Yearly Archives: 2017

The Volcker Rule and Potential Conflicts of Interests in Banks

Posted by Sureyya Burcu Avci and Cindy A. Schipani, University of Michigan, on

Wednesday, August 16, 2017

Banks, Conflicts of interest, Dodd-Frank Act, Financial crisis, Financial regulation, Glass-Steagall, Information asymmetries, Information environment, Insider trading, Moral hazard, Proprietary trading, Systemic risk, Volcker Rule
More from: Cindy Schipani, H. Nejat Seyhun, Sureyya Burcu Avci

Sureyya Burcu Avci is a Postdoc Research Scholar at the University of Michigan Ross School of Business. Cindy A. Schipani is Merwin H. Waterman Collegiate Professor of Business Administration and Professor of Business law at the University of Michigan Ross School of Business. H. Nejat Seyhun is Jerome B. & Eilene M. York Professor of Business Administration and Professor of Finance at University of Michigan Ross School of Business. This post is based on a recent article, forthcoming in the Yale Journal on Regulation, by Professor Schipani, Professor Seyhun, and Ms. Avci.

Under intense pressure from the banking industry, the Trump Administration recently introduced legislation to repeal the Dodd-Frank Act and thereby eliminate the Volcker Rule. This development immediately raises the question of why the big banks would want to worry about a small, arcane, technical trading rule such as the Volcker Rule. The answer is that the Volcker Rule, if properly implemented, would eliminate huge amount of profits banks are currently making from proprietary stock trading that may be in conflict with their clients’ interests.

Declassified Boards Are More Likely to Be Diverse

Posted by Grant Bremer, Equilar Inc., on

Tuesday, August 15, 2017

Accountability, Board composition, Board declassification, Boards of Directors, Classified boards, Diversity, Shareholder voting, Staggered boards
More from: Grant Bremer, Equilar

Grant Bremer is a research analyst at Equilar Inc. This post is based on an Equilar publication by Mr. Bremer. Related research from the Program on Corporate Governance includes The Costs of Entrenched Boards by Lucian Bebchuk and Alma Cohen; How Do Staggered Boards Affect Shareholder Value? Evidence from a Natural Experiment by Alma Cohen and Charles C. Y. Wang; and Staggered Boards and Shareholder Value: A Reply to Amihud and Stoyanov, also by Alma Cohen and Charles C. Y. Wang (discussed on the Forum here).

The Equilar Gender Diversity Index (GDI) has reported that, at the current pace of growth in female representation on public company boards of directors, gender parity would not be reached until Q4 2055 for the Russell 3000. However, annually elected boards may already have an edge against their classified counterparts.

Classified boards, also colloquially known as staggered boards, create separate “classes” of directors who are elected for multiple-year terms, with one “class” coming up for re-election each year. Proponents of classified boards say they strengthen a company’s long-term strategy by increasing focus and dedication. Classification may also reduce stress on a board by creating job stability and preventing hostile corporate takeovers. On the other hand, advocates of declassified boards highlight how annual elections can increase accountability and responsiveness to shareholders. Over the past five years, corporations have seen a strong migration away from classified boards to annually elected boards with no director classes. Indeed, almost 90% of large-cap companies now have declassified boards, up from about two-thirds in 2011.
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The Remaking of Wall Street

Posted by Andrew F. Tuch, Washington University in St. Louis, on

Tuesday, August 15, 2017

Asset management, Banks, Broker-dealers, Dodd-Frank Act, Financial crisis, Financial institutions, Financial regulation, Hedge funds, Investment banking, Private equity, Shadow banking, SIFIs, Systemic risk
More from: Andrew Tuch

Andrew F. Tuch is Professor of Law at the Washington University in St. Louis School of Law. This post is based on a recent article by Professor Tuch, forthcoming in the Harvard Business Law Review.

At the dawn of the Financial Crisis of 2007-09, major investment banks stood as the elite of Wall Street. They were large-scale, publicly listed corporations providing broad-ranging financial products and services across the globe. But as we know, their reliance on short-term funding and exposure to mortgage-related securities left them financially vulnerable and created system-wide financial risks. As their lending sources dried up, they received massive government assistance designed to avert catastrophic system-wide harms. Those investment banks that survived became bank holding companies (BHCs). These events wiped out major investment banks, prompting The Wall Street Journal to assert that “Wall Street as we’ve known it for decades has ceased to exist.” [1]

Chancery Finds Fair Value To Be Less Than Half Merger Price

Posted by Meredith Kotler, Cleary, Gottlieb, Steen & Hamilton LLP, on

Monday, August 14, 2017

Appraisal rights, Delaware cases, Delaware law, Fair values, Fairness review, Fiduciary duties, Merger litigation, Mergers & acquisitions, Minority shareholders, Shareholder suits
More from: Mark McDonald, Meredith Kotler, Vanessa Richardson, Cleary Gottlieb

Meredith E. Kotler is a partner at Cleary, Gottlieb, Steen & Hamilton LLP. This post is based on a Cleary Gottlieb publication by Ms. Kotler, Mark E. McDonald, and Vanessa C. Richardson. This post is part of the Delaware law series; links to other posts in the series are available here.

In a decision issued on Friday [July 21, 2017] that will likely slow the recent spike in appraisal suits, the Delaware Court of Chancery held that the fair value of Clearwire Corp. was $2.13 per share—less than half the merger price of $5 per share. See ACP Master, Ltd. et al. v. Sprint Corp., et al., C.A. No. 8508-VCL (Del. Ch. July 21, 2017) (“Clearwire”). The decision by Vice Chancellor Laster also found that Sprint Nextel Corp. (“Sprint”), which owned slightly more than 50% of Clearwire’s voting stock at the time of the merger, did not breach its fiduciary duties in acquiring the Clearwire shares it did not already own because the merger was entirely fair to Clearwire’s minority stockholders.
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Swimming Against the Current

Posted by Nick Dawson, Proxy Insight, on

Monday, August 14, 2017

Dual-class stock, Index funds, Institutional Investors, Listing standards, Shareholder proposals, Shareholder rights, Shareholder voting
More from: Nick Dawson, Proxy Insight

Nick Dawson is Co-Founder and Managing Director of Proxy Insight. This post is based on a Proxy Insight publication by Mr. Dawson.

Dual stock structures have been cropping up quite a lot in the news recently. The resurgence of this long-standing debate can be traced back to Snap Inc’s listing earlier this year. The tech company’s IPO took the unprecedented step of offering no voting rights for its common stock.

This led the Council of Institutional Investors (CII) and some asset managers to reiterate the call for indices to ban non-voting shares. Picking up the debate, this post will look at the arguments surrounding this controversial issue alongside Proxy Insight data.

Although most investors agree with CII that dual stock structures represent poor corporate governance, rivalry between exchanges means that the council is likely fighting a losing battle.

Brexit: The Great Repeal Bill

Posted by Thomas Donegan, Shearman & Sterling LLP, on

Sunday, August 13, 2017

Banks, Brexit, EU, Europe, Financial institutions, Financial regulation, International governance, Jurisdiction, UK
More from: Ben McMurdo, Oliver Linch, Thomas Donegan, Shearman & Sterling

Thomas Donegan is a partner at Shearman & Sterling LLP. This post is based on a Shearman publication by Mr. Donegan, Ben McMurdo, and Oliver Linch. Additional posts on the legal and financial impact of Brexit are available here.

On 13 July 2017, the UK government published the European Union (Withdrawal) Bill, known as the “Great Repeal Bill.” This major piece of constitutional legislation sets out the government’s proposals for transforming existing EU laws into UK laws and ending the supremacy of EU laws in the UK after Brexit.

A referendum was held on 23 June 2016, which resulted in a vote for the UK to leave the EU. The European Union Referendum Act, which authorized the holding of the referendum, was silent as to any further steps to be taken in the event of a “leave” vote. Earlier this year, the European Union (Notification of Withdrawal) Act 2017 empowered the Prime Minister to notify the EU of the UK’s intent to withdraw from the EU. This notification was made on 29 March 2017, starting an extensible two-year negotiation period, at the end of which the UK will cease to be a member of the EU. The proposed Great Repeal Bill is one of several pieces of legislation that the UK government has recently proposed in order to give effect to the result of the referendum.

Volcker Rule: Under Review Until Further Notice

Posted by Dan Ryan and Roberto Rodriguez, PricewaterhouseCoopers LLP, on

Saturday, August 12, 2017

Dan Ryan is Banking and Capital Markets Leader and Roberto Rodriguez is Director of Regulatory Strategy at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Mr. Ryan, Mr. Rodriguez, Mike Alix, Adam Gilbert, and Julien Courbe.

The Trump Administration has been critical of the Dodd-Frank Act since day one, and one of the primary targets has been the Volcker Rule (“rule”). The rule was born in a highly politicized environment during the financial crisis, and while its proprietary trading restriction was intended to promote financial stability, the complexity of implementing the rule has been considered problematic by banks and regulators alike. Since its inception, leading regulators—including Federal Reserve (Fed) Chair Janet Yellen, Former Fed Governor Daniel Tarullo, and New York Fed President William Dudley—have acknowledged that there is room to reduce the rule’s compliance burden and to tailor its “one-size fits all” approach.

In the most concrete action thus far, the Treasury Department devoted a great deal of attention to the rule in its first report on financial regulation. Unlike the Financial CHOICE Act which recently passed the House of Representatives, the report does not seek to repeal the rule. Instead, it proposes significant changes aimed at reducing the cost and burden of compliance on banks while still remaining true to the policy-intent of the rule.

Next Proxy Access Battlefront? SEC Rejects Attempt to Exclude Proxy Access Shareholder Proposal

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

Friday, August 11, 2017

Boards of Directors, Charter & bylaws, Director nominations, Ownership, Proxy access, Proxy season, Shareholder nominations, Shareholder proposals, Shareholder voting
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. Related research from the Program on Corporate Governance includes Lucian Bebchuk’s The Case for Shareholder Access to the Ballot, and Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

The 2017 season that just passed witnessed two kinds of proposals asking companies to amend existing proxy access bylaws. The first type sent to companies earlier in the season sought to amend several provisions, including requesting that the number of board seats available for nomination increase to 25% of the board instead of 20%, and also that an unlimited number of shareholders be allowed to aggregate their holdings to form a nominating group. Companies that had adopted the standard proxy access formulation of permitting a shareholder or a group of no more than 20 shareholders owning 3% or more for three years to nominate up to 20% of the board (known by the shorthand “3/3/20/20”) were denied no-action relief on the basis of substantial implementation. None of the proposals received majority support when voted on at annual meetings.

Temporary Relief Under the Volcker Rule to Foreign Banks With Respect to Certain Foreign Private Investment Funds

Posted by Reena Sahni, Shearman & Sterling LLP, on

Friday, August 11, 2017

Banks, Dodd-Frank Act, Financial institutions, Financial regulation, Foreign banks, International governance, Private funds, Volcker Rule
More from: Bradley Sabel, Christina Berlin, Nathan Greene, Reena Sahni, Sylvia Favretto, Timothy Byrne, Shearman & Sterling

Reena Sahni is a partner at Shearman & Sterling LLP. This post is based on a Shearman publication by Ms. Sahni, Nathan Greene, Bradley Sabel, Timothy Byrne, Sylvia Favretto and Christina Berlin.

The US federal banking agencies with responsibility for enforcing the Volcker Rule have issued temporary one year no-action relief with respect to certain private non-US investment funds that are not “covered funds” for purposes of the Volcker Rule, but that could be treated as “banking entities” for purposes of the Volcker Rule due to a foreign bank’s investment in or governance arrangements with the fund. [1] Such funds are referred to as “qualifying foreign excluded funds.” The relief generally provides that the US banking agencies will not take action against a foreign bank or treat a qualifying foreign excluded fund as a banking entity based on the foreign bank’s acquisition or retention of an ownership interest in, or sponsorship of, the qualifying foreign excluded fund.

The no-action relief is significant because being treated as a banking entity would cause the non-US fund itself to be subject to the Volcker Rule’s limitations on proprietary trading and other restrictions. Such limitations and restrictions could significantly impair the operations of a fund whose purpose is to engage in making proprietary investments for clients in the same manner as a covered fund.

Weekly Roundup: August 4–10, 2017

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

Friday, August 11, 2017

Weekly Roundup
More from:

This roundup contains a collection of the posts published on the Forum during the week of August 4–10, 2017.

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Yearly Archives: 2017

The Volcker Rule and Potential Conflicts of Interests in Banks

The Remaking of Wall Street

Chancery Finds Fair Value To Be Less Than Half Merger Price

Swimming Against the Current

Brexit: The Great Repeal Bill

Volcker Rule: Under Review Until Further Notice

Next Proxy Access Battlefront? SEC Rejects Attempt to Exclude Proxy Access Shareholder Proposal

Temporary Relief Under the Volcker Rule to Foreign Banks With Respect to Certain Foreign Private Investment Funds

Weekly Roundup: August 4–10, 2017

Say-on-Pay: Is Anybody Listening?

DFC Global: Delaware Supreme Court Strongly Endorses Reliance on Merger Price

Sunrise, Sunset: An Empirical and Theoretical Assessment of Dual-Class Stock Structures

S&P and FTSE Russell on Exclusion of Companies with Multi-Class Shares

You Want Mandatory Arbitration in your Charter? Hey, Just Ask!

Equity Issuances and Agency Costs: The Telling Story of Shareholder Approval Around the World

Federal Class Action Securities Fraud Filings Hit Record Pace in H1 2017

Recent Cases Demonstrate Need for Blockchain

Dissident Uses Disclosure Litigation as an Offensive Tactic in Successful Proxy Contest

How “Shareholder Value” is Killing Innovation

Blockchain and Initial Coin Offerings: SEC Provides First U.S. Securities Law Guidance

Report Finds Shareholder Activism Evolving from Niche Strategy to Acceptance Across Investors

Why Financialized Corporate Governance Works Poorly

Investment Banking Relationships and Analyst Affiliation Bias

SEC Confirms That Some Initial Coin Offerings Are Illegal Unregistered Securities Offerings

2017 Mid-Year Securities Enforcement Update

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