Yearly Archives: 2017

Letter to Paul Ryan: The Financial CHOICE Act of 2017

Posted by Jeff Mahoney, Council of Institutional Investors, on
Tuesday, June 20, 2017
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Jeff Mahoney is General Counsel of the Council of Institutional Investors. This post is based on an open letter from CII, sent on behalf of over 50 co-signatories.

May 17, 2017

The Honorable Paul Ryan
Longworth House Office Building, Room 1233
United States House of Representatives
Washington, DC 20515-4901

Re: The Financial CHOICE Act of 2017

Dear Speaker Ryan:

On behalf of the Council of Institutional Investors and the undersigned investors, I am writing to share with you our concerns about several provisions currently included in the Financial CHOICE Act of 2017 (Act).

The Council of Institutional Investors (CII) is a nonprofit, nonpartisan association of corporate, public and union employee benefit funds and endowments with more than 120 members with combined assets that exceed $3 trillion. In addition, our associate (nonvoting) members include more than 50 asset management firms that manage assets in excess of $20 trillion.

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Corporate Liquidity, Acquisitions, and Macroeconomic Conditions

Posted by Michael S. Weisbach, The Ohio State University, on
Tuesday, June 20, 2017
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Michael S. Weisbach is Ralph Kurtz Professor of Finance at The Ohio State University Fisher College of Business, and a Research Associate of the National Bureau of Economic Research. This post is based on a recent paper authored by Professor Weisbach; Isil Erel, Distinguished Professor of Finance at The Ohio State University Fisher College of Business; Yeejin Jang, Assistant Professor of Finance, Purdue University Krannert School of Business; and Bernadette Minton, Professor of Finance and Arthur E. Shepard Endowed Professorship in Insurance at The Ohio State University Fisher College of Business.

One of the most important decisions a financial manager must make is to determine how liquid his firm’s balance sheet should be. More liquidity means that a firm can make investment decisions without having to raise external capital. Consequently, liquidity on the balance sheet is most valuable to a firm when the cost of external finance is relatively high. One such time occurs during poor macroeconomic conditions, since both practitioners’ viewpoints and the academic literature suggest that most firms’ external financing costs are strongly pro-cyclical. Therefore, liquidity should be particularly important in facilitating firms’ abilities to invest efficiently during poor macroeconomic conditions.

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Changing Attitudes: The Stark Results Of Thirty Years Of Evolution In Delaware M&A Litigation

Posted by Hon. J. Travis Laster, Delaware Court of Chancery, on
Monday, June 19, 2017
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The Honorable J. Travis Laster is Vice Chancellor at the Delaware Court of Chancery. This post is based on a chapter prepared for the Research Handbook on Representative Shareholder Litigation (forthcoming), and is part of the Delaware law series; links to other posts in the series are available here.

Beginning in 1985, the Delaware Supreme Court created a new framework for judicial review of decisions made by boards of directors when considering third-party mergers and acquisitions. Ever since, third-party M&A events, both hostile and friendly, have been reviewed using an intermediate standard known as enhanced scrutiny. Under that standard, the defendant directors bear the burden of proving that they sought to serve a legitimate corporate purpose and that their actions fell within a range of reasonableness.

Although the concept of a range of reasonableness implies an objective test, there is no Platonic form of reasonableness. Attitudes and perceptions necessarily influence what a court regards as reasonable. For the Delaware common law of fiduciary obligations, the attitudes and perceptions that emerge from the Delaware Supreme Court justices’ opinions and their scholarly writings necessarily influence a trial court’s assessment of the range.

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Shareholder Proposals: Evidence of Private Ordering Supplanting Public Policy?

Posted by John Roe, Institutional Shareholder Services, Inc., on
Monday, June 19, 2017
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John Roe is Head of ISS Analytics at Institutional Shareholder Services, Inc. This post is based on an ISS publication by Mr. Roe.

Earlier this [month], ExxonMobil released a preliminary tally revealing that 62.3 percent of shareholders supported a non-binding shareholder resolution calling for “an annual assessment of the long-term portfolio impacts of technological advances and global climate change policies, at reasonable cost and omitting proprietary information.” A similar proposal filed just last year garnered only 38.1 percent shareholder support—which leads to the question, what’s changed so dramatically in the past year? We’ll get to that in a moment—but first, let’s take a look at shareholder proposals voted so far in 2017, and put those into some historical context.

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PCAOB Approves Expanded Auditor’s Report

Posted by Ellen Odoner and Peter King, Weil, Gotshal & Manges LLP, on
Sunday, June 18, 2017
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Ellen Odoner is partner and head of the Public Company Advisory Group at Weil, Gotshal & Manges LLP; Peter King is a corporate partner in the London office of Weil. This post is based on a Weil publication by Ms. Odoner, Mr. King, Catherine Dixon, and Alicia Alterbaum.

On June 1, 2017, the Public Company Accounting Oversight Board voted to adopt a new auditing standard that, if approved by the Securities and Exchange Commission, will significantly expand the current auditor’s report. The new report will augment the traditional pass/fail opinion with a discussion of “critical audit matters” (CAMs), disclosure of the auditor’s tenure and certain other information. The revised report also will have a new format. The adopted standard, AS 3101, is substantially the same as the standard reproposed by the PCAOB in May 2016. The full text of the new standard can be found here and the PCAOB’s fact sheet can be found here.

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The Voice: The Minority Shareholder’s Perspective

Posted by Dov Solomon, Ramat Gan Law School, on
Saturday, June 17, 2017
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Dov Solomon is an Associate Professor at the College of Law and Business, Ramat Gan Law School. This post is based on his recent article, The Voice: The Minority Shareholder’s Perspective, forthcoming in the Nevada Law Journal.

Minority shareholders tend not to participate in the decision-making process of public companies with a controlling shareholder, and their voice is rarely heard. Even when they disagree with how the company is being managed, they prefer to express this dissatisfaction through exit, i.e., by selling their shares, rather than by expressing their voice at a shareholder meeting. Contrary to the prevailing view, my article, The Voice: The Minority Shareholder’s Perspective, suggests that minority shareholder voice is important and desirable.

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Chancery Court Suggests Rights Offerings May Limit Liability in Certain Transactions

Posted by Meredith E. Kotler and Mark E. McDonald, Cleary, Gottlieb, Steen & Hamilton LLP, on
Friday, June 16, 2017
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Meredith E. Kotler is a partner and Mark E. McDonald is an associate at Cleary, Gottlieb, Steen & Hamilton LLP. This post is based on a Cleary Gottlieb publication by Ms. Kotler and Mr. McDonald, and is part of the Delaware law series; links to other posts in the series are available here.

When a corporation sells corporate assets to its (or an affiliate of its) controlling stockholder, Delaware courts generally will review that transaction under the exacting “entire fairness” standard. [1] But what if the corporation’s minority stockholders are given the opportunity to participate along with the controlling stockholder in the purchase of the corporate assets pro rata to the extent of their stock ownership?

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What Determines Participation in Corporate Voting?

Posted by Konstantinos E. Zachariadis, Queen Mary University of London, on
Friday, June 16, 2017
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Konstantinos E. Zachariadis is Associate Professor at the Queen Mary University of London. This post is based on a recent paper by Professor Zachariadis; Dragana Cvijanovic, Assistant Professor of Finance at the UNC Kenan-Flagler Business School; and Moqi Groen-Xu, Assistant Professor at the London School of Economics.

As Kahan & Rock (2007) note “Never has voting been more important in corporate law”. Participation in corporate voting is the main mechanism via which most shareholders voice their opinion and affect management. As part of a general rise in attention to shareholder voting and shareholder activism, regulators have called for greater participation to ensure more representative voting results and better monitoring. However, conventional wisdom questions the usefulness of such requests. Do shareholders vote—unless they own large blocks or they are legally required to vote? There is little guidance, theoretical or empirical, to this discussion. Our paper offers the first comprehensive study of voting participation by shareholders.

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Weekly Roundup: June 9–June 15, 2017

Posted by HLS Forum on Corporate Governance and Financial Regulation, on
Friday, June 16, 2017

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This roundup contains a collection of the posts published on the Forum during the week of June 9–June 15, 2017.

Breaking the Ice: Investors Warm to Climate Change

Posted by Nick Dawson, Proxy Insight, on Friday, June 9, 2017
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Corporate Governance of SIFI Risk-Taking: An International Research Agenda

Posted by Steven L. Schwarcz & Aleaha Jones, Duke University, on Friday, June 9, 2017
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Perk Disclosures: Reminders for Executives and Directors

Posted by Ade Heyliger and Kaitlin Descovich, Weil, Gotshal & Manges LLP, on Saturday, June 10, 2017
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Compensation Goals and Firm Performance

Posted by Radhakrishnan Gopalan, Washington University in St. Louis, on Sunday, June 11, 2017
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The Global Rise of Corporate Saving

Posted by Loukas Karabarbounis, University of Minnesota; and Brent Neiman University of Chicago, on Monday, June 12, 2017
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Five-Year Statute of Limitations Applies to Claims for Disgorgement Brought by the SEC

Posted by Brad S. Karp, Paul, Weiss, Rifkind, Wharton & Garrison LLP, on Monday, June 12, 2017
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The 200 Highest-Paid CEOs in 2016

Posted by Dan Marcec, Equilar, Inc., on Monday, June 12, 2017
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The CEO Pay Ratio Beyond Dodd Frank: Live and Local

Posted by Jon Weinstein and Blaine Martin, Pay Governance LLC, on Tuesday, June 13, 2017
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Toe Hold Collaborations Beyond Insider Trading

Posted by Mira Ganor, University of Texas at Austin, on Tuesday, June 13, 2017
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M&A Activism: A Special Report

Posted by Josh Black, Activist Insight, on Tuesday, June 13, 2017
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Supreme Court Reaffirms Corporate Defendants Subject to Personal Jurisdiction Only “At Home”

Posted by Jonathan I. Blackman, Cleary Gottlieb Steen & Hamilton LLP, on Wednesday, June 14, 2017
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The Other Securities Regulator: A Case Study in Regulatory Damage

Posted by Anita K. Krug, University of Washington School of Law, on Wednesday, June 14, 2017
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Government Leaks Lead to Landmark Insider Trading Case

Posted by Ken Herzinger and Stephanie Albrecht, Orrick, Herrington & Sutcliffe LLP, on Wednesday, June 14, 2017
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Distracted Directors

Posted by Luke C.D. Stein and Hong Zhao, Arizona State University, on Thursday, June 15, 2017
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The Dangerous “Promise of Market Reform”: No Shareholder Proposals

Posted by Adam M. Kanzer, Domini Impact Investments LLC, on Thursday, June 15, 2017
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Financial CHOICE Act of 2017

Posted by H. Rodgin Cohen and Samuel R. Woodall III, Sullivan & Cromwell LLP, on Thursday, June 15, 2017
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Financial CHOICE Act of 2017

Posted by H. Rodgin Cohen and Samuel R. Woodall III, Sullivan & Cromwell LLP, on
Thursday, June 15, 2017
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H. Rodgin Cohen is Senior Chairman and Samuel R. Woodall III is Partner at Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell publication by Mr. Cohen, Mr. Woodall, Jared M. Fishman, C. Andrew Gerlach, and Michael M. Wiseman. Additional posts addressing legal and financial implications of the Trump administration are available here.

[On June 9, 2017], the U.S. House of Representatives, voting almost entirely along party lines, passed H.R. 10, the “Financial CHOICE Act of 2017” (the “CHOICE Act”), a Republican proposal that would substantially restructure the post-crisis regulatory framework and provide significant regulatory relief to certain highly capitalized banking organizations. The vote was 233 to 186 and marks the first time either chamber of Congress has passed legislation that would significantly amend the post-crisis financial regulatory framework implemented under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).

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