Commentaries on Critical Legal Issues in 2010

For the second year in a row, Skadden, Arps, Slate, Meagher & Flom LLP has published a collection of commentaries addressing what we see as critical legal issues and areas of focus by businesses and industry sectors likely to be in the forefront of the matters considered by the U.S. and global financial and business communities in the year ahead. Many of these are a direct or indirect product of the national and global financial and economic crises of the past two years. By far the most powerful force that will drive these issues and areas of focus in 2010 is the continuing activist response of governments around the world to the recent financial and economic crises.

Nowhere is this more clearly illustrated than by the dramatic intervention of the federal government in the U.S. with respect to fundamentals of its financial and economic systems. In this regard, two of the major thematic questions from 2009 that will continue to dominate and shape the business environment in 2010 and beyond are:

• How will the federal government use, further broaden or change its newly expanded powers and presence, including in its role as regulator of financial institutions and markets and as a significant investor in the banking, insurance and auto industries?
• How will the federal government’s intrusions into the private enterprise system – through expanded legislatively endowed powers, adoption of more expansive rules and interpretations by regulators and enhanced enforcement efforts – impact capital markets, competition, corporate governance and controversies between the government and private sector or within the private sector?

These thematic questions should not be viewed as presenting inevitable outcomes depending solely on what Washington decides to do. One of the real needs and challenges of 2010 for the private sector is to marshal its forces to have a meaningful and respected voice in these outcomes.

In this regard, among the commentaries contained in 2010 Insights are discussions of the challenges facing boards of directors and management of publicly traded business corporations. These companies play a central role in enabling the U.S. private enterprise economic system. The “reforms” under consideration at the federal level include such matters as proxy access and say on pay and they may finally arrive in 2010. These and other “reforms” represent the federalization of significant aspects of traditionally state-regulated corporate law and a continuing shift away from a board-centric model of corporate governance toward a shareholder-centric model.

At the same time, financial services firms face potential reform legislation that may result in whole new federal bureaucracies, the work of the Financial Crisis Inquiry Commission is just beginning and may result in proposals for additional reforms, the Obama administration has proposed a new tax on the nation’s largest financial institutions and there are continuing calls for heavy taxes to be levied on bonuses paid by banks.

The efforts at reforming Corporate America remain a work in progress. One urgent question for policy makers, business leaders and lawyers is whether all of these changes will ride a wave of populist emotion and become enacted or will they be subject to an open and critical assessment of the risks they pose to our private enterprise economic system. Although recent events may have pointed out some flaws in the system that should be addressed by reforms, our free enterprise system has created vast wealth and successfully endured numerous business and economic cycles. Without question, one ingredient necessary to bring about this open and critical dialogue regarding the proposed reforms involves restoring the credibility of the financial community and public company boards of directors and management so that Corporate America is a meaningful participant in the discussion.

As business lawyers, our first instinct often is to deal with the tasks immediately at hand for clients across a broad range of needs and disciplines – such as protecting a challenge to a client’s intellectual property, defending a mass tort or securities class action lawsuit, implementing a needed capital raise in the most efficient and effective manner, defending or pursuing an unsolicited takeover, just to name a few. However, for the reasons noted above, 2010 is likely to be a year of continuing unusual intersection between law and fundamental policy – including with respect to financial services regulation, the source and substance of corporate governance regulation, healthcare reform, capital markets regulation, consumer protection and intellectual property rights. Accordingly, it will be particularly important for both business lawyers and their clients to understand where these larger issues are arising, how they may be resolved, what consequences may flow from the resolution and how might the outcome be appropriately influenced to produce a better result. We hope that 2010 Insights will contribute to that effort.