Yearly Archives: 2015

CII on Proxy Access

Posted by Elizabeth Ising, Gibson, Dunn & Crutcher LLP, on

Monday, August 17, 2015

Boards of Directors, Charter & bylaws, Council of Institutional Investors, Institutional Investors, Proxy access, Proxy voting, Rule 14a-11, Shareholder nominations, Shareholder proposals, Shareholder rights, Shareholder voting
More from: Elizabeth Ising, Lori Zyskowski, Ronald Mueller, Gibson Dunn

Elizabeth Ising is a partner and Co-Chair of the Securities Regulation and Corporate Governance practice group at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn client alert by Ms. Ising, Lori Zyskowski, and Ronald O. Mueller.

[On August 5, 2015] the Council of Institutional Investors (“CII”), a nonprofit association of corporate, public and union employee benefit funds and endowments that seeks to promote effective corporate governance practices for U.S. companies and strong shareholder rights and protections, published a report titled “Proxy Access: Best Practices” that describes CII’s views on seven provisions that companies typically address when implementing proxy access. The CII report is available here, and was discussed on the Forum here.

Securities Class Action Filings—2015 Midyear Assessment

Posted by John Gould, Cornerstone Research, on

Sunday, August 16, 2015

Class actions, Filings, SEC, Securities fraud, Securities litigation, U.S. federal courts
More from: John Gould, Cornerstone Research

John Gould is senior vice president at Cornerstone Research. This post is based on a report from the Stanford Law School Securities Class Action Clearinghouse and Cornerstone Research; the full publication is available here.

Plaintiffs brought 85 new federal class action securities cases in the first half of 2015, according to Securities Class Action Filings—2015 Midyear Assessment, a report compiled by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse. This represents a decrease from the second half of 2014, when plaintiffs filed 92 securities class actions. The number of filings in the first six months of 2015 remains 10 percent below the semiannual average of 94 observed between 1997 and 2014—the seventh consecutive semiannual period below the historical average.

Despite this period of little overall change in filing activity, securities class actions against companies headquartered outside the United States increased in the first half of 2015. Twenty filings, or 24 percent of the total, targeted foreign firms. Asian firms were named in more than half of these cases.

D.C. Circuit Upholds Privilege For Internal Investigation Documents

Posted by John F. Savarese, Wachtell, Lipton, Rosen & Katz, on

Saturday, August 15, 2015

Attorney-client privilege, Commercial litigation, Compliance & ethics, Confidentiality, Disclosure, Discovery, Internal auditors, U.S. federal courts
More from: David Anders, John Savarese, Peter Hein, Wachtell Lipton

John F. Savarese is a partner in the Litigation Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton firm memorandum by Mr. Savarese, Peter C. Hein, and David B. Anders.

Earlier this week, the D.C. Circuit Court of Appeals for the second time granted a writ of mandamus and vacated district court orders that would have provided for the disclosure of privileged documents created in the course of a company’s internal investigation. In Re Kellogg Brown & Root, Inc., No. 14-5319 (Aug. 11, 2015).

As noted in our prior memo, in a 2014 decision in this same case the D.C. Circuit granted a writ of mandamus and made clear that a proper application of privilege principles would protect documents created in the course of a company’s internal investigation—even if the investigation was conducted by in-house counsel without outside lawyers, even if non-attorneys (serving as agents of attorneys) conducted many of the interviews, and even if the internal investigation was conducted pursuant to a company compliance program required by a statute or government regulation (and thus arguably had in part a business purpose in addition to the purpose of obtaining or providing legal advice).

SEC Adopts CEO Pay Ratio Disclosure Rule

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

Friday, August 14, 2015

Compensation disclosure, Compensation ratios, Dodd-Frank Act, Dodd-Frank s.953, Executive Compensation, Management, Regulation S-K, Say on pay, SEC, SEC enforcement, SEC rulemaking
More from: Corey Perry, Holly Gregory, John Kelsh, Rebecca Grapsas, 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, John P. Kelsh, Thomas J. Kim, Corey Perry, and Rebecca Grapsas. Related research from the Program on Corporate Governance includes The Growth of Executive Pay by Lucian Bebchuk and Yaniv Grinstein.

On August 5, 2015, the Securities and Exchange Commission (SEC), by a 3-2 vote, adopted rule amendments [1] to implement Section 953(b) of the Dodd-Frank Act, which requires public companies to disclose the “pay ratio” between its CEO’s annual total compensation and the median annual total compensation of all other employees of the company. [2]

The pay ratio disclosures that will result from this much-anticipated new rule will further heighten scrutiny on corporate executive compensation practices—with specific focus on how CEO compensation compares to the “median” employee. Companies should be aware that, depending on the magnitude of pay ratios, these new disclosures may exacerbate existing concerns among investors, labor groups and others around executive compensation.

An Interview with Chief Justice Strine

Posted by Judy Warner, NACD Directorship, on

Thursday, August 13, 2015

Board performance, Boards of Directors, Delaware cases, Delaware law, Dodd-Frank Act, Fiduciary duties, Institutional Investors, International governance, Mergers & acquisitions, Rule 14a-8, Securities regulation, Shareholder activism
More from: Judy Warner, NACD

Judy Warner is editor-in-chief of NACD Directorship. This post is based on an interview between Ms. Warner and Delaware Supreme Court Chief Justice Leo E. Strine Jr. The full interview is available here. Research by Chief Justice Strine recently issued by the Program on Corporate Governance includes A Job is Not a Hobby: The Judicial Revival of Corporate Paternalism, discussed on the Forum here; and Can We Do Better by Ordinary Investors? A Pragmatic Reaction to the Dueling Ideological Mythologists of Corporate Law, discussed on the Forum here. 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.

As your predecessor Chief Justice Myron Steele was stepping down in 2013, Directorship asked him if he had any words of advice for his successor. Chief Justice Steele suggested that his successor be prepared for crisis management because you never know what’s going to happen. So, I’m curious: have you had a crisis so far?

We’ve had a crisis. For example, we’re dealing very much this week with an emerging development that’s affecting our entire state government around the cost of health insurance for our employees. There are very tough choices that have to be made, that regardless of which choice is going to be made, it’s going to have an influence on the ability of our government to fund other priorities.

What you have to do in all these things is understand that life is sort of a series of planned emergencies. What we have tried to do is identify a set of priorities for future action that builds on existing achievements. I’m very fortunate I had a wonderful predecessor and friend in Myron Steele, who cares very much about our judiciary and worked very hard. I had a very high-quality predecessor, and I can build off that platform of making a very good organization.

Special Meeting Proposals

Posted by Avrohom J. Kess, Simpson Thacher & Bartlett LLP, on

Thursday, August 13, 2015

Board meetings, Boards of Directors, Glass Lewis, Institutional Investors, ISS, Proxy advisors, Proxy season, Proxy voting, Rule 14a-8, SEC, SEC rulemaking, Securities regulation, Shareholder proposals, Shareholder rights, Shareholder voting
More from: Avrohom Kess, Karen Hsu Kelley, Yafit Cohn, Simpson Thacher

Avrohom J. Kess is partner and head of the Public Company Advisory Practice at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher memorandum by Mr. Kess, Karen Hsu Kelley, and Yafit Cohn. The complete publication, including footnotes, is available here.

Shareholders petitioning the board for the special meeting right propose either to create the right or, in circumstances where the right already exists, to lower the minimum share ownership threshold required to exercise the right. As of June 30, 2015, 339 companies in the S&P 500 and Fortune 500 already provided their shareholders with the right to call a special meeting outside of the usual annual meeting. During the 2015 proxy season, 20 special meeting shareholder proposals went to a vote at Russell 3000 companies. Of these, six proposed to create the right, and 14 proposed to lower the ownership threshold with respect to an existing right. Only four special meeting shareholder proposals received majority support: three created the right for the first time and one lowered the threshold for an existing right to 25%. Overall, shareholder proposals relating to special meetings received average shareholder support of 43.6% this proxy season.
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A Registration Framework for the Derivatives Market

Posted by Luis A. Aguilar, U.S. Securities and Exchange Commission, on

Wednesday, August 12, 2015

Broker-dealers, CFTC, Compliance & ethics, Cross-border transactions, Derivative disclosure, Derivatives, Dodd-Frank Act, Exchange Act, OTC derivatives, SEC, Securities regulation, Swaps, Swaps entities
More from: Luis Aguilar, U.S. Securities and Exchange Commission

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement; 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.

The financial crisis of 2008, and the ensuing turmoil, shook the global economy to its core and exposed the weaknesses of our regulatory regime. Years of lax attitudes, deregulation, and complacency allowed an unregulated derivatives marketplace to cause serious damage to the U.S. economy, resulting in significant losses to investors. As a result, Title VII of the Dodd-Frank Act tasked the SEC and the CFTC with establishing a regulatory framework for the over-the-counter swaps market. In particular, the SEC was tasked with regulating the security-based swap (SBS) market and the CFTC was given regulatory authority over the much larger swaps market, covering products such as energy and agricultural swaps.

Today [August 5, 2015], the global derivatives market is estimated to exceed $630 trillion worldwide—with approximately $14 trillion representing transactions in SBS regulated by the SEC. The regulatory regime for the SBS market, however, cannot go into effect until the SEC has put in place the necessary rules to implement Title VII.

The Iliad and the IPO

Posted by Andrew A. Schwartz, University of Colorado Law School, on

Wednesday, August 12, 2015

Boards of Directors, Corporate culture, IPOs, Mergers & acquisitions, Public firms, Public perception, Social capital, Staggered boards, Takeover defenses, Takeovers
More from: Andrew Schwartz

Andrew A. Schwartz is an Associate Professor of Law at the University of Colorado Law School. This post is based on Professor Schwartz’s recent article published in The Harvard Business Law Review, available here.

Many public companies have shed takeover defenses in recent years, on the theory that such defenses reduce share price. Yet new data presented in my latest article, Corporate Legacy, shows that practically all new public companies—those launching their initial public offering (IPO)—go public with powerful takeover defenses in place, which presumably depresses the price of the shares. This behavior seems strange, as pre-IPO shareholders both have a strong incentive to maximize the value of the shares being sold in the IPO and are in position to control whether to adopt takeover defenses. Why do founders and early investors engage in this seemingly counterproductive behavior? In Corporate Legacy, I look to a surprising place, the ancient Greek epic poem, the Iliad, for a solution to this important puzzle, and claim that pre-IPO shareholders adopt strong takeover defenses, at least in part, so that the company can remain independent indefinitely and thus create a corporate legacy that may last for generations.

Clarity in Commission Orders

Posted by Luis A. Aguilar, U.S. Securities and Exchange Commission, on

Tuesday, August 11, 2015

Compliance & ethics, Compliance and disclosure interpretation, Compliance officer, Investment Advisers Act, Misconduct, SEC, SEC enforcement, SEC rulemaking, Securities enforcement, Securities regulation, Transparency
More from: Luis Aguilar, U.S. Securities and Exchange Commission

This statement is about the critical importance of clarity in Commission Orders for enforcement actions. One of the Commission’s most effective deterrents against future misconduct is what it says about the enforcement actions it takes. As a result, the Commission must use its position as a regulatory authority to carefully and effectively send clear messages to securities industry participants regarding what is, and what is not, acceptable behavior. For this reason, Commission Orders need to contain sufficiently detailed facts so that there is no doubt as to why the Commission brought an enforcement action, why the respondent deserved to be sanctioned, and why the Commission imposed the sanctions it did.

The Commission and its staff should always be cognizant that there is a broad audience that carefully reads Commission Orders for guidance. This broad audience is usually not familiar with the underlying facts of a particular matter, and is relying on the Order’s description of the misconduct to appreciate why a named respondent ran afoul of the applicable laws. A clear and transparent Commission Order, therefore, is an absolute necessity to ensure public transparency and accountability.

A Framework for Understanding Financial Institutions

Posted by Robert Merton, MIT Sloan School of Management, on

Tuesday, August 11, 2015

Banks, Consumer protection, Contracts, Debt contracts, Deposit insurance, Financial crisis, Financial institutions, Financial regulation, Intermediaries, Investor protection, Market efficiency, Risk, Risk oversight, Systemic risk, Too big to fail
More from: Richard Thakor, Robert Merton

Robert Merton is Professor of Finance at the MIT Sloan School of Management. This post is based on an article authored by Professor Merton and Richard Thakor, also of the Finance Group at the MIT Sloan School of Management.

Many financial intermediaries provide “credit-sensitive” financial services—the effective delivery of these services depends on the credit-worthiness of the provider. This potential sensitivity of the perceived value of the intermediary’s services to the intermediary’s credit risk has important ramifications. In the paper, Customers and Investors: A Framework for Understanding Financial Institutions, which was recently made publicly available on SSRN, we examine how this affects the design of contracts between intermediaries and their customers, and how it illuminates ubiquitous features in a wide variety of contracts, institutions, and regulatory practices.

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