Monthly Archives: October 2018

CEO and Executive Compensation Practices: 2018 Edition

Posted by Matteo Tonello, Paul Hodgson, and James Reda, The Conference Board, Inc., on
Saturday, October 27, 2018
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Matteo Tonello is Managing Director at The Conference Board, Inc. This post relates to CEO and Executive Compensation Practices: 2018 Edition, an annual benchmarking report authored by Dr. Tonello with Paul Hodgson of BHJ Partners and James Reda of Arthur J. Gallagher & Co. Related research from the Program on Corporate Governance includes the book Pay without Performance: The Unfulfilled Promise of Executive Compensation, by Lucian Bebchuk and Jesse Fried and The CEO Pay Slice by Lucian Bebchuk, Martijn Cremers and Urs Peyer (discussed on the Forum here).

The Conference Board recently released CEO and Executive Compensation Practices: 2018 Edition, which documents trends and developments on senior management compensation at companies issuing equity securities registered with the US Securities and Exchange Commission (SEC) and, as of May 2018, included in the Russell 3000 Index.

The report has been designed to reflect the changing landscape of executive compensation and its disclosure. In addition to benchmarks on individual elements of compensation packages, the report provides details on shareholder advisory votes on executive compensation (say-on-pay) and outlines the major practices on board oversight of compensation design. Moreover, the study reviews the evolving features of short-term and long-term incentive plans (STIs and LTIs) and performance metrics in a sub-sample of mid-market companies included in the Russell 3000 index. This year, a new section of the study reviews data from the first year of pay ratio disclosure, which became mandatory for many U.S. public companies in 2018.

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Silicon Valley and S&P 100: A Comparison of 2018 Proxy Season Results

Posted by David Bell, Fenwick & West LLP, on
Saturday, October 27, 2018
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David A. Bell is partner in the corporate and securities group at Fenwick & West LLP. This post is based on portions of a Fenwick memorandum titled Results of the 2018 Proxy Season in Silicon Valley—A Comparison of Silicon Valley 150 Companies and the Large Public Companies of the Standard & Poor’s 100.

In the 2018 proxy season, 143 of the technology and life sciences companies included in the Fenwick Silicon Valley 150 Index (SV 150) and 99 of the S&P 100 companies held annual meetings that typically included voting for the election of directors, ratifying the selection of auditors of the company’s financial statements and voting on executive officer compensation (“say-on-pay”).

Annual meetings also increasingly include voting on one or more of a variety of proposals that may have been put forth by the company’s board of directors or by a stockholder that has met the requirements of the company’s bylaws and applicable federal securities regulations.[1]

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2018 CPA-Zicklin Index

Posted by Bruce F. Freed, Karl Sandstrom, Dan Carroll, and Caitlin Moniz, Center for Political Accountability, on
Friday, October 26, 2018
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Bruce F. Freed is president and co-founder of the Center for Political Accountability; Karl Sandstrom is the Center’s counsel and senior counsel at Perkins Coie; Dan Carroll is CPA’s director of programs; and Caitlin Moniz is CPA’s assistant director. This post is based on a CPA publication by Mr. Freed, Mr. Sandstrom, Mr. Carroll, and Ms. Moniz. Related research from the Program on Corporate Governance includes Shining Light on Corporate Political Spending and Corporate Political Speech: Who Decides?, both by Lucian Bebchuk and Robert Jackson (discussed on the Forum here and here), and Corporate Politics, Governance, and Value Before and after Citizens United by John C. Coates.

Despite Sharp Attacks on Political Disclosure and Accountability, 2018 CPA-Zicklin Index Finds Companies Recognize its Importance

Corporate political disclosure and accountability is holding firm despite strong counter-pressure from some elements in Congress and a leading business trade association. Indeed, the number of leading publicly held companies disclosing or restricting their spending and adopting board oversight continues to increase.

Those are the chief takeaways of the 2018 CPA-Zicklin Index, an annual non-partisan study released in early October by the Center for Political Accountability (CPA) and the Zicklin Center for Business Ethics Research at The Wharton School at the University of Pennsylvania.

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Effective Board Evaluation

Posted by Steve Klemash, Rani Doyle, and Jamie C. Smith, EY Center for Board Matters, on
Friday, October 26, 2018
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Steve W. Klemash is Americas Leader; Rani Doyle is Executive Director; and Jamie C. Smith is Associate Director, all at the EY Center for Board Matters. This post is based on their EY publication.

Investors, regulators and other stakeholders are seeking greater board effectiveness and accountability and are increasingly interested in board evaluation processes and results. Boards are also seeking to enhance their own effectiveness and to more clearly address stakeholder interest by enhancing their board evaluation processes and disclosures.

The focus on board effectiveness and evaluation reflects factors that have shaped public company governance in recent years, including:

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Weekly Roundup: October 19-25, 2018

Posted by the Harvard Law School Forum on Corporate Governance & Financial Regulation, on
Friday, October 26, 2018

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This roundup contains a collection of the posts published on the Forum during the week of October 19-25, 2018.

Proxy Access Proposals

Posted by Stephen T. Giove, Arielle L. Katzman and Daniel Yao, Shearman & Sterling LLP, on Friday, October 19, 2018
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Reforming Director’s Long-Term Duties in the EU

Posted by Claire Jeffwitz and Filip Gregor, Frank Bold, on Saturday, October 20, 2018
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Cybersecurity Disclosure Benchmarking

Posted by Steve W. Klemash, Les Brorsen, and Charles W. Seets Jr., EY Center for Board Matters, on Sunday, October 21, 2018
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A Watershed Development for “Material Adverse Effect” Clauses

Posted by Barbara Becker, Jeffrey Chapman, and Stephen Glover, Gibson, Dunn & Crutcher LLP, on Monday, October 22, 2018
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Insider Trading and the Integrity of Mandatory Disclosure

Posted by James J. Park (UCLA), on Monday, October 22, 2018
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Lazard’s Review of Shareholder Activism—2018 3Q YTD

Posted by Jim Rossman, Lazard, on Monday, October 22, 2018
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Contracting Out of Appraisal Rights

Posted by Christopher B. Chuff, Pepper Hamilton LLP, on Tuesday, October 23, 2018
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Managing the Narrative: Investor Relations Officers and Corporate Disclosure

Posted by Andy Call (Arizona State University), on Tuesday, October 23, 2018
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Open Letter: Commonsense Corporate Governance Principles 2.0

Posted by Margaret Popper, Sard Verbinnen & Co, on Tuesday, October 23, 2018
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Tokens and the Extraterritorial Reach of US Securities Laws

Posted by David Felsenthal, Steven Gatti, and Jesse Overall, Clifford Chance US LLP , on Wednesday, October 24, 2018
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Trademarks in Entrepreneurial Finance

Posted by Thomas J. Chemmanur (Boston College), Harshit Rajaiya (Boston College), Xuan Tian (Tsinghua University), Qianqian Yu (Lehigh University), on Wednesday, October 24, 2018
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CBS-NAI Dispute, Part III: Can Stockholders Rely on Stock Exchange Rules to Prevent Dilution of Their Voting and Economic Interests?

Posted by Victor Lewkow, Christopher E. Austin, and Paul M. Tiger, Cleary Gottlieb Steen & Hamilton LLP, on Wednesday, October 24, 2018
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CEO Succession Practices in the S&P 500

Posted by Matteo Tonello, The Conference Board, Inc. and Jason Schloetzer, Georgetown University, on Thursday, October 25, 2018
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Powering Preemptive Rights with Presubscription Disclosure

Posted by Jesse M. Fried (Harvard Law School), on Thursday, October 25, 2018
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Improving Information for Investors in the Digital Age

Posted by Kara M. Stein, U.S. Securities and Exchange Commission, on Thursday, October 25, 2018
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Improving Information for Investors in the Digital Age

Posted by Kara M. Stein, U.S. Securities and Exchange Commission, on
Thursday, October 25, 2018
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Kara M. Stein is a Commissioner at the U.S. Securities and Exchange Commission. The following post is based on Commissioner Stein’s recent remarks at the Council of Institutional Investors 2018 Fall Conference, available here. The views expressed in the post are those of Ms. Stein and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Thank you, Ken [Bertsch], for that kind introduction. I would like to start out by thanking the Council of Institutional Investors for inviting me to speak with you. It is a pleasure to be here.

I last spoke to you in May 2014 about “Building Momentum.” [1] At the time, I was a rookie Commissioner. Now, I stand before you after five years as a Commissioner and over 5,700 votes under my belt. It has been an amazing time to be on the Commission, and I’ve learned a great deal about what matters to both companies and investors. Today, I’d like to share with you some of my thoughts borne from my experience. Specifically, my thoughts on how the Commission should improve disclosure to investors in the Digital Age. [2]

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Powering Preemptive Rights with Presubscription Disclosure

Posted by Jesse M. Fried (Harvard Law School), on
Thursday, October 25, 2018
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Jesse Fried is the Dane Professor of Law at Harvard Law School. This post is based on his recent paper. Related research from the Program on Corporate Governance includes Cheap-Stock Tunneling Around Preemptive Rights by Prof. Fried and Holger Spamann (discussed on the Forum here).

In a paper recently posted on SSRN, Powering Preemptive Rights with Presubscription Disclosure, I put forward a proposal to make preemptive rights more effective: requiring the controller of a firm to disclose its subscription decision before outside investors decide their own.

Most corporations around the world have a controller: control is concentrated in the hands of either a single shareholder or a small group of shareholders acting in concert. Almost every unlisted (private) firm is a controlled firm. And many listed firms in the U.S. and most listed firms outside the U.S.—in Europe, Asia, and South America—are controlled firms.

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CEO Succession Practices in the S&P 500

Posted by Matteo Tonello, The Conference Board, Inc. and Jason Schloetzer, Georgetown University, on
Thursday, October 25, 2018
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Matteo Tonello is Managing Director at The Conference Board, Inc. This post relates to CEO Succession Practices: 2018 Edition, an annual benchmarking report authored by Dr. Tonello and Gary Larkin of The Conference Board with Professor Jason Schloetzer of the McDonough School of Business at Georgetown University, and made possible by a research grant from executive search firm Heidrick & Struggles.

According to a new report by The Conference Board, the exceptional longevity of the bull market that followed the Great Recession appears to have stretched leadership tenures at large U.S. public companies, resulting in a higher average CEO age. The study, CEO Succession Practices: 2018 Edition, annually documents and analyzes chief executive officer succession events of S&P 500 companies, updating a historical database first introduced in 2000. In 2017, there were 54 CEO successions among S&P 500 companies.

In 2009, at the peak of the Great Recession, the typical CEO of an S&P 500 held his or her position for 7.2 years—the shortest average tenure ever reported by The Conference Board. However, CEO tenure started to rebound soon after, rising to 10.8 years by 2015; in 2017, departing CEO tenure was the highest recorded since 2002, at nearly 11 years. (In contrast, employee tenure across the broader labor market has remained relatively constant over the past 30 years, at about five years). Consistent with this evidence, in 2017 the average age of a sitting S&P 500 CEO was 58.3 years, or more than two years older than the average CEO in 2009.

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CBS-NAI Dispute, Part III: Can Stockholders Rely on Stock Exchange Rules to Prevent Dilution of Their Voting and Economic Interests?

Posted by Victor Lewkow, Christopher E. Austin, and Paul M. Tiger, Cleary Gottlieb Steen & Hamilton LLP, on
Wednesday, October 24, 2018
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Victor Lewkow, Christopher E. Austin and Paul M. Tiger are partners and Gloria B. Ho is an associate at Cleary Gottlieb Steen & Hamilton LLP. This post is based on their Cleary Gottlieb memorandum.

As described in a prior post, on May 17, 2018, the majority of the CBS board (other than the three directors with ties to NAI) considered and purported to approve a dividend of a fraction of a Class A (voting) share to be paid to holders of both CBS’s Class A (voting) common stock and Class B (nonvoting) common stock for the express purpose of diluting NAI’s voting interest in CBS, with the payment of such dividend conditioned on Delaware court approval. In addition to diluting NAI’s voting power from about 80% to about 20%, such dividend would have also diluted the voting rights of other Class A stockholders. [1]

Although it is not clear from the public record whether and to what extent the non-NAI-affiliated directors considered the NYSE’s Shareholder Approval Policy in approving the dividend, NAI believed that the proposed dividend (which was not conditioned on stockholder approval) raised serious issues under that NYSE Policy.

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Trademarks in Entrepreneurial Finance

Posted by Thomas J. Chemmanur (Boston College), Harshit Rajaiya (Boston College), Xuan Tian (Tsinghua University), Qianqian Yu (Lehigh University), on
Wednesday, October 24, 2018
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Thomas Chemmanur is a Professor at the Boston College Carroll School of Management. This post is based on a recent paper by Professor Chemmanur; Harshit Rajaiya, Ph.D. candidate at the Boston College Carroll School of Management; Xuan Tian, JD Capital Chair Professor of Finance at Tsinghua University PBC School of Finance; and Qianqian Yu, Professor of Finance at Lehigh University.

Trademarks are an important determinant of the economic value created by firms. A trademark is a word, symbol, or other signifier used to distinguish a good or service produced by one firm from the goods or services of other firms. Firms use trademarks to differentiate their products from those of other firms, reduce search costs for consumers, and to generate consumer loyalty through advertising, all of which may affect their product market performance and therefore their financial performance. However, despite the importance of trademarks for the economic activities of firms, there is a relatively little evidence on the role played by trademarks in entrepreneurial finance: i.e., in the financing, performance, and valuation of young firms at various stages in their life. One exception is Block, De Vries, Schumann, and Sandner (2014), who investigate the relation between the number of trademark applications by VC-backed start-up firms and the valuations of these start-up firms by VCs.

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