Monthly Archives: January 2022

Financing Year in Review: A Robust Recovery

Eric M. Rosof, Gregory E. Pessin, and Emily D. Johnson are partners at Wachtell, Lipton, Rosen & Katz. This post is based on their Wachtell memorandum.

Booming debt markets throughout 2021 helped drive a record-breaking year of deal-making activity. Borrowers across industries, geographies and credit ratings maintained access to financing on historically attractive terms. We mark the New Year by looking at developments driven by the roaring debt markets, and considering what lies ahead as the calendar turns.

The Financing Markets in 2021: Record Breaking

Undeterred by the second year of the pandemic, 2021 was a record breaker for financing markets. New issuance volumes for both high-yield bonds and loans set full-year records before Thanksgiving, and those record high volumes were accompanied by record low yields. Investment grade bond issuance levels were the second highest on record, eclipsed only by levels reached in 2020.

The attractive financing available in 2021 supported dealmaking at an all-time record pace, including M&A transactions such as’s $27.7 billion acquisition of Slack; Jazz Pharmaceuticals’ $7.2 billion acquisition of GW Pharmaceuticals; ii-vi’s $7.0 billion acquisition of Coherent; IAC’s $2.7 billion acquisition of Meredith Corporation’s National Media Group; Herman Miller’s

$1.8 billion acquisition of Knoll; and Siris Capital’s innovative $1.5 billion double-acquisition of Equiniti Group and American Stock Transfer & Trust Company. The financing markets also supported other types of M&A activity, including XPO Logistics’ $7.8 billion spin-off of GXO Logistics and the $9.3 billion “Reverse Morris Trust” transaction between 3M’s food safety business and Neogen.


Corporate Purpose and Stakeholder Fairness Through the Lens of Behavioral Economics: Legal Implications

Eli Bukspan is Professor of Law at Radzyner Law School, Reichman University (IDC Herzliya). This post is based on his recent paper. 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).

“ESG” (the acronym for “Environmental, Social and Governance”) is a term that either inspires a transformative feeling of hope or a cynical roll of the eyes. For some, ESG, and similar concepts including “stakeholder governance” or “stakeholder capitalism”, is merely an “illusory promise” that will ultimately harm stakeholder groups rather than help safeguard their interests – this view is expressed in the recent articles written by Bebchuk and Tallarita (here and here) and Bebchuk, Kastiel and Tallarita. According to the “shareholder supremacy” side of the debate, the proper venue for safeguarding stakeholder interests is in specific non-corporate law fields of regulation such as labor, environmental protection and tax law. To others, such as R. Edward Freeman, Colin Mayer and Alex Edmans, the corporate enterprise requires attention to nonfinancial considerations as well due to the fact that corporations serve a greater purpose in society beyond shareholder profit maximization. Broadly utilizing the insight of the “framing effect” from behavioral economics, this conflict can be contextualized as disagreement over the proper framing of corporate purpose regarding the appropriate balance between shareholder profits and stakeholder interests. This longstanding debate is here to stay and has even received a “booster”, if we may use this word in our context, over the last two years, in the form of increased activity implementing the stakeholder approach through the supervision of ESG-related financial, reputational and legal risks. Society, it seems, is gradually seeking answers to larger questions of corporate purpose because of the perceived role corporations have in shaping the future of capitalism, the future of human rights, and even the future of humanity and the planet. These trends, like islands, are slowly but surely merging to form a continent, manifesting in a novel framing corporate purpose.


SEC Releases New Proposed Rules for Rule 10b5-1 Plans

John Ellerman and Mike Kesner are partners at Pay Governance LLC. This post is based on their Pay Governance memorandum. Related research from the Program on Corporate Governance includes Insider Trading Via the Corporation by Jesse Fried (discussed on the Forum here).


Rule 10b5-1, established by the Securities and Exchange Commission (SEC) in the year 2000, permits executive officers and directors of publicly traded companies to establish a trading plan for the sale or purchase of company stock and provides these individuals an “affirmative defense” against claims that shares were traded based on material non-public information (MNPI). A typical Rule 10b5-1 plan specifies the sale or purchase of a predetermined number of shares at a specified price (or prices) over the term of the plan.

Companies (i.e., issuers) may also establish Rule 10b5-1 plans for stock buybacks.

It is important to note, neither executive officers and directors nor companies are required to use a Rule 10b5-1 trading plan to execute company stock transactions, and many trades are completed without such plans.

Currently, there are no disclosure requirements when a 10b5-1 trading plan is adopted, modified, or terminated. And, although such plans must be adopted when the participant is not aware of any MNPI, under present rules there is no waiting period before a stock transaction can take place. Thus, it is possible to adopt a trading plan and sell shares on the same day, although in our experience many plans include a 30-day “cooling-off” period before the first stock transaction can be completed.


CEO Leadership Redefined

Christine DiBartolo and Brent McGoldrick are Senior Managing Directors and Elly DiLeonardi is Senior Director of the Strategic Communications segment at FTI Consulting. This post is based on their FTI Consulting 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).

Society is demanding a different kind of leadership from the C-suite, especially CEOs.

People are paying close attention to what they say and what they do. This shift was happening well before 2020, but the COVID-19 pandemic and social and political unrest significantly accelerated the transformation underway.

As a firm that helps CEOs with their most complex, business-critical issues, we are often asked how CEOs and senior executives should navigate this new environment in a way that is responsive to the needs of different stakeholder groups, but doesn’t inadvertently create new risk for the business. We decided to go straight to the source and ask two of the most critical audiences, working professionals and institutional investors, about what they expect from CEOs.

Our research revealed that investors strongly believe that the job of the CEO goes beyond turning a profit, and working professionals agree. Moving forward, CEOs must take on complex societal issues, demonstrate strong corporate purpose and values, and effectively communicate and engage with their people and key stakeholders frequently.

It also shed light on some emerging differences in expectations of CEOs among various generations, which will be important to keep in mind as companies plan for the future. Baby Boomers (ages 57 to 74) have long held the majority of sitting CEO positions, but for the first time in 2020, the average age of a CEO-now 52 years-aligned with Gen X (ages 41 to 56). As Gen X steps into senior leadership positions, including the role of CEO, they will need to cater to a new generation of employees-Gen Z (ages 24 and younger)-who are motivated by personal values and focused on serving the planet through sustainable operations and their peers through diversity and inclusion efforts.


An Essay on the Fed and the U.S. Treasury: Lender of Last Resort and Fiscal Policy

Hal S. Scott is the Emeritus Nomura Professor of International Financial Systems at Harvard Law School. This post is based on his recent article, published in the Harvard Journal of Law and Public Policy.

My recent article, An Essay on The Fed and the U.S. Treasury: Lender of Last Resort and Fiscal Policy, in the Harvard Journal of Law and Public Policy explores the evolution of my thinking on risky emergency lending, focusing primarily on non-banks. Like the famous 19th century British economist Ricardo, who recognized his views on machinery had undergone considerable change, the same can be said for my views on lender of last resort.

The Federal Reserve (the “Fed”), in 2020 during the COVID-19 pandemic, established lending facilities with potentially significant credit risk, largely within the framework of Section 13(3) of the Federal Reserve Act. While it appeared to the public that these were independent Fed programs, in fact the lending to non-banks was controlled, and was largely determined, by the Treasury statutory approval power, required by the 2010 Dodd-Frank Act amendments to Section 13(3).

While I opposed this change at the time, and later in my book Connectedness and Contagion (M.I.T. 2016), out of concern that it would put an undesirable obstacle, perhaps politically motivated, in the way of an effective Fed response to a crisis, I have since changed my view. My article argues that Treasury control of lending to non-banks is usually a fiscal decision, due to credit risk, and should be made by the elected government, not by an independent agency. And it should be the Treasury’s role, as advised by the Fed, to determine when there is significant credit risk.


Board Practices Quarterly: Diversity, Equity, Inclusion: One Year Later

Natalie Cooper is Senior Manager and Robert Lamm is an independent senior advisor, both at the Center for Board Effectiveness, Deloitte LLP; and Randi Val Morrison is Vice President, Reporting & Member Support at the Society for Corporate Governance. This post is based on a Deloitte memorandum by Ms. Cooper, Mr. Lamm, Ms. Morrison, Carey Oven, and Caroline Schoenecker. 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).

This post revisits topics raised in our earlier post, published in October 2020, that explored how companies and boards were responding to events of that year surrounding systemic racism and racial inequality. Specifically, we explore how practices pertaining to diversity, equity, and inclusion (DEI) have changed in the past year in areas such as reporting, meeting agendas, and actions taken by the company, management, and/or the board. We also review additional topics related to DEI, including board recruitment, board education, and executive compensation incentives.

Our findings are based on an October 2021 survey of Society for Corporate Governance members representing more than 120 public companies. As anticipated in our inaugural issue, the findings in this area have evolved over the past year, and we expect ongoing change in corporate governance practices, as well as on a societal level, amid increasing calls for action and progress.


Respondents, primarily corporate secretaries, in-house counsel, and other in-house governance professionals, represent public companies of varying sizes and industries. [1] The actual number of responses for each question is provided. Where applicable, commentary has been included to highlight differences among respondent demographics. In some cases, additional commentary is provided to highlight comparisons to public company results of similar questions asked in our 2020 inaugural Board Practices Quarterly survey and in our 2018 Board Practices Report.


Corporate Political Spending is Bad Business: How to Minimize the Risks and Focus on What Counts

Leo E. Strine, Jr. is the 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; and Dorothy S. Lund is Assistant Professor of Law at the University of Southern California Gould School of Law. This post is based on their recent article, published in the Harvard Business Review. Related research from the Program on Corporate Governance includes Corporate Political Speech: Who Decides? by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here); The Untenable Case for Keeping Investors in the Dark by Lucian Bebchuk, Robert J. Jackson Jr., James David Nelson, and Roberto Tallarita (discussed on the Forum here); and The Politics of CEOs by Alma Cohen, Moshe Hazan, Roberto Tallarita, and David Weiss (discussed on the Forum here).

In our article, Corporate Political Spending is Bad Business, we explore the deep problems that corporate political spending poses for corporations and their management. In particular, we highlight the lack of legitimacy underpinning management decisions to spend treasury dollars on political causes as well as the “hypocrisy trap” for companies that donate to causes that undermine their stated values.

The legitimacy problem is easy to understand. Under the traditional division of power in U.S. corporations, managers decide how to allocate corporate assets, and shareholders are entitled to a say on those decisions only if they involve certain fundamental transactions. Thus, even as corporate political spending has soared since Citizens United, shareholders have had no real say in the matter. Corporate leaders have not chosen to seek their approval for political donations, and most have not even disclosed their contributions—despite the fact that shareholders are paying for them with their entrusted capital.

Even when it comes to traditional business decisions, academic research has focused for years on the reality that management does not always use its control of a company’s money to benefit the company and its shareholders, whether out of myopia or self-interest. In the fields of corporate finance and governance, this is referred to as an agency problem. Of course, the misalignment is especially pronounced when the decision is about which politicians or parties should benefit from corporate largesse—an issue on which shareholders have no common interest. Shareholders have diverse political views and—as we highlight—no interest in electing candidates just because they support one company’s preferred regulatory policies. The ability of corporate managers, who understandably have their own political views, to make contributions in a way that is faithful to their investors’ diverse interests and opinions is rightly suspect, and for that reason, demand is growing for shareholders to be given more information about and more say over corporate political spending.


ISS Proxy Voting Guidelines 2022: Compensation and Diversity Updates

Shaun Bisman is a Principal and Jared Sorhaindo is an Associate at Compensation Advisory Partners. This post is based on their CAP 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).

ISS recently published its 2022 policy updates, which will go into effect for annual meetings held on or after February 1, 2022 (and, in some instances, February 1, 2023). This post discusses key updates made to ISS’ compensation and Environmental, Social and Governance (ESG) voting policies.

Executive Compensation-Related Update

Burn Rate

For stock plan valuations, ISS has changed its burn rate calculation, which will be in effect for meetings on or after February 1, 2023. The burn rate will be referred to as the “Value-Adjusted Burn Rate” and will be calculated as follows:

The calculation currently in effect is:

Note: The volatility multiplier is used to provide a more equivalent valuation between stock options and full-value shares and is based on a company’s historical stock price volatility.


Japan’s Coming Wave of Reform

Kei Okamura is Director of Japan Investment Stewardship at Neuberger Berman LLC. This post is based on his Neuberger Berman memorandum.

Issues of corporate governance, capital management and sustainability have been on the radar in Japan for the past decade, but soon the pace of change could accelerate. The difference is a revised Corporate Governance Code and the upcoming overhaul of the Tokyo Stock Exchange, which aim to reinforce the role of sound governance and capital efficiency in enhancing shareholder value and are expanding their scope to issues such as diversity and climate change. In this post, we assess the potential implications, and explain why companies’ ability to adapt to the new Code could be crucial to their success moving forward.


Over the next 12 to 24 months, Japanese companies will embark on a historic overhaul of the ways they address corporate governance, capital management and financially material environmental and social risks to seek long-term sustainable growth opportunities. These issues have been on the radar since the early 2010s, when former Prime Minister Shinzo Abe placed corporate governance reforms at the heart of the nation’s growth strategies, known as “Abenomics.” What is different this time around, however, is the Japan Corporate Governance Code, which was revised in June 2021 to place greater emphasis on the role that corporate boards and their committees should play in enhancing shareholder value. The scope of the Code was also expanded to include sustainability issues such as gender diversity and climate change. Further, the Code now includes an enforcement element that targets nearly 60% of the country’s 3,800 listed companies, which will have to adhere to the Code on a “comply or explain” basis to become members of the Tokyo Stock Exchange’s (TSE) coveted Prime section, which is expected to go online in April 2022. Concurrently, the government is reportedly considering an overhaul of existing greenhouse gas (GHG) emissions and climate change risk-related disclosure rules for companies.


ISS 2022 U.S. Policy Updates

Rajeev Kumar is Senior Managing Director at Georgeson. This post is based on a Georgeson memorandum by Mr. Kumar, Hannah Orowitz, and Brigid Rosati.

On December 7, 2021, Institutional Shareholder Services (ISS) published updates to its U.S. benchmark proxy voting policies. Unless specified otherwise, the new policies are applicable to all U.S. company meetings held on or after February 1, 2022. This year, ISS’s key policy updates relate to the issues of board composition and board accountability.

The policy updates are summarized below.

Board Composition—Gender Diversity

ISS has an existing policy to generally vote against or withhold from the chair of the nominating committee (or other directors on a case-by-case basis) at S&P 1500 or Russell 3000 companies where the company lacks women directors on its board. Against the backdrop of investors increased diversity expectations and NASDAQ’s board diversity rules, ISS is expanding its current policy requiring at least one female director to all companies, not just those in the S&P 1500 or Russell 3000 indicies, starting with meetings on or after Feb. 1, 2023.

Board Composition—Racial/Ethnic Diversity

ISS’s policy to require at least one ethnically/racially diverse director for U.S. companies in the Russell 3000 and S&P 1500 indices that was announced last year will go into effect beginning with meetings on or after Feb. 1, 2022. In the absence of racially or ethnically diverse board members, ISS will generally vote against or withhold from the chair of the nominating committee (or other directors on a case-by-case basis).


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