Yearly Archives: 2024

Half the Firms, Twice the Profits

Posted by Mark J. Roe (Harvard Law School) and Charles C.Y. Wang (Harvard Business School), on
Wednesday, June 5, 2024
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Mark J. Roe is David Berg Professor of Law at Harvard Law School and Charles C.Y. Wang is Tandon Family Professor of Business Administration at Harvard Business School. This post is based on their recent article forthcoming in the Journal of Law, Finance, and Accounting.

The number of public firms in the United States has nearly halved since 1996, causing consternation among some corporate leaders and securities law regulators.

Representative analyses plead for a “wake-up call for America” because of a “decimation of the U.S. capital markets structure [and a] demise of the IPO market,” that led to “the systemic decline in the number of publicly listed companies.” Jamie Dimon, JP Morgan Chase’s CEO, lamented in his 2023 JPMorgan Chase letter to shareholders the “shrinking public markets” and the “diminishing role of public companies. . . . From their peak in 1996 at 7,300, U.S. public companies now total 4,300. . . . The trend is serious. . . . Is this the outcome we want?” Those who lament the decline in number since 1996 often bring forward over-regulation as a central cause, as did Mr. Dimon.

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Continuation Funds: What You Need To Know

Posted by Greg Norman, Delphine Jaugey and Laurence Hanesworth, Skadden, Arps, Slate, Meagher & Flom LLP, on
Wednesday, June 5, 2024
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Greg Norman is a  Partner, Delphine Jaugey is a Counsel and Laurence Hanesworth is an Associate at Skadden, Arps, Slate, Meagher & Flom LLP, This post is based on their Skadden memorandum.

Over the last 10 years, continuation funds have evolved to be a well-established potential exit route for private fund sponsors. According to advisory estimates, some $40 billion deals were completed in 2023, with more than $150 billion worth of transactions in the market in total.

As the continuation fund market matures, the structure and terms of these transactions have become increasingly complex, presenting challenges that should be carefully navigated by participants to ensure a successful transaction process.

In this article, we discuss some of those issues, and the dynamics we have observed as sponsors, existing limited partners (LPs) and new investors negotiate these transactions.

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Board effectiveness: A survey of the C-suite

Posted by Carin Robinson, PricewaterhouseCoopers LLP, on
Tuesday, June 4, 2024
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Carin Robinson is Director at the PricewaterhouseCoopers (PwC) Governance Insights Center. This post is based on her PwC memorandum.

Against a backdrop of increasing fragmentation and complexity, companies are seeking to develop and execute coherent strategies, and corporate governance needs to keep pace, with directors addressing more topics and fielding input from more stakeholders. Through it all, business leaders are looking for their boards to move beyond traditional roles and expertise and offer greater guidance, leadership and knowledge in emerging areas such as digital, GenAI and environmental/sustainability.

To explore how executives perceive board performance today, PwC and The Conference Board conducted our fourth annual survey of more than 600 public company C-suite executives in the fall of 2023.

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Poor ESG: Regressive Effects of Climate Stewardship

Posted by Zohar Goshen (Columbia Law School), Assaf Hamdani (Tel Aviv University), Alex Raskolnikov (Columbia Law School), on
Tuesday, June 4, 2024
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Zohar Goshen is Jerome L. Greene Professor of Transactional Law at Columbia Law School, Assaf Hamdani is Professor of Law at Tel Aviv University, and Alex Raskolnikov is Wilbur H. Friedman Professor of Tax Law at Columbia Law School. This post is based on their working paper.

The failure of the U.S. political system to adequately address climate change has shifted focus from public to private action. Driven by the Environmental, Social, and Governance (ESG) movement, investors pressure corporations to adopt climate policies to reduce carbon emissions. Today, many view ESG as a market-based solution to a public policy failure. Where Congress failed, ESG will succeed.

In a recent paper, we argue that even if ESG-driven climate stewardship were to achieve the scale necessary to have a real impact on global warming, it would also have a disproportionate impact on low-income households and displaced workers. Curbing global warming is fraught with difficult distributional challenges that corporate ESG measures will neither solve nor circumvent. Interventions to combat climate change are nearly always regressive, with the costs of such policies impacting those with the least, the most. ESG implemented at scale will inevitably replicate the regressive effects of various legislative interventions on which all ESG carbon-reduction strategies are based. But, in contrast with congressional action, ESG solutions will not raise any revenue that could be used to offset ESG regressivity.

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Exxon court challenge to Arjuna shareholder proposal survives dismissal

Posted by Cydney Posner, Cooley LLP, on
Tuesday, June 4, 2024
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Cydney Posner is Special Counsel at Cooley LLP. This post is based on her Cooley memorandum.

You may recall that, in January, ExxonMobil filed a lawsuit against Arjuna Capital, LLC and Follow This, the two proponents of a climate-related shareholder proposal submitted to Exxon, seeking a declaratory judgment that it may exclude their proposal from its 2024 annual meeting proxy statement. Then, the two proponents notified Exxon that they had withdrawn their proposal.  End of story? Hardly. In a status update filed in February, Exxon explained that it would not withdraw the complaint because it believed that there was still a critical live controversy for the Court to resolve. Arjuna and Follow This both moved to dismiss the case for lack of personal and subject matter jurisdiction. The Federal District Court for the Northern District of Texas has just issued its opinion:  the Court dismissed the case against Follow This, an association organized in the Netherlands, for lack of personal jurisdiction, but the case against Arjuna survives on the basis of both subject matter and personal jurisdiction. Arjuna has now responded by letter. However, this conflict isn’t just about Exxon and two small activist shareholders. It has taken on much larger proportions: some business groups have joined with Exxon to bemoan the “hijacking” by special interest groups of Rule 14a-8 to “advance their preferred social policies” and “inundate public corporations with proposals designed to push ideological agendas.” Others have questioned whether, under the First Amendment, the SEC, through Rule 14a-8, has the right to compel companies to use their proxy statements to speak about contentious political issues. On the other side, some investors lament Exxon’s “aggressive tactics” that threaten to “diminish the role—and the rights—of every investor.” Stay tuned on this one.

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Pro-ESG Shareholder Proposals Regaining Momentum in 2024

Posted by Subodh Mishra, ISS STOXX, on
Monday, June 3, 2024
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Subodh Mishra is Global Head of Communications at ISS STOXX. This post is based on an ISS-Corporate memorandum by Jun Frank.

Governance is back on focus this proxy season, with both the volume and support on proposals aiming to enhance shareholder rights and companies’ governance practices gaining steam. Environmental and social proposals are showing a sign of reversing trend of declining support from the 2021 peak, while anti-ESG proposals are gaining volume but not support.

We reviewed proposals submitted for Russell 3000 company AGMs held between Jan. 1 and May 31 for each year since 2020 to shed light on how investors were bringing up their concerns ahead of the May 23 peak U.S. AGM date, which topics carry the greatest currency, and their level of success.

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ESG & Executive Remuneration in Europe

Posted by Marco Dell'Erba (University of Zurich), and Guido Ferrarini (University of Genoa), on
Monday, June 3, 2024
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Marco Dell’Erba is a Professor of Financial Market Law and Corporate Law at University of Zurich and Guido Ferrarini is Emeritus Professor of Business Law at University of Genoa. This post is based on their recent article forthcoming in the European Business Organization Law Review.

In our article ‘ESG and Executive Remuneration in Europe’, forthcoming in the European Business Organization Law Review, we provide a qualitative and quantitative analysis of the trends in executive remuneration tied to ESG parameters among the 300 largest companies by target capitalization in Europe, as listed in the FTSE EuroFirst300.

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Cybersecurity Amendments to Reg S-P

Posted by Charu Chandrasekhar, Johanna Skrzypczyk and Suchita Mandavilli Brundage, Debevoise & Plimpton LLP, on
Monday, June 3, 2024
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Charu Chandrasekhar is a Partner Johanna Skrzypczyk is Counsel, and Suchita Mandavilli Brundage is an at Associate Debevoise & Plimpton LLP. This post is based on a Debevoise memorandum by Ms. Chandrasekhar, Ms. Skrzypczyk, Ms. Brundage, Avi Gesser, Kristin Snyder, and Ned Terrace.

Key Takeaways:

  • On May 16, 2024, the SEC finalized significant cybersecurity amendments to Regulation S-P that largely adopt the proposed amendments the SEC issued last year.
  • Amended S-P represents a substantial expansion of the protections available to the customers of institutional securities market participants under the federal securities laws. The final rule establishes a new federal minimum standard for data breach notification at such firms, expands the definition of “customer information,” requires the adoption of policies and procedures for incident response and service provider oversight, and imposes new recordkeeping obligations.

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Reporting cybersecurity incidents on Form 8-K

Posted by Cydney Posner, Cooley LLP, on
Sunday, June 2, 2024
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Cydney Posner is Special Counsel at Cooley LLP. This post is based on her Cooley memorandum.

Yesterday, Corp Fin Director Erik Gerding issued a statement designed to clarify the use of Form 8-K Item 1.05 versus Form 8-K Item 8.01 when reporting cybersecurity incidents.  Sounds like some of us might be doing it incorrectly—or at least sub-optimally—potentially resulting in investor confusion.  Gerding’s statement is designed to set us straight. He also offers a little guidance about making materiality determinations regarding cybersecurity incidents.

In 2023, the SEC adopted new rules on cybersecurity disclosure. (See this PubCo post.)  Under the final rules, if a public company experiences a cybersecurity incident that the company determines to be material, the company is required to file a Form 8-K under new Item 1.05, describing the “material aspects of the nature, scope, and timing of the incident, and the material impact or reasonably likely material impact on the registrant, including its financial condition and results of operations.” But Gerding’s statement highlights that Item 1.05 is intended to be used to report a cybersecurity incident “that is determined by the registrant to be material.”  Moreover, in adopting Item 1.05, the SEC made clear that “Item 1.05 is not a voluntary disclosure, and it is by definition material because it is not triggered until the company determines the materiality of an incident.”

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The Original Public Meaning of Investment Contract

Posted by Edward Lee (Santa Clara Law), on
Saturday, June 1, 2024
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Edward Lee is a Professor of Law at the Santa Clara University School of Law, starting in August 2024. This post is based on his recent article forthcoming in the U.C. Davis Law Review.

The Securities Act of 1933 defines “security” by identifying twenty examples of financial instruments or interests that constitute securities. “Investment contract” is the thirteenth example. It has assumed outsized importance in the Securities and Exchange Commission’s (SEC’s) enforcement actions against entities that have made public offerings of unregistered securities. Yet, nearly a century since the 1933 Act’s passage, the meaning of “investment contract” is still contested.

Nowhere is that more apparent than in the SEC’s ongoing enforcement actions against so-called “crypto asset securities”—a term nowhere in the Securities Act, but one that the SEC has used broadly to describe cryptocurrencies and non-fungible tokens (NFTs) in various actions. According to the SEC, these crypto assets are securities if they are “investment contracts” under the seminal case of SEC v. W.J. Howey Co., in which the Supreme Court interpreted the term in 1946. Under SEC Chair Gary Gensler’s expansive view, most cryptocurrencies are investment contracts. Even an NFT for a Pokémon card might be.

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