Yearly Archives: 2018

Women in the Boardroom and Cultural Beliefs about Gender Roles

Posted by R. David McLean (Georgetown University), Christo A. Pirinsky (University of Central Florida), and Mengxin Zhao (U.S. Securities and Exchange Commission), on

Monday, November 19, 2018

Board composition, Boards of Directors, Corporate culture, Diversity, International governance, Labor markets, Management, Manager characteristics
More from: Christo Pirinsky, David McLean, Mengxin Zhao

David McLean is Associate Professor of Finance and Anderson Faculty Fellow at the McDonough School of Business at Georgetown University; Christo A. Pirinsky is an Associate Professor at the Department of Finance of the UCF College of Business; and Mengxin Zhao is a Financial Economist at the U.S. Securities and Exchange Commission. This post is based on their recent paper.

In our study, we ask whether cultural beliefs about gender roles can help explain variation in the representation (or lack thereof) of women in corporate leadership roles. Female corporate leadership varies a good deal across firms, both internationally, and in the U.S. As examples, during the period 2000-2016, in an international sample of 42 countries, on average 9.2% of corporate board members are female (excluding country-years that require female board membership), while the 25^th and 75^th percentiles are 0% and 17%. Similar effects exist within the U.S, where on average 10.2% of corporate board members are female, and the 25^th and 75^th percentiles are 0% and 16.7%. In this paper, we ask whether some of this variation can be explained by regional differences in cultural beliefs towards the role of women in society.

We measure cultural beliefs about gender roles using two country-level surveys conducted by the University of Michigan (The World Values Survey) and Hofstede (1980). We create a comprehensive country-level gender-egalitarian index that is based on the standardized values of the two surveys, and test whether it explains variation in female corporate leadership.

Implementing Internal Controls in Cyberspace—Old Wine, New Skins

Posted by Keith Higgins and Marvin Tagaban, Ropes & Gray LLP, on

Monday, November 19, 2018

Accounting, Cybersecurity, Internal auditors, Risk, Risk oversight, SEC, SEC enforcement, Securities enforcement, Securities regulation
More from: Keith Higgins, Marvin Tagaban, Ropes & Gray

Keith Higgins is chair of the securities and governance practice and Marvin Tagaban is an associate at Ropes & Gray LLP. This post is based on their Ropes & Gray memorandum.

On October 16, 2018, the SEC issued a Section 21(a) investigative report (the “Report”), [1] cautioning public companies to consider cyber threats when designing and implementing internal accounting controls. The Report arose out of an investigation focused on the internal accounting controls of nine public companies that were victims of “business email compromises” in which perpetrators posed as company executives or vendors and used emails to dupe company personnel into sending large sums to bank accounts controlled by the perpetrators. In the investigation, the SEC considered whether the companies had complied with the internal accounting controls provisions of the federal securities laws. Although the Report is in lieu of an enforcement action against any of the issuers, the SEC issued the Report to draw attention to the prevalence of these cyber-related scams and as a reminder that all public companies should consider cyber-related threats when devising and maintaining a system of internal accounting controls.

A Brief Survey of Environmental, Social, and Governance Disclosure in Canada

Posted by Ravipal S. Bains, McMillan LLP, on

Sunday, November 18, 2018

Accounting standards, Canada, Disclosure, Environmental disclosure, ESG, Institutional Investors, International governance, Securities regulation, Sustainability
More from: Ravipal Bains, McMillan

Ravipal S. Bains is an associate at McMillan LLP. This post is based on a McMillan memorandum by Mr. Bains. Related research from the Program on Corporate Governance includes Socially Responsible Firms by Alan Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here).

Regulators, investors, and other stakeholders have increased their expectations of board oversight and disclosure on environmental, social and governance (ESG) matters.
Quality of ESG disclosure will be a factor in recommendations by proxy advisory firms.
Enhancing ESG disclosure (particularly, climate-related risks) should be a management priority.

As 2018 draws to a close, certain recent developments, including new policy prescriptions from regulators, guidance from stakeholders, and adoption of environmental accounting frameworks, call for a review of the landscape of environmental, social, and governance (ESG) disclosure in Canada. Management and boards should also tailor future efforts to address these developments and this post offers certain suggestions to do so.

Drafting Considerations from the MAC Decision

Posted by Gail Weinstein, Steven Epstein, Matthew V. Soran, and Fried, Frank, Harris, Shriver & Jacobson LLP, on

Sunday, November 18, 2018

Acquisition agreements, Compliance and disclosure interpretation, Contracts, Covenants, Delaware cases, Delaware law, Materiality, Merger litigation, Mergers & acquisitions
More from: Andrew Colosimo, David Shaw, Gail Weinstein, Matthew Soran, Robert Schwenkel, Steven Epstein, Fried Frank

Gail Weinstein is senior counsel, and Steven Epstein and Matthew V. Soran are partners at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Ms. Weinstein, Mr. Epstein, Mr. Soran, Robert C. Schwenkel, David L. Shaw, and Andrew J. Colosimo, 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 Allocating Risk Through Contract: Evidence from M&A and Policy Implications (discussed on the Forum here) and M&A Contracts: Purposes, Types, Regulation, and Patterns of Practice, both by John C. Coates, IV.

In Akorn v. Fresenius (Oct. 1, 2018), the Delaware Court of Chancery found for the first time ever that a target company had suffered a “material adverse effect” (MAC) between the signing and closing of a merger agreement, which entitled the acquiror to terminate the agreement. The 246-page opinion by Vice Chancellor Laster also serves essentially as a primer on how the court may interpret certain standard provisions in merger agreements and in corporate contracts generally.

Below, we provide (i) a summary of Key Points relating to the decision; (ii) a summary of the factual background and the court’s holdings; and (iii) a review of the court’s discussion of various agreement provisions. We also offer practice points, including specific drafting considerations, that arise from the opinion. We note that the decision is being appealed, thus further explication of these issues may follow.

Reforming the Community Reinvestment Act Regulatory Framework

Posted by Gregory W. Meeks, U.S. House of Representatives, on

Saturday, November 17, 2018

Banks, Capital formation, Community Reinvestment Act, Credit supply, Financial institutions, Financial regulation, OCC, Small firms, US House
More from: Gregory Meeks

Gregory W. Meeks is U.S. Representative (D-NY). This post is based on a recent comment letter addressed to Comptroller Joseph M. Otting (Office of the Comptroller of the Currency) authored by Congressman Meeks and joined by his New Democrat Coalition colleagues who serve on the House Committee on Financial Services.

The undersigned Members of Congress serve on the House Committee on Financial Services and are part of the New Democrat Coalition, an organization of forward-thinking Democrats who are committed to pro-economic growth and pro-innovation policies supporting Main Street workers and entrepreneurs.

We recognize the Community Reinvestment Act’s (“CRA”) regulatory framework is due for modernization and we conceptually support the federal banking regulators undertaking a reform effort to update and improve consistency in CRA examination, crediting, and remedial standards. Nonetheless, we encourage the Office of the Comptroller of the Currency (“OCC”) to incorporate the principles below to strengthen banks’ affirmative obligation to meet the credit needs of their communities in a safe and sound way, including the needs of financial consumers and small business entrepreneurs located in low- and moderate-income (“LMI”) communities.

MFW’s “Ab Initio” Requirements for Business Judgement Rule Review

Posted by Joshua Apfelroth, Jason Halper, and William Mills, Cadwalader, Wickersham & Taft LLP, on

Saturday, November 17, 2018

Boards of Directors, Business judgment rule, Class actions, Conflicts of interest, Controlling shareholders, Delaware cases, Delaware law, Duty of care, Going private, MFW, Securities regulation, Special committees
More from: Chelsea Donafeld, Jason Halper, Joshua Apfelroth, William Mills, Cadwalader

Joshua Apfelroth, Jason Halper, and William Mills are partners at Cadwalader, Wickersham & Taft LLP. This post is based on a Cadwalader memorandum by Mr. Apfelroth, Mr. Halper, Mr. Mills, and Chelsea Donafeld. 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); Adverse Selection and Gains to Controllers in Corporate Freezeouts by Lucian Bebchuk and Marcel Kahan; and The Effect of Delaware Doctrine on Freezeout Structure and Outcomes: Evidence on the Unified Approach by Fernan Restrepo and Guhan Subramanian (discussed on the Forum here).

In Flood v. Synutra Int’l Inc., the Delaware Supreme Court clarified its holding in Kahn v. M&F Worldwide Corp. (“MFW”). In MFW, the Court held that the business judgment rule—rather than the entire fairness standard—applies to a controlling stockholder transaction if such transaction is conditioned “ab initio,” or at the beginning, upon approval of both an independent special committee of directors and the informed vote of a majority of the minority stockholders (the “MFW Conditions”). At issue in Flood was whether the Court of Chancery properly applied the business judgment rule to a controlling stockholder acquisition of Synutra International even though the controlling stockholder did not include the MFW Conditions in its initial proposal to acquire Synutra, but instead included such conditions in a follow-up letter sent two weeks later. Chief Justice Strine, writing for the majority, affirmed the Delaware Court of Chancery’s decision, which held that the MFW Conditions need not be included in the controlling stockholder’s initial expression of interest for the transaction to be afforded business judgment protection; instead, business judgment protection will be afforded so long as the MFW Conditions are in place before any substantive economic negotiations occur between the special committee, the board of directors and the controlling stockholder.

The Perils of Dell’s Low-Voting Stock

Posted by Lucian A. Bebchuk (Harvard Law School) and Kobi Kastiel (Tel Aviv University), on

Friday, November 16, 2018

Agency costs, Charter & bylaws, Controlling shareholders, Dell, Dual-class stock, Entrenchment, IPOs, Long-Term value, Management, Minority shareholders, Ownership structure, Public firms, Risk, Shareholder power, Shareholder value
More from: Kobi Kastiel, Lucian Bebchuk

Lucian Bebchuk is the James Barr Ames Professor of Law, Economics, and Finance and Director of the Program on Corporate Governance, Harvard Law School. Kobi Kastiel is Assistant Professor of Law at Tel Aviv University, and Senior Fellow at Harvard Law School Program on Corporate Governance. This post is based on their recent paper, The Perils of Dell’s Low-Voting Stock. The paper is part of the work of the Research Project on Controlling Shareholders of the Harvard Law School Program on Corporate Governance. The Project’s related work includes The Untenable Case for Perpetual Dual-Class Stock (discussed on the Forum here), and The Perils of Small-Minority Controllers (discussed on the Forum here), both by Lucian Bebchuk and Kobi Kastiel.

Dell Technologies Inc. (“Dell”) is planning a “backdoor-IPO” transaction that would bring it back to the public market with a multiclass structure. In a short paper we recently placed on SSRN, The Perils of Dell’s Low-Voting Stock, we identify and analyze three governance risks and costs that Dell’s IPO structure would create for public investors holding Dell’s low-voting stock:

Lifetime entrenchment of Michael Dell (“MD”): He would be able to retain control indefinitely even after he ceases to be a fitting leader and even if he becomes disabled or incompetent.
Small-minority controller: Although MD would initially hold a majority of the equity capital, Dell’s structure would enable him to unload most of his shares and still retain control even with a small equity stake, and his status as small-minority controller would be expected to produce substantial governance risks and costs.
Midstream changes: Dell’s governance structure would enable MD to adopt subsequent changes in governance arrangements, without any support from public investors, which would increase Dell’s governance risks beyond the risks associated with a small-minority controller.

Each of these governance risks can be expected to both (i) decrease the expected future value of Dell by increasing agency costs and distortions, and (ii) increase the discount to a per-share value of Dell at which low-voting shares of Dell can be expected to trade. Both types of effects would operate to reduce the value at which the low-voting shares of public investors would trade and therefore should be taken into account in assessing the risks to such investors posed by Dell’s planned structure.

Below is a more detailed account of our analysis:

The Proxy Process Roundtable

Posted by Elad L. Roisman, U.S. Securities and Exchange Commission, on

Friday, November 16, 2018

Disclosure, Fund managers, Glass Lewis, Index funds, Institutional Investors, ISS, Proxy advisors, Proxy voting, SEC, Securities regulation, Shareholder proposals, Shareholder voting
More from: Elad Roisman, U.S. Securities and Exchange Commission

Elad L. Roisman is a Commissioner at the U.S. Securities and Exchange Commission. The following post is based on Commissioner Roisman’s recent remarks at the Proxy Process Roundtable, available here. The views expressed in the post are those of Mr. Roisman and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Good morning and thank you to the Divisions of Corporation Finance and Investment Management for organizing this roundtable. I hope that everyone here will take this opportunity to engage in a thoughtful, meaningful discussion on the proxy process. If the process were perfect, we would not be here today [Nov. 15, 2018]. The topics on the agenda have the tendency to get emotional. Trust me, we know where most, if not all, of you stand on the issues. You have a platform today and I hope you use it to provide us with specific examples, data, and facts rather than generalities or anecdotes. With the knowledge you gather today, you can then submit data to the comment file based on these discussions. We look forward to these submissions and your suggestions on how the SEC can make changes to improve the process.

Weekly Roundup: November 9-15, 2018

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

Friday, November 16, 2018

Weekly Roundup
More from:

This roundup contains a collection of the posts published on the Forum during the week of November 9–15, 2018.

Emerging Practice in Long-Term Plans

Posted by Brian Tomlinson, CECP, on Friday, November 9, 2018

Tags: Board monitoring, Capital allocation, Disclosure, Engagement, ESG, Human capital, Information asymmetries, Information environment, Long-Term value, Management, Risk management, Shareholder value, Short-termism, Stakeholders

Glass Lewis’ Shareholder Initiative Guidelines

Posted by Courteney Keatinge, Glass, Lewis & Co., on Friday, November 9, 2018

Tags: Clawbacks, Disclosure, Diversity, Environmental disclosure, ESG, Executive Compensation, Glass Lewis, Materiality, Proxy advisors, Risk oversight, Shareholder proposals, Shareholder voting, Written consent

Decoding Quant ESG

Posted by Mike Chen, George Mussalli, and Yosef Zweibach, PanAgora Asset Management, Inc., on Saturday, November 10, 2018

Tags: Asset management, Corporate Social Responsibility, Disclosure, Environmental disclosure, ESG, Impact investing, Investment banking, Profitability, Risk, Shareholder value, Sustainability

The Limits of Mutual Fund Obligation to Shareholders

Posted by Robert Skinner and Amy Roy, Ropes & Gray LLP, on Sunday, November 11, 2018

Tags: Contracts, Disclosure, Mutual funds, Securities litigation, Securities regulation, Shareholder suits, U.S. federal courts

Investment Bank Liability for M&A Services

Posted by Arthur H. Rosenbloom (Consilium ADR) and Gilbert E. Matthews (Sutter Securities), on Monday, November 12, 2018

Tags: Banks, Boards of Directors, Delaware articles, Delaware law, Fiduciary duties, Financial institutions, Investment banking, Liability standards, Merger litigation, Mergers & acquisitions

Asking the Right Question: The Statutory Right of Appraisal and Efficient Markets

Posted by Jonathan R. Macey (Yale Law School) and Joshua Mitts (Columbia Law School), on Monday, November 12, 2018

Tags: Accounting, Acquisition agreements, Appraisal rights, Arbitrage, Bidders, Fair values, Market efficiency, Merger litigation, Mergers & acquisitions, Shareholder suits, Target firms

The SEC’s New Shareholder Proposal Guidance

Posted by Brian Breheny, Marc Gerber, and Richard Grossman, Skadden, Arps, Slate, Meagher & Flom LLP , on Monday, November 12, 2018

Tags: Boards of Directors, Director compensation, Executive Compensation, No-action letters, Rule 14a-8, SEC, Securities regulation, Shareholder proposals, Shareholder voting, SLB 14J

Lessons from the CBS-NAI Dispute, Part V: “Independent” Directors at Controlled Corporations

Posted by Victor Lewkow, Christopher E. Austin, and Paul M. Tiger, Cleary Gottlieb Steen & Hamilton LLP, on Tuesday, November 13, 2018

Tags: Board independence, Boards of Directors, Conflicts of interest, Controlling shareholders, Delaware cases, Delaware law, DGCL, Listing standards, Management, NYSE, Securities litigation

Private Equity Indices Based on Secondary Market Transactions

Posted by Michael S. Weisbach (Ohio State University), on Tuesday, November 13, 2018

Tags: Buyouts, Capital markets, Fund performance, Institutional Investors, Private equity, Venture capital firms

The 2018 U.S. Spencer Stuart Board Index

Posted by Julie Hembrock Daum, Laurel McCarthy, and Erin Van Gessel, , on Tuesday, November 13, 2018

Tags: Board composition, Board performance, Board turnover, Boards of Directors, Director nominations, Director qualifications, Diversity, Risk management, Surveys

What the Tesla Settlement Means for Other Companies

Posted by Nick Grabar, David Lopez and Matthew C. Solomon, Cleary Gottlieb Steen & Hamilton LLP, on Wednesday, November 14, 2018

Tags: Compliance and disclosure interpretation, Disclosure, Elon Musk, Liability standards, Oversight, Regulation FD, Risk, SEC, SEC enforcement, Securities enforcement, Settlements, Social media, Tesla

CFO Pay Stagnancy

Posted by Hailey Robbers, Equilar, Inc., on Wednesday, November 14, 2018

Tags: CFOs, Equity-based compensation, Executive Compensation, Incentives, Pay for performance, Stock options, Tech companies

The Untenable Case for Keeping Investors in the Dark

Posted by Lucian Bebchuk (Harvard Law School), Robert J. Jackson, Jr. (U.S. Securities and Exchange Commission & NYU Law), James D. Nelson (University of Houston), and Roberto Tallarita (Harvard Law School), on Wednesday, November 14, 2018

Tags: Accountability, Citizens United v. FEC, Disclosure, Information environment, Institutional Investors, Political spending, Public firms, Rulemaking Petition on Corporate Political Spending, SEC, SEC rulemaking, Securities regulation, Shareholder rights, Transparency, Voluntary Disclosure

Lessons Learned from the CBS-NAI Dispute, Part VI: Board Access to Privileged Communications with Company Counsel

Posted by Victor L. Hou, Rahul Mukhi, and Jessica Thompson, Cleary Gottlieb Steen & Hamilton LLP, on Thursday, November 15, 2018

Tags: Attorney-client privilege, Board communication, Boards of Directors, Controlling shareholders, Delaware law, Dividends, Inside counsel, Securities litigation, Special committees

Audit Process, Private Information, and Insider Trading

Posted by Daniel Taylor (University of Pennsylvania), on Thursday, November 15, 2018

Tags: Audit trail, Audits, Financial reporting, Form 10-K, Incentives, Information environment, Inside information, Insider trading, PCAOB, SEC, Securities regulation

The Economic Relevance and Ordinary Business Exclusion for Shareholder Proposals

Posted by Cydney Posner, Cooley LLP, on Thursday, November 15, 2018

Tags: Boards of Directors, Director compensation, Executive Compensation, Management, No-action letters, Rule 14a-8, SEC, Securities regulation, Shareholder proposals, Shareholder voting, SLB 14J

The Economic Relevance and Ordinary Business Exclusion for Shareholder Proposals

Posted by Cydney Posner, Cooley LLP, on

Thursday, November 15, 2018

Boards of Directors, Director compensation, Executive Compensation, Management, No-action letters, Rule 14a-8, SEC, Securities regulation, Shareholder proposals, Shareholder voting, SLB 14J
More from: Cydney Posner, Cooley

Cydney S. Posner is special counsel at Cooley LLP. This post is based on a Cooley publication by Ms. Posner.

Corp Fin has just released a new staff legal bulletin on shareholder proposals—we’re up to 14J—that once again examines the exclusions under Rules 14a-8(i)(5), the “economic relevance” exception, and 14a-8(i)(7), the “ordinary business” exception. Notably, these rules were also the subject of SLB 14I. More specifically, the new SLB provides guidance with regard to the following:

the nature of the board analysis the staff would find most “helpful” in evaluating a no-action request to exclude a shareholder proposal,
“micromanagement” as a basis for exclusion under Rule 14a-8(i)(7) and
the application of Rule 14a-8(i)(7) to exclude proposals related to senior executive and/or director compensation matters.

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Yearly Archives: 2018

Women in the Boardroom and Cultural Beliefs about Gender Roles

Implementing Internal Controls in Cyberspace—Old Wine, New Skins

A Brief Survey of Environmental, Social, and Governance Disclosure in Canada

Drafting Considerations from the MAC Decision

Reforming the Community Reinvestment Act Regulatory Framework

MFW’s “Ab Initio” Requirements for Business Judgement Rule Review

The Perils of Dell’s Low-Voting Stock

The Proxy Process Roundtable

Weekly Roundup: November 9-15, 2018

Emerging Practice in Long-Term Plans

Glass Lewis’ Shareholder Initiative Guidelines

Decoding Quant ESG

The Limits of Mutual Fund Obligation to Shareholders

Investment Bank Liability for M&A Services

Asking the Right Question: The Statutory Right of Appraisal and Efficient Markets

The SEC’s New Shareholder Proposal Guidance

Lessons from the CBS-NAI Dispute, Part V: “Independent” Directors at Controlled Corporations

Private Equity Indices Based on Secondary Market Transactions

The 2018 U.S. Spencer Stuart Board Index

What the Tesla Settlement Means for Other Companies

CFO Pay Stagnancy

The Untenable Case for Keeping Investors in the Dark

Lessons Learned from the CBS-NAI Dispute, Part VI: Board Access to Privileged Communications with Company Counsel

Audit Process, Private Information, and Insider Trading

The Economic Relevance and Ordinary Business Exclusion for Shareholder Proposals

The Economic Relevance and Ordinary Business Exclusion for Shareholder Proposals

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