Monthly Archives: July 2017

CEO Succession Practices: 2017 Edition

Matteo Tonello is Managing Director at The Conference Board, Inc. This post relates to CEO Succession Practices: 2017 Edition, an annual benchmarking report authored by Dr. Tonello and Gary Larkin of The Conference Board with Prof. Jason Schloetzer of the McDonough School of Business at Georgetown University, and made possible by a research grant from executive search firm Heidrick & Struggles. For a Washington Post story discussing the key findings from the study, click here. For details regarding how to obtain a copy of the report, contact [email protected]. Related research from the Program on Corporate Governance includes: Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here); and The Growth of Executive Pay by Lucian Bebchuk and Yaniv Grinstein.

According to a new report by The Conference Board, in 2016 CEO exits from underperforming companies have risen to a level unseen in 15 years amid record-high dismissals in the retail sector. In particular, last year the CEO of poorly performing companies had a 40 percent higher probability of being replaced than in 2015 and a 60 percent higher probability of being replaced than the CEOs of better-performing companies. The report, CEO Succession Practices: 2017 Edition, annually documents and analyzes succession events of chief executives of S&P 500 companies. In 2016, there were 63 cases of S&P companies that underwent a CEO turnover.


Issuers’ CEO/Chairman Structure Not Correlated with Firm Performance

Yafit Cohn is Counsel at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher co-publication with Rivel Research Group, authored by Ms. Cohn; Karen Hsu Kelley, partner at Simpson Thacher; David M. Bobker, Vice President, Corporate Governance & Board Evaluations at Rivel Research Group; and Brendan Sheehan, Managing Director, Corporate Governance at Rivel Research Group.

The corporate governance structure of any public company must enable the company to achieve the appropriate balance between the powers of the board of directors, which is typically composed primarily of independent directors, and those of the CEO. The Commission on Public Trust and Private Enterprise, convened in 2002 “to address the causes of declining public and investor trust in companies, their leaders and America’s capital markets,” concluded at the time that there are three equally valid approaches that issuers can take to strike such a balance:


SEHK Invites Market Feedback on Establishment of New Listing Board

Weiheng Chen and Ethan Jin are partners at Wilson Sonsini Goodrich & Rosati. This post is based on a Wilson Sonsini publication by Mr. Chen, Mr. Jin, KJ Tan ,and Can Yin.

On June 16, 2017, the Stock Exchange of Hong Kong Limited (SEHK) published a concept paper setting forth proposals for the establishment of a new listing board (the “New Board”), with a view to attracting “New Economy” companies (as described below). A separate but related consultation paper also was published on the same day to solicit market comments on proposed changes to the Growth Enterprise Market (GEM), the existing listing board for small to medium-sized growth enterprises, and amendments to the listing rules of the GEM and Main Board, the existing board for established enterprises. The proposed changes detailed in the second consultation paper aim to reposition the GEM and the Main Board in light of the proposed establishment of the New Board. This is the latest significant development in the SEHK’s efforts to broaden capital markets access in Hong Kong and to enhance the SEHK’s competitiveness in attracting New Economy companies, following debates over its listing regimes in recent years. The SEHK said that it has discussed the New Board proposals with the Securities and Futures Commission (SFC) in Hong Kong, and the SFC will continue to play a leading role in market regulation for the New Board.


The Evolving World of Delaware Appraisal

This post is based on a Fried Frank publication by Gail Weinstein, Philip Richter, Warren S. de Wied, Robert C. Schwenkel, Brian T. Mangino, and Scott B. Luftglass. This post is part of the Delaware law series; links to other posts in the series are available here.

While other M&A-related litigation has decreased dramatically over the past couple of years based on the seminal Corwin and Trulia decisions, there has been a significant uptick in appraisal litigation (notwithstanding amendments to the appraisal statute in 2016 that eliminated de minimis appraisal cases). We note that, nonetheless, appraisal actions continue to be brought in a small minority of M&A transactions.


Common-Sense Capitalism

David A. Katz is a partner and Laura A. McIntosh is a consulting attorney at Wachtell, Lipton, Rosen & Katz. The following post is based on an article by Mr. Katz and Ms. McIntosh that first appeared in the New York Law Journal. 

Recent developments in corporate governance indicate a welcome emphasis on common sense principles. Over the past year, leaders of prominent companies and institutional investment funds have proposed principles and a framework intended to guide U.S. corporate governance toward practices that promote the sustainable creation of long-term value. The shared goal of these two separate projects—the Investor Stewardship Group’s “Corporate Stewardship and Governance Principles,” released in 2017 (discussed on the Forum here), and “Commonsense Principles of Corporate Governance,” an open letter released in 2016 (discussed on the Forum here)—is to bolster companies’ ability to generate prosperity for American investors. Prioritizing practicality over prescription should improve the quality and effectiveness of corporate governance, to the benefit of all market participants.


Balancing Board Experience and Expertise

John Roe is Head of ISS Analytics and Managing Director at Institutional Shareholder Services, Inc. This post is based on an ISS publication by Mr. Roe.

One criticism frequently leveled against boards of directors is that, when it comes to filling vacant board seats, they don’t cast the net widely enough. The numbers clearly show that boards often fill seats with candidates that have previous board experience—it’s even written right into the job description given to search firms in some cases. And, for many boards, that’s an understandable request—bringing on a “proven” director can side-step some of the concerns that shareholders and other board members may have.

But the flip side of the coin is that the seeming preference for directors with previous board experience may hamper efforts to bring new and diverse views into the boardroom. Some cynics wonder, if companies are simply cycling through the same individuals again and again to fill vacant seats, how many new views are companies actually bringing into the boardroom?


Weekly Roundup: July 21–27, 2017

More from:

This roundup contains a collection of the posts published on the Forum during the week of July 21–27, 2017.

DOL Fiduciary Rule: Impact and Action Steps

By the Numbers: Venture-Backed IPOs in 2016

ESG Reports and Ratings: What They Are, Why They Matter

Betty Moy Huber is Counsel and Michael Comstock is an associate at Davis Polk & Wardwell LLP. This post is based on a Davis Polk publication by Ms. Huber and Mr. Comstock.

Most international and domestic public (and many private) companies are being evaluated and rated on their environmental, social and governance (ESG) performance by various third party providers of reports and ratings. Institutional investors, asset managers, financial institutions and other stakeholders are increasingly relying on these reports and ratings to assess and measure company ESG performance over time and as compared to peers. This assessment and measurement often forms the basis of informal and shareholder proposal-related investor engagement with companies on ESG matters. Report and ratings methodology, scope and coverage, however, vary greatly among providers. Many providers encourage input and engagement with their subject companies to improve or sometimes correct data. There are currently numerous ESG data providers, a summary of each of which is beyond the scope of this post, but some well-known third party ESG report and ratings providers include: (i) Bloomberg ESG Data Service; (ii) Corporate Knights Global 100; (iii) DowJones Sustainability Index (DJSI); (iv) Institutional Shareholder Services (ISS); (v) MSCI ESG Research; (vi) RepRisk; (vii) Sustainalytics Company ESG Reports; and (viii) Thomson Reuters ESG Research Data. This post provides an overview and analysis of these providers. [1]


When a Piece of Your Company No Longer Fits: What Boards Need to Know About Divestitures

Paula Loop is Leader of the Governance Insights Center at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Ms. Loop.

Focusing on growth is a given when it comes to increasing value for a company’s investors. That can mean exploring an acquisition or a strategic alliance—actions that expand the organization’s reach. But a divestiture could also help boost returns for shareholders. In fact, many shareholder activism campaigns have urged selling parts of companies as a way to unlock value.

Why is that? Some companies have businesses that don’t contribute to core capabilities or fit with their current strategy, or whose financial performance lags other businesses and are a drag on earnings. By removing the nonconforming businesses, a company can create a more focused portfolio for shareholders. A divestiture also can enable a business that doesn’t fit to potentially thrive elsewhere—either on its own or as part of another company.


By the Numbers: Venture-Backed IPOs in 2016

Richard C. Blake and Heidi E. Mayon are partners at Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP. This post is based on a Gunderson Dettmer publication.

Only 42 venture-backed companies went public in the United States in 2016, including eight incorporated outside the United States, making it the most challenging year by number of IPOs and by aggregate offering amount raised since the recessionary times of 2009. The average offering amount per IPO in 2016 was only $77.3 million—the lowest average since 2003. Life sciences companies represented over a majority of the IPOs completed in 2016, many of which relied in some part on insider participation, consistent with 2015.


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