Daily Archives: Tuesday, September 20, 2016

Buybacks and the Board: Director Perspectives on the Share Repurchase Revolution

Posted by Richard Fields, Tapestry Networks, on
Tuesday, September 20, 2016
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Richard Fields is a Principal at Tapestry Networks. This post is based on the executive summary of a publication by Tapestry Networks and the IRRC Institute authored by Mr. Fields.

To learn how companies make decisions about share repurchases, Tapestry Networks interviewed 44 directors serving on the boards of 95 publicly traded US companies with an aggregate market capitalization of $2.7 trillion. The complete publication (available here) synthesizes these directors’ views and broader research on repurchase programs.

Report highlights include:

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Federal Court’s Denial of Excessive Fee Claims on Mutual Fund “Manager of Managers” Theory

Posted by John Donovan, Ropes & Gray LLP, on
Tuesday, September 20, 2016
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John Donovan is partner in the litigation department at Ropes & Gray LLP. This post is based on a Ropes & Gray publication by Mr. Donovan, Robert Skinner, and Amy Roy.

On August 25, a federal court in the District of New Jersey issued a much-anticipated decision, finding after a lengthy trial that shareholder plaintiffs failed to prove claims that AXA entities had charged excessive mutual fund management fees in violation of Section 36(b) of the 1940 Act. In the first case to proceed to trial since the U.S. Supreme Court established the legal standard for these claims in its landmark 2010 decision in Jones v. Harris Associates L.P., the New Jersey trial court held in the defendants’ favor on all claims relating to twelve mutual funds operating in a “manager of managers” structure. The plaintiffs’ central theory of liability—mirrored in several other pending cases across the industry—is that AXA improperly retained a significant portion of the management fees despite delegating virtually all of the management responsibilities to external sub-advisers. Based on review of extensive documents and testimony, Judge Peter G. Sheridan rejected the premise of this theory, finding that there was ample evidence that AXA retained responsibility for a range of management services and bore significant risks in its role as fund sponsor and adviser.

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Shareholder Approval in M&A

Posted by Tingting Liu, Creighton University, on
Tuesday, September 20, 2016
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Tingting Liu is Assistant Professor at Creighton University. This post is based on a recent paper by Professor Liu; Kai Li, W.M. Young Chair in Finance at University of British Columbia Sauder School of Business; and Juan (Julie) Wu, Assistant Professor of Finance at University of Nebraska at Lincoln.

Modern corporations are characterized by the separation of ownership and control, thus shareholder engagement in important corporate decisions is fundamental to the governance process. Despite its importance, evidence on the role of shareholder engagement in one of the most important corporate decisions—mergers and acquisitions (M&As) is limited and mixed. Our paper provides one of the first large sample studies documenting a positive causal effect of shareholder approval on corporate M&As.

In general, it is difficult to find a setting in which a firm’s governance structure changes exogenously. The challenge faced by many empirical studies is the endogeneity of a firm’s governance structure. For example, acquirers whose deals require shareholder approval may be fundamentally different from those whose deals do not require shareholder approval. A simple comparison of these two groups of acquirers only suggests possible association between shareholder approval and deal quality, but does not establish causality.
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