Thursday, July 15, 2010
So I’ve been away for a while with a research trip to India and then madly trying to finish a couple of papers related to the trip. Before I left, I blogged about some of Vice Chancellor Strine’s comments during his lecture at Stanford’s Rock Center for Corporate Governance. I think that some of Chancellor Strine’s comments on the efficacy of independent directors should be a warning for those pushing for corporate governance reforms in other countries. I have written previously about the potential pitfalls of importing US-style corporate governance rules with respect to India. I’ve now posted another paper entitled "The Promise and Challenges of India’s Corporate Governance Reforms" which addresses some of the recent reform efforts following the Satyam scandal and the continuing barriers for effective corporate governance. The paper is forthcoming in the inaugural issue of the Indian Journal of Law and Economics.
Recently, there has been some very interesting work on independent directors in India, particularly arising out of unprecedented independent director resignations following the Satyam scandal. The Indian corporate law blog has a very useful post about recent academic literature on corporate governance norms, including the value of independent directors, in India. For those interested in India, all of the papers are worth a careful read.
I think that while the independent director model has much to recommend, there are serious constraints to the model for the Indian context. There is a danger that simply pushing for independent directors will not fully address some important corporate governance concerns in India, particularly the pervasive influence of promoters and controlling stockholders. Others, in particular Umakanth Varottil, have also written on this issue. I highly recommend Umakanth’s recent paper entitled “Evolution and Effectiveness of Independent Directors in Indian Corporate Governance” for anyone who is interested in corporate governance reforms around the globe.
I’ll soon be posting more on other projects related to this trip to India, including a paper on outbound M&A by Indian firms. Stay tuned…
Wednesday, July 14, 2010
should have a distinguished academic background and either great promise or a
record of excellence in both scholarship and teaching. The
Contact: Professor Verna L. Williams, Chair, Faculty
Tuesday, July 13, 2010
B&N's outside counsel from Cravath, Scott Barshay is back on the stand. Says that the "family transfer provisions" that got Burkle so upset early on weren't the idea of anyone in the company and that it all came from Cravath. Barshay is walking through the process of adoption of the rights plan and its amendments. And very quickly the defense is done.
Barshay is now on cross examination.
- "Mr. Barshay, isn't it a fact that the first time you met any members of the board was five minutes before the pill was adopted?"
Five minutes? Ouch.
Counsel is trying to tag Barshay for immediately considering adoption of a rights plan once Burkle surfaced. There's an objection. Strine steps in to calm the children, noting that considering the adoption of a pill would not be an altogether uncommon response.
Pushing Barshay again on his knowledge of the board before he met them for the first time. It sounds like he had no idea who was going to be in the room or the background of anyone on the board. How is that possible? He certainly didn't give a lot of push back on that line of questioning.
Lots of questions regarding the presentations on the rights plan that Barshay prepared for Daniels (24 pages) and the 2 page presentation for the board. Seems like a pretty standard overview of how pills work. Hope B&N didn't pay too much for it. I could have told them the same for less.
Shoutout for Chuck Nathan! An article by Chuck Nathan gets commended to the viewing audience. I guess that's me. I suppose I should find out which article they are talking about.
"Does the pill as it stands does not prevent Riggio and his family from acquiring more stock. Is that correct?"
Because Riggio's adult children aren't living with him, they are not affiliates and don't trigger the beneficial ownership definition under the pill. Barshay tries to push back by pointing to the 13D group requirements, but concedes the defense's general point. Tries to argue that Burkle's kids could buy stock and not trigger the beneficial ownership rules. Defense counsel corrects him by noting that Burkle's kids live with him so, no. Now working through some pill math. Counsel makes the point that the board can accumulate stock without triggering the rights plan while Yucaipa's acquisition of stock would trigger the plan. Cross examination is done.
On re-direct - discussion of whether or not a pill can impede a proxy contest. Barshay's view is that a pill is not triggered by a proxy contest. Indeed, notes that no pill as ever been triggered by a proxy contest.
Strine asking some questions regarding setting of the trigger for the pill at 20%.
Mr. Barshay is excused. B&N lead director Michael Del Giudice is called.
Lots of questions regarding Del Giudice's background and how he came to the board. Everybody - including Strine - is reliving the unfortunate Dukakis presidential campaign and the "tank" incident for which Del Giudice disclaims any responsibility.
Back from the morning break and the plaintiffs object to agreement that has not been produced. The agreement disclaims Del Giudice's financial interest accruing to Rockland that result from any Riggio investment in Rockland. Strine doesn't appear happy that the document hasn't been produced and rules as such.
OK, back to direct testimony. Discussion of the board meeting at which the pill was adopted. Interesting, but not surprising - Riskmetrics' reaction to a pill adoption was a topic of conversation in the boardroom and that the pill was designed in order to be as "Riskmetrics friendly" as possible.
Now on cross, plaintiff's counsel is all geared up for a "Law & Order" gotcha moment, but technical difficulties screw it up. That, and the fact that Del Giudice immediately offers up that he was wrong in his deposition that mistated that Zivaly was not an independent director. You could almost see plaintiff's counsel say - not so soon! I'm not there yet!
I suspect the next couple of minutes will be anticlimatic.
Why are they dragging up the ghost of the Dukakis campaign again? Do they have to ask whether Dukakis won 10 states? Really, where does that get us? Painting Del Giudice as a political fund raiser and Riggio as one of his "go-to" money guys in NY Democratic circles. Don't think that'll go far. Plaintiff's counsel have moved on to describe the various investments that Riggio has made in Del Giudice's Rockland entities. This might have more legs. Riggio made a $20 million investment in Rockland.
I think plaintiffs might be confusing (or obfuscating) good corporate governance with the corporate law. Plaintiffs seem to be implying that because the B&N board is waiting for the SEC to implement rules with respect to independent compensation consultants before it changes its own policy that there is some sort of conflict. That's a weak argument.
Q: If stockholders got together and voted to pull the pill, would that trigger the pill?
A: If there is an arrangement or understanding to vote against the pill, that would trigger the pill.
That seems like the wrong answer. What good is stockholder approval of the pill if stockholders can't organized to vote against it? This question is better asked of the Cravath lawyer. Del Giudice isn't a legal expert and shouldn't be permitted to provide a legal opinion on the mechanics of the pill. Del Giudice has clearly moved beyond his level of knowledge and he knows it.
Break for lunch.
Back from lunch. Couple of questions about whether a group of stockholders representing 20% of all the shares might be required to pay a premium to vote their shares for a director. I'm not sure what that's supposed to mean, but whatever. Plaintiffs are done.
Del Giudice is now on re-direct. Turns out Riggio's $20 million investment is not yet funded.
Del Giudice is excused and defense rests. Various motions regarding admission of evidence.
Strine is venting (for the benefit of the viewing audience apparently) about the lack of tabs and readability of post-trial briefs.
Look at this thing -- no tabs!
Strine is now riffing on the European takeover directive and creeping takeovers. The pill here is being used in a somewhat unusual circumstance. Now you have two block-holders and how to do you deal with them? Eichler and Aletheia seems a mystery to Strine. Why do they refuse to vote their shares? He thinks they may have their own fiduciary issues. He's giving hints for post-trial briefs.
There is skepticism factor that Yucaipa will face in a proxy contest because they are unwilling to make an offer or go on the board.
Snooki?! Yes, Snooki is a character on that Jersey show. How did Snooki make an appearance in Strine's comments? Anyway.
The 20% threshold is sticking in his mind - because Riskmetrics will focus on it - that why the board went for that number. What's not sticking in his mind is whether the board considered or should have considered a larger trigger because of the Riggio block already in place.
It's clear that the differential trigger has gotten Strine's attention - and not in a good way.
Yucaipa needs to sharpen what it wants in this trial - do you want to acquire more shares? Do you just want to feel love? Compares Yucaipa to an adolescent who wants to ask a girl out, but only if she will say yes...
And thus ends Strine's rambling. Briefs are due on Friday evening and then answering briefs on Monday evening. Post-trial arguments will occur late next week.
Monday, July 12, 2010
Once again thanks to the folks at Courtroom View Network, court in Yucaipa v Barnes & Noble is back in session with VC Strine presiding. Nachbar has some initial objections with respect to demonstratives used with those reports.
Kenneth Nachbar making his objections:
VC Strine sounds like a guy who bet on the Netherlands. Not happy about a demonstrative prepared over the weekend. Oh, no. We're back at 6th grade math. The objection is to a demonstrative prepared by the plaintiff to walk through the 6th grade math that caused Strine to break out in a cold sweat on Friday.
VCS: "It's out. ... Honestly speaking, if it's so simple, you could have gotten [the demonstrative] to them on Saturday."
OK, moving on. Now, Daniel Burch, plaintiff's expert, is back on the stand discussing proxy contests and solicitation of proxies. VC Strine is now questioning Burch regarding how one puts together a proxy contest without triggering a 13D filing. Burch is now on cross. Lot's of challenges to the fact that the first draft of his report was prepared by an associate and that he made subsequent corrections to it.
Colloquy between Strine and Burch:
On re-direct. I'm surprised that actual ownership percentages of B&N are really still in issue. Now some discussion about probable votes in the case of a proxy contests. Here's a demonstrative chart comparing Burch's report and the defendant's expert (Harkin). We'll hear from Harkin later.
Nachbar objects to leading questions. Sustained. But, with a warning - if Nachbar wants to be "persnickety" then Strine will let the plaintiffs be persnickety later. I expect there will be fewer of these objections going forward.
VCS to Burch: You are free to stretch your legs and enjoy the Dunkin Donuts on the subterranean level of the courthouse. Burch is excused.
And that's it for the plaintiff's witnesses.
Defense calls their expert, Peter Harkins. While the plaintiff's experts have tried to make the argument that the shareholder rights plan would make it impossible for a dissident to win a proxy contest, Harkins is making the argument that a dissident can win a proxy contest.
On cross: generating these table and charts just requires math, right? Right. Why are we talking about math, again? VC Strine is quiet this morning...maybe mulling the World Cup.
Breaking for lunch.
Back. Harkins is back on the stand under cross. Lots of questions about Alethia's voting (or no-voting) policy.
Strine interrupts to give both sides a hint about what he's thinking. He wants some help with his "limited mind" in post-trial briefings. Specifically, how or why people on either side think that Alethia might at the same time have a policy not to vote its shares and at the same time help finance a proxy contest. It doesn't make sense to him and he'd like people to think about it and explain it to him in post-trial briefs.
Back to cross. Harkins is dismissed after a brief colloquy with Strine regarding the scope of his expert testimony.
Next up for the defense - Jennifer Daniels, former GC for B&N.
She is testifying about the early stages of B&N's adoption of the pill. The argument that the defense is making here is that Jennifer Daniels, as a good GC, moved on her own to start things moving on the adoption of the pill - it's all good corporate stewardship and nothing to do with Riggiio actively seeking to stop Burkle from running a proxy contest.
On cross -
PL Lawyer: Ms. Daniels, did you think you might be a witness in Delaware on this issue?
JD: I was told I might have to give a deposition, and that a I might be required at trial, but was told at the time that "we're not there yet" ...
VCS: Oh, but now the dream has come true and here you are...
Since Daniels is no longer an employee of B&N (she's at NCR now), she's appearing voluntarily. Plaintiffs appear to be trying to make her look like a tool of Cravath and an incompetent lawyer.
You didn't advise the board that Morgan Stanley had been paid $4 million for its work in the College Books transaction? Morgan Stanley also advised on the rights plan.
Don't know if that will fly. Anyway, she's getting annoyed. Strine injects some more levity and then orders a recess.
Back again. Plaintiffs return to the line of questioning suggesting that hiring MS was a conflicted transaction because Riggio had previously hired MS in the College Books transaction and that Daniels is a bad lawyer because she listened to outside counsel on the issue of MS. The independent directors didn't get their own counsel - separate from company counsel - with respect to the question of adopting the rights plan. This issue is potentially problematic, but will it have legs?
On cross, plaintiff's attorneys are now trying to paint Daniels as being motivated by how to protect Riggio's position when she was having discussions with Cravath. She answers that she was thinking about all the possible questions that she might be asked. I wonder if this impresses Strine. Surely, he's hand plenty of contact with GC's like Daniels. We'll see. He's been quiet.
Ouch. Draft minutes of board meeting are in evidence. OK, you're all on notice - never let a junior lawyer draft minutes of a board meeting cause the other side is going to enter them into evidence. And the plaintiffs are done for the day.