Monthly Archives: January 2017

Broadening the Boardroom

Emmet McNamee is a Research Associate at Glass, Lewis & Co., LLC. This post is based on a Glass Lewis publication by Mr. McNamee.

UK Prime Minister Theresa May has recently backtracked on her proposals to increase employee representation on boards. It was an idea which had largely been confined to the wilderness of UK governance for several decades after seeing its heyday in the 1970s with the publication of the Bullock Report. Mrs May’s proposal has been lauded and criticised in equal measures, and it is unclear now whether it will be abandoned altogether or merely watered down.

Given the increasingly visible disparities between the pay of executives and employees, and a US election largely characterised by discussions over income inequality and the outsourcing of jobs overseas, it is perhaps unsurprising that the question of employee representation on boards is back in the spotlight. There is widespread sentiment that public companies are not adequately serving all their stakeholders, and that increased worker voice could in some way enhance the “social licence” of companies to operate. But what are the effects of such moves on the board’s ability to oversee the business, and ultimately on shareholder value?

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“Fair Value” to be Determined by Merger Price—Merion v. Lender Processing

Gail Weinstein is senior counsel and Scott B. Luftglass is partner at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication by Ms. Weinstein, Mr. Luftglass, Robert C. SchwenkelBrian T. ManginoSteven J. Steinman, and David L. Shaw. This post is part of the Delaware law series; links to other posts in the series are available here.

In a noteworthy appraisal decision, Merion Capital v. Lender Processing Services, Inc. (Dec. 16, 2016), the Delaware Court of Chancery relied entirely on the merger price to determine “fair value” and issued an appraisal award equal to the merger price.

Key Points

The decision confirms that an appraisal award likely will not exceed the merger price in a non-affiliated transaction where there was a pre-signing market check with “meaningful competition”—particularly if, as in Lender Processing, there are also additional factors supporting the reliability of the merger price as an indicator of fair value.

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Mutual Funds As Venture Capitalists? Evidence from Unicorns

Yao Zeng is Assistant Professor of Finance at University of Washington Foster School of Business. This post is based on a recent paper authored by Professor Zeng; Sergey Chernenko, Assistant Professor of Finance at The Ohio State University Fisher College of Business; and Josh Lerner, Jacob H. Schiff Professor of Investment Banking at Harvard Business School.

The past five years have witnessed a dramatic change in the financing of entrepreneurial firms. Whereas once these firms were financed primarily by a small set of venture capital groups (VCs), who tightly monitored and controlled the companies in their portfolios, in recent years financing sources have broadened dramatically. In the years after firm formation, individual angels—whether operating alone or in groups—have played a far more important role, while on the back end, firms have delayed going public by raising considerable sums from investors who were traditionally associated with public market investing, such as mutual funds, sovereign wealth funds, and family offices.

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Top 10 Topics for Directors in 2017

Kerry E. Berchem is partner and head of the corporate practice, and Rick L. Burdick is partner and chair of the Global Energy & Transactions group, at Akin Gump Strauss Hauer & Feld LLP. This post is based on an Akin Gump publication.

Here is our annual list of hot topics for the boardroom in the coming year:

1. Corporate strategy: Oversee the development of the corporate strategy in an increasingly uncertain and volatile world economy with new and more complex risks

Directors will need to continue to focus on strategic planning, especially in light of significant anticipated changes in U.S. government policies, continued international upheaval, the need for productive shareholder relations, potential changes in interest rates, uncertainty in commodity prices and cybersecurity risks, among other factors.

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FINRA’s Most Significant 2016 Enforcement Actions

Jonathan N. Eisenberg and Michael T. Dyson are partners at K&L Gates LLP. This post is based on a K&L Gates publication by Mr. Eisenberg and Michael Dyson.

The Financial Industry Regulatory Authority (“FINRA”), the self-regulatory organization for broker-dealers, brings about 1,500 enforcement actions a year. Often lost in the volume of actions, however, are the ones that merit particular attention because of the size of the fines imposed. We briefly describe the actions that resulted in fines (or in a few cases restitution) of $1 million or more in 2016 and five lessons that emerge from these cases.

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Bridging the Data Gap through Shareholder Engagement

Yannick Ouaknine is a senior analyst with the Socially Responsible Investing group at Société Générale S.A. The following post is based on an SG publication by Mr. Ouaknine, Nimit Agarwal, and Niamh Whooley. This post relates to an SG publication titled “Corporate Governance,” issued January 3, 2017, available here.

Corporate governance has a wide scope but broadly it refers to the mechanisms, processes and relations by which companies are directed and controlled. Adopting both effective and efficient governance practices at the corporate level has become a priority.

The relevance of corporate governance principles for an organisation may be impacted by the size of the business and the industry or country in which it operates, with however “minimum” requirements. Governance principles are primarily influenced by the regulatory framework that applies to the company and by stakeholder scrutiny.

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Why Do Managers Fight Shareholder Proposals? Evidence from No-Action Letter Decisions

John G. Matsusaka is Charles F. Sexton Chair in American Enterprise, Professor of Finance and Business Economics at the University of Southern California Marshall School of Business. This post is based on a recent paper authored by Professor Matsusaka; Oguzhan Ozbas, Associate Professor of Finance at USC Marshall School of Business; and Irene Yi.

Corporate managers, by and large, are skeptical of shareholder proposals. A shareholder proposal, placed in the proxy statement by an activist shareholder, allows shareholders as a group to vote on a change in the company’s bylaws or advise management to alter company policies. Managers routinely resist expanded use of shareholder proposals, both through organizations that seek to influence regulations such as the Business Roundtable, and by seeking to omit individual proposals from the company’s proxy statement using the SEC’s no-action letter process.

The reason managers fight shareholder proposals is a matter of some dispute. The “responsible manager” view is that shareholder proposals are harmful to the firm; they distract managers, disrupt the company’s operations, and in some cases are designed to push the company in a direction that benefits special interest shareholders such as labor unions, public pensions, and environmental groups. The underlying logic of this view has a long tradition in the law, and is the basis for the business judgement rule that presumes shareholders are less informed about the company than managers, and that managers are acting in the best interest of shareholders. The “self-interested manager” view, in contrast, is that shareholder proposals increase firm value, and that managers resist them in order to protect corporate practices that serve their private interests. The underlying logic of this view also has a long tradition, dating back at least to Berle and Means, who argued in The Modern Corporation and Private Property (1932) that separation of ownership and control in the modern corporation allows managers substantial leeway to pursue their own interests at the cost of shareholder wealth.

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Weekly Roundup: January 13, 2016–January 19, 2017


More from:

This roundup contains a collection of the posts published on the Forum during the week of January 13, 2016–January 19, 2017.

Playing It Safe? Managerial Preferences, Risk, and Agency Conflicts





Corporate Donations and Shareholder Value










Delaware Court of Chancery Dismissal of Complaint Based on Post-Closing Disclosure Claims

Scott A. Barshay and Ariel J. Deckelbaum are partners at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul Weiss publication authored by Mr. Barshay, Mr. Deckelbaum, Ross A. Fieldston, Justin G. Hamill, Stephen P. Lamb, and Jeffrey D. Marell. This post is part of the Delaware law series; links to other posts in the series are available here.

In In re United Capital Corp. Stockholders Litigation, the Delaware Court of Chancery granted the defendants’ motion to dismiss a complaint filed by a former minority stockholder of United Capital Corporation seeking “quasi-appraisal” as a remedy in connection with the 2015 short-form merger under Section 253 of the Delaware General Corporation Law between United Capital and its controlling stockholder. The plaintiff alleged that the notice sent to stockholders in connection with the merger made various omissions, none of which the Court found material to the minority stockholders’ decision of whether to seek appraisal in connection with the merger. Therefore, the Court held that the only remedy available to minority stockholders was appraisal.

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2016 Year-End FCPA Update

F. Joseph Warin is partner and chair of the litigation department at the Washington D.C. office of Gibson, Dunn & Crutcher LLP. The following post is based on a Gibson Dunn publication.

2016 was a precedent-setting year for the Foreign Corrupt Practices Act (“FCPA”). After several years of consistent enforcement numbers, the Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) produced what arguably is the most significant year of enforcement in the statute’s 39-year history. With 53 combined enforcement actions, more than $2 billion in corporate fines levied by U.S. enforcers and billions more by foreign regulators in coordinated prosecutions, early returns on the DOJ’s FCPA Pilot Program, and an increasingly clear intersection between the FCPA and Dodd-Frank’s whistleblower provisions, there is much to discuss.

This post provides an overview of the FCPA, as well as domestic and international anti-corruption enforcement, litigation, and policy developments from the year 2016.

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