Monthly Archives: June 2016

Remarks on Optimizing the Equity Markets

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s remarks before the SEC Historical Society, 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.

Thank you, David [Lynn], for that kind introduction and for inviting me to your annual meeting. It is truly my privilege and honor to serve as Chair of the Commission, and it is wonderful to share the room and microphone today [June 2, 2016] with my friend and former Chairman Richard Breeden along with others who, from firsthand experience, deeply appreciate the value of the SEC as a critical institution with a long heritage of protecting investors and our markets. At the Commission, our history informs who we are and the work we do, and it is our great, good fortune that we have the SEC Historical Society to preserve that rich history.


Reassessing the Distinction Between Corporate and Securities Law

James J. Park is Professor of Law at the UCLA School of Law. This post is based on a recent article by Professor Park.

For some time, there has been a rough separation between corporate and securities law in the United States. According to the conventional account, securities law requires public companies to make disclosures to investors while corporate law sets forth substantive norms regulating the internal affairs of the corporation. This distinction provides the foundation for a dual regulatory system of federal securities law and state corporate law. My article, Reassessing the Distinction Between Corporate and Securities Law (forthcoming in the UCLA Law Review), sets forth a new way of understanding the difference between corporate and securities law.


Weekly Roundup: May 27–June 2, 2016

More from:

This roundup contains a collection of the posts published on the Forum during the week of May 27–June 2, 2016.

CFPB and Class Action Arbitration

Fed, FDIC, and “Not Credible” Resolution Plans

Divorce, Wall Street Style

Daniel E. 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.

Taking a page from the Hollywood tabloids, recent deal press has been overtaken by a stream of reported breakups, real or speculated. With The Wall Street Journal recently citing broken deal values in excess of $300 billion so far in 2016, we take a closer look at the M&A environment to look for any macro trends that may be contributing to these record numbers.

Before identifying any trends, it is worth pausing to note that deals with a range of very different fact patterns are being grouped under the broad heading of “broken” deals. Many of the “busted” transactions featured in the headlines are either unsolicited offers that are subsequently withdrawn or deals or offers that are withdrawn due to a topping bid. These “withdrawn” deals are part of the ordinary churn of the M&A market, particularly one that may have hit peak activity and value levels.

How the Financial System Fails Us and How To Fix It

Stephen Davis is associate director and a senior fellow at the Harvard Law School Program on Corporate Governance. This post is based on the new book by Davis, Jon Lukomnik, and David Pitt-Watson, What They Do With Your Money: How the Financial System Fails Us and How to Fix It (Yale University Press).

“Where were the directors?” is the plea often heard in the wake of corporate failure. [1] Critics will also ask “Where were the shareholders?”, by which they typically mean institutional investors. [2] But observers usually ignore an equally important question: Where were the beneficiaries? Statutes, regulations and codes around the world have sequentially addressed the duties of corporate managers, the responsibilities and structure of boards of directors, and optimum stewardship behavior by institutional investors. But the governance ecosystem includes few parallel efforts to generate guidance, safeguards or incentives to animate retail savers as a force in corporate governance. This would seem perverse since, in the US alone, an estimated 92 million Americans entrust retirement and other capital to investing institutions, and would presumably have a powerful interest in ensuring that their nest eggs are deployed at portfolio companies in ways that promote value over the long term. However, structural barriers have impeded accountability of institutional investors to beneficiaries, making it difficult for retail savers to police the stewardship behavior of their agents in respect of investee companies. Such barriers have roots in law, regulation and commercial practice that have failed to keep pace with market change. But with hostility to Wall Street a recurring theme across political parties in the US presidential campaign, prudent remedial steps may be in sight.

ISS 2016 Board Practices Study

Carol Bowie is Head of Americas Research at Institutional Shareholder Services (ISS). This post is based on a recent publication authored by ISS U.S. Research analysts Andrew Borek, Liz Williams, and Rob Yates. Information on how to obtain the full report is available here.

ISS’ latest update of the structure and composition of boards and individual director attributes at Standard & Poor’s U.S. “Super 1,500” companies (i.e., companies in the S&P 500, MidCap 400, and SmallCap 600 indices) found a number of new and continuing trends in board practices and director attributes at these key index companies.

The Buffett Essays Symposium: Annotated 20th Anniversary Transcript

Lawrence Cunningham is the Henry St. George Tucker III Research Professor of Law at the George Washington University Law School. This post is based on Mr. Cunningham’s recently published book, The Buffett Essays Symposium: Annotated 20th Anniversary Transcript.

Warren Buffett spoke from the front row about director stewardship: “As a stockholder, I’m really only interested in the board accomplishing two ends. One is to get a first class manager and the second is to intervene in some way when even that first class manager will have interests that are contrary to the interests of the owners.”

The occasion was a 1996 symposium I hosted with Warren, and his business partner Charlie Munger, featuring Buffett’s letters to Berkshire shareholders, which I had rearranged thematically in The Essays of Warren Buffett: Lessons for Corporate America.

SEC, Financial Reporting, and Financial Fraud

Paul A. Ferrillo is counsel at Weil, Gotshal & Manges LLP specializing in complex securities and business litigation. This post is based on a Weil publication by Mr. Ferrillo, Robert F. Carangelo, and Andrew Cauchi; the complete publication, including footnotes, is available here.

For those who have been through multiple business cycles, the SEC’s recent focus on financial fraud and accounting irregularities is nothing new. While there have been periods of time during which the SEC focused on financial fraud, there are also intervals when other issues are more prominent, like the most recent financial crisis.

Nevertheless, it appears that the SEC is once again paying increased attention to financial reporting cases. In 2015, the SEC brought enforcement cases against 191 parties (in contrast to 128 parties in 2014), a significant increase over prior years. Simply scanning the list of settled enforcement cases supports SEC Chair White’s recent statement that the SEC “has reinvigorated its investigative and enforcement efforts” in this area, and is closely scrutinizing “the gatekeepers of financial reporting, continuing to hold accountants, auditors, and audit committees accountable under appropriate circumstances.”


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