Monthly Archives: June 2017

On Long-Tenured Independent Directors

Stefano Bonini is Assistant Professor of Economics at Stevens Institute of Technology. This post is based on a recent paper by Professor Bonini; Kose John, Charles William Gerstenberg Professor of Banking and Finance at NYU Stern School of Business; and Justin Deng and Mascia Ferrari, both of NYU Stern School of Business.

A growing number of countries, such as UK and France, have adopted tenure-related guidelines or tenure restrictions for independent directors. Most countries adopt a comply-or-explain approach to regulating tenure recommending a maximum tenure for a corporate director between nine and twelve years. In the United States however, where explicit limits are absent, a recent survey by GMI Ratings, the leading independent provider of global corporate governance and research, shows that 24% of independent directors in Russel 3,000 firms have continuously served in the same firm for fifteen years or more.

We argue that long-tenured directors are superiorly skilled individuals who provide tangible value added to their firms. An extension of tenure length allows directors to accumulate information about past events in the firm and about responses to exogenous market shocks that help firms weather crises and discontinuities. In support of the view that the effectiveness of one independent director is also the result of a long build-up process, William George, a Harvard Business School professor and independent director, stated: “When directors are truly independent of the companies they serve, they generally lack the […] knowledge about the industry or business […]. [O]f the nine boards I served on as an independent director I had industry-specific knowledge in exactly none of them.”


State Bank Regulators Challenge OCC’s Authority to Issue Fintech Charters

V. Gerard Comizio is a partner and Nathan S. Brownback is an associate at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication by Mr. Comizio and Mr. Brownback.

On April 26, 2017, the Conference of State Bank Supervisors (“CSBS”) sued the Office of the Comptroller of the Currency (“OCC”) in federal court in Conference of State Bank Supervisors v. OCC, alleging that the OCC’s plan to charter fintech companies as special purpose national banks is unlawful because the process the OCC used to develop the plan was procedurally defective and because issuing such charters would exceed the OCC’s authority.

On May 12, the New York State Department of Financial Services (“DFS”), which is one of the state bank regulators that make up the CSBS, separately sued the OCC in federal court in Vullo v. OCC, alleging, similarly, that the OCC exceeded its authority in planning to issue the charters, and emphasizing that the planned federal charter could threaten New York consumers.


The Role of Social Capital in Corporations: A Review

Henri Servaes is the Richard Brealey Professor of Corporate Governance and Professor of Finance at London Business School; Research Associate of the European Corporate Governance Institute; and Research Fellow of the Centre for Economic Policy Research. Ane Tamayo is Professor of Accounting at the London School of Economics and Political Science. This post is based on a recent article by Professor Servaes and Professor Tamayo, forthcoming in the Oxford Review of Economic Policy.

While the importance of Physical Capital, Human Capital, and Intellectual Capital in corporations is well understood, there is another type of capital, perhaps equally important, which has received a lot less attention: Social Capital—broadly defined as the quality of the relationships that a firm, and its executives and employees, have built with other stakeholders. To date, most research on social capital has focused on the social capital of countries (or regions within countries), generally measured by the civic engagement of the population or the willingness of people in a society to trust each other, concluding that regions with more social capital enjoy higher economic growth. In a review article forthcoming in the Oxford Review of Economic Policy, we argue that the notion of social capital can also be applied to corporations.


Appraisal Decision Sole Reliance on Merger Price: PetSmart

Gail Weinstein is senior counsel and Brian T. Mangino is a partner at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication by Ms. Weinstein, Mr. Mangino, Steven J. SteinmanChristopher EwanDavid L. Shaw, and Scott B. Luftglass. This post is part of the Delaware law series; links to other posts in the series are available here.

In In re Appraisal of PetSmart, Inc. (May 26, 2017), which related to the acquisition of PetSmart, Inc. (the “Company”) by funds managed by private equity firm BC Partners, Inc., the Delaware Court of Chancery determined “fair value” for appraisal purposes to be equal to the merger price.


Decreasing Patience for IPOs with Poor Shareholder Rights

Robert Kalb is a Senior Associate at Institutional Shareholder Services, Inc. This post is based on an ISS publication by Mr. Kalb. Related research from the Program on Corporate Governance includes The Untenable Case for Perpetual Dual-Class Stock by Lucian Bebchuk and Kobi Kastiel (discussed on the Forum here).

For many years, companies have often held their initial public offerings (IPOs) while maintaining potentially shareholder-unfriendly features, such as multi-class share structures, restrictions on shareholders’ ability to amend bylaws, supermajority vote requirements, and classified boards. Arguments for those practices include giving management room to maneuver during its initial public years, protecting certain shareholder classes, and more. Recently, however, shareholder tolerance for these features has waned, with proxy advisers following suit as reflected in their voting policies and recommendations.


Weekly Roundup: May 26–June 1, 2017

More from:

This roundup contains a collection of the posts published on the Forum during the week of May 26–June 1, 2017.

2017 Venture Capital Report

2017 M&A Report

2017 M&A Report

Jay Bothwick and Hal Leibowitz are partners at Wilmer Cutler Pickering Hale and Dorr LLP. This post is based on a WilmerHale publication.

Market Review and Outlook


In 2016, the number of reported M&A transactions worldwide dipped by 2%, from a record 34,838 deals in 2015 to 34,191, but still represented the second-highest annual tally since 2000. Worldwide M&A deal value decreased 16%, from $3.64 trillion to $3.06 trillion—a total that was still the third-highest annual figure since 2000, lagging behind only 2015’s record tally and 2007’s $3.17 trillion result.

The average deal size in 2016 was $89.4 million, 14% below 2015’s average of $104.5 million, and just shy of 2014’s average of $91.0 million, but 40% above the annual average of $64.0 million for the five-year period preceding 2014.

The number of worldwide billion-dollar transactions decreased 9%, from 540 in 2015 to 489 in 2016. Aggregate worldwide billion-dollar deal value declined 21%, from $2.68 trillion to $2.11 trillion.


Proxies and Databases in Financial Misconduct Research

Jonathan M. Karpoff is Professor of Finance at the University of Washington. This post is based on an article forthcoming in Accounting Review, authored by Professor Karpoff; Allison Koester, Assistant Professor of Accounting at Georgetown University; D. Scott Lee, Professor of Finance at University of Nevada, Las Vegas; and Gerald S. Martin, Associate Professor of Finance at American University.

Research on the causes and consequences of financial misconduct has exploded in recent years, due partly to the availability of electronic databases that make it easy to compile samples of misconduct events. We identify more than 150 papers that examine financial misconduct based on samples drawn from one or more of four electronically-available databases: the Government Accountability Office (GAO) and Audit Analytics (AA) databases of restatement announcements, the Stanford Securities Class Action Clearinghouse (SCAC) database of securities class action lawsuits, and (4) the Securities and Exchange Commission’s (SEC’s) Accounting and Auditing Enforcement Releases, most recently as compiled by the University of California-Berkeley’s Center for Financial Reporting and Management (CFRM).


Potential Liability for PE Firms When Preferred Stock Is Redeemed by a Non-Independent Board—Hsu v. ODN

Gail Weinstein is senior counsel and Robert C. Schwenkel is a partner at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication by Ms. Weinstein, Mr. Schwenkel, Brian T. ManginoAndrew J. ColosimoMatthew V. Soran, and David L. Shaw. This post is part of the Delaware law series; links to other posts in the series are available here.

In Frederic Hsu Living Trust v. ODN Holding Corporation (April 14, 2017, corrected April 25, 2017), Hsu, a common stockholder (and co-founder) of ODN Holding Corporation (the “Company”), brought suit claiming that the Company’s directors had breached their fiduciary duties to the common stockholders, aided and abetted by Oak Hill Capital Partners, a private equity firm that was the controlling stockholder and the holder of the Company’s Preferred Stock. The plaintiff contended that, over the two-year period prior to the exercise date of Oak Hill’s redemption right, rather than managing the Company to maximize its long-term value for the benefit of the common stockholders, the directors had operated the Company so that it would be in a position to redeem the maximum amount of Preferred Stock as quickly as possible after the redemption right was exercised.


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