Yearly Archives: 2018

Complementary Macroprudential Regulation of Nonbank Entities and Activities

Posted by Jeremy Kress (University of Michigan), Patricia McCoy (Boston College), and Daniel Schwarcz (University of Minnesota), on
Thursday, September 13, 2018
, , , , , , ,
More from: , ,

Jeremy Kress is Assistant Professor of Business Law at the Stephen M. Ross School of Business at the University of Michigan; Patricia McCoy is the Liberty Mutual Insurance Professor of Law at Boston College Law School; and Daniel Schwarcz is Professor of Law at the University of Minnesota Law School. This post is based on their recent paper.

The 2008 financial crisis demonstrated unequivocally that nonbank financial firms such as investment banks and insurance companies can threaten the global economy. After the crisis, Congress created the Financial Stability Oversight Council (FSOC) to address emerging forms of nonbank systemic risk. Congress gave FSOC two powers to achieve this objective. The first, dubbed an entity-based approach, empowers FSOC to designate individual nonbank systemically important financial institutions (SIFIs) for macroprudential regulation by the Federal Reserve. The second, known as an activities-based approach, allows FSOC to recommend that federal regulators implement new rules governing specific financial activities to contain systemic risk.

READ MORE »

The Legality of Mandatory Arbitration Bylaws

Posted by Andrew Rhys Davies, Allen & Overy LLP, on
Thursday, September 13, 2018
, , , , , , , , ,
More from: ,

Andrew Rhys Davies is a partner at Allen & Overy LLP. This post is based on an Allen & Overy memorandum authored by Mr. Rhys Davies originally published in the New York Law Journal.

There has been renewed interest in whether the SEC should allow a U.S. company to conduct a registered initial public offering if its bylaws require shareholders to arbitrate federal securities claims. In April 2018, SEC Chair Jay Clayton said that resolving this knotty issue is not a priority for the Commission, but the Supreme Court’s May 2018 pro-arbitration decision in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), may embolden an IPO candidate to force the issue.

In Epic Systems, the Supreme Court held that the Federal Arbitration Act (FAA) requires a court to enforce an employment agreement that requires an employee to bring federal employment claims in a bilateral arbitration against the employer, and to dismiss a federal class action brought in violation of such an agreement. As the Supreme Court reaffirmed, a plaintiff faces a “stout uphill climb” to show that some other federal statute (in this case, the National Labor Relations Act) overrides the FAA and guarantees the right to litigate in court or to bring class claims in arbitration. Id. at 1264. Indeed, over the last thirty years, the Supreme Court has rejected “every” attempt to “conjure conflicts between the [FAA] and other federal statutes.” Id. at 1627 (emphasis in original).

READ MORE »

Citizens United as Bad Corporate Law

Posted by Jonathan R. Macey (Yale Law School) and Leo E. Strine, Jr. (Delaware Supreme Court and Harvard Law School), on
Wednesday, September 12, 2018
, , , , , ,
More from: ,

Jonathan R. Macey is the Sam Harris Professor of Corporate Law, Corporate Finance & Securities Law at Yale Law School; and Leo E. Strine, Jr. is Chief Justice of the Delaware Supreme Court, the Austin Wakeman Scott Lecturer on Law and a Senior Fellow of the Harvard Law School Program on Corporate Governance. This post is based on their recent paper. 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.

In our paper Citizens United as Bad Corporate Law, we show that Citizens United v. FEC, arguably the most important First Amendment case of the new millennium, is predicated on a fundamental misconception about the nature of the corporation. Specifically, Citizens United v. FEC (558 U.S. 310 (2010), which prohibited the government from restricting independent expenditures for corporate communications, and held that corporations enjoy the same free speech rights to engage in political spending as human citizens, is grounded on the erroneous theory that corporations are “associations of citizens” (See 558 U.S. 310 at 356) rather than what they actually are: independent legal entities distinct from those who own their stock.

READ MORE »

A Proposed Alternative to Corporate Governance and the Theory of Shareholder Primacy

Posted by John R. Ellerman and Ira T. Kay, Pay Governance LLC, on
Wednesday, September 12, 2018
, , , , , , , , , , ,
More from: , ,

John R. Ellerman is a partner and Ira T. Kay is a managing partner at Pay Governance LLC. This post is based on their Pay Governance memorandum.

On August 15, 2018, U.S. Senator Elizabeth Warren of Massachusetts introduced proposed legislation, the Accountable Capitalism Act, in the U.S. Senate. The legislation would require all U.S. corporations with $1 billion or more in annual revenues to obtain a federal charter as a “United States corporation” and would obligate corporate directors to consider the interests of all corporate stakeholders in their corporate governance activities. [1]

That same day, Senator Warren presented an opinion editorial in The Wall Street Journal citing her rationale. Senator Warren opines that shareholder primacy, a corporate governance concept, has shortchanged American workers since the early 1980s with wage stagnation (despite corporate productivity increasing over the same period). Senator Warren believes the proposed legislation will shift American companies to a “benefit corporation” governance model. This is where corporate directors will be required to consider all corporate stakeholders—employees, customers, shareholders, communities—in company decisions or be subject to the threat of shareholder suits. [2]

READ MORE »

State Law Implementation of The New Paradigm

Posted by Martin Lipton and Ryan A. McLeod, Wachtell, Lipton, Rosen & Katz, on
Tuesday, September 11, 2018
, , , , , , ,
More from: , ,

Martin Lipton is a founding partner, specializing in mergers and acquisitions and matters affecting corporate policy and strategy, and Ryan A. McLeod is a partner at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum authored by Mr. Lipton and Mr. McLeod.

With the (1) embrace of corporate purpose, ESG, and long-term investment strategy by BlackRock, State Street and Vanguard, (2) adoption and promotion by the World Economic Forum of The New Paradigm: A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth, (3) enactment of a benefit corporation law by Delaware and some thirty states, (4) introduction of legislation by Senator Warren to achieve stakeholder corporate governance by way of mandatory federal incorporation, and (5) formation of Focusing Capital on the Long Term, Coalition for Inclusive Capitalism and Investors Stewardship Group, it is clear that we are at a new inflexion point in the development of corporate governance. We are ready to abandon Milton Friedman’s 1970 dictum that the sole purpose of the corporation is to maximize profits for the shareholders—a dictum that ruled thinking in business schools, law schools, on Wall Street, and in boardrooms until proven invalid by the 2008 fiscal crisis and recent studies discrediting so-called empirical “evidence” used to justify attacks by activist hedge funds designed to force companies to engage in financial engineering to create short-term profits. We can achieve the objectives of The New Paradigm and the objectives of corporate managers who want to be able to operate free of Wall Street’s focus on short-termism and free of attacks, and threats of attacks, by activist hedge funds. And we can do it without mandatory federal incorporation infringing on state corporation law or state corporate governance jurisprudence. It can, and should, be done by states, and especially Delaware, by doing the following:

READ MORE »

Engaging with Rakhi Kumar of State Street Global Advisors

Posted by Andrew Letts, CamberView Partners, on
Tuesday, September 11, 2018
, , , , , , , , , , , ,
More from: , ,

Andrew Letts is a partner at CamberView Partners. This post is based on a CamberView memorandum that features an interview with Rakhi Kumar, Senior Managing Director at State Street Global Advisors.

Andrew Letts: Rakhi, thank you for taking the time to speak with us. Many of the people who will read this will be familiar with your team’s work. We’re hoping to take a deeper dive into how the investment stewardship team evaluates companies and the approaches you take. To start off, let’s go back a few years. When I was at State Street Global Advisors, you and I did a lot of work together on the governance issues of the day, topics such as board tenure, executive compensation and sustainability. Since you took over the investment stewardship team in 2014, how would you characterize the evolution of State Street’s approach to these issues?

Rakhi Kumar: The main evolution I would point to is that we have established a prioritization framework, where we take a risk-based approach to both sector and thematic reviews. We are trying to mitigate ESG risk in our portfolio and we are trying to be more active and focused about how we do that. In engagement, we talk about the topics we want to discuss and we speak with the issuers that we want to meet with—85 percent of our engagements are proactive and about issues that are important to us.

READ MORE »

Non-Shareholder Voice in Bank Governance: Board Composition, Performance and Liability

Posted by Paul Davies (University of Oxford) and Klaus J. Hopt (Max Planck Institute), on
Tuesday, September 11, 2018
, , , , , ,
More from: ,

Paul L. Davies is Allen & Overy Professor of Corporate Law Emeritus at the University of Oxford and Klaus J. Hopt is Emeritus Professor at the Max Planck Institute of Foreign Private and Private International Law. This post is based on a recent paper by Professor Davies and Professor Hopt. Related research from the Program on Corporate Governance includes Regulating Bankers’ Pay by Lucian Bebchuk and Holger Spamann (discussed on the Forum here).

In the welter of financial sector reforms which followed the financial crisis—enhanced capital and liquidity rules, resolution mechanisms based on bail-in debt, new macro-prudential powers for regulators—the governance of banks received only non-star billing. In one sense this was surprising since the empirical data showed that banks with the “best” corporate governance, assessed on the conventional shareholder-centric basis, performed worse on average in the crisis than banks with “sub-optimal” governance structures. In other words, there seemed to be a tension between conventional good corporate governance and financial stability goals. Restructuring bank governance so as to be less shareholder focused might therefore be a useful reform. In our paper, Non-Shareholder Voice in Bank Governance: Board Composition, Performance and Liability, we analyse what has, could and should be done to move bank governance in the proposed direction.

READ MORE »

Volcker Rule 2.0: A Significant but Unfinished Proposal

Posted by George Madison, William Shirley and Michael Lewis, Sidley Austin LLP, on
Tuesday, September 11, 2018
, , , , , , , , , , , ,
More from: , , ,

George Madison and Michael Lewis are partners and William Shirley is counsel at Sidley Austin LLP. This post is based on a Sidley memorandum originally published on Bloomberg Law.

The federal agencies responsible for implementing the Volcker Rule—the Board of Governors of the Federal Reserve System (FRB), the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC)—recently proposed significant changes to the final rule that they adopted in 2013. At that time, the agencies were charged with a difficult task: implementing a provision of the Dodd-Frank Act that was hastily and broadly drafted, despite its changing fundamentally the way that large banking organizations operate by preventing them from engaging in proprietary trading or investing in hedge funds and private equity funds (called “covered funds” in the final rule). In those circumstances, the agencies produced, perhaps inevitably, a final rule that was highly complex and burdensome, and that may well have resulted in unintended consequences.

READ MORE »

Will Warren’s Accountable Capitalism Act Help? The Answer is No.

Posted by Denise Kuprionis, The Governance Solutions Group, on
Monday, September 10, 2018
, , , , , , , , , ,
More from: ,

Denise Kuprionis is President of The Governance Solutions Group (GSG). This post is based on a GSG memorandum by Ms. Kuprionis, originally published on The Conference Board’s Governance Center blog.

U.S. Sen. Elizabeth Warren has proposed legislation that would require all companies with more than $1 billion in annual revenue to secure a charter from a newly established Office of United States Corporations. It’s hard to think of a sillier idea. I don’t disagree with her proposition that we “need to end the harmful corporate obsession with maximizing shareholder returns at all costs.” However, I believe federalization of all large corporations, which would likely morph into all corporations, will not accomplish this goal, will not improve corporate governance and will not make our country better for middle class Americans, her target group of beneficiaries.

READ MORE »

The Rise of Fiduciary Law

Posted by Tamar Frankel (Boston University), on
Monday, September 10, 2018
, , , , ,
More from:

Tamar Frankel is Professor of Law Emerita Boston University School of Law. This post is based on a paper by Professor Frankel.

Introduction

Fiduciary rules appear in family law, surrogate decision-making, laws of agency, employment, pensions, remedies, banking, financial institutions, corporations, charities, not for profit organizations, medical services and international law. Fiduciary concepts guide areas of knowledge: economics, psychology; moral norms; and pluralism. Fiduciary law was recognized in Roman law and the British common law. It was embedded decades ago in religious Jewish, Christian, and Islamic laws. Internationally, fiduciary law appears in European, Chinese, Japanese and Indian laws.

What explains the expansion and predicts the future of fiduciary principles? Part One offers a short description of fiduciary relationships. Part Two describes the growth of expertise in living beings—from genetic to chosen cooperative specialization. Part Three notes the law’s encouragement of the relationships while discouraging its potential abuses. Part Four highlights criticisms of fiduciary law. Part Five speculates about the future of fiduciary law.

READ MORE »

Page 27 of 86
1 … 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 … 86