Topic: Corporate Governance

California Assemblyman Curt Hagman has introduced a bill in the California legislature that will, if enacted, repeal California’s corporate long-arm statute that imposes provisions of California corporate law on non-California corporations with substantial contacts in California.  The bill (AB 2260) was introduced as a “spot bill” (i.e., a placeholder bill that does nothing other than identify a specific statutory provision to be amended) on February 24, 2012, and was substantially amended on March 29, 2012 to provide for the repeal of California Corporations Code Section 2115.  For many private companies operating in California that organize as Delaware corporations (generally regarded as a preferred state for incorporating), Section 2115 creates uncertainty at times regarding whether California or Delaware corporate law controls.  For example, when a Delaware corporation subject to Section 2115 undertakes to effect a merger, California and Delaware each impose different shareholder consent requirements and have different procedures for non-consenting shareholders to exercise dissenters’ rights, resulting in duplicative and sometimes inconsistent requirements and procedures.  Similar to the impetus for the recently enacted JOBS Act, repealing Section 2115 is another example of deregulatory legislation aimed at removing hindrances to growth companies operating in California.

On January 24, 2012, the NYSE issued a notice regarding Rule 452 that establishes new restrictions on broker discretionary voting.  NYSE Rule 452 regulates when brokers may cast discretionary votes on uninstructed shares.  NYSE Rule 452 permits brokers to exercise their discretion to vote on “routine” proposals when the beneficial owner fails to provide specific voting instructions within 10 days of the scheduled meeting, and prohibits brokers from voting those uninstructed shares on “non-routine” matters.  The NYSE notice states that they re-examined broker discretionary voting on certain corporate governance proposals in light of “recent congressional and public policy trends disfavoring broker voting of uninstructed shares.”  The NYSE’s rule on broker discretionary voting has come under increasing scrutiny in recent years, as evidenced by recent amendments to Rule 452 prohibiting broker voting of uninstructed shares in the election of directors (other than for the election of directors for investment companies), and the provision in the Dodd-Frank Act directing the SEC to prohibit brokers from voting uninstructed shares on executive compensation and other “significant matters,” as determined by the SEC.

For the last decade, governance issues have been a priority at public companies and companies planning to go public.  Recent joint venture activity reflects a carryover from the public company arena of this intense focus on improving governance.  Venture partners are increasingly concentrating on developing and implementing governance best practices within their joint venture vehicles.  This summary provides a brief discussion of recent trends in joint venture governance.

On December 20, 2011, Vice Chancellor Parsons of the Delaware Court of Chancery issued an opinion and entered a temporary restraining order enjoining ChinaCast Education Corporation from holding its annual meeting, scheduled for later that day, until January 10, 2012.  See Sherwood, et al. v. Chan Tze Ngon, et al., No. 7106-VCP (Delaware Court of Chancery).  The Court found that ChinaCast’s actions, having removed incumbent director Ned Sherwood[1] from its slate of nominees less than two weeks before the scheduled annual meeting, did not "comport with the ‘scrupulous fairness’ required of corporate elections."  The opinion serves as an important reminder for companies that while Delaware law provides significant latitude to create processes intended to facilitate the orderly conduct of annual stockholder meetings and election contests, actions that improperly infringe upon the shareholder franchise will be viewed skeptically by Delaware courts.