Following a lengthy and contentious standard setting process, the Public Company Accounting Oversight Board (PCAOB), the U.S. regulator overseeing the auditors of publicly traded companies, implemented Rule 3211 in 2017. This rule requires audit firms to disclose the name of the engagement partner responsible for each of their public company audits on a public filing with the PCAOB known as Form AP. The rule’s advocates argued that public disclosure of the audit partner’s identity would make the partner more accountable and allow investors to more easily judge the partner’s track record for pr ..read more

Starting in the 1930s with the earliest version of its proxy rules, the Securities and Exchange Commission gradually increased the proportion of instructed votes on a shareholder’s proxy card until, for the first time in 2022, it required a fully-instructed proxy card — the universal proxy. This evolution shifted the exercise of the shareholder’s vote from the shareholders’ meeting to the vote delegation that occurs when the shareholder completes the proxy card. In corporate elections today, the voting choice is executed when the binding instruction is made on the proxy card; proxyholders mere ..read more

On April 12, 2024, the U.S. Department of Treasury and the Internal Revenue Service published proposed regulations regarding the 1% excise tax on certain stock redemptions and economically similar transactions (corporate “repurchases”) by publicly traded U.S. corporations (“Covered Corporations”) on or after January 1, 2023, described in Section 4501 of the Internal Revenue Code (the “Excise Tax”). The proposed regulations effectively replace Treasury’s and the IRS’s prior guidance in Notice 2023-2 (the “Notice”) and may generally be relied upon by taxpayers until the regulations are finalized ..read more

Most businesses follow an explicit or implicit code of conduct that guides their operations, their relations with the public, and their treatment of customers, employees, and other stakeholders. These rules often go beyond what is legally required, and businesses often refer to them as their code of business ethics, treating them as an important part of their social and corporate governance. However, as the debate over ESG requirements (i.e., environment, social, and governance goals of a firm) highlights, the costs and benefits of requiring businesses to have clear social goals, or of followi ..read more

In the important 2014 case of Kahn v. M & F Worldwide Corp., the Delaware Supreme Court held that freeze-out mergers, in which a controlling stockholder takes a company private, are subject to Delaware’s heightened “entire fairness” standard of review unless subject, at the outset, to approval by both (i) an independent special committee, and (ii) an uncoerced, fully informed majority of the minority stockholder vote (“MFW Framework”). If the MFW Framework is satisfied, the freeze-out will be subject to Delaware’s more deferential “business judgment” standard of review. Since that ruling ..read more

For many business economists and legal academics, the purpose of any business organization is simply stated: to maximize profits. And it is true that many practical advantages may follow from this statement of purpose. Focusing only on profit-making allows leaders of firms to discount all other moral, social, or environmental claims on a business as irrelevant. Running a business then becomes a question of judging the economic costs and benefits of any proposed course of action. Any other questions are treated as irritating interruptions that are “external” to the internal operations of the fi ..read more

Legislation proposing to amend the General Corporation Law of the State of Delaware (the “DGCL”) has been approved by the Council of the Corporation Law Section of the Delaware State Bar Association and is expected to be introduced to the Delaware General Assembly for consideration during its 2024 regular session.  If enacted, the 2024 amendments will, among other things, make the following changes: Section 122, which enumerates express powers that a corporation may exercise, is being amended in response to the Delaware Court of Chancery’s opinion in West Palm Beach Firefighters’ Pension ..read more

To reduce CO2 emissions, the world needs alternatives to fossil fuels. According to the latest estimates by the International Energy Agency, 35 percent of the green energy required to reach net zero by 2050 depends on technologies not yet on the market. The delay undermines governments’ ability to reduce CO2 externalities through traditional means such as taxes and regulation, because starving people of energy is politically difficult and hard to coordinate internationally. What’s more, so long as burning fossil fuels is profitable, the impact of sustainable finance on global CO2 is limited. H ..read more

Corporate boards will be called upon to renew their oversight of corporate compliance following the recent announcement of several new corporate fraud enforcement initiatives by the U.S. Department of Justice (DOJ). Most notably, these include a new whistleblower program and the expectation that effective compliance programs will monitor the risks of companies’ misuse of emerging technologies, with a focus on artificial intelligence. The announcements were made in conjunction with the American Bar Association’s 39th National Institute on White Collar Crime in early March, in which senior DOJ l ..read more

How do directors add value to corporations, and what are their incentives? They add value through monitoring and advising management – although monitoring seems to have taken precedence in the wake of high-profile financial scandals. As for directors’ incentives, the answer is less straightforward. While director compensation has increased in recent years, non-pecuniary incentives remain important. The typical concern is one of board capture, i.e., directors siding uncritically with management. Yet, there is anecdotal evidence that some CEOs view their boards as overly aggressive and mainly in ..read more