Category Archives: Institutional Investors

The Board-Centric Annual Meeting

John Wilcox is Chairman of Sodali and former Head of Corporate Governance at TIAA-CREF. This post is based on a Sodali publication by Mr. Wilcox.

For a growing number of listed companies around the world the annual shareholder meeting has come to resemble a trial by ordeal. Instead of the traditional town-meeting business forum, the AGM has morphed into a jousting field where activists, proxy advisors and various special interest groups play a dominant role. This state of affairs has evolved because for the past three decades companies have been resistant to change and defensive about governance reform, while shareholders and activists have taken the lead in successfully promoting greater board accountability and stronger governance rules. Corporate scandals, the financial crisis, escalating CEO pay, declining public trust in business leaders together with enhanced shareholder rights have transformed the annual meeting into an event where companies often focus on damage control rather than showcasing their business.

READ MORE »

2016 Proxy Season: Engagement, Transparency, Proxy Access

Howard B. Dicker is a partner in the Public Company Advisory Group of Weil, Gotshal & Manges LLP. This post is based on a Weil publication; the complete publication, including footnotes and appendix, is available here. Related research from the Program on Corporate Governance includes Lucian Bebchuk’s The Case for Shareholder Access to the Ballot and The Myth of the Shareholder Franchise (discussed on the Forum here), and Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

While shareholders have a wide spectrum of views on corporate objectives, the time horizon for realizing these objectives and environmental, social and governance (ESG) issues, there is an emerging consensus that—regardless of size, industry or profitability—public companies must achieve greater accountability to their shareholders, through engagement and transparency, than ever before. Corporate engagement and transparency now take two forms: direct dialogue, increasingly involving directors, and enhanced proxy statement and other public disclosure that sheds light on the company’s strategy and the performance of its board, board committees and management, demonstrates responsiveness to shareholder ESG concerns, and justifies the composition of the board in light of the company’s present needs. Throughout this post, we offer practical suggestions about “what to do now” to meet shareholder expectations about engagement and transparency and to address a host of other new developments for the 2016 proxy season.

READ MORE »

The New Paradigm for Corporate Governance

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. Related research from the Program on Corporate Governance 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). Critiques of the Bebchuk-Brav-Jiang study by Wachtell Lipton, and responses to these critiques by the authors, are available on the Forum here.

Since I first identified a nascent new paradigm for corporate governance with leading major institutional investors supporting long-term investment and value creation and reducing or eliminating outsourcing to ISS and activist hedge funds, there has been a steady stream of statements by major investors outlining the new paradigm. In addition, a number of these investors are significantly expanding their governance departments so that they have in-house capability to evaluate governance and strategy and there is no need to outsource to ISS and activist hedge funds. The following is a summary consolidation of what these investors are saying in various forums.

READ MORE »

So You’re Thinking of Joining a Public Company Board

David A. Katz is a partner specializing in the areas of mergers and acquisitions, corporate governance and activism, and crisis management at Wachtell, Lipton, Rosen & Katz. The following post is based on an article by Mr. Katz and Laura A. McIntosh that first appeared in the New York Law Journal.

Candidates for directorships on public company boards have much to consider. Potential exposure to legal liability, public criticism, and reputational harm, a complex tangle of applicable regulations and requirements, and a very significant time commitment are facts of life for public company directors in the modern era. The extent to which individuals can effectively manage the risks of directorship often depends on company-specific factors and can be increased through diligence and thoughtful preparation on the part of the director and the company.

READ MORE »

Alternatives to Equity Shares in a Low Stock Price Environment

Steve Pakela is a Managing Partner at Pay Governance LLC. This post is based on a Pay Governance publication by Mr. Pakela, Brian Scheiring, and Mike Grasso.

Compensation Committees face the challenge of balancing the tension in motivating their executives to create shareholder value in the current Say on Pay and economic environment. The current pullback in stock prices and the uncertain financial outlook for 2016 at many companies will make this year’s compensation decisions even more challenging. Stock prices at many companies and in many sectors are down 50% or more over the past year and, in particular, since equity awards were last granted to executives. The table below illustrates the effect of a significantly low stock price on the number of shares granted. For companies whose stock price is down 50%, the number of shares required to deliver equivalent value will be double that granted last year. For those companies whose share price is down 67% or 75%, share grants will need to be three or four times greater than the shares granted last year, respectively. This can pose a number of problems ranging from creating potential windfalls when share prices recover to previous levels to exceeding maximum share grant levels contained in a shareholder approved equity incentive plan.

READ MORE »

REIT and Real Estate M&A in 2016

Adam O. Emmerich is a partner in the corporate department at Wachtell, Lipton, Rosen & Katz, focusing primarily on mergers and acquisitions, corporate governance and securities law matters. Robin Panovka is a partner at Wachtell Lipton and co-heads the Real Estate and REIT M&A Groups. This post is based on a Wachtell Lipton publication authored by Messrs. Emmerich and Panovka.

Following are some of the key trends we are following as we enter 2016, while keeping a weather eye on macro market turmoil:

  1. M&A activity should continue at a steady pace, with a number of public-to-private and public-to-public REIT mergers already in the works.
  2. We are not expecting an avalanche of REIT buyouts a la 2006-7, but many of the same drivers are apparent, as we noted last October in Taking REITs Private, and a number of significant transactions are likely.
    READ MORE »

Economic Downsides and Antitrust Liability Risks from Horizontal Shareholding

Einer Elhauge is the Petrie Professor of Law at Harvard Law School. This post is based on Professor Elhauge’s recent article, forthcoming in the Harvard Law Review.

In recent decades, institutional investors have grown and become more active in influencing corporate management. While this development has often been viewed as salutary from a corporate governance perspective, the implications for product market competition have become deeply troubling. As I show in a new article called Horizontal Shareholding (forthcoming in the Harvard Law Review), this growth in institutional investors means that a small group of institutions has acquired large shareholdings in horizontal competitors throughout our economy, causing them to compete less vigorously with each other.

READ MORE »

ISS Proxy Access FAQs: Problematic Proxy Access Provisions

Howard B. Dicker is a partner in the Public Company Advisory Group of Weil, Gotshal & Manges LLP. This post is based on a Weil publication by Mr. Dicker, Lyuba Goltser, Joanna Jia, and Kaitlin Descovich.

Institutional Shareholder Services (ISS) has published revised FAQs for its U.S. Proxy Voting Policies and Procedures, including two new FAQs directly related to proxy access. This post provides an update to our Alerts dated October 21, 2015 (available here) on Navigating Proxy Access and November 23, 2015 (available here, and discussed on the Forum here) on ISS and Glass Lewis Updated Voting Policies.

READ MORE »

Global and Regional Trends in Corporate Governance in 2016

Anthony Goodman is a member of the Board Effectiveness Practice at Russell Reynolds Associates. This post is based on an Russell Reynolds publication authored by Mr. Goodman and Jack “Rusty” O’Kelley, III, available here.

Over the past few years, institutional investors have held boards increasingly accountable for company performance and have demanded greater transparency and engagement with directors. The real question investors are asking is How can we be sure we have a high-performing board in place? Most of the governance reforms currently under discussion globally attempt to address that question.

Around the world, large institutional investors continue to push hard for reforms that will enable them to elect independent non-executive directors who will constructively challenge management on strategy and hold executives accountable for performance (and pay them accordingly). When trust breaks down, activist investors (often hedge funds) move in to drive for change, often with institutional support.

READ MORE »

Lessons Learned from a Highly Successful Proxy Contest Defense

M. Ridgway Barker is a partner focusing on corporate finance and securities law at Withers Bergman LLP. This post is based on a Withers memorandum by Mr. Barker, Clyde Tinnen, and Michael Rueda.

Recently, our client, a NYSE-listed publicly traded firm, successfully defended against a proxy contest brought by an activist fund that in the first part of this year acquired 5.5% stake in the company. Following on earlier indications that it would do so, the fund notified the company in September that it intended to nominate six individuals for election to the seven member board of directors at the 2015 annual meeting of stockholders to be held in November. At the meeting, stockholders elected all seven incumbent director nominees and flatly rejected all of the fund’s six nominees, despite ISS’s recommendation in favor of three of the fund’s nominees and Proxy Mosaic’s recommendation in favor of all six of the fund’s nominees. These results offer key lessons to companies under attack by dissidents, notwithstanding strong activist pressure with backing from ISS or other proxy advisors.

READ MORE »

  • Subscribe

  • Cosponsored By:

  • Supported By:

  • Programs Faculty & Senior Fellows

    Lucian Bebchuk
    Alon Brav
    Robert Charles Clark
    John Coates
    Alma Cohen
    Stephen M. Davis
    Allen Ferrell
    Jesse Fried
    Oliver Hart
    Ben W. Heineman, Jr.
    Scott Hirst
    Howell Jackson
    Robert J. Jackson, Jr.
    Wei Jiang
    Reinier Kraakman
    Robert Pozen
    Mark Ramseyer
    Mark Roe
    Robert Sitkoff
    Holger Spamann
    Guhan Subramanian

  • Program on Corporate Governance Advisory Board

    William Ackman
    Peter Atkins
    Joseph Bachelder
    John Bader
    Allison Bennington
    Richard Brand
    Daniel Burch
    Richard Climan
    Jesse Cohn
    Isaac Corré
    Scott Davis
    John Finley
    David Fox
    Stephen Fraidin
    Byron Georgiou
    Carl Icahn
    Jack B. Jacobs
    Paula Loop
    David Millstone
    Theodore Mirvis
    James Morphy
    Toby Myerson
    Morton Pierce
    Barry Rosenstein
    Paul Rowe
    Rodman Ward