Yearly Archives: 2019

Weekly Roundup: March 22-28, 2019

Posted by the Harvard Law School Forum on Corporate Governance & Financial Regulation, on

Friday, March 29, 2019

Weekly Roundup
More from:

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

Activist CEOs Speak Out—Is There a Way to Do it Better?

Posted by Cydney Posner, Cooley LLP, on Friday, March 22, 2019

Tags: Corporate Social Responsibility, ESG, Management, Public perception, Reputation

New Developments in Shareholders’ Gender Pay Gap Proposals

Posted by Ryan Resch and Ruby Tewani, Willis Towers Watson, on Friday, March 22, 2019

Tags: Boards of Directors, Compensation committees, Compensation disclosure, Compensation ratios, Diversity, ESG, Executive Compensation, Management, Shareholder proposals, UK

General Statements of Regulatory Compliance and Securities Fraud Claims

Posted by Roger Cooper, Jared Gerber, and Lisa Vicens, Cleary Gottlieb Steen & Hamilton LLP, on Saturday, March 23, 2019

Tags: Class actions, Compliance & ethics, Compliance and disclosure interpretation, Disclosure, Form 10-K, Form 8-K, Section 10(b), Securities litigation, Securities regulation, U.S. federal courts

CFTC Enforcement Announcement: Commodity Exchange Act Violations Involving FCPA

Posted by Geoffrey F. Aronow, Michael S. Sackheim, Sharon A. Rose, Sidley Austin LLP, on Sunday, March 24, 2019

Tags: Anti-corruption, CFTC, Commodities, Commodities Exchange Act, Dodd-Frank Act, DOJ, FCPA, International governance, Misconduct, SEC, Securities enforcement

PE Professionals on the Boards of their Portfolio Companies

Posted by Glenn West and Miae Woo, Weil, Gotshal & Manges LLP, on Monday, March 25, 2019

Tags: Boards of Directors, Books and records, Delaware cases, Delaware law, DGCL, DGCL Section 220, Discovery, Private equity

Will Aruba Finish Off Appraisal Arbitrage and End Windfalls for Deal Dissenters? We Hope So

Posted by William J. Carney (Emory University) and Keith Sharfman (St. John’s University), on Monday, March 25, 2019

Tags: Appraisal rights, Arbitrage, Delaware cases, Delaware law, Fair values, Fairness review, Firm valuation, Market efficiency, Merger litigation, Mergers & acquisitions

2018 Year in Review—Securities Litigation Against Technology Companies

Posted by Grant Fondo, Michael Jones, and Nicholas Reider, Goodwin Procter LLP, on Monday, March 25, 2019

Tags: Blockchain, California, Class actions, Cryptocurrency, Disclosure, Howey test, ICOs, Liability standards, Merger litigation, Mergers & acquisitions, SEC, Section 10(b), Securities fraud, Securities litigation, Securities regulation, Shareholder suits, State law, Tech companies, U.S. federal courts

Whistleblower Award to Company Outsider

Posted by Jennifer Kennedy Park, Alex Janghorbani and Jim Wintering, Cleary Gottlieb Steen & Hamilton LLP, on Tuesday, March 26, 2019

Tags: CFTC, Commodities Exchange Act, Compliance & ethics, Dodd-Frank Act, Financial institutions, Financial technology, FINRA, SEC, Securities regulation, Whistleblowers

Board 3.0: An Introduction

Posted by Ronald J. Gilson and Jeffrey N. Gordon (Columbia Law School), on Tuesday, March 26, 2019

Tags: Board monitoring, Board oversight, Boards of Directors, Dual-class stock, Engagement, Hedge funds, Information asymmetries, Information environment, Institutional Investors, Private equity, Private firms

Longer-Term Restricted Share Plans in Executive Pay

Posted by Joseph Bachelder, McCarter & English LLP, on Tuesday, March 26, 2019

Tags: Clawbacks, Executive Compensation, Executive performance, Firm performance, Incentives, Internal Revenue Code, International governance, Pay for performance, Section 162(m), Tax Cuts and Jobs Act, UK

Practical Implications of Proposed Testing the Waters for All Issuers under U.S. Securities Law

Posted by Jon Daly, Michael Hyatte, and David Ni, Sidley Austin LLP, on Wednesday, March 27, 2019

Tags: Accredited investors, Capital formation, IPOs, JOBS Act, Regulation FD, Retail investors, SEC, Securities regulation, Small firms, Solicitation

Does Protectionist Anti-Takeover Legislation Lead to Managerial Entrenchment?

Posted by Marc Frattaroli (EPFL), on Wednesday, March 27, 2019

Tags: Acquisition premiums, Agency costs, Antitakeover, Cross-border transactions, Entrenchment, Executive Compensation, France, International governance, Management, Mergers & acquisitions

2019 Proxy Voting and Engagement Guidelines: North America

Posted by Rick Lacaille and Rakhi Kumar, State Street Global Advisors, on Wednesday, March 27, 2019

Tags: Antitakeover, Boards of Directors, ESG, Executive Compensation, Institutional Investors, Poison pills, Repurchases, Shareholder voting

Wake up the Raiders: Considerations for Private Equity Going Activist

Posted by Stephen B. Amdur (Pillsbury Winthrop Shaw Pittman LLP) and Chuck Dohrenwend and Patrick Tucker (Abernathy MacGregor), on Thursday, March 28, 2019

Tags: Hedge funds, Private equity, Proxy contests, Shareholder activism, Shareholder value, Shareholder voting, Target firms

Tulips, Oranges, Worms, and Coins—Virtual, Digital, or Crypto Currency and the Securities Laws

Posted by Thomas Lee Hazen (University of North Carolina), on Thursday, March 28, 2019

Tags: Asset bubbles, Bitcoin, Contracts, Cryptocurrency, Financial technology, Howey test, ICOs, SEC, SEC enforcement, Securities Act, Securities regulation, State law

Crisis Resilience and the Board—Taking Risk Oversight to the Next Level

Posted by Michael Gelles (Deloitte Consulting LLP), James Turgal (Deloitte & Touche LLP), and Wendy Overton (Deloitte LLP), on Thursday, March 28, 2019

Tags: Board oversight, Board performance, Boards of Directors, Corporate culture, Oversight, Risk management, Risk oversight

Remarks to the SEC Investor Advisory Committee

Posted by Jay Clayton, U.S. Securities and Exchange Commission, on Thursday, March 28, 2019

Tags: Capital allocation, Compensation disclosure, Compensation guidelines, Disclosure, Human capital, Investor protection, Securities regulation, Transparency

Remarks to the SEC Investor Advisory Committee

Posted by Jay Clayton, U.S. Securities and Exchange Commission, on

Thursday, March 28, 2019

Capital allocation, Compensation disclosure, Compensation guidelines, Disclosure, Human capital, Investor protection, Securities regulation, Transparency
More from: Jay Clayton, U.S. Securities and Exchange Commission

Jay Clayton is Chairman of the U.S. Securities and Exchange Commission. This post is based on Chairman Clayton’s recent remarks to the SEC Investor Advisory Committee, available here. The views expressed in this post are those of Mr. Clayton and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

Thank you, Anne (Sheehan). Good morning everyone. It’s good to see everyone again, particularly as the last time we all met in person was in December of last year. I was glad to be able to participate with Commissioner Roisman on a call with members of the Committee last month, where among other things we talked about human capital disclosures and proxy plumbing. My prepared remarks for that call—as well as Commissioner Roisman’s—are available on our website.

Turning to the agenda for today, I look forward to the discussion on the stock exchange regulatory structure, which is an important topic for the Commission. I am also pleased that the Committee will revisit the discussion regarding disclosures on human capital. Finally, I look forward to the discussion on investment research and potential regulatory implications. Before going into detail, I note that my thoughts are my own and do not necessarily reflect the views of my fellow Commissioners or the SEC staff.

Crisis Resilience and the Board—Taking Risk Oversight to the Next Level

Posted by Michael Gelles (Deloitte Consulting LLP), James Turgal (Deloitte & Touche LLP), and Wendy Overton (Deloitte LLP), on

Thursday, March 28, 2019

Board oversight, Board performance, Boards of Directors, Corporate culture, Oversight, Risk management, Risk oversight
More from: James Turgal, Michael Gelles, Wendy Overton, Deloitte

Michael Gelles is Managing Director at Deloitte Consulting LLP, James Turgal is Managing Director at Deloitte & Touche LLP, and Wendy Overton is Manager at the Center for Board Effectiveness at Deloitte LLP. This post is based on their Deloitte memorandum.

Companies seek to anticipate and avoid or proactively mitigate crises that pose risk to their business. As part of their oversight responsibility, boards seek to assist management in carrying out these responsibilities. However, no matter how prepared a company is, and regardless of the levels of management attentiveness and board oversight, crises will happen; they are a matter of when, not if. Because of this reality, it is important for companies, including their management and board, to build resilience.

The need to build resilience is more critical in an age of disruption and rapid exponential change. Crises that used to take days or even weeks to unfold may now take minutes or even seconds. Consequently, preparedness and agility are key to the board’s success in resilience oversight. Companies cannot plan for the unknown, but the more a company proactively identifies risks and builds resilience to crises through organizational, cultural, and technological facets, the more capable it can be at bouncing back from a broad set of crises.

Tulips, Oranges, Worms, and Coins—Virtual, Digital, or Crypto Currency and the Securities Laws

Posted by Thomas Lee Hazen (University of North Carolina), on

Thursday, March 28, 2019

Asset bubbles, Bitcoin, Contracts, Cryptocurrency, Financial technology, Howey test, ICOs, SEC, SEC enforcement, Securities Act, Securities regulation, State law
More from: Thomas Hazen

Thomas Lee Hazen is the Cary C. Boshamer Distinguished Professor at the University of North Carolina at Chapel Hill School of Law. This post is based on a recent article by Professor Hazen, forthcoming in the North Carolina Journal of Law and Technology.

The securities laws contain a broad definition of what constitutes a security. Finding a security to exist triggers many regulatory provisions of the securities laws. There is considerable case law interpreting the now well-developed test for what constitutes an “investment contract” leading to the finding that a security exists. However, to date, there is relatively sparse authority applying the securities laws to virtual, digital, or crypto currencies. In my article, I examine the investment contract analysis and concludes that initial coin offerings and many, if not most, digital currency transactions involve securities and therefore are subject to SEC jurisdiction and to the jurisdiction of state securities administrators. The article then outlines the regulatory consequences of applying the securities laws to digital currency transactions.

Over the years, a wide variety of nontraditional investments from orange groves to earthworms and scotch whiskey have been held to be securities. But what about virtual, digital, or crypto currency?

Wake up the Raiders: Considerations for Private Equity Going Activist

Posted by Stephen B. Amdur (Pillsbury Winthrop Shaw Pittman LLP) and Chuck Dohrenwend and Patrick Tucker (Abernathy MacGregor), on

Thursday, March 28, 2019

Hedge funds, Private equity, Proxy contests, Shareholder activism, Shareholder value, Shareholder voting, Target firms
More from: Chuck Dohrenwend, Jarrod Murphy, Pat Tucker, Steve Amdur, Abernathy MacGregor, Pillsbury

Stephen B. Amdur is partner at Pillsbury Winthrop Shaw Pittman LLP; Chuck Dohrenwend and Patrick Tucker are managing directors at Abernathy MacGregor. This post is based on a Pillsbury memorandum by Mr. Amdur, Mr. Dohrenwend, Mr. Tucker, and Jarrod D. Murphy. 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).

What do you do when valuations reach record-high levels, but you have trillions of dollars to spend amid increased competition? The challenge of an “inverse proportion” of dry powder (rising) to attractive deal opportunities (declining) [1] is driving private equity professionals to consider emulating the tactics of shareholder activists in order to generate good returns for their investors.

Embracing shareholder activism creates risk for private equity managers that traditional activist funds do not carry. By understanding these differences and their communications implications, private equity sponsors can manage these risks and effectively capture the value potential of activist strategies.

2019 Proxy Voting and Engagement Guidelines: North America

Posted by Rick Lacaille and Rakhi Kumar, State Street Global Advisors, on

Wednesday, March 27, 2019

Antitakeover, Boards of Directors, ESG, Executive Compensation, Institutional Investors, Poison pills, Repurchases, Shareholder voting
More from: Rakhi Kumar, Richard Lacaille, SSgA

Rick Lacaille is Executive Vice President and Global Chief Investment Officer and Rakhi Kumar is Senior Managing Director and Head of ESG Investments and Asset Stewardship at State Street Global Advisors. This post is based on a publication prepared by State Street Global Advisors.

State Street Global Advisors recently released their 2019 proxy voting and engagement guidelines. The guidelines consist of the 2019 Global Proxy Voting and Engagement Principles and six market specific proxy voting and engagement guidelines, including the North American guideline reproduced below. The guidelines are supplemented by the 2019 Global Proxy Voting and Engagement Guidelines for Environmental and Social Issues, which provides additional transparency into our approach to these important issues. The complete set of guidelines, including our Conflicts of Interest Policy and Issuer Engagement Protocol are available under the Voting Guidelines section of the Asset Stewardship website.

State Street Global Advisors’ North America Proxy Voting and Engagement Guidelines [1] address areas, including board structure, director tenure, audit related issues, capital structure, executive compensation, as well as environmental, social, and other governance-related issues of companies listed on stock exchanges in the US and Canada (“North America”). Principally, we believe the primary responsibility of the board of directors is to preserve and enhance shareholder value and protect shareholder interests. In order to carry out their primary responsibilities, directors have to undertake activities that range from setting strategy and overseeing executive management to monitoring the risks that arise from a company’s business, including risks related to sustainability issues. Further, good corporate governance necessitates the existence of effective internal controls and risk management systems, which should be governed by the board.

Does Protectionist Anti-Takeover Legislation Lead to Managerial Entrenchment?

Posted by Marc Frattaroli (EPFL), on

Wednesday, March 27, 2019

Acquisition premiums, Agency costs, Antitakeover, Cross-border transactions, Entrenchment, Executive Compensation, France, International governance, Management, Mergers & acquisitions
More from: Marc Frattaroli

Marc Frattaroli is a PhD candidate at the Swiss Finance Institute at Ecole Polytechnique Fédérale de Lausanne (EPFL). This post is based on his recent article, forthcoming in the Journal of Financial Economics. Related research from the Program on Corporate Governance includes The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here).

My article, titled Does protectionist anti-takeover legislation lead to managerial entrenchment?, forthcoming in the Journal of Financial Economics, investigates the implications of protectionist interventions into mergers and acquisitions for corporate governance.

Over the last few years, governments worldwide have intervened in a significant number of cross-border mergers and acquisitions, often citing national security concerns. Several countries including the United States, Germany, France, and the United Kingdom have also recently introduced or are contemplating the introduction of legislation that increases the scrutiny of foreign investments. The threat of a takeover is one of several possible ways to overcome the agency problem created by the separation of ownership and control in firms: If a firm’s management is implementing policies that are suboptimal for shareholders, a shareholder or third party can make a profit by acquiring the firm and replacing its management team. In theory, therefore, a reduction in this threat, such as through protectionist legislation, has the potential to entrench a firm’s management, i.e. might allow management to extract private benefits at the expense of shareholders.

Practical Implications of Proposed Testing the Waters for All Issuers under U.S. Securities Law

Posted by Jon Daly, Michael Hyatte, and David Ni, Sidley Austin LLP, on

Wednesday, March 27, 2019

Accredited investors, Capital formation, IPOs, JOBS Act, Regulation FD, Retail investors, SEC, Securities regulation, Small firms, Solicitation
More from: Craig Chapman, David Lichtstein, David Ni, Eric Haueter, Jon Daly, Michael Hyatte, Sidley Austin

Jon Daly, Michael Hyatte, and David Ni are partners at Sidley Austin LLP. This post is based on a Sidley memorandum by Mr. Daly, Mr. Hyatte, Mr. Ni, David B. Lichtstein, Craig Chapman, and Eric Haueter.

On February 19, 2019, the Securities and Exchange Commission (SEC) approved a proposed rule that, if enacted, would permit all issuers to use “test-the-waters” communications (TTW communications). Currently, only “emerging growth companies”—a defined term generally describing most initial public offering (IPO) issuers and other new entrants to the SEC reporting system—are permitted to engage in TTW communications under the Securities Act of 1933 (Securities Act). This alert provides some background on TTW communications, discusses the new proposal and concludes with our views of the practical implications of the proposal.

Background: Testing the Waters and the JOBS Act

In April 2012, President Barack Obama signed the Jumpstart Our Business Startups Act (JOBS Act) into law. The JOBS Act’s stated objective was to facilitate capital formation, particularly for emerging growth companies (EGCs). The JOBS Act added Section 5(d) to the Securities Act to permit TTW communications for EGCs. Section 5(d) allows EGC issuers, and persons acting on their behalf, to test the waters by oral or written communication with potential investors both before and after the filing of an IPO registration statement. Under Section 5(d), TTW communications are solely permitted with potential investors who are “qualified institutional buyers” (QIBs) or institutional “accredited investors” (IAIs), as defined by applicable SEC rules. Apart from TTW communications, after the filing of a registration statement, written communication offering a security is forbidden by Section 5(b) unless such communication is a prospectus that meets SEC requirements or is exempt from those requirements.

Longer-Term Restricted Share Plans in Executive Pay

Posted by Joseph Bachelder, McCarter & English LLP, on

Tuesday, March 26, 2019

Clawbacks, Executive Compensation, Executive performance, Firm performance, Incentives, Internal Revenue Code, International governance, Pay for performance, Section 162(m), Tax Cuts and Jobs Act, UK
More from: Andy Tsang, Joseph Bachelder, McCarter & English

Joseph Bachelder is special counsel at McCarter & English LLP. This post is based on a memorandum by Mr. Bachelder. Andy Tsang, a senior financial analyst with the firm, assisted in the preparation of this post. 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) and Share Repurchases, Equity Issuances, and the Optimal Design of Executive Pay by Jesse Fried (discussed on the Forum here).

This post examines “longer-term” restricted share plans that, in some cases, have replaced performance share plans in executive pay programs. It focuses on such a replacement made by a U.K. company in 2018.

Restricted shares have been a form of long-term incentive award since the 1950s. They generally provide vesting over a period of several years. (Three years is typical but some restricted shares vest over longer periods, such as four or five years. Some awards provide for “cliff vesting”—meaning vesting, if it occurs, occurs at the end of the vesting period and not at intervals (such as pro rata) during that period.) Restricted share awards, as referred to in this post, represent the full value of the share (not just the growth in value). Acceleration of vesting may take place in certain circumstances such as a Change in Control or a “qualifying termination” (e.g., a termination by the employer without Cause or by the employee for Good Reason).

Board 3.0: An Introduction

Posted by Ronald J. Gilson and Jeffrey N. Gordon (Columbia Law School), on

Tuesday, March 26, 2019

Board monitoring, Board oversight, Boards of Directors, Dual-class stock, Engagement, Hedge funds, Information asymmetries, Information environment, Institutional Investors, Private equity, Private firms
More from: Jeffrey Gordon, Ronald Gilson

Ronald J. Gilson is Stern Professor of Law and Business at Columbia Law School and Meyers Professor of Law and Business Emeritus at Stanford Law School, and Jeffrey N. Gordon is Richard Paul Richman Professor of Law at Columbia Law School. This post is based on their recent article, forthcoming in The Business Lawyer.

In Board 3.0: An Introduction, we sketch the case for a new board structure as an option for public company boards. The current board model—Board 2.0 in our terms—had its genesis in Mel Eisenberg’s iconic 1976 book. Eisenberg framed the ideal board as one dominated by part-time independent directors charged with monitoring management’s performance. This would replace the Board 1.0 model of directors who served as management’s advisors and whose response to disagreements with management was to resign rather than act. Board 2.0, however, goes only so far. The board remains dependent on management for company-sourced information and thus is heavily reliant on stock market prices as a measure of management performance. The result has been a board model of thinly informed, under-resourced, and boundedly motivated directors, attractive to management because of the judicially provided cover that such a board can deliver in fending off the four horsemen of the corporate apocalypse: plaintiffs’ lawyers, regulators, raiders and activists.

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Yearly Archives: 2019

Weekly Roundup: March 22-28, 2019

Activist CEOs Speak Out—Is There a Way to Do it Better?

New Developments in Shareholders’ Gender Pay Gap Proposals

General Statements of Regulatory Compliance and Securities Fraud Claims

CFTC Enforcement Announcement: Commodity Exchange Act Violations Involving FCPA

PE Professionals on the Boards of their Portfolio Companies

Will Aruba Finish Off Appraisal Arbitrage and End Windfalls for Deal Dissenters? We Hope So

2018 Year in Review—Securities Litigation Against Technology Companies

Whistleblower Award to Company Outsider

Board 3.0: An Introduction

Longer-Term Restricted Share Plans in Executive Pay

Practical Implications of Proposed Testing the Waters for All Issuers under U.S. Securities Law

Does Protectionist Anti-Takeover Legislation Lead to Managerial Entrenchment?

2019 Proxy Voting and Engagement Guidelines: North America

Wake up the Raiders: Considerations for Private Equity Going Activist

Tulips, Oranges, Worms, and Coins—Virtual, Digital, or Crypto Currency and the Securities Laws

Crisis Resilience and the Board—Taking Risk Oversight to the Next Level

Remarks to the SEC Investor Advisory Committee

Remarks to the SEC Investor Advisory Committee

Crisis Resilience and the Board—Taking Risk Oversight to the Next Level

Tulips, Oranges, Worms, and Coins—Virtual, Digital, or Crypto Currency and the Securities Laws

Wake up the Raiders: Considerations for Private Equity Going Activist

2019 Proxy Voting and Engagement Guidelines: North America

Does Protectionist Anti-Takeover Legislation Lead to Managerial Entrenchment?

Practical Implications of Proposed Testing the Waters for All Issuers under U.S. Securities Law

Background: Testing the Waters and the JOBS Act

Longer-Term Restricted Share Plans in Executive Pay

Board 3.0: An Introduction

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