Monthly Archives: December 2017

Do Activists Turn Bad Bidders into Good Acquirers?

Nickolay Gantchev is Associate Professor of Finance at Southern Methodist University Cox School of Business; Merih Sevilir is Associate Professor of Finance at Indiana University Kelley School of Business; and Anil Shivdasani is Wells Fargo Distinguished Professor of Finance at University of North Carolina Kenan-Flagler Business School. This post is based on their recent paper. Related research from the Program on Corporate Governance includes: The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here) and Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System by Leo E. Strine, Jr. (discussed on the Forum here).

The growing influence of activists in global capital markets has prompted financial economists to investigate the drivers of shareholder activism as well as the role of activists in shaping corporate financial strategy. Although several recent studies show that shareholder activism improves the performance of targeted firms, our understanding of the mechanisms through which activists enhance shareholder value remains limited.

In our new working paper, Do Activists Turn Bad Bidders into Good Acquirers?, available on SSRN, we uncover a new role of activists in the market for corporate control. We present evidence that activists curb incentives to engage in empire building acquisitions, limiting the scope of one of the most destructive forces in public companies. Hence, activists not only play an important role in facilitating the acquisition of targeted firms (see related post Activism Mergers by Boyson, Gantchev, and Shivdasani), they also constrain inefficient M&A strategies.

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The Impact of Pending Tax Reform on Executive Compensation: The Need for Deductive Reasoning

Holly BauerMichelle Carpenter and Austin Ozawa are partners at Latham & Watkins LLP. This post is based on a Latham publication by Ms. Bauer, Ms. Carpenter, Mr. Ozawa, James D.C. Barrall, and Nikhil J. Kumar.

Proposed US tax reform may impact the deductibility of executive compensation programs and companies should evaluate any potential tax planning opportunities in 2017 and the impact of the proposed changes going forward.

The US House of Representatives and the Senate continue to work to reconcile the two versions of the Tax Cuts and Jobs Act (the Bill) previously passed in each chamber. However, both versions make significant changes to a public company’s ability to deduct compensation paid to certain of its executive officers and other changes that will impact future executive compensation.

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Board Composition: A Slow Evolution

The following post by Julie Daum, Laurel McCarthy and Ann Yerger is based on a Spencer Stuart publication.

Interest in the composition of U.S. boards has never been greater. Pressure for change is coming from many fronts, particularly from institutional and activist investors. We have been tracking board composition issues for more than 30 years, and as the data from our 2017 Spencer Stuart Board Index show, U.S. boards are evolving, slowly.

  • The number of new independent directors elected to S&P 500 boards during the 2017 proxy year rose to 397, the most since 2004 and an increase of 15% from 2016.
  • For the first time in the history of our survey, just over half (50.1%) of incoming independent directors on S&P 500 boards are women or minorities.
  • A record-breaking 45% of the new S&P 500 independent directors are serving on their first public company board.
  • Boards are seeking talent beyond C-suite chairs, CEOs, presidents or COOs. Slightly more than a third of new independent directors are active or retired C-suite executives, down from 47% 10 years ago.
  • Fewer active CEOs serve on boards. Today only 37% of S&P 500 CEOs serve on one or more outside public company boards, down from 52% 10 years ago.

Calls for greater boardroom diversity—encompassing considerations such as gender, race, age, skills, qualifications and backgrounds—are on the rise. And boards are responding.

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SEC Cyber Unit and Allegedly Fraudulent ICO

Rahul Mukhi is a partner and James Michael Blakemore is an associate at Cleary, Gottlieb, Steen & Hamilton LLP. This post is based on a Cleary Gottlieb publication by Mr. Mukhi and Mr. Blakemore.

On Monday, December 4, 2017, the U.S. Securities and Exchange Commission (SEC) obtained an emergency order from a U.S. District Court in New York to enjoin an allegedly fraudulent initial coin offering scheme. The SEC’s complaint alleges that Dominic Lacroix, a recidivist securities law violator, and his company PlexCorps violated the anti-fraud and registration provisions of the U.S. federal securities laws in collecting up to $15 million in investor funds purportedly in exchange for digital tokens and promised returns in excess of 1,000% in 29 days. The complaint also charges Lacroix’s partner Sabrina Paradis-Royer with securities fraud. Among other relief, the district court has granted the SEC’s request to freeze the defendants’ assets.

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Advising Shareholders in Takeovers

Doron Levit is Assistant Professor of Finance at The Wharton School of the University of Pennsylvania. This post is based on his recent article, published in the Journal of Financial Economics.

The decision of shareholders of public firms to accept a takeover offer is typically marred by two problems. First, shareholders generally do not have a precise estimate of the fair value of their shares, and without more information they cannot distinguish between inadequate and attractive offers. Second, unless shareholders can coordinate their collective decision, there is a free rider problem when they decide whether to accept a tender offer. To assist target shareholders, the board of directors is expected to use its superior knowledge about the company and advise shareholders whether accepting the takeover offer is in their best interests. Indeed, most takeover attempts are accompanied by a public recommendation from the target board to its shareholders. [1] Target shareholders, however, do not always follow these recommendations. [2] What determines whether target shareholders listen and follow the recommendations of their board? Is it necessarily in their best interests to have an influential board? In the paper entitled Advising Shareholders in Takeovers, which now appears at the Journal of Financial Economics, I study the advisory role of the board of directors in takeovers.

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The Information Content of Dividends: Safer Profits, Not Higher Profits

Roni Michaely is Rudd Family Professor of Finance at Cornell University SC Johnson College of Business; Stefano Rossi is Professor of Finance and Gruppo Generali Chair in Insurance and Risk Management at Bocconi University; and Michael Weber is Assistant Professor of Finance and Cohen Keenoy Faculty Scholar at the University of Chicago Booth School of Business. This post is based on their recent paper.

Dividends represent one of the major financial decisions corporations make. Understanding both how capital markets evaluate dividends, and why firms pay dividends, are central to theories of asset pricing, portfolio allocation, capital structure, capital budgeting, cost of capital, and also to public economics, in particular regarding the effects of tax policy. Yet, despite extensive research, financial economists still do not fully understand why capital markets value dividends; why some firms pay dividends while others do not; or how a given firm’s payout policies are determined. Even firms with very similar observable characteristics such as age, earnings, and level of cash, display stark differences in terms of their dividend policies.

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Analysis of ISS’ Proxy Voting Guidelines

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

Institutional Shareholder Services (ISS) published annual updates to its proxy voting guidelines in November, followed by a set of preliminary FAQs offering further clarity around changes the shareholder advisory firm will implement in its voting recommendations next year. These much-anticipated updates will apply to U.S. public companies* holding shareholder meetings on or after February 1, 2018. ISS released changes to its assessments across a spectrum of governance areas, but this blog will focus on board governance matters, including diversity and compensation. Follow-up installments will address changes to ISS’ guidelines related to Say on Pay (quantitative pay-for-performance screens and shareholder engagement), equity plan scorecard (EPSC), and environmental/social/governance (ESG) shareholder proposals.

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Analysis of Final Tax Reform Legislation

The following post is based on a publication by members of the Tax Department of Latham & Watkins LLP, including partners Nicholas J. DeNovio, Joseph M. Kronsnoble, Jiyeon Lee-Lim, Elena Romanova, Laurence J. Stein and associate Patrick Allan Sharma.

Final bill retains key aspects of House and Senate proposals with some surprise last-minute modifications.

On December 15, 2017, a conference committee composed of members of the US House of Representatives and the US Senate approved a Conference Report (the Report) reconciling the tax reform bills passed by each chamber. Both the House and the Senate approved this final legislation on December 20, 2017.

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Top 5 Things Shareholder Activists Need to Know

Steve Wolosky, Andrew Freedman, and Ron Berenblat are partners at Olshan Frome Wolosky LLP. This post is based on an Olshan publication by Mr. Wolosky, Mr. Freedman, and Mr. Berenblat. Related research from the Program on Corporate Governance includes Dancing With Activists by Lucian Bebchuk, Alon Brav, Wei Jang, and Thomas Keusch (discussed on the Forum here).

Nomination deadlines for the 2018 proxy season are fast approaching. Based on feedback from our shareholder activist clients and colleagues in the activism community, we are preparing for a very busy nomination season, which will begin to pick up steam in the next few weeks and continue into the new year. Drawing from our experience as the leading law firm to shareholder activists—including our involvement in delivering over 55 nomination letters during the past 12 months alone—and our views on current hot-button topics such as board diversity, global activism and the targeting of CEOs, Olshan’s Activist & Equity Investment Group presents you with its list of top 5 things activists should consider before nominating directors for the upcoming proxy season.

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Weekly Roundup: December 15-21, 2017


More from:

This roundup contains a collection of the posts published on the Forum during the week of December 15-21, 2017.




Revised FCPA Corporate Enforcement Policy



Analysis of 2018 Revenue Recognition Rules



Designing Cost-Effective Litigation Through Contract Structure



Settlement of Workplace Harassment Suit at 21st Century Fox


2017 Board Diversity Survey


Analysis of Delaware Supreme Court’s Dell Appraisal Decision



The Supreme Court’s Non-Transsubstantive Class Action



Passive Fund Providers and Investment Stewardship


The Limits of Shareholder Ratification for Discretionary Director Compensation


Finding the Right Balance in Appraisal Litigation: Deal Price, Deal Process, and Synergies

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