Yearly Archives: 2015

Fiduciary Duty Proposal

Posted by Dan Ryan, PricewaterhouseCoopers LLP, on

Saturday, August 29, 2015

Broker-dealers, Debt securities, Disclosure, ERISA, Fiduciary duties, Financial advisers, Financial institutions, Financial regulation, FINRA, Investor protection, Retirement plans, Securities regulation
More from: Adam Gilbert, Armen Meyer, Dan Ryan, Genevieve Gimbert, PricewaterhouseCoopers

Dan Ryan is Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Mr. Ryan, Adam Gilbert, Genevieve Gimbert, and Armen Meyer.

With fewer than 18 months left in office, President Obama has asserted that the Department of Labor’s (“DOL”) proposed fiduciary standard for retirement account advisors is a major priority. The DOL completed public hearings last week on this proposal, and we believe that the rule will be finalized early next year with the proposal’s core framework intact.

The DOL’s final rule is set to transform the competitive landscape and disrupt current business models, particularly for financial institutions that are reliant on traditional broker-dealer activities which are currently not covered by the existing Employee Retirement Income Security Act (“ERISA”) fiduciary standard.

Dodd-Frank Turns Five, What’s Next?

Posted by Daniel F. C. Crowley, K&L Gates, on

Friday, August 28, 2015

Daniel F.C. Crowley is a partner at K&L Gates LLP. This post is based on a K&L Gates publication by Mr. Crowley, Bruce J. Heiman, Sean P. Donovan-Smith, and Giovanni Campi.

The 2008 credit crisis was the beginning of an era of unprecedented government management of the capital markets. July 21, 2015 marked the fifth anniversary of the hallmark congressional response, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Dodd-Frank resulted in an extraordinary revamp of the regulatory regime that governs the U.S. financial system and, consequently, has significant implications for the U.S. economy and the international financial system.

Members of Congress recognized the fifth anniversary of Dodd-Frank in markedly different ways. House Financial Services Committee Chairman Jeb Hensarling (R-TX) has held two of a series of three hearings to examine whether the United States is more prosperous, free, and stable five years after enactment of the law. In contrast, Senator Elizabeth Warren (D-MA)—one of the leading proponents of the law—and other members of Congress have criticized the slow pace of implementation by the regulatory agencies. Meanwhile, Senate Banking Committee Chairman Richard Shelby (R-AL) is advancing the “Financial Regulatory Improvement Act of 2015,” which seeks to amend a number of provisions of Dodd-Frank.

FTC Charges Activist Hedge Fund

Posted by Sabastian V. Niles, Wachtell, Lipton, Rosen & Katz, on

Thursday, August 27, 2015

Boards of Directors, Disclosure, FTC, Hart-Scott-Rodino Act, Hedge funds, SEC, SEC enforcement, Shareholder activism, Third Point
More from: Franco Castelli, Nelson Fitts, Sabastian Niles, Wachtell Lipton

Sabastian V. Niles focuses on rapid response shareholder activism and preparedness, takeover defense, corporate governance, and M&A at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton firm memorandum by Mr. Niles, Nelson O. Fitts, and Franco Castelli.

Yesterday [August 24, 2015], the Federal Trade Commission announced that Dan Loeb’s Third Point had settled a complaint charging violations of the notification and waiting period requirements of the Hart-Scott-Rodino Act in connection with purchases of Yahoo! stock in 2011.

The HSR Act requires that acquirors notify the federal antitrust agencies of transactions that meet applicable thresholds and observe a pre-acquisition waiting period. Acquisitions of up to 10% of a company’s voting stock are exempt if made solely for the purpose of investment, and the acquirer “has no intention of participating in the formulation, determination, or direction of the basic business decisions of the issuer.” Buyers who intend to be involved in the management of the target company or to seek representation on its board of directors are not eligible for the exemption. HSR requirements have historically been enforced strictly and narrowly against public companies, officers, directors, and investors, without deference or favor to any particular class of violator.

Unfinished Reform in the Global Financial System

Posted by Lewis B. Kaden, Harvard Law School, on

Thursday, August 27, 2015

Compliance & ethics, Financial crisis, Financial institutions, Financial reform, Financial regulation, International governance, Risk, Securities regulation, Stress tests, Systemic risk
More from: Lewis Kaden

Lewis B. Kaden is John Harvey Gregory Lecturer on World Organizations, Harvard Law School, and Senior Fellow of the Mossavar-Rahmani Center on Business and Government, Harvard Kennedy School of Government. This post is based on Mr. Kaden’s paper, which was adapted from remarks delivered at Cambridge University on February 27, 2015 and at the Kennedy School of Government, Harvard University on April 9, 2015. The full paper is available for download here.

This paper offers a perspective on the challenges that the global financial system will face in the course of the next decade. While there has been significant progress since the financial crisis of 2007-2009 and the slow and uneven pressure of recovery and reform, a great deal of important work lies ahead. Part I briefly reviews, for the purpose of general background, the context and causes of the financial crisis. Part II identifies the key lessons to be learned from the crisis, and Part III outlines the major reforms adopted to date in the United States, Europe and the G-20. Finally, Part IV highlights what I regard as the principal ongoing issues affecting the financial system and suggests some approaches for dealing with them.

Court Strikes NYC’s “Responsible Banking Act”

Posted by Robert J. Giuffra, Jr., Sullivan & Cromwell LLP, on

Wednesday, August 26, 2015

Banks, Corporate Social Responsibility, Depository banking, Disclosure, Financial institutions, Financial regulation, Jurisdiction, New York, Public perception, State law, U.S. federal courts
More from: H. Rodgin Cohen, Marc Treviño, Matthew Schwartz, Robert Giuffra, Sullivan & Cromwell

Robert J. Giuffra, Jr. is a partner in the Litigation Group at Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell publication by Mr. Giuffra, H. Rodgin Cohen, Matthew A. Schwartz, and Marc Trevino.

On August 7, 2015, in a 71-page opinion, Judge Katherine Polk Failla of the United States District Court for the Southern District of New York struck down New York City Local Law 38 of 2012, entitled the “Responsible Banking Act” (“RBA”), as preempted by federal and state banking law. The RBA—enacted by the City Council on June 28, 2012, over Mayor Bloomberg’s veto—established an eight-member Community Investment Advisory Board (“CIAB”), charged with collecting data at the census-tract level from the 21 banks eligible to receive some of the City’s $150 billion in annual deposits. This data, which went beyond data required by federal and state banking regulators and would be disclosed publicly, covered a variety of categories ranging from the maintenance of foreclosed properties, to investment in affordable housing, to product and service offerings. Based on the data collected and feedback from public hearings, the CIAB was to develop “benchmarks and best practices” against which the deposit banks were to be evaluated, including against each other, in a publicly filed annual report. The report was to identify deposit banks that refused to provide the requested data. Finally, the RBA provided that the City’s Banking Commission—responsible for designating eligible deposit banks—“may” consider the CIAB’s annual report in making its designation decisions.

Understanding the US Listing Gap

Posted by René Stulz, Ohio State University, on

Wednesday, August 26, 2015

IPOs, JOBS Act, Mergers & acquisitions, NASDAQ, NYSE, Private firms, Public firms, Sarbanes–Oxley Act
More from: Andrew Karolyi, Craig Doidge

René Stulz is Professor of Finance at Ohio State University. This post is based on an article authored by Professor Stulz; Craig Doidge, Associate Professor of Finance at the University of Toronto; and Andrew Karolyi, Professor of Finance at Cornell University.

The number of publicly-listed firms in the U.S. peaked in 1996 at 8,025. In that year, the U.S. had 30 listings per million inhabitants. By 2012, it had only 13, or 56% less. Importantly, the decrease in listings occurred in all industries and across both the NYSE and Nasdaq. In our new working paper, entitled The U.S. Listing Gap, which was recently made publicly available on SSRN, we show that this evolution is specific to the U.S. Listings in the rest of the world, in fact, increased over the same period. The U.S. has developed a “listing gap” relative to other countries with similar investor protection, economic growth, and overall wealth. The listing gap arises in the late 1990s and widens over time. It is statistically significant, economically large, and robust to different measurement approaches. We also find that the U.S. has a listing gap when compared to its own recent history and after controlling for changing capital market conditions.

SEC and PCAOB on Audit Committees

Posted by Holly J. Gregory, Sidley Austin LLP, on

Tuesday, August 25, 2015

Accounting standards, Audit committee, Compliance and disclosure interpretation, Disclosure, External auditors, Oversight, PCAOB, SEC, SEC rulemaking, Securities regulation, Transparency
More from: Holly Gregory, Jack Jacobs, Thomas Kim, Sidley Austin

Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. The following post is based on a Sidley update by Ms. Gregory, Jack B. Jacobs and Thomas J. Kim.

Public company counsel and audit committee members should be aware of recent activity at the U.S. Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) that could lead to additional regulation of audit committee disclosure and to federal normative expectations for how audit committees and their members behave.

2016 ISS Policy Survey

Posted by Linda Pappas and Maggie Choi, Pay Governance LLC, on

Tuesday, August 25, 2015

Boards of Directors, Compensation disclosure, Equity-based compensation, Executive Compensation, Incentives, Institutional Investors, ISS, Proxy advisors, Proxy season, Proxy voting, Surveys
More from: Linda Pappas, Maggie Choi, Pay Governance

Linda Pappas and Maggie Choi are Consultants at Pay Governance LLC. This post is based on a Pay Governance memorandum.

In August 4, 2015, Institutional Shareholder Services (ISS) released its annual policy survey for the 2016 proxy voting season. The survey encompasses its global proxy voting policies across all potential topic areas. The responses elicited from the survey are used to assist ISS in developing changes to its proxy voting policy guidelines, and will be open for one month (until September 4, 2015). Upon closing of the survey, there will be an open comment period prior to the finalization of the updated ISS proxy voting policies which are targeted for release in November 2015.

The key survey areas specifically related to compensation for 2016 include use of adjusted or non-GAAP metrics in incentive compensation programs and equity compensation vehicles for non-executive directors. This post focuses on these two topic areas, and touches on other noteworthy U.S. and global policy areas.

Institutional Investors and Corporate Short-Termism

Posted by Robert C. Pozen, MIT Sloan School of Management, on

Monday, August 24, 2015

Engagement, Hedge funds, Institutional Investors, International governance, Proxy access, Proxy advisors, Proxy fights, Proxy plumbing, Regulation FD, SEC, Securities regulation, Shareholder activism, Shareholder value, Shareholder voting, Short-termism
More from: Robert Pozen

Robert C. Pozen is a Senior Lecturer at MIT Sloan School of Management and a Senior Fellow at the Brookings Institution. This post is based on an article forthcoming in the Financial Analysts Journal. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here), and The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here).

Across the world, a clamor is rising against corporate short-termism—the undue attention to quarterly earnings at the expense of long-term sustainable growth. In one survey of chief financial officers, the majority of respondents reported that they would forgo current spending on profitable long-term projects to avoid missing earnings estimates for the upcoming quarter.

Critics of short-termism have singled out a set of culprits—activist hedge funds that acquire 1% or 2% of a company’s stock and then push hard for measures designed to boost the stock price quickly but unsustainably. The typical activist program involves raising dividends, increasing stock buybacks, or spinning off corporate divisions—usually accompanied by a request for board seats.

Delaware Court Awards Damages to Option Holders

Posted by Jason M. Halper, Orrick, Herrington & Sutcliffe LLP, on

Monday, August 24, 2015

Delaware cases, Delaware law, Duty of good faith, Fiduciary duties, Firm valuation, Merger litigation, Mergers & acquisitions, Misconduct, Spinoffs, Stock options
More from: Jason Halper, Peter Rooney, Orrick

Jason M. Halper is a partner in the Securities Litigation & Regulatory Enforcement Practice Group at Orrick, Herrington & Sutcliffe LLP. This post is based on an Orrick publication by Mr. Halper and Peter J. Rooney. 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 July 28, 2015, the Delaware Court of Chancery issued a post-trial opinion in which it criticized in particularly strong terms the analysis performed by a financial firm that was retained to value companies that were being sold to a third party or spun off to stockholders (the “valuation firm”). See Fox v. CDX Holdings Inc., C.A. No. 8031-VCL (Del Ch. July 28, 2015). CDX is just the latest decision in which the Chancery Court has awarded damages and/or ordered injunctive relief based in part on a financial firm’s failure to discharge its role appropriately. Calling the valuation firm’s work “a new low,” Vice Chancellor Laster’s opinion is another chapter in this cautionary tale that lays bare how financial firms can be exposed not only to potential monetary liability but, as importantly, significant reputational harm from flawed sell side work on M&A transactions.

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