Monthly Archives: June 2017

After the Annual General Meeting: How Boards Can Prepare for Next Year

Krystal Gaboury Berrini is a partner at CamberView Partners. This post is based on a CamberView publication by Ms. Berrini, originally published by Corporate Secretary.

With the peak of proxy season in the rear-view mirror, companies and investors are analyzing takeaways from the thousands of meetings that have occurred over the past three months. Although most US companies received strong support from shareholders at their annual meeting, others faced low levels of support for executive compensation or directors or high levels of support for a shareholder proposal.

Whether this year’s proxy season was placid or turbulent for your company, June and July is the best time to start planning for off-season investor outreach that will provide a path to success in 2018. Here are four steps that will yield dividends before your next annual meeting.

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What are Boards For? Evidence from Closely Held Firms

Belén Villalonga is Professor of Management and Professor of Finance (by courtesy), at NYU Stern School of Business. This post is based on a recent paper authored by Prof. Villalonga; María-Andrea Trujillo, Professor of Accounting at CESA School of Business, Colombia; Alexander Guzmán, Professor of Finance at CESA School of Business, Colombia; and Neila Cáceres, Researcher at Superintendencia de Sociedades, Colombia.

What role(s) do boards of directors play? Existing research generally assumes the model of a corporation described by Berle and Means (1932)—one with a widely dispersed base of shareholders in which control is exercised by management. Yet a growing volume of research shows that most companies around the world have a controlling shareholder or group thereof, for the most part individuals or families. This is true in even in countries where corporate ownership is relatively more widely held, and increasingly so: the number of public corporations in the United States has almost halved over the last 20 years, and a similar phenomenon has taken place in the United Kingdom.

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Weekly Roundup: June 23–June 29, 2017


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This roundup contains a collection of the posts published on the Forum during the week of June 23–June 29, 2017.

What Is the Business of Business?





Is Board Compensation Excessive?


Below-the-Merger-Price Appraisal Results and the SWS Decision



Ten Questions Every Board Should Ask in Overseeing Cyber Risks


Federal Bill Attempts to Silence Investors





Remembering Rich Ferlauto

Remembering Rich Ferlauto


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Stephen M. Davis is associate director of the Harvard Law School Programs on Corporate Governance and Institutional Investors, and a senior fellow at the Program on Corporate Governance. This post is based on remarks Professor Davis recently delivered at a memorial service for Rich Ferlauto. Ferlauto died this spring at the age of 60.

The memorial service for Rich Ferlauto was held on June 25, 2017 at Temple Rodef Shalom in Falls Church, Virginia. Ferlauto died May 8. He was most recently a co-founder of the 50/50 Climate Project, and a former deputy director of policy in the SEC’s office of investor education and advocacy. He was also a founder and leader of the AFL-CIO and AFSCME’s capital stewardship program.

“Can we talk?” That was Rich’s signature email—many in the corporate governance community got those, as I did over 20 years, all the time. Well, Rich could talk. Indeed he could talk to corporates, investors, politicians. When Congressman Barney Frank needed to strategize, Rich would be there. When Pfizer’s Peggy Foran needed to find a labor voice to explore solutions, Rich was there. When he talked to media, he could be scorching: “outrageous” was his favorite word when interviewed on the latest scandal, as Tom Croft has written. If boards failed to fix a problem, or the SEC failed to act, Rich would thunder in newspapers, radio and television, warning that “the outcry would be profound.” Rich was cunning with words; for instance, I remember him crafting the brilliant phrase ‘say on pay’ to describe investor votes on CEO compensation. He pioneered the powerful word ‘stewardship’ two decades before the concept was embraced by US shareowners. John Kennedy once said of Winston Churchill, “he mobilized the English language and sent it into battle.” So it was with Rich.

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The Increasing Evidence that Horizontal Shareholding Is Distorting Our Economy

Einer Elhauge is the Petrie Professor of Law at Harvard Law School. This post is based on Professor Elhauge’s recent article.

Horizontal shareholding exists when major shareholders own stock in horizontal competitors. A year ago, I argued that such horizontal shareholding can have worrisome anticompetitive effects that help explain various puzzles about our economy (this article was discussed on the Forum here). In a new article, I show that new evidence both confirms my earlier conclusions and indicates the problem of horizontal shareholding is getting worse.

This new data reveals that horizontal shareholding levels have grown sharply in recent years. From 1999 to 2014, the odds that two competitors have a common shareholder with more than 5% of the stock of each of them rose from 16% to 90%. In other word, take any two random competitors, and the odds are now 90% that they each have a common major shareholder whose profits will suffer if the firms compete with each other for market share.

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“Captured Boards”: The Rise of “Super Directors” and the Case for a Board Suite

Kobi Kastiel is a Research Director of The Project on Controlling Shareholders at the Harvard Law School Program on Corporate Governance, and Yaron Nili is Assistant Professor at University of Wisconsin Law School. This post is based on their recent article, published in the Wisconsin Law Review.

In October 1972, former Supreme Court Justice Arthur Goldberg resigned from his seat as a director of Trans World Airlines. In a New York Times article published afterward, he expressed his frustration, stating that: “[t]he outside director is simply unable to gather enough independent information to act as a watchdog or sometimes even to ask good questions. When presented with the agenda of the board meeting, the director is not basically equipped to provide any serious input into the decision. Realistically, it has already been made by management.”

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The Financial CHOICE Act and the Debate Over Shareholder Proposals

Joseph A. Hall is a partner at Davis Polk & Wardwell LLP. This post is based on a Davis Polk publication by Mr. Hall. Additional posts on the CHOICE Act are available here.

A lively debate is erupting over a provision in the House-approved Financial CHOICE Act that would increase the stock ownership threshold for submitting shareholder proposals in the company’s proxy statement from the current level of $2,000 to 1% of common stock outstanding, and would extend the stockholding duration requirement from one year to three years.

The New York State Comptroller, who manages $186 billion in retirement funds but whose ownership of any particular company is often less than 1%, called it “outrageous and inequitable that we would not be able to make requests of corporate boards through shareholder resolutions.” Other critics of the proposed change have pointed out that even investors with small holdings can have good ideas, and the Wall Street Journal quoted an asset manager’s view that “Shareholder proposals provide an early warning of risks a company may not be aware of, as well as an opportunity to gauge investor sentiment on a wide range of issues.”

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Federal Bill Attempts to Silence Investors

Gianna McCarthy is Director of Corporate Governance and George Wong is ESG Integration Manager at the New York State Office of the Comptroller. This post is in response to a recent statement issued by New York State Comptroller Thomas P. DiNapoli and New York City Comptroller Scott Stringer. Additional posts on the CHOICE Act are available here.

A broad coalition of state fiduciaries joined New York State Comptroller Thomas P. DiNapoli and New York City Comptroller Scott Stringer [on June 6, 2017] in issuing a Joint Statement on Defending Fundamental Shareowner Rights in strong support of the use of shareholder proposals as an essential tool in maintaining corporate transparency and accountability. The Statement is in response to provisions of the Financial CHOICE Act, legislation pending in the U.S. House of Representatives, which would effectively prohibit most investors from filing shareholder proposals.

“This Act attempts to silence investors, large and small, who seek a vote on corporate action that could put our investments at risk and diminish corporate accountability,” DiNapoli said. “Publicly-owned companies are responsible to their shareholders, but this Act is trying to overturn that core principle by allowing only a select few of the largest investors to question corporate behavior.”

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Ten Questions Every Board Should Ask in Overseeing Cyber Risks

Yafit Cohn is counsel and Karen Hsu Kelley is a partner at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher-Nasdaq co-publication by Ms. Cohn and Ms. Kelley.

Those who work in the cybersecurity industry believe that there are two types of companies in the United States: “those that have been hacked and those that don’t know they’ve been hacked.” [1] Indeed, more and more companies are experiencing data breaches, and it seems that hardly a week goes by without a data breach reported in the headlines.

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Just How Iron-Clad are Contractual Rights to Payment On Preferred Stock of a Solvent Company?

John A. Bick is a partner at Davis Polk & Wardwell LLP. This post is based on a Davis Polk publication by Mr. Bick, Louis L. Goldberg, and Richard D. Truesdell, Jr. This post is part of the Delaware law series; links to other posts in the series are available here.

Minority equity investments in public companies are on the rise. These are often structured as an investment in convertible preferred stock to give the investor a senior position to other equity while preserving equity upside through the ability to convert to common stock.

This trend is likely sparked by a search for higher yield than is afforded by an investment in debt in a low interest rate environment, less appetite for “big ticket” full buyouts, and the attractiveness to issuers of not using up their permitted debt baskets or leveraging their balance sheet.

While the investor is willing to give up the seniority of a debt position, it is still keenly focused on optimizing its right to receive repayment of its preferred investment on the contractually stipulated redemption date and to receive its contractually stipulated dividends on each dividend payment date.

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