Monthly Archives: October 2016

Social Responsibility Resolutions

Scott Hirst is a Lecturer on Law at Harvard Law School and Associate Director of the Harvard Law School Program on Corporate Governance. This post is based on a recent article by Dr. Hirst, forthcoming in the Journal of Corporation Law.

Shareholders exert significant influence on the social and environmental behavior of U.S. corporations. Shareholders vote on social responsibility resolutions that are put forward at corporations; their success or failure influences the social and environmental behavior of those corporations. The largest shareholders are institutional investors—mutual funds, investment advisers and pension funds. When they vote on social responsibility resolutions, they do so as fiduciaries for their own investors. In a new article, Social Responsibility Resolutions, forthcoming in the Journal of Corporation Law, I consider two questions: Do the votes of institutions on social responsibility resolutions follow the interests of their own investors? And do the votes of institutions on social responsibility resolutions follow the preferences of their own investors? I put forward evidence that many may not, and consider whether this is a problem, and if so, how it could be addressed. The stakes are high: if institutional investors voted on social responsibility proposals as their own investors preferred, corporate behavior on social and environmental matters might be much closer to what investors, and society, would prefer.

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CEO and Executive Compensation Practices: 2016 Edition

Matteo Tonello is Managing Director at The Conference Board, Inc. This post relates to CEO and Executive Compensation Practices: 2016 Edition, an annual benchmarking report authored by Dr. Tonello with Paul Hodgson of BHJ Partners and James Reda of Arthur J. Gallagher & Co. For details regarding how to obtain a copy of the report, contact matteo.tonello@conference-board.org

The Conference Board, in collaboration with Arthur J. Gallagher & Co. and MylogIQ, recently released CEO and Executive Compensation Practices: 2016 Edition, which documents trends and developments on senior management compensation at companies issuing equity securities registered with the US Securities and Exchange Commission (SEC) and, as of May 2016, included in the Russell 3000 Index.

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D.C. Circuit Finds Single-Director Structure of the CFPB Unconstitutional

Roberto J. Gonzalez is a partner in the Washington DC office of Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul Weiss publication by Mr. Gonzalez; Susanna M. Buergel; Brad S. Karp; Jane B. O’Brien; and Elizabeth M. Sacksteder.

On October 11, 2016, the D.C. Circuit Court of Appeals held in PHH Corp. v. CFPB that the structure of the Consumer Financial Protection Bureau (“CFPB”) as an independent agency headed by a single Director violated Article II of the Constitution. [1] As a remedy, the court struck the Director’s “for cause” removal protection, such that the CFPB would no longer be an “independent agency” but could continue to operate. We describe below the court’s ruling and explore the potential implications for the CFPB and regulated entities as we approach the presidential election.

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Managers’ Cultural Background and Disclosure Attributes

Gwen Yu is associate professor of business administration at Harvard Business School. This post is based on a recent paper authored by Professor Yu; Francois Brochet, Associate Professor of Accounting at Boston University Questrom School of Business; Gregory S. Miller, Ernst and Young Professor of Accounting at University of Michigan Ross School of Business; and Patricia Naranjo, Assistant Professor of Accounting at Jones Graduate School of Business at Rice University.

To what extent does the cultural background of managers impact how they communicate with investors? In our study, Managers Cultural Background and Disclosure Attributes, we build on prior research to deepen our understanding of the economic significance of individuals’ cultural background in a corporate context. More specifically, we focus on managers’ communication style during earnings conference calls. We examine how the cultural backgrounds of individual managers—based on their ethnic heritage—affect their disclosure narrative.

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Key Points from the US G-SIBs’ Resolution Plan Progress Reports

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; Armen Meyer; Sharon Haas and John Simonson.

This week, the Federal Reserve and the FDIC (collectively, “Agencies”) released the public sections of the resolution plan progress reports submitted on October 1st by the eight largest US banking institutions (“October Submissions”). [1] In April, the Agencies jointly determined five of the eight banks’ 2015 resolution plans to be “not credible,” while all eight were found to have either “deficiencies,” “shortcomings,” or both. [2] The Agencies identified the deficiencies and shortcomings across six areas, [3] and also issued significant new guidance on these areas for incorporation in the banks’ next full submission. The banks had until October 1st to remediate all deficiencies cited in the April feedback, but were given until their next full resolution plan filing date (which was pushed back by one year to July 1, 2017) to fully address shortcomings. In their October Submissions, the banks were required to include a description of how deficiencies were remediated and the actions taken so far to address shortcomings. Each of the five banks with plans determined to be not credible declared in their October Submission that they believe their deficiencies are now remediated. Time will tell if the Agencies agree.

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Opt-Out Cases in Securities Class Action Settlements

Amir Rozen is a vice president in the New York office of Cornerstone Research; and Christopher Harris is a partner in the New York office of Latham & Watkins LLP. This post is based on a Cornerstone/Latham co-publication authored by Mr. Rozen, Mr. Harris, and Brendan Rudolph.

This post updates our 2013 publication Opt-Out Cases in Securities Class Action Settlements, which provided for the first time a comprehensive quantitative analysis of publicly available lawsuits and settlements of so-called “opt-out” securities cases (cases in which at least one putative class member excludes itself from the class in order to pursue a separate lawsuit against the defendant). This publication supplements the prior study with publicly available information about the opt-outs from securities class action settlements reached between 2012 and 2014. Our database of 1,458 class action settlements now contains 48 opt-out cases from 1996 to 2014.

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Understanding Bank Payouts During the Crisis of 2007-2009

Gyöngyi Lóránth is Professor of Finance at the University of Vienna and The Center for Economic and Policy Research. This post is based on a recent paper by Professor Lóránth; Peter Cziraki, Assistant Professor of Economics at the University of Toronto; and Christian Laux, Professor of Finance at the Vienna University of Economics and Business and a member of the European Corporate Governance Institute (ECGI).

Banks have long been known for paying high dividends. Their payout decisions in the financial crisis of 2007-2009 received considerable coverage in the press. Acharya et al. (2012) document that, despite mounting losses, many of the largest US bank holding companies kept dividends constant and in some cases even increased them until the end of 2008. While this behavior could have been motivated by the desire to transfer wealth from their creditors (or the government), banks may have been reluctant to cut dividends fearing that dividend reductions would lead to uncertainty about their fundaments, and cause subsequent refinancing problems. Our study, Understanding Bank Payouts During the Crisis of 2007-2009, sheds light on the possible motives and implications of banks’ payout policy at the beginning of the financial crisis.

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Weekly Roundup: October 21, 2016–October 27, 2016


More from:

This roundup contains a collection of the posts published on the Forum during the week of October 21, 2016–October 27, 2016.





Can Business Help Fix Our Broken Politics?









Global Board Culture Survey 2016





SEC Chair Statement on a Universal Proxy System

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s recent statement at an open meeting of the SEC, available here. The views expressed in this post are those of Ms. White and do not necessarily reflect those of the Securities and Exchange Commission or its staff. Related research from the Program on Corporate Governance includes Universal Proxies by Scott Hirst (discussed on the Forum here).

Good morning. This is an open meeting of the U.S. Securities and Exchange Commission on October 26, 2016, under the Government in the Sunshine Act. Today, the Commission will consider two recommendations from the Division of Corporation Finance. First, the Commission will consider a recommendation to propose changes to our proxy rules to require the use of universal proxy cards in contested director elections. Second, the Commission will consider recommendations for final rules to further facilitate companies’ access to capital through intrastate and regional securities offerings, with accompanying investor protections provided by state and federal law.

We will take two separate votes on the recommendations following each of the staff’s presentations and Commissioner comments.

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SEC Commissioner Stein Supporting Statement on the Proposed Universal Proxy Rule

Kara M. Stein is a Commissioner at the U.S. Securities and Exchange Commission. The following post is based on Commissioner Stein’s recent remarks at an open meeting of the SEC, available here. The views expressed in this post are those of Ms. Stein and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

Good morning. I would like to thank the staff for all of their hard work leading up to this proposal. The team spent a lot of time listening to and considering a variety of views regarding the issue of universal proxy. In particular, I would like to thank Tiffany Posil, Tina Chalk and Michele Anderson in the Office of Mergers & Acquisitions and Tara Bhandari of DERA.

When enacted, the Securities Exchange Act of 1934 created the foundational principles we rely on for maintaining robust and efficient capital markets in the United States. In the report accompanying the Exchange Act, Congress made clear that [“f]air corporate suffrage is an important right that should attach to every equity security bought on a public exchange.” [1] Today’s [Oct. 26, 2016] proposal addresses corporate suffrage in practice and how it has developed. This proposal would update our rules to better safeguard the effective exercise of shareholder voting.

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