Monthly Archives: April 2018

The Importance of Alleging Control: Between Corwin and MFW

Steven M. Haas is a partner and Meghan Garrant is an associate at Hunton Andrews Kurth LLP. This post is based on a Hunton Andrews Kurth publication, and is part of the Delaware law series; links to other posts in the series are available hereRelated research from the Program on Corporate Governance includes Independent Directors and Controlling Shareholders, by Lucian Bebchuk and Assaf Hamdani (discussed on the Forum here).

The Delaware Court of Chancery recently held that individual members of Rouse Properties Inc.’s board of directors, who negotiated and approved a merger with the company’s largest stockholder in 2016, were protected under Corwin [1] by the business judgment rule from claims by plaintiff stockholders that the board, allegedly controlled by the stockholder, had breached their fiduciary duties.

Background

In Re Rouse Properties, Inc. Fiduciary Litigation [2] arose out of the 2016 merger between Rouse Properties Inc. (“Rouse”), a Delaware corporation and real estate investment trust, and Brookfield Asset Management, Inc. (“Brookfield”), a Canadian global asset management corporation. In January 2016, Brookfield, owning 33.5% of the outstanding shares of Rouse, made an offer to acquire all of Rouse’s remaining outstanding shares for $17 per share. In response, Rouse formed a special committee of independent directors to negotiate with Brookfield and consider strategic alternatives. The parties ultimately agreed on a price of $18.25 per share and signed a merger agreement, which was subsequently approved by 82.44% of Rouse’s non-Brookfield-affiliated shares.

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Measuring Effectiveness: Roadmap to Assessing System-Level and SDG Investing

Steve Lydenberg is founder and CEO and William Burckart is president and COO of The Investment Integration Project (TIIP). This post is based on a TIIP report by Mr. Lydenberg and Mr. Burckart.

As responsible investment in its various forms [1] makes increasing inroads into the investment community, the question of how such investors set their goals and measure their progress toward these goals is of ever greater importance.

As to their financial goals, the answer is relatively clear: traditional investors integrating environmental, social and governance concerns into the security selection are seeking either competitive or enhanced returns, while investors with a philanthropic mission may be willing to accept concessionary returns or combine conventional investments with philanthropic activities.

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How Should Financial Regulators Handle the Bitcoin Era?

William Magnuson is an Associate Professor at Texas A&M Law School. This post is based on a recent article by Professor Magnuson, forthcoming in the Stanford Journal of Law, Business & Finance.

Financial regulators in the United States and abroad have recently trained their sights on innovations at the intersection of finance and technology. Cryptocurrencies like Bitcoin and Ethereum have come under fire, as have other fintech firms. But despite a flurry of activity and increasing attention to the issue, regulators have struggled to apply old law to new facts. In a recent article, Financial Regulation in the Bitcoin Era, forthcoming in the Stanford Journal of Law, Business & Finance, I argue that existing models of financial regulation are ill-equipped to handle the problems that will arise in the Bitcoin era, and I propose a set of guiding principles for a more effective financial regulatory regime.

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HLS Program Seeks Academic Fellows


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The Harvard Law School Program on Corporate Governance is seeking applications from highly qualified candidates who are interested in working with the Program, and Program Director Lucian Bebchuk, as Post-Graduate Academic Fellows in the areas of corporate governance and law and finance. Candidates should be interested in spending two to three years at Harvard Law School (longer periods may be possible). Candidates should have a J.D., LL.M., or S.J.D. from a U.S. law school, or a Ph.D. in economics, finance, or related areas by the time they commence their fellowship. Candidates still pursuing an S.J.D. or Ph.D. are eligible so long as they will have completed their program’s coursework requirements by the time they start.

During the term of their appointment, Post-Graduate Academic Fellows work on research and corporate governance activities of the Program, depending on their skills, interests, and Program needs. Fellows may also work on their own research and publishing in preparation for a career in academia or policy research. A significant number of former Fellows of the Program now teach in leading law schools in the U.S. and abroad.

Applications are considered on a rolling basis, and the start date is flexible. Interested candidates should submit a CV, transcripts, a writing sample, a list of references, and cover letter to the coordinator of the Program, Ms. Jordan Figueroa, at [email protected]. The cover letter should describe the candidate’s experience, reasons for seeking the position, career plans, and the kinds of projects and activities in which he or she would like to be involved at the Program. The position includes Harvard University benefits and a competitive fellowship salary.

Ten Crypto-Financing Caveats

John Reed Stark is President at John Reed Stark Consulting, LLC. This post is based on a publication authored by Mr. Stark.

Floyd “Money” Mayweather is one of the greatest pound-for-pound boxers in history, while DJ Khaled is a brilliant musical artist and wildly popular Internet phenomenon. The two superstars actually have a lot in common.

They are both: astute, accomplished and prosperous entrepreneurs; larger-than-life personas, with tens of millions of online followers and fans; and extraordinary success stories rooted in hard work, endless creativity and brilliant execution.

But those are not the only traits they share.

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The Investor View on Executive Compensation in 2018

Chris Wightman is a Partner and David Martin is a Principal at CamberView Partners LLC. This post is based on a CamberView publication by Mr. Wightman and Mr. Martin.

In the first few months of 2018, significant media attention has been focused on new pay-ratio disclosures and how the repeal of the Section 162(m) performance-based compensation tax deductions will impact executive-compensation decisions. But behind the headlines, top of mind for investors voting proxies are perennial and emerging topics such as the alignment of metrics with company strategy, rigor of goal setting, pay magnitude and the responsiveness of compensation committees to low say-on-pay votes. This proxy season, companies should be prepared to engage with investors on their evolving view of compensation as a window into long-term value creation.

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Appraisal Rights: Navigating the Maze After DFC Global, Dell, and Aruba

Jeffrey J. Rosen and William D. Regner are partners at Debevoise & Plimpton LLP. This post is based on a Debevoise & Plimpton publication by Mr. Rosen and Mr. Regner, 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).

It’s easy to throw up your hands at the current state of the law on appraisal rights in Delaware. In a bit more than a decade an appraisal arbitrage industry has emerged—spawned by decisions that shares purchased post record date may be the subject of an appraisal proceeding without proof that they were not voted in favor of the transaction [1] and abetted by amendments to the statute creating a strong presumption that the interest rate on appraisal awards should be five percentage points above the Federal Reserve discount rate. [2]

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Median Employee Pay Not Quite the Spectacle Anticipated

Deb Lifshey is Managing Director at Pearl Meyer & Partners, LLC. This post is based on a Pearl Meyer publication by Ms. Lifshey.

…Yet May Still Spark Employee Relations and Media Fires

Congress—in the aftermath of the financial crisis in 2010—enacted a law requiring public companies to identify the compensation of their median-paid employee, compare that to the CEO as a ratio, and disclose it each year. As noted by the SEC in enacting rules to implement the legislation, Congress provided no rationale for the rule, although presumably it was intended to highlight perceived inequities between executive and average worker pay. Even more importantly, it required companies to disclose for the first time, not what executives were making, but what the median worker was paid. Fast forward eight years and we are left questioning whether the legislation is actually accomplishing its supposed intent. Based on our review of 500 proxies (as of March 30, 2018) tracked on our CEO Pay Ratio page, we think the answer is a resounding no, although it will have the unintended consequences of meddling with employee relations and keeping the media busy for a while.

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Tax-Exempt Lobbying: Corporate Philanthropy as a Tool for Political Influence

Raymond J. Fisman is Slater Family Professor in Behavioral Economics at Boston University. This post is based on a recent paper by Professor Fisman; Marianne Bertrand, Chris P. Dialynas Distinguished Service Professor of Economics at the University of Chicago Booth School of Business; Matilde Bombardini, Associate Professor at the Vancouver School of Economics at the University of British Columbia; and Francesco Trebbi, Canada Research Chair and Professor of Economics at the Vancouver School of Economics at the University of British Columbia.

Related research from the Program on Corporate Governance includes Shining Light on Corporate Political Spending, by Lucian Bebchuk and Robert Jackson (discussed on the Forum here), Investor Protection and Interest Group Politics by Lucian Bebchuk and Zvika Neeman (discussed on the Forum here) and Corporate Governance and Corporate Political Activity: What Effect Will Citizens United Have on Shareholder Wealth? by John C. Coates (discussed on the Forum here).

Donald Trump came to office in part on his promises to “drain the swamp”—as an independently wealthy outsider candidate, he would be insulated from the influence of special interests that had corrupted Washington politics At least in this regard, Trump follows in a long tradition. For as long as there has been a U.S. government (and going much, much further back), there have been reformers labeling it as corrupt and putting themselves forward as the one to clean it up.

But anticorruption reformers quickly come up against the reality that special interests have a great many instruments of influence. Politicians may be swayed by campaign contributions from political action committees, promises of lucrative employment or consulting opportunities after they leave office (recall the allegations that Hillary Clinton was corrupted by the six figure speeches she gave on Wall Street), or favors given to friends or family.

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Activists are Hereby on Notice: Board Authority to Reject Deficient Director Nominations

Kai Haakon Liekefett, Andrew W. Stern, and Beth E. Peev are partners at Sidley Austin LLP. This post is based on a Sidley publication authored by Mr. Liekefett, Mr. Stern, Ms. Peev, and Charlotte K. Newell.

In a closely watched decision, the Superior Court of Washington for King County in Blue Lion Opportunity Master Fund, L.P. vs. HomeStreet, Inc., No. 18-2-06791-0 SEA, affirmed the authority of a corporation’s board of directors to reject a notice of director nominations and shareholder proposals for failure to comply with an advance notice bylaw.

In the case, HomeStreet, Inc., a Washington corporation and parent of HomeStreet Bank, received a purported notice from an activist, Blue Lion Opportunity Master Fund, L.P., stating Blue Lion’s intention to nominate two director candidates and submit three shareholder proposals at HomeStreet’s 2018 annual meeting. Blue Lion delivered its notice in the late afternoon on Friday, February 23, the eve of the deadline for such notices under HomeStreet’s advance notice bylaw.

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