Yearly Archives: 2016

The Day After Brexit

Posted by Alec J. Burnside, Cadwalader, Wickersham & Taft LLP, on

Friday, June 24, 2016

Banks, Brexit, Contracts, Cross-border transactions, EU, Europe, Financial institutions, Financial regulation, Taxation, UK
More from: Adam Blakemore, Alec Burnside, Cadwalader

Alec J. Burnside is a partner in the Brussels office of Cadwalader, Wickersham & Taft LLP. This post summarizes a recent Cadwalader presentation by Mr. Burnside and Adam Blakemore, available here.

An exit vote yesterday, June 23, 2016, will confront many companies with a host of challenges. Our presentation, available here, discusses the immediate legal questions firms will need to examine:

Does the vote trigger break clauses or termination rights in my contracts?
Will my seconded staff have to return to base?
Will my firm’s passport to do cross-border business be cancelled?
Where will I have to notify my latest company acquisition?
Will my exports and imports face tariffs?
How might the UK’s tax system be affected?
Will the new Data Protection regulation apply in the UK?

This concerns businesses in Asia, the US and worldwide for whom the UK is an entry point to the EU market. To say nothing of trade between the UK and its former EU partners. In the complete presentation, available here, we look over the horizon into an uncertain future.

Brexit: Legal Implications

Posted by Ben Perry, Sullivan & Cromwell LLP, on

Friday, June 24, 2016

Banks, Brexit, Contracts, EU, Europe, Financial institutions, Financial regulation, Foreign banks, International governance, Legal systems, UK
More from: Ben Perry, Sullivan & Cromwell

Ben Perry is a partner in the London office of Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell publication.

In a referendum held in the UK on June 23, 2016, a majority of those voting voted for the UK to leave the EU. This post briefly summarizes some of the main legal implications of the “leave” vote and is primarily for the benefit of those outside the UK who have not followed the referendum campaign in detail.

The “leave” vote has no immediate legal effect under either UK or EU law

The UK currently remains a member of the EU and there will not be any immediate change in either EU or UK law as a consequence of the “leave” vote. EU law does not govern contracts and the UK is not part of the EU’s monetary union.

Delaware Share Ownership and the Blockchain

Posted by Marco A. Santori, Pillsbury Winthrop Shaw Pittman LLP, on

Friday, June 24, 2016

Banks, Bitcoin, Blockchain, Capital markets, Clearing houses, Delaware law, Financial regulation, Financial technology, Intermediaries, IPOs, Market efficiency, Securities regulation, State law
More from: Marco Santori, Pillsbury

Marco A. Santori is a partner at Pillsbury Winthrop Shaw Pittman LLP. This report is based on a Pillsbury client alert. This post is part of the Delaware law series; links to other posts in the series are available here.

On May 2, 2016, at the second annual Consensus conference in New York, Delaware Governor Jack Markell announced his support for the creation of a new method of representation of corporate share ownership. In addition to traditional certificated and uncertificated shares, all Delaware corporations (including a majority of the Fortune 500) will soon have the ability to issue shares using the same technology that underlies the virtual currency Bitcoin. The announcement is part of the Delaware Blockchain Initiative, a groundbreaking new project seeking to clarify the state’s law and welcome the blockchain industry into the state.

Whether they call it “Bitcoin 2.0,” “Blockchain,” “Distributed Ledger Technology,” or simply “DLT,” advocates for the technology have praised its potential to clear and settle nearly any transaction imaginable. The most-promised use case may be in the capital markets, where today’s clearance and settlement is only possible in reliance on numerous clearinghouses, custodians, exchanges and fiduciaries. Each of these intermediaries add a layer of complexity, cost and delay that this new technology can eliminate, argue blockchain technology advocates.

Non-GAAP Financial Measures: The SEC’s Evolving Views

Posted by Nicolas Grabar and Sandra Flow, Cleary Gottlieb Steen & Hamilton LLP, on

Friday, June 24, 2016

Accounting, Accounting standards, Compliance and disclosure interpretation, Disclosure, Earnings announcements, Financial reporting, Foreign issuers, Performance measures, Regulation G, Regulation S-K, SEC, Securities regulation, Taxation
More from: Dase Kim, Leslie Silverman, Nicolas Grabar, Sandra Flow, Cleary Gottlieb

Nicolas Grabar and Sandra L. Flow are partners in the New York office of Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum by Mr. Grabar, Ms. Flow, Les Silverman, and Dase Kim.

For months now, the Securities and Exchange Commission (the “SEC”) has been warning—in speeches by commissioners and senior staff, at conferences, and in comment letters to companies—about growing misuse of non-GAAP financial measures (“NGFMs”). On May 17, 2016, the SEC’s Division of Corporation Finance released new and updated Compliance and Disclosure Interpretations (“C&DIs”) on the use of NGFMs that demonstrate the SEC’s tightening policy. The C&DIs challenge practices that were previously considered permissible and indicate various types of practices that will likely prompt SEC scrutiny.

This post discusses the SEC’s views, as reflected in the new C&DIs, and recommends that companies review their approach to using NGFMs to take those views into account.

Weekly Roundup: June 17–June 23, 2016

Posted by HLS Forum on Corporate Governance and Financial Regulation, on

Friday, June 24, 2016

Weekly Roundup
More from:

This roundup contains a collection of the posts published on the Forum during the week of June 17–June 23, 2016.

The New EU Market Abuse Regulation

Posted by Simon Witty, Davis Polk & Wardwell LLP, on Friday, June 17, 2016

Tags: Debt securities, Disclosure, ESMA, EU, Europe, Fraud-on-the-Market, Inside information, Insider trading,International governance, Listing standards, Securities regulation

What are the Consequences of Regulating Executive Compensation?

Posted by Anya Kleymenova, University of Chicago, on Friday, June 17, 2016

Tags: Agency costs, Banker bonuses, Compensation regulation, EU, Executive Compensation, Executive turnover,Financial institutions, Financial regulation, Fund managers, Incentives, International governance, Management, Risk-taking, UK

SEC Enforcement: Private Equity Broker Registration

Posted by Rajib Chanda, Simpson Thacher & Bartlett LLP, on Saturday, June 18, 2016

Tags: Broker-dealers, Fund managers, Investment advisers, Private equity, Private funds, SEC, SEC enforcement,Securities enforcement, Settlements, Solicitation

SEC Amendment to Form 10-K

Posted by Robert E. Buckholz, Sullivan & Cromwell LLP, on Sunday, June 19, 2016

Tags: Disclosure, Exchange Act, FAST Act, Financial reporting, Form 10-K, Reporting regulation, SEC, SEC rulemaking,Securities regulation

CEO Pay at Valeant: Does Extreme Compensation Create Extreme Risk?

Posted by David Larcker, Stanford University, on Monday, June 20, 2016

Tags: Agency costs, Boards of Directors, Compensation committees, Executive Compensation, Incentives, Long-Term value, Management, Pay for performance, R&D, Risk, Risk-taking, Shareholder value

Venture-Backed IPOs in 2015

Posted by Richard C. Blake, Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, onMonday, June 20, 2016

Tags: Accounting standards, Boards of Directors, Capital formation, Charter & bylaws, Equity-based compensation, IPOs,JOBS Act, offer, Public firms, Small firms, Surveys, Takeover defenses, Tech companies, Venture capital firms

Financing Corporate Elections

Posted by Andrew A. Schwartz, University of Colorado Law School, on Tuesday, June 21, 2016

Tags: Board dynamics, Board independence, Boards of Directors, Charter & bylaws, Director compensation, Firm performance, Golden leashes, Hedge funds, Incentives, Listing standards, Pay for performance, Shareholder activism,Shareholder voting, Supreme Court

Implications of the Recent Dell Appraisal Decision

Posted by Lewis R. Clayton & Stephen P. Lamb, Paul, Weiss, Rifkind, Wharton & Garrison LLP, onTuesday, June 21, 2016

Tags: Acquisition premiums, Appraisal rights, Buyouts, Delaware cases, Delaware law, Fair values, In re Appraisal of Dell,Merger litigation, Mergers & acquisitions, Underpricing

How Economic Attention Deficit Disorder Infected the Corporate Boardroom

Posted by Jon Lukomnik, Investor Responsibility Research Center Institute, on Wednesday, June 22, 2016

Tags: Asset management, Broker-dealers, Capital markets, Disclosure, Executive Compensation, Financial reporting,Fund managers, Incentives, Long-Term value, Management, Securities regulation, Shareholder value, Short-termism

Hiring and Firing a Key Executive at Yahoo

Posted by Joseph E. Bachelder, McCarter & English LLP, on Wednesday, June 22, 2016

Tags: Boards of Directors, Compensation committees, Delaware cases, Delaware law, Equity-based compensation,Executive Compensation, Golden parachutes, Incentives, Management, Pay for performance, Severance, Shareholder activism, Stock options

The Value of Creditor Control in Corporate Bonds

Posted by Oguzhan Karakas, Boston College, on Thursday, June 23, 2016

Tags: Bankruptcy, Bondholders, Bonds, Cash flows, Control rights, Covenants, Credit default swaps, Credit risk, Debt contracts, Debt securities, Debtor-creditor law, Distressed companies, Liquidity

Activist Investors and Target Identification

Posted by Damien J. Park, The Conference Board, Inc., on Thursday, June 23, 2016

Tags: Boards of Directors, Firm performance, Firm valuation, Hedge funds, Ownership structure, Proxy advisors, Proxy contests, Proxy voting, Shareholder activism, Shareholder nominations, Shareholder value, State law, Target firm

Activist Investors and Target Identification

Posted by Damien J. Park, The Conference Board, Inc., on

Thursday, June 23, 2016

Boards of Directors, Firm performance, Firm valuation, Hedge funds, Ownership structure, Proxy advisors, Proxy contests, Proxy voting, Shareholder activism, Shareholder nominations, Shareholder value, State law, Target firms
More from: Damien Park, Matteo Tonello, The Conference Board

Damien J. Park is Co-Chairman of The Conference Board Inc.’s Expert Committee on Shareholder Activism. This post relates to an issue of The Conference Board’s Director Notes series edited by The Conference Board’s managing director Matteo Tonello. The complete publication, including footnotes, is available here. Related research from the Program on Corporate Governance includes The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here); and Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon Brav, Robert J. Jackson Jr., and Wei Jiang.

Considering the growing amount of capital available to established activists and new entrants, the trend for increasing shareholder activity in the US and globally is likely to continue. This post reviews the first phase of an activist’s campaign and perhaps the most important component of any activist investment strategy: how activists go about identifying undervalued and attractive target companies.

The sheer size of assets under management by activist-oriented investors today suggest that most companies will be affected by activism in one form or another, directly or indirectly (see Figure 1: Activist hedge funds assets under management and Figure 2: Number of US activist campaigns).

The Value of Creditor Control in Corporate Bonds

Posted by Oguzhan Karakas, Boston College, on

Thursday, June 23, 2016

Bankruptcy, Bondholders, Bonds, Cash flows, Control rights, Covenants, Credit default swaps, Credit risk, Debt contracts, Debt securities, Debtor-creditor law, Distressed companies, Liquidity
More from: Edith Hotchkiss, Oguzhan Karakas, Peter Feldhutter

Oğuzhan Karakaş is Assistant Professor of Finance at the Carroll School of Management at Boston College. This post is based on an article authored by Professor Karakaş; Peter Feldhütter, Assistant Professor of Finance at London Business School; and Edith S. Hotchkiss, Associate Professor of Finance at the Carroll School of Management at Boston College.

In our article, The Value of Creditor Control in Corporate Bonds, recently published in the Journal of Financial Economics, we introduce a measure that captures the premium in bond prices that is due to the value of creditor control. We estimate the premium as the difference in the bond price and an equivalent synthetic bond without control rights that is constructed using credit default swaps (CDS) contracts. The main insight for the methodology is that CDS prices reflect the cash flows of the underlying bonds, but not the control rights. The premium we introduce captures the marginal value of control in a bond until the bond matures or—in the case of a payment default or bankruptcy—until the CDS contracts for that issuer settle, and hence is a lower bound for the control premium.

Hiring and Firing a Key Executive at Yahoo

Posted by Joseph E. Bachelder, McCarter & English LLP, on

Wednesday, June 22, 2016

Boards of Directors, Compensation committees, Delaware cases, Delaware law, Equity-based compensation, Executive Compensation, Golden parachutes, Incentives, Management, Pay for performance, Severance, Shareholder activism, Stock options
More from: Andy Tsang, Joseph Bachelder, McCarter & English

Joseph E. Bachelder is special counsel in the Tax, Employee Benefits & Private Clients practice group at McCarter & English, LLP. The following post is based on a column by Mr. Bachelder which first appeared in the New York Law Journal. Andy Tsang, a senior financial analyst with the firm, assisted in the preparation of this column. Related research from the Program on Corporate Governance includes Golden Parachutes and the Wealth of Shareholders by Lucian Bebchuk, Alma Cohen, and Charles C. Y. Wang (discussed on the Forum here). This post is part of the Delaware law series; links to other posts in the series are available here.

Yahoo! Inc. paid its Chief Operating Officer (COO) just under $100 million for 14 months work (November 12, 2012–mid-January 2014). This compensation/severance arrangement is the subject of a recent opinion by the Delaware Court of Chancery and is the subject of this post.

The Amalgamated Bank Case

On February 2, 2016, the Delaware Court of Chancery granted a demand by Amalgamated Bank to inspect the books and records of Yahoo pursuant to Section 220 of the Delaware General Corporation Law (DGCL). Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752 (Del. Ch. 2016). Amalgamated made this demand in connection with its investigation into the circumstances associated with the hiring and firing of the Yahoo COO, Henrique de Castro.

How Economic Attention Deficit Disorder Infected the Corporate Boardroom

Posted by Jon Lukomnik, Investor Responsibility Research Center Institute, on

Wednesday, June 22, 2016

Asset management, Broker-dealers, Capital markets, Disclosure, Executive Compensation, Financial reporting, Fund managers, Incentives, Long-Term value, Management, Securities regulation, Shareholder value, Short-termism
More from: Jon Lukomnik

Jon Lukomnik is the Executive Director of the Investor Responsibility Research Center Institute. The ideas in this post related to his new book, What They Do With Your Money: How the Financial System Fails Us and How to Fix It (Yale University Press), co-authored with Stephen Davis and David Pitt-Watson.

According to one widely reported study, three quarters of senior American corporate officials would not make an investment that would benefit a company over the long run if it would derail even one quarterly earnings report. [1] Combine that with the fact that corporate officials and institutional investors commonly over-discount the future, meaning that they don’t fully appreciate returns on investments that are more than a few months away. For instance, the Bank of England has found that cash flows five years away are actually valued in the marketplace as if they were eight years away and cash flows 30 years in the future are not valued at all. [2] “This is a market failure. It would tend to result in … long-duration projects suffering disproportionately… including infrastructure and high-tech investments… often felt to yield the highest long-term (private and social) returns and hence offer the biggest bang to future growth,” explained Andrew Haldane, the Bank’s Chief Economist. [3]

Simply put, we are suffering from an epidemic of Economic Attention Deficit Hyperactivity Disorder. But if short-term thinking at today’s companies is commonplace, the implications are profound. Economic ADHD silently robs us of wealth and decreases our standard of living.

Implications of the Recent Dell Appraisal Decision

Posted by Lewis R. Clayton & Stephen P. Lamb, Paul, Weiss, Rifkind, Wharton & Garrison LLP, on

Tuesday, June 21, 2016

Acquisition premiums, Appraisal rights, Buyouts, Delaware cases, Delaware law, Fair values, In re Appraisal of Dell, Merger litigation, Mergers & acquisitions, Underpricing
More from: Daniel Mason, Frances Mi, Lewis Clayton, Stephen Lamb, Paul Weiss

Lewis R. Clayton and Stephen Lamb are partners in the Litigation Department at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul Weiss memorandum by Mr. Clayton, Mr. Lamb, Frances Mi and Daniel Mason. This post is part of the Delaware law series; links to other posts in the series are available here.

On May 31, Vice Chancellor Laster of the Delaware Court of Chancery held that, for purposes of Delaware’s appraisal statute, the fair value of the common stock of Dell Inc. at the time of its sale to a group including the Company’s founder Michael Dell was $17.62 per share, almost a third higher than the $13.75 deal price. [1] The decision has received a good deal of attention from the press and commentators, largely because the Court rejected the use of the transaction price as compelling evidence of fair value, despite several recent Delaware appraisal decisions that have relied heavily or exclusively on the transaction price. While the ruling may encourage some stockholders of Delaware companies to seek appraisal—particularly in management buyouts—there are powerful reasons why the decision should be limited to its particular facts.

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Yearly Archives: 2016

The Day After Brexit

Brexit: Legal Implications

Delaware Share Ownership and the Blockchain

Non-GAAP Financial Measures: The SEC’s Evolving Views

Weekly Roundup: June 17–June 23, 2016

The New EU Market Abuse Regulation

What are the Consequences of Regulating Executive Compensation?

SEC Enforcement: Private Equity Broker Registration

SEC Amendment to Form 10-K

CEO Pay at Valeant: Does Extreme Compensation Create Extreme Risk?

Venture-Backed IPOs in 2015

Financing Corporate Elections

Implications of the Recent Dell Appraisal Decision

How Economic Attention Deficit Disorder Infected the Corporate Boardroom

Hiring and Firing a Key Executive at Yahoo

The Value of Creditor Control in Corporate Bonds

Activist Investors and Target Identification

Activist Investors and Target Identification

The Value of Creditor Control in Corporate Bonds

Hiring and Firing a Key Executive at Yahoo

The Amalgamated Bank Case

How Economic Attention Deficit Disorder Infected the Corporate Boardroom

Implications of the Recent Dell Appraisal Decision

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