Seve Jan van der Graaf is an analyst at Glass, Lewis & Co. This post is based on a Glass Lewis publication by Mr. van der Graaf.
Related research from the Program on Corporate Governance includes Toward a Constitutional Review of the Poison Pill by Lucian Bebchuk and Robert J. Jackson, Jr. (discussed on the Forum here), and The Case Against Board Veto in Corporate Takeovers by Lucian Bebchuk.
Ahold Delhaize, the biggest food retail group in the Benelux region with a rough market cap of €25 billion, is facing pushback from shareholders over a unique Dutch practice. The company recently announced that it had extended its call option agreement with a foundation called “Stichting Continuïteit Ahold Delhaize” or “SCAD” (roughly translated as the foundation for continuity of Ahold Delhaize), without giving investors the opportunity to vote on the deal.
To be clear, SCAD is not a charitable foundation—instead, the entity effectively functions as a poison pill for Ahold Delhaize. In Dutch corporate law, foundations need to have a purpose, but that purpose does not need to include the public good. As a result, these legal structures are the go-to anti-takeover mechanisms for Dutch companies, from family-owned entities to public issuers, taking several different forms. Here, SCAD was established for the purpose of protecting the continuity, independence and identity of Ahold Delhaize. It fulfils this purpose through the call option agreement, which gives SCAD the right to buy all 2,250 million of Ahold Delhaize’s authorised but unissued cumulative preference shares—which, not coincidentally, amount to 50% of the company’s authorised share capital, effectively blocking any attempt to take control.
The Effect of Enforcement Transparency: Evidence from SEC Comment-Letter Reviews
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Miguel Duro is Assistant Professor of Accounting and Control at University of Navarra IESE Business School, Jonas Heese is Assistant Professor of Business Administration at Harvard Business School, and Gaizka Ormazabal is Associate Professor of Accounting and Control at University of Navarra IESE Business School. This post is based on their recent paper.
Regulators increasingly rely on policies to disseminate their oversight actions, with the assertion that the disclosure of regulatory oversight activities can enhance the effect of enforcement by increasing third-party monitoring. However, the validity of this assertion has rarely been tested. In this study, we examine the effect of the public disclosure of the Securities and Exchange Commission (SEC) oversight activities on firms’ financial reporting. Specifically, we exploit a major change in the SEC’s policy regarding comment-letter reviews (henceforth “CLs” or “CL reviews”). Contrary to its prior policy, the SEC announced in 2004 that it would begin to publicly disseminate all CLs. From a research-design perspective, our setting provides three strengths: (1) the change was unexpected, (2) affected all public firms (all public firms are subject to CL reviews at least once every three years), and (3) did not modify the underlying regulation, but simply required the disclosure of CLs.
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