French citizen and Acatel CIT executive, pleaded guilty to FCPA violations and was sentenced to 30 months in prison in September 2008. Edgar Valverde Acosta, a citizen of Costa Rica and former president of Alcatel de Costa Rica, has not been arrested. In January 2010 Alcatel-Lucent agreed to pay $10 million to settle a corruption case brought by the government of Costa Rica based out of the bribery of government officials. The case is the first in Costa Rica's history in which a foreign corporation paid damages to the government for corruption.

December 27, 2010
Against Consumer Choice as an Antitrust Standard (Some Preliminary Thoughts)
by Josh Wright

The "consumer choice" approach to antitrust is increasingly discussed in a variety of settings, and endorsed by regulators and in scholarship, especially but not exclusively in the Section 5 context. The fundamental idea is that the "conventional" efficiency approach embedded in the total and/or consumer welfare standards is too cramped and does not measure the "right" things. The consumer choice is a standard focusing on the options available to consumers and is proposed as an alternative to efficiency-based standards. Preliminary, I do not think the approach as I understand it is an improvement for modern antitrust methods, nor do I think that its adoption would be a good development for the coherence of antitrust jurisprudence or consumers.

Averitt & Lande describe the consumer choice antitrust standard as follows:

It suggests that the role of antitrust should be broadly conceived to protect all the types of options that are significantly important to consumers. An antitrust violation can, therefore, be understood as an activity that unreasonably restricts the totality of price and nonprice choices that would otherwise have been available.

The "consumer choice" framework tells us, Averitt & Lande assert, that from an antitrust perspective "more consumer choice is probably good." The central idea is that the efficiency perspective is hampered by "only" looking at things like prices and output (including quality-adjusted prices), and occasionally innovation. The fundamental observation of the "consumer choice" framework is that a reduction of "choice" (however defined, but lets come back to that), even if coupled with a reduction in price or increase in output, is a cognizable antitrust injury.

The approach is getting some traction.

For example, in a speech, Commissioner Rosch asserts that the appropriate antitrust standard is "is to look at consumer welfare from the buyers' perspective, or what Robert Lande has termed a "consumer choice" perspective, which occurs when a firm's conduct impairs the choices that free competition brings to the marketplace." Indeed, Commissioner Rosch apparently argues that the consumer choice standard not only should be the law, but that it is the law after Leegin, asserting that after the Supreme Court's decision: "injury to consumer choice (as well as an increase in price) is now recognized as injury to consumer welfare in the United States." This, I think, is a controversial and questionable interpretation of Leegin. But holding that aside for the moment, I want to focus on some skeptical observations concerning the utility of such a framework for antitrust analysis, and more importantly, for consumers.

In no particular order:

  1. The biggest shift in antitrust over the past 25 years has been away from indirect and unreliable proxies of consumer harm and toward a more direct effects-based analysis. For example, this is the tale of the antitrust analysis of mergers from Vons Grocery to FTC v. Staples, which Judge Posner describes as the economic "coming of age" or merger analysis. The movement has been away from the structural presumption and away from reliance on market concentration to predict price effects. Instead, the intellectual movement within the Horizontal Merger Guidelines has been to deemphasize market definition and the market definition exercise in favor of direct analysis of competitive effects wherever possible. The argument is that the indirect methods are just means to an end of predicting competitive effects. While I have some qualms about avoiding market definition altogether, the movement away from naked concentration-based presumptions and more sophisticated economic analysis has been good economics and good for consumers.Like the misguided focus on market concentration in the structure-conduct-performance framework at the core of "old" merger analysis, the "consumer choice" framework appears to substitute another indirect proxy for consumer welfare (and if you don't like that term, consumer outcomes). Why not go straight to effects?
  2. The economic point is that a reduction in the number of consumer choices may or may not be good for consumers. Consider the standard exclusive dealing contract with a retail outlet. It, by definition, reduces product variety. But it is well known within the economics literature that exclusive dealing can lower prices, increase output, and enhance competition for distribution. By focusing on the number of choices, the analysis shifts attention to the wrong question from a consumer perspective.
  3. Points (1) and (2) raise an interesting tension that I had not thought of before with respect to the tension here between merger analysis and the consumer choice standard. Surely, those who support the direct, "effects-based" approach embodied in the 2010 Horizontal Merger Guidelines on the grounds that the market definition exercise is unnecessary (from an economic perspective, not a legal one) must not be in favor of injecting into all antitrust cases such an indirect proxy for consumer outcomes.
  4. I've assumed in the discussion above that what the "consumer choicers" have in mind is the classic tradeoff between price and product variety (or other non-price factors), e.g. my exclusive dealing example above. Coca-Cola might compete for exclusives in various distribution channels, offering rebates to retail outlets and other terms that the retail wants. Retailers consider these tradeoffs, standing in as the agent for the ultimate consumers, and make a choice. We know that if we have competition between retailers, those than make the wrong decision will suffer in equilibrium.But one propose that consumer choice means something like "the number of options available to consumers," including all possible dimensions of competition (price, variety, innovation, other amenities).

    From an economic perspective, this seems wrong to me for a number of reasons. Let me focus on one. One very good reason why sellers focus on a combination of product attributes is because consumers want them. Imitation is an important form of competition. Of course, innovation can break up the equilibrium from time to time and that is important too. But we certainly do not know, for example, because many of the firms in a consumer goods industry employ minimum resale price maintenance and use exclusive territories, or that they have similar prices, or similar quality characteristics, that consumers are suffering. In fact, absent evidence of collusion, the homogeneity of options might tell us that the current arrangement is quite beneficial for consumers.

  5. The retailer standing in as the "agent" for consumer preferences raises another important issue. Who is the consumer in the consumer choice framework? Do consumer choicers need a story for why there is market failure at the retail level? Why would supermarkets get the optimal price-variety-quality tradeoffs wrong? If we don't have reason to suspect market failure or collusion at the retail level, is the correct presumption from a consumer-oriented perspective to trust the choices made by the agent?
  6. We know that empirical evidence tells us that exclusives and partial exclusives not only can be pro-competitive, but are generally pro-competitive. It would be odd to overlay an antitrust standard that was presumptively suspicious of these arrangements or, from an economic perspective, adopted the presumption that the price-variety-choice tradeoffs faced by retailers uniformly favored more choice and higher prices.
  7. The fundamental question from an antitrust perspective is whether consumer choice a better predictor of consumer outcomes than current tools allow. There doesn't appear to be anything in economic theory that suggests that it would be. Indeed, the focus on "choice" as a standalone measure of harm parces out individual dimensions of competition rather than focusing on antitrust as a method of governing the competitive process. I do not believe the consumer choice offers better predictive power for consumer outcomes. Further, it appears to be susceptible to interpretations that would sacrifice consumer outcomes or outcomes produced by highly competitive markets on economically unsound grounds.
  8. The consumer and/ or welfare standards as applied in modern economics are certainly imperfect- but I believe the path forward is nudging rule of reason tests towards the minimization of Type 1 and Type 2 error costs + administrative costs based on the best available economic theory and evidence. A consumer choice standard doesn't move the ball forward on any of those margins.

View today's posts

12/28/2010 posts

The Harvard Law School Forum on Corporate Governance and Financial Regulation: HP Severance Case Raises Governance Concerns
Truth on the Market: R.I.P. Alfred Kahn (1917-2010)
Race to the Bottom: Bubbles Happen: Partisan Divide, the Minority Report, and the Financial Crisis Inquiry Commission (Part 2)
Conglomerate: "The Other Guys" ends on a serious note
Race to the Bottom: Bubbles Happen: Partisan Divide, the Minority Report, and the Financial Crisis Inquiry Commission (Part 1)
Securities Law Prof Blog: More Work Needs to be Done on Risk Appetite Frameworks, Senior Supervisors Report
Truth on the Market: Abercrombie goes to Ohio
Truth on the Market: The securities laws and the First Amendment
Securities Law Prof Blog: SEC Obtains TRO Alleging Insider Trading in Martek Acquisition
Truth on the Market: Religion, capitalism and compassion
Securities Law Prof Blog: Alcatel Settles FCPA Charges for $137 Million
Delaware Corporate and Commercial Litigation Blog: Chancellor Chandler Interviewed
D & O Diary: Webcast: 2010 Year in Review- Securities Enforcement, Litigation & Compliance
SEC Actions Blog: Alcatel-Lucent Settles FCPA Cases
Truth on the Market: Against Consumer Choice as an Antitrust Standard (Some Preliminary Thoughts)

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