Monthly Archives: May 2019

Roe’s Short-Termism Work Selected as Top Corporate and Securities Law Article

Mark Roe is the David Berg Professor of Law at Harvard Law School. Related research from the Program on Corporate Governance includes Stock Market Short-Termism’s Impact by Mark Roe (discussed on the Forum here); The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here); and The Uneasy Case for Favoring Long-Term Shareholders by Jesse Fried (discussed on the Forum here).

The Corporate Practice Commentator announced earlier this month the list of the Ten Best Corporate and Securities Articles selected by an annual poll of corporate and securities law academics. The list includes an article from Harvard Law School Professor Mark Roe, Stock Market Short-Termism’s Impact, 167 U. Pa. L. Rev. 71-121 (2018) (available here and discussed on the Forum here).

The top ten articles were selected from a field of almost 400 articles. Professor Robert Thompson of Georgetown Law School conducted the poll. Additional information about the best corporate and securities law articles of 2018 and the selection process is available here.

The abstract of Professor Roe’s article describes the analysis as follows:


Reasons for “Male and Pale” Boards

Cydney S. Posner is special counsel at Cooley LLP. This post is based on a Cooley memorandum by Ms. Posner. 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).

Here is the lede from this WSJ article: “A stubborn paradox reigns across U.S. boardrooms: Companies are appointing more women to board seats than ever, yet the overall share of female directors is barely budging.” In comments to the WSJ, the managing director for corporate governance research at the Conference Board indicated that, in “the last two decades, there’s been a sweeping revolution in the field of corporate governance…. Yet if you look at the composition of the board, at its core, it remains the same at many public companies and quite resistant to change.’” Why is that? It’s not, as some have suggested, a lack of qualified women board candidates. Rather, according to the Conference Board, it’s that “average director tenure continues to be quite extensive (at 10 years or longer), board seats rarely become vacant and, when a spot is available, it is often taken by a seasoned director rather than a newcomer with no prior board experience.”

According to a new study from the Conference Board, looking at SEC filings in 2018, half of the Russell 3000 and 43% of the S&P 500 companies did not disclose any change in board composition. With low board turnover, the opportunities for increasing board diversity are necessarily more limited. As reported in the WSJ, the study found that, for companies in the Russell 3000, “the average director stays in the job for 10.4 years and about a quarter of them step down only after 15 years. The upshot is that boardrooms remain the preserve of older, mostly white men: Only 10% of Russell 3000 directors are 50 or younger, while about one-fifth are older than 70….” According to the study, the industries with the longest average director tenures were financials (13.2 years), consumer staples (11.1 years) and real estate (11 years). But even the shortest average tenure was just over eight years (healthcare industry).


Educating Investors Through Leading Questions

James McRitchie is the publisher of

Bias in the world of politics has spread to proxy voting controversies. A recent paper by the Spectrem Group purports to be “providing a voice to retail investors on the proxy advisory industry” by employing a survey, which seeks to “educate” respondents through leading questions. The report’s catchy title is Exile of Main Street: Providing a Voice to Retail Investors on the Proxy Advisory Industry.

Bias Feeds Off Itself

One technique used by the Spectrem Group is to quote previously biased research.

Proxy Monitor found that in 2017, “A limited group of shareholders has submitted the overwhelming majority of shareholder proposals. Just three individuals and their family members sponsored 25 percent of all proposals.”

Although presented as representing the universe of proxy proposals, the Proxy Monitor database contains only a select list of issuers. In contrast Proxy Insight‘s database follows proposals at all public companies in the United States. A quick search of Proxy Insight’s database found that out of 611 proposals in 2017, the three individuals and their families mentioned by Proxy Monitor (myself included) sponsored 110 or 18%, not 25%. Left out of Proxy Monitor’s analysis is that those proposals averaged 38% support, compared to an average 33% for proposals from all proponents.


Weekly Roundup: May 10–16, 2019

More from:

This roundup contains a collection of the posts published on the Forum during the week of May 10–16, 2019.

E&S Oversight in Europe

CEO Ownership, Corporate Governance, and Company Performance

How We Howey

Goldman Sachs and the 1MDB Scandal

The DOJ’s Updated Guidance on Corporate Compliance Programs

A Jurisdictional Hook for non-Delaware PE firms

Challenging Offshore M&A in U.S. Courts

New Scrutiny for NDAs in Sexual Harassment Matters

Paying for “The Right” Performance

Paying for “The Right” Performance

Melissa Burek is Founding Partner and Mike Bonner is a Senior Associate at Compensation Advisory Partners (CAP); and Melanie Nolen is a Research Editor at Corporate Board Member. This post is based on their CAP memorandum. Related research from the Program on Corporate Governance includes Paying for Long-Term Performance (discussed on the Forum here) and the book Pay without Performance: The Unfulfilled Promise of Executive Compensation, both by Lucian Bebchuk and Jesse Fried.

What makes a company successful?

Stock price growth? Meeting the business plan? Beating external expectations? Long-term stability? Companies must consider success across multiple fronts, and boards of directors play a role in defining success by working with management to set the strategic plan and by overseeing how the company progresses toward the achievement of the plan.

Incentive plans are foundational to motivating the senior management team to achieve the goals of a company’s strategic plan. Determining how to best measure and reward performance against these goals is key to designing effective incentive compensation programs that ensure proper alignment of pay outcomes with various degrees of success against the plan.

To determine how board members measure performance and incorporate it in their company’s incentive compensation plans, Corporate Board Member and Compensation Advisory Partners partnered to survey more than 250 public company directors. In this post, we present our findings and share our perspective on these key issues.


Mandatory Arbitration and the Market for Reputation

Roy Shapira is Associate Professor at IDC Herzliya Radzyner Law School. This post is based on his recent article, forthcoming in the Boston University Law Review.

Is mandatory arbitration of shareholder claims desirable? With the blessing of the Supreme Court, mandatory arbitration provisions with class action waivers have become common in contract, consumer, and labor law. Policymakers now consider importing this trend to corporate and securities laws as well. The existing debate centers around consent and compensation: Can shareholders be held to consent to arbitration provisions in the company’s corporate governance documents? Are shareholders better off with arbitration, given that litigation currently offers them very little compensation (with high fees)?

My recent article, Mandatory Arbitration and the Market for Reputation (forthcoming in the Boston University Law Review), adopts a different, information-production perspective. It examines how the choice between litigation and arbitration affects the effectiveness of market discipline. Litigation, regardless of the legal outcomes, produces a positive externality: information on corporate behavior. Internal memos, emails, spreadsheets, and transcripts that are exposed in the process give us a glimpse into how the company-in-question is ran. This information helps outside observers reassess their willingness to do business with the parties to the dispute. In other words, litigation shapes the reputations of companies and businesspersons. By shifting from litigation to arbitration, we are likely to save administrative costs, but lose some of the effectiveness of reputational deterrence. While adopting a mandatory arbitration provision can be desirable for a given company, the ex ante effects of allowing such provisions are therefore likely to be overall detrimental to the market.


New Scrutiny for NDAs in Sexual Harassment Matters

Jennifer Kennedy Park and Lev Dassin are partners and Georgia Kostopoulos is an associate at Cleary Gottlieb Steen & Hamilton LLP. This post is based on their Cleary memorandum.

Legal and regulatory scrutiny regarding the use of non-disclosure agreements by companies to resolve allegations of sexual harassment and misconduct continues to increase in the wake of the #MeToo movement. Such scrutiny featured prominently this month in two high-profile sexual harassment matters: the Wynn Resorts investigation and the various legal proceedings following the allegations against Harvey Weinstein. Both in-house and outside counsel for companies with senior executives facing such allegations should take note of these developments, as they call into question whether the use of NDAs could in certain circumstances amount to investigatory obstruction or a violation of ethical obligations.

Wynn Resorts Investigation

In January 2018, the Wall Street Journal first reported repeated allegations of sexual harassment and misconduct by Steve Wynn, the founder and former CEO of Wynn Resorts Ltd. (“Wynn Resorts”), a Las Vegas-based hotel and casino resort operator and developer. Shortly after the allegations became public, Mr. Wynn resigned as chairman and CEO. In the year and a half since, a number of investigations and lawsuits have been initiated against Wynn Resorts, many focused on the board of directors’ potential awareness of multiple allegations of sexual misconduct against Mr. Wynn. Wynn Resorts has already paid $20 million in fines to the Nevada Gaming Commission for its failure to promptly investigate and report sexual misconduct allegations against Mr. Wynn.


Bebchuk & Hirst Study of Index Funds Wins European Corporate Governance Institute Prize

Tami Groswald Ozery is a co-Editor of the Forum and a Fellow at the Harvard Law School Program on Corporate Governance.

Related research from the Program on Corporate Governance includes The Agency Problems of Institutional Investors by Lucian Bebchuk, Alma Cohen, and Scott Hirst (discussed on the Forum here); and Index Fund and the Future of Corporate Governance: Theory, Evidence, and Policy by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

The European Corporate Governance Institute (ECGI) has announced that its 2019 prize for best working paper in law will be awarded to a paper by Lucian Bebchuk and Scott Hirst, Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy. The ECGI’s Cleary Gottlieb Steen Hamilton Prize is awarded for the best paper in the ECGI Law Working Paper Series, and carries with it a cash award of EUR 5,000.

The Bebchuk & Hirst paper earlier won the 2018 IRRC Institute prize, which carried with it a cash award of $10,000. The IRRC Institute’s announcement of the award is available here (and discussed on the Forum here). The Bebchuk & Hirst paper will be published in the December 2019 issue of the Columbia Law Review.

According to the ECGI’s announcement of the prize, “[t]he jury’s selection [of the Bebchuk & Hirst article] for the prize reflects the importance of this paper’s contribution to one of the key debates in today’s corporate governance.”

Professor Marco Becht, ECGI Executive Director indicated in a statement that the paper, along with another paper that was awarded the prize for the best paper in finance, “exemplify the importance of the research conducted by the ECGI research members around the world and the applicability of that research to the real world.”

According to the ECGI’s announcement, the Bebchuk & Hirst paper

“provides a comprehensive theoretical, empirical and policy analysis of passive investment funds, which have become a central player both in the US and elsewhere. Due to agency problems, the paper shows, the managers of passive funds have significant incentives to under-invest in stewardship, as well as to defer excessively to corporate managers, relative to what would best serve the funds’ beneficial investors. The paper also provides detailed evidence regarding the stewardship activities of passive funds, puts forward a number of policy proposals for improving these activities, and discusses the implications of its agency-costs analysis for key corporate governance debates.”

The Bebchuk & Hirst paper is part of a larger ongoing project on stewardship by index funds and other institutional investors. The paper builds on an analytical framework for understanding the monitoring and engagement decisions made by index funds put forward in a 2017 article, The Agency Problems of Institutional Investors, by Lucian Bebchuk, Alma Cohen, and Scott Hirst (discussed on the Forum here).

More information about the ECGI award is available here. The Bebchuk & Hirst paper for which the ECGI prize was awarded is available here, and is discussed on the Forum here.

Challenging Offshore M&A in U.S. Courts

Jonathan K. Chang is counsel, and Larry Portnoy and Brian S. Weinstein are partners at Davis Polk & Wardwell LLP. This post is based on their Davis Polk memorandum. Related research from the Program on Corporate Governance includes Allocating Risk Through Contract: Evidence from M&A and Policy Implications by John C. Coates, IV (discussed on the Forum here).

On April 12, 2019, the United States Court of Appeals for the Second Circuit held that the district court abused its discretion by failing to consider a forum selection clause in a foreign issuer’s Depositary Agreement, notwithstanding the fact that the issuer is a Cayman Islands company and the gravamen of the lawsuit concerned an alleged breach of fiduciary duty by the issuer’s board of directors, which is an issue of Cayman law. This decision may encourage more shareholders to challenge offshore corporate transactions in U.S. courts.


E-Commerce China Dangdang (“Dangdang” or the “company”) is a company incorporated in the Cayman Islands with its principal place of business in China. In 2010, the company went public, listing American Depositary Shares (“ADSs”) on the New York Stock Exchange. The Depositary Agreement, entered into between Dangdang, the Depositary bank for the shares backing the ADSs, and Owners and Holders of ADSs included a forum selection clause providing that “[a]ny controversy, claim or cause of action arising out of or relating to the [ADSs] . . . shall be litigated in the Federal and state courts in the Borough of Manhattan, The City of New York and the Company hereby submits to the personal jurisdiction of the court in which such action or proceeding is brought.”


A Jurisdictional Hook for non-Delaware PE firms

Matthew M. Greenberg is a partner and Taylor B. Bartholomew, and Christopher B. Chuff are associates at Pepper Hamilton LLP. This post is based on their Pepper memorandum and is part of the Delaware law series; links to other posts in the series are available here.

In In re Pilgrim’s Pride Corporation Derivative Litigation, the Delaware Court of Chancery held that a foreign controlling stockholder impliedly consented to personal jurisdiction in Delaware because the controller’s designees (who also had ties to the controller) approved a bylaw selecting the Delaware Court of Chancery as the exclusive forum for fiduciary duty litigation concurrently with their approval of an interested transaction. While the court expressly limited its holding to the facts of the case, the opinion provides helpful guidance to non-Delaware private equity firms as it relates to the control of their Delaware-based portfolio companies.


Prior to the disputed transaction, JBS S.A., an entity organized under Brazilian law, sought to quickly raise cash because of a $3.2 billion fine due to the Brazilian government. To do so, JBS orchestrated the sale of an entity it controlled—Moy Park, Ltd.—to Pilgrim’s Pride Corporation, a Delaware corporation, for $1.3 billion.


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