Abraham Cable

Fool’s Gold? Equity Compensation and the Mature Startup

The Silicon Valley ecosystem has changed profoundly since the dizzying heights of the dot-com era. Consider two of that era’s iconic companies: Yahoo! and eBay. At the time of their IPOs, both of these companies were mere infants by today’s standards. Yahoo reported having 49 employees, net revenue of only $1.3 million, and a total market capitalization of about $400 million.  eBay reported having 76 employees, annual net revenue of less than $20 million, and a market capitalization of approximately $700 million.

Google and Facebook ushered in a new era of mature startup. At the time of its 2004 IPO, … Read more


Does CEO Succession Planning Matter?

In September 2009, Bank of America CEO Ken Lewis suddenly announced his intention to retire by the end of the year. The company’s board was taken by surprise as it scrambled to find a successor and was further embarrassed as multiple candidates rebuffed the company’s approach. Several delays of self-imposed deadlines and rampant speculation that the company would be forced to choose a stopgap CEO followed. It was only days before Lewis’ departure that the board named Brian Moynihan as the new CEO. This incident highlights that most companies have long been complacent about succession planning. More than half of … Read more

Gibson Dunn Discusses Proxy Advisers’ 2017 Voting Guidelines

The two most influential proxy advisory firms–Institutional Shareholder Services (ISS) and Glass, Lewis & Co. (Glass Lewis)–recently released their updated proxy voting guidelines for 2017.  The key changes to the ISS and Glass Lewis policies are described below along with some suggestions for actions public companies should take now in light of these policy changes and other proxy advisory firm developments.  The 2017 ISS policy updates are available here.  The 2017 Glass Lewis Guidelines are available here.

ISS 2017 Proxy Voting Policy Updates

On November 21, 2016, ISS released updated proxy voting policies for shareholder meetings held on … Read more


Staggered Boards and Long-Term Firm Value, Revisited

For a long time, the academic literature has largely supported the view that staggered boards — which require challengers to win at least two election cycles to gain a board majority — entrench directors and managers to the detriment of shareholders.[1] Empirically, this view was based on the finding of a negative association between having a staggered board and firm value. In our new article, “Staggered Boards and Long-Term Firm Value, Revisited,” forthcoming in the Journal of Financial Economics, we reconsider the staggered board debate using a comprehensive sample period (1978–2015) and document evidence that suggests the … Read more


An Efficient Investment-Risk Model of Compliance

Corporate compliance — the internal processes that firms use to ensure that their employees do not violate applicable laws and regulations — has become big business. Regulation of business continues to grow, punctuated by landmark laws that have re-shaped the financial services (the Dodd-Frank Act) and health care (the Affordable Care Act) industries in the United States. Further, federal regulators have substantially ramped up their enforcement of numerous existing laws such as the Foreign Corrupt Practices Act and those governing insider trading. Corporations are dedicating greater resources towards internal compliance, both within legal departments and increasingly in separate and independent … Read more

Sullivan & Cromwell Discusses Hacking and Cyber Threats to Director Communications

The growth in cybersecurity threats combined with the increasing demands placed on outside directors create challenges that often go beyond the risks that public companies face from employee and client communications.  If public companies cannot communicate quickly with directors or directors cannot easily share information and discuss options, corporate governance will suffer.  On the other hand, outside directors often have professional responsibilities to multiple organizations and, accordingly, are more likely to rely on electronic communications that are outside of any particular company’s technology resources.

Recent hacking incidents highlight the need for public companies to review their director communication practices to … Read more


Why Public Benefit Corporations?

Of all the social and economic challenges to the current state of Delaware corporate law, perhaps the most potentially revolutionary is the shift in attitudes about the very purpose of corporations.  Delaware corporate law holds as a core precept that the corporation’s goal is to maximize shareholder value.  Corporations’ freedom to serve the goals of other corporate constituencies (such as employees, customers, or the communities in which the companies operate) or to serve broader goals such as protecting the environment or aiding the poor is constrained by the requirement that any such efforts be primarily aimed at improving the bottom … Read more

Weil, Gotshal Discusses Universal Proxy Cards in a Trump Administration

On October 26, 2016 the U.S. Securities and Exchange Commission proposed proxy rule amendments that would require, in a contested election of directors, the public company and the shareholder activist to each use a “universal” proxy card – i.e., a card that includes the names of both parties’ nominees.  Under the proposal, shareholders would be able to vote by proxy for a mix of company and dissident nominees of their choosing (i.e., “splitting the vote”).  Currently, split-ticket voting can be accomplished only by attending the shareholder meeting and voting by ballot.  The proposed changes are an attempt by the SEC … Read more


What Corporate Law’s Emphasis on the Long Term Might Mean

To read influential corporate lawyers, legal academics, and jurists, shareholders are an alarmingly myopic bunch who demand that corporate directors and managers make short-term decisions that sacrifice long-term value. The group receiving the most scolding of late is hedge fund activists. Leo E. Strine, Jr. the chief justice of the Delaware Supreme Court and a commentator on corporate law, says we “must recognize that directors are increasingly vulnerable to pressure from activist investors and shareholder groups with short-term objectives, and that this pressure may logically lead to strategies that sacrifice long-term performance for short-term shareholder wealth.” Delaware corporate law enshrines … Read more

John Coffee Headshot

Shareholder Activism in the Era of Trump: What Strategy Works?

In the approaching Era of Trump, we are likely to see much deregulation, reduced public enforcement, and possibly some curbs on private enforcement.  Corporate compliance efforts may also be downsized, and compliance officials may learn again to defer to the judgment of the entrepreneurs in the corporation’s profit centers.  If a bubble develops in financial stocks (as seems more than possible), some corporate debacles and scandals become predictable.  What defenses do shareholders have in this brave new world?

Here, Wells Fargo & Co’s decision to claw back a record $60 million from two senior executives ($41 million from CEO John … Read more

Ropes & Gray Discusses Recent Proxy Access Developments

To date, nearly 300 companies have adopted proxy access bylaws, including over 40 percent of S&P 500 companies. Given the widespread adoption of proxy access by large U.S. companies, it was only a matter of time before a shareholder actually used proxy access. And, on November 10, 2016, activist investor firm, GAMCO Investors (“GAMCO”), became the first investor in the United States to use a company’s proxy access bylaw to nominate a director candidate for inclusion in a company’s proxy materials.

Separately, the staff of the SEC’s Division of Corporation Finance recently issued four no-action letters involving requests to exclude … Read more


Director Networks and Credit Ratings

In the aftermath of the most recent financial crisis, credit rating agencies (CRAs) once again received a portion of the blame.  Similar to the negative CRA attention that followed the Asian Financial Crisis in 1997 and the dot.com bubble of the early 2000s, CRAs were called on the carpet to answer for the inaccuracy of their rating assignments, this time as they pertained to mortgage backed securities.

CRAs operate at an information disadvantage, and one way in which they attempt to close this gap is through communications with the firm of interest.  CRAs don’t just bestow a rating on a … Read more


Corporate Governance for a Changing World: Report of a Global Roundtable Series

Between 2014 and 2016, European law firm Frank Bold and the Modern Corporation Project at Cass Business School of City, University of London, hosted a global series of roundtables on corporate governance in which we engaged with over 260 practitioners, academics, and regulators. On the basis of these roundtables we have recently presented a report, available here, with concrete suggestions for the development of corporate governance.

Mainstream corporate governance models have been narrowing since the 1970s in order to put the maximisation of shareholder value at the centre of corporate attention. The resultant focus on short-term share price leads … Read more

Andrew Verstein

Enterprise Without Entities

Scholars and practitioners of the law generally agree that any large enterprise must be run through a legal entity such as a corporation. Entities reduce transaction costs to coordinate an enterprise’s many patrons, limit liability for shareholders, and protect a business from untimely dissolution. The widespread consensus is it would be “effectively impossible” to obtain these benefits without entities, and therefore that legal entities are essential to economic life as we know it.

So it may be surprising to learn about a domain of mass-commerce in which legal entities are substantially absent.  In this domain, millions of people exchange trillions … Read more


A Comparative Analysis of Dual Class Share Structures

The efficiency of dual class share structures is controversial, and whether to allow them is a difficult choice. Though much has been written about this topic, no comprehensive picture of dual class structures’ governance effects has emerged.

Although dual class structures may take many forms, their key characteristic is that some shares, per unit of their cash flow rights,[1] effectively give their holders more voting rights than other shares do. For purposes of illustration, consider the following example. A company issues two classes of shares: “A” shares, with one vote each, issued mainly to outsiders, and “B” shares, with … Read more


Fiduciary Accountability for Corporate Officers

On September 29, in the case of Palmer v. Reali, the U.S. District Court for the District of Delaware confronted claims that two corporate officers engaged in conduct that breached their fiduciary duties and eventually led to the bankruptcy of the corporation.[1] The defendants moved to dismiss the claims based, in part, on the contention that the business judgment rule precluded recovery. The court denied the motion, concluding that the plaintiff had alleged sufficient facts to support its claims and pointing out that the defendants failed to cite any case in which a Delaware court held that the … Read more

Latham & Watkins Discusses New SEC Guidance on CEO Pay Ratio Rules

The staff of the Division of Corporation Finance of the Securities and Exchange Commission (SEC) has issued new guidance on the SEC’s rules requiring companies to disclose the pay ratio between their CEO and median compensated employee. The staff’s new Compliance and Disclosure Interpretations (the C&DIs) provide helpful clarity on how to determine the relevant employee population and the median employee for purposes of the ratio, although questions remain.


In  August 2015, pursuant to Section 953(b) of the Dodd Frank Act, the SEC adopted the CEO pay ratio rules (the Rules), which added a new Item 402(u) of Regulation … Read more

Sullivan & Cromwell Discusses Enhanced Cyber Risk Management Standards In The Financial Sector

On October 19, 2016, the Board of Governors of the Federal Reserve System (“the Board”), the Office of the Comptroller of the Currency (“the OCC”), and the Federal Deposit Insurance Corporation (“the FDIC”, and the three agencies collectively, “the Agencies”) jointly issued an advance notice of proposed rulemaking (“the ANPR”) soliciting public comment on enhanced cyber risk management standards. The Agencies are considering enhanced standards designed to increase the operational resilience of large and interconnected entities under their supervision and certain of their service providers and to reduce the potential impact of a cyber-attack or other cyber-related failure on the … Read more

Paul Weiss discusses Applying the Business Judgment Rule to a Going-Private Transaction in Delaware

In In re Books-A-Million, Inc. Stockholders Litigation, the Delaware Court of Chancery dismissed the fiduciary duty claims of former minority stockholders following a going-private, squeeze-out merger because the transaction satisfied the framework to invoke business judgment review as approved by the Delaware Supreme Court in Kahn v. M&F Worldwide Corp.

The plaintiffs brought fiduciary duty claims challenging the transaction pursuant to which the controlling stockholders of Books-A-Million, Inc. took the company private. The agreed price offered a premium to market, but was nevertheless lower than a competing offer from a third party to whom the controlling stockholders … Read more

Paul Weiss Discusses New Signs of Vigorous FCPA Enforcement

As the end of their fiscal years approached on September 30, the Department of Justice and the Securities and Exchange Commission announced a number of resolutions, underscoring their pronouncements that “vigorous enforcement”[1] of violations of the Foreign Corrupt Practices Act remains a “high priority”[2] for both agencies.  These resolutions, which we summarize in this memorandum, provide more significant detail about the underlying FCPA violations than did previous resolutions, in keeping with the DOJ’s stated “effort to promote both transparency and accountability”[3] through their publication and the SEC’s desire to build a “robust disclosure regime.”[4]  Along similar … Read more