Monthly Archives: March 2017

The Trajectory of American Corporate Governance: Shareholder Empowerment and Private Ordering Combat

Jennifer G. Hill is Professor of Corporate Law at Sydney Law School and a Director of the Ross Parsons Centre of Commercial, Corporate and Taxation Law. This post is based on her recent paper. Related research from the Program on Corporate Governance includes The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here); and Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

Shareholder power and activism are topics of enormous current interest in the United States and around the world. The prospect of greater shareholder involvement in corporate governance has been welcomed and encouraged in some jurisdictions, such as the United Kingdom, yet has been met with widespread apprehension in the United States. There is a paradox here. Although the United States is generally regarded as the birthplace of shareholder activism, in fact, US shareholders have traditionally possessed far fewer corporate governance rights than shareholders in other common law jurisdictions, including the United Kingdom and Australia.

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Trends in Merger Investigations and Enforcement at U.S. Antitrust Agencies: 2006–2015

Cagatay Koç is a principal and Joseph T. Breedlove is a manager at Cornerstone Research. This post is based on a Cornerstone publication authored by Mr. Koç and Mr. Breedlove.

This post is based on the second in a series of annual Cornerstone Research reports describing merger investigations and enforcement activity at the Bureau of Competition at the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ). The analysis is based on data provided in the last 10 joint FTC/DOJ annual reports to Congress pursuant to the Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976 (HSR Reports) for fiscal years 2006 through 2015. [1]

This post provides a context for evaluating possible outcomes of individual cases as they proceed through the regulatory process.

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Alternatives to Quantitative Metrics in Performance Share Plans

Lane T. Ringlee is a Managing Partner at Pay Governance LLC. This post is based on a Pay Governance publication by Mr. Ringlee, Maggie Choi, Marizu Madu, and Peter Ringlee.

Companies have migrated a significant portion of equity compensation to performance-based long-term incentive (LTI) awards—typically performance shares or stock units (PSUs)—from stock options.[1] Over 80% of companies in the S&P 500 now have such plans; these also now comprise the majority weighting among LTI vehicles. This trend has been driven in, large part, by the desire of Compensation Committees to place at least one-half equity compensation in the form of “performance-based” pay as defined by the proxy advisory firms. With increasing pressure, committees have further focused these performance share plans to ensure clear and convincing alignment with total shareholder return (TSR), largely due to the pay for performance (P4P) evaluation methodologies employed by the proxy advisors and the diminution of stock options in the long-term incentive portfolio. In addition, the use of relative TSR as a PSU metric has provided another benefit to Compensation Committees: delivering a multi-year performance goal without the need for an annual target-setting exercise or justification of performance targets and ranges to the external world. We have referred to this trend relative TSR in PSU plan reliance in prior Pay Governance Viewpoints as a leading cause of the “homogenization” of pay programs.

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Commissioner Stein Remarks on U.S. Securities-Based Crowdfunding

Kara M. Stein is a Commissioner at the U.S. Securities and Exchange Commission. The following post is based on Commissioner Stein’s recent remarks at an SEC-NYU Dialogue on Securities Market Regulation, available here. The views expressed in this post are those of Ms. Stein and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

Good afternoon. Thank you all for contributing to this inaugural SEC-NYU dialogue on securities crowdfunding. In particular, I would like to thank each of the panelists, SEC staff in the Divisions of Economic and Risk Analysis and Corporation Finance, and the NYU Salomon Center for the Study of Financial Institutions.

Today’s [Feb. 28, 2017] program has focused on federal crowdfunding. We are now able to observe the first tentative steps investors, entrepreneurs and intermediaries have taken in navigating this new landscape. From May 16, 2016, when crowdfunding went “live” to December 31, 2016, 21 funding portals registered with the SEC and FINRA. They facilitated 163 deals involving 156 distinct issuers. Moreover, as of the end of last month, 36 reported deals raised $11.3 million. These first steps hint at how small businesses will use federal crowdfunding.

The information presented today also hints at potential challenges. Three areas I believe deserve more thought and attention include (i) funding portals’ role as gatekeepers and facilitators of capital formation; (ii) the types of securities offered to retail investors in crowdfunding deals; and (iii) market concentration.

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Uncapping Executive Pay

Michael Doran is Roy L. & Rosamond Woodruff Morgan Professor of Law at University of Virginia School of Law. This post is based on his recent article, forthcoming in the Southern California Law Review. Related research from the Program on Corporate Governance includes Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here).

This article sets out the case for repealing the $1 million tax cap on executive pay. In 1993, Congress enacted section 162(m) of the Internal Revenue Code as an aggressive effort to limit what companies pay their executives. Section 162(m) caps at $1 million the corporate deduction for annual compensation paid to senior managers. This limitation, proponents argued, would rein in manager pay, push companies to link executive compensation to corporate and individual performance, restore balance between the pay of executives and the pay of rank-and-file workers, or, if nothing else, impose a significant penalty on companies that lavish high levels of performance-insensitive compensation on their senior managers. More than two decades on, Section 162(m) has proven a spectacular policy failure.

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February 24, 2017–March 2, 2017


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This roundup contains a collection of the posts published on the Forum during the week of February 24, 2017–March 2, 2017.
















The 100 Most Overpaid CEOs

Rosanna Landis Weaver is a Program Manager at As You Sow. This post is based on a report from As You Sow. Related research from the Program on Corporate Governance includes Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here) and Executive Compensation in Controlled Companies by Kobi Kastiel (discussed on the Forum here).

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According to the Economic Policy Institute,

“CEO pay grew an astounding 943% over the past 37 years, greatly outpacing the growth in the cost of living, the productivity of the economy, and the stock market, disproving the claim that the growth in CEO pay reflects the ‘performance’ of the company, the value of its stock, or the ability of the CEO to do anything but disproportionately raise the amount of his pay.”

For the past two years, we have highlighted the 100 most overpaid CEOs of S&P 500 companies, and the votes of large shareholders, including mutual funds and pension funds on their pay packages.

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The Bylaw Puzzle in Delaware Corporate Law

David A. Skeel, Jr. is S. Samuel Arsht Professor of Corporate Law at University of Pennsylvania Law School. This post is based on his recent article, and is part of the Delaware law series; links to other posts in the series are available here.

In less than a decade, Delaware’s legislature has overruled its courts and reshaped Delaware corporate law twice, with proxy access bylaws in 2009 and with shareholder litigation bylaws in 2015. Not since 1986, when Delaware lawmakers overruled Smith v. Van Gorkom by authorizing charter provisions protecting directors from duty of care liability, had Delaware’s legislature overruled its courts in such dramatic fashion. Yet the Delaware legislature has now stepped in twice, and it has done so in a particularly puzzling way: with proxy access, Delaware’s legislature authorized the use of bylaws or charter provisions that Delaware’s courts had banned; while with shareholder litigation, it banned bylaws or charter provisions that the courts had authorized.

What in the world is going on?

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Considerations for U.S. Public Companies Acquiring Non-U.S. Companies

Jennifer V. Audeh is a partner and Corey Brown is an associate at Foley Hoag LLP. This post is based on a Foley Hoag publication by Ms. Audeh and Mr. Brown.

When it is time to sell a company, there are a number of financial and legal steps a business should consider to ready itself for a merger or acquisition. When the potential buyer is a U.S. public company, that list may get longer. The following are some common issues that arise in the context of a U.S. public company acquisition of a non-U.S. company. Being familiar with, and prepared for, the pressure points facing a U.S. public company will make for a smoother acquisition process for both sides.

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The Shifting Tides of Merger Litigation

Steven Davidoff Solomon is a Professor of Law at UC Berkeley School of Law. This post is based on a recent paper authored by Professor Davidoff Solomon; Matthew D. Cain, Financial Economist at the U.S. Securities and Exchange Commission; Jill E. Fisch, Perry Golkin Professor of Law at the University of Pennsylvania Law School and Co-Director, Institute for Law and Economics; and Randall S. Thomas, John S. Beasley II Professor of Law & Business at Vanderbilt University Law School. This post is part of the Delaware law series; links to other posts in the series are available here.

In The Shifting Tides of Merger Litigation, we analyze the changes to the merger litigation market in the wake of the Trulia decision which limited attorneys’ fees in disclosure-only settlements. We find that overall levels of merger litigation have declined in the past year, suggesting that Delaware’s effort to reduce frivolous litigation has been at least partially successful. In 2014, 91% of all completed deals were challenged in at least one lawsuit. That number declined to 89% in 2015 and 73% in 2016.

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