Daily Archives: Wednesday, February 22, 2017

Directors Must Navigate Challenges of Shareholder-Centric Paradigm

Posted by Stephen F. Arcano and Thomas H. Kennedy, Skadden, Arps, Slate, Meagher & Flom LLP, on
Wednesday, February 22, 2017
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Stephen F. Arcano and Thomas H. Kennedy are partners at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a Skadden publication by Mr. Arcano and Mr. Kennedy. Related research from the Program on Corporate Governance includes Lucian Bebchuk’s The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here).

The corporate governance landscape has become more complicated, making it more difficult for directors to manage the often inconsistent demands of multiple constituencies while pursuing the fundamental fiduciary obligation to act in the best interests of the corporation and its stockholders. Evolution in the prevailing corporate governance model to a more shareholder-centric paradigm, widening fault lines between the perspectives of different types of shareholders, and the expanding reach of governmental regulation and enforcement efforts, among other forces, have contributed to the issues contemporary boards face. Directors’ ability to assess these factors and successfully navigate these challenges will be critical in the year ahead.

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Delaware Supreme Court Confirms BJR Application After Disinterested Shareholder Approval

Posted by Scott B. Luftglass and Philip Richter, Fried, Frank, Harris, Shriver & Jacobson LLP, on
Wednesday, February 22, 2017
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Scott B. Luftglass and Philip Richter are partners at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication by Mr. Luftglass, Mr. Richter, Steven Epstein, Warren S. de Wied, Peter L. Simmons, and Gail Weinstein. This post is part of the Delaware law series; links to other posts in the series are available here.

In Volcano Stockholders Litigation, the Delaware Supreme Court, on February 9, 2017, in a one-sentence affirmance, upheld the Court of Chancery’s decision dismissing the post-closing challenge of the $1.2 billion merger of Volcano Corp. with Philips Holding USA Inc. The plaintiffs claimed that the Volcano board had failed to fully inform stockholders in connection with their vote on the transaction—including with respect to a previous higher offer made by Philips and alleged conflicts of interest of Volcano’s financial advisors. The decision is consistent with the Delaware courts’ continued expansive interpretation of the seminal 2015 Corwin decision, which has resulted in a strong trend of early dismissal of litigation challenging M&A transactions (not involving a “controller”—see below).

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Company Stock Reactions to the 2016 Election Shock: Trump, Taxes and Trade

Posted by Richard Zeckhauser, Harvard University and NBER, on
Wednesday, February 22, 2017
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Richard Zeckhauser is the Frank P. Ramsey Professor of Political Economy at the Harvard University Kennedy School of Government, and a Research Associate at the National Bureau of Economic Research (NBER). This post is based on a recent paper authored by Professor Zeckhauser; Alexander F. Wagner, Associate Professor of Finance at the University of Zurich and Faculty Member at the Swiss Finance Institute; and Alexandre Ziegler, Director of the Center for Portfolio Management at the University of Zurich. Additional posts addressing legal and financial implications of the Trump administration are available here.

Donald Trump’s election was a significant surprise. So too was the dramatic run up in the stock market that followed. A story less told is how individual stocks and industries responded to the Trump surprise, and expectations about the policies that might follow. In fact, some stocks gained significantly relative to the market; others were major losers. The paper Company Stock Reactions to the 2016 Election Shock: Trump, Taxes and Trade, recently made available on SSRN, illuminates the factors that produced winners and losers.

In an era where politics is extremely polarized and forward-looking assessments of economic prospects are often tilted and exaggerated, it is instructive to investigate how investors assessed the prospects for individual firms. Investors clearly expect US corporate taxes to be cut substantially; thus firms paying high taxes out-performed. What to expect for US companies with significant non-US revenues was less clear cut. Trump and his Republican allies had promised to make firms more competitive abroad. But talk of tariffs and trade raised retaliation concerns. In fact, foreign-oriented firms lost significantly. Companies with high interest expenses suffered for two possible reasons: deductions lose value when taxes are slashed, and some Trump/Republican plans threaten interest deductibility. Investors have not yet taken a clear view on the implications of plans to allow expensing of capital investments.

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