Monthly Archives: September 2017

CSX Attracts New CEO and Stock Price Rises Sharply

Joseph E. Bachelder is special counsel in the Tax, Employee Benefits & Private Clients practice group at McCarter & English, LLP. The following post is based on a column by Mr. Bachelder which first appeared in the New York Law Journal. Andy Tsang, a senior financial analyst with the firm, assisted in the preparation of this post.

In 2017, CSX Corporation, a leading railroad company, paid or committed to pay (subject to certain conditions) over $200 million (including grant-date value of a stock option discussed below) to attract E. Hunter Harrison as its new chief executive officer.

On January 18, 2017, Canadian Pacific Railway Limited announced that Mr. Harrison was resigning as its CEO. The Wall Street Journal reported (after regular trading hours ended) that Mr. Harrison, who is age 72, was “joining with an activist investor in an attempt to shake up management at rival railroad CSX Corp. They are expected to try to put Mr. Harrison in a senior management position at CSX….” [1] The following day, January 19, the price of CSX shares on the Nasdaq Stock Market jumped approximately $8 billion to $42 billion—an increase of 23 percent from $34 billion. As of June 30, CSX’s stock market value had increased over $16 billion to $50 billion, an increase of 47 percent, since the day before the public announcement.

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CFOs on Boards: Higher Pay, Lower Performance

Dan Marcec is Director of Content at Equilar, Inc. This post is based on an Equilar publication by Mr. Marcec which was originally published in the Equilar Knowledge Center.

A top corporate executive serving on another company’s board of directors may provide strategic advantages for both the executive and the company. With the additional perspective gained from unique sets of issues faced by another company, he or she may bring back valuable insights that can help improve strategy and operations. In addition, for the executives themselves, serving on another company’s board can be a valuable professional development opportunity, to the point that some are actively seeking board positions for their top executives to aid their succession planning programs.

It’s well known that CEOs of public companies frequently serve on other boards of directors, to the point that investor advisors have made explicit guidelines about the appropriate commitment to other boards from these individuals. Beyond the CEO however, there is far less research into how many top executives in other positions are on outside boards of directors. Equilar recently undertook a study of CFOs at large-cap companies over the past three years to identify how many also serve on other public company boards of directors.

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NYDFS Cybersecurity Regulations Take Effect

Daniel Ilan and Katherine Mooney Carroll are partners at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb publication by Mr. Ilan, Ms. Carroll, Jon Kolodner, Michael Krimminger, Rahul Mukhi, and Daniel Esannason.

New York’s new cybersecurity regulations (the “Regulations”) become effective on August 28, 2017, marking a significant milestone in what is likely to be a new era in cybersecurity regulation on both a national and international level. As governments grapple with how best to address cyber threats to their citizens, businesses and national security, there is an increasing focus on the potential use of regulatory requirements to impose minimum cybersecurity standards, particularly in the financial services sector. As more states and nation states adopt cybersecurity requirements, financial institutions are facing increased compliance costs and potentially a diversion of resources away from risk mitigation to compliance with regulatory requirements. As this trend develops, key factors in managing the growing patchwork of requirements will be working to avoid overly prescriptive, highly specific requirements and trying to ensure a degree of harmonization, for example with the National Institute of Standards and Technology’s Cybersecurity Framework. In the short term, financial firms will focus on identifying the applicable regulatory framework that sets the highest bar and building systems to comply that should generally provide for compliance globally. As of today, the Regulations are a key element of that high bar and already are playing a role in setting expectations for best practices across the industry. As the Regulations come into effect, we briefly take stock of their requirements and related global developments.

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Corporate Governance—the New Paradigm

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy; Sabastian V. Niles is a partner at Wachtell, Lipton, Rosen & Katz, focusing on rapid response shareholder activism and preparedness, takeover defense and corporate governance. This post is based on a Wachtell Lipton publication by Mr. Lipton and Mr. Niles.

This week witnessed two very significant developments in the new paradigm for corporate governance, one in the U.S. and one in the U.K. Both will have cross-border impact. Both have the purpose of promoting investment to achieve sustainable long-term investment and growth.

In the U.K., government proposals for corporate governance reform center on (1) better aligning executive pay with performance and with explaining, if not actually improving, worker wages by publicizing and focusing the attention of corporate directors on the ratio of average worker wages to executive compensation, and (2) improving governance by emphasizing that Section 172 of the Company Law, a constituency statute, provides that directors owe fiduciary duties not just to shareholders, but to customers, suppliers, workers and the community and economy. There is a provision for worker-board engagement by a designated independent director, a formal worker advisory council or a director from the workforce. The report directly relates improving stakeholder governance to mitigating inequality in the U.K. society.
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Political Uncertainty and Firm Disclosure

Audra Boone is the C.R. Williams Professor in Financial Services at the Neeley School of Business at Texas Christian University. This post is based on a recent paper authored by Dr. Boone; Abby Kim, Financial Economist at the U.S. Securities & Exchange Commission (SEC); and Joshua White, Assistant Professor of Finance at Vanderbilt University’s Owen Graduate School of Management. The views expressed in the post are those of Dr. Boone and do not necessarily reflect those of the Securities and Exchange Commission, the Commissioners, or the Staff.

Recently, there has been an increasing focus on how political uncertainty affects economic activity. Elections, in particular, generate uncertainty regarding future governmental policies that could impact firm cash flows. Academic research shows that firms often respond by reducing capital raising and investment activities (e.g., Baker et al., 2016; Jens, 2017). Importantly, declines in real activity can have negative long-term consequences for the firm and its investors. Therefore, it is important to understand the actions managers can take to mitigate such effects.

In our paper, Political Uncertainty and Firm Disclosure, recently made public on SSRN, we examine how political uncertainty affects a firm’s mandatory and voluntary disclosure properties. We posit that a reduction in real activities prior to an election could influence a firm’s information environment through a corresponding decline in required public disclosures. Consequently, there would be less ongoing information produced by firms during periods of heightened political uncertainty, thereby exacerbating information asymmetries between managers and investors. Given that managers likely possess better information on how government policy changes could impact firm cash flows, we study whether managers alter their disclosure properties to ameliorate the effects of political uncertainty.

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Weekly Roundup: August 25–31, 2017


More from:

This roundup contains a collection of the posts published on the Forum during the week of August 25–31, 2017.



Far Beyond the Quarterly Call




Proxy Access: Best Practices 2017






NAIC Adopts Model Cybersecurity Law



Make-Whole Premiums and the Agency Costs of Debt


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