Monthly Archives: October 2017

Are Mutual Fund Managers Paid for Investment Skill?

Markus Ibert is a PhD student at the Stockholm School of Economics; Ron Kaniel is the Jay S. and Jeanne P. Benet Professor of Finance at the University of Rochester Simon Business School; Stijn Van Nieuwerburgh is David S. Loeb Professor of Finance at New York University Stern School of Business; and Roine Vestman is Assistant Professor at Stockholm University Department of Economics. This post is based on a recent paper by Mr. Ibert, Professor Kaniel, Professor Van Nieuwerburgh, and Professor Vestman. Related research from the Program on Corporate Governance includes Regulating Bankers’ Pay by Lucian Bebchuk and Holger Spamann; The Wages of Failure: Executive Compensation at Bear Stearns and Lehman 2000-2008 by Lucian Bebchuk, Alma Cohen, and Holger Spamann; and How to Fix Bankers’ Pay by Lucian Bebchuk by Lucian Bebchuk (discussed on the Forum here).

A substantial part of investment management is delegated to institutions such as mutual funds, pension funds, university endowments, and hedge funds. Mutual funds account for a significant part of this market. Prior research has mostly been silent on the important distinction between the fund family and the managers it employs to manage its different funds.

Understanding compensation of fund managers is paramount to understanding agency frictions in asset delegation, yet little is known about the nature of these compensation contracts, and even less about actual compensation managers earn.

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Corporate Governance: Stakeholders

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton publication by Mr. Lipton.

In response to the recent Green Paper and the U.K. Government Response, the Institute of Chartered Secretaries and Administrators (ICSA-The Governance Institute) and the Investment Association (IA), with U.K. Government approval, have issued a paper, The Stakeholder Voice in Board Decision Making, setting forth core principles for complying with Section 172 of the U.K. Company Law. Section 172 sets forth directors duties and is similar to the constituency statutes in some 30 states, and arguably, based on the 1985 opinion of the Delaware Supreme Court in the Unocal case, Delaware law. Section 172 “states that a director is required to act in the way he or she considers, in good faith, will be most likely to promote the success of the company for the benefit of its members (the shareholders) as a whole,” and that in carrying out this duty directors must have regard (amongst other matters) to the following factors:

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SEC (Limited) Guidance on Pay-Ratio Disclosure

Cydney S. Posner is special counsel at Cooley LLP. This post is based on a Cooley publication by Ms. Posner.

[September 21, 2017], the SEC announced that it had adopted interpretive guidance in connection with the pay-ratio disclosure requirement, which mandates public company disclosure of specified pay-ratio information, beginning with the upcoming 2018 proxy season. Generally, the guidance provides a more expansive reading of three topics: company reliance on reasonable estimates, the use of existing internal records to determine the median employee and non-U.S. employees, and the use of other recognized tests and criteria (such as published IRS guidance) to determine employee/independent contractor status. At the same time, Corp Fin issued separate guidance regarding the use of statistical sampling (to be addressed in a subsequent post) and updated CDIs on topics related to the new SEC guidance. For a more complete discussion of the pay-ratio rule, see our Cooley Alert, SEC Adopts Final Pay-Ratio Rule.

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