Monthly Archives: March 2016

The Money Problem: Rethinking Financial Regulation

Morgan Ricks is Associate Professor of Law at Vanderbilt Law School. This post is based on a book authored by Professor Ricks.

In my book, The Money Problem: Rethinking Financial Regulation, recently published by the University of Chicago Press, I offer a novel take on the “shadow banking” problem—arguably the central challenge for modern financial stability policy. I contend that financial instability is, and always has been, largely a problem of monetary system design. Structural monetary reform could pave the way for a dramatic reduction in the scope and complexity of modern financial stability regulation.


Shareholder Activism & Engagement 2016

Arthur F. Golden is the senior partner at Davis Polk & Wardwell LLP. This post is based on the introduction to a Davis Polk publication by Mr. Golden, Thomas J. Reid, and Laura C. Turano, and is reproduced with permission from Law Business Research Ltd. This article was first published in Getting the Deal Through: Shareholder Activism & Engagement 2016 (published in January 2016; contributing editors: Arthur F. Golden, Thomas J. Reid, and Laura C. Turano, Davis Polk & Wardwell LLP). The complete publication is publicly available here until April 6, 2016; for further information, please visit

At the end of another record-breaking year for shareholder activism activity, it is appropriate that we ring in the publication of this, the inaugural edition of Shareholder Activism & Engagement, part of the Getting the Deal Through series. We are pleased to serve as editors of this volume because we believe that shareholder activism is and will remain in sharp focus in financial markets, in the C-suite and in the boardroom, and that shareholder engagement is, and will continue to be, a leading and increasingly sophisticated priority. The international approach of the Getting the Deal Through series is especially apt for this topic, which we expect to become increasingly global over time, with ‘imports’ and ‘exports’ of shareholder activism and engagement between jurisdictions. Although the United States remains its dominant market, such activism and a heightened sensitivity to shareholder engagement is truly a global phenomenon.


Proxy Disclosure Recommendations

Steven B. Stokdyk and Joel H. Trotter are global Co-Chairs of the Public Company Representation Practice Group at Latham & Watkins LLP. This post is based on an article by Mr. Stokdyk, Mr. Trotter, Erica S. Koenig, Jean F. Meraz-Debraine, Brian Miller, and Regina Schlatter.

In February 2016, the SEC warned that among a broad selection of companies, poorly-drafted, ambiguous and sometimes incorrect proxy disclosure for the method by which votes will be counted for director elections may necessitate new, tougher disclosure rules. [1] This post offers guidance on how to avoid the most common proxy drafting pitfalls and provides tips on drafting disclosure that is both precise and compliant with proxy rules.


Foreign Private Issuers and NYSE Financial Reporting Requirements

Avrohom J. Kess is partner and head of the Public Company Advisory Practice and Yafit Cohn is an associate at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher memorandum by Mr. Kess and Ms. Cohn.

On February 5, 2016, the New York Stock Exchange (“NYSE”) filed with the Securities and Exchange Commission (“SEC”) a proposed rule change that would require listed foreign private issuers to submit a Form 6-K to the SEC with unaudited financial information at least semi-annually. [1] On February 19, 2016, the SEC designated the proposed rule change “operative upon filing,” waiving the 30-day operative delay typically associated with proposed rule changes by self-regulatory organizations. [2]


Deposit Calculations on Demand

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. The complete publication, including appendix, is available here.

The FDIC has resolved hundreds of banks since the crisis, in nearly all cases making insured deposits available to the failed bank’s customers by the next business day. Although US depositors have come to rely on the efficiency and seamlessness of this process, the work that goes on behind the scenes to determine exactly which deposits are insured (and for how much) can be very complex.

To facilitate this process, the FDIC proposed a rule last month that would create new recordkeeping requirements for its 36 largest supervised banks. [1] Originally released last April as an Advanced Notice of Proposed Rulemaking (“ANPR”), the proposal is largely consistent with the ANPR and essentially shifts the responsibility of calculating deposit insurance payouts from the FDIC to the banks, in order to help ensure a timely payout to depositors if a bank fails.


Antitrust Enforcement of Small Acquisitions

Nathaniel L. Asker is counsel in the Antitrust and Competition practice at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication by Mr. Asker, Barry A. Nigro Jr., and Aleksandr B. Livshits.

Last month, the Federal Trade Commission challenged a $5 million acquisition in the pharmaceutical industry. The FTC’s challenge serves as a reminder that no deal is too small to generate scrutiny from the U.S. antitrust agencies. During the Obama administration, the FTC and Department of Justice have devoted significant resources to investigating and challenging transactions that are not subject to the reporting requirements of the Hart-Scott-Rodino Act, including consummated transactions. [1] The FTC’s latest challenge shows that a low purchase price or the lack of an HSR filing obligation does not exempt a transaction from antitrust scrutiny.


Weekly Roundup: March 4-March 10

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This roundup contains a collection of the posts published on the Forum during the week of March 4, 2016 to March 10, 2016.

Facebook Settlement: Litigation Over Director Compensation

David E. Gordon is a Managing Director in the Los Angeles office of Frederic W. Cook & Co., Inc. This post is based on a FW Cook publication authored by Mr. Gordon and Bindu M. Culas.

Executive compensation experts were unpleasantly surprised by the settlement in late January of Espinoza v. Zuckerberg, a case challenging the reasonableness of stock awards to Facebook’s non-employee directors. [1] The facts surrounding this settlement create concern that unless a company has a shareholder-approved plan with meaningful limits on both the cash and equity compensation that can be awarded to non-employee directors in a year, it faces a risk of being sued, particularly where the actual amount of compensation gives plaintiffs’ lawyers a credible argument that pay is “above market.”

There are several reasons why Espinoza is concerning. First, the amount of the allegedly “excessive” compensation did not seem particularly large. Second, the plaintiff’s lawyers are expected to receive attorneys’ fees of $525,000 even though it appears highly likely that Facebook would have eventually prevailed because its controlling shareholder approved the transaction. Last, the settlement can be read to require a shareholder vote every time there is an increase in director pay, thus creating a precedent of a “Say-on-Director-Pay” standard. It should be noted that Frederic W. Cook & Co. has no knowledge of the facts in Espinoza outside the public filings.


Obstructing Shareholder Coordination in Hedge Fund Activism

Nicole Boyson is Associate Professor of Finance at Northeastern University. This post is based on an article authored by Professor Boyson and Pegaret Pichler, Assistant Professor of Finance at Northeastern University. 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), The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here), The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here), and Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon Brav, Robert J. Jackson Jr., and Wei Jiang.

Many hedge funds follow a strategy of shareholder activism, acquiring a block of shares and then campaigning for changes in the target firm. Numerous studies have presented evidence that these campaigns can lead to both short- and long-run improvements in the values of target firms. In our paper, Obstructing Shareholder Coordination in Hedge Fund Activism, which has recently been made publicly available on SSRN, we examine hedge fund activism from a novel perspective. While prior literature has focused on the actions taken by the hedge fund activist in an attempt to increase firm value, it is silent on the impact of target firm defenses in response to activism. We attempt to fill this gap by examining defensive actions that target firms take in response to activism, with a particular focus on actions that impede coordination among shareholders.


The 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. 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.

In my February 1, 2016 note, The New Paradigm for Corporate Governance, I called attention to the growing evidence that the leading institutional investors were developing a new paradigm for corporate governance. In the new paradigm, these institutions would engage with a company and its independent directors to understand its long-term strategy and ascertain that the directors participated in the development of the strategy, were actively monitoring its progress and were overseeing its execution.

In a February 26, 2016 letter to board members, State Street Global advisors said:

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