Monthly Archives: December 2016

Jurisdiction Over Directors and Officers in Delaware

Eric A. Chiappinelli is the Frank McDonald Professor of Law at Texas Tech University School of Law. This post is based on his recent article, and is part of the Delaware law series; links to other posts in the series are available here.

Delaware is well established as the single most influential state in corporate America. Its prominence persists as the Delaware Court of Chancery continues to be the center for stockholder litigation against corporate fiduciaries. The Court of Chancery occupies this position largely as a result of its unique system for obtaining personal jurisdiction over corporate fiduciaries: Section 3114, the director implied consent statute. My article, which appears as a chapter in the forthcoming Research Handbook on Representative Stockholder Litigation (Sean Griffith, Et Al., Eds.), details the methods by which the Delaware Court of Chancery asserts personal jurisdiction over directors and officers of Delaware corporations.

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2016 Director Compensation Report

Eric Graves and Thomas Kohn are consultants at FW Cook. This post is based on a FW Cook publication by Mr. Graves, Mr. Kohn, and Eric Winikoff.

FW Cook’s 2016 Director Compensation Report studies non-employee director compensation at 300 companies of various sizes and industries to analyze market practices in pay levels and program structure.

In terms of pay levels, total compensation increased by 1.3% at the median of the total sample versus last year’s study, which reflects an apparent stabilization of director pay among large- and mid-cap companies in particular. Large-cap companies in our study pay directors $260,000 at the median and $300,000 at the 75th percentile, unchanged from last year. The mid-cap median of $200,000 reflects only a 1.1% increase from last year, while the small-cap median of roughly $145,000 reflects a larger increase of 6.0%. Technology continues to be the highest-paying sector in our study, and Financial Services the lowest, consistent with recent years.

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To Bid or Not to Bid, That is the Question: The Assessment of Bidding Markets in Merger Control

David Wirth is a consultant at Ashurst LLP. This post is based on a chapter by Mr. Wirth, first published in the International Comparative Legal Guide to: Merger Control 2017 (contributing editors Nigel Parr and Catherine Hammon, Ashurst LLP), published by Global Legal Group. The complete chapter, including footnotes, is available here.

Many markets are characterised by an auction process in which customers issue tenders for contracts and suppliers bid against each other in order to win that contract. Prices in such markets, which are commonly referred to as bidding markets, are typically individually determined for each contract, and the buyer (i.e. the tendering authority) is able to compare offers and negotiate with the different competing bidders.

The nature of bidding markets involve market features and dynamics which differ from ordinary markets (i.e. where prices are set individually by each supplier and customers decide whether or not to purchase the goods or services in question). This, in turn, can have an impact on the nature of the competitive assessment in those markets, particularly in the context of the assessment of mergers between competing suppliers. However, a detailed discussion of bidding markets is noticeably absent from the merger guidelines of a number of competition authorities around the world.

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Limiting Litigation Through Corporate Governance Documents

Ann M. Lipton is Michael M. Fleishman Associate Professor in Business Law and Entrepreneurship at Tulane University Law School. This post is based on Professor Lipton’s chapter for the forthcoming Research Handbook on Representative Stockholder Litigation. This post is part of the Delaware law series; links to other posts in the series are available here.

There has recently been a surge of interest in “privately ordered” solutions to the problem of frivolous stockholder litigation, in the form of corporate bylaw and charter provisions that limit plaintiffs’ ability to bring claims. The most popular type of provision has been the forum selection clause; other proposed limitations include arbitration requirements, fee-shifting to require that losing plaintiffs pay defendants’ attorneys’ fees, and minimum stake requirements. Proponents argue that these provisions favor shareholders by sparing the corporation the expense of defending against meritless litigation. Drawing on the metaphor of corporation as contract, they argue that litigation limits are common in ordinary commercial contracts, and that bylaws and charter provisions should be interpreted similarly.

I have drafted a chapter for the forthcoming Research Handbook on Representative Stockholder Litigation (Sean Griffith et al., eds) in which I discuss the history of these provisions, the state of the law regarding their enforceability, and policy concerns surrounding their adoption.

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OCC to Issue Special Purpose National Bank Charters to Fintech Companies

Michael Nonaka is a partner in the financial institutions group at Covington & Burling LLP. This post is based on a Covington publication by Mr. Nonaka, John Dugan, and Luis Urbina.

On December 2, 2016, Comptroller of the Currency Thomas J. Curry announced that the Office of the Comptroller of the Currency (“OCC”) would move forward with issuing special purpose national bank charters to financial technology (“fintech”) companies. The OCC released a whitepaper [1] outlining its authority to issue charters to fintech companies, its approach to supervising fintech companies, and its process for evaluating charter applications. The OCC is requesting public comment on the whitepaper by January 15, 2017.

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Third Circuit Ruling on Make-Whole Provisions Enforceable in Bankruptcy

Sarah R. Borders and Ye Cecilia Hong are partners at King & Spalding LLP. This post is based on a King & Spalding publication by Ms. Borders, Ms. Hong, Jeffrey R. Dutson, and Elizabeth T. Dechant.

On November 17, the U.S. Court of Appeals for the Third Circuit (the “Court”) made clear its stance on the question of enforceability of make-whole provisions in bankruptcy. [1] Bucking the recent trend seen in cases such as In re MPM Silicones, LLC, No. 14-22503-RDD, 2014 WL 4436335 (Bankr. S.D.N.Y. Sept. 9, 2014), aff’d, 531 B.R.321 (S.D.N.Y. 2015) (“Momentive”), the Court determined that such provisions, which are intended to compensate lenders for interest lost when borrowers pay notes prior to a specific date, are enforceable in bankruptcy notwithstanding the fact that bankruptcy filings often accelerate maturity.

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Financial Regulation Nine Years On from the Global Financial Crisis—Where Do We Stand?

William C. Dudley is President and Chief Executive Officer of the Federal Reserve Bank of New York. This post is based on Mr. Dudley’s remarks at the G30’s 76th Plenary Session at the Federal Reserve Bank of New York. The views expressed in this post are those of Mr. Dudley and do not necessarily reflect those of the Federal Open Market Committee or the Federal Reserve System.

In assessing where we are eight years after the financial crisis, I would make three broad observations. First, we have made considerable progress in bolstering the safety and soundness of the global financial system. In the U.S., which was the epicenter of the crisis, the risk of a failure of a systemically important financial firm has declined considerably. Second, although significant progress has been made toward ending “too big to fail,” there is still much more to do. While the risk of failure of a global systemically important financial institution has diminished, it has not been eliminated. Without a well-functioning resolution process, the consequences of such a failure could still be catastrophic. Much headway has been made in the U.S. in developing a Single Point of Entry resolution regime with a layer of total loss-absorbing capacity (TLAC) that would facilitate recapitalization and enable an orderly resolution. However, significant challenges remain, especially on managing resolution on a cross-border basis. Third, bank leaders still have much to do to rebuild the trustworthiness of their industry. Long after the financial crisis, conduct failures have persisted. We need financial firms to foster cultures that are intolerant of bad conduct and that are attentive to incentive structures that may encourage such behaviors.
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Annual Shareholder Meeting: Selected Considerations for a Virtual-Only Meeting

Lisa A. Fontenot is a partner and Linda Dang is an associate at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn publication by Ms. Fontenot and Ms. Dang.

In recent years, an increasing number of companies have opted to hold annual shareholder meetings exclusively online—i.e., a virtual meeting without a corresponding physical meeting—rather than a virtual meeting in tandem with a physical meeting (the so-called “hybrid” approach). While hybrid approaches are generally welcome or not opposed by investors and activist shareholders, some have criticized companies holding virtual-only annual meetings, asserting that virtual meetings limit the opportunity for shareholder participation in the meeting as well as engagement with management and the board. In spite of these criticisms, just as corporate use of the internet and social media to communicate with stakeholders is growing, virtual meetings are on the rise.

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Weekly Roundup: December 2–December 8, 2016


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This roundup contains a collection of the posts published on the Forum during the week of December 2–December 8, 2016.




Taxing Top CEO Incomes







The HLS Forum Celebrates Its Tenth Anniversary







Some Thoughts for Boards of Directors in 2017

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton, Steven A. Rosenblum, and Karessa L. Cain. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here), and The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here). Critiques of the Bebchuk-Brav-Jiang study by Wachtell Lipton, and responses to these critiques by the authors, are available on the Forum here.

The evolution of corporate governance over the last three decades has produced meaningful changes in the expectations of shareholders and the business policies adopted to meet those expectations. Decision-making power has shifted away from industrialists, entrepreneurs and builders of businesses, toward greater empowerment of institutional investors, hedge funds and other financial managers. As part of this shift, there has been an overriding emphasis on measures of shareholder value, with the success or failure of businesses judged based on earnings per share, total shareholder return and similar financial metrics. Only secondary importance is given to factors such as customer satisfaction, technological innovations and whether the business has cultivated a skilled and loyal workforce. In this environment, actions that boost short-term shareholder value—such as dividends, stock buybacks and reductions in employee headcount, capital expenditures and R&D—are rewarded. On the other hand, actions that are essential for strengthening the business in the long-term, but that may have a more attenuated impact on short-term shareholder value, are de-prioritized or even penalized.

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