Monthly Archives: June 2017

What Determines Participation in Corporate Voting?

Konstantinos E. Zachariadis is Associate Professor at the Queen Mary University of London. This post is based on a recent paper by Professor Zachariadis; Dragana Cvijanovic, Assistant Professor of Finance at the UNC Kenan-Flagler Business School; and Moqi Groen-Xu, Assistant Professor at the London School of Economics.

As Kahan & Rock (2007) note “Never has voting been more important in corporate law”. Participation in corporate voting is the main mechanism via which most shareholders voice their opinion and affect management. As part of a general rise in attention to shareholder voting and shareholder activism, regulators have called for greater participation to ensure more representative voting results and better monitoring. However, conventional wisdom questions the usefulness of such requests. Do shareholders vote—unless they own large blocks or they are legally required to vote? There is little guidance, theoretical or empirical, to this discussion. Our paper offers the first comprehensive study of voting participation by shareholders.

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Weekly Roundup: June 9–June 15, 2017


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This roundup contains a collection of the posts published on the Forum during the week of June 9–June 15, 2017.





The Global Rise of Corporate Saving



The 200 Highest-Paid CEOs in 2016





Supreme Court Reaffirms Corporate Defendants Subject to Personal Jurisdiction Only “At Home”



Government Leaks Lead to Landmark Insider Trading Case


Distracted Directors



Financial CHOICE Act of 2017

Financial CHOICE Act of 2017

H. Rodgin Cohen is Senior Chairman and Samuel R. Woodall III is Partner at Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell publication by Mr. Cohen, Mr. Woodall, Jared M. Fishman, C. Andrew Gerlach, and Michael M. Wiseman. Additional posts addressing legal and financial implications of the Trump administration are available here.

[On June 9, 2017], the U.S. House of Representatives, voting almost entirely along party lines, passed H.R. 10, the “Financial CHOICE Act of 2017” (the “CHOICE Act”), a Republican proposal that would substantially restructure the post-crisis regulatory framework and provide significant regulatory relief to certain highly capitalized banking organizations. The vote was 233 to 186 and marks the first time either chamber of Congress has passed legislation that would significantly amend the post-crisis financial regulatory framework implemented under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).

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The Dangerous “Promise of Market Reform”: No Shareholder Proposals

Adam M. Kanzer is Managing Director at Domini Impact Investments LLC. This post is based on a Domini publication by Mr. Kanzer. Related research from the Program on Corporate Governance includes Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

This has been a historic proxy season, marking three majority votes for shareholder proposals addressing climate change at Occidental Petroleum, PPL Corp. and ExxonMobil, with the latter proposal exceeding 60% support. As of this writing it is too early to tell which asset managers voted for these proposals, with the exception of BlackRock, which announced that it voted for the proposal at Occidental (Vanguard also reportedly supported that proposal). This year, Fidelity announced that it may support shareholder proposals on sustainability matters and both BlackRock and Vanguard said they were strongly weighing supporting the ExxonMobil proposal.

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Distracted Directors

Luke C.D. Stein is Assistant Professor of Finance and Hong Zhao is a PhD candidate in Finance at the Arizona State University W. P. Carey School of Business. This post is based on a recent paper authored by Professor Stein and Mr. Zhao.

A board needs its members to be attentive to effectively fulfill its advisory and monitoring roles, but directors inevitably have outside obligations, which sometimes distract them from their board responsibilities. To minimize the possibility of directors becoming overly distracted, public firms have increasingly imposed restrictions on the outside duties that their directors may assume. In particular, firms may restrict outside board service, but this is likely to represent only a small fraction of the competition for directors’ time and attention.

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Government Leaks Lead to Landmark Insider Trading Case

Ken Herzinger is Partner and Stephanie Albrecht is Managing Associate at Orrick, Herrington & Sutcliffe LLP. This post is based on an Orrick publication by Mr. Herzinger and Ms. Albrecht.

On May 24, 2017, the SEC for the first time brought charges based on allegations of insider trading on confidential government information. The alleged insider trading scheme involved tips related to three announcements by the Center for Medicare & Medicaid Services (“CMS”) regarding non-public rate changing decisions affecting the stock of issuers in the healthcare industry.

The complaint alleges that from May 2012 to November 2013, Christopher Worrall, a health insurance specialist in the Center for Medicare (“CM”), the CMS component that administers Medicare’s national payment systems and determines Medicare reimbursement rates, tipped his long-time friend David Blaszczak about internal deliberations and planned actions of CMS. Blaszczak is a consultant specializing in healthcare policy issues and a former CMS employee.

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The Other Securities Regulator: A Case Study in Regulatory Damage

Anita K. Krug is D. Wayne and Anne Gittinger Professor of Law at the University of Washington School of Law. This post is based on a recent article by Professor Krug, forthcoming in the Tulane Law Review.

In 2016, regulators approved a new rule that imposes fiduciary obligations on broker-dealers and their personnel in connection with the investment advisory services they provide to their customers. The rule is among the most controversial ever adopted in the securities realm—a remarkable fact given that the agency with primary regulatory authority over the U.S. securities markets, the U.S. Securities and Exchange Commission, was not the adopting agency. Rather, the so-called “fiduciary rule” is the product of the Department of Labor, the agency charged with, among other things, administering the Employee Retirement Income Security Act of 1974, or ERISA.

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Supreme Court Reaffirms Corporate Defendants Subject to Personal Jurisdiction Only “At Home”

Jonathan I. Blackman is Partner at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb publication by Mr. Blackman, Lawrence B. FriedmanHoward S. Zelbo, Carmine D. Boccuzzi, Jr.Inna Rozenberg, and Matthew D. Slater. This post is part of the Delaware law series; links to other posts in the series are available here.

On May 30, 2017, the U.S. Supreme Court strongly reaffirmed the Daimler rule that a corporate defendant is typically subject to general personal jurisdiction only in its place of incorporation and its principal place of business. [1] Ruling 8-1 in BNSF Railway Co. v. Tyrrell, the Court also indicated that any exceptions to this rule will be construed very narrowly. The decision sends a strong message to state courts that the exercise of general jurisdiction based on a traditional “doing business” standard will not withstand the more exacting Daimler rule. However, the Court left open the question whether a corporation’s registration to do business in a state can constitute consent to general jurisdiction, and corporate defendants should expect continued litigation on this issue until the Court resolves it.

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M&A Activism: A Special Report

Josh Black is Editor-in-Chief of Activist Insight. This post is based on an Activist Insight co-publication with Kingsdale Advisors.

The Board Perspective

Pre-announcement preparations for shareholder approvals have become an increasingly onerous process, putting new strains on independent directors and management teams alike. Today, boards prepare early, knowing the robustness of the process will be closely monitored. Responses for various eventualities in which an activist emerges are tested. A smooth rollout, including the official announcement and conference calls, is underpinned by management selling the deal to key shareholders from the get-go.

“Understand that your process will be scrutinized,” says Joe Spedale, President, Kingsdale Advisors, U.S. “While your legal team will be able to tell you what is required and your bankers will tell you if the valuation makes sense, boards need to understand they will be held to a higher standard and the optics of the process are important, especially if the deal was done relatively fast or will appear unexpected to shareholders.”

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Toe Hold Collaborations Beyond Insider Trading

Mira Ganor is Professor at the University of Texas at Austin. This post is based on a recent article by Professor Ganor, forthcoming in the NYU Journal of Law & Business.

In my article, Toe Hold Collaborations beyond Insider Trading, recently made available on SSRN (forthcoming in the NYU Journal of Law & Business) I analyze the novel practice of investors co-purchasing toeholds (“TH”) and show that this practice can include profit sharing arrangements that distort the parties’ incentives and may lead to inefficient outcomes. With the proliferation of wolf-packing, the incidence of TH collaborations is likely to increase as well.

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