October 27, 2006
London v New York
Todays article in the NYTimes by Heather Timmons ("Don't Look Back, New York, London is Moving Up Fast") is a healthy public review of the teetering market position of our financial markets. Legal regulation has driven new companies to list in London. Treasury is sponsoring a high level task force headed by Professor Scott at Harvard to look into the matter. They will find what we know. Sarbanes-Oxley Section 404 was a mistake and we need to streamline travel restrictions to allow business people to move into and out of the country. Will the politicians have the courage to fix the problems?
We have seen the opening public salvo on the control of the new NYSE Board once an international deal with Euronext is completed. Europe and the United States are fighting over which countries has a majority of the board. This is a version of the old "local control" controversy (in the United States, for example, foreigners cannot control local airlines, shipping lines, television stations). Europe does not want American running their stock markets and New York does not want Europeans running the NYSE. A structure that isolates subsidiaries is still controlled by a holding company, NYSE Group and the makeup of board of the holding company will be the issue. This is going to get complicated (and silly).
New Rule 452 on the NYSE
The NYSE is moving ahead with new listing rule 452. The Rule lacks only SEC approval. I have mixed emotions about the Rule. The Rule will no longer allow brokers to vote shares held for investors on "routine" proposals if the owner of stock does not return voting instructions at least ten days before a meeting. Brokers vote overwhelmingly for management. Management will have to turn to institutional shareholders (legal intermediaries) for support. The rule will give "majority vote" bylaws more bite as well. Management nominated directors, who need a majority of the vote by bylaw to take their seats, will find it a bit harder to get elected (no enough to worry in my view). At the margin the change seems positive, although it is slight. I would prefer that the NYSE Rule put such issues (on voting procedure) up to a periodic shareholder vote and allow firms to elect rules that suit them. If a firm wants to risk broker voting (and the effect is has on stock price), it should be allowed to do so, as long as shareholders know and approve.
October 23, 2006
The Guidant deal is in the news again (Michael Rapoport, "After Guidant Deal, A Case of Seller's Remorse," WSJ today). Apparently Guidant shareholders that held the stock of Boston Scientific obtained in the deal are worse off than had they taken and held the J&J stock offering in the competing and defeated bid. The lesson is that a shareholder should always sell the stock and take the cash in stock for stock deals; not that the J&J deal was better.
Wall Street Journal v Spitzer
The Wall Street Journal today finally reacted to Spitzer's victory in the Grasso case with another puzzling editorial. I have to believe that something other than the merits of the case is behind the Wall Street Journal's hostility to Spitzer's investigations. The editorial miscast the Ramos opinion -- it did not say, as is alleged in the editorial, that Grasso had a duty to go to each member of the board to explain his compensation -- in an effort to attack the opinion. It did say that Grasso had a duty to accurately disclose the full amount of his compensation package to the board (or its compensation committee) since Grasso and his friends on the board seemed to control over the details of the grants. Not an unreasonable holding.
October 22, 2006
Just hear a talk and small group discussion by two top lawyers from a top New York law firm. They took the following positions, in sequence: All corporate lawyers should do pro bono work (defined as litigation for victims); outside corporate lawyers who worked with the 200 or so firms that backdated options did not facilitate the fraud (they just passed the paper and "trusted" insiders); on stock back- dating, "everyone was doing it" and the profession assumed it to be normal business practice; plaintiff's securities lawyers are in a "bad" business and are, among other things, "insane." Good grief. Anyone else see the problems here. Good pro bono work ought to be in suing top law firms to create at least one case that shapes up the entire business. I hold out a slim hope for the Enron litigation against Vinson & Elkins here.