Monthly Archives: June 2014

How America’s Participation in International Financial Reporting Standards Was Lost

Chris Cox is partner and member of the Corporate Practice Group at Bingham McCutchen LLP and president of Bingham Consulting LLC. Mr. Cox served as Chairman of the Securities and Exchange Commission from 2005 to 2009. The following post is based on Mr. Cox’s recent keynote address to the 33rd Annual SEC and Financial Reporting Institute Conference. The complete publication is available here.

The modern quest for an “Esperanto” of business has been underway for nearly half a century. And though it was initiated by the United States, after 48 years, it has yet to gain our full support. That is unfortunate, because the promise of a global standard is truly dazzling.

An international language of disclosure and transparency would significantly improve investor confidence in global capital markets. Investors could more easily compare issuers’ disclosures, regardless of what country they came from. They could more easily weigh investment opportunities in their own countries against competing opportunities in other markets. And a single set of high-quality standards would be a great boon to emerging markets, because investors could have greater confidence in the transparency of financial reporting.


Proposed Dodd-Frank Concentration Limit on Financial Institution M&A Transactions

The following post is based on a Davis Polk publication by Luigi L. De Ghenghi, Randall Guynn, Margaret E. Tahyar and Andrew S. Fei; the full publication, including visuals, tables and flowcharts, is available here.

In May 2014, the Federal Reserve issued a proposal that would implement the financial sector concentration limit set forth in Section 622 of the Dodd-Frank Act. The proposal reflects the Financial Stability Oversight Council’s January 2011 Study and Recommendations Regarding Concentration Limits on Large Financial Companies.

The concentration limit generally prohibits a financial company from merging or consolidating with, acquiring all or substantially all of the assets of, or otherwise acquiring control of another company if the “liabilities” of the resulting financial company, calculated using methodologies in the proposal, exceed 10% of aggregate financial sector liabilities.


Enhancing Our Equity Market Structure

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s remarks to the Sandler O’Neill & Partners, L.P. Global Exchange and Brokerage Conference; the full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

It is great to be here with you in New York to speak about our equity market structure and how we can enhance it.

While I know your views on particular issues may differ, you all certainly appreciate that investors and public companies benefit greatly from robust and resilient equity markets.

During my first year as Chair, not surprisingly, I have heard a wide range of perspectives on equity market structure, reflecting its inherent complexity, the relationships among many core issues, as well as the different business models of market participants. To frame the SEC’s review of these issues, I set out last fall certain fundamentals for addressing market structure policy. One of those is the importance of data and empirically based decision-making. At that time, we launched an interactive public website devoted to market structure data and analysis drawn from a range of sources. The website has grown to include work by SEC staff on important market structure topics, including the nature of trading in dark venues, market fragmentation, and high-frequency trading.


Best Practice Principles for Proxy Advisors and Chairman’s Report

The following post comes to us from Dirk A. Zetzsche, Propter Homines Chair for Banking and Securities law at the Institute for Financial Services of the University of Liechtenstein and Director of the Center for Business & Corporate Law at Heinrich Heine University in Duesseldorf/Germany. Following the European Securities and Markets Authority (ESMA)’s push for self-regulation of the proxy advisory industry, an industry group published its “Best Practice Principles for Providers of Shareholder Voting Research & Analysis”. Professor Zetzsche functioned as independent chairman of the group.

Regulation of proxy advisers is a widely discussed subject matter worldwide. The European Securities and Markets Authority (ESMA), the regulator responsible for enforcing European securities regulation, declared in its ESMA Final Report and Feedback Statement on the Consultation Regarding the Role of the Proxy Advisory Industry in February 2013, to favor a self-regulatory approach over mandatory regulation of the industry. “In order to ensure a robust process in developing, maintaining, and updating the Code of Conduct,” ESMA set up a list of key governance for developing a Code of Conduct for the industry (see ESMA, Final Report, at p. 11). These included, inter alia, a transparent composition and the appointment of an independent Chair that possesses the relevant skills and experience. The Code of Conduct was required to “adequately address the needs and concerns of all relevant stakeholders (including proxy advisors themselves, institutional investors, and issuers).” ESMA’s Final Report offered guidance for the detailed elaboration of the Code of Conduct on certain subject matters. In particular, ESMA asked the industry to respond to concerns regarding conflicts of interests and communication with issuers.

The Elusive Promise of Reducing Shareholder Litigation Through Corporate Bylaws

Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. This post is based on a Sidley update, and 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.

Corporations today are routinely subject to expensive shareholder litigation for which shareholders ultimately foot the bill. Even weak shareholder claims pose significant costs and uncertainty, and exert significant settlement pressures, on corporations. Several recent state court decisions, however, underscore the potential for corporate bylaws, including those adopted by boards, to reduce incentives for the plaintiffs’ bar to file such lawsuits:

  • The Delaware Court of Chancery has upheld, at least as a general matter, the statutory and contractual validity of board-adopted bylaws that seek to limit the forum for intra-corporate litigation.
    • State courts in Louisiana, New York and Illinois have, in turn, enforced Delaware exclusive forum clauses.
  • The Delaware Supreme Court has upheld the statutory and contractual validity of bylaws that allocate the cost of intra-corporate litigation to a losing plaintiff.
  • A state court in Maryland has upheld a corporate bylaw that requires the arbitration of intra-corporate disputes.


The Credit Suisse Guilty Plea: Implications for Companies in the Crosshairs

The following post comes to us from Christopher Garcia, partner in the Securities Litigation and White Collar Defense & Investigations practices at Weil, Gotshal & Manges LLP, and is based on a Weil Gotshal alert by Mr. Garcia and Raqel Kellert. The complete publication, including footnotes, is available here.

The announcement of the Credit Suisse guilty plea on May 19, 2014 marks the first time in more than a decade that a large financial institution has been convicted of a financial crime in the United States. For this reason alone, some will herald it a watershed moment in the history of corporate criminal liability. But the government’s well-publicized efforts to mitigate the collateral consequences resulting from the plea will likely limit the plea’s practical significance for companies that find themselves in the unenviable position of negotiating a resolution of criminal allegations with the government. This post will explore the potential implications of the Credit Suisse guilty plea for corporate criminal liability.


Board Challenges: The Question of CEO Succession

The following post comes to us from Wayne Lord, president of the World Affairs Council of Atlanta. This post is based on a white paper report from the 2013 Global Strategic Leadership Forum by Dr. Lord, available here.

The World Affairs Council of Atlanta’s 2013 Global Strategic Leadership Forum focused on a critical issue facing boards of directors: CEO succession. As arguably its most crucial responsibility, the board’s process for hiring and developing CEOs must be an extraordinarily thorough one that addresses the complexities of the modern global company. While there is no exact template that fits all circumstances, the board must ensure that its processes and oversight accurately reflects the organization’s future needs, identifies the skills and experience required in today’s complex global economy, and builds and closely monitors a truly robust succession plan.


Shareholder Activism in Germany

The following post comes to us from Dirk Besse, at Morrison & Foerster LLP, and is based on a Morrison & Foerster publication by Mr. Besse and Moritz Heuser.

Over the past few years there has been a noticeable increase in the frequency of activist investors building up considerable stakes in German listed companies in the context of public takeovers. One reason for this development is what appears to be a new business model of hedge funds—the realization of profits through litigation after the completion of a takeover. To this end, the funds take advantage of minority shareholder rights granted under German stock corporation law in connection with certain corporate measures which are likely to be implemented for business integration purposes following a successful takeover.


Second Circuit Vacates Rejection of Settlement in the Citigroup Case

The following post comes to us from James P. Rouhandeh, head of the Litigation Department and a member of the Management Committee at Davis Polk & Wardwell LLP, and is based on a Davis Polk client memorandum.

The United States Court of Appeals for the Second Circuit issued its long-awaited decision today on the appeal from Judge Jed S. Rakoff’s rejection in 2011 of the consent settlement in United States Securities and Exchange Commission v. Citigroup Global Markets Inc. The Court of Appeals vacated the district court’s order, holding that the lower court abused its discretion by applying an incorrect legal standard to its review of the settlement. The Second Circuit clarified the manner in which district courts should review SEC consent settlements, emphasizing the deference courts owe to the SEC and the parties with which it settles, including on the parties’ decision to settle without an admission of liability.

In its decision, the Court held that a district court must review consent decrees with enforcement agencies for fairness and reasonableness, with the additional requirement in cases seeking injunctive relief that the “public interest would not be disserved.” The opinion explained that “[a]bsent a substantial basis in the record for concluding that the proposed consent decree does not meet these requirements, the district court is required to enter the order.” In general, the Court noted that the “job of determining whether the proposed S.E.C. consent decree best serves the public interest … rests squarely with the S.E.C., and its decision merits significant deference.”


Cyber Governance: What Every Director Needs to Know

The following post comes to us from Paul A. Ferrillo, counsel at Weil, Gotshal & Manges LLP specializing in complex securities and business litigation, and is based on an article authored by Mr. Ferrillo.

The number, severity, and sophistication of cyber attacks—whether on our retail economy, our healthcare sector, our educational sector or, in fact, our government and defense systems—grows worse by the day. [1]

Among the most notable cyber breaches in the public company sphere was that hitting Target Corporation (40 million estimated credit and debit cards allegedly stolen, 70 million or more pieces of personal data also stolen, and a total estimated cost of the attack to date of approximately $300 million). [2] Justified or not, ISS has just issued a voting recommendation against the election of all members of Target’s audit and corporate responsibility committees—seven of its ten directors—at the upcoming annual meeting. ISS’s reasoning is that, in light of the importance to Target of customer credit cards and online retailing, “these committees should have been aware of, and more closely monitoring, the possibility of theft of sensitive information.” [3]


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