Monthly Archives: October 2018

Lessons From the CBS-NAI Dispute: The Applicability of Rule 14c-2 and the 20-day Waiting Period to Stockholder Actions by Written Consent

Posted by Victor Lewkow, Paul M. Tiger, and Gloria B. Ho, Cleary Gottlieb Steen & Hamilton LLP, on
Monday, October 15, 2018
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Victor Lewkow 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, 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 Independent Directors and Controlling Shareholders by Lucian Bebchuk and Assaf Hamdani (discussed on the Forum here) and The Untenable Case for Perpetual Dual-Class Stock (discussed on the Forum here). 

Introduction

  • National Amusements, Inc. (“NAI”) owns approximately 80% of the voting shares of CBS Corporation and Viacom Inc., and in early 2018, NAI proposed that CBS and Viacom consider a merger. Each of the boards of CBS and Viacom formed a special committee of independent directors unaffiliated with NAI to consider and potentially negotiate such a merger. [1]
  • On Sunday, May 13, 2018, the CBS special committee met and took steps:
    • to call a special meeting of the full CBS board on May 17 to consider and vote on 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—very substantially—NAI’s voting interest in CBS; and
    • to commence litigation against NAI in the Chancery Court of Delaware seeking approval of the proposed dilutive dividend and moving for a temporary restraining order to block NAI from taking certain steps as the controlling stockholder of CBS, including any actions prior to the special board meeting that would interfere with the proposed dilutive dividend.

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The Twilight of Enhanced Scrutiny in Delaware M&A Jurisprudence

Posted by Iman Anabtawi (UCLA), on
Monday, October 15, 2018
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Iman Anabtawi is Professor of Law at UCLA School of Law. This post is based on a recent article by Professor Anabtawi, forthcoming in the Delaware Journal of Corporate Law,  and is part of the Delaware law series; links to other posts in the series are available here.

In Corwin v. KKR Fin. Holdings LLC, the Delaware Supreme Court held that shareholder ratification—in the form of a disinterested, fully informed, uncoerced stockholder vote—in favor of a merger or sale that would otherwise trigger enhanced scrutiny gives rise to the business judgment rule standard of review with respect to post-closing money damages claims for director breaches of fiduciary. Under this standard, the directors’ actions lead to liability only if they constitute corporate waste. It does not matter whether the stockholder vote was required by statute or was sought voluntarily by the board. Nor does it matter whether board approval of the transaction was independent and disinterested.

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How Common is a Female CEO-CFO Duo?

Posted by Megan Von Duhn, Equilar, Inc., on
Monday, October 15, 2018
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Megan Von Duhn is a Senior Research Analyst at Equilar, Inc. This post is based on an Equilar memorandum by Ms. Von Duhn.

General Motors (GM) recently appointed Dhivya Suryadevara as its Chief Financial Officer, effective September 1st. The news made many headlines because, in a position that has long been dominated by men, Suryadevara will be the first female CFO at GM. She joins GM’s current female Chief Executive Officer Mary T. Barra, putting General Motors at the forefront of companies with women currently sitting in both the CEO and CFO positions.

A woman joining the ranks of the C-suite is generally highly publicized. Additionally, a number of women in C-suite positions are quite high-profile, such as Meg Whitman and Ursula Burns. Whitman is famous for turning eBay into a billion dollar company when she served as CEO. Burns, on the other hand, made strides becoming the first African-American female CEO at Xerox—a Fortune 500 company. A female CEO and CFO tandem in these highly sought-after positions may seem unlikely at times. Highly sought after C-suite positions are—and have historically been—dominated by men. Equilar conducted a study to look at the gender make-up of the CEO and CFO positions at Equilar 500 companies in recent years.

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Shareholder Activism: 1H 2018 Developments and Practice Points

Posted by Gail Weinstein, Warren S. de Wied, and Philip Richter, Fried, Frank, Harris, Shriver & Jacobson LLP, on
Sunday, October 14, 2018
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Gail Weinstein is senior counsel, and Warren S. de Wied and Philip Richter are partners at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Ms. Weinstein, Mr. de Wied, and Mr. Richter. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here); Dancing with Activists by Lucian Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch (discussed on the Forum here); and Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System by Leo E. Strine, Jr. (discussed on the Forum here).

1H 2018 Developments

(Our data is derived from SharkRepellent and other publicly available sources and reflects global campaigns against US and foreign companies with a market capitalization of more than $500 million.)

There was a resurgence in activist campaigns in 1H 2018, after a decrease in 2016-2017.

The number of public activist campaigns increased sharply in 1H 2018, following a slowing trend in 2016 and 2017 as compared to 2014 and 2015. There were roughly 150 campaigns globally in 1H 2018, up from about 100 in 1H 2017 (and close to 200 in all of 2017). Total assets under management by funds engaged in activism grew slightly in 2017 (but remained below the record highs in 2015 and meaningfully lagged the growth in assets under management in hedge funds overall).

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The CEO Pay Ratio: Data and Perspectives from the 2018 Proxy Season

Posted by Deb Lifshey, Pearl Meyer & Partners, LLC., on
Sunday, October 14, 2018
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Deb Lifshey is managing director at Pearl Meyer & Partners, LLC. This post is based on a Pearl Meyer memorandum by Ms. Lifshey. Related research from the Program on Corporate Governance includes The CEO Pay Slice by Lucian Bebchuk, Martijn Cremers and Urs Peyer (discussed on the Forum here).

It is hard to believe that eight years have passed since the enactment of the Dodd-Frank Act (“DFA”) and its many rules intended to regulate executive compensation. Among the most controversial of these rules is the requirement for public filers to disclose in their annual proxy statements the CEO’s total annual compensation, the total annual compensation of the median employee of the organization, and the ratio between the two, which has become known as the “CEO Pay Ratio.”

In the years since the DFA’s introduction, there have been hotly debated proposals, lobbying efforts, thousands of public comments, and numerous rounds of US Securities and Exchange Commission (SEC) interpretations, after which the rules finally became effective for proxies filed in 2018. Now, for the first time, we have information not only with respect to CEO pay (which was already disclosed in proxy statements), but about median employee pay.

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Opening Statement at the SEC Open Meeting

Posted by Jay Clayton, U.S. Securities and Exchange Commission, on
Saturday, October 13, 2018
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Jay Clayton is Chairman of the U.S. Securities and Exchange Commission. This post is based on Chairman Clayton’s recent remarks at an open meeting of the SEC, available here. The views expressed in this post are those of Mr. Clayton and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

Good afternoon. This is an open meeting of the U.S. Securities and Exchange Commission, under the Government in the Sunshine Act.

I would like to start by welcoming Commissioner Elad Roisman to his first open meeting as a commissioner.

The first and only item on the agenda today is a recommendation from the Division of Trading and Markets. The Division is recommending that the Commission reopen the comment period and request additional comment regarding the proposed rules and amendments for capital, margin, and segregation requirements for security-based swap dealers (“SBSDs”) and major security-based swap participants, and capital requirements for broker-dealers.

The SEC has finalized many, but not all, of the Title VII rules that Congress directed us to establish. As we seek to complete the remaining Title VII rules, this comment period re-opening will provide the public with another opportunity to comment on several important proposals. The Commission originally proposed the security-based swap capital, margin, and segregation rules in 2012. We then proposed provisions to establish the cross-border treatment of these requirements in 2013, and then proposed an additional nonbank SBSD capital requirement in 2014. [1]

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Statement on Commission Action Regarding Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants and Capital Requirements for Broker-Dealers

Posted by Kara M. Stein, U.S. Securities and Exchange Commission, on
Saturday, October 13, 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 an open meeting of the SEC, 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.

I want to join the Chairman in thanking the staff for the hard work that went into this release. In particular, I would like to thank Mike Macchiaroli, Tom McGowan, Randall Roy, Ray Lombardo, Sheila Swartz, Tim Fox, and Valentina Deng from the Division of Trading and Markets.

Ten years ago, the U.S. government pledged $180 billion to rescue American International Group (AIG). [1] AIG was brought to its knees by credit default swaps trading, and in particular, by its failure to adequately determine and account for the risk of its positions. To most people, these financial products, credit default swaps, are complex and mysterious.

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Statement at Open Meeting on Re-Opening Comment Period for Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap

Posted by Hester M. Peirce, U.S. Securities and Exchange Commission, on
Saturday, October 13, 2018
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Hester M. Peirce is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on her recent remarks at an open meeting of the SEC, available here. The views expressed in this post are those of Ms. Peirce and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

Thank you, Brett, for your presentation. And I would like to express my thanks to all of the staff who worked on this release.

I am happy to see this recommendation come before the Commission for our consideration. In 2013, the Commission explained that it would implement the Title VII regulatory framework in stages, starting with the requirements relating to the registration and regulation of security-based swap dealers and major security-based swap participants, [1] before moving on to requirements relating to regulatory reporting and public dissemination of security-based swap transaction data, clearing, and trade execution. We still have three rules to finalize before market participants must comply with the dealer requirements and the regulatory reporting and public dissemination requirements: These prerequisites are Rule 194; books and records requirements for dealers; and capital, margin, and segregation requirements for dealers. The staff today is recommending that we reopen the comment period and solicit additional comment with respect to the last of these three prerequisites.

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SEC Sanctions Investment Firm for Inadequate Cybersecurity and Identity Theft Prevention Policies

Posted by Sabastian V. Niles, Marshall L. Miller, and Jeohn Salone Favors, Wachtell, Lipton, Rosen & Katz , on
Friday, October 12, 2018
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Sabastian V. Niles is partner, Marshall L. Miller is of counsel, and Jeohn Salone Favors is an associate at Wachtell, Lipton, Rosen & Katz. This post is based on their Wachtell Lipton memorandum.

[On September 26, 2018], the Securities and Exchange Commission announced that it had settled charges against an Iowa-based broker-dealer and investment adviser stemming from an April 2016 data breach that compromised at least 5,600 customer accounts. The SEC’s cease-and-desist order charges that the firm had deficient cybersecurity and identity theft prevention programs, in violation of the SEC’s Safeguards Rule (Reg S-P) and Identity Theft Red Flags Rule (Reg S-ID), which require registered investment advisers and broker-dealers to adopt reasonably designed policies to protect customer information and detect, prevent, and mitigate identity theft. Although the SEC has previously enforced the Safeguards Rule (see our June 2016 memo), this is the SEC’s first enforcement action involving the Identify Theft Red Flags Rule. The SEC viewed positively post-breach remedial actions taken by the company, and the matter was settled for a $1 million penalty and retention of an independent compliance consultant.

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Were Reports on the Demise of the Universal Proxy Premature?

Posted by Cydney Posner, Cooley LLP, on
Friday, October 12, 2018
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Cydney S. Posner is special counsel at Cooley LLP. This post is based on a Cooley memorandum by Ms. Posner. Related research from the Program on Corporate Governance includes Universal Proxies by Scott Hirst (discussed on the Forum here).

The specter of the possible imposition of mandatory universal proxy has long been with us. The SEC apparently considered requiring universal proxies back in 1992 and, in 2014, the Council of Institutional Investors filed a rulemaking petition asking the SEC to reform the proxy rules to facilitate the use of universal proxies in proxy contests. Then, in 2016, the SEC proposed amendments to the proxy rules that would have mandated the use of universal proxy cards in contested elections. And there it sat. With the change of administrations in the White House, followed by the change of administrations at the SEC, the proposal for universal proxy fell off the SEC’s near-term agenda and was relegated to the long-term agenda. Moreover, disfavored by House Republicans, universal proxy would have been prohibited by various bills, including the Financial Choice Act of 2017 (which passed the House but not the Senate). (See this PubCo post.) Then, in July of this year, “several people familiar with the matter” advised Reuters that SEC Chair Jay Clayton “has in fact shelved the proposal.” (See this PubCo post.) The specter of mandatory universal proxy had been transfigured into more of a spectral presence.

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