Yearly Archives: 2018

BlackRock Supports Stakeholder Governance

Posted by Martin Lipton, Wachtell, Lipton, Rosen & Katz, on
Thursday, January 18, 2018
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Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton publication by Mr. Lipton.

BlackRock CEO, Larry Fink, who has been a leader in shaping corporate governance, has now firmly rejected Milton Friedman’s shareholder-primacy governance and embraced sustainability and stakeholder-focused governance. January 2018 BlackRock letter to CEOs.

In our Some Thoughts for Boards of Directors in 2018 (discussed on the Forum here), we noted:

The primacy of shareholder value as the exclusive objective of corporations, as articulated by Milton Friedman and then thoroughly embraced by Wall Street, has come under scrutiny by regulators, academics, politicians and even investors. While the corporate governance initiatives of the past year cannot be categorized as an abandonment of the shareholder primacy agenda, there are signs that academic commentators, legislators and some investors are looking at more nuanced and tempered approaches to creating shareholder value. 

In his letter, Larry Fink says:

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The New Digital Wild West: Regulating the Explosion of Initial Coin Offerings

Posted by Randolph A. Robinson, II (University of Denver), on
Thursday, January 18, 2018
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Randolph A. Robinson, II is visiting assistant professor at the University of Denver Sturm College of Law. This post is based on his recent paper.

In 2017, initial coin offerings or ICOs raised a collective $4 billion for blockchain entities. While the rise of bitcoin has brought cryptocurrencies and the blockchain into recent media headlines, you could be forgiven if you are unfamiliar with concept of an ICO, as this funding mechanism only reached mainstream audiences in 2016 with the launch of an entity called The DAO. The DAO was formed as a decentralized venture capital fund, intended to fund the development of new blockchain companies and applications. But, before fully operational, The DAO suffered a cyber-attack that drained over one-third of its funds, putting an early end to the ambitious experiment. Although no longer operational, The DAO’s completely unregulated nine-figure fund raise would give rise to widespread duplication of this controversial corporate funding mechanism.

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A Sense of Purpose

Posted by Larry Fink, BlackRock, Inc., on
Wednesday, January 17, 2018
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Larry Fink is Founder, Chairman and CEO of BlackRock, Inc. This post is based on Mr. Fink’s annual letter to CEOs.

Dear CEO,

As BlackRock approaches its 30th anniversary this year, I have had the opportunity to reflect on the most pressing issues facing investors today and how BlackRock must adapt to serve our clients more effectively. It is a great privilege and responsibility to manage the assets clients have entrusted to us, most of which are invested for long-term goals such as retirement. As a fiduciary, BlackRock engages with companies to drive the sustainable, long-term growth that our clients need to meet their goals.

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Remarks at Ceremonial Swearing In of Commissioners Hester M. Peirce and Robert J. Jackson, Jr.

Posted by Jay Clayton, U.S. Securities and Exchange Commission, on
Wednesday, January 17, 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 the Ceremonial Swearing In of Commissioners Hester M. Peirce and Robert J. Jackson, Jr. 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.

I hope that everyone had a very nice weekend and enjoyed the holiday on which we commemorate the life and contributions of Dr. Martin Luther King, Jr.

I note that this August will be the 55th anniversary of Dr. King’s “I Have A Dream” speech here in Washington and April will be the 50th anniversary of his death at age 39.

His lasting impact on America is remarkable and even more remarkable in the context of his short life with us. It is amazing the difference one person can make.

In preparation for our event today, and in the spirit of reflecting on milestones and the difference people can make, I spent some time over the weekend thinking about not only Dr. King and the important events in his life but also on the history of the SEC.

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Network Effects in Corporate Governance

Posted by Sarath Sanga (Northwestern University), on
Wednesday, January 17, 2018
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Sarath Sanga is Assistant Professor of Law at the Northwestern University Pritzker School of Law. This post is based on his recent paper 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 Firms’ Decisions Where to Incorporate by Lucian Bebchuk and Alma Cohen; The Market for Corporate Law by Lucian Bebchuk, Oren Bar-Gill and Michal Barzuza; and Delaware Law as Lingua Franca: Evidence from VC-Backed Startups by Jesse Fried, Brian J. Broughman, and Darian M. Ibrahim (discussed on the Forum here).

Why Does Everyone Incorporate in Delaware?

There are two canonical explanations:

(1) Legal quality. Firms are influenced by the intrinsic qualities of Delaware’s legal system. By some reasonable measure, its statutes, common law, and expert courts are “the best.”

(2) Network effects. Firms are influenced by each other’s corporate governance decisions. Why? Perhaps they interpret these decisions as proof of Delaware’s quality. Or perhaps they only want to follow the trend. In either case, this is a self-perpetuating rationale: Everyone goes to Delaware because everyone else is already there.

In a new paper, I analyze the incorporation histories of over 22,000 public companies from 1930 to 2010. I show that network effects were the principal force behind Delaware’s ascendance.

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Changes in ISS 2018 Compensation FAQs

Posted by BJ Firmacion and Torie Nilsen, Willis Towers Watson, on
Wednesday, January 17, 2018
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BJ Firmacion and Torie Nilsen are consultants at Willis Towers Watson. This post is based on a Willis Towers Watson publication by Mr. Firmacion and Ms. Nilsen.

[In December 2017], Institutional Shareholder Services (ISS) released its complete FAQ compensation and equity plan documents along with detailed pay-for-performance mechanics for 2018.

While most of the changes were already disclosed by ISS in the 2018 proxy voting updates published in November (see “ISS 2018 policy changes reflect market feedback and draft policy expectations,” Executive Pay Matters, November 17, 2017), the FAQs further clarify these changes, particularly as they relate to the new pay-for-performance quantitative screen, as well as additional guidance on other elements of ISS policy. The FAQs also note how ISS will address the new CEO pay ratio disclosures in 2018.

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Delaware’s Prudent Approach to the Cleansing Effect of Stockholder Approval

Posted by William Savitt, Wachtell, Lipton, Rosen & Katz, on
Tuesday, January 16, 2018
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William Savitt is a partner at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell publication by Mr. Savitt, Ryan A. McLeod, and Anitha Reddy, and is part of the Delaware law series; links to other posts in the series are available here.

In Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), the Delaware Supreme Court held that a non-controlling stockholder transaction approved by informed, unaffiliated stockholders is protected by the business judgement rule and that any lawsuit challenging such a transaction should be dismissed absent well-pleaded allegations of corporate waste. Recognizing that today’s sophisticated stockholder body can and does protect its own interests, Corwin held that in the great run of cases, stockholders—rather than plaintiffs’ lawyers or courts—should have the last word.

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2017 Year in Review: Securities Litigation and Regulation

Posted by Jason Halper, Kyle DeYoung and Adam Magid, Cadwalader, Wickersham and Taft LLP, on
Tuesday, January 16, 2018
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Jason Halper is partner and Chair of the Global Litigation Group, Kyle DeYoung is partner, and Adam Magid is Special Counsel at Cadwalader, Wickersham and Taft LLP.  This post is based on a Cadwalader publication by Mr. Halper, Mr. DeYoung, Mr. Magid, Jared Stanisci, James Orth and Aaron Buchman.

The securities litigation and regulatory landscape in 2017 defies simple categorization. Plaintiffs filed 226 new federal class actions in the first half of 2017, more than double the average rate over the last 20 years, and an additional 99 federal class actions in the third quarter of 2017. In contrast, new SEC enforcement proceedings declined. After staying on pace with the prior two years with 45 new enforcement actions against public company-related defendants in the first half of fiscal year 2017, the SEC filed only 17 new enforcement actions against public company-related defendants in the second half of the year. The apparent decrease in initiation of enforcement proceedings coincides with the arrival at the SEC of Chairman Walter J. Clayton, who has expressed the view that enforcement actions against issuers rather than individual wrongdoers too often punish the very investors they seek to protect.

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How Transparent are Firms about their Corporate Venture Capital Investments?

Posted by Sophia J.W. Hamm (The Ohio State University), Michael J. Jung (New York University), and Min Park (The Ohio State University), on
Tuesday, January 16, 2018
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Sophia J.W. Hamm is Assistant Professor of Accounting at The Ohio State University Fisher College of Business; Michael J. Jung is Assistant Professor of Accounting at NYU Stern School of Business; and Min Park is a PhD candidate at The Ohio State University Fisher College of Business. This post is based on their recent paper. Related research from the Program on Corporate Governance includes Carrots & Sticks: How VCs Induce Entrepreneurial Teams to Sell Startups, by Jesse Fried and Brian Broughman (discussed on the Forum here).

Corporate venture capital (CVC) refers to direct minority equity investments made by established, publicly-traded firms in privately-held entrepreneurial ventures. CVC investing differs from pure venture capital investing in that financial returns are not the primary consideration, but rather, strategic gains are often the driving motivation to invest. While established firms in the technology, industrial, and healthcare sectors such as Google, General Electric, and Johnson & Johnson have set up CVC subsidiaries to invest billions of dollars in startups, younger firms such as Twitter with relatively smaller cash balances are starting to engage in venture capital investing as well. According to data from CB Insights, firms’ CVC investments in the U.S. were $17.9B in 2015 and $16.1B in 2016, involving 1,603 deals that accounted for nearly one-fifth of overall venture capital deals. CVC investments are now at the highest levels since the dot com era. The motivating research questions we are interested in examining in this setting are: 1) how transparent are firms about their CVC investments, and 2) is CVC investing a productive use of a firm’s capital resources?

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What Do Investors Ask Managers Privately?

Posted by Eugene F. Soltes and Jihwon Park (Harvard Business School), on
Monday, January 15, 2018
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Eugene Soltes is the Jakurski Family Associate Professor of Business Administration and Jihwon Park is a doctoral candidate at the Harvard Business School. This post is based on their recent paper.

Investors and managers of publicly traded firms spend a considerable amount of time speaking privately. According to the consultancy Ipreo, the average publicly traded firm conducts more than 100 one-on-one meetings annually with investors. While growing body of research provides evidence that these offline interactions offer investors in attendance opportunities to make more informed trading decisions. what actually goes on during these interactions has largely been elusive to outsiders.

In this paper, we seek to better understand the content of private manager-investor interactions by exploring over 1,200 questions posed by investors during private meetings with firm managers from two publicly traded firms. We acquired access to this unique field data by embedding a confederate with extensive investor relations experience in two firms from 2015 to 2016.

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