Yearly Archives: 2012

Board Evolution: Progress Made, Yet Challenges Persist

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Thursday, September 20, 2012
,
More from: ,

The following post comes to us from Mary Ann Cloyd, leader of the Center for Board Governance at PricewaterhouseCoopers LLP. This post is based on a PwC annual survey of corporate directors; the full document is available here.

Corporate directors have adjusted to significant changes in the governance environment during the last year. On the regulatory front, the Securities and Exchange Commission (SEC) continues to implement new rules stemming from the Dodd-Frank Act, causing companies to rethink and react. The voice of shareholders has never been louder, pressuring companies to adopt structural governance changes by submitting proposals on board declassification, splitting CEO and board chair roles, and majority voting. Shareholder “say on pay” votes moved into a second year with some companies uncertain about how to respond based on their voting results. Plus, more companies had their shareholders withhold approval on their “say on pay” votes, maintaining the pressure on compensation committees.

In the summer of 2012, 860 public company directors responded to PwC’s 2012 Annual Corporate Directors Survey. Of those directors, 70% serve on the boards of companies with more than $1 billion in annual revenue. As a result, the survey’s findings reflect the practices and boardroom perspectives of many of today’s world-class companies. We structured the survey to provide pragmatic feedback directors can use to assess and improve performance in areas that are “top of mind” to today’s boards. The survey shows directors are clearly making progress and enhancing their practices. At the same time, directors acknowledge the numerous challenges they still face. The following are the highlights:

READ MORE »

Cherry Picking in Cross-Border Acquisitions

Posted by E. Han Kim, University of Michigan, Ross School of Business, on
Thursday, September 20, 2012
, , , ,
More from:

E. Han Kim is a Professor of Finance at the University of Michigan.

In the paper, Cherry Picking in Cross-Border Acquisitions, my co-author (Yao Lu of Tsinghua University) and I investigate how investor protection (IP) affects the allocation of foreign capital inflows at the firm level. A simple model provides an explanation for a well documented but little understood phenomenon on international capital flows—the tendency of foreign investors to target better-performing firms in emerging markets.

When a foreign acquirer’s country has stronger IP than a target country, the acquirer’s controlling shareholder values private benefits of control less than controlling shareholders of local firms because stronger IP imposes greater constraints on diversion of corporate resources for private benefits. Within the target country, controlling shareholders of firms with more profitable investments take fewer private benefits and, hence, demand lower control premiums. Foreign acquirers, which value control premiums less, will target firms with more profitable investments. The tendency to cherry pick will intensify (moderate) as the IP gap between the acquirer and target countries increases (decreases).

READ MORE »

California Court Acknowledges “Quasi-California Corporation” Decision

Posted by Larry Sonsini, Wilson Sonsini Goodrich & Rosati, on
Wednesday, September 19, 2012
, ,
More from: ,

Larry Sonsini is chairman of Wilson Sonsini Goodrich & Rosati. This post is based on a WSGR alert.

Companies incorporated outside of California but with significant California contacts (so-called “quasi-California corporations”) have struggled with exactly how to comply with the long-arm statute found in Section 2115 of the California Corporations Code. The statute purports to impose a number of provisions of the California Corporations Code on quasi-California corporations, including the state’s requirement to obtain separate approval from holders of each class of capital stock on a merger “to the exclusion of the law of the jurisdiction in which [the quasi-California corporation] is incorporated.” Section 2115 has been thought to be legally infirm for some time, particularly after a decision by the Delaware Supreme Court in 2005. However, there never has been an acknowledgement by a California court that Section 2115 reaches too far. That changed earlier this year, when a California Court of Appeal stated in dicta that certain matters of internal corporate governance fall within a corporation’s internal affairs and should be governed by the laws of the corporation’s state of incorporation.

READ MORE »

Does the Revolving Door Affect the SEC’s Enforcement Outcomes?

Posted by Simi Kedia, Rutgers Business School, on
Wednesday, September 19, 2012
, , , ,
More from:

Simi Kedia is a Professor of Finance and Economics at Rutgers Business School.

In the paper, Does the Revolving Door Affect the SEC’s Enforcement Outcomes?, which was recently made publicly available on SSRN, my co-authors (Ed DeHaan of the University of Washington, Kevin Koh of Nanyang Technological University, and Shivaram Rajgopal of Emory University) and I examine whether revolving doors are associated with compromised regulatory oversight by the SEC. In particular, we investigate whether regulatory enforcement against financial reporting fraud is influenced by the future job prospects of prosecuting SEC lawyers. Revolving doors lead to both the SEC hiring officials from firms that they regulate as well as SEC officials leaving to work for firms that are regulated. The revolving door exists because (i) the SEC needs industry specific expertise to regulate its constituents effectively, and (ii) regulated firms value experience and knowledge of complex regulations to minimize their cost of compliance.

READ MORE »

Second Circuit Opinion on Class Actions Under the Securities Act

Posted by Brad S. Karp, Paul, Weiss, Rifkind, Wharton & Garrison LLP, on
Tuesday, September 18, 2012
, , ,
More from: ,

Brad Karp is chairman and partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul Weiss client memorandum.

On September 6, 2012, the United States Court of Appeals for the Second Circuit issued an important decision in NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 11-02762-cv (Sept 6, 2012) (“NECA-IBEW”), vacating in part the dismissal of a putative class action brought under §§ 11, 12(a)(2) and 15 of the Securities Act by an RMBS purchaser. The decision includes important holdings concerning both standing in the class action context and the standard for pleading a cognizable injury under the Securities Act. First, the Court ruled that, in some defined circumstances, purchasers of RMBS certificates have standing to assert claims on behalf of purchasers of certificates in other offerings. Second, the Court held that holders of a security need not allege an out-of-pocket loss to adequately plead damages under Section 11.

READ MORE »

A Framework for Board Oversight of Enterprise Risk

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Tuesday, September 18, 2012
, , , ,
More from:

The following post comes to us from Gigi Dawe, principal at the Canadian Institute of Chartered Accountants. This post is based on a framework developed by CICA; the full document, including footnotes, is available here.

Introduction

In the aftermath of financial crises and a global recession, board oversight of enterprise risk continues to be a topical issue for board deliberation. The re-examination of the board’s role in the oversight of enterprise-wide risk has not been limited to investors or boards asking what could have been done to better understand and proactively address exposures. The SEC, New York Stock Exchange and other regulatory bodies continue to examine disclosure requirements related to various forms of enterprise risk. Risk oversight is a high priority for most boards, but for many it is also more-or-less uncharted territory.

What is the appropriate role of the board in corporate risk management? Traditional governance models support the notion that boards cannot and should not be involved in day-to-day risk management. Rather, through their risk oversight role, directors should be able to satisfy themselves that effective risk management processes are in place and functioning effectively. The risk management system should allow management to bring to the board’s attention the company’s material risks and assist the board to understand and evaluate how these risks interrelate, how they may affect the company, and how these risks are being managed. To meaningfully assess those risks, directors require experience, training and knowledge of the business.

READ MORE »

Innovation, “Pure Information,” and the SEC Disclosure Paradigm

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Monday, September 17, 2012
, , , , ,
More from:

The following post comes to us from Henry T. C. Hu, Allan Shivers Chair in the Law of Banking and Finance at the University of Texas School of Law.

My article, Too Complex to Depict? Innovation, ‘Pure Information,’ and the SEC Disclosure Paradigm, published in June in the 2012 symposium issue of the Texas Law Review, offers a new conceptualization of the SEC disclosure paradigm that has been in place since the Depression, shows how that paradigm has been undermined by the modern process of financial innovation, and offers possible ways ahead. Since its creation, the SEC’s totemic philosophy has been to promote a robust informational foundation. As a necessary corollary, the SEC’s approach has been incremental, generally not venturing into substantive decision-making (as to stock prices or otherwise).

The article starts by suggesting that this disclosure philosophy has always been largely implemented through what can be conceptualized as an “intermediary depiction” model. An intermediary—e.g., a corporation issuing shares—stands between the investor and an objective reality. The intermediary observes that reality, crafts a depiction of the reality’s pertinent aspects, and transmits the depiction to investors. Securities law directs depictions to be accurate and complete. “Information” is conceived of in terms of, if not equated to, such depictions.

READ MORE »

SEC Division of Trading and Markets Issues Guidance on JOBS Act

Posted by Giovanni P. Prezioso, Cleary Gottlieb Steen & Hamilton LLP, on
Monday, September 17, 2012
, , , , ,
More from: ,

Giovanni Prezioso is a partner focusing on securities and corporate law matters at Cleary Gottlieb Steen & Hamilton LLP, and former General Counsel of the Securities and Exchange Commission. This post is based on a Cleary Gottlieb memorandum by Leslie Silverman.

On August 22, 2012, the SEC Division of Trading and Markets (the “Staff”) published answers to 14 frequently asked questions (“FAQs”) relating to certain provisions of Title I of the Jumpstart Our Business Startups Act, signed into law on April 5, 2012 (the “JOBS Act”), affecting research analyst and investment banking personnel conduct in connection with emerging growth companies (“EGCs”).

The most noteworthy guidance, in our view, relates to the following:

READ MORE »

Dual Class Share Structures: The Next Campaign

Posted by Francis H. Byrd, Laurel Hill Advisory Group, on
Sunday, September 16, 2012
, , , ,
More from: ,

Francis H. Byrd is Senior Vice President, Corporate Governance & Risk Practice Leader at Laurel Hill Advisory Group. This post is based on a Laurel Hill newsletter by Mr. Byrd.

The arguments over the merits of dual class share structures have been heating up of late. The issue has resurfaced as institutional investors have complained about the increasing number of IPO companies (Facebook, Groupon, Zynga being the most notable) who have gone public as dual class stock companies limiting the rights and influence of shareholders and turning them into economic bystanders.

One of the stories we cited comes from IR Magazine “CalPERS Strategy Could Avoid IPOs with Dual Class Share Structures” discussing how the fund giant is planning to advocate against the use of dual class structures for companies exiting private equity and entering the public market. Earlier in August, at the ABA Business Section CLE conference, in Chicago, there was a panel discussion on the topic (“Dual Class Stock: Value Enhancer or Corporate Governance Killer?”) The panel comprised of institutional investors, a corporate director (and former investment manager), as well as a corporate attorney and Delaware jurist, all squared off on the issue.

READ MORE »

Federal Banking Agencies Publish Federal Register Versions of Capital NPRs

Posted by H. Rodgin Cohen, Sullivan & Cromwell LLP, on
Saturday, September 15, 2012
, , ,
More from: ,

H. Rodgin Cohen is a partner and senior 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 Andrew Gladin and Mark Welshimer.

On August 30, 2012, the Board of Governors of the Federal Reserve System (the “FRB”), the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation (the “Agencies”) published in the Federal Register three notices of proposed rulemaking (the “NPRs”, and the rules proposed by the NPRs, the “Proposed Rules”) [1] that seek to amend the U.S. risk-based capital rules for banks [2] and implement final amendments to the market risk rules (the “Market Risk Amendments”). Initial versions of the NPRs and the Market Risk Amendments were first issued by the FRB on June 7, 2012 (such initial version of the NPRs, the “Initial NPRs”). [3]

Based on a preliminary review of the NPRs as published in the Federal Register, the Agencies appear to have made few noteworthy changes to the Initial NPRs from June. The changes include:

READ MORE »

Page 19 of 63
1 … 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 … 63