Monthly Archives: September 2017

Sharing the Lead: Examining the Causes and Consequences of Lead Independent Director Appointment

Ryan Krause is Associate Professor of Strategy in the Neeley School of Business at Texas Christian University; Mike Withers is Assistant Professor of Management in the Mays Business School at Texas A&M University; and Matthew Semadeni is Professor of Strategy at Arizona State University W.P. Carey School of Business. This post is based on a recent article, forthcoming in the Academy of Management Journal, and originally published in The Conference Board’s Director Notes series.

Many companies now use lead independent directors, yet little is known about when they are elected, who is selected, what impact their selection has on performance and if their selection prevents the future separation of the CEO and chair positions. We explore these four questions using a power perspective and largely find lead independent directors represent a power-sharing compromise between the CEO/chair and the board.

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A critical issue of board governance is the tradeoff of joining or separating the CEO and board chair roles. Joining the roles provides the organization the unity of command, with a single individual leading the firm. This is very important in dynamic environments where strong leadership is required and the CEO/chair must communicate clearly to multiple audiences. Also, it can provide the board greater insight into the day-to-day operations of the firm since the leader of the board is also managing the firm. But joining the roles puts at risk the oversight role of the board since its leader is one of those it is evaluating. This has been colloquially referred to as “CEOs grading [their] own homework”. [1] To prevent this, many have argued that the CEO and chair positions must be separated to prevent the conflict of interest inherent to the CEO leading the board.

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Reforms to UK Corporate Governance

Simon Jay is a partner and Melissa Reid and Dan Tierney are associates at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb publication by Mr. Jay, Ms. Reid, and Mr. Tierney.

On 29 August 2017, the UK Government published its response [1] (the “Response Document”) to its consultation on UK corporate governance reform. The consultation was launched following the Government’s publication of a green paper [2] (the “Green Paper”) on 29 November 2016. The Response Document summarizes the responses received to the consultation and sets out 12 reforms that the Government intends to make to the UK corporate governance regime.

The Government’s proposals have also been influenced by the inquiry carried out by the Business, Energy and Industrial Strategy (“BEIS”) Committee of the UK Parliament over the last year. On 5 April 2017, The BEIS Committee published a report detailing the findings of its inquiry and making a number of recommendations to the Government. The Response Document responds to, and adopts certain of, the BEIS Committee’s recommendations, while noting that some of the other recommendations will form part of the forthcoming consultation by the Financial Reporting Council (“FRC”) on potential revisions to the UK Corporate Governance Code (the “Code”).

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NYC Pension Funds Boardroom Accountability Project Version 2.0

The following post is based on a publication from CamberView Partners, authored by Abe M. FriedmanErica K. LukoskiBob McCormick, and Eric Sumberg.

On Friday, September 8, New York City Comptroller Scott M. Stringer sent a letter to 151 companies seeking engagement around a range of disclosures regarding the race and gender of company directors, the creation of a standardized director skills matrix and details of those companies’ director evaluation and succession plans. The letter, sent on behalf of the New York City Pension Funds (NYC Funds), is also intended to put pressure on companies to engage on the topic of pursuing diverse independent board candidates. The request was packaged as part of the launch of the second phase of the NYC Funds’ Boardroom Accountability Project, which in its first phase focused on achieving widespread adoption of proxy access.

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Is There Hope for Change? The Evolution of Conceptions of “Good” Corporate Governance

Lynne L. Dallas is Professor of Law at University of San Diego School of Law. This post is based on her recent paper.

Providing a useful perspective on corporate governance today is an examination of the evolution of conceptions of “good” corporate governance that have successively revolutionized the corporate landscape. “Evolution” in this context does not refer to some natural evolution, but changes in the beliefs of managers concerning how to run their businesses effectively. “Good” corporate governance refers to what is perceived as good from the point of view of firm managers and may or may not translate into what is good for society.

Corporate decision making has been influenced over the years by successive, rationalized ideals of good corporate governance. Changes in conceptions were precipitated by crises and environmental changes. They were reasoned, if often flawed, responses to complex macroeconomic forces, competitive conditions, regulations or the lack thereof, and other environmental factors. More importantly, they were reflections of the culture and thinking of the time, influenced by the views of successful business leaders, the business press, investors, and academics.

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Investment Stewardship 2017 Annual Report

F. William McNabb III is Chairman and CEO of Vanguard; Glenn Booraem is the head of Investment Stewardship and a principal at Vanguard. This post is based on an excerpt from a recent Vanguard publication by Mr. Booraem, and an open letter to directors of public companies worldwide by Mr. McNabb.

An open letter to directors of public companies worldwide

Thank you for your role in overseeing the Vanguard funds’ sizable investment in your company. We depend on you to represent our funds’ ownership interests on behalf of our more than 20 million investors worldwide. Our investors depend on Vanguard to be a responsible steward of their assets, and we promote principles of corporate governance that we believe will enhance the long-term value of their investments.

At Vanguard, a long-term perspective informs every aspect of our investment approach, from the way we manage our funds to the advice we give our investors. Our index funds are structurally long-term, holding their investments almost indefinitely. And our active equity managers—who invest nearly $500 billion on our clients’ behalf—are behaviorally long-term, with most holding their positions longer than peer averages. The typical dollar invested with Vanguard stays for more than ten years.

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Making Sure Your “Choice-of-Law” Clause Chooses All of the Laws of the Chosen Jurisdiction

Glenn West is a partner at Weil, Gotshal & Manges LLP. This post is based on a Weil publication by Mr. West, and is part of the Delaware law series; links to other posts in the series are available here.

In a 2016 post to Weil’s Private Equity Insights blog it was suggested that deal professionals and their counsel should not only “choose governing law wisely, but also choose it thoroughly!” [1] That suggestion was an effort to highlight the importance of the actual language used in the choice-of-law clauses found in the miscellaneous provisions at the back of most M&A-related agreements. And a recent ruling by Vice Chancellor Slights in the Delaware Court of Chancery provides yet another opportunity to reinforce that suggestion. [2]

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IRS Guidance on Stock Distributions for Publicly Offered REITs and RICs

This post is based on a Latham & Watkins LLP publication by Latham partners Michael J. BrodyAna G. O’BrienPardis Zomorodi,and Alan B. Beadle.

On August 11, 2017, the Internal Revenue Service (IRS) published Revenue Procedure 2017-45, which provides guidance on when it will treat stock distributions by certain real estate investment trusts (REITs) and certain regulated investment companies (RICs) as distributions of property under Section 301 of the Internal Revenue Code. Stock distributions eligible for this treatment may constitute dividends under Section 301 and increase the amount of the REIT’s or the RIC’s dividends paid deduction.

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Better Directors or Distracted Directors? An International Analysis of Busy Boards

Stephen P. Ferris is Professor and Director of the Financial Research Institute at the University of Missouri’s Scheller College of Business. Narayanan Jayaraman is Professor of Finance at Georgia Institute of Technology’s Scheller College of Business. Min-Yu (Stella) Liao is Assistant Professor at the Illinois State University. This post is based on a recent paper by Professor Ferris, Professor Jayaraman, and Professor Liao.

The issue of multiple directorships on corporate boards has come under increasing scrutiny from both academicians and practitioners. There is conflicting evidence in the academic literature about the impact of multiple directorships on firm value and performance. Core, Holthausen, and Larcker (1999) report that busy directors require an excessively high level of compensation, which in turn, leads to poor firm performance. Ferris, Jagannathan, and Pritchard (2003) find, however, no relation between the number of directorships held by a director and firm valuation as proxied by the market-to-book ratio. This evidence is disputed by Fich and Shivdasani (2006) who report that firms with busy boards exhibit lower market-to-book ratios, reduced profitability, and a weakened sensitivity of CEO turnover to firm performance. More recently, Field, Lowry and Mkrtchyan (2013) hypothesize that busy directors offer advantages for many firms, with such individuals providing significant advising abilities to younger firms. They argue that the positive benefits of busy boards extend to all but the most established firms.

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Equifax Data Breach: Preliminary Lessons for the Adoption and Implementation of Insider Trading Policies

Cam C. Hoang and Gary L. Tygesson are Partners at Dorsey & Whitney LLP. This article is based on a Dorsey & Whitney publication by Ms. Hoang and Mr. Tygesson.

Insider trading allegations have surfaced at Equifax, a credit rating agency that last week announced a data breach that could potentially affect 143 million consumers in the United States, nearly half of the country’s population. SEC filings show that three Equifax executives—Chief Financial Officer John Gamble Jr., Workforce Solutions President Rodolfo Ploder and U.S. Information Solutions President Joseph Loughran—sold nearly $2 million in shares of the company’s common stock days after the cyberattack was discovered but before the news was publicly announced. It was unclear whether their share sales had anything to do with the breach. None of the SEC filings lists the sales as being conducted as part of pre-established 10b5-1 trading plans. Equifax said in a statement that the three executives sold a “small percentage” of their shares on August 1 and August 2, adding they “had no knowledge that an intrusion had occurred at the time they sold their shares.” Following the company’s announcement of the data breach on September 9, Equifax shares traded down by almost 14 percent. The SEC has not commented on the share sales.
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Weekly Roundup: September 8–14, 2017


More from:

This roundup contains a collection of the posts published on the Forum during the week of September 8–14, 2017.





Forum-Selection Provisions in Corporate “Contracts”


The Trian/P&G Proxy Contest





OCC Stakes Out a Lead Role in Establishing New Deregulatory Agenda


NYSE Delays Implementation on Dividend-Related Announcements



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