Monthly Archives: January 2021

Corporate Governance Survey — 2020 Proxy Season Results

David A. Bell is partner at Fenwick & West LLP. This post is based on his Fenwick memorandum.

As outside legal counsel to a wide range of public companies in the technology and life sciences industries, many of which are based in Silicon Valley, Fenwick has collected information on corporate governance in order to counsel our clients on best practices and industry norms. We have collected this data since 2003 and believe this unique body of information is useful for all Silicon Valley companies as well as other public companies in the United States and their advisors.

Fenwick’s annual survey covers a variety of corporate governance practices and data for the companies included in the Standard & Poor’s 100 Index (S&P 100), which are often presented as a desired norm, compared to the technology and life sciences companies included in the Fenwick – Bloomberg Law Silicon Valley 150 List (SV 150), where the needs and circumstances of public companies can be quite different.

Comparative data is presented for the S&P 100 companies and the SV 150, as well as trend information over the history of the survey. In a number of instances the report also presents data showing comparison of the top 15 (which are of a scale similar to the S&P 100), top 50, middle 50 and bottom 50 companies of the SV 150 (in terms of revenue), illustrating the impact of scale on the relevant governance practices.

This in-depth survey was developed as a resource for board members, senior executives, in house legal counsel and their advisors, based in Silicon Valley and throughout the United States.

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A Letter to the SEC Chairman

Elizabeth Warren is U.S. Senator from Massachusetts. This post is based on her letter to outgoing SEC Chairman Jay Clayton.

I am writing in regards to the notice that the Securities and Exchange Commission (SEC or the Commission) will, on Wednesday, December 16, 2020, consider adopting rules that “will require resource extraction issuers to disclose payments made to the U.S. federal government or foreign governments for the commercial development of oil, natural gas, or minerals.” [1] While these rules are mandated by Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), [2] which requires “that all oil, gas, and mineral companies on the

U.S. stock exchange disclose any payments they make to foreign governments for licenses or permits for development,” [3] the SEC’s proposal fails to combat corruption and hold bad actors accountable. Instead, the SEC’s proposal “would make such disclosures so general as to be of little value.” [4] Rather than rushing to push through a grievously flawed final rule in the final few days of the Trump administration and your tenure as SEC chair, the Commission should not hold a vote on the rule until these concerns are addressed.

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The New Paradigm in the C-Suite and the Boardroom

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell memorandum by Mr. Lipton, Steven A. Rosenblum, and Karessa L. Cain. 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); and Toward Fair and Sustainable Capitalism by Leo E. Strine, Jr (discussed on the Forum here).

In October of 2015, we issued a paper—Will a New Paradigm for Corporate Governance Bring Peace to the Thirty Years’ War?—in which we questioned whether the growing recognition by investors of the adverse effects of short-termism and activism on corporate performance, as evidenced by the excessive risk-taking that culminated in the 2008-2010 financial crisis, would mitigate or reverse the acute pressure felt in C-suites and boardrooms to maximize near-term value for shareholders. In reflecting on this question with the benefit of hindsight, it is clear that much has changed since 2015, and there has been real progress toward restoring a more long-term, sustainable orientation. Yet, at the same time, it remains to be seen whether ESG, stakeholder governance and other principles of the new governance paradigm will continue to gain traction and have a concrete, enduring impact on the long-term foundation of our economy and society—including in terms of employee well-being, environmental sustainability, infrastructure and other capital investments, and long-term competitiveness.

Indeed, the concept of shareholder primacy, and the empowerment of shareholders in pursuit of short-term agendas, has deep roots in our business culture. It had been popularized by Milton Friedman in the 1960s, it soon dominated the thinking in the business schools, and it fueled the takeover activity of the 1970s and 80s. Shareholder primacy was embraced by both the Council of Institutional Investors and Institutional Shareholder Services when they were established in 1985, and drove the evolution of corporate governance through the balance of the century and until the financial crisis.

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Weekly Roundup: January 1–7, 2020


More from:

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

Preparing Your 2020 Form 20-F



Preparing for Shareholder Activism in 2021


Appraisal Waivers


BlackRock’s 2021 Policy Guidance


Up or Out: Resetting Norms for Peer Reviewed Publishing in the Social Sciences




Say-on-Pay Votes and Compensation Disclosures


Effective Delegation in Advisory Agreements


Rethinking Corporate Prosecutions


Another Year of Virtual Shareholder Meetings


Board Memo 2021: A Guide to Taking On the Recovery Era


Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock

Leo E. Strine, Jr., the former Chief Justice of the Delaware Supreme Court, is a Senior Fellow at the Harvard Law School Program on Corporate Governance; Ira M. Millstein Distinguished Senior Fellow at the Ira M. Millstein Center for Global Markets and Corporate Governance at Columbia Law School; Michael L. Wachter Distinguished Fellow in Law and Policy at the University of Pennsylvania Carey Law School; and Of Counsel at Wachtell, Lipton, Rosen & Katz. This post is based on his recent paper. Related research from the Program on Corporate Governance includes Toward Fair and Sustainable Capitalism by Leo E. Strine, Jr. (discussed on the Forum here); Purpose With Meaning: A Practical Way Forward by Robert Eccles, Leo E. Strine, Jr., and Timothy Youmans (discussed on the Forum here)The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); and For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here).

In his excellent article, For Whom is the Corporation Managed in 2020?: The Debate Over Corporate Purpose, Professor Edward Rock articulates his understanding of the debate over corporate purpose and surfaces four separate, but related, questions that views as central to that debate:

First, what is the best theory of the legal form we call “the corporation”? Second, how should academic finance understand the properties of the legal form when building models or engaging in empirical research? Third, what are good management strategies for building valuable firms? And, finally, what are the social roles and obligations of large publicly traded firms?

Professor Rock argues that “populist pressures” have led contestants to the debate to confuse the separate questions he highlights. He finishes by fearing that these populist pressures could bring about changes to long-standing principles of American corporate governance that would result in more harm than benefit.

In Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy, I reply to and echo Professor Rock’s depiction of the current state of corporate law in the United States, applauding his willingness to be accurate about the actual state of affairs in a debate where all too many obscure the state of the law. I also accept Professor Rock’s contention that finance and law and economics professors tend to equate the value of corporations to society solely with the value of their equity. But, I employ a less academic lens on the current debate about corporate purpose, and am more optimistic about proposals to change our corporate governance system so that it better supports a fair and sustainable economy.

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Board Memo 2021: A Guide to Taking On the Recovery Era

Pamela Marcogliese and Ethan Klingsberg are partners and Elizabeth Bieber is counsel at Freshfields Bruckhaus Deringer LLP. This post is based on their Freshfields memorandum.

Managing environmental, social and governance considerations

While ESG has been steadily increasing in importance year after year, the pandemic has catapulted the “E” (environmental) and the “S” (social) to the top of board agendas. As boards and management teams prepare for, and adapt to, the recovery period ahead, strategic and deliberate management and disclosure of E and S topics will provide a competitive advantage. In particular, boards should be mindful that:

  • investors and proxy advisory firms alike will be carefully scrutinizing executive compensation-related modifications in the proxy season ahead, and therefore companies should carefully craft disclosure explaining any changes;
  • as a result of mounting pressure from investors and other stakeholders—as well as recently adopted SEC rules focused on human capital management—companies will need to disclose more information about how they manage their most important asset, their workforce;
  • companies will also need to steer clear of new trends in litigation focused on diversity by ensuring they have a robust process for developing internal diversity-related goals and for disclosing their diversity initiatives, as well as avoid allegations of human rights violations by reviewing the adequacy of corporate compliance and supply chain programs;
  • investors and other stakeholders are expecting to see additional climate and other environmental-related disclosures, especially as the SASB and TCFD frameworks gain increasing traction, and the SEC is expected to adopt climate-related environmental disclosure requirements in 2021; and
  • there is mounting evidence that this focus on ESG and sustainability has concrete economic benefits for companies, as those with better ESG profiles and track records tend to have equity (and debt) that trades more favorably than companies with poorer performance, underpinning the expectation that the growing trends of green and other sustainability bonds will continue in 2021.

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Another Year of Virtual Shareholder Meetings

Brian V. Breheny and Joseph M. Yaffe are partners and Caroline S. Kim is an associate at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a memorandum by Mr. Breheny, Mr. Yaffe, Ms. Kim, and other Skadden attorneys.

During the first half of 2020, the number of public companies holding virtual annual meetings sky rocketed due to the COVID-19 pandemic, increasing almost fivefold compared to the 2019 calendar year, with Broadridge Financial Solutions, a public corporate services company (Broadridge), alone hosting nearly 1,500 virtual shareholder meetings. [1] Looking ahead, due to the uncertainty relating to the COVID-19 pandemic, companies should prepare for the possibility of needing to hold virtual annual meetings during the 2021 proxy season. [2]

Lessons From 2020 Virtual Meetings

Despite how quickly many companies had to shift their annual meetings from an in-person to a virtual format during the 2020 proxy season, companies were generally able to successfully hold virtual annual meetings and allow investors to participate. Some companies experienced technical issues or had difficulty scheduling their virtual meetings, however, due to the influx of companies relying on the same technology to hold such meetings. To prevent these issues from occurring this upcoming season, companies should engage early with virtual meeting service providers to schedule their meetings, discuss how best to handle technical difficulties, and learn how virtual meeting platforms have evolved in response to company and investor feedback during the 2020 proxy season. In addition, companies should consider investor feedback regarding their 2020 shareholder meetings when drafting related proxy statement disclosure and planning for their next meeting.

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Rethinking Corporate Prosecutions

John C. Coffee, Jr. is Adolf A. Berle Professor of Law and Director of the Center on Corporate Governance at Columbia University Law School. This post is based on his recent book, Corporate Crime and Punishment: The Crisis of Underenforcement.

Today, a familiar pattern plays out over and over in corporate prosecutions. A U.S. Attorney’s Office begins an investigation and quickly finds its scope will overwhelm their logistical capacity. For example, it may be a Foreign Corrupt Practices case that spans six countries and three continents, has thousands of documents, millions of emails, and at least 50 persons (speaking eight languages) who need to be questioned at length. The U.S. Attorney can assign three AUSAs to this case and hopefully find some FBI agents and maybe an SEC staffer or two to work on it. That is a mismatch.

As a result, almost inevitably in the case of larger corporations with decentralized structures, the U.S. Attorney will agree to the defendant hiring an independent law firm to conduct a detailed investigation and prepare a lengthy and costly report (which can cost up to a $100 million). The implicit deal is that the prosecutors will approve a deferred prosecution agreement that spares the company a criminal conviction (and thus the risk of collateral civil liability in follow-on actions). As a result, much of the investigatory work traditionally conducted by prosecutors has now been outsourced—delegated to private counsel hired by the defendants. Critics have claimed that this de facto system reflects political cowardice or agency capture of the enforcers. They may be sometimes correct, but the bigger problem is logistics. In the Lehman investigation, where the company was bankrupt and could not pay for an expensive investigation, neither the SEC nor the U.S. Attorney did much of anything. The final Lehman CFO was not even interviewed. Eventually, the bankruptcy court retained Jenner & Block to serve as an examiner, and it diligently prepared a thorough report, which took 130 of its attorneys, 14 months, and resulted in a $53.5 million fee to that firm. Even if one suspects that that fee was slightly padded (as bankruptcy examiner fees tend to be), that is several orders of magnitude above what a federal agency can afford.

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Effective Delegation in Advisory Agreements

Ron S. Berenblat, Adrienne M. Ward, and Thomas J. Fleming are partners at Olshan Frome Wolosky LLP. This post is based on an Olshan memorandum by Mr. Berenblat, Ms. Ward, Mr. Fleming, Kenneth M. Silverman, and John Moon.

In a recent court case captioned Packer ex rel 1-800-Flowers.com v. Raging Capital Management, LLC, 2020 WL 6844063, __ F.3d __ (2d Cir. Nov. 23, 2020), the United States Court of Appeals for the Second Circuit (the “Second Circuit”) vacated a grant of summary judgment to plaintiffs by the lower District Court, [1] which had previously held that Raging Capital Master Fund, Ltd. (“Master Fund”), a master fund within a typical master-feeder hedge fund structure, was the beneficial owner of more than 10% of the outstanding shares of 1-800-Flowers, Inc. (“1-800-Flowers”) and therefore required to disgorge alleged short-swing profits for violating Section 16(b) of the Securities Exchange Act of 1934, as amended (the “Act”). The crux of the issue on appeal was whether the Master Fund, which had effectively delegated all voting power and investment power to its advisor (the “Advisor”), could be exempt from Section 16(b) liability.

The Second Circuit answered the question in the affirmative, and its decision contains important guidance for hedge funds whose securities are managed by a registered investment advisor formed solely to service a fund or family of funds. First, it is vital that the advisor be retained through an investment management agreement that (1) delegates all voting and dispositive power over the fund’s portfolio to the advisor and (2) cannot be terminated by the fund on less than 61 days’ notice. Second, the hedge fund that retains the advisor must have a board that is not subject to the control of the advisor, namely, one with a majority of independent directors.

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Say-on-Pay Votes and Compensation Disclosures

Brian V. Breheny and Joseph M. Yaffe are partners and Caroline S. Kim is an associate at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a memorandum by Mr. Breheny, Mr. Yaffe, Ms. Kim, and other Skadden attorneys. Related research from the Program on Corporate Governance includes Stealth Compensation via Retirement Benefits by Lucian Bebchuk and Jesse Fried.

Companies should also consider their recent annual say-on-pay votes and general disclosure best practices when designing their compensation programs and communicating about their compensation programs to shareholders. This year, companies should understand key say-on-pay trends, including overall 2020 say-on-pay results, factors driving say-on-pay failure (i.e., those say-on-pay votes that achieved less than 50% shareholder approval), say-on-golden-parachute results and equity plan proposal results, as well as recent guidance from the proxy advisory firms ISS and Glass Lewis.

Overall Results of 2020 Say-on-Pay Votes

Below is a summary of the results of the 2020 say-on-pay votes from Semler Brossy’s annual survey and trends over the last nine years since the SEC adopted its say-on-pay rules. Overall, say-on-pay results at Russell 3000 companies surveyed in 2020 were generally the same or slightly better than those in 2019, despite the impact of the COVID-19 pandemic on compensation.

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