The California Board Diversity Requirement

Thomas Ivey Leif King and Sonia Nijjar are partners at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a Skadden memorandum by Mr. Ivey, Mr. King, Ms. Nijjar, Josh LaGrange and Christopher Hammond. Related research from the Program on Corporate Governance includes The Market for Corporate Law by Michal Barzuza, Lucian A. Bebchuk, and Oren Bar-Gill and Federal Corporate Law: Lessons from History by Lucian Bebchuk and Assaf Hamdani.

California has become the first state in the nation to require that publicly held corporations headquartered within the state include female directors on their boards. The new law, signed by Gov. Jerry Brown on September 30, 2018, applies to corporations, whether organized in California or elsewhere, “with securities listed on a major United States stock exchange” and principal executive offices located in California, as disclosed on Form 10-K filed with the Securities and Exchange Commission.

Any corporation subject to the law must have at least one female director by the end of 2019. By the end of 2021, subject corporations with five board members must have at least two female directors, while those with six or more board members must have at least three female directors. A corporation may increase the size of its board in order to comply with the new requirements. The law defines “female” as an individual who self-identifies as a woman.


Semi-Public Offerings? Pushing the Boundaries of Securities Law

Usha R. Rodrigues is M.E. Kilpatrick Professor of Law at the University of Georgia School of Law. This post is based on her recent paper.

The 1933 Securities Act struck a simple bargain: the wealthy get to invest in risky private companies, while the general public can invest only in publicly traded securities. For 75 years, that bargain has held. For whatever reason—whether because the wealthy are savvier investors or because their wealth gives them the requisite cushion to absorb the heightened risk private securities pose—we have cordoned off private offerings from the average investor. Reforms like those of the JOBS Act of 2012, which introduced equity crowdfunding and changes to Regulation A loosened the reins, but only marginally. The fact remains that firms seeking to raise over $1 million must take the expensive and lengthy process of registering a public offering with the SEC or else shoehorn their offering into an exemption from registration requirements. But SEC Chair Jay Clayton recently signaled an interest in revisiting the bargain declaring: “We also should consider whether current rules that limit who can invest in certain offerings should be expanded to focus on the sophistication of the investor, the amount of the investment, or other criteria rather than just the wealth of the investor.”


Shedding Light on Diversity-Based Shareholder Proposals

Angelo Martinez is a Senior Research Analyst at Equilar, Inc. This post is based on an Equilar memorandum by Mr. Martinez. Related research from the Program on Corporate Governance includes Socially Responsible Firms by Alan Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here) and Social Responsibility Resolutions by Scott Hirst (discussed on the Forum here).

Environmental, social and governance (ESG) proposals voice shareholder concerns about topics including, but not limited to, climate change disclosure, lobbying and political campaign contributions, gender pay equity and employment diversity. According to a recent Equilar study, at least 200 ESG shareholder proposals were voted on each year from 2015 to 2017, combining for a total of 633 shareholder proposals.

One might imagine that if shareholders urged companies to provide more information addressing ESG issues, companies would be more apt to do so. However, the numbers tell a different story. In fact, over the past three years, ESG proposals have received a median approval rating of 20.8% with only 2.5% of all proposals receiving enough votes to pass. While these numbers do not look promising, a deeper dive into more recent data seems to suggest a rather positive outlook regarding two important ESG issues.


Lessons from the CBS-NAI Dispute: Part I

Victor Lewkow and Paul M. Tiger are partners and Gloria B. Ho is an associate at Cleary Gottlieb Steen & Hamilton LLP. This post is based on their Cleary Gottlieb memorandum, and 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 Independent Directors and Controlling Shareholders by Lucian Bebchuk and Assaf Hamdani (discussed on the Forum here) and The Untenable Case for Perpetual Dual-Class Stock (discussed on the Forum here). 


  • National Amusements, Inc. (“NAI”) owns approximately 80% of the voting shares of CBS Corporation and Viacom Inc., and in early 2018, NAI proposed that CBS and Viacom consider a merger. Each of the boards of CBS and Viacom formed a special committee of independent directors unaffiliated with NAI to consider and potentially negotiate such a merger. [1]
  • On Sunday, May 13, 2018, the CBS special committee met and took steps:
    • to call a special meeting of the full CBS board on May 17 to consider and vote on a dividend of a fraction of a Class A (voting) share to be paid to holders of both CBS’s Class A (voting) common stock and Class B (nonvoting) common stock for the express purpose of diluting—very substantially—NAI’s voting interest in CBS; and
    • to commence litigation against NAI in the Chancery Court of Delaware seeking approval of the proposed dilutive dividend and moving for a temporary restraining order to block NAI from taking certain steps as the controlling stockholder of CBS, including any actions prior to the special board meeting that would interfere with the proposed dilutive dividend.


The Twilight of Enhanced Scrutiny in Delaware M&A Jurisprudence

Iman Anabtawi is Professor of Law at UCLA School of Law. This post is based on a recent article by Professor Anabtawi, forthcoming in the Delaware Journal of Corporate Law,  and is part of the Delaware law series; links to other posts in the series are available here.

In Corwin v. KKR Fin. Holdings LLC, the Delaware Supreme Court held that shareholder ratification—in the form of a disinterested, fully informed, uncoerced stockholder vote—in favor of a merger or sale that would otherwise trigger enhanced scrutiny gives rise to the business judgment rule standard of review with respect to post-closing money damages claims for director breaches of fiduciary. Under this standard, the directors’ actions lead to liability only if they constitute corporate waste. It does not matter whether the stockholder vote was required by statute or was sought voluntarily by the board. Nor does it matter whether board approval of the transaction was independent and disinterested.


How Common is a Female CEO-CFO Duo?

Megan Von Duhn is a Senior Research Analyst at Equilar, Inc. This post is based on an Equilar memorandum by Ms. Von Duhn.

General Motors (GM) recently appointed Dhivya Suryadevara as its Chief Financial Officer, effective September 1st. The news made many headlines because, in a position that has long been dominated by men, Suryadevara will be the first female CFO at GM. She joins GM’s current female Chief Executive Officer Mary T. Barra, putting General Motors at the forefront of companies with women currently sitting in both the CEO and CFO positions.

A woman joining the ranks of the C-suite is generally highly publicized. Additionally, a number of women in C-suite positions are quite high-profile, such as Meg Whitman and Ursula Burns. Whitman is famous for turning eBay into a billion dollar company when she served as CEO. Burns, on the other hand, made strides becoming the first African-American female CEO at Xerox—a Fortune 500 company. A female CEO and CFO tandem in these highly sought-after positions may seem unlikely at times. Highly sought after C-suite positions are—and have historically been—dominated by men. Equilar conducted a study to look at the gender make-up of the CEO and CFO positions at Equilar 500 companies in recent years.


Shareholder Activism: 1H 2018 Developments and Practice Points

Gail Weinstein is senior counsel, and Warren S. de Wied and Philip Richter are partners at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Ms. Weinstein, Mr. de Wied, and Mr. Richter. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here); Dancing with Activists by Lucian Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch (discussed on the Forum here); and Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System by Leo E. Strine, Jr. (discussed on the Forum here).

1H 2018 Developments

(Our data is derived from SharkRepellent and other publicly available sources and reflects global campaigns against US and foreign companies with a market capitalization of more than $500 million.)

There was a resurgence in activist campaigns in 1H 2018, after a decrease in 2016-2017.

The number of public activist campaigns increased sharply in 1H 2018, following a slowing trend in 2016 and 2017 as compared to 2014 and 2015. There were roughly 150 campaigns globally in 1H 2018, up from about 100 in 1H 2017 (and close to 200 in all of 2017). Total assets under management by funds engaged in activism grew slightly in 2017 (but remained below the record highs in 2015 and meaningfully lagged the growth in assets under management in hedge funds overall).


The CEO Pay Ratio: Data and Perspectives from the 2018 Proxy Season

Deb Lifshey is managing director at Pearl Meyer & Partners, LLC. This post is based on a Pearl Meyer memorandum by Ms. Lifshey. Related research from the Program on Corporate Governance includes The CEO Pay Slice by Lucian Bebchuk, Martijn Cremers and Urs Peyer (discussed on the Forum here).

It is hard to believe that eight years have passed since the enactment of the Dodd-Frank Act (“DFA”) and its many rules intended to regulate executive compensation. Among the most controversial of these rules is the requirement for public filers to disclose in their annual proxy statements the CEO’s total annual compensation, the total annual compensation of the median employee of the organization, and the ratio between the two, which has become known as the “CEO Pay Ratio.”

In the years since the DFA’s introduction, there have been hotly debated proposals, lobbying efforts, thousands of public comments, and numerous rounds of US Securities and Exchange Commission (SEC) interpretations, after which the rules finally became effective for proxies filed in 2018. Now, for the first time, we have information not only with respect to CEO pay (which was already disclosed in proxy statements), but about median employee pay.


Opening Statement at the SEC Open Meeting

Jay Clayton is Chairman of the U.S. Securities and Exchange Commission. This post is based on Chairman Clayton’s recent remarks at an open meeting of the SEC, available here. The views expressed in this post are those of Mr. Clayton and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

Good afternoon. This is an open meeting of the U.S. Securities and Exchange Commission, under the Government in the Sunshine Act.

I would like to start by welcoming Commissioner Elad Roisman to his first open meeting as a commissioner.

The first and only item on the agenda today is a recommendation from the Division of Trading and Markets. The Division is recommending that the Commission reopen the comment period and request additional comment regarding the proposed rules and amendments for capital, margin, and segregation requirements for security-based swap dealers (“SBSDs”) and major security-based swap participants, and capital requirements for broker-dealers.

The SEC has finalized many, but not all, of the Title VII rules that Congress directed us to establish. As we seek to complete the remaining Title VII rules, this comment period re-opening will provide the public with another opportunity to comment on several important proposals. The Commission originally proposed the security-based swap capital, margin, and segregation rules in 2012. We then proposed provisions to establish the cross-border treatment of these requirements in 2013, and then proposed an additional nonbank SBSD capital requirement in 2014. [1]


Statement on Commission Action Regarding Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants and Capital Requirements for Broker-Dealers

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

I want to join the Chairman in thanking the staff for the hard work that went into this release. In particular, I would like to thank Mike Macchiaroli, Tom McGowan, Randall Roy, Ray Lombardo, Sheila Swartz, Tim Fox, and Valentina Deng from the Division of Trading and Markets.

Ten years ago, the U.S. government pledged $180 billion to rescue American International Group (AIG). [1] AIG was brought to its knees by credit default swaps trading, and in particular, by its failure to adequately determine and account for the risk of its positions. To most people, these financial products, credit default swaps, are complex and mysterious.


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