Monthly Archives: December 2023

Weekly Roundup: December 15-21, 2023

Posted by the Harvard Law School Forum on Corporate Governance, on
Friday, December 22, 2023

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This roundup contains a collection of the posts published on the Forum during the week of December 15-21, 2023

Investor Alliances: The Infrastructure For Climate Stewardship

Posted by Amelia Miazad (University of California at Davis), on Friday, December 15, 2023
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Securities and Derivative Litigation: Quarterly Update

Posted by Joni Jacobsen, Stuart Steinberg, and Melanie MacKay, Dechert LLP, on Saturday, December 16, 2023
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SEC Defeats Summary Judgment Bid in ‘Shadow Insider Trading’ Case

Posted by Peter Altman, Katherine Goldstein, and Douglas Rappaport, Akin Gump Strauss Hauer & Feld LLP, on Sunday, December 17, 2023
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Does Paying Passive Managers to Engage Improve ESG Performance?

Posted by Marco Becht (Université libre de Bruxelles) and Kazunori Suzuki (Waseda University), on Monday, December 18, 2023
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NYC pension case tees up first test of GOP fiduciary duty theory.

Posted by Amy D. Roy and Robert A. Skinner, Ropes & Gray LLP, on Monday, December 18, 2023
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Evolving Notions of Board Effectiveness

Posted by Richard Alsop, Shearman & Sterling LLP, on Tuesday, December 19, 2023
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Preparing for Year Two of Pay versus Performance Disclosures

Posted by Mike Kesner, Ed Sim, and Ben Stradley, Pay Governance, on Tuesday, December 19, 2023
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Why We Still Need the SEC’s Climate-Related Disclosures Rule

Posted by Erin Shortell (New York University), on Wednesday, December 20, 2023
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Recent Developments for Directors

Posted by Julia Thompson, Keith Halverstam, and Jenna Cooper, Latham & Watkins LLP, on Wednesday, December 20, 2023
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The Carrot and the Stick: Bank Bailouts and the Disciplining Role of Board Appointments

Posted by Vincenzo Pezone (Tilburg University), on Thursday, December 21, 2023
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A Review of the 2023 Proxy Season: An E&S Backlash?

Posted by Lara Aryani and William Kim, Shearman & Sterling LLP, on Thursday, December 21, 2023
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A Review of the 2023 Proxy Season: An E&S Backlash?

Posted by Lara Aryani and William Kim, Shearman & Sterling LLP, on
Thursday, December 21, 2023
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Lara Aryani is a Partner and William Kim is an Associate at Shearman & Sterling LLP. This post is based on their Shearman memorandum. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) by Lucian A. Bebchuk and Roberto Tallarita; How Much Do Investors Care about Social Responsibility? (discussed on the Forum here) by Scott Hirst, Kobi Kastiel, and Tamar Kricheli-Katz; Does Enlightened Shareholder Value Add Value? (discussed on the Forum here) by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita; and Companies Should Maximize Shareholder Welfare Not Market Value (discussed on the Forum here) by Oliver Hart and Luigi Zingales.

Over the last several years, companies, shareholders and regulators have focused increasing attention on three areas of investment risk: environmental, social and governance (ESG). While these risks are not strictly financial, investors have increasingly come to expect companies to address the ways in which these matters impact their businesses and the mitigation plans—if any—companies expect to adopt to manage these risks.

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The Carrot and the Stick: Bank Bailouts and the Disciplining Role of Board Appointments

Posted by Vincenzo Pezone (Tilburg University), on
Thursday, December 21, 2023
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Vincenzo Pezone is an Associate Professor of Finance at Tilburg University. This post is based on a recent paper by Professor Pezone, Christian Mücke, Loriana Pelizzon, and Anjan V. Thakor.

Despite the well-publicized negative effect of bailouts on ex ante incentives, it is often practically infeasible for governments to avoid bailing out failing banks, especially if many banks fail together, i.e., in the presence of systemic risk. However, bailouts are costly, as they are also associated with both ex ante and ex post moral hazard. If banks anticipate receiving subsidized equity during a crisis, their ex ante incentives to be well capitalized may be weakened, and they will welcome government assistance during a crisis. Once capital is infused, bank managers may have an ex post incentive to avoid making dividend payments on the preferred stock purchased by the government.

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Recent Developments for Directors

Posted by Julia Thompson, Keith Halverstam, and Jenna Cooper, Latham & Watkins LLP, on
Wednesday, December 20, 2023
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Julia Thompson, Keith Halverstam, and Jenna Cooper are Partners at Latham & Watkins LLP. This post is based on a Latham & Watkins memorandum by Ms. Thompson, Mr. Halverstam, Ms. Cooper, Charles Ruck, Ryan Maierson, and Joel Trotter.

Emissions Registry and Climate Disclosures Ahead for California Companies

On October 7, 2023, California Governor Gavin Newsom signed into law two statutes that will require certain companies doing business in California to disclose their GHG emissions (SB 253) and climate-related financial risk (SB 261). These statutes apply regardless of whether a company is incorporated or headquartered in California.

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Why We Still Need the SEC’s Climate-Related Disclosures Rule

Posted by Erin Shortell (New York University), on
Wednesday, December 20, 2023
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Erin Shortell is a Legal Fellow at the Institute for Policy Integrity at New York University School of Law. This blog post is based on a recent Institute for Policy Integrity report by Ms. Shortell, Donald L. R. Goodson, Jack Lienke, Sophia Dilworth, and Isabel Keene. Related research from the Program on Corporate Governance includes Illusory Promise of Stakeholder Governance (discussed on the Forum here) by Lucian A. Bebchuk and Roberto Tallarita; How Much Do Investors Care about Social Responsibility? (discussed on the Forum here) by Scott Hirst, Kobi Kastiel, and Tamar Kricheli‐Katz; and The Case for Increasing Shareholder Power by Lucian A. Bebchuk.

Companies face growing financial risks from climate change. Around the world, investors are demanding more consistent, comparable, and reliable information about these risks so that they can make informed investment decisions. Regulators are listening. In March 2022, the Securities and Exchange Commission (SEC) proposed a rule that would require public companies to include in certain SEC filings specific climate-related disclosures. The SEC might finalize these requirements any day now. In the meantime, California and the European Union (EU) have adopted their own climate-related disclosure regimes. These new regimes require many of the same disclosures and cover many of the same companies as the SEC’s proposed rule.

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Preparing for Year Two of Pay versus Performance Disclosures

Posted by Mike Kesner, Ed Sim, and Ben Stradley, Pay Governance, on
Tuesday, December 19, 2023
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Mike Kesner is a Partner, Ed Sim is a Consultant, and Ben Stradley is a Managing Partner at Pay Governance. This post is based on their recent article. Related research from the Program on Corporate Governance includes Executive Compensation as an Agency Problem, Pay without Performance: The Unfulfilled Promise of Executive Compensation, and Paying for long-term performance (discussed on the Forum here) all by Lucian A. Bebchuk and Jesse M. Fried; The Growth of Executive Pay by Lucian A. Bebchuk and Yaniv Grinstein; and The CEO Pay Slice (discussed on the Forum here) by Lucian A. Bebchuk, Martijn Cremers, and Urs Peyer.

Introduction

The SEC’s final Pay versus Performance (PVP) disclosure rules were issued on August 25, 2022. Given the number of implementation issues that were raised as companies struggled to comply with the new rules, the SEC staff issued several Compliance and Disclosure Interpretations (CDIs) to clarify the disclosure requirements: fifteen CDIs were issued on February 10th, nine CDIs were issued on September 27th, and ten CDIs (including revisions to two prior CDIs) were issued on November 21st.

This Viewpoint highlights some of the most important SEC guidance that companies should consider in preparing their 2024 PVP disclosure.

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Evolving Notions of Board Effectiveness

Posted by Richard Alsop, Shearman & Sterling LLP, on
Tuesday, December 19, 2023
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Richard Alsop is a Partner at Shearman & Sterling LLP. This post is based on his Shearman memorandum.

BOARD EFFECTIVENESS – TRADITIONAL APPROACHES

Maximizing board effectiveness has been an ongoing and somewhat elusive corporate governance objective for U.S. corporate boards, executives and stockholders. While the board’s role in governance is well understood, the performance and outcomes of individual boards in terms of oversight, strategic input, advice to management and maximizing shareholder value, among other functions, are subject to significant variability depending on overall board effectiveness. The effectiveness of the board can mean the difference between serving as merely a required oversight function or serving as a valuable strategic and competitive asset. Achieving a high level of board effectiveness relies on the successful implementation of several key imperatives, including board leadership and composition, operational and deliberative processes, board culture and dynamics and performance evaluation and improvement. Some of the traditional cornerstones of these board effectiveness imperatives are highlighted below.

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NYC pension case tees up first test of GOP fiduciary duty theory.

Posted by Amy D. Roy and Robert A. Skinner, Ropes & Gray LLP, on
Monday, December 18, 2023
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Amy D. Roy and Robert A. Skinner are Partners in the Ropes & Gray securities litigation group in Boston. This post is based on their Ropes & Gray memorandum. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) by Lucian A. Bebchuk and Roberto Tallarita; How Much Do Investors Care about Social Responsibility? (discussed on the Forum here) by Scott Hirst, Kobi Kastiel, and Tamar Kricheli‐Katz; Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee (discussed on the Forum here) by Robert H. Sitkoff and Max M. Schanzenbach; and Exit vs. Voice (discussed on the Forum here) by Eleonora Broccardo, Oliver Hart, and Luigi Zingales.

For nearly two years, Republican officials and conservative commentators have proclaimed in various settings that consideration of environmental, social and governance (ESG) factors in investing is in breach of fiduciary duties owed by asset managers and pension officials.  While this legal theory has been cited in the issuance of state attorney general opinions and the launching of investigations, public officials have yet to bring any formal claims that would serve to put the fiduciary duty theory to the test in court.

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Does Paying Passive Managers to Engage Improve ESG Performance?

Posted by Marco Becht (Université libre de Bruxelles) and Kazunori Suzuki (Waseda University), on
Monday, December 18, 2023
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Marco Becht is Professor of Finance at the Solvay Brussels School of Economics and Management (ULB), and Kazunori Suzuki is a Professor at Finance at Waseda University. This post is based on a recent paper by Mr. Becht, Mr. Suzuki, Julian Franks, and Hideaki Miyajima. Related research from the Program on Corporate Governance includes Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy (discussed on the Forum here); The Specter of the Giant Three (discussed on the Forum here); and Big Three Power, and Why it Matters (discussed on the Forum here) all by Lucian A. Bebchuk and Scott Hirst.

The Principles of Responsible Investment (PRI) is the largest responsible investor network globally. It has 738 asset owner signatories, including the largest in the world, the Government Pension Investment Fund (GPIF) of Japan. Signatories commit to investor stewardship by incorporating ESG issues into investment processes (Principle 1) and to being active owners through engagement and voting (Principle 2). The PRI is not prescriptive about how signatories fulfil their commitment. Asset owners can either implement the principles directly or instruct their asset managers to do so.

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SEC Defeats Summary Judgment Bid in ‘Shadow Insider Trading’ Case

Posted by Peter Altman, Katherine Goldstein, and Douglas Rappaport, Akin Gump Strauss Hauer & Feld LLP, on
Sunday, December 17, 2023
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Peter Altman, Katherine Goldstein and Douglas Rappaport are Partners at Akin Gump Strauss Hauer & Feld LLP. This post is based on a memorandum by Mr. Altman, Ms. Goldstein, Mr. Rappaport, Michael Asaro, Parvin Daphne Moyne, and Brian Daly. Related research from the Program on Corporate Governance includes Insider Trading via the Corporation (discussed on the Forum here) by Jesse M. Fried.

On November 20, 2023, a federal district court denied summary judgment for the defendant in SEC v. Panuwat, a litigated enforcement action brought by the Securities and Exchange Commission (SEC) relating to so-called “shadow trading.” Shadow trading involves an investor possessing material non-public information (MNPI) about “Company A” but trading in the securities of “Company B,” another company with which Company A shares some form of close connection in the market. In this case, defendant Matthew Panuwat, in the course of his employment at a company called Medivation, allegedly learned that his company would be acquired, and seven minutes later began buying out-of-the-money, short-term call options in another company, Incyte. The SEC has alleged that Incyte was a closely comparable company to Medivation.

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