Yearly Archives: 2018

Gender Quotas in California Boardrooms

Posted by Tomas Pereira, Equilar, Inc., on

Wednesday, August 29, 2018

Board composition, Boards of Directors, California, Director compensation, Diversity, SB 826, State law
More from: Tomas Pereira, Equilar

Tomas Pereira is a Research Analyst at Equilar, Inc. This post is based on an Equilar memorandum by Mr. Pereira.

By August 31, 2018, California could become the first state in the nation to mandate publicly held companies that base their operations in the state to have women on their boards. The legislation—SB 826—will require public companies headquartered in California to have a minimum of one female on its board of directors by December 31, 2019. That minimum will be raised to at least two female board members for companies with five directors or at least three female board members for companies with six or more directors by December 31, 2021.

If SB 826 is passed in the Assembly and signed by Governor Jerry Brown, corporations not compliant with the new rules will be subjected to financial consequences. Strike one will be accompanied with a fine equal to the average annual cash compensation of directors. Any subsequent violation would amount to a fine equal to three times the average annual cash compensation for directors. Hence, the consequences are very real for companies that choose not to comply with the new rules.

Securing Financial Stability: Systematic Regulation of Systemic Risk

Posted by Steven L. Schwarcz (Duke University), on

Wednesday, August 29, 2018

Capital requirements, Financial crisis, Financial institutions, Financial regulation, Incentives, Information environment, Market efficiency, Moral hazard, Prudence, Shocks, SIFIs, Systemic risk, Too big to fail
More from: Steven Schwarcz

Steven L. Schwarcz is Stanley A. Star Professor of Law & Business at the Duke University School of Law. This post is based on a recent paper by Professor Schwarcz. Related research from the Program on Corporate Governance includes Containing Systemic Risk by Taxing Banks Properly by Mark J. Roe and Michael Troege (discussed on the Forum here).

Regulators worry that the “macroprudential” regulation enacted since the financial crisis to protect financial stability may be inadequate to prevent another crisis. This paper examines that regulation with a decade of hindsight.

The primary focus of that regulation has been to protect against the failure of systemically important financial institutions (“SIFIs”) or to mitigate the systemic impact of their failure. This reflects concern that SIFIs may engage in morally hazardous risk-taking because they deem themselves “too big to fail” (TBTF). For example, capital requirements are intended to protect against the failure of SIFIs by requiring them to maintain specified levels of equity and the like. Resolution is intended to mitigate the systemic impact of a SIFI’s failure by reorganizing its capital structure or liquidating it with minimal systemic impact.

Lazard’s 2Q 2018 13F Filing Analysis

Posted by Jim Rossman, Lazard, on

Tuesday, August 28, 2018

Filings, Hedge funds, Institutional Investors, Long-Term value, Rule 13F-1, Schedule 13F, Securities Act, Shareholder activism
More from: Jim Rossman, Lazard

Jim Rossman is head of Shareholder Advisory at Lazard. This post is based on a Lazard publication by Mr. Rossman. 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); Dancing with Activists by Lucian Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch (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).

Rule 13F-1 of the Securities Exchange Act of 1934 requires institutional investors with discretionary authority over more than $100m of public equity securities to make quarterly filings on Schedule 13F

Schedule 13F filings disclose an investor’s holdings as of the end of the quarter, but generally do not disclose short positions or holdings of certain debt, derivative and foreign listed securities
Filing deadline is 45 days after the end of each quarter; filings for the quarter ended June 30, 2018 were due on August 14, 2018

Fintech as a Systemic Phenomenon

Posted by Saule T. Omarova (Cornell University), on

Tuesday, August 28, 2018

Algorithmic trading, Blockchain, Capital markets, Cryptocurrency, Financial regulation, Financial technology, ICOs, Innovation, Market efficiency, Securities regulation, Systemic risk
More from: Saule Omarova

Saule T. Omarova is Professor of Law at Cornell University. This post is based on a recent paper by Professor Omarova.

Fintech is the hottest topic in finance today. Bankers are racing to adopt it, policymakers are debating how to facilitate it, investors are pouring money into it, and academics are writing about it. Fintech is visibly “disrupting” the way we conduct financial transactions. Invisibly, it is also changing the way we think about finance. The rise of fintech is gradually recasting our shared understanding of the financial system in seemingly objective terms, as simply another sphere of targeted application of normatively neutral information technologies and computer science. Targeting solutions for concrete “frictions” in market transactions, fintech refocuses our attention on clearly functionally defined, programmable business processes and tools, rather than complex systemic dynamics and difficult policy tradeoffs. By making financial transactions faster, cheaper, and more easily accessible, new technology promises not only to eliminate all manner of market inefficiency but also to democratize finance. In short, it promises a micro-level “win-win” solution to the financial system’s many ills.

Performance Awards and Say on Pay

Posted by Elizabeth Carroll, Equilar, Inc., on

Monday, August 27, 2018

Compensation committees, Equity-based compensation, Executive Compensation, Management, Pay for performance, Say on pay, Shareholder voting
More from: Elizabeth Carroll, Equilar

Elizabeth Carroll is a Senior Research Analyst at Equilar, Inc. This post is based on an Equilar memorandum by Ms. Carroll. Related research from the Program on Corporate Governance includes the book Pay without Performance: The Unfulfilled Promise of Executive Compensation, by Lucian Bebchuk and Jesse Fried.

With most annual shareholder meetings concluded, a majority of shareholders have had the opportunity to vote on 2018 compensation packages. While companies are not legally bound by their Say on Pay results, there are still plenty of incentives, such as shareholder confidence in the board and management, to motivate them to work towards a passing score. However, designing a pay package that can attract and retain talented executives, while still pleasing shareholders, can prove to be a challenge for compensation committees.

A new Equilar study examined the mix of compensation provided to CEOs—cash (consisting of base salary and bonus), time-vested equity, and performance awards (consisting of both cash and equity performance targets)—broken down by shareholder approval of these compensation packages over the past three years.

Does Transparency Increase Takeover Vulnerability?

Posted by Lifeng Gu (The University of Hong Kong) and Dirk Hackbarth (Boston University), on

Monday, August 27, 2018

Acquisition likelihood, Acquisition premiums, Acquisitions, Information environment, Mergers & acquisitions, Stock returns, Takeovers, Target firms, Transparency
More from: Dirk Hackbarth, Lifeng Gu

Lifeng Gu is Assistant Professor in Finance at The University of Hong Kong and Dirk Hackbarth is Professor of Finance at Boston University Questrom School of Business. This post is based on a recent paper by Professor Gu and Professor Hackbarth.

Takeovers and especially models predicting takeovers have been of interest to academics and practitioners. Our paper titled Does Transparency Increase Takeover Vulnerability? studies how transparency affects takeover probability and stock returns over 25 years of takeover data.

Economic intuition suggests that if higher firm-level transparency lowers uncertainty with respect to synergies and valuations of potential target firms, then it should facilitate takeovers. We argue therefore that a better information environment increases takeover vulnerability, such that it has an incrementally important impact on estimates of takeover likelihood, which is consistent with recent research. To the best of our knowledge, however, this is the first paper to examine empirically whether transparency affects takeover vulnerability and potentially stock returns too.

The CFIUS Reform Bill

Posted by Michael Gershberg and Justin Schenck, Fried, Frank, Harris, Shriver & Jacobson LLP, on

Sunday, August 26, 2018

CFIUS, China, Filings, FIRRMA, Institutional Investors, International governance, Private equity, Securities enforcement, Securities regulation
More from: Justin Schenck, Michael Gershberg, Fried Frank

Michael Gershberg is a Partner and Justin Schenck is an associate at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Mr. Gershberg and Mr. Schenck.

On August 1, 2018, the Senate passed the Foreign Investment Risk Review Modernization Act (FIRRMA) as part of the 2019 defense authorization bill. FIRRMA represents the most sweeping changes to the law governing the Committee on Foreign Investment in the United States (CFIUS) since the passage of the Foreign Investment and National Security Act of 2007 (FINSA). While some provisions will take effect immediately upon enactment, many important details will be finalized only through the CFIUS rule making process or will be developed over time pursuant to CFIUS practice. The bill had already been passed by the House of Representatives and now awaits President Trump’s signature; he is expected to sign the bill into law by mid-August.

FIRRMA contains several changes that will affect how parties approach foreign investment transactions and navigate the CFIUS process. Namely, FIRRMA makes the following alterations to the CFIUS landscape, which we discuss in more detail below:

Expansion of CFIUS jurisdiction, including non-controlling investments and real estate;
Specific carve-out for private equity funds with foreign investors;
Introduction of declarations—abbreviated, 5-page filings;
Mandatory declarations for certain foreign government-controlled transactions;
Extension of the CFIUS timeline;
Imposition of a filing fee;
Grant of authority for CFIUS to suspend transactions; and
Implementation of a new export control regime to address emerging technology.

Awakening Governance: ACGA China Corporate Governance Report 2018

Posted by Jamie Allen and Li Rui (Nana Li), Asian Corporate Governance Association, on

Saturday, August 25, 2018

China, Corporate culture, Engagement, ESG, Foreign firms, Institutional Investors, International governance, Management, Ownership, State control, Surveys
More from: Jamie Allen, Nana Li, ACGA

Jamie Allen is Secretary General and Li Rui (Nana Li) is Senior Research Analyst at the Asian Corporate Governance Association (ACGA). This post is based on the introduction to their ACGA report.

With its securities market continuing to internationalise and grow in complexity, China appears at a turning point in its application of CG and ESG principles. The time is right to strengthen communication and understanding between domestic and foreign market participants.

Introduction: Bridging the gap

The story of modern corporate governance in China is closely connected to the rapid evolution of its capital markets following the opening to the outside world in 1978. The 1980s brought the first issuance of shares by state-owned enterprises (SOEs) and a lively over-the-counter market. National stock markets were relaunched in Shanghai and Shenzhen in 1990 to 1991, while new guidance on the corporatisation and listing of SOEs was issued in 1992. The first overseas listing of a state enterprise came in October 1992 in New York, followed by the first SOE listing in Hong Kong in 1993. Corporate governance reform gained momentum in the late 1990s, but it was less a byproduct of the Asian Financial Crisis than a need to strengthen the governance of SOEs listing abroad. The early 2000s then brought a series of major reforms on independent directors, quarterly reporting and board governance aimed squarely at domestically listed firms.

High-Quality Sales Processes and Appraisal Proceedings

Posted by Jason Halper, Ellen Holloman, and Joshua Apfelroth, Cadwalader, Wickersham & Taft LLP, on

Friday, August 24, 2018

Appraisal rights, Boards of Directors, Delaware cases, Delaware law, Fairness review, Go-shop, In re Appraisal of Dell, In re Appraisal of DFC Global, Market efficiency, Merger litigation, Mergers & acquisitions, Reliance
More from: Ellen Holloman, James Fee, Jason Halper, Joshua Apfelroth, William Mills, William Simpson, Cadwalader

Jason M. Halper, Ellen Holloman, and Joshua Apfelroth are partners at Cadwalader, Wickersham & Taft LLP. This post is based on a Cadwalader memorandum by Mr. Halper, Ms. Holloman, Mr. Apfelroth, William Mills, James Fee, and William Simpson, 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 Using the Deal Price for Determining “Fair Value” in Appraisal Proceedings by Guhan Subramanian (discussed on the Forum here).

Two recent decisions by the Delaware Court of Chancery underscore that the outcome of an appraisal proceeding often will turn on the quality of a company’s sale process. While recent Delaware Supreme Court appraisal jurisprudence supports relying on the negotiated merger transaction price as the most reliable evidence of a seller’s fair value, flaws in the sales process, even if not rising to the level of a breach of fiduciary duty by the seller’s board, can lead the court to reject reliance on merger consideration. As a result, appraisal decisions likely will continue to focus on many of the same issues that courts examine when considering breach of fiduciary duty claims in the merger context as well as assessing whether the seller’s stock trades in an efficient market.

Weekly Roundup: August 17-23, 2018

Posted by Harvard Law School Forum on Corporate Governance & Financial Regulation, on

Friday, August 24, 2018

Weekly Roundup
More from:

This roundup contains a collection of the posts published on the Forum during the week of August 17-23, 2018.

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Yearly Archives: 2018

Gender Quotas in California Boardrooms

Securing Financial Stability: Systematic Regulation of Systemic Risk

Lazard’s 2Q 2018 13F Filing Analysis

Fintech as a Systemic Phenomenon

Performance Awards and Say on Pay

Does Transparency Increase Takeover Vulnerability?

The CFIUS Reform Bill

Awakening Governance: ACGA China Corporate Governance Report 2018

Introduction: Bridging the gap

High-Quality Sales Processes and Appraisal Proceedings

Weekly Roundup: August 17-23, 2018

Corporate Governance; Stakeholder Primacy; Federal Incorporation

Microcap Board Governance

Taking Stock: Share Buybacks and Shareholder Value

Shareholder Vote on Golden Parachutes: Determinants and Consequences

Federal FinTech Bank Charters

Corporate Governance—The New Paradigm: A Better Way Than Federalization

Board Diversity Developments

Corporate Governance in Emerging Markets

Dual-Class Index Exclusion

National Bank Charters for Fintech Firms

Statement on Investor Roundtables Regarding Standards of Conduct for Investment Professionals Rulemaking

Board Diversity, Firm Risk, and Corporate Policies

Shareholder Activism: Evolving Tactics

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