Monthly Archives: October 2007

What in the XBRL is Going On?

This post is from Broc Romanek of TheCorporateCounsel.net.

The SEC recently pulled out all the stops in marketing its “landmark” announcement that the XBRL taxonomy for U.S. financial reports using GAAP is ready to be tested by third parties–but not the general public quite yet–with an intended completion date of December 5th.  (When their work is finished, XBRL tags will allow investors and analysts easily to download financial reports filed with the SEC into spreadsheet software like Excel.)  It certainly is quite an achievement that the team that has worked closely with the SEC Staff has managed to get this project moving so quickly.  This development follows last week’s announcement that the SEC has made the source code for its Interactive Financial Report Viewer available for free use by the market.

This is all to the good.  However, I am a bit concerned about the Chairman’s remarks that rules could be proposed this Spring, and adopted as early as next Fall, mandating the use of XBRL.  A change this big–and this technical–takes time, particularly if our historical experience with Edgar is any indication.  (Perhaps it was an omen that the SEC’s press conference yesterday was delayed by half an hour due to technical glitches.)

It is comforting to know that, over the last year, 8,300 U.S. financial institutions have been using XBRL to submit their quarterly Call Reports to banking regulators.  My faint memory of Call Reports is that they are fairly simplistic compared to U.S. GAAP, but it’s still comforting to know that there is some XBRL experience out there beyond several dozen pilot volunteers.

During his remarks, Chairman Cox waxed about a mythical Sally Q spending more time with her kids because XBRL saved her research time.  I understand his point, but I don’t really view XBRL as a substitute for reviewing SEC filings.  We all know that two companies with identical situations might well report completely different numbers for a particular line item because each selected a different accounting treatment.  Reading the financials in their full context will continue to remain important.

In the end, I think XBRL will have a bigger impact on issuers’ ability to put together their financials internally.  Yes, there might be cost savings, but implementing XBRL will also have costs.  The real change here might be a more streamlined, efficient process for gathering the data that makes up a company’s financials.

Comment Letter of Thirty-Nine Law Professors in Favor of Placing Shareholder-Proposed Bylaw Amendments on the Corporate Ballot

Editor’s Note: This post is from Lucian Bebchuk of Harvard Law School.

Thirty-nine law professors, including myself, have filed a comment letter in favor of placing shareholder-proposed bylaw amendments on the corporate ballot.

The SEC has been seeking comments on two proposals that would allow companies to exclude all or some shareholder-proposed bylaw amendments concerning shareholder nomination of directors. The comment letter opposes both proposals. It urges the SEC to avoid producing impediments to shareholders’ exercise of their right under state law to initiate bylaw amendments concerning shareholder nomination of directors.

There is substantial disagreement among the law professors submitting the comment letter regarding the substantive merits of proxy access bylaws, and thus as to whether shareholders would benefit from adopting such bylaws. We are unanimous, however, in our belief that shareholders should be allowed to make the decision on this subject for themselves, and that companies should not be allowed to make the decision for them by excluding proposed bylaw amendments from the corporate ballot.

The law professors submitting the comment letter are affiliated with twenty-four universities around the country. The full list of the professors and their affiliations is as follows:
Ian Ayres (Yale Law School);
Michal Barzuza (University of Virginia School of Law);
Lucian A. Bebchuk (Harvard Law School);
Laura N. Beny (University of Michigan Law School);
Lisa E. Bernstein (University of Chicago Law School);
Bernard S. Black (University of Texas Law School);
William W. Bratton (Georgetown University Law Center);
Richard Buxbaum (University of California at Berkeley);
William J. Carney (Emory Law School);
Stephen Choi (New York University School of Law);
John C. Coffee, Jr. (Columbia Law School);
James D. Cox (Duke Law School);
Lawrence A. Cunningham (George Washington University Law School);
George W. Dent, Jr. (Case Western Reserve University School of Law);
Einer R. Elhauge (Harvard Law School);
James A. Fanto (Brooklyn Law School);
Allen Ferrell (Harvard Law School);
Jill E. Fisch (Fordham University Law School);
Merritt B. Fox (Columbia Law School);
Tamar Frankel (Boston University School of Law);
Jesse M. Fried (University of California at Berkeley);
Jeffrey N. Gordon (Columbia Law School);
Henry Hansmann (Yale Law School);
Jon D. Hanson (Harvard Law School);
Peter H. Huang (Temple University James Beasley School of Law);
Marcel Kahan (New York University School of Law);
Vikramaditya S. Khanna (University of Michigan Law School);
Reinier H. Kraakman (Harvard Law School);
Donald C. Langevoort (Georgetown University Law Center);
Louis Lowenstein (Columbia Law School);
Steven G. Marks (Boston University School of Law);
Dale Arthur Oesterle (Moritz College of Law, Ohio State University);
Richard W. Painter (University of Minnesota Law School);
Frank Partnoy (University of San Diego School of Law);
Katharina Pistor (Columbia Law School);
Robert A. Ragazzo (University of Houston Law Center);
Kenneth E. Scott (Stanford Law School);
D. Gordon Smith (Brigham Young University); and
Guhan Subramanian (Harvard Law School).

The full text of the comment letter is available here.

Scheme Liability, Section 10(b), and Stoneridge

This post comes to us from Professor Jonathan Adler of the Case Western Reserve University School of Law.  Additional posts on Stoneridge and its potential implications are available here and here.

Next Tuesday, the Supreme Court of the United States will hear oral argument in Stoneridge Investment Partners v. Scientific Atlanta, the most important securities-law case in years.  The question presented–when, if ever, shareholders may sue third parties for their participation in allegedly fraudulent transactions with a public corporation–could have profound economic and legal implications.

The case has attracted over two dozen amicus briefs, filed by everyone from the National Association of Manufacturers to the Council of Institutional InvestorsOver 30 states and divided current and former SEC Commissioners have weighed in.  The case prompted considerable internal debate within the Bush Administration before the Justice Department finally filed a brief opposing liability in the case.

This Friday, the Center for Business Law and Regulation at the Case Western Reserve University School of Law and the Federalist Society’s Corporate Law Practice Group are co-sponsoring a half-day conference analyzing the case, entitled Scheme Liability, Section 10(b), and Stoneridge Investment Partners v. Scientific Atlanta.  Two morning panels will examine the legal and policy questions at issue in the case.  Speakers will include Professors Stephen Bainbridge (of the UCLA School of Law), Barbara Black (of the University of Cincinnati College of Law), Jay Brown (of the University of Denver Sturm School of Law), and Richard Painter (of the University of Minnesota Law School), as well as Andrea Seidt (an Assistant Attorney General of Ohio) and James Copland (of the Manhattan Institute for Policy Research).  A third panel will feature a debate between Eric Isaacson (of the Coughlin Stoia firm) and Ashley Parrish (of Kirkland & Ellis) on the merits of the case.The event is free and open to the public and will be webcast live.

Further details, including registration and information on how to view the webcast, are available here.

Motivations for Public Equity Offers: An International Perspective

This post is from Michael S. Weisbach of Fisher College of Business at The Ohio State University.

I have recently posted my article Motivations for Public Equity Offers: An International Perspective, coauthored with Woojin Kim.  The article examines the reasons that firms tap public equity markets by analyzing the ultimate uses of the funds raised through both initial public offerings (IPOs) and seasoned equity offerings (SEOs) in 38 countries between 1990 and 2003.

It seems that firms spend the money raised mostly on capital expenditures and R&D, suggesting that demand for capital to finance investments is indeed an important motivation behind public equity offers.  On the other hand, some firms seem to take advantage of mispricing in the market by hoarding more cash and offering more old shares–potentially held by insiders–when market valuation is high relative to accounting numbers.  In short, both market timing as well as investment financing seem to drive firms to engage in public offerings.

The full article is available here.

The Rise of the Statutory Business Trust

This Thursday and Friday, Harvard Law Professor Robert Sitkoff, recently named one of Lawyers Weekly‘s up and coming lawyers of 2007, will travel to Delaware for a stay as a visiting scholar at Widener University School of Law.  The visit will feature a presentation of his article Agency Costs, Charitable Trusts, and Corporate Control: Evidence from Hershey’s Kiss-Off, co-authored with Jonathan Klick.  (Professor Sitkoff described that article in this post.) 

On Friday at 2:00 PM, Professor Sitkoff will deliver a talk entitled The Rise of the Statutory Business Trust as part of Widener’s visiting scholar lecture series.  Vice Chancellor Strine will also offer commentary on that subject following Professor Sitkoff’s lecture. Details on the talk, and Professor Sitkoff’s visit, are available here.

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