Yearly Archives: 2022

EU Publishes Draft Corporate Sustainability Due Diligence Directive

Posted by Dr. Johannes Weichbrodt, James Ford, and Libby Reynolds, Mayer Brown LLP, on
Tuesday, March 15, 2022
, , , , , , , ,
More from: , , , , , ,

Dr. Johannes Weichbrodt is partner and James Ford and Libby Reynolds are associates at Mayer Brown LLP. This post is based on a Mayer Brown memorandum by Dr. Weichbrodt, Mr. Ford, Ms. Reynolds, Sam Eastwood, Musonda Kapotwe and Peter Pears. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) and Will Corporations Deliver Value to All Stakeholders?, both by Lucian A. Bebchuk and Roberto Tallarita; and For Whom Corporate Leaders Bargain (discussed on the Forum here); and Stakeholder Capitalism in the Time of COVID, both by Lucian Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here).

On 23 February 2022, the European Commission published its much-anticipated draft corporate sustainability and due diligence directive (the Draft Directive), after a number of delays (see our Previous Blog). The Draft Directive sets out a proposed EU standard for human rights and environmental due diligence (HREDD). This includes an obligation for companies to take appropriate measures to identify actual and potential adverse human rights and environmental impacts arising from their own operations or those of their subsidiaries and, where related to their value chains, from their “established business relationships”. The Draft Directive also provides a mechanism for sanctions to be imposed for non-compliance with the due diligence obligations and provides for director responsibility and accountability in relation to a company’s HREDD programme.

Whilst the Draft Directive remains subject to further legislative scrutiny and approval, it provides the most detailed insight yet as to the scope and form of the prospective EU HREDD obligations, and it provides a helpful template for corporates to continue developing their due diligence policies and procedures designed to identify, assess and mitigate adverse human rights and environmental impacts—both in their operations and in their supply chains.

Furthermore, the Draft Directive will have implications for banks, insurers and other financial institutions, which will have to undertake further due diligence on clients and their subsidiaries to whom they extend loans, credit and other financial services [1] in light of the obligations set out therein.

READ MORE »

Countercyclical Corporate Governance

Posted by Aneil Kovvali (University of Chicago), on
Tuesday, March 15, 2022
, , , , , , ,
More from:

Aneil Kovvali is a Harry A. Bigelow Teaching Fellow and Lecturer in Law at the University of Chicago Law School. This post is based on his recent paper, forthcoming in the North Carolina Law Review.

As the economy lurched from the global financial crisis, to the period of prolonged stagnation and elevated unemployment that followed, to the suspension of economic activity in the COVID-19 crisis, and now to a period of dislocation and elevated inflation, the limits of traditional macroeconomic tools were revealed. Governments looked to existing fiscal and monetary policy tools for solutions to each challenge, but found that those tools were often unavailable or ineffective. A new wave of legal scholarship has sought to expand the toolkit by identifying ways that legal rules could be altered to induce businesses and individuals to increase investment and spending in times of economic trouble. But, with a few exceptions, relatively little has been done to use insights from the study of corporate governance to mobilize the capacity of corporations to move the economy out of a crisis.

A new paper forthcoming in the North Carolina Law Review seeks to explore this gap. The conceptual and practical tools the paper develops could have a substantial impact. Corporations command extraordinary financial resources and have enormous operational scope. And because corporations can act flexibly and with dispatch, they can readily respond to changing circumstances from high unemployment to high inflation. Harnessing corporate capacity would dramatically improve the economy’s ability to recover from a variety of serious economic crises.

READ MORE »

IPO Readiness: Establishing an Initial Equity Program and Share Reserve Pool

Posted by Mike Kesner, Tara Tays, and Brian Lane, Pay Governance LLC, on
Tuesday, March 15, 2022
, , , , , ,
More from: , , ,

Mike Kesner, Brian Lane, and Tara Tays are partners at Pay Governance LLC. This post is based on their Pay Governance memorandum.

Pay Governance reviewed 368 initial public offerings (IPOs) in 2021 to understand equity program practices which included: dilution at IPO, new share pools, evergreen provisions, and overhang levels.

Companies typically enter into an IPO with pre-IPO equity awards to management/employees representing approximately 5.4% of shares outstanding (commonly referred to as dilution).

Virtually all companies request additional shares for a new equity plan prior to or at IPO, with the typical new share request representing 8.2% of fully-diluted shares outstanding.

Within these new equity programs, the vast majority of IPOs in 2021 (73% across all IPOs as well as 85% and 90% among Biotech/Pharma and Tech IPOs, respectively) included an automatic annual refresh provision (i.e., an evergreen).

Our analysis found considerable differences by industry, with certain industries — namely, Bio-Tech/Pharma, Health Care Equipment/Services and Tech — leading others in terms of equity dilution and overhang.

For example, Tech companies had the highest overhang (17.2%) and Financial Services had the lowest overhang (8.8%) at IPO, with median overhang for all 368 companies at 14.4%.

Conversely, our research showed that market capitalization appears not to be a significant factor in differentiating equity award pools although Boards typically factor in relative size when making equity pool decisions.

READ MORE »

2022 Proxy Season Preview

Posted by Chuck Callan (Broadridge), Paul DeNicola (PwC) and Matt DiGuiseppe (PwC), on
Monday, March 14, 2022
, , , , , , , ,
More from: , , , ,

Chuck Callan is Senior Vice President of Regulatory Affairs at Broadridge Financial Solutions; Paul DeNicola is Principal of the Governance Insights Center, PricewaterhouseCoopers LLP; and Matt DiGuiseppe is Managing Director of the Governance Insights Center, PricewaterhouseCoopers LLP. This post is based on their Broadridge/PwC memorandum.

This post provides insights into key corporate governance and shareholder voting trends in the 2022 proxy season. We include data on the results of 4,125 public company annual meetings held between January 1 and June 30, 2021, along with five-year trends.

The 2022 proxy season is shaping up to be an especially active one, with environmental, social, and governance (ESG) matters. Given the SEC’s recent revisions to guidance regarding shareholder resolutions, it’s likely that many more proposals targeting climate change, diversity and inclusion, and other hot-button social issues will come to a vote. And, based on commentary from proxy advisory firms and large institutional investors, directors on boards of companies that are not taking proactive steps in these areas may face increased opposition.

From climate change to racial injustice, expectations that companies will take these matters seriously have never been higher. The 2022 proxy season will show just how focused investors are on making sure the companies they invest in are addressing them.

Against that backdrop, the key issues we’re watching include:

  • A “race to the top” on climate change
  • Evolving expectations around human capital
  • The shifting landscape of shareholder activism
  • Trends in retail and institutional shareholder voting

READ MORE »

Preliminary Procedures in Shareholder Derivative Litigation: A Beneficial Legal Transplant?

Posted by Martin Gelter (Fordham University), on
Monday, March 14, 2022
, , , , ,
More from:

Martin Gelter is Professor of Law at Fordham University School of Law. This post is based on his recent paper.

Shareholder derivative suits, which shareholders bring to enforce claims of the corporation, are a perennial subject of debate. While it is often seen as a nuisance in jurisdictions where it is frequent, such as in the United States, derivative suits are notably scarce in many countries. In principle, derivative suits can have a beneficial impact by creating incentives for a corporation’s directors and officers to comply with their legal duties. Enforcement of fiduciary duties may reduce agency costs and increase investors’ confidence. However, derivative suits sometimes exhibit the problem of litigation agency cost: Plaintiffs or, more likely, their lawyers, may pursue goals different from those of shareholders collectively and may attempt to coerce the company into a settlement benefiting themselves. The international debate about derivative suits has been important enough for the OECD to make it a significant part of a reform recommending reforms for shareholder litigation in Brazil.

Demand futility and the need for balance

My paper, which is based on the part of the OECD report that I prepared, explores the significance of preliminary procedures as a mechanism to balance the goals of enforcing corporate law and screening out non-meritorious litigation at an early stage. By “preliminary procedures,” the paper refers to court decisions early in the process to decide whether a derivative suit should go forward or whether the board’s prerogative to litigate on behalf of the corporation should be respected.

READ MORE »

Scales Tipped Toward More Women Joining Boards in California in 2021

Posted by Cydney Posner, Cooley LLP, on
Monday, March 14, 2022
, , , , ,
More from: ,

Cydney S. Posner is special counsel at Cooley LLP. This post is based on her Cooley memorandum. Related research from the Program on Corporate Governance includes Politics and Gender in the Executive Suite by Alma Cohen, Moshe Hazan, and David Weiss (discussed on the Forum here); and Will Nasdaq’s Diversity Rules Harm Investors? by Jesse M. Fried (discussed on the Forum here).

With the passage of SB 826 in 2018, California became the first state to mandate board gender diversity (see this PubCo post). To measure the impact of that legislation, in 2020, California’s current First Lady co-founded the California Partners Project. In 2020, the CPP released a progress report on women’s representation on boards of public companies headquartered in California, tracking the changes in gender diversity on California boards since enactment of the law. (See this PubCo post.) Now, the CPP has released another report, Mapping Inclusion: Women’s Representation on California’s Public Company Boards by Region and Industry. The new report, the CPP’s third, found “much to celebrate in the progress California has made. All-male boards are a thing of the past—from nearly a third of public company boards in 2018 to less than two percent now—and women hold a record number of California public company board seats.” The report asserts that the “California experiment proves that where there’s a will, there’s a way. Concern that there were not enough qualified women to serve on boards is unfounded.” Most revealing perhaps, the report tells us that, in 2021 “more women have joined California’s public company boards than men, likely for the first time.” But just barely—469 of the 930 directors that started in 2021, or 50.4%, were women. Whether this new statistic is attributable to SB 826 is anyone’s guess—correlation is not necessarily causation and investors and others have also pressured companies on diversity issues—but it certainly helped to dial up the heat.

SideBar

SB 826 requires that, by December 31, 2021, all listed public companies headquartered in California, no matter where they are incorporated, include at least two women on their boards if the corporation has five directors and three women directors if the corporation has six or more directors. A minimum of one woman director is required if the board has four or fewer directors.

READ MORE »

Delaware Confirms Importance of Up-to-Date and Unambiguous Advance Notice Bylaws

Posted by Daniel E. Wolf, Kirkland & Ellis LLP, on
Sunday, March 13, 2022
, , , , , , ,
More from: , , , , ,

Daniel E. Wolf is partner at Kirkland & Ellis LLP. This post is based on a Kirkland & Ellis memorandum by Mr. Wolf, Sarkis Jebejian, Shaun Mathew, Stefan Atkinson, and Byron Pacheco, and is part of the Delaware law series; links to other posts in the series are available here.

  • In a recent decision, Delaware continued its longstanding practice of enforcing unambiguous bylaws, affirming a company’s rejection of an activist nomination notice for failure to comply with requirements of its advance notice bylaws, including that nominations may be made only by a shareholder of record and that a company’s required form of nominee questionnaire may be requested only by a shareholder of record
  • Advance notice bylaws will have increased importance with the coming implementation of the SEC’s new universal proxy rules in September 2022, and companies may want to consider reviewing their bylaws to ensure the benefits of state-of-the-art provisions, including certain modifications tied to the new universal proxy rules

As we have noted before, advance notice bylaws are a near-universal feature of the organizational documents of public companies. These provisions establish informational, timing and procedural requirements that shareholders must satisfy as a condition to nominating directors or making a business proposal at a shareholder meeting. In a string of cases over the last three years, Delaware courts have repeatedly upheld enforcement of these provisions by boards, finding that they are useful in permitting “orderly meeting and election contests,” giving companies “sufficient time to respond to shareholder nominations” and “preventing last-minute surprise attacks by third parties for control or board representation.”

In a recent decision involving a hostile takeover bid and associated proxy contest targeting one of our clients, the Delaware Chancery Court once again followed this path, affirming our client’s rejection of the bidder’s nomination notice for failure to comply with the unambiguous requirements of its advance notice bylaws.

READ MORE »

The Ongoing Debate at the SEC on Climate Disclosure Rules

Posted by Cydney Posner, Cooley LLP, on
Saturday, March 12, 2022
, , , , , , ,
More from: ,

Cydney S. Posner is special counsel at Cooley LLP. This post is based on her Cooley memorandum. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) and Will Corporations Deliver Value to All Stakeholders?, both by Lucian A. Bebchuk and Roberto Tallarita; For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); and Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock by Leo E. Strine, Jr. (discussed on the Forum here).

Who doesn’t love the latest gossip—I mean reporting—about internal squabbles—I mean debate—at the SEC? This news from Bloomberg sheds some fascinating light on reasons for the ongoing delay in the release of the SEC’s climate disclosure proposal: internal conflicts about the proposal. But, surprisingly, the conflicts are not between the Dems and the one Republican remaining on the SEC; rather, they’re reportedly between SEC Chair Gary Gensler and the two other Democratic commissioners, Allison Herren Lee and Caroline Crenshaw, about how far to push the proposed new disclosure requirements, especially in light of the near certainty of litigation, and whether to require that the disclosures be audited. Just how tough should the proposal be? The article paints the SEC’s dilemma about the rulemaking this way: “If its rule lacks teeth, progressives will be outraged. On the flip side, an aggressive stance makes it more likely the regulation will be shot down by the courts, leaving the Biden administration with nothing. Either way, someone is going to be disappointed.”

According to the article, the issues center around “how much information the agency can force companies to divulge without losing an almost certain legal challenge brought by Washington’s business lobby or a Republican-led state. Another flashpoint involves whether auditors should sign off on the disclosures, ensuring they would be vetted by the same independent watchdogs who review corporations’ financial statements.”

READ MORE »

Remarks by Chair Gensler Before the Investor Advisory Committee

Posted by Gary Gensler, U.S. Securities and Exchange Commission, on
Friday, March 11, 2022
, , , , , , , ,
More from: ,

Gary Gensler is Chair of the U.S. Securities and Exchange Commission. This post is based on his recent public remarks before the 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.

Thank you. It’s good to be back with the Investor Advisory Committee (IAC) again. As is customary, I’d like to note that my views are my own, and I’m not speaking on behalf of the Commission or SEC staff.

I’d like to acknowledge the departure of Committee members J.W. Verret and Paul Mahoney. J.W. has served as the Assistant Secretary and Chair of the Market Structure Subcommittee. Paul has served in a number of roles, including IAC Chair during a transitionary period. Both have been active, engaged members of the Committee. Thank you for volunteering your time to make important contributions to our work.

The topics you’re discussing today address a number of items on the Regulatory Flexibility Act Agenda.

Your opening panel tackles the ethical issues and fiduciary responsibilities related to the use of artificial intelligence in robo-advising. More broadly, I’d like to address what we call digital engagement practices, and how they intersect with a variety of finance platforms.

Technological developments can increase access and choice. They also, however, raise important public policy considerations — with respect to conflicts of interest and bias, as you’ll discuss today, and systemic risk, a topic I’ll leave for another day.

First, conflicts of interest. Predictive data analytics, differential marketing, and behavioral prompts — what we’ve collectively called digital engagement practices — are integrated into robo-advising, wealth management platforms, brokerage platforms, and other financial technologies.

READ MORE »

Women and M&A

Posted by Afra Afsharipour (UC Davis), on
Friday, March 11, 2022
, , , ,
More from:

Afra Afsharipour is Senior Associate Dean for Academic Affairs & Professor of Law at the UC Davis School of Law. This post is based on her recent paper, forthcoming in the UC Irvine Law Review. Related research from the Program on Corporate Governance includes Politics and Gender in the Executive Suite by Alma Cohen, Moshe Hazan, and David Weiss (discussed on the Forum here); and Will Nasdaq’s Diversity Rules Harm Investors? by Jesse M. Fried (discussed on the Forum here).

Undertaking a large merger and acquisition (M&A) deal involves many different actors—a corporation’s board of directors, its senior management, and legal and financial advisors. Each of these actors plays a significant role in the decision to move forward on an M&A deal and is deeply involved in planning, negotiating, and executing a deal. This paper provides a holistic analysis of the lead actors involved in M&A transactions, revealing gender disparities in leadership among each of these actors. After decades of pronouncements about the commitment to diversity, there remains a significant underrepresentation of women in leadership among all the institutions involved in M&A.

For purposes of corporate law, boards are at the center of corporate governance in M&A. The central role that boards play in corporate governance has made the board as an institution a target for gender diversity efforts. Thus, while women continue to be underrepresented on boards, board diversity has accelerated over the last decade. For instance, in 2008, only sixteen percent of S&P 500 board seats were held by women, by 2021 that number had increased to thirty percent. Nevertheless, women remain underrepresented in board leadership roles, an important element of what some scholars call substantive gender diversity. For M&A transactions, substantive gender diversity is particularly important because the board chair plays a critical role in setting a board’s agenda, and board members often view the chair as influential in board decision-making.

READ MORE »

Page 70 of 89
1 … 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 … 89