Monthly Archives: November 2016

A Vision for Data at the SEC

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.

I am pleased to be here with you today [October 28, 2016]. This conference is a vital opportunity to discuss some of the forces shaping financial markets and regulation.

“What hath God wrought.” That message, sent from Washington to Baltimore in 1844, signaled the arrival of the telegraph. Originally an exclamation, but sometimes written as a question, it captures both the wonder and uncertainty that new technologies can inspire. The telegraph proved to be a transformative technology. Information was no longer limited by the speed of a horse, but could spread almost instantaneously. Farmers in one part of the country could learn about prices in distant markets, and an expanding country would soon communicate from one coast to another.


Resisting Homogenization of the Executive Pay Program

Ira Kay is a Managing Partner at Pay Governance LLC. This post is based on a Pay Governance publication by Mr. Kay and John Sinkular.

In today’s environment, with annual Say on Pay (SOP) votes, intense external scrutiny and the need to strongly align pay with performance, it is increasingly important for companies to be confident in their executive pay program. The foundation of a sound executive pay program is built on the company’s business strategy and talent needs, which, collectively, must be achieved in order to create shareholder value. Most companies desire to reflect their unique culture, operating modeling and other characteristics in their rewards program. However, this is often in direct conflict with pressure from proxy advisors and some shareholders to apply “one size fits all” to key design provisions of the executive pay program. The homogenization of executive pay practices can be counter-­productive to companies by damaging the alignment to a company’s strategy, executive motivation and talent needs, and diminishing the pay-­performance linkage.


CSR, Market Value, and Profitability: International Evidence

B. Burcin Yurtoglu is Professor and Chair of Corporate Finance, and Stevan Bajic is a doctoral candidate at WHU Otto Beisheim School of Management. This post is based on a recent paper authored by Professor Yurtoglu and Mr. Bajic. Related research from the Program on Corporate Governance includes Socially Responsible Firms by Alan Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here).

Over the last two decades corporate social responsibility (CSR) has become a mainstream business activity. Companies have increasingly integrated environmental, social, and governance (ESG) aspects into their market and non-market strategies (The Economist, 2008). Businesses remained committed to CSR principles even during the financial crisis: a UN Global Compact–Accenture CEO (2010) study shows that 96% of CEOs believe that sustainability issues should be fully integrated into the strategy and operations of a company (up from 72% in 2007) and that 93% of CEOs consider sustainability issues to be critical to their business. Although CSR is receiving an ever growing attention, there is no clear-cut answer to the fundamental question of whether CSR predicts higher firm value and performance (Griffin and Mahon, 1997; Orlitzky et al., 2003; Margolis and Walsh, 2003; Margolis et al., 2009) which impedes sound policy formulation at the corporate level.


Narrow Path for Success of Post-Closing Disclosure Claims–Nguyen v. Barrett

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 memorandum by Mr. de Wied, Steven Epstein, Scott B. LuftglassPhilip 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.

Nguyen v. Barrett (Sept. 28, 2016) highlights yet again the Delaware courts’ recent narrowing of the circumstances under which plaintiffs can be successful in challenging M&A transactions–in this case, in the context of post-closing disclosure claims. Further, for the first time, the court has articulated the higher burden to a plaintiff in bringing a disclosure claim in a post-closing damages action as compared to a preclosing injunctive action and has stated that disclosure claims should be brought pre-closing, not postclosing.


ISS Proposes New 2017 Voting Policies

Lyuba Goltser is a partner at Weil, Gotshal & Manges LLP. This post is based on a Weil publication by Ms. Goltser and Megan Pendleton.

[On October 27, 2016], ISS released its key draft proposed proxy voting policy changes for the 2017 proxy season. ISS is seeking comments by 6:00 p.m. EDT on November 10, 2016. ISS proposed policy changes, questions for comment and details around how to participate in the comment process are available here. Its final 2017 policies are expected to be released during the second week of November, and will apply to meetings held on or after February 1, 2017.


Crowdfunding Without the Crowd

Darian M. Ibrahim is Professor of Law at William & Mary Law School. This post is based on his recent article, forthcoming in the North Carolina Law Review.

My prior article on crowdfunding took a comprehensive look at crowdfunding’s evolution and its place in the entrepreneurial finance landscape. [1] I concluded that while crowdfunding could well turn into a “market for lemons,” in which bad startups seek dumb money as a last resort, this did not have to be the case. I argued that some promising startups—especially very young ones—would have good reasons to crowdfund, and the trick was to be sure investors could distinguish those startups from the many duds that will also populate crowdfunding sites. In particular, I argued that the SEC should make certain changes to the concept and operation of “funding portals”—the new intermediary between startups and investors in the crowdfunding space—before adopting its final rules. Funding portals are the websites that list the startups available for crowdfunding investments, and I argued they should play a larger role as reputational intermediaries between startups and investors.


Sharing Ideas for Shareholders—and Others

This post reproduces a recent article about the Forum by Julie H. Case that appeared in the Fall 2016 issue of the Harvard Law Bulletin, which can be found here.

For the past 10 years, one Harvard Law School blog has been serving as a forum for exchange of ideas and debate among lawyers, executives, institutional investors, academics and regulators. Each month, the Harvard Law School Forum on Corporate Governance and Financial Regulation features over 60 posts on a wide range of issues in these fields—from Brexit to mergers and acquisitions. Since its founding, the forum has attracted posts from more than 3,500 individuals, including such prominent contributors as SEC Chairs Mary Jo White and Mary Schapiro, Circuit Court Judge Richard Posner ’62, and Goldman Sachs CEO Lloyd Blankfein ’78.


SEC Proposes Universal Proxy Ballots

This post is based on a publication from Davis Polk & Wardwell LLP by Ron CamiJoseph A. Hall, Phillip R. Mills, Ning Chiu, and Rebecca E. Crosby. Related research from the Program on Corporate Governance includes Universal Proxies by Scott Hirst (discussed on the Forum here).

On October 26, the Securities and Exchange Commission proposed long-expected changes to the proxy rules in order to mandate the use of universal proxy cards in contested elections at annual meetings. The proposal is designed to address the current inability of shareholders to vote for the combination of board nominees of their choice in an election involving a proxy contest. Under the proposal, each party in a contested election—management and one or more dissident shareholders—would continue to distribute its own proxy materials and use its own proxy card to solicit votes for its preferred slate of nominees. However, each party’s proxy card would be required to include the nominees of all parties, and thus enable the proxy voter to select its preferred combination of candidates.


ESG and Fiduciary Duties: A Roadmap for the US Capital Market

Brian Tomlinson is Associate Director of Fiduciary Duty at Principles for Responsible Investment (PRI) and the United Nations Environment Programme Finance Initiative (UNEP FI). This post is based on a recent publication authored by PRI, The Generation Foundation, and UNEP FI.

Some investors have defined their fiduciary duties in narrow terms, arguing that they preclude consideration of Environmental, Social and Governance (ESG) factors. This misunderstands the nature of a prudent investment decision—which changes over time.

Over recent decades corporate disclosures to investors have expanded to include reporting on a corporation’s liquidity, capital structure, credit risk instruments and off-balance sheet transactions [1]. This reflects the evolving tools and techniques of prudent investment analysis. In that context, the incorporation of ESG factors into investment processes and research is a critical addition to the analytical tool-kit available to investors in making informed voting and investment decisions, constructing portfolios [2] and identifying enhanced operational performance and financial prospects in investee companies. [3]


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