Monthly Archives: August 2024

California in Spotlight as Massachusetts Avoids Bill Targeting Private Equity in Healthcare

Posted by Danielle Fortier, Alexis Bortniker, and Sonny Allison, Cooley LLP, on
Tuesday, August 20, 2024
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Danielle Fortier, Alexis Bortniker, and Sonny Allison are Partners at at Cooley LLP. This post is based on their Cooley memorandum.

The Massachusetts legislative session for 2024 has come to a close without the passage of a bill that would have targeted private equity in healthcare. Introduced in May 2024, Massachusetts House Bill (HB) 4653 proposed to expand the reach of the Health Policy Commission (HPC) by requiring notice to the HPC of any transactions involving a private equity fund investing in a provider organization, and that same bill was revised by the Massachusetts Senate in July as Senate Bill (SB) 2871.

SB 2871 made substantial changes to the House version, including making any transactions with private equity funds reviewable to assess costs and market impacts, as well as granting the HPC the ability to make adjustments to transactions. It also proposed limiting what a management services company could do for an affiliated friendly PC (professional corporation), with potentially significant impacts to the corporate structure that private equity funds historically have relied on to invest in provider organizations in states with restrictions on the ownership of healthcare practices, such as Massachusetts.

The end of the Massachusetts legislative session without the passage of a bill on this matter comes as a reprieve in a moment of escalating tension for investors in the healthcare sector.

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Post-Doctoral and Graduate Corporate Governance Fellowships

Posted by Harvard Law School Forum on Corporate Governance, on
Monday, August 19, 2024

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The Program on Corporate Governance at Harvard Law School (HLS) is pleased to announce that it is seeking applications from highly qualified candidates who are interested in working with the Program as Post-Doctoral or Doctoral Corporate Governance Fellows.

Applications are considered on a rolling basis, and the start date is flexible and can be negotiated based on applicant and Program needs. Appointments are commonly for one year, but the appointment period can be extended for additional one-year period/s contingent on business and funding.

Candidates should have a law degree from a law school in the United States or abroad. Candidates still pursuing a doctoral degree are eligible so long as they will have completed their program’s coursework requirements by the time they begin their fellowship period.

During the term of their appointment, Fellows will be in residence at HLS and will be required to work on research and other activities of the Program, depending on their skills, interests, and Program needs. The position includes a competitive fellowship salary and Harvard University benefits. Fellows will also be able to spend time on their own projects.

Applicants should have an interest in corporate governance and in academic or policy research in this field. Former Fellows of the Program currently teach in many leading law schools in the U.S. and abroad (e.g., Scott Hirst (BU), Robert Jackson (NYU), Marcel Kahan (NYU), Kobi Kastiel (Tel-Aviv), Yaron Nili (Duke), Roberto Tallarita (Harvard) and Holger Spamann (Harvard)).

Interested candidates should submit a CV, a writing sample, and a cover letter to the coordinator of the Program, at [email protected]. The cover letter should describe the candidate’s experience, reasons for seeking the position, career plans, and the period during which they would like to work with the Program.

Insider Trading by Other Means

Posted by Nejat Seyhun (University of Michigan), on
Monday, August 19, 2024
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Nejat Seyhun is the Jerome B. and Eilene M. York Professor of Business Administration and Professor of Finance at the University of Michigan Ross School of Business. This post is based on a recent article forthcoming in the Harvard Business Law Review by Professor Seyhun, Dr. Sureyya Burcu Avci, Professor Cindy A. Schipani, and Professor Andrew Verstein.

For more than thirty years, one of the most prevalent strategies for insider trading has gone undetected and unaddressed. Our research uncovers the techniques by which executives and directors sell overvalued stock worth more than $100 billion per year, shifting losses to ordinary retail investors, without ever running the risk of prosecution or civil litigation.  The technique by which insider do this is to conceal and miscode their suspicious trades by calling them “Other” disposition.  Even though these trades are reported, the “Other” designation is confusing to the investing public, regulators and policy makers.  This allows insiders to evade both detection and prosecution.

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The 2024 Proxy Season in 3 Charts

Posted by Lindsey Stewart, Morningstar, Inc., on
Saturday, August 17, 2024
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Lindsey Stewart is Director of Investment Stewardship Research at Morningstar, Inc. This post is based on his Morningstar memorandum.

Now that the 2024 proxy-voting season is over, it’s time to zoom out, look at the major trends for the proxy-voting year that just ended, and assess what they could mean for the future. Most US asset managers have still yet to publish their voting records for the 2024 proxy year (which closed on June 30).

But even with the data still rolling in, we’re already able to identify some key marketwide themes among environmental, social, and governance topics. We’ve picked out three. We’ll follow up with a deeper dive into hidden trends. (If you’d like to see Morningstar’s coverage of proxy season, read this.)

  1. ESG shareholder resolutions are still growing in number, but for the first time, the growth is primarily driven by “anti-ESG” proponents. Overall support for ESG proposals stayed flat in 2024 at 23%.
  2. Resolutions seeking to bolster shareholder rights were popular, leading to a rebound in support for governance-focused proposals, from 30% in the 2023 proxy year to 35% this year. The decline in shareholder support for environmental and social resolutions continued in 2024, but it appears to be slowing. Average support for environmental and social resolutions fell to 16% this year from 19% in the 2023 proxy year.

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Firm Boundaries and Voluntary Disclosure

Posted by John D. Kepler (Stanford Graduate School of Business), on
Friday, August 16, 2024
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John D. Kepler is an Associate Professor of Accounting at Stanford Graduate School of Business. This post is based on an article recently published in The Accounting Review by Professor Kepler, Professor Lynn Linghuan Wang, Professor Thomas Bourveau, and Professor Guoman She. 

A long literature examines the role of firms’ voluntary disclosures in facilitating monitoring and valuation by capital providers or withholding public information from competitors. However, little is known about how firms use their disclosures to coordinate with non-investor stakeholders. One particularly important set of non-investor stakeholders consists of firms’ supply chain partners, which are particularly prone to information-related agency conflicts. We study how vertical integration, as an alternative to arm’s length contracting, shapes firms’ voluntary disclosure of information that can be useful for resolving these agency conflicts with supply chain partners.

Theoretical studies suggest that public disclosure can facilitate contracting relationships, both by adding credibility to private communications and signaling to contracting partners who lack credible private communication channels. For example, Ferreira and Rezende (2007) consider how disclosing a firm’s strategy can serve as a commitment device for managers to maintain their strategic plans, which allows supply chain partners to invest according to the disclosing firm’s strategic commitments. The notion that firms have incentives to disclose information publicly is predicated on firms’ inability to privately communicate credibly with their current and potential suppliers and customers; otherwise, public disclosure would be redundant and would not facilitate coordination. While supply chain partners can exchange information privately (e.g., about sales expectations, new product developments, etc.), public information can facilitate communication between partners to the extent the disclosure is considered more credible given the costs resulting from untruthful public disclosure (e.g., legal fines).

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Weekly Roundup: August 9-15, 2024

Posted by the Harvard Law School Forum on Corporate Governance, on
Friday, August 16, 2024

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This roundup contains a collection of the posts published on the Forum during the week of August 9-15, 2024

A Proposal For Improving Trust In The Special Litigation Committee Process

Posted by Mark Richardson (Labaton Keller Sucharow LLP) and Joel Fleming (Equity Litigation Group LLP), on Friday, August 9, 2024
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Significant Amendments to the DGCL Are Set to Become Effective

Posted by Amy Simmerman and Jason Schoenberg, Wilson Sonsini Goodrich & Rosati, on Saturday, August 10, 2024
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Under Pressure—Rethinking Board Practices

Posted by Randi Lesnick, Andrew Levine, and Joel May, Jones Day, on Sunday, August 11, 2024
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Imputing Proxy Advisor Recommendations

Posted by Jonathon Zytnick (Georgetown University), on Monday, August 12, 2024
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Special Committee Midyear Report

Posted by Gregory Gooding, William Regner, and Andrew Bab, Debevoise & Plimpton LLP, on Monday, August 12, 2024
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The short-termism trap: Catering to informed investors with limited horizons

Posted by James Dow (London Business School), Jungsuk Han (Seoul National University), and Francesco Sangiorgi (Frankfurt School of Finance and Management), on Tuesday, August 13, 2024
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DOJ Launches Corporate Whistleblower Awards Pilot Program

Posted by Maria Cruz Melendez, Andrew M. Good, and Bora P. Rawcliffe, Skadden, Arps, Slate, Meagher & Flom LLP, on Tuesday, August 13, 2024
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Do Investors Care about Biodiversity?

Posted by Zacharias Sautner (University of Zurich), on Wednesday, August 14, 2024
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From Commitment to Implementation – An Analysis of Corporate Climate Actions

Posted by Rob Berridge and Gabriel Gerson, Ceres, on Wednesday, August 14, 2024
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Dual Class Contracting

Posted by Roberto Tallarita (Harvard Law School), on Thursday, August 15, 2024
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Shopify and the Problem of Shareholder “Approval” at Multi-Class Companies

Posted by Oren Lida and Dimitri Zagoroff, Glass, Lewis & Co, on Thursday, August 15, 2024
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Shopify and the Problem of Shareholder “Approval” at Multi-Class Companies

Posted by Oren Lida and Dimitri Zagoroff, Glass, Lewis & Co, on
Thursday, August 15, 2024
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Oren Lida is an Analyst and Dimitri Zagoroff is a Senior Editor at Glass, Lewis & Co. This post is based on their Glass Lewis memorandum.

Media reporting can make proxy season seem more dramatic than it is. While breathless coverage of board strife, impossibly high executive pay figures and shareholder activism at well-known companies is the norm, the overwhelming majority of director election and executive compensation proposals pass with majorities of 90% and upwards.

The handful of proposals that fail understandably draw headlines – yet many proposals opposed by a majority of shareholders fly under the radar. That’s because (with some notable exceptions) most reporting fails to acknowledge how multi-class share structures, which give certain shares typically held by founders and insiders more voting power than those held by institutional and retail investors, obscure investor sentiment.

Proxy voting is highly technical in and of itself, and its ultimate influence on how companies are run is even more complicated. So why does the impact of multi-class share structures matter? Because giving insiders and founders disproportionate voting power often serves to effectively silence ordinary shareholders, threatens the agency and objectivity of the board and removes a key safeguard against excessive pay, related party transactions, and other potential misuses of investor capital.

In this post, we look at how inequitable voting rights influenced 2024 AGM results at Shopify, and at the broader impact of multi-class share structures on the board and its role.

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Dual Class Contracting

Posted by Roberto Tallarita (Harvard Law School), on
Thursday, August 15, 2024
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Roberto Tallarita is an Assistant Professor of Law at Harvard Law School. This post is based on his recent article forthcoming in the Journal of Corporation Law.

Dual-class structures are one of the most controversial topics in corporate governance. Many find them objectionable, on the grounds that they violate fundamental principles of shareholder democracy, reduce accountability of managers, and distort the controller’s incentives to create value for all shareholders. Others, in contrast, believe that dual-class structures protect the founders’ entrepreneurial vision from myopic market pressures, improve the controller’s incentives with respect to risk-taking, and strengthen the managers’ bargaining power vis-à-vis buyers of the company. The debate remains unresolved.

The choice between dual-class and single-class structures has been the subject of academic and policy debates for many years. But voting inequality is a spectrum, not a binary choice. A dual-class structure that allows the controller to have a majority of votes with only 4.8% of the shares (such as the one chosen by Pinterest, for example) is much more unequal than a dual-class structure that requires the majority shareholder to have at least 35% of the shares (such as the one adopted by Cognizant). Similarly, a dual-class structure that may last for the entire life of the founders (such as the one chosen by Google, for example) or in perpetuity (such as the one chosen by Facebook) is much more unequal than a dual-class structure that expires after five years (such as the one chosen by Groupon). If voting inequality matters, then the choice between more unequal and less unequal structures must be taken seriously. READ MORE »

From Commitment to Implementation – An Analysis of Corporate Climate Actions

Posted by Rob Berridge and Gabriel Gerson, Ceres, on
Wednesday, August 14, 2024
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Rob Berridge is a Senior Director and Gabriel Gerson is a Senior Associate at Ceres. This post is based on their Ceres memorandum.

Overview

As the physical and financial impacts of climate change reach new heights, many institutional investors are addressing climate risks and opportunities in their portfolios with renewed urgency. One of the main ways they do this is by engaging with the managers and the boards of the companies they own through dialogues and by filing shareholder proposals when necessary.

Shareholder proposals are beneficial for several key reasons. They allow shareholders to act like an immune system for financial markets and companies, identifying risks and asking companies to address them. Companies frequently respond positively by making commitments to address investor concerns. These commitments often lead to substantial improvements in corporate practices and important real-world, economic impacts.

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Do Investors Care about Biodiversity?

Posted by Zacharias Sautner (University of Zurich), on
Wednesday, August 14, 2024
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Zacharias Sautner is a Professor of Sustainable Finance at the University of Zurich. This post is based on a recent article forthcoming in the Review of Finance by Professor Sautner, Professor Alexandre Garel, Professor Arthur Romec, and Professor Alexander F. Wagner.

Biodiversity Loss and its Consequences

Biodiversity, the variety of living organisms in all habitats, is deteriorating at an unprecedented and alarming rate. Biodiversity collapse jeopardizes the goods and services humans obtain from all ecosystems, with potentially far-reaching economic implications. Given the potentially dramatic financial consequences of the loss of biodiversity, firms, investors, and financial market regulators are increasingly paying attention to the topic. For example, the Taskforce on Nature-related Financial Disclosures (TNFD), modeled after the Taskforce on Climate-related Financial Disclosures (TCFD), was launched in 2021 and released its final disclosure recommendations in September 2023. Also in September 2023, the Network for Greening the Financial System released a framework to help central banks and supervisors identify and assess nature-related transition and physical risks.

However, the link between biodiversity and finance has received little attention by academics. In our paper, we take a step toward filling this gap by introducing to the finance literature a science-based measure, the corporate biodiversity footprint (CBF), and exploring whether investors price this footprint.

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