Transparency versus Confidentiality in Public Firms. This post comes from Sergio Gilotta LL.M.’09, Corporate Governance Concentration

December 2, 2013 in Uncategorized by Anastasia A. Tolu, M.Jur. CGC Site Administrator

(Sergio is currently an assistant professor at the University of Bologna. In 2012 he published the book “Trasparenza e riservatezza nella società quotata” (Transparency and Confidentiality in the Public Firm). An article appeared in the 2012/1 issue of the European Business Organization Law Review summarizing the major results of his research.))

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Corporate transparency – and the set of rules mandating it – play a beneficial role for both firm governance and the well-functioning of the securities market. Firms, however, typically retain an interest in confidentiality over data and information that may be at the same time valuable for investors. How should the law address this fundamental conflict? I argue that too broad or unconditional disclosure duties are harmful, since they both weaken the firms’ incentives to innovate and also distort competition in the product market.

Mandatory disclosure systems are increasingly oriented toward price-efficiency goals and such a feature exacerbates the tension. Modern regulation does not tolerate delay in disclosure and demands an ever increasing level of detail in the information released. This is especially true for Europe, where securities regulation mandates listed companies to immediately disclose all their “price-sensitive” information. Some room for rightfully delaying the release of the information is provided, but the scope of the exemption is narrow and – worse – substantial legal uncertainty surrounds its use. Regulators should rebalance such rules, either enlarging the scope of the exemption or redefining the notion of price-sensitive information in more restrictive manner.

In addition, more space should be given to selective disclosure. Allowing issuers to disclose their most secrecy-sensitive data only to a predetermined pool of recipients (such as analysts) instead of releasing it to the public at large would be an effective means for preserving a high degree of informational efficiency in securities prices without harming the disclosing firm.

— Anastasia Tolu, Corporate Governance site administrator

December 9, 2013

In Re MFW Shareholders Litigation (Delaware): this post comes from Alexander Zalivako, LLM’12, Corporate Governance Concentration.

October 30, 2013 in Uncategorized by Anastasia A. Tolu, M.Jur. CGC Site Administrator

Alexander is currently an associate with Bonn Steichen & Partners (Luxembourg).

I have been recently working on a transaction which had the US controlled-merger as its element. In connection with some of that work, I had occasion to examine a recent relevant decision.

On May 29, 2013 the Delaware Court of Chancery (Ch. Strine) ruled in Re MFW Shareholders Litigation that the standard of review applicable to a merger with a controlling stockholder should be a business judgment rule if all of the following conditions are met. First, the merger is approved by an independent committee. Second, the independent committee can freely select its advisers, say “no” to the merger and actually discharges its duty of care. Third, the merger is co-approved by a majority of the minority shareholders.  Fourth, the minority shareholders have been duly informed and were not coerced into voting. Fifth, the controller undertakes not to proceed with any control transaction if either the committee or the majority of the minority shareholders do not approve the merger. Sixth, the above conditions for the merger are announced up-front.

This decision is important because it ends a 20-year old uncertainty of whether Kahn v. Lynch shall be treated as making any merger with the controller subject to the entire-fairness review (as the dictum of the Delaware Supreme Court would suggest).  According to the conservative reading of Kahn v. Lynch any protective devices shift the burden of prove of the entire fairness, but cannot “relax” the standard of review, because of the “inherent coercion” which is present in any transaction with the controller.  Ch. Strine ruled that the entire fairness standard of review will not apply is all conditions of MFW Shareholders are satisfied.

The decision also ends the puzzling inconsistency in the controlled merger / controlled tender offers case law in Delaware. Although, similar in economic result, the latter is subject to the business judgment standard of review if the tender offer of a controller is conditional on a non-coercive, non-waivable majority of the minority tendering into the offer followed by a short-form merger.

The full text of the decision is available here.

— Anastasia Tolu, Corporate Governance site administrator

October 30, 2013


Reliance on Experts from a Corporate Law Perspective. This post comes from Alexandros Rokas, LL.M. ’12, Corporate Governance Concentration.

August 22, 2013 in Uncategorized by Anastasia A. Tolu, M.Jur. CGC Site Administrator

Alexandros is currently an adjunct lecturer at the University of Athens. He recently published an article based on his LLM paper in the American University Business Law Review (Vol. 2:2, 2013, p. 323). The article is titled “Reliance on Experts from a Corporate Law Perspective”.

An overview:

In discharging their duty of care, directors of corporations are not expected to independently investigate all parameters affecting a decision they are about to make.  In fact, statutory provisions encourage or sometimes require directors to seek the advice of experts such as auditors, lawyers, investment bankers, and tax specialists.  In this Article, emphasis is placed on Section 141(e) of the Delaware General Corporation Law, according to which directors are entitled to rely on the advice of such experts as long as they believe that the advice was within the expert’s professional competence, the expert was selected with reasonable care, and reliance is in good faith. Apart from systematizing the elements of this rule, as they were interpreted by a significant number of court decisions, this Article sheds light on the interaction of the reliance defense with basic concepts of Delaware corporate law, mainly the business judgment rule as well as good faith after Caremark.  This Article does not examine whether directors will be eventually held liable (which, besides, is rarely the case in Delaware due to the business judgment presumption, exculpatory clauses, and insurance and indemnification provisions), but solely whether the additional defense of Section 141(e) should apply or not.

The article can be found here.

— Anastasia Tolu, Corporate Governance site administrator

August 26, 2013

New Book on Corporate Governance: Corporate Law and Economic Stagnation. This comes from Pavlos Masouros, LLM’09 Corporate Governance Concentration.

July 16, 2013 in Uncategorized by Anastasia A. Tolu, M.Jur. CGC Site Administrator

Pavlos is currently an Assistant Professor of Corporate Law at Leiden University.

The breakdown of the Bretton Woods system in the 1970s brought about “the Great Reversal in Corporate Governance”, i.e. the reorientation of corporate governance from the institutional logic of “retain and invest” to the logic of “downsize and distribute”, and “the Great Reversal in Shareholdership”, i.e. the shortening of shareholders’ time-horizons.

The Great Reversal in Corporate Governance coupled with the Great Reversal in Shareholdership have contributed to the low rates of GDP growth that are observed in France, Germany, The Netherlands, the UK and the US since the 1970s.

Corporate law has been an accomplice for the Great Reversal in Corporate Governance, and thus corporate law is an initiator of stagnation. A numerical legal index shows how the corporate laws of France, Germany, The Netherlands, the UK and the US incrementally became shareholder-friendlier the years 1973-2007.

Corporate law has acted as a repellent for long-termist investors and has, thus, sustained the Great Reversal in Shareholdership hence contributing to the maintenance of the second factor that brought about the observed low rates of growth over the past four decades.

As a remedy a “Long Governance” legislative agenda emerges that paves the way for the prioritization of long-termist shareholders in corporate governance.

— Anastasia Tolu, Corporate Governance site administrator

July 16, 2013

First Swiss-listed company seeks shareholder advisory vote on political and charitable spending. This post comes from Arie Gerszt, LLM’10, Corporate Governance Concentration.

May 17, 2013 in Uncategorized by Anastasia A. Tolu, M.Jur. CGC Site Administrator

On 9 April 2013, Swiss-listed Mobimo Holding AG held its Annual General Meeting. Among standard agenda matters, Mobimo’s board of directors proposed to request two advisory votes from its shareholders on political and charitable spending.

The first vote is on the amounts spent on charitable donations and on political donations for the past business year. The second vote seeks to allow the board of directors to spend up to CHF 100,000 in political and charitable donations in 2013.

The Swiss-based Ethos Foundation, a Swiss voting and proxy advisor, has commended Mobimo for allowing such advisory votes, on the grounds that only very few Swiss-listed companies feature similar transparency on the issue of political and charitable donations. According to Ethos, this is the first time that a Swiss listed company implements such a vote, allowing shareholders to give their opinion on a very sensitive issue.

Further information:

- Website Ethos:

- Press Release Ethos:

- Website Mobimo:

— Anastasia Tolu, Corporate Governance site administrator

May 17, 2013