Monthly Archives: February 2017

2016 Year-End Securities Litigation Update

This post is based on a publication by Gibson, Dunn & Crutcher LLP. This post is part of the Delaware law series; links to other posts in the series are available here.

The year was yet another eventful one in securities litigation, from the expanded application of Omnicare and Halliburton II, to several significant decisions from the Delaware courts regarding, among other things, the bounds of collateral estoppel analysis and the principles for determining whether a claim is direct or derivative. The year-end update highlights what you most need to know in securities litigation developments and trends for the last half of 2016: READ MORE »

Global Private Equity Survey

The following post is based on a publication from the EY Center for Board Matters.

Environmental pressures of the past few years have forced firms to dedicate significant resources to non-investment-related tasks such as regulatory reporting and increased investor reporting. These challenges were answered timely by CFOs through increased hiring as well as implementing baseline technologies to deal with the new regulatory requirements and increased investor requests. As a result, CFOs have put the raw materials in place to allow them to deal with tomorrow’s challenges.

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The Law and Brexit X

Thomas J. Reid is Managing Partner of Davis Polk & Wardwell LLP. This post is based on a Davis Polk memorandum. Additional posts on the legal and financial impact of Brexit are available here.

In the last few weeks, some welcome clarity has finally been introduced on the UK side of the Brexit negotiations. In her speech on January 17, 2017, the UK Prime Minister confirmed that the UK will not seek to remain a member of the single market and would not accept any role in the UK for the Court of Justice of the European Union (“CJEU”) after Brexit. Although her speech was somewhat vague on the specifics of the free trade deal that the UK will seek during the Brexit negotiations, we now know that the UK and the EU will experience a relatively “hard” Brexit; this could have material implications for those providing financial services in the EU from the UK.

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Weekly Roundup: February 3–9, 2017


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This roundup contains a collection of the posts published on the Forum during the week of February 3–9, 2017.















Foreign Cash: Taxes, Internal Capital Markets, and Agency Problems


2017 Proxy Season: Key ISS Compensation—Related Updates

Bradd L. Williamson and Austin Ozawa are partners at Latham & Watkins LLP. This post is based on a Latham publication by Mr. Williamson, Mr. Ozawa, Maj Vaseghi, and Lindsey Mills.

Companies should consider compensation-related changes to ISS policies when preparing for annual meetings on or after February 1, 2017.

Institutional Shareholder Services (ISS) recently released updates to its 2017 voting policies effective for annual meetings on or after February 1, 2017. This post summarizes compensation-related policy changes and updates that companies should consider going into the 2017 proxy season.

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Investor Coalition Publishes U.S. Stewardship Code

Abe M. Friedman is CEO of CamberView Partners, LLC. This post is based on a CamberView publication, and relates to the Corporate Governance and Stewardship Principles released by the Investor Stewardship Group, discussed on the Forum here. Related research from the Program on Corporate Governance includes Can We Do Better by Ordinary Investors? A Pragmatic Reaction to the Dueling Ideological Mythologists of Corporate Law, by Leo E. Strine (discussed on the Forum here) by Chief Justice Leo Strine; and The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here).

On January 31, 2017, the Investor Stewardship Group, a coalition of sixteen investors, premiered the Framework for U.S. Stewardship and Governance (the Framework; discussed on the Forum here), outlining a set of six fundamental governance principles for U.S. listed companies and stewardship principles for U.S. institutional investors. The Framework is an investor-led effort written by senior corporate governance staff at each shareholder. Some elements of the Framework overlap with the joint company and investor statements in the Commonsense Corporate Governance Principles published in July 2016. The Investor Stewardship Group covers $17 trillion in assets under management including BlackRock, State Street, T. Rowe Price, ValueAct and Vanguard as well as other asset managers and pension funds, with a call for additional signatories.

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Board Refreshment Trends at S&P 1500 Firms

Jon Lukomnik is the Executive Director of the Investor Responsibility Research Center Institute (IRRC). This post is based on a co-publication from IRRC and Institutional Shareholder Services, Inc. Related research from the Program on Corporate Governance includes The “New Insiders”: Rethinking Independent Directors’ Tenure by Yaron Nili (discussed on the Forum here).

“Refreshment” is among the most hotly-debated topics across U.S. boardrooms and within the broader corporate governance community. While shareholders, directors, and other market constituents vary as to the reasons for their refreshment concerns, they typically include snail-paced board turnover, sky-rocketing tenures, stagnant skillsets and deficient diversity.

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Foreign Cash: Taxes, Internal Capital Markets, and Agency Problems

Jarrad Harford is the Paul Pigott-PACCAR Professor of Finance at Foster School of Business, University of Washington; and Cong Wang is Professor of Finance at China Europe International Business School. This post is based on a recent article forthcoming at the Review of Financial Studies by Professor Harford, Professor Wang, and Kuo Zhang, Assistant Professor of Finance at School of Economics & WISE, Xiamen University.

U.S. multinational corporations park trillions of dollars of cash in low-tax jurisdictions to avoid the taxes associated with repatriating their foreign earnings. Company filings to the SEC for fiscal year 2016 show that some of the largest multinational companies, such as Apple and Microsoft, held over 90% of their cash reserves abroad. While keeping foreign earnings outside the U.S. can bring tax savings to shareholders, it may also hurt firm value through financing frictions and potential agency problems arising from the use of foreign cash. In our new article, Foreign Cash: Taxes, Internal Capital Markets, and Agency Problems, we investigate the shareholder value implications of parking large amounts of cash abroad.

We manually collect the amounts of foreign cash reserves for a sample of firms in the S&P 1500 index that disclose such information in their 10-K filings. Using a value-of-cash model, we find that the marginal value of a firm’s cash declines as the proportion of its total cash that is held abroad (foreign cash ratio) increases. This result suggests that investors place a discount on firms’ cash that is trapped overseas. We also examine the economic magnitude of this discount and find that a one standard deviation (0.29) increase in the foreign cash ratio is associated with a reduction of the marginal value of cash by $0.31. This large economic impact goes beyond the repatriation tax cost a firm would incur when bringing its foreign cash back to the U.S. To provide a more complete picture of the sources of the foreign cash discount, we next investigate the potential real consequences of stockpiling cash abroad.

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Allergan Fine Underscores Obligation to Disclose White Knight

Gail Weinstein is Senior Counsel and Philip Richter is a Partner at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication by Ms. Weinstein, Mr. Richter, Scott B. LuftglassPeter Simmons, and Warren S. de Wied.

Allergan Inc. has agreed with the SEC that it will admit to securities law violations and will pay a $15 million fine for disclosure violations in its Schedule 14D-9 relating to the unsolicited, public takeover bid for the company made by Valeant Pharmaceuticals International in 2014. According to the SEC, Valeant failed to disclose that, in response to the offer, Allergan engaged in negotiations for possible alternative M&A transactions. In the press release issued by the SEC on Jan. 17, 2017, the Director of the SEC’s New York Regional Office stated: “Allergan failed to fully and timely disclose information about potential merger transactions it was negotiating behind the scenes in response to the Valeant bid.”

The SEC action underscores the obligation under Schedule 14D-9 to disclose merger or acquisition negotiations (such as for a white knight transaction) following an unsolicited tender offer. The SEC Order provides some clarification of the SEC’s view as to when discussions constitute “merger negotiations” that require disclosure.

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Tax Implications of Executive Pay: What Boards Need to Know

Paula Loop is Leader of the Governance Insights Center at PricewaterhouseCoopers LLP and Arthur H. Kohn is a partner at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a co-publication from PwC and Cleary Gottlieb Steen & Hamilton LLP.

Tax issues—how pay is taxed, when, and whether that tax can be deferredcan be a key driver in designing executive pay packages.

The potential tax impacts of executive pay decisions, both for the company and for the executive, can affect how executive compensation is structured. Here, we explain the key tax issues that compensation committees should understand in order to design effective executive compensation programs.

Imagine your company’s leadership is in transition, and after an exhaustive search, the board has found the perfect CEO candidate. Next up: negotiating the employment agreement. The parties will need to agree generally on the dollar figures at play, but just as importantly, how will it be paid? How much in cash? How much in equity? What kind of equity—options, restricted stock, restricted stock units? What will the vesting conditions look like? Can any of the payments be deferred?

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