Category Archives: Legislative & Regulatory Developments

“Pay Versus Performance” Rule Proposed by SEC Under Dodd-Frank

Joseph E. Bachelder is special counsel in the Tax, Employee Benefits & Private Clients practice group at McCarter & English, LLP. The following post is based on an article by Mr. Bachelder which first appeared in the New York Law Journal. Andy Tsang, a senior financial analyst with the firm, assisted in the preparation of this column. Related research from the Program on Corporate Governance about CEO pay includes Paying for Long-Term Performance (discussed on the Forum here) and the book Pay without Performance: The Unfulfilled Promise of Executive Compensation, both by Lucian Bebchuk and Jesse Fried.

 

“We are drowning in information, while starving for wisdom.” —E.O. Wilson [1]

On April 29, the Securities and Exchange Commission announced its proposal to add a new Item 402(v), captioned “Pay versus Performance,” to Regulation S-K. [2] The SEC announced the proposed rule pursuant to Dodd-Frank Section 953(a). [3] Section 953(a) directs the SEC to adopt rules requiring that proxy statements and certain “consent solicitation material” [4] provide “information that shows the relationship between executive compensation actually paid and the financial performance of the issuer, taking into account any change in the value of the shares of stock and dividends of the registrant and any distributions.” This is in addition to information already provided under Item 402 of Regulation S-K.
READ MORE »

Money Market Mutual Funds: Stress Testing & New Regulatory Requirements

Jeremy Berkowitz is Vice President in NERA’s Global Securities and Finance Practice. This post is based on a NERA publication authored by Dr. Berkowitz, Patrick E. Conroy, and Jordan Milev.

In July 2014, the Securities and Exchange Commission (SEC) adopted a package of reforms to the regulatory framework governing money market mutual funds. The SEC believes the new rules will enhance the safety and soundness of the money market fund industry during periods of market distress, when redemptions in some funds may increase substantially. [1]

The new rules require institutional prime (general purpose) and institutional municipal money market mutual funds to price and transact at a “floating” net asset value (NAV), permit certain money market mutual funds to charge liquidity fees, and allow the use of redemption gates to temporarily halt withdrawals during periods of stress.
READ MORE »

Delaware LLC and Partnership Law

Gregory P. Williams is chair of the Corporate Department at Richards, Layton & Finger. This post is based on a Richards, Layton & Finger publication, and is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Delaware has recently adopted legislation amending the Delaware Limited Liability Company Act (LLC Act), the Delaware Revised Uniform Limited Partnership Act (LP Act) and the Delaware Revised Uniform Partnership Act (GP Act) (collectively, the LLC and Partnership Acts). The following is a brief summary of some of the more significant amendments that affect Delaware limited liability companies (Delaware LLCs), Delaware limited partnerships (Delaware LPs) and Delaware general partnerships (Delaware GPs).

Default Class or Group Voting Requirements Eliminated

The LLC Act and the LP Act have been amended to eliminate the default class or group voting requirements in connection with the merger or consolidation, transfer or continuance, conversion, dissolution and winding up of a Delaware LLC or Delaware LP and the termination and winding up of a series of a Delaware LLC or Delaware LP. The recent amendments provide that, in connection with the foregoing matters, the default class or group voting requirements under the LLC Act and the LP Act, as in effect on July 31, 2015, will continue to apply to a Delaware LLC or Delaware LP whose original certificate of formation or certificate of limited partnership was filed with the Delaware Secretary of State and is effective on or before July 31, 2015, unless otherwise provided in a limited liability company agreement or partnership agreement.

READ MORE »

DGCL Amendments Authorize Exclusive Forum Provisions and Prohibit Fee-Shifting Provisions

Laura D. Richman is counsel and Andrew J. Noreuil is partner at Mayer Brown LLP. This post is based on a Mayer Brown Legal Update, and is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

A great deal of attention has been paid over the past few years to efforts made by corporations to control in which courts internal corporate claims may be brought or to compel unsuccessful plaintiffs in internal corporate claims to pay the defendant’s attorneys’ fees and costs. Recently enacted amendments [1] to the Delaware General Corporation Law (DGCL) address, among other things, two types of charter or bylaw provisions on these topics that some companies have adopted.

The amendments specifically authorize provisions that specify Delaware as the exclusive forum for internal corporate claims, defined as “claims, including claims in the right of the corporation, (i) that are based upon a violation of a duty by a current or former director or officer or stockholder in such capacity, or (ii) as to which this title confers jurisdiction upon the Court of Chancery.” However, the amendments ban fee-shifting provisions that would impose liability for attorneys’ fees and costs on stockholders bringing unsuccessful internal corporate claims. The amendments to the DGCL become effective on August 1, 2015.

READ MORE »

Amendments to the DGCL

Gregory P. Williams is chair of the Corporate Department at Richards, Layton & Finger. This post is based on a Richards, Layton & Finger publication, and is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Senate Bill 75, which contains several important amendments to the General Corporation Law of the State of Delaware (the “DGCL”), was signed by Delaware Governor Jack Markell on June 24, 2015. As described in this post, the 2015 legislation includes, among other things:

  • Prohibition on Fee Shifting. The legislation amends Sections 102 and 109 to prohibit “fee shifting” provisions in certificates of incorporation and bylaws of stock corporations.
  • Authorization of Delaware Forum Selection Clauses. The legislation adds new Section 115 to validate provisions in certificates of incorporation and bylaws that select the Delaware courts as the exclusive forum for “internal corporate claims.”
  • Flexibility in Stock and Option Issuances. The legislation amends Section 152 to provide greater flexibility in stock issuances, and makes corresponding amendments to Section 157 in respect of the authorization of rights and options to purchase stock.
  • Ratification of Defective Corporate Acts and Stock. The legislation amends Sections 204 and 205 to clarify and streamline the procedures for ratifying defective corporate acts and stock.
  • Public Benefit Corporations. The legislation amends Section 363 to loosen the restrictions on (x) an existing corporation becoming a “public benefit corporation” and (y) a public benefit corporation ceasing to be a public benefit corporation. It also adds a “market out” exception to the appraisal rights provided in Section 363(b) in connection with a corporation becoming a public benefit corporation.

READ MORE »

New DGCL Amendments Endorse Forum Selection Clauses and Prohibit Fee-Shifting

Jack B. Jacobs is Senior Counsel at Sidley Austin LLP, and a former justice of the Delaware Supreme Court. The following post is based on a Sidley update, and is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

As expected, the Delaware State Legislature approved amendments to the Delaware General Corporation Law (DGCL) that will (i) authorize forum selection clauses in the charters or bylaws of Delaware corporations specifying Delaware as an exclusive forum for litigating internal corporate claims, (ii) prohibit clauses designating only courts outside of Delaware as the exclusive forum for internal corporate claims and (iii) invalidate fee-shifting provisions in the charters or bylaws of Delaware stock corporations. The bill incorporating the amendments passed the Delaware Senate on May 12, 2015 and the Delaware House on June 11, 2015. If the Governor of Delaware signs the bill into law as expected, the amendments will become effective on August 1, 2015.

READ MORE »

Does Pending Delaware Legislation Cover Fee Shifting in Securities Cases?

Neil J. Cohen is the publisher of the Bank and Corporate Governance Law Reporter. The article is part of a series of articles on the Delaware legislation regarding fee shifting, published in the June 2015 issue of the Bank and Corporate Governance Law Reporter (available here). This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

The Delaware Senate by a 16-5 vote has passed Bill 75 banning fee-shifting provisions in charters and bylaws in stock corporations for “internal corporate claims”. The bill also contains a prohibition of bylaws or charter provisions that designate a forum other than Delaware as the exclusive forum. That provision would prevent corporations from designating forums that allow fee-shifting provisions.

The Senate resisted a lobbying effort by the Chamber of Commerce’s Institute for Legal Reform to insert a provision expanding the Court of Chancery’s discretionary authority to shift to include cases that “plainly should not have been brought but that do not satisfy the extremely narrow ‘bad faith’ or ‘frivolousness’ exceptions”.

The House is expected to approve the bill in June. If enacted, the amendments would become effective on August 1, 2015.

READ MORE »

“No Pay” Provisions: The Forgotten Middle Ground In The Fee-Shifting Battle

A. Thompson Bayliss is a partner at Abrams & Bayliss LLP. This post is based on a Abrams & Bayliss publication by Mr. Bayliss and Mark H. Mixon, Jr. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

If it becomes law, Delaware State Senate Bill 75 will prohibit Delaware stock corporations from adopting provisions in their bylaws or certificates of incorporation that would shift legal fees to the losing party in stockholder litigation. [1] The debate over these so-called “loser pays” provisions and the proposed legislation prohibiting them has generated controversy nationwide. Opponents of the legislation argue that abusive lawsuits impose a “merger tax” and that prohibiting “loser pays” provisions would “eliminate an important mechanism” that could “protect innocent shareholders against the costs of abusive litigation.” [2] Proponents of the legislation contend that “loser pays” provisions would “foreclose meritorious stockholder claims [and] render illusory the fiduciary obligations of corporate directors.” [3] Both sides of the public debate have overlooked the availability of “no pay” provisions, which could transform stockholder litigation without the effects that make “loser pays” provisions unpalatable to many. [4]

READ MORE »

SEC Responds to FAQs on 2014 Money Market Reform Release

John M. Loder is partner and co-head of the Investment Management practice group at Ropes & Gray LLP. This post is based on a Ropes & Gray Alert.

On April 22, 2015, the Securities and Exchange Commission (“SEC”) staff released guidance (available here), titled “2014 Money Market Fund Reform Frequently Asked Questions,” that discusses various interpretive issues arising from the SEC’s 2014 Money Market Fund Reform release (the “2014 Reform Release”). On April 23, 2015, the SEC staff released additional guidance (available here), titled “Valuation Guidance Frequently Asked Questions,” that discusses the valuation guidance applicable to all mutual funds that was included within the 2014 Reform Release. Both the April 22 release and the April 23 release (together, the “Guidance”) were in a question-and-answer format and represent the views of the SEC’s Division of Investment Management’s staff (the “IM Staff”). This post discusses the highlights of the Guidance.

For a detailed discussion of the 2014 Reform Release’s effects on money market funds, please refer to our August 2014 Alert, which can be accessed here.

READ MORE »

SEC Broadens Focus on and Requirements for 13D Amendment Disclosure

Philip Richter is co-head of the Mergers and Acquisitions Practice at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication authored by Mr. Richter, Steven Epstein, Abigail Pickering Bomba, and Gail Weinstein. Related research from the Program on Corporate Governance about blockholder disclosure includes The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here), and Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon Brav, Robert J. Jackson Jr., and Wei Jiang.

The SEC recently announced settlements of charges against insiders relating to three different going private transactions. The settlement orders (the “Orders”) reflect a general increased focus by the SEC on insiders’ compliance with Schedule 13D amendment requirements in connection with going private transactions (and possibly other extraordinary transactions), as well as possibly expanded requirements for disclosure of steps taken during the preliminary stage of consideration of a transaction. The charges were against eight directors, officers or major stockholders for their respective failures to file timely amendments to their Schedule 13D filings to disclose their plans to take the companies private. The charges were based on steps these parties had taken in furtherance of the going private transactions, but that had only been disclosed months (or in some cases years) afterward in the proxy statements or Schedule 13E-3 statements relating to the transactions. READ MORE »

  • Subscribe

  • Cosponsored By:

  • Supported By:

  • Programs Faculty & Senior Fellows

    Lucian Bebchuk
    Alon Brav
    Robert Charles Clark
    John Coates
    Alma Cohen
    Stephen M. Davis
    Allen Ferrell
    Jesse Fried
    Oliver Hart
    Ben W. Heineman, Jr.
    Scott Hirst
    Howell Jackson
    Robert J. Jackson, Jr.
    Wei Jiang
    Reinier Kraakman
    Robert Pozen
    Mark Ramseyer
    Mark Roe
    Robert Sitkoff
    Holger Spamann
    Guhan Subramanian

  • Program on Corporate Governance Advisory Board

    William Ackman
    Peter Atkins
    Joseph Bachelder
    John Bader
    Allison Bennington
    Richard Breeden
    Daniel Burch
    Richard Climan
    Jesse Cohn
    Isaac Corré
    Scott Davis
    John Finley
    Daniel Fischel
    Stephen Fraidin
    Byron Georgiou
    Larry Hamdan
    Carl Icahn
    David Millstone
    Theodore Mirvis
    James Morphy
    Toby Myerson
    Barry Rosenstein
    Paul Rowe
    Rodman Ward