Monthly Archives: February 2016

What the 2016 BlackRock Letter Means for Shareholder Engagement and Disclosure Practices

Ethan A. Klingsberg is a partner in the New York office of Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb publication by Mr. Klingsberg and Elizabeth Bieber.

In February 2016, Blackrock CEO Laurence Fink issued his annual letter to the CEOs of S&P 500 companies. In addition to repeating themes from prior years (the value of long-termism and the need for more thoughtfulness before allocating capital to buybacks and special dividends), this year’s letter had one notable omission and four of areas of specific emphasis that merit the attention of boards and managements.

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Beyond Disclosure at the SEC in 2016

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s recent address at SEC Speaks; the complete text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

It is my pleasure to address the 45th annual “SEC Speaks” program—on the day after the Yankees’ pitchers and catchers reported to spring training, which is one way I mark this time of year. This event is another reminder of the season, an early-year conference for the staff, the private sector, and the Commissioners (present and former) to discuss current issues confronting the agency, investors, issuers, and the markets.

It is also a time to celebrate and recognize the tremendous efforts of our staff and those who have preceded them for their extraordinary public service to investors and our capital markets. Continuing a tradition, I would ask that every current member of the SEC staff please stand and be recognized. While the staff remains standing, let me ask that everyone who has ever served on the SEC staff or Commission, please also stand to be recognized. Think of these individuals when you think of the SEC’s important mission and public service at its finest.

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NASDAQ: Disclosure of Third-Party Director Compensation

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 and Yafit Cohn.

On January 28, 2016, NASDAQ filed a proposed rule with the Securities and Exchange Commission (“SEC”) that would require listed companies to disclose any compensation provided by a third party to the company’s directors or director nominees in connection with their candidacy for or service on the company’s board of directors. See SR-NASDAQ-2016-013 (Jan. 28, 2016).

As explained by NASDAQ in its proposal, undisclosed third-party compensation arrangements raise several concerns. First, “they may lead to conflicts of interest among directors and call into question their ability to satisfy their fiduciary duties.” Additionally, according to NASDAQ, such arrangements “tend to promote a focus on short-term results at the expense of long-term value creation.” NASDAQ believes that “enhancing transparency around third-party board compensation would help address these concerns and would benefit investors by making available information potentially relevant to investment and voting decisions.”

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Results of the 2015 Proxy Season in Silicon Valley

David A. Bell is a partner in the corporate and securities group at Fenwick & West LLP. This post is based on portions of a Fenwick publication titled Results of the 2015 Proxy Season in Silicon Valley; the complete survey is available here.

In the 2015 proxy season, most of the technology and life sciences companies included in the Silicon Valley 150 Index (SV 150) and the public companies in other industries included in the Bay Area 25 Index (BA 25) held annual meetings that included voting for the election of directors, ratifying the selection of auditors of the company’s financial statements and voting on executive officer compensation (“say-on-pay”). Increasingly in Silicon Valley annual meetings also include voting on other matters, such as proposals in compensation, governance, policy and other general business issues. All told, stockholders voted on 551 matters at the 144 annual meetings held by SV 150 companies (compared to 95 matters at 24 annual meetings of BA 25 companies). [1]

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The Effects of Takeover Defenses: Evidence from Closed-End Funds

Matthew Souther is Assistant Professor of Finance at the University of Missouri. This post is based on Professor Souther’s recent article, available here. Related research from the Program on Corporate Governance includes The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence, and Policy by Lucian Bebchuk, Charles C. Coates, and Guhan Subramanian; The Costs of Entrenched Boards by Lucian Bebchuk and Alma Cohen; and How Do Staggered Boards Affect Shareholder Value? Evidence from a Natural Experiment by Alma Cohen and Charles C. Y. Wang.

In the paper, The Effects of Takeover Defenses: Evidence from Closed-End Funds, forthcoming in the Journal of Financial Economics, I use a sample of closed-end funds to show that takeover defenses reduce firm value and promote entrenchment, allowing managers and directors to earn excess levels of compensation while protecting them from shareholder action. The defenses used by these funds are a subset of defenses available to general corporations; there are no “fund-specific” defenses. These funds have several unique characteristics, however, that make them an ideal setting for testing the implications of the use of defenses.

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North America’s Board Refreshment Challenge

Clare Payn is Head of Corporate Governance North America at Legal & General Investment Management. This post is based on a LGIM publication.

In the US, the board refreshment process is under scrutiny yet remains focused on retirement age limits. LGIM suggests a better way for US companies to refresh their boards.

Board term guidelines are scarce. Existing term limits are lengthy.

Board refreshment and director succession planning are key board tasks and the foundations of a well-functioning board. A board should remain relevant and diverse in terms of perspective, experience and skill sets. This ensures that the board can respond to risks and opportunities in order to sustain profit growth, maximize long term returns and guide the company successfully into the future.

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Board Decisions in Delaware M&A Transactions

Robert B. Little is partner in the Mergers and Acquisitions group at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn publication by Mr. Little, Chris Babcock, and Michael Q. Cannon. The complete publication, including footnotes, is available here. This post is part of the Delaware law series; links to other posts in the series are available here.

M&A practitioners are well aware of the several standards of review applied by Delaware courts in evaluating whether directors have complied with their fiduciary duties in the context of M&A transactions. Because the standard applied will often have a significant effect on the outcome of such evaluation, establishing processes to secure a more favorable standard of review is a significant part of Delaware M&A practice. The chart below identifies fact patterns common to Delaware M&A and provides a preliminary assessment of the likely standard of review applicable to transactions fitting such fact patterns. However, because the Delaware courts evaluate each transaction in light of the transaction’s particular set of facts and circumstances, and due to the evolving nature of the law in this area, this chart should not be treated as a definitive statement of the standard of review applicable to any particular transaction.

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SEC, Proxy Access, and Shareholder Engagement

Derek O. Zaba is a Principal and Sharo M. Atmeh is an Associate at CamberView Partners. This post is based on an article authored by Mr. Zaba & Mr. Atmeh. Related research from the Program on Corporate Governance includes 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).

On February 12, 2016, the SEC published 18 no-action letters related to proxy access, granting relief to 15 companies and denying relief to three on the basis of substantial implementation pursuant to Section 14a-8(i)(10) of the Securities Exchange Act. These no-action letters, read together, suggest that issuers may exclude proxy access shareholder proposals on the basis of substantial implementation if the issuer adopts a proxy access bylaw with reasonable terms within the bounds of current market practice. As discussed below, in order to appropriately gauge reasonableness of a bylaw (among other items) it is important that companies proactively engage their shareholders to understand and assess their views prior to action.

An examination of these no-action letters reveals three important points—

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Weekly Roundup: February 12–February 18


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This roundup contains a collection of the posts published on the Forum during the week of February 12, 2016 to February 18, 2016.







Political Activism and Firm Innovation




Delaware Companies with Non-Classified Boards

Philip Richter is a partner and Co-Head of the Mergers & Acquisitions Practice at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication by Mr. Richter, Brian Mangino, Robert C. Schwenkel, and Gail Weinstein. This post is part of the Delaware law series; links to other posts in the series are available here.

The Delaware Court of Chancery, in a transcript ruling in In re Vaalco Energy Shareholder Litigation (Dec.21, 2015), held that directors of companies without a classified board (i.e., boards that are elected annually) can be removed without cause, irrespective of provisions in the charter or bylaws purporting to permit removal of directors only for cause. Vice Chancellor Laster held that providing for removal of non-classified directors only for cause conflicts with a “plain reading” of Section 141(k) of the Delaware General Corporation Law (which provides that, unless the board is classified or the company has cumulative voting for directors, directors may be removed with or without cause).

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