Monthly Archives: September 2016

2016 Proxy Mid-Season Review

Heidi Welsh is Executive Director at the Sustainable Investments Institute (Si2). This post is based on a Si2 report.

The total number of environmental and social policy shareholder resolutions filed in 2016 dropped to 431, down from 465 in 2015. But 239 went to votes, more than ever before, and the final tally included nine majority votes (including two not opposed by management). However, the number of withdrawn proposals dropped to the lowest level of the decade, suggesting that proponents and companies are simply not agreeing as much as in the past. Combined with the high votes, this seems to set the stage for more confrontation about the hard questions of sustainability and corporate responsibility in the coming year, as investors and companies prepare for the 2017 proxy season.

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Ex-Ante Corporate Governance

George S. Geis is Vice Dean and William S. Potter Professor of Law at the University of Virginia School of Law. This post is based on a forthcoming article by Professor Geis. This post is part of the Delaware law series; links to other posts in the series are available here.

Who should make decisions for a corporation? And how should decisions about who makes decisions be made? These fundamental governance questions motivate much of corporate law, as lawmakers seek to strike a sensible balance of power between managers, shareholders, creditors, suppliers, and other players in the corporate system. Historically, much of the governance interplay has been retrospective. Shareholders expelled directors or sued their firms when something went wrong, not in anticipation that something bad might occur. Directors defended against (or, more likely, settled) questionable lawsuits as the cases arose; they did not enact structural incentives to discourage specious filings. Yet this is now changing: corporate governance tactics are increasingly shifting from the ex-post to the ex-ante. My new article, Ex-Ante Corporate Governance, explores this trend and illustrates how both shareholders and directors are turning to strategies that might shape the future balance of power instead of just reacting to historical concerns.

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Weekly Roundup: September 1–September 8, 2016


More from:

This roundup contains a collection of the posts published on the Forum during the week of September 1–September 8, 2016.

Venture Capital 2.0





Disclosure-Only Settlements in M&A Litigation


The Effect of Prohibiting Deal Protection in M&A: Evidence from the United Kingdom




Political Lending






Principles of Corporate Governance

The following post is based on a Business Roundtable publication.

Business Roundtable has been recognized for decades as an authoritative voice on matters affecting American business corporations and meaningful and effective corporate governance practices.

Since Business Roundtable last updated Principles of Corporate Governance in 2012, U.S. public companies have continued to adapt and refine their governance practices within the framework of evolving laws and stock exchange rules. Business Roundtable CEOs continue to believe that the United States has the best corporate governance, financial reporting and securities markets systems in the world. These systems work because they give public companies not only a framework of laws and regulations that establish minimum requirements but also the flexibility to implement customized practices that suit the companies’ needs and to modify those practices in light of changing conditions and standards.

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Thoughts on the Business Roundtable’s Principles of Corporate Governance

Michael W. Peregrine is a partner at McDermott Will & Emery LLP. This post is based on an article by Mr. Peregrine; his views do not necessarily reflect the views of McDermott Will & Emery or its clients.

In an important governance development, on August 3 the influential Business Roundtable (“BRT”) released a 2016 edition of its well-known “Governance Principles” monograph. The new BRT Principles follows closely on the heels of the July 21 release of the “Commonsense Principles of Corporate Governance” (“the Commonsense Principles”), by a diverse, twelve-member coalition of executives of major corporations, asset managers and one shareholder activist. The 2016 edition of the BRT Principles is an important contribution to governance discourse and, together with the Commonsense Principles, is valuable fodder for consideration by the board’s governance committee.

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The “Buy Side” View on CEO Pay

David Larcker is Professor of Accounting at Stanford Graduate School of Business. This post is based on a paper authored by Professor Larcker, Brian Tayan, Researcher with the Corporate Governance Research Initiative at Stanford Graduate School of Business, and Brendan Sheehan, Managing Director of Corporate Governance at Rivel Research Group.

Executive compensation is a highly controversial topic. Seventy percent of Americans believe that CEO compensation among large publicly traded corporations is a problem. [1] Twenty-five percent of directors believe that CEOs do not receive the correct level of pay based on the expected value of awards when they are granted; and 30 percent of directors believe that CEOs do not receive the correct level of pay based on what they actually realize when those awards vest. [2] Journalists, governance commentators, and proxy advisory firms also criticize pay levels and practices. Editorialists at The Economist call executive compensation “neither rigged nor fair,” arguing that while pay is a function of market forces, those forces are not efficient in setting pay levels relative to managerial value creation and average worker pay. [2] The head of a university corporate governance center believes that there is a “bias toward escalating pay each year, which … further decouples pay from performance.” [4] Proxy advisory firms Institutional Shareholder Services and Glass Lewis routinely recommend that shareholders vote against the proposed compensation plans of large U.S. companies as part of the annual “say on pay” voting process. [5]

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Ninth Circuit’s Approval of Compensation Clawback for Executives Not Engaged in Misconduct

The following post is based on a Davis Polk publication. Related research from the Program on Corporate Governance includes Excess-Pay Clawbacks by Jesse Fried and Nitzan Shilon (discussed on the Forum here); and Rationalizing the Dodd-Frank Clawback by Jesse Fried (discussed on the Forum here).

[On August 31, 2016], the Ninth Circuit issued an opinion in SEC v. Jensen. The court held that Rule 13a-14 of the Securities Exchange Act confirms that the SEC has a cause of action against CEOs and CFOs who sign false or misleading certifications. (Op. at 5, 24.) Importantly, the court also held that Section 304 of the Sarbanes-Oxley Act (“SOX 304”) allows the SEC “to seek disgorgement from CEOs and CFOs even if the triggering restatement did not result from misconduct on the part of those officers.” (Op. at 28 (emphasis added).) Although the SEC has taken this position in prior settlements, the Ninth Circuit is the first Court of Appeals to endorse the SEC’s interpretation.

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A New Vein of Liability: Limits on Director Compensation

Ed Batts is partner and co-head of the M&A and Private Equity groups at Orrick, Herrington & Sutcliffe LLP. This post is based on an Orrick publication and is part of the Delaware law series; links to other posts in the series are available here.

Compensation committees composed of independent outside directors were created as the check-and-balance guardians against management compensation engorgement. But as the Roman philosopher Cicero famously posed, “Who guards the guards?”

A few, relatively recent cases stemming from director compensation—most prominently involving outside directors at Citrix and Facebook—have opened up a new front for the Delaware plaintiff’s bar to seek fees in return for easily-implemented and relatively small governance changes.

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Political Lending

Ahmed Tahoun is Assistant Professor of Accounting at London Business School, and Florin P. Vasvari is Term Professor of Accounting at London Business School. This post is based on a recent paper authored by Professor Tahoun and Professor Vasvari.

In a new paper, Political Lending, we investigate a previously unexplored channel that could be used by firms to enhance the wealth of individual politicians: the amount and terms of the personal debt taken on by politicians and their close family members. Personal debt is economically significant as liabilities are close to 40% of the overall net worth of the average U.S. congressional member.

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The Diminishing Availability of Post-Closing Damages in Non-Controller M&A Transactions

Philip Richter is a partner and Co-Head of the Mergers & Acquisitions Practice and Warren S. de Wied is partner and member of the Mergers & Acquisitions Practice at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication by Mr. Richter, Mr. de Wied, Scott B. LuftglassAbigail Pickering Bomba, Philip Richter, Robert C. Schwenkel, and Gail Weinstein. This post is part of the Delaware law series; links to other posts in the series are available here.

Both Miami v. Comstock (Aug. 24, 2016) and Larkin v. Shah (Aug. 25, 2016) reflect the evolution of recent Delaware jurisprudence toward affording significantly greater deference to directors’ and stockholders’ decisions in non-controller transactions. In both cases, the Delaware Court of Chancery dismissed the plaintiffs’ post-closing actions for damages that were based on claims of breaches of fiduciary duties by the target board in connection with a public company merger. The court found, in each case, that the stockholder vote approving the merger was fully informed; found that the transaction did not involve a controller; applying the Delaware Supreme Court’s seminal 2015 Corwin decision, evaluated the claims under the business judgment rule standard of review; and dismissed the claims at the early pleading stage of litigation.

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