Monthly Archives: August 2019

A Catch 22 for Asset Managers

Jasmin Sethi is the CEO of Sethi Clarity Advisers LLC. This post is based on her Sethi Clarity memorandum. Related research from the Program on Corporate Governance includes The Specter of the Giant Three (discussed on the Forum here) by Lucian Bebchuk and Scott Hirst; Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy by Lucian Bebchuk and Scott Hirst (discussed on the forum here); and The Agency Problems of Institutional Investors by Lucian Bebchuk, Alma Cohen, and Scott Hirst (discussed on the Forum here).

Asset managers have been caught in a difficult spot for several years. Some, including me, have pushed them to use their growing voting power to benefit social impact causes. Other experts have decried managers’ power and blamed them for anticompetitive outcomes and even increasing inequality.

The big three—BlackRock, State Street, and Vanguard—are victims of their own size. As they have increased their assets under management, they have also increased their voting power as typically they vote the shares for the money they manage (though not always for separate accounts but they do for mutual funds and exchange-traded fund (ETF) shares. With voting power, some would argue, comes responsibility. Those who argue for greater responsibility want asset managers to be more active on issues relating to climate change, gender diversity, and social issues, like equal pay. Indeed, State Street was recently criticized because its gender diversity index, traded as SHE, did not actually vote in favor of gender-based shareholder resolutions. In this particular case, competition amongst asset managers on values was demonstrated, with Pax World Funds having been found to vote most often in favor of gender resolutions on its gender funds. Moreover, this values-oriented approach tended to lead to better returns: funds classified by Morningstar as ESG/sustainable performed better than average in their category.


Weekly Roundup: July 26-August 1, 2019

More from:

This roundup contains a collection of the posts published on the Forum during the week of July 26–August 1, 2019.

Recent Ruling on Advance Notice Bylaws

Remarks to the SEC Investor Advisory Committee

2019 Proxy Season Takeaways

Compensation Consultants and the Level, Composition and Complexity of CEO Pay

The Facebook Settlement

Caremark Claim for Positive Violation of Law

Do Index Funds Monitor?

Avoiding a Toxic Culture: 10 Changes to Address #MeToo

Blurring the Lines: “Boilerplate” Provisions in Merger Agreement Interpretation

Corporate Control and the Limits of Judicial Review

The Importance of Contractual Precision: “Void” vs. “Voidable”

Symmetry in Pay for Luck

Oversight and Compliance Reminder

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, and is part of the Delaware law series; links to other posts in the series are available here.

Two recent developments in civil and criminal law highlight the importance of active, engaged board oversight in the areas of risk and compliance. The first is a Delaware Supreme Court decision allowing plaintiffs to proceed with a Caremark claim, and the second is a memorandum released by the Criminal Division of the U.S. Department of Justice noting the role of the board in ensuring that compliance programs are implemented effectively. While the Delaware case sends a warning message to directors, the DOJ memorandum provides guidance for directors as they work to fulfill their oversight responsibilities.


Symmetry in Pay for Luck

Naveen Daniel is the Denis O’Brien Research Scholar in Finance at Drexel University’s LeBow College of Business; Lily Li is Research Assistant Professor at the Temple University Fox School of Business; and Lalitha Naveen is Associate Professor of Finance at Temple University. This post is based on their recent article, forthcoming in the Review of Financial Studies. Related research from the Program on Corporate Governance includes Lucky CEOs and Lucky Directors by Lucian Bebchuk, Yaniv Grinstein and Urs Peyer (discussed on the Forum here) and Golden Parachutes and the Wealth of Shareholders by Lucian Bebchuk, Alma Cohen, and Charles C. Y. Wang (discussed on the Forum here).

Are CEOs of public corporations rewarded for good luck but not penalized to the same extent for bad luck? Previous studies have found this to be the case, and have termed this “asymmetry in pay for luck.” Some studies find that this asymmetry in pay for luck is stronger in firms with weaker corporate governance, and take this as evidence that CEO compensation is not optimal. Given the intense scrutiny and debate on CEO compensation, it is critical for researchers to understand the extent to which contracts are set optimally. In a recent article titled Symmetry in Pay for Luck (forthcoming in the Review of Financial Studies), we re-examine this issue. We find no asymmetry in pay for luck, either on average or in subsamples of firms with poor governance.

Our interest in revisiting the prior result of negative asymmetry stems from our observation that researchers have tremendous degrees of freedom in choosing the appropriate specification to test for asymmetry. To better understand this, consider the 2-step methodology used in prior literature to examine asymmetry.


The Importance of Contractual Precision: “Void” vs. “Voidable”

Gail Weinstein is senior counsel, and Warren S. de Wied and Andrew J. Colosimo are partners at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Ms. Weinstein, Mr. de Wied, Mr. Colosimo, Mark H. Lucas, Matthew V. Soran, and Maxwell Yim, and is part of the Delaware law series; links to other posts in the series are available here.

In Absalom Absalom Trust v. Saint Gervais LLC (June 27, 2019), the Court of Chancery held that the transfer of an LLC interest that was prohibited under the LLC Agreement would have been subject to equitable defenses if the transfer restriction provision had stated that a prohibited transfer would be “voidable”—but that, in this case, no equitable defenses are available because the LLC Agreement provides that a prohibited transfer would be “void.” The LLC Agreement provides that any disposition of an interest in the LLC without the written consent of the managers is “null and void.” An LLC member had assigned her interest to the plaintiff without the managers’ written consent. In this action, the plaintiff sought to inspect books and records of the LLC to investigate possible mismanagement by the managers. The managers argued that the plaintiff has no inspection right as he is not a member given that the transfer to him is void. The plaintiff argued that the LLC is estopped from asserting that the transfer is void given that the LLC had provided him with some books and records, had issued Schedule K-1 tax forms to him, and had referred to him as a member in some trial papers, all without reserving the right to contest his status as a member. READ MORE »

Page 9 of 9
1 2 3 4 5 6 7 8 9