Yearly Archives: 2012

Advancing Board-Shareholder Engagement

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Sunday, July 8, 2012
, , ,
More from: , ,

The following post comes to us from Mark Watson, partner at Tapestry Networks, and is based on the introduction of a Tapestry paper by Anthony Goodman and Tom Woodard. The full paper is available here.

On April 26, 2012, representatives of four large, North American institutional investors met with five experienced non-executive directors of major, global corporations to explore the important topic of how corporate boards and their members should appropriately engage with shareholders. This topic has attracted great interest in recent years, triggering a fair amount of animated discussion, particularly so in the wake of the 2000–2001 corporate scandals (e.g., Enron and WorldCom) and the 2008 financial crisis.

Indeed, before and after the financial crisis, Tapestry’s corporate governance networks have discussed their responsibility to investors and met with major investing institutions in the United States, Canada, and Europe and experts, advocates, and other participants in the field of board-shareholder engagement in an attempt to determine a way forward that works for all constituencies. Shareholders, lawmakers, board leaders, and corporate governance activists have all expressed views, and they are not always in agreement. Many of the issues are laid out in a Tapestry-prepared white paper, “A Key Moment to Improve Board-shareholder Engagement,” that was shared in advance with meeting participants.

READ MORE »

July 2012 Dodd-Frank Progress Report

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Saturday, July 7, 2012
, , , ,
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 July 2012 Davis Polk Dodd-Frank Progress Report, is one 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:

  • As of July 2, 2012, a total of 221 Dodd-Frank rulemaking requirement deadlines have passed. Of these 221 passed deadlines, 140 (63%) have been missed and 81 (37%) have been met with finalized rules.
  • In addition, 119 (29.9%) of the 398 total required rulemakings have been finalized, while 142 (35.7%) rulemaking requirements have not yet been proposed.
  • Major rulemaking activity this month included the FDIC, Federal Reserve and OCC joint final rule on market risk capital standards and the FDIC proposed rule on the definition of “predominantly engaged in financial activities” for purposes of Orderly Liquidation Authority. Additionally, though not explicitly required by Dodd-Frank, the CFTC released proposed interpretive guidance and a proposed order related to the cross-border application of Title VII.

Independence Rules for Compensation Committees and Advisers

Posted by Richard J. Sandler, Davis Polk & Wardwell LLP, on
Friday, July 6, 2012
, , , ,
More from: ,

Richard J. Sandler is a partner at Davis Polk & Wardwell LLP and co-head of the firm’s global corporate governance group. This post is based on a Davis Polk client memorandum.

Yesterday, the SEC adopted final rules to implement the Dodd-Frank Act’s requirements regarding the independence of compensation committees and their advisers. For the most part, the SEC made few changes from the proposed rules, which in turn hewed very closely to the requirements of the statute.

The national securities exchanges will have 90 days from the publication of the final rules in the Federal Register to propose listing standards implementing the rules and one year from that date of publication to finalize their standards. New disclosure requirements regarding compensation consultants are not subject to this exchange rulemaking process and will be effective beginning with any proxy or information statement for an annual shareholders meeting (or a special meeting in lieu of an annual meeting) at which directors will be elected occurring on or after January 1, 2013.

READ MORE »

Market Reaction to Corporate Press Releases

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Friday, July 6, 2012
, ,
More from: , ,

The following post comes to us from Andreas Neuhierl of the Department of Finance at Northwestern University, Anna Scherbina of the Department of Finance at UC Davis, and Bernd Schlusche, economist with the Board of Governors of the Federal Reserve System.

In our paper, Market Reaction to Corporate Press Releases, we provide a comprehensive investigation of how financial markets process various types of corporate news. The study argues that the importance of firm-level announcements should be assessed not only by investigating immediate stock price reactions but also by assessing their effect on firms’ informational environment.

This study became possible because of two important financial regulations that made corporate press releases a prevalent method of communicating new firm-level news to investors, Regulation Fair Disclosure, adopted in 2000 and the Sarbanes-Oxley Act implemented in 2002. These regulations mandate that publicly traded firm must disclose all private information that may have an impact on their market values and report changes in their “financial conditions and operations” in a timely fashion and simultaneously to all market participants. Firms routinely employ press releases as a way of achieving these objectives.

The dataset of corporate press releases was collected from a variety of newswire services, such as PR Newswire, BusinessWire, GlobeNewswire, and the like. The resulting dataset contains nearly all corporate press releases issued during the time period under investigation. Press releases are then classified into 60 news categories, formed with an objective of achieving a relative homogeneity in the news content within each category. While many types of financial announcements have been investigated in prior literature, a large number of other news categories have not due to the difficulty of collecting data.

READ MORE »

Corporate Governance Activism: Here To Stay?

Posted by Charles M. Nathan, Latham & Watkins LLP, on
Thursday, July 5, 2012
, , , ,
More from: ,

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.

We have been observing the corporate governance movement in the United States for the past several years. Share voting decision makers at most institutional investors inhabit an alternate universe from investment decision makers. [1] Two incompatible economic and philosophical belief systems drive these alternate universes:

  • Investing professionals, overwhelmingly, are rationally apathetic about exercising the voting franchise embedded in stock ownership. [2] Absent a readily observable and positive correlation between exercise of the corporate franchise and creation of shareholder value (as is the case in most M&A votes and proxy contests), investing professionals view the task of making voting decisions on each ballot item for each of their portfolio companies as not merely time consuming and distracting but, worse, economically wasteful. [3]
  • On the other hand, notwithstanding the lack of a demonstrable connection between what is labeled good corporate governance and a positive increase in share valuation, corporate governance advocates continue to maintain that good corporate governance does, in the aggregate, enhance share values. [4] Accordingly, in their view, voting on all ballot issues at each and every portfolio company in order to achieve better corporate governance is a value creator. Starting from this core ideology, corporate governance advocates have successfully persuaded many national politicians, most regulators of the securities and investment industries and virtually all of the financial press, that its so-called corporate governance best practices are an essential requirement for shareholder value creation and that professional investment managers, as a matter of their fiduciary duty to their customers, should be required to vote all portfolio shares on all ballot matters.

READ MORE »

Time To Retire Trust Preferred Securities

Posted by Edward D. Herlihy, Wachtell, Lipton, Rosen & Katz, on
Wednesday, July 4, 2012
, ,
More from: ,

Edward Herlihy is a partner and co-chairman of the Executive Committee at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton firm memorandum.

Recently, the Federal Reserve Board issued a Notice of Proposed Rulemaking (NPR) to implement new capital rules consistent with Basel III, including the Collins Amendment requirement to phase out Tier 1 capital treatment of trust preferred securities (TruPS) for larger institutions. The NPR provides an opportunity for financial institutions to redeem at par many series of expensive TruPS that otherwise remain subject to “make whole” premiums on redemption.

As discussed in our prior memoranda (January 2012 and July 2010), since Dodd-Frank, financial institutions facing loss of Tier 1 treatment for TruPS have been considering  redemption and other means of reducing outstanding TruPS, which carry relatively high interest rates. One obstacle is that TruPS typically require a “make whole premium” above par to redeem in the initial years after issuance. But most TruPS also provide a special redemption right triggered by a “regulatory capital event.” This typically means a company’s reasonable determination that a change, or proposed change, in law or regulation causes a “more than insubstantial risk” of impairment of the issuer’s ability to include the TruPS in Tier 1 capital. There is sometimes a finite window for the redemption call following the event, e.g. 90 days.

READ MORE »

The Sources of Value Destruction in Acquisitions by Entrenched Managers

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Wednesday, July 4, 2012
, , ,
More from: , ,

The following post comes to us from Jarrad Harford, Professor of Finance at the University of Washington; and Mark Humphery-Jenner and Ronan Powell, both of the Australian School of Business at the University of New South Wales.

In our paper, The Sources of Value Destruction in Acquisitions by Entrenched Managers, forthcoming in the Journal of Financial Economics, we identify how acquisitions by entrenched managers destroy value. Managerial entrenchment is often seen as worsening corporate governance and facilitating agency-motivated investments. We analyze the role of entrenchment in acquisitions by (not for) entrenched firms. We focus on acquisitions by entrenched managers in order to examine the impact of entrenchment on managerial investments. We find that value-destruction in acquisitions by entrenched acquirers arises for several reasons:

  • Entrenched acquirers disproportionately avoid private targets, which have been shown to be associated with value-creation.
  • If entrenched acquirers do buy an unlisted target (or a public target with a blockholder), they tend not to pay with stock, thereby avoiding the governance benefits that would otherwise accrue from creating a blockholder in the bidder.
  • Entrenched bidders tend to both overpay and acquire low-synergy targets, which manifest in lower combined bidder/target announcement returns and lower post-acquisition operating performance.

READ MORE »

Update on Corporate Political Activity

Posted by John Coates, Harvard Law School, on
Tuesday, July 3, 2012
, ,
More from:

John Coates is the John F. Cogan, Jr. Professor of Law and Economics at Harvard Law School. This post relates to research by Professor Coates discussed on the Forum here, as well as a recent post on a Manhattan Institute Legal Policy Report, discussed here. Work from the Program on Corporate Governance about corporate political spending includes Corporate Political Speech: Who Decides? by Lucian Bebchuk and Robert Jackson, discussed on the Forum here. A committee of law professors co-chaired by Bebchuk and Jackson submitted a rulemaking petition to the SEC concerning corporate political spending; that petition is discussed here.

Corporate politics continue to generate controversy. Recent items of note include (1) the US Supreme Court’s decision to expand the reach of Citizens United in Western Tradition Partnership; (2) the continued increase in the number of and support for shareholder proposals calling for disclosure of corporate political activity; and (3) a recent “study” sponsored by the conservative Manhattan Institute (and described on the Forum here) purporting to find that – as the Wall Street Journal put it – “politics spending pays” – contrary to my own research, which finds that large public companies that were politically active before Citizens United experience a decline in their industry-adjusted market value after the decision. Each of these developments is discussed briefly below.

READ MORE »

U.S. Regulators Penalize Fund Advisers

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Monday, July 2, 2012
, , , , ,
More from: , , , ,

The following post comes to us from Laurence A. Urgenson, partner at Kirkland & Ellis LLP, and is based on a Kirkland Alert by Mr. Urgenson, Laura Fraedrich, Joanna M. Ritcey-Donohue, and Paloma Zepeda.

In recent enforcement actions, fund advisers have run afoul of U.S. regulatory authorities. In a case involving the U.S. Foreign Corrupt Practices Act (“FCPA”), an individual, but not the company, was charged. On the other hand, in a proceeding before the Office of Foreign Assets Control (“OFAC”), a U.S. company was penalized for the action of its non-U.S. agent. Both cases offer lessons for compliance personnel.

1. FCPA: Lessons from Morgan Stanley’s “Rogue” Employee

Former Morgan Stanley employee Gareth Peterson reached a settlement with the U.S. Securities and Exchange Commission (“SEC”) that will permanently bar him from the securities industry, as well as require disgorgement of more than $3 million in cash and real estate the SEC alleges was obtained via violations of the FCPA. [1] In addition to these civil penalties, Peterson will appear for criminal sentencing in June. [2] Peterson may be sentenced to up to five years in prison and ordered to pay up to $250,000, in addition to the civil penalties already paid.

The complaint against Peterson alleges that Peterson made corrupt payments to a Chinese official to secure business for Morgan Stanley’s real estate fund. In what the SEC described as “cross[ing] the line twice,” Peterson then secured part of the investment for himself — so that he could profit personally from the corrupt payment to the Chinese official. [3]

READ MORE »

Learning Mores and Board Evaluations

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Monday, July 2, 2012
, , ,
More from:

The following post comes to us from Mijntje Lückerath-Rovers, Professor of Corporate Governance at Nyenrode Business University and Director of the Nyenrode Corporate Governance Institute in The Netherlands.

In the paper, Learning Mores and Board Evaluations – Soft Controls in Corporate Governance, which was recently made publicly available on SSRN, I argue that the prevailing boardroom mores, the unwritten rules, are at one end of having an impact on board effectiveness. Legislation, the more tangibly written rules, is at the other end. In between are voluntary codes of conduct, or legally embedded corporate governance codes.

How, without switching to increasing degrees of legislation with hard controls, do we provide direction to desirable conduct in the boardroom and thus to more effective corporate governance? International corporate governance codes were developed in the 1990s in response to declining trust in the financial system and exchange-listed companies. In recent decades, research into corporate governance focused mainly on the design of governance. Corporate governance codes were drawn up with guidelines for executive directors, non-executive directors and shareholders. The requirements in the corporate governance codes were aimed principally at establishing the conditions under which monitoring could be conducted, and less on the actual way in which this monitoring was conducted.

READ MORE »

Page 32 of 63
1 … 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 … 63