Monthly Archives: March 2016

Do Compensation Disclosures Matter for Say-on-Pay Voting?

Lakshmanan Shivakumar is Professor of Accounting at London Business School. This post is based on an article authored by Professor Shivakumar and Tathagat Mukhopadhyay, Doctoral Candidate in Accounting at London Business School. Related research from the Program on Corporate Governance includes the book Pay without Performance: The Unfulfilled Promise of Executive Compensation, by Lucian Bebchuk and Jesse Fried.


Concerns about executive pay packages have been raised by market participants and media for nearly the last three decades and, more recently, executive pay structures incentivizing risk-taking have been pointed out as a major cause for the 2008 financial crisis. In response to these concerns, the Securities and Exchange Commission (SEC) adopted a two pronged approach to both better inform investors about executive compensation decisions as well as to give shareholders a say on executives’ pay. While the former was implemented in 2006 by requiring firms to provide detailed executive compensation-related disclosures in definitive proxy materials, the latter approach was introduced through the mandatory “Say on Pay” (SoP) voting requirement introduced in 2011. Many prior studies examine the effectiveness of SoP, but so far we know very little about the usefulness of compensation-related proxy disclosures. In our paper, Do Compensation Disclosures Matter for Say-on-Pay Voting?, which was recently made public via SSRN, we directly examine the influence of such disclosures on the SoP voting decisions of stock market participants.


Chancery Court Criteria for Determining “Control”

Jason M. Halper is a partner in the Securities Litigation & Regulatory Enforcement Practice Group at Orrick, Herrington & Sutcliffe LLP. This post is based on an Orrick publication by Mr. Halper, Peter J. Rooney, and Gregory Beaman. This post is part of the Delaware law series; links to other posts in the series are available here.

On February 29, 2016, the Delaware Court of Chancery denied a motion to dismiss fiduciary duty claims against certain current and former directors of Halt Medical and a 26% stockholder, American Capital, arising out of a transaction that was allegedly designed to “squeeze out” minority stockholders. See Calesa Associates, L.P. v. American Capital, Ltd., C.A. No. 10557-VCG. Vice Chancellor Glasscock found that the plaintiffs had adequately alleged that American, despite owning only 26% of the company’s shares, exercised sufficient influence over the Halt Medical board such that it and certain affiliates could be deemed “controlling stockholders” owing fiduciary duties to other stockholders. Among other things, the decision in Calesa reaffirmed that majority stock ownership is not the sole criterion for determining “control.” The decision also sounded a cautionary note, however, by suggesting that, where plaintiffs remain minority stockholders in the company after the allegedly dilutive transaction at issue, they must plead demand futility even where, as here, only direct claims are asserted, or face dismissal at the pleading stage.


Conflicted Voting by Shareholders in Hostile M&A Deals

Matteo Gatti is Associate Professor of Law at Rutgers Law School. This post is based on an article authored by Professor Gatti. This post is part of the Delaware law series; links to other posts in the series are available here. Related research from the Program on Corporate Governance includes The Case Against Board Veto in Corporate Takeovers by Lucian Bebchuk.

Takeovers have historically kept corporate scholars very busy. Yet, to date, a very relevant topic—conflicted voting by shareholders in connection with a hostile acquisition—has surprisingly received little attention. My paper, It’s My Stock and I’ll Vote If I Want to: Conflicted Voting by Shareholders in (Hostile) M&A Deals, represents a primer to organically analyze instances in which shareholder conflicts might lead to inefficient acquisition outcomes.


FdG Logistics: Merger Anti-Reliance Provisions

Steven J. Steinman is partner and co-head of the Private Equity Transactions Practice at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Mr. Steinman, Aviva F. Diamant, Christopher Ewan, and Gail Weinstein. This post is part of the Delaware law series; links to other posts in the series are available here.

In FdG Logistics v. A&R Logistics (Feb. 23, 2016), the Delaware Court of Chancery held that an anti-reliance provision in a merger agreement is not effective if it is drafted solely “from the point of view” of the seller rather than the buyer.

An anti-reliance provision is intended to convey that, in determining to proceed with an acquisition, the buyer has relied only on the selling parties’ representations and warranties that are expressly set forth in the acquisition agreement, and has not relied on any other statements made or information provided (or omitted) by the selling parties, whether during due diligence or otherwise. As was confirmed recently in the court’s November 2015 Prairie Capital decision, an effective anti-reliance provision will bar a buyer from bringing post-closing fraud claims based on extra-contractual information (even if the agreement excluded fraud claims from the provision stating that indemnification would be the exclusive remedy and even if the extra-contractual information provided was indeed fraudulent). If the anti-reliance provision is effective, the only fraud claim that would be viable would be for fraud intrinsic in the contract—that is, for an intentional misrepresentation or omission in the representations and warranties.


Tenure Voting and the U.S. Public Company

David J. Berger is a partner at Wilson Sonsini Goodrich & Rosati. This post is based on a recent white paper authored by Mr. Berger, Steven Davidoff Solomon, and Aaron Jedidiah Benjamin.

In today’s capital markets the principle of one share, one vote is increasingly under scrutiny. The rise of high-vote and no-vote stock has created a popular alternative for companies at the initial public offering stage. According to Dealogic, approximately 14% of IPOs in the past year used some form of dual-class stock, compared to only 1% in 2005. Prominent companies with a separate class of high-vote stock include Alibaba, Facebook, Ford, Google (now Alphabet), and Square.

In the paper Tenure Voting and the U.S. Public Company, co-authored with U.C. Berkeley Law Professor Steven Davidoff Solomon and my colleague Aaron Jedidiah Benjamin, we examine “tenure voting” as an alternative to the prevailing one share, one vote and dual-class models. Tenure voting is the award of an additional number of votes to shareholders depending upon the duration of their ownership.


NYSE Rule on Reporting by Foreign Private Issuers

Stuart H. Gelfond is a partner in the Corporate Department at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication authored by Mr. Gelfond and Hayley S. Cohen.

Effective February 19, 2016, the New York Stock Exchange LLC (“NYSE”) adopted a new rule to the NYSE Listed Company Manual (the “Manual”). [1] The new rule requires that foreign private issuers (“FPIs”) submit a Form 6-K to the Securities and Exchange Commission (“SEC”) that, at a minimum, includes (i) an interim balance sheet as of the end of its second fiscal quarter and (ii) a semi-annual income statement that covers its first two fiscal quarters. This Form 6-K will be required to be submitted no later than six months following the end of the company’s second fiscal quarter. The financial information must be presented in English, but will not be required to be reconciled to U.S. generally accepted accounting practices. The new rule will be effective beginning with any fiscal year beginning on or after July 1, 2015. Therefore, the earliest semi-annual period with respect to which a company would be required to furnish a Form 6-K under the rule would be for the six months ended December 31, 2015. [2] This means that any listed company would have at least until June 30, 2016 to file the Form 6-K, with the required semi-annual data, under the new rule.


Remarks at ABS Vegas 2016

Michael S. Piwowar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Piwowar’s recent remarks at ABS Vegas 2016. The complete publication, including footnotes, is available here. The views expressed in the post are those of Commissioner Piwowar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

ABS Vegas is a unique conference, bringing together issuers, investors, credit rating agencies, law firms, accounting firms, and other service providers. A properly functioning securitization market requires robust participation from all involved. Listening to the comments from a number of the panelists at this conference has been quite enlightening and I particularly appreciate the fact that diverse points of views are represented.

Before I proceed further, I need to correct a few misperceptions about SEC participation at this conference that were perpetuated by the recent film, The Big Short. First, none of us have been lounging out by the pool. Second, none of us are seeking any jobs with investment banks. And, finally, because Las Vegas is full of security cameras watching our every move, I will not be literally walking through any revolving doors while I am here.


SEC Responses to Challenged Proxy Access Proposals

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. 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 Staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (“SEC”) issued responses to 18 no-action requests from issuers that sought to omit proxy access shareholder proposals from their proxy materials on the ground that they had substantially implemented the proposal under Rule 14a-8(i)(10). [1] The Staff granted no-action relief to 15 companies but denied relief to three companies whose proxy access bylaw provisions contained a higher eligibility threshold than that requested in the shareholder proposal.


Weekly Roundup: February 26-March 3

More from:

This roundup contains a collection of the posts published on the Forum during the week of February 26, 2016 to March 3, 2016.

2015 CPA-Zicklin Index of Corporate Political Disclosure

Demise of the Small IPO and the Investing Preferences of Mutual Funds

Compensation Disclosure in the Upcoming Proxy and CD&A

John R. Ellerman is a founding Partner of Pay Governance LCC. The following post is based on a Pay Governance memorandum by Mr. Ellerman and Lane T. Ringlee. Related research from the Program on Corporate Governance includes Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here).

Proxy executive compensation and Compensation Discussion & Analysis (CD&A) disclosure is principally based upon a one-year look back at executive compensation forms, levels, policies, and practices. In addition, the proxy tables and schedules which disclose the historical pay forms and levels for the Named Executive Officers (NEOs) are fixed in format and do not allow for any flexibility in reporting NEO compensation beyond that which is prescribed by the Securities and Exchange Commission (SEC). In recent years, several “one-time” best practices in CD&A disclosure have emerged as current common practice—executive summaries in the CD&A including summary of philosophy, pay design, governance practices, and CEO pay versus performance; use of realizable or realized pay; and expanded disclosure of individual pay decisions.

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