Yearly Archives: 2018

New Ruling on the Fujifilm-Xerox Transaction

Posted by Andrew Stern and Kai Haakon E. Liekefett, Sidley Austin LLP, on
Tuesday, October 30, 2018
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Andrew Stern and Kai Haakon E. Liekefett are partners at Sidley Austin LLP. This post is based on their Sidley memorandum.

On October 16, 2018, the New York Appellate Division reversed an injunction that had stalled Fujifilm’s $6.1 billion transaction with Xerox for nearly five months and a completely dismissed all related claims against Fujifilm. The court’s decision in In re Xerox Corporation Consolidated Shareholder Litigation and Deason v. Fujifilm Holdings Corp. reaffirms the longstanding rule that a plaintiff must establish that a majority of the directors on a corporate board is interested or lacks independence with respect to a decision in order to rebut the business judgment rule.

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Public Sentiment and the Price of Corporate Sustainability

Posted by George Serafeim (Harvard Business School), on
Tuesday, October 30, 2018
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George Serafeim is Professor of Business Administration at Harvard Business School. This post is based on a recent paper authored by Professor Serafeim. 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) and Social Responsibility Resolutions by Scott Hirst (discussed on the Forum here).

News about firms’ impact on society is an everyday phenomenon. In this paper, I analyze how public sentiment influences the market pricing of firms’ sustainability activities and thereby the future stock returns of portfolios that integrate ESG data. This is the first paper that combines analyst driven ESG ratings from MSCI with big ESG data from machine learning and artificial intelligence from TruValue Labs.

Thousands of companies are investing resources to reduce energy consumption, waste and carbon emissions and to provide products that improve environmental and social outcomes. For example, developments in healthy nutrition, access to wellbeing services, low carbon transportation, and green buildings have provided billions in revenues for companies that developed products for these markets (Generation Investment Management 2017). Similarly, companies spend significant resources to improve employee safety and well-being and to conduct business with integrity avoiding corruption. These activities, typically referred by companies as corporate sustainability activities, are under the supervision of a Chief Sustainability Officer and are disclosed in sustainability reports (Miller and Serafeim 2015). The data from sustainability reports and other sources that might also reflect controversies around human rights, pollution, discrimination and corruption, are collected by data providers and form the basis of measures of company’s performance on environmental, social and governance (ESG) issues.

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Commonsense Principles 2.0: A Blueprint for U.S. Corporate Governance?

Posted by Aabha Sharma and Howard Dicker, Weil, Gotshal & Manges LLP, on
Tuesday, October 30, 2018
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Aabha Sharma is an associate and Howard Dicker is a partner at Weil, Gotshal & Manges LLP. This post is based on their Weil memorandum.

On October 18, 2018, over twenty prominent executives, representing some of America’s largest corporations, pension funds and investment firms, came together to sign Commonsense Principles 2.0. The signatories include, among other noteworthy individuals, Warren Buffett, Jamie Dimon and Larry Fink. [1] In an open letter, the signatories make “a commitment to apply the Commonsense Principles 2.0 in our businesses” and “hope others will do so as well.” Moreover, while recognizing that there is significant variation among public companies, and that not every principle will be applied in the same manner, the signatories expressed their intent to use the principles to guide their thinking, and encouraged others to do the same. [2]

The Commonsense Principles 2.0 are an updated version of the Commonsense Corporate Governance Principles launched in July 2016. A text comparison of the two versions is available here. While many of the recommendations have remained the same, there are significant changes as well, including in the areas of director elections, shareholder engagement, shareholder rights and the role and responsibilities of investors, including in the proxy voting process. Moreover, the updated principles are not only intended for public companies and their boards of directors, but also for their institutional shareholders—both asset managers and asset owners. Key recommendations from the Commonsense Principles 2.0 (many of which are the same as in the 2016 principles) are as follows:

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Lessons from the CBS-NAI Dispute, Part IV: A Temporary Restraining Order Against the Controlling Stockholder?

Posted by Meredith E. Kotler & Mark E. McDonald, Cleary Gottlieb Steen & Hamilton LLP, on
Monday, October 29, 2018
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Meredith E. Kotler is a partner and Mark E. McDonald is an associate at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary memorandum by Ms. Kotler and Mr. McDonald 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).

This is the fourth in a series of posts discussing certain issues and lessons for practitioners arising out of the recently settled dispute between CBS and its controlling stockholder. [1] Relevant background can be found here and additional posts in this series can be found here and here.

In the first week of the CBS-NAI litigation, the Court of Chancery denied CBS’s request for a temporary restraining order (“TRO”), which would have prevented NAI from exercising its rights as a controlling stockholder to protect its voting control before the CBS board could meet and vote on a proposed stock dividend to dilute such voting control. [2]  In so ruling, the Court of Chancery resolved an “apparent tension” in the law between, on the one hand, past decisions suggesting the possibility that a board might be justified in diluting a controlling stockholder in extraordinary circumstances (arguably implying that, in such circumstances, the board should be permitted to act without interference by the controlling stockholder) and, on the other hand, cases recognizing the right of a controlling stockholder to have the opportunity to take action to avoid being disenfranchised.  The court found the well-established right of a controlling stockholder to take measures to protect its voting control “weigh[ed] heavily” against granting a TRO that would restrain it from doing so, and that “truly extraordinary circumstances” would therefore be required to support such a TRO. At the same time, the court noted that it had the power to review and, if necessary, “set aside” any such action taken by the controlling stockholder after the fact (itself another reason why a TRO in these circumstances was not warranted).

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Public or Private Venture Capital?

Posted by Darian M. Ibrahim (William & Mary), on
Monday, October 29, 2018
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Darian M. Ibrahim is Professor of Law at the William & Mary Law School. This post is based on a recent paper authored by Professor Ibrahim.

In the United States, high-growth startups raise funds privately from angel investors and venture capital funds (VCs). Other countries, without the robust supply of angel and VC funding found in the U.S., have resorted to public markets to supply startups with venture capital. These junior stock exchanges, or public venture capital, have not been successful at replicating the U.S. private venture capital success, however.

Three of the most notable attempts at public venture capital have been London’s Alternative Investment Market (AIM), Germany’s Neuer Markt (NM), and Hong Kong’s Growth Enterprise Market (GEM). While other countries have also attempted to establish public venture capital, the AIM, NM, and GEM are the most notable efforts. They also offer differing approaches to regulation and outcomes, making for fruitful academic study. Further, the AIM, NM, and GEMs’ small size and express intention to supply growth capital to startups makes these junior stock exchanges the apt comparison to Silicon Valley, not the Nasdaq, though they were initially touted as a rival to the latter.

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Amended NASDAQ Rules for Shareholder Approval

Posted by Ade Heyliger and Andrew Holt, Weil, Gotshal & Manges LLP, on
Monday, October 29, 2018
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Ade Heyliger is a partner and Andrew Holt is an associate at Weil, Gotshal & Manges LLP. This post is based on their Weil memorandum.

Nasdaq recently amended the price tests under Nasdaq Rule 5635(d)—the shareholder approval rule often applied in PIPE (private investments in public equity) transactions and certain other private offerings (including private offerings of securities convertible into or exercisable for common stock). The amended Rule, according to Nasdaq, will provide greater flexibility and certainty for Nasdaq-listed companies entering into such transactions without the need to obtain shareholder approval.

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2018 Canadian Proxy Season Review

Posted by Wes Hall, Amy Freedman, and Ian Robertson, Kingsdale Advisors, on
Sunday, October 28, 2018
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Wes Hall is Executive Chairman and Founder, Amy Freedman is Chief Executive Officer, and Ian Robertson is Executive Vice President of Communication Strategy at Kingsdale Advisors. This post is based on a their Kingsdale memorandum. 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).

Throughout the years, we’ve seen a large increase in the number of public proxy contests in Canada, from six in 2003 to a peak of 55 in 2015. While we likely won’t reach 2015 numbers, 2018 is on pace to be another eventful year.

Year-to-date activity has exceeded last year’s figures: this time last year, there were 21 public proxy contests, increasing to 32 by year-end. Comparatively, there have already been 29 proxy fights in 2018, and new battles continue to surface daily.

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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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