Monthly Archives: January 2018

Letter from JANA Partners & CalSTRS to Apple, Inc.

Anne Sheehan is Director of Corporate Governance at the California State Teachers’ Retirement System (CalSTRS). This post is based on the recent joint shareholder letter from JANA Partners LLC and CalSTRS to the Board of Apple, Inc.

JANA Partners LLC and the California State Teachers’ Retirement System (“we” or “us”) collectively own approximately $2 billion in value of shares of Apple Inc. (“Apple” or “you”). As shareholders, we recognize your unique role in the history of innovation and the fact that Apple is one of the most valuable brand names in the world. In partnership with experts including Dr. Michael Rich, founding director of the Center on Media and Child Health at Boston Children’s Hospital/Harvard Medical School Teaching Hospital and Associate Professor of Pediatrics at Harvard Medical School, and Professor Jean M. Twenge, psychologist at San Diego State University and author of the book iGen, we have reviewed the evidence and we believe there is a clear need for Apple to offer parents more choices and tools to help them ensure that young consumers are using your products in an optimal manner. By doing so, we believe Apple would once again be playing a pioneering role, this time by setting an example about the obligations of technology companies to their youngest customers. As a company that prides itself on values like inclusiveness, quality education, environmental protection, and supplier responsibility, Apple would also once again be showcasing the innovative spirit that made you the most valuable public company in the world. In fact, we believe that addressing this issue now will enhance long-term value for all shareholders, by creating more choices and options for your customers today and helping to protect the next generation of leaders, innovators, and customers tomorrow.


The Significance for Boards and Managements of the JANA/CalSTRs Letter to Apple

Ethan A. Klingsberg is a partner at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb publication by Mr. Klingsberg. Related research from the Program on Corporate Governance includes Social Responsibility Resolutions by Scott Hirst (discussed on the Forum here) and Who Bleeds When the Wolves Bite? By Leo E. Strine, Jr. (discussed on the Forum here).

Over the past couple of years, we have seen traditional, actively managed funds, such as Neuberger Berman, borrow activist tactics and push for changes to accelerate increases in share prices. In parallel with this arguable trend toward convergence between actively managed funds and activist funds, a chasm appeared to be developing elsewhere in the investor landscape as pension and passive strategy funds increasingly focused on “social good” issues, while brand name activist funds remained primarily focused on nearer term financial performance and returns. But the activists desperately need the support of the pension and passive strategy funds, as evidenced by the proxy contests over the past year where support from these funds was neither predictable nor easily locked up. The announcement on January 6, 2018 by JANA Partners, a high profile activist fund, and CalSTRs, an outspoken pension fund, that they have teamed up to accumulate a $2 billion equity position in Apple for the purpose of launching a specific “social good” campaign is the strongest indication to date that the magnitude of assets under management focused on social good matters cannot be ignored and that even a successful activist fund like JANA needs to burnish its reputation in this area. 


Weekly Roundup: January 12–18, 2018

More from:

This roundup contains a collection of the posts published on the Forum during the week of January 12–18, 2018.

Busy Directors and Shareholder Satisfaction

What the New Tax Rules Mean for M&A

What Do Investors Ask Managers Privately?

How Transparent are Firms about their Corporate Venture Capital Investments?

Remarks at Ceremonial Swearing In of Commissioners Hester M. Peirce and Robert J. Jackson, Jr.

BlackRock Supports Stakeholder Governance

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton publication by Mr. Lipton.

BlackRock CEO, Larry Fink, who has been a leader in shaping corporate governance, has now firmly rejected Milton Friedman’s shareholder-primacy governance and embraced sustainability and stakeholder-focused governance. January 2018 BlackRock letter to CEOs.

In our Some Thoughts for Boards of Directors in 2018 (discussed on the Forum here), we noted:

The primacy of shareholder value as the exclusive objective of corporations, as articulated by Milton Friedman and then thoroughly embraced by Wall Street, has come under scrutiny by regulators, academics, politicians and even investors. While the corporate governance initiatives of the past year cannot be categorized as an abandonment of the shareholder primacy agenda, there are signs that academic commentators, legislators and some investors are looking at more nuanced and tempered approaches to creating shareholder value. 

In his letter, Larry Fink says:


The New Digital Wild West: Regulating the Explosion of Initial Coin Offerings

Randolph A. Robinson, II is visiting assistant professor at the University of Denver Sturm College of Law. This post is based on his recent paper.

In 2017, initial coin offerings or ICOs raised a collective $4 billion for blockchain entities. While the rise of bitcoin has brought cryptocurrencies and the blockchain into recent media headlines, you could be forgiven if you are unfamiliar with concept of an ICO, as this funding mechanism only reached mainstream audiences in 2016 with the launch of an entity called The DAO. The DAO was formed as a decentralized venture capital fund, intended to fund the development of new blockchain companies and applications. But, before fully operational, The DAO suffered a cyber-attack that drained over one-third of its funds, putting an early end to the ambitious experiment. Although no longer operational, The DAO’s completely unregulated nine-figure fund raise would give rise to widespread duplication of this controversial corporate funding mechanism.


A Sense of Purpose

Larry Fink is Founder, Chairman and CEO of BlackRock, Inc. This post is based on Mr. Fink’s annual letter to CEOs.

Dear CEO,

As BlackRock approaches its 30th anniversary this year, I have had the opportunity to reflect on the most pressing issues facing investors today and how BlackRock must adapt to serve our clients more effectively. It is a great privilege and responsibility to manage the assets clients have entrusted to us, most of which are invested for long-term goals such as retirement. As a fiduciary, BlackRock engages with companies to drive the sustainable, long-term growth that our clients need to meet their goals.


Remarks at Ceremonial Swearing In of Commissioners Hester M. Peirce and Robert J. Jackson, Jr.

Jay Clayton is Chairman of the U.S. Securities and Exchange Commission. This post is based on Chairman Clayton’s recent remarks at the Ceremonial Swearing In of Commissioners Hester M. Peirce and Robert J. Jackson, Jr. 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 hope that everyone had a very nice weekend and enjoyed the holiday on which we commemorate the life and contributions of Dr. Martin Luther King, Jr.

I note that this August will be the 55th anniversary of Dr. King’s “I Have A Dream” speech here in Washington and April will be the 50th anniversary of his death at age 39.

His lasting impact on America is remarkable and even more remarkable in the context of his short life with us. It is amazing the difference one person can make.

In preparation for our event today, and in the spirit of reflecting on milestones and the difference people can make, I spent some time over the weekend thinking about not only Dr. King and the important events in his life but also on the history of the SEC.


Network Effects in Corporate Governance

Sarath Sanga is Assistant Professor of Law at the Northwestern University Pritzker School of Law. This post is based on his recent paper 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 Firms’ Decisions Where to Incorporate by Lucian Bebchuk and Alma Cohen; The Market for Corporate Law by Lucian Bebchuk, Oren Bar-Gill and Michal Barzuza; and Delaware Law as Lingua Franca: Evidence from VC-Backed Startups by Jesse Fried, Brian J. Broughman, and Darian M. Ibrahim (discussed on the Forum here).

Why Does Everyone Incorporate in Delaware?

There are two canonical explanations:

(1) Legal quality. Firms are influenced by the intrinsic qualities of Delaware’s legal system. By some reasonable measure, its statutes, common law, and expert courts are “the best.”

(2) Network effects. Firms are influenced by each other’s corporate governance decisions. Why? Perhaps they interpret these decisions as proof of Delaware’s quality. Or perhaps they only want to follow the trend. In either case, this is a self-perpetuating rationale: Everyone goes to Delaware because everyone else is already there.

In a new paper, I analyze the incorporation histories of over 22,000 public companies from 1930 to 2010. I show that network effects were the principal force behind Delaware’s ascendance.


Changes in ISS 2018 Compensation FAQs

BJ Firmacion and Torie Nilsen are consultants at Willis Towers Watson. This post is based on a Willis Towers Watson publication by Mr. Firmacion and Ms. Nilsen.

[In December 2017], Institutional Shareholder Services (ISS) released its complete FAQ compensation and equity plan documents along with detailed pay-for-performance mechanics for 2018.

While most of the changes were already disclosed by ISS in the 2018 proxy voting updates published in November (see “ISS 2018 policy changes reflect market feedback and draft policy expectations,” Executive Pay Matters, November 17, 2017), the FAQs further clarify these changes, particularly as they relate to the new pay-for-performance quantitative screen, as well as additional guidance on other elements of ISS policy. The FAQs also note how ISS will address the new CEO pay ratio disclosures in 2018.


Delaware’s Prudent Approach to the Cleansing Effect of Stockholder Approval

William Savitt is a partner at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell publication by Mr. Savitt, Ryan A. McLeod, and Anitha Reddy, and is part of the Delaware law series; links to other posts in the series are available here.

In Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), the Delaware Supreme Court held that a non-controlling stockholder transaction approved by informed, unaffiliated stockholders is protected by the business judgement rule and that any lawsuit challenging such a transaction should be dismissed absent well-pleaded allegations of corporate waste. Recognizing that today’s sophisticated stockholder body can and does protect its own interests, Corwin held that in the great run of cases, stockholders—rather than plaintiffs’ lawyers or courts—should have the last word.


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