The time for gratitude approaches

Let's cast our minds back to the earlier months of this year, because I'd like to say something about two decisions in the Delaware Chancery Court for which members of incumbent boards of directors might be a bit grateful when they bite into their Turkey or Turducken or tofu creation this coming Thursday.

In January 2007. an activist hedge fund, Harbinger Capital Partners, sued Openwave Systems, a California software company of which it held a substantial block of stock.

Harbinger said that it had nominated two candidiates for the board of directors, and that Openwave was putting obstacles in the way of a fair vote.

The matter was tried in March, and the court issued its decision in May. In essence, the court acknowledged that Openwave's bylaws governing elections were on one reading blatantly contradictory and on any reading at least confusing. Still, it upheld the exclusion of the slate that Harbinger had sought to nominate.

“Confusion does not excuse Harbinger’s failure to comply,” reads one subhead in the court’s opinion, issued in May. It was all reminescent of the butterfly ballots in a certain Florida election in November 2000. Yes, they were confusing, but the results stand.

Another hedge fund, Pershing Square LP, challenged another incumbent board of directors, and brought a claim before the Delaware Chancery Court at around the same time that Harbinger's was pending.

In the course of a proxy fight concerning Ceridian, Pershing Square had sought access to letters written by senior management figures. It suspected (because of a leaker) that the letters contained allegations of mismanagement on the part of a former chief executive of Ceridian and an absence of oversight on the part of the board.

The court decided that the stockholders weren’t entitled to the letters at issue. “A corporate defendant may resist demand where it shows that the stockholder’s stated proper purpose is not the actual purpose for the demand,” it wrote. This is all rather unkind to the old-fashioned notion that shareholder own the darned company. Shouldn't they be able to demand pertinent documents without undergoing a session on the couch to alow Dr. Freud to figure out their 'real' motivation.

Of course, it's Oedipal! The hedge fund, the court rather accusatorily opined, just wanted “to find a legal vehicle by which Pershing Square can publicly broadcast improperly obtained confidential information.” The court said that it must protect the confidentiality of certain exchanges in order not to chill the candid expression of views among executives and directors, so … Pershing lost.

Delaware is still largely an incumbent board's state, which is of course why company's continue to incorporate there.

Do I have any reforms to propose? Heck, no. Hedge fund managers are big boys and they can take a couple of set-backs like this. Over time, the pressure of economic reality and ther litigation it generates does transform legal systems, even Delaware's corporate law. But it is a slow process, as perhaps it should be, and the gladiators give some of us spectators some grist for our analytical mills.

For which I am grateful.