Monthly Archives: March 2019

Mutant Q—Foundational Studies on Entrenchment, Staggered Boards, and Activism

Neil Whoriskey is partner at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum by Mr. Whoriskey. Related research from the Program on Corporate Governance includes What Matters in Corporate Governance? by Lucian Bebchuk, Alma Cohen, and Allen Ferrell.

If your experiment needs statistics, you ought to have done a better experiment.”
— Ernest Rutherford

Sometimes you need to get into the fundamentals to understand if your belief system is sound. In corporate governance literature of the last two decades, there is no more fundamental concept than Tobin’s Q, which legions of law professors have used as a proxy for firm value. Based on regression analyses examining variations in Tobin’s Q, they have made definitive pronouncements about any number of corporate governance topics, from staggered boards to the value of activism. Yet tracing the evolution of Tobin’s Q to its current state—a state completely alien to the original conception—reveals a twisted tale, proceeding like an epidemiological disaster in which Tobin’s Q transforms from an innocent and useful organism in macroeconomics to an unrecognizably mutated and widespread disease in corporate governance literature, infecting policies and practices throughout the corporate governance world.
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Glass Lewis’ Report Feedback Service: Direct, Unfiltered Commentary from Issuers and Shareholder Proponents

Katherine Rabin is CEO of Glass, Lewis & Co. This post is based on a Glass Lewis memorandum by Ms. Rabin.

Glass Lewis has long been an advocate of bringing transparency, accuracy and efficiency to the proxy voting process. Following the expansion of our direct engagement program and Issuer Data Report (“IDR”) service, the Report Feedback Statement (“RFS”) service is an important next step in facilitating informed dialogue among all stakeholders.

Providing corporate governance services to institutional investors is Glass Lewis’ core business and sole focus. Indeed, Glass Lewis does not offer consulting services to corporate issuers, directors, dissident shareholders or shareholder proposal proponents. That said, we recognize that there are legitimate questions about the opportunities available for issuers and shareholder proponents to raise concerns if they disagree with a proxy advisory firm’s recommendations.

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The Most Overpaid CEOs: Are Fund Managers Asleep at The Wheel?

Rosanna Landis Weaver is a Program Manager at As You Sow. This post is based on her As You Sow memorandum. Related research from the Program on Corporate Governance includes The CEO Pay Slice by Lucian Bebchuk, Martijn Cremers and Urs Peyer (discussed on the Forum here) and Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here).

In 2015, As You Sow embarked on a mission to identify and report on the most overpaid CEOs of the S&P 500 and whether or not pension funds and financial managers held companies accountable for such excessive compensation. At the time, we found that far too many funds and managers were rubber stamps for these excesses.

This 2019 study is the fifth report of our research results. During these five years, what has changed? Quite a bit, and not enough. Significantly, more large shareholders are voting against more CEO pay packages. Those who are not are more isolated and defensive.

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Independent Directors: New Class of 2018

Steve W. Klemash is America’s Leader, Jamie C. Smith is Associate Director, and Kellie C. Huennekens is Associate Director, all at EY Center for Board Matters. This post is based on their EY memorandum.

The EY Center for Board Matters took a close look at independent directors newly elected in 2018 by investors to Fortune 100 boards, and we are pleased to present the findings of our analysis of this “new class of 2018.”

The report analyzes what these directors bring to the boardroom and how companies are showcasing those strengths, based on a review of corporate disclosures highlighting the skills, expertise and backgrounds associated with these new nominees. In the third year of this series, we also reviewed the same 83 companies’ entering class of directors in prior years to enable consistent year-on-year comparisons. What follows is our perspective on the changes and trends we identified.

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Director Onboarding and the Foundations of Respect

David A. Katz is partner and Laura A. McIntosh is consulting attorney at Wachtell, Lipton, Rosen & Katz. This post is based on an article first published in the New York Law Journal.

Increased demands on public company directors have created significant challenges for corporate boards. Qualified individuals are serving on fewer boards, as directors and corporate executives face increasing constraints on their public company board service. There is a need for new independent director candidates, and there is also a steep learning curve for incoming directors, particularly those who are not industry insiders and those who are new to public company board service. Accordingly, onboarding new directors is becoming a more extensive and significant undertaking than it has been in the past. At the same time, the onboarding process is increasingly important to the success of the board in fulfilling its oversight role.

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Weekly Roundup: March 22-28, 2019


More from:

This roundup contains a collection of the posts published on the Forum during the week of March 22-28, 2019.




CFTC Enforcement Announcement: Commodity Exchange Act Violations Involving FCPA


PE Professionals on the Boards of their Portfolio Companies




Whistleblower Award to Company Outsider






2019 Proxy Voting and Engagement Guidelines: North America


Wake up the Raiders: Considerations for Private Equity Going Activist



Crisis Resilience and the Board—Taking Risk Oversight to the Next Level


Remarks to the SEC Investor Advisory Committee

Jay Clayton is Chairman of the U.S. Securities and Exchange Commission. This post is based on Chairman Clayton’s recent remarks to the SEC Investor Advisory Committee, available here. 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.

Thank you, Anne (Sheehan). Good morning everyone. It’s good to see everyone again, particularly as the last time we all met in person was in December of last year. I was glad to be able to participate with Commissioner Roisman on a call with members of the Committee last month, where among other things we talked about human capital disclosures and proxy plumbing. My prepared remarks for that call—as well as Commissioner Roisman’s—are available on our website.

Turning to the agenda for today, I look forward to the discussion on the stock exchange regulatory structure, which is an important topic for the Commission. I am also pleased that the Committee will revisit the discussion regarding disclosures on human capital. Finally, I look forward to the discussion on investment research and potential regulatory implications. Before going into detail, I note that my thoughts are my own and do not necessarily reflect the views of my fellow Commissioners or the SEC staff.

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Crisis Resilience and the Board—Taking Risk Oversight to the Next Level

Michael Gelles is Managing Director at Deloitte Consulting LLP, James Turgal is Managing Director at Deloitte & Touche LLP, and Wendy Overton is Manager at the Center for Board Effectiveness at Deloitte LLP. This post is based on their Deloitte memorandum.

Companies seek to anticipate and avoid or proactively mitigate crises that pose risk to their business. As part of their oversight responsibility, boards seek to assist management in carrying out these responsibilities. However, no matter how prepared a company is, and regardless of the levels of management attentiveness and board oversight, crises will happen; they are a matter of when, not if. Because of this reality, it is important for companies, including their management and board, to build resilience.

The need to build resilience is more critical in an age of disruption and rapid exponential change. Crises that used to take days or even weeks to unfold may now take minutes or even seconds. Consequently, preparedness and agility are key to the board’s success in resilience oversight. Companies cannot plan for the unknown, but the more a company proactively identifies risks and builds resilience to crises through organizational, cultural, and technological facets, the more capable it can be at bouncing back from a broad set of crises.

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Tulips, Oranges, Worms, and Coins—Virtual, Digital, or Crypto Currency and the Securities Laws

Thomas Lee Hazen is the Cary C. Boshamer Distinguished Professor at the University of North Carolina at Chapel Hill School of Law. This post is based on a recent article by Professor Hazen, forthcoming in the North Carolina Journal of Law and Technology.

The securities laws contain a broad definition of what constitutes a security. Finding a security to exist triggers many regulatory provisions of the securities laws. There is considerable case law interpreting the now well-developed test for what constitutes an “investment contract” leading to the finding that a security exists. However, to date, there is relatively sparse authority applying the securities laws to virtual, digital, or crypto currencies. In my article, I examine the investment contract analysis and concludes that initial coin offerings and many, if not most, digital currency transactions involve securities and therefore are subject to SEC jurisdiction and to the jurisdiction of state securities administrators. The article then outlines the regulatory consequences of applying the securities laws to digital currency transactions.

Over the years, a wide variety of nontraditional investments from orange groves to earthworms and scotch whiskey have been held to be securities. But what about virtual, digital, or crypto currency?

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Wake up the Raiders: Considerations for Private Equity Going Activist

Stephen B. Amdur is partner at Pillsbury Winthrop Shaw Pittman LLP; Chuck Dohrenwend and Patrick Tucker are managing directors at Abernathy MacGregor. This post is based on a Pillsbury memorandum by Mr. Amdur, Mr. Dohrenwend, Mr. Tucker, and Jarrod D. Murphy. Related research from the Program on Corporate Governance includes Dancing with Activists by Lucian Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch (discussed on the Forum here).

What do you do when valuations reach record-high levels, but you have trillions of dollars to spend amid increased competition? The challenge of an “inverse proportion” of dry powder (rising) to attractive deal opportunities (declining) [1] is driving private equity professionals to consider emulating the tactics of shareholder activists in order to generate good returns for their investors.

Embracing shareholder activism creates risk for private equity managers that traditional activist funds do not carry. By understanding these differences and their communications implications, private equity sponsors can manage these risks and effectively capture the value potential of activist strategies.

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