Monthly Archives: March 2017

Systems-Level Considerations and the Long-Term Investor: Definitions, Examples, and Actions

Posted by Steve Lydenberg, The Investment Integration Project, on

Saturday, March 18, 2017

Accountability, Corporate Social Responsibility, Environmental disclosure, ESG, Financial crisis, Institutional Investors, International governance, Social capital, Social networks, Stewardship, Sustainability, Systemic risk
More from: Steve Lydenberg, The Investment Integration Project

Steve Lydenberg is Founder and CEO of The Investment Integration Project (TIIP). This post is based on a TIIP publication by Mr. Lydenberg. The complete publication, including footnotes, is available here.

This post addresses the question of how asset owners and managers can identify environmental, societal and financial systems-level issues relevant to their investment processes. Integration of these systems-level considerations can help investors manage long-term risks and rewards while seeking competitive portfolio-level returns.

The primary questions addressed in this post are:

What are the characteristics of environmental, societal and financial systems-level issues that make them relevant to long-term investors for integration into investment processes?

What are examples of these systems-level issues that rise to the level of significance for such consideration and how in practice can that level of significance be determined?

Four guidelines that can help long-term investors determine the relevance of systems under consideration are proposed:

BlackRock’s 2017-2018 Engagement Priorities

Posted by Abe Friedman and Robert McCormick, CamberView Partners, on

Friday, March 17, 2017

BlackRock, Board composition, Boards of Directors, Diversity, Engagement, Environmental disclosure, ESG, Executive Compensation, Institutional Investors, Long-Term value, Proxy season, Proxy voting, Sustainability
More from: Abe Friedman, Chad Spitler, Rob Zivnuska, Robert McCormick, PJT Camberview

Abe M. Friedman is CEO and Robert McCormick is a partner at CamberView Partners, LLC. This post is based on a CamberView publication by Mr. Friedman, Mr. McCormick, Chad Spitler, and Rob Zvinuska.

On Monday, March 13^th, BlackRock released its engagement priorities for 2017-2018 to help prepare directors and management teams to engage with its Investment Stewardship team over the coming year. BlackRock reiterated its preference to engage privately with companies in a constructive manner, but also reminded companies that it will vote counter to management recommendations when appropriate.

BlackRock’s new engagement priorities address traditional areas of investor engagement such as governance, strategy and compensation alongside developing areas like climate risk and human capital management.

Highlights include:

Financial Crisis, Corporate Governance, and Bank Capital

Posted by Sanjai Bhagat, University of Colorado Boulder, on

Friday, March 17, 2017

Agency costs, Banks, Capital requirements, CHOICE Act, Dodd-Frank Act, Executive Compensation, Financial crisis, Financial institutions, Financial regulation, Incentives, Leverage, Liquidity, Management, Mortgage lending, Risk oversight, Risk-taking, Systemic risk, Too big to fail
More from: Sanjai Bhagat

Sanjai Bhagat is Provost Professor of Finance at the University of Colorado Boulder Leeds School of Business. This post is based on Professor Bhagat’s recent book.

Despite Dodd-Frank’s stated intentions to make “too-big-to-fail” banks a thing of the past, investors and policymakers believe that many big banks are still too big to fail. This issue has come up repeatedly in economic discussions in Congressional hearings, and among senior policymakers in the United States and Europe. In recent work, we propose a solution to the too-big-to-fail problem that can be implemented with minimal or no additional regulations, only the intervention of corporate board members and institutional investors in these big banks.

Weekly Roundup: March 10–16, 2017

Posted by HLS Forum on Corporate Governance and Financial Regulation, on

Friday, March 17, 2017

Weekly Roundup
More from:

This roundup contains a collection of the posts published on the Forum during the week of March 10–16, 2017.

The Modern Slavery Act 2015: Next Steps for Businesses

Posted by Raj Panasar, Cleary Gottlieb Steen & Hamilton LLP, on Friday, March 10, 2017

Tags: Accountability, Cross-border transactions, Disclosure, Due diligence, Financial reporting, International governance, Labor markets, Oversight, Risk management, Transparency, UK

Stock Rising

Posted by Matthew Goforth, Equilar, Inc., on Friday, March 10, 2017

Tags: Accountability, Equity-based compensation, Executive Compensation, Executive performance, Firm performance, Incentives, Management, Pay for performance, Say on pay, Shareholder value, Stock options, TSR

The Delaware Trap: An Empirical Study of Incorporation Decisions

Posted by Robert Anderson IV, Pepperdine University, on Saturday, March 11, 2017

Tags: Accounting, Corporate forms, Decision making, Delaware articles, Delaware law, Disclosure, Incorporations, Inside counsel, Jurisdiction, Regulation D, Risk, State law

U.S. Tax Reform: Strategies for Executing Transactions in the Face of Uncertainty

Posted by Nicholas J. DeNovio, Latham & Watkins LLP, on Sunday, March 12, 2017

Tags: Accounting, Capital markets, Cross-border transactions, Disclosure, Financial regulation, Incorporations, Internal Revenue Code, International governance, IRS, Mergers & acquisitions, REITs, Securities regulation, Tax avoidance, Taxation, Trump

Acting SEC Chair’s Steps to Centralize the Process of Issuing Formal Orders—Are Commentators Drawing the Right Lessons?

Posted by Matthew C. Solomon and Elizabeth (Lisa) Vicens, Cleary Gottlieb Steen & Hamilton LLP, on Monday, March 13, 2017

Tags: SEC, SEC enforcement, SEC investigations, Securities enforcement, Securities regulation

Defusing the Antitrust Threat to Institutional Investor Involvement in Corporate Governance

Posted by Edward B. Rock, New York University School of Law, and Daniel L. Rubinfeld, NYU School of Law, on Monday, March 13, 2017

Tags: Antitrust, Behavioral finance, Clayton Act, Executive Compensation, Executive performance, Firm performance, Incentives, Institutional Investors, Investor protection, Management, Ownership, Peer groups, Shareholder value, Sherman Act

Is Disgorgement a “Forfeiture” for Statute of Limitations Purposes?

Posted by Jon Eisenberg, K&L Gates LLP, on Tuesday, March 14, 2017

Tags: CFPB, Disgorgement, Exchange Act, Investor protection, Liability standards, Misconduct, SEC, SEC enforcement, Securities damages, Securities regulation, Statute of limitations, Supreme Court, U.S. federal courts

Board of Directors Compensation: Past, Present and Future

Posted by Diane Lerner, Pay Governance LLC, on Tuesday, March 14, 2017

Tags: Audit committee, Board composition, Board performance, Board turnover, Boards of Directors, Compensation committees, Director compensation, Dodd-Frank Act, Management, Sarbanes–Oxley Act, Staggered boards, Stock options

The Dealmaking State

Posted by Steven Davidoff Solomon, UC Berkeley School of Law, and David Zaring, The Wharton School, on Tuesday, March 14, 2017

Tags: Donald Trump, Financial regulation, Incentives, Managerial style, Mergers & acquisitions, Negotiation, Public interest, Shared ownership, Sovereign debt, Taxation

SEC Enforcement: 2016 in Review and Looking Ahead to 2017

Posted by William R. McLucas and Douglas J. Davison, WilmerHale LLP, on Wednesday, March 15, 2017

Tags: Broker-dealers, Deregulation, Dodd-Frank Act, FCPA, Fiduciary rule, Insider trading, Money laundering, SEC, SEC enforcement, Securities enforcement, Securities litigation, Securities regulation, Whistleblowers

Super Hedge Fund

Posted by Sharon Hannes, Tel Aviv University, on Wednesday, March 15, 2017

Tags: Hedge funds, Incentives, Institutional Investors, Institutional monitoring, Long-Term value, Market efficiency, Pension funds, Shareholder activism, Shareholder value, Shareholder voting, Short-termism

Diversity Investing

Posted by Alberto Manconi, Bocconi University, on Thursday, March 16, 2017

Tags: Diversity, Executive performance, Firm performance, Information environment, Institutional Investors, Management, Market reaction, Pension funds, Reputation, Stock mispricing

The First Block in the Chain: Proposed Amendments to the DGCL Pave the Way for Distributed Ledgers and Beyond

Posted by Matthew J. O’Toole and Michael K. Reilly, Potter Anderson & Corroon LLP, on Thursday, March 16, 2017

Tags: Blockchain, Books and records, Delaware law, DGCL, DGCL Section 224, Disclosure, Financial technology, Information environment, Innovation, Ownership, Securities regulation, Transparency

Delaware Blockchain Initiative: Transforming the Foundational Infrastructure of Corporate Finance

Posted by Andrea Tinianow, Delaware Blockchain Initiative and Caitlin Long, Symbiont, on Thursday, March 16, 2017

Tags: Audit trail, Beneficial owners, Blockchain, Books and records, Contracts, Corporate disputes, Delaware law, DGCL, Disclosure, Filings, Financial technology, Innovation, Intermediaries, Ownership, Proxy voting, Securities regulation, Transparency

Delaware Blockchain Initiative: Transforming the Foundational Infrastructure of Corporate Finance

Posted by Andrea Tinianow, Delaware Blockchain Initiative and Caitlin Long, Symbiont, on

Thursday, March 16, 2017

Audit trail, Beneficial owners, Blockchain, Books and records, Contracts, Corporate disputes, Delaware law, DGCL, Disclosure, Filings, Financial technology, Innovation, Intermediaries, Ownership, Proxy voting, Securities regulation, Transparency
More from: Andrea Tinianow, Caitlin Long

Andrea Tinianow is Director of Delaware Blockchain Initiative and Caitlin Long is Chairman & President of Symbiont. This post is part of the Delaware law series; links to other posts in the series are available here. Additional posts related to the blockchain initiative are available here.

The foundation for much of American corporate finance is Delaware corporate law. Later this year, a small change to Delaware corporate law, if enacted, could facilitate a major simplification of the plumbing of the financial system built on top of that foundation. The change is part of the Delaware Blockchain Initiative (DBI), which then-Governor Jack Markell introduced in May 2016. The initiative will allow for the application of distributed ledger technology to many of the private sector’s most basic and critical legal documents, which companies currently file with the Delaware Division of Corporations.

The First Block in the Chain: Proposed Amendments to the DGCL Pave the Way for Distributed Ledgers and Beyond

Posted by Matthew J. O’Toole and Michael K. Reilly, Potter Anderson & Corroon LLP, on

Thursday, March 16, 2017

Blockchain, Books and records, Delaware law, DGCL, DGCL Section 224, Disclosure, Financial technology, Information environment, Innovation, Ownership, Securities regulation, Transparency
More from: David B. DiDonato, Matthew J. O’Toole, Michael K. Reilly, Potter Anderson & Corroon

Matthew J. O’Toole and Michael K. Reilly are partners at Potter Anderson & Corroon LLP. This post is based on a Potter Anderson publication by Mr. O’Toole, Mr. Reilly, and David B. DiDonato. The views expressed herein are solely those of the authors and do not necessarily represent the views of the firm or its clients. This post is part of the Delaware law series; links to other posts in the series are available here. Additional posts related to the blockchain initiative are available here.

On May 2, 2016, Delaware’s Governor announced the official public launch of the “Delaware Blockchain Initiative.” [1] The primary goal of the initiative is to encourage the adoption of blockchain technology in the private and public sectors for the benefit of both private enterprises and the public. [2] As part of the initiative, the Governor requested that the Council of the Corporation Law Section of the Delaware State Bar Association (which we refer to herein as the Council) begin to explore whether any changes or clarifications should be made to the General Corporation Law of the State of Delaware (commonly referred to as the DGCL) to enable Delaware corporations to utilize blockchain technology for the registration and transfer of record ownership of shares of stock. [3]

Diversity Investing

Posted by Alberto Manconi, Bocconi University, on

Thursday, March 16, 2017

Diversity, Executive performance, Firm performance, Information environment, Institutional Investors, Management, Market reaction, Pension funds, Reputation, Stock mispricing
More from: Alberto Manconi, Antonino Rizzo, Oliver Spalt

Alberto Manconi is Assistant Professor of Finance at Bocconi University. This post is based on a recent paper authored by Mr. Manconi; Oliver G. Spalt, Professor of Behavior Finance at Tilburg University; and Antonino Emanuele Rizzo, Tilburg University.

In March 2015, a group of public investment funds, collectively managing assets in excess of one trillion dollars, submitted a petition to the SEC which asks for enhanced diversity disclosure for board nominees, arguing that better disclosure on “skills, experiences, gender, race, and ethnic diversity can help us as investors determine whether the board has the appropriate mix to manage risk and avoid groupthink.” [1] Echoing this argument, a large management literature supports the importance of management team “diversity,” defined as variation among the top managers in functional backgrounds, industry and firm tenure, education, and other characteristics that define an executive’s “cognitive frame.” In contrast to an extensive body of work on diversity in other fields, there is comparatively little work on top management team diversity in the finance literature.

Super Hedge Fund

Posted by Sharon Hannes, Tel Aviv University, on

Wednesday, March 15, 2017

Hedge funds, Incentives, Institutional Investors, Institutional monitoring, Long-Term value, Market efficiency, Pension funds, Shareholder activism, Shareholder value, Shareholder voting, Short-termism
More from: Sharon Hannes

Sharon Hannes is Dean and Professor of Law at Tel Aviv University Faculty of Law. This post is based on recent article by Professor Hannes.

Activist hedge funds revolutionized corporate America and generated both excitement and criticism alike. This article suggests that a novel market mechanism, a “super hedge fund,” would maintain the benefits of hedge fund activism, while curbing its downsides. The super hedge fund would not really be a fund but, rather, a contractual arrangement among a broad group of institutional investors and a task force of financial experts. The task force would pool together the potency of the institutional shareholders in a sophisticated manner and then unleash its sting on target corporations. Unlike current hedge fund activism, the super hedge fund would not necessitate substantial financing or purchase of securities and, therefore, would be extremely efficient and highly accessible. Importantly, the super hedge fund mechanism is designed to ensure that its incentives are closely aligned with the interests of the long-term shareholders of the targeted corporations. Hence, the new mechanism should respond to the claims of short-termism lodged at current hedge fund activism.
READ MORE »

SEC Enforcement: 2016 in Review and Looking Ahead to 2017

Posted by William R. McLucas and Douglas J. Davison, WilmerHale LLP, on

Wednesday, March 15, 2017

William R. McLucas and Douglas J. Davison are partners at WilmerHale LLP. This post is based on a co-publication from WilmerHale and Ankura Consulting Group by Mr. McLucas, Mr. Davison, Lauren J. Schreur, Martin S. Wilczynski and Steven E. Richards.

Enforcement activity increased again in fiscal year 2016, and the U.S. Securities and Exchange Commission (“SEC”) continued to pursue a broad agenda. Consistent with former Chair Mary Jo White’s “broken windows” enforcement policy, the Division of Enforcement brought actions “that spanned the spectrum of the securities industry.” In total, the SEC brought 868 enforcement actions, the most in the agency’s history. Of the 868 actions, 548 were “stand alone” cases, another SEC record. The actions resulted in over $4 billion in disgorgement and penalties, down just slightly from fiscal year 2015’s record of $4.19 billion.

The Dealmaking State

Posted by Steven Davidoff Solomon, UC Berkeley School of Law, and David Zaring, The Wharton School, on

Tuesday, March 14, 2017

Common ownership, Donald Trump, Financial regulation, Incentives, Managerial style, Mergers & acquisitions, Negotiation, Public interest, Sovereign debt, Taxation
More from: David Zaring, Steven Davidoff Solomon

Steven Davidoff Solomon is Professor of Law at the UC Berkeley School of Law and David T. Zaring is Associate Professor at the Wharton School at the University of Pennsylvania. The following post is based on a recent paper by Professor Davidoff Solomon and Professor Zaring. Additional posts addressing legal and financial implications of the Trump administration are available here.

In The Dealmaking State, we consider the consequences if deals became a principal mechanism for the promulgation of government policy, overseen by an executive who promises to be the dealmaker in chief. We also recommend that some useful constraints on the practice be adopted.

We do so because with a deal-making president in the White House—an entrepreneur who co-wrote a book titled The Art Of The Deal, who uses the language of deals to describe his approach to policy, and who has identified a number of ways the private sector can be utilized to meet his goals—the state looks set for an expansion of dealmaking as an ordinary governance strategy.

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Monthly Archives: March 2017

BlackRock’s 2017-2018 Engagement Priorities

Financial Crisis, Corporate Governance, and Bank Capital

Weekly Roundup: March 10–16, 2017

The Modern Slavery Act 2015: Next Steps for Businesses

Stock Rising

The Delaware Trap: An Empirical Study of Incorporation Decisions

U.S. Tax Reform: Strategies for Executing Transactions in the Face of Uncertainty

Acting SEC Chair’s Steps to Centralize the Process of Issuing Formal Orders—Are Commentators Drawing the Right Lessons?

Defusing the Antitrust Threat to Institutional Investor Involvement in Corporate Governance

Is Disgorgement a “Forfeiture” for Statute of Limitations Purposes?

Board of Directors Compensation: Past, Present and Future

The Dealmaking State

SEC Enforcement: 2016 in Review and Looking Ahead to 2017

Super Hedge Fund

Diversity Investing

The First Block in the Chain: Proposed Amendments to the DGCL Pave the Way for Distributed Ledgers and Beyond

Delaware Blockchain Initiative: Transforming the Foundational Infrastructure of Corporate Finance

Delaware Blockchain Initiative: Transforming the Foundational Infrastructure of Corporate Finance

The First Block in the Chain: Proposed Amendments to the DGCL Pave the Way for Distributed Ledgers and Beyond

Diversity Investing

Super Hedge Fund

SEC Enforcement: 2016 in Review and Looking Ahead to 2017

The Dealmaking State

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