Monthly Archives: January 2016

Bebchuk Leads SSRN’s 2015 Citation Rankings

Posted by Kobi Kastiel, Co-Editor, HLS Forum on Corporate Governance and Financial Regulation, on

Tuesday, January 12, 2016

Lucian Bebchuk, Program on Corporate Governance, Rankings, SSRN
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Statistics released publicly by the Social Science Research Network (SSRN) indicate that, as was the case at the end of each of the eight preceding years, Professor Lucian Bebchuk led SSRN citation rankings for law professors at the end of 2015. As of the end of December 2015, Bebchuk ranked first among all law school professors in all fields in terms of the total number of citations to his work (as well as second in the total number of downloads of his work on SSRN).

Professor Bebchuk’s papers (available on his SSRN page here) have attracted a total of 4,373 citations. His top ten papers in terms of citations are as follows:

What Matters in Corporate Governance? (with Alma Cohen and Allen Ferrell) (442 citations)
Pay Without Performance: The Unfulfilled Promise of Executive Compensation (with Jesse Fried) (310 citations)
Executive Compensation as an Agency Problem (with Jesse Fried) (283 citations)
Managerial Power and Rent Extraction in the Design of Executive Compensation (with Jesse Fried and David Walker) (226 citations)
A Theory of Path Dependence in Corporate Ownership and Governance (with Mark Roe) (188 citations)
Stock Pyramids, Cross-Ownership, and Dual Class Equity: The Creation and Agency Costs of Separating Control from Cash Flow Rights (with Reinier Kraakman and George Triantis) (178 citations)
A Rent-Protection Theory of Corporate Ownership and Control (158 citations)
The Costs of Entrenched Boards (with Alma Cohen) (152 citations)
The Case for Increasing Shareholder Power (132 citations)
The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence, and Policy (with John Coates, IV and Guhan Subramanian) (98 citations)

SSRN is the leading electronic service for social science research, and its electronic library contains (as of December 2015) 539,398 full-text documents by 297,574 authors. SSRN’s rankings in terms of citations are available here and SSRN’s rankings in terms of downloads are available here.

Economic Downsides and Antitrust Liability Risks from Horizontal Shareholding

Posted by Einer Elhauge, Harvard Law School, on

Tuesday, January 12, 2016

Antitrust, Banks, Blockholders, Controlling shareholders, Exchange-traded funds, Executive Compensation, Financial institutions, Firm performance, Incentives, Institutional Investors, Management, Ownership, Peer groups, Securities regulation, Shareholder value
More from: Einer Elhauge

Einer Elhauge is the Petrie Professor of Law at Harvard Law School. This post is based on Professor Elhauge’s recent article, forthcoming in the Harvard Law Review.

In recent decades, institutional investors have grown and become more active in influencing corporate management. While this development has often been viewed as salutary from a corporate governance perspective, the implications for product market competition have become deeply troubling. As I show in a new article called Horizontal Shareholding (forthcoming in the Harvard Law Review), this growth in institutional investors means that a small group of institutions has acquired large shareholdings in horizontal competitors throughout our economy, causing them to compete less vigorously with each other.

Delaware Rules on “Without Cause” Director Removal

Posted by William Savitt, Wachtell, Lipton, Rosen & Katz, on

Monday, January 11, 2016

Boards of Directors, Charter & bylaws, Classified boards, Delaware cases, Delaware law, DGCL, DGCL s.141, Ousting directors, Proxy fights, Securities litigation, Shareholder activism, Shareholder suits, Shareholder voting, Staggered boards
More from: William Savitt, Wachtell Lipton

William Savitt is a partner in the Litigation Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton firm memorandum, and is part of the Delaware law series; links to other posts in the series are available here.

The Delaware Court of Chancery recently held that a corporation without a classified board or cumulative voting may not restrict stockholders’ ability to remove directors without cause. In re Vaalco Energy S’holder Litig., C.A. No. 11775-VCL (Dec. 21, 2015). The ruling gives rise to questions for the many companies with similar charter or bylaw provisions.

Reputation Concerns of Independent Directors

Posted by Wei Jiang, Columbia University, on

Monday, January 11, 2016

Behavioral finance, Board dynamics, Board independence, Boards of Directors, China, Incentives, International governance, Management, Market reaction, Outside directors, Public firms, Reputation
More from: Hualin Wan, Shan Zhao, Wei Jiang

Wei Jiang is Professor of Finance at Columbia University. This post is based on an article authored by Professor Jiang; Hualin Wan, Associate Professor of Accounting at Shanghai Lixin University of Commerce; and Shan Zhao, Assistant Professor of Finance at Grenoble Ecole de Management.

Across the major world markets, institutional investors, stock exchanges and regulators have pushed publically listed firms to increase the number of independent directors on their boards. By 2013, 80% of directors of the S&P 1500 firms are independent, according to RiskMetric. Such a trend reflects a common belief that independent directors are effective monitors of management since they are not formally connected to firm insiders nor do they have material business relationship with the firm. However, it is unclear what incentivizes independent directors to monitor and potentially confront management, given that they are not significant shareholders, do not receive performance-sensitive compensation, and often owe their appointment to the managers they monitor.

2015 FINRA Enforcement Actions

Posted by Jonathan N. Eisenberg, K&L Gates LLP, on

Sunday, January 10, 2016

Jonathan N. Eisenberg is partner in the Government Enforcement practice at K&L Gates LLP. This post is based on a K&L Gates publication by Mr. Eisenberg.

Over the past several years, the Financial Industry Regulatory Authority (“FINRA”), the self-regulatory organization responsible for regulating every brokerage firm and broker doing business with the U.S. public, brought between 1,300 and 1,600 disciplinary actions each year. In 2014, the most recent year for which full-year statistics are available, it ordered $134 million in fines and $32.2 million in restitution. During the same period, it barred or suspended nearly 1,200 individuals, and expelled or suspended 23 firms. It also referred over 700 fraud cases to other federal or state agencies for potential prosecution. FINRA orders also often trigger automatic “statutory disqualifications” under Section 3(a)(39) of the Securities Exchange Act and Article III, Section 4 of FINRA’s By-Laws. Absent relief, these disqualifications prohibit persons from associating with a broker-dealer or prohibit firms from acting as broker-dealers.

OCC’s Recovery Planning Proposal

Posted by Dan Ryan, PricewaterhouseCoopers LLP, on

Saturday, January 9, 2016

Bankruptcy, Banks, Failed banks, FDIC, Federal Reserve, Financial institutions, Financial regulation, Foreign banks, OCC, Recovery & resolution plans, Risk management, SIFIs, Stress tests
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 December 17^th, the Office of Comptroller of the Currency (OCC) proposed recovery planning standards for banks with assets of $50 billion or more. [1] The proposal was released exactly one year after the FDIC released guidance for covered insured depository institutions (CIDI) that significantly raised the resolution planning bar for many of these same banks. [2]

Most institutions will find that they will be able to leverage their existing risk management, business continuity planning, capital and liquidity planning, stress testing, and resolution plans in order to build their recovery plan. Many of the proposed standards’ requirements can be met by modifying existing bodies of work.

Director Removal Without Cause

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

Friday, January 8, 2016

Board declassification, Charter & bylaws, Classified boards, Delaware cases, Delaware law, DGCL, DGCL s.141, Majority voting, Mergers & acquisitions, Ousting directors, Shareholder activism, Shareholder elections, Shareholder voting
More from: Daniel Wolf, Matthew Solum, Kirkland & Ellis

Daniel Wolf is a partner focusing on mergers and acquisitions at Kirkland & Ellis LLP. The following post is based on a Kirkland memorandum by Mr. Wolf and Matthew Solum. This post is part of the Delaware law series; links to other posts in the series are available here.

In a recent bench ruling on a summary judgment motion in a case involving Vaalco Energy, Vice Chancellor Laster held that a provision of a company’s charter or bylaws could not override the default rule under Delaware law that directors serving on a non-classified board (i.e., annually elected) may be removed with or without cause by vote of holders of a majority of the outstanding shares entitled to vote in director elections. While prior Chancery rulings, including Nycal and Rohe, reached largely similar conclusions in related circumstances, VC Laster’s decision in Vaalco clearly articulates his view that this type of charter or bylaw provision that purports to limit director removal for non-classified boards to cases of cause is simply invalid as a matter of Delaware law.

Weekly Roundup: January 1–January 8

Posted by HLS Forum on Corporate Governance and Financial Regulation, on

Friday, January 8, 2016

Weekly Roundup
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This roundup contains a collection of the posts published on the Forum during the week of January 1, 2016 to January 8, 2016.

CFTC’s Proposed Rules on Cybersecurity

Posted by Dan Ryan, PricewaterhouseCoopers LLP, on Saturday, January 2, 2016

Tags: Accounting, Audits, CFTC, Clearing houses, Cybersecurity, Derivatives, Financial institutions, Recovery & resolution plans, Risk, Risk assessment, Risk oversight, Securities Regulation, Swaps, Swaps entities

Recovery Planning for Large National Banks

Posted by C. Andrew Gerlach, Sullivan & Cromwell LLP, on Sunday, January 3, 2016

Tags: Bank boards, Bankruptcy, Banks, Boards of Directors, Deposit insurance, Dodd-Frank Act, Failed banks, FDIC, Federal Reserve, Financial institutions, Financial Regulation, Foreign banks, Liquidity, OCC, Recovery & resolution plans, Risk management, Stress tests

Resource Extraction Payments

Posted by Nicolas Grabar & Sandra Flow, Cleary Gottlieb Steen & Hamilton LLP, on Monday, January 4, 2016

Tags: Accountability, Anti-corruption, Compliance and disclosure interpretation, Disclosure, Dodd-Frank Act, International governance, Reporting regulation, SEC, SEC enforcement, SEC rulemaking, Securities Regulation, Transparency

Global and Regional Trends in Corporate Governance in 2016

Posted by Anthony Goodman, Russell Reynolds Associates, on Monday, January 4, 2016

Tags: Accountability, Board composition, Board leadership, Board performance, Boards of Directors, Brazil, Diversity,Engagement, EU, Europe, India, Institutional Investors, International governance, Japan, Securities Regulation

Where are the Best (Corporate) Law Professors Teaching?

Posted by Marco Ventoruzzo, Bocconi University and Pennsylvania State University, on Tuesday, January 5, 2016

Tags: Brazil, Corporate governance, France, Germany, Hong Kong, Italy, Rankings, Singapore, Social capital, Social networks, SSRN, UK

ISS Proxy Access FAQs: Problematic Proxy Access Provisions

Posted by Howard B. Dicker, Weil, Gotshal & Manges LLP, on Tuesday, January 5, 2016

Tags: Boards of Directors, Charter & bylaws, Director nominations, Executive Compensation, Institutional Investors, ISS,Precatory proposals, Proxy access, Proxy advisors, Shareholder proposals, Shareholder rights, Shareholder voting

Corporate Governance and Blockchains

Posted by David Yermack, NYU Stern School of Business, on Wednesday, January 6, 2016

Tags: Accounting, Backdating, Bitcoin, Books and records, Capital markets, Debt securities, Derivatives, Hidden ownership,Information environment, Ownership, Related party transactions, Shareholder activism, Shareholder voting, Stock options,Transparency

Ten Topics for Directors in 2016

Posted by Kerry E. Berchem, Akin Gump Strauss Hauer & Feld LLP, on Wednesday, January 6, 2016

Tags: Audit committee, Board composition, Board turnover, Boards of Directors, Cybersecurity, Executive Compensation,Mergers & acquisitions, Proxy access, Risk management, SEC, Securities Regulation, Shareholder activism, Shareholder proposals, Shareholder voting, Social networks

Governance Challenges When Gatekeepers are “Chilled”

Posted by Michael W. Peregrine, McDermott Will & Emery LLP, on Thursday, January 7, 2016

Tags: Accountability, Audit committee, Boards of Directors, Compliance & ethics, Compliance and disclosure interpretation,Conflicts of interest, DOJ, Internal auditors, Liability standards, Misconduct, Risk, Risk management, SEC, SEC enforcement,Securities enforcement, Securities Regulation

Activist Hedge Funds, Golden Leashes, and Advance Notice Bylaws

Posted by Matteo Tonello, The Conference Board, on Thursday, January 7, 2016

Tags: Advanced notice, Board performance, Boards of Directors, Charter & bylaws, Compensation committees, Director compensation, Executive Compensation, Golden leashes, Hedge funds, Incentives, Management, Pay for performance, Proxy contests, Shareholder activism, Shareholder proposals, Shareholder voting, Wachtell Lipton

Director Removal Without Cause

Posted by Daniel E. Wolf, Kirkland & Ellis LLP, on Friday, January 8, 2016

Tags: Board declassification, Charter & bylaws, Classified boards, Delaware cases, Delaware law, DGCL, DGCL s.141,Majority voting, Mergers & acquisitions, Ousting directors, Shareholder activism, Shareholder elections, Shareholder voting

Activist Hedge Funds, Golden Leashes, and Advance Notice Bylaws

Posted by Matteo Tonello, The Conference Board, on

Thursday, January 7, 2016

Matteo Tonello is managing director of corporate leadership at The Conference Board. This post relates to an issue of The Conference Board’s Director Notes series authored by Jason D. Schloetzer of Georgetown University. The complete publication, including footnotes, is available here. For details regarding how to obtain a copy of the report, contact [email protected]. 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).

The tactics used by activist hedge funds to target companies continue to command the attention of corporate executives and board members. This post discusses recent cases highlighting activist efforts to replace directors at target companies. It also examines the use of controversial special compensation arrangements sometimes referred to as “golden leashes,” the arguments for and against such payments, their prevalence, and the parallel evolution of advance notification bylaws (ANBs) to require disclosure of third party payments to directors.

Governance Challenges When Gatekeepers are “Chilled”

Posted by Michael W. Peregrine, McDermott Will & Emery LLP, on

Thursday, January 7, 2016

Michael W. Peregrine is a partner at McDermott Will & Emery LLP. This post is based on an article by Mr. Peregrine, with assistance from Joshua T. Buchman, Eugene I. Goldman, and Kelsey J. Leingang; the views expressed therein do not necessarily reflect the views of McDermott Will & Emery LLP or its clients.

An emerging governance challenge is the need to address the tension between the pursuit of legitimate corporate strategic goals, and the concerns of internal “gatekeepers” who perceive themselves at increasing personal legal risk for corporate wrongdoing. This challenge is a direct byproduct of new enforcement initiatives of the Department of Justice and the Securities and Exchange Commission, and other recent developments with respect to corporate officials.

The concern is that these developments may cause some gatekeepers and other corporate officials to be much more self-protective in performing their corporate and fiduciary responsibilities, to the possible detriment of strategic implementation. Attentive boards will acknowledge this challenge and engage its gatekeepers in an appropriate resolution.

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Monthly Archives: January 2016

Bebchuk Leads SSRN’s 2015 Citation Rankings

Economic Downsides and Antitrust Liability Risks from Horizontal Shareholding

Delaware Rules on “Without Cause” Director Removal

Reputation Concerns of Independent Directors

2015 FINRA Enforcement Actions

OCC’s Recovery Planning Proposal

Director Removal Without Cause

Weekly Roundup: January 1–January 8

CFTC’s Proposed Rules on Cybersecurity

Recovery Planning for Large National Banks

Resource Extraction Payments

Global and Regional Trends in Corporate Governance in 2016

Where are the Best (Corporate) Law Professors Teaching?

ISS Proxy Access FAQs: Problematic Proxy Access Provisions

Corporate Governance and Blockchains

Ten Topics for Directors in 2016

Governance Challenges When Gatekeepers are “Chilled”

Activist Hedge Funds, Golden Leashes, and Advance Notice Bylaws

Director Removal Without Cause

Activist Hedge Funds, Golden Leashes, and Advance Notice Bylaws

Governance Challenges When Gatekeepers are “Chilled”

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