Maureen Dowd's January 31, 2009 column in the New York Times reflected the rage of millions when she exclaimed, "The president's disgust at Wall Street looters was good. But we need more. We need disgorgement."-
Dowd then defines disgorgement as occurring "when courts force wrongdoers to repay ill-gotten gains. And I'm ill at the gains gotten by scummy executives acting all Gordon Gekko while they're getting bailed out by us."-
The columnist points out the towering difference between the Tom Daschle flap over $140,000 in back taxes alongside the gluttony of Wall Street bankers giving themselves $18.4 billion worth of bonuses for last year.
Senator Claire McCaskill of Missouri demonstrated the same outrage in introducing a bill to limit the pay of anyone at firms taking federal money to no more than the $400,000 yearly salary made by President Obama.
"These people are idiots,"- McCaskill thundered on the Senate floor. "You can't use taxpayer money to pay out $18 billion in bonuses."- Right now they're on the hook to us. And they owe us something other than a fancy wastebasket and $50 million jet."-
After doing some research it was refreshing to discover that there is recent precedent on the issue of disgorgement of bonuses.
In the case of Julian v. Eastern States Construction Service, Inc., decided July 8, 2008, the Delaware Chancery Court "required directors to disgorge a $1.3 million bonus they had given themselves in a self-interested manner, without any independent protections, and based on their failure to satisfy their burden to demonstrate the entire fairness of their decision."-
The Court ruled that self-interested directorial compensation decisions made without independent protections were, like other interested transactions, subject to entire fairness review. Directors of a Delaware corporation who stand on both sides of a transaction have "the burden of establishing its entire fairness, sufficient to pass the test of careful scrutiny by the courts."-
The Court's rationale was predicated on the principle of "entire fairness"- and, disdaining a focus on individual components, made its determination on all aspects of the entire transaction.
The Court explained the reason for its conclusion:
"To summarize, the Benchmark Bonuses were the product of an unfair process. The record indicates no coherent, credible reason for the bonuses other than in reaction to Gene's (Gene Julian) retirement. Additionally, there was no notice, meaningful deliberation, or independent advice or research before the board's action."-
The Court held that Delaware law presumes "the directors of a corporation acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the company."- The Court noted precedent opinions in the 2006 Delaware case of In re Walt Disney Company Derivatives Litigation and the 1984 case of Aaronson v. Lewis.
Within this same legal framework one can hear Congressman Barney Frank asking a contingent of bank CEO's earlier in the week on Capitol Hill how their performances might differ were they not to receive bonuses. Just what will America's citizenry lose if these executives are denied bonuses at this critical hour of the nation's economic history?
