Monthly Archives: March 2018

SEC’s OCIE 2018 Areas of Focus

Posted by Daniel Nathan, Kenneth Herzinger, and Danielle Van Wert, Orrick, Herrington & Sutcliffe LLP, on

Tuesday, March 6, 2018

Accounting, Compliance & ethics, Compliance and disclosure interpretation, Cryptocurrency, Cybersecurity, Disclosure, Financial technology, ICOs, Liability standards, OCIE, SEC, Securities enforcement, Securities regulation
More from: Daniel Nathan, Danielle Van Wert, Kenneth Herzinger, Kristen Bartlett, Orrick

Daniel Nathan and Kenneth Herzinger are partners and Danielle Van Wert is a senior associate at Orrick, Herrington & Sutcliffe LLP. This post is based on an Orrick publication by Mr. Nathan, Mr. Herzinger, Ms. Van Wert, and Kristen Bartlett.

On February 7, 2018 the SEC’s Office of Compliance Inspections and Examinations (OCIE) announced its 2018 National Exam Priorities. The priorities, formulated with input from the Chairman, Commissioners, SEC Staff and fellow regulators, are mostly unchanged from years past (New Year, Similar Priorities: SEC Announces 2017 OCIE Areas of Focus). However, the publication itself is presented in a more formal wrapper that begins with a lengthy message from OCIE’s leadership team describing the Office’s role and guiding principles, including that they are risk-based, data-driven and transparent, and that they embrace innovation and new technology.

Rethinking Corporate Law During a Financial Crisis

Posted by Yair Listokin and Inho Andrew Mun (Yale Law School), on

Monday, March 5, 2018

Appraisal rights, Banks, Corporate forms, Fiduciary duties, Financial crisis, Financial institutions, Financial regulation, Mergers & acquisitions, Shareholder primacy, Shareholder voting
More from: Inho Andrew Mun, Yair Listokin

Yair Listokin is the Shibley Family Fund Professor of Law at Yale Law School, and Inho Andrew Mun is a graduate of Yale Law School. This post is based on their recent article, forthcoming in the Harvard Business Law Review.

After each financial crisis, policy and academic discussions debate what went wrong with the law of financial regulation and how the law can be improved to prevent future crises. For instance, the Panic of 1907 prompted the establishment of the Federal Reserve (the “Fed”) as the lender of last resort. In response to the banking panic that led to the Great Depression, the Banking Act of 1933 created the Federal Deposit Insurance Corporation. And the two main regulatory responses to the Financial Crisis of 2008, the Dodd-Frank Act and the Basel III accords, largely focus on reforming the law of financial regulation to prevent the next crisis.

Key Governance Issues—Ways for the Future

Posted by Christian Strenger (HHL Leipzig Graduate School of Management), on

Monday, March 5, 2018

Blockchain, Board communication, Board independence, Boards of Directors, Compensation disclosure, Fund managers, Institutional Investors, International governance, Ownership, Proxy materials, Proxy voting, Say on pay, Securities regulation, Shareholder voting
More from: Christian Strenger, Jörg Rochell

Christian Strenger is Academic Director at the Center for Corporate Governance at HHL Leipzig Graduate School of Management. This post is based on a publication by Mr. Strenger and Jörg Rochell, President and Managing Director at ESMT Berlin, for a symposium held in Berlin on November 9, 2017, sponsored by ESMT Berlin and the Center for Corporate Governance at HHL Leipzig Graduate School of Management.

In early November 2017, a group of senior representatives from leading investors, large companies, academia and regulators met for a roundtable symposium under Chatham House Rules to discuss particularly timely issues for the future of corporate governance.

The three introductory presentations of the moderators and the main results of the engaged discussions are set out below to provide relevant approaches for future-oriented solutions.

UN Investor Summit Highlights

Posted by Andrew Letts and Chad Spitler, CamberView Partners, LLC, on

Monday, March 5, 2018

Climate change, Disclosure, Engagement, Environmental disclosure, ESG, International governance, Long-Term value, Risk management, SASB, Sustainability, United Nations
More from: Andrew Letts, Chad Spitler, PJT Camberview

Andrew Letts is Partner and Chad Spitler is a Senior Advisor at CamberView Partners, LLC. This post is based on a CamberView publication by Mr. Letts and Mr. Spitler. Related research from the Program on Corporate Governance includes Social Responsibility Resolutions by Scott Hirst (discussed on the Forum here).

Every two years, investors, executives and industry leaders gather at the United Nations for a unique summit on the state of climate risks and opportunities in the capital markets. This year’s convening of the UN Investor Summit on Climate Risk in late January took place in a dramatically different environment than the last meeting in 2016: the Paris Climate Agreement has been in effect for two years; the US government has shifted its policy on climate risk; shareholder support for climate proposals has never been higher; and some of the world’s largest investors have begun the process of divesting from carbon-intensive companies on the basis of long-term financial risk.

With that backdrop, the main storyline to emerge from this year’s conference was the pressing need for companies to be proactive in engaging with investors not just on how they are measuring and disclosing climate risk, but on how they are innovating to take advantage of the opportunities that are arising from this macroeconomic trend.

Limited Liability and the Known Unknown

Posted by Michael Simkovic (USC Gould School of Law), on

Sunday, March 4, 2018

Corporate Social Responsibility, Information asymmetries, Information environment, Liability standards, Peer groups, Public interest, Risk, Risk management, Taxation, Transparency
More from: Michael Simkovic

Michael Simkovic is Professor of Law at the USC Gould School of Law. This post is based on a recent article by Professor Simkovic, forthcoming in the Duke Law Journal.

Limited liability is a double-edged sword. On the one hand, limited liability may help overcome investors’ risk aversion and facilitate capital formation and economic growth. On the other hand, limited liability is widely believed to contribute to excessive risk taking and externalization of losses to the public. Limited liability cannot eliminate risk. Limited liability can only transfer the adverse consequences of risk away from those who effectively decide how much risk to take and, in so doing, encourage greater risk taking and externalization of losses.

Although mechanisms such as regulation, mandatory insurance, and minimum capital requirements can help mitigate the externalization problem, risks must be well-understood by policymakers for these mechanisms to function properly. When risks are unknown or unknowable, all of the extant policy levers for addressing risk externalization are incomplete, have potentially undesirable side effects when applied broadly, or perform poorly.

The Retention Effects of Unvested Equity: Evidence from Accelerated Option Vesting

Posted by Torsten Jochem (University of Amsterdam), Tomislav Ladika (University of Amsterdam), Zacharias Sautner (Frankfurt School of Finance & Management), on

Saturday, March 3, 2018

Equity capital, Equity-based compensation, Executive Compensation, Executive turnover, Firm valuation, Incentives, Management, Option timing, Retention, Shareholder value, Stock options
More from: Tomislav Ladika, Torsten Jochem, Zacharias Sautner

Torsten Jochem is Assistant Professor of Finance at the University of Amsterdam; Tomislav Ladika is Assistant Professor of Finance at the University of Amsterdam; and Zacharias Sautner is Professor of Finance at Frankfurt School of Finance & Management. This post is based on their recent article, forthcoming in The Review of Financial Studies.

Demand for general human capital is rising across the economy, which makes it important to understand how firms can retain highly talented managers. One key retention mechanism is to defer parts of managers’ compensation into the future, by granting equity that does not vest for several years. Managers who voluntarily depart their firms typically forfeit unvested equity, which raises their cost of pursuing an outside option.

In our article, The Retention Effects of Unvested Equity: Evidence from Accelerated Option Vesting, forthcoming in the Review of Financial Studies and publicly available on SSRN, we present novel evidence on the retention incentives of deferred compensation. We study how executive turnover changes following the sudden elimination of stock option vesting restrictions by means of a major regulatory change in the U.S., and document three findings. First, voluntary CEO turnover rises significantly when the amount of options forfeited upon leaving decreases. Second, these departures precipitate declines in firm value. Third, firms respond to turnover by raising the pay of remaining executives and newly hired CEOs, implying that departures allow firms to update their beliefs about executives’ outside options.

The Misuse of Tobin’s Q

Posted by Robert Bartlett (UC Berkeley School of Law) and Frank Partnoy (University of San Diego School of Law), on

Friday, March 2, 2018

Accounting, Books and records, Firm performance, Firm valuation, Long-Term value, Performance measures, R&D, Shareholder value, Stock returns
More from: Frank Partnoy, Robert Bartlett

Robert Bartlett is Professor of Law at UC Berkeley School of Law and Frank Partnoy is George E. Barrett Professor of Law and Finance at University of San Diego School of Law. This post is based on their recent paper.

In our paper, The Misuse of Tobin’s Q, which we recently posted to the Social Science Research Network, we examine the common and growing misuse of Tobin’s q as a proxy for firm value within the law and finance literatures.

For several decades, Tobin’s q has been one of the most important concepts in business law and policy for examining how various regulatory and corporate governance provisions affect firm value, and therefore economic welfare. More than three hundred law review articles, including many of the most widely-cited in corporate and securities law, have referenced Tobin’s q as a proxy for firm value, as have hundreds of articles in the most highly-regarded peer-reviewed finance and economics journals. The trend in citations to Tobin’s q is markedly upward, and in 2017 alone, articles in leading law reviews referenced Tobin’s q as a proxy for firm value in analyzing such important topics as how firm value was affected by hedge fund activism, fiduciary duties, staggered boards, and corporate governance.

Regulating Proxy Advisors is Anticompetitive, Counterproductive, and Possibly Unconstitutional

Posted by Nell Minow, ValueEdge Advisors, on

Friday, March 2, 2018

Boards of Directors, Corporate Governance Reform and Transparency Act, Institutional Investors, ISS, Proxy advisors, Securities regulation, Shareholder voting
More from: Nell Minow, ValueEdge Advisors

Nell Minow is Vice Chair of ValueEdge Advisors.

A party line vote in the House of Representatives approved H.R. 4015, [1] titled, with typical Capitol Hill oxymoronic newspeak the “Corporate Governance Reform and Transparency Act of 2017.” said in a statement that while proxy-advisory firms play an important role in advising clients. This bill is not just stupid and completely contrary to its stated purpose of promoting competition; it is probably unconstitutional.

The proxy advisory firms, led by ISS (which I helped to found in 1986 as its first general counsel, ran for one year and then left in 1990) and Glass-Lewis, analyze public company proxy issues like executive compensation and board effectiveness and make recommendations to their clients, large institutional investors like mutual funds and pension funds, suggesting votes for or against the proposals on the proxy card from corporate management and sometimes from other investors. I have observed this industry from the beginning, but left it 28 years ago. Since then, I have been a proponent and dissident who has failed to gain the support of the ISS analysts more often than I have been successful, and I have had the opportunity to develop some objectivity.

Weekly Roundup: February 23–March 1, 2018

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

Friday, March 2, 2018

Weekly Roundup
More from:

This roundup contains a collection of the posts published on the Forum during the week of February 23–March 1, 2018.

The Supreme Court and the Scope of Whistleblowing Anti-retaliation Protections

Posted by Cydney Posner, Cooley LLP, on Friday, February 23, 2018

Tags: Disclosure, Dodd-Frank Act, Exchange Act, Misconduct, Rule 21F-2, Sarbanes–Oxley Act, SEC, Securities regulation, Supreme Court, U.S. federal courts, Whistleblowers

Public Company Cybersecurity Disclosures

Posted by Kara M. Stein, U.S. Securities and Exchange Commission, on Friday, February 23, 2018

Tags: Cybersecurity, Disclosure, Public firms, Public interest, Risk disclosure, Risk management, Securities regulation

Key Trends in Corporate Incidents

Posted by Doug Morrow and Martin Vezér, Sustainalytics, on Saturday, February 24, 2018

Tags: Accountability, Anti-corruption, Corporate Social Responsibility, Environmental disclosure, ESG, FCPA, Oversight, Risk, Risk management, Sustainability

New NYSE Rules For Non-IPO Listings

Posted by Andrew Brady, Phyllis Korff and Michael Zeidel, Skadden, Arps, Slate, Meagher & Flom LLP, on Saturday, February 24, 2018

Tags: Capital formation, Exchange Act, Exchange Act s. 6, Firm valuation, IPOs, Liquidity, Listing standards, NYSE, Private firms, Registration statements, SEC, SEC rulemaking, Securities Act, Securities regulation, Spinoffs

Stockholder Agreements

Posted by Amy Simmerman, Craig Sherman, and Todd Carpenter, Wilson Sonsini Goodrich & Rosati, on Sunday, February 25, 2018

Tags: Boards of Directors, Delaware cases, Delaware law, DGCL, Management, Merger litigation, Mergers & acquisitions, Shareholder voting, Shareholders agreements

SEC Enforcement Priorities in the Trump Era

Posted by Brian V. Breheny, Colleen P. Mahoney, and John C. Hamlett, Skadden, Arps, Slate, Meagher & Flom LLP, on Sunday, February 25, 2018

Tags: Accountability, Blockchain, Cryptocurrencies, Cybersecurity, Disclosure, Dodd-Frank Act, ICOs, Investor protection, Misconduct, SEC, SEC enforcement, SEC rulemaking, Securities enforcement, Securities regulation

Banks and Labor as Stakeholders: Impact on Economic Performance

Posted by Stijn Claessens (BIS and University of Amsterdam) and Kenichi Ueda (University of Tokyo), on Monday, February 26, 2018

Tags: Banks, Deregulation, Europe, Financial institutions, Financial regulation, Human capital, International governance, Labor markets, Stakeholders

The Place of the Trans Union Case in the Development of Delaware Corporate Law

Posted by Robert T. Miller (University of Iowa College of Law), on Monday, February 26, 2018

Tags: Acquisition agreements, Boards of Directors, Business judgment rule, Buyouts, Delaware law, DGCL Section 102, Director liability, Duty of care, Fiduciary duties, In re Revlon, Liability standards, Merger litigation, Mergers & acquisitions, Smith v. Van Gorkom

The Perils of Small-Minority Controllers

Posted by Lucian A. Bebchuk, Harvard Law School and Kobi Kastiel, Harvard Law School, on Monday, February 26, 2018

Tags: Boards of Directors, Capital structure, Controlling shareholders, Dual-class stock, Equity capital, Incentives, Investor protection, IPOs, Minority shareholders, Ownership, Ownership structure, Securities regulation, Shareholder rights, Shareholder value, Shareholder voting, Transparency

Turning Words into Action

Posted by Bruce F. Freed, Center for Political Accountability and Karl J. Sandstrom, Perkins Coie LLP, on Tuesday, February 27, 2018

Tags: Accountability, BlackRock, Corporate Social Responsibility, Disclosure, Institutional Investors, Political spending, Rent-seeking, Reputation, Shareholder activism, Shareholder proposals, Shareholder voting, Transparency

Keeping Shareholders on the Beat: A Call for a Considered Conversation About Mandatory Arbitration

Posted by Robert J. Jackson, Jr., U.S. Securities and Exchange Commission, on Tuesday, February 27, 2018

Tags: Accountability, Arbitration, Capital formation, IPOs, SEC enforcement, Securities enforcement, Securities litigation, Securities regulation, Shareholder suits

Mandatory Arbitration: An Illusory Remedy for Public Company Shareholders

Posted by Rick A. Fleming, U.S. Securities and Exchange Commission, on Tuesday, February 27, 2018

Tags: Arbitration, Charter & bylaws, Class actions, Institutional Investors, Investor protection, IPOs, Retail investors, Securities Act, Securities litigation, Securities regulation, Settlements, Shareholder rights

An Overview of U.S. Shareholder Proposal Filings

Posted by Subodh Mishra, Institutional Shareholder Services, Inc., on Wednesday, February 28, 2018

Tags: Boards of Directors, Corporate Social Responsibility, Disclosure, Environmental disclosure, ESG, Institutional Investors, Proxy voting, Shareholder proposals, Shareholder voting, Sustainability

Looking Beyond Sustainability Disclosure

Posted by Linda-Eling Lee & Matt Moscardi, MSCI, Inc., on Wednesday, February 28, 2018

Tags: Climate change, Disclosure, Environmental disclosure, ESG, Institutional Investors, Risk disclosure, Risk management, Sustainability, Transparency

Securities Law in the Sixties: The Supreme Court, the Second Circuit, and the Triumph of Purpose Over Text

Posted by Adam C. Pritchard (University of Michigan Law School) and Robert B. Thompson (Georgetown University), on Wednesday, February 28, 2018

Tags: Class actions, Insider trading, Rule 10b-5, Securities enforcement, Securities litigation, Securities regulation, Supreme Court, U.S. federal courts

The Governance of Foundation-Owned Firms

Posted by Henry Hansmann (Yale Law School) and Steen Thomsen (Copenhagen Business School), on Thursday, March 1, 2018

Tags: Agency costs, Boards of Directors, Controlling shareholders, Corporate forms, Denmark, International governance, Management, Minority shareholders, Nonprofits

The New New Regime in Delaware Appraisal Law

Posted by Theodore N. Mirvis, William Savitt, and Ryan A. McLeod, Wachtell, Lipton, Rosen & Katz, on Thursday, March 1, 2018

Tags: Appraisal rights, Arbitrage, Delaware cases, Delaware law, Fairness review, In re Appraisal of Dell, In re Appraisal of DFC Global, Merger litigation, Mergers & acquisitions

Boardroom Accountability

Posted by Michael Garland and Rhonda Brauer, New York City Office of the Comptroller, on Thursday, March 1, 2018

Tags: Accountability, Board composition, Board independence, Board performance, Boards of Directors, Director nominations, Director qualifications, Disclosure, Diversity, Proxy access, Shareholder nominations

Boardroom Accountability

Posted by Michael Garland and Rhonda Brauer, New York City Office of the Comptroller, on

Thursday, March 1, 2018

Accountability, Board composition, Board independence, Board performance, Boards of Directors, Director nominations, Director qualifications, Disclosure, Diversity, Proxy access, Shareholder nominations
More from: Michael Garland, Rhonda Brauer, New York City Comptroller

Michael Garland is Assistant Comptroller for Corporate Governance and Responsible of Investment and Rhonda Brauer is Director of Corporate Engagement in the Office of New York City Comptroller Scott M. Stringer. Comptroller Stringer is investment advisor to, and custodian and a trustee of, the New York City Pension Funds. The post is based on a recent campaign launched by the New York City Pension Funds and Comptroller Stringer.

Following up on the successful “Boardroom Accountability Project” launched in the fall of 2014 to give investors a meaningful voice in director elections through proxy access, New York City Comptroller Scott M. Stringer and the New York City Pension Funds (the “NYC Funds”) launched the “Boardroom Accountability Project 2.0” in September 2017. The next phase of the campaign ratchets up pressure on companies to improve the quality of their boards of directors, with particular emphasis on diversity of gender and race and on climate competence, so that they are positioned to deliver better long-term sustainable returns for investors.

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Monthly Archives: March 2018

SEC’s OCIE 2018 Areas of Focus

Rethinking Corporate Law During a Financial Crisis

Key Governance Issues—Ways for the Future

The Retention Effects of Unvested Equity: Evidence from Accelerated Option Vesting

The Misuse of Tobin’s Q

Regulating Proxy Advisors is Anticompetitive, Counterproductive, and Possibly Unconstitutional

Weekly Roundup: February 23–March 1, 2018

The Supreme Court and the Scope of Whistleblowing Anti-retaliation Protections

Public Company Cybersecurity Disclosures

Key Trends in Corporate Incidents

New NYSE Rules For Non-IPO Listings

Stockholder Agreements

SEC Enforcement Priorities in the Trump Era

Banks and Labor as Stakeholders: Impact on Economic Performance

The Place of the Trans Union Case in the Development of Delaware Corporate Law

The Perils of Small-Minority Controllers

Turning Words into Action

Keeping Shareholders on the Beat: A Call for a Considered Conversation About Mandatory Arbitration

Mandatory Arbitration: An Illusory Remedy for Public Company Shareholders

An Overview of U.S. Shareholder Proposal Filings

Looking Beyond Sustainability Disclosure

Securities Law in the Sixties: The Supreme Court, the Second Circuit, and the Triumph of Purpose Over Text

The Governance of Foundation-Owned Firms

The New New Regime in Delaware Appraisal Law

Boardroom Accountability

Boardroom Accountability

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