Yearly Archives: 2013

Guidance for Target Boards

Posted by Daniel E. Wolf, Kirkland & Ellis LLP, on
Monday, February 11, 2013
, ,
More from: , ,

Daniel E. Wolf is a partner at Kirkland & Ellis focusing on mergers and acquisitions. The following post is based on a Kirkland memorandum by Mr. Wolf and Sarkis Jebejian.

With litigation now an inevitable feature of the deal landscape, boards evaluating the sale of their company would be well-advised to understand the variety of claims that are being made by plaintiffs in these cases, and in particular those that have gained traction with the courts. While directors taking appropriate steps to address the underlying issues will by no means ensure that litigation will not be brought, the risk of an adverse outcome can be significantly reduced by advance preparation and proactive engagement. With the ever-changing nature of claims and creativity of the plaintiffs’ bar, the outline below is not intended to be exhaustive, but rather to offer some practical guidance to target boards as they structure their sale process.

READ MORE »

ISS, Glass Lewis, and the 2013 Proxy Season

Posted by John F. Olson, Gibson, Dunn & Crutcher LLP and Georgetown Law Center, on
Monday, February 11, 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. The following post is based on a Gibson Dunn alert by Amy Goodman, Elizabeth Ising, Sean Feller, Gillian McPhee, Allison Balick and Kasey Levit Robinson.

Institutional Shareholder Services (“ISS”) and Glass, Lewis & Co., Inc. (“Glass Lewis”), the two major proxy advisory firms, recently released updates to their proxy voting policies for the 2013 proxy season. The ISS U.S. Corporate Governance Policy 2013 Updates (the “ISS Policy Updates”), which are available at http://issgovernance.com/policy/2013/policy_information, apply to shareholder meetings held on or after February 1, 2013. ISS also has released updated Frequently Asked Questions (the “ISS FAQs”), available at the link above, relating to its 2013 policies. The Glass Lewis Proxy Paper Guidelines for the 2013 Proxy Season (the “Glass Lewis Guidelines”) will be effective for annual meetings held on or after January 1, 2013. A summary of the updates to the Glass Lewis Guidelines is available here. This alert reviews the most significant ISS and Glass Lewis updates and suggested steps for companies to consider in light of these updated proxy voting policies.

READ MORE »

Ex-Ante Severance Pay Contracts and Optimal Executive Incentive Schemes

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Monday, February 11, 2013
, , , , ,
More from: ,

The following post comes to us from P. Raghavendra Rau, Professor of Finance at the University of Cambridge, and Jin Xu of the Finance Area at Purdue University.

In recent years, large severance payouts to executives who have been fired from poorly performing firms have attracted a great deal of attention in the popular press. There is a considerable degree of popular outrage on what seem to be egregious ex post payments that are unrelated to the executive’s performance during his tenure at the firm. However, though severance agreements are potentially important elements of executives’ compensation contracts, there is little empirical evidence on the incidence and terms of ex ante severance agreements negotiated by executives, let alone on how these contracts fit into executives’ overall incentive compensation schemes.

In our paper, How Do Ex-Ante Severance Pay Contracts Fit into Optimal Executive Incentive Schemes?, forthcoming in the Journal of Accounting Research, we analyze a unique hand-collected sample of 3,688 severance contracts in place at 808 firms in 2004. Based on the full list of S&P1500 firms, this sample is the most comprehensive of any work in this area, including firms of all sizes, ages, and industries, and executives of a wide range of ranks including the Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Operating Officer (COO), and other executives. Around 68% of the firms list explicit severance contract terms with their executives. Most contracts list up to three sets of benefits: explicit cash payments as multiples of salary and bonus (most common benefit); medical and life insurance benefits, and benefits covering the payment of legal fees, outplacement, and other perks.

READ MORE »

2013 Compensation & Governance Outlook Report

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Sunday, February 10, 2013
, ,
More from:

The following post comes to us from David Chun, CEO and founder of Equilar, and is based on the executive summary of Equilar’s 2013 Compensation & Governance Outlook Report; the full publication is available here.

Each year, Equilar looks to highlight critical areas that can potentially affect those dealing with compensation and governance issues in the upcoming year. The 2012 Compensation & Governance Outlook Report aims to cover a variety of emerging trends in the fields of executive and director pay, equity trends, and corporate governance, while also providing an array of disclosure examples to illustrate unique approaches to strategic matters. The majority of firms will not encounter all, or even most, of the trends in this report in the New Year; it is primarily intended as a starting point for discussions that will take place over the course of 2013.

The 2012 year can be identified by a number of unique identifiers including the presidential election, high-profile public offerings, the second year of Say on Pay, record setting stock prices as well as an unfortunate natural disaster that helped bring together a country. Reverberations for such a dynamic year will no doubt be felt well into 2013 as potential changes to government and regulatory agencies could significantly alter the business landscape causing the need for firms to adjust. Discussions between companies and shareholders will continue to drive changes as firms ensure the story they want told is communicated through a variety of mediums and methods. Concerns surrounding fairness in a number of areas including stock structure and pay will cause struggles between conflicting parties as focus continues to shift towards the decisions in the boardroom. Topics including shareholder engagement, board dynamics, Say on Pay, and pay for performance dominate this year’s report.

READ MORE »

Governance Insights for 2012 — Canada

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Saturday, February 9, 2013
, , , ,
More from: ,

The following post comes to us from Berl Nadler, partner at Davies, Ward, Phillips & Vineberg LLP, and is based on the executive summary of a Davies publication by Carol Hansell, titled “Governance Insights 2012,” available here.

Executive Summary

In our annual review of the topics shaping governance today, we consider the ideas that will trend in boardrooms across Canada for months and years ahead. The dominant theme is the shareholder. Directors need look no farther than the events of 2012 to convince them that shareholders have the power to seize the governance agenda.

We believe that the first response of boards to shareholder activism is changing dramatically in light of recent events. Our section on the Power and Influence of Canadian Shareholders looks at the experience of three issuers (Canadian Pacific, Research in Motion and Magna) confronted by shareholder demands for governance change. In each case, the shareholders used different tools to effect change, and in each case they were successful. Boards in 2013 will incorporate the lessons learned from these situations in considering their own response to shareholder concerns with their governance practices.

READ MORE »

Rulemaking Petition Calls for Modernization of Section 13 Reporting Rules

Posted by Martin Lipton, Wachtell, Lipton, Rosen & Katz, on
Friday, February 8, 2013
, , , ,
More from: , , , , , ,

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, Theodore N. Mirvis, Eric S. Robinson, Adam O. Emmerich, William Savitt, and Adam M. Gogolak.

NYSE Euronext, the Society of Corporate Secretaries and Governance Professionals and the National Investor Relations Institute have jointly filed a rulemaking petition with the SEC, seeking prompt updating to the reporting rules under Section 13(f) of the Securities Exchange Act of 1934, as well as supporting a more comprehensive study of the beneficial ownership reporting rules under Section 13. The petitioners urge the SEC to shorten the reporting deadline under Rule 13f-1 from 45 days to two business days after the relevant calendar quarter, and also suggests amending Section 13(f) itself to provide for reporting on at least a monthly, rather than quarterly, basis, to correspond with Dodd-Frank’s mandate for at least monthly disclosure of short sales. We applaud the petitioners for urging the SEC to modernize Section 13’s reporting rules, both with respect to Section 13(f) and more generally.

READ MORE »

Corporate Transparency on Bank Risk-Taking and Banking System Fragility

Posted by S. P. Kothari, MIT Sloan School of Management, on
Friday, February 8, 2013
, , ,
More from:

S.P. Kothari is a Professor of Accounting at the MIT Sloan School of Management.

The recent financial crisis and the ensuing economic slowdown have heightened the importance of better understanding the interconnectedness between the industrial and banking sectors. While several recent studies undertake this endeavor, the transmission mechanism in these studies is almost always from the banking sector to the industrial sector. In contrast, in our paper, The Effect of Industrial-Sector Transparency on Bank Risk-taking and Banking System Fragility, which was recently made publicly available on SSRN, my co-author (Sudarshan Jayaraman) and I provide evidence of the chain of causality working in the reverse direction, i.e., from the industrial sector to the banking sector. In particular, we document the important role that industrial-sector transparency plays in the efficient functioning of the banking sector. We argue that greater transparency in the industrial sector facilitates firms’ access to financing from capital markets and thus diminishes their reliance on banks. As a result, we expect banks to face increased competition in their product markets and to offset their lost rents by: (i) taking on more risk, (ii) reducing their cost structures, and (iii) increasing the intensity of intermediation.

READ MORE »

Don’t Make Poison Pills More Deadly

Posted by the Harvard Law School Forum on Corporate Governance & Financial Regulation, on
Thursday, February 7, 2013
, , , , ,
More from:
Editor’s Note: Lucian Bebchuk, professor of law, economics and finance at Harvard Law School, is co-author (with Robert J. Jackson Jr.) of The Law and Economics of Blockholder Disclosure. This post draws on Professor Bebchuk’s New York Times DealBook column Don’t Make Poison Pills More Deadly.

In a column published today on the New York Times DealBook, as part of my column series, I focus on an important but largely overlooked aspect of the SEC’s expected consideration of tightening the 13(d) rules governing blockholder disclosure. The column, titled “Don’t Make Poison Pills More Deadly,” is available here, and it develops an argument I made in a Conference Board debate with Martin Lipton, available here.

The column explains that an unintended and harmful effect of the considered reform may be that it will help companies adopt low-threshold poison pills – arrangements that cap the ownership of outside shareholders at levels like 10 or 15 percent. The SEC, I argue, should be careful to avoid such an outcome in any rules it may adopt.

The SEC is planning to consider a rule-making petition, filed by a prominent corporate law firm, that proposes to reduce the 10-day period, as well as to count derivatives toward the 5 percent threshold. The push for tightening disclosure rules is at least partly driven by the benefits that earlier disclosure would provide for corporate insiders. Supporters of the petition have made it clear that tightening disclosure requirements is intended to alert not only the market but also incumbent boards and executives in order to help them put defenses in place more quickly.

READ MORE »

How to Prepare for Annual Meeting Litigation

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Thursday, February 7, 2013
, , , ,
More from: , , , ,

The following post comes to us from Regina Olshan, partner in the executive compensation and benefits practice at Skadden, Arps, Slate, Meagher & Flom LLP, and is based on a Skadden alert by Ms. Olshan, Neil Leff, Erica Schohn and Joseph Yaffe.

As the 2013 proxy season is now underway, companies should be aware of the recent wave of lawsuits alleging breaches of fiduciary duties by management and directors in connection with compensation-related decisions. These suits allege deficient disclosure with respect to compensation-related proxy proposals and seek to enjoin the company’s annual meeting until supplemental disclosures are made. They primarily target proposals to increase the amount of shares reserved for equity compensation plans and advisory votes on executive compensation (say-on-pay). There also have been a handful of suits relating to proposals seeking to amend certificates of incorporation to increase the total number of authorized shares.

More than 20 such cases were filed in 2012, and the plaintiffs’ law firm predominantly initiating these suits has announced that it is investigating nearly 40 additional companies. These cases are typically filed shortly after a company files its definitive proxy statement and make generic accusations of inadequate disclosure. Some companies concerned about potential disruption to their annual meetings have been willing to settle these claims. There have been at least six reported settlements, all involving proposals to increase the number of shares authorized under equity plans. These settlements have generally involved supplemental disclosure and payment of up to $625,000 of plaintiffs’ attorneys’ fees. Other companies have settled prior to the filing of a formal lawsuit. Although a preliminary injunction has been granted in only one of these cases, Knee v. Brocade Communications Systems, Inc., many cases in which preliminary injunctions were denied are still pending resolution regarding other relief requested by the plaintiffs, such as damages. An analysis of the claims made in filed cases to date may help companies decide whether to increase disclosure in their 2013 annual meeting proxy statements.

READ MORE »

The New Wave of Proxy Disclosure Litigation

Posted by David A. Katz, Wachtell, Lipton, Rosen & Katz, on
Thursday, February 7, 2013
, , , ,
More from: , ,

David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz specializing in the areas of mergers and acquisitions and complex securities transactions. This post is based on an article by Mr. Katz and Laura A. McIntosh that first appeared in the New York Law Journal; the full article, including footnotes, is available here.

The say-on-pay advisory vote requirements of the Dodd-Frank Act of 2010 have turned out to be a fertile source of nuisance litigation filed by aggressive plaintiffs’ lawyers. The first wave of lawsuits generally consisted of after-the-fact actions targeting companies that experienced failed say-on-pay advisory votes. These initial cases, which appeared primarily to be attempts to extort settlements, were nearly all dismissed on procedural grounds. The current wave, embodied by a recent spate of lawsuits filed primarily by a single plaintiffs’ law firm, is potentially more problematic from a practical perspective for targeted companies, even though the claims involved appear to have even less basis in law or fact. The pattern of these recent actions is for a lawsuit to be filed in state court sometime between the filing of the definitive proxy statement and the date of the annual meeting, alleging that the proxy disclosure is inadequate with respect to executive compensation (or relating to the authorization or issuance of additional common shares for equity incentive plans), claiming breach of fiduciary duty by directors, and calling for the shareholder meeting to be enjoined until additional disclosure is made.

Directors and corporate managers need to be prepared for this type of proxy disclosure litigation, particularly since it appears that little can be done to prevent such lawsuits from being brought. Boards of companies that are targeted in this manner may feel significant pressure to settle because they do not want to postpone the annual meeting or, worse, face the possibility that the required say-on-pay advisory vote or other needed votes could be enjoined. However, it is worth noting that the earlier wave of lawsuits that targeted companies with failed say-on-pay votes has subsided, undoubtedly due to the discouraging results obtained by the plaintiffs in court. The same fate is likely to befall the current wave, but only if companies are willing to fight these lawsuits in court so that the plaintiffs and their attorneys encounter judicial skepticism and dismissal rather than the rewards of a quick and lucrative settlement.

READ MORE »

Page 60 of 67
1 … 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67