Monthly Archives: December 2013

SEC’s Second Annual Whistleblower Program Report Shows Little Change

The following post comes to us from Jonathan Polkes, co-chair of the Securities Litigation Practice Group at Weil, Gotshal & Manges LLP, and is based on a Weil Gotshal alert by Christian Bartholomew and Brianna Benfield Ripa; the complete publication, including footnotes, is available here.

On November 15, 2013, the US Securities and Exchange Commission (“SEC” or “the Commission”) released its Annual Report to Congress on the Dodd-Frank Whistleblower Program (“the Report”). The Report is remarkable for three reasons. First, the Report shows that, despite very significant efforts to publicize the program, the SEC is not seeing a meaningful increase in the number of tips it receives. Indeed, the SEC received essentially the same number of tips in the same categories in 2013 as it did in 2012 (3,283 and 3,001, respectively). Second, consistent with the few awards made under the program, the Report fails to shed any light at all on the SEC’s thought process in making these awards, and provides no insight into how the SEC is applying the highly nuanced factors applicable to award decisions. Finally, the Report does not acknowledge that, for the second year in a row, the largest category of tips were in the “other” category, which suggests that many of these tips are probably meritless, nor does the Report illuminate at all the critical question of how many of the tips the SEC receives actually result in meaningful investigations and cases.


Compensation Season 2014: Shareholder Engagement

The following post comes to us from Michael J. Segal, partner in the Executive Compensation and Benefits Department of Wachtell, Lipton, Rosen & Katz, and is based on a Wachtell Lipton memorandum by Mr. Segal, Jeannemarie O’Brien, Adam J. Shapiro, Jeremy L. Goldstein, and David E. Kahan.

For many public companies, the new year marks the beginning of compensation season. As in years past, we have set forth below some of our thoughts on what to expect from the current compensation environment. Unlike previous years, the upcoming proxy season is not marked by new legislative or regulatory developments. And, as described in our memorandum of November 26, 2013, discussed previously on this Forum, here, the Institutional Shareholder Services (ISS) voting policies regarding compensation matters have remained largely unchanged. The most significant development this proxy season is the continuation of a single trend: increasing levels of shareholder engagement.


Proposed CFTC Rules on Position Limits

The following post comes to us from Byungkwon Lim, partner in the Corporate Department at Debevoise & Plimpton LLP and leader of the firm’s Hedge Funds and Derivatives & Structured Finance Groups. This post is based on a Debevoise & Plimpton Client Update by Mr. Lim and Aaron J. Levy; the complete publication, including footnotes and appendix, is available here.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) amended section 4a of the Commodity Exchange Act (the “CEA”) to require the Commodity Futures Trading Commission (the “CFTC”) to establish position limits on an aggregate basis for (1) futures and options contracts on agricultural and exempt commodities traded on or subject to the rules of a designated contract market (“DCM”) and (2) contracts based on the same underlying commodity as such futures and option contracts, including (a) swaps listed for trading by a DCM or swap execution facility (“SEF”), (b) swaps that are not traded on a DCM, SEF or other registered entity but which are determined to perform or affect a “significant price discovery function” (“SPDF swaps”) and (c) foreign board of trade (“FBOT”) contracts that are price-linked to a DCM or SEF contract and made available for trading on the FBOT by direct access from within the United States.


Supreme Court Reaffirms that Forum-Selection Clauses Are Presumptively Enforceable

The following post comes to us from J. Paul Forrester, partner focusing in corporate finance and securities at Mayer Brown LLP, and is based on a Mayer Brown Legal Update by Mr. Forrester, David K. Duffee, John F. Lawlor, Richard B. Katskee, and James F. Tierney. The complete publication, including footnotes, is available here.

Forum-selection clauses are common, and highly useful, features of commercial contracts because they help make any future litigation on a contract more predictable for the parties and, in some cases, less expensive. But what procedure should a defendant use to enforce a forum-selection clause when the defendant is sued in a court that is not the contractually selected forum?

On December 3, 2013, the US Supreme Court issued a decision in Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas that answers this question. The Court held that, if the parties’ contract specifies one federal district court as the forum for litigating any disputes between the parties, but the plaintiff files suit in a different federal district court that lawfully has venue (and therefore could be a proper place for the parties to litigate), the defendant should seek to transfer the case to the court specified in the forum-selection clause by invoking the federal statute that permits transfers of venue “[f]or the convenience of the parties and witnesses, in the interest of justice.” If the contract’s forum-selection clause instead specifies a state court as the forum for litigating disputes, the defendant may invoke a different federal statute that requires dismissal or transfer of the case.


Director Networks and Takeovers

The following post comes to us from Luc Renneboog, Professor of Finance at Tilburg University, and Yang Zhao of the Accounting and Finance Section at Cardiff University.

In our paper, Director Networks and Takeovers, which was recently made publicly available on SSRN, we study the impact of corporate networks on the takeover process. In recent years, some scholars have applied graph theoretical methods in the research on the impact of director networks on managerial decision-making. They found relations between networks and remuneration contracting, the managerial labor market (hiring and firing of top management, attracting non-executive directors), corporate restructuring, and firm and fund performance.

In this paper, we examine the effect of the connections between the acquirer and target firms on the takeover process, more specifically on M&A frequency, the M&A negotiation success and duration, the means of payment in the offer, the M&A expected performance (as reflected in the short term wealth effects of the bidder), the bidder’s CEO compensation subsequent to the M&A, and target director retention rate in the merged company. The idea is that direct connections enable both parties to gather information more easily on the counter party which establishes trust, and that the overall network (which includes the indirect connections) enable firms to scout for suitable takeover targets and collect relevant information on the whole takeover market.


The Volcker Rule: A First Look at Key Changes

The following post comes to us from Skadden, Arps, Slate, Meagher & Flom LLP, and is based on a Skadden memorandum.

On December 10, 2013, five U.S. financial regulators (the Agencies) adopted a final rule implementing the Volcker Rule. [1] The text of the final rule and its accompanying preamble are available here. [2] The Volcker Rule was created by Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) and prohibits banking entities from engaging in “proprietary trading” and making investments and conducting certain other activities with “private equity funds and hedge funds.”

In October 2011, the Agencies released a proposed rule to implement the Volcker Rule. Our analysis of the proposed rule is available here. [3] The proposal generated extensive and diverse feedback from industry participants, policymakers and the public. After more than two years of deliberation, the final rule reflects the efforts of the Agencies to incorporate this feedback to the extent consistent with statutory requirements and policy objectives.


European Bank Recovery and Resolution Directive

The following post comes to us from Valia SG Babis at University of Cambridge.

The present article, Bank Recovery and Resolution Directive: Recovery Proceedings for Cross-Border Banking Groups, examines recovery proceedings for cross-border banking groups under European Union law. Recovery (or “early intervention”) includes measures intended to stabilize a bank (or banking group) and enable its recovery from financial stress. Recovery is targeted at a stage before resolution, when the bank (or group) in question has not breached the triggers for resolution, and therefore its economic recovery is still possible. The focus of this paper is primarily on three group recovery mechanisms under EU law: group recovery plans, intra-group financial assistance and coordination of early intervention measures regarding groups.


Looking at Proxy Advisory Firms from the Investor’s Perspective

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at a recent Proxy Advisory Firm Roundtable; the full text is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Public company shareholders have a vital role to play in corporate governance.  To that end, they are given important rights under federal and state law. Chief among these are the right to vote for the election of directors and on other significant matters and to make their views known to the company’s management and directors. Most corporate shareholders exercise their voting rights by proxy, which makes federal regulation of the proxy process a critical focal point for investor protection purposes.

To support the exercise of their voting rights, many institutional investors and investment advisers hire proxy advisory firms to provide analysis and voting recommendations on matters appearing on the proxy.

These firms often also provide other services to their institutional clients—such as:


Law and History by Numbers: Use, But With Care

Brian Cheffins is a Professor of Corporate Law at the University of Cambridge. This post is based on a paper co-authored by Professor Cheffins, Steven A. Bank, Paul Hastings Professor of Business Law at UCLA School of Law, and Harwell Wells of Temple University Beasley School of Law.

“Leximetrics,” which involves quantitative measurement of law, has become a prominent feature in empirical work done on comparative corporate governance, with particular emphasis being placed on the contribution that robust shareholder protection can make to a nation’s financial and economic development. Using this literature as our departure point, we are currently engaging in a leximetric analysis of the historical development of U.S. corporate law. Our paper, Law and History by Numbers: Use, But With Care, prepared for a University of Illinois College of Law symposium honoring Prof. Larry Ribstein, is part of this project. We identify in this paper various reasons for undertaking a quantitative, historically-oriented analysis of U.S. corporate law. The paper focuses primarily, however, on the logistical challenges associated with such an inquiry.


Key Issues for Directors in 2014

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 memorandum by Mr. Lipton.

For a number of years, as the new year approaches I have prepared for boards of directors a one-page list of the key issues that are newly emerging or will be especially important in the coming year. Each year, the legal rules and aspirational best practices for corporate governance, as well as the demands of activist shareholders seeking to influence boards of directors, have increased. So too have the demands of the public with respect to health, safety, environmental and other socio-political issues. In reviewing my 2013 issues memo, I concluded that the 2013 issues continued as the key issues for 2014 with a few changes in detail or emphasis. My key issues for 2014 are:


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