Monthly Archives: January 2016

Bebchuk Leads SSRN’s 2015 Citation Rankings

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:

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

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.

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Delaware Rules on “Without Cause” Director Removal

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.

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Reputation Concerns of Independent Directors

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.

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2015 FINRA Enforcement Actions

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.

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OCC’s Recovery Planning Proposal

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 17th, 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.

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Director Removal Without Cause

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.

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Weekly Roundup: January 1–January 8


More from:

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





Where are the Best (Corporate) Law Professors Teaching?







Activist Hedge Funds, Golden Leashes, and Advance Notice Bylaws

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.

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Governance Challenges When Gatekeepers are “Chilled”

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. BuchmanEugene 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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