Monthly Archives: November 2017

Some Thoughts for Boards of Directors in 2018

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, Steven A. Rosenblum, Karessa L. Cain, Sabastian V. Niles, Vishal Chanani, and Kathleen C. Iannone.

I. Introduction

As 2017 draws to a conclusion and we reflect on the evolution of corporate governance since the turn of the millennium, a recurring question percolating in boardrooms and among shareholders and other stakeholders, academics and politicians is: what’s next on the horizon for corporate governance? In many respects, we seem to have reached a point of relative stasis. The governance and takeover defense profiles of U.S. public companies have been transformed by the widespread adoption of virtually all of the “best practices” advocated to enhance the rights of shareholders and weaken takeover defenses.

While the future issues of corporate governance remain murky, there are some emerging themes that portend a potentially profound shift in the way that boards will need to think about their roles and priorities in guiding the corporate enterprise. While these themes are hardly new, they have been gaining momentum in prompting a rethinking of some of the most basic assumptions about corporations, corporate governance and the path forward.


Nonvoting Common Stock: A Legal Overview

Steven M. Haas is a partner and Charles L. Brewer is an associate at Hunton & Williams LLP. This post is based on a Hunton & Williams publication by Mr. Haas and Mr. Brewer. This post is part of the Delaware law series; links to other posts in the series are available here. Related research from the Program on Corporate Governance includes The Untenable Case for Perpetual Dual-Class Stock by Lucian Bebchuk and Kobi Kastiel (discussed on the Forum here).

Dual-class stock structures have recently been the subject of significant commentary. Much criticism has been levied at companies with high-vote/low-vote stock structures, but the conversation seemingly reached a boiling point after Snap Inc.’s recent initial public offering of nonvoting common shares. Without taking a position on the merits of dual-class stock structures, this post provides an overview of the legal issues associated with nonvoting common stock of Delaware corporations.


Does Financial Misconduct Affect the Future Compensation of Alumni Managers?

Boris Groysberg is professor of business administration in the Organizational Behavior unit at the Harvard Business School; Eric Lin is an Assistant Professor at the United States Military Academy; and George Serafeim is the Jakurski Family Associate Professor of Business Administration at Harvard Business School. This post is based on their recent paper.

Corporate scandals can have serious consequences on human capital. While prior research has shown the consequences on executives and directors that had oversight of the organization during a misconduct or were directly responsible for a misconduct, in a recent paper, we examine the effect of stigma on future compensation for individuals that left many years before the misconduct occurred and were never implicated in the misconduct.


Virtual-Only Shareholder Meetings: Streamlining Costs or Cutting Shareholders Out?

Robert Richardson is manager of North American Proxy Research at Glass, Lewis & Co. This post is based on a Glass Lewis publication by Mr. Richardson.

In a fast-paced technological world, where efficiency and streamlining are often viewed as key drivers of success, it’s no surprise that companies have started to livestream their shareholder meetings and to allow investors to participate remotely. Adding an online component can broaden the franchise, giving shareholders the chance to attend the “hybrid” physical/online meeting even if they can’t travel to it.

However, more and more companies are going a step further—not just adding an option for online participation, but removing the in-person alternative. The 2017 U.S. proxy season saw 163 companies hold virtual-only shareholder meetings, an increase from 122 virtual-only meetings held during the 2016 U.S. proxy season.


Governance Improvements in 2017

Subodh Mishra is Executive Director at Institutional Shareholder Services, Inc. This post is based on an ISS Analytics publication by Kosmas Papadopoulos, Associate Director at ISS Analytics.

[On Thursday, November 23], the United States celebrates Thanksgiving, a holiday that has roots across many cultures in celebrating a bountiful harvest. And so we thought it fitting to take this week to appreciate the year’s harvest of advances in corporate governance that companies around the world have made since the beginning of the year. While issuers and investors no doubt have their plates full (pun intended) with more complex and numerous governance topics to consider, they have plenty of reasons to cherish the positive changes resulting from their labors throughout the past year.


Analysis of ISS’ QualityScore Updates

Holly J. Gregory and John P. Kelsh are partners and Rebecca Grapsas is counsel at Sidley Austin LLP. This post is based on a Sidley publication by Ms. Gregory, Mr. Kelsh, Ms. Grapsas, and Claire H. Holland. Related research from the Program on Corporate Governance includes What Matters in Corporate Governance? by Lucian Bebchuk, Alma Cohen and Allen Ferrell (discussed on the Forum here).

On October 30, 2017, Institutional Shareholder Services (ISS) announced new questions and other methodology updates to its ISS Governance QualityScore corporate governance scoring tool that will take effect on December 4, 2017. These and additional updates are reflected in the QualityScore technical document ISS published on November 14, 2017, available here. This post summarizes the QualityScore updates applicable to U.S. companies and reminds companies to verify their data against QualityScore’s methodology until Tuesday, November 28, 2017 at 8:00 p.m. (ET).


Horizontal Shareholding and Antitrust Policy

Fiona Scott Morton is Theodore Nierenberg Professor of Economics at Yale School of Management; Herbert Hovenkamp is James G. Dinan University Professor at Penn Law and the Wharton School of Business. This post is based on their recent article, forthcoming in the Yale Law Journal. Related research from the Program on Corporate Governance includes The Growing Problem of Horizontal Shareholding (discussed on the Forum here), and Horizontal Shareholding (discussed on the Forum here), both by Einer Elhauge.

“Horizontal shareholding” occurs when a number of equity funds own shares of competitors operating in a concentrated product market. For example, the four largest mutual fund companies might be the four largest shareholders of all the major United States airlines. A growing body of empirical literature concludes that under these conditions market output is lower and prices higher than they would otherwise be.

Here we consider how the antitrust laws might be applied to remedy such situations, identifying the issues that the courts are likely to encounter. We assume that the firms in a concentrated product or service market are not fixing prices. Nor are the managers of the funds that acquire interests in their shares agreeing with each other about how to purchase or vote the shares or otherwise influence the behavior of these firms. If either of these two horizontal agreements exists it is independently actionable under §1 of the Sherman Act.


Analysis of Section 220 Demand Request

David Berger, Brad Sorrels, and Katherine Henderson are partners at Wilson Sonsini Goodrich & Rosati. This post is based on a WSGR publication by Mr. Berger, Mr. Sorrels, and Ms. Henderson, and is part of the Delaware law series; links to other posts in the series are available here.

On November 13, 2017, the Delaware Court of Chancery issued a short but potentially important opinion in Jack Wilkinson v. A. Schulman, Inc., [1] an action to inspect books and records brought under Section 220 of the Delaware General Corporation Law. Section 220 gives stockholders of Delaware corporations the ability to inspect certain corporate books and records provided they have a “proper purpose” for seeking such materials. This statute can provide an important tool for stockholders seeking to investigate allegations of corporate wrongdoing, but also can cause significant burdens on companies with little benefit to stockholders. The court’s decision in Schulman represents an important effort to try to balance these considerations.


Founder Replacement and Startup Performance

Michael Ewens is Associate Professor of Finance and Entrepreneurship at California Institute of Technology. Matt Marx is Associate Professor of Strategy & Innovation at Boston University Questrom School of Business. This post is based on their recent paper. Related research from the Program on Corporate Governance includes Carrots & Sticks: How VCs Induce Entrepreneurial Teams to Sell Startups, by Jesse Fried and Brian Broughman (discussed on the Forum here).

It is well accepted that venture capital (VC) is a “hits” business. In a sample of over 22,000 VC-funded startups founded between 1987 and 2008, 75% had a liquidation value of zero while 0.39% had an exit value of $500 million or greater (Hall and Woodward 2010). Research indicates that returns are enhanced by investor skills, which one might group by (1) initial selection of investment targets and (2) post-investment intervention. Recently, scholars have shown that post-investment intervention by “activist” investors can improve outcomes for portfolio companies (Bottazi, da Rin, and Hellman, 2008; Bernstein, Giroud, and Townsend, 2016), but the specific mechanisms by which this is achieved remain unidentified.


Cybersecurity Risks in M&A Transactions

Jennifer H. Thiem and James E. Scheuermann are partners at K&L Gates LLP. This post is based on a K&L Gates publication by Ms. Thiem and Mr. Scheuermann.

A glance at any media outlet shows that cyber risk is pervasive and increasing, and that virtually no company is immune to a cyber incident. Almost all companies and associations collect and store some type of data, whether it is customer or employee data (such as personally identifiable information, personal health information, or cardholder data), intellectual property, confidential corporate information (such as historical financial data and projections, customer lists, or corporate strategies), or other confidential information (who is accessing which websites, consumer buying habits, and the like). Similarly, virtually all companies communicate with their customers and vendors through emails, social media, or websites. And companies are increasingly purveyors of or reliant on devices connected through the internet of things or the industrial internet of things (industrial control systems), many of which lack adequate security. With a plethora of valuable targets and points of entry, cyber criminals, hacktivists, and nation-states do not lack for motives or opportunities to engage in cyber attacks.


Page 1 of 8
1 2 3 4 5 6 7 8