Yearly Archives: 2018

Virtual Currencies

Posted by Jay Clayton, U.S. Securities and Exchange Commission, on
Wednesday, February 7, 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 testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs. 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.

I am pleased that the Committee is holding this hearing to bring greater focus to the important issues that cryptocurrencies, initial coin offerings (ICOs) and related products and activities present for American investors and our markets.

I am also pleased to join my counterpart, Commodity Futures Trading Commission (CFTC) Chairman Christopher Giancarlo, for our second time testifying together before Congress. Since I joined the Commission in May, Chairman Giancarlo and I have built a strong relationship. Cryptocurrencies, ICOs and related subjects are the latest in a host of market issues on which we and our staffs have been closely collaborating to strengthen our capital markets for investors and market participants.

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Top Universities for Corporate Directors

Posted by Dan Marcec, Equilar Inc., on
Wednesday, February 7, 2018
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Dan Marcec is Director of Content at Equilar, Inc. This post is based on an Equilar publication by Mr. Marcec which was originally published in the Equilar Knowledge Center.

With the college football season recently coming to a close, there’s no question who’s Number 1 on the field. When it comes to the top schools for turning out board members at public companies, there are also a couple of clear winners. A recent Equilar study using data from its BoardEdge platform uncovered the results.

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Institutional Investor Engagement: How to Create a “Stewardship Culture”

Posted by Mark Fenwick (Kyushu University) and Erik P. M. Vermeulen (Tilburg University), on
Wednesday, February 7, 2018
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Mark Fenwick is Associate Professor at Kyushu University Faculty of Law; Erik P. M. Vermeulen is Professor of Business & Financial Law at Tilburg University. This post is based on their recent paper. Related research from the Program on Corporate Governance includes The Agency Problems of Institutional Investors by Lucian Bebchuk, Alma Cohen, and Scott Hirst.

Institutional investors matter.

The share of equity investments held by institutional investors, such as mutual funds, pension funds, insurance companies and hedge funds, has increased significantly in recent years, and many such assets are now managed by specialized asset managers. A broad consensus has now emerged that involving these professional institutional investors can be an effective mechanism to improve firm governance. Long-term institutional investor engagement is seen as a means to optimize firm performance and foster economic growth.

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HLS Forum Sets New Records in 2017

Posted by Matt Filosa, Co-editor, Harvard Law School Program on Corporate Governance, on
Tuesday, February 6, 2018

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The operations of the Harvard Law School Forum on Corporate Governance during 2017 set several new records. These records include:

  • Having more than 100,000 unique viewers in a month:
  • Publishing over 800 posts during a year;
  • Having visitors from over 220 countries and territories during the year; and
  • More than 2 million page views.

Established in 2006 by Professor Lucian Bebchuk and the Harvard Law School Program on Corporate Governance, the Forum has become the leading online resource, and the central outlet for the exchange of ideas and debate, in the fields of corporate governance and financial regulation. The Forum’s posts are distributed daily not only through its website but also via Twitter (where the Forum has over 11,000 followers), LinkedIn, and Facebook. Over 5,000 readers also subscribe to the Forum’s daily email announcement of new posts (signup instructions available here).

To date, the Forum has published more than 6,000 posts by close to 5000 contributors, including prominent academics, public officials, executives, legal and financial advisors, institutional investors, and other market participants. While most posts are solicited by the editors, the Forum welcomes submissions of unsolicited posts for consideration by the editors.

With Forum posts having been cited in over 350 academic articles and regulatory documents, the Forum has established itself as the go-to outlet for readers interested in corporate governance and financial regulation. In a recent article about the Forum that appeared in the Fall 2016 issue of the Harvard Law Bulletin, Chief Justice Leo Strine observed that “[i]t is amazing to see the [Forum] become required reading among the intelligentsia … of corporate governance.”

The Forum’s current editors are Itai Fiegenbaum, Matt Filosa, Scott Hirst, and Kobi Kastiel. Former editors now working in academia or practice include SEC Commissioner Robert Jackson, James Naughton (Northwestern), Yaron Nili (Wisconsin), Noam Noked (Chinese University of Hong Kong), Greg Shill (Iowa), Holger Spamann (Harvard), and Andrew Tuch (Washington University).

The success of the Forum has been made possible by the contribution of numerous post authors, as well as by the engagement of the Forum’s ever-growing readership. As we celebrate a record-breaking year, we are deeply grateful for the support of our contributors and readers.

BlackRock’s Call for Companies to Deliver Financial & Social Value

Posted by Abe M. Friedman, CamberView Partners, LLC, on
Tuesday, February 6, 2018
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Abe M. Friedman is Chief Executive Officer of CamberView Partners, LLC. This post is based on a CamberView publication by Mr. Friedman, Krystal Gaboury Berrini, Christopher A. Wightman, and Rob Zivnuska. Related research from the Program on Corporate Governance includes Social Responsibility Resolutions by Scott Hirst (discussed on the Forum here).

On Tuesday, January 16th, BlackRock Chairman and CEO Laurence Fink released his annual letter to CEOs outlining a bold vision linking the prosperity of companies to their ability to deliver both financial performance as well as positive contributions to society. Entitled “A Sense of Purpose,” the letter highlights BlackRock’s increasingly active approach to shareholder engagement, its view that boards are central in the oversight of companies’ long-term strategic direction and what Mr. Fink believes is a connection between companies’ management of environmental, social and governance (ESG) risk factors and long-term value creation.

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Dinner Table Human Capital and Entrepreneurship

Posted by Hans K. Hvide (University of Bergen) and Paul Oyer (Stanford University), on
Tuesday, February 6, 2018
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Hans K. Hvide is professor of economics and finance at the University of Bergen; Paul Oyer is The Fred H. Merrill Professor of Economics at Stanford University. This post is based on their recent paper.

We document three new facts about entrepreneurship. First, a majority of male entrepreneurs start a firm in the same or a closely related industry as their fathers’ industry of employment. Second, this tendency is correlated with intelligence: higher-IQ entrepreneurs are less likely to follow their fathers. Third, an entrepreneur that starts a firm in the same 5-digit industry as where his father was employed tends to outperform entrepreneurs in the same industry whose fathers did not work in that industry. We consider various explanations for these facts and conclude that “dinner table human capital”, where children obtain industry knowledge through their parents, is an important factor behind what type of firm is started and how well it performs.

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Federal Reserve Takes Severe and Unprecedented Action Against Wells Fargo: Implications for Directors of All Public Companies

Posted by Edward D. Herlihy, Richard K. Kim, and Sabastian V. Niles, Wachtell, Lipton, Rosen & Katz, on
Monday, February 5, 2018
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Edward D. Herlihy, Richard K. Kim, and Sabastian V. Niles are partners at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell publication by Mr. Herlihy, Mr. Kim, and Mr. Niles.

In a stinging rebuke, the Federal Reserve on February 2nd issued an enforcement action barring Wells Fargo from increasing its total assets and mandating substantial corporate governance and risk management actions. The Federal Reserve noted in its press release that Wells will replace three current board members by April and a fourth board member by the end of the year. In addition, the Federal Reserve released three supervisory letters publicly censuring Wells’ board of directors, former Chairman and CEO John Stumpf and a past lead independent director. These actions are a sharp departure from precedent, both in their severity and their public nature. They come on the heels of significant actions already taken by Wells, including appointing a former Federal Reserve governor as independent Chair and replacing a number of independent directors as well as its General Counsel.

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Valuable Board Assessments

Posted by Paula Loop (PwC), George M. Anderson (Spencer Stuart), and Paul DeNicola (PwC), on
Monday, February 5, 2018
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Paula Loop is Leader of the Governance Insights Center at PricewaterhouseCoopers LLP; George M. Anderson is Leader of Board Effectiveness Services at Spencer Stuart; and Paul DeNicola is Managing Director of the Governance Insights Center at PwC. This post is based on a PwC and Spencer Stuart publication by Ms. Loop, Mr. Anderson, Mr. DeNicola, and Barbara Berlin.

Board composition and performance continue to be under scrutiny by various stakeholders. Institutional investors are paying close attention to the individuals representing their interests in the boardroom, and how the board addresses its own succession. Hedge fund activists are also watching and certainly have not been shy about seeking change. And directors themselves are increasingly vocal about the performance of their peers. In fact, 46% of directors believe someone on their board should be replaced; 20% believe two or more directors should.

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Underwriter Competition and Bargaining Power in the Corporate Bond Market

Posted by Alberto Manconi (Bocconi University), Ekaterina Neretina (Tilburg University) and Luc Renneboog (Tilburg University), on
Monday, February 5, 2018
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Alberto Manconi is Assistant Professor of Finance at Bocconi University; Ekaterina Neretina is a Ph.D. Student in Finance at Tilburg University and CentER; Luc Renneboog is Professor of Finance at Tilburg University and Research Associate at ECGI. This post is based on their recent paper.

The global bond market is a major source of corporate financing, and has been rapidly growing in recent years, reaching nearly $50 trillion in outstanding value as of 2013. At the same time, the bond underwriting industry has become increasingly more concentrated: In 2013, the ten largest underwriters had a combined market share of about 80%, up from 55% in 2000 and 30% in 1990. Industry practitioners as well as the press have raised concerns that this may give disproportionate power over the issuance process to a few large underwriters, enabling them to extract rents to the detriment of corporate bond issuers. In a recent paper, we address this concern and ask whether, and to what extent, underwriter power has an impact on corporate bond contracts.

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FSOC Designation Treasury Report: A Fundamental Shift

Posted by George W. Madison, Michael E. Borden, and David A. Miller, Sidley Austin LLP, on
Sunday, February 4, 2018
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George W. Madison and Michael E. Borden are partners and David A. Miller is an associate at Sidley Austin LLP. This post is based on a Sidley publication by Mr. Madison, Mr. Borden, and Mr. Miller.

Creating an inter-agency panel of financial regulators to monitor systemic risk was a hallmark achievement of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). The Financial Stability Oversight Council (FSOC), as Dodd-Frank coined it, was designed to correct perceived deficiencies in regulation—many different regulators oversaw different pieces of the financial system but none had visibility into the activities of entities they did not regulate. Under Dodd-Frank, the FSOC, chaired by the Secretary of the Treasury, would exist to promote cooperation among more than fifteen regulators and formalize coordination. Dodd-Frank did not end “too big to fail” by shrinking the largest financial institutions. Rather, it intended to better regulate large, complex financial institutions [Dodd-Frank’s revisions to the financial regulatory landscape extend far beyond large financial institutions to include, for example, material changes to the regulation of banks of all sizes, consumer protection, and derivatives.], including by empowering FSOC to designate certain nonbank entities as systemically important financial institutions (SIFIs), subjecting these SIFIs to enhanced prudential oversight by the Federal Reserve. This powerful regulatory tool has engendered significant controversy ever since.

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