Monthly Archives: April 2017

The Power of Corwin Continues in Saba Software

Gail Weinstein is Senior Counsel and Warren S. de Wied is a Partner at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication by Ms. Weinstein, Mr. de Wied, Philip RichterSteven EpsteinRobert C. Schwenkel, and Scott B. Luftglass. This post is part of the Delaware law series; links to other posts in the series are available here.

Saba Software, Inc. Stockholder Litigation (March 31, 2017) is the first case that we are aware of in which the Delaware Court of Chancery has declined to apply “cleansing” under Corwin. The decision appears to be grounded in the unusual facts of the case, and, in our view, confirms the recent trend of Delaware decisions that indicate that Corwin cleansing of non-controller stockholder-approved transactions is likely to be precluded only in unusual and egregious circumstances.


Do Staggered Boards Affect Firm Value?

Steven Davidoff Solomon is a Professor of Law at UC Berkeley School of Law. This post is based on a paper authored by Professor Davidoff Solomon; Yakov Amihud, Ira Rennert Professor of Entrepreneurial Finance at NYU Stern School of Business; and Markus M. Schmid, Professor of Corporate Finance at the University of St. Gallen. Related research from the Program on Corporate Governance includes The Costs of Entrenched Boards by Lucian Bebchuk and Alma Cohen; How Do Staggered Boards Affect Shareholder Value? Evidence from a Natural Experiment by Alma Cohen and Charles C. Y. Wang; and Staggered Boards and Shareholder Value: A Reply to Amihud and Stoyanov, also by Alma Cohen and Charles C. Y. Wang (discussed on the Forum here).

In Do Staggered Boards Affect Firm Value?, we examine the controversial question of the economic effect of a staggered board.

A staggered board is commonly said to insulate a company from a hostile takeover by making it significantly more difficult to acquire the company. A target’s board can adopt a shareholder rights plan, commonly known as a poison pill, requiring a hostile acquirer to replace a majority of a target’s directors by others who would remove the pill and allow the hostile bid to proceed. But a staggered board requires that a hostile bidder run successive proxy contests over a multi-year period to replace a majority of the board. The time and cost of such an uncertain endeavor can deter a hostile bidder. Research has found that a staggered board is associated with significantly lower firm value, attributed in part to the diminished likelihood of a takeover and the entrenchment of inefficient management.


Behavioral Implications of the CEO-Employee Pay Ratio

Lynne L. Dallas is Professor of Law at University of San Diego School of Law. This post is based on Professor Dallas’ recent comment letter submitted to the SEC, available here.

On February 6, 2017 the Securities and Exchange Commission requested comments on further delay in implementing Section 953(b) of the Dodd-Frank Act that requires disclosure of CEO-employee pay ratios by public companies. This request should be analyzed in the context of a law that has been on the books almost seven years and has already been the subject of extensive public comments and SEC releases. Moreover, the SEC has granted to public companies considerable flexibility in calculating their ratios. These companies have substantial capabilities with today’s technology to collect and analyze data.


In Defense of Fairness Opinions: An Empirical Review of Ten Years of Data

Robert Bartell is Global Head of Corporate Finance and Christopher Janssen is Global Head of Transaction Opinions at Duff & Phelps. This post is based on a Duff & Phelps publication.

Questions about the utility of fairness opinions have periodically seized headlines for many years. As the leading fairness opinion advisor, we can readily speak to the value of the opinions we provide and the best practices we observe in rendering them. But when addressing broad industry criticisms—in particular that fairness analyses generally provide valuation ranges too wide to be useful and that they are too reliant on “mechanical” discounted cash flow (DCF) analyses—our arguments have lacked the force of empirical data beyond our own client work.


Sustainability Matters: Focusing on your Future Today

Elisse B. Walter is a former Chair of the U.S. Securities and Exchange Commission. This post is based on Ms. Walter’s recent keynote address to the CPA Canada Conference.

Good evening and thank you, Joy Thomas, for that kind introduction. It is an honor to be here with all of you in Toronto, and particularly an honor to have been invited by CPA Canada, an organization that has demonstrated an unwavering commitment to the public interest in its efforts to facilitate economic and social development. As the daughter of a CPA, I always feel right at home when I am surrounded by accountants, so thank you for making me feel welcome.

We are here today [March 30, 2017] to have a conversation about the evolving expectations for board and management oversight of sustainability issues. One shorthand for this topic is ESG, which stands for “environmental, social, and governance.”


Securities Class Action Settlements: 2016 Review and Analysis

Laarni T. Bulan is a Principal at Cornerstone Research. This post is based on a Cornerstone publication by Ms. Bulan, Ellen M. Ryan, and Laura E. Simmons.

Continuing the growth observed in the prior year, the number of settlements approved in 2016 increased to 85—substantially higher than the levels in 2011 through 2014. This escalation can be attributed to the recent increase in case filings.

Mega Settlements

Ten mega settlements in 2016—the highest number over the last 10 years—contributed to an almost twofold increase in the average settlement amount from 2015 to 2016. Two of the mega settlements exceeded $1 billion. This was the first year since 2006 with multiple settlements over $1 billion.


Mutual Fund Investments in Private Firms

Michelle Lowry is TD Bank Endowed Professor at Drexel University LeBow College of Business. This post is based on a recent paper authored by Professor Lowry; Yiming Qian, Associate Professor of Finance at University of Iowa Tippee College of Business; and Sungjoung Kwon, Drexel University LeBow College of Business.

While going public is without question a watershed event in the life of a firm, the lines between private and public listing status have become increasingly blurred in recent years. The number of publicly listed companies has decreased, but at the same time private companies are increasingly raising funding from investors who traditionally focused only on public companies. This study seeks to provide systematic evidence on the time-series trends in mutual funds’ investments in private firms. We examine the types of private companies in which mutual funds are most likely to invest, and we estimate the effects on the underlying companies, including the extent to which these mutual fund investments enable companies to stay private longer.


A Synthesized Paradigm for Corporate Governance, Investor Stewardship, and Engagement

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton publication by Mr. Lipton, Steven A. Rosenblum, Karessa L. Cain, Sabastian V. Niles, Sara J. Lewis, and Anna Shifflet. Additional posts by Martin Lipton on short-termism and corporate governance are available here.

In September 2016, the International Business Council of the World Economic Forum published The New Paradigm: A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth. The New Paradigm conceives of corporate governance as a collaboration among corporations, shareholders and other stakeholders working together to achieve long-term value and resist short-termism. Around the same time, other groups of business leaders, corporate executives and investors published similar frameworks for long-term oriented governance, including the Commonsense Principles of Corporate Governance, the Business Roundtable’s Principles of Corporate Governance and the Investor Stewardship Group’s Stewardship Principles and Corporate Governance Principles.


From Boardroom to C-Suite: Why Would a Company Pick a Current Director as CEO?

David Larcker is Professor of Accounting at Stanford Graduate School of Business. This post is based on a paper authored by Professor Larcker and Brian Tayan, Researcher with the Corporate Governance Research Initiative at Stanford Graduate School of Business.

We recently published a paper on SSRN (From Boardroom to C-Suite: Why Would a Company Pick a Current Director as Its CEO?) that explores situations in which companies appoint a non-executive director from the board as CEO.

Many observers consider the most important responsibility of the board of directors its responsibility to hire and fire the CEO. To this end, an interesting situation arises when a CEO resigns and the board chooses neither an internal nor external candidate, but a current board member as successor.


Do Independent Directors Curb Financial Fraud? The Evidence and Proposals for Further Reform

Cindy A. Schipani is Merwin H. Waterman Collegiate Professor of Business Administration and Professor of Business law at the University of Michigan Ross School of Business. This post is based on a recent article, forthcoming in the Indiana Law Journal, by Professor Schipani; H. Nejat Seyhun, Jerome B. & Eilene M. York Professor of Business Administration and Professor of Finance at University of Michigan Ross School of Business; and Sureyya Burcu Avci, University of Michigan Ross School of Business.

Around the turn of the millennium, a slew of corporate scandals involving outright fraud, including those at Enron, WorldCom, Global Crossing, and Adelphia Communications, among others, [1] plagued capital markets and shook investor confidence to the core. Faced with this runaway corporate malfeasance by managers of large firms around the turn of the millennium, Congress decided to discipline the managers by increasing the supervisory role of the board of directors. The Sarbanes-Oxley Act of 2002 (“SOX” or the “Act”), [2] was passed by Congress in an effort “[t]o protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes.” [3]


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