Yearly Archives: 2021

NYSE Amends Related Party Transaction Approval Requirements

Posted by Matthew E. Kaplan, Nicholas P. Pellicani, and Martha G. Brown, Debevoise & Plimpton LLP, on
Wednesday, June 16, 2021
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Matthew E. Kaplan is partner, Nicholas P. Pellicani is counsel, and Martha G. Brown is an associate at Debevoise & Plimpton LLP. This post is based on a Debevoise memorandum by Mr. Kaplan, Mr. Pellicani, Ms. Brown, and Joshua M. Samit.

The New York Stock Exchange (“NYSE”) recently amended its rules regarding related party transaction approval requirements. As amended, Section 314.00 of the NYSE Listed Company Manual (“Section 314.00”) now requires a company’s audit committee or another independent body of a company’s board of directors to review in advance all “related party transactions” that must be disclosed: (i) by domestic companies under Item 404 of Regulation S-K of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), irrespective of transaction value; and (ii) by foreign private issuers under Item 7.B of Form 20-F, irrespective of materiality. Previously, Section 314.00 required that related party transactions be reviewed and evaluated (not necessarily in advance) by an appropriate group within the company, such as the audit committee or a similar body, and defined related party transactions as those that “normally include” transactions between a company and its officers, directors and principal shareholders.

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Opportunities for Postdoctoral and Doctoral Corporate Governance Fellows

Posted by Aisha Saad (Harvard Law School), on
Tuesday, June 15, 2021

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The Program on Corporate Governance at Harvard Law School (HLS) is pleased to announce that it is seeking applications from highly qualified candidates who are interested in working with the Program as Post-Doctoral or Doctoral Corporate Governance Fellows.

Applications are considered on a rolling basis, and the start date is flexible. Appointments are commonly for one year, but, contingent on business and funding, the appointment period can be extended for additional one-year period/s.

Candidates should have a J.D., LL.M., or S.J.D. from a U.S. law school by the time they commence their fellowship. Candidates still pursuing an S.J.D. are eligible so long as they will have completed their program’s coursework requirements by the time they start.

During the term of their appointment, Fellows will be in residence at HLS and will be required to work on research and other activities of the Program, depending on their skills, interests, and Program needs. The position includes a competitive fellowship salary and Harvard University benefits. Fellows will also be able to spend time on their own projects.

Applicants should have an interest in corporate governance and in academic or policy research in this field. Former Fellows of the Program (e.g., Scott Hirst (BU), Robert Jackson (NYU), Marcel Kahan (NYU), Kobi Kastiel (Tel-Aviv), Yaron Nili (Wisconsin), and Holger Spamann (Harvard)) teach in many leading law schools in the U.S. and abroad.

Interested candidates should submit a CV, transcripts, a writing sample, and a cover letter to the coordinator of the Program, Ms. Jordan Figueroa, at [email protected]. The cover letter should describe the candidate’s experience, reasons for seeking the position, career plans, and the period during which they would like to work with the Program.

Statement by Commissioner Peirce and Commissioner Roisman on Chair Gensler’s Regulatory Agenda

Posted by Hester M. Peirce and Elad L. Roisman, U.S. Securities and Exchange Commission, on
Tuesday, June 15, 2021
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Hester M. Peirce and Elad L. Roisman are Commissioners at the U.S. Securities and Exchange Commission. This post is based on their recent public statement. The views expressed in this post are those of Ms. Peirce and Mr. Roisman and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

Last Friday, the Office of Information and Regulatory Affairs released the Spring 2021 Unified Agenda of Regulatory and Deregulatory Action (“Agenda”), which includes the SEC Chair’s Agenda. [1] While there are important and timely items on the list, including rules related to transfer agents and government securities alternative trading systems, the Agenda is missing some other important rulemakings, including rules to provide clarity for digital assets, allow companies to compensate gig workers with equity, and revisit proxy plumbing. Perhaps the absence of these rules is attributable to the regrettable decision to spend our scarce resources to undo a number of rules the Commission just adopted.

The Agenda makes clear that the Chair’s recent directive to SEC staff to consider revisiting recent regulatory actions taken with respect to proxy voting advice businesses was not an isolated event, but just the opening salvo in an effort to reverse course on a series of recently completed rulemakings. [2] On the agenda are proposals to further amend Rule 14a-8 and Rule 14a-2(b) under the Securities Exchange Act of 1934 (together, the “Proxy Updates”); [3] Rule 13q-1 (the “Resource Extraction Payments Rule”); [4] the rules pertaining to the accredited investor definition and the integration framework (together, the “Harmonization Rules”), [5] and our whistleblower rules. [6] Not only are the Commission’s most recent amendments to each of these rules less than a year old; they have only been effective for a range of three to seven months. As far as we can tell, the agency has received no new information which would warrant opening up any of these rules for further changes at this time. We are disappointed that the Commission would dedicate our scarce resources to rehashing newly completed rules.

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Wachtell Lipton’s Spin-Off Guide

Posted by Deborah Paul, Victor Goldfeld, and Sabrina Khan, Wachtell, Lipton, Rosen & Katz, on
Tuesday, June 15, 2021
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Deborah Paul and Victor Goldfeld are partners and Sabrina Khan is an associate at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell memorandum by Ms. Paul, Mr. Goldfield, Ms. Kahn, Greg Ostling, Greg Pessin, and Rachel Reisberg.

A spin-off involves the separation of a company’s businesses through the creation of one or more separate, publicly traded companies. Spin-offs have been popular because many investors, boards and managers believe that certain businesses may command higher valuations if owned and managed separately, rather than as part of the same enterprise. An added benefit is that a spin-off can often be accomplished in a manner that is tax-free to both the existing public company (referred to as the parent) and its shareholders. Companies have also been able to tap the debt markets to lock in low borrowing costs for the business being separated and monetize a portion of its value. While spin-offs continue to be an important option that companies evaluate when assessing separation alternatives, the total global volume of completed spin-offs decreased from $179 billion in 2019 to $94 billion in 2020 as the COVID-19 pandemic took hold. Although the decrease was significant, 2020 volume was comparable to the $73 billion in volume in 2018.

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Vanguard Insights on Evaluating Say on Climate Proposals

Posted by John Galloway, Vanguard, Inc., on
Monday, June 14, 2021
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John Galloway is global head of investment stewardship at Vanguard, Inc. This post is based on a publication by Vanguard Investment Stewardship. Related research from the Program on Corporate Governance includes Social Responsibility Resolutions by Scott Hirst (discussed on the Forum here); The Agency Problems of Institutional Investors by Lucian Bebchuk, Alma Cohen, and Scott Hirst (discussed on the Forum here); Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy by Lucian Bebchuk and Scott Hirst (discussed on the forum here); and The Specter of the Giant Three by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

“Say on Climate” proposals encourage companies to disclose climate-related risks, targets, and transition plans in line with the reporting framework created by the Task Force on Climate-related Financial Disclosures (TCFD), a framework that Vanguard supports. By enabling shareholders to vote on these disclosures, companies gather important feedback on how their climate strategies relate to the goals of the Paris Agreement and meet shareholder expectations. While robust disclosure alone is not a guarantee of a credible transition plan, it is a key component that will enable investors to make informed decisions.

In recent months, we have seen an increase in the number of Say on Climate proposals presented to shareholders at company annual meetings. The specific form of these Say on Climate proposals varies by region and in specific details, but generally includes three requests:

  • Annual disclosure of greenhouse gas emissions and progress on goals
  • Disclosure of the company’s strategic plan for reducing future emissions and managing climate-related risks, and
  • The right for shareholders to cast recurring votes on the company’s climate plan or report

Some companies have put forth Say on Climate votes as management proposals, while others have publicly opposed shareholder proposals on the topic. And in some cases, a company has come to an agreement with an activist group on future plans, which has led the group to withdraw the proposal.

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SEC Approves Nasdaq Rule Change Allowing Direct Listings with a Capital Raise

Posted by Ran Ben-Tzur and Jennifer J. Hitchcock, Fenwick & West LLP, on
Monday, June 14, 2021
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Ran Ben-Tzur is partner and Jennifer J. Hitchcock is an associate at Fenwick & West LLP. This post is based on their Fenwick memorandum.

In our prior article on the latest and greatest in direct listings, we noted that we were expecting that Nasdaq would follow the NYSE’s lead to allow for capital raising concurrently with a direct listing. On May 19, 2021, and after a number of back-and-forth proposals, the U.S. Securities and Exchange Commission approved a proposed Nasdaq rule change to allow for capital raising concurrently with a direct listing on the Nasdaq Global Select Market.

Direct Listings + Capital Raise

In addition to a direct listing where only existing stockholders offer their shares for resale to the public, the new Nasdaq rules will allow companies to raise primary capital at the time of the direct listing. Nasdaq refers to this new type of offering as a “Direct Listing with a Capital Raise.” This gives companies flexibility to raise capital in a direct listing on both Nasdaq and NYSE.

How Can My Company Qualify for a Direct Listing with a Capital Raise?

To qualify for a Direct Listing with a Capital Raise, the company’s unrestricted publicly held shares before the offering, plus the market value of the shares to be sold by the company in the direct listing must be at least $110 million (or $100 million, if the company has stockholders’ equity of at least $110 million), with the value of the unrestricted publicly held shares and the market value being calculated using a price per share equal to the lowest price of the price range established by the company in its S-1 registration statement.

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New York Appellate Division, First Department Gives Green Light to First Post-Cyan Case

Posted by Veronica E. Callahan, Aaron F. Miner, and Stephanna F. Szotkowski, Arnold & Porter Kaye Scholer LLP, on
Monday, June 14, 2021
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Veronica E. Callahan and Aaron F. Miner are partners and Stephanna F. Szotkowski is an associate at Arnold & Porter Kaye Scholer LLP. This post is based on an Arnold & Porter memorandum by Ms. Callahan, Mr. Miner, Ms. Szotkowski, John Hindley, Arthur Luk, Kathleen Reilly, and Michael D. Trager.

On April 29, 2021, a four-judge panel of the New York Appellate Division, First Department, held in Chester County Employees Retirement Fund v. Alnylam Pharmaceuticals, Inc., 2020-04534, 2021 WL 1679511 (1st Dep’t 2021), that an investor plaintiff sufficiently alleged violations of the Securities Act of 1933 (Securities Act) to survive a motion to dismiss. This is a significant development after the US Supreme Court’s decision in Cyan, Inc. v. Beaver County Employees Retirement Fund, 138 S. Ct. 1061 (2018), which held that state courts may exercise jurisdiction over class actions alleging violations of only the federal Securities Act. Indeed, Chester County is the first opinion by a New York appellate court allowing a Securities Act case to proceed to discovery.

Background

As discussed in a previous Advisory, the Securities Act created a private right of action in order for investors to bring suit against issuers, officers, directors, and underwriters involved in the securities offering process. Even though the Securities Act created a federal cause of action, the Securities Act allows for concurrent federal and state jurisdiction for such suits. In addition, the Securities Act specifically prohibits the removal of cases from state to federal court. 15 U.S.C. § 77v(a).

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Second Circuit Reaffirms that Confidentiality Agreements Can Create a Relationship of Trust for Insider Trading Purposes

Posted by Andrew Ehrlich, Gregory Laufer, and Richard Tarlowe, Paul, Weiss, Rifkind, Wharton & Garrison LLP, on
Sunday, June 13, 2021
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Andrew Ehrlich, Gregory Laufer, and Richard Tarlowe are partners at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul, Weiss memorandum by Mr. Ehrlich, Mr. Laufer, Mr. Tarlowe, Udi Grofman, Brad Karp, and Audra Soloway. Related research from the Program on Corporate Governance includes Insider Trading Via the Corporation by Jesse Fried (discussed on the Forum here).

The question of whether and when a party can trade in securities when subject to an NDA is one that market participants frequently face. Recently, in United States Chow, 993 F.3d 125 (2d Cir. 2021), the Second Circuit offered important guidance on this topic when it affirmed the insider trading conviction of the managing director of an investment firm that was seeking to acquire a publicly traded company. The defendant’s firm and public company had entered into a nondisclosure agreement (“NDA”) requiring the firm to use any material nonpublic information (“MNPI”) obtained from the potential target solely for purposes of evaluating a potential acquisition. In violation of that restriction, the defendant disclosed MNPI to a business associate, who traded in the company’s securities and realized a $5 million profit.

Although Chow addressed several insider trading and other issues, this client alert addresses the one aspect of the decision that has particular practical implications for market participants. Specifically, the court held that an NDA merely requiring a party to keep information confidential—even if the NDA does not have an express trading prohibition—is sufficient to create a relationship of trust and confidence, a necessary element of an insider trading charge. In reaching that conclusion, the Second Circuit reaffirmed its prior holdings on this subject, but made the point even clearer. [1]

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Remarks by SEC Chair Gensler at the Meeting of SEC Investor Advisory Committee

Posted by Gary Gensler, U.S. Securities and Exchange Commission, on
Saturday, June 12, 2021
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Gary Gensler is Chair of the U.S. Securities and Exchange Commission. This post is based on his recent remarks at the Meeting of SEC Investor Advisory Committee. The views expressed in the post are those of Chair Gensler, and do not necessarily reflect those of the Securities and Exchange Commission or the Staff.

Good morning. Thank you Jennifer, Heidi, and all the committee members for having me. I enjoyed meeting with members of the Executive Committee yesterday and am thrilled to meet the whole committee for the first time. I’m grateful for the members’ time and willingness to represent the interests of American investors.

I know this committee has weighed in on a variety of policies that are of great importance to the agency and to the investing public. Every day, I’m motivated by working families and how they’re served by the agency’s mission.

At the heart of our mission and our work protecting investors—from new investors exploring the stock market for the first time to retirees living off their pensions. I look forward to your recommendations on representing investors’ interests in areas as diverse as climate risk disclosures and market structure.

On today’s panels, I know you’ll be discussing issues related to best execution and executive stock ownership. I look forward to seeing the readouts on these topics. In that regard, I wanted to share some thoughts about how I’m thinking through these matters.

First, let me turn to the requirements for best execution in the context of the National Best Bid and Offer (NBBO).

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The Director’s Guide to Shareholder Activism

Posted by Maria Castañón Moats, Paul DeNicola, and Leah Malone, PricewaterhouseCoopers LLP, on
Friday, June 11, 2021
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Maria Castañón Moats is Leader, Paul DeNicola is Principal, and Leah Malone Director at the Governance Insights Center, PricewaterhouseCoopers LLP. This post is based on their PwC memorandum. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here); Dancing with Activists by Lucian Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch (discussed on the Forum here); and Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System by Leo E. Strine, Jr. (discussed on the Forum here).

This post is divided into two principal parts. The introduction analyzes the most important current trends in shareholder activism. The chapters that follow take a longer-term perspective.

We take an expansive view of shareholder activism. For many people, the phrase may conjure images of hedge funds waging proxy battles as they try to win control of their target’s board. That’s a part of activism, to be sure. But, for the purposes of this post, the term refers to the efforts of any investor to leverage their rights and privileges as an owner to change a company’s practices or strategy.

In this sense, shareholder activism may include an institutional investor’s engagement with companies around governance matters or a retail investor’s shareholder proposal, as well as a hedge fund’s proxy fight.

Shareholder activism in 2021

The COVID-19 crisis has left its mark on all aspects of society and business. Shareholder activism is no exception. In 2020, activists targeted fewer companies and put less capital to work in their campaigns as the pandemic roiled financial markets and sparked a deep economic recession. But there is ample evidence of a resurgence in 2021. What do boards of directors need to know to navigate this environment?

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