Monthly Archives: October 2019

2019 Proxy Season Review

Chuck Callan is Senior Vice President of Regulatory Affairs at Broadridge Financial Solutions, Inc.; and Paul DeNicola is Managing Director of the Governance Insights Center at PwC. This post is based on a joint Broadridge and PwC publication by Mr. Callan, Mr. DeNicola, Mike Donowitz,Theresa Harvin, Paula Loop, and Catie Hall.

This post provides insights into key corporate governance and shareholder voting data for the 2019 proxy season, as well as the five-year trends. It covers the results of 4,059 public company annual meetings held between January 1 and June 30, 2019.

Overview & Key Takeaways

We continue to see substantial differences in voting between institutional and retail investors. This analysis shows how institutional and retail investor segments voted on a number of different proposal types. The data highlights how important it is for companies to engage with all of their shareholders. In general, retail shareholders were less supportive of shareholder proposals than institutional voters.


Recruiting ESG Directors

Steven A. Seiden is President at Seiden Krieger Executive Search. This post is based on his Seiden Krieger memorandum. 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).

The pressure is now greater to populate boards with directors whose backgrounds satisfy ESG (Environmental, Social, Governance) standards. Agitation for ESG boardroom reform is emanating from a variety of quarters and is taking on an even broader definition than originally. Indeed The Business Roundtable’s recent liberal “Statement on the Business of a Corporation” would appear to align with such cohorts.

“Environmental” now includes how a company’s board is graded on its policies impacting climate change, sustainability, carbon footprint, water usage, pollutants, conservation, and its stewardship of nature in general. A highly respected international banker makes the case for “Mark-to-Planet Finance.” The environment now extends to company property, i.e. land, manufacturing facilities, offices, transportation modalities, and especially safety.


A Common-Sense Approach to Corporate Purpose, ESG and Sustainability

John C. Wilcox is Chairman of Morrow Sodali. This post is based on a Morrow Sodali memorandum by Mr. Wilcox. 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).

With publication of the Business Roundtable’s “Statement on the Purpose of a Corporation,” [1] America’s top business and financial leaders now officially support the rapidly evolving ESG/sustainability movement, confirming that environmental, social and corporate governance policies are inextricably linked to business risk, value creation, financial performance and sustainability. [2]

The global push for sustainability has already proven to be a game changer that is altering the behavior of both institutional investors and companies. While investors struggle with the challenge of integrating ESG factors into their investment decisions, companies willing to define a meaningful corporate purpose and exploit the full potential of sustainability reporting can achieve important goals:

  • Do a more effective job managing relations with institutional investors and shareholders;
  • Reshape corporate reporting to provide a holistic picture of the business and its value drivers;
  • Direct shareholders’ attention to the company’s unique characteristics and values;
  • Designate company-specific performance metrics linked to business strategy and value creation;
  • Reduce investors’ reliance on external one-size-fits-all standards and inappropriate metrics;
  • Reduce vulnerability to shareholder activism


Less Aggressive SEC Sanctions on Violations by Crypto Issuers

Robert Rosenblum is a partner and Amy Caiazza and Taylor Evenson are associates at Wilson Sonsini Goodrich & Rosati. This post is based on a Wilson Sonsini memorandum by Mr. Rosenblum, Ms. Caiazza, Mr. Evenson, and Katherine Mann.

Until September 30, 2019, Securities and Exchange Commission (“SEC”) enforcement actions in the crypto industry conveyed a consistent message: most crypto is a security, and if a token issuer does not follow the registration requirements of the Securities Act of 1933 (“1933 Act”), the issuer would face significant consequences in the form of substantial penalties, a mandated rescission offer to US investors, a requirement to register the tokens under Section 12(g) of the Securities Exchange Act of 1934 (the “1934 Act”), and bad actor disqualifications preventing the issuer from future Regulation A and Regulation D offerings.

On September 30, the SEC announced a settlement with that did none of these things. Despite finding that issued tokens that were securities in the United States without complying with registration requirements of the 1933 Act, the SEC: imposed a financial penalty on that was minor in the context of the total size of’s capital raise; did not require to make a rescission offer to investors; did not require to register its tokens under the 1934 Act; and did not impose bad actor disqualifications under Regulation A and Regulation D. And, as discussed below, the Settlement Order omitted any mention of key factual information necessary to support the SEC’s conclusion that the tokens were in fact securities. Equally surprising, the SEC did not address, in any respect, whether new tokens issued being used on a blockchain supported by are securities, and the SEC took no action (and offered no discussion) with respect to the issuance of those tokens.


Stakeholder Governance—Issues and Answers

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy, and William Savitt is a partner at Wachtell, Lipton, Rosen & Katz. This post is based on their Wachtell memorandum.

The Business Roundtable’s recent call for a commitment to long-term sustainable economic value creation has prompted a vigorous debate about the optimal corporate governance model for achieving that goal.

Certain familiar arguments have reappeared in reaction to the Business Roundtable’s important statement rejecting shareholder primacy and embracing stakeholder governance. Various law firms and commentators insist that such innovation in corporate governance is constrained by an imperative to maximize shareholder value—the ideology that a corporation can have no purpose other than profit maximization for shareholder gain. Others assert that the path to effective governance reform lies with prescriptive regulation, presumptively by the federal government.

We disagree, and propose an alternative: The New Paradigm. Our approach reimagines corporate governance as a cooperative exercise among a corporation’s shareholders, directors, managers, employees, business partners, and the communities in which the corporation operates. The New Paradigm promotes transparency and engagement to ensure fair treatment of all stakeholders. It also aims to curtail, if not eliminate, short-termism and to combat activist pressure for financial engineering focused on short-term gain. Our approach thus addresses the fundamental criticism of corporations today—that their preoccupation with maximizing short-term shareholder gain has failed to generate economic growth and security for the rest of society—while avoiding the substantial risks of heavy-handed regulatory intervention.


The New Stock Market: Law, Economics, and Policy

Merritt B. Fox is the Michael E. Patterson Professor of Law at Columbia Law School; Lawrence R. Glosten is the S. Sloan Colt Professor of Banking and International Finance at Columbia Business School; and Gabriel Rauterberg is Assistant Professor of Law at the University of Michigan Law School. This post is based on the introduction to their recent book The New Stock Market: Law, Economics, and Policy.

Markets for trading financial instruments are a central feature of modern finance and play a crucial role in the larger economy. The U.S. stock market, where public equities are traded, is a global symbol of commerce and trade. Its total valuation is about $25 trillion—almost double the total assets held by the commercial banking system. It serves as a principal vehicle for the direct and indirect investment of public savings, and represents roughly half of the value of the dollar savings of individual Americans. Its functioning is also critical to the process by which changes of control in major companies take place. The prices in the stock market incorporate enormous amounts of information and serve as important guides to decision making throughout the economy. Yet, despite their prominence, the stock market, and financial trading markets more broadly, remain deeply puzzling and complicated. The central institutions of the stock market are a series of trading venues—twelve stock exchanges, over thirty active alternative trading systems, and other forms of off-exchange trade—whose operational details and governing regulatory scheme are extremely complex. The stock market’s central economic dynamics, particularly the adverse selection dynamics created by informed traders, mark it off by degree, if not kind, from the ordinary markets of the real economy. And its controversies are both perennial and new. Insider trading, manipulation, and short-selling remain attention-grabbing, while newer participants and institutions, such as high-frequency traders and dark pools also generate discussion and debate.


Investment Management: Compliance Developments & Calendar for Private Fund Advisers

Jason M. Daniel is a partner and Jenny M. Walters is a senior practice attorney at Akin Gump Strauss Hauer & Feld LLP. This post is based on a Akin Gump memorandum by Mr. Daniel, Ms. Walters, Nnedi Ifudu NwekeSophie Donnithorne-TaitEzra Zahabi, and Michelle Reed.

While the Securities and Exchange Commission (SEC) brought several enforcement actions in 2018-19, the most significant new developments were published interpretations and alerts. Other agencies, such as the Commodity Futures Trading Commission (CFTC), also provided new guidance and brought significant enforcement actions.

Fiduciary Interpretation

In June of 2019, the SEC adopted a new interpretation (the “Fiduciary Interpretation”) defining fiduciary duties for investment advisers as consisting of a duty of loyalty and a duty of care, requiring investment advisers to provide advice that is in the best interests of the relevant client without putting the adviser’s interests ahead of the client’s. The Fiduciary Interpretation specifically defines the duty of loyalty, requires precise disclosure regarding conflicts and establishes a duty of care. For private fund and institutional clients, the Fiduciary Interpretation acknowledges a difference between retail and institutional clients.


Weekly Roundup: October 18–24, 2019

More from:

This roundup contains a collection of the posts published on the Forum during the week of October 18–24, 2019.

2019 Mid-Year Shareholder Activism Report

Conducting a Token Offering Under Regulation A

The Consequences to Directors of Deploying Poison Pills

CFIUS Modernization

The Corrosion Critique of Benefit Corporations

CII Letter to the SEC—Proxy Advisor Regulation

Ken Bertsch is Executive Director at the Council of Institutional Investors (CII). This post is based on a comment letter that CII submitted to the United States Securities and Exchange Commission.

October 15, 2019

The Honorable Jay Clayton, Chairman
The Honorable Robert J. Jackson, Jr., Commissioner
The Honorable Allison Herren Lee, Commissioner
The Honorable Hester M. Peirce, Commissioner
The Honorable Elad L. Roisman, Commissioner

c/o Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549

Re: File No. 4-725 Proxy Advisor Regulation

Dear Commissioners:

The Council of Institutional Investors and the undersigned coalition of investors writes to express concern that the Securities and Exchange Commission (the “Commission” or the “SEC”) has embarked on a series of actions that we believe may reduce investor participation in the corporate governance voting process, and is likely to undermine investor protection, upend efficiency in the critical arena of corporate governance and impair capital formation by diminishing corporate managerial accountability. We refer specifically to:

  • Proxy Advisor Interpretation and Guidance. The Commission’s August 21, 2019, Interpretation and Guidance Regarding the Applicability of the Proxy Rules to Proxy Voting Advice and Guidance Regarding Proxy Voting Responsibilities of Investment Advisers (collectively, the “Proxy Advisor Interpretation and Guidance”); and
  • Proxy Advisor Rulemaking. The prospect of proposed rule amendments to address proxy advisors’ reliance on the proxy solicitation exemptions in Rule 14a-2(b), which is listed in the current Commission Regulatory Flex Agenda (“Proxy Advisor Rulemaking”).


The Corrosion Critique of Benefit Corporations

Brett McDonnell is the Dorsey & Whitney Chair in Law at the University of Minnesota Law School. This post is based on his recent paper, and is part of the Delaware law series; links to other posts in the series are available here.

Benefit corporation statutes have emerged as the leading new statutory alternative to enable and encourage social enterprises, businesses which seek both to generate financial returns for their investors while also pursuing social missions. Some persons who strongly support social enterprises have criticized benefit corporation statutes, arguing that they create a mistaken impression that companies organized under ordinary corporation statutes cannot consider the interests of non-shareholder stakeholders except insofar as doing so benefits shareholders in the long run. This corrosive effect on the understanding of most corporations may impede the adoption of socially responsible behavior. I call this common criticism of benefit corporation statutes the “corrosion critique.”


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