Monthly Archives: June 2024

Shareholders are Not An Antitrust Problem

Posted by Nell Minow, ValueEdge Advisors, on
Thursday, June 20, 2024
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Nell Minow is Vice Chair of ValueEdge Advisors.

Not to suggest that they are making up their mind before hearing the evidence, but the House Subcommittee on the Administrative State, Regulatory Reform, and Antitrust may be suggesting their conclusion by titling the June 12 hearing “Climate Control: Decarbonization Collusion in Environmental, Social, and Governance (ESG) Investing.” Having failed to persuade anyone last year that there was some improper behavior that might be violating securities laws[1], the same forces have persuaded a subcommittee of the Judiciary Committee to try to find a violation of the antitrust laws. At this point, they are just throwing darts at a list of federal legislation to see if they can find a way to explain that it is illegal for shareholders to raise concerns about corporate strategy and conflicts of interest. When the attempt to find a fit with antitrust law fails, they may come back next year with a claim that the FDA should look into shareholder requests for information because they cause queasiness and weak knees in corporate executives.

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Covid-19 Motivated Changes to Executive Compensation

Posted by Mary Ellen Carter (Boston College), Luann J. Lynch (University of Virginia), Xiaoxia Peng (University of Utah), on
Thursday, June 20, 2024
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Mary Ellen Carter is the Joseph L. Sweeney Chair and Professor of Accounting at Boston College, Carroll School of Management; Luann J. Lynch is the Almand R. Coleman Professor of Business Administration at the University of Virginia, Darden School of Business; and Xiaoxia Peng is an Associate Professor of Accounting at the University of Utah. This post is based on their recent article, forthcoming in the Journal of Management Accounting Research.

The COVID-19 pandemic created unprecedented challenges for corporations, leading them to reassess crucial practices including executive compensation, a key component of corporate governance. In our recent article titled, “COVID-19 Motivated Changes to Executive Compensation,” we examine the conditions under which corporations chose to reduce CEO salaries during the pandemic and offer new insights into shareholder reactions and implications for CEO compensation.

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National Public Opinion Survey Finds Voters Skeptical About Congressional “Anti-ESG” Policies

Posted by Jon Golinger, Public Citizen, on
Thursday, June 20, 2024
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Jon Golinger is the Democracy Advocate with Public Citizen in Washington, D.C. This post is based on the results of a public opinion poll commissioned by Public Citizen and conducted by Lake Research Partners in November 2023.

Last summer, leaders of the U.S. House of Representatives declared July 2023 to be “ESG month.”  They launched a series of seven Congressional hearings focused on fleshing out “key concerns” over environmental, social and governance investments and regulatory policies and then voted on a series of bills aimed at curbing such investments.

In the wake of seven of these “anti-ESG” bills advancing to the House Floor and moving to potentially become law, questions arose about what American voters thought generally about Congress legislating to restrict investor information and investment options for pension and retirement funds and specifically about some of the individual policies underlying the “anti-ESG” bills.  To gain insight into public opinion in this area, Public Citizen engaged national polling firm Lake Research Partners to formulate a voter survey to ask these questions.  With the House expected to take Floor votes on some of the “anti-ESG” bills this summer, it’s timely to review the voter survey results and consider its policy implications.

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After Section 122(18), What Happens To The Merger Recommendation

Posted by Hon. J. Travis Laster, Delaware Court of Chancery, on
Wednesday, June 19, 2024
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The Honorable J. Travis Laster is Vice Chancellor at the Delaware Court of Chancery. This post is based on his LinkedIn post and is part of the Delaware law series; links to other posts in the series are available here.

If enacted, the market practice amendments of 2024 will create uncertainty about the law governing board recommendations, including the extent to which a contract can require a board to recommend a merger under Section 251 of the DGCL. I’ve pondered the language of the bill, and I’m not sure how it works.[1]

Let’s envision a standard reverse triangle merger in which the target will merge with and into the acquisition subsidiary, emerging as a wholly owned subsidiary of parent buyer. Assume the buyer demanded and secured a provision in the merger agreement stating that the board would not change or withdraw its recommendation in favor of the deal.

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Do Corporate Insiders Respond to Variation in SEC Scrutiny?

Posted by Daniel A. Bens (INSEAD), on
Wednesday, June 19, 2024
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Daniel A. Bens is a Professor of Accounting and Control at INSEAD. This post is based on a working paper by Professor Bens, Gavin Cassar, Ying Huang, and Thomas Keusch.

The U.S. Securities and Exchange Commission (SEC) is facing an increasing risk of shutdowns as its budget requires Congressional approval amid a divisive political climate. SEC chair Gary Gensler has highlighted that discontinuities in capital market regulation due to SEC shutdowns can impact corporate governance if the SEC cannot fulfil its oversight mandate, even temporarily. In our recent article titled “Do Corporate Insiders Respond to Variation in SEC Scrutiny?”, we investigate significant governance effects for listed companies resulting from SEC shutdowns, emphasizing the importance of stable SEC funding. The findings of this study can thus inform the debate on SEC self-funding, offering insights into the broader implications of regulatory gaps caused by funding issues.

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The Expansion of ESG Beyond Proxy Voting

Posted by Dimitri Zagoroff, Glass, Lewis & Co., on
Tuesday, June 18, 2024
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Dimitri Zagoroff is Senior Editor at Glass, Lewis & Co. This post is based on a Glass Lewis memorandum by Mr. Zagoroff, Courteney Keatinge, and Eric Shostal.

In the complex world of proxy voting, a little background context goes a long way.  The Wall Street Journal’s Editorial Board recently cited a one-year decline in voting support for ESG-related shareholder proposals as evidence that asset managers are “backtracking” from environmental and social issues and showing “growing reluctance to follow the direction of the proxy-adviser [sic] duopoly.”

This narrative rests on a series of misconceptions.

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The Rise of Private Equity Continuation Funds

Posted by Kobi Kastiel (Tel Aviv University) and Yaron Nili (University of Wisconsin), on
Tuesday, June 18, 2024
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Kobi Kastiel is a Professor of Law at Tel Aviv University and Yaron Nili is a Professor of Law and Smith-Rowe Faculty Fellow in Business Law at the University of Wisconsin Law School. This post is based on their article forthcoming in the University of Pennsylvania Law Review.

The private equity business model has reinvented itself over the years, with continuation funds now serving as its latest development. These funds offer a creative solution to circumvent the constraints of the traditional private equity model by enabling fund sponsors to retain assets beyond the customary 10-year fund term. In the past, funds’ investments were expected to be liquidated once the fund term lapsed. With a continuation fund, instead of liquidating an asset that has not yet realized its full potential and selling it to third parties, the same fund sponsor sells this asset to the newly established fund. Limited partners (LPs) that invested in the legacy fund can either roll their interests into the continuation fund or exit. For new investors, continuation funds offer the opportunity to invest in more “mature” and visible assets and to reinforce their relationship with the sponsor. For these reasons, supporters of continuation funds view them as a “win-win-win” for all parties involved.

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Activists step up proxy fights to ignite deal talks

Posted by Antoinette Giblin, Diligent Market Intelligence, on
Tuesday, June 18, 2024
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Antoinette Giblin is Editorial Manager at Diligent Market Intelligence (DMI). This post is based on her Diligent memorandum.

With optimism around a possible uptick in M&A, a small subset of investors relying on this thesis are adding to the pressure on their targets by advancing board slates at the same time as demanding a sale of the company.

Campaigns at U.S.-headquartered targets combining demands for a company sale and board representation more than doubled in 2023 as activists pressed ahead to drive transactions.

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Developments With Universal Proxy Cards and Advance-Notice Bylaws

Posted by Doug Schnell, Sebastian Alsheimer and Daniyal Iqbal, Wilson Sonsini Goodrich & Rosati, on
Monday, June 17, 2024
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Doug Schnell and Sebastian Alsheimer are Partners, and Daniyal Iqbal is an Associate at Wilson Sonsini Goodrich & Rosati. This post is based on a WSGR memorandum by Mr. Schnell, Mr. Alsheimer, Mr. Iqbal, and David Berger, Amy Simmerman and Lucas Wherry and is part of the Delaware law series; links to other posts in the series are available here.

The 2024 proxy season is the second year with universal proxy cards and has produced incremental evidence of the effect that universal proxy has had on proxy fights and on advance notice bylaws with respect to shareholder nominations.

Universal Proxy Cards

On November 17, 2021, the Securities and Exchange Commission (SEC) adopted rules that require the use of a single “universal” proxy card (UPC) in connection with most contested elections of directors. These came into effect for contested director elections occurring after August 31, 2022. The primary impact of the new rules is to allow shareholders to “mix and match” nominees from the company’s and dissident’s slates, rather than having to vote on a slate-by-slate basis.

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Economic Budgeting for Endowment-Dependent Universities

Posted by John Y. Campbell, Jeremy C. Stein, and Alex A. Wu (Harvard University), on
Monday, June 17, 2024
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John Y. Campbell is the Morton L. and Carole S. Olshan Professor of Economics, Jeremy C. Stein is the Moise Y. Safra Professor of Economics, and Alex A. Wu is a Doctoral Student in the Business Economics program at Harvard University. This post is based on their recent working paper.

In our paper, Economic Budgeting for Endowment-Dependent Universities, we develop a framework to analyze a university’s financial position using an intertemporal budgeting approach. The essence of our approach is to forecast university operating revenues and costs over the infinite future, to calculate the present value of those operating obligations, and then to compare the value of the obligations to the value of the university’s wealth.

It is useful to understand our approach in contrast to the traditional approach to university budgeting, which typically focuses on one or two years at a time and uses generally accepted accounting principles (GAAP). For example, the Harvard Faculty of Arts and Sciences (FAS) adds together several sources of “operating revenue,” (such as tuition fees and federal sponsored programs) then subtracts various items that are deemed “operating expenses,” (such as salaries and benefits) to arrive at a net GAAP budget surplus or deficit. According to this measure, Harvard FAS consistently generates enough revenue to cover its expenses each year.

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