Tag: Securities Regulation


Is Proxy Access Inevitable?

Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. The following post is based on a Sidley update by Ms. Gregory, John P. Kelsh, Thomas J. Kim, Rebecca Grapsas, and Claire H. Holland. The complete publication, including footnotes, is available here. Related research from the Program on Corporate Governance about proxy access include Lucian Bebchuk’s The Case for Shareholder Access to the Ballot and The Myth of the Shareholder Franchise (discussed on the Forum here), and Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

Efforts by shareholders to directly influence corporate decision-making are intensifying, as demonstrated by the significant increase over the past three years in financially focused shareholder activism and the more recent efforts by large institutional investors to encourage directors to “engage” with shareholders more directly.

Through the collective efforts of large institutional investors, including public and private pension funds, shareholders at a significant number of companies are likely within the next several years to gain the power to nominate a portion of the board without undertaking the expense of a proxy solicitation. By obtaining proxy access (the ability to include shareholder nominees in the company’s own proxy materials) activists and other shareholders will have an additional weapon in their arsenal to influence board decisions.
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DC Circuit Vacates SEC’s Application of Dodd-Frank Provision

Darrell S. Cafasso is a partner in the Litigation Group at Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell publication by Mr. Cafasso, Stephen H. Meyer, and Jennifer L. Sutton. The complete publication, including footnotes, is available here.

On July 14, 2015, the U.S. Court of Appeals for the District of Columbia Circuit (the “DC Circuit”) held that the Securities and Exchange Commission (the “SEC” or “Commission”) could not employ certain remedial provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank” or the “Act”) to retroactively punish an investment adviser for conduct that occurred prior to enactment of the Act. The court’s decision not only casts doubt on numerous similar punishments previously levied by the SEC based on pre-enactment misconduct, but could provide a basis for institutions to object to certain sanctions sought by the Consumer Financial Protection Bureau (the “CFPB”).

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Dodd Frank Turns 5

Gabriel D. Rosenberg is an associate in the Financial Institutions Group at Davis Polk & Wardwell LLP. This post is based on a Davis Polk publication.

July 21, 2015 marked the 5th anniversary of President Obama signing the Dodd-Frank Act into law. Even though the Act is more than 800 pages in length, it is the Act’s 390 rulemaking requirements and the 307 proposed and final rules issued by Federal agencies to date that make up the vast bulk of new law and regulation affecting the U.S. financial system. The 22,296 pages of rulemakings and 631 regulatory releases touch on nearly every aspect of the U.S. economy, from requiring revisions to mortgage disclosures to providing transparency in the derivatives markets.

To highlight the 5th anniversary, we have developed a stats-driven infographic looking at the implementation of the Dodd-Frank Act, to date, and have updated our quarterly Dodd-Frank Progress report.

Timing Stock Trades for Personal Gain: Private Information and Sales of Shares by CEOs

Robert Parrino is Professor of Finance at the University of Texas at Austin. This post is based on an article by Professor Parrino; Eliezer Fich, Associate Professor of Finance at Drexel University; and Anh Tran, Senior Lecturer in Finance at City University London. Related research from the Program on Corporate Governance includes Insider Trading via the Corporation by Jesse Fried (discussed on the Forum here), 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.

In October 2000, the SEC enacted Rule 10b5-1 which enables managers to reduce their exposure to allegations of trading on material non-public information by announcing pre-planned stock sales up to two years in advance. In our paper, Timing Stock Trades for Personal Gain: Private Information and Sales of Shares by CEOs, which was recently made publicly available on SSRN, we examine the impact of Rule 10b5-1 on the gains that CEOs earn when they sell large blocks of stock.

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Risk Management and the Board of Directors

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton, Daniel A. Neff, Andrew R. Brownstein, Steven A. Rosenblum, and Adam O. Emmerich.

Introduction

Overview

Corporate risk taking and the monitoring of risks have continued to remain front and center in the minds of boards of directors, legislators and the media, fueled by the powerful mix of continuing worldwide financial instability; ever-increasing regulation; anger and resentment at the alleged power of business and financial executives and boards, including particularly as to compensation during times of economic uncertainty, retrenchment, contraction, and changing dynamics between U.S., European, Asian and emerging market economies; and consistent media attention to corporations and economies in crisis. The reputational damage to companies and their boards that fail to properly manage risk is a major threat, and Institutional Shareholder Services now includes specific reference to risk oversight as part of its criteria for choosing when to recommend withhold votes in uncontested director elections. This focus on the board’s role in risk management has also led to increased public and governmental scrutiny of compensation arrangements and the board’s relationship to excessive risk taking and has brought added emphasis to the relationship between executive compensation and effective risk management. This post highlights a number of issues that have remained critical over the years and provides an update to reflect emerging and recent developments.

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Third Circuit Provides Guidance on Excluding Shareholder Proposals

Robert E. Buckholz and Marc Trevino are partners and Heather L. Coleman is an associate at Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell publication by Mr. Buckholz, Mr. Trevino, and Ms. Coleman.

 

 

On Monday, the U.S. Court of Appeals for the Third Circuit released its opinion in Trinity Wall Street v. Wal-Mart Stores, Inc. [1] The Court had issued an earlier order, without an opinion, that Wal-Mart could exclude Trinity’s Rule 14a-8 shareholder proposal relating to the sale of firearms with high-capacity magazines from Wal-Mart’s proxy materials because it related to “ordinary business operations.” At the time, the Court stated it would subsequently issue a more detailed opinion explaining its rationale.

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Revisiting the Regulatory Framework of the US Treasury Market

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; 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.

Yesterday [July 13, 2015], staff members of the federal agencies that comprise the Interagency Working Group for Treasury Market Surveillance (“Working Group”) issued a joint report concerning the so-called “flash crash” that occurred in the U.S. Treasury market on October 15, 2014 (the “Report”). I commend the staff of all the agencies for their hard work in putting together the Report, which examined the events of that day and the broader forces that have changed the Treasury market in recent years. This was a difficult undertaking, but the report does an excellent job of discussing the known factors, while acknowledging that more work needs to be done.

The remarkable events of that day, which cannot yet be fully explained, have dispelled any lingering notion that the Treasury market is the staid marketplace it was once thought to be. The transformative changes that swept through the equities and options markets in the past decade have vastly reshaped the landscape of the Treasury market, as well. As a result, the structure, participants, and technological underpinnings of today’s Treasury market are far different than they were just a few years ago.

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SEC Seeks Input on Enhanced Disclosures for Audit Committees

Michael J. Scanlon is a partner and member of the Securities Regulation and Corporate Governance practice group at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn alert.

At an open meeting held on July 1, 2015, the Securities and Exchange Commission (“SEC”) issued a concept release addressing the prospect of enhanced disclosures for audit committees. The much-publicized concept release is available here and requests comment on a number of possible changes to existing SEC disclosure requirements about the work of audit committees, focusing in particular on audit committees’ selection and oversight of independent auditors. The SEC said that it has issued the release in response to views expressed by some that current disclosures may not provide investors with sufficient information about what audit committees do and how they perform their duties. The release seeks feedback on whether certain audit committee disclosures should be added, removed or modified to provide additional meaningful disclosures to investors.

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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.
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Attorney-Whistleblowing and Conflicting Regulatory Regimes

Jennifer M. Pacella is Assistant Professor of Law at City University of New York (CUNY), Zicklin School of Business, Baruch College.

In my latest article, Conflicted Counselors: Retaliation Protections for Attorney-Whistleblowers in an Inconsistent Regulatory Regime, I examine the ever-evolving issue of attorney-whistleblowing, the reporting requirements under the Sarbanes-Oxley Act (“SOX”) of attorneys representing issuer-clients, the potential for conflict of these requirements with the rules of professional conduct in various states, and the lack of retaliation protections for attorneys subject to these rules. Although attorney-whistleblowing undoubtedly invokes concerns about ethics and client relationships, SOX requires attorneys who “appear and practice” before the Securities and Exchange Commission to internally blow the whistle on their clients by reporting evidence of material violations of the law “up-the-ladder” when they represent issuers. If an attorney fails to adhere to these requirements, he/she will be subject to SEC-imposed civil penalties and disciplinary action. The SOX rules also allow an attorney to make a permissive disclosure to the SEC, revealing confidential information without the issuer-client’s consent, in certain instances, including when the attorney reasonably believes necessary to prevent substantial financial injury to the issuer.

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