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Robert B. Lamm

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Bob Lamm co-chairs Gunster’s Securities and Corporate Governance Practice Group.  He has held senior legal positions at several major companies – most recently Pfizer, where he was assistant general counsel and assistant secretary; has served as Chair of the Securities Law Committee and in other leadership positions with the Society for Corporate Governance; and is a Senior Fellow of The Conference Board Center for Corporate Governance.  Bob writes and speaks extensively on securities law and governance matters and has received several honors, including a Lifetime Achievement Award in Corporate Governance from Corporate Secretary magazine.

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Once again, it’s time for me to depart from my nerdy governance life and list my 10 favorite books of the year gone by.  For those of you who are new to these annual posts, my top 10 list reflects what I read last year, rather than what was published during the year.

The only significant departure from prior years is that in a couple of instances I’ve combined two books by the same author.  So here goes:

Non-Fiction

  1. Say Nothing by Patrick Radden Keefe. This is probably the best work of what is now called “narrative non-fiction” that I’ve read in many a moon.  It tells the story of “The Troubles” in Northern Ireland but goes well beyond that.  It is gripping and sad and brilliantly executed.
  1. Why Be Happy When You Could Be Normal? By Jeannette Winterson. As long as we’re talking in superlatives, this is one of the best memoirs I’ve read in a long time – and I’ve read some very good ones.  Winterson had a miserable childhood that could ruin anyone, but she has risen above her beginnings with grace and humor.  This is one of the few books that is undoubtedly better as an audiobook, as Ms. Winterson is the narrator, and her Manchester accent is perfect.   (If you were driving near me on I-95 and saw me laughing out loud, reading the book will help you understand that I had good reason.)

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About a year ago, I was speaking with the governance committee of a prospective client.  One of the committee members asked me what the “best practice” was in a particular area.  I said that I hate the term “best practice,” because one size never fits all, there is almost always a range of perfectly fine practices, and that a company needs to think about how a particular practice would work (or not) given its industry, its history, and its culture, among the many things that make a company unique.  Afterwards, I wondered if my candor would result in not getting the work, but evidently the committee agreed, and the rest is history.

At the time, I’d forgotten about a 2015 blog post I’d written on so-called best practices.  In fact, I continued to forget about it until I recently read a fantastic paper published by the Rock Center for Corporate Governance at Stanford.  Loosey-Goosey Governance discusses four misunderstood governance terms: good governance, board oversight, pay for performance, and sustainability.  Along the way it demonstrates how wrong “conventional” wisdom can be – and is – regarding what companies should and should not do in the governance realm.  Some examples:

  • Independent chairmen: There are those in the institutional investor community, the media, and elsewhere who seem to believe that having an independent chairman (or woman) of the board is the sine qua non of corporate governance.  I’ve long disagreed with this notion (see my earlier blog post), and Loosey-Goosey agrees with my view.  In fact, it points out “that research shows no consistent benefit from requiring an independent chair.”
  • Staggered boards: Similarly, the conventional wisdom holds that staggered boards are the next best thing to satanic. Loosey-Goosey sticks a pin in this balloon by noting that “research shows quite plainly that the impact of a staggered board is not uniformly positive or negative.”
  • Dual-class shares: I am not a fan of dual-class shares, particularly when they prevent boards of directors from having any meaningful role in governance. (As my good friend Adam Epstein has noted, it’s hard to understand why anyone would join a board of a corporation that doesn’t permit him/her to govern.)  However, here again, Loosey-Goosey points out that “[w]hile…research…on dual-class share structures tends to be negative, it is not universally so,” and that a dual-class structure can provide benefits.

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Although Dodd-Frank was enacted in 2010, the rule needed to implement one of its provisions – the requirement to disclose hedging policies – only recently took effect.  In fact, for calendar-year companies, 2020 will be the first year in which the proxy statement will have…

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A few years ago, a wonderfully outspoken member of the institutional investor community congratulated me on a corporate governance award I’d received.  She apologized for not being able to make it to the awards ceremony, referring to it – very aptly, IMHO – as the “nerd prom.”

Well, we’ve progressed from the nerd prom to a nerd war – specifically, the nasty fight over the August 19 Statement on the Purpose of the Corporation, signed by 181 CEO members of The Business Roundtable.  The Statement suggested that the shareholder-centric model of the modern American corporation needs to be changed and that “we share a fundamental commitment to all of our stakeholders.”  The stakeholders listed in the Statement were customers, employees, suppliers, and the communities in which the companies operate; however, other stakeholders were referred or alluded to, such as the environment.  And the final bullet point in the list stated that the signers were committed to:

“Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.”

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In case you think that SEC Regulation FD is old news, think again.  A recent enforcement action makes it clear that Reg FD is alive and well.  (And, I might add, living in Boca Raton, Florida.)

Specifically, in an August 20 announcement, the  SEC announced that it had charged a Boca Raton-based pharmaceutical company with FD violations “based on its sharing of material, nonpublic information with sell-side research analysts without disclosing the same information to the public.”  The more detailed allegations include the following:

  • In June 2017, the company privately advised analysts of a “very positive and productive” meeting with the FDA about approval of a new drug. The next day – before any public announcement – the company’s stock closed up nearly 20% on heavy volume.
  • One month later, the company issued an early morning press release that it had submitted additional information to the FDA but “did not yet have a clear path” regarding its new drug application. The stock declined 16% in pre-market trading following the issuance of the release.  However, after issuing the press release but before the opening of the market, the company provided analysts with previously undisclosed information about the June FDA meeting.   The analysts published research notes with these details, and the stock rebounded, to close “only” 6.6% down for the day.

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In recent years, the SEC has made a number of incremental changes to make disclosures more effective – not only more meaningful and user-friendly for investors, but also helpful to those of us who prepare disclosures for our companies and clients.

The drive to make disclosures more effective seems to have kicked into a higher gear with the August 8 issuance of a proposal that may result in the most significant changes in the disclosure rules in more than 30 years.  The proposal would modify some key provisions of Regulation S-K, and in doing so would move considerably closer to a principles-based approach to disclosure.   Some details follow.…
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I recently came across an article reporting that the interim president of a state university system had failed to report a number of corporate board seats on his ethics forms.  That got me thinking about the forms he may have been asked to complete, which in turn got me thinking about D&O questionnaires.

Getting directors and officers to accurately complete and return questionnaires in a timely manner is one of the most frustrating tasks faced by corporate secretaries.  Years ago, I was speaking at a program for aspiring corporate governance nerds, when a young aspirant asked me if I had the secret to getting this task done.  If memory serves me correctly, my response was to the effect that if I had the answer to her question, I could retire.

However, I sometimes think that people who circulate questionnaires are their own worst enemies.  For example, a recent study reported that D&O questionnaires averaged 40 pages and 65 questions.  That means that some, perhaps many, questionnaires are far longer.  It’s unrealistic to expect someone with a life – much less a day job – to devote the amount of time necessary to complete a 40-page (or longer) questionnaire, particularly when many questions don’t lend themselves to simple “yes” or “no” answers.…
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In December 2014, I posted my concerns with the law on insider trading.  Perhaps someone read it, because the following year, H.R. 1625, the “Insider Trading Prohibition Act,” was introduced in the House of Representatives.  I regarded it as imperfect but a start.   Of course, it went nowhere, and the state of the law has not changed.

Well, it’s back – sort of – and may have a bit of life.   H.R. 2534, with the same title as in 2015, was introduced by Congressman Jim Himes (D-CT), who introduced the 2015 bill, and co-sponsored by Carolyn Maloney (D-NY) and Denny Heck (D-WA).  What’s new about the bill is that it was approved – unanimously – by the Financial Services Committee in May.  That probably doesn’t mean anything, as Congress seems to be the place where legislation goes to die, but I suppose anything is possible.

Like its predecessor, it’s a start.  But I still think it’s imperfect.  The title of the first section is promising: “Prohibition Against Trading Securities While In Possession Of Material, Nonpublic Information.”  Sounds good, right?  The mere possession of MNPI means you can’t trade.  Wrong.  The text of the section gives the lie to its title.  Specifically, the prohibition exists only if the person trading “knows, or recklessly disregards, that such information has been obtained wrongfully, or that such purchase or sale would constitute a wrongful use of such information.”  In other words, (1) the bill seems to say it’s OK to trade while in possession of inside information as long as the information was not known to have been obtained wrongfully or is being used wrongfully (whatever the latter means), and (2) it would get us right back into the very issues that make the present state of the law so confusing.  You can’t trade in a stock if you know (or should have known) that the MNPI was wrongfully obtained, but what if you don’t know or have no reason to know it was wrongfully obtained?  If someone suggests that you buy (or sell) a particular stock, what is your duty of inquiry, and where does it end?

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For those of you who’ve heard me sing, rest easy – I’m not going to break into “As Time Goes By.”  But the lyric I’ve quoted in the title is worth noting.  In fact, it was noted, albeit in substance rather than form, in the June 18 opinion of the Delaware Supreme Court in Marchand v. Barnhill.  The opinion, written by soon-to-retire Chief Justice Leo Strine (more on that below) addressed two fundamental matters – director independence and the board’s oversight responsibilities.

The case resulted from a listeria outbreak caused by contaminated ice cream.  (The thought of contaminated ice cream is too upsetting, but that’s for another day.)  The key holdings referred to above were as follows:

  • Director Independence: The trial court had dismissed the complaint for failing to make a pre-suit demand on the board, based on its conclusion that the a majority of the board – albeit the slimmest majority of one director – was independent. However, when the Supreme Court considered the background of that one director, it determined that he was not independent.  Thus, the slim majority went away.  The relevant facts included that the director had worked for the company in question for 28 years, including as its CFO and a director, and that the company’s founding family had helped to raise more than $450,000 for a local college that named a building after the director.  The fact that the director had supported a proposal that the founding family opposed – i.e., separating the chair and CEO positions – was deemed by the Supreme Court to be insufficient to support a finding of independence.
  • Board Oversight: The Delaware Supreme Court found that the board had breached its fiduciary duty of loyalty by failing to oversee a significant risk – product contamination – leading to the conclusion that the board had demonstrated bad faith. As is usually the case, Chief Justice Strine says it better than I possibly could.  Citing the landmark 1996 Caremark decision, he writes:

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