EU financial policymakers appear to be once more in a deadlock situation over proposals to limit the sovereign risk exposure of European banks. The strong exposure of some banks in the southern European periphery in their national sovereign’s debt was seen by many as one of the contributing factors to the ongoing sovereign debt crisis (Acharya et al. 2014, Beltratti & Stulz 2015; Brunnermeier et al. 2016). Powerful incentives have encouraged financial institutions to buy and hold government bonds in the past (Gros 2013). In fact, this was the intellectual background for the policy framework known as the Banking Union, … Read more
On May 5, 2016, the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC) announced sanctions against 77 entities and individuals associated with the Waked Money Laundering Organization (“Waked MLO,” collectively, the “Waked Sanctions”). OFAC stated that the designation was necessary to disrupt the organization’s alleged activities in laundering drug trafficking proceeds by using trade-based methods, duty-free retail, real estate development and financial services throughout the region.
In coordination with the Drug Enforcement Administration (DEA), Customs and Border Protection and the Miami Division of the Federal Bureau of Investigation, OFAC stated that it determined that the Waked MLO uses … Read more
Unlike most other countries, the U.S. taxes corporations on earnings generated anywhere in the world. This means that U.S. corporations have a strong tax incentive to renounce their U.S. incorporation and redomicile in a foreign country. Enter the inversion, a legal maneuver that has become increasingly popular and politicized in recent years, most notably with the announcement of Pfizer’s plan to move to Ireland as part of its acquisition of Allergan. Although recent rule changes by the Treasury has caused Pfizer to abandon this plan for the moment, inversions will continue to occur because of the tax benefits to the … Read more
On May 6, 2016, the Delaware Supreme Court affirmed the Delaware Chancery Court’s ruling that Zale Corporation’s sale to Signet Jewelers withstood scrutiny under the business judgment rule because the transaction was approved by a fully-informed, uncoerced vote of the disinterested stockholders, and that an aiding and abetting breach of fiduciary duty claim against Zale’s financial advisor failed as a matter of law where the plaintiff failed to establish that the Zale board had acted with gross negligence. In so holding, the Court reaffirmed its holding in Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), that … Read more
|Rank||Name||School||Citations||Age in 2016|
|1||John Coffee, Jr.||Columbia University||1470||72|
|2||Lucian Bebchuk||Harvard University||1130||61|
|3||Stephen Bainbridge||University of California, Los Angeles||1010||58|
|4||Reinier Kraakman||Harvard University||820||67|
|5||Stephen Choi||New York University||780||50|
|6||Donald Langevoort||Georgetown University||770||65|
|7||Ronald Gilson||Columbia University||760||70|
|8||Lynn Stout||Cornell University||750||59|
|9||Roberta Romano||Yale University||730||64|
|10||Henry Hansmann||Yale University||720||71|
|11||Bernard Black||Northwestern University||630||63|
|12||James Cox||Duke University||620||73|
Since the Volkswagen story first broke in September 2015, most observers have just scratched their heads and muttered to themselves in amazement: “What were they thinking? How could you place ‘defeat devices’ in 11 million cars worldwide and expect that you were going to escape detection for long?” There is, however, an answer to this question—one that says much about what is wrong with current priorities and practices for the enforcement of white collar crime. This column begins with an assessment of the Volkswagen case and then turns to an analysis of white collar crime strategies. Finally, it proposes remedies … Read more
In Rule v. Massachusetts Mutual Life Insurance Company, our client challenged MassMutual’s 2014 Proxy Statement seeking to change its company bylaws. The Proxy told the over 1 million policyholder-owners that the proposed bylaw changes were consistent with the company’s current practices, would bring the bylaws in alignment with widely held corporate governance best practices, and would enable management to better serve the policyholders. However, the bylaw changes were a radical departure from its current bylaws and were the antithesis of best practices (as discussed below). Nonetheless, a Massachusetts Appeals Court sustained dismissal of the proxy challenge on grounds … Read more
On April 21, 2016, the National Credit Union Administration (the NCUA) issued a proposed rule regarding incentive-based compensation paid by certain financial institutions (the Proposed Rule) to implement Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Section 956).1 Section 956 requires various Federal agencies to issue regulations that limit certain incentive compensation practices at financial institutions. The Office of the Comptroller of the Currency (the OCC), the Federal Deposit Insurance Corporation (the FDIC) and the Federal Housing Finance Agency (the FHFA) released their respective versions of the proposed rule on April 26, 2016, and the … Read more
Corporate information that moves stock-market prices has long sat at the center of modern securities regulation in the United States. The Great Depression-era securities laws at the foundation of the field require much mandatory disclosure of this type of information. They also include a strict anti-fraud regime to ensure the credibility of those disclosures of that information. And for a half century now, that regime has been interpreted to prohibit insiders from trading on the same information. All of these laws have been motivated by both concerns for fairness and economic efficiency.
Today, a new body of securities law is … Read more
We recently published a paper on CEO compensation and value sharing between executives and shareholders. The paper is available here.
CEO compensation is a controversial subject that evokes considerable debate on whether public company CEOs are paid correctly relative to corporate performance. A recent survey by Heidrick & Struggles and the Rock Center for Corporate Governance highlights the extreme disconnect between public perception of CEO pay and the perception of directors responsible for designing pay packages at Fortune 500 companies. While 65 percent of directors believe that CEO pay is not a problem, a full 70 percent of the … Read more
A wide body of literature emphasizes that venture capitalists focus on young private companies, generally in high-tech industries. However, contrary to this notion, we find that 29% of the firms that were backed by VCs prior to the IPO received additional VC funding within the first five years after the IPO, in a sample of IPOs between 1988 and 2010.
We find that this post-IPO VC financing is focused on companies with high information asymmetry and substantial growth opportunities. These companies might otherwise find it difficult to raise capital at a viable price (see, e.g., Myers and Majluf, 1984). In … Read more
In a March 29, 2016 decision, the United States Court of Appeals for the Second Circuit (the “Court of Appeals”) held that creditors are preempted from asserting state law constructive fraudulent conveyance claims by virtue of the Bankruptcy Code’s “safe harbors” that, among other things, exempt transfers made in connection with a contract for the purchase, sale or loan of a security (here, in the context of a leveraged buyout (“LBO”)), from being clawed back into the bankruptcy estate for distribution to creditors. The decision will serve to promote finality and certainty for investors by limiting the circumstances (e.g.… Read more
U.S. capital market has long been an attractive destination to foreign companies. Cross-listing by foreign firms on U.S. exchanges has been associated with major benefits such as increase in value, easier access to external finance, and lower cost of capital. A recent deregulation by SEC in 2007, Rule 12h-6, may have significant impact on the benefits of cross-listing and the attractiveness of U.S. capital market to foreign firms. Our study explores the long-term consequences of this deregulation and its implication for U.S. capital market.
The main drivers of the benefits enjoyed by cross-listed foreign firms is a subject of passionate … Read more
The rise of shareholder activism has become a global phenomenon. Shareholder activists are not only present–as they started–in the US, but also in European and Asian Markets. This situation has generated a vast literature about the desirability (or not) of shareholder activism.  In essence, there are two main positions: (i) those who argue that shareholder activists improve the corporate governance of the firm, and therefore they help increase the value of the firm; and (ii) those who claim that shareholder activists only improve the value of the firm in the short-term, and they encourage managers to cut … Read more
One down, three to go: SEC rulemaking is heating up.
Last month, the Securities and Exchange Commission (SEC) finalized business conduct standards for security-based swap dealers (SBSDs). The completion of this rule by the SEC is significant because few security-based swap (SBS) rules have been finalized as compared to the numerous rules completed by the Commodity Futures Trading Commission (CFTC) that govern other types of swaps. These business conduct standards represent the first of four rulemakings that must be finalized before SBSDs will have to register with the SEC.
The SEC’s rule will impact how SBSDs communicate … Read more
Corporate directors inevitably must make real-time decisions on complex and nuanced matters that impact not only the company, but also the company’s various stakeholders—e.g., shareholders, creditors, and employees. The pressure cooker that often is the corporate boardroom is not for the faint of heart. The directors’ job becomes even more challenging when the company experiences a financial or operational setback. The divergence in interests among the company’ stakeholders intensifies, and there rarely is one clear path forward.
In theory, state law fiduciary duties should guide directors’ decisions in these difficult situations and protect the company’s and its shareholders’ interests. In … Read more
On Monday, LendingClub Corp., a leader in the growing online lending space, announced the surprise resignation of its founder and CEO, Renaud Laplanche. Laplanche resigned in response to a board investigation that revealed a number of internal control failures, including the sale of more than $20 million in loans that failed to conform to the requirements imposed by the acquiring investors and the doctoring of dates on loan applications to cover up noncompliance with respect to $3 million in loans sold. These developments triggered a massive decline in LendingClub’s stock price, but also contribute to a growing cacophony of questions … Read more
General partnerships are a puzzling form of business in the modern world. A well-established business form with a deep history and sophisticated uniform laws, the general partnership finds itself in a strange position today: Virtually nobody would be well advised to create one.
As a result, general partnerships come about mainly by accident. Indeed, probably the most often litigated question in general partnership law is simply whether one exists in the first place, with the putative organizers trying to claim that they didn’t in fact create one.
General partnerships are the only multi-person business organization that can arise accidentally … Read more
The corporate board is commonly seen as a crucial governance device that operates to both monitor corporate management and provide strategic advice. Recent corporate governance research has discovered a broad range of evidence of internal board monitoring and advisory activities; but relatively little on the impact of the board’s interactions and connections with different external agents on firm value and corporate decisions. Yet, board members are typically experienced and powerful businessmen, and well embedded in the center of important business and social networks. Does it matter?
Yes, substantially. In our recent paper “Directors as Connectors: The Impact of the External … Read more
The Supreme Court decided to consider the meaning of the personal benefit requirement in an insider trading case based on a tipping violation. It accepted review of the Ninth Circuit’s decision in United States v. Salman, which reached substantially different conclusions about the meaning of the personal benefit requirement than the Second Circuit did in United States v. Newman.
The personal benefit requirement is an essential element of a tipping violation. For tipping to occur, an insider must breach a duty of trust and confidence by disclosing material nonpublic information to another person, and the test … Read more