Monthly Archives: March 2017

Board of Directors Compensation: Past, Present and Future

Diane Lerner is a Managing Partner at Pay Governance LLC. This post is based on a Pay Governance publication authored by Ms. Lerner.

There has been a massive shift in how outside Board Directors have been paid over the past 20 years. This has largely been fueled by changes in corporate governance practices over time. Overall, the shift has been away from paying Directors like executives and towards paying outside experts for their time and contributions during their term of service.

Historical Context

Twenty years ago, the Director pay model at a large corporation often had the following features:

  • directors were commonly eligible for certain benefits programs and pensions;
  • vesting schedules for equity awards were 3 or 4 years long, similar to those for executives;
  • equity awards were in the form of stock option grants (also used for executives), and Director awards were expressed as a number of shares rather than a grant value;
  • many companies did not differentiate pay for Committee service; and
  • Lead Director roles and Director stock ownership guidelines were absent.


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

Jonathan N. Eisenberg is partner in the Government Enforcement practice at K&L Gates LLP. This post is based on a K&L Gates publication by Mr. Eisenberg.

In Gabelli v. SEC, 133 S.Ct. 1216 (2013), the Supreme Court held that the five-year statute of limitations in 28 U.S.C. §2462, which applies to actions for penalties, fines and forfeitures, begins to run when a violation is complete rather than when it is later discovered. The Court quoted Chief Justice Marshall’s statement from more than two centuries ago that it “would be utterly repugnant to the genius of our laws” if actions for penalties could “be brought at any distance of time,” id. at 1223 (internal citation omitted), and it described the important policies served by statutes of limitations as follows:


Defusing the Antitrust Threat to Institutional Investor Involvement in Corporate Governance

Edward B. Rock is Professor of Law at New York University School of Law; and Daniel L. Rubinfeld is Professor of Law at NYU School of Law and Robert L. Bridges Professor of Law Emeritus and Professor of Economics Emeritus at the University of California, Berkeley. This post is based on recent paper by Professor Rock and Professor Rubinfeld.

For the past thirty years, regulatory reform efforts have focused on encouraging diversified institutional investor involvement in corporate governance. Now, some recent economic research threatens to chill these developments. In Azar, Schmalz and Tecu (working paper 2015) and Azar, Raina and Schmalz (working paper 2016), the authors argue that concentration among shareholdings by institutional investors has led to higher prices in two relatively concentrated industries: airlines and banking. Based on this research, Einer Elhauge (2016) has argued that current ownership patterns by diversified institutional investors violate Section 7 of the Clayton Act. Following on Elhauge’s piece, Posner, Scott Morton and Weyl (working paper 2016) propose a “solution” in which diversified investors would be limited to acquiring one firm in any oligopolistic industry.


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

Several sources have reported that Acting SEC Chair Michael Piwowar recently issued a directive mandating that only the Acting Director of the Division of Enforcement can authorize the issuance of formal orders of investigation, the means by which the SEC authorizes its investigative staff to issue subpoenas. [1] The change—which reportedly strips approximately 20 Enforcement Division senior officers of the power to authorize formal orders—was not announced publicly and is not reflected in the SEC’s Enforcement Manual.


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

Nicholas J. DeNovio is a partner at Latham & Watkins LLP. This post is based on a Latham publication by Mr. DeNovio, Jiyeon Lee-LimLaurence J. Stein, and Kirt Switzer.

Tax reform plans would fundamentally alter the landscape for key business decisions, impacting a business’ legal, finance, corporate development and other divisions, as well as tax groups.

Key Points:

  • Tax reform would change taxation, capital and operating structures.
  • The House Ways & Means Committee and the Trump Administration have each released tax reform proposals addressing five key themes: lowering the corporate tax rate, interest and other deductions, a territorial system, a one-time tax on accumulated overseas earnings and a destination-based cash flow tax.
  • Forward-looking strategies can help parties keep transactions on track.


The Delaware Trap: An Empirical Study of Incorporation Decisions

Robert Anderson IV is Associate Professor of Law at Pepperdine University School of Law. This post is based on his recent paper, and is part of the Delaware law series; links to other posts in the series are available here.

One of the most enduring debates in corporate law is whether the United States system of corporate law federalism leads to a “race to the bottom” or a “race to the top.” [1] Race to the bottom theorists argue that because insiders of companies must initiate incorporation decisions, jurisdictions compete to provide legal rules that favor insiders, allowing them to extract private benefits at the expense of the corporation or its shareholders. Race to the top theorists argue that market constraints prevent insiders from favoring such jurisdictions, and that jurisdictions actually compete to provide efficient legal rules that enhance shareholder value. Although the dichotomous framing as a “race” to the “top” or “bottom” is a bit of an oversimplification of a more nuanced debate, that version of the debate has dominated discussions of corporate law for decades.


Stock Rising

Matthew Goforth is Research Manager at Equilar, Inc. This post is based on an Equilar publication which originally appeared in the Winter 2017 issue of C-Suite magazine, available here.

Compensating employees with equity—particularly the C­-suite—addresses several objectives for companies aiming to manage talent effectively and create shareholder value. A public company’s ability to recruit, promote, incentivize and retain the right people to formulate and execute strategic initiatives aimed at growing returns for shareholders is paramount, and therefore the invitation to share in the spoils of company success is a powerful tool. Consistent with these trends, the median salary of an S&P 500 CEO has climbed 10% since 2011, and while annual cash bonuses have been relatively flat, median stock-­based pay increased 57%.

The nuances lie in creating a single compensation program that works for the key stakeholders—both employees and investors alike.


The Modern Slavery Act 2015: Next Steps for Businesses

Raj Panasar is a partner at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb publication by Mr. Panasar, Melissa Reid, and Hannah Disselbeck.

Under the Modern Slavery Act 2015, organisations conducting business in the United Kingdom with worldwide revenues of at least £36 million are required to publish a transparency statement describing the steps they have taken in the last financial year to ensure their business and supply chains are free from modern slavery and human trafficking. The obligation applies to financial years ending on or after 31 March 2016, and transparency statements should be published as soon as reasonably practicable after, and ideally within six months of, the financial year end.


Weekly Roundup: March 3–9, 2017

More from:

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

State Street Global Advisors Announces New Gender Diversity Guidance

Sharo M. Atmeh is a Principal at CamberView Partners, LLC. This post is based on a CamberView publication by Mr. Atmeh, Andrew Letts, Allie Rutherford, and Chad Spitler.

On Tuesday, State Street Global Advisors (SSGA) issued a memo and press release (discussed on the Forum here) calling on 3,500 global companies, representing more than $30 trillion in market capitalization, to increase the number of women on corporate boards. Timed to coincide with observance of International Women’s Day, SSGA’s initiative is the latest, and most assertive, move by a major U.S.-based institutional investor to push companies toward increasing gender diversity on boards.


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