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Cleary Gottlieb Discusses the SEC’s Disclosure Agenda and Corporate Governance

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In 2022, public companies witnessed a new kind of corporate governance activism. New rules and regulations from the Securities and Exchange Commission (the SEC) use the lever of mandated disclosure to push for corporate governance actions, and in some cases what amounts to reforms. The SEC’s broad foray into governance represents an expansion of historically more limited SEC rules in the governance space, mostly focused on audit committee and auditor independence and more general disclosure of board structures and oversight. Many commentors note that investors were well able to push companies historically for disclosure on governance matters and that the … Read more

Davis Polk Discusses Revised Thresholds and Filing Fees under Hart-Scott-Rodino Act

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The Federal Trade Commission (FTC) has announced revised Hart-Scott-Rodino Act (HSR) reporting thresholds and filing fee amounts, up to a $2.25 million fee for the largest deals. Under the new thresholds, a transaction is reportable if, due to the transaction, the acquiring person will hold voting securities, assets, or non-corporate interests valued over $111.4 million. These changes will apply to all transactions that close on or after the effective date, which is expected to be February 23.

The exact effective date for these updated reporting thresholds and filing fee amounts will depend on when the changes are published in the … Read more

John C. Coffee, Jr.: The Blaszczak Bombshell and What It Will Mean

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United States v. Blaszczak[1] has long been a one-off case that did not fit the mold of the traditional insider trading prosecution, but now — following a 2-1 decision of the Second Circuit in December, reversing most of the convictions in the case — it may destabilize the law on insider trading for some time to come. Such reversals are rare, and Blaszczak has multiple implications, some ominous and some ironic.

At the outset, it must be understood that Blaszczak was distinctive in two important respects:

First, it involved the leaking of confidential information by gossipy government bureaucrats to … Read more

SEC Issues Strategic Plan for Fiscal Years 2022-2026

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Our Goals

Protecting the Investing Public; Maintaining a Robust, Relevant Regulatory Framework; Supporting a Skilled and Diverse Workforce

The United States has the largest, most sophisticated, and most innovative capital markets in the world. U.S. capital markets represent about 40 percent of the global capital market. Companies and investors access the U.S. capital markets at a higher rate than do market participants in other economies with their respective markets. For example, debt capital markets account for 80 percent of financing for non-financial corporations in the United States. By contrast, outside the United States, nearly 80 percent of lending to such

… Read more

Sustainability, Asset Redeployability, and Board Gender Diversity

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A vital yet surprisingly overlooked aspect of corporate sustainability is asset redeployability. Redeployable assets are those that can be used in several ways. Assets with high redeployability promote sustainability because they can be re-assigned for various purposes as circumstances change, reducing the need to create new assets and thereby conserving natural resources. This is akin to recycling.

In a new paper, we investigate how the gender of corporate board members affects their views of asset redeployability. Many shareholder activists and institutional investors believe that more gender diversity on the boards promotes sustainability. As a result, our research connects two critical … Read more

Cadwalader Discusses New SEC Rule 10b5-1 Trading Plan Rules

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On December 14, 2022, the U.S. Securities and Exchange Commission (“SEC”) unanimously adopted final rules adding new conditions applicable to Rule 10b5-1 trading plans and requiring disclosure of the adoption, modification or termination of Rule 10b5-1 trading plans by directors and officers of public companies.  In addition, the new rules require disclosure of option grant practices and insider trading policies and procedures of public companies and amend disclosure requirements for option grants to named executive officers close in time to an issuer’s disclosure of material nonpublic information.  Finally, the new rules amend Forms 4 and 5 to require reporting persons … Read more

How Weakening the Fiduciary Duty of Loyalty Affects Corporate Culture

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Corporate culture binds employees together and directs their collective behavior at work. It also has an important impact on the success of organizations. Studying the determinants of corporate culture has been difficult, however, because of its unobservable nature. In a recent working paper, we investigate how the fiduciary duty of loyalty affects corporate culture in the U.S by using quantitative measures that Li et al. (2021) have developed with machine learning techniques. Our paper offers insights into the long-standing agency cost problem and the intra-firm balance between principles and freedom.

A fundamental tenet of corporate law, the fiduciary duty of … Read more

Davis Polk Discusses SEC Package of Equity Market Structure Proposals

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The SEC recently proposed a set of sweeping equity market structure reforms across four rule proposals that would make highly significant changes to how national market system (NMS) stock orders are priced, executed and reported.  The proposals include:

  • a new requirement for certain retail orders to be subject to order-by-order competition, rather than being routed directly to market makers (the Order Competition Rule);
  • an SEC-level best execution rule (the Proposed Regulation Best Ex);
  • an adjustment to the tick sizes at which NMS stocks can be quoted or traded (the Tick Sizes Proposal); and
  • a proposal to expand the scope and

… Read more

Rethinking Cautions Accompanying Investment Predictions

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We are constantly bombarded with warnings about dangers to our health or wellbeing. Sometimes, however, the warnings might facilitate the danger. In a new article, I show how the cautionary statements that commonly accompany predictions of corporate performance fall into this camp.

The judicially created “bespeaks caution doctrine”[1] and a highly controversial provision in the Private Securities Litigation Reform Act (PSLRA)[2] enable speakers to avoid liability for failed predictions regarding corporate performance through cautions that accompany the predictions. Unfortunately, the cautions in court decisions applying these defenses constitute misdirection which, if anything, facilitates securities fraud.

To understand why, … Read more

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 disclosures—and overarching regulatory, political, investor and litigation trends. This memorandum summarizes several ESG considerations that are expected to be particularly relevant.

SIGNIFICANT LEGAL AND REGULATORY DEVELOPMENTS IN 2022

SEC’s proposed climate-related disclosure rules:  On March 21, 2022, the Securities and Exchange Commission proposed expansive climate-related disclosure requirements in a proposing release that, if adopted, would require U.S. public companies and … Read more

A Pressing Topic for the Corporate Social Voice

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The frightening deficiencies in U.S. public health preparedness are an appropriate, and pressing, topic to be addressed by the recently dormant corporate social voice.

One of the central tenets of the corporate social responsibility movement is a broader perspective on corporate purpose, focusing on the interests of all organizational stakeholders – including shareholders, employees, communities, suppliers, and customers. These stakeholders are increasingly challenging corporations to address sensitive social and political issues, particularly when they perceive government as unwilling or unable to do so.

And, over the last several years, portions of the business community have responded to this challenge, … Read more

Chief of DOJ’s Criminal Division Announces Revisions to Corporate Enforcement Policy

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Professor O’Sullivan, thank you for that kind introduction. It’s a pleasure to be here with you all today [January 17] at Georgetown. Not only am I an alum of the Law Center, I’m an alum of this building, Gewirz Residence Hall.

Much has changed since I was a student here. There was no International Law Building, no Ginsburg Fitness Center, no courtyard.

But the ethos of the school has always been about providing a world-class legal education to individuals hailing from diverse backgrounds, perspectives, and careers. The Law Center accurately describes itself as “the place where theory meets practice, where

… Read more

Why Passive Investors Care About Audit Quality

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In recent decades, the rise of index funds (or passive investors), has caused heated debates over the efficacy of their stewardship role in corporate governance. Passive owners cannot influence the governance of a firm by selling its stock because the index composition determines whether the stock is in the fund. This  may increase passive investors’s incentives to monitor, vote  with their shares, and engage behind the scenes with companies. On the other hand, some scholars and commentators have questioned whether index funds deliver on their promises because stewardship seems too expensive for low-cost, low-overhead index funds.

In a recent study, … Read more

Paul Weiss Discusses the State of Antitrust Enforcement at the Beginning of 2023

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2022 was an active year for the U.S. federal antitrust enforcement agencies. There were important developments in all key areas of the agencies’ remit, from merger enforcement to civil conduct cases to criminal prosecutions. 2023 may prove to be one of the most consequential for antitrust enforcement in the Biden administration, with the anticipated release of new merger guidelines and several cases set for trial.

Mergers

The Antitrust Division of the U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC) are soon set to release draft revised merger guidelines. These new guidelines would replace the agencies’ Horizontal Merger … Read more

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 improve shareholder wealth or would do so with appropriate government actions (e.g., given a carbon tax). However, political realities, and the exhaustion of opportunities that are not costly to the firm, will increasingly present firms with a social dilemma: whether to adopt a policy that benefits society but does not benefit the firm enough to cover its cost. For example, … Read more

Wachtell Lipton Discusses Antitrust and ESG

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As boards continue to evaluate how environmental, social and governance (“ESG”) considerations factor into corporate operations, some lawmakers and regulators have raised potential antitrust concerns about coordinated efforts.  For example, several U.S. Senators sent letters to law firms admonishing them to advise clients of increased congressional scrutiny of “institutionalized antitrust violations being committed in the name of ESG.”  And, a group of state attorneys general inquired whether an investor-driven initiative on climate risks called Climate Action 100+ implicates antitrust laws.  FTC Chair Lina Khan opined last month in The Wall Street Journal that ESG benefits are no defense for otherwise … Read more

Market Practices and the Awareness/Use Problem in Insider Trading Law

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In a new article, I respond to an article by Professor Andrew Verstein concerning the awareness/use problem in insider-trading law. As many readers know, this problem arises because, although Rule 10b-5 prohibits persons bound by a duty of confidentiality from trading securities on the basis of material, non-public information (“MNPI”), it is unclear just what it means to trade on the basis of such information. Do you violate the rule if you trade merely while you are aware of MNPI, even though that MNPI played no causal role in your decision to trade (i.e., the awareness rule)? Or does a … Read more

Simpson Thacher Discusses Second Circuit Decision Curtailing Title 18 Insider Trading Liability

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On December 29, 2022, the Second Circuit issued its highly anticipated opinion on remand in United States v. Blaszczak (“Blaszczak II”), reconsidering the case following the Supreme Court’s January 2021 vacatur of the Second Circuit’s original decision upholding multi-count convictions of defendants for, at bottom, illegally trading on material non-public information misappropriated from the government. In two respects, the decision represents a challenge to the government’s ability to make use of a recent—though largely untested—fraud statute in order to avoid the elements of traditional insider trading in criminal cases. First, the decision makes it difficult in some cases … Read more

A Better Way to Manage Corporate Political Activism

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Corporate political activism (CPA) is defined as activities that are visible to stakeholders and that support or oppose issues viewed as politically charged. Social media and press accounts suggest a growing desire among consumers, employees, and shareholders for companies to engage in  CPA.. The reality is that most people are not politically active and perceive most brands as apolitical and in the middle.

Contrary to the accepted narrative, evidence from peer-reviewed, academic research shows that CPA does not help – but can harm – companies on many fronts. Specifically, CPA can harm a company’s brand equity, employee productivity, and financial … Read more

Making Audit Committee Disclosure More Transparent Requires Investor Feedback

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The role of the audit committee in a company’s board of directors has changed significantly since the passage of the Sarbanes-Oxley Act of 2002 (SOX). Traditionally, audit committees have overseen the company’s independent auditor, the internal audit function, and other financial reporting-related functions. More recently, many audit committees have taken on additional oversight responsibilities, such as overseeing enterprise risk management (ERM), environmental, social and governance (ESG) reporting, and cybersecurity.

Since these additional responsibilities are not explicitly required by SOX or the Securities and Exchange Commission (SEC) and are not assigned uniformly in all boards, stakeholders must rely on boards … Read more

SEC Commissioners Dissent to Charges Against McDonald’s for Flawed Disclosure of CEO Firing

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We are unable to support the charges against McDonald’s Corporation (“McDonald’s”) for failing to disclose sufficient information regarding the termination of its former CEO, Stephen Easterbrook, in its 2020 proxy statement.  The Order[1] casts McDonald’s, the victim of Mr. Easterbrook’s deception, as a securities law violator through a novel interpretation of the Commission’s expansive executive compensation disclosure requirements.

The Commission’s Order finds, among other things, that McDonald’s violated Section 14(a) of the Securities Exchange Act of 1934 and Rule 14a-3 thereunder because the company failed to provide the disclosure required by Item 402(b) and (j)(5) of Regulation S-K.  Item … Read more

Economic and Normative Implications of Algorithmic Credit Scoring

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Commercial use of artificial intelligence (AI) is accelerating and transforming nearly every economic, social, and political domain. Yet, academic commentary on algorithmic decision-making in financial services has warned that historical data could result in biased algorithmic tools.[1] Bias, among other risks, is an essential consideration. However, there is a gap in recent literature on the potential optimal outcomes if risks are mitigated. Algorithmic credit scoring can significantly improve banks’ assessment of consumers and credit risk, especially for previously marginalized consumers. It is, therefore, helpful to examine the commercial considerations often discussed in isolation from potential normative risks.

In a … Read more

Latham & Watkins Discusses 10 ESG Issues to Keep Top of Mind in 2023

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Both anticipated and less expected changes occurred across the ESG landscape in 2022. Anticipated changes included regulatory developments across the globe, including in the US, the UK, and the EU. Less expected changes included global and regional political shifts, such as the fallout from the Russian invasion of Ukraine, the continued evolution of governmental policies following the COVID-19 pandemic (such as responses to labor market challenges and reshoring efforts), and growing political tensions throughout the world.

In 2023, investors, customers, regulators, and other key stakeholders are expected to continue to demand corporate responsiveness on ESG issues. However, how these stakeholders … Read more

Assessing the SEC’s Role As Enforcer Against Financial Misconduct

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The Securities Exchange Act grants the SEC ample authority and discretion to investigate and seek sanctions related to violations of the securities laws, with the goal of protecting investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation (SEC, 2013).[1] To be sure, this is the SEC’s stated objective. Like most regulatory agencies, though, the SEC is subject to resource constraints – as well as to pressures from both the political and business spheres, which might steer it away from the fulfillment of its mission.

We directly assess the SEC’s objectives, as revealed by the observed SEC regulatory policies, … Read more

ISS Discusses the Largest Class Action Settlements of 2022

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In a remarkable year of class action activity, investors across the globe agreed to settlements totaling over $7.4 billion[1] in 2022, a greater than 75% increase from 2021. (A substantive year in review for the U.S. market will be documented in the ISS Securities Class Action Services “Top 100 U.S. Class Action Settlements of All-Time” report published later this month.)

In this overview, ISS Securities Class Action Services reviews the largest shareholder-related settlements of 2022. A number of high-profile cases dominated the landscape, including Twitter and Teva in the United States, while the Steinhoff International mega-settlement commanded much of

… Read more

Perceptions of Regulatory Uncertainty in Antitrust Practices

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The U.S. is the largest market for merger and acquisition (“M&A”) activity, with nearly 7,900 transactions accounting for a record $2.6 trillion in value in 2021.[1]  The primary M&A enforcement agencies in the United States, the Federal Trade Commission (FTC) and the Department of Justice Antitrust Division (DOJ), evaluate the potential antitrust risk of reported mergers, monitor remedies, and challenge deals deemed to reduce competition applying jointly published guidelines. The Biden administration appointed leaders to the FTC and DOJ who promised that traditional approaches to antitrust would not be followed and suggested changes to both substance and process to antitrust … Read more

Skadden Discusses Recent Contests Under the Universal Proxy Rules and the 2023 Outlook

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The Securities and Exchange Commission’s (SEC’s) new universal proxy rules, which took effect for meetings after August 31, 2022, require the use of “universal” proxy cards in all director election contests, except for elections held by registered investment companies and business development companies. Previously in contested elections, the company and the dissident stockholder each distributed separate and different proxy cards. Stockholders not attending the meeting in person and voting by proxy could only vote on a single card, limiting their choices to either the nominees on the company card or the dissident card, with no option to “mix and match.” … Read more

How Social Connections and Information Leaks Affect the Stock Prices of Takeover  Targets

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The stock prices of takeover targets typically increase substantially prior to merger announcements[1] This increase attracts considerable public attention because it is usually perceived to be associated with the leaking of inside information. Hence, the numerous  Securities and Exchange Commission (SEC) cases against individuals and entities accused of trading on inside information about upcoming mergers and acquisitions.

These cases typically involve suspected  leaks of confidential information through social connections. Senior executives or board members often initiate the leaks, which spread among the social networks that are either directly or indirectly linked to them. For example, in a case filed … Read more

Fed, FDIC, OCC Jointly Warn Banks About Crypto-Asset Risks

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The Board of Governors of the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) (collectively, the agencies) are issuing the following statement on crypto-asset1 risks to banking organizations.

The events of the past year have been marked by significant volatility and the exposure of vulnerabilities in the crypto-asset sector. These events highlight a number of key risks associated with crypto-assets and crypto-asset sector participants that banking organizations should be aware of, including:

  • Risk of fraud and scams among crypto-asset sector participants.
  • Legal uncertainties related to custody practices,

… Read more

Why We Need Multistate Business Entities

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Business entities are generally formed state-by-state. While this separatist approach has many shortcomings, scholars and policymakers have considered only one alternative: the federalization of business entity formation. Yet limiting the choices to two is false and distortive. It is false because another alternative – multistate formation and regulation of business – is possible. It is distortive because it deprives policymakers of the advantages of multistate corporations and other business entities. In a new article, we show that multistate business entities are, in fact, preferable to both state separatism and federalization.

Background on the Market for Entity Formation

When entrepreneurs … Read more

Debevoise Discusses Treasury Guidance on Corporate Minimum Tax and Tax on Stock Buybacks

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On December 27, 2022, Treasury released Notices 2023-7 and 2023-2 (the “Notices”). The Notices provide initial guidance on the 15% corporate minimum tax on the book income of large corporations (the “CAMT”) and the non-deductible 1% excise tax on certain corporate stock buybacks by publicly traded companies (the “Buyback Tax”) that were included in the Inflation Reduction Act (the “IRA”).[1] The CAMT and the Buyback Tax both are effective January 1, 2023. The CAMT Notice provides immediate guidance on time-sensitive areas of uncertainty, such as tax-free transactions that may give rise to financial statement income, and requests comments on … Read more

Does the Market Demand Climate-Related Disclosure Regulation?

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On March 21, 2022, the Security and Exchange Committee (SEC) proposed that all public firms disclose climate-change risk and greenhouse-gas (GHG) emission information in their financial statements. According to SEC Chair Gary Gensler, the proposal “would help issuers more efficiently and effectively disclose these risks and meet investor demand, as many issuers already seek to do.” Was he right? Would government-mandated GHG reporting meet investor demand and aid efficiency? After all, companies might not provide information voluntarily because the cost of producing and disseminating it, including the proprietary costs, exceeds the benefits to shareholders (Admati and Pfleiderer, 2000). In a … Read more

Arnold & Porter Discusses SEC Case on Impeding and Retaliating Against Whistleblower

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On November 22, 2022, the US Securities and Exchange Commission (SEC or Commission) filed an amended securities fraud complaint against Adam Rogas, the former Chief Executive Officer of NS8, Inc. (NS8), alleging that, among things, Rogas engaged in whistleblower impeding and retaliation against the NS8 employee who blew the whistle on Rogas’ fraudulent conduct. The case follows In re David Hansen, a whistleblower impeding action the SEC settled against the co-founder and Chief Information Officer of NS8. As Arnold & Porter partner Jane Norberg, who was the former Chief of the SEC’s Office of the Whistleblower, discussed in a … Read more

The ESG Gap

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In recent years, demand for companies to promote environmental, social, and governance (“ESG”) values has increased dramatically. Investment in ESG-oriented mutual funds (green funds), rose globally by 53 percent in 2021 to $2.7 trillion (Kishan, 2022). Bloomberg forecasts that by 2025 ESG assets may hit $53 trillion – a third of global assets under management. Not only are people investing more in ESG, but they are willing to pay higher fees for such investments. A recent study found that investors are willing, on average, to pay 20 basis points more for an investment in a fund with an … Read more

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 Income Security Act of 1974, as amended (“ERISA”) when investing plan assets. A closely related issue is whether, and how, fiduciaries should vote proxies and exercise other shareholder rights on behalf of ERISA-covered plans.

On November 22, 2022, the Department of Labor issued a final regulation (the “Final Regulation”) on these topics. The Final Regulation will generally be effective on … Read more

The Value of Executive Visibility

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In a new paper, we examine how the visibility of executives affects the value of their firms. We define executive visibility as the ubiquity of the executive’s public profile, separate from that of the firm. Communications and public relations professionals increasingly advocate for executive visibility to make the executive appear more relatable, personable, and trustworthy to stakeholders.[1] A global survey of 1,700 non-CEO executives conducted by the communications agency Weber Shandwick (2020) found that 81 percent believe their CEOs should be personally visible as the face of their company.[2] In short, the executive should be not only … Read more

ISS Discusses ESGF Rating as a Measure of Investing Quality

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Investors routinely consider both the ESG quality (i.e., the quality of a company’s management approach to environmental, social and governance (ESG) risks and opportunities) and the Financial quality (i.e., a company’s risk-adjusted profitability) of a firm in their day-to-day investment due diligence. Up until now the two have been looked at somewhat in isolation, however. Marrying the financial ‘F’ pillar with ESG performance can help create a more holistic approach to investing. This is exactly the use case for the new ISS ESGF solution.

The good management of long-term ESG risks may aid in the reduction of financial risks

… Read more

A Beginner’s Guide to the SBF Prosecution: Where the Legal Issues Lie

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The spectacle of a shambling billionaire with an adolescent personality, an inconsistent memory, a fondness for using his depositors’ funds for his own personal purposes, and an eagerness to talk in self-destructive ways to the press has fascinated everyone. This column will leave to psychiatrists and journalists the assessment of Samuel Bankman-Fried’s (“SBF”) character, but important legal issues lurk in his case that are central to the field of white collar crime and that have seldom been explored adequately by appellate courts.

Let’s begin by looking at what has happened so far. The Southern District of New York’s U.S. Attorney’s … Read more

Kirkland & Ellis Discusses the FTC’s Newly Rediscovered Penalty Offense Authority

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The FTC recently announced the first use of its “Penalty Offense Authority” in many years. The agency dusted off this statutory tool as part of its multifaceted effort to continue to obtain monetary relief in its consumer protection enforcement actions in the wake of the agency’s Supreme Court loss in AMG Capital Management, LLC v. FTC, which stripped the agency of its ability to obtain monetary remedies pursuant to Section 13(b) of the FTC Act.

Section 5(m)(1)(B) of the FTC Act authorizes the Commission to obtain civil penalties from parties engaging in conduct with actual knowledge that the conduct … Read more

Institutional Directors: Do They Matter?

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Over the last two decades, the dramatic increase in institutional investors’ ownership of rival companies has raised questions about collusive corporate policies.[1] However, it is still unclear how common shareholders engage with and influence corporate decision-making, especially when it comes to antitrust issues (Ginsburg and Klovers, 2018; Scott Morton and Hovenkamp, 2017; Hemphill and Kahan, 2019).[2]

One frequently mentioned mechanism is board representation (Azar 2021; Eldar, Grennan, and Waldock, 2021). Its plausibility rests on the well-settled principle in U.S. corporate law that directors are responsible for making all major corporate decisions (Bebchuk, 2004). Given their considerable ownership stake … Read more

Simpson Thacher Discusses Final Labor Department Rule on ESG Investing, Proxy Voting

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The U.S. Department of Labor (the “DOL”) recently issued a final rule (the “Final Rule”) that seeks to clarify the circumstances under which a fiduciary subject to ERISA may consider climate change and other environmental, social and governance (“ESG”) factors when making investment decisions (and exercising shareholder rights) on behalf of ERISA plans and “plan asset” vehicles.[1]

Background

For nearly 40 years, the DOL has issued guidance that sought to provide a framework for ERISA fiduciaries considering investments for reasons other than investment performance (i.e., “collateral factors”). ESG investing, impact investing, … Read more

New Challenges to the Internal Affairs Doctrine

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A Delaware vice chancellor recently lamented that “Delaware should not be determining employment law for the country and for the world.”[1]  That remarkable assertion was a reference to the gradual expansion of the internal affairs doctrine, which provides that the law applicable to the internal governance of a business entity is that of the chartering jurisdiction. The contours of the internal affairs doctrine have never been defined with precision, which is why several recent developments have placed new pressures on the doctrine’s boundaries. These fall into roughly three categories:

Corporate governance for noninvestors.  Especially in the ESG era, … Read more

Debevoise Discusses What the GDPR Can Tell Us About State Privacy Laws

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The EU’s General Data Protection Regulation 2016 (the “GDPR”) changed the global privacy landscape, and has been called the “gold standard” for data protection regulation. Recently, a number of U.S. states have introduced privacy laws, which borrow certain GDPR concepts (the “State Privacy Laws”): the Californian Consumer Rights Privacy Act 2020 (the “CPRA”) which amends the California Consumer Privacy Act (the “CCPA”); the Virginia Consumer Data Protection Act; the Colorado Protection of Personal Data Privacy Act (the “CPA”); the Connecticut Public Act Concerning Personal Data Privacy & Online Monitoring; and the Utah Consumer Privacy Act.

Thus far, … Read more

The Legal Primacy Norm in Corporate Law

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The debate over the corporation’s purpose is today a central topic of corporate law scholarship. So far, the discussion has advanced little beyond a two-sided view, considering only the approaches known as shareholder primacy and corporate social responsibility (CSR). In a new article, I offer an innovative way to resolve this fundamental debate about corporate law – a proposal that recognizes the need for the law to take stakeholder interests into account, while at the same time not impairing entities’ and shareholders’ legitimate claims, and operating within the existing structure of corporate law. I argue that corporate law, both descriptively … Read more

SEC Chair Gensler on Final Amendments to Insider Trading Requirements

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Today [December 14], the Commission will consider whether to adopt amendments to Rule 10b5-1, as well as new required corporate disclosures related to executive officers’ and directors’ trading. I am pleased to support these new requirements because, if adopted, they will help close potential gaps in our insider trading regime.

The amendments address the means by which companies and company insiders — such as chief executive officers, chief financial officers, other executives, directors, and senior officers — trade in company shares.

The core issue is that company insiders regularly have material information that the public doesn’t have. Stock-based executive compensation

… Read more

Stakeholder Engagement

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A common argument against stakeholder governance is that it renders managers less accountable while doing little to improve the welfare of stakeholders. Lucian Bebchuk and Roberto Tallarita call this “The Illusory Promise of Stakeholder Governance.” But what if stakeholder governance actively empowered stakeholders? Rather than being merely just of and for the stakeholders, it could become governance by the stakeholders as well.

In a new article, I survey disclosure by S&P 100 companies to get a picture of how they engage their stakeholders and incorporate that engagement into corporate governance. I look primarily at disclosure in the companies’ sustainability or … Read more

Market Trends, Shareholder Activism, the SEC, and Litigation Get Lively Airing at Columbia Law School M&A and Corporate Governance Conference

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Top practitioners, judges, regulators, and scholars gathered at Columbia Law School on December 2 to offer their unique perspectives and cutting-edge insights on a variety of topics related to M&A and corporate governance. The topics included current M&A market trends, the role of institutional investors and shareholder activists in dealmaking, and the impact of the SEC and litigation developments on M&A.

The day-long event started with a panel exploring current trends and trajectories in the M&A market. The panel was moderated by Professor Jeffrey N. Gordon of Columbia Law School and included panelists Lauren Hirsch, a reporter for DealBook at … Read more

CEO Activism as a Call to Arms

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CEO activism, the practice of CEOs or other executives taking a public stance on social, political, or environmental issues not directly related to their companies’ businesses, has been on the rise these past few years.  Moreover, several well-publicized polls have shown that somewhere between 64 and 77 percent of consumers believe that leaders should engage in this behavior.  We wondered, however, whether CEO activism might change people’s opinions about social issues and lead them to support a campaign around those issues.

After the murder of George Floyd in 2020, we asked our research team to search corporate websites and … Read more

ISS Discusses Human Rights-Related Shareholder Proposals

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The topic of human rights is of major concern among many stakeholder groups, spanning the public, private, and social sectors (e.g., companies, investors, consumers, NGOs, governments, intergovernmental organizations, etc.). Human rights issues present material risks to not only companies, but also to institutional investors, as reputational as well as regulatory and litigation risks, can impact both companies and their investors. Reputational costs stemming from, say, damaging viral news stories could negatively impact consumer loyalty, brand perception, and ultimately share price. As many institutional investors engage with companies to increase alignment on ESG performance and reporting, the ‘S’ in ESG (Environmental, … Read more

How Market Feedback Affects CEO Pay

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Stock prices affect various corporate decisions such as the amount of CEO compensation, as emphasized in traditional pay-for-performance studies, and capital investment. However, an unanswered question is whether changes in firms’ stock price in a short window around events related to their corporate governance matter for the compensation of their CEOs. In a new paper, we analyze whether these short-term price changes factor into compensation policies more than suggested by the traditional pay-for-performance argument (which is normally based on stock returns over one year or longer). We refer to decision makers’ learning from changes in stock prices as the market … Read more

Covington Discusses Responsibly Audited AI and the ESG/AI Nexus

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Companies have increasingly leveraged artificial intelligence (“AI”) to facilitate decisions in the extension of credit and financial lending as well as hiring decisions.  AI tools have the potential to produce efficiencies in processes but have also recently faced scrutiny for AI-related environmental, social, and governance (“ESG”) risks.  Such risks include AI ethical issues related to the use of facial recognition technology or embedded biases in AI software that may potentially perpetuate racial inequality or have a discriminatory impact on minority communities.  ESG and diversity, equity, and inclusion (“DEI”) advocates, along with federal and state regulators, have begun to … Read more

What the Rise of Indexing Means for Corporate Governance

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The amount of assets that passive (index) funds have under management has grown significantly in recent decades. Domestic passive funds and ETFs now manage more than half of all assets under management (AUM) of domestic equity mutual funds and ETFs, and the Big Three passive fund managers (BlackRock, State Street, and Vanguard) cast over a quarter of the votes in S&P 500 companies. The growth in the voting power of passive funds has attracted the attention of market participants, academics, and regulators. For example, concerns about their outsized influence have led a group of senators to propose the INDEX Act, … Read more

Davis Polk Discusses Antitrust Law and ESG Initiatives

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In the U.S., some members of Congress and state AGs have advocated for greater antitrust scrutiny of industry-wide ESG initiatives, while other state AGs have argued that such initiatives are procompetitive. In the EU and the U.K., competition authorities have issued guidance to support industry-wide ESG initiatives. In this environment, firms contemplating joining ESG initiatives should seek advice to understand the global antitrust landscape.

Antitrust and ESG: New developments and key issues

Firms routinely incorporate environmental, social, and governance (ESG) goals as part of normal corporate operations. In the U.S., some federal and state elected officials and enforcement officials recently … Read more

From “Corporate Social Responsibility” to “Corporate Social Liability”?

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The debate about corporate social responsibility has recently moved into new territory: the establishment of what can be called corporate social liability or CSL. CSL goes beyond classic tort and company law and may result in vicarious liability of parent companies for the misconduct of subsidiaries and third-party business partners. Its main focus has been on violations of obligations involving human rights and the environment. In a recent paper, I assess the novel elements of international developments involving CSL.

Various legislative actions and court cases, particularly in Europe, have contributed to the emergence of CSL:

  • The EU Council and

… Read more

ISS Discusses Dell’s $1 Billion Top-20 Settlement of Shareholder Lawsuit

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On November 16, 2022, Dell Technologies Inc. reached a $1 billion settlement with shareholders, according to a recently filed 8-K filed with the U.S Securities and Exchange Commission. The announced agreement looks to resolve investors’ allegations that they were short-changed billions of dollars for their Class V stock in connection with a 2018 transaction that turned Dell into a public company. The settlement comes as the shareholder lawsuit alleging various breaches of fiduciary duties against Michael Dell, Silver Lake, and others was set to go to trial next month in the Delaware Court of Chancery.

In the asserted transaction valued

… Read more

Angels and Devils: The Early Crypto Entrepreneurs

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After the collapse of FTX and a summer of crypto failures (Terra Luna, Celsius, Three Arrows), the Securities and Exchange Commission (SEC) will want to act quickly and treat more digital assets as “securities.”  But which ones?  In a new article, I attempt an answer by re-interpreting the Howey test for determining what is an “investment contract” and thus a security.

The first crypto entrepreneurs – such as Satoshi Nakamoto (Bitcoin) and Vitalik Buterin (Ethereum) – look like the angel investors who have long funded traditional startups.  They engage in “for-profit philanthropy,” investing financial capital in startups but also contributing … Read more

Cooley Discusses CFPB Bulletin Analyzing Rise in Crypto-Asset Complaints

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On November 10, 2022, the Consumer Financial Protection Bureau issued a bulletin analyzing consumer complaints submitted to the CFPB over the past four years related to crypto-assets and platforms. According to the CFPB, fraud, scams and transaction issues accounted for almost two-thirds of those complaints. Indeed, shortly after the bulletin’s release, CFPB Director Rohit Chopra in other public commentary described crypto as “a new vector for fraudsters.” Underlying many of the complaints were concerns with the level of customer service provided by crypto companies when issues arose.

The bulletin describes risks to consumers and steps consumers can take to protect … Read more

The Questionable Virtues of Chapter 11 in the FTX Bankruptcy

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On November 14, 2022, FTX, the third largest crypto exchange in the world, filed for bankruptcy. Since then, the company, its many affiliates, and its 30-year-old owner and founder, Sam Bankman-Fried, have been investigated by lawmakers and regulators across many jurisdictions, including the Commodity Futures Trading Commission, the Securities and Exchange Commission, and the U.S. Attorney for the Southern District of New York. Early reports indicate that the company faces aggregate claims from creditors in the billions of dollars and has traditional, liquid assets that fall far short of meeting these liabilities.

The bankruptcy declaration reveals the … Read more

Skadden Discusses DOJ Antitrust Enforcement Against Interlocking Directorates

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In April 2022, Assistant Attorney General Jonathan Kanter of the Department of Justice’s Antitrust Division (DOJ) previewed the DOJ’s intent to more aggressively enforce the prohibition on interlocking directorates under Section 8 of the Clayton Act, 15 U.S.C. § 19. During a speech to antitrust enforcers at an annual spring summit, AAG Kanter stated, “For too long, [DOJ] Section 8 enforcement has essentially been limited to our merger review process.” AAG Kanter indicated that, going forward, the DOJ would be “ramping up efforts to identify violations across the broader economy” and that it “will not hesitate to bring Section 8 … Read more

The Effect on Dividend Payouts of Board Independence

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In a new paper, we use agency theory to explore the effect of board independence on dividend policy. Over the past few decades, many studies have incorporated several market imperfections into their model of capital markets, such as transaction costs, taxes, and shareholder heterogeneity. We focus on agency costs, which can be mitigated by effective governance mechanisms, such as a more independent board of directors.

In our study, we exploit as a quasi-natural experiment enactment of the Sarbanes-Oxley Act of 2002 (SOX) and the associated exchange listing requirement that public companies have a majority of independent directors.

Dividends serve as … Read more

Wachtell Lipton Discusses Key Issues for Boards in Corporate Governance for 2023

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While the world recovers from the worst of the pandemic, the economic, political and social repercussions will continue to play out in ways that, while unpredictable, are in some respects characterized by observable patterns of cause-and-effect and cyclicality.  The pendulum has been swinging back as, for example, the Federal Reserve has been ratcheting up interest rates and tightening liquidity, activist activity is once again on the rise, Republicans have taken control of the House, and back-to-office policies have been eased into effect.  In this environment, stasis is the exception rather than the norm, and boards must continue to be nimble … Read more

The Monitoring Role of Social Media

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The rapid growth of social media over the past two decades has presented firms with a significant challenge: Users of social media can share and disseminate damaging information with potentially adverse consequences. Prominent examples that went viral include accounts of racist and sexist treatment of employees at Walmart, unsafe working conditions at Amazon, unfair pay practices at Chipotle, and environmental violations at Nestlé. As noted by social psychologist Takuya Sawaoka, “[t]he internet now allows […] thousands of people to participate in collective […] [monitoring], in a way that wasn’t possible before” (Meinch, 2021). These anecdotes suggest an important, yet unexplored, … Read more

Willkie Farr Discusses Personal Liability for Executives in the Wake of Cyber Incidents

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A new and potentially significant tool in regulatory enforcement is emerging for executives whose companies suffer a cybersecurity incident.  The Federal Trade Commission (“FTC”), in a recently proposed Decision and Order, held James Rellas, the Chief Executive Officer (“CEO”) of Drizly LLC (“Drizly”), personally liable for presiding over the company’s failure to implement and apply appropriate information security practices, which led to a data breach resulting in the exposure of 2.5 million consumers’ personal information.[1]

The decision marks the first time a senior corporate officer has been found to have personal civil liability … Read more

Shareholder Primacy and Basketball

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I recently participated in a festschrift for retired justice (and noted stakeholderist) Leo E. Strine, Jr., hosted by the University of Pennsylvania Journal of Law and Business. Justice Strine’s interventions in the debate over shareholder primacy have added heft, pragmatism, and public mindedness to the stakeholderist side. In my contribution to the symposium, I try to surface a hidden aspect of the debate.

I argue that shareholder primacy creates a competition with a single endpoint, the very best kind of game. The exhilarating tournament that results, separate and apart from any ethical or instrumental justification, is an underappreciated aspect of … Read more

Debevoise & Plimpton Discusses the Myth of Artificial Intelligence Errors

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Machines are increasingly making important decisions that have traditionally been made by humans, such as who should get a job interview or who should receive a loan. For valid legal, reputational, and technical reasons, many organizations and regulators do not fully trust machines to make these judgments by themselves. As a result, humans usually remain involved in AI decision making, which is referred to as a “human-in-the-loop.” For example, in the detection of skin cancer, the process may now involve an AI machine reviewing a photograph of a mole and making a preliminary assessment of cancer risk, followed by a … Read more

How Board Gender Quotas Affect Stock Prices

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Women have traditionally suffered from discrimination in the labor market (Tatli et al., 2013) and are under-represented in upper management (Thams, Bendell and Terjesen, 2018). To address this widespread gender imbalance, many countries have implemented gender diversity policies ranging from enforceable quotas with hard or soft sanctions to voluntary recommendations included in corporate governance codes. While multiple European Union (EU) member states developed their own legislation, the European Parliament introduce on June 7 a gender quota so that, by 2026, “at least 40% of non-executive director posts or 33% of all director posts are occupied by the under-represented sex… Read more

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 toward that end.  But an emerging movement opposed to any consideration, at all, of ESG factors threatens to erase the gains that have been made over the past ten years and revert to the outdated view that the purpose of a company is solely to maximize short-term shareholder profits.

This debate is playing out very publicly, with politicians at the … Read more

The FTX Collapse: Why Did Due Diligence, Regulation, and Governance Evaporate?

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FTX[1] is a Bahamas-based cryptocurrency exchange founded in 2019 that, at its peak in 2021, had over 1 million users, making it the world’s third largest crypto exchange by volume. Since November 11, 2022, though, FTX has been in bankruptcy, having borrowed extensively and used the assets of its clients in a likely and spectacular fraud.

Why did the capital-markets system fail to provide the checks and balances that investors count on, leaving the crypto market in the hands of operators hostile to regulation? How can we avoid a system beholden to Sam Bankman-Fried, Mark Zuckerberg, Elon Musk, and … Read more

Skadden Discusses DOJ’s First Criminal Monopolization Case in Decades

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Last month, the Department of Justice Antitrust Division announced its first criminal attempted monopolization charges in more than 40 years. In the case, U.S. v. Zito, Nathan Nephi Zito, the owner of a Montana paving company, pleaded guilty to a violation of Section 2 of the Sherman Act after allegedly attempting to allocate geographic markets per the terms of a proposed agreement with his only rival. The guilty plea came about after the rival blew the whistle on the attempt and cooperated with the Antitrust Division by recording phone calls with Mr. Zito. The guilty plea is notable because, … Read more

Let’s Stop Treating Crypto Trading as If It Were Finance

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Members of Congress and financial regulators from the Federal Reserve, U.S. Treasury, SEC, CFTC, and CFPB appear set on regulating the crypto trading system (traded coins and associated marketplaces, exchanges, brokerages, lending, staking, derivatives, intermediaries, and enablers) as part of the traditional financial services system. Policy discourse on this topic has centered around which – rather than whether – financial regulators should be in charge of crypto trading. In advancing this view, Congress and the regulators appear to be following a path laid out by crypto companies seeking legitimacy through inclusion (on their own terms), in regulated finance.

Supporters of … Read more

Olshan Discusses FINRA, Stock Exchange Crack Down on Small-Cap IPO “Ramp and Dump” Schemes

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On November 17, 2022, the Financial Industry Regulatory Authority (“FINRA”) issued a special alert to FINRA members concerning the heightened threat of fraud in small capitalization initial public offerings (“IPOs”). At the same time, both the New York Stock Exchange (“NYSE”) and the Nasdaq Stock Market (“NASDAQ”) released separate notices to their members expressing similar regulatory scrutiny in connection with small-cap IPOs. In Regulatory Notice 22–25, FINRA observed the recent trend of significant unusual price increases on the day of or shortly after the IPOs of certain small-cap issuers, most of which involve issuers with operations in China and other … Read more

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 those offerings were legitimate, and the crypto assets they facilitated continue to support applications and actively trade on crypto exchanges. But many other crypto asset initial offerings were riddled with fraud, with crypto asset sponsors and others misrepresenting to investors key aspects of the offering.

Now, as crypto asset investing has evolved to include widescale secondary trading of crypto assets … Read more

Paul Hastings Discusses SEC’s Crypto Victory in the LBRY Case

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On November 7, a federal judge ruled that LBRY Credits (“LBC”) are securities, and thus LBRY violated Section 5 of the Securities Act of 1933 by selling LBC.[1] LBRY responded with a tweet describing the ruling as “extraordinarily dangerous precedent that makes every cryptocurrency in the U.S. a security, including ethereum.”[2]

SEC v. LBRY, Inc. treads new ground in one sense. It is the first time a federal court has found a token sold outside of an Initial Coin Offering (“ICO”) to be a security. The real question is whether the ruling really means every cryptocurrency is a … Read more

Does Student Loan Forgiveness Have Significant Benefits for the Economy?

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Student loans are becoming a major challenge for the United States. An estimated 43 million borrowers owe about $1.6 trillion dollars, meaning a significant fraction of U.S. households is burdened with debt that is not dischargeable in bankruptcy. The problem has taken on increased political and economic significance since the Biden Administration announced a federal student-loan forgiveness program that opponents have criticized as a $400-billion social welfare program for the well-to-do.

In a new paper, we take a novel approach to student loan forgiveness by empirically exploring whether it has important economic benefits that could at least partially offset its … Read more

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). The settlements represent the first parallel enforcement actions by FinCEN and OFAC in the virtual currency space and OFAC’s largest virtual currency enforcement action to date. The investigations by OFAC and FinCEN found that the company engaged in apparent violations of several sanctions programs and willful violations of the Bank Secrecy Act’s (BSA’s) anti-money laundering (AML) program and suspicious activity … Read more

How Patent Thickets Distort the Acquisition Market

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Patent thickets are dense webs of overlapping intellectual property rights. They are common in industries ranging from semiconductors to smartphones to pharmaceuticals.  When many firms own the underlying patents, thickets complicate licensing negotiations and increase the risk of holdup and litigation. These costs can be enormous: In 2021, for example, Intel paid $2.1 billion to VLSI Technology after a jury ruled that it had infringed two of VLSI Technology’s semiconductor patents. Conversely, firms that build their own patent thickets can use them to defend against litigation or even to crowd out competitors. This strategy allowed pharmaceutical companies such as AbbVie, … Read more

SEC Enforcement Chief Speaks on Penalties, Investigations, and Compliance

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Throughout my first year as Director, I have spoken[1] often about the public’s declining trust in our institutions and financial markets.[2] I have observed that, while there is no single cause for this decline of trust, it is in part due to the perception that we—the regulators—are failing to hold bad actors accountable, and that there are two sets of rules: one for the big and powerful and another for everyone else.

In those speeches, I also outlined steps that we in the SEC’s Division of Enforcement would take, and have taken, to address the decline in public

… Read more

Do Favorable ESG Ratings Lead to More Socially Responsible Behavior?

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One of the hottest topics in the business world is ESG ratings, which are designed to measure the environmental, social, and governance risks of a company. The idea is that increased transparency about companies’ ESG risks will motivate those with a low scores to improve and at least match the performance of competitors with high scores. Yet research on whether these ratings actually work is surprisingly sparse.

In a new study, we examined how companies responded to some of the first ESG ratings in the early 1990s issued by KLD Research & Analytics (KLD), a pioneering ESG rating agency. Contrary … Read more

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 lower evidentiary hurdles for victims injured by AI-related products or services to bring civil liability claims. Most importantly, the Directive would create a “presumption of causality” against the AI system’s developer, provider, or user.

The proposed AI Liability Directive should be seen as part of a broader package of EU legal reforms aimed at regulating AI and other emerging technologies. … Read more

Can Shareholder Lawsuits Police Companies’ Climate Disclosures?

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In March 2022, the SEC proposed mandatory climate disclosures for public companies.[1]  While climate activist investors applauded the proposed rules, opponents lamented their scope and cost, arguing that the SEC lacks the authority to promulgate such rules. But the debate  largely overlooked a key point: The success of a climate disclosure regime – mandatory or voluntary – rests on accuracy of the disclosure.  By some accounts, the private right of action is the most effective way to prevent companies from providing misleading information to their shareholders.  The SEC lacks the resources  and, in a controversial area like climate, may … Read more

Columbia Law School to Hold 2022 Conference on M&A and Corporate Governance

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On December 2, 2022, Columbia Law School will hold its 2022 Conference on Mergers & Acquisitions and Corporate Governance. The event is co-sponsored by the school’s Ira M. Millstein Center for Global Markets and Corporate Ownership, the Columbia Law School Center on Corporate Governance, and the law firm of Paul Hastings LLP.

The event brings together members of the federal and Delaware judiciaries, government regulators, academics, and prominent M&A and corporate governance practitioners. This year’s panelists are scheduled to include Delaware Chancellor Kathaleen St. J. McCormick, Delaware Vice Chancellor Lori W. Will, U.S. Senior District Judge Jed S. Rakoff, Chief … Read more

Do Individual Directors Matter?

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A fundamental question in corporate governance research is whether the board of directors affects firm value. Some argue that directors contribute no additional value to the firm and may even lower its value if they act only as a rubber stamp on the CEO’s decisions. However, the weight of evidence is that directors can increase value by, for example, using their experiences and connections to improve firm performance in specific settings.

Yet, largely absent from the literature is an investigation of whether individual directors possess unique characteristics that increase value, irrespective of which boards they sit on or the prevailing … Read more

FTC Chair Khan on the Enforcement Policy Regarding Unfair Methods of Competition

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When Congress passed the FTC Act in 1914, it didn’t just create a new agency. It created new law for that agency to enforce. Section 5 of the Act provides that “unfair methods of competition in or affecting commerce” are “hereby declared unlawful.”1 The next clause states, “The Commission is hereby empowered and directed to prevent” businesses “from using unfair methods of competition.”2

Together these sentences form the heart of the Commission’s legislative mandate in the domain of competition.3, 4 Accordingly, over the last century the Commission used its Section 5 authority to challenge a host of unlawful business practices.

… Read more

Estimating the Cost of Control Rights in the Corporate Loan Market

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Financial covenants have gone in and out of style over the last 30 years. They serve to transfer control rights to lenders when a borrower’s financial metrics breach pre-set contractual thresholds and so provide an interesting laboratory to study debtholder-shareholder conflicts and how they are potentially resolved. First, covenants can enhance efficiency by making contracts between lenders and their borrowers more complete. Second, through the contingent transfer of control during the term of the loan, they provide scope for renegotiation and wealth transfers that are primarily at the discretion of the lender.

In practice, covenant violations are associated with a … Read more

SEC Announces Enforcement Results for FY 2022

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The Securities and Exchange Commission today [November 15] announced that it filed 760 total enforcement actions in fiscal year 2022, a 9 percent increase over the prior year. These included 462 new, or “stand alone,” enforcement actions, a 6.5 percent increase over fiscal year 2021; 129 actions against issuers who were allegedly delinquent in making required filings with the SEC; and 169 “follow-on” administrative proceedings seeking to bar or suspend individuals from certain functions in the securities markets based on criminal convictions, civil injunctions, or other orders. The SEC’s stand-alone enforcement actions in fiscal year 2022 ran the gamut of … Read more

Social Washing or Credible Communication?

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Investor demand for information about firms’ environmental, social, and governance (ESG) commitments has prompted substantial corporate disclosure of their ESG activities. However, these disclosures often raise questions of “social washing,” where firms make unsubstantiated claims or misrepresent their company as more socially responsible than it is.

In a recent study, we consider social washing related to diversity, equity, and inclusion (DEI). Beginning in 2020, the Securities and Exchange Commission (SEC) required publicly-traded firms to include under Item 1 “Business” of their 10-K filings a description of the registrant’s human capital resources, including the number of persons employed by the registrant … Read more

SEC Investment Management Chief Speaks on Regulation Outside the U.S.

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Good morning.  Thank you, Mark, for your kind invitation to speak with you all today – and congratulations on the 25th anniversary of this conference.  I am deeply honored to be giving the Scott Friestad Memorial Keynote address, particularly since we are joined today by his son, Wilson.  Thank you, Wilson, for your gracious introduction.

Although my time at the SEC began after Scott’s passing, Scott’s diligence, excellence, and commitment to public service continue to resonate within the agency today.  Indeed, I see those traits in the colleagues by whom I’m inspired every day in the Division of Investment

… Read more

All Stick and No Carrot? Reforming Public Offerings

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The traditional IPO was once the dominant path to raising capital for a growing company, but challengers, most notably SPACs and direct listings, have emerged.  In our essay, we argue that the regulation of public offerings should seek to facilitate the transition from private company to public when this transition maximizes the joint welfare of investors and the issuer. Although the SEC frequently invokes investor protection as the goal of securities regulation, investors bear the cost of regulation, too. A lighter regulatory touch may be appropriate if markets have efficient price discovery.

To identify efficient pricing, we start with the … Read more

Sullivan & Cromwell Discusses Expiration of Legacy NAFTA Investor Protections

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In 2020, the United States-Mexico-Canada Agreement (“USMCA”) entered into force, replacing the 1994 North American Free Trade Agreement (“NAFTA”).  Both treaties include certain protections that the contracting states must afford to nationals of the other contracting states investing in their territory, and provide for arbitration as a forum to recover losses from breaches of those protections.  However, USMCA contains additional limitations and restrictions on foreign investors’ rights to pursue claims in arbitration for breach of the treaty’s terms.  Under Annex 14-C of USMCA, claims related to foreign investments established or acquired while NAFTA was in place (so-called “Legacy Investments”) may … Read more

How Companies Distract Investors When Disclosing Bad News

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SEC regulations require public firms to disclose any “material event” on a form 8-K filed within a certain time period. These events include earnings announcements, changes in an executive or director, changes in auditor and the issuance of new debt or equity. The news can be good or bad, and firms often issue press releases explaining the event.

We examine whether firms forced to disclose bad news issue press releases touting unrelated news around the time of the filing to distract investors. We study a broad sample of thousands of 8-K filings that are accompanied by press releases and find … Read more

How Mandatory Disclosure Affects the Takeover Market for Private Banks

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Financial disclosure is critical for the efficient allocation and reallocation of capital. However, the debate on the costs and benefits of disclosure mandates is unresolved, and the empirical evidence is mixed. In a new paper, we contribute to this debate by investigating the role of disclosure mandates in the takeover market for banks.

Mergers and acquisitions are essential means of capital reallocation, helping to direct assets towards their best use by reallocating control rights over companies. In 2021 alone, the announced global M&A transaction volume exceeded $5 trillion. Financial disclosures play a critical role in M&A, allowing acquirers to evaluate … Read more

Arnold & Porter Discusses State Attorneys General Probes of Banks with Net-Zero Pledges

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On October 19, 2022, 19 Republican state attorneys general (the AGs) launched a coordinated investigation by issuing civil investigative demands (CIDs) to six major US banks. The CIDs seek information related to the banks’ membership in the United Nations’ Net-Zero Banking Alliance (NZBA) and other climate-related initiatives. The NZBA is an alliance of 120 banks from 41 countries representing 39% of global banking assets. According to the NZBA commitment statement, member banks commit to transitioning their own operational greenhouse gas (GHG) emissions and GHG emissions attributable to their lending and investment portfolios to align with pathways to net zero … Read more

What CEOs Really Get Paid under Long-term Incentive Plans

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U.S. public firms increasingly use long-term performance-based plans to compensate CEOs. Under these plans, CEOs are expected to receive different levels of pay based on how the firm performs relative to various performance goals over multi-year periods. For example, Tesla gave Elon Musk a controversial pay package in 2018 with an initial estimated value of $2.6 billion and a potential payout of over $50 billion. However, to realize the payout, Musk needs to meet 12 market capitalization milestones and 16 revenue- or earnings-based milestones in the coming 10 years. What Musk will actually receive at the end of the performance … Read more

Debevoise & Plimpton Discusses White House’s Blueprint for an AI Bill of Rights

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On October 4, 2022, the White House released the Blueprint for an AI Bill of Rights (the “Blueprint”), which provides non-binding “principles” for organizations in both the public and private sectors to use when developing or deploying artificial intelligence (“AI”) or other automated systems.

The Blueprint does not include many new ideas for AI compliance. Instead, it represents a collection of principles that have been included in laws and guidance published by governments and organizations around the world. But unlike many of those guidelines, it takes a rights-based approach that is focused on AI’s potential harm, rather than a risk-based … Read more

Insider Trading and Clinical Drug Trials

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For at least a quarter century, the Securities and Exchange Commission (SEC) has pursued claims of unlawful insider trading where the information at issue was material to the stock price of the sponsor of a clinical trial. In recent years, almost half of these cases were also prosecuted criminally, some resulting in prison sentences. Because the cases arise out of work in a medical academic setting, those charged may not have understood the broad reach of the law, including the misappropriation theory. Training and prophylactic measures may be deficient. The trading based on inside information about clinical trials is similar … Read more

Kirkland & Ellis Discusses First-Ever CFIUS Enforcement Guidelines

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On October 20, 2022, the Committee on Foreign Investment in the United States (“CFIUS” or “the Committee”) released its first-ever guidelines (the “Guidelines”) pertaining to the enforcement actions that CFIUS may take under applicable statutes and regulations (“CFIUS Rules”). The Guidelines are neither comprehensive nor binding, nor do they provide CFIUS with any new authorities, but they do provide insight into how CFIUS will approach enforcement. They may also forecast an increase in CFIUS’s enforcement activities, which have been limited to date.

We summarize the key aspects of the Guidelines and provide related takeaways below.

Types of Violations

The Guidelines … Read more

Corporate Governance Beyond the Shareholder and Stakeholder Models

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In a new paper, we compare the main models of corporate governance (Schoenmaker, Schramade and Winter, 2022). One is the stakeholder model, which recognizes that companies have responsibilities to society that are broader than just making a profit. A problem with that model, though is that it includes multiple goals, making it difficult to hold management accountable. Moreover, the traditional stakeholder model tends to focus on stakeholders who are directly involved with the company, such as employees and customers. Stakeholders without such a direct relation are given short shrift, even though the company’s conduct clearly affects them – and future … Read more

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 8, 2021, proposed BOI reporting rule, though FinCEN made several notable amendments in the final rule.1

Among other things, the final rule:

  • adjusts some of the reporting timelines established in the proposed rule;
  • does not recognize additional types of entities that are exempt from the CTA’s reporting requirements, but clarifies the application of certain exemptions and that no filing

… Read more

Issues to Consider before Mandating ESG Disclosures through Securities Regulation

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A recent policy innovation is the use of securities regulations to solve social challenges. It started with mine-labor-safety and conflict-minerals disclosures in the 2010 Dodd-Frank Act and continues today with the Securities and Exchange Commission (SEC) proposal to mandate climate change disclosures. The ostensive goal is to protect investors but, most likely, the real objective is to affect social change on issues where more traditional policy instruments lack sufficient political support in Congress.

No doubt, the safety of miners, the financing of wars through international mineral trade, and global warming are important issues worthy of the government’s attention. The question, … Read more

SEC Chair Gensler Speaks on Enforcement

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My thanks to the Practising Law Institute and the 54th Annual Institute on Securities Regulation. As is customary, I’d like to note that my views are my own, and I am not speaking on behalf of my fellow Commissioners or the SEC staff.

On May 27, 1933, when he signed the first of the federal securities laws, President Franklin Delano Roosevelt said: “This law and its effective administration are steps in a program to restore some old-fashioned standards of rectitude.”[1]

For nearly 90 years since, Congress has tasked the Securities and Exchange Commission and our dedicated staff with

… Read more

The Global ESG Stewardship Ecosystem

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In a recent working paper, we highlight a significant transnational dimension to a remarkable corporate governance development: the dramatic increase in attempts by institutional investors to influence how the companies they invest in address material environmental, social, and governance (ESG) concerns. This form of investor action (or “stewardship” as it is often called) is increasingly common in many markets across the globe.

Scholars have identified various factors behind investors’ focus on ESG when engaging with their investee companies. These include investors’ desire to manage non-diversifiable (or “systematic”) investment risks such as climate change, and political and regulatory initiatives that prompt … Read more

Davis Polk Discusses New SEC Rules on Fund Shareholder Reports

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On October 26, 2022, the Securities and Exchange Commission (SEC) adopted new rule and form amendments (the Amendments) that require mutual funds and exchange-traded funds to (i) transmit annual and semi-annual shareholder reports that highlight certain key information such as fund expenses, performance and portfolio holdings, (ii) make available additional information that may be relevant to investors and financial professionals and (iii) provide enhanced expense-related disclosures in investment company advertisements. The new rule also excludes open-end registered investment companies from the scope of Rule 30e-3 under the Investment Company Act of 1940 (Investment Company Act) so that open-end fund shareholders … Read more

A New Approach to Measuring Litigation Risk

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Securities litigation is a major and costly source of corporate risk that can affect many aspects of companies’ operations. The task of identifying the causes and consequences of this risk is, however, challenging because researchers observe only companies that are sued and not companies that risk being sued. Moreover, surprisingly little is known about how plaintiffs’ lawyers identify which companies to sue. We use scrutiny of companies’ SEC filings by plaintiffs’ lawyers to improve estimates of litigation risk and provide new insights into why certain companies face risk.

We exploit the plaintiff-lawyer need for public information to monitor companies after … Read more

ISS Reviews Shareholder Resolutions on Labor Issues

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More shareholder resolutions were filed in the 2022 proxy season than in the previous year, with approximately 932 environmental, social, and governance proposals submitted at U.S. companies so far compared with 903 in 2021, according to ISS Voting Analytics data. The number of proposals focusing on environmental and social issues is estimated to have risen from 500 in 2021 to approximately 588 in 2022. Though many proposals have since been withdrawn, many have been or will be voted on. According to data from ISS Corporate Solutions, 578 shareholder resolutions have either been voted on or are pending in annual meetings

… Read more

How Does Board-Shareholder Engagement Really Work?

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Board-shareholder engagement plays an important role in corporate governance. In the last decade, investors have increasingly influenced business decisions, and their activities have extended beyond the formal submission of shareholder resolutions for voting at annual meetings. On their part, directors and managers have kept an open channel of communication. Yet, much of board-shareholder engagement consists of private interactions and, as a result, very few details about it are reported.

We seek to fill this gap in a new paper that sheds light on closed-door board-shareholder engagement with a survey of SEC-registered corporations. The survey was circulated among corporate secretaries, general … Read more

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 the latest step toward establishing a new data privacy framework intended to permit the free flow of data from the EU to certain U.S. businesses.

This blog post recaps the history of the EU-U.S. data sharing agreements, examines the key features of the Order, and outlines the process for an assessment of its adequacy by EU authorities.

How Did We

… Read more

Are We Seeing Double? Regulatory Overlap Between the SEC and the PCAOB

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The U.S. Securities and Exchange Commission (SEC) recently announced that it was initiating proceedings against a former audit partner at PricewaterhouseCoopers LLP for violating professional standards in reviewing the financial statements of Mattel, Inc. One might wonder why it is the SEC, and not the Public Company Accounting Oversight Board (PCAOB or Board), that is taking action against an accountant for failing to properly perform its audits of a public company’s financial statements. After all, the PCAOB was created by Congress after the financial scandals at Enron, World Com, and other public companies, to oversee public company auditors. The legal … Read more

Davis Polk Discusses FSOC Report on Financial Stability Risks of Digital Assets

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The report recently issued by the Financial Stability Oversight Council (FSOC) is quite different from the other reports published so far by the U.S. financial regulators in response to Executive Order 14067 on digital assets (FSOC Report).1 Helpfully, this report included a series of specific policy recommendations about what Congress and the regulators ought to do next. But the FSOC Report reveals a continuing lack of consensus and turf wars among the U.S. financial regulators, making its calls for coordination and cooperation ring hollow and introducing incoherence into some of the recommendations.

Following an exhaustive 60-page discussion of the … Read more

How to Improve Disclosure and Promote Better Corporate Governance in Public Companies

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Corporate governance guidelines (“CGGs”) are a relatively recent addition to the corporate governance framework of public companies. In 2003, in response to accounting scandals at Enron Corporation and several other large public companies, the NYSE created rules to improve the corporate governance practices of companies listed on the exchange. As part of that initiative, the NYSE directed listed companies to adopt CGGs and to post their CGGs on their company websites.

Under Section 303A.09 of the NYSE Listed Company Manual, companies are required to disclose in CGGs information on seven specific corporate governance topics:  director qualification standards, director responsibilities, director … Read more

SEC Chair Gensler on Rules Regarding Compensation Clawbacks

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Today [October 26], the Commission is considering adopting final rules mandated by the Dodd-Frank Act regarding clawbacks of erroneously awarded incentive-based compensation. I believe that these rules, if adopted, would strengthen the transparency and quality of corporate financial statements, investor confidence in those statements, and the accountability of corporate executives to investors.

Corporate executives often are paid based on the performance of the companies they lead, with factors that may include revenue and business profits. If the company makes a material error in preparing the financial statements required under the securities laws, however, then an executive may receive compensation for

… Read more

SEC Commissioner Peirce on Flaws in New Clawback Rules

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What we are doing today [October 28]—implementing the statutory clawbacks mandate—is commendable. But how we are doing it—expansively, inflexibly, and impractically—is not. Accordingly, I cannot vote to adopt this rule.

Section 954 of the Dodd-Frank Act generally requires the Commission to direct exchanges to require listed companies to “develop and implement a policy” for disclosing how they handle incentive-based compensation tied to reported financial information and, when that reported information has to be restated, a policy for clawing back related erroneously awarded compensation.[1] Congress did not prohibit us from allowing listing exchanges and issuers some flexibility in crafting, respectively,

… Read more

Does Firm Strategy Explain the Growing Gap between CEO and VP Pay?

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In recent years, the gap between the compensation of CEOs and their vice presidents (VPs) has been increasing, especially equity compensation (i.e., stock and stock options). Scholars have proposed several explanations. First, the pay differential may relate to the varying risks those executives face in managing their firm. Second, it may be the result of tournament incentives: The senior executive with the highest relative output will typically win the tournament, get promoted to the rank of CEO, and receive the promotion prize. Third, a large pay gap could simply reflect inadequate internal governance of the firm, which will benefit the … Read more

Paul Weiss Discusses DOJ’s First Terrorism Material-Support Charge Against a Corporation

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On October 18, 2022, Deputy Attorney General (“DAG”) Lisa O. Monaco announced that Lafarge SA (“Lafarge”), a multi-national building materials manufacturer headquartered in Paris, France, and its Syrian subsidiary Lafarge Cement Syria (“LCS”) had pleaded guilty in the Eastern District of New York to conspiring to provide material support to foreign terrorist organizations, the Islamic State of Iraq and al-Sham (ISIS) and the al-Nusrah Front (ANF), in violation of 18 U.S.C. §2339B.[1]  This case represents the first time in which the DOJ has brought such a material support charge against a corporation.[2]

According to the DOJ and as … Read more

When Disclosure Isn’t Enough: Evidence on Cursedness in Betting Markets

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Capital market regulation often relies on two methods: imposing restrictions on the actions of parties with private information and requiring greater transparency about these actions. The U.S. Securities and Exchange Commission’s (SEC) recent proposal targeting insider trading abuses follows this paradigm, similar to other proposals related to share repurchases and short selling. The insider trading proposal looks to add restrictions on insiders’ ability to use and trade on Rule 10b5-1 plans, plus enhanced disclosures. In a recent working paper, we use a setting analogous to capital markets to provide evidence that greater disclosure of insider trading is likely to have … Read more

The Second Universal Proxy Card Hits EDGAR

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Last month, the first universal proxy card (UPC) hit EDGAR under the new SEC rule. We now have another example, with some interesting tidbits for aficionados and proxy junkies, and also for anyone who seeks an edge in proxy contest voting.

This one concerns Apartment Investment & Management (AIM) in a proxy contest with Land & Buildings (L&B). Compared to the earlier one involving AIM ImmunoTech and a group of individuals (below), it seems more straightforward, although no less contentious. Coincidentally, both involve issuers with a symbol of “AIM”…

AIM filed its preliminary proxy statement last week. L&B filed theirs… Read more

Rethinking the Value and Emission Implications of Green Bonds

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Sustainable investing implies that green assets entail low expected returns because (i) green investors relish holding them and (ii) such assets hedge climate risk by encouraging pro-environmental outcomes. In a new paper, we evaluate whether these predictions are supported by the data using a sample of green bonds. In the process, we investigate (i) whether green bonds are associated with significant returns for bondholders and equity investors, both at the time of issuance and after; and (ii) whether the carbon emissions of the issuers of green bonds fall post-issuance.

Green bonds represent a noteworthy asset class of their own. The … Read more

SEC Chair Gensler Discusses Competition and the Two SECs

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Thank you, Ken [Bentsen]. As is customary, I’d like to note that my views are my own, and I’m not speaking on behalf of my fellow Commissioners or the SEC staff.

1933 was an important year in SEC history.

No, I’m not referring to the passage of the first federal securities law.

I’m not actually referring to the Securities and Exchange Commission at all.

I mean the other SEC: you know, the Southeastern Conference.

I’m sure, Ken, that you could’ve guessed that, being a Texan, though I think you’ve spent more time in Houston than College Station.

Fall sports are

… Read more

African Capital Markets: The Case of the Democratic Republic of Congo

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On June 21, 2021, the International Monetary Fund (IMF) weighed in on the economic situation in Africa, and the news was not good.

“African economies are at a pivotal juncture,” the IMF said. “The COVID-19 pandemic has brought economic activity to a standstill. Africa’s hard-won economic gains of the last two decades, critical in improving living standards, could be reversed. High public debt levels and the uncertain outlook for international aid limit the scope for growth through large public investment programs. The private sector will have to play more of a role in economic development if countries are to enjoy … Read more

Debevoise & Plimpton Discusses How Bankruptcy Courts Will Measure Customer Crypto Claims

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In the wake of the industry’s recent significant bankruptcy filings, crypto watchers are focusing for the first time on which crypto-entities are eligible for chapter 11 relief[1] under the U.S. Bankruptcy Code (the “Bankruptcy Code”)[2] and, if so, whether, and under what circumstances, crypto-assets held by the debtor may become property of the debtor’s “estate.”[3]  As previously posted, if a customer’s crypto-assets are deemed part of the debtor’s estate, the customer may be treated as a general unsecured creditor and, thus, potentially stand to lose some or all of the value  the crypto-assets held by … Read more

The New NACD Governance Principles Promote More Engaged and Committed Boards

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The new report by the National Association of Corporate Directors (“NACD”), A Framework for Governing into the Future (the “NACD Report”), is a valuable contribution to corporate governance discourse. Among its primary offerings are a forward-looking perspective on governance and a vision of a more engaged and committed board.

The NACD Report is perhaps the most prominent statement of governance principles since the 2018 release of the Commonsense Principles of Governance Practice 2.0. Furthermore, the NACD Report builds upon, yet differs in style and substance from, the tactical approach of the Commonsense Principles and the last (2016) version of the … Read more

Cooley Discusses Looming Trial of SEC’s Reg FD Case Against AT&T

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Reg FD cases rarely get to court, but here’s one that, barring a settlement, appears to be headed to trial. In a 129-page opinion in SEC v. AT&T, 9/08/22, the federal district court for the SDNY denied summary judgment for both sides in a case the SEC brought in March of 2021 against AT&T and three members of its Investor Relations Department for violations of Reg FD. (See this PubCo post.) The SEC alleged that, in March 2016, AT&T learned that, as a result of a “steeper-than-expected decline in smartphone sales,” AT&T’s first quarter revenues would fall short … Read more

What NCAA Football Teaches Us About the Connection Between Executive Pay and Performance

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Our paper utilizes National Collegiate Athletic Association (NCAA) Football Bowl Subdivision (FBS) coaching contracts as a managerial setting to examine whether higher top-managerial pay (our Gridiron CEOs) is associated with better team performance. Coaching contracts are quite compelling as they are available for nearly all public universities. Such contracts are for fixed terms: five years on average, with some as long as ten years. In contrast, CEO contracts are mostly “at-will,” meaning they can be terminated without liability, while the rest are for terms of from two to five years.

Dave Clawson, the head coach at Wake Forest University, posted … Read more

Debevoise & Plimpton Discusses “Dark Patterns” and Regulatory Scrutiny

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There has been significant regulatory attention recently to “dark patterns,” including FTC guidance, state privacy laws, and state and federal enforcement actions. Some of this activity involves new regulations, and some is based on decades-old consumer protection laws that prohibit unfair and deceptive practices.

There is no single definition for “dark patterns,” but the term generally refers to user interfaces (e.g., websites, apps) that are designed to manipulate a user’s behavior and subvert a consumer’s choices, causing the user to engage in conduct that they did not expect or desire, or impairing individuals’ ability to make … Read more

Proxy Tactics Are Changing: Can Advance Notice Bylaws Do What Poison Pills Cannot?

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Military strategy and takeover strategy share a few things in common. At some point, generals and M&A lawyers each must recognize that the old technology no longer works as it did in the past and can no longer dominate the battlefield. For example, in the Ukraine war, it has become obvious that battle tanks are vulnerable and do not reign supreme. Correspondingly, in the takeover war, the poison pill is no longer the absolute showstopper it once was and can be outflanked by activist hedge funds seeking to run a proxy contest — even if only for a minority of … Read more

Wachtell Lipton Discusses Cryptoassets and the SEC’s Mandate

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In recent months, the SEC has been the subject of intensifying criticism regarding its role in cryptoasset regulation.  While some critiques properly raise questions and engage in constructive debate, others have resorted to shrill attacks that betray a reflexively adversarial position toward any agency involvement in the cryptoasset space.  We continue to maintain that far greater regulatory clarity is indispensable to sustainable growth in the cryptoasset industry.  While we do not believe that such clarity comes from civil enforcement actions that are lodged against ancillary players with limited transparent analysis, it is just as important that public debate about the … Read more

How Board Gender Diversity Affects the Relation between CSR and Firm Value

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The economic benefits of corporate social responsibility (CSR) and workplace gender diversity are areas of growing interest for business leaders and regulators. Research shows that socially responsible activities enhance firm value while irresponsible social activities destroy value and that firms with more women directors tend to do better on social and environmental issues. In a new study, we examine the interplay between board gender diversity and CSR performance on firm value, more specifically, whether female representation on the board moderates the effect of CSR performance on firm value.

Several arguments suggest that board gender diversity could reduce the negative effect … Read more

ISS Discusses the Rise in Sustainability Officer Pay

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Corporations are increasingly adding the role of Chief Sustainability Officer to their executive teams — at pay levels that place them among the top five Named Executive Officers — reflecting rising recognition of environmental, social and governance risk. In this study, we examine the prevalence of these positions among NEOs and how aggregate pay compares with other executive roles. Separately, we look at how the pay of Chief Risk Officers and Supply Chain Officers compares with other NEOs.

Key Takeaways

  • Fewer than 1% of NEOs were CSOs in fiscal 2021
  • The median total compensation of CSOs is higher than the

… Read more

How Corporate Managers Think about Forward-Looking Guidance

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Headlines during earnings season often focus on the forward-looking guidance corporate managers provide. Yet, questions remain about managers’ perceptions of the guidance process and the tradeoffs they face in deciding whether and what to guide. To gain greater insight, we surveyed 357 managers at publicly listed corporations and conducted nine in-depth interviews.

Our survey sheds light on the critical role guidance plays during earnings season. Because analysts and investors dislike surprises, our respondents said guidance provides an effective channel to manage expectations. Around earnings announcements, corporate managers commonly meet privately with analysts and investors after conference calls. Our respondents said … Read more

Cleary Gottlieb Discusses Change Healthcare Decision’s Implications for PE Sponsors

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Biden-appointed antitrust officials have asserted, unfairly in our view, that private equity firms deserve heightened scrutiny when they engage in corporate transactions.  For example, the head of the DOJ’s Antitrust Division said in an interview with The Financial Times earlier this year that the private equity business model “is often very much at odds with the law and very much at odds with the competition we’re trying to protect.”  The Chair of the Federal Trade Commission has similarly stated in a separate Financial Times interview that private equity firms’ acquisitions can have “life and death consequences.”

Agency criticism of private … Read more

Corporate Social Activism and the New Business of Change

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The days when activists focused on fights over social issues while businesses concentrated on the pursuit of commercial profit are gone. Through pronouncements, boycotts, sponsorships, lobbying, investments, and divestment, businesses and their executives are at the forefront of some of the most important and contentious issues of our time, from the Russian invasion of Ukraine to voting rights to  gender equity.  As a result, the traditional understandings of capitalism and activism in American life have changed, a topic that I explore in a recent article and a new book.

Throughout U.S. history, corporations have played a critical role in social … Read more

Gibson Dunn Discusses Key Considerations for Stakeholders on ESG Ratings

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In March 2022, the Financial Times reported a “boom” in environmental, social and governance (ESG) ratings, with a “race to carve out market share in the very lucrative business of providing advice to investors on environmental, social and governance issues”. These ratings typically assess the impact of ESG factors on a company or product and (in some cases) a company’s impact on the outside world.

It is estimated that there are some 140 different ESG data providers in the market currently, including ESG branches of well-known agencies such as Refinitiv, Moody’s, S&P and Morgan Stanley Capital International (MSCI). This growth … Read more

How Directors’ Oversight Duties and Liability under Caremark Are Evolving

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Corporate law prohibits companies from pursuing profits through criminal misconduct. It uses the fiduciary duties imposed on boards under the Caremark doctrine,[1] and the threat of personal liability of directors for deliberate breach, to help motivate directors to make sure their companies comply with the law. Yet Caremark has largely failed: Most boards have neither adopted effective systems to deter corporate crime nor asserted effective oversight over investigations. Caremark did not require directors to obtain information about material compliance failures or detected misconduct, information essential to effective oversight. To induce directors to deter misconduct – even when it is … Read more

SEC Chief Accountant Discusses Auditors’ Responsibility for Fraud Detection

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Fraud causes significant losses to investors each year.[1] Frauds that affect issuers and their investors may involve asset misappropriation, financial reporting misconduct, or, more generally, corruption. The Association of Certified Fraud Examiners (“ACFE”) estimates that organizations lose 5% of revenue to fraud each year, an estimated loss of $4.7 trillion on a global scale.[2]

As we have emphasized on many occasions, independent auditors play an important gatekeeper role in supporting high-quality financial reporting and the protection of investors.[3] A critical aspect of this role is an independent auditor’s responsibilities with respect to fraud detection[4] during

… Read more

How Director and Officer Liability Affects Corporate Tax Avoidance

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In a recent paper, we use the law protecting directors and officers of Nevada-incorporated firms from liability to study how such laws relate to corporate tax avoidance. Under the 1987 law, those directors and officers are liable only if they breach the duty of loyalty and engage in intentional or illegal misconduct.  Not only is the standard of liability higher in Nevada than in any other state, but it also applies to officers and directors rather than, as in other states, just directors.

Current theory, largely following the work of Desai and Dharmapala (2006, 2008), suggests that corporate tax … Read more

Cooley Discusses Ruling Against SEC on Non-Enforcement of Proxy Adviser Rules

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On September 28, in an action by the National Association of Manufacturers against the SEC and Chair Gary Gensler, the U.S. District Court for the Western District of Texas held that the SEC violated the Administrative Procedure Act when, in June 2021, Corp Fin stated that it would not recommend enforcement of the 2020 proxy advisory firm rules while those rules were under reconsideration. In 2022, however, the SEC formally adopted new amendments to the 2020 rules reversing some of the key provisions and, at the same time, rescinding Corp Fin’s non-enforcement statement. You might think that the adoption … Read more

Stock Repurchasing and Corporate Social Responsibility

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Stock repurchases are popular. Between January 2009 and 2018, S&P 500 firms spent $4.3 trillion to buy back their shares, which is significantly more than these firms spent on dividend payments to their shareholders (Lazonick, Sakinç, and Hopkins, 2020). Stock repurchases are also controversial. Skeptics argue that, contrary to what managers claim, repurchasing isn’t done to buy undervalued stocks but to benefit the managers themselves. Shilon (2020) cites examples of how managers repurchase stocks to meet earnings-per-share (EPS) targets set in their compensation contracts and thus increase their personal compensation. Nguyen, Vu, and Yin (2020) reveal a negative association between … Read more

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 this new approach. Despite agency advocacy for novel theories, these decisions applied traditional legal analysis to find for the merging parties, questioning the agencies’ ability to change merger review standards.

Three agency losses in September 2022

The Federal Trade Commission (FTC) recently challenged a vertical merger in the biotechnology sector and the Department of Justice (DOJ) challenged two mergers in … Read more

Do Hostile Takeover Threats Matter?

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Much of the vast literature on corporate governance focuses on internal issues, such as board characteristics. Yet external governance –  the market for corporate control, often known as the takeover market – is  critical to determining how well a company is run. Managers are less likely to exploit shareholders when subject to the discipline of the takeover market, making it a governance instrument for reducing agency problems. In a new study, we demonstrate the impact of the takeover market on companies by investigating how it affects an important measure of their financial health: credit ratings.

Credit ratings provide information on … Read more

Skadden Discusses How Directors, Officers, and Other Fiduciaries Can Deal With Inflation and Market Turmoil

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Directors, officers and other fiduciaries (together, “fiduciaries”) owe two primary duties to a corporation and its shareholders: the duty of loyalty and the duty of care. The duty of loyalty requires that fiduciaries make business judgments in the honest and good faith belief that the judgments are in the best interests of the organization, without personal motivations. The duty of care calls for fiduciaries to act with the same care that a prudent person would use in similar circumstances. Fiduciaries are entitled (and encouraged) to seek information from management and outside advisers in the performance of their duties.

An important … Read more

How Regulatory Shaming Can Help Solve Corporate Climate Obstruction

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According to conventional wisdom, climate mitigation by governmental regulation should target the reduction of greenhouse gas emissions. Indeed, corporations and industries, including their products and supply chains, are the main source of greenhouse gas emissions, which cause global warming and climate breakdown. However, in a recent paper, I argue that regulators suffer from a blind spot when it comes to climate change mitigation: corporate climate obstruction.

Climate obstruction by firms is a sophisticated, manipulative practice involving climate denial, climate washing, and other deceptive corporate behaviors that aim to impede, block, and delegitimize climate legislation and regulation. The end goal of … Read more

Debevoise & Plimpton Discusses the SEC’s Most Recent Reg S-P Enforcement Action

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On September 20, 2022, the SEC announced settled charges and the imposition of a $35 million penalty against a dually registered investment adviser and broker-dealer (the “Firm”) for violations of Regulation S-P (“Reg S-P”). The SEC found that the Firm violated Reg S-P’s requirements for registrants to adopt written policies and procedures to safeguard customer records and information (the “Safeguards Rule”) and to take reasonable measures to protect against unauthorized access or use of consumer report information and records in connection with disposal of this material (the “Disposal Rule”).

This matter is the first SEC enforcement action under Reg S-P’s … Read more

How Boards’ Cultural Diversity Affects Firm Performance Under Competitive Pressure

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Awareness of the cultural dimension of diversity in corporate boards has been on the rise. Directors’ cultural values can affect how effective corporate boards are in advising and monitoring managers and, ultimately, how well a firm performs. At the same time, increased globalization and rapid technological developments put substantial competitive pressure on businesses. In a new paper, we examine whether cultural diversity on corporate boards can help firms compete.

It is well documented that culture significantly influences individuals’ values, beliefs, and preferences. The variety of values and perspectives of a culturally diverse board can facilitate information sharing, catalyze critical thinking, … Read more

Gibson Dunn Offers 2022 Mid-Year Securities Litigation Update

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The number of securities lawsuits filed since January has remained steady compared to the first half of 2021. We have already seen many notable developments in securities law this year. This mid-year update provides an overview of the major developments in federal and state securities litigation in the first half of 2022:

I.           Filing And Settlement Trends

 According to Cornerstone Research, although new filings remain consistent with the first half of 2021, the number of approved settlements is up over 30% from the same time last year, and the median settlement amount has rebounded from the low that we reported … Read more

A New Twist in Twitter: Can Musk “Rely” on Zatko?

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As we get closer to the October 17th scheduled trial date for the Twitter lawsuit to compel Elon Musk to complete his proposed $44 billion acquisition of Twitter, the charges and allegations are getting wilder and woolier. Once, this was a case in which the party seeking to escape the merger agreement (i.e., Musk) asserted that the percentage of Twitter accounts that were “bots” (or fake) amounted to a “material adverse change” that permitted the buyer to back away. Given both Delaware’s strong commitment to deal certainty and Musk’s seemingly reckless indifference to due diligence, most law professors saw Musk … Read more

Paul Weiss Discusses DOJ Loss in Challenge to U.S. Sugar-Imperial Sugar Deal

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After determining that the DOJ failed to meet its burden of proof, a Delaware federal court denied the government’s request to enjoin the $315 million acquisition of Imperial Sugar by U.S. Sugar. The court found that the DOJ failed to prove a proper antitrust market and criticized the government’s expert for, among other things, failing to take account of the realities of the sugar industry in the United States. The public version of the court ‘s opinion was docketed on September 28. The DOJ has appealed, and the Third Circuit ordered expedited briefing but denied the DOJ’s motion for an … Read more

What Meta’s Oversight Board Tells Us About the Prospects for Self-Regulatory Dispute Settlement

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Should private social media companies have a free hand in deciding what content to allow on their platforms? Governments from the European Union to India to the U.S. states of Texas and Florida are increasingly answering no, as they seek to co-exist with a range of self-regulatory initiatives created by the platforms. Meta – formerly Facebook – has gone furthest in establishing a self-regulatory mechanism, creating an appeals process for Facebook and Instagram users who disagree with its content moderation decisions in the form of a quasi-judicial Oversight Board. This body of independent experts, established in late 2020, determines … Read more

Skadden Discusses Boards, M&A, and Regulatory Risk

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Boards are regularly called upon to guide management teams in answering the age-old strategic question: build or buy? But the already complex business calculus has become increasingly complicated in the past several years because of stepped up scrutiny of mergers by regulators that has made outcomes less predictable.

One need look no further than the front page to find news of transactions abandoned after governmental challenges. Meanwhile, leaders at the Department of Justice and Federal Trade Commission and other competition authorities have spoken of the need to reconceive antitrust law and have voiced support for aggressive new theories about protecting … Read more

The Puzzle and Persistence of Biglaw Clustering

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Elite U.S.-based global law firms (Biglaw) concentrate their offices in the costliest districts of superstar cities, especially two neighborhoods in Manhattan. This pattern has persisted despite both the dispersal of Biglaw clients across less-dense, lower-cost U.S. locations and the development of telework capacity. This suggests a puzzle: Law is among the occupations with the highest theoretical propensity for remote work, yet prior to the pandemic, Biglaw required in-person work in the priciest places – meaning it paid (and continues to pay) a premium on both of its biggest expenses, wages and real estate. Yet Biglaw is famously profit-driven, suggesting … Read more

Sullivan & Cromwell Discusses What Recent SEC Insider Trading Action Portends for Rule 10b5-1

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On September 21, 2022, the Securities and Exchange Commission found that Cheetah Mobile Inc.’s Chief Executive Officer, Sheng Fu, and its former President, Ming Xu, committed insider trading in relation to securities they sold under a joint “10b5-1 plan.”  In addition to paying civil penalties, they also agreed in a Cease-and-Desist Order to various undertakings, which notably includes Fu adhering to a 120-day cooling-off period for his future 10b5-1 plans.  The undertakings in the Order reflect the SEC’s recently proposed, but not yet adopted, amendments to Rule 10b5-1, perhaps signaling the next steps of the SEC and best-practices of the … Read more

How the Rise of Corporate Debt in Emerging Economies Affects Corporate Investment

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In recent years the corporate debt landscape in emerging markets has changed substantially. Debt in emerging economies climbed to a record high of $55 trillion in 2018, illustrating the largest and fastest surge in the last five decades. In addition, according to the International Monetary Fund (IMF) 2015 report, the mean ratio of corporate debt to GDP grew by 26 percent. These recent developments are important and have raised broad concerns because emerging economies account for 60 percent of the global GDP.

High levels of leverage could either constrain or accelerate firm growth. In addition, high corporate debt … Read more

Debevoise & Plimpton Discusses How to Protect AI Models and Data

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One of the most difficult challenges for cybersecurity professionals is the increasing complexity of corporate systems. Mergers, vendor integrations, new software tools and remote work all expand the footprint of companies’ information systems, creating a larger attack surface for hackers. The adoption of artificial intelligence presents additional and, in some ways, unique cybersecurity challenges for protecting the AI models themselves as well as the sensitive data that is used to train and operate the AI systems.

On August 31, 2022, in recognition of these growing challenges, the UK National Cyber Security Centre (“NCSC”) released its Principles for the Security of … Read more

The Cutting Edge Podcast, Episode 2 – “Special Counsel: Whose Interests Do They Serve?”

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Here’s the second episode of The Cutting Edge, a podcast series that examines white collar crime and corporate governance. This episode, “Special Counsel: Whose Interests Do They Serve?” looks at the history and unique status of the special counsel role as well as the risks it can pose.

Hosted by John C. Coffee Jr., the Adolf A. Berle Professor of Law at Columbia Law School, and with Jed S. Rakoff, a federal senior district judge for the Southern District of New York and an adjunct professor at Columbia Law, joining as commentator, the episode focuses on the … Read more

High-End Securities Regulation

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The SEC has long taken a hands-off approach to private markets. Instead of direct regulation, the commission has used investor access restrictions to create high-end contracting environments where investors (in theory) have the resources necessary to fend for themselves. But in early 2022, this hands-off philosophy was turned on its head. In response to booming growth and concerns about harms to public pension plans and other institutional investors, the SEC proposed a sweeping set of regulatory interventions in the $18 trillion private fund industry (the “Private Fund Proposal”), a vast and important part of the private market ecosystem.

In a … Read more

Arnold & Porter Discusses DOJ’s First False Claims Act Settlement With PPP Lender

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On September 13, 2022, the United States Department of Justice (DOJ) announced a settlement with Prosperity Bank, a regional bank with branches in Texas and Oklahoma, for processing a Paycheck Protection Program (PPP) loan on behalf of an ineligible borrower.

Although the settlement was for less than $20,000, it is nonetheless noteworthy because it is the first time DOJ has publicly settled with a PPP lender for alleged violations of the False Claims Act (FCA) (though DOJ has been actively pursuing fraud cases against PPP borrowers for some time).

Importantly, this settlement announcement comes on the heels of recent legislation… Read more

The Blurring Lines between Private and Public Ownership

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Public versus  private status is a common point of differentiation among companies and can determine, for example, how they are regulated and who can invest in them. Yet many private companies increasingly resemble their public counterparts. This blurring of the lines between public and private has been gradual, and in a new paper, I focus on three areas in which it has occurred: firms’ sources of capital, governance structures, and reliance on acquisitions to fuel growth.

First, there is growing overlap between public and private firms’ sources of capital. Private firms have traditionally been owned by founders and angel investors, … Read more

Sullivan & Cromwell Discusses Delaware Decision on Caremark Liability for Cybersecurity Failure

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On September 6, 2022, in Construction Industry Laborers Pension Fund on behalf of SolarWinds Corporation, et al. v. Mike Bingle, et al. (“SolarWinds”),[1] the Delaware Chancery Court granted a motion to dismiss a derivative suit against directors of SolarWinds Corporation, a provider of information technology infrastructure management software, for allegedly breaching their fiduciary duty of loyalty by failing to oversee the company’s cybersecurity risk, which, plaintiffs claimed, resulted in a major cyber breach in 2020.

Vice Chancellor Sam Glasscock III held that plaintiffs failed to allege demand futility with sufficient particularity, as required to pursue litigation derivatively … Read more

Competitive Target Pay Practices for CEO Compensation

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The basic goals of executive compensation have changed little since the advent of large corporations in the late 19thcentury: Provide strong incentives to increase shareholder value, retain key talent, and limit shareholder cost. The literature of compensation consultants and HR executives, however, claims that the guiding policy used to achieve these objectives has indeed been revised. In the first half of the 20th century, it was fixed sharing in a measure of value added, typically, a fixed percentage of an economic profit measure. Since then, it has been “competitive pay policy,” that is, target compensation set at … Read more

Latham & Watkins Discusses SEC’s Strategic Plan

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On August 25, 2022, the Securities and Exchange Commission (SEC) published a draft Strategic Plan (the Plan) for fiscal years 2022–2026. The Plan focuses on three goals that, according to SEC Chairman Gary Gensler, advance the SEC’s mission to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. The Plan is open for public comment until September 29, 2022.

The goals of the Plan are:

  1. Protecting Retail Investors Against Fraud, Manipulation, and Misconduct

Investor protection remains a core value for the current SEC, while keeping technological innovation essential to the agency’s considerations:

  • The SEC will treat all

… Read more

Remedies for M&A Breach of Contract – The Cineplex Case

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A remorseful acquirer wants to get out of a merger or acquisition agreement. It concocts a thin justification, which a court wisely rejects, finding unlawful breach. What is the appropriate remedy for harm done to the target?

While attention has focused on the controversy surrounding Elon Musk’s proposed acquisition of Twitter, this question arose in the recent Canadian decision of Cineplex v. Cineworld.[1] The Cineplex court rejected specific performance and instead, in a case of first impression, awarded the target CAD $1.24 billion in expectation damages for loss of anticipated synergies.

Our forthcoming paper takes a close look … Read more

Algorithmic Trading and How it Affects What Directors Learn from Stock Prices

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Algorithmic trading (AT) is one of the most notable financial innovations in several decades and constitutes a substantial portion of recent trading in stock markets. However, evidence on the economic consequences of AT is mixed. On one hand, prior research finds that AT expedites the incorporation of public information into stock prices, especially around earnings announcements. On the other hand, studies document that AT reduces price informativeness, thus adversely influencing the extent to which managers learn from stock prices when making investment decisions. In our paper, we examine how AT affects the extent to which directors on corporate boards … Read more

SEC Chair Gensler Speaks to Investor Advisory Committee

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Thank you. It is great to speak to the Investor Advisory Committee (IAC). As is customary, I’d like to note that my views are my own and that I am not speaking on behalf of the Securities and Exchange Commission or SEC staff.

Today, the Committee will cover a wide range of investor issues through four panels and three recommendations. Of these seven topics, the Commission recently has issued proposals on five of them. Your input helps us, both through this meeting and through any materials—including reports, recommendations, and transcripts from today’s conversation—that you may submit to the respective comment

… Read more

How Accounting Comparability Between Bidders and Targets Affects Deal Outcomes

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How comparable are the financial statements of M&A bidders and acquirers in the same industry? And does financial statement comparability affect the outcome of a deal? In a recent paper, available here, we investigate these questions, using a sample of deals between U.S.-listed firms over the 1987-2021 period.

An accounting system maps economic transactions onto financial statements (Yip and Young, 2012). Accounting comparability reflects the tendency of two firms that have comparable accounting systems to produce similar (or dissimilar) financial statements for a given set of similar (or dissimilar) economic events (De Franco et al., 2011; Barth et al., … Read more

ISS Discusses Evolving Clawback Policies

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The Securities and Exchange Commission is poised to revise its rules on so-called clawbacks: the process of recovering incentive compensation from current and former executives when a company is forced to make a material restatement of its accounts. With a target of releasing its revisions in October, the SEC has twice reopened public comment periods on proposals that it first advanced in 2015 to implement part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The regulator also added 10 new policy questions along with a memorandum that addressed two matters: the voluntary adoption of clawback policies by companies … Read more

Finance Without Law: The Case of China

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In a new article. I investigate how two financial markets of trillions of dollars each have developed extralegally in the past two decades, creating risks of regulatory enforcement actions and contract defaults. More specifically, I examine (1) how Chinese internet companies from Sina to Alibaba have adopted the structure of a variable interest entity (“VIE”) both to circumvent the Chinese government’s ban on foreign capital in high-tech industries and to get listed on overseas stock markets, and (2) how Chinese entities and foreign investors contract out of China’s stringent regulations on the issuance of international bonds, focusing on one of … Read more

Deputy AG Lisa Monaco Speaks on DOJ’s New Approaches to Corporate Crime

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Good afternoon. Thank you, Dean McKenzie, for the introduction and for hosting us today. I’m happy to be back at NYU, and to see so many friends and former colleagues in the room.

Let me start by acknowledging some of my DOJ colleagues who are here. That includes the U.S. Attorneys for the Southern and Eastern Districts of New York, New Jersey, and Connecticut.

But just as importantly, we’re joined in person and on the livestream by line prosecutors, agents, and investigative analysts—the career men and women who do the hard work, day in and day out, to make great

… Read more

Machine Learning, Algorithmic Trading, and Manipulation

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Trading in financial markets is increasingly dominated by algorithms. They enable trading at speeds and levels of adaptiveness that are impossible for human beings. A key question for the legal system is whether these algorithms will disrupt the efficiency and integrity of markets, and if they will, whether existing regulation is well-suited to deterring misconduct. A key question for finance is to determine what market structures are most robust to manipulation by new algorithmic trading agents.

In our new working paper, we study the potential consequences of advanced algorithms trading in a financial market. Specifically, we analyze experimentally how … Read more

Skadden Discusses Executive Order on CFIUS Authority to Identify National Security Risks

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On September 15, 2022, President Joe Biden issued an executive order (EO) “on ensuring robust consideration of evolving national security risks” by the Committee on Foreign Investment in the United States (CFIUS or the Committee). The EO does not change CFIUS jurisdiction or process, nor does it, as a practical matter, materially change the factors CFIUS regularly considers (or has considered over the past several years) when reviewing a CFIUS filing for national security risk. Despite the EO’s modest changes to policy, its articulation of some specific areas of concern may have a marginal effect on CFIUS agencies’ future reviews … Read more

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 problems as due to corporate or stock market short-termism, when they in fact have little to do with failing to think and plan for the long run, we misunderstand the problem and miss out on the best remedies. Knowing what is, and just as importantly what is not, due to stock market short-termism is vital so that policymakers, analysts, and … Read more

How Common is Insider Trading? Evidence from the Options Market

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The U.S. Securities and Exchange Commission (SEC) brought 51, 30, and 33 insider trading cases in 2018, 2019, and 2020, respectively. Whether those numbers mean that insider trading is relatively uncommon or that the cases regulators and prosecutors have pursued are just the tip of the iceberg is difficult to determine and poses a challenge for studying insider trading.

We address this challenge in a new paper on how option investors responded to a significant increase in the likelihood and severity of prosecution after hedge-fund manager Raj Rajaratnam’s arrest in October 2009. His case marked the start of a major … Read more

SEC Chair Gensler on Proposed Rules for U.S. Treasuries Clearing

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Today [September 14], the Commission will consider whether to propose standards for covered clearing agencies (also known as clearinghouses) regarding the clearance of certain trades involving U.S. Treasury securities. I am pleased to support these rules because, if adopted, they would help to make a vital part of our capital markets more efficient, competitive, and resilient.

The $24 trillion Treasury market—the deepest, most liquid market in the world—is the base upon which so much of our capital markets are built. Treasury markets are integral to how the Federal Reserve administers monetary policy. They are how we, as a government and

… Read more

Finding Internal Limits on Fiduciary Loyalty

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Corporate law – and fiduciary law in general – has struggled with how to handle loyalty duties that are harmful to society.  For example, a director’s act of loyalty to shareholders that harms the environment, or a director’s effort to benefit her corporation by breaking the law.  Not all of these cases are easily resolved by refinements to the law.  In some cases, though, the courts have indicated that the conduct at issue is not merely unacceptable, but also inconsistent with the fiduciary’s own obligation to be loyal.  A notable instance is when directors intentionally violate the law to benefit … Read more

The Attack on Nasdaq’s Board Diversity Rule

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The recent pushback by conservative legal groups against equality and diversity on corporate boards has accelerated to new levels in the past few months. The latest example is a challenge to Nasdaq’s board diversity rule, which was approved in August 2021.

Beginning in 2025, the rule will require companies to disclose the level of gender and ethnic diversity on their boards of directors and to explain any lack thereof. On August 29, the U.S. Court of Appeals for the Fifth Circuit heard arguments in a case seeking to vacate the SEC’s order approving the rule.

The petitioners, the Alliance for … Read more

ISS Discusses Proposed $810 Million Settlement in Twitter Shareholder Class Action

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What a long, strange trip it’s been for Twitter shareholders since the company’s November 7, 2013 Initial Public Offering on the New York Stock Exchange.

Aside from the current litigation dominating today’s headlines between Twitter and Elon Musk – which includes a handful of shareholder class actions – investors from early 2015, have potential eligibility in a previously announced settlement, depending upon the timing of their purchases.

Recently, a final fairness hearing was scheduled for November 17, 2022, where Judge Jon S. Tiger in the Northern District of California is expected to officially approve the $809.5 million settlement. If, as

… Read more