How Proxy Contests Affect Corporate Policy

Activist investors that believe an agency problem exists between shareholders and management may attempt a proxy contest aimed at specific issues or control of the board.  Research shows that, in anticipation of a proxy contest, managers make significant adjustments in favor of shareholders on a wide array of corporate policies, including R&D expenditures, capital expenditures, leverage, dividends, management compensation, and CEO tenure.  Furthermore, Brav, Jiang, Partnoy, and Thomas (2008) and Klein and Zur (2009) document that activist hedge funds often use a proxy threat to get what they want from incumbent managers. From this perspective, the threat of a proxy … Read more

Paul Weiss Discusses Delaware Court of Chancery Decision on Equity Incentive Plan Ratification

In a recent decision in In re Investor Bancorp, Inc. Stockholder Litigation, the Delaware Court of Chancery held that a fully informed stockholder vote approving adoption of an equity incentive plan also ratified subsequent equity awards to individual directors under the plan. The court found that the plan included limits on grants to directors as a beneficiary group, as opposed to “generic” limits applicable to all plan beneficiaries.  In dismissing the shareholder derivative suit, the court applied the business judgment standard of review to the directors’ decision to make the awards to themselves.

Background

In 2015, the directors of … Read more

It’s All in the Name: Evidence of Founder-Firm Endowment Effects

We examine the relations among various types of family firms, including those named after their founders (founder-named, or FN, firms), those managed by their founders (founder-managed, or FM, firms), and those named after and managed by their founders (founder-named-and-managed, or FN&M, firms). Our empirical results establish a strong and consistent pattern among family firm types. Consistent with the previous literature, we show that family firms are generally more valuable than their non-family counterparts, and that founder-managed (FM) firms are more valuable than their non-founder-managed (non-FM) counterparts. More important, we provide new evidence that founder-named (FN) family firms have significantly lower … Read more

Gibson Dunn Provides an Update on “Fully Informed, Uncoerced” Shareholder Votes in Delaware Under Corwin

In a series of decisions that began with Corwin v. KKR Financial Holdings LLC, it is now clear under Delaware law that boards of directors will receive the protection of the business judgment rule “when a merger that is not subject to the entire fairness standard of review has been approved by a fully informed, uncoerced majority of the disinterested stockholders.”[i] On March 31, 2017, in In re Saba Software, Inc. Stockholder Litigation, the Delaware Chancery Court determined, for the first time, that a transaction did not satisfy the Corwin standard.[ii] Although Saba addresses unique facts, … Read more

Weak Corporate Culture Creates Risk of Inaccurate Financial Reporting

After almost every major financial-reporting scandal, news stories and congressional speeches inevitably follow, detailing how corporate culture encouraged and enabled fraud. For example, in September 2016, Wells Fargo CEO John Stumpf testified before the House Financial Services Committee regarding the bank’s phony accounts scandal. The bipartisan outrage was captured by Representative Mike Capuano of Massachusetts: “You… have run an enterprise that has a culture of corruption. You encourage subordinates to abuse existing customers by opening fake bank accounts. You charge those victims illegal fees, interest, and late charges, and then you send some to collection agencies because they didn’t pay

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Skadden Discusses Antitrust Enforcement in the Trump Administration

Although the Trump administration has announced only one of its selections for top positions at the Antitrust Division of the U.S. Department of Justice (“DOJ”) or the Federal Trade Commission (“FTC”), the election of President Donald J. Trump sets the stage for a potentially significant recalibration of federal antitrust enforcement by the U.S. agencies.

Republican administrations historically have taken a less interventionist approach to antitrust enforcement than their Democratic counterparts, and the Trump administration has an unprecedented opportunity to shape antitrust policy through several key appointments.

Still, many of President Donald Trump’s policy positions have not tracked traditional Republican paradigms, … Read more

How Institutional Cross-Ownership Can Improve Corporate Governance

A corporation’s governance structure does not exist in a vacuum: It can impose externalities on other firms. The existing literature has argued that those externalities can arise because companies interact with each other through various types of relationships. For example, according to Acharya and Volpin (2010), firms compete against each other in the managerial labor market. When a firm’s competitors adopt a low level of governance (e.g., by appointing a weak board of directors) and thus allow their managers to extract large benefits for themselves, the firm’s managers have an incentive to join those competitors, which in turn forces the … Read more

Paul Weiss Offers M&A at a Glance for March

Global M&A activity in March 2017 was generally stronger than in February and also outperformed U.S. activity, where a decline in average deal size overshadowed an increase in the number of deals.  Globally, total deal volume, as measured by dollar value, increased by 47.3% to $299.58 billion, whereas in the U.S., a decrease in average deal size led to a 38.7% decrease in total dollar volume to $65.91 billion.  The decrease in U.S. volume came despite a 2.9% increase in number of deals to 886, which was not as strong as globally, where the number of deals increased by 15.6% … Read more

Elite Law Firms Cash in on Market Knowledge

The legal advisory market for major corporate transactions is dominated by a relatively small number of elite law firms.  What value do these law firms provide?  Regulatory expertise, innovative drafting, speed of execution, and reputational cachet have all been offered as likely candidates. In Market Information and the Elite Law Firm, I argue that a considerable share of the profits earned by these firms also derives from selling their information about current “market” transaction terms.

Indeed, corporate transactions such as mergers and acquisitions or financings are characterized by several salient facts that lack a complete theoretical account. First, they … Read more

Kirkland & Ellis Discusses Trump’s Trade Agenda

In late March, the Trump administration took several steps to begin implementation of its “America First” international trade agenda. We note three actions in particular:

First, President Trump signed an executive order directing the Secretary of Commerce and the U.S. Trade Representative (“USTR”), in conjunction with other agencies, to issue a report within 90 days identifying foreign trade partners with which the United States has a significant trade deficit;

Second, President Trump signed an executive order instructing the Department of Homeland Security and other agencies to increase enforcement of collection of unpaid antidumping and countervailing duties; and

Finally, the USTR … Read more

Columbia Launches New Special Study of Securities Markets

Over the last three decades, U.S. and global securities markets have undergone tremendous change, driven by globalization, advances in information technology, and regulatory choices at the federal and international levels. The days of adventuresome floor trading and concerns of safeguarding ink-and-paper securities have given way to electronic order books within a multi-venue exchange system and to concerns about safeguarding interconnected global trade networks lead by SIFI’s. Artificial intelligence systems and distributed ledger technologies on the horizon have further potential to disrupt the landscape.

Markets today are dramatically different from those of 30 or 50 years ago, and a new comprehensive … Read more

K&L Gates Discusses Fiduciary Rule Delay – Important Compliance Takeaways

On April 7th, the Department of Labor (“DOL”) published its final rule[1] delaying the applicability dates of its rule changing the definition of the term “fiduciary” (the “Fiduciary Rule”) and related prohibited transactions exemptions (“PTEs”) by 60 days, as proposed.  The new timeline for compliance with the Fiduciary Rule is as follows:

  • June 9, 2017 – The Fiduciary Rule becomes applicable, and new PTEs as well as amendments to existing PTEs are also applicable.
  • June 9, 2017 – Firms relying upon the BIC Exemption or the Principal Transactions Exemption (each discussed below), must comply with Impartial Conduct Standards but

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Director Tenure Diversity and Its Impact on Governance

Debate about the ideal tenure length for directors has been reignited with the recent international proposals to limit the terms of independent directors. The underlying motivation for such proposals is to ensure that “the purpose behind the independent director rule is not lost.”[1]  While some firms already have term limits, such limits tend to be rather long.[2] Because the average length of director tenure has been increasing, practitioners and regulators have begun questioning whether there is such a thing as optimal board tenure. Firms and regulators understand and acknowledge the benefits of long tenure, such as knowledge continuity … Read more

The New Corporate Governance of Today’s Successful Companies

Most successful companies share several characteristics. In particular, they focus on building and maintaining relevance in a digitized and networked marketplace. This requires them to design and re-design their products or services to constantly improve consumer satisfaction. In order to achieve this goal, the most competitive companies embrace what can be thought of as unmediated and technology-driven corporate governance.

The leaders of these companies understand that we are moving from a centralized to a decentralized, unmediated, and interconnected world; from a world of vertical hierarchies to one of horizontal, open, and autonomous networks. This transition was initiated and is increasingly … Read more

The CHOICE Act Is a Bad Choice for Financial Reform

We may stand at the threshold (or is it precipice?) of repeal of important parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“the Dodd-Frank Act”) in the House of Representatives.  (Prospects for repeal in the Senate seem much dimmer.)  At the time of its enactment in 2010, the Dodd-Frank Act was regarded as the most important financial reform legislation since the time of the Great Depression.  Now, scarcely seven years after its enactment, significant elements of the Dodd-Frank Act are targeted by the Republicans in the House of Representatives for outright repeal or significant modification in the … Read more

Federal Reserve Governor Discusses the History and Structure of the Fed

I am delighted to have this opportunity to speak at West Virginia University. Thanks to Brian Cushing for inviting me here today.1

Gathered in this part of West Virginia, we are located in the Fifth Federal Reserve District, which stretches down from here to South Carolina and east to the Atlantic Ocean (figure 1). More than 100 years ago, the organizers of the Federal Reserve System divided the country into 12 of these Districts, each with its own Federal Reserve Bank. Together, the Board of Governors in Washington and the 12 Reserve Banks are the key elements … Read more

The SEC as Financial Stability Regulator

The Financial Stability Oversight Council is the only regulatory body in the United States with an express mandate to “identify risks to the financial stability of the United States” and to “respond to emerging threats to the stability of the United States financial system.” But the FSOC is not a stand-alone agency; rather it is a council of regulators, lacking sufficient staff or resources to operate on its own.  To function, the FSOC must leverage the expertise of its component agencies – including the Securities and Exchange Commission.

There have been several subtle (and not-so-subtle) tugs-of-war between the FSOC and … Read more

Proskauer Rose Discusses the SEC’s Extraterritorial Reach

A federal court in Utah recently held that the Securities and Exchange Commission may bring an enforcement action based on allegedly foreign securities transactions involving non-U.S. residents if sufficient conduct occurred in the United States.

The March 28, 2017 ruling in SEC v. Traffic Monsoon, LLC (D. Utah) appears to be the first decision squarely resolving whether the Dodd-Frank Act succeeded in allowing the Government to pursue such claims. The court recognized that the Act’s grant of “jurisdiction” to federal courts over enforcement actions relating to non-U.S. securities transactions had inartfully responded to the Supreme Court’s ruling in Morrison v. Read more

Common Ownership, Institutional Investors, and Antitrust

One of the most important issues in antitrust at the moment is whether institutional investors’ significant equity holdings in U.S. companies are substantially harming competition in violation of the antitrust laws. In a new article, available here, I conduct a systematic analysis of the competitive effects of common ownership and show that, while there are economically sound reasons why common ownership can generate substantial competitive harm, there are also economically sound reasons why, in a given market, it may not. For that reason, the mere fact that institutional investors’ significant equity holdings generate high levels of common ownership by … Read more

Gibson Dunn Discusses Non-Controlling Stockholder Transactions

On March 7, 2017, the Delaware Chancery Court granted a motion to dismiss in In re Columbia Pipeline Group, Inc. Shareholder Litigation, which capped a line of cases starting with Corwin v. KKR Financial Holdings LLC and continued with In re Volcano Corporation Shareholder Litigation that clarified that the business judgment rule applies to tender offers and to mergers that are approved by a “fully informed, uncoerced vote” of disinterested stockholders in which the merger counterparty is a non-controlling stockholder or a non-conflicted controlling stockholder.[i] Read together, these cases provide a roadmap for practitioners to limit post-closing stockholder … Read more

Killing Class Actions Means Everybody Loses

It’s back. Congress is trying to kill class actions again. Last year, Representative Robert Goodlatte introduced a one-paragraph dagger, H.R. 1927, requiring that all class members’ damages be of “the same type and scope.” To many, this language meant that class members’ damages had to be identical. This requirement was perilous because it meant, for instance, that in securities-fraud class actions, where class members necessarily buy different numbers of shares, purchasers could never bind together as a class since their damage amounts would be different. Because that bill explicably limped through the House, the Senate didn’t bother voting on it.… Read more

Cleary Gottlieb on the Trade Implications of Brexit

The UK Government triggered on March 29, 2017, Article 50 TEU.  As a result, the UK is likely to have exited the EU by March 2019.

In a speech delivered on January 17,  Prime Minister (“PM”) May explained that the UK would not seek to be part of the EU’s customs union, but would instead look to establish a “comprehensive” trade agreement with the EU.  In tandem, she noted that the UK would no longer accept the jurisdiction of the European Court of Justice.

How Will a Post-Brexit Future Relationship be Achieved?

1.      The Current Situation

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Auctioneers as Market Makers and Their Role in Managing Price Momentum

Whether in large auction markets involving worldwide sales of, say, automobiles or in more specialized forums like the Tsukiji, Tokyo, fish market, auctioneers provide a platform for buyers and sellers to interact.[1] They also play an important role in designing the market and have significant discretion in administering the auctions. While auctioneers are colorful figures in the popular imagination, they are largely absent from the academic literature, where auctions are typically assumed to be run by a passive entity whose incentives are aligned with the seller’s. Thus, the literature does not provide much guidance on how one may think … Read more

Paul Weiss Discusses Securities Fraud Liability Based Solely on Omissions

On March 27, 2017, the Supreme Court granted certiorari in a potentially significant securities case addressing the scope of claims under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, based solely on alleged omissions of material information. Leidos, Inc. Indiana Public Retirement System, Supreme Court No. 16-581. The Supreme Court will resolve a split between the Second and Ninth circuits caused by the Second Circuit’s holding that issuers may be liable for federal securities fraud by omitting information required to be disclosed by SEC regulations, even if those omissions do not render affirmative disclosures … Read more

JPMorgan Case Offers Trifecta of Off-the-Rails FCPA Enforcement

The Foreign Corrupt Practices Act has specific elements that must be met in order for there to be a violation.  However, with increasing frequency it appears that the Department of Justice and the Securities and Exchange Commission have transformed FCPA enforcement into a free-for-all corporate ethics statute in which any conduct the enforcement agencies find objectionable is fair game to extract a multi-million dollar settlement from a risk-averse corporation.

A recent example is the $202.6 million FCPA enforcement action against JPMorgan based on alleged improper hiring and internship practices in the Asia-Pacific region The SEC’s administrative order, not subjected … Read more

Latham & Watkins on Defining Foreign Private Issuers: Wizard or Muggle?

The world of Harry Potter is divided into wizards and muggles, those who can work magic, and those who (sadly) cannot. In the world of US federal securities laws, the division between domestic US companies and foreign private issuers, or FPIs, is just as important. While FPIs don’t have magical powers — at least that we know of — FPIs do enjoy some very important advantages under special rules and accommodations established by the US Securities and Exchange Commission (SEC).

How do you know if you are a foreign private issuer?

A company must pass one of the following tests … Read more

Will the Supreme Court Expand Silence as a Basis for Securities Fraud?

The Supreme Court has long held that “[s]ilence, absent a duty to disclose, is not misleading under Rule 10b-5.”[1]  And such a duty to disclose only arises where necessary to make a statement already made not misleading, thus allowing companies to “control what they have to disclose … by controlling what they say to the market.”[2]  On March 27, 2017, in Leidos, Inc. v. Indiana Public Retirement System, the court granted certiorari to determine whether, in the absence of any need to correct a prior statement, there exists a separate disclosure duty under Item 303 of SEC … Read more

Proskauer Rose Discusses the Promise of Blockchain

The blockchain protocol (a form of a ‘distributed ledger system’) was originally designed as a platform to process Bitcoin transactions.  The protocol enables peer-to-peer transactions and eliminates the need for a trusted intermediary to verify and process the transactions.

The blockchain protocol as a platform is actually independent of Bitcoin, and is therefore transferable to other applications. Naturally, because blockchain was conceived of as supporting a specific digital payment system, the initial and most obvious use of the blockchain outside of Bitcoin is “fintech” – technology-based payment and financial transaction systems.  The goal of recent experimentation and development in fintech … Read more

The Downside to Limiting Manager Entrenchment

Critics often argue that firms and financial standard setters fail to understand fully the implications of their corporate governance policies. The general belief is that stronger governance almost necessarily leads to better firm outcomes. This idea rests on the assumption that stronger governance better aligns the interests of managers with the interests of shareholders – limiting manager opportunism or unethical behaviors and incentivizing managers to focus on shareholders’ best interests. In a forthcoming academic article entitled, “Are Entrenched Managers’ Accounting Choices More Predictive of Future Cash Flows?” we examine whether stronger governance, specifically limits to manager entrenchment, necessarily translates to … Read more

Gibson Dunn on SEC Enforcement by the Numbers and the End of an Era

Each year, hot on the heels of the federal government’s September 30 fiscal year end, the Securities and Exchange Commission proclaims that it has once again filed a record (or near-record) number of enforcement actions.  But the main event for true SEC nerds (yes, we exist) arrives early the following calendar year, when the agency gets around to quietly posting its more detailed enforcement report, breaking out enforcement actions by subject matter and providing other quantitative signposts.

Ordinarily, the annual statistics (or “stats” in SEC vernacular) illustrate trends that may be helpful in anticipating the future direction of the agency … Read more

The Law and Economics of Shadow Banking

In our recent paper, we discuss the economic case for regulating shadow banking and ask three questions. First, what is shadow banking? Second, why should it be regulated? And third, what’s an efficient way to regulate it? We focus on systemic risk, defined as the likelihood of a financial system failure so serious that it impairs the financing of production and consumption. We argue that such a risk can never be measured precisely enough to predict financial crises.

Our paper examines shadow banking on the basis of its contribution to systemic risk. We argue that shadow banking should be regulated … Read more

Morrison & Foerster Explains How Delaware Paves the Way for Blockchain Technology

Following last May’s announcement of the “Delaware Blockchain Initiative” by former Delaware Governor Jack Markell[1], on March 13, 2017, the Corporate Council of the Corporation Law Section of the Delaware State Bar Association released groundbreaking draft legislation proposing to amend several sections of the Delaware General Corporation Law (the “DGCL”) in an attempt to clarify the application of existing laws to, and facilitate the use of, blockchain technology for various corporate purposes.

Reading a 43-page draft bill may not be an immediate priority for most of us; we wrote this article to distill the most significant … Read more

Blue Sky Banter: Elizabeth Cabraser on the Volkswagen Settlement

Elizabeth Cabraser, a renowned litigator and name partner in the plaintiffs’ law firm of Lieff, Cabraser, Heimann &  Bernstein, speaks with Reynolds Holding about settling the class action against Volkswagen for rigging emissions tests, the challenges of mass actions generally and her love of music and cars. Click on the arrow (and on “read more” if you’re on our home page) to hear the conversation — on the Blue Sky Banter podcast.… Read more

Paul Weiss Discusses New DOJ Guidance For Evaluating Corporate Compliance Programs

The United States Department of Justice’s Fraud Section recently released a guidance document entitled Evaluation of Corporate Compliance Programs (“Evaluation Guidance”),[1] which sets forth a list of common questions that the Fraud Section may ask in evaluating corporate compliance programs in the context of a criminal investigation. The Evaluation Guidance does not provide benchmarks, specific factors or requirements for corporate compliance programs to meet. Rather, it sets forth 119 “common questions that the Fraud Section may ask in making an individualized determination” regarding corporate compliance programs.

Release of the Evaluation Guidance fulfills a promise made a year earlier by … Read more

The Separation of Corporate Law and Social Welfare

A recent essay of mine reflects on the proposition that corporate law should concern itself with social welfare, taking a historical approach.  The essay begins with the quarter century after World War II, when corporate legal theory pursued an institutional vision in which corporations and the law that creates them protect people from the ravages of volatile free markets.  The institutional vision reflected the practice.  Corporate managers, seeking to avoid confrontation with a powerful regulatory state, cooperated with it, taking the lead in pension and healthcare provision in tandem with a long run of successful financial performance.  Market controls were … Read more

SEC Acting Chair Piwowar Discusses Columbia’s Special Study of Securities Markets

Thank you, Larry [Glosten], for that kind introduction.[1] I also want to thank you, Merritt Fox, and Edward Greene — the directors of Columbia University’s Program in the Law and Economics of Capital Markets — for all that you do to advance informed capital markets regulation. The Program’s various projects continue to provide market participants, academic researchers, students, and regulators with valuable resources that are not available elsewhere.

I am delighted to have the opportunity to address you today and to join you in kicking off the Program’s newest project, the New Special Study of the Securities Markets. A … Read more

The Unethical Leader: Who Follows?

When high-profile cases of fraud make the news, we often focus our attention on the CEO or other C-suite executives, asking what signs were missed and how we might better anticipate who might commit fraud. Academics have researched the characteristics of those who commit fraud, including such exemplars as Bernie Ebbers.[1] Recent research has focused on narcissism, the trait that includes self-aggrandizement, the need for admiration, dominance over others, and other signs of grandiosity, as a significant indicator of a leader whose personal ethics will allow him or her to pursue personal gain and glory at the expense of … Read more

Covington & Burling on FDIC Vice Chair Hoenig’s Plan for Financial Holding Companies

As has been widely reported, FDIC Vice Chairman Thomas Hoenig put forward in remarks to the Institute of International Bankers on Monday, March 13, a “Market-Based Proposal for Regulatory Relief and Accountability” (the “Hoenig Proposal” or the “Proposal”).  If adopted, the Hoenig Proposal would substantially change the regulation of large and complex banking organizations doing business in the United States.

The Hoenig Proposal advances ideas that the Vice Chairman has long advocated concerning a new framework for bank regulation.  In 2015 and 2016, Mr. Hoenig proposed various types of regulatory relief for what he described as traditional commercial banks … Read more

“No Pay” Bylaws May Threaten Shareholder Lawsuits

After Delaware prohibited fee-shifting provisions in corporate bylaws,[1] scholars considered alternate means by which corporations might use private ordering to limit the ability of stockholder plaintiffs to bring lawsuits challenging corporate actions.  For instance, Professor Sean Griffith suggested that corporations should adopt “no pay” provisions that, unlike fee-shifting provisions, would prohibit a corporation from paying the legal fees of stockholder plaintiffs.[2]  Griffith’s proposal is similar to one put forward by another Delaware practitioner shortly before the fee-shifting ban.[3]  Other commentators have suggested that such “no pay” bylaws may be the wave of the future.[4]

“No pay” … Read more

Gibson Dunn on Justice Holland’s Lasting Imprint on Corporate Law

In early February, Justice Randy Holland, the longest-tenured member of the Delaware Supreme Court, announced his plans to retire at the end of March 2017.  At the time of his appointment in 1986 by Governor Michael N. Castle, Justice Holland was the youngest person ever to serve on the Court.  He became its longest serving member in 2009.

According to our research, during his 33-year tenure, Justice Holland authored over 800 electronically reported decisions and imparted a legacy of addressing several key areas of Delaware corporate law.   In reviewing his most cited decisions, it is clear Justice Holland has left … Read more

Orderly Resolution: Dodd Frank Versus Chapter 14

Bailing out big financial institutions during the financial crisis was unpopular from the beginning. It was done in part because the bankruptcy code provision for the resolution of big institutions was widely considered inadequate to preserve the nation’s financial stability.[1] Congress approved Title II of Dodd-Frank in 2010 to provide better safeguards by enhancing the FDIC’s authority and creating the Orderly Liquidation Fund. However, the changes remain unpopular in the financial world.[2] Title II opponents in Congress now propose amending the bankruptcy code to include a new Chapter 14 to create special provisions for the bankruptcy of large … Read more

PwC Discusses How Financial Institutions Can Bolster Defenses Against Risk

Many financial institutions1 have implemented the three Lines of Defense (LoD) model to help define their risk management frameworks and bolster supervisors’ (e.g., desk heads and senior traders) abilities to monitor risk.2 However, as frameworks for managing financial risks (e.g., credit, market, and liquidity) have become more developed, regulators are increasingly focusing on oversight of non-financial risks (e.g., operational and conduct).3

Supervisors are often not only expected to design, manage, and execute a financial institution’s first LoD controls framework, but to do so while meeting (or exceeding) revenue expectations. In order for supervisors to meet the expectations of … Read more

The Public Interest in Corporate Settlements

Corporate settlements are proliferating in form and function. They include consent decrees, corporate integrity agreements, deferred prosecution agreements, non-prosecution agreements, leniency agreements, and plea bargains. Enforcers at the federal and state level now enter an array of administrative, civil, and criminal resolutions of enforcement actions against companies. Those resolutions may be entered and negotiated in parallel and settled jointly, and their reach is global. Corporate fines have hit new records, with penalties in the hundreds of billions of dollars affecting entire industries and economies. High-profile controversies have erupted over judicial review of government settlements with corporations, as these agreements have … Read more

Gibson Dunn Discusses Corporate Social Responsibility

Over the past few years, interest in corporate social responsibility (“CSR”)[1] has increased significantly.  The spotlight on CSR has led companies to expand and strengthen their CSR efforts.  Many companies in turn have published sustainability reports, posted materials on their websites and made other statements about their past CSR efforts and future CSR goals.  Certain website CSR disclosures are also required by statutes such as the California Transparency in Supply Chains Act of 2010 and the U.K. Modern Slavery Act 2015.[2]  Some organizations are also encouraging companies to include more CSR statements in their filings with the Securities … Read more

How Board Evaluations Fall Short

The New York Stock Exchange requires that the board of each publicly traded corporation “conduct a self-evaluation at least annually to determine whether it and its committees are functioning effectively.” The purpose of this exercise is to ensure that boards are staffed and led appropriately; that board members, individually and collectively, are effective in fulfilling their obligations; and that reliable processes are in place to satisfy basic oversight requirements.

Research evidence suggests that, while many directors are satisfied with the job that they and their fellow board members do, board evaluations and boardroom performance fall short along several important dimensions. … Read more

Paul Weiss Offers M&A at a Glance for February

M&A activity generally declined in February 2017, both globally and in the U.S.  Total deal volume, as measured by dollar value, decreased globally by 30.1% to $202.45 billion, and in the U.S. by 3.7% to $106.47 billion.  The number of deals followed similar trends, decreasing globally by 8.4% to 2,858 and decreasing in the U.S. by 10.2% to 828. These declines were primarily driven by declines in strategic M&A activity. Globally, strategic deal volume decreased by 40.6% to $144.56 billion and the number of deals decreased by 10.4% to 2,520. In the U.S., strategic deal volume decreased by 2.7% to … Read more

Can Investors Anticipate Post-IPO Mergers and Acquisitions?

Of the nearly 6,000 U.S. firms that conducted initial public offerings between 1980 and 2008, 38 percent became merger bidders within three years after the IPO and 12 percent became takeover targets. It is important that investors understand these developments, given how often post-IPO M&A activity occurs and how much it can affect the value of companies.

Take for instance First Solar and Paypal.  First Solar, the second largest maker of solar panels worldwide, explicitly disclosed that a primary use of its 2006 IPO proceeds would be to engage in acquisitions to achieve vertical integration. Not surprisingly, First Solar acquired … Read more

Unicorns, Guardians, and the Concentration of U.S. Equity Markets

Developments in private and public markets are changing the role equity plays in the United States, i.e., what “stock” means as a matter not only of investment and corporate governance, but also of political economy.  For several generations, a broad middle class invested directly in bureaucratically run corporations, disciplined by securities and other laws.  The governance of firms and therefore much of the economy was answerable to this broad middle class.  Perhaps most important, citizens understood such arrangements as “the free enterprise system” or even “the American way.”  We call this a “republican” imagination of equity markets.

There has recently … Read more

Shearman & Sterling Offers a Primer on House Blueprint for Tax Reform

The election of Donald Trump in November has substantially increased the likelihood of major tax reform in the near future. While it is uncertain what shape such reform will take, there has been renewed interest in the so-called “Blueprint” for tax reform released by House Republicans on June 24, 2016.[1] The Blueprint’s stated aims are to promote economic growth for American business, incentivize companies to remain in the United States and greatly reduce the complexity of the current tax system. To promote these objectives, the Blueprint advocates the replacement of the current corporate income tax with what is referred … Read more

Debevoise & Plimpton Discusses EU’s Approach to Financial Services “Equivalence” Decisions

On February 27, 2017, the European Commission published a Staff Working Document[1] containing an assessment of EU equivalence decisions in financial services policy.[2] Equivalence decisions are a core element of the Commission’s international strategy for financial services and provide benefits for both EU and third-country financial markets. If the Commission determines that a third country’s regulatory, supervisory and enforcement regime is “equivalent” to the corresponding EU framework in a particular market sector, that recognition usually makes it possible for authorities in the European Union to rely on supervised entities’ compliance with the equivalent foreign framework.

This reduces or … Read more