Yearly Archives: 2011

Preparing for “Proxy Access” Shareholder Proposals

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Sunday, October 23, 2011
, , ,
More from: , , ,

The following post is based on a Cleary Gottlieb Steen & Hamilton LLP memorandum by Victor Lewkow, Janet Fisher, and Esther Farkas.

Following the SEC’s decision not to seek a rehearing of the decision by the U.S. Court of Appeals for the District of Columbia Circuit vacating its “proxy access” rule (Rule 14a-11 under the Securities Exchange Act of 1934), the stay on the companion “private ordering” amendments to Rule 14a-8 was lifted and those amendments are now in effect. Companies can no longer exclude otherwise-qualifying shareholder proposals seeking to establish a procedure in a company’s governing documents to permit shareholder nominees to be included in the company’s future proxy statements. As with other shareholder proposals, in order to make an access proposal a shareholder need only own $2,000 of company stock and have held it continuously for one year.

While some companies may receive proxy access proposals because of their size or notoriety, or seemingly at random, others will receive them because of shareholder dissatisfaction with the company’s performance, strategic direction, compensation policies or general governance profile. We expect that larger institutional investors will focus their attention on a very small number of issuers where a relatively high level of dissatisfaction exists. Of course, the most important steps a company can take to reduce the risk of receiving a proxy access proposal (or, if one is received, it obtaining substantial support or even being approved) are the same ones that apply to other potential activism: knowing who the company’s major shareholders are and staying in touch with them, understanding their views and concerns, and considering what steps can be taken to address those concerns well before any proposal is received. Even if a company does not expect to be a target of a proposal in the near future, understanding the views of key shareholders on this important subject should be part of the agenda for any meetings it is planning with shareholders in anticipation of the 2012 proxy season.

READ MORE »

The Williams Act: A Truly “Modern” Assessment

Posted by Scott Hirst, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Saturday, October 22, 2011
, , , , ,
More from: , ,

The following post comes to us from Andrew E. Nagel, Andrew N. Vollmer, and Paul R.Q. Wolfson, partners at Wilmer Cutler Pickering Hale and Dorr LLP, and is based on a paper by the authors, available here. Related work by the Program on Corporate Governance on the SEC consideration of possible changes to rule 13(d) includes The Law and Economics of Blockholder Disclosure by Bebchuk and Jackson.

Recently, a debate has emerged about the merits of certain proposed piecemeal reforms to the Williams Act’s 13(d) disclosure regime. The aim of our paper, The Williams Act: A Truly “Modern” Assessment, is to examine the implications of these proposals and to suggest that, before making any changes to the regime, the Commission should undertake a comprehensive review of the role of the Williams Act in today’s market and decide what best serves overall shareholder interests. The paper was prepared on behalf of certain members of the Managed Funds Association and was sent in advance of various meetings with the Staff of the Securities and Exchange Commission and with certain SEC Commissioners. The participants at those meetings included Pershing Square Capital and JANA Partners, as well as BlackRock, California State Teachers’ Retirement System, Florida State Board of Administration, The New York State Common Retirement Fund, Ontario Teachers’ Pension Plan Board, TIAA-CREFF, T. Rowe Price, and pension fund representatives of Change to Win and the United Food and Commercial Workers Union.

The Williams Act: An Historical Perspective

Enacted in 1968, the Williams Act was a response to a wave of hostile coercive takeover attempts, primarily cash tender offers. At the time the Williams Act was passed, the vast majority of shares were owned by individual shareholders, a fragmented and ill-informed group unprepared to exert their rights as shareholders. Cash tender offers posed the real risk of destroying value by forcing shareholders to tender their shares on a compressed timetable.

READ MORE »

A Regulatory Design for Monetary Stability

Posted by Morgan Ricks, Harvard Law School, on
Friday, October 21, 2011
, , , ,
More from:

Morgan Ricks is a Visiting Assistant Professor at Harvard Law School.

In the paper, A Regulatory Design for Monetary Stability, which was recently made publicly available on SSRN, I seek to make the case that our financial regulatory apparatus is ill-designed to address what is, arguably, the central problem for financial regulatory policy. That problem is the instability of the market for money-claims—a generic term that denotes fixed-principal, very short-term IOUs. The money-claim market is vast, and it is dominated by financial issuers. Building on prior work, the paper contends that the money-claim market is associated with a basic market failure. It further suggests that our current regulatory approach, even as modified by recent and pending reforms, is unlikely to be conducive to stable conditions in this market.

The paper offers an alternative regulatory framework to address this market failure. Specifically, it proposes that the issuance of money-claims be permitted only within a public-private partnership (“PPP”) system. Unlike our existing financial stability architecture, the proposed regulatory design embodies a coherent economic logic. Furthermore, the paper argues that the proposed regime would be more readily administrable than our current system, in part because it would rely on more modest regulatory capacities.

READ MORE »

Del Monte Settlement Highlights Risk of Conflicts in Buyout Financing

Posted by Theodore Mirvis, Wachtell, Lipton, Rosen & Katz, on
Friday, October 21, 2011
, , , , ,
More from: ,

Theodore Mirvis is a partner in the Litigation Department at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton firm memorandum by Mr. Mirvis, Paul K. Rowe, William Savitt, and Ryan A. McLeod. This post is part of the Delaware law series, which is co-sponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Recently, there was the announcement of a proposed $89.4 million settlement of shareholder claims arising out of the buyout of Del Monte Foods Company. The shareholders had alleged that the sales process was tainted by collusion between the buyers and Del Monte’s banker, which had sought to provide financing to the buyout group. The settlement follows the closing of the transaction and will be funded by both the new owners of the company and the banker.

The $89.4 million payment is one of the larger settlements to occur in Delaware shareholder litigation. The driver of the settlement was the Court of Chancery’s February ruling granting a motion for a preliminary injunction. (See our memo of February 15, 2011 on the decision.) The case highlights the following considerations relevant to sale-of-a-company processes:

READ MORE »

Assessing Pay for Performance

Posted by Matteo Tonello, The Conference Board, on
Thursday, October 20, 2011
, ,
More from: , ,

Matteo Tonello is Director of Corporate Governance for The Conference Board, Inc. This post is based on a Conference Board Director Note by Stephen O’Byrne, president and co-founder of Shareholder Value Advisors. Related work from the Program on Corporate Governance on pay for performance includes two papers and a book from Bebchuk and Fried, available here, here, and here.

Although pay for performance is a nearly universal objective of executive compensation programs, there is little agreement on how to measure it and monitor it. Companies often seem to believe that it is obvious that pay varies with performance, while many investors feel that there is little evidence of a strong correlation between the two. This report explores five interpretations of the “pay for performance” concept, presents a practical way to measure it, assesses the concept’s prevalence, and explains how directors can monitor and improve pay for performance at their company.

Five Interpretations of “Pay for Performance”

An analysis of “pay for performance,” as used by the business community, reveals that there are at least five interpretations of the concept.

1. Pay versus target pay is tied to performance Many companies believe that they achieve pay for performance because they award compensation that is above a target level when performance is good and below a target level when performance is poor. For example, in its 2010 proxy statement, Procter & Gamble describes pay for performance this way: “We pay above target when goals are exceeded and below target when goals are not met.” [1] However, few institutional investors and proxy voting advisors are comfortable with a pay for performance concept tied to target pay levels, as they believe that, under this construct, some companies may adopt needlessly high target pay levels and reward poorly performing executives with pay levels that, albeit lower than those for well-performing executives, remain above the market.

READ MORE »

Principal Changes to the UK Takeover Code

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Thursday, October 20, 2011
, ,
More from: , , ,

The following post comes to us from Jeremy G. Hill, corporate partner at Debevoise & Plimpton LLP, and is based on a Debevoise & Plimpton update by Mr. Hill, David Innes, and Guy Lewin-Smith.

Recently, a new version of the Takeover Code came into force. With few exceptions, it governs all offers and possible offers made from this date. The amendments are the result of the year-long consultation process initiated by the Takeover Panel after widespread criticism and concern following Kraft Food Inc.’s hostile takeover of Cadbury plc. The amendments are designed to address the concern that hostile bidders have recently been able to acquire a tactical advantage over the target company to the detriment of the target and its shareholders and that the outcome of hostile offers is often unduly influenced by short-term investors that do not take into account the long-term interest of the target. The amendments being introduced are intended to redress the balance in favour of the target. This note provides a brief update of the principal changes.

Requirement for a potential bidder to be identified. There are enhanced disclosure requirements in the first public announcement of a possible offer, including identifying by name any potential bidder(s) from whom the target company has received an approach or with whom it is in talks.

READ MORE »

Did Securitization Cause the Mortgage Crisis?

Posted by Scott Hirst, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Wednesday, October 19, 2011
, , , , ,
More from: ,

The following post comes to us from Ryan Bubb, Assistant Professor of Law at the New York University School of Law, and Alex Kaufman, economist at the Board of Governors of the Federal Reserve System. The opinions, analysis, and conclusions set forth are those of the authors and do not indicate concurrence by members of the Board of Governors of the Federal Reserve System or of the Federal Reserve Bank of Boston.

Did mortgage securitization cause the mortgage crisis? One popular story goes like this: Banks that originated mortgage loans and then sold them to securitizers didn’t care whether the loans would be repaid. After all, since they sold the loans, they weren’t on the hook for the defaults. Without any “skin in the game” those banks felt free to make worse and worse loans until… kaboom! The story is an appealing one, and since the beginning of the crisis it has gained popularity among academics, journalists, and policymakers. It has even influenced financial reform. The only problem? The story might be wrong.

In this post we report on the latest round in an ongoing academic debate over this issue. We recently released two papers, available here and here, in which we argue that the evidence against securitization that many have found most damning has in fact been misinterpreted. Rather than being a settled issue, we believe securitization’s role in the crisis remains an open and pressing question.

READ MORE »

What Constitutes a Sale of Substantially All Assets?

Posted by David A. Katz, Wachtell, Lipton, Rosen & Katz, on
Wednesday, October 19, 2011
, , ,
More from: , , ,

David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz specializing in the areas of mergers and acquisitions and complex securities transactions. This post is based on a Wachtell Lipton firm memorandum by Mr. Katz, David K. Lam, and Ryan A. McLeod. This post is part of the Delaware law series, which is co-sponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

The Delaware Supreme Court has affirmed the Court of Chancery’s decision not to aggregate a series of dispositions in determining whether they constitute a transfer of “substantially all” of a company’s assets under a bond indenture. See Bank of New York Mellon Trust Co. v. Liberty Media Corp., No. 284, 2011 (Del. Sept. 21, 2011) (en banc).

The case arose out of a June 2011 proposal by Liberty Media Corporation to split off its Capital and Starz businesses. Certain of Liberty’s bondholders objected to the split-off as a transfer of “substantially all” of the company’s assets in violation of Liberty’s bond indentures. Although the Capital and Starz businesses alone would not amount to “substantially all” of Liberty’s assets, the bondholders argued that the proposed split-off should be considered together with three prior dispositions undertaken by Liberty since March 2004.

READ MORE »

October 2011 Dodd-Frank Rulemaking Progress Report

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Tuesday, October 18, 2011
, , ,
More from: , ,

The following post comes to us from Margaret E. Tahyar and Gabriel D. Rosenberg of the Financial Institutions Group at Davis Polk & Wardwell LLP. This post discusses a Davis Polk report which is available here. A post about the previous progress report is available here. Other posts about the Dodd-Frank Act are available here.

This posting, the October Davis Polk Dodd-Frank Progress Report, is the seventh in a series of Davis Polk presentations that illustrate graphically the progress of the rulemaking work that has been done and is yet to occur under the Dodd-Frank Act. The Progress Report has been prepared using data from the Davis Polk Regulatory Tracker™, an online subscription service offered by Davis Polk to help market participants understand the Dodd-Frank Act and follow regulatory developments on a real-time basis.

In this report:

  • No New Deadlines. No new rulemaking requirements were due in September.
  • 3 Requirements Met, 1 Proposed. Three rulemaking requirements were finalized this month, including the FDIC’s Joint Final Rule on Resolution Plans (also known as “living wills”). The Federal Reserve is expected to issue their version of the rule soon. One rule was proposed for which the deadline had already passed.
  • Volcker Rule Expected. A coordinated proposed rule on implementation of the Volcker Rule is expected in the coming weeks.
  • 2 Studies Issued. The GAO and the SEC each published one study in September.
  • New Progress Report Feature. The Progress Report now divides missed deadlines into those for which a proposed rule has been published and those for which no proposed rule has been published. As deadlines are missed, this will help readers gauge progress.

Good Faith — Not Just an Aspiration

Posted by Daniel E. Wolf, Kirkland & Ellis LLP, on
Tuesday, October 18, 2011
, , ,
More from: ,

Daniel Wolf is a partner at Kirkland & Ellis LLP focusing on mergers and acquisitions. This post is based on a Kirkland & Ellis M&A Update by Mr. Wolf and David B. Feirstein. This post is part of the Delaware law series, which is co-sponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

In a recent Kirkland M&A Update, we reviewed a Georgia appellate decision upholding a $281 million jury award to a spurned suitor, showing that even careful drafting of “non binding” language in a letter of intent may not be effective in avoiding unanticipated binding obligations if the parties’ conduct is inconsistent with those provisions. We also noted, in an earlier Kirkland M&A Update, a Delaware decision underlining the potential pitfalls for parties entering into letters of intent or term sheets with the expectation that they merely represent an unenforceable “agreement to agree.” A recent Delaware decision by VC Parsons highlights that danger lurks for unwary dealmakers even when a court comes well short of finding a term sheet to be a binding agreement.

READ MORE »

Page 11 of 49
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 … 49