Monthly Archives: November 2020

Russell 3000 Database of Executive Compensation Changes in Response to COVID-19

Matteo Tonello is managing director at The Conference Board and Olivia Voorhis and Justin Beck are consultants at Semler Brossy Consulting Group LLC. This post is based on a live database and ongoing analysis conducted by Mr. Tonello, Ms. Voorhis, Mr. Beck, Blair Jones, Kathryn Neel, and Greg Arnold. 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 COVID-19 crisis significantly altered operational priorities and financial results for companies in nearly all sectors. In recent months, to address some of these issues, many compensation committees have been disclosing executive base salary reductions as well as changes to in-flight and go-forward incentive plans.

The Conference Board, in collaboration with Semler Brossy’s research team and ESG data analytics firm ESGAUGE, is keeping track of SEC filings (Forms 8-Ks, 10-Qs, and proxy statements) by Russell 3000 companies announcing these changes. For the live database and some helpful visualizations of key trends across business sectors and company size groups, click here.

The following are some key observations from disclosures made since March 1, 2020 and update previously disseminated findings on a smaller sample of companies. The Russell 3000 index was chosen because it represents more than 98 percent of the total capitalization of the US publicly traded equity market. (Note: The commentary below refers to disclosures as of October 9, 2020, but the database is updated bi-weekly; please review the database and visualizations for the most current information).


Joint Statement by Commissioners Lee and Crenshaw on Amendments to Regulation S-K

Allison Herren Lee and Caroline Crenshaw are Commissioners at the U.S. Securities and Exchange Commission. This post is based on their recent public statement. The views expressed in the post are those of Commissioner Lee and Commissioner Crenshaw, and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

We want to start by thanking the staff in the Division of Corporation Finance, Office of the General Counsel, Division of Economic and Risk Analysis, and Office of the Chief Accountant who have worked on this rule. It has gone from proposal to adoption in less than one year’s time, which is not an easy task, particularly during a global pandemic. Due to the staff’s expertise, hard-work, and thoughtfulness, many of the changes adopted today will be beneficial for investors. For example, certain of the changes to Item 303 of Regulation S-K should enhance the quality of MD&A disclosures. [1] Nevertheless, there are two significant aspects of the rule that we cannot support. Therefore, we must respectfully dissent. [2]

First, the final rule eliminates certain disclosures and the tabular presentation of contractual information that currently provides investors with critical insight into supply chain and risk management. [3] More than 15 years ago, in the wake of several massive accounting scandals and pursuant to Sarbanes Oxley, the SEC issued a rule that required companies to include a table summarizing contractual obligations in annual filings. [4] The proponents of today’s rule argue that much of the information we are removing, or modernizing, is simply to eliminate duplicative disclosure of information that is readily accessible in filings required by other SEC rules or by the U.S. Generally Accepted Accounting Principles (“GAAP”). Yet one of the key categories of obligations disclosed in the table—purchase obligations—is not always required by U.S. GAAP and does not consistently appear elsewhere in filings. [5] Purchase obligation disclosures provides information about the amount and timing of payments due in future periods, providing insight into corporate supply chain risk management, financial hedging, and anticipated increases in product demand. [6] And in analyzing the impact of the COVID-19 pandemic on the cruise industry, researchers were able to use the contractual obligations tables to compare exposures and potential revenue shortfalls against near-term obligations. [7] Despite the utility of this information and over the objections of commenters, including the SEC’s own Investor Advisory Committee, [8] the final rule eliminates the contractual obligations table. At best, this obscures information investors need, and, at worst, makes some information, such as purchase obligations, inaccessible. [9] Given the relevance of these items to assessments of market performance, we disagree with the policy choice to eliminate them.


Investing in a SPAC

Eleazer Klein is a partner and Adriana Schwartz is special counsel at Schulte Roth & Zabel LLP. This post is based on their SRZ memorandum.

Special purpose acquisition companies (SPACs) have seen a surge in 2020. There have been several high-profile private companies, such as DraftKings and Nikola, going public by completing business combinations with SPACs and high-profile investment firms, such as Bill Ackman’s Pershing Square (for the second time) and Jeff Smith’s Starboard Value, sponsoring SPACs of their own.

A SPAC is a public shell company formed for the purpose of completing a business combination within a specified period of time with a private operating company. Combining with an already public shell allows the private company to essentially complete an IPO with an intact public shareholder base at a lower cost than a traditional IPO. It can also provide greater deal certainty in uncertain times.


Remarks by Chairman Clayton to the Economic Club of New York

Jay Clayton is Chairman of the U.S. Securities and Exchange Commission. This post is based on Chairman Clayton’s recent remarks to the Economic Club of New York. 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, John [Williams].

It is wonderful to be back with the Economic Club of New York. You are a sophisticated, experienced, outcome-oriented, tough and fair audience, interested in economic and wage growth and improving our society more generally. Just the way it should be.

As John noted, today’s program proceeds in two parts, (1) remarks from me on our regulatory activities over the past three-plus years (time flies) and—at the end of that part—a discussion of some of the areas that I believe need continued attention and (2) a Q&A session with market and policy experts Harold Ford, Barbara Novick, Gary Cohn and Glenn Hutchins.

As a focal point for today’s review and outlook, I will use my first speech as Chairman, which was before this very body in July 2017. [1] In that speech, I set forth the eight core principles that would guide my Chairmanship. [2] Before I report with specificity on implementing those principles in practice, I want to go beyond principles. I want to dig a bit deeper, and explain how the women and men of the SEC achieved historic results over the past three and a half years. [3] The short story is we designed and pursued a granular, yet flexible three year plan; and we were blessed with a talented, driven team of mutually supportive professionals. I will go into more detail.


Acquisition Experience and Director Remuneration

Addis Birhanu is Assistant Professor in the Department of Strategy and Organization at Ecole de Management de Lyon (EM Lyon). This post is based on a recent paper by Ms. Birhanu; Philipp Geiler, Associate Professor of Economics at EM Lyon; Luc Renneboog, Professor of Finance at Tilburg University; and Yang Zhao, Senior Lecturer in Financial Data Analysis at the University of Liverpool.

The experience that executive and non-executive directors accumulate by working in specific corporate positions within and across industries is one of the most important dimensions of their human capital. Previous studies document that variance in directors’ pay is primarily driven by differences in human capital accumulated over career paths. However, we know little about if and why (executive and non-executive) directors are paid differently across and within firms for what appears to be the same stock of human capital.

We address this question by focusing on a task-specific experience, namely that of M&A experience, and investigate whether this experience is priced in the remuneration contracts of directors. Acquisition experience of directors deserves attention for the following reasons. First, takeovers are complex operations that require expertise to identify an appropriate target, undertake the required due diligence, assess the potential synergistic value contribution of the target, raise the acquisition financing, and decide on the level of integration with subsequent implementation. Second, acquisitions are strategic decisions that typically require large investments and profoundly affect a company’s growth, value creation, and long-term prospects. Third, unsuccessful acquisitions are far from rare; the combined cumulative abnormal returns (CARs) of bidder and target are negative in almost half of the acquisitions and long-term performance of merged firms does in most cases not exceed the performance of matched peer companies that did not merge. Acquisition failures are often attributed to lack of experience with the takeover process at the managerial, non-executive, and firm level. Fourth, acquisitions are one of the very few strategic decisions that require intensive communication and deliberation by both executive and non-executive directors.


Weekly Roundup: November 13–19, 2020

More from:

This roundup contains a collection of the posts published on the Forum during the week of November 13–19, 2020.

Decision Making in 50:50 Joint Ventures

Delaware Reaffirms Director Independence Principle in Founder-Led Company

The Limits of Corwin in the Sale of a Company to a PE Buyer

Statement of Commissioners Peirce and Roisman on Andeavor LLC

ESG Management and Board Accountability

Financial Institution Regulation Under President Biden

Corporations in 100 Pages

Racial Equity on the Board Agenda

Financial Reporting and the Financial Reporting Regulators


The Rise of the General Counsel

The ESG-Innovation Disconnect: Evidence from Green Patenting

Revealing ESG in Critical Audit Matters

A Sober Look at SPACs

A Sober Look at SPACs

Michael Klausner is the Nancy and Charles Munger Professor of Business and Professor of Law at Stanford Law School; Michael Ohlrogge is Assistant Professor of Law at NYU School of Law; and Emily Ruan of Stanford University. This post is based on their recent paper.

1. Introduction

SPACs, or special purpose acquisition companies, have experienced a frenzy of activity and attention over the past year. In 2020, SPACs have already raised as much cash as they did over the entire preceding decade, with two-thirds of this cash raised in just the past three months. Press reports and blog commentary present SPACs as a clever financial innovation that provide a cheaper, faster, and more certain path to becoming a public company than does an IPO. Those reports, however, misunderstand the economics of SPACs. We have just posted a study of all 47 SPACs that merged between January 2019 and June 2020. That study addresses each of those claims. In this blog we focus on our findings regarding the cost of SPACs, which are very much at odds with the commentary one sees on nearly a daily basis.

In a nutshell, we find:

  • Although SPACs issue shares for roughly $10 and value their shares at $10 when they merge, by the time of the merger the median SPAC holds cash of just $6.67 per share.
  • The dilution embedded in SPACs constitutes a cost roughly twice as high as the cost generally attributed to SPACs, even by SPAC skeptics.
  • When commentators say SPACs are a cheap way to go public, they are right, but only because SPAC investors are bearing the cost, which is an unsustainable situation.
  • Although some SPACs with high-quality sponsors do better than others, SPAC investors that hold shares at the time of a SPAC’s merger see post-merger share prices drop on average by a third or more.
  • Since the end of our study period, Pershing Square issued a SPAC with substantial improvements in the uniform structure of other SPACs. We propose, however, that more fundamental improvement is possible.


SEC Division of Enforcement 2020 Annual Report

Stephanie Avakian is the Director of the Division of Enforcement of the U.S. Securities and Exchange Commission. This post is based on a publication by the Staff of the Division of Enforcement. The views expressed in this post are those of Ms. Avakian and do not necessarily reflect those of the Securities and Exchange Commission or its staff.


The Division of Enforcement’s efforts to deter misconduct and punish securities law violators are critical to protecting millions of investors and instilling confidence in the U.S. securities markets. Each year, the Division recommends, and the Commission brings, hundreds of enforcement actions against individuals and entities for fraud and other misconduct and secures remedies that protect investors by punishing misconduct, deterring wrongdoing, removing bad actors from our markets, and, where possible, compensating harmed investors. This report summarizes some of the major accomplishments and key priorities of the Division over the last fiscal year.

Focus on Financial Fraud and Issuer Disclosure

Integrity and accuracy in financial statements and issuer disclosures are critical to the functioning of our capital markets. During the last fiscal year, the Division maintained its ongoing focus on identifying and investigating securities laws violations involving different components of the financial reporting process.


Revealing ESG in Critical Audit Matters

J. Robert Brown, Jr. is a Board Member at the Public Company Accounting Oversight Board. This post is based on his recent public statement. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); Socially Responsible Firms by Alan Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here); and Toward Fair and Sustainable Capitalism by Leo E. Strine, Jr (discussed on the Forum here).

It is a pleasure to be attending this virtual conference with investors from around the world. Perhaps, now more than ever, investors need advocates and these forums to discuss and further their perspectives and interests.

Before I continue, I should remind you that the views I am expressing today are my own and do not necessarily reflect the views of my fellow Board members or the staff of the Public Company Accounting Oversight Board (“PCAOB”).

I’m guessing that when you think about Environmental, Social and Governance or ESG disclosure, audit regulators are not usually top of mind. Today, though, I want to share some thoughts about why they should be. The PCAOB and other audit regulators have an important role to play in the ESG disclosure space.

We all know that ESG disclosure has undergone exponential growth, both in quantity and importance. These days it’s almost impossible to pick up a newspaper or read articles via the Internet without seeing the effects of climate change, whether disappearing polar ice, rising temperatures and sea levels, the increasing severity in weather patterns, the out-of-control fires in the Western United States, or the global discourse on mandating limits on carbon emissions. Given the importance of the area, investors and other participants in the capital markets are increasingly demanding high-quality disclosure that can be useful in making investment and voting decisions.


Testimony by Chairman Clayton on Oversight of the 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 testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs. 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.

Chairman Crapo, Ranking Member Brown and Senators of the Committee, thank you for the opportunity to testify before you today about the work of the U.S. Securities and Exchange Commission (SEC or Commission or agency). [1] I am honored to discuss the great work of the women and men of the SEC over the past year in furtherance of our tripartite mission of protecting investors, maintaining fair, orderly and efficient markets and facilitating capital formation.

Before I get to the substance of my testimony, I first want to address my recent confirmation that, consistent with my longstanding and previously disclosed expectations, I plan to conclude my tenure as SEC Chairman at the end of this year. [2] It has been the privilege of a lifetime to work alongside the women and men of the SEC. I am honored to call them colleagues and friends, and I could not be more proud of the work they have done each and every day on behalf of investors, especially this year in the face of many significant and unanticipated professional and personal challenges resulting from COVID-19 and other events.

I also want to acknowledge the support and assistance Congress has provided the SEC during my tenure. In many ways, Congress, and in particular, this Committee, serves as the SEC’s board of directors, and I have appreciated the thoughtful and candid engagement over the past few years on issues of importance to investors, our markets and market participants.


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