Yearly Archives: 2015

Fed/FDIC Comments on Wave 3 Resolution Plans

Posted by Dan Ryan, PricewaterhouseCoopers LLP, on

Sunday, August 23, 2015

Banks, Dodd-Frank Act, FDIC, Federal Reserve, Financial crisis, Financial institutions, Financial regulation, Recovery & resolution plans, SIFIs, Systemic risk
More from: Adam Gilbert, Armen Meyer, Dan Ryan, Mike Alix, 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, Mike Alix, Adam Gilbert, and Armen Meyer.

On July 28th, the FDIC and the Federal Reserve Board (together, “the regulators”) announced that they have provided private feedback on the resolution plans of 119 Wave 3 banking institutions [1] and the three systemically important non-bank financial institutions. [2] Unlike the regulators’ highly critical August 2014 public commentary on the 2013 resolution plans filed by Wave 1 banking institutions, [3] this week’s comments are largely silent on the regulators’ view of the plans’ adequacy:

Scrutiny of Private Equity Firms

Posted by Veronica Rendón Callahan, Arnold & Porter, on

Saturday, August 22, 2015

Compliance & ethics, Disclosure, Fee-Shifting, Fiduciary duties, Investment advisers, Investment Advisers Act, Misconduct, Private equity, Private funds, SEC, SEC enforcement
More from: Veronica Callahan, Arnold & Porter

Veronica Rendón Callahan is a partner at Arnold & Porter LLP and co-chair of the firm’s Securities Enforcement and Litigation practice. This post is a based on an Arnold & Porter memorandum.

On June 29, 2015, the U.S. Securities and Exchange Commission charged Kohlberg Kravis Roberts & Co. with misallocating more than $17 million in broken deal expenses to its flagship private equity funds in breach of its fiduciary duty as an SEC-registered investment adviser. KKR agreed to pay nearly $30 million to settle the charges. This action represents a continuing and robust focus by the SEC on fee and expense allocation practices and disclosure by private equity fund advisers, many of which are relatively newly registered with the SEC following passage of the Dodd-Frank Act. It serves as a reminder of the need for private equity firms and other advisers to private investment funds to consider bolstering their compliance and disclosure policies and procedures related to the allocation of fees and expenses.
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Preliminary 2015 Proxy Season Review

Posted by Subodh Mishra, Institutional Shareholder Services, on

Friday, August 21, 2015

Boards of Directors, Engagement, Environmental disclosure, Executive Compensation, Institutional Investors, ISS, Proxy access, Proxy advisors, Proxy season, Proxy voting, Say on pay, Shareholder activism, Shareholder proposals, Sustainability
More from: Edward Kamonjoh, Patrick McGurn, Subodh Mishra, Institutional Shareholder Services Inc.

Subodh Mishra is Executive Director for Communications and Head of Governance Exchange at Institutional Shareholder Services. This post is based on an ISS white paper by Patrick McGurn, Special Counsel and Head of Strategic Research and Analysis, and Edward Kamonjoh, U.S. Head of Strategic Research and Analysis. The complete publication is available here.

Momentum is the buzzword that best describes the 2015 Proxy Season in the U.S. market. Some issues, such as proxy access, hit the ground running and emerged as ballot box juggernauts. Other topics, such as calls for independent board chairs and heightened scrutiny of human rights, stumbled and lost ground. Some new ideas, such as hybrid climate change risk initiatives aimed at impacting board deliberations on compensation and CAPEX, failed to catch fire. Despite the rising proxy access tide, E&S proposals swamped their governance and compensation cousins in the pre-season family reunion headcount. However, big submission numbers failed to translate into growing support. Just one environmental proposal managed to win majority support in the year’s first six months.

2015 Activism Update

Posted by Eduardo Gallardo, Gibson, Dunn & Crutcher LLP, on

Thursday, August 20, 2015

Board composition, Boards of Directors, Hedge funds, Mergers & acquisitions, Proxy contests, Settlements, Shareholder activism
More from: Eduardo Gallardo, Gibson Dunn

Eduardo Gallardo is a partner focusing on mergers and acquisitions at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn client alert. The full publication, including tables, is available here. 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), The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here), The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here), and Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon Brav, Robert J. Jackson Jr., and Wei Jiang.

This post provides an update on shareholder activism activity involving publicly traded domestic companies during the first half of 2015. At the midway point of 2015, shareholder activism shows no signs of slowing. In fact, our survey for the first half of 2015 includes nearly as many activist campaigns as did our survey for all of 2014.

Although funds continue to make news with activist campaigns involving large domestic companies, the most notable trend is the sheer number of funds involved in activist campaigns that are captured by our survey: 42 funds in just the first half of 2015 versus 35 funds for all of 2014.

In all, our 2015 Mid-Year Activism Update covers 56 public activist campaigns at 50 unique domestic companies by 42 unique investors during the period from January 1, 2015 to June 30, 2015. Ten of those companies faced advances from at least two activist investors. Market capitalizations of the targets range from just above our study’s $1 billion minimum to approximately $120 billion.

Do Women Stay Out of Trouble?

Posted by Anup Agrawal, University of Alabama, on

Thursday, August 20, 2015

Behavioral finance, Compliance & ethics, Corporate culture, Diversity, Management, Reputation, Risk management, Risk-taking, Securities litigation
More from: Anup Agrawal, Binay Adhikari, James Malm

Anup Agrawal is Professor of Finance at the University of Alabama. This post is based on an article authored by Professor Agrawal; Binay Adhikari, Visiting Assistant Professor of Finance at Miami University; and James Malm, Assistant Professor of Finance at the College of Charleston.

Does the presence of women in a firm’s top management team affect the risk of the firm being sued? A large literature in economics and psychology finds that women tend be more risk-averse, less overconfident, and more law-abiding than men. As more women reach top management positions, these gender differences have implications for firms’ policies and performance. As Neelie Kroes, then European Competition Commissioner provocatively asked in a speech at the World Economic Forum, “If Lehman Brothers had been Lehman Sisters, would the financial crisis have happened like it did?” (see New York Times, February 1, 2009).

Legal & General Calls for End to Quarterly Reporting

Posted by Martin Lipton, Wachtell, Lipton, Rosen & Katz, on

Wednesday, August 19, 2015

Accounting, Asset management, Earnings disclosure, Financial reporting, Institutional Investors, International governance, Long-Term value, Securities regulation, Shareholder value, Short-termism, UK
More from: Martin Lipton, Sabastian Niles, Wachtell Lipton

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 and Sabastian V. Niles. 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).

This summer, Legal & General Investment Management, a major European asset manager and global investor with over £700 billion in total assets under management, contacted the Boards of the London Stock Exchange’s 350 largest companies to support the discontinuation of company quarterly reporting, emphasizing that:

“[R]eporting which focuses on short-term performance is not necessarily conducive to building a sustainable business as it may steer management to focus more on short-term goals and away from future business drivers. We, therefore, support the recent regulatory change that removes the requirement for companies to disclose financial reports on a quarterly basis.”
“While each company is unique, we understand that providing the market with quarterly updates adds little value for companies that are operating in long-term business cycles. On the other hand, industries with shorter market cycles and companies in a highly competitive global market environment may choose to report more than twice a year.”
“Reducing the time spent on reporting that adds little to the business … can lead to more articulation of business strategies, market dynamics and innovation drivers, which are linked to key metrics that drive business performance and long-term shareholder value.

Corporate Governance and Diversity

Posted by Aaron A. Dhir, Osgoode Hall Law School, on

Wednesday, August 19, 2015

Board composition, Board dynamics, Boards of Directors, Corporate culture, Corporate Social Responsibility, Diversity, EU, Europe, Germany, International governance, Norway
More from: Aaron Dhir

Aaron A. Dhir is an Associate Professor of Law at Osgoode Hall Law School in Toronto, Canada. The post is based on Professor Dhir’s book, Challenging Boardroom Homogeneity: Corporate Law, Governance, and Diversity (Cambridge University Press, 2015).

Earlier this year, Germany joined the ranks of countries such as Norway, France, Italy, Belgium, and Iceland by enacting a quota to increase the number of women in its corporate boardrooms. Starting in 2016, both genders must make-up at least 30 percent of specified German companies’ supervisory boards.

The news from Germany provoked decidedly negative reactions in major media outlets. In the New York Times, the Washington Post, and the Economist, critics questioned the soundness of pursuing positive discrimination in the corporate governance arena. The reality, however, is that we actually know very little about how corporate quotas have worked in practice. Advocates and detractors each suggest that these measures will alter the effectiveness and dynamics of firms in some way—whether for better or worse. But the speculation remains largely uncorroborated and our knowledge is incomplete at best.
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Foreign Antitakeover Regimes

Posted by Daniel E. Wolf, Kirkland & Ellis LLP, on

Tuesday, August 18, 2015

Antitakeover, Canada, EU, Europe, France, Hostile takeover, International governance, Mergers & acquisitions, Netherlands, Poison pills, Shareholder voting, Takeover defenses, Takeovers, UK
More from: Daniel Wolf, Kirkland & Ellis

Daniel Wolf is a partner at Kirkland & Ellis focusing on mergers and acquisitions. The following post is based on a Kirkland memorandum by Mr. Wolf. Related research from the Program on Corporate Governance includes The Case Against Board Veto in Corporate Takeovers by Lucian Bebchuk.

The confluence of a number of overlapping factors—including an uptick in global and cross-border M&A activity, a resurgence in unsolicited takeover offers, the continued flow of tax inversion transactions, and the growth of activism in non-U.S. markets—means that U.S. companies and investors are more often facing unfamiliar takeover (and antitakeover) regimes as they evaluate and pursue offers for foreign targets. While experienced dealmakers are often well-versed in the nuances of friendly transactions with a foreign seller, the defenses available, and sometimes unavailable, to foreign companies facing unsolicited or hostile offers occasionally come as a surprise and complicate the pursuit or defense of these bids.

While a comprehensive survey of antitakeover regimes in various foreign jurisdictions is well beyond the scope of this post, it is instructive to highlight a number of examples where the regime—mandatory or permissive—departs significantly from U.S. practices, even in countries with well-developed legal systems and capital markets.

In a number of jurisdictions, the applicable takeover rules can be seen to facilitate, or even encourage, offerors in taking rejected overtures to the public shareholders:

A Reassessment of the Clearing Mandate

Posted by Ilya Beylin, Columbia Law School, on

Tuesday, August 18, 2015

Banks, Clearing houses, Credit default swaps, Credit supply, Derivatives, Dodd-Frank Act, Financial crisis, Financial institutions, International governance, Liquidity, Market efficiency, Swaps, Swaps entities, Systemic risk
More from: Ilya Beylin

Ilya Beylin is a Postdoctoral Research Scholar at Columbia Law School and the Editor-at-Large of the CLS Blue Sky Blog. This post is based on an article authored by Mr. Beylin.

Following the financial crisis, the G-20 nations committed to a raft of reforms for swap markets. These reforms are intended to mitigate systemic risk, and with it, the damage that failing financial institutions inflict on the financial sector and the broader economy. A core component of the reforms is the introduction of the “clearing mandate” for standardized swaps.

Clearing refers to the interposition of a clearinghouse, or central counterparty, between the two parties to a financial transaction. When a swap is cleared, the initial swap is extinguished and two new swaps are created in its place. The first is an identical swap between the first counterparty and the clearinghouse, and the second is another identical swap between the clearinghouse and the second counterparty. In this manner, absent default, parties make payments as they would if they had transacted bilaterally and the clearinghouse simply passes the payments between counterparties. However, when one of the counterparties to a transaction defaults, the presence of the clearinghouse as an intermediate counterparty shields the non-defaulting party from losses; that is because although the defaulting party may not pay the clearinghouse, the clearinghouse is still liable for, and makes, the payment to the remaining counterparty.

Proxy Access: Best Practices

Posted by Council of Institutional Investors, on

Monday, August 17, 2015

Boards of Directors, Charter & bylaws, Council of Institutional Investors, Institutional Investors, Proxy access, Proxy voting, Shareholder nominations, Shareholder proposals, Shareholder rights, Shareholder voting
More from: Council of Institutional Investors

This post is based on a report from the Council of Institutional Investors. The complete publication, including charts, is available here. Related research from the Program on Corporate Governance about proxy access include Lucian Bebchuk’s The Case for Shareholder Access to the Ballot and The Myth of the Shareholder Franchise (discussed on the Forum here), and Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

The Council of Institutional Investors (CII) believes that proxy access is a fundamental right of longterm shareowners. Proxy access—a mechanism that enables shareowners to place their nominees for director on a company’s proxy card—gives shareowners a meaningful voice in board elections.

CII’s members-approved policy on proxy access states, in part:

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