Monthly Archives: January 2019

OCIE Examination Priorities for 2019

Jessica Forbes and Stacey Song are partners and Marina Besignano is an associate at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on their Fried Frank memorandum.

On  December  20,  2018,  the  Office  of  Compliance  Inspections  and  Examinations  (“OCIE”)  of the Securities and Exchange Commission (“SEC”) published its examination priorities for 2019 (the “2019 Priorities”). [1] OCIE’s examination priorities are released annually and are designed to provide a preview of key areas where OCIE intends to focus its limited resources. This year’s priorities address the following six themes: (1) retail investors, including seniors and those saving for retirement; (2) registered entities responsible for critical market infrastructure, including clearing agencies, transfer agents, and national securities exchanges; (3) Financial Industry Regulatory Authority (“FINRA”) and the Municipal Securities Rulemaking Board (“MSRB”); (4) digital assets; (5) cybersecurity; and (6) anti-money laundering (“AML”) for broker-dealers.


10 Tips for 10-Ks and Proxy Statement

Laura D. Richman is counsel and Michael L. Hermsen and Anna T. Pinedo are partners at Mayer Brown LLP. This post is based on their Mayer Brown memorandum.

With preparations shifting into high gear for calendar-year companies that file annual reports on Form 10-K and proxy statements with the US Securities and Exchange Commission (SEC), here are tips to consider when drafting these documents.

10-K Tips

1. Disclosure Update and Simplification. The SEC adopted “Disclosure Update and Simplification” amendments on August 17, 2018, which became effective on November 5, 2018. The amendments were designed to address disclosure requirements that the SEC considered to be redundant, duplicative, overlapping, outdated or superseded in light of other SEC disclosure requirements, US generally accepted accounting principles or changes in the “information environment.” Annual reports on Form 10-K now need to comply with these amendments.


Rule 14a-8 Shareholder Proposals and the Government Shutdown

Andrew R. BrownsteinDavid A. KatzSabastian V. Niles and Viktor Sapezhnikov are partners at Wachtell, Lipton, Rosen & Katz. This post is based on their Wachtell Lipton memorandum.

As the 2019 proxy season approaches, to the extent the U.S. federal government shutdown continues, companies with Rule 14a-8 shareholder proposals will have some difficult decisions to make. Although a company is not required to submit a no-action letter to the SEC to exclude a Rule 14a-8 shareholder proposal (but is required to submit its reasons for the exclusion to the SEC and to the proponent), the almost universal practice is to ask the SEC Staff to concur with a company’s planned exclusion of a proposal. The company’s reasons for excluding a Rule 14a-8 shareholder proposal and related requests for SEC no-action letters must be submitted to the SEC, absent good cause, no later than 80 calendar days before the definitive proxy statement is filed to comply with the deadline in Rule 14a-8. Generally, companies follow the guidance of the SEC Staff in response to no-action exclusion requests.


Public Hedge Funds

Lin Sun is Assistant Professor at the Fanhai International School of Finance and School of Economics at Fudan University and Melvyn Teo is the Lee Kong Chian Professor of Finance at the Lee Kong Chian School of Business at Singapore Management University. This post is based on their recent article, forthcoming in the Journal of Financial Economics.

Recent years have witnessed a slew of public listings by mega asset management firms including Amundi Group, Man Group, Och-Ziff Capital Management Group, Blackstone Group, and KKR. These publicly listed mega asset managers together managed an impressive $2.38 trillion in 2017. How does the transition to public equity markets impact investment performance? Fund management companies argue that going public allows them to enhance investment performance by better incentivizing their staff through employee stock options and by investing the initial public offering (IPO) proceeds in superior technology and business support. Moreover, listed firms can be operationally more robust than their unlisted competitors given the higher transparency required of listed companies. However, fund investors contend that public listing allows firm founders to sell off their stakes to outsiders, which exacerbates potential conflicts of interest. For asset managers, the transition to public markets weakens the alignment between ownership, control, and investment capital, engendering a rich combination of agency problems, hitherto unexplored in the academic literature, which could have significant implications for the fund investor. In this article, we shed light on these agency issues by investigating the impact on hedge fund performance when asset management firms go public.


Incorporating Social Activism

Tom C.W. Lin is Professor of Law at the Temple University Beasley School of Law. This post is based on a recent article by Professor Lin, forthcoming in the Boston University Law Review. 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).

Corporations and their executives are at the forefront of some of the most contentious and important social issues of our time. Through pronouncements, policies, boycotts, sponsorships, lobbying, and fundraising, corporations are actively engaged in issues like immigration reform, gun regulation, racial justice, gender equality, and religious freedom. This is the new reality of business and social activism in America.

My recent article, Incorporating Social Activism, in the Boston University Law Review examines this new corporate social activism and its wide-ranging effects on law, business, and society. It investigates why corporations are engaged in social activism today, reveals the legal and policy developments that have fueled unprecedented contemporary corporate social activism, analyzes potential promises and perils, and offers pragmatic proposals to address important implications for law, business, and society.


Weekly Roundup: January 11-17, 2019

More from:

This roundup contains a collection of the posts published on the Forum during the week of January 11–17, 2019.

Quarterly Reporting—What’s Next?

Top Priorities for Boards in 2019

Compensation Season 2019

Corwin’s Nuance

Key 4Q 2018 Delaware Decisions

Pay Now or Pay Later?: The Economics within the Private Equity Partnership

Corporate Governance Failures and Interim CEOs

Transparency in Corporate Groups

Mergers and Acquisitions—2019

Financial Institutions Developments

Top 10 Topics for Directors in 2019

2018 Private Equity Year in Review

2018 Private Equity Year in Review

Andrew J. Nussbaum, Steven A. Cohen, and Victor Goldfield are partners at Wachtell, Lipton, Rosen & Katz. This post is based on their Wachtell Lipton memorandum.

2018 was a banner year for private equity. As of late December, PE buyout volume had reached almost $384 billion, the highest since the PE boom before the financial crisis. The pace of activity overcame various macro challenges to PE dealmaking, including competition from strategic acquirors, high-multiple valuations and, in the fourth quarter, rising interest rates and disruption in the high-yield and leveraged loan markets.

How did financial sponsors succeed in a volatile and uncertain environment?

Finding Deals and Being Creative

Many of the larger transactions depended upon strategic partnerships. Blackstone, for example, partnered with Thomson Reuters to carve out its financial and risk business into a $20 billion strategic venture owned 55% by Blackstone and its co-investors and 45% by Thomson Reuters. One high-profile activist’s willingness to take more long-term risk supported major PE deals—Veritas’ and Elliott Management’s pending acquisition of athenahealth and Siris Capital Group’s and Elliott Management’s pending acquisition of Travelport. Whereas activist hedge funds have often advocated for target companies to sell, including to PE firms, it remains to be seen whether other activist hedge funds will also be willing to partner as co-buyers with PE firms.


Corporate Distress, Credit Default Swaps, and Defaults: Information and Traditional, Contingent, and Empty Creditors

Henry T. C. Hu is the Allan Shivers Chair in the Law of Banking and Finance at the University of Texas Law School. This post is based on his recent article, forthcoming in Brooklyn Journal of Corporate, Financial & Commercial Law. Related research from the Program on Corporate Governance includes A Capital Market, Corporate Law Approach to Creditor Conduct by Mark J. Roe and Federico Cenzi Venezze (discussed on the Forum here).

Although securities regulators, practitioners, and academics have made vast efforts to ensure a robust informational foundation for investors, informational asymmetries associated with companies in financial distress, but not in bankruptcy, have received little attention. My article, Corporate Distress, Credit Default Swaps, and Defaults: Information and Traditional, Contingent, and Empty Creditors (forthcoming in the Brooklyn Journal of Corporate, Financial & Commercial Law, vol. 13, no. 1, 2018) explores some important asymmetries in this context that are curious in their origin, nature, and impact.


Top 10 Topics for Directors in 2019

Kerry BerchemChristine LaFollette, and Frank Reddick are partners at Akin Gump Strauss Hauer & Feld LLP. This post is based on their Akin Gump memorandum.

1. Corporate Culture

The corporate culture of a company starts at the top, with the board of directors, and directors should be attuned not only to the company’s business, but also to its people and values across the company. Ongoing and thoughtful efforts to understand the company’s culture and address any issues will help the board prepare for possible crises, reduce potential liability and facilitate appropriate responses internally and externally.

2. Board Diversity

As advocates and studies continue to highlight the business case for diversity, public companies are facing increasing pressure from corporate governance groups, investors, regulators and other stakeholders to improve gender and other diversity on the board. As a recent McKinsey report highlights, many successful companies regard inclusion and diversity as a source of competitive advantage and, specifically, as a key enabler of growth.


Post-Closing Merger Litigation—The Road Ahead

William Savitt is a partner at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell memorandum by Mr. Savitt and is part of the Delaware law series; links to other posts in the series are available here.

In a recent series of landmark decisions, the Delaware Supreme Court has constructed an orderly doctrinal framework designed to reduce wasteful post-closing merger litigation. These cases recognize that the market’s judgment is usually sound and that the costs of intensive litigation regarding transactions approved by informed and self-interested stockholders generally outweigh the benefits. A compelling corporate law question for 2019—and a practical challenge for transaction planners—is how that doctrinal framework will be implemented in the face of sustained attack by the class action plaintiffs’ bar.


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