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Program on Corporate Governance Advisory Board
- Peter Atkins
- David Bell
- Kerry E. Berchem
- Richard Brand
- Daniel Burch
- Paul Choi
- Jesse Cohn
- Arthur B. Crozier
- Renata J. Ferrari
- Andrew Freedman
- Ray Garcia
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Author Archives: Harvard Law School Forum on Corporate Governance and Financial Regulation
Advance Notice Bylaws: Trends and Challenges
Editor’s Note: Eduardo Gallardo is a partner focusing on mergers and acquisitions at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn client alert by Mr. Gallardo, James Hallowell, Elizabeth Ising, Gillian McPhee, and Stephenie Gosnell Handler.
Shareholder activism continues to dominate the corporate landscape and attract daily headlines in the financial press. And, as the pace of activism accelerates in 2015, a number of legal battles over the last two years between companies and activists has put in the spotlight the permissible scope and function of advance notice bylaws—a term that we broadly define for these purposes to cover bylaw provisions establishing timing, procedural and informational requirements for shareholders seeking to present director nominations and other business proposals to a shareholder vote. [1]
A typical advance notice bylaw requires that shareholders submit to the corporate secretary notice of all director nominations and business to be put to a vote at an annual meeting within a thirty-day window that opens and closes on specified deadlines preceding the anniversary date of the prior year’s annual meeting date (or, less common, related proxy statement). Such a notice often must be accompanied by information about the nominee or business, and the proposing shareholder. This information is generally intended to enhance the board’s ability to advise shareholders regarding the nominee or proposal, as well as potential sources of conflict between the proponent and other shareholders.
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Posted in Boards of Directors, Corporate Elections & Voting, Practitioner Publications
Tagged Advanced notice, Boards of Directors, Charter & bylaws, Director nominations, Shareholder activism, Shareholder nominations, Shareholder proposals
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A Job is Not a Hobby: The Judicial Revival of Corporate Paternalism
Editor’s Note: The following post discusses a recent working paper of the Harvard Law School Program on Corporate Governance, issued by Leo Strine, Chief Justice of the Delaware Supreme Court, the Austin Wakeman Scott Lecturer on Law and a Senior Fellow of the Harvard Law School Program on Corporate Governance. The paper, which is based on a Keynote speech to the 42nd Annual Securities Regulation Institute of Northwestern University School of Law, is available here.
Leo Strine, Chief Justice of the Delaware Supreme Court, and the Austin Wakeman Scott Lecturer on Law and a Senior Fellow of the Harvard Law School Program on Corporate Governance, delivered the Alan B. Levenson Keynote speech to the 42nd Annual Securities Regulation Institute of Northwestern University School of Law and an address to the American Constitution Society Student Chapter at Harvard Law School based on an article he recently posted to SSRN here.
This article connects the Supreme Court’s decision in Burwell v. Hobby Lobby to the history of “corporate paternalism.” It details the history of employer efforts to restrict the freedom of employees, and legislative attempts to ensure worker freedom. It also highlights the role of employment in healthcare coverage, and situates the Affordable Care Act’s “minimum essential guarantees” in a historical and global context.
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Posted in Academic Research, HLS Research, Practitioner Publications, Speeches & Testimony
Tagged Citizens United v. FEC, Employees, Supreme Court
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White Collar and Regulatory Enforcement: What To Expect In 2015
Editor’s Note: John F. Savarese is a partner in the Litigation Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton firm memorandum.
Yet again, the past year has witnessed a staggering array of massive financial settlements in regulatory and white collar matters. Prominent examples, among many others, include Toyota, which was fined $1.2 billion in connection with resolving an investigation into safety defects; BNP, which pleaded guilty and paid $8.9 billion to resolve criminal and civil investigations into U.S. OFAC and other sanctions violations; Credit Suisse, which also pleaded guilty and paid $2.6 billion to resolve a long-running cross-border criminal tax investigation; and the global multi-agency settlements with six financial institutions for a total of $4.3 billion in fines, penalties and disgorgement in regard to allegations concerning attempted manipulation of foreign exchange benchmark rates. The government also continued to generate headlines with settlements arising out of the financial crisis, including settlements with numerous financial institutions totalling more than $24 billion. We have no reason to expect that this trend will change in 2015.
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Posted in International Corporate Governance & Regulation, Practitioner Publications, Securities Litigation & Enforcement
Tagged Antitrust, Corporate crime, Deferred prosecution agreements, DOJ, FCPA, Insider trading, International governance, Non-prosecution agreement, SEC enforcement, Securities enforcement, Securities litigation, Settlements, Tax avoidance, Whistleblowers
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Acquisition Financing 2015: the Year Behind and the Year Ahead
Editor’s Note: The following post comes to us from Eric M. Rosof, partner focusing on financing for corporate transactions at Wachtell, Lipton, Rosen & Katz, and is based on a Wachtell Lipton memorandum.
Acquisition financing activity was robust in 2014, as the credit markets accommodated increased demand from rising M&A activity. At over $749 billion, global 2014 M&A loan issuance was up approximately 40 percent year over year, the highest total since before the Great Recession. While the aggregate figures suggest a borrower-friendly market, the actual picture is more nuanced. Investment grade acquirors benefited from a consistently strong financing environment throughout 2014 and finished the year with a flourish (including a $36 billion commitment backing Actavis’ acquisition of Allergan), while leveraged acquirors encountered more volatility, as lenders responded quickly to regulatory changes and market conditions, and both high-yield commitments and debt became more costly.
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Posted in Banking & Financial Institutions, Financial Regulation, Mergers & Acquisitions, Practitioner Publications
Tagged Acquisitions, Banks, Capital markets, Credit supply, Financial regulation, Financing conditions, Leveraged acquisitions
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Financial Disclosure and Market Transparency with Costly Information Processing
Editor’s Note: The following post comes to us from Marco Di Maggio of the Finance and Economics Division at Columbia University and Marco Pagano, Professor of Economics at the University of Naples Federico II.
In our paper, Financial Disclosure and Market Transparency with Costly Information Processing, which was recently made publicly available on SSRN, we provide new insights about the effects of financial disclosure and market transparency. Specifically, we address the following question: can the disclosure of financial information and the transparency of security markets be detrimental to issuers? On the one hand, there is an increasing concern that, in John Kay’s words, “there is such a thing as too much transparency. The imposition of quarterly reporting of listed European companies five years ago has done little but confuse and distract management and investors.” On the other, insofar as disclosure reduces adverse selection and thus increases assets’ issue prices, it should be in the best interest of asset issuers: these should spontaneously commit to high disclosure and list their securities in transparent markets. This is hard to reconcile with the need for regulation aimed at augmenting issuers’ disclosure and improving transparency in off-exchange markets. Yet, this is the purpose of much financial regulation such as the 1964 Securities Acts Amendments, the 2002 Sarbanes-Oxley Act, and the 2010 Dodd-Frank Act.
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Posted in Academic Research, Accounting & Disclosure, Securities Regulation
Tagged Disclosure, Financial reporting, Information asymmetries, Information environment, Securities regulation, Transparency
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Delaware in 2014: Increasing Deference to Directors’ Decision
Editor’s Note: The following post comes to us from David N. Shine, partner and co-head of the Mergers and Acquisitions Practice at Fried, Frank, Harris, Shriver & Jacobson LLP, and is based on a Fried Frank publication by Mr. Shine, Steven Epstein, Philip Richter and Gail Weinstein. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.
A foundational premise of Delaware jurisprudence has been the courts’ deference to decisions made by independent and disinterested directors. Over the last year, the Delaware courts have continued a trend in their opinions toward increased judicial deference to the decisions of independent and disinterested directors. Thus, for example, the Delaware Supreme Court’s seminal MFW decision provides a roadmap to business judgment review even of controller transactions (which used to be reviewed under an entire fairness standard).
Other than MFW, however, the courts have not changed the fundamental ground rules for review of a sale process. Thus, as in the past:
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Posted in Boards of Directors, Court Cases, Mergers & Acquisitions, Practitioner Publications
Tagged Boards of Directors, Business judgment rule, Delaware cases, Delaware law, Fairness review, Fiduciary duties, Merger litigation, Mergers & acquisitions
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A Smarter Way to Tax Big Banks
Editor’s Note: Mark Roe is the David Berg Professor of Law at Harvard Law School, where he teaches bankruptcy and corporate law. This post is based on an op-ed by Professor Roe and Michael Tröge that was published today in The Wall Street Journal, which can be found here.
In conjunction with his State of the Union address, President Obama reanimated the idea of taxing big banks’ debts to help stabilize the banking industry and prevent future financial crises. The administration argues that the new tax would discourage banks from taking on too much risk by making it “more costly for the biggest financial firms to finance their activities with excessive borrowing.”
The president’s bank-tax proposal is unlikely to gain traction in the new Congress, just as similar proposals from the administration in 2010 and, last year from the now retired Rep. David Camp (R., Mich.), did not move forward. But even if it became law, it wouldn’t put a sizable dent in bank debt. The reason is simple: The existing tax system strongly encourages debt finance and the proposed new tax will not fundamentally change this.
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Posted in Banking & Financial Institutions, Financial Crisis, Financial Regulation, HLS Research, Op-Eds & Opinions
Tagged Bank debt, Banks, Financial crisis, Financial regulation, Incentives, Systemic risk, Taxation
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ISS 2015 Equity Plan Scorecard FAQs
Editor’s Note: Carol Bowie is Head of Americas Research at Institutional Shareholder Services Inc. (ISS). This post relates to ISS’ Equity Plan Scorecard for 2015.
General Questions
1. What is the basis for ISS’ new scorecard approach for evaluating equity compensation proposals?
The new policy will allow more nuanced consideration of equity incentive programs, which are critical for motivating and aligning the interests of key employees with shareholders, but which also fuel the lion’s share of executive pay and may be costly without providing superior benefits to shareholders. While most plan proposals pass, they tend to get broader and deeper opposition than, for example, say-on-pay proposals (e.g., only 60% of Russell 3000 equity plan proposals garnered support of 90% or more of votes cast in 2014 proxy season, versus almost 80% of say-on-pay proposals that received that support level). The voting patterns indicate that most investors aren’t fully satisfied with many plans.
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Posted in Corporate Elections & Voting, Executive Compensation, Practitioner Publications
Tagged Equity-based compensation, Executive Compensation, Incentives, Proxy advisors, Say on pay
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2014 Delaware Decisions and What They Mean For 2015
Editor’s Note: The following post comes to us from John L. Reed, chair of the Wilmington Litigation group and a partner in the Corporate and Litigation groups at DLA Piper LLP, and is based on portions of a DLA Piper Corporate Update; the complete publication is available here. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.
Delaware has long been known as the corporate capital of the world, and it is now the state of incorporation for 66 percent of the Fortune 500 and more than half of all companies whose securities trade on the NYSE, Nasdaq and other exchanges. Each year, the Delaware courts issue a number of significant opinions demonstrating that the Delaware courts are neither stockholder nor management biased. Many of those recent and important cases are discussed in this post, which is intended to provide sufficient detail so as to be helpful to in-house counsel, but is also written in a way so that the often-long and complex Delaware decisions can be easily understood by directors and other fiduciaries. Takeaway observations are also provided.
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Posted in Boards of Directors, Court Cases, Mergers & Acquisitions, Practitioner Publications
Tagged Boards of Directors, Business judgment rule, Charter & bylaws, Delaware cases, Delaware law, Forum selection, Merger litigation, Mergers & acquisitions, Poison pills, Tender offer
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SEC Proposes Increased Thresholds for Exchange Act Registration
Editor’s Note: David Huntington is a partner in the Capital Markets and Securities Group at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul Weiss client memorandum.
In December 2014, the SEC proposed rules under the Jumpstart Our Business Startups Act (the “JOBS Act”) that reflect new, higher thresholds for registration under the Securities Exchange Act of 1934 (the “Exchange Act”). The SEC also proposed rules that would implement higher thresholds for termination of registration and suspension of reporting for banks and bank holding companies and savings and loan holding companies. In addition, the SEC has proposed to revise the definition of “held of record” in Exchange Act Rule 12g5-1 to exclude certain securities held by persons who received them pursuant to employee compensation plans and to establish a non-exclusive safe harbor for determining whether securities are “held of record” for purposes of registration under Exchange Act Section 12(g).
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Posted in Banking & Financial Institutions, Practitioner Publications, Securities Regulation
Tagged Banks, Exchange Act, Financial institutions, JOBS Act, Registration statements, Securities regulation
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