Yearly Archives: 2010

UK Announces Consultation on Bank Levy

Posted by H. Rodgin Cohen, Sullivan & Cromwell LLP, on
Tuesday, August 3, 2010
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H. Rodgin Cohen is a partner and chairman of Sullivan & Cromwell LLP focusing on acquisition, corporate governance, regulatory and securities law matters. This post is based on a Sullivan & Cromwell LLP publication by Michael McGowan and Andrew Howard.

In his Budget statement, delivered on 22 June, 2010, the Chancellor of the Exchequer announced that the UK will introduce a tax based on banks’ balance sheets from 1 January, 2011, to be known as “bank levy”. Once fully in place this tax is expected to generate around £2.5 billion annually. A consultation has now been published which sets out further detail as to how the bank levy will operate.

The tax will apply to both UK-headed banks and non-UK headed banks with operations in the UK. In particular the tax will apply to: (1) the global consolidated balance sheet of UK banking groups and building societies; (2) the aggregated UK subsidiary and UK branch balance sheets of foreign banking groups; and (3) the balance sheets of UK banks and UK bank branches in non-banking groups.

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Different Approaches to Corporate Reporting Regulation

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Monday, August 2, 2010
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This post comes to us from Christian Leuz, Joseph Sondheimer Professor of International Economics, Finance and Accounting at the University of Chicago Booth School of Business.

In the paper, Different Approaches to Corporate Reporting Regulation: How Jurisdictions Differ and Why, which was recently made publicly available on SSRN, I discuss differences in countries’ approaches to reporting regulation and explore reasons why they exist in the first place and why they are likely to persist. After delineating various regulatory choices and discussing the tradeoffs associated with these choices, I provide a basic framework based on the notion of institutional complementarities that helps us understand existing differences in corporate reporting and other regulation. The paper also provides descriptive and stylized evidence on regulatory and institutional differences across countries. It highlights that there are robust institutional clusters around the world.

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Review of the UK Takeover Code

Posted by Scott Hirst, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Sunday, August 1, 2010
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This post comes to us from Tobia Croff, a partner in the European Corporate Group at Shearman & Sterling LLP, and is based on a Shearman & Sterling Client Publication.

At the beginning of this month, the UK Panel on Takeovers and Mergers (the Panel) announced a wide-ranging review of a number of fundamental principles of UK takeover regulation contained in the Panel’s City Code on Takeovers and Mergers (the Code). Responses are required by 27 July 2010. This review has been prompted in part by the debate – both in the press and among politicians – generated by the highly controversial and ultimately successful bid by Kraft for Cadbury earlier this year; Shearman & Sterling and the firm acted as US counsel to Cadbury in this battle. This briefing looks at the review and notes some issues raised by it, in relation to which positions adopted in France, Germany or Italy may be instructive.

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Why Stewardship is Proving Elusive for Institutional Investors

Posted by Simon Wong, Northwestern University School of Law, on
Saturday, July 31, 2010
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Simon Wong is Managing Director at Governance for Owners and Adjunct Professor of Law at Northwestern University School of Law. This post is based on an article that recently appeared in the Butterworths Journal of International Banking and Financial Law, which is available here.

As the dominant owners of listed companies in many developed markets, institutional investors have been under increasing pressure to act as responsible shareholders. In the UK, where institutions own more than 70% of the stock market, a Stewardship Code has been developed to encourage pension funds, insurance companies, and their asset managers to monitor and engage investee companies actively with the view to protect and enhance shareholder value (see Figure 1). Similar efforts are underway in Canada, France, the Netherlands, and other markets.

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What to Expect from Dodd-Frank in the 2011 Proxy Season

Posted by the Harvard Law School Forum on Corporate Governance & Financial Regulation, on
Friday, July 30, 2010
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Editor’s Note: Holly Gregory is a Corporate Partner specializing in corporate governance at Weil, Gotshal & Manges LLP. This post is based on an extract from a Weil Gotshal Briefing; the complete article is available here. Other posts relating to the Dodd-Frank Act are available here.

The new requirements of the Dodd-Frank Act and current trends in shareholder activism are likely to combine to make the 2011 proxy season unlike any before in terms of the range of matters on which boards will need to elicit shareholder support and the level of shareholder engagement:

  • Proxy Access: We expect the SEC to act promptly to give substantial shareholders or shareholder groups the ability to include their nominees for a limited number of board seats in the company’s proxy materials. Interest in access is evidenced by the efforts of some institutional shareholders to create databases of potential director candidates. For calendar year companies, we expect the deadline to submit shareholder nominations for inclusion in company proxy materials to be around year-end, subject to the terms of advance notice bylaws (which may need to be reset when the new rules are adopted).

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Boards of Banks

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Friday, July 30, 2010
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This post comes to us from Daniel Ferreira, Tom Kirchmaier, and Daniel Metzger all of the London School of Economics.

In our paper, Boards of Banks, which was recently made publicly available on SSRN, we assemble the most complete data set on boards of banks to date. Our data allow us to draw a detailed picture of bank board composition up to and including the crisis period. The data reveal a number of new empirical facts. Right before the beginning of the crisis in 2007, the average board independence in the world’s largest banks was roughly 67%, meaning that two out of three bank directors were formally independent. These high levels of independence are both a recent and mostly North-American phenomenon. In 2000, the average level of board independence in our sample was just 40%. Canada and the US have the highest levels of bank board independence in the world, at about 75%.

Our data also reveal many interesting patterns. Client-directors are usually reported as being independent, although they have clear business relations with the banks that they are supposed to monitor. While the governance literature has focused on the role of bankers on boards of nonfinancial firms, the other side of the coin – nonfinancial corporate clients on boards of banks – has yet to be analyzed.

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Upsizing and Downsizing Your IPO

Posted by Charles M. Nathan, Latham & Watkins LLP, on
Thursday, July 29, 2010
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Charles Nathan is Of Counsel at Latham & Watkins LLP and is co-chair of the firm’s Corporate Governance Task Force. This post is based on a Latham & Watkins Client Alert by Brian G. Cartwright, Alexander F. Cohen, Kirk A. Davenport and Joel H. Trotter.

The reds have been printed; the deal is on the road; and the champagne is on ice. Now, all that is left is for the IPO investors to step up and buy the stock. It’s a tempting moment to relax — but an experienced deal lawyer knows better. This is the time to start preparing for the possibility that the deal will be wildly oversubscribed or will struggle mightily. In either case, the question that will shortly come your way is “How much can the deal be upsized or downsized at pricing?”

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Erosion of the Fiduciary Duty Requirement in Insider Trading Actions

Posted by Joel M. Cohen, Gibson, Dunn & Crutcher LLP, on
Thursday, July 29, 2010
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Joel Cohen is a partner in the New York office of Gibson, Dunn & Crutcher LLP. This post is based on an article by Mr. Cohen, Mary Kay Dunning and Gregory H. Shill that first appeared in the Securities Litigation Journal.

Every decade or so, a new wave of interest in prosecuting insider trading emerges. We see this now. Just as the tides of interest in insider trading ebb and flow, so too do the contours of the offense itself. Given the present environment, of course, one would expect regulators to step up insider-trading enforcement, and they have. [1] This growing regulatory aggressiveness has coincided with judicial relaxation of the elements of insider-trading violations. Ensuring proper enforcement without inhibiting the free flow of information that regulators and the courts have historically recognized as vital to healthy markets truly has become a high-wire act.

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How to Pay a Banker

Posted by the Harvard Law School Forum on Corporate Governance & Financial Regulation, on
Wednesday, July 28, 2010
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Editor’s Note: This post is Lucian Bebchuk’s most recent op-ed in his column series titled “The Rules of the Game,” written for the international association of newspapers Project Syndicate, which can be found here. This op-ed builds on his article Regulating Bankers’ Pay, co-authored with Holger Spamann, which is available here.

The United States’ Federal Reserve Board recently adopted a policy under which bank supervisors, the guardians of the financial system’s safety and soundness, would review the compensation structures of bank executives. Authorities elsewhere are considering or adopting similar programs. But what structures should regulators seek to encourage?

It is now widely accepted that it is important to reward bankers for long-term results. Rewarding bankers for short-term results, even when those results are subsequently reversed, produces incentives to take excessive risks.

But tying executive payoffs to long-term results does not provide a complete answer to the challenge facing firms and regulators. The question still remains: long-term results for whom?

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A New World for Whistleblowers

Posted by Wayne M. Carlin, Wachtell, Lipton, Rosen & Katz, on
Tuesday, July 27, 2010
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Wayne Carlin is a partner in the Litigation Department at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton firm memorandum by Mr. Carlin, Theodore A. Levine and John F. Savarese. An earlier post by Mr. Carlin discussing securities enforcement under the Dodd-Frank Act was posted here; other posts on the Dodd-Frank Act are available here.

Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Obama on July 21, creates an elaborate new regime of financial incentives to encourage whistleblowers to come forward to the SEC with information about securities law violations. An unfortunate likely effect of this new regime, however, may be to undermine the effectiveness of corporate compliance programs.

The principal new incentive offered to whistleblowers is the opportunity to obtain a substantial cash bounty in the event that information they provide leads to an enforcement action in which the SEC obtains a monetary sanction (defined to include penalties, disgorgement and interest) totaling at least $1 million. In such cases, Section 922 provides that the SEC “shall pay an award” to the whistleblower of between 10 and 30 percent of the monetary sanctions imposed in the SEC enforcement action and in any related actions brought by the Attorney General of the United States, an appropriate regulatory authority, a self-regulatory organization or a state attorney general in a criminal proceeding.

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