Monthly Archives: March 2019

Commodity Exchange Act Liability for Smart Contract Coders

Jonathan Marcus is of counsel and Trevor Levine and Daniel O’Connell are associates at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a Skadden memorandum by Mr. Marcus, Mr. Levine, Mr. O’Connell, and Stuart Levi.

The Commodity Futures Trading Commission (CFTC) is considering how smart contract applications on the blockchain implicate its jurisdiction and enforcement authority. Smart contracts are pieces of code on a blockchain that execute certain steps (such as moving a cryptocurrency from one wallet to another) when a condition or set of conditions is met. They are not “contracts” in the traditional legal sense, nor are they “smart” in the sense of using artificial intelligence or similar technologies.

In October 2018, CFTC Commissioner Brian Quintenz discussed at the GITEX Technology Week Conference how the existing Commodity Exchange Act (CEA) regulatory framework may apply to this new technology. If the CFTC determines that smart contracts that execute on a blockchain facilitate trading in off-exchange futures, swaps with retail customers or event contracts the agency deems contrary to the public interest, how will it approach enforcement? While Quintenz addressed this question in hypothetical terms, it is clear that applying the CEA to potential trading applications on a blockchain will require the CFTC to expand its focus to smart contracts. In doing so, the CFTC will need to consider how to adapt a preexisting regulatory scheme to new technology—in this case, a technology whose decentralized structure is fundamentally different from the structure of intermediation—exchanges, brokers and advisors—on which the CEA is based.

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The Director-Shareholder Engagement Guidebook

Amy Freedman is Chief Executive Officer, Wes Hall is Executive Chairman and Founder, 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 Dancing with Activists by Lucian Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch (discussed on the Forum here).

When you hear the phrase “shareholder engagement” we want you to think “shareholder trust.” Gaining the trust of your shareholders doesn’t happen overnight. It grows slowly through an ongoing commitment to transparency and openness.

As the elected representatives of shareholders, it is critical that independent directors not only participate in shareholder engagement but assume a leadership role.

Tone from the top is important and in today’s complex governance environment the message needs to be sent that your company has a culture where shareholder voices matter. And not just when there is a problem. Year-round, shareholders need to know there is a conduit to the board, should they need it.

Historically, the paradigm for shareholder communication has been set up backwards. Meaning it has been structured to protect—not engage—directors from shareholders by filtering requests for contact through the buffer of management.

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Rise of the Shadow ESG Regulators

Paul Rissman is Co-Founder of Rights CoLab and Diana Kearney is Legal and Shareholder Advocacy Advisor at Oxfam America Inc. This post is based on their article, recently published in the Environmental Law Reporter.

Federal securities law is grounded in the principle of disclosure; however, many have found wanting the prevailing disclosure requirements for the social and environmental impacts of public corporations. The sustainability practices of business might be better regulated if companies reported about them with greater care. But U.S. public companies spend less time communicating with investors about ESG issues than their global peers. They also disclose less. This aversion to transparency isn’t surprising, if viewed in relation to the treatment of “materiality” within federal securities law. The Supreme Court grappled with the definition of materiality in 1976 and again in 1988, and determined that, for disclosure relevant to the trading of securities, materiality should be defined through the lens of what is important solely to investors. The Court restricted the concept to what would be considered in a decision to buy, sell, or hold a stock, or to vote a proxy. This is known as “financial materiality.” The SEC has always considered certain ESG impacts to be financially material, but not to such a general degree that it has required robust reporting on the subject. Business is therefore free to avoid disclosure of “immaterial” ESG impacts.

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Comment Letter Regarding Mandatory Arbitration Bylaw Proposal at Johnson & Johnson

Jeff Mahoney is General Counsel of Council of Institutional Investors. This post is based on a comment letter from CII to Chairman Jay Clayton of the U.S. Securities and Exchange Commission.

I am writing on behalf of the Council of Institutional Investors (CII). CII is a nonprofit, nonpartisan association of public, corporate and union employee benefit funds, other employee benefit plans, state and local entities charged with investing public assets, and foundations and endowments with combined assets under management exceeding $4 trillion. Our member funds include major long-term shareowners with a duty to protect the retirement savings of millions of workers and their families. Our associate members include a range of asset managers with more than $25 trillion in assets under management. [1]

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Appraisal Litigation in Delaware: Trends in Petitions and Opinions (2006-2018)

David F. Marcus is Senior Vice President and Frank Schneider is Vice President at Cornerstone Research. This post is based on their Cornerstone memorandum 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 Appraisal After Dell by Guhan Subramanian and Using the Deal Price for Determining “Fair Value” in Appraisal Proceedings by Guhan Subramanian (discussed on the Forum here).

Last year saw a drop in the number of appraisal petitions filed in the Delaware Court of Chancery. After steadily rising since 2009 and peaking at 76 in 2016, the number of appraisal petitions filed by shareholders declined to only 26 in 2018.

For the 34 appraisal cases that ultimately went to trial between 2006 and 2018, the data show substantial variation in the awards granted by the Delaware Courts. Several recent decisions, including Dell and Aruba, have highlighted judicial concerns about the quality of the sales process and the appropriate methodologies used to determine fair value.

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Weekly Roundup: February 22-28, 2019


More from:

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

Go-Shops Revisited





Corporate Governance in Emerging Markets


D.C. Speaks Up: A Push for Board Diversity from the SEC and Congress


Common Ownership in America: 1980-2017




Successor CEOs


2019 Proxy Season Preview


2019 Institutional Investor Survey


Non-Answers During Conference Calls



Synthesizing the Messages from BlackRock, State Street, and T. Rowe Price



Frequently Overlooked Disclosure Items in Annual Proxy Statements

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