Are Directors Holding Multiple Board Seats Too Busy or Well-Connected?

Directors frequently hold multiple board seats, simultaneously lending their expertise to the boards of multiple firms. Director “busyness” is often thought to be detrimental to firm performance, as it leaves directors with insufficient time to devote to their duties at each firm. However, multiple directorships also foster valuable connections among firms that facilitate the flow of information and resources across boards.

There are challenges in trying to assess whether multiple directorships are beneficial or detrimental to firm performance. For example, directors with the highest ability tend to be sought after to serve on multiple boards. These directors may perform adequately … Read more

The Third Stage of Corporate Governance

The recent announcements from major institutional investors about issues such as gender diversity and climate change seem like reactions to social ills.  But they are not unmoored from investing. They are logical expressions of a relatively newly empowered, third phase of corporate governance that tries to improve risk-adjusted return through the use of systems-level risk mitigation.

For example, London-based Legal and General Investment Management (LGIM) announced it will vote against the chair of any board of directors that is not at least one-quarter female. It joins State Street Global Advisors, which paid for the “Fearless Girl” statue on Wall Street, … Read more

Institutional Investor Voting Behavior: A Network Theory Perspective

It is received wisdom that institutional investors have insufficient incentives to cast informed votes because they compete on relative performance. If BlackRock invests in the monitoring of one of its portfolio companies, it will become relatively less competitive vis-à-vis the other institutional investors that hold shares in that company. In fact, other institutions would reap roughly the same benefits as BlackRock from its monitoring effort, without incurring any cost. Yet, there is evidence that institutional investors, whether actively or passively managed, no longer rubberstamp any proposal managers put to a vote. While that is not, in itself, evidence that institutional … Read more

Telecom Italia Vote Shows How Activists and Passive Investors Can Work Together

It’s not every day that Italian capitalism can be heralded as a bastion of transparency. But the showdown on May 4 at Telecom Italia’s board meeting between U.S. activist fund Elliott Management and French conglomerate Groupe Bolloré proved to be one such opportunity.

That is because in Italy, unlike in the United States and other advanced economies, shareholder votes are part of the public record. As such, the vote in Milan was the perfect arena to observe some of the most important fault lines in shareholder capitalism today.

Ultimately, the case turned on the votes of large passive institutional investors, … Read more

The Death of Corporate Law

For decades, corporate law played a pivotal role in regulating corporations across the United States. Consequently, Delaware, the leading state of incorporation, and its courts played a central part in corporate law and governance. More than half of publicly traded firms are incorporated in Delaware, and in many law schools in the United States, Delaware corporate law has become virtually synonymous with American corporate law. While some experts have praised Delaware courts for their efficiency and sophistication in adjudicating corporate disputes, and others have accused the Delaware courts of pro-management leanings, very few would dispute that Delaware courts have played … Read more

Wachtell Lipton Discusses Labor Department’s Cautionary Tone on ESG-Related Matters

With shareholder proposals regarding ESG and sustainability matters becoming the most common kind of proposal, proxy advisory firm ISS marketing a new “Environmental & Social QualityScore” product for rating public companies, asset managers developing ESG-related guidelines and voting policies, and significant activist and investor fundraising efforts underway with ESG-linked themes, the U.S. Department of Labor (the “DOL”) has issued new guidance that may influence the going-forward behavior of some market participants.

On April 23, 2018, the DOL issued Field Assistance Bulletin No. 2018-01, clarifying previous DOL guidance for ERISA-covered private-sector employee benefit plans regarding proxy voting, shareholder engagement, and … Read more

Can Adverse Effects of Private Management-Investor Meetings Be Mitigated by Board Independence?

Private meetings between management and investors (site visits) occur worldwide and are generally held at corporate headquarters with invited investors and sell-side analysts.  Ng and Troianovski (WSJ, 2015) report that U.S. investors spend $1.4 billion a year for face time with executives.  In-house meetings differ from other management-investor interactions such as investor conferences and analyst or investor days in that they are generally not publicized in advance and their content may never become public unless hosting firms are required to publish the meeting details by regulation.  While private meetings between investors and corporate management are common in the U.S., these … Read more

Fried Frank Discusses Key Delaware Decisions on M&A and Corporate Governance

New Risk of Below-Deal-Price in Appraisal Results

Last quarter, the Delaware courts issued the first post-Dell appraisal decisions—Aruba and AOL (issued by the Court of Chancery) and SWS Group (issued by the Delaware Supreme Court, affirming the Court of Chancery decision below). In Dell, the Supreme Court had held that, in the case of an arm’s-length merger with a “robust” sale process, the deal price is generally the best “proxy” for appraised fair value and should be given “heavy, if not determinative weight” in determining fair value. The Supreme Court had also directed that, even if the … Read more

Columbia Law Professors Write Three of Top 10 Corporate and Securities Articles

Zohar Goshen, Kathryn Judge, and Eric Talley were among the authors of three of the 10 best corporate and securities articles last year, the Corporate Practice Commentator has announced. The Columbia Law School professors were joined by Gabriel Rauterberg, a professor at the University of Michigan Law School and former research scholar at Columbia Law School.

The Corporate Practice Commentator’s Robert Thompson, a professor at Georgetown Law School, conducted the 24th annual poll to compile the top-10 list. Teachers of corporate and securities law voted to select the best of more than 565 articles.

All 10 articles, listed in … Read more

K&L Gates Discusses D&O Insurance for Cyber Liabilities

Scarcely a day goes by without news headlines reporting yet another data breach or cyber crime incident, which can have devastating consequences for any business in terms of both reputation and balance sheet.  A cyber incident may also have serious additional consequences for the directors and officers of the affected business, including shareholder lawsuits, regulatory investigations and sometimes even criminal investigations.  Directors and officers (“D&O”) insurance is designed to provide coverage for these types of liabilities, but existing policies may not have been written with cyber liabilities in mind.  This article discusses the cyber-related risks directors and officers may face … Read more

Corporate Governance and Human Capital: Evidence from SMBO Boards

Consistent with predictions made in the late 1980s, the buyout market has grown tremendously and, together with the private equity (PE) model, has become a global phenomenon. One consequence of the maturity of the market is substantial secondary management buyout (SMBO) activity. In an SMBO, the ownership structure and governance mechanism are retained as the initial (primary) buyout is acquired by new PE financiers. The popularity of SMBOs has created some controversy, especially regarding whether the benefits for PE funds come at the expense of the longer term health of portfolio companies.

In our recent paper we examine reasons for … Read more

CamberView Partners Offers 2018 Proxy Season Preview

With the vast majority of annual meetings set to be held in the coming weeks, the contours of the 2018 proxy season are coming into focus. While previous years are remembered for defining initiatives — “say on pay” in 2011, proxy access in 2015 and 2016 and majority support for climate change resolutions last year — 2018 is likely to be shaped by investors’ focus on board accountability.

From board diversity and employee gender pay equity to corporate culture and the environment, investors are signaling through public communication, engagement and votes that their priorities for generating long-term value creation are … Read more

The Purpose of the Corporation

Whether the purpose of the corporation is to generate profits for its shareholders or to operate in the interests of all of its stakeholders has been actively debated since 1932, when it was the subject of dueling law review articles by Columbia law professor Adolf Berle (shareholders) and Harvard law professor Merrick Dodd (stakeholders).

Following “Chicago School” economics professor Milton Friedman’s famous (some might say infamous) 1970 New York Times article announcing ex cathedra that the social responsibility of a corporation is to increase its profits, shareholder primacy was widely viewed as the purpose and basis for the governance of … Read more

Sexual Harassment and Corporate Law

Tronc Chairman Michael Ferro became the latest corporate executive to resign amid accusations of unwanted sexual advances when he stepped down from the helm of the newspaper publishing chain in mid-March. Ferro joins a long list of high-profile executives who have resigned—or been fired—in recent months due to alleged sexual misconduct. Indeed, well before Ferro’s departure, it was clear that the #MeToo movement had reached the c-suite, resulting in resignations and terminations at dozens of prominent companies.

These scandals have caught the attention of shareholders and plaintiffs’ lawyers. In 2017 and the first quarter of 2018, shareholders at four publicly … Read more

Columbia Law School to Hold 2018 M&A and Corporate Governance Conference in New York City

On April 20, 2018, Columbia Law School will hold its 2018 Mergers & Acquisitions and Corporate Governance Conference at Convene in midtown Manhattan. The event is co-sponsored by the law firms Gibson, Dunn & Crutcher and Wachtell, Lipton, Rosen & Katz.

The annual event brings together members of the federal and Delaware judiciary, government regulators, academics, institutional investors, and prominent M&A and corporate governance practitioners. This year’s panelists will include U.S. District Judge Jed S. Rakoff, Delaware Supreme Court Justice Karen L. Valihura, Delaware Chancellor Andre G. Bouchard, and SEC Commissioner Robert J. Jackson Jr. Below is the full agenda.… Read more

Is There a Delaware Effect for Controlled Firms?

The effect of Delaware incorporation on firm value is an enduring question in corporate law.  Robert Daines shifted the terms of this debate in Does Delaware Law Improve Firm Value? (2001) by showing that publicly traded Delaware corporations, controlling for a number of other factors, were worth more money.  Daines interpreted this to mean that Delaware’s corporate law increased firm value, particularly as it relates to hostile takeovers.

In my paper, Is There a Delaware Effect for Controlled Firms?, I present new empirical evidence on whether the Delaware premium applies to firms for which takeover law is not relevant: … Read more

Executive Equity Compensation Drives Earnings Inflation

The economic crisis of 2008 put a bright spotlight on executive compensation and its effects on the behavior of top management. The critics have pointed to the unprecedented escalation in executive compensation, drawing a direct link to deteriorating business ethics, widespread excesses and abuses of power, and the lack of regard for customers’ and shareholders’ welfare.

We examine the effects of executive compensation on a specific type of mismanagement: myopic management (i.e., real activity manipulation, like cutting R&D and advertising spending, with the intent to artificially inflate current earnings).

Empirical research in accounting and other business disciplines has shown that … Read more

How Acquisition Performance Affects the Market for Non-Executive Directors

In the United Kingdom, successive codes of best practice in corporate governance have highlighted the important role of outside or non-executive directors in ensuring that corporations are run for the benefit of their shareholders. While the first code of best practice, the 1992 Cadbury Report, recommended that there should be a sufficient number of non-executives on the board, the 2003 Higgs Report was much more prescriptive, recommending that there should be a majority of non-executives on the board (excluding the chairman). Similarly, U.S. regulation has been emphasizing the important role of independent or non-executive directors. More specifically, the NYSE and … Read more

Wachtell Lipton Discusses Risk Management and the Board of Directors

The past year has seen continued evolution in the political, legal and economic arenas as technological change accelerates. Innovation, new business models, dealmaking and rapidly evolving technologies are transforming competitive and industry landscapes and impacting companies’ strategic plans and prospects for sustainable, long-term value creation. Tax reform has created new opportunities and challenges for companies too. Meanwhile, the severe consequences that can flow from misconduct within an organization serve as a reminder that corporate operations are fraught with risk. Social and environmental issues, including heightened focus on income inequality and economic disparities, scrutiny of sexual misconduct issues and evolving views … Read more

How CEOs’ Personal Finances Affect Their Companies’ Financial Decisions

A number of recent studies have focused on how the behavior of chief executives affects their firms’ financial decisions. We contribute to this literature by looking at the connections between CEOs’ personal finances and those of their firms. Unique data from the Finnish tax authorities allow us to examine these connections in detail. Our dataset contains information on the personal indebtedness and personal securities holdings of CEOs of all publicly-traded firms in Finland. We avoid the challenges typical of U.S. studies, where the data limit the analysis of managers’ wealth to their stock and option awards.

Our analysis finds a … Read more