Yearly Archives: 2018

2018 Q2 Gender Diversity Index

Posted by Amit Batish, Equilar Inc., on
Wednesday, October 3, 2018
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Amit Batish is Content Manager at Equilar Inc. This post is based on an Equilar memorandum by Mr. Batish, with data analysis contributed by Courtney Yu, Lyla Qureshi, and Hailey Robbers.

For a third consecutive quarter, the Equilar Gender Diversity Index (GDI) increased. The percentage of women on Russell 3000 boards increased from 16.9% to 17.7% between March 31 and June 30, 2018. This acceleration moved the needle, pushing the GDI to 0.35, where 1.0 represents parity among men and women on corporate boards.

One of the primary drivers of this steady GDI increase is the number of new directorships that have gone to women over the last few quarters. The chart below illustrates a consistent pace of growth of female directorships. In Q2 2018, more than one-third of new directorships went to women—this is a near three percentage point increase from the previous quarter and a pace that has almost doubled since 2014.

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Private Equity Buyer/Public Target M&A Deal Study: 2015-17 Review

Posted by Richard Presutti, Matthew Gruenberg and Andrew Fadale, Schulte Roth & Zabel LLP, on
Tuesday, October 2, 2018
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Richard Presutti is partner at Schulte Roth & Zabel LLP. This post is based on a Schulte Roth & Zabel memorandum by Mr. Presutti, Matthew Gruenberg, Andrew Fadale, Stavan Desai, William Morici, and David Rothenberg. Related research from the Program on Corporate Governance includes M&A Contracts: Purposes, Types, Regulation, and Patterns of Practice and Allocating Risk Through Contract: Evidence from M&A and Policy Implications (discussed on the Forum here), both by John C. Coates, IV.

In this post, we survey private equity buyer acquisitions of U.S. public companies from 2015 to 2017. Focusing on key terms in middle- and large-market acquisitions valued at over $100 million, we also compare our findings with our previous analysis of transactions from 2013 to 2014. The complete publication identifies key market practices and deal trends, and its appendices present additional data that will be helpful to participants in today’s M&A markets.

Survey Methodology

Consistent with our prior deal studies, we conducted the survey as follows:

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The Rise of the Working Class Shareholder

Posted by David Webber (Boston University), on
Tuesday, October 2, 2018
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David Webber is Professor of Law at Boston University. This post is related to Professor Webber’s recently published book, The Rise of the Working-Class Shareholder.

In my recently published book, The Rise of the Working Class Shareholder: Labor’s Last Best Weapon (Harvard University Press 2018), I tell the story of a largely invisible group of activists who have learned to use the shareholder power of public pension funds and labor union funds to advance the interests of their worker-contributors. I demonstrate how these activists have played a critical role in transforming shareholder voting through the efforts of New York City’s pension funds, the United Brotherhood of Carpenters Fund, and Harvard’s own Shareholder Rights Project, among others. I tell the hidden story of CalPERS’s fateful divestment from hedge funds, and how the American Federation of Teachers’ pushed back against hedge funds that invest teacher pension money and then attack teacher pensions. I outline these funds’ mixed efforts to rein in CEOs through say-on-pay votes, shareholder proposals to split the roles of CEO and Chair, and the recently implemented CEO-worker pay ratio. I illuminate the important role of entities like the AFL-CIO’s Office of Investment in shaping Dodd-Frank and SEC regulation.

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A Tale of Two Earnouts

Posted by Gail Weinstein, Brian T. Mangino, David L. Shaw, Fried, Frank, Harris, Shriver & Jacobson LLP, on
Tuesday, October 2, 2018
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Gail Weinstein is senior counsel and Brian T. Mangino and David L. Shaw are partners at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Ms. Weinstein, Mr. Mangino, Mr. Shaw, Robert C. Schwenkel, Steven Epstein, and Maxwell Yim. This post is part of the Delaware law series; links to other posts in the series are available here.

Earnouts, while often used to bridge valuation differences during negotiation of an agreement to sell a company, frequently lead to post-closing disputes. Two Court of Chancery decisions issued earlier this year highlight pitfalls associated with the period during which an earnout is measured (the “Earnout Period”). In Edinburgh Holdings, Inc. v. Education Affiliates, Inc. (June 6, 2018), the court held that the covenant to operate the acquired business “consistent with past practices” during the Earnout Period precluded disposition of the earnout-related dispute at the early pleading stage of litigation. The court stated that the covenant necessitated a facts-intensive analysis of what past practices were and what the practices during the Earnout Period had been. In Glidepath Limited v. Beumer Corporation (June 4, 2018), the court rejected the plaintiffs’ request for reformation of the acquisition agreement to change the dates of the Earnout Period based on a delay in signing and closing the agreement (which had led to the anomalous result of the Earnout Period commencing before the closing).

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Statement Regarding Agreed Settlements with Elon Musk and Tesla

Posted by Jay Clayton, U.S. Securities and Exchange Commission, on
Monday, October 1, 2018
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Jay Clayton is Chairman of the U.S. Securities and Exchange Commission. This post is based on Chairman Clayton’s recent public statement, available here. The views expressed in this post are those of Mr. Clayton and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

[September 29, 2018], the Commission announced agreed settlements with Elon Musk and Tesla. Mr. Musk is the Chairman and CEO of Tesla and is the company’s largest stockholder, owning approximately 22% of its outstanding shares. The details of the agreed settlements, which remain subject to court approval, are available here. This matter has been widely followed by our Main Street investors and I believe comment on several matters is appropriate:

This past Thursday, after the completion of a thorough investigation and following dialogue with representatives of Mr. Musk and Tesla, the Commission filed an action against Mr. Musk in federal district court. I fully supported the filing of the action.

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Public Short Selling by Activist Hedge Funds

Posted by Ian Appel (Boston College), Jordan Bulka (Boston College), Vyacheslav Fos (Boston College), on
Monday, October 1, 2018
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Ian Appel, Assistant Professor of Finance at Boston College Carroll School of Management; Jordan Bulka is a PhD Student at Boston College Carroll School of Management; and Vyacheslav Fos is Associate Professor of Finance at Boston College Carroll School of Management. This post is based on a recent paper authored by Professor Appel, Mr. Bulka, and Professor Fos. 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 Dancing with Activists by Lucian Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch (discussed on the Forum here).

The last two decades have seen a dramatic increase in the prominence and influence of activist hedge funds. Academic research on activists largely focuses on their long positions and whether they are associated with improved firm outcomes (e.g., Brav, Jiang, Partnoy, and Thomas, 2008; Bebchuk, Brav, and Jiang, 2015). However, recent years have seen a new phenomenon: high-profile public short selling campaigns by activist hedge funds. David Einhorn’s short of Allied Capital provides an illustrative example. In May of 2002, Einhorn announced his short position in Allied at an investment conference, arguing the firm engaged in questionable accounting practices. Allied’s stock dropped over 10% the following day, and by the next month its short interest had increased six-fold. The SEC eventually launched an investigation into Allied that “zero[ed] in on many of the criticisms made by short-sellers.”

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Cyber Lessons from the SEC?

Posted by Craig A. Newman, Patterson Belknap Webb & Tyler LLP, on
Monday, October 1, 2018
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Craig A. Newman is a partner at Patterson Belknap Webb & Tyler LLP. This post is based on a Patterson Belknap memorandum by Mr. Newman.

Public companies worried about cybersecurity risk would be well served to pay attention to a recent crackdown by the U.S. Securities and Exchanges Commission on the use of automated technology to detect investment advisor fraud.

A recent settlement with Ameriprise Financial Services Inc., a registered investment adviser and broker dealer, suggests that the Commission isn’t inclined to look the other way when a technology failure goes undetected. In the world of cybersecurity, does this mean that a company’s blind faith in technology to safeguard its network and sensitive information might open it up to liability?

It’s a question worth considering.

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The SEC and Foreign Private Issuers: A Path to Optimal Public Enforcement

Posted by Yuliya Guseva (Rutgers), on
Sunday, September 30, 2018
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Yuliya Guseva is Associate Professor of Law at Rutgers Law School. This post is based on her recent article, recently published in the Boston College Law Review.

The question of finding an optimal approach to securities law liability and enforcement against foreign issuers in U.S. markets remains open. Seeking to find answers to this policy question, my recent article presents relevant empirical, doctrinal, economic, and institutional arguments. To my knowledge, this paper is the first empirical survey of the recent changes in SEC enforcement against foreign private issuers (“FPIs”). The article argues that although the Commission needs to react to the recent developments in class-action litigation against foreign corporations, a possible lemons problem, and the potential risk of underenforcement, it should not ramp up enforcement. Through traditional enforcement, the SEC would be pursuing an insurmountable task of designing a national “Pigouvian tax” on fraud committed by international corporations operating in multiple jurisdictions. The article suggests a logical alternative that I dub a soft preventive approach. The SEC may send an explicit signal to the market that it is designing more efficient, low-cost monitoring policies by building better cooperation with foreign firms and utilizing its recently improved capacity to analyze “big data” to identify anomalies in foreign issuer reporting.

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Testimony on “Oversight of the SEC’s Division of Investment Management”

Posted by Dalia Blass, U.S. Securities and Exchange Commission, on
Saturday, September 29, 2018
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Dalia Blass is Director of the Division of Investment Management at the U.S. Securities and Exchange Commission. This post is based on her recent testimony before the United States House of Representatives Committee on Financial Services, Subcommittee on Capital Markets, Securities, and Investment, available here.

Chairman Huizenga, Ranking Member Maloney, and Members of the Subcommittee, thank you for inviting me to testify before you today about the work of the Division of Investment Management (the “Division”). I would also like to thank you for your interest in asset management and the efforts of our Division in this space.

The asset management industry is critical to the U.S. economy and for the retirement and financial needs of millions of American investors, particularly our Main Street investors. Over the last two decades, assets in mutual funds have grown from around $4.5 trillion to over $19 trillion, a growth of over 330 percent. [1] During this same time period, exchange-traded funds (“ETFs”) have grown from around $6.7 billion in assets [2] to be an over $3.6 trillion market. [3] Money market funds have grown from around $1.35 trillion in assets in 1998 [4] to over $3.14 trillion today. [5] Investment advisers employ over half a million people, [6] and the staff has seen the number of investment advisers registered with the Commission grow to over 13,000, with total reported assets under management rising to nearly $84 trillion. [7] These assets represent the earnings and investments of millions of Americans who are saving for retirement, college tuition, and other goals.

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On Elon Musk, Donald Trump, and Corporate Governance

Posted by Alissa Kole Amico, GOVERN, on
Saturday, September 29, 2018
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Alissa Kole Amico is the Managing Director of GOVERN. This post is based on a GOVERN memorandum by Ms. Amico.

There was something Trumpian in Elon Musk’s tweet about taking Tesla private. “Am considering taking Tesla private at $420. Funding secured”, he boldly and succinctly announced on August 7, claiming that the necessary capital has been confirmed from the Public Investment Fund (PIF), the Saudi sovereign fund that is seeking to become the region’s largest according to the ambitions of its government, including through the much-debated public offering of Saudi Aramco.

Like in a Mexican soap opera, news about the PIF raising fresh capital through the transfer of its 70% stake in SABIC, the Saudi $100 billion petrochemicals giant and the largest listed company in the Kingdom to Saudi Aramco, as well its talks with Tesla’s rival Lucid followed shortly, immediately highlighting the perils of instant communication. As it turns out, tweeting 280-character messages is straightforward, explaining them takes a little more character and significantly more characters.

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