Yearly Archives: 2017

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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Adam M. Kanzer is Managing Director at Domini Impact Investments LLC. This post is based on a Domini publication by Mr. Kanzer. Related research from the Program on Corporate Governance includes Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

This has been a historic proxy season, marking three majority votes for shareholder proposals addressing climate change at Occidental Petroleum, PPL Corp. and ExxonMobil, with the latter proposal exceeding 60% support. As of this writing it is too early to tell which asset managers voted for these proposals, with the exception of BlackRock, which announced that it voted for the proposal at Occidental (Vanguard also reportedly supported that proposal). This year, Fidelity announced that it may support shareholder proposals on sustainability matters and both BlackRock and Vanguard said they were strongly weighing supporting the ExxonMobil proposal.

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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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Luke C.D. Stein is Assistant Professor of Finance and Hong Zhao is a PhD candidate in Finance at the Arizona State University W. P. Carey School of Business. This post is based on a recent paper authored by Professor Stein and Mr. Zhao.

A board needs its members to be attentive to effectively fulfill its advisory and monitoring roles, but directors inevitably have outside obligations, which sometimes distract them from their board responsibilities. To minimize the possibility of directors becoming overly distracted, public firms have increasingly imposed restrictions on the outside duties that their directors may assume. In particular, firms may restrict outside board service, but this is likely to represent only a small fraction of the competition for directors’ time and attention.

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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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Ken Herzinger is Partner and Stephanie Albrecht is Managing Associate at Orrick, Herrington & Sutcliffe LLP. This post is based on an Orrick publication by Mr. Herzinger and Ms. Albrecht.

On May 24, 2017, the SEC for the first time brought charges based on allegations of insider trading on confidential government information. The alleged insider trading scheme involved tips related to three announcements by the Center for Medicare & Medicaid Services (“CMS”) regarding non-public rate changing decisions affecting the stock of issuers in the healthcare industry.

The complaint alleges that from May 2012 to November 2013, Christopher Worrall, a health insurance specialist in the Center for Medicare (“CM”), the CMS component that administers Medicare’s national payment systems and determines Medicare reimbursement rates, tipped his long-time friend David Blaszczak about internal deliberations and planned actions of CMS. Blaszczak is a consultant specializing in healthcare policy issues and a former CMS employee.

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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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Anita K. Krug is D. Wayne and Anne Gittinger Professor of Law at the University of Washington School of Law. This post is based on a recent article by Professor Krug, forthcoming in the Tulane Law Review.

In 2016, regulators approved a new rule that imposes fiduciary obligations on broker-dealers and their personnel in connection with the investment advisory services they provide to their customers. The rule is among the most controversial ever adopted in the securities realm—a remarkable fact given that the agency with primary regulatory authority over the U.S. securities markets, the U.S. Securities and Exchange Commission, was not the adopting agency. Rather, the so-called “fiduciary rule” is the product of the Department of Labor, the agency charged with, among other things, administering the Employee Retirement Income Security Act of 1974, or ERISA.

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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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Jonathan I. Blackman is Partner at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb publication by Mr. Blackman, Lawrence B. Friedman, Howard S. Zelbo, Carmine D. Boccuzzi, Jr., Inna Rozenberg, and Matthew D. Slater. This post is part of the Delaware law series; links to other posts in the series are available here.

On May 30, 2017, the U.S. Supreme Court strongly reaffirmed the Daimler rule that a corporate defendant is typically subject to general personal jurisdiction only in its place of incorporation and its principal place of business. [1] Ruling 8-1 in BNSF Railway Co. v. Tyrrell, the Court also indicated that any exceptions to this rule will be construed very narrowly. The decision sends a strong message to state courts that the exercise of general jurisdiction based on a traditional “doing business” standard will not withstand the more exacting Daimler rule. However, the Court left open the question whether a corporation’s registration to do business in a state can constitute consent to general jurisdiction, and corporate defendants should expect continued litigation on this issue until the Court resolves it.

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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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Josh Black is Editor-in-Chief of Activist Insight. This post is based on an Activist Insight co-publication with Kingsdale Advisors.

The Board Perspective

Pre-announcement preparations for shareholder approvals have become an increasingly onerous process, putting new strains on independent directors and management teams alike. Today, boards prepare early, knowing the robustness of the process will be closely monitored. Responses for various eventualities in which an activist emerges are tested. A smooth rollout, including the official announcement and conference calls, is underpinned by management selling the deal to key shareholders from the get-go.

“Understand that your process will be scrutinized,” says Joe Spedale, President, Kingsdale Advisors, U.S. “While your legal team will be able to tell you what is required and your bankers will tell you if the valuation makes sense, boards need to understand they will be held to a higher standard and the optics of the process are important, especially if the deal was done relatively fast or will appear unexpected to shareholders.”

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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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Mira Ganor is Professor at the University of Texas at Austin. This post is based on a recent article by Professor Ganor, forthcoming in the NYU Journal of Law & Business.

In my article, Toe Hold Collaborations beyond Insider Trading, recently made available on SSRN (forthcoming in the NYU Journal of Law & Business) I analyze the novel practice of investors co-purchasing toeholds (“TH”) and show that this practice can include profit sharing arrangements that distort the parties’ incentives and may lead to inefficient outcomes. With the proliferation of wolf-packing, the incidence of TH collaborations is likely to increase as well.

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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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Jon Weinstein is a Managing Partner and Blaine Martin is Consultant at Pay Governance LLC. This post is based on a Pay Governance publication.

Spring is in the air, and executive compensation consultants are busy reading a cascade of public filings and proxy advisor reports as we analyze and are asked to predict trends in executive pay in 2017 and beyond. One of the most common questions in executive compensation this year concerns what will become of the Dodd-Frank mandated CEO pay ratio set to be disclosed publicly for most companies beginning with proxies filed in 2018—if not delayed or overturned beforehand. Earlier this year, acting Securities and Exchange Commission (SEC) Chair Michael Piwowar took the unusual step of requesting additional comments on the cost and burden of complying with the already approved CEO pay ratio rule, which would require companies to disclose the ratio of CEO pay to that of the median employee. Adding to this uncertainty, the Choice Act 2.0 (currently out of Committee in the House of Representatives) would repeal the CEO pay ratio disclosure requirement if approved by the full House, Senate, and White House. While the future is cloudy regarding the implementation of the Dodd-Frank pay ratio rule in 2018, we note that nine state and city governments have proposed some form of tax code change or local ordinance that would base local income taxation or licensing fees on a public company’s CEO pay ratio.

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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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Dan Marcec is Director of Content at Equilar, Inc. This post is based on an Equilar publication by Mr. Marcec which was originally published in the Equilar Knowledge Center. Related research from the Program on Corporate Governance includes The Growth of Executive Pay by Lucian Bebchuk and Yaniv Grinstein, and Executive Compensation in Controlled Companies by Kobi Kastiel (discussed on the Forum here).

The New York Times recently published its coverage of the annual Equilar 200 study, which analyzes the largest pay packages awarded to CEOs at U.S. public companies. The 2017 Equilar 200 marks the 11th consecutive year of a partnership with The New York Times to analyze data on pay awards for these high-profile executives.

The introductory page of this feature shows the Top 10 CEOs who were awarded the largest pay packages in 2016, as reported in the summary compensation table of the proxy statement filed to the SEC. (Read more about the study’s methodology.)

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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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Brad S. Karp is a partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul, Weiss publication by Mr. Karp, Susanna Buergel, Andrew Ehrlich, Audra Soloway, Alex Oh and Walter Rieman.

The Supreme Court ruled [June 5, 2017] that claims for disgorgement brought by the SEC are governed by a five-year statute of limitations. The Court’s unanimous opinion in Kokesh v. SEC, No. 16-529, slip op. at 5 (U.S. June 5, 2017) (Sotomayor, J.), held that disgorgement, as it is applied in SEC enforcement proceedings, operates as a “penalty” for purposes of the general federal statute of limitations applicable to “actions for the enforcement of … any … penalty.” Under Kokesh, a claim by the SEC seeking disgorgement is thus subject to the same five-year period of limitations as claims by the SEC for civil fines, penalties other than disgorgement, and forfeitures. Kokesh rejected the SEC’s position that claims for disgorgement are subject to no period of limitations at all, and could thus potentially be brought an unlimited number of years after the acts constituting the violation.

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