Daily Archives: Monday, August 6, 2018

JOBS Act 3.0

Posted by Glenn Pollner, Elizabeth Ising, and Thurston Hamlette, Gibson, Dunn & Crutcher LLP, on
Monday, August 6, 2018
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Glenn Pollner and Elizabeth Ising are partners and Thurston Hamlette is an associate at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn memorandum by Mr. Pollner, Ms. Ising, and Mr. Hamlette.

On July 17, 2018, the U.S. House of Representatives overwhelmingly passed, by a vote of 406-4, bipartisan financial reform legislation titled the “JOBS and Investor Confidence Act of 2018,” frequently referred to as JOBS Act 3.0. The JOBS Act 3.0 builds upon the 2012 Jumpstart Our Business Startups (“JOBS”) Act, and on the Fixing America’s Surface Transportation Act (the “FAST Act”), which was enacted in 2015 and is commonly referred to as JOBS Act 2.0.

The proposed JOBS Act 3.0, which had the backing of House Financial Services Committee Chairman Jeb Hensarling (R-TX) and Ranking Member Maxine Waters (D-CA), still must be approved by the U.S. Senate. The legislation includes 32 individual bills that already passed the House Financial Services Committee or the House during this congressional term. Key provisions include:

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The Rise and Fall (?) of the Berle-Means Corporation

Posted by Brian Cheffins (University of Cambridge), on
Monday, August 6, 2018
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Brian Cheffins is S J Berwin Professor of Corporate Law at the University of Cambridge. This post is based on a recent paper by Professor Cheffins. Related research from the Program on Corporate Governance includes The Agency Problems of Institutional Investors by Lucian Bebchuk, Alma Cohen, and Scott Hirst (discussed on the Forum here).

A description of a separation of ownership and control in America’s largest companies was the best-known feature of Adolf Berle and Gardiner Means’ renowned 1932 book The Modern Corporation and Private Property. Diffuse share ownership and the managerial autonomy which tends to follow on from it would become hallmarks of American corporate governance. Explaining why ownership becomes divorced from control in large firms has been the topic of lively debate. There has also been speculation lately that it is no longer appropriate to think of the typical American public company in terms of a separation of ownership and control. The Rise and Fall (?) of the Berle-Means Corporation, which formed part of the proceedings in a symposium which focused on Adolf Berle and the world he influenced, explores these related topics.

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Structuring Discretion for Clawbacks

Posted by Seymour Burchman, Kathryn Neel, and Olivia Voorhis, Semler Brossy Consulting Group, LLC, on
Monday, August 6, 2018
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Kathryn Neel is managing director, Seymour Burchman is managing director, and Olivia Voorhis is an associate at Semler Brossy Consulting Group, LLC. This post is based on a NACD Board Talk article published by Ms. Neel, Mr. Burchman, and Ms. Voorhis.

Related research from the Program on Corporate Governance includes Excess-Pay Clawbacksby Jesse Fried and Nitzan Shilon (discussed on the Forum here), and Rationalizing the Dodd-Frank Clawback by Jesse Fried (discussed on the Forum here).

The continuing stream of corporate wrongdoing and risk failures—at Wells Fargo & Co., Volkswagen AG, Equifax, Uber Technologies, Mylan, and others—gives new urgency to two questions: Should boards have broader policies for triggering compensation adjustments, forfeitures, and repayment of past compensation—generally referred to as recoupments or clawbacks—when corporate harm is demonstrated? How should boards exercise discretion when they implement such policies?

Regulators today require relatively narrow clawback policies, triggered mainly in the event of a restatement of financials. But a strong business case can be made that corporate harms of many kinds should qualify as triggers for clawbacks.

Many harms have little relation to financial restatements. In the months after Wells Fargo was found to have set up over 1.5 million unauthorized deposit accounts and another 560,000 unauthorized credit card accounts, the stock plunged over 20 percent. Market cap fell $30 billion and the loss of business, legal fees, and exposures continue to mount. The company did not have to restate earnings, but its actions tarnished its brand and hurt shareholders financially. In the aftermath, shareholders and the public at large called for some action to be taken against executives who caused or benefitted from these wrongdoings.

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