Daily Archives: Tuesday, February 22, 2022

Stakeholder Capitalism in the Time of Covid

Posted by Lucian Bebchuk (Harvard Law School), Kobi Kastiel (Tel Aviv University), and Roberto Tallarita (Harvard Law School), on
Tuesday, February 22, 2022
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Lucian Bebchuk is the James Barr Ames Professor of Law, Economics, and Finance and Director of the Program on Corporate Governance at Harvard Law School; Kobi Kastiel is Associate Professor of Law at Tel Aviv University, and Lecturer on Law at Harvard Law School; and Roberto Tallarita is a Lecturer on Law and Associate Director of the Program on Corporate Governance at Harvard Law School. This post is based on their recent paper.

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 Will Corporations Deliver Value to All Stakeholders?, by Lucian A. Bebchuk and Roberto Tallarita.

In a study we recently released on SSRN, Stakeholder Capitalism in the Time of Covid, we use the COVID-19 pandemic to test the claims of supporters of stakeholder capitalism empirically.

The pandemic was preceded and accompanied by peak support for stakeholder capitalism, with corporate leaders broadly pledging to look after the interests of stakeholders. Our investigation, however, casts doubt on whether such rhetoric was matched by actions.

We conduct a detailed examination of more than 100 public company acquisitions, with an aggregate value exceeding $700 billion, that were announced during the first twenty months of the pandemic. We find that the contractual terms of those acquisitions provided large gains for target shareholders and corporate leaders themselves. However, even though the pandemic heightened risks for stakeholders, corporate leaders negotiated for little or no stakeholder protections.

In particular, although many transactions were viewed as posing significant post-deal risks for employees, corporate leaders generally didn’t bargain for any employee protections, including any compensation to employees that would be fired after the acquisition. And corporate leaders also didn’t negotiate for any protections to customers, suppliers, communities, the environment, or other stakeholders.

We conclude by discussing the implications of our findings for public policy and the heated debate on stakeholder capitalism.

Here is a more detailed account of our analysis:

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Guidance for Engaging on Climate Risk Governance and Voting on Directors

Posted by Rob Berridge, Ceres, on
Tuesday, February 22, 2022
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Rob Berridge is Senior Director of Shareholder Engagement at Ceres. This post is based on his Ceres memorandum. 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); Companies Should Maximize Shareholder Welfare Not Market Value by Oliver Hart and Luigi Zingales (discussed on the Forum here); and Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee by Max M. Schanzenbach and Robert H. Sitkoff (discussed on the Forum here).

Climate change poses urgent and systemic risks to the economy and to investors, as well as serious material risks to companies. The extent of this risk, and that there is no avenue for diversifying away from it, means that investors and proxy advisory firms need reliable public information about a company’s climate-related risk oversight and its plans for transitioning to a net zero emissions future. For disclosure to be actionable and meaningful, it needs to respond adequately to the governance recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), which has received strong support from investors and companies, and the Climate Action 100+ Net-Zero Company Benchmark (the Net-Zero Company Benchmark), which is backed by the world’s largest investor initiative representing more than $65 trillion in assets.

This post serves as a resource for investors and proxy advisory firms. Companies may also want to use this post to prepare for engagements with their stakeholders.

This post provides details on topics that investors and proxy advisory firms may want to consider to inform their company engagements and decisions on whether to support the election of directors responsible for climate change risk oversight. This post covers practices in governance, reporting, and lobbying around climate change-related risks and opportunities, i.e., the direction in which all U.S. public companies should be moving on their journeys to address the net zero transition. Depending on their respective internal practices, investors and proxy advisory firms may determine if voting against or making a recommendation to vote against directors is appropriate for companies that lack one or more of these practices.

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SEC’s Proposed Buyback Disclosure Rules: Actions Companies Should Consider Taking

Posted by J.T. Ho, Carolyn Frantz, and Soo Hwang, Orrick, Herrington & Sutcliffe LLP, on
Tuesday, February 22, 2022
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J.T. Ho is partner, Carolyn Frantz is senior counsel, and Soo Hwang is counsel at Orrick, Herrington & Sutcliffe LLP. This post is based on their Orrick memorandum. Related research from the Program on Corporate Governance includes Short-Termism and Capital Flows by Jesse Fried and Charles C. Y. Wang (discussed on the Forum here); and Share Repurchases, Equity Issuances, and the Optimal Design of Executive Pay by Jesse Fried (discussed on the Forum here).

In addition to the recent proposed rules regarding insider trading policies, the Securities and Exchange Commission has also proposed amendments to its rules regarding disclosure about stock buybacks. The proposed rules would require an issuer to provide a new Form SR before the end of the first business day following the day the issuer executes a share repurchase. The new Form SR would require issuers to identify the class and total amount of securities purchased, the average price paid, and whether the amounts were repurchased in reliance on the safe harbor found in Exchange Act Rule 10b-18 or pursuant to a Rule 10b5-1 plan.

Further, the proposed rules would also enhance existing periodic disclosure requirements regarding repurchases of an issuer’s equity securities. Among other requirements, issuers would be required to disclose in their 10-Ks and 10-Qs (and in the case of foreign private issuers, their 20-Fs) (i) the objective or rationale for the share repurchases, (ii) the process or criteria used to determine the repurchase amounts, (iii) whether the amounts were repurchased in reliance on the safe harbor in Exchange Act Rule 10b-18 or pursuant to a Rule 10b5-1 plan, and (iv) any policies and procedures relating to purchases and sales of the issuer’s securities by its officers and directors during a repurchase program, including any restriction on such transactions. Companies would also have to disclose whether their Section 16 officers or directors purchased or sold shares or other units subject to the repurchase plan within 10 business days before or after the announcement of a repurchase plan or program covering the same class of securities.

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