venderelst

A Plea for a Better Response to a Failed Say on Pay Vote

The 2010 Dodd-Frank Act provided shareholders of U.S. public corporations the right to vote on chief executive officers’ compensation, at least every three years. The so–called say on pay vote is advisory but was designed to curb overly generous executive pay packages.

Since 2011, the financial press, consultants and academic scholars have considered how shareholders make use of this right. According to the latest results of Semler Brossy[1], 93 percent of the Russell 3000 companies received say on pay support of more than 70% in 2016, and the failure rate dropped to 1.7 percent, the lowest level since … Read more

pesaran1

Oil Prices and the Global Economy: Is It Different This Time Around?

The positive correlation between oil prices and equity markets over the past few years has been discussed extensively in the media as well as by prominent economists, such as Bernanke and Obstfeld, and has brought into question the generally accepted view that lower oil prices are good for the U.S. and the global economy. However, in a recent study, we illustrate that there has been no stable relationship between real oil prices and equity returns over the last 71 years. Nevertheless, we argue that, as in previous episodes of falling oil prices, lower oil prices improve profit opportunities … Read more

Gibson Dunn explains the New EU-Wide Rules on Cybersecurity

On July 6, 2016, the European Parliament officially adopted the Network and Information Security (NIS) Directive[1] which is expected to fully enter into force in May 2018.  The NIS Directive is the first set of cybersecurity rules to be implemented on the EU level, adding to an already complex array of laws which companies have to comply with when implementing security and breach response plans.  The Directive aims to set a minimum level of cybersecurity standards and to streamline cooperation between EU Member States at a time of growing cybersecurity breaches.

The final text (which took the EU and … Read more

BGR1

Insider Trading Penalties: An International Study

Insider trading is a serious form of misconduct and can result in defendants receiving lengthy prison sentences and significant monetary sanctions.  Our working paper, ‘Sanctions Imposed for Insider Trading in Australia, Canada (Ontario), Hong Kong, Singapore, New Zealand, the United Kingdom and the United States: an Empirical Study’, provides a detailed analysis of the insider trading enforcement landscape across a range of common law jurisdictions over the seven year period from January 1, 2009 to December 31, 2015. In particular, our study examines custodial sentences, banning orders and pecuniary sanctions imposed for insider trading. The study is based on … Read more

Georges Ugeux

Culture and Conduct: Beyond Regulation and Compliance

“Culture, more than rule books, determines how an organization behaves.” – Warren Buffet[1]

In recent years, there have been ongoing occurrences of serious professional misbehavior, ethical lapses and compliance failures at financial institutions. It was the crisis that exposed systematic mentality errors in finance.[2]

The hope was that post-crisis regulatory reforms would tackle the typical mindset of short-term oriented self-enrichment in finance, considered as one of the origins of the financial crisis. Now, almost ten years after the crash in 2007, the lack of fundamental change raises the question whether there is an endemic issue within the financial … Read more

Latham & Watkins discusses the Iran Nuclear Agreement: Top 10 Observations

Six months have passed since the implementation of the nuclear agreement with Iran, officially known as the Joint Comprehensive Plan of Action (the Nuclear Agreement), and the related easing of certain trade and economic sanctions on Iran. As discussed below, some changes to US sanctions have yet to be fully implemented; US and non-US firms continue to face significant compliance challenges and enforcement risks; and international banks and financial institutions remain reluctant to finance business with Iran in the face of lingering legal, reputational and business risks.

1. Changes to US and EU Sanctions Upon Implementation of the Nuclear Read more

Barnali Choudhury

Promoting Social Goals with Corporate and Securities Law

Should governments be relying on corporate and securities law to promote humanitarian goals?  This is the question that naturally arises when viewing the SEC’s Conflict Minerals Payment Rule, which requires corporations to disclose their conflict mineral usage as a means of curtailing the violence in the Congo. Yet the US is not alone in its reliance on disclosure mechanisms in corporate or securities laws to promote non-economic goals. The Danish government uses disclosure to promote gender parity on boards of directors; France relies on it to curb greenhouse gas emissions, and India uses it as a method for curtailing energy … Read more

Tom C.W. Lin

Financial Weapons and Modern Warfare

A new type of warfare is upon us. In this new mode of war, finance is the most powerful weapon, bullets are not fired, financial institutions are the targets, and almost everyone is at risk.  Instead of smart bombs, improvised explosives, and unmanned drones –– economic sanctions, financial restrictions, and cyber programs are the weapons of choice. This is the new reality of modern financial warfare.

The armaments of modern financial warfare are as vast, diverse, and important as the myriad of ways to raise and move money. Broadly, the financial weapons of war can be divided into analog weapons … Read more

John Coffee, Headshot

Adventures in Corporate Governance: Guarding the Internet

Academics who profess expertise in corporate governance sometimes find themselves on very strange turf.  That has been my status for the last two years, serving as an adviser to the U.S. Commerce Department in connection with the Obama Administration’s efforts to “privatize” the Internet Corporation for Assigned Names and Numbers (“ICANN”).  ICANN is the non-profit entity that essentially manages the Internet’s domain name functions and oversees much of its internal plumbing.[1]  This privatization effort has now been challenged in Congress by Senator Ted Cruz and others, and political fireworks are likely.  But let’s start at the beginning.  In March … Read more

Qihao He

Regulation by Government-Sponsored Reinsurance in Catastrophe Management

Reinsurance can be understood as simply insurer’s insurance. Under an insurance contract, a policyholder is protected from loss by transferring risk to an insurer; analogously, under a reinsurance contract, an insurer (the cedent or ceding company) is protected from exposure by transferring risk to a reinsurer. Insurers have an increasing demand for more financial capacity when underwriting catastrophic risks. The Cologne Reinsurance Company was the first professional reinsurance company, founded in 1842 following a catastrophic fire in Hamburg the same year. For over a century, reinsurance has been the preferred vehicle to shed primary insurers’ catastrophe risk exposure. For example, … Read more

Shearman & Sterling discusses SEC’s Proposal to Revamp its Mining Disclosure Requirements

On June 16, 2016, the US Securities and Exchange Commission (“SEC”) issued a proposed rule (available here), which, if adopted, would result in a revamp of its disclosure requirements for mining company issuers. The proposed rule is intended to harmonize the SEC’s mining property disclosure requirements with current industry and global regulatory practices and standards. The SEC is seeking comments on all aspects of the proposal. Initial comments are due 60 days after the proposed rule is published in the Federal Register.

The key changes proposed for mining companies are:

  • requiring the disclosure of mineral resources (currently prohibited under

Read more

PwC discusses Preventing the Next $100 Million Bank Robbery

Attackers last February reportedly stole $81 million from the Bangladesh Central Bank by obtaining and exploiting the bank’s credentials for the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network.[1] The attack – one of the biggest bank robberies in history – exploited weaknesses in cyber, fraud, and possibly insider threat controls, illustrating the need for banks to combine financial crime risk areas that were previously either siloed, or at best tenuously connected.

Specifically, the attackers exploited cyber weaknesses by designing custom malware tailored to bypass controls and network logging systems used by the Bangladesh Central Bank. The attackers also … Read more

Clifford Chance discusses How to Leave the EU: The Key Article 50 Issues and UK Constitutional Questions

Much has been written and spoken in the immediate aftermath of the UK’s EU referendum about what the UK must do to leave the EU. We look at the key questions in this area, such as whether the UK has yet decided to withdraw, what it must do to withdraw, whether it can change its mind, and the position of Scotland.

What is the mechanism for leaving the EU?

The mechanism for the UK’s leaving the EU is set out in article 50 of the Treaty on European Union (see Box 1, overleaf).  For withdrawal, article 50 requires:

  • A decision

Read more

Dean_marriage

The Oil Price Crash in 2014/15: Was There a (Negative) Financial Bubble?

The Brent and WTI prices of crude oil fell by 60% between June 2014 and January 2015, marking one of the fastest and largest declines in oil history. Several potential factors (related to oil supply and demand) which could have influenced this oil price decline were discussed in an extensive World Bank policy research note by Baffes, Kose, Ohnsorge, and Stocker (2015). However, Tokic (2015) and a Bank of International Settlements report (Domanski, Kearns, Lombardi, and Shin, 2015) showed that production and consumption alone are not sufficient for a fully satisfactory explanation of the collapse in oil prices. Particularly, Domanski, … Read more

PwC explains Brexit: Five Key Points

The UK voters’ decision to exit the EU came as a surprise to many observers, as well as the markets, with the “Leave” campaign even hinting at defeat as the polls closed. The Wall Street echo chamber view that it would make no sense in the end for the UK to leave was just that. The vote has unleashed political, economic, and financial uncertainty that will play out over the months ahead with attendant risk premia rising for affected currencies, equity and fixed income markets, sectors, and individual firms. Market values for banks, insurance companies, and asset managers dropped Friday … Read more

Craig Eastland

IRS Rules Fail to Curb Expatriation, Administration Tries Indifference

Corporate expatriations – transactions that lead a U.S. company to become the subsidiary of a foreign parent – present two problems for the U.S. Internal Revenue Service (I.R.S.). First, they give expatriated companies the opportunity to use tax minimization strategies to avoid taxes; second, they erode the U.S. corporate tax base. Though both actions are driven by idiosyncrasies in U.S. tax treatment of foreign income, they spring from different motivations, and lead to different kinds of harm. Tax minimization involves exploiting differences in national tax laws to shield income from arguably legitimate U.S. tax obligations, while tax base erosion involves … Read more

Marandola and Mossucca

When Did the Stock Market Start to React Less to Downgrades by Moody’s, S&P and Fitch?

Moody’s, S&P and Fitch represent an oligopoly in the credit rating business, accounting for 94 percent of the global market (Candelon et al., 2014) and for about 96.5 percent of all the outstanding ratings in U.S.[1] The three agencies are key players in financial markets as they assess the credit worthiness of almost any debt issuer including governments, firms, municipalities and financial institutions. Moody’s, S&P and Fitch heavily affect corporate financing through ratings assigned to corporate debt. The economic literature has shown that bond ratings are strongly correlated with private bond yields (Hand et al., 1992; Hite and Warga, … Read more

Gogineni and Puthenpurackal

The Impact of Go-Shop Provisions in Merger Agreements

Target firms typically employ either an auction or a negotiation method during merger negotiations. In auction deals, the pre-public takeover process involves contacting several potential bidders, signing confidentiality/standstill agreements and accepting private bids. In negotiation deals however, the target engages with only one bidder in the pre-public takeover process. Using either selling method, the target board negotiates with the bidder(s) and if an acceptable price is obtained from a bidder, a definitive merger agreement is signed and a public announcement is made. Typically, after the public announcement of a merger agreement, target boards do not actively solicit new bids although … Read more

Margaret Thornton

Contemporary Legal Education and the Transformation of Private Legal Practice

There has been tension between the legal academy and the practising profession ever since law was first taught in university law schools in the 19th century. The sense of unease arose because of uncertainty as to whether the primary role of a law school was to train lawyers for practice or to ensure that law was accepted as an independent scholarly discipline appropriate for a university, like history or philosophy. Universities feared that law schools might turn out to be mere trade schools while practitioners feared that an exclusive focus on liberal education would fail to produce skilled practitioners.… Read more

Long Live the Editor

After the July 4th weekend, Reynolds Holding will be taking over as the fourth editor-at-large of the CLS Blue Sky Blog.  It has been a remarkable year and a half, and I am confident our Blog will continue to grow in the coming years.  I am grateful to the faculty committee (Professors Jack Coffee, Ed Greene, Robert Jackson and Kate Judge), the student editors (Jennifer Barrows, AJ Farkas and John Knight) as well as Columbia Law School for providing opportunity and support.  I intend to continue writing as time allows and invite you to visit my webpage.  I believe … Read more