Monthly Archives: October 2017

2017 CPA-Zicklin Index

Bruce F. Freed is president and co-founder of the Center for Political Accountability; Karl Sandstrom is the Center’s counsel and senior counsel at Perkins Coie; and Nanyamka Springer is the Center’s vice president for programs. This post is based on a CPA publication by Mr. Freed, Mr. Sandstrom, and Ms.Springer. Related research from the Program on Corporate Governance includes Shining Light on Corporate Political Spending and Corporate Political Speech: Who Decides?, both by Lucian Bebchuk and Robert Jackson (discussed on the Forum here and here), and Corporate Politics, Governance, and Value Before and after Citizens United by John C. Coates.

Public corporations in the United States are increasingly recognizing a need for greater sunlight, board oversight, and carefully considered restrictions on their political spending, according to a non-partisan study by the Center for Political Accountability and the Zicklin Center for Business Ethics Research at The Wharton School at the University of Pennsylvania.

The study found that the number of public companies voluntarily adopting political disclosure and accountability measures has continued to increase in the first year of the Trump administration and that numerous companies have strengthened their transparency and oversight programs.


So You Want to Buy a Stake in a Private Equity Manager?

John Amorosi, Ron Cami, and Louis Goldberg are partners at Davis Polk & Wardwell LLP. This post is based on a Davis Polk publication by Mr. Amorosi, Mr. Cami, and Mr. Goldberg.

Over the past 30 years, we have seen explosive growth in private equity, both in the number and types of funds and in the enormous allocation of capital to the asset class. Along the way, we have witnessed different cycles of M&A activity involving private equity businesses or teams. The first wave of M&A in private equity started in the early 2000s and generally involved the sale or spin-off of managers and funds owned and sponsored by banks, insurers and other non-manager owners (such transactions, the “Captive PE Deals”). These transactions typically involved the sale or divestment of control of the manager and were often driven by conflicts with the parent organization or (more recently and later in the cycle) regulatory considerations applicable to the parent (e.g., capital constraints or the Volcker Rule). Thereafter, many of the larger sponsors (e.g., Blackstone, Carlyle, etc.) sold passive stakes to sovereign wealth funds that were used to strengthen their balance sheets in anticipation of going public and expansion into other alternative asset management businesses (such transactions, the “Anchor PE Deals”).


Good Activist/Bad Activist: The Rise of International Stewardship Codes

Jennifer G. Hill is Professor of Corporate Law at the University of Sydney Law School and a Director of the Ross Parsons Centre of Commercial, Corporate and Taxation Law. This post is based on her recent article, forthcoming in the Seattle University Law Review.

Conflicting attitudes toward shareholder engagement and activism have colored the ongoing debate about the effect of shareholder influence on corporate governance. In the US, a distinctly negative view of investor engagement underpins much recent discussion on this topic—from the shareholder empowerment debate to current concerns about investor activism and private ordering through shareholder-initiated bylaws.

Outside the United States, however, a powerful alternative narrative about the benefits of increased shareholder engagement in corporate governance has gained traction in many major jurisdictions. This positive narrative treats investors as having an important participatory role in corporate governance, which is integral to accountability. It supports a radically different regulatory response to its negative counterpart, suggesting that shareholders should be granted stronger rights and/or encouraged to make greater use of their existing powers to engage with the companies in which they invest.


Telia’s $965 Million Global Bribery Settlement

Mark Mendelsohn and Alex Oh are partners at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul, Weiss publication by Mr. Mendelsohn, Ms. Oh, Jeffrey Bae and Adrienne Lighten.

On September 21, 2017, U.S. authorities announced the first major Foreign Corrupt Practices Act settlement under the Trump administration—a $965 million global resolution with a Sweden-based international telecommunications company, Telia Company AB, and its indirectly owned subsidiary in Uzbekistan, Coscom LLC. Through separate agreements with the Department of Justice, the Securities and Exchange Commission and the Public Prosecution Service of the Netherlands (Openbaar Ministerie or “OM”), Telia resolved allegations that it paid more than $331 million in bribes to Gulnara Karimova, the daughter of the late Uzbek President Islam Karimov, in order to expand into the Uzbek telecommunications market.


2017-2018 ISS Global Policy Survey

Subodh Mishra is Executive Director at Institutional Shareholder Services, Inc. This post is based on an ISS publication.

A key part of ISS’ annual global benchmark policy formulation process is a survey which is open to institutional investors, corporate executives, board members and any other interested constituencies. For the 2017-2018 policy cycle, the survey was in two parts: (1) a short, high-level Governance Principles Survey covering a limited number of topical corporate governance areas and (2) a longer, more detailed supplemental survey allowing respondents to drill down into a wider set of key issues at market and regional levels. This document summarizes the findings of the Governance Principles Survey, which closed on August 31. The supplemental survey will remain open until October 6, 2017, at 5 PM (ET).


Preventing the Next Data Breach

Sean Joyce is a Principal, Julien Courbe is Financial Services Advisory Leader, and Roberto Rodriguez is Financial Services Advisory Manager at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Messrs. Joyce, Courbe, and Rodriguez.

On September 7, Equifax, one of the three major credit agencies, publicly announced that it had suffered a major data breach. The company disclosed that unidentified hackers exploited a vulnerability in their website software to gain unauthorized access to company data and exfiltrated it from May through July of this year, impacting as many as 143 million consumers. [1]

The details of the attack—including the identity and nature of the attackers—are still developing. [2] If the attackers were financially motivated, they could monetize the data by fraudulently opening new accounts at financial institutions, conducting unauthorized transactions, and selling the data to other criminals. If a nation-state conducted the attack, the stolen information could be used to support espionage operations.


The Yates Memo: Looking for “Individual Accountability” in All the Wrong Places

Katrice Bridges Copeland is Professor of Law at Penn State Law. This post is based on a recent article by Professor Copeland.

The Department of Justice has received a great deal of criticism for its failure to prosecute both corporations and individuals involved in corporate fraud, especially those associated with the financial collapse in 2008. Companies were labeled “too big to fail” and it was difficult to determine the responsible individuals within the corporations. In an effort to quiet some of that criticism, on September 9, 2015, then Deputy Attorney General Sally Q. Yates issued the latest installment of the Department of Justice’s charging guidelines. The policy, entitled, “Individual Accountability for Corporate Wrongdoing,” or the “Yates Memo,” as it has been called, does not focus on criminal charges against corporations. Instead, the focus is on prosecuting individuals within the corporate entity. The Yates Memo announces six steps to pursue individual corporate wrongdoing, but the main thrust of the Memo is that the Department of Justice should pursue individuals within the corporation from the outset of the investigation and that a corporation’s cooperation will be judged by whether the corporation provides all relevant information about culpable individuals. In other words, in order to receive any credit for cooperating with the government and obtain leniency in the form of a deferred prosecution agreement, the corporation must conduct an internal investigation and point the finger at culpable employees. The Yates Memo puts a particular emphasis on the need to hold high-level officials responsible for misconduct.


Ambiguity and the Corporation: Group Disagreement and Underinvestment

Lorenzo Garlappi is Associate Professor of Finance, Ron Giammarino is Professor of Finance, and Ali Lazrak is Associate Professor of Finance at the University of British Columbia Sauder School of Business. This post is based on a recent article, recently published in the Journal of Financial Economics, by Professor Garlappi, Professor Giammarino, and Professor Lazrak.

The word “corporation,” derived from the Latin corpus, or body, refers to “a body formed and authorized by law to act as a single person.” [1] The study of corporate decisions typically models the corporate body as either (i) a single person, e.g., a manager, who maximizes expected utility with respect to a unique prior belief, or (ii) a decision-making group consisting of utility-maximizing individuals with identical prior beliefs, albeit possibly differentially informed. In reality, corporate boards and management teams are examples of groups where individuals with different opinions must collectively decide, as a single legal person, what the corporation is to do, often in the face of dramatically different views about whose model of the world is correct.


S&P 500 CEO Compensation Increase Trends

Aubrey E. Bout is Managing Partner and Brian Wilby is a Consultant at Pay Governance LLC. This post is based on a Pay Governance publication by Mr. Bout, Mr. Wilby, and Perla Cruz.

CEO pay continues to be a widely debated topic in the media, in the boardroom, and among investors and proxy advisors. As the U.S. was in the heart of the 2008-2009 financial crisis, CEO total direct compensation (TDC; base salary + actual bonus paid + value of long-term incentives [LTI]) dropped for 2 consecutive years. As the U.S. stock market sharply rebounded and the economy started to slowly grow again, CEO pay also rebounded. Large pay increases occurred in 2010, primarily in the form of larger LTI grants. Since then, year-over-year increases have been fairly moderate—in the 2% to 6% range for 2011-2016.

We expect that 2017 CEO TDC will likely be up in the mid-single digits (at the upper end of the recent range or slightly higher) based on past pay trends, accelerated earnings growth projections, a relatively stable global economic environment, and preliminary signs of a growing U.S. economy. Executives in industries with favorable economic conditions and higher growth will more likely see bigger pay increases than those in slow-growth industries.


P&G Proxy Fight: Trian Pushes to Reevaluate Executives’ Incentive Compensation Goals

Matthew Goforth is Senior Governance Advisor at Equilar, Inc. This post is based on an Equilar publication by Mr. Goforth.

A conclusion to the proxy fight between Procter & Gamble (P&G) and Trian Partners (Trian) is approaching, as shareholders are scheduled to vote their shares at the company’s annual meeting on October 10—if the two sides don’t reach a resolution before then. Earlier in September, Trian published a comprehensive presentation that outlined its rationale for seeking a board seat at P&G and its proposals to grow the value of the company. According to Martin Lipton, a founding partner of Wachtell, Lipton, Rosen & Katz, Trian’s proposal is unique for an activist investor in several ways, including the absence of a call for break-up of P&G and the fact that Trian is not “seeking to cut pensions, reduce CAPEX, reduce R&D or reduce marketing expenses.”


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