Tag: International governance

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.


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.


SEC Disclosures by Foreign Firms

Audra Boone is a senior financial economist at the U.S. Securities and Exchange Commission in the Division of Economic and Risk Analysis. This post is based on an article authored by Dr. Boone, Kathryn Schumann, Assistant Professor of Finance at James Madison University, and Joshua White, Assistant Professor of Finance at the University of Georgia. The views expressed in the post are those of Dr. Boone and do not necessarily reflect those of the Securities and Exchange Commission, the Commissioners, or the Staff.

The U.S. Securities and Exchange Commission (SEC) established the ongoing reporting regime for U.S.-listed foreign firms when most of these filers were large, well-known companies that had a primary trading venue on a major foreign exchange. Accordingly, prior work argues that the SEC exempted these firms from producing quarterly and event-driven filings beyond those mandated by their home country or exchange. [1] Specifically, the SEC stipulates that foreign firms must supply ongoing disclosures on a Form 6-K only when they publicly release information outside the U.S. (e.g., updates on earnings, acquisitions, raising capital, or payout structure). [2]

The composition of foreign firms listing in the U.S. has evolved over the years towards one with more firms stemming from less transparent countries and those lacking a primary listing outside the U.S. Notably, foreign firms with these characteristics likely have fewer ongoing reporting mandates, and thus considerable discretion regarding the information they supply to the SEC. Yet, there is little evidence on how the deference to home country requirements affects ongoing reporting and information flows in more recent periods. Studying these issues helps understand the relative trade-offs of creating a competitive landscape for attracting foreign firm listings and ensuring meaningful information flows to investors, thus balancing capital formation and investor protection.

ISS Preliminary 2016 Voting Policy Updates

Andrew R. Brownstein is partner and co-chair of the Corporate practice group at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Brownstein, David M. SilkDavid A. KatzSabastian V. Niles, and S. Iliana Ongun.

Today [October 26, 2015], ISS announced it is considering changing its U.S. voting policies in three areas heading into the 2016 proxy season: (i) when a sitting CEO or a non-CEO director will be viewed as “overboarded “on account of service on multiple boards, (ii) unilateral board actions that reduce shareholder rights (with a focus on newly classified boards and supermajority voting provisions) and (iii) compensation disclosure at externally managed issuers. Notably, the areas highlighted for change in the U.S. market do not address proxy access, “responsiveness” to majority-supported shareholder proposals or other current topics. ISS is also proposing changes to non-U.S. policies, including with respect to Brazil, Canada, France, Hong Kong & Singapore, India, Japan, the Middle East & Africa and the U.K. & Ireland.


Deal Activism

Adam O. Emmerich is a partner in the corporate department at Wachtell, Lipton, Rosen & Katz focusing primarily on mergers and acquisitions and securities law matters. This post is based on a Wachtell Lipton publication authored by Mr. Emmerich, William SavittRonald C. ChenEdward J. LeeSabastian V. Niles, and Remi KorenblitRelated research from the Program on Corporate Governance about hedge fund activism includes: The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here), and The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here).

In today’s robust M&A environment, parties to a potential merger or acquisition must anticipate and manage “deal activism.” Just as all companies and boards should prepare for shareholder activism generally, deal participants should plan for the possibility that, after a deal is announced, activists may seek a higher price, encourage a topping bid for all or part of the company, dissent and seek appraisal, try to influence the combined company and its integration, or even try to scuttle a deal entirely, leveraging traditional disruptive activist campaign tactics in their efforts.


The Long Arm of Governance Activism

Adam O. Emmerich is a partner in the corporate department at Wachtell, Lipton, Rosen & Katz focusing primarily on mergers and acquisitions and securities law matters. This post is based on a Wachtell Lipton firm memorandum by Mr. Emmerich and Sabastian V. Niles. Mr. Niles is counsel at Wachtell Lipton specializing in rapid response shareholder activism and preparedness, takeover defense, corporate governance, and M&A.

As U.S. public pension funds—longstanding proponents of corporate governance and shareholder proposal-style activism in the U.S.—and other U.S. investors allocate capital throughout the world, they are increasingly considering whether and how to apply their strategies and tactics for increasing shareholder power, changing governance norms, influencing boards and management teams and driving the adoption of their preferred best practices across the full global footprint of their investments. This phenomenon is illustrated by the ambitious plans of CalPERs, America’s biggest public pension fund, to extend their U.S. “focus list” of targeted companies globally and drive changes worldwide in investor rights, board membership and diversity, executive compensation and corporate reporting of business strategy, capital deployment and environmental, social, and governance practices. CalPERs’ Investment Committee and Global Governance Policy Ad Hoc Subcommittee formally consider these matters later this week.


Regulatory Competition in Global Financial Markets

Wolf-Georg Ringe is Professor of International Commercial Law at Copenhagen Business School and at the University of Oxford. This post is based on an article authored by Professor Ringe.

The decades-long discussion on the merits of regulatory competition appears in a new light on the global financial market. There are a number of strategies that market participants use to avoid the reach of regulation, in particular by virtue of shifting trading abroad or else relocating activities or operations of financial institutions to other jurisdictions. Where this happens, such arbitrage can trigger regulatory competition between jurisdictions that may respond to the relocation of financial services (or threats to relocate) by moderating regulatory standards. Both arbitrage and regulatory competition are a reality in today’s global financial market, and the financial sector is different from their traditional fields of application: the ease of arbitrage, the fragility of banking and the risks involved are exceptional. Most importantly, regulatory arbitrage does not or only rarely occurs by actually relocating the financial institution itself abroad: rather, banking groups tend to shift trading to foreign affiliates.


The New European Model Company Act

Marco Ventoruzzo is a comparative business law scholar with a joint appointment with the Pennsylvania State University, Dickinson School of Law and Bocconi University.

On September 10 and 11, 2015, at the annual conference of the European Company and Financial Law Review at WU University in Vienna, the “European Model Company Act” (“EMCA”) made its debut to an audience of corporate law professors, practitioners and judges, introduced to society by its drafters (your correspondent must disclose that, while not involved in the drafting of the EMCA, he is one of the editors of the journal co-organizing the event, and was one of the discussants of the document).


Can Institutional Investors Improve Corporate Governance?

Craig Doidge is Professor of Finance at the University of Toronto. This post is based on an article authored by Professor Doidge; Alexander Dyck, Professor of Finance at the University of Toronto; Hamed Mahmudi, Assistant Professor of Finance at the University of Oklahoma; and Aazam Virani, Assistant Professor of Finance at the University of Arizona.

In our paper, Can Institutional Investors Improve Corporate Governance Through Collective Action?, which was recently made publicly available on SSRN, we examine whether a collective action organization of institutional investors can significantly influence firms’ governance choices. Growth in institutional investor ownership over the last few decades puts these investors in the position to have significant influence, particularly if they can work collectively and coordinate their efforts. But we have very limited evidence whether institutional investors are able to overcome the obstacles to collective action. We focus on the Canadian Coalition for Good Governance (CCGG), an organization of institutional investors whose mandate is to promote good governance. We use proprietary data on its private communications and find that its private engagements between owners and independent directors influenced firms’ adoption of majority voting and say-on-pay advisory votes, improved compensation structure and disclosure, and influenced CEO incentive intensity.


Sustainability Practices 2015

Matteo Tonello is Managing Director at The Conference Board, Inc. This post relates to Sustainability Practices 2015, an annual benchmarking report authored by Mr. Tonello and Thomas Singer. The complete publication, including footnotes, graphics, and appendices, is available here.

More US companies are aligning sustainability disclosure with global standards through the Global Reporting Initiative (GRI) framework. Even though the overall environmental and social disclosure rate among global companies has remained essentially unchanged over the last year, reporting using the GRI framework continued its rise in the United States, and one out of three large U.S. companies now adopt those guidelines. Exceptional progress has also been made in the transparency of individual practices, such as anti-bribery and climate change.

These are some of the findings from The Conference Board Sustainability Practices Dashboard 2015, a comprehensive database and online benchmarking tool that serves as the foundation for this report. The dashboard captures the most recent disclosure of environmental and social practices by large public companies around the world and segments them by market index, geography, sector, and revenue group. Other key findings from this year’s data include the following:


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