Monthly Archives: March 2011

Lucian Bebchuk Elected to Norilsk Nickel’s Board of Directors

According to a press release by MMC Norilsk Nickel, Harvard Law School Professor Lucian Bebchuk was elected for the Company’s Board of Directors as an independent director. The election occurred in an Extraordinary Shareholder Meeting taking place earlier this month. In a press release, UC RUSAL, the world’s largest aluminum producer and owner of a 25% stake in MMC Norilsk Nickel, referred to Bebchuk as a “a landmark figure for international institutional investors” and expressed hope that the election “will help improve corporate governance … and introduce proper practices and standards for the protection of minority shareholders.”

MMC Norilsk Nickel, a company incorporated under the laws of the Russian Federation, is the largest diversified mining and metals company in Russia, the world’s largest producer of nickel and palladium and one of the world’s largest producers of platinum, rhodium, copper and cobalt. In addition, MMC Norilsk Nickel produces a large number of by-products, including gold, silver, tellurium, selenium, iridium and ruthenium. As well as its key production units in the Polar and Kola Peninsula regions of Russia, MMC Norilsk Nickel assets include operations in Finland, Australia, Botswana and South Africa. MMC Norilsk Nickel’s shares are traded at MICEX and RTS. ADRs on the company’s shares are traded on the over-the-counter market in the United States and on the London and Berlin stock exchanges. MMC Norilsk Nickel’s current market capitalization exceeds $40 billion.

Norilsk Nickel’s press release about the board election results can be found here; Rusal’s press release on the subject can be found here; a WSJ story about the election is available here. More information about Norilsk Nickel is available here.

Proposed Rule on Incentive-Based Compensation at Financial Institutions

Joseph Bachelder is founder and senior partner of the Bachelder Law Firm. This post is based on an article by Mr. Bachelder that first appeared in the New York Law Journal.

On Feb. 7, 2011, the Federal Deposit Insurance Corporation (FDIC) approved a proposed rule regarding incentive-based compensation at covered financial institutions pursuant to Section 956 of the Dodd-Frank Wall Street and Consumer Protection Act, 12 U.S.C. §5641 (2010). Subsequently, the National Credit Union Administration (NCUA) (Feb. 17) and the Securities and Exchange Commission (SEC) (March 2) approved their own versions of the proposed rule (each version being very much the same as the FDIC’s). Four other agencies are expected to approve their own similar versions of the proposed rule shortly. [1]


Proxy Advisory Business: Apotheosis or Apogee?

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 Corporate Governance Commentary by Mr. Nathan and James D.C. Barrall.


Proxy advisory firms, particularly the two dominant players — ISS and Glass Lewis — seem to many observers to be in the proverbial cat-bird seat. [1]

The closure of Proxy Governance, Inc. at the end of 2010 gave these two firms a duopoly, which should be good for their businesses.

The number of shareholder votes at public companies, which is the bread and butter of the proxy advisory business model, has increased markedly over the past decade, and will continue to grow with the advent of mandatory Say on Pay and Say on Pay frequency votes, not to mention proxy access if it survives its pending judicial review.

The combined influence of these two proxy advisory firms on shareholder voting is often determinative of the outcome, particularly in contested vote situations. [2]


Investor Protection and Its Effects on Investment, Finance, and Growth

The following post comes to us from David McLean of the Department of Finance at the University of Alberta, Tianyu Zhang of the Accounting Department at the Chinese University of Hong Kong, and Mengxin Zhao of the Department of Finance at the University of Alberta.

In the paper, Why Does the Law Matter? Investor Protection and its Effects on Investment, Finance, and Growth, forthcoming in the Journal of Finance, we study how investor protection affects firm-level resource allocations. We test for these effects using both ex-ante and ex-post measures of efficiency. We conduct our analyses in a large sample of firms from 44 countries during the period 1990 to 2007. We show that the relations between q and investment and q and external finance are stronger in countries with stronger investor protection laws. These findings are consistent with the notion that investor protection laws encourage accurate share prices, efficient investment, and better access to external finance.


The Case for Modernizing Section 13 Beneficial Ownership Reporting Rules

Eric Robinson is Of Counsel and Theodore Mirvis is a Partner at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton firm memorandum by Mr. Mirvis and Mr. Robinson.

Wachtell, Lipton, Rosen & Katz filed a rulemaking petition with the Securities and Exchange Commission on March 7, 2011 with respect to the beneficial ownership reporting rules found in Section 13(d) of the Securities Exchange Act of 1934. Our request highlights the urgent need to amend the existing reporting framework to keep pace with market realities and abuses, in particular by closing the Schedule 13D ten-day window between crossing the 5% disclosure threshold and the initial filing deadline, and adopting a broadened definition of “beneficial ownership” to fully encompass alternative ownership mechanisms. Recent maneuvers by activist investors both in the U.S. and abroad have demonstrated the extent to which current reporting gaps may be exploited, to the detriment of issuers, other investors, and the market as a whole.


Federal Agencies Propose Interagency Rule on Financial Institution Compensation

Editor’s Note: Margaret E. Tahyar is a partner in the Financial Institutions Group at Davis Polk & Wardwell LLP. This post is based on a Davis Polk client memorandum by Kyoko Takahashi Lin and Nora M. Jordan summarizing a proposed rule on incentive compensation under the Dodd-Frank Act, which is available here.

My partners Kyoko Lin and Nora Jordan have written a memorandum that analyzes a proposed interagency rule issued under Section 956 of the Dodd-Frank Act. The proposed rule would impose significant new requirements relating to incentive-based compensation that would apply to a wide range of financial institutions, including some, such as broker-dealers and investment advisers, that have never had their compensation subject to governmental requirements, and others, such as uninsured branches and agencies of a foreign bank, that are not listed in the statute.


Sources of Gains in Corporate Mergers

The following post comes to us from David Becher, Associate Professor of Finance at Drexel University, Harold Mulherin, Professor of Banking and Finance at the University of Georgia, and Ralph Walkling, Stratakis Chair in Corporate Governance at Drexel University.

In the paper, Sources of Gains in Corporate Mergers: Refined Tests from a Neglected Industry, forthcoming in the Journal of Financial and Quantitative Analysis, we provide new tests of the synergy, collusion, and anticipation hypotheses using stock and product pricing data from the utility industry in the United States. The utility industry has been omitted from prior analysis of synergy and collusion in mergers and thus provides out-of-sample tests of these hypotheses. Moreover, features of the industry allow ready identification of geographic rivals and thereby facilitate clean tests of the competing hypotheses.


The Fifth Analyst Call: Investors Seek Greater Communication with Directors

The following posts comes to us from Deborah Gilshan, Corporate Governance Counsel at Railpen Investments, and Elizabeth McGeveran, Senior Vice President at F&C Asset Management. A statement with further information is available here.

A group of major and influential global institutional investors from North America, Europe and Australia , led by the UK’s Railpen Investments and F&C Asset Management, are seeking to build open and constructive dialogue with US boards of directors through a concrete, easy-to-implement solution – an idea we are calling a “Fifth Analyst Call.”

In a nutshell, companies would host an open call for their investors prior to the annual meeting – a fifth call added onto the calendar of quarterly analyst calls, with the focus on corporate governance. Prior to the annual meeting, investors consider important details related to the issuer, including whether or not to endorse a company’s compensation plan and the actions of the directors during the year. For their part, issuers produce a detailed proxy statement which represents the considered decisions of officers and directors. This is the natural time for a substantive, practical discussion about corporate governance issues, including compensation. The proxy statement offers a perfect opening for dialogue between shareholders and independent directors such as the lead director.


Florida SBA Seeks to Use Proxy Voting to Promote Good Governance Practices

Michael McCauley is Senior Officer, Investment Programs & Governance, of the Florida State Board of Administration (the “SBA”). This post is based on an excerpt from the SBA’s 2011 Corporate Governance Report by Mr. McCauley, Jacob Williams and Lucy Reams. Mr. Williams and Ms. Reams are Corporate Governance Manager and Senior Corporate Governance Analyst, respectively, at the SBA. The complete report is available here; further information regarding the SBA’s governance activities, including proxy voting data, is available here.

The State Board of Administration (SBA) supports the adoption of internationally recognized governance practices for well-managed corporations including independent boards, transparent board procedures, performance-based executive compensation, accurate accounting and audit practices, and policies covering issues such as succession planning and meaningful shareowner participation. The SBA also expects companies to adopt rigorous stock ownership and retention guidelines, annually seek shareowner ratification of external auditors, and implement well designed incentive plans. As noted in a recent Fitch Ratings research piece, “Assessing an issuer’s governance practice begins with its board of directors. An independent, active, knowledgeable, and committed board of directors signals a robust governance framework. A board that is not committed to fulfilling its fiduciary responsibilities can open the door for ineffective, incompetent, and in some cases, unscrupulous management behavior.”


Corporate Governance Adrift

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 firm memorandum.

Having served as a member of the NYSE committee that created the NYSE’s post-Enron corporate governance rules, I have watched with dismay as those rules have been misunderstood, misapplied and polluted by one-size-fits-all “best practices” invented by proxy advisory services and other governance activists. In the recent Hewlett-Packard case, ISS took the position that the participation by the CEO in the search for new directors tainted the process and warranted a recommendation by ISS for a no vote on the reelection of members of Hewlett-Packard’s nominating and governance committee. See March 11, 2011 memo. Apart from the fundamental policy issue as to whether the principal purpose of the board of directors is to monitor the performance of the CEO or to advise as to strategy, the Hewlett-Packard case raises the equally important issue of how the board should function on a day-to-day basis.


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