Yearly Archives: 2013

Can Attorneys Be Award-Seeking SEC Whistleblowers?

Posted by Lawrence A. West, Latham & Watkins LLP, on

Monday, June 17, 2013

Attorney-client privilege, Choice of Law, Compliance & ethics, Disclosure, Jurisdiction, Public firms, SEC, Securities enforcement, SOX, State law, Whistleblowers
More from: Abigail Raish, Eric Swibel, Larry West, Latham

Lawrence A. West is a partner focusing on securities-related enforcement matters at Latham & Watkins LLP. This post is based on a Latham & Watkins primer by Mr. West, Abigail E. Raish and Eric R. Swibel; the full publication, including endnotes and chart of Relevant Rules of the Fifty States and the District of Columbia, is available here.

This is a primer on attorneys as award-seeking SEC whistleblowers. It digests the relevant law and explains how it applies in real situations. That law includes the SEC attorney conduct and whistleblower award rules and each state’s ethics rules applicable to attorney disclosure. Fully assessing a particular situation will often require referring to the relevant rules for each state that might come into play for a particular lawyer in a particular situation. We therefore include information about choice of law and a chart summarizing the relevant rules in each of 51 US jurisdictions.

Our hope is that with this primer close at hand, attorneys and companies will not only be equipped to spot issues and apply the law, but will also understand how limited the circumstances are that will allow a lawyer to disclose confidential information to the SEC without client consent and seek a monetary award. This is true even though the SEC has expanded the circumstances allowing disclosure beyond those recognized in many states.

We will end with steps companies can take to deal with risks related to attorneys who are actual or would-be whistleblowers.

Independent Directors’ Dissent on Boards

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on

Monday, June 17, 2013

Board independence, Boards of Directors, China, International governance
More from: Juan Ma, Tarun Khanna

The following post comes to us from Tarun Khanna and Juan Ma, both of the Strategy Unit at Harvard Business School.

Independent directors are an integral part of corporate governance. Despite the copious scholarly debates surrounding board independence, little progress has been made in studying the inner workings of public boards. Taking China as an empirical site, in our paper, Independent Directors’ Dissent on Boards: Evidence from Listed Companies in China, which was recently made publicly available on SSRN, we offer one of the first statistical investigations of the circumstances under which so-called “independent” directors voice their independent views. Unlike most of the previous models that view boards as a monolithic entity that “shares a common agenda on all matters” (Hermalin and Weisbach, 2003), our data allow us to see boards as consisting of individuals with different utility functions and to examine board behaviors at the individual director level. We view this as the first step in a long research journey.

SEC Guidance on Conflict Mineral and Resource Extraction Disclosure Requirements

Posted by David M. Lynn, Morrison & Foerster LLP, on

Sunday, June 16, 2013

Disclosure, Dodd-Frank Act, Securities regulation
More from: Daniel Kahan, David Lynn, Lawrence Bard, Morrison & Foerster

David M. Lynn is a partner and co-chair of the Global Public Companies and Securities practice at Morrison & Foerster LLP. This post is based on a Morrison & Foerster client alert by Mr. Lynn, Lawrence R. Bard, and Daniel R. Kahan.

On May 30, 2013, the staff (the “Staff”) of the U.S. Securities and Exchange Commission (the “SEC”) published Frequently Asked Questions (“FAQs”) regarding certain disclosures required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”). [1] The new FAQs provide important guidance to issuers regarding disclosures they may be required to make in connection with products containing conflict minerals and certain payments made by resource extraction issuers.

Background

Title XV of the Dodd-Frank Act, entitled “Miscellaneous Provisions,” contains these “specialized corporate disclosure” provisions, which include:

Too Early to Tell if Dodd-Frank Ends “Too Big To Fail”

Posted by Bradley K. Sabel, Shearman & Sterling LLP, on

Saturday, June 15, 2013

Banks, Dodd-Frank Act, Financial institutions, Financial reform, Financial regulation, Too big to fail
More from: Bradley Sabel, David Portilla, Donald Lamson, Shearman & Sterling

Bradley Sabel is partner and co-head of the Financial Institutions Advisory & Financial Regulatory practice group at Shearman & Sterling LLP. This post is based on a Shearman & Sterling client publication by Donald N. Lamson and David L. Portilla; the full text, including footnotes, diagram, and chart, is available here.

The debate regarding “too big to fail” (“TBTF”) has reemerged as a focus of regulators, legislators and the media. We review the regulatory activity since the Dodd-Frank Act was enacted and show that new proposals intended to address TBTF tend to put the policy cart before the regulatory implementation horse.

By our count, regulators have amassed over 1,650 pages in proposed and final rules that seek to address TBTF, which we roughly define as proposals that seek to limit the size of financial institutions, the scope of their activities or otherwise seek to protect the Federal safety net (which we use as a term to refer to any Federal assistance, including deposit insurance). In addition, there are provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act (“DFA”) which address TBTF that do not require rulemaking.

Despite this volume of regulatory work to implement the DFA’s reforms, which is mostly not yet complete, proposals for new measures are being put forward, including:

NYSE Proposes to Streamline Listing Application Materials and Processes

Posted by James Morphy, Sullivan & Cromwell LLP, on

Friday, June 14, 2013

Listing standards, NYSE, SEC, Securities regulation
More from: James Morphy, Sullivan & Cromwell

James C. Morphy is a partner at Sullivan & Cromwell LLP specializing in mergers & acquisitions and corporate governance. The following post is based on a Sullivan & Cromwell publication.

On May 13, 2013, the Securities and Exchange Commission published proposed changes to the New York Stock Exchange Listed Company Manual and listing application materials. The NYSE is proposing to remove the forms of listing agreements and listing applications from the Manual, adopt simplified listing application materials that will be posted on the NYSE’s website and adopt new rules that will codify existing NYSE policies. The proposed changes are an effort to streamline the NYSE’s existing listing application process, remove requirements that are duplicative of NYSE and SEC rules and remove obsolete provisions from the Manual.

Comments on the proposal were due by June 7, 2013. The proposing release does not mention a transition period, and it is possible that the changes will take effect immediately upon SEC approval. Companies that are planning to list securities on the NYSE should monitor the status of this proposal to ensure that they are using the listing materials and processes that are in effect at the time of listing.

Facts Behind 2013 Failed Say on Pay Votes

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on

Friday, June 14, 2013

Executive Compensation, Georgeson, Proxy advisors, Proxy season, Proxy voting, Say on pay
More from: David Drake, Rajeev Kumar, Rhonda Brauer

The following post comes to us from David Drake, President of Georgeson Inc, and is based on a Georgeson report by Mr. Drake, Rajeev Kumar, and Rhonda Brauer; the full report, including tables, is available here.

The 2013 proxy season marks the third year of Advisory Vote on Executive Compensation proposals (Management Say on Pay (MSOP)) as required under the Dodd-Frank Wall Street Reform and Consumer Protection Act. In 2011, 36 U.S. corporations failed to receive majority shareholder support for their MSOP proposal and in 2012 that number increased to 59. Based on the YTD results for 2013, it seems that there could be fewer MSOP failures this year compared to 2012. In this report, we present some interesting facts relating to the 20 failed MSOP votes for annual meetings through May 17. [1]

Governance Lessons from the Dimon Dust-Up

Posted by Ira M. Millstein, Weil, Gotshal & Manges LLP, on

Thursday, June 13, 2013

Board independence, Boards of Directors, JPMorgan, Lead directors, Management, Non-executive chairman, Oversight, Shareholder proposals, Shareholder voting, Succession
More from: Ira Millstein, Weil Gotshal

Ira Millstein is a senior partner at Weil, Gotshal & Manges LLP and co-chair of the Millstein Center for Global Markets and Corporate Ownership at Columbia Law School.

The recent shareholder “campaign” by a coalition of large institutional investors – AFSCME Employees Pension Plan, Hermes Fund Managers, the New York City Pension Funds, and the Connecticut Retirement Plans and Trust Funds – sought on its face to pressure the JPMorgan Chase & Co. board of directors to amend the bylaws to require that the role of chair be held by an independent director. It became a referendum on two additional issues: Mr. Dimon’s competence as a manager, and the competence of the board’s oversight of risk management. Unfortunately for “good governance,” the three issues become conflated and lead to harangues, heat, and polar positions by all sides, leading to little that’s instructive. It’s worth separating the issues to seek guidelines for the future.

Thoughtful advocates recognize that the board should have flexibility to determine leadership based on the company’s circumstances and rather than seeking to mandate the practice of independent chairmanship, view it as the appropriate default standard – or presumptive model. Even so, very few advocates of the independent chair model favor stripping an extant CEO/chair of the chair title; rather, they urge boards to consider separation upon CEO succession, unless there is an urgent need.

How Law Can Address the Inevitability of Financial Failure

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on

Thursday, June 13, 2013

Financial crisis, Financial regulation, Legal systems, Systemic risk
More from: Iman Anabtawi, Steven Schwarcz

The following post comes to us from Iman Anabtawi, Professor of Law at UCLA School of Law, and Steven L. Schwarcz, Stanley A. Star Professor of Law & Business at Duke University School of Law and Founding/Co-Academic Director of Duke Global Capital Markets Center.

In our forthcoming article, Regulating Ex Post: How Law Can Address the Inevitability of Financial Failure, 92 Texas Law Review (2013), we observe that, unlike many other areas of regulation, financial regulation operates in the context of a complex interdependent system. This, we argue, has implications for financial regulatory policy, especially the choice between ex ante regulation aimed at preventing financial failures and ex post regulation aimed at responding to those failures.

Our article begins by considering the nature of systems and the usefulness of systems analysis as a methodology for studying law. Law-related systems are systems in which the law is an integral element. The financial system can be viewed as a complex network in which financial firms interact directly and indirectly (through markets) against the background of legal rules.

Lessons from the 2013 Proxy Season

Posted by Martin Lipton, Wachtell, Lipton, Rosen & Katz, on

Wednesday, June 12, 2013

Boards of Directors, Institutional Investors, Proxy advisors, Proxy materials, Proxy season, Shareholder activism, Shareholder meetings
More from: Karessa Cain, Martin Lipton, Sabastian Niles, Wachtell Lipton

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, Karessa L. Cain, and Sabastian V. Niles.

1. Shareholder activism is growing at an increasing rate. No company is too big to become the target of an activist, and even companies with sterling corporate governance practices and positive share price performance, including outperformance of peers, may be targeted.

2. “Activist Hedge Fund” has become an asset class in which institutional investors are making substantial investments. In addition, even where institutional investors are not themselves limited partners in the activist hedge fund, several now maintain open and regular lines of communication with activists, including sharing potential “hit lists” of possible targets.

3. Major investment banks, law firms, proxy solicitors, and public relations advisors are representing activists.

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