Yearly Archives: 2012

Executive Superstars, Peer Groups and Over-Compensation

Posted by Charles Elson, John L. Weinberg Center for Corporate Governance, University of Delaware, on
Wednesday, September 26, 2012
,
More from: ,

Charles M. Elson is the Edgar S. Woolard, Jr. Chair in Corporate Governance and Director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. This post is based on a paper he co-authored with Craig Ferrere, Research Fellow at the Weinberg Center.

In the paper, Executive Superstars, Peer Groups and Over-Compensation — Cause, Effect and Solution, which was recently made publicly available on SSRN, we develop a pragmatic approach to understanding the run-up in CEO compensation over the past several decades. Rather than looking to markets or captured boards for the explanation, we argue that the actual mechanical process of peer benchmarking by which pay is set is the cause of the present controversy. From this perspective, we present what we believe will be an effective solution; additionally and collaterally, some interesting lessons about executive recruitment, particularly the CEO “superstar” culture, may be gleaned from our findings. We thank the Investor Responsibility Research Center Institute, which has long funded compensation research, for their financial support and helpful assistance in the development of this paper.

The piece makes a contribution to the executive compensation literature as it offers a novel explanation for the perpetual rise in CEO pay and suggests a significantly different solution to the compensation controversy. As boards have typically looked outside the organization to set CEO pay, we argue that this approach, known as “peer grouping,” is seriously flawed as it relies on the notion of an easy transferability of executive talent which empirically, is incorrect. Therefore, boards should look within the organization itself rather than to external comparators to create an appropriate CEO pay structure. We suggest that this approach should begin to resolve the CEO compensation problem.

READ MORE »

Second Circuit Clarifies Standards for Insider Trading Claims

Posted by Alan L. Beller, Cleary Gottlieb Steen & Hamilton LLP, on
Wednesday, September 26, 2012
, , , ,
More from: ,

Alan L. Beller is a partner focusing on complex securities, corporate governance and corporate matters at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum.

In the latest of a string of litigation victories it has scored in the Second Circuit, the Securities and Exchange Commission convinced a panel of the Second Circuit on September 6, 2012, to vacate a district court’s grant of summary judgment to the defendants in Securities and Exchange Commission v. Obus, No. 10 Civ. 4749. In so doing, the Circuit clarified, and to some extent modified, the standards for tipper/tippee insider trading under the misappropriation theory.

The SEC alleged that Thomas Strickland, an employee of General Electric Capital Corporation (“GE Capital”), tipped a friend of his, Peter Black, who worked for a hedge fund, about a planned acquisition of Sunsource, Inc., by Allied Capital Corporation, that GE Capital was financing. The SEC alleged that Black relayed the tip to his boss, Nelson Obus, who then traded on the information. The SEC argued that all three participants were liable under the misappropriation theory, alleging that Strickland owed a fiduciary duty to GE Capital to keep the information about the acquisition confidential, that he breached this duty by disclosing the information to Black, and that Black and Obus knew or should have known that Strickland was breaching a duty by providing the tip.

READ MORE »

Blockholder Disclosure, and the Use and Abuse of Shareholder Power

Posted by Adam O. Emmerich, Eric S. Robinson, Theodore Mirvis, and William Savitt, Wachtell, Lipton, Rosen & Katz, on
Tuesday, September 25, 2012
, , , , , ,
More from: , , , ,

The following post comes to us from Adam O. Emmerich, Eric S. Robinson, Theodore Mirvis and William Savitt, attorneys in the corporate and litigation departments at Wachtell, Lipton, Rosen & Katz. This post is based on a paper they co-authored, titled “Fair Markets and Fair Disclosure: Some Thoughts on The Law and Economics of Blockholder Disclosure, and the Use and Abuse of Shareholder Power,” available here. The paper responds to a forthcoming article by Lucian Bebchuk and Robert Jackson Jr., titled “The Law and Economics of Blockholder Disclosure,” that is available here and discussed on the Forum here.

In our article Fair Markets and Fair Disclosure: Some Thoughts on The Law and Economics of Blockholder Disclosure, and the Use and Abuse of Shareholder Power forthcoming in Harvard Business Law Review, Spring 2012, and available at SSRN, we discuss the debate that has ensued following the March 2011 petition by our law firm, Wachtell, Lipton, Rosen & Katz, to the Securities and Exchange Commission to modernize the blockholder reporting rules under Section 13(d) of the Securities Exchange Act of 1934.

The petition sought to ensure that the reporting rules would continue to operate in a way broadly consistent with the statute’s clear purposes that an investor must promptly notify the market when it accumulates a block of publicly traded stock representing more than 5% of an issuer’s outstanding shares, and that loopholes that have arisen by changing market conditions and practices since the statute’s adoption over forty years ago could not continue to be exploited by stockholder activists, to the detriment of market transparency and fairness to all security holders. Among other things, the petition proposed that the time to publicly disclose such block acquisitions be reduced from ten days to one business day, given activists’ current ability to take advantage of the ten-day window to accumulate positions well above 5% prior to any public disclosure, in contravention of the clear purposes of the statute.

READ MORE »

Regulating IPOs: Evidence from Going Public in London and Berlin

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Tuesday, September 25, 2012
, , ,
More from: , ,

The following post comes to us from Carsten Burhop of Max Planck Institute for Research on Collective Goods; David Chambers of Cambridge Judge Business School at University of Cambridge; and Brian Cheffins, Professor of Corporate Law at the University of Cambridge.

The role that regulation should play in the development of securities markets is much debated and a persistent lull in initial public offerings helped to prompt some deregulation through the enactment of the 2012 Jumpstart Our Business Startups (JOBS) Act. While the appropriate scope of public regulation of securities markets is a contentious issue and while the market for newly listed firms can be a bellwether for the development of public equity markets, the empirical literature on regulation of IPOs is small and generally inconclusive. In our paper, Regulating IPOs: Evidence from going public in London and Berlin published on SSRN, we use history to offer insights concerning regulation of IPOs and the development of public equity markets. In particular, we draw upon hand-collected Initial Public Offering (IPO) datasets to undertake a comparative study of the London and Berlin stock markets between 1900 and 1913, a period that coincides with the apogee of an era of global financial development unmatched until the end of the 20th century.

READ MORE »

Defining a Joint Venture’s Scope of Business: Key Issues

Posted by Eduardo Gallardo, Gibson, Dunn & Crutcher LLP, on
Monday, September 24, 2012
,
More from: , , ,

Eduardo Gallardo is a partner focusing on mergers and acquisitions at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn client alert by Ruth Fisher and Benyamin Ross.

Early in the discussions about whether and how to form a joint venture [1] — perhaps as the very first significant issue to be resolved — the potential joint venture partners [2] will try to agree on the scope of the venture’s business. That definition is usually embodied in one or more of the venture agreements, and may circumscribe the nature of the venture’s business, potential future lines of business into which the venture may expand, geographic areas in which the venture will or may operate, and how deviations from the venture’s scope will be determined and approved by the venture partners.

As partners negotiate the scope of the venture’s business, they also need to focus on the key corollary provisions of the venture arrangement impacted by the agreed-upon scope. The terms of those provisions will in turn inform the discussion about scope. This alert focuses on factors to be considered as the venture partners discuss two of the core issues that arise in conjunction with the discussion about scope: the parameters of the non-compete, if any, to be entered into by the partners for the benefit of the venture, and the application of the corporate opportunity doctrine to the venture and the venture partners.

READ MORE »

Insider Trading and the Scienter Requirement

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Monday, September 24, 2012
, ,
More from:

The following post comes to us from Donald Langevoort, Professor of Law at the Georgetown University Law Center.

On its face, the connection between insider trading regulation and the state of mind of the trader or tipper seems fairly intuitive. Insider trading is a form of market abuse: taking advantage of a material, non-public secret to which one is not entitled, generally in breach of some kind of fiduciary-like duty. It is an exploitation of status or access, typically coupled with some form of faithlessness. Certainly the extraordinary public attention that insider trading enforcement and prosecutions command reflects the idea that the essence of unlawful insider trading is cheating. These prosecutions are main-stage morality plays, with greed as the story line. The SEC in particular seems to sense that it garners public political support by casting itself in the role of tormentor of the greedy.

If this is right, then what the legal system should be looking to proscribe is deliberate exploitation—trading on the basis of information in order to gain an unfair, unlawful advantage over others in the marketplace. That involves a fairly tight causal connection between knowledge of the information and the decision to buy or sell.

READ MORE »

Regulation of OTC Derivatives Markets — EU vs US Initiatives

Posted by David Felsenthal, Clifford Chance LLP, on
Sunday, September 23, 2012
, , , , ,
More from: , , , ,

David Felsenthal is a partner at Clifford Chance LLP focusing on financial transactions. This post is based on a Clifford Chance publication by Mr. Felsenthal and Christopher Bates, partner at Clifford Chance; and Mary Johannes and Richard Metcalfe of International Swaps and Derivatives Association, Inc. The full report is available for download here.

Both the EU and the US have now adopted the primary legislation which aims to fulfill the G20 commitments that all standardised over-the-counter (OTC) derivatives should be cleared through central counterparties (CCPs) by end 2012 and that OTC derivatives contracts should be reported to trade repositories (and the related commitments to a common approach to margin rules for uncleared derivatives transactions). The US Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in July 2010 and the text of the EU Regulation on OTC Derivatives, CCPs and Trade Repositories (EMIR) was finally published in the Official Journal on 27 July 2012.

There is a significant commonality of approaches between EMIR and the Dodd-Frank Act in relation to the regulation of OTC derivatives markets, but there are also some significant differences. This paper summarises the way in which the two regimes treat different categories of counterparty and highlights certain other major differences between EMIR and the Dodd-Frank Act in relation to OTC derivatives regulation.

READ MORE »

Recent Circuit Court Opinions Impact SEC Enforcement Program

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Saturday, September 22, 2012
, , ,
More from: , , ,

The following post comes to us from Douglas J. Davison, partner at Wilmer Cutler Pickering Hale and Dorr LLP and vice chair of the firm’s securities department. This post is based on a WilmerHale client update by Mr. Davison, Andy Weissman and Benjamin C. Brown; the full publication, including footnotes, is available here.

Four federal circuit courts recently issued a string of rulings that are likely to have an impact on the manner in which the Securities and Exchange Commission (“SEC”) seeks to police the financial markets and penalize alleged misconduct. The Courts of Appeals for the Second, Fifth, Ninth and Eleventh Circuits released four opinions, two of which potentially enlarge the SEC’s tool kit in seeking to punish wrongdoing, one that could pare back the SEC’s reach, and finally one that is useful in addressing potential collateral consequences of SEC “neither admit nor deny” settlements in subsequent litigation. Each has the potential to influence litigated matters involving SEC investigations that are currently pending before federal courts, and may well have an impact even at the investigative stage.

READ MORE »

The Supreme Court’s Recent Focus on 10b-5 Cases

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Friday, September 21, 2012
, ,
More from: , , , ,

The following post comes to us from Paul A. Ferrillo, litigation counsel at Weil, Gotshal & Manges LLP. This post is based on a survey of securities fraud litigation by Mr. Ferrillo, Robert F. Carangelo, David Schwartz and Matt Altemeier; the full guide, including complete footnotes, is available here.

Years from now, when historians write the history of the Roberts Court, perhaps they will be able to explain why, in the second half of the first dozen years of the 21st Century, the Supreme Court suddenly became so interested in taking up cases under the federal securities laws. Indeed, a review of recent private 10b-5 jurisprudence reveals that the last two years have generated more United States Supreme Court precedent than the previous eighteen. [1] These cases could have profound implications for how public and private companies around the globe meet their reporting obligations, defend against class actions, and/or maintain their credibility in the eyes of regulators, judges, and investors. We discuss this plethora of recent Supreme Court cases below, concluding with a discussion of Amgen, Inc. v. Connecticut Retirement Plans & Trust Funds, which will be heard by the Supreme Court in November 2012.

READ MORE »

The Merits of One-Size-Fits-All Securities Regulation

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Friday, September 21, 2012
, ,
More from: ,

The following post comes to us from Henry Friedman of the Accounting Area at UCLA and Mirko Heinle of the Department of Accounting at the University of Pennsylvania.

Recent securities regulation, like Sarbanes-Oxley and Dodd-Frank, has been criticized for taking a costly one-size-fits-all approach. The critics suggest that, instead, regulation tailored to different firms, industries, or sectors is beneficial as it reduces compliance costs and the costs that arise from constraining firms’ operating and financing choices. In our paper, The Merits of One-Size-Fits-All Securities Regulation, which was recently posted on SSRN, we develop an analytical model to highlight indirect effects caused by choosing an individualized or generalized regulatory regime.

Securities regulation is enacted to reduce the potential for managers to extract rents from their firm’s investors. We model a regulatory agency that is in charge of securities regulation and can be influenced by two groups: investors and managers. Managers can reduce the extent of regulation by lobbying the agency, which helps them maintain their ability to extract rents. The existence of rents, however, reduces the payouts from firms to investors and this translates into negative political consequences for the regulator. The regulatory agency chooses the quality of securities regulation taking into consideration both the firms’ lobbying and investors’ interests. Our model of an economy with two firms can be interpreted as a multi-industry or multi-sector economy where each firm represents an industry or sector. We compare two regulatory regimes, one in which the regulator is constrained to define a general regulatory quality for both firms or industries (the one-size-fits-all approach) and one where the agency may set different regulation for different firms.

READ MORE »

Page 18 of 63
1 … 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 … 63