Monthly Archives: May 2020

Carbon Premium around the World

Patrick Bolton is Barbara and David Zalaznick Professor of Business at Columbia Business School, and Marcin T. Kacperczyk is Professor of Finance at Imperial College London. This post is based on their recent paper.

Apart from COVID-19, few topics garner as much global attention these days as the looming climate crisis. And let us not forget that before the outbreak of the pandemic the front pages of most newspapers were filled with stories and pictures of the extraordinary wildfires in Australia, which by some estimates have cost the country up to 5% of GDP. The visible warming of the planet (2019 was the warmest year on record) has put climate change at the centre of people’s preoccupations all over the world. Yet, even a casual observer can see that countries have implemented widely differing policies to combat climate change. Some regions of the world, most notably Scandinavia, have been at the forefront of transitioning their economies towards renewable energy. Other countries have taken very limited steps in this regard, or even reversed past policy commitments towards reducing carbon emissions, as the United States has done by brashly pulling out of the 2015 Paris Agreement. Similar antagonistic stances towards climate change mitigation have been appallingly on display by the Australian government in the midst of the worst wildfires in Australian history and by the Brazilian government facing a resurgence in forest fires in the Amazon by wildcat miners and farmers.


First Quarter 2020 Class Actions

Bradley Hamburger is a partner and Lauren Blas and Samuel Eckman are associates at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn memorandum by Mr. Hamburger, Ms. Blas, Mr. Eckman, Kahn Scolnick, Emily Riff, and Warren Loegering.

I. Appellate Courts Begin to Consider How Bristol-Myers Applies to Class Actions

This quarter, appellate courts wrestled for the first time with the application of Bristol-Myers Squibb Co. v. Superior Court of Cal., 137 S. Ct. 1773 (2017), to class actions.

In Bristol-Myers, the Supreme Court held that the scope of a state court’s power to exercise personal jurisdiction over a defendant requires a connection between the defendant’s activity in the forum state and the specific claims in the litigation. As we detailed in a prior client alert, a group of plaintiffs (including California and non-California residents) filed a mass tort suit in California alleging that all had been injured by a drug produced by defendant, which was incorporated in Delaware and headquartered in New York. The Supreme Court held that California could not exercise jurisdiction over the claims brought by non-residents because there was no connection between the forum and those claims.

As Justice Sotomayor noted in her dissent, the Court did “not confront the question whether its opinion here would also apply to a class action in which a plaintiff injured in the forum State seeks to represent a nationwide class of plaintiffs, not all of whom were injured there.” Id. at 1789 n.4 (Sotomayor, J., dissenting). Three federal circuit courts have now weighed in on this question, and have reached varied conclusions.


Seven Considerations for Stock Buyback Programs in the Era of COVID-19

Paul Davis Fancher is a partner at Troutman Sanders LLP, Robert A. Friedel is a partner at Pepper Hamilton LLP, and Ali Elkhalil is an associate at Troutman Sanders LLP. This post is based on a Troutman Sanders memorandum by Mr. Davis Fancher, Mr. Friedel, Mr. Elkhalil, and Cot Eversole. Related research from the Program on Corporate Governance includes Short-Termism and Capital Flows by Jesse Fried and Charles C. Y. Wang (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).

In light of the ongoing coronavirus pandemic (COVID-19), corporations face an increasingly difficult task: navigating the volatility of the financial markets and performance of the company’s financial metrics (e.g., share price and earnings per share) while balancing initiatives that champion goodwill and sustainability on their behalf and on behalf of their key stakeholders. Stock buyback programs are a common tool used by corporations to manage volatility and enhance stockholder value. In 2018 and 2019, corporations repurchased nearly $1.5 trillion of their own shares through stock buyback programs. [1] These repurchases generally served to stabilize, even encourage, share prices and increased earnings per share. However, recent events have led to increased public scrutiny, both financially and politically, of the adoption and continuation of these programs, including from the highest levels of government. Accordingly, implementation and usage is down drastically—more than 35% in dollar volumes year-to-date. [2]

If your corporation is considering the adoption or continuation of a stock buyback program, you should consider the following:


Boards and the Virus: Seven Perspectives on the Day After

Stilpon Nestor is Managing Director at Nestor Advisors Ltd. This post is based on his Nestor Advisors memorandum.

These days, humanity’s top priority is our personal health and safety as well as that of our families and our employees. The fact that I am still working signals another key priority: keep the cash coming through the company door—and preserve it as much as possible. There is a lot of discussion about these priorities and the various trade-offs they entail, how they should be ordered and how companies should organise and govern themselves to effectively address them. But the topic of this post is not today but the “day after”.

Sooner or later corporate boards and leaders will emerge from their domestic trenches to rebuild their company’s—and the world’s—economic future. And the future will not be what was imagined in pre-coronian times. This note proposes a seven-point framework for organising corporate leadership’s thinking on this radically different “day after”. The seven points are: interconnectedness; the macro-political economy; perceptions of risk; consumer preferences; technological acceleration; work organisation; and the role of the state. In my view, there will be notable shifts in all these areas, although opinions may differ as to what these shifts will entail and what they will mean for each firm.

It is the job of the board to build a view of this new world and the opportunities and threats it presents to each firm. These seven points will hopefully help to crystallise these views, to develop useful scenaria against which the firm might identify such opportunities and threats, and to map a strategic way forward. They might also elucidate potential “doomsday” moments and build reverse stress approaches for their avoidance.


COVID-19 and Executive Pay: Initial Reactions and Responses

Stephen Charlebois is a principal, Phillip Pennell is a consultant, and Rachel Ki is an associate at Semler Brossy Consulting Group, LLC. This post is based on a Semler Brossy memorandum by Mr. Charlebois, Mr. Pennell, Ms. Ki, and Kathryn Neel. 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).

The rapid global spread of COVID-19 has had incalculable impacts on society, taking both a serious economic and human toll. Many companies are faced with balancing competing responsibilities to various stakeholders. While the primary focus is on taking care of employees and ensuring business continuity, many companies are also facing new challenges in appropriately managing executive compensation.

Though businesses have managed executive pay programs through tough economic conditions before, they now must do so under an unprecedented confluence of external expectations and scrutiny, from the advent of Say on Pay to increased shareholder engagement to the beginning of an era of stakeholder primacy.

Though expectations are still evolving, companies are expected to develop cohesive responses. those making decisions need to consider their business and their stakeholders, while looking to continue to engage and motivate key talent.


Lessons From the Future—The First Contested Virtual Annual Meeting

Igor Kirman and Sabastian V. Niles are partners and Natalie S.Y. Wong is an associate at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Kirman, Mr. Niles, Ms. Wong, Oliver J. Board and Loren Oumarova.

The 2020 proxy season has been anything but routine, with the COVID-19 pandemic and the resulting state shelter-in-place orders requiring many companies to make the shift from physical to virtual annual meetings, and state corporate laws being amended to allow these virtual meetings to occur. Yet we had not seen a virtual annual meeting used in a proxy contest until April 30, 2020, when shareholders of TEGNA Inc. participated in the first election contest conducted at a virtual, rather than physical, annual meeting (all of the company’s twelve nominees were re-elected).

While the concept and technology have existed for several years, virtual annual meetings were slow to become widespread. The trickle that began after Delaware amended its business corporation laws to permit such meetings in 2000 gained steam after 2009, when Intel Corporation hosted the first virtual annual meeting using technology pioneered by Broadridge Financial Solutions. According to Broadridge, the number of virtual annual meetings more than doubled from 93 meetings in 2014 to 187 meetings in 2016, and there have been over 200 virtual annual meetings every year since 2017. This year, in light of the COVID-19 pandemic and lockdown requirements, most public companies are using virtual annual meetings, with a large majority doing so for the first time. Yet companies have been reluctant to use virtual meetings for contested situations, due to the extra complexity of such meetings and the unavailability of a commercial platform to do so.

Some key considerations to take into account when navigating a contested virtual meeting are set forth below:


Stewardship and Shareholder Engagement in Germany

Wolf-Georg Ringe is Professor of Law & Economics at the University of Hamburg Faculty of Law. This post is based on his recent paper. 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 Funds and the Future of Corporate Governance: Theory, Evidence, and Policy by Lucian Bebchuk and Scott Hirst (discussed on the forum here).

Corporate stewardship holds great promise for the improvement of shareholder engagement and the encouragement of more responsible and long-term oriented value creation. Many countries have now adopted a best practice code for the stewardship role of institutional investors and asset managers, following the UK example. Yet the EU’s largest economy remains surprisingly reluctant to join in the merry go-round. Lawmakers and regulators in Germany have been sitting on the fence on the issue during the past several years, hesitating on what to do. Most saliently, Germany has refused to adopt an official stewardship code, and the recent reform of the European Shareholder Rights Directive (SRD II) that is promoting similar long-term engagement policies at the EU level is eyed with some suspicion. Although shareholders of German firms have taken a more assertive role as active investors recently, it is surprising to see the comparative reluctance of the German government towards promoting a stewardship code that would define and promote engagement practices. Thereby, Germany is swimming upstream by refusing to follow the international trend towards such a code of best practices. In a new paper, I explore the role that stewardship and shareholder engagement play in the German context and investigate the reasons behind the reluctance of lawmakers to follow the international trend. I also discuss whether the adoption of a Stewardship Code would still make sense in the regulatory framework of Germany today.


Director Oversight Duties Amidst COVID-19

Jane D. Goldstein is a partner and Daniel Lim and Kenneth Monroe are associates at Ropes & Gray LLP. This post is based on a Ropes & Gray publication by Ms. Goldstein, Mr. Lim, Mr. Monroe, Paul S. Scrivano, and Peter Welsh, 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 Monetary Liability for Breach of the Duty of Care? by Holger Spamann (discussed on the Forum here).

As COVID-19 continues to disrupt every aspect of our lives, companies are taking swift actions to determine and mitigate the risks posed by the new “normal.” Directors have a critical role in helping their companies maneuver through these challenging times. Although management is charged with managing the day-to-day operations of the company, directors are responsible for its oversight and should be mindful of their fiduciary duties in that role.

Directors have a duty of care to make well-informed decisions and a duty of loyalty to act and make decisions in the best interest of the company’s stockholders. Directors are afforded substantial protection against liability for their business decisions, but the widespread and quickly developing risks posed by the COVID-19 pandemic underscore the importance of the board’s active engagement.


Rulemaking Petition to Allow Use of E-Signatures

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

Three Silicon Valley firms, Cooley being one, have submitted a rulemaking petition to the SEC asking the SEC to amend Rules 11 and 302 of Reg S-T to allow the use of electronic signatures in SEC filings. Although the staff has granted some flexibility in connection with retention of manual signatures in its Statement Regarding Rule 302(b) of Regulation S-T in Light of COVID-19 Concerns, the petition contends that, given current health and safety requirements, “obtaining and retaining manual signatures in compliance with the Staff Statement remains a significant logistical burden.”


Weekly Roundup: May 1–7, 2020

More from:

This roundup contains a collection of the posts published on the Forum during the week of May 1–7, 2020.

A New Era For Activist Defense: Going Beyond the Relics of the 80s

Institutional Investors Signal: A Mix of Tougher Standards and Heightened Flexibility for the 2020 Proxy Season

Anticipated Securities Litigation in Response to the Pandemic

COVID-19 and Capital Allocation

Blood in the Water: COVID-19 M&A Implications

The Corporation as a Nexus for Regulation

The Pandemic is the Litmus Test of Stakeholderism

New or Updated Non-GAAP Financial Measure for COVID-19

Chairman Clayton’s Remarks to the Special Meeting of the Investor Advisory Committee

Considerations on Non-Employee Director Compensation

The Return of Poison Pills: A First Look at “Crisis Pills”

Board Members Preparedness for Major Risk Event Like COVID-19

Taking the Lead in Adopting Political Transparency in the COVID-19 Crisis

Asian Americans in the Boardroom

Reconsidering Activism in France

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