Tag: Shareholder communications

Role of Long-Term Shareholders in Hostile Takeovers

Andrew R. Brownstein is a partner in the corporate group at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Brownstein, Igor Kirman, and Victor Goldfeld.

On Friday November 13, 2015, shareholders of Perrigo Company plc convincingly rejected Mylan N.V.’s hostile takeover attempt, with holders of over 60% of Perrigo’s shares refusing to tender into what was the largest hostile offer in history to go to the very end. The outcome demonstrates that a well-articulated strategy and proven record of performance, and concerns about the corporate governance of a bidder offering stock, resonate with long-term shareholders as against a premium bid of questionable merit, even in the absence of transaction alternatives.


Corporate Governance Preferences of Institutional Investors

Joseph Mc Cahery is Professor in the Department of Business Law at Tilburg University. This post is based on an article authored by Prof. McCahery; Zacharias Sautner of Frankfurt School of Finance & Management; and Laura T. Starks of McCombs School of Business, University of Texas at Austin.

We currently have little direct knowledge regarding how institutional investors engage with portfolio companies. The reason is that many interactions occur behind the scenes. That is, unless institutional investors publicly express their approval or disapproval of a firm’s activities or management, little is known about their preferences and private engagements with portfolio firms. In our paper, Behind the Scenes: The Corporate Governance Preferences of Institutional Investors, forthcoming in the Journal of Finance, we try to rectify this knowledge gap by conducting a survey among 143 institutional investors.

Institutional investors have two active choices when they become unhappy with a portfolio firm: (i) they can engage with management to try to institute change (“voice” or direct intervention); or (ii) they can leave the firm by selling shares (“exit” or “voting with their feet”). Theoretical models have documented the governance benefits of corrective actions through voice. These theories have recently been complemented by models showing that the threat of exit can also discipline management (e.g., Admati and Pfleiderer (2009), Edmans (2009), and Edmans and Manso (2011)). This raises the question of whether institutional investors, in response to dissatisfaction with portfolio firms, take actions that support the validity of these theories.


Corporate Use of Social Media

James Naughton is Assistant Professor of Accounting at Northwestern University. This post is based on an article authored by Professor Naughton; Michael Jung, Assistant Professor of Accounting at New York University; Ahmed Tahoun, Assistant Professor of Accounting at London Business School; and Clare Wang, Assistant Professor of Accounting at Northwestern University.

Social media has transformed communications in many sectors of the U.S. economy. It is now used for disaster preparation and emergency response, security at major events, and public agencies are researching new uses in geolocation, law enforcement, court decisions, and military intelligence. Internationally, social media is credited for organizing political protests across the Middle East and a revolution in Egypt. In the business world, social media is considered a revolutionary sales and marketing platform and a powerful recruiting and networking channel. Little research exists, however, on how firms use social media to communicate financial information to investors and how investors respond to investor disseminated through social media, despite firms devoting considerable effort to creating and managing social media presences directed at investors. Motivated by this lack of research, in our paper, Corporate Use of Social Media, which was recently made publicly available on SSRN, we provide early large-sample evidence on the corporate use of social media for investor communications. More specifically, we investigate why firms choose to disseminate investor communications through social media, whether investors and traditional media outlets respond to social media disclosures, and whether potential adverse consequences to the firm exist from the use of social media to disseminate investor communications.


New Guidance on Advance Notice By-Laws

Alexander M. Kaye is the Practice Group Leader of the Global Corporate Group of Milbank, Tweed, Hadley & McCloy LLP and is a partner resident in the New York office. This post is based on a Milbank client alert by Mr. Kaye, Dean W. Sattler, and Monica Arduini. 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.

Hill International, Inc. (“Hill”), a publicly traded company, and one of its stockholders, Opportunity Partners L.P. (“Opportunity”), recently engaged in a dispute regarding whether Opportunity had timely submitted two proposals for items of business for consideration and two director nominations for election at Hill’s 2015 annual meeting. On appeal from the Delaware Chancery Court, the Delaware Supreme Court was called on to analyze the interpretation and application of Hill’s advance notice by-law.

On July 2, 2015, in Hill International, Inc. v. Opportunity Partners L.P., [1] the Delaware Supreme Court affirmed the Court of Chancery’s holding that: (i) Hill’s board of directors only set the date of its annual meeting of stockholders when it announced the actual date of its annual meeting in its 2015 proxy statement, rather than a range of possible dates provided in Hill’s proxy statement from the preceding year, and (ii) Opportunity’s proposals were timely submitted in compliance with Hill’s advance notice by-law.


Responding to Institutional Investor Requests for Access to Independent 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 and Karessa L. Cain.

Recent statements by BlackRock, State Street, Vanguard and other institutional investors clearly articulate their expectation that companies should provide access to independent directors and should adopt a structure for regular investor/director communications. In responding to these requests, there is a range of approaches that companies could adopt which, in each case, should be tailored to the specific circumstances of the company. Indeed, institutional investors have specifically stated that they do not seek any particular method to ensure access to, and relationships with, directors. However, they have made it clear that it will color their attitude toward the company if the company first begins to provide access to directors only after the company has been attacked by an activist.


Building Meaningful Communication and Engagement with Shareholders

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s remarks at the national conference of the Society of Corporate Secretaries and Governance Professionals, 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.

I am honored to be with you here in Chicago at the Society’s 69th National Conference. Over the years, the Society has consistently provided thoughtful comments to the Division of Corporation Finance and the Commission on a wide variety of issues and proposed rules. You understand the complexities that can affect multiple parties and recognize the importance of the interests of shareholders. All of you play a critical role in corporate governance. It is the decisions you make, the practical solutions you advance and the views you share with your boards that can, in large part, dictate the relationship between shareholders and companies.

Because of your central roles in your companies, many of the Commission’s initiatives are of interest to you: our disclosure effectiveness review; the audit committee disclosures concept release the staff is working on; and any number of our rulemakings. My hope is that you will see near-term activity in these and other areas, including rules mandated by the Dodd-Frank Act, such as the clawbacks rule as required by Section 954, the pay ratio rule under Section 953(b) and the joint rulemaking on incentive compensation as required by Section 956. So stay tuned for those developments.

But today my focus is on a selection of proxy-related issues, another area of particular interest to you. And my overall theme complements the theme of your conference, “Connect, Communicate, Collaborate.” Be proactive in building meaningful communication and engagement with your shareholders.


Getting to Know You: The Case for Significant Shareholder Engagement

F. William McNabb III is Chairman and CEO of Vanguard. This post is based on Mr. McNabb’s recent keynote address at Lazard’s 2015 Director Event, “Shareholder Expectations: The New Paradigm for Directors.”

I’ll begin my remarks with a premise. It’s a simple belief that I have. And that is: Corporate governance should not be a mystery. For corporate boards, the way large investors vote their shares should not be a mystery. And for investors, the way corporate boards govern their companies should not be a mystery. I believe we’re moving in a direction where there is less mystery on both sides, but each side still has some work to do in how it tells its respective stories.

So let me start by telling you a little bit about Vanguard’s story and our perspective. I’ll start with an anecdote that I believe is illustrative of some of the headwinds that we all face in our efforts to improve governance: “We didn’t think you cared.” A couple of years ago, we engaged with a very large firm on the West Coast. We had some specific concerns about a proposal that was coming to a vote, and we told them so.


Shareholder Involvement in the Director Nomination Process

Stephen Erlichman and Catherine McCall are Executive Director and Director of Policy Development, respectively, at Canadian Coalition for Good Governance (CCGG). This post is based on a CCGG policy publication, titled Shareholder Involvement in the Director Nomination Process: Enhanced Engagement and Proxy Access; the complete publication is 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).

Proxy access is the corporate governance cause célèbre in the 2015 U.S. proxy season. There has been a concerted push on the part of institutional shareholders and others to convince companies to adopt proxy access, most commonly in the form of a trigger of 3% of outstanding voting shares held for 3 years. Shareholders have responded very favourably to the proxy access shareholder proposals put forward by institutions such as the New York City Pension Funds through its Board Accountability Project. A surprising (to many) number of companies [1] have adopted proxy access on the 3%/3 year basis, including some of the largest, best known and established of U.S. companies, some voluntarily and without a majority approved shareholder proposal on the matter. In Canada, the Canadian Coalition for Good Governance (CCGG), an organization which represents institutional shareholders that collectively own or manage approximately Cdn $3 trillion of assets and which has a mandate to promote good corporate governance at Canadian public companies, has just released its own proxy access policy. The policy, entitled Shareholder Involvement in the Director Nomination Process: Enhanced Engagement and Proxy Access (available here), has been developing for over a year following widespread input and consultation among CCGG’s members and other market participants.


Optimizing Proxy Communications

The following post comes to us from Ernst & Young LLP, and is based on a publication by the EY Center for Board Matters.

Proxy statements continue to evolve. New disclosure trends are sharpening company messaging to investors, while other disclosure practices leave investors seeking clarification.

To learn what kinds of disclosures are most valuable to investors, EY asked them where they would like to see disclosure enhancements and the kinds of disclosure practices they prefer.

The EY Center for Board Matters recently had conversations with 50 institutional investors, investor associations and advisors on their corporate governance views and priorities.

This post is the third in a series of four posts based on insights gathered from those conversations and previewing the 2015 proxy season. The first post (available here) focused upon board composition; the second (available here) upon shareholder activism. The upcoming final post will focus on the shareholder proposal landscape.


Shareholder Activism: an Engagement Opportunity

The following post comes to us from Ernst & Young LLP, and is based on a publication by the EY Center for Board Matters.

The recent surge in shareholder activism [1] continues to keep boards on alert heading into the 2015 proxy season. Some companies are taking proactive measures to prepare for potential activist investor campaigns, including engaging long-term institutional investors.

Based on what we’re hearing from long-term institutional investors, these efforts are worthwhile in that they foster constructive relationships and alignment with key shareholders.

The EY Center for Board Matters (the Center) recently had conversations with 50 institutional investors, investor associations and advisors on their corporate governance views and priorities. We also gained insights from investors, directors and other stakeholders through our proxy season dialogue dinners. [2]

This post is the second in a series of four posts based on insights gathered from those conversations and previewing the 2015 proxy season. The first post (available here) focused upon board composition. The upcoming two will focus on proxy statement disclosures, and the shareholder proposal landscape.


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