Yearly Archives: 2020

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.


The ESG-Innovation Disconnect: Evidence from Green Patenting

Lauren Cohen is the L.E. Simmons Professor in the Finance & Entrepreneurial Management Units at Harvard Business School; Umit G. Gurun is the Ashbel Smith Professor at the University of Texas at Dallas; and Quoc H. Nguyen is Assistant Professor of Finance at the DePaul University Driehaus College of Business. This post is based on their recent paperRelated 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).

No firm or sector of the global economy is untouched by innovation. In equilibrium, innovators will flock to (and innovation will occur where) the returns to innovative capital are the highest. In our paper, we document a strong empirical pattern in green patent production. Specifically, we find that oil, gas, and energy producing firms—firms with lower Environmental, Social, and Governance (ESG) scores, and who are often explicitly excluded from ESG funds’ investment universe—are key innovators in the United States’ green patent landscape. These energy producers produce more, and significantly higher quality, green innovation. Our findings raise important questions as to whether the current exclusions of many ESG-focused policies—along with the increasing incidence of explicit divestiture campaigns—are optimal, or whether reward-based incentives would lead to more efficient innovative outcomes.

As of 2019, sustainable investing represents more than 20 percent of the $46 trillion in the U.S. assets under management. Compared to 2015, sustainable and impact investing has increased by more than 40%. A large contributor to this growth has been the 2015 guidance issued by the Department of Labor which allowed fiduciaries to incorporate environmental, social, and governance (ESG) factors into their investment decision. Given this push, flows to ESG increased substantially. Norges Bank, as an illustration, decides on the exclusion of companies from the fund’s investment universe, or to place companies on an observation list. In 2020, out of 167 excluded companies, 76 % of them were either involved in production of coal-based energy, caused severe environmental damage, or emitted unacceptable amounts of green-house gasses.


The Rise of the General Counsel

Amit Batish is Manager of Content and Communications at Equilar, Inc. This post is based on an Equilar memorandum by Mr. Batish, Nathan Grantz, Christy Hershey, Erin Lehr and Samuel Zhu.

Today’s General Counsel (GC) is viewed as much more than a corporate lawyer. Traditionally seen as the top legal officer of a corporation, General Counsel have taken on greater responsibilities that now entail a mix of strategy and risk management. The current business climate and the COVID-19 crisis have further exacerbated this concept. More than ever, corporate boards and executive management teams rely on General Counsel for astute leadership on a host of issues, including crisis management, corporate transactions, regulatory compliance and much more. The General Counsel is no longer limited to the role of the legal watchdog who oversees litigation, but rather plays a pivotal role in corporate decision-making.

The 2020 Equilar publication General Counsel Pay Trends, which features commentary from executive search firm BarkerGilmore, analyzes General Counsel compensation over the last five years across the Equilar 500—the 500 largest U.S. companies by revenue—including how pay compares in regards to gender and tenure. The publication discusses how the role has advanced over the years and become much more critical in the boardroom. This post features highlights from the report and how companies elect to compensate their General Counsel.


The Basel Committee’s Initiatives on Climate-Related Financial Risks

Kevin J. Stiroh is Executive Vice President of the Federal Reserve Bank of New York. This post is based on his recent public statement.

Thank you for the invitation to participate in the 2020 IIF Annual Membership Meeting. I am pleased to share my perspective regarding the current regulatory and policy initiatives in the area of sustainable finance. My remarks are being made in my capacity as co-chair of the Task Force on Climate-related Financial Risks (TFCR), which is part of the work of the Basel Committee on Banking Supervision. I should note that my prepared remarks and subsequent comments made as part of the panel discussion may not necessarily reflect the views of the Basel Committee or its members, or those of the Federal Reserve System or the Federal Reserve Bank of New York.

The Basel Committee’s mandate is to strengthen the regulation, supervision and practices of banks worldwide with the purpose of enhancing financial stability. It is the primary global standard setter for the prudential regulation of banks and provides a forum for cooperation on banking supervisory matters. As part of its work, the Committee exchanges information on developments in the banking sector and financial markets to help identify current or emerging risks for the global financial system.

The Committee noted that climate change may result in physical and transition risks that could potentially impact the safety and soundness of individual financial institutions and have broader financial stability implications for the banking system.


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