-
Supported By:
Subscribe or Follow
Program on Corporate Governance Advisory Board
- Peter Atkins
- David Bell
- Kerry E. Berchem
- Richard Brand
- Daniel Burch
- Paul Choi
- Jesse Cohn
- Arthur B. Crozier Christine Davine
- Renata J. Ferrari
- Andrew Freedman
- Ray Garcia
- Byron Georgiou
- Joseph Hall
- Jason M. Halper William P. Mills
- David Millstone
- Theodore Mirvis
- Philip Richter
- Elina Tetelbaum
- Sebastian Tiller
- Marc Trevino Jonathan Watkins
- Steven J. Williams
HLS Faculty & Senior Fellows
Author Archives: Harvard Law School Forum on Corporate Governance and Financial Regulation
Gender Diversity at Silicon Valley Public Companies 2014
Editor’s Note: The following post comes to us from David A. Bell and Shulamite Shen White, partner and senior associate in the corporate and securities group at Fenwick & West LLP. This post is based on portions of a Fenwick publication titled Gender Diversity in Silicon Valley: A Comparison of Large Public Companies and Silicon Valley Companies (2014 Proxy Season); the complete survey is available here.
Fenwick & West has released its annual study about gender diversity on boards and executive management teams of companies in the technology and life science companies included in the Silicon Valley 150 Index and very large public companies included in the Standard & Poor’s 100 Index. [1] The Fenwick Gender Diversity Survey uses almost twenty years of data to provide a better picture of how women are participating at the most senior levels of public companies in Silicon Valley.
This year’s survey also introduces the Fenwick Gender Diversity Score™, a metric for assessing gender diversity overall within each of the indices. This composite score is based on data at the board and executive management level in the SV 150, top 15 companies of the SV 150 by revenue, and the S&P 100 over the nineteen years surveyed and in a set of categories selected as representative of the overall gender diversity picture.
Click here to read the complete post…
Click here to read the complete post
Posted in Boards of Directors, Practitioner Publications
Tagged Board composition, Board leadership, Boards of Directors, Diversity, Management, Surveys, Tech companies
Comments Off on Gender Diversity at Silicon Valley Public Companies 2014
New Decision Holds Some Post-Closing Purchase Price Adjustment Provisions Unenforceable
Editor’s Note: The following post comes to us from Lisa R. Stark and Jessica C. Pearlman, partners in the Corporate/Mergers & Acquisitions practice at K&L Gates LLP, and is based on a K&L Gates publication by Ms. Stark and Ms. Pearlman. 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.
In private company acquisitions, it is common for the buyer to require that a portion of the merger consideration be set aside in escrow as an accessible source of funds to cover the buyer’s post-closing indemnification claims relating to breaches of the target company’s representations and warranties and other specified contingencies. However, the buyer might demand additional protection if its losses under such claims exceed the escrow amount by insisting upon collection of the full loss from the target company’s stockholders. If the losses are significant and the indemnification obligations are uncapped or have a sufficiently high cap, this could require the target company’s stockholders to return their full pro rata share of the merger consideration to the buyer.
Although the Delaware courts have previously upheld post-closing purchase price adjustments, a recent decision found common provisions unenforceable in certain circumstances. Cigna Health and Life Insurance Co. v. Audax Health Solutions, Inc., C.A. No. 9405 (Del. Ch. Nov. 26, 2014) (V.C. Noble). In this case, the merger agreement and related Letter of Transmittal (the “LoT”) required the target company’s stockholders (1) to indemnify the buyer, up to their pro rata share of the merger consideration, for the target company’s breaches of its representations and warranties, and (2) to release the buyer and its affiliates from any and all claims relating to the merger. The Court found these common provisions unenforceable under the facts in Cigna; accordingly, this decision has significant implications for other private company acquisitions by merger.
Click here to read the complete post…
Click here to read the complete post
Posted in Court Cases, Mergers & Acquisitions, Practitioner Publications
Tagged Acquisition agreements, Delaware cases, Delaware law, DGCL, Indemnification, Merger litigation, Mergers & acquisitions
Comments Off on New Decision Holds Some Post-Closing Purchase Price Adjustment Provisions Unenforceable
Delaware Supreme Court Holds That Revlon Does Not Require Active Market Check
Editor’s Note: The following post comes to us from Jason M. Halper, partner in the Securities Litigation & Regulatory Enforcement Practice Group at Orrick, Herrington & Sutcliffe LLP, and is based on an Orrick publication by Mr. Halper, Peter J. Rooney, Christin Joy Hill, and Christine M. Smith. 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.
On December 19, 2014, the Supreme Court of Delaware reversed the Delaware Court of Chancery’s November decision (discussed on the Forum here) to preliminarily enjoin for 30 days a vote by C&J Energy Services stockholders on a merger with Nabors Red Lion Limited, to allow time for C&J’s board of directors to explore alternative transactions. The Supreme Court decision clarifies that in a sale-of-control situation, Revlon and its progeny require an effective, but not necessarily active, market check, and there is no “specific route that a board must follow” in fulfilling fiduciary duties.
The decision also reaffirms the type of record that must be made to support a mandatory preliminary injunction, a type of injunction that requires parties to take affirmative actions as opposed to merely maintaining the status quo. The Court found that the Chancery Court “blue penciled” the merger agreement, and in the process stripped Nabors of its contractual rights, by effectively inserting a go-shop provision into the contract where the parties never agreed to one. Moreover, the Chancery Court improperly did so without finding that Nabors aided and abetted a fiduciary duty breach and based its holding only on disputed facts that were not adjudicated following a trial. While the decision does not break new ground, it is significant in better defining directors’ duties when selling control and articulating the limits of a court’s ability to issue mandatory preliminary injunctions.
Click here to read the complete post…
Click here to read the complete post
Posted in Boards of Directors, Court Cases, Mergers & Acquisitions, Practitioner Publications
Tagged Boards of Directors, Christine Smith, Delaware cases, Delaware law, Fiduciary duties, Go-shop, In re Revlon, Inversions, Merger litigation, Mergers & acquisitions
Comments Off on Delaware Supreme Court Holds That Revlon Does Not Require Active Market Check
Director Tenure: A Solution in Search of a Problem
Editor’s Note: The following post comes to us from Scott C. Herlihy, partner in the Corporate Department at Latham & Watkins LLP, and is based on an article by Mr. Herlihy, Steven B. Stokdyk, and Joel H. Trotter that originally appeared in NACD’s Directorship magazine.
Director tenure continues to gain attention in corporate governance as term limits become a cause célèbre. Proponents argue directors should no longer qualify as independent after 10 years of service, even though no law, rule or regulation prescribes a maximum term for directors.
We believe director term limits would be misguided and counterproductive. Institutional Shareholder Services (ISS) has increased its focus on the issue. ISS’ governance rating system, QuickScore, views tenure of more than nine years as an “excessive” length that potentially compromises director independence. ISS’ more moderate proxy voting guidelines, while opposing proposals for director term limits and mandatory retirement ages, indicates that ISS will “scrutinize” boards whose average tenure exceeds 15 years.
Click here to read the complete post…
Click here to read the complete postREIT and Real Estate M&A in 2015
Editor’s Note: Adam Emmerich is a partner in the corporate department at Wachtell, Lipton, Rosen & Katz focusing primarily on mergers and acquisitions and securities law matters. This post is based on a Wachtell Lipton firm memorandum by Mr. Emmerich and Robin Panovka.
Following a year in which REITs returned more than 30% and were involved in a wide variety of strategic transactions, we are keeping an eye on the following trends:
1. Based on the current pipeline, we expect REIT and real estate M&A and consolidation activity to continue at a steady pace, accelerating in a few sectors and with traditional public-to-public mergers likely to pick up. The potential for privatizations is increasing but we are not yet seeing meaningful action.
2. Unlocking the value of corporate real estate through OpCo-PropCo structures, REIT spins and conversions is set to continue as long as REIT multiples remain robust relative to corporates, but we are not expecting an avalanche—these transactions are complex and time consuming and need to be carefully measured against alternatives.
Click here to read the complete post…
Click here to read the complete post
Posted in Mergers & Acquisitions, Practitioner Publications
Tagged Mergers & acquisitions, REITs, Restructurings
Comments Off on REIT and Real Estate M&A in 2015
The Threat to the Economy and Society from Activism and Short-Termism
Editor’s Note: Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton. Earlier posts by Mr. Lipton on hedge fund activism are available here and here. Recent work from the Program on Corporate Governance about hedge fund activism includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here) and The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here). For five posts by Mr. Lipton criticizing the Bebchuk-Brav-Jiang paper, and for three posts by the authors replying to Mr. Lipton’s criticism, see here.
In a comprehensive report on prosperity and the sharing of prosperity in the industrial democracies, an all-star commission has examined and made recommendations for public and private initiatives to improve GDP growth and fair distribution of prosperity. Among the matters studied are corporate governance and short-termism and activism. The following specially selected quotes (omitting compensation and other matters that the report finds promote short-termism) from the report support the limitations on activism that many of us believe are essential to the American economy and society:
Click here to read the complete post…
Click here to read the complete post
Posted in Practitioner Publications
Tagged Shareholder activism, Short-termism
Comments Off on The Threat to the Economy and Society from Activism and Short-Termism
Delaware Court Decisions on Appraisal Rights Highlight Need for Reform
Editor’s Note: Theodore N. Mirvis is a partner in the Litigation Department at Wachtell, Lipton, Rosen & Katz. The following post is based on an article by Mr. Mirvis, Trevor S. Norwitz, Andrew J. Nussbaum, William Savitt, and Ryan A. McLeod. 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.
Recent developments in the once sleepy area of appraisal rights have woken folks up. It seems that deals are subjected to intense scrutiny even in non-Revlon Revlon cases, and then face the mill of appraisal where claim-buying has become virtually enshrined. Below is one suggestion for legislative reform.
Two recent decisions of the Delaware Court of Chancery highlight the troubling expansion of stockholder appraisal rights. Delaware’s appraisal statute prohibits stockholders who vote in favor of a transaction from seeking appraisal for their shares. Notwithstanding this requirement, the Court of Chancery permitted claims to be pursued by a petitioner who purchased its shares after public announcement of the merger for the purpose of bringing an appraisal lawsuit and who was unable to show that the shares for which it sought appraisal had not been voted in favor of the deal. In re Appraisal of Ancestry.com, Inc., C.A. No. 8173-VCG (Del. Ch. Jan. 5, 2015); Merion Capital LP v. BMC Software, Inc., C.A. No. 8900-VCG (Del. Ch. Jan. 5, 2015). (Wachtell Lipton represents the respondent in the Ancestry case.)
Click here to read the complete post…
Click here to read the complete post
Posted in Court Cases, Mergers & Acquisitions, Practitioner Publications
Tagged Appraisal rights, Delaware cases, Delaware law, Merger litigation, Mergers & acquisitions
Comments Off on Delaware Court Decisions on Appraisal Rights Highlight Need for Reform
Passive Investors, Not Passive Owners
Editor’s Note: The following post comes to us from Ian Appel, Todd Gormley, and Donald Keim, all of the Department of Finance at the University of Pennsylvania.
In our paper, Passive Investors, Not Passive Owners, which was recently made publicly available on SSRN, we examine whether passive institutional investors, like Vanguard and Dimensional Fund Advisors, influence firms’ governance structure. Although passive institutional investors, which seek to deliver the return of a market index with expenses that are as low as possible, reflect a large and growing component of U.S. stock ownership, there is little research on their role in influencing firm behavior.
The lack of research on passive institutional investors likely stems from a presumption that such investors lack both the resources and motives to monitor their large and diverse portfolios. For example, unwilling to accumulate or exit positions, which would lead to deviations from the underlying index weights, passive institutions lack a traditional lever used by non-passive investors to influence managers. Moreover, it is unclear whether passive institutional investors should even care about firm-specific policies or governance choices. Unlike actively-managed funds that attempt to outperform some benchmark, passive funds seek to deliver the performance of the benchmark, and any improvement in one stock’s performance will simply increase the performance of both the institution’s portfolio and the underlying benchmark.
Click here to read the complete post…
Click here to read the complete post
Posted in Academic Research, Institutional Investors
Tagged Blockholders, General governance, Institutional Investors, Institutional monitoring, Institutional voting
Comments Off on Passive Investors, Not Passive Owners
What Sitting Commissioners Should and Shouldn’t Do
Editor’s Note: Tamar Frankel is a Professor of Law at Boston University School of Law. This post relates to a paper by Commissioner Daniel Gallagher and Professor Joseph Grundfest, described on the Forum here. An earlier post about this paper by Professor Tamar Frankel, titled Did Commissioner Gallagher Violate SEC Rules?, is available on the Forum here. The Forum also featured last week (here) a joint statement by thirty-four senior corporate and securities law professors from seventeen leading law schools—including at Boston University, Chicago, Columbia, Cornell, Duke, George Washington, Georgetown, Harvard, Michigan, New York University, Northwestern, Stanford, Texas, UCLA, Vanderbilt, Virginia and Yale—opining that the paper’s allegations against Harvard and the SRP are meritless and urging the paper’s co-authors to withdraw these allegations. In addition, the Forum published earlier posts about the paper by Professor Grundfest (most recently here) and by Professor Jonathan Macey (most recently here), and replies by Professor Richard Painter and Harvey Pitt (available here and here) to Professor Frankel’s first post.
In an earlier post (available here), I expressed concerns about Commissioner Gallagher’s decision to issue (jointly with Professor Joseph Grundfest) a paper accusing Harvard University and the Shareholder Rights Project (SRP) of violating securities laws when they assisted investors submitting declassification proposals. Subsequently, a group of thirty-four senior corporate and securities law professors (including myself) issued a joint statement (available on the Forum here). In addition to opining that the allegations in the paper were meritless, the joint statement expressed concerns that a sitting SEC Commissioner has chosen to issue such allegations. However, others have taken the view that sitting Commissioners should be as free as other individuals to express opinions that specific individuals or organizations violated the law. I beg to differ, for the following reasons.
Sitting Commissioners may, and should be encouraged, to publicly discuss policy problems and issues. However, they should avoid publishing accusations against specific individuals or organizations, except as part of the SEC process. Publishing such accusations should not be an acceptable behavior by a sitting SEC Commissioners. That is even though during their tenure, SEC Commissioners are likely to disagree with others about potential legal accusations against specific parties.
Click here to read the complete post…
Click here to read the complete post
Posted in Academic Research, Corporate Elections & Voting
Tagged Corporate governance, Daniel Gallagher, Joseph Grundfest, Shareholder proposals, Shareholder Rights Project, Staggered boards
Comments Off on What Sitting Commissioners Should and Shouldn’t Do