Monthly Archives: May 2017

President Trump’s Dangerous CHOICE

Gregg Gelzinis is a Special Assistant for the Economic Policy team at the Center for American Progress. This post is based on a Center for American Progress publication by Mr. Gelzinis, Ethan GurwitzSarah Edelman, and Joe Valenti. Additional posts addressing legal and financial implications of the Trump administration are available here.

During his campaign, Donald Trump promised a near-dismantling of the Dodd-Frank Act, the core piece of financial reform legislation enacted following the 2007-2008 financial crisis. [1] He doubled down on that promise once in office, vowing to both “do a big number” on and give “a very major haircut” to Dodd-Frank. [2] In early February, he took the first step in fulfilling this dangerous promise by signing an executive order directing U.S. Secretary of the Treasury Steve Mnuchin to conduct a review of Dodd-Frank. [3] Per the executive order, Secretary Mnuchin will present the findings in early June. [4] While the country waits for President Trump’s plan, it is useful to analyze one prominent way Trump and Congress might choose to gut financial reform—through the Financial CHOICE Act, or FCA. [5]


Proxy Voting Conflicts—Asset Manager Conflicts of Interest in the Energy and Utility Industries

Edward Kamonjoh is Executive Director of The 50/50 Climate Project. This post is based on a 50/50 Climate Project publication by Mr. Kamonjoh.

While shareholder resolutions calling on companies to proactively address the risks to investors from climate change received unprecedented levels of support last year, despite their mainstream acceptance by investors, asset managers including JP Morgan, Fidelity, Vanguard, BlackRock, and BNY Mellon frequently voted in favor of management and failed to support the resolutions.

In a new report (available here), the 50/50 Climate Project, a non-profit shareholder resource and action center, finds that the managers who tended to vote in favor of management received more in fees and stewarded more assets than all other managers combined, and that their voting practices were even more management friendly at companies with which they had business relationships. The asset managers examined manage assets worth billions of dollars for the retirement plans sponsored by the portfolio companies at which they voted. The managers also receive millions of dollars in fees for managing such plans.


Blockholder Voting

Joel Shapiro is Associate Professor of Finance at University of Oxford Saïd Business School; and Heski Bar-Isaac is Professor of Integrative Thinking and Business Economics at University of Toronto Rotman School of Management. This post is based on their recent paper. Related research from the Program on Corporate Governance includes The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here); and Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon Brav, Robert J. Jackson Jr., and Wei Jiang.

Blockholders play an important role in the governance of firms, and the SEC has taken great interest in their voting behavior. In this paper, we adapt a standard model of voting by introducing a voter who has multiple votes. This allows us to explore the role of blockholders, how their presence might affect the behaviour of other shareholders, and possible consequences of the SEC’s rules on voting.


The Emerging Need for Cybersecurity Diligence in M&A

Shilpi Gupta and Stuart D. Levi are partners, and William Ridgway is a counsel at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a Skadden publication by Mr. Gupta, Mr. Levi, and Mr. Ridgway.

Cybercrime has emerged as one of the foremost threats a company faces. As a result of a few keystrokes, a company may find its customers’ data sold on the dark web, its intellectual property in the hands of a competitor or its operations paralyzed by ransomware. It should come as little surprise, then, that cybersecurity has become a key risk factor in mergers and acquisitions.

A 2016 survey by West Monroe Partners and Mergermarket found that 77 percent of top-level corporate executives and private equity partners reported that the importance of cybersecurity at M&A targets had increased significantly in recent years. Given this trend, executives and directors contemplating acquisitions should consider the following cyber-related issues when conducting due diligence.


The Departing Remarks of Federal Reserve Governor Daniel K. Tarullo

Daniel K. Tarullo is former Governor of the Federal Reserve System. This post is based on Mr. Tarullo’s recent remarks at the Woodrow Wilson School, available here.

Tomorrow [April 5, 2017] is my last day at the Federal Reserve. So in this, my final official speech, it seems appropriate to offer a broad perspective on how financial regulation changed after the crisis. In a moment, I shall offer a few thoughts along these lines. Then I am going to address in some detail the capital requirements we have put in place, including our stress testing program. Eight years at the Federal Reserve has only reinforced my belief that strong capital requirements are central to a safe and stable financial system. It is important for the public to understand why this is so, especially at a moment when there is so much talk of changes to financial regulation.


Of Snitches and Riches: Optimal IRS and SEC Whistleblower Rewards

Yehonatan Givati is Associate Professor at Hebrew University Law School. This post is based on his recent article, forthcoming in the Harvard Journal on Legislation.

The past decade has seen a dramatic shift in the enforcement of U.S. tax and securities laws away from reliance on public administrative agents and towards the use of paid whistleblowers. Traditionally, violations of tax law were detected by IRS auditors and agents, who reviewed tax returns and conducted investigations. Similarly, violations of securities law were detected by SEC agents, who conducted investigations to detect cases of insider trading, manipulation of market prices, or misrepresentation of important information about securities. Although IRS and SEC agents often relied on tips from various sources, there was no widespread and institutionalized payment of rewards for information on violations of the law.


Delaware Law Amendments and the Maintenance of Corporate Records via Blockchain

Allison L. Land and Edward P. Welch are partners at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a Skadden publication by Ms. Land, Mr. Welch, and Matthew Gerber. This post is part of the Delaware law series; links to other posts in the series are available here.

On March 27, 2017, the Corporation Law Section of the Delaware State Bar Association (DSBA) approved proposed amendments to the Delaware General Corporation Law (DGCL) that had been proposed by the DSBA Corporation Law Council. This year’s amendments are intended to address blockchain maintenance of corporate records, the date of effectiveness of Section 203(b) opt-outs, mergers with non-U.S. entities and the effectiveness of written consents, among other changes.

Blockchain Maintenance of Corporate Records

The proposed amendments, if adopted, are intended to provide specific statutory authority for Delaware corporations to use networks of electronic databases, known as blockchains or distributed ledgers, to create and maintain corporate records, including stock ledgers. The proposed amendments are the result of a Corporation Law Council study of the use of blockchain technology by Delaware corporations, following an initiative to embrace the technology announced in 2015 by then-Gov. Jack Markell. Under this technology, a corporation’s records, including its stock ledger, would be maintained electronically by thousands of trusted users on a shared system to record stock issuances and transfers, to maintain a list of record holders and other matters. Section 224 would be amended to permit corporations to rely on the contents of an electronic network as the corporate records, provided the records so kept can be converted into clearly legible paper form within a reasonable time. The amendments would require any stock ledger (including one maintained on an electronic network) to serve three functions: (i) enable the corporation to prepare the list of stockholders entitled to vote; (ii) record the information required by the DGCL to be maintained in a stock ledger; and, (iii) record transfers of stock.


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