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Program on Corporate Governance Advisory Board
- William Ackman
- Peter Atkins
- David Bell
- Kerry E. Berchem
- Richard Brand
- Daniel Burch
- Paul Choi
- Jesse Cohn
- Arthur B. Crozier Christine Davine
- Renata J. Ferrari
- John Finley
- Andrew Freedman
- Ray Garcia
- Byron Georgiou
- Joseph Hall
- Jason M. Halper
- Paul Hilal
- Carl Icahn William P. Mills
- David Millstone
- Theodore Mirvis
- Philip Richter
- Elina Tetelbaum
- Sebastian Tiller
- Marc Trevino Jonathan Watkins
- Steven J. Williams
- Daniel Wolf
HLS Faculty & Senior Fellows
Author Archives: Harvard Law School Forum on Corporate Governance and Financial Regulation
Capital Allocation and Delegation of Decision-Making Authority within Firms
Editor’s Note: The following post comes to us from John Graham, Campbell Harvey, and Manju Puri, all of the Finance Area at Duke University.
In our paper, Capital Allocation and Delegation of Decision-Making Authority within Firms, forthcoming in the Journal of Financial Economics, we use a unique data set that contains information on more than 1,000 Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs) around the world to investigate the degree to which executives delegate financial decisions and the circumstances that drive variation in delegation. Our results can be grouped into four themes.
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Posted in Academic Research, Empirical Research, International Corporate Governance & Regulation
Tagged Capital allocation, Decision-making, Information environment, International governance, Management
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Takeaways from the Past Year of SEC Private Equity Enforcement
Editor’s Note: The following post comes to us from John J. Sikora, partner in the Litigation Department at Latham & Watkins LLP, and is based on a Latham & Watkins publication authored by Mr. Sikora and Nabil Sabki.
After a year of “first ever” actions targeting private equity, fund managers should be vigilant, even about seemingly small issues.
In reviewing the results of SEC Enforcement’s fiscal year that ended on September 30, the agency congratulated itself on its comprehensive approach to enforcement and its “first-ever” cases. Private equity fund managers should consider a number of important takeaways.
The SEC Continues to Pursue a Broken Windows/Zero Tolerance Approach
Although the Enforcement Division announced a record number of enforcement actions, and the largest aggregate financial recovery, 2014, unlike in years past, did not include a headline-grabbing case such as Enron, Worldcom or Madoff. More recently, the agency has chosen to emphasize its pursuit of smaller cases as a way of improving compliance in the industry. SEC Chair Mary Jo White and Enforcement Director Andrew Ceresney have each touted the agency’s “broken windows” approach to enforcement. A “broken windows” strategy means that the SEC will pursue even the smallest violations on the theory that publicly pursuing smaller matters will reduce the prevalence of larger violations. Ceresney has described “broken windows” as a zero tolerance policy. This past year illustrated the agency’s commitment to applying enforcement sanctions to what some might consider “foot fault” incidents. For example, in September 2014, the SEC announced a package of three dozen cases involving a failure to promptly file Section 13D and Section 13G reports, as well as Forms 3 and 4. Many of the filers charged were just days or weeks late in disclosing their positions. In announcing the cases, Ceresney emphasized that inadvertence was not a defense to late filings.
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Posted in Practitioner Publications, Securities Litigation & Enforcement
Tagged Compliance & ethics, Private equity, Private funds, SEC, SEC enforcement, Securities enforcement
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When Are Powerful CEOs Beneficial?
Editor’s Note: The following post comes to us from Minwen Li and Yao Lu, both of the Department of Finance at Tsinghua University, and Gordon Phillips, Professor of Finance at the University of Southern California.
In our paper, CEOs and the Product Market: When Are Powerful CEOs Beneficial?, which was recently made publicly available on SSRN, we explore what the central factors are that influence when and how powerful CEOs may add value and how the benefits and costs of CEO power vary with industry conditions. In an ideal world, shareholders would grant an optimal level of power, weighing various costs and benefits specific to the firm’s characteristics and the business conditions in which it operates. We hypothesize that the optimal amount of power changes based on product market conditions.
Most recent research has shown that CEO power is negatively associated with firm value and is associated with negative outcomes for the firm. Articles have suggested that powerful CEOs may be bad news for shareholders (e.g., Bebchuk, Cremers, and Peyer 2011; Landier, Sauvagnat, Sraer, and Thesmar 2013). Morse, Nanda, and Seru (2011) provide evidence that powerful CEOs may have more favorable incentive contracts. Khanna, Kim, and Lu (forthcoming) show that CEO power arising from personal decisions can increase the likelihood of fraud within corporations.
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Posted in Academic Research
Tagged Executive performance, Executive value, Firm performance, Management, Market conditions
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Second Circuit Overturns Insider Trading Convictions
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 by Mr. Savarese, Wayne M. Carlin, and David B. Anders.
Earlier today [Wednesday, December 10, 2014], the Second Circuit Court of Appeals issued an important decision overturning the insider trading convictions of two portfolio managers while clarifying what the government must prove to establish so-called “tippee liability.” United States v. Newman, et al., Nos. 13-1837-cr, 13-1917-cr (2d Cir. Dec. 10, 2014). The Court’s decision leaves undisturbed the well-established principles that a corporate insider is criminally liable when the government proves he breached fiduciary duties owed to the company’s shareholders by trading while in possession of material, non-public information, and that such a corporate insider can also be held liable if he discloses confidential corporate information to an outsider in exchange for a “personal benefit.”
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Posted in Court Cases, Practitioner Publications, Securities Litigation & Enforcement
Tagged Corporate crime, Insider trading, Securities litigation, U.S. federal courts
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SEC Commissioner, Law Professor Wrongfully Accuse SRP of Securities Fraud
Editor’s Note: Jonathan R. Macey is the Sam Harris Professor of Corporate Law, Corporate Finance & Securities Law at Yale University. This post analyzes the arguments in a paper by SEC Commissioner Daniel M. Gallagher and Stanford law School Professor Joseph A. Grundfest, described in a post by Professor Joseph Grundfest (available on the Forum here) and a post by Wachtell Lipton (available on the Forum here).
Here is something that one does not see every day. In their recent paper “Did Harvard Violate Federal Securities Law? The Campaign Against Classified Boards of Directors” posted on December 10, 2014, a sitting Commissioner of the Securities and Exchange Commission and a former SEC Commissioner accuse the Shareholder Rights Project at Harvard Law School (SRP) of violating the anti-fraud provisions of the securities laws. The alleged fraud occurred when institutional investors represented by the SRP proposed shareholder resolutions encouraging shareholders in U.S. public companies to vote to de-stagger their companies’ boards.
In this submission I present my analysis of this paper, concluding that the SRP proposals were not fraudulent or misleading and that the aggressive application of the anti-fraud provisions of the securities laws advanced by the authors of the “Did Harvard Violate Federal Securities Law?” would be inconsistent with the law and, by the authors’ own admission, inconsistent with the current policy and practice of the staff of the Securities and Exchange Commission.
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Click here to read the complete postCurrent and Former SEC Commissioners Question Legality of Harvard Declassification Proposals
Today’s Wall Street Journal reports that a current SEC Commissioner and a former SEC Commissioner (now a law professor) have published a lengthy paper challenging the scholarly bona fides—and legality—of the recent efforts by the Harvard Law School Shareholder Rights Project (SRP) to cause major American corporations to declassify their boards of directors. During the […]
Click here to read the complete postDid Harvard Violate Federal Securities Law?
SEC Commissioner Daniel Gallagher and I just posted on SSRN a new paper, titled Did Harvard Violate Federal Securities Law? The Campaign Against Classified Boards of Directors. The abstract of the paper summarizes it as follows: The Harvard Shareholder Rights Project (“Harvard SRP”) has, on more than 120 occasions, invoked SEC Rule 14a-8 to propose […]
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Posted in Academic Research, Corporate Elections & Voting
Tagged Corporate governance, Daniel Gallagher, Joseph Grundfest, Shareholder proposals, Shareholder Rights Project, Staggered boards
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New ISDA Protocol Limits Buy-Side Remedies in Financial Institution Failure
The ISDA 2014 Resolution Stay Protocol, published on November 12, 2014, by the International Swaps and Derivatives Association, Inc. (ISDA), [1] represents a significant shift in the terms of the over-the-counter derivatives market. It will require adhering parties to relinquish termination rights that have long been part of bankruptcy “safe harbors” for derivatives contracts under […]
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Posted in Banking & Financial Institutions, Bankruptcy & Financial Distress, Derivatives, Financial Regulation, International Corporate Governance & Regulation, Practitioner Publications
Tagged Bankruptcy, Bankruptcy Code, Cross-border transactions, Defaults, Derivatives, Financial institutions, International governance, ISDA, OTC derivatives, Recovery & resolution plans, Safe harbor
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Basel Committee Adopts Net Stable Funding Ratio
On October 31, 2014, the Basel Committee on Banking Supervision (the “Basel Committee”) released the final Net Stable Funding Ratio (the “NSFR”) framework, which requires banking organizations to maintain stable funding (in the form of various types of liabilities and capital) for their assets and certain off-balance sheet activities. The NSFR finalizes a proposal first […]
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Posted in Banking & Financial Institutions, Financial Regulation, International Corporate Governance & Regulation
Tagged Banks, Basel Committee, Capital requirements, Financial institutions, Financial regulation, Foreign banks, International governance, Liquidity
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Corporate Governance Issues for 2015
Governance of public corporations continues to move in a more shareholder-centric direction. This is evidenced by the increasing corporate influence of shareholder engagement and activism, and shareholder proposals and votes. This trend is linked to the concentration of ownership in public and private pension funds and other institutional investors over the past 25 years, and […]
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Posted in Boards of Directors, Practitioner Publications
Tagged Boards of Directors, Corporate governance, ISS, Oversight, Proxy advisors, Shareholder activism, Shareholder suits, Sidley Austin
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