Saturday, September 14, 2013
As I mentioned in my opening post, I’m a big fan of Jay Brown. So, I plan on routinely passing on what he’s blogging about. This week, I’ve got two items:
In Corporate Governance, the SEC, and the Declining Importance of Delaware Law, Jay suggests that “the SEC, rather than Delaware, may increasingly be the driving force behind the development of substantive duties for directors.” Here’s an excerpt:
[In] In re Alderman … the Commission settled an action against directors of a mutual fund. The Commission first found a duty -- "Under the Investment Company Act, directors had an obligation to make good faith efforts to ensure that certain below-investment grade debt securities for which market quotations were not readily available were valued at fair value." The Commission then concluded that this duty had not been fulfilled…. Likewise, the Commission has sanctioned companies and boards for failing to adequately disclose the process used in reaching a decision…. Unlike the law in Delaware where less board involvement usually reduces the risk of liability (and encourages the ostrich approach to governance), these cases suggest that greater involvement by directors will in fact reduce the risk of an enforcement proceeding by the SEC.
In Wall Street, Risk Reduction and the Case for Glass Steagall, Jay opines:
In reducing the amount of risk taking, bank regulators are focusing on the protection of deposits not the collateral consequences to the capital markets. Perhaps the US capital markets permitted too much risk taking. Certainly the financial crisis demonstrated that independent investment banks required some additional oversight. But the steps taken by bank regulators are not done with the interests of the capital markets in mind. A re-separation of investment and commercial banking (some form of Glass Steagall) would allow for the rise of independent intermediaries that are regulated not as banks but as brokers. This in turn would allow some of the lost risk at places like Morgan Stanley to remain in the capital markets.
I encourage you to check out both posts in their entirety.