Monthly Archives: August 2018

JOBS Act 3.0

Posted by Glenn Pollner, Elizabeth Ising, and Thurston Hamlette, Gibson, Dunn & Crutcher LLP, on

Monday, August 6, 2018

Capital formation, Capital markets, Disclosure, Exchange Act, Investment advisers, IPOs, JOBS Act, Mergers & acquisitions, Securities Act, US House, Venture capital firms
More from: Elizabeth Ising, Glenn Pollner, Thurston Hamlette, Gibson Dunn

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:

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

Posted by Brian Cheffins (University of Cambridge), on

Monday, August 6, 2018

Blockholders, Boards of Directors, Corporate forms, Entrenchment, Index funds, Institutional Investors, Ownership structure, Shareholder activism
More from: Brian Cheffins

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.

Structuring Discretion for Clawbacks

Posted by Seymour Burchman, Kathryn Neel, and Olivia Voorhis, Semler Brossy Consulting Group, LLC, on

Monday, August 6, 2018

Clawbacks, Corporate crime, Corporate fraud, Corporate liability, Executive Compensation, Misconduct, Securities enforcement, Securities litigation, Shareholder suits
More from: Kathryn Neel, Olivia Voorhis, Seymour Burchman, Semler Brossy

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.

Recent Developments Relating to Corporate Governance

Posted by Joseph Hall, Marcel Fausten, and Sarah Solum, Davis Polk & Wardwell LLP, on

Sunday, August 5, 2018

Joseph A. Hall, Marcel Fausten, and Sarah Solum are partners at Davis Polk & Wardwell LLP. This post is based on a Davis Polk publication by Mr. Hall, Mr. Fausten, and Ms. Solum.

Despite a political agenda packed with important issues like tariffs, immigration and a Supreme Court nomination, there have been a number of recent federal and state legislative developments relating to public company corporate governance topics that are of interest. In particular, the Senate Banking Committee has recently considered bills relating to the role of proxy advisory firms and disclosure of cybersecurity experience at the board level; there have been calls by lawmakers for regulation of executive sales following announcement of stock buybacks; the Senate Committee on Appropriations is proposing to direct the SEC to report on the decline in public companies; a bill implementing gender quotas on boards progressed through the California State Senate; and Delaware adopted a voluntary sustainability certification and reporting regime. While a number of these topics have received the attention of lawmakers over the past few years, it remains to be seen whether they will gain traction in the current political environment.

Private Equity Liability Under European Law

Posted by David Vann, Ellen Frye, and Étienne Renaudeau, Simpson Thacher & Bartlett LLP, on

Saturday, August 4, 2018

Acquisition agreements, Antitrust, Europe, European Commission, Goldman Sachs, International governance, Liability standards, Mergers & acquisitions, Private equity
More from: David Vann, Ellen Frye, Etienne Renaudeau, Simpson Thacher

David Vann is partner, Ellen Frye is counsel, and Étienne Renaudeau is an associate at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher memorandum by Mr. Vann, Ms. Frye, and Mr. Renaudeau.

On July 12, 2018, the General Court of the European Union dismissed Goldman Sachs’s appeal of a decision finding it jointly and severally liable for the cartel conduct of a portfolio company held by funds controlled by Goldman Sachs. The General Court confirmed that the presumption that a parent company “exercises decisive influence” over a subsidiary, and therefore can be held jointly and severally liable for a subsidiary’s conduct, may apply even when a parent holds less than 100% of the share capital of its subsidiary. The General Court also held that the presumption of parental liability can also extend to portfolio companies of private equity firms when a private equity firm exercises such decisive influence. The decision also outlined the type of de jure or de facto board governance rights that could lead to a finding of decisive influence regardless of the quantum of shares or voting rights held.

The Regulation of Proxy Advisors

Posted by Steve Seelig and Puneet Arora, Willis Towers Watson, on

Friday, August 3, 2018

Corporate Governance Reform and Transparency Act, Glass Lewis, Institutional Investors, Institutional voting, ISS, No-action letters, Pension funds, Proxy advisors, SEC, Securities regulation, US House, US Senate
More from: Puneet Arora, Steve Seelig, Willis Towers Watson

Steve Seelig and Puneet Arora are regulatory advisors at Willis Towers Watson. This post is based on a Willis Towers Watson memorandum by Mr. Seelig and Mr. Arora.

Recently, the Senate Committee on Banking, Housing and Urban Affairs held a hearing on various legislative proposals aimed at improving corporate governance, including the Corporate Governance Reform and Transparency Act, H.R. 4015, that would regulate the activities of proxy advisory firms like Institutional Shareholder Services (ISS) and Glass Lewis.

This hearing is the latest step in the legislative process, following the House of Representative voting 238-182 on December 20, 2017 to send H.R. 4015 to the Senate for consideration. It is not yet clear that the Senate will move the legislation from the Committee to the full Senate, or whether the Committee will make significant amendments requiring a second vote from the House to endorse those changes, or some compromise to harmonize those differences. Moreover, any movement on H.R. 4015 in the near term seems unlikely, given the Senate’s focus on confirming President Trump’s nominee for the Supreme Court and on the mid-term elections.

SEC Liability for Social Media Violations

Posted by Michael W. McGrath, Pablo J. Man, and Britney E. Ryan, K&L Gates LLP, on

Friday, August 3, 2018

Information environment, Investment advisers, Investment Advisers Act, Reputation, SEC, SEC enforcement, Securities enforcement, Securities regulation, Social media
More from: Britney Ryan, Michael McGrath, Pablo Man, Pamela Grossetti, Sonia Gioseffi, K&L Gates

Michael W. McGrath is partner and Pablo J. Man and Britney E. Ryan are associates at K&L Gates LLP. This post is based on a K&L Gates memorandum by Mr. McGrath, Mr. Man, Ms. Ryan, Sonia R. Gioseffi and Pamela A. Grossetti.

On July 10, 2018, the Securities and Exchange Commission (the “SEC”) reaffirmed the application of the securities laws to social media use. Specifically, the SEC published five settlement orders (the “Settlements”) [1] arising from alleged violations of the Investment Advisers Act of 1940, as amended (“Advisers Act”), and Rule 206(4)-1(a)(1) thereunder (the “Testimonial Rule”). Notably, the Settlements involved the publication of client testimonials on social media and other websites by SEC-registered investment advisers (“RIAs”), the investment adviser representatives of RIAs (“IARs”), and/or a marketing consultant hired by the RIA or the IARs. Taken together, the Settlements demonstrate that the SEC and its staff (“Staff”) are actively applying the Staff’s 2014 Guidance on the Testimonial Rule (described below) in the enforcement context. The Settlements, which arise from examination referrals conducted by the SEC’s Chicago Regional Office, are further evidence of an increased focus by the Staff on social media use by RIAs generally. [2]

Weekly Roundup: July 27-August 2

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

Friday, August 3, 2018

Weekly Roundup
More from:

This roundup contains a collection of the posts published on the Forum during the week of July 27–August 2, 2018.

IPO Governance Survey 2018

Posted by Michael Kaplan, Joseph Hall and Sophia Hudson, Davis Polk & Wardwell LLP, on Friday, July 27, 2018

Tags: Boards of Directors, Capital formation, Controlling shareholders, Dual-class stock, IPOs, Listing standards, Securities regulation, Shareholder voting, Small firms

Gender Diversity and Board Quotas

Posted by David A. Katz and Laura A. McIntosh, Wachtell, Lipton, Rosen & Katz, on Friday, July 27, 2018

Tags: Board composition, Board dynamics, Board performance, Boards of Directors, California, Director qualifications, Diversity, Jurisdiction, Overboarding, Public firms, Shareholder value, State law

Proposed Amendments to Whistleblower Rules

Posted by Mark D. Cahn and Joseph Toner, Wilmer Cutler Pickering Hale and Dorr LLP, on Saturday, July 28, 2018

Tags: Dodd-Frank Act, Misconduct, Oversight, SEC, Securities regulation, Whistleblowers

Effects of Executive Pay Levels on Say on Pay

Posted by Austin Vanbastelaer and Charles Gray, Semler Brossy Consulting Group, LLC, on Saturday, July 28, 2018

Tags: Executive Compensation, Management, Pay for performance, Proxy advisors, Say on pay, Shareholder voting

The Limits of “The Corwin Effect”

Posted by Nicholas D. Mozal, Ross Aronstam & Moritz LLP, on Sunday, July 29, 2018

Tags: Corwin, Delaware cases, Delaware law, Disclosure, Fairness review, Materiality, Merger litigation, Mergers & acquisitions, Shareholder suits

Lorenzo v. SEC: Will the Supreme Court Further Curtail Rule 10b-5?

Posted by Roger A. Cooper, Matthew C. Solomon & Leslie N. Silverman, Cleary Gottlieb Steen & Hamilton LLP, on Monday, July 30, 2018

Tags: Broker-dealers, Exchange Act, Investment banking, Janus Capital v. Traders, Liability standards, Rule 10b-5, SEC, Section 10(b), Securities fraud, Securities regulation, Supreme Court, U.S. federal courts

Review of Shareholder Activism: 1H 2018

Posted by Jim Rossman, Chris Couvelier and Kashyap Shah, Lazard, on Monday, July 30, 2018

Tags: Boards of Directors, Engagement, Europe, International governance, Mergers & acquisitions, Shareholder activism, Shareholder nominations, Shareholder voting

Information Rights of Conflicted Directors

Posted by Amy Simmerman, Brad Sorrels, and Nate Emeritz, Wilson Sonsini Goodrich & Rosati, on Tuesday, July 31, 2018

Tags: Board communication, Boards of Directors, Controlling shareholders, Delaware cases, Delaware law, Disclosure, In re CBS, Information environment, Minority shareholders, Shareholder suits

The Evolution of Corporate Cash

Posted by John Graham (Duke University) and Mark Leary (Washington University in St. Louis), on Tuesday, July 31, 2018

Tags: Capital allocation, Cash flows, Cash reserves, IPOs, Liquidity

What’s in a Name? Regulation Best Interest v. Fiduciary

Posted by Hester M. Peirce, U.S. Securities and Exchange Commission, on Tuesday, July 31, 2018

Tags: Broker-dealers, Conflicts of interest, Duty of care, Duty of loyalty, Fiduciary duties, FINRA, Form ADV, Form CRS, Governance standards, Investment advisers, Investor protection, Retail investors, SEC, Securities regulation

Statement Announcing SEC Staff Roundtable on the Proxy Process

Posted by Jay Clayton, U.S. Securities and Exchange Commission, on Tuesday, July 31, 2018

Tags: Boards of Directors, Proxy advisors, Proxy voting, Securities regulation, Shareholder proposals, Shareholder voting, Transparency

Dissecting C-Suite Gender Pay Disparity

Posted by Lyla Qureshi, Equilar, Inc., on Wednesday, August 1, 2018

Tags: Compensation disclosure, Compensation ratios, Diversity, Executive Compensation, Management

Partial Disclosures and the Corwin Doctrine

Posted by David Hennes, John E. Sorkin and Martin J. Crisp, Ropes & Gray LLP, on Thursday, August 2, 2018

Tags: Boards of Directors, Books and records, Business judgment rule, Corwin, Delaware cases, Delaware law, DGCL Section 220, Discovery, Merger litigation, Mergers & acquisitions, Shareholder suits, Shareholder voting

Shareholder Proposal Developments During the 2018 Proxy Season

Posted by Ron Mueller, Beth Ising, and Aaron Briggs, Gibson, Dunn & Crutcher LLP, on Thursday, August 2, 2018

Tags: Boards of Directors, ESG, No-action letters, Proxy season, Proxy voting, Rule 14a-8, SEC, Securities regulation, Shareholder proposals, Shareholder voting

Shareholder Proposal Developments During the 2018 Proxy Season

Posted by Ron Mueller, Beth Ising, and Aaron Briggs, Gibson, Dunn & Crutcher LLP, on

Thursday, August 2, 2018

Boards of Directors, ESG, No-action letters, Proxy season, Proxy voting, Rule 14a-8, SEC, Securities regulation, Shareholder proposals, Shareholder voting
More from: Aaron Briggs, Elizabeth Ising, Emily Shroder, Lori Zyskowski, Ronald Mueller, Victor Twu, Gibson Dunn

Ronald O. Mueller and Elizabeth Ising are partners and Aaron Briggs is of counsel at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn memorandum by Mr. Mueller, Ms. Ising, Mr. Briggs, Lori Zyskowski, Emily Shroder, and Victor Twu.

Related research from the Program on Corporate Governance includes Social Responsibility Resolutions by Scott Hirst (discussed on the Forum here).

As discussed in further detail below, based on the results of the 2018 proxy season, there are several key takeaways to consider for the coming year:

Shareholder proposals continue to be used by certain shareholders and to demand significant time and attention. Although the overall number of shareholder proposals submitted decreased 5% to 788, the average support for proposals voted on increased by almost 4 percentage points to 32.7%, suggesting increased traction among institutional investors. In addition, the percentage of proposals that were withdrawn increased by 6 percentage points to 15%, and the number of proponents submitting proposals increased by 20%. However, there are also some interesting ongoing developments with respect to the potential reform of the shareholder proposal rules (including the possibility of increased resubmission thresholds).

Partial Disclosures and the Corwin Doctrine

Posted by David Hennes, John E. Sorkin and Martin J. Crisp, Ropes & Gray LLP, on

Thursday, August 2, 2018

Boards of Directors, Books and records, Business judgment rule, Corwin, Delaware cases, Delaware law, DGCL Section 220, Discovery, Merger litigation, Mergers & acquisitions, Shareholder suits, Shareholder voting
More from: David Hennes, Jane Goldstein, John Sorkin, Martin Crisp, Paul Scrivano, Peter Walsh, Ropes & Gray

David Hennes and John E. Sorkin are partners and Martin J. Crisp is counsel at Ropes & Gray LLP. This post is based on a Ropes & Gray publication by Mr. Hennes, Mr. Sorkin, Mr. Crisp, Paul S. Scrivano, Jane D. Goldstein, and Peter L. Welsh. This post is part of the Delaware law series; links to other posts in the series are available here.

On July 9, 2018, the Delaware Supreme Court held in Morrison v. Berry that Corwin business judgment review will not apply to stockholder-approved transactions when “partial and elliptical” disclosures leave stockholders less than fully informed. This decision, which reversed a dismissal by the Court of Chancery, serves as a court-described “cautionary reminder” that disclosures to stockholders must faithfully reflect material facts in order for transaction parties to benefit from the director-friendly standard established by the Delaware Supreme Court in Corwin.

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Monthly Archives: August 2018

JOBS Act 3.0

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

Structuring Discretion for Clawbacks

Recent Developments Relating to Corporate Governance

Private Equity Liability Under European Law

The Regulation of Proxy Advisors

Weekly Roundup: July 27-August 2

IPO Governance Survey 2018

Gender Diversity and Board Quotas

Proposed Amendments to Whistleblower Rules

Effects of Executive Pay Levels on Say on Pay

The Limits of “The Corwin Effect”

Lorenzo v. SEC: Will the Supreme Court Further Curtail Rule 10b-5?

Review of Shareholder Activism: 1H 2018

Information Rights of Conflicted Directors

The Evolution of Corporate Cash

What’s in a Name? Regulation Best Interest v. Fiduciary

Statement Announcing SEC Staff Roundtable on the Proxy Process

Dissecting C-Suite Gender Pay Disparity

Partial Disclosures and the Corwin Doctrine

Shareholder Proposal Developments During the 2018 Proxy Season

Shareholder Proposal Developments During the 2018 Proxy Season

Partial Disclosures and the Corwin Doctrine

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