Monthly Archives: March 2016

Gender Diversity on Boards: The Future Is Almost Here

David A. Katz is a partner and Laura A. McIntosh is a consulting attorney at Wachtell, Lipton, Rosen & Katz. The following post is based on an article by Mr. Katz and Ms. McIntosh that first appeared in the New York Law Journal. The complete publication, including footnotes, is available here.

A board composed of directors representing a range of perspectives leads to an environment of collaborative tension that is the essence of good governance. In a room where everyone has different points of view and there is a greater opportunity for cross-pollination of ideas, there are fewer unspoken assumptions, less “group think” and a greater likelihood of innovation. This allows the board to ask the probing questions and tackle the challenging issues, such as risk management and succession planning, which are at the center of good corporate governance. [1]

Gender diversity on public company boards—and meaningful participation by women directors in the boardroom—is steadily increasing. Although the number of women on boards in the United States is growing more slowly than in some other countries, there has never been such consensus and collective effort toward gender diversity at the upper echelons of corporate America. A combination of regulatory, legislative, and investor-driven efforts is likely to accelerate the progress that has been made to date toward greater gender diversity and perhaps, one day, gender parity.

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Weekly Roundup: March 18-March 24


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This roundup contains a collection of the posts published on the Forum during the week of March 18, 2016 to March 24, 2016.





Harvard Convenes the 2016 Corporate Governance Roundtable








Activist Investors, Cash, and Capital Allocation

Paula Loop is Leader of the Governance Insights Center at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Ms. Loop, Catherine Bromilow, Don Keller, Terry Ward, and Paul DeNicola. The complete publication, including Appendix, 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), and The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here).

US companies are holding record sums of cash on their balance sheets. In fact, the total cash balance of S&P 500 companies was $1.45 trillion at the end of the third quarter of 2015, representing a 5.8% increase year-over-year. While this phenomenon indicates robust balance sheet health, it also raises questions about the best way to use this liquidity. And these challenges stimulate provocative questions and discussions about the most prudent use of company resources—taking into account different stakeholders’ expectations, the company’s individual circumstances, and the overall economic environment. Ultimately, companies need an effective capital allocation strategy that is well thought-out, linked to their overall strategy, and clearly communicated. And a key element of this capital allocation strategy is whether, and/or how, cash is returned to shareholders.

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A Guide To Rule 10b5-1 Plans

Stuart H. Gelfond is a partner in the Corporate Department and Arielle L. Katzman is an associate at Fried, Frank, Harris, Shriver & Jacobson, LLP. This post is based on a Fried Frank publication authored by Mr. Gelfond and Ms. Katzman that was originally published on Insights, available here.

Given the SEC’s increased focus on insider trading by executives and the complicated determinations needed to decide if an executive or director has material non-public information, it is anticipated that the use of Rule 10b5-1 plans will continue to grow. Companies and their executives carefully should consider the benefits, and the shortfalls, of these plans.

Stock is routinely an important part of public company compensation, but insider trading restrictions (e.g., blackout periods and exposure to material non-public information (MNPI)), can pose a significant challenge to selling corporate stock. Rule 10b5-1 of the Securities and Exchange Commission (SEC) presents a valuable solution to such a dilemma, but there are nuances that need to be understood. Internal and external legal counsel should be familiar with the terms and application of the rule, which covers more situations than the common scenario.

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An Important British Version of a New Paradigm for Corporate Governance

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. 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). Critiques of the Bebchuk-Brav-Jiang study by Wachtell Lipton, and responses to these critiques by the authors, are available on the Forum here.

The leading British institutional investors, acting through The Investment Association and with the encouragement and participation of the British government, today issued a report detailing steps that the investors will take, and encouraging the UK listed companies they invest in to take, to curtail short-termism and encourage long-term investment.

While broader in scope and more definitive than the statements by major U.S. institutional investors, which I have termed a “new paradigm for corporate governance,” the British plan reflects in principle much of the new paradigm. However, the British plan properly focuses mostly on what should be done by the investors to encourage long-term investment by companies, rather than on what companies should do to obtain the support of investors. This is reflected in the following paragraphs:

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2016 IPO Study

Julie M. Allen is Partner in the Corporate Department and co-head of the Capital Markets Group at Proskauer Rose LLP. This post is based on the Executive Summary of a Proskauer publication; the complete publication, including extensive analysis of multiple industry sectors, is available here.

This post is based on the third edition of Proskauer’s IPO Study. In the complete publication, you’ll find our analysis of market practices and trends for U.S.-listed initial public offerings (IPOs). Our proprietary database and analyses now cover 309 IPOs that priced between 2013 and 2015.

The 2015 IPO Market

Entering 2015, we were cautiously optimistic about the U.S. IPO market. [1] We saw 74 IPOs price in the first half of 2015—a decrease from the same period in 2014, but similar in number to the start of 2013. Of these 74 IPOs, 54 priced in the second quarter of 2015. The second half of 2015 saw a fall-off in volume primarily due to market volatility, driven by interest rate speculation, geopolitical risks with Greece and China, significant distress on oil prices and the energy and power (E&P) sector, and poor performance by IPOs priced in the first half of 2015. As a result, only 51 IPOs priced in the second half of 2015—the lowest deal count during any year’s second half since 2012.

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SEC Chair on PCAOB Oversight and 2016 Budget Approval

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s remarks at a recent open meeting of the SEC, 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.

Good morning. This is an open meeting of the U.S. Securities and Exchange Commission on March 14, 2016 under the Government in the Sunshine Act. Today, the Commission will consider the staff’s recommendation to approve the proposed FY 2016 budget and accounting support fee for the Public Company Accounting Oversight Board. The Commission has the authority and responsibility, under the Sarbanes-Oxley Act, for overseeing the PCAOB and approving the PCAOB’s annual budget and accounting support fee. I am pleased that we have Chairman Jim Doty, as well as other Board members and staff of the PCAOB, here with us today as we take up these matters.

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SEC Consideration of 2016 PCAOB Budget and Support Fee

Kara M. Stein is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Stein’s recent remarks at an open meeting of the SEC, available here. The views expressed in this post are those of Commissioner Stein and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Over a decade ago, a series of sensational accounting scandals exposed severe weaknesses in our accounting and financial reporting system. Ultimately, a number of large companies collapsed after revelations about their fictitious accounting. This raised concerns about the public’s confidence in financial reporting, in the capital markets, and particularly, regarding the role of the public’s gatekeepers, the auditors. Nine months after Enron’s financial misdeeds were first reported, and weeks after the WorldCom scandal became public, Congress passed the Sarbanes-Oxley Act of 2002. [1]

The Sarbanes-Oxley Act, among other things, created a new organization called the Public Company Accounting Oversight Board (PCAOB). The PCAOB was created to provide external, and independent, oversight of the auditors of U.S. public companies. When establishing the PCAOB, Congress vested the Commission with the authority to both review and approve the PCAOB’s rules, standards, and budget. [2]

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2016 Proxy Season Preview

Shirley Westcott is a Senior Vice President at Alliance Advisors LLC. This post is based on an Alliance Advisors whitepaper. The complete publication, including footnotes, is available here.

The 2016 proxy season is shaping up to be another milestone year for proxy access. The sheer volume of proposals—at close to 200—has well surpassed 2015 levels and continues to spark a tidal wave of corporate adoptions. In addition to the New York City Comptroller’s Boardroom Accountability Project, now in its second year, individual investors have stepped up their proxy access filings while cutting back on some of their longstanding initiatives, such as independent board chairs and special meeting and written consent rights.

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Harvard Convenes the 2016 Corporate Governance Roundtable

The Harvard Law School Program on Corporate Governance and the Harvard Law School Program on Institutional Investors convened the Harvard Roundtable on Corporate Governance last Wednesday, March 16. The event brought together for a roundtable discussion seventy-nine prominent experts with a wide range of perspectives on this subject, including those of investors, issuers, advisors, academics, and public officials. Participants in the event, and the topics of discussion, are set out below.

The Roundtable, which was co-organized by Lucian Bebchuk, Stephen Davis, and Scott Hirst, was supported by a number of co-sponsors (listed here), the supporting organizations of the Program on Corporate Governance (listed on the program site here), and the institutional members of the Harvard Institutional Investor Forum (listed here).

The Roundtable sessions focused on current issues in corporate governance, including those likely to arise in the upcoming proxy season. The Roundtable began with a discussion of board election arrangements, including issues of proxy access and universal ballots. The discussion then moved on to consider shareholder rights to participate in corporate decision-making. Topics discussed ranged from poison pills, rights to call a special meeting, and rights to submit shareholder proposals. The Roundtable then discussed issues related to board composition and leadership, board diversity and refreshment, and the separation of chairman and CEO. Finally, participants considered issues related to political spending and social responsibility resolutions.

The participants in the 2016 Harvard Roundtable on Corporate Governance included:

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