Monthly Archives: April 2014

CEO Succession in the S&P 500: Statistics and Case Studies

Matteo Tonello is Managing Director at The Conference Board, Inc. This post relates to CEO Succession Practices: 2014 Edition, a Conference Board report authored by Dr. Tonello, Jason D. Schloetzer of Georgetown University, and Melissa Aguilar of The Conference Board. For details regarding how to obtain a copy of the report, contact [email protected].

CEO Succession Practices, which The Conference Board updates annually, documents CEO turnover events at S&P 500 companies. The 2014 edition contains a historical comparison of 2013 CEO successions with data dating back to 2000. In addition to analyzing the correlation between CEO succession and company performance, the report discusses age, tenure, and the professional qualifications of incoming and departing CEOs. It also describes succession planning practices (including the adoption rate of mandatory CEO retirement policies and the frequency of performance evaluations), based on findings from a survey of general counsel and corporate secretaries at more than 150 U.S. public companies.


Looking at Corporate Governance 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 Emory University School of Law’s Corporate Governance Lecture Series; the full text, including footnotes, 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.

Corporate governance has always been an important topic. It is even more so today, as many Americans recognize the need to develop a more robust corporate governance regime in the aftermath of the deepest financial crisis since the Great Depression.

Although the recent financial crisis—aptly named the “Great Recession”—has many fathers, there is ample evidence that poor corporate governance, including weak risk management standards at many financial institutions, contributed to the devastation wrought by the crisis. For example, it has been reported that senior executives at both AIG and Merrill Lynch tried to warn their respective management teams of excessive exposure to subprime mortgages, but were rebuffed or ignored. These and other failures of oversight continue to remind us that good corporate governance is essential to the stability of our capital markets and our economy, as well as the protection of investors.


SEC Issues Guidance on Use of Social Media in Offerings and Proxy Fights

Trevor Norwitz is a partner in the Corporate Department at Wachtell, Lipton, Rosen & Katz, where he focuses on mergers and acquisitions, corporate governance and securities law matters. This post is based on a Wachtell Lipton firm memorandum by Mr. Norwitz, Sabastian V. Niles, Eitan S. Hoenig, and Matthew I. Danzig.

The SEC staff has released new guidance regarding the use of social media such as Twitter in securities offerings, business combinations and proxy contests (as a senior SEC official telegraphed at the Tulane Corporate Law Institute conference). Until now, SEC legending requirements have restricted an issuer’s ability to communicate electronically using Twitter or similar technologies with built-in character limitations before having an effective registration statement for offerees, or definitive proxy statement for stockholders (as the legends generally exceed the character limits). Companies using Twitter and similar media with character limits can now satisfy these legend requirements by using an active hyperlink to the full legend and ensuring that the hyperlink itself clearly conveys that it leads to important information. Although the SEC guidance does not provide example language, hyperlinks styled as “Important Information” or “SEC Legend” would seem to satisfy this standard. Social media platforms that do not have restrictive character limitations, such as Facebook and LinkedIn, must still include the full legend in the body of the message to offerees or stockholders.


The Informational Role of Internet-Based Short Sellers

The following post comes to us from Lei Chen of the Department of Accounting at the London School of Economics and Political Science.

Despite serious concerns about the quality of auditing and financial reporting of U.S.-listed Chinese firms, the SEC and the PCAOB have been unable to provide sufficient or timely information to U.S. investors due to resource constraints, the confidentiality rules underlying the PCAOB disciplinary proceedings, and no access to relevant work papers of Chinese auditors. In the paper, The Informational Role of Internet-Based Short Sellers, which was recently made publicly available on SSRN, I focus on a new breed of information intermediary, i.e. Internet-based short sellers that have emerged in response to such regulatory loopholes and severe information asymmetry. Based on hand-collected Internet reports released during the 2009-2012 period by short sellers that target U.S.-listed Chinese firms, I find that these short sellers provide substantial information both directly and indirectly to investors.


Risk Management and the Board of Directors—An Update for 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, Daniel A. Neff, Andrew R. Brownstein, Steven A. Rosenblum, and Adam O. Emmerich.



Corporate risk taking and the monitoring of risks have remained front and center in the minds of boards of directors, legislators and the media, fueled by the powerful mix of continuing worldwide financial instability; ever-increasing regulation; anger and resentment at the alleged power of business and financial executives and boards, including particularly as to compensation during a time of economic uncertainty, retrenchment, contraction, and changing dynamics between U.S., European and emerging market economies; and consistent media attention to corporations and economies in crisis. The reputational damage to boards of companies that fail to properly manage risk is a major threat, and Institutional Shareholder Services now includes specific reference to risk oversight as part of its criteria for choosing when to recommend withhold votes in uncontested director elections. This focus on the board’s role in risk management has also led to increased public and governmental scrutiny of compensation arrangements and their relationship to excessive risk taking and has brought added emphasis to the relationship between executive compensation and effective risk management. For the past few years, we have provided an annual overview of risk management and the board of directors. This overview highlights a number of issues that have remained critical over the years and provides an update to reflect emerging and recent developments.


Chen v. Howard-Anderson: Delaware Court Issues Guidance Regarding M&A Transactions

The following post comes to us from Eduardo Gallardo and Robert B. Little, partners in the Mergers and Acquisitions practice at Gibson, Dunn & Crutcher LLP, and is based on a Gibson Dunn client alert by Mr. Little, Gregory A. Odegaard, and Chris Babcock. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

On April 8, 2014, Vice Chancellor Laster of the Delaware Court of Chancery issued an opinion addressing the reasonableness of a “market check” as well as required proxy disclosures to stockholders in M&A transactions. In Chen v. Howard-Anderson, [1] the Vice Chancellor held that (i) evidence suggesting that a board of directors favored a potential acquirer by, among other things, failing to engage in a robust market check precluded summary judgment against a non-exculpated director, and (ii) evidence that the board failed to disclose all material facts in its proxy statement precluded summary judgment against all directors. The opinion addresses the appropriate scope of a market check, the necessary disclosure when submitting a transaction to stockholders for approval, the effect of exculpatory provisions in a company’s certificate of incorporation, and the potential conflicts faced by directors who are also fiduciaries of one of the company’s stockholders.


The New Financial Industry

The following post comes to us from Tom C.W. Lin of Temple Law School.

The recent discussions surrounding Michael Lewis’s new book, Flash Boys, revealed a profound and uncomfortable truth about modern finance to the public and policymakers: Machines are taking over Wall Street. Artificial intelligence, mathematical models, and supercomputers have replaced human intelligence, human deliberation, and human execution in many aspects of finance. The modern financial industry is becoming faster, larger, more complex, more global, more interconnected, and less human. An industry once dominated by humans has evolved into one where humans and machines share dominion.


Has Persistence Persisted in Private Equity?

The following post comes to us from Robert Harris, Professor of Finance at the University of Virginia; Tim Jenkinson, Professor of Finance at the University of Oxford; Steven N. Kaplan, Professor of Finance at the University of Chicago; and Rüdiger Stucke of Saïd Business School at the University of Oxford.

In our paper, Has Persistence Persisted in Private Equity? Evidence from Buyout and Venture Capital Funds, which was recently made publicly available on SSRN, we use detailed cash-flow data to study the persistence of buyout and VC fund performance over successive funds. We confirm the previous findings that there was significant persistence in performance, using various measures, for pre-2000 funds—particularly for VC funds. Post-2000, we find that persistence of buyout fund performance has fallen considerably. When funds are sorted by the quartile of performance of their previous funds, performance of the current fund is statistically indistinguishable regardless of quartile. At the same time, however, the returns to buyout funds in all previous performance quartiles, including the bottom, have exceeded those of public markets as measured by the S&P 500.


The Changing Regulatory Landscape for Angel Investing

Keith F. Higgins is Director of the Division of Corporation Finance at the U.S. Securities and Exchange Commission. This post is based on Mr. Higgins’ remarks at the 2014 Angel Capital Association Summit; the full text is available here. The views expressed in this post are those of Mr. Higgins and do not necessarily reflect those of the Securities and Exchange Commission, the Commissioners, or the Staff.

The importance of small businesses in America is unquestionable—they are the foundation of today’s economy and are responsible for many of the new jobs created each year in the United States. And angel investors play a vital role in the development of small businesses by nurturing them at their earliest, most vulnerable stages when they may have little more than the next great idea. For early stage entrepreneurs, angels often are the only ones willing to listen to their business pitch, provide advice, and put in that crucial infusion of capital that is needed to transform an idea into a thriving new business. Yahoo, Google, Facebook, Home Depot—these are just some of the titans of today’s corporate America that, at an earlier stage of their development, were first backed by angel investors. [1] Equally impressive are some of the statistics about the impact of angel investing—by one estimate, in the first half of 2013 alone, angels invested approximately $9.7 billion in over 28,000 ventures, with over 111,000 new jobs created as a result of these investments. [2]


NASAA and the SEC: Presenting a United Front to Protect Investors

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at the North American Securities Administrators Association’s Annual NASAA/SEC 19(d) Conference; the full text, including footnotes, 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.

I have been NASAA’s liaison since I was asked by NASAA to take on that role early in my tenure at the SEC, and it is truly a pleasure to continue our dialogue with my fifth appearance here at the 19(d) conference. This conference, as required by Section 19(d) of the Securities Act, is held jointly by the North American Securities Administrators Association (“NASAA”) and the U.S. Securities and Exchange Commission (“SEC” or “Commission”).

The annual “19(d) conference” is a great opportunity for representatives of the Commission and NASAA to share ideas and best practices on how best to carry out our shared mission of protecting investors. Cooperation between state and federal regulators is critical to investor protection and to maintaining the integrity of our financial markets, and that has never been more true than it is today.


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