Monthly Archives: January 2022

The SEC Takes Aim at the Public-Private Disclosure Gap

David A. Katz is partner and Laura A. McIntosh is consulting attorney at Wachtell, Lipton, Rosen & Katz. This post is based on an article first published in the New York Law Journal.

The U.S. Securities and Exchange Commission recently indicated its intention to narrow the disclosure gap between publicly-listed and privately-held companies. While the effort is in its formative stages, the SEC appears likely to embark upon a rulemaking process that would require ESG—or, more accurately, EESG (Employee, Environmental, Social and Governance)—disclosures from large private companies. In the European Union, a disclosure framework that began by requiring climate disclosures from public companies has rapidly expanded into proposals for robust EESG disclosures from private companies, regardless of their size. The SEC’s initiative is likely to meet with a mixed reaction from the U.S. investor community, as some market participants view proposals to mandate EESG disclosure for large private companies as misguided and, more worrying, as the beginning of a slippery slope.

Regulatory action in this area is gaining momentum worldwide. It may well be the case that factors including political pressure, a worldwide focus on environmental and climate issues, and the blurring of the traditional line between the general public and the investing community make such regulation all but inevitable. And to be fair, the largest private companies—some with valuations in the tens of billions of dollars—undeniably have a significant public impact. Yet it is also fair for U.S. market participants to question whether the SEC is the legitimate proponent of such regulation, and, further, to debate the scope and extent of what would constitute reasonable and tailored disclosure requirements for private companies. From the standpoint of institutional legitimacy and the public interest, a regulatory overhaul of the U.S. EESG disclosure framework would be best accomplished through Congressional action to establish a mandate for interagency coordination and implementation. In the absence of legislative action, regulatory overreach in this area by the SEC or a federal agency could jeopardize future efforts to regulate EESG disclosures for public and private companies alike.


Weekly Roundup: January 21–27 2022

More from:

This roundup contains a collection of the posts published on the Forum during the week of January 21–27, 2022.

Stakeholder Governance and Purpose of the Corporation

Cross-Border M&A: 2022 Checklist for Successful Acquisitions in the U.S.

Four Trends Shaping Corporate Governance in 2022

A Director’s Duty of Oversight after Marchand in “Caremark” Case

Proposed Rules on Disclosure of Security-Based Swap Positions

ESG and M&A in 2022: From Risk Mitigation to Value Creation

A Second Look at SPACs: Is This Time Different?

It’s a New World for CFOs

Regulating Global Stablecoins: A Model-Law Strategy

Cybersecurity and Securities Laws

Annual Review of Shareholder Activism

Mergers and Acquisitions: 2022

Statement by Commissioner Peirce on Form PF

Statement by Chair Gensler on Form PF

Statement by Chair Gensler on Form PF

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

Today [January 26, 2022], the Commission is considering amendments to Form PF — a form that came about after the financial crisis in 2008.

We’d had challenges in private funds previously. So after the financial crisis in 2008, Congress came along and said, it’s time for us to collect information and share it with the newly formed Financial Stability Oversight Council.

I think we’ve learned a great deal since then. I support today’s proposal because, if adopted, it would help federal regulators to assess systemic risk, including the Financial Stability Oversight Council, the SEC, the Federal Reserve Board, and others. It also would bolster the Commission’s oversight of private fund advisers and the protection of investors in those funds.

Form PF, adopted in 2011, sheds light on a growing part of the financial sector that was not transparent to regulators: these private funds. Form PF provides the Commission and FSOC with important, confidential information about the basic operations and strategies of private funds and has helped establish a baseline picture of the private fund industry for use in assessing systemic risk.

Since the adoption of Form PF in 2011, a lot has changed. In that time, the private fund industry has grown in size to a net asset value $11 trillion and evolved in terms of business practices, complexity of fund structures, and investment strategies and exposures.


Statement by Commissioner Peirce on Form PF

Hester M. Peirce is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on her recent public statement. The views expressed in this post are those of Ms. Peirce and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

I want to begin by offering my thanks to the staff of the Divisions of Investment Management and Economic and Risk Analysis, and the Offices of the Chief Accountant and General Counsel. Although I am unable to support today’s proposal, I appreciate all of the work and effort staff put into the proposal, including fielding numerous comments and questions from me.

My objections to the proposed changes to Form PF, however, are fundamental. As we described at the time of its adoption in 2011, Form PF “is primarily intended to assist [the Financial Stability Oversight Counsel (also known as FSOC)] in its monitoring obligations under the Dodd-Frank Act.” [1] As the Commission made clear in the release accompanying Form PF’s finalization, the Commission’s use of Form PF information in conducting its regulatory program is ancillary to the underlying purpose of facilitating FSOC’s monitoring for systemic risk. [2] Congress did not conceive of Form PF to facilitate the Commission’s desire to inoculate well-heeled investors against downturns, losses, or fund failures. Today’s proposal disregards these facts and represents a fundamental shift in Form PF’s scope and purpose.

Although the release cites monitoring and, where possible, mitigating or forestalling, market-wide disruptions as rationales for the proposed changes in reporting, the release provides scant evidence that the amendments to Form PF would enhance FSOC’s ability to monitor for systemic risk. Rather, the enhanced reporting seems intended primarily to provide the Commission with additional information to support its regulatory and enforcement programs. A regulator’s desire for data is insatiable, but more data is not always better. Before we seek additional information through Form PF, we must show what we have done with the information we already require and show that it is insufficient to allow FSOC to monitor for systemic risk. I do not think we have done that. Merely citing gaps in data is not enough. There will always be gaps—or at least I hope there will always be gaps—in just what information the government can access on private activities. But we must ask: is our desire to fill these gaps born of necessity or curiosity? I judge it to be the latter.


Mergers and Acquisitions: 2022

Victor Goldfeld and Mark Stagliano are partners and Anna D’Ginto is an associate at Wachtell, Lipton, Rosen & Katz. This post is based on their Wachtell memorandum.

The year 2021 was a remarkable one on many levels for M&A and the transactional market. While it was, to a significant degree, a continuation of the incredibly strong market that began in the middle of 2020, few predicted such record-breaking activity at the outset of the pandemic just several months earlier. Records were shattered across every dimension—M&A volume and number of transactions, in the United States and globally; private equity transactions; the SPAC phenomenon; and IPOs, to name just a handful. All in the midst of the ongoing Covid-19 pandemic, uncertainty regarding the timing of transitions from remote to conventional working arrangements, a volatile global economy, supply chain disruptions, more aggressive antitrust enforcement, and the prospect of increasing interest rates. These headwinds were overcome by improving economic conditions, unprecedented stimulus and central bank liquidity initiatives, uncertainty about whether potential tax reform would increase tax costs to sellers, low interest rates, increased optimism amongst corporate executives in the U.S. and across Europe as vaccine programs were successfully rolled out, and receptivity in the markets to announced transactions, among other factors. As a result of these and other dynamics, in 2021, total deal volume was the highest it has been since recordkeepers began tracking M&A volume, with over $5.8 trillion of deals recorded globally for the year. Total deal volume in 2021 increased more than 60% relative to the $3.6 trillion recorded for total deal volume in 2020 and increased over 50% relative to the $3.8 trillion recorded for total deal volume in 2019. Over 63,212 transactions were announced in 2021, a 24% increase to the 50,871 transactions announced in 2020.


The Win-Win That Wasn’t: Managing to the Stock Market’s Negative Effects on American Workers and Other Corporate Stakeholders

Aneil Kovvali is Harry A. Bigelow Teaching Fellow & Lecturer in Law at the University of Chicago Law School and Leo E. Strine, Jr. is Michael L. Wachter Distinguished Fellow at the University of Pennsylvania Carey Law School; Senior Fellow, Harvard Program on Corporate Governance; Of Counsel, Wachtell, Lipton, Rosen & Katz; and former Chief Justice and Chancellor, the State of Delaware. This post is based on their recent paper.

The work of Frank Easterbrook and Dan Fischel influenced a generation or more of corporate law scholars and, perhaps more important, powerful players in American corporate governance like institutional investors and government policy makers. It is impossible to consider the path that American corporate governance has taken without acknowledging the impact of their thinking, and the ballast their arguments gave to those who drove policies designed to make American public companies more responsive to the immediate demands of the stock market and to tilt governance towards one that would transmit the desires of stockholders, particularly institutional investors with clout, more consistently and rapidly into corporate policy.

But, in our reflection on their core corporate law scholarship, The Win-Win That Wasn’t: Managing to the Stock Market’s Negative Effects on American Workers and Other Corporate Stakeholders prepared for a festschrift for the inaugural issue of the University of Chicago Business Law Review, we address a claim of Easterbrook and Fischel that in our view has, as a matter of empirical and lived reality, turned out to be false. That assumption was that if corporations were run to maximize the profits of stockholders, and to be highly responsive to their demands, that would benefit all of society. Easterbrook & Fischel explain this perspective in the opening chapter of their 1991 book, The Economic Structure of Corporate Law:


Proxy Voting Policy for U.S. Portfolio Companies

John Galloway is global head of investment stewardship at Vanguard, Inc. This post is based on a publication by Vanguard Investment Stewardship.


The information below, organized according to Vanguard Investment Stewardship’s four principles, is the voting policy adopted by the Board of Trustees for the funds (the “Fund Board”) [1] and describes the general positions of the funds on recurring proxy proposals for U.S.-domiciled companies.

It is important to note that proposals often require a facts-and-circumstances analysis based on an expansive set of factors. Proposals are voted case by case, under the supervision of the Investment Stewardship Oversight Committee and at the direction of the relevant Funds’ Board. In all cases, proposals are voted as determined in the best interests of each fund consistent with its investment objective.

Principle I: Board composition and effectiveness

A fund’s primary interest is to ensure that the individuals who represent the interests of all shareholders are independent, committed, capable, diverse, and appropriately experienced. Diversity of thought, background, and experience, as well as of personal characteristics (such as gender, race, and age), meaningfully contributes to the ability of boards to serve as effective, engaged stewards of shareholders’ interests.


Annual Review of Shareholder Activism

Rich Thomas is Managing Director and Head of European Shareholder Advisory, Christopher Couvelier is a Managing Director, and Leah Friedman is an Associate at Lazard. This post is based on a Lazard memorandum by Mr. Thomas, Mr. Couvelier, Ms. Friedman, Emel Kayihan, and Lauren Ortner. 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); 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).

Observations on the Global Activism Environment in 2021

U.S. Activity Leads Global Market

  • 173 campaigns launched globally in 2021, in line with 2020’s slower pace; capital deployed by activists was also roughly flat Y-o-Y ($42bn vs. $40bn)
    • New campaigns launched in the U.S. increased 14% Y-o-Y, and U.S. activity accounted for 55% of all global activism (up from 45% in 2020)
    • Numerous high-profile campaigns, including several launched in prior years, reached inflection points in 2021 – including ExxonMobil becoming the
      largest issuer to lose a proxy fight, Toshiba announcing a break-up following persistent activist criticism and Box prevailing in its proxy fight against
      Starboard following its controversial “white squire” investment from KKR
    • The year culminated with a very active Q4 that saw 50 new campaigns launched, resulting in numerous live situations heading into 2022
  • Elliott launched 17 campaigns, its most active year since 2018, including notable situations at GSK, Duke Energy, Citrix and Willis Towers Watson
    • JANA’s seven campaigns (including Treehouse and Zendesk) made it the next most prolific fund and matched JANA’s 2014 high-water mark for new launches


Cybersecurity and Securities Laws

Gary Gensler is Chair of the U.S. Securities and Exchange Commission. This post is based on his recent remarks before the Northwestern Pritzker School of Law’s Annual Securities Regulation Institute. 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 with the Annual Securities Regulation Institute. As is customary, I’d like to note that my remarks are my own, and I’m not speaking on behalf of the Commission or SEC staff.

As some of you may know, I often like to talk about the founding of our nation’s securities laws in the 1930s.

So again, today, I’d like to discuss the ‘30s — but this time, I actually mean the 1830s.

In 1834, exactly a century before the SEC was established, the Blanc brothers in Bordeaux, France, committed the world’s first hack. The two bankers bribed telegraph operators to tip them off as to the direction the market was headed. Therefore, they gained an information advantage over investors who waited for the information to arrive by mail coach from Paris.

The brothers weren’t convicted for their actions, as France didn’t have a law against the misuse of data networks. [1] The Blancs thus pocketed their francs, point-blank.

You may be wondering what all this has to do with the SEC. Well, I think it’s telling that the world’s first cybersecurity attack involved securities.


Regulating Global Stablecoins: A Model-Law Strategy

Steven L. Schwarcz is Stanley A. Star Distinguished Professor of Law & Business at Duke University School of Law. This post is based on his recent paper.

In Regulating Global Stablecoins: A Model-Law Strategy, I examine the challenges of facilitating “retail” consumer payments by issuing digital currencies—monetary currencies that are evidenced electronically and not in physically tangible form.

Two types of retail digital currencies are likely to become feasible in the near future: central bank digital currencies (“CBDC”), which are sponsored by governmental central banks, and “stablecoins,” which are non-government issued digital currencies that are backed by “reference assets” having intrinsic value, such as government fiat currencies. In contrast, bitcoin and other privately issued cryptocurrencies that are not backed by reference assets are unlikely to become successful consumer currencies because of their unpredictably fluctuating value.

This paper focuses on stablecoins that become widely used internationally (“global stablecoins”). That widespread use is likely; according to the Financial Stability Oversight Council’s 2021 annual report, for example, the market capitalization of stablecoins already being used in the United States already well exceeds $100 billion dollars.

Global stablecoin use poses a host of cross-border legal issues. At the outset, that use would generate high costs if stablecoins are governed by multiple, and potentially conflicting, legal frameworks. Furthermore, the interaction of conflicting legal frameworks could create uncertainty about the enforceability of contractual obligations.


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