Yearly Archives: 2017

SEC Staff Examines Impact of Regulation on Capital Formation and Market Liquidity

Posted by Ning Chiu, Davis Polk & Wardwell LLP, on

Friday, August 25, 2017

Capital formation, Capital markets, Dodd-Frank Act, Equity offerings, Financial regulation, Investor protection, IPOs, JOBS Act, Liquidity, Regulation D, SEC, Securities enforcement, Securities regulation
More from: Ning Chiu, Davis Polk

Ning Chiu is counsel at Davis Polk & Wardwell LLP. This post is based on a Davis Polk publication by Ms. Chiu.

In response to a statutory requirement, the SEC Staff of the Division of Economic and Risk Analysis (DERA) has issued a lengthy report to Congress on the combined impacts of the Dodd-Frank Act and other financial regulations on access to capital for consumers, investors and businesses and market liquidity. DERA studied (a) capital raising in the primary markets by analyzing evidence on the evolution of the issuance of debt, equity and asset-backed securities across registered and exempt offerings and (b) secondary market liquidity by analyzing market activity and liquidity in corporate bonds and US treasuries, along with funds and investment companies that invest in those securities.

Weekly Roundup: August 18–24, 2017

Posted by HLS Forum on Corporate Governance and Financial Regulation, on

Friday, August 25, 2017

Weekly Roundup
More from:

This roundup contains a collection of the posts published on the Forum during the week of August 18–24, 2017.

Losing Stockholder Standing to Assert and Enforce Corporate Inspection Rights

Posted by Jacqueline Rubin and Matthew Stachel, Paul, Weiss, Rifkind, Wharton & Garrison LLP, on Friday, August 18, 2017

Tags: Books and records, Delaware cases, Delaware law, Discovery, Merger litigation, Mergers & acquisitions, Shareholder rights, Shareholder suits, Standing, Tender offer

Regulating Motivation: A New Perspective on the Volcker Rule

Posted by Marcel Kahan and Ryan Bubb, New York University, on Friday, August 18, 2017

Tags: Banker bonuses, Banks, Broker-dealers, Compensation guidelines, Compliance and disclosure interpretation, Dodd-Frank Act, Financial institutions, Incentives, Labor markets, Proprietary trading, Risk-taking, Volcker Rule

Information Asymmetries Conceal Fraud and Systemic Risks in the U.S. Banking Industry

Posted by Beckwith B. Miller, Ethics Metrics LLC, on Saturday, August 19, 2017

Tags: Banks, Capital requirements, Deposit insurance, Disclosure, Dodd-Frank Act, FDIC, Financial institutions, Financial regulation, Financial reporting, FSOC, Information asymmetries, Information environment, Investor protection, SEC, Stress tests, Systemic risk, Transparency

Sales Practices: Third-Party Risk Management Matters Too

Posted by Dan Ryan, PricewaterhouseCoopers LLP, on Sunday, August 20, 2017

Tags: Banks, Compliance & ethics, Due diligence, Financial institutions, Financial regulation, Oversight, Reputation, Risk, Risk management, Wells Fargo

Private Equity and Financial Fragility During the Crisis

Posted by Shai Bernstein, Stanford Graduate School of Business, on Monday, August 21, 2017

Tags: Capital formation, Debt securities, Equity offerings, Financial crisis, Firm performance, International governance, Private equity, Systemic risk, UK

Activist Investors’ Approaches to Targeting Boards

Posted by Jack “Rusty” O’Kelley III, Russell Reynolds Associates, on Monday, August 21, 2017

Tags: Board performance, Boards of Directors, Charter & bylaws, Director nominations, Director qualifications, Engagement, Firm performance, Ousting directors, Proxy contests, Shareholder activism

2017 Securities and M&A Litigation Mid-Year Review

Posted by Roger Cooper and Jared Gerber, Cleary Gottlieb Steen & Hamilton LLP, on Tuesday, August 22, 2017

Tags: Appraisal rights, Class actions, Delaware cases, Delaware law, Disclosure, Disgorgement, Fraud-on-the-Market, Merger litigation, Mergers & acquisitions, Securities litigation, Statute of limitations, Supreme Court, Tolling

Governance through Shame and Aspiration: Index Creation and Corporate Behavior in Japan

Posted by Charles C.Y. Wang, Harvard Business School, on Tuesday, August 22, 2017

Tags: Accounting, Behavioral finance, Capital markets, Firm performance, Firm valuation, Incentives, International governance, Japan, Listing standards, Profitability, Public perception, Reputation, Stock returns

Delaware Court of Chancery Extends Business Judgment Protection to Control Shareholders Selling to a Third Party

Posted by Theodore N. Mirvis, Wachtell, Lipton, Rosen & Katz, on Tuesday, August 22, 2017

Tags: Business judgment rule, Controlling shareholders, Delaware cases, Delaware law, Fairness review, Merger litigation, Mergers & acquisitions

ISS Releases Surveys for 2018 Policy Updates

Posted by Elizabeth Ising and Maia Gez, Gibson, Dunn & Crutcher LLP, on Wednesday, August 23, 2017

Tags: Board composition, Boards of Directors, Compensation ratios, Diversity, Dual-class stock, Executive Compensation, Institutional Investors, ISS, Pay for performance, Poison pills, Proxy advisors, Proxy voting, Shareholder voting, Surveys, Virtual meetings

The Era of Private Ordering for Corporate Governance

Posted by Gary L. Tygesson, Dorsey & Whitney LLP, on Wednesday, August 23, 2017

Tags: Compensation disclosure, Corporate Social Responsibility, Disclosure, Diversity, Dodd-Frank Act, Environmental disclosure, ESG, Executive Compensation, Human capital, Institutional Investors, Private ordering, Say on pay, Securities regulation, Sustainability, Voluntary Disclosure

Delaware Court of Chancery Extends Business Judgment Rule Deference to Controller Transactions Involving Third-Parties

Posted by Jason M. Halper and James M. Fee, Cadwalader, Wickersham & Taft LLP, on Thursday, August 24, 2017

Tags: Business judgment rule, Class actions, Conflicts of interest, Controlling shareholders, Delaware cases, Delaware law, Fairness review, Merger litigation, Mergers & acquisitions, Minority shareholders

Board Oversight of Long-Term Value Creation and Preservation

Posted by Tim Leech, Risk Oversight Solutions Inc., on Thursday, August 24, 2017

Tags: Boards of Directors, Executive Compensation, Incentives, Information environment, Institutional Investors, Internal auditors, Long-Term value, Management, Oversight, Proxy advisors, Risk, Risk assessment, Risk management, Risk oversight, Short-termism

Board Oversight of Long-Term Value Creation and Preservation

Posted by Tim Leech, Risk Oversight Solutions Inc., on

Thursday, August 24, 2017

Boards of Directors, Executive Compensation, Incentives, Information environment, Institutional Investors, Internal auditors, Long-Term value, Management, Oversight, Proxy advisors, Risk, Risk assessment, Risk management, Risk oversight, Short-termism
More from: Tim Leech, The Conference Board

Tim J. Leech is managing director at Risk Oversight Solutions Inc. This post is based on a publication from The Conference Board, authored by Mr. Leech.

Stakeholders increasingly expect boards of directors to do more to oversee the organizations they direct. Some of these expectations are spelled out in laws and regulations—the Sarbanes-Oxley, Dodd Frank, Foreign Corrupt Practices, Anti-money Laundering acts—and stock exchange listing standards, to name just a few. Regulatory-driven board risk oversight expectations, by design, have focused on protecting the public and entity value preservation. The newest board risk oversight expectations, perhaps the most important to date, are being elevated by institutional investors representing billions of current and future pensioners and controlling trillions of dollars of investments. These highly influential investors are calling on CEOs and boards to spend more time and effort directing and overseeing long term value creation. Boards, in turn, are asking CEOs to provide long term value creation strategies, together with their assessment of risks to those objectives. The next logical step is for boards to ask for assurances from internal audit departments and enterprise risk management (ERM) specialists that the risk information they get from management linked to top value creation and value preservation objectives is reliable.

Delaware Court of Chancery Extends Business Judgment Rule Deference to Controller Transactions Involving Third-Parties

Posted by Jason M. Halper and James M. Fee, Cadwalader, Wickersham & Taft LLP, on

Thursday, August 24, 2017

Business judgment rule, Class actions, Conflicts of interest, Controlling shareholders, Delaware cases, Delaware law, Fairness review, Merger litigation, Mergers & acquisitions, Minority shareholders
More from: James Fee, Jason Halper, Cadwalader

Jason M. Halper is a partner and James M. Fee is an associate at Cadwalader, Wickersham & Taft LLP. This post is based on a Cadwalader publication by Mr. Halper and Mr. Fee, and 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 Independent Directors and Controlling Shareholders by Lucian Bebchuk and Assaf Hamdani (discussed on the Forum here).

On August 18, 2017, the Delaware Court of Chancery granted defendants’ motion to dismiss a class action brought by former minority stockholders of Martha Stewart Living Omnimedia, Inc. (“MSLO”) against Martha Stewart and Sequential Brands Group, Inc. (“Sequential”). In his opinion in In re Martha Stewart Living Omnimedia, Inc. Stockholder Litigation, C.A. No. 11202-VCS (Del. Ch. Aug. 18, 2017), Vice Chancellor Slights held that the business judgment rule, rather than the entire fairness standard, applied at the pleadings stage to a challenge to a controlling stockholder’s sale to a third party, applying the Delaware Supreme Court’s seminal holding in Kahn v. M&F Worldwide Corp. (“MFW”) to such “single-side” controller transactions. Chancellor Slight’s ruling represents the first time the business judgment rule has been applied to single-side controller transactions at the pleadings stage pursuant to the MFW framework; prior decisions involved situations where the controller was on both sides of the transaction.

The Era of Private Ordering for Corporate Governance

Posted by Gary L. Tygesson, Dorsey & Whitney LLP, on

Wednesday, August 23, 2017

Compensation disclosure, Corporate Social Responsibility, Disclosure, Diversity, Dodd-Frank Act, Environmental disclosure, ESG, Executive Compensation, Human capital, Institutional Investors, Private ordering, Say on pay, Securities regulation, Sustainability, Voluntary Disclosure
More from: Gary Tygesson, Dorsey

Gary L. Tygesson is a partner in the Capital Markets and Corporate Compliance Group at Dorsey & Whitney LLP. This post is based on a Dorsey & Whitney memo by Mr. Tygesson. Related research from the Program on Corporate Governance includes Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

Following the 2016 election, corporate governance circles have focused intently on what will happen in the nation’s capital with regard to a potential roll back of the current regulatory regime. The Trump Administration immediately signaled a strong desire for wide-ranging regulatory reform through a series of executive orders directed at federal agencies. Subsequent Congressional and agency actions initiated the potential unwinding of a broad swath of existing regulations. In the governance and disclosure world, the Republican-controlled Congress adopted a joint resolution suspending the resource extraction disclosure rules. In June, the House passed the Financial CHOICE Act which would repeal many of the governance-related provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (disclosures of CEO pay ratio and hedging policies) and limit the scope of other provisions (clawbacks), prohibit the SEC from mandating the use of universal proxy cards and increase shareholder proposal thresholds. Recently, the Securities and Exchange Commission revised its rule-making docket under newly appointed Chairman Clayton’s leadership and pushed all of the unfinished Dodd-Frank related rules (pay-for-performance disclosure, clawbacks and disclosure of hedging policies) and some additional governance rule-making (universal proxy cards and board diversity) to the back burner.

ISS Releases Surveys for 2018 Policy Updates

Posted by Elizabeth Ising and Maia Gez, Gibson, Dunn & Crutcher LLP, on

Wednesday, August 23, 2017

Board composition, Boards of Directors, Compensation ratios, Diversity, Dual-class stock, Executive Compensation, Institutional Investors, ISS, Pay for performance, Poison pills, Proxy advisors, Proxy voting, Shareholder voting, Surveys, Virtual meetings
More from: Elizabeth Ising, Maia Gez, Gibson Dunn

Elizabeth Ising is a partner and Maia Gez is Of Counsel at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn client alert by Ms. Ising and Ms. Gez.

On August 3, 2017, the proxy advisory firm Institutional Shareholder Services (“ISS”) launched its annual policy survey. Each year, ISS solicits comments in connection with the review of its proxy voting policies. ISS then uses the data to inform its voting policy review. At the end of this process, ISS will announce its updated proxy voting policies applicable to 2018 shareholder meetings.

This year, ISS divided its survey into two parts: the Governance Principles Survey and the Policy Application Survey. The Governance Principles Survey consists of a brief, high-level set of questions addressing what ISS views as the “fundamental and high-profile” issues this year:

Delaware Court of Chancery Extends Business Judgment Protection to Control Shareholders Selling to a Third Party

Posted by Theodore N. Mirvis, Wachtell, Lipton, Rosen & Katz, on

Tuesday, August 22, 2017

Business judgment rule, Controlling shareholders, Delaware cases, Delaware law, Fairness review, Merger litigation, Mergers & acquisitions
More from: Andrew Nussbaum, Paul Rowe, Theodore N. Mirvis, Wachtell Lipton

Theodore N. Mirvis is a partner in the Litigation Department at Wachtell, Lipton, Rosen & Katz. This post is based on a publication by Mr. Mirvis, Paul K. Rowe, and Andrew J. Nussbaum. This post is part of the Delaware law series; links to other posts in the series are available here.

In 2014, the Delaware Supreme Court ruled that a control stockholder buying out the public minority interest could achieve the safe haven of business judgment review, provided that the controller structured the transaction to provide certain protections, notably special committee approval, full disclosure and a majority-of-minority vote condition. Kahn v. M&F Worldwide, 88 A.3d 635 (Del. 2014) (“MFW”). (Our previous post on the case is here.)

Governance through Shame and Aspiration: Index Creation and Corporate Behavior in Japan

Posted by Charles C.Y. Wang, Harvard Business School, on

Tuesday, August 22, 2017

Accounting, Behavioral finance, Capital markets, Firm performance, Firm valuation, Incentives, International governance, Japan, Listing standards, Profitability, Public perception, Reputation, Stock returns
More from: Akash Chattopadhyay, Charles Wang, Matthew Shaffer

Charles C.Y. Wang is the Glenn and Mary Jane Creamer Associate Professor of Business Administration at Harvard Business School; Akash Chattopadhyay is an Assistant Professor of Accounting at University of Toronto Mississauga and the Rotman School of Management; and Matthew Shaffer is a doctoral student at Harvard Business School. This post is based on a recent paper by Professor Chattopadhyay, Mr. Shaffer, and Professor Wang.

There is growing interest in using stock indexes to shape corporate behavior and the standards of corporate governance. Over the past weeks, two of the largest index providers—S&P Dow Jones and FTSE Russell—announced their decisions to exclude certain firms with multiple share-class structures from their indexes. Despite these significant moves, empirical research has not established whether and how stock indexes can be effective in shaping standards of corporate behavior.

In a new working paper recently posted on SSRN, Governance through Shame and Aspiration: Index Creation and Corporate Behavior in Japan, we examine the governance role of stock indexes by exploiting the unique features of Japan’s JPX-Nikkei 400 index (JPX400). Launched in 2014, the JPX400 consists of the 400 best performing firms in terms of profitability among Japan’s largest and most liquid firms. Our analysis shows that the index had profound effects on Japanese firms and the overall stock market, and that these effects were predominantly driven by managers’ prestige concerns—the aspiration to acquire prestige or the desire to avoid shame—rather than the financial benefits of index inclusion.

2017 Securities and M&A Litigation Mid-Year Review

Posted by Roger Cooper and Jared Gerber, Cleary Gottlieb Steen & Hamilton LLP, on

Tuesday, August 22, 2017

Appraisal rights, Class actions, Delaware cases, Delaware law, Disclosure, Disgorgement, Fraud-on-the-Market, Merger litigation, Mergers & acquisitions, Securities litigation, Statute of limitations, Supreme Court, Tolling
More from: Abena Mainoo, Amanda Ravich, Jared Gerber, Roger Cooper, Vanessa Richardson, Cleary Gottlieb

Roger Cooper and Jared Gerber are partners at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb publication by Mr. Cooper, Mr. Gerber, Abena Mainoo, Vanessa Richardson and Amanda Ravich.

As we previewed in our 2016 Year in Review, several significant developments in the federal securities laws occurred during the first half of 2017. The U.S. Supreme Court ruled that the Securities Act’s repose period is not subject to class-action tolling, in California Public Employees’ Retirement System v. ANZ Securities, Inc. In another case addressing the application of statutory time-bars to securities law violations, the Court held in Kokesh v. Securities and Exchange Commission that disgorgement in SEC proceedings is subject to the five-year statute of limitations for penalties. The Court also granted petitions for certiorari in two securities cases it will consider next term. One petition concerns liability under Section 10(b) and Rule 10b-5 based on a failure to make disclosures required by SEC regulation. The other petition relates to the appropriate forum for class actions asserting Securities Act claims.

Activist Investors’ Approaches to Targeting Boards

Posted by Jack “Rusty” O’Kelley III, Russell Reynolds Associates, on

Monday, August 21, 2017

Board performance, Boards of Directors, Charter & bylaws, Director nominations, Director qualifications, Engagement, Firm performance, Ousting directors, Proxy contests, Shareholder activism
More from: Rusty O'Kelley, Russell Reynolds

Jack “Rusty” O’Kelley III is a Managing Director at Russell Reynolds Associates. This post is based on a Russell Reynolds publication by Mr. O’Kelley. 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); The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (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).

Clients who are anticipating or early in the process of an activist situation, and a potential proxy contest, often ask us two questions:

How do you know if an activist is going to seek to expand the board or target specific directors for replacement (and potentially escalate the situation to a proxy contest)?
If an activist chooses a board member replacement strategy, how can you predict which directors an activist may target?

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Yearly Archives: 2017

SEC Staff Examines Impact of Regulation on Capital Formation and Market Liquidity

Weekly Roundup: August 18–24, 2017

Losing Stockholder Standing to Assert and Enforce Corporate Inspection Rights

Regulating Motivation: A New Perspective on the Volcker Rule

Information Asymmetries Conceal Fraud and Systemic Risks in the U.S. Banking Industry

Sales Practices: Third-Party Risk Management Matters Too

Private Equity and Financial Fragility During the Crisis

Activist Investors’ Approaches to Targeting Boards

2017 Securities and M&A Litigation Mid-Year Review

Governance through Shame and Aspiration: Index Creation and Corporate Behavior in Japan

Delaware Court of Chancery Extends Business Judgment Protection to Control Shareholders Selling to a Third Party

ISS Releases Surveys for 2018 Policy Updates

The Era of Private Ordering for Corporate Governance

Delaware Court of Chancery Extends Business Judgment Rule Deference to Controller Transactions Involving Third-Parties

Board Oversight of Long-Term Value Creation and Preservation

Board Oversight of Long-Term Value Creation and Preservation

Delaware Court of Chancery Extends Business Judgment Rule Deference to Controller Transactions Involving Third-Parties

ISS Releases Surveys for 2018 Policy Updates

Delaware Court of Chancery Extends Business Judgment Protection to Control Shareholders Selling to a Third Party

Governance through Shame and Aspiration: Index Creation and Corporate Behavior in Japan

2017 Securities and M&A Litigation Mid-Year Review

Activist Investors’ Approaches to Targeting Boards

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