Yearly Archives: 2013

The Uneasy Case for Favoring Long-term Shareholders

Posted by Jesse Fried, Harvard Law School,, on
Thursday, March 28, 2013
, , , , ,
More from:

Jesse Fried is a Professor of Law at Harvard Law School.

The power of short-term shareholders in widely-held public firms is widely blamed for “short-termism”: directors and executives feel pressured to boost the short-term stock price at the expense of creating long-term economic value. The recent financial crisis, which many attribute to the influence of short-term shareholders, has renewed and intensified these concerns.

To reduce short-termism, reformers have sought to strengthen the number and power of long-term shareholders in public corporations. For example, the Aspen Institute has recommended imposing a fee on securities transactions and making favorable long-term capital gains rates available only to investors that own shares for much longer than a year. Underlying these proposals is a long-standing and largely uncontested belief: that long-term shareholders, unlike short-term shareholders, will want managers to maximize the economic pie created by the firm.

I recently posted a paper on SSRN explaining why this rosy view of long-term shareholders is wrong. In my paper, The Uneasy Case for Favoring Long-term Shareholders, I demonstrate that long-term shareholder interests do not align with maximizing the economic pie created by the firm – even when shareholders are the only residual claimants on the firm’s value. In fact, long-term shareholder interests might be less well aligned with maximizing the economic pie than short-term shareholder interests. In short, we can’t count on long-term shareholders to be better stewards of the firm simply because they hold their shares for a longer period of time.

READ MORE »

Assessing Vague Shareholder Proposals Under Rule 14a 8(i)(3)

Posted by John F. Olson and Amy L. Goodman, Gibson, Dunn & Crutcher LLP, on
Thursday, March 28, 2013
, , , ,
More from: , , , , ,

John F. Olson is a founding partner of Gibson, Dunn & Crutcher’s Washington, D.C. office and a visiting professor at the Georgetown Law Center; Amy L. Goodman is a partner and co-chair of the Securities Regulation and Corporate Governance practice group at Gibson, Dunn & Crutcher LLP. The following post is based on a Gibson Dunn alert by Ms. Goodman, Elizabeth Ising, Brian Lane, and Ronald Mueller.

During the 2012 proxy season, the SEC staff concurred that a number of high profile shareholder proposals could be excluded from company proxy statements because various key terms in the proposals were not adequately defined or explained within the text of the proposal and supporting statement. See e.g., WellPoint, Inc. (SEIU Master Trust) (avail. Feb. 24, 2012, recon. denied Mar. 27, 2012) (concurring with exclusion of an independent chair proposal that referred to the New York Stock Exchange standard of independence without defining it because “neither shareholders nor the company would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires”); Textron Inc. (avail. Mar. 7, 2012) (arguing that a reference to the Rule 14a-8 eligibility requirements in a proxy access shareholder proposal was vague and indefinite, although the staff ultimately concurred with the exclusion of the shareholder proposal on other grounds); Dell Inc. (avail. Mar. 30, 2012) (concurring with the exclusion of a similar proxy access shareholder proposal because the proposal’s reference to the Rule 14a-8 eligibility requirements was vague and indefinite). While these no-action letters reflected long-standing SEC staff precedent, in the current proxy season, there has continued to be a large number of no-action requests arguing that various terms in shareholder proposals are undefined or vague and therefore excludable under Rule 14a-8(i)(3).

READ MORE »

Emerging Challenges for Regulating Global Capital Markets

Posted by Daniel M. Gallagher, Commissioner, U.S. Securities and Exchange Commission, on
Wednesday, March 27, 2013
, , , , , , ,
More from:

Daniel M. Gallagher is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Gallagher’s keynote address at the Symposium on Building the Financial System of the 21st Century: An Agenda for Europe and the United States. The full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Gallagher and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

We in America have been blessed with a wonderful combination of geography, natural resources, and free market principles. These and other factors have allowed our economy and our financial system, including our capital markets, to thrive in the post-World War II era.

Although the United States has suffered its share of financial crises, most recently the one that erupted in 2008, our free market economy and robust capital markets have conferred an enviable prosperity on our people over a period of many years, and few in America can remember a time when the United States did not have strong and competitive capital markets.

However, the very strength and resilience of our capital markets could lead us to fall into the trap of believing that we are somehow entitled to such prosperity. Indeed, such a sense of complacency may well have taken root in our government and may threaten to jeopardize that prosperity. The reality is that we live in a world in which we must be constantly vigilant — sometimes taking affirmative action, but more often choosing not to act — in order to preserve the vitality of our markets.

An important part of my job, and that of my colleagues on the Commission, is to ensure that America’s capital markets remain strong, vibrant, and competitive. That’s not just good for U.S. investors, but also for other investors around the world. And, conversely, the rise of robust capital markets in other parts of the world has the potential to benefit the United States and the American people as well.

READ MORE »

Proposed NASDAQ Rule Requires Internal Audit Function at Listed Companies

Posted by Boris Feldman, Wilson Sonsini Goodrich & Rosati, on
Wednesday, March 27, 2013
, , , , , , ,
More from: ,

Boris Feldman is a member of Wilson Sonsini Goodrich & Rosati, P.C. This post is based on a WSGR alert.

The NASDAQ Stock Market LLC (Nasdaq) recently filed with the Securities and Exchange Commission (SEC) a proposed rule [1] requiring listed companies to establish and maintain an internal audit function. [2] The SEC is soliciting comments on the proposed rule through March 29, 2013. [3]

Under the proposed rule, the internal audit function would be required to provide management and the audit committee with ongoing assessments of the company’s risk management processes and system of internal control. In addition, new Rule 5645 would require the audit committee to:

  • meet periodically with the company’s internal auditors (or other personnel responsible for this function); and
  • discuss with the outside auditors the responsibilities, budget, and staffing of the company’s internal audit function.

Companies would be permitted to outsource their internal audit function to a third-party service provider other than their independent auditor. For companies that choose to outsource this function, Nasdaq has stated that the company’s audit committee maintains sole responsibility to oversee the internal audit function and may not allocate or delegate this responsibility to another board committee.

According to Nasdaq, the proposed rule is designed to:

READ MORE »

Breaking Down FINRA’s Revised Proposed Fixed-Income Research Rule

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Wednesday, March 27, 2013
, , ,
More from: ,

The following post comes to us from Russell Sacks, partner at Shearman & Sterling in the Financial Institutions Advisory & Financial Regulatory Group, and is based on a Shearman & Sterling publication; the full text, including appendices, is available here.

In the fourth quarter of 2012, FINRA published Regulatory Notice 12-42 (the “Revised Proposal”), amending its proposal for substantive regulation of fixed-income research by FINRA-member firms. [1] The Revised Proposal represents the revision of FINRA’s earlier proposal, and modifies that proposal in meaningful ways. [2]

Executive Summary:

The Revised Proposal amends FINRA’s earlier proposal. In particular, the Revised Proposal:

READ MORE »

Leaning, Cleaning, and Macroprudence

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulationj, on
Wednesday, March 27, 2013
, , , ,
More from:

The following post comes to us from Robert Hockett, Professor of Financial and International Economic Law at Cornell Law School.

Since the mid-1990s, and particularly since the global financial dramas of 2008-09, authorities on financial regulation have come increasingly to counsel the inclusion of macroprudential policy instruments in the standard ‘toolkit’ of finance-regulatory measures employed by financial regulators. The hallmark of this perspective is its focus not simply on the safety and soundness of individual financial institutions, as is characteristic of the traditional microprudential perspective, but also on certain structural features of financial systems that can imperil such systems as wholes. Systemic ‘financial stability’ thus comes to supplement, though not to supplant, institutional ‘safety and soundness’ as a regulatory desideratum.

Evidence of this shift from a once primarily microprudential to a now macroprudential-inclusive focus in financial oversight can be found not only in a wealth of scholarly and policy papers – including a great deal of work produced by the Bank for International Settlements (BIS), the Financial Stability Board (FSB), the International Monetary Fund (IMF, ‘Fund’), and sundry central banks worldwide over the past decade and a half – but also in many new treaty-based, statutory, and administrative provisions agreed or enacted in multiple jurisdictions over the past several years. One recent Fund paper, in fact, reports that some 50 jurisdictions, including all of the world’s most developed economies, have formally adopted one or more macroprudential finance-regulatory measures since early 2009. [1]

READ MORE »

Takeover Litigation in 2012

Posted by Steven Davidoff, Ohio State University College of Law, on
Tuesday, March 26, 2013
, , , ,
More from: ,

Steven M. Davidoff is an Associate Professor of Law and Finance at Ohio State University College of Law, and Matthew D. Cain is an Assistant Professor of the University of Notre Dame.

Takeover litigation continued unabated in 2012 according to our just released annual report Takeover Litigation in 2012.

We find that 91.7% of transactions in 2012 experienced litigation almost at an almost identical rate as 2011 when 91.4% of transactions experienced litigation. This figure continues the increasing trend of takeover litigation which is now brought at a rate almost 2.5 times that of 2005.

The number of complaints brought per transaction remained about constant in 2012 at 5.0 lawsuits per transaction – identical to the rate in 2011. While the number of lawsuits (and rough approximation of law firms) remained steady from 2011 to 2012, this still represents a more than doubling from the mean number in 2005 of 2.2 lawsuits.

Multi-jurisdictional litigation also remained similar in 2012 with 50.6% of transactions with litigation experiencing litigation in multiple states. This compares to 53.0% of transactions with multi-state litigation in 2011. This rate continues what has been described as the biggest phenomena in takeover litigation. Multi-state litigation has gone from 8.3% of litigations in 2005 to half of all transactions in 2012.

READ MORE »

Friendly Tender Offers and Related Issues – A Teaching Tool

Posted by Richard Climan, Weil, Gotshal & Manges LLP, on
Tuesday, March 26, 2013
, , ,
More from: ,

Richard Climan is a partner in the Mergers & Acquisitions practice group at Weil, Gotshal & Manges LLP. The edited transcripts mentioned below are available here (part one) and here (part two).

In late 2011, I had the privilege of chairing a panel presentation in New York City on negotiating acquisitions of public companies in transactions structured as friendly tender offers. In September 2012, I chaired a follow-up panel presentation on the same topic. Both presentations took place at the annual Institute on Corporate, Securities, and Related Aspects of Mergers & Acquisitions, sponsored jointly by the Penn State Center for the Study of Mergers and Acquisitions and the New York City Bar Association. Several of the other panelists – including Gar Bason of Davis Polk, Joel Greenberg of Kaye Scholer, and Fred Green of Weil – are widely considered among the top M&A practitioners in the nation. For much of our presentations, we utilized the format of an interactive, “mock” negotiation of key issues, with various panelists playing the roles of outside counsel for the buyer, outside counsel for the target company, and special Delaware counsel.

The other panelists and I edited the transcripts of both presentations and added comprehensive footnotes. Our goal was to create a teaching tool that would be useful to students, practitioners, and others seeking to learn about the negotiating dynamics in friendly acquisitions structured as tender offers.

Both edited transcripts have been published in the Penn State Law Review. The edited transcript of the 2011 presentation is part of the Symposium Issue of the Penn State Law Review titled “The Deal Lawyers’ Guide to Public and Private Company Acquisitions.” The edited transcripts can be accessed here (Climan et al., Negotiating Acquisitions of Public Companies in Transactions Structured as Friendly Tender Offers, 116 Penn St. L. Rev. 615 (2012)) and here (Climan et al., Negotiating Acquisitions of Public Companies—A Follow-Up, 117 Penn St. L. Rev. 647 (2013)).

READ MORE »

Bank Regulation and Supervision in 180 Countries from 1999 to 2011

Posted by Ross Levine, Brown University, on
Tuesday, March 26, 2013
, , , , ,
More from:

Ross Levine is Professor of Economics at UC, Berkeley.

Motivating an investigation of bank regulation and supervision is easy. One can point to the global banking crisis of 2007-2009, the banking problems still plaguing many European countries in 2013, and the more than 100 systemic banking crises that have devastated economies around the world since 1970. All these crises reflect, at least partially, defects in bank regulation and supervision. One can also point to research showing that banks matter for human welfare beyond periodic crises. Banks influence economic growth, poverty, entrepreneurship, labor market conditions, and the economic opportunities available to people. Thus, examining the type and impact of bank regulatory and supervisory policies in countries is a critical area of inquiry.

The problem, however, is that measuring bank regulation and supervision around the world is hard. Hundreds of laws and regulations, emanating from different parts of national and local governments, define policies regarding bank capital standards, the entry requirements of new domestic and foreign banks, bank ownership restrictions, and loan provisioning guidelines. Numerous pages of regulations in most countries delineate the permitted activities of banks and provide shape and substance to deposit insurance schemes and the nature and timing of the information that banks must disclose to regulators and the public. And, extensive statutes define the powers of regulatory and supervisory officials over banks — and the limits of those powers. There are daunting challenges associated with acquiring data on all of the laws, regulations, and practices that apply to banks in countries and then aggregating this information into useful statistics that capture different and important aspects of regulatory regimes. This helps explain why the systematic collection of data on bank regulatory and supervisory policies is only in its nascent stages. Yet, without sound measures of banking policies across countries and over time, researchers will be correspondingly constrained in assessing which policies work best to promote well-functioning banking systems, and in proposing socially beneficial reforms to banking policies in need of improvement.

READ MORE »

London Whale is the Cost of Too Big to Fail

Posted by the Harvard Law School Forum on Corporate Governance & Financial Regulation, on
Monday, March 25, 2013
, , , , ,
More from:
Editor’s Note: Mark Roe is the David Berg Professor of Law at Harvard Law School, where he teaches bankruptcy and corporate law. This post is Professor Roe’s recent op-ed written for The Financial Times, which can be found here.

The report by the US Senate staff on JPMorgan Chase’s “London Whale” trades, delivered last Friday, excoriates the bank for failing to make the full extent of the problem known to regulators and the public. But a focus on who knew what when can result in missing the big point: the cost of our too-big-to-fail banks is even heftier than is widely appreciated.

The conventional wisdom in many circles is that the losses caused by the trades are regrettable but we can all move on. After all, JPMorgan’s equity cushion can readily absorb it. Private shareholders and managers have paid the price – shareholders lost $6bn and several senior managers have black marks against their names. The episode is embarrassing but the bank can earn more than $20bn a year. “A tempest in a teapot,” said Jamie Dimon, its chief executive, last year.

But before the London Whale sinks from view, consider what would befall a conventional industrial company that suffered such a horrendous, expensive managerial lapse. If JPMorgan were in the business of making things, it would have already attracted significant corporate governance activity. The loss might be the trigger for a takeover and break-up effort.

READ MORE »

Page 51 of 67
1 … 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 … 67