Bailout Means the Feds Wield More Corporate Power
The many hidden yet far-reaching implications of the massive bailout bill surface daily. One major effect will be the federal government encroaching into areas of corporate law normally governed by states. Specifically, the bailout bill puts limits on executive pay and tries to prohibit golden parachutes from executives of the rescued banks and corporations. Marcia Coyle has a very interesting article in the National Law Journal on what this could mean for Delaware law, where more than 60 percent of Fortune 500 companies are incorporated. The article addresses whether the bailout bill is the first step in the federal government taking a more active role in corporate governance at the expense of Delaware and other states.
Corporate governance scholar J. Robert Brown, Jr., of the University of Denver Sturm College of Law is quoted asking the same question that many of us have right now:
"Why weren't the board of directors on top of this excessive risk-taking?" he asked.
There is a perception that directors sit on boards merely for getaways to New York, the fancy restaurants, Broadway shows, connections, and, oh yeah, the stock.
It is a fair question to ask whether the directors at these banks and corporations asked their executives any questions about the risky bets their companies were making in credit default swaps and mortgage-backed securities. Or did the directors simply show up at the meeting, glance at the balance sheet, take their check and head to Broadway for the show? If so, what liability should they have now? At what point does risky investing become a breach of fiduciary duty?
One guy who couldn't be more ticked about Lehman's "timid" board of directors is Carl Icahn. Read his post on The Icahn Report.
Will Congress decide to meddle where it thinks Delaware and other states may have failed? There is no question that the federal government looms much larger in the corporate governance world today than it did two weeks ago. What will the collateral damage be from bailout bill? Stay tuned.
For more on this subject check out Francis G.X. Pileggi's Delaware Corporate and Commercial Litigation Blog or The Conglomerate.
