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Davis Polk Discusses Delaware Chancery Decision Denying Corwin Cleansing for Defensive Measure

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The recent In re Edgio, Inc. Stockholders Litigation decision highlighted concerns when a public company involved in a business combination adopts defensive measures that would continue for a significant period of time post-closing. The court declined to apply Corwin cleansing …

Mythical Adverse Effect

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The material adverse effect (“MAE”) definition in mergers and acquisitions agreements is one of the most intensely negotiated, litigated, and studied contract provisions ever. It has nearly tripled in average length over the past two decades, as lawyers haggle over …

Sullivan & Cromwell Discusses CFPB Policy Statement on Abusive Conduct

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On April 3, 2023, the Consumer Financial Protection Bureau (“CFPB”) issued a policy statement regarding what constitutes an “abusive” act or practice (the “Policy Statement”).[1] The Policy Statement outlines the CFPB’s approach to analyzing whether an act or practice …

The Corporate Governance Cartel

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In recent years, major institutional investors in the U.S. have combined their efforts on environmental, social, and governance (“ESG”) matters. Large institutional investors now vote in lockstep on a variety of corporate issues, jointly lead governance initiatives, and often adopt …

Sullivan & Cromwell Discusses ESG Considerations for Financial Institutions in 2023

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As U.S. financial institutions assess their ESG risks, opportunities, policies and procedures for 2023, key considerations include the numerous significant ESG developments in 2022—in particular, recent proposals and initiatives announced by financial regulators with respect to climate-related risk management and …

When Will Investors Vote for Socially Beneficial but Costly ESG Policies?  

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Investors are increasingly interested in whether firms implement environmental, social, and governance (ESG) policies that, for example, reduce the firms’ carbon footprints, diversify their workplaces, or better protect customers’ private information. Some socially beneficial policies (e.g., improving energy-efficiency) may also …

Kirkland & Ellis Discusses Final Labor Department Regulations on ERISA Fiduciaries and ESG

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In recent years, few topics within the U.S. Department of Labor’s (the “DOL”) purview have garnered as much interest as the potential consideration of environmental, social and governance (“ESG”) factors by fiduciaries of plans subject to the U.S. Employee Retirement …

Wachtell Lipton Discusses ESG and Stakeholder Governance Within the Framework of Fiduciary Duties

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Over the past decade, investors, companies, and commentators have increasingly accepted and adopted stakeholder governance as the way to pursue the proper purpose of the corporation and have embraced consideration of environmental, social and governance (ESG) issues in corporate decision-making …

Fraud on the Crypto Market

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Investors now routinely turn to crypto asset trading for portfolio appreciation and diversification, but significant investor protection concerns loom. Between 2017 and 2019, thousands of crypto assets were offered to the public and others through initial coin offerings. Many of …

Skadden Discusses First OFAC and FinCEN Parallel Enforcement Actions on Virtual Currency

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On October 11, 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN) announced settlements for approximately $24 million and $29 million, respectively, with virtual currency exchange Bittrex, Inc. (Bittrex). …

Debevoise & Plimpton Discusses the EU AI Liability Directive’s Impact on Artificial Intelligence Legal Risks

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On September 28, 2022, the European Commission released a proposal to change the legal landscape for companies developing and implementing artificial intelligence in EU Member States. This AI Liability Directive would require Member States to implement rules that would significantly …

Skadden Discusses Final FinCEN Rule on Beneficial Ownership Reporting

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On September 29, 2022, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a long-awaited final rule implementing the beneficial ownership information (BOI) reporting requirements of the Corporate Transparency Act (CTA). The final rule adopted much of FinCEN’s December …

Debevoise & Plimpton Discusses Executive Order Paving Way for New EU-U.S. Data Transfer Framework

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On October 7, 2022, U.S. President Biden signed Executive Order 14086 on Enhancing Safeguards for United States Signals Intelligence Activities (the “Order”). The administrative Order creates new protections applicable to cross-border data sharing through a phased implementation process and is …

Davis Polk Discusses Three Recent Court Losses Signaling Challenges for Antitrust Enforcement

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Under the Biden administration, the U.S. antitrust agencies are taking an aggressive approach to merger enforcement, and have outlined strategies that move away from historical merger review tools in favor of more enforcement-friendly standards. But recent court decisions have tested …

What Is Stock Market Short-Termism?

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What is stock market short-termism? It’s important to know the boundaries between stock market short-termism and other economic ills, because in public discourse many social and economic woes are mistakenly attributed to stock market myopia. But when we mistakenly categorize …

The War on Business

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Nations and businesses often compete and clash. But the war on business has escalated in  recent years as nation-states and non-state actors target specific businesses with sanctions and recriminations and new intensity and methods. The many legal, economic, and social …

Davis Polk Discusses Biden’s Executive Order on Competition, One Year Later

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Since President Biden issued his July 2021 Executive Order on Competition, the antitrust agencies have made broad policy statements promising more aggressive enforcement and have initiated a number of high-profile enforcement actions.  Rather than establishing a record of success, the …

Corporate Governance and International Law

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Why should corporate managers comply with international law?  International agreements, customary international law, and non-binding recommendations are sources of norms that, if adopted, could address many of the harms that corporations create for society and the planet.

Corporations are increasingly …

The Interplay Between Private Meetings with Investors and Subsequent Earnings Announcements

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Since the passage of Regulation Fair Disclosure, managers have increasingly met privately with investors. During these meetings, investors gather useful information by seeking managers’ feedback, pursuing a deeper understanding of publicly available information, and inquiring about company strategy. That information …

Sullivan & Cromwell Discusses EU’s Corporate Sustainability Reporting Requirements

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European Union leaders have reached a provisional political agreement on a revised Corporate Sustainability Reporting Directive (“CSRD”) that would introduce more detailed sustainability reporting requirements for all “large” EU companies and companies with securities (including low denomination debt …

The Corporation as Trinity

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In Adolf Berle’s famous 1954 essay, “Corporate Capitalism and The City of God,” certain passages that once seemed musty and redolent of a bygone era are now eerily timely. Like current critics, Berle chides corporate leaders who think they …

Skadden Discusses Senate Bill to Create Regulatory Structure for Crypto and Other Digital Assets

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In recent years, innovation in the blockchain or “Web3” space has been impacted by uncertainty on the regulatory front. Undoubtedly, the greatest area of uncertainty has involved the Securities Exchange Commission (SEC) and its application of the so-called Howey test …

How Accounting Employees’ Incentives Affect Financial Reporting Quality

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An extensive body of literature that spans accounting, corporate finance, management, and other adjacent disciplines examines the relationship between senior executives’ contractual incentives (e.g., bonus plans, stock and option holdings) and various properties of their firms’ financial reporting and disclosures. …

Wachtell Lipton Discusses Emerging Issues in Decentralized Governance and the Lessons of Corporate Governance

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While recent gyrations in cryptoasset markets have focused attention on the future contours of stablecoins, market-making, and impending regulation, another feature of the blockchain landscape is also confronting noteworthy challenges.  Specifically, a new breed of business organization has emerged …

Decentralized Finance, Crypto Funds, and Value Creation in Tokenized Firms

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Decentralized Finance (DeFi) employs blockchain technology and smart contracts with the goal of enabling perfectly disintermediated financial markets. Despite the far-reaching ambition, DeFi markets are experiencing increasing intermediation recently, as a new type of intermediary, so-called Crypto Funds (henceforth, CFs), …

Meme Investors and Retail Risk

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Dramatic trading in GameStop, AMC, and other “meme stocks” has reignited debates about the efficiency of the stock market, its purposes, and whose interests it should serve. The changing role of retail investors and meme investors, a subset of retail …

Purpose Proposals 

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The shareholder proposal has long been an effective tool for shareholders to bring emerging corporate governance issues to the attention of a company’s board of directors, its managers, and their fellow shareholders. Over time, shareholder proposals have driven a variety …

How Disclosure and Information Intermediaries Strengthen the Credibility of Initial Coin Offerings

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The crypto-tokens market has recently emerged as an alternative source of financing for entrepreneurial ventures, with approximately $27 billion raised globally through March 2022.[1] These ventures issue blockchain-based digital “crypto-tokens” to raise external capital through an initial coin offering …

Sullivan & Cromwell Discusses the Implications for Financial Institutions of Proposed SEC Climate Disclosure Rules

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On March 21, 2022, the Securities and Exchange Commission proposed, in a 510-page release, climate-related disclosure rules for public companies. Although the proposed rules do not impose industry-specific requirements, in certain areas they would have a particularly significantly impact …

Moonshots

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In the last half-century, technological progress has stagnated. The century from 1870 to 1970 brought electricity, running water, telephones, television, automobiles, and airplanes. Life expectancy at birth rose from 45 to 72. But since the early 1970s, progress has been …

Arnold & Porter Discusses Today’s SEC Examination Priorities, Tomorrow’s SEC Enforcement Actions

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Rounding out a series of quarter-end announcements from the US Securities and Exchange Commission (SEC), the Division of Examinations (Exams) announced its 2022 examination priorities on March 30, 2022. These priorities reflect SEC Chair Gary Gensler’s stated view that the …

Sullivan & Cromwell Discusses SEC’s Proposed New Cybersecurity Risk-Management Rules for Investment Advisers and Firms

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On February 9, 2022, the Securities and Exchange Commission (the “SEC”) voted 3 to 1 (Commissioner Peirce dissenting[1]) to propose cybersecurity risk management rules and amendments for registered investment advisers, registered investment companies and business development companies (the …

Reviving Bank Antitrust

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Antitrust is back. The Chicago School relegated antitrust policy to obscurity during the latter half of the 20th century, but a new cohort of antimonopoly scholars has recently rekindled concerns about industrial consolidation and corporate “bigness.” This antitrust revival …

Sullivan & Cromwell Discusses Reopened Comment Period for SEC’s Pay-Versus-Performance Disclosure Rule

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On January 27, 2022, the U.S. Securities and Exchange Commission (the “SEC”) reopened a 30-day comment period (beginning today) on proposed rules requiring registrants to disclose how executive compensation actually paid by a registrant relates to the financial performance of …

Sullivan & Cromwell Discusses Dashed Efforts to Make New York a Hub for Non-U.S. Derivative Litigation

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In the last week of December, the Commercial Division of the New York Supreme Court dismissed two shareholder derivative actions brought against directors and officers of large European companies in decisions with critical implications for non-U.S. companies’ exposure to fiduciary …

Skadden Discusses SEC’s Final Amendments Under Holding Foreign Companies Accountable Act

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On December 2, 2021, the U.S. Securities and Exchange Commission (SEC) adopted final amendments implementing the disclosure and submission requirements of the Holding Foreign Companies Accountable Act (HFCA Act). In addition, the adopting release establishes the SEC’s procedures for (i) …

Plus Factors in Price-Fixing Litigation

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Antitrust plaintiffs typically rely on circumstantial evidence when pursuing price-fixing claims, because price-fixing conspirators usually conceal their collusion through code names, secret meetings, cover stories, and falsified documents. Antitrust law uses a two-step process for proving price-fixing agreements through circumstantial …

Debevoise & Plimpton Discusses Federal Regulators’ Focus on AI and Consumer Protection in Finance

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As financial institutions increasingly deploy artificial intelligence (“AI”), including machine learning and automated decision-making technologies, across their business lines, U.S. federal regulators have started to scrutinize the consumer protection implications of these technologies. Most recently, the Department of Justice (“DOJ”), …

Wachtell Lipton Discusses SEC Staff’s Move to Limit Exclusion of “Social Policy” Shareholder Proposals

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The SEC Staff has issued revised guidance rescinding prior Staff Legal Bulletins addressing the exclusion of Rule 14a-8 shareholder proposals based on the social significance to a company, “micromanagement” or  “economic relevance.”  The changes will likely facilitate a larger number …

Davis Polk Discusses Financial Action Task Force’s New Guidance for Virtual Assets

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The Financial Action Task Force (FATF), the inter-governmental body that recommends international standards for anti-money laundering (AML) and countering the financing of terrorism (CFT), released an updated version of its guidance on the application of FATF’s recommendations to virtual assets …

Sullivan & Cromwell Discusses White House Roadmap to Address Climate-Related Financial Risk

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On October 14, 2021, the White House issued a report entitled “A Roadmap to Build a Climate-resilient Economy.”[1]  The 40-page report was mandated by President Biden’s May 2021 executive order on “Climate-Related Financial Risk” (the “EO”)[2] and presents …

Capitalism, Heal Thyself

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A paradigm shift is underway: The corporation – much reviled as a cost-externalizing, short-termist, inward-focused, politically manipulative machine – is undergoing a fundamental change. This is good news. Corporations are beginning to confront the harm they created, allowing capitalism to …

Sullivan & Cromwell Discusses SEC Proposal to Enhance Proxy Voting Disclosure by Investment Funds

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On September 29, 2021, the SEC issued a proposed rulemaking to enhance the information mutual funds, exchange-traded funds and other registered management investment companies (“funds”) report annually about their proxy votes.  The proposal also would require so-called “institutional investment managers” …

Unicorniphobia

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Once upon a time, a successful startup that reached a certain maturity would “go public” – selling securities to ordinary investors, perhaps listing on a national stock exchange, and taking on the privileges and obligations of a public company under …

Disclosure Procedure

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Each year, U.S. public companies spend millions of people-hours producing the securities disclosures that undergird public capital markets. But relatively little is known about how firms produce such consequential information, including whether they are spending too much, too little, or …

Who’s Looking Out for the Banks?

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Two decades ago, Congress repealed the Glass-Steagall Act’s Depression-era separation between commercial banking and other financial activities, paving the way for bank holding companies (BHCs) to expand into investment banking and insurance.  At the time, some critics – most notably, …

Comparative Corporate Governance

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With the increasing internationalization of law and legal scholarship, comparative corporate governance has seen a burgeoning volume of research from a practical, theoretical, and empirical perspective. Practically speaking, both internationally and within individual countries, most corporate governance research deals with …

Debevoise & Plimpton Discusses European Commission’s Views on Sustainable Finance Disclosures Regulation

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The European Commission (the “Commission”) recently issued long-awaited answers to questions raised by the European Supervisory Authorities earlier this year on the Regulation on Sustainability-related Disclosures in the Financial Sector (“SFDR”). This Update covers answers to questions that relate to …

Capital Discrimination

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In 2014, Diane Straka, along with three male associates, formed a corporation for the purpose of providing accounting services.  Each of the founders was an officer, director, and 25 percent shareholder of the new entity.  A problem soon emerged: One …

Do Lawyers Make Good Gatekeepers?

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Do lawyers report evidence of material violations up-the-ladder at the companies they represent, as the Sarbanes-Oxley Act and related regulations require? Have general counsel properly  investigated those reports? Can we trust lawyers to be effective gatekeepers and stop corporate misconduct? …

Law Enforcement’s Lochner

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When we contemplate the numerous challenges regulators and prosecutors face in identifying and redressing corporate and white-collar crime, constitutional criminal procedure is not usually high on the list. If anything, the constitutional doctrines that apply to the government’s interactions with …

Is Everything Securities Fraud?

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Securities litigation is almost inevitable for any public company.  Often, investors sue because the firm’s managers engaged in fraud that directly harmed the shareholders – say, by doctoring the firm’s financials or lying about known business prospects.  However, shareholders also …

Debt, Control, and Collusion

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The new wave of financial economics empirical scholarship has revitalized what had been theoretical discussions about the effects of common ownership in both economics and law.  Common ownership within the same industry by mutual funds may create incentives for those …

Contractual Stakeholderism

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Individually or collectively, corporate leaders are promising stakeholders to improve corporate practices on a range of issues. In a new article, I argue that they can demonstrate their commitment to stakeholders by designing contracts differently.

We are already attentive to …

Taming Unicorns

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Until the last decade, most startups that grew to become valuable businesses chose to go public. Late-stage startups with reported valuations over $1 billion used to be so rare that venture capitalist Aileen Lee called them “unicorns.” When she coined …

Ownership Piercing

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In a new article, I build upon the paradox of ownership. My central thesis is that those who own are not always in control; therefore, those who control should be held accountable like the owners would if they were …

Shearman & Sterling Discusses Financial Regulators’ Request on How Firms Use AI

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On March 29, the Federal Reserve Board, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the National Credit Union Administration (the “Federal Agencies”) issued a request for information (“RFI”) …

The Shareholder in France and the U.S.: Comparing Corporate Legal Priorities

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The fundamental question in the law of business organizations – what is the purpose of the corporation? – contains a related question of constituencies and, therefore, priorities among them: Whom does the corporation serve?  If, for example, the purpose that …

Prosocial Antitrust

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Recent developments have placed antitrust law on a collision course with corporate purpose. In a new paper, I reveal the unforeseen negative impacts of this conflict and provide a roadmap for avoiding them.

Businesses and investors are increasingly embracing …

ESG Incidents and Shareholder Value

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Corporations increasingly integrate environmental, social, and governance (ESG) issues into their business practices and signal this by committing to sustainability initiatives, such as the UN Global Compact or the 2019 Business Roundtable Statement on the Purpose of a Corporation. This …

Market Myopia’s Climate Bubble

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A growing number of financial institutions, from BlackRock to the Bank of England, have reached the conclusion that markets are not accurately assessing climate change-related risks. European Central Bank President Christine Lagarde recently warned that central bankers “will have to …

Corporate Venture Capital

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Why are venture capitalists the winners in the startup funding game?  VCs have funded most of the big-name startups that now dominate the NASDAQ and, in a sense, have been the only game in town for high-growth startups needing millions …

Sullivan & Cromwell Discusses Bill to Strengthen Regulators’ Power to Block Mergers

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On February 4, 2021, Senator Amy Klobuchar, chair of the Antitrust Subcommittee of the Senate Judiciary Committee, introduced a bill entitled “The Competition and Antitrust Law Enforcement Reform Act” (the “Bill”).  If enacted, the Bill would fundamentally revise longstanding U.S. …

Cleary Gottlieb Discusses New EU ESG Disclosure Obligations for Financial Services Firms

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Over a year ago, on December 29, 2019, Regulation (EU) 2019/2088 on sustainability-related disclosures for the financial services sector (the “Sustainable Finance Disclosure Regulation”, or “SFDR”) entered into force. Just a few months remain before key …

Domesticating Foreign Finance

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Barclays, Credit Suisse, Deutsche Bank, UBS, and other foreign banks played an outsized role in the 2008 financial crisis that cost U.S. households trillions of dollars of wealth. As credit markets froze, foreign banks’ U.S. offices experienced extreme stress and …

Passive Exit

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Economist Albert O. Hirschman (1970) classically set out the two alternatives facing dissatisfied members of an organization: They can voice displeasure or exit for greener pastures. Hirschman’s model has long explained the tradeoff facing shareholders of a poorly governed firm: …

Paul Weiss Discusses SEC Proposal to Permit Offering Gig Workers Equity Compensation

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The SEC has proposed amendments that would permit, for a temporary five-year trial period, companies to offer equity compensation to “platform workers” (gig economy workers who provide services by means of an internet or other technology based marketplace platform) under …

Skadden Discusses the Intersection of Sustainability Agreements and Antitrust Laws in the EU

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Sustainability issues are increasingly high on the list of competition policy priorities both at the European Union and member state levels. The European Commission (EC) and national competition authorities are actively rethinking how competition policy can better support the transition …

Wachtell Lipton Discusses Workplace Wellness and Employee Mental Health As Investor Engagement Priorities

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With the prospect of global vaccines on the horizon, companies worldwide continue to address the challenges of pandemic management and recovery on their businesses, the communities and constituencies they serve and especially on their employees.  As companies seek to prioritize …

Latham & Watkins Discusses IBOR Fallbacks Protocol and Supplement from ISDA

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On October 23, 2020, the International Swaps and Derivatives Association, Inc. (ISDA) published its IBOR Fallbacks Protocol (Protocol) and Supplement to the 2006 ISDA Definitions (Supplement) in anticipation of the expected discontinuation of the London Interbank Offered Rate (LIBOR) at …

Banking Bailout Law

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Bank bailouts during periodic financial crises aim to stop financial panic and restore the stability of the financial system. Even if they are undesirable, future bank bailouts are unavoidable due to political and political economy reasons, whether or not they …