Daily Archives: Monday, May 6, 2019

Update on U.S. Director Pay

Posted by Kosmas Papadopoulos, ISS Analytics, on
Monday, May 6, 2019
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Kosmas Papadopoulos is Managing Editor at ISS Analytics. This post is based on an ISS Analytics memorandum by Mr. Papadopoulos. Related research from the Program on Corporate Governance includes Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here)

In recent years, non-executive director compensation has received attention in the U.S. Increased board workloads, shifts in director compensation structure (away from meeting fees and towards slightly larger base retainers, for instance), a few instances of shareholder litigation in relation to excessive director pay, and a few voluntary submissions of management proposals asking for shareholder approval of their non-employee director compensation programs have all contributed to the activity.

Upon review of current trends in director pay, we observe a reasonable increase in total director compensation, across all market segments, and we continue to see differentiation by industry group. Although director pay increases have outpaced rank-and-file employee increases (but sharply trail increases to CEO pay), outside evidence suggests that increasing commitment by directors to their oversight roles, along with increasing investor expectations and in some industries regulatory demands, justify the increases in compensation.

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Coordinating Governance and Stewardship Between Institutional Investors and Asset Managers

Posted by Martin Lipton, Wachtell, Lipton, Rosen & Katz, on
Monday, May 6, 2019
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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 memorandum by Mr. Lipton.

The decision by Vanguard to grant proxy voting responsibilities to the external managers of certain Vanguard funds is a road map for the stewardship and proxy voting relationship between institutional investors, such as pension funds and endowments, and the external asset managers they employ. In announcing its decision, Vanguard said:

We believe proxy voting is a great way to integrate investment stewardship responsibilities with investment management practices. Our external managers are well-positioned to take on proxy voting responsibilities in a manner that supports shareholder value creation over the long term.

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Stress Testing the Banking Agencies

Posted by Matthew Turk (Indiana University), on
Monday, May 6, 2019
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Matthew Turk is Assistant Professor of Business Law and Ethics at Indiana University’s Kelley School of Business. This post is based on his recent article, forthcoming in the Iowa Law Review.

One of the major regulatory innovations that has emerged over the decade following the financial crisis is the development of regulatory stress tests for large financial institutions. Within the past few years, however, the role of stress tests has come under attack from a wave of reforms which call for the current programs to be rolled back in substantial part or eliminated in full. These initiatives have emerged from both Congress (see here and here) and the Trump Administration (here and here).

My recent article, Stress Testing the Banking Agencies, charts a path forward by undertaking a comprehensive analysis of the promise and limits of regulatory bank stress testing. It then presents a proposal that would address concerns on both sides of the reform debate but has yet to receive consideration: reorienting the stress testing process so that it is used to assess the rules promulgated by federal financial regulators, rather than banks’ compliance with those rules.

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Delaware M&A Appraisal After DFC, Dell and Aruba

Posted by Gregory V. Gooding, William D. Regner, and Shannon Rose Selden, Debevoise & Plimpton LLP, on
Monday, May 6, 2019
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Gregory V. Gooding, William D. Regner, and Shannon Rose Selden are partners at Debevoise & Plimpton LLP. This post is based on their Debevoise 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 Using the Deal Price for Determining “Fair Value” in Appraisal Proceedings (discussed on the Forum here) and Appraisal After Dell, both by Guhan Subramanian.

With its April 16, 2019 opinion in Verition Partners Master Fund Ltd. v Aruba Networks, Inc., [1] and following its late 2017 decisions in DFC Global [2] and Dell, [3] the Delaware Supreme Court has completed a trio of decisions that are likely to reshape the law and practice of public company merger appraisal in Delaware. In each case, the Delaware Supreme Court overturned an appraisal award of the Court of Chancery for failing to give sufficient weight to the parties’ negotiated merger price. While the Supreme Court made clear that deal price is not the exclusive—or even presumptive—measure of fair value for appraisal purposes, and that the appraisal statue obligates the Court of Chancery to “take into account all relevant factors,” [4] the overall thrust of these cases is to make deal price the starting (and in many cases the ending) point for appraisal analysis in transactions between unaffiliated parties where the target company has a robust trading market and the deal results from an unconflicted and reasonable sale process.

The deals giving rise to the appraisal actions underlying this trio of Supreme Court decisions—and the appraisal analyses undertaken by the Court of Chancery—were each decidedly different:

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