Does Majority Voting Improve Board Accountability?

Edward B. Rock is the Saul A. Fox Distinguished Professor of Business Law at University of Pennsylvania Law School. This post is based on a paper, Does Majority Voting Improve Board Accountability?, authored by Professor Rock, Stephen J. Choi, Murray and Kathleen Bring Professor of Law at the New York University School of Law, Jill E. Fisch, Perry Golkin Professor of Law at the University of Pennsylvania Law School, and Marcel Kahan, George T. Lowy Professor of Law at the New York University School of Law.

Directors have traditionally been elected by a plurality of the votes cast (the Plurality Voting Rule or PVR). This means that the candidates who receive the most votes are elected, even if a candidate does not receive a majority of the votes cast. Indeed, in uncontested elections, a candidate who receives even a single vote is elected. Proponents of “shareholder democracy” have advocated a shift to a Majority Voting Rule (MVR), under which a candidate must receive a majority of the votes cast to be elected. This, proponents say, will make directors more accountable to shareholders.


Shedding Light on Dark Pools

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement at an open meeting of the SEC; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today, [November 18, 2015], the Commission considers proposing much-needed enhancements to the regulatory regime for alternative trading systems (“ATSs”) that trade national market system (“NMS”) stocks. I will support these proposals because they could go a long way toward helping market participants make informed decisions as they attempt to navigate the byzantine structure of today’s equity markets.


Rural/Metro and Disclosure Settlements

Joel E. Friedlander is President of Friedlander & Gorris, P.A. This post relates to Mr. Friedlander’s recent article, How Rural/Metro Exposes the Systemic Problem of Disclosure Settlements. This post is part of the Delaware law series; links to other posts in the series are available here.

There is no aspect of merger and acquisitions litigation more pervasive or significant than the disclosure settlement. It is the mechanism by which stockholder claims are conclusively resolved for approximately half of all public company acquisitions greater than $100 million. [1] For that half of major acquisitions, the contracting parties and their directors, officers, affiliates, and advisors receive a court-approved global release of known and unknown claims relating to the merger in exchange for supplemental disclosures to stockholders prior to the stockholder vote. [2] The supplemental disclosures have no impact on stockholder approval of the merger. Nevertheless, in almost every such case, class counsel for the stockholder plaintiff receives a court-approved six-figure fee award for having conferred a benefit on the stockholder class.


Navigating the Cybersecurity Storm in 2016

Paul A. Ferrillo is counsel at Weil, Gotshal & Manges LLP specializing in complex securities and business litigation. This post is based on a summary of a Weil publication; the complete publication is available here.

“Our nation is being challenged as never before to defend its interests and values in cyberspace. Adversaries increasingly seek to magnify their impact and extend their reach through cyber exploitation, disruption and destruction.”

—Admiral Mike Rogers, Head of US Cyber Command September 9, 2015

A very recent article in the UK publication The Guardian, entitled “Stuxnet-style code signing of malware becomes darknet cottage industry,” [1] raises the specter of bad actors purchasing digital code signatures, enabling their malicious code to be viewed as “trusted” by most operating systems and computers. Two recent high profile hacks utilized false or stolen signatures: Stuxnet, the code used to sabotage the Iranian nuclear program, allegedly jointly developed by America and Israel, and the Sony hack which was allegedly perpetrated by the government of North Korea. Both of these instances involve sovereign states, with effectively unlimited resources.


The Pursuit of Gender Parity in the American Boardroom

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s recent Keynote Remarks at the Women’s Forum of New York; the full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

The Women’s Forum of New York remains the critical, groundbreaking organization for successful women that it was when it held its first meeting in 1974. That was, by coincidence, the year I graduated from Columbia Law School. As one benchmark of progress, that year’s graduating class was only 17 percent women. Today that number is 45 percent and, in some years, it is higher.

We all have indeed come a long way since 1974. Today, women receive more than half of all bachelors’, masters’ and doctorate degrees, and more than a third of MBAs. Women are approximately half of the total workforce and half of all managers. But there remain areas stubbornly resistant to the progress that objectively should have already occurred. One in the legal profession is the percentage of women who are equity partners at law firms—18 percent. That number has only increased two percent since 2006, and we had achieved 12.9 percent back in 1994. Another resistant area is the financial arena—we now account for 29 percent of senior officials in finance and insurance, and no woman has, for example, ever been CEO of one of the 22 largest U.S. investment banks or financial firms. A third critical area that has been a particular priority for the Women’s Forum of New York is the focus of today’s event: gender diversity in U.S. boardrooms.


Increasing Transparency of Alternative Trading Systems

Kara M. Stein is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Stein’s recent remarks at a recent open meeting of the SEC; the complete publication, including footnotes, is available here. The views expressed in the post are those of Commissioner Stein and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today [November 18, 2015], the Commission meets to consider a proposal to increase the transparency of alternative trading systems (ATS). Many ATSs are commonly referred to as “dark pools”. To most people, dark pools are a little bit of a mystery, and that’s because they often function in great secrecy. Today’s proposal seeks to shine a light into that darkness.

Modern ATSs are a product of the rapid technological advances that have revolutionized the way stocks are bought and sold. An ATS is an electronic order matching system operated by a broker-dealer. Much like an exchange, it brings together buyers and sellers. There are many types of ATSs, and they facilitate the purchase and sale of all types of securities ranging from equities to corporate bonds to Treasuries, and more. Unlike an exchange, which must disclose publicly quotes and prices at which securities transactions occur, an ATS can operate in the dark with only limited information about its operations.


ISS 2016 Voting Policies

Andrew R. Brownstein is partner and co-chair of the Corporate practice group, and David A. Katz is a partner specializing in the areas of mergers and acquisitions, corporate governance and activism, and crisis management at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Brownstein, Mr. Katz, David M. Silk, Trevor S. NorwitzSabastian V. Niles, and S. Iliana Ongun.

[November 20, 2015], ISS announced its final U.S. voting policies for the 2016 proxy season. ISS had previously released draft proposals on several of the topics in October. Changes to non-U.S. policies were also announced, including with respect to Brazil, Canada, France, Hong Kong & Singapore, India, Japan, the Middle East & Africa and the U.K. & Ireland. ISS also released an updated equity plan scorecard “FAQ,” which contains a new model index for large companies that are newly public or emerging from bankruptcy, as well as other minor adjustments to scorecard factors.


Corporate Law and The Limits of Private Ordering

James D. Cox is the Brainerd Currie Professor of Law of Duke Law School. The following post is based on an article forthcoming in the Washington University Law Review. This post is part of the Delaware law series; links to other posts in the series are available here. Related research from the Program on Corporate Governance includes Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

Solomon-like, the Delaware legislature in 2015 split the baby by amending the Delaware General Corporation Law to authorize forum-selection bylaws and to prohibit charter or bylaw provisions that would shift to the plaintiff defense costs incurred in connection with shareholder suits that were not successfully concluded. The legislature acted after the Boilermakers Local 154 Retirement Fund. v. Chevron Corp ATP Tour, Inc. v. Deutscher Tennis Bund, broadly empowered the board vis-à-vis the shareholders through the board’s power to amend the bylaws. Repeatedly the analysis used by each court referenced the contractual relationship the shareholders had through the articles of incorporation and the bylaws with their corporation. The action of the Delaware legislation hardly puts the important question raised by each opinion to bed: are there limits on the board of directors to act through the bylaws to alter the rights shareholders customarily enjoy? Stated differently, can the board of directors’ authority to amend the bylaws extend to changing both the procedural and substantive relationship shareholders have with their corporation. In examining this question, the article, Corporate Law and The Limits of Private Ordering, develops two broad points: the shareholder’s relationship is more than just a contract and, even if the relationship was contractual, bedrock contract law does not support the results reached in Boilermakers and ATP Tour, Inc. In conclusion, the article also uncovers an issued overlooked in the debate over the relative prerogatives of shareholders and the board of directors, namely that bylaws proposed by the board of directors carry a strong presumption of propriety whereas those proposed by shareholders do not.


Program Hiring Post-Doctoral Fellows and Senior Associates

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The Program on Corporate Governance is seeking applications from highly qualified candidates who are interested in working with the Program as post-doctoral fellows or senior associates in the fields of corporate governance and/or law and finance.

Post-Doctoral Fellows: Applicants for a position of a post-doctoral fellow should be interested in spending between one and three years in preparation for a career in academia or in policy research. Applicants should have a J.D. or an LL.M. degree from a U.S. law school, or a doctoral degree in finance, accounting or business economics. Applicants may also be candidates who would be completing work on a doctoral dissertation in law or another discipline during their period as fellows.

Senior Associates: Applicants for the position of senior associate should be interested in working with the Program on some of its activities in the areas of corporate governance and law and finance. Applicants should have a J.D. or an LL.M. degree from a U.S. law school. Law firm experience in a relevant area of legal practice would be a plus.

During the period of their appointment, post-doctoral fellows and senior associates will be expected to work on research and corporate governance activities of the Program, with the allocation to projects depending on their interests and program requirements.

Applications will be considered on a rolling basis. Applicants should send the following to the coordinator of the Program, at (1) a curriculum vitae; and (2) a 2-3 page statement describing the applicant’s interests, experience, reasons for seeking the position, career plans, and the kind of Program projects and activities in which they would be interested in being involved.

Management Philosophies and Styles in Family and Non-Family Firms

William Mullins is Assistant Professor of Finance at the University of Maryland and Antoinette Schoar is Professor of Finance at MIT. This post is based on an article authored by Professor Mullins and Professor Schoar.

A growing body of evidence supports the view that there are substantial differences in the management styles and skill sets of individual CEOs, and these differences seem to translate into effects on firm performance and how firms operate. However, we know little about what drives these differences in CEO behavior. In particular, we do not know if the management philosophies and styles of CEOs vary with the governance structure or ownership of the firm (for example, whether it is a family firm or widely held firm), or even across countries. One view is that the extent to which they take a stakeholder approach to management—in opposition to a shareholder focused approach—is an important determinant of CEO behavior. Family members as CEO might be more likely to adopt a stakeholder view, since they have a longer horizon and care about the reputation of the family beyond profit maximization. An alternative view holds that greater emphasis on stakeholder management is a feature of entire countries, evolving in response to aspects of the economy as a whole, rather than to firm-specific characteristics.

In our paper, How Do CEOs See Their Roles? Management Philosophies and Styles in Family and Non-Family Firms, forthcoming in the Journal of Financial Economics, we explore how the interplay of firm level and country level factors shape CEO management styles and beliefs regarding their roles.


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