Crown image Columbia Law School

How CEO Membership on Outside Boards Affects Managerial Efficiency

CEO outside directorships and their value to companies have been a topic of debate among a wide range of stakeholders, particularly investors, boards, and policy makers. Some argue that CEO outside directorships benefit a CEO’s own firm by opening valuable resources in other boardrooms and the corporate elite and by allowing first-hand insights into successful firm strategies. Others, particularly proxy advisers and some journalists, call connected directors “overboarded,” suggesting that outside directorships consume too much of a CEO’s time while remitting little or no value to the CEO’s own firm. Reflecting that criticism, S&P 500 CEO outside board assignments haves … Read more

Fried Frank Discusses Trump Administration’s Trade Pressure on China and Russia

Throughout December 2020, the Trump administration continued its focus on China and Russia and imposed additional export and investment controls. On December 23, 2020, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) published a final rule to amend the Export Administration Regulations (EAR) and create a new Military End User List (MEU List). A license from BIS is required for exports, reexports, or in-country transfers to persons on the MEU List for certain designated items. On December 18, 2020, BIS added 77 entries to the Entity List, most of which are Chinese entities. These actions follow the … Read more

Shareholder Lawsuits and CEO Turnover Decisions

Shareholder lawsuits have long prompted intense debate. Despite increased corporate democracy and shareholder rights, some commentators argue that shareholder litigation is still a shareholder’s best option to bring about changes. Shareholder litigation can impose personal liability on corporate managers and directors for breach of the duties of care (negligence) and loyalty (conflict of interest). However, there is a collective action problem associated with shareholder lawsuits, and some argue that the principal beneficiaries of shareholder lawsuits are attorneys.

In a recent study, we move the debate on shareholder lawsuits forward by studying the impact of shareholder litigation threats on CEOs’ employment. … Read more

Skadden Discusses Supreme Court Review of FTC Monetary Relief Authority

On January 13, 2021, the U.S. Supreme Court heard a case, AMG Capital Management, LLC v. FTC, that could substantially curtail the primary authority the Federal Trade Commission (FTC) relies on to seek monetary relief from defendants in federal court. For decades, the FTC has used Section 13(b) of the Federal Trade Commission Act of 1914 (FTC Act) to seek billions in restitution and disgorgement in a wide range of actions, including cases concerning telemarketing and online frauds, deceptive business practices, data security and privacy breaches, and conspiracies to monopolize in pharmaceutical markets.

Section 13(b) authorizes the FTC to seek … Read more

The Myth of Corporate Governance

In late 2019, somewhat surprisingly, the Business Roundtable issued a brief statement advocating “a fundamental commitment to all of our stakeholders,” thus ending its decades long singular commitment to shareholder value.

The statement triggered an intense global debate about the purpose of the modern corporation. In academia and in policy circles, new attention is now being paid to whether or not pursuit of profit is the sole obligation of the corporation. Legislation that would mandate a more significant role in corporate governance for stakeholders was introduced by Sen. Elizabeth Warren and may, in light of the commitment of the Biden … Read more

Goodwin Procter Discusses SEC Statement on Custody of Digital Asset Securities

Christmas came early for many in the digital asset community by way of a statement from the U.S. Securities and Exchange Commission (“SEC” or “Commission”) on December 23, 2020 that grants relief in the area of broker “custody” of digital asset securities. The framework laid out by the SEC will operate somewhat like a hybrid no-action letter/safe harbor/pilot program, pursuant to which “special purpose” brokers may follow certain, specific steps and custody digital asset securities during a five-year program period without the risk of facing an enforcement action.


U.S. broker-dealers are subject to a multitude of laws and rules, … Read more

Faithful Fiduciaries Have Nothing to Fear from DOL Investment Rule

Late in the afternoon of the Friday before Election Day, the Department of Labor finalized a rule that requires pension and retirement plan fiduciaries to consider only financial interests when investing plan funds. On its face, the rule seems anodyne. Yet it has provoked a strong negative reaction from fund managers and others who advocate for use of Environmental, Social, and Governance (“ESG”) factors in investing.

This negative reaction is puzzling. Advocates for ESG investing, such as the United Nations and BlackRock’s Larry Fink, argue vociferously that ESG investing makes money while also doing good. The rule requires pension … Read more

Debevoise Discusses Banks and Climate-Change Initiatives

In the United States this past year, growing movements for social, racial and environmental justice, and the impact of an unprecedented health crisis, have coincided with a range of institutions increasing their focus on promoting environmental, social and governance (“ESG”) initiatives as part of their businesses. Banks and other financial institutions are among those undertaking efforts to expand their ESG activities. Notably, some banks are taking these actions despite that, under the law today, they are subject to few if any regulations that promote ESG initiatives. None of the U.S. federal bank regulators, for instance, mandate expansion of ESG-related activities … Read more

Domesticating Foreign Finance

Barclays, Credit Suisse, Deutsche Bank, UBS, and other foreign banks played an outsized role in the 2008 financial crisis that cost U.S. households trillions of dollars of wealth. As credit markets froze, foreign banks’ U.S. offices experienced extreme stress and relied on the Federal Reserve’s emergency lending facilities for survival. After the crisis, policymakers tried to strengthen regulation of foreign banks’ U.S. operations, which account for roughly 20 percent of the U.S. banking system. In my new article, Domesticating Foreign Finance, I contend that the United States’ post-crisis reforms were insufficient and that foreign banks continue to pose unwarranted … Read more

Paul Weiss Discusses Antitrust Enforcement in the Near Term

President-elect Biden has yet to name the officials who will oversee antitrust enforcement in his administration. Therefore, the focus of the administration’s substantive agenda remains to be seen. However, the staffs of the Antitrust Division of the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) will continue their work as the agencies transition to new leadership. Indeed, the agencies and their career staff can be expected to continue to investigate and prosecute pending cases and receive and review merger filings. Nevertheless, there are certain ways in which the trajectory and pace of the agencies’ work might be … Read more

Regulatory Costs of Being Public: Evidence from Bunching Estimation

Disclosure and internal governance regulations are, along with accounting rules, distinguishing features of the public firm.  Deregulation agendas such as those of the Trump administration typically assume that many regulations on public firms have imposed high compliance costs.  Such arguments are at the center of the debate surrounding the decline in the number of public firms, changes in firm-size distribution and the growth of private equity markets.

Researchers and policy makers have extensively studied the costs and the impact of disclosure and internal governance rules (e.g., SEC, 2011; Coates and Srinivasan, 2014). However, as Leuz and Wysocki (2016) write in … Read more

The Unfinished Business of Regulating Clearinghouses

The Dodd-Frank Act recently celebrated its 10th anniversary, with commentators, policymakers, and scholars joining the celebration by discussing the achievements of the sweeping post-crisis financial reform. Yet Dodd-Frank left critical unfinished business that, if not addressed, could erode the structural foundations of the post-crisis markets: the regulation of clearinghouses.

In a new article, I identify the flaws in the the current regulatory framework for clearinghouses. These flaws polarize rather than align the incentives of clearinghouses’ major stakeholders: the owners – companies such as the Chicago Mercantile Exchange Group, Intercontinental Exchange, and the London Stock Exchange Group – and the … Read more

Ropes & Gray Discusses UK’s National Security and Investment Bill

In November, the UK Government announced a significant and wide-ranging package of reforms that, if adopted, will both recalibrate and expand its existing powers to assess and intervene in mergers and acquisitions on the grounds of national security.

The proposed reforms are set out in the National Security and Investment Bill (the “Bill”) and addition to the Competition and Markets Authority’s mergers framework under the Enterprise Act 2002.

A new Investment Security Unit (the “Unit”), which will sit within the Department for Business, Energy and Industrial Strategy, will be the point of contact for businesses with questions or wishing to … Read more

Passive Exit

Economist Albert O. Hirschman (1970) classically set out the two alternatives facing dissatisfied members of an organization: They can voice displeasure or exit for greener pastures. Hirschman’s model has long explained the tradeoff facing shareholders of a poorly governed firm: Agitate for change or take the “Wall Street Walk” by selling shares.[1] Professor John C. Coffee (1991) showed that large institutional investors have little incentive to voice their concerns to monitor portfolio firms,[2] a trend exacerbated by low-fee “passive”[3] portfolio management (Bebchuk et al., 2017).[4]

While voice is often too costly for passive investors, exit is … Read more

Fried Frank Discusses the New Paycheck Protection Program

On December 27, 2020, the Economic Aid Act (EAA) was signed into law to provide financial relief to small businesses suffering from the impact of the COVID-19 pandemic. The EAA amends the PPP loan program that was established earlier this year under the CARES Act. As before, the PPP loans will be low-interest, forgivable loans for specified purposes, designed to encourage businesses to keep employees on the payroll during the pandemic.

The PPP program established under the CARES Act ended on August 8, 2020. At that time, PPP loans totaling $525 billion had been issued to roughly 5.2 million businesses, … Read more

Pandemic Disclosures: Covid-19 as a “Current Market Condition” for Mutual Funds

What constitutes a “current market condition” that mutual funds are required by SEC regulations to disclose? Current market condition risks arise because of changing market conditions that can affect investment performance.  For some U.S.-registered funds, Covid-19 is prompting new event-specific disclosures. In 2020 Q1-Q3, we see a dramatic increase in public health-related disclosures overall, and the emergence of new Covid-19 and quarantine risk disclosures.

While the SEC hasn’t mandated Covid-19 disclosures or provided guidance to funds (as it has with operating companies), it is clear that funds are not immune to the effects of Covid-19. … Read more

Paul Weiss Discusses SEC Guidance on Disclosure by SPACs

The Staff of the Division of Corporation Finance recently issued CF Disclosure Guidance: Topic 11 – Special Purpose Acquisition Companies (available here). This guidance highlights disclosure considerations for SPACs at both the IPO and business combination stages, with a focus on disclosures around conflicts of interest and the differing economic interests of SPAC sponsors, directors, officers and their affiliates (collectively, “SPAC Insiders”) as compared to the interests of the SPAC’s public shareholders.

IPO Disclosure Considerations

In an effort to elicit better disclosures when a SPAC goes public, the guidance poses questions for SPACs to address in the IPO registration … Read more

Securities Regulation in Cryptoasset Markets: A Cost-Benefit Analysis

Rapid technological innovation over the past five years has created unprecedented opportunities for entrepreneurs – often outside the world of traditional finance and capital markets. Cryptoassets, for example, may prove to be socially beneficial tools for enabling entrepreneurs to more efficiently raise capital, and making sure those and other welfare-maximizing financial innovations succeed has become paramount for researchers and policymakers. In a recent paper, The Leviathan of Securities Regulation in Cryptoasset Markets, I aim to assist U.S. capital market regulators in determining how best to achieve this goal.

Unlike many foreign countries, the U.S. does not have regulations tailored … Read more

Executive Compensation: The Trend Toward One Size Fits All

In a new paper, I document a recent and strong standardization in the structure of executive compensation. This standardization is unexpected since, in principle, the optimal incentive contract is a function of many factors that vary among firms. Executives receive compensation in many different forms, including salaries, bonuses, long-term incentives, stock, stock options, retirement benefits, and various types of perquisites. Based on contract theory, we expect that each company designs its compensation plans using these elements in different proportions. However, even though we observe much heterogeneity in the design of compensation plans, more than 25 percent of the variation across … Read more

The Lowdown on SEC Approval of the NYSE Primary Direct Listing Proposal

Direct listings, the most promising disruptor of IPOs, received a significant boost this week, thanks to the U.S. Securities and Exchange Commission (SEC) ruling on a petition from the Council of Institutional Investors.

Most common in the tech industry, direct listings have been put to the test four times in the last two years. Spotify and Slack paved the early path with their direct listings in 2018 and 2019, respectively. Earlier this year, Palantir and Asana used direct listings as an alternative to the traditional underwritten IPO and have continued to generate an enormous amount of media attention in their … Read more

Chairman Clayton’s Farewell to the SEC

I recently submitted a letter to President Donald J. Trump informing him that today, December 23, 2020, will be my last day as Chairman of the Securities and Exchange Commission.  The text of the letter is included below.

I again want to thank the 4,500 outstanding women and men of the SEC for their service to investors, our markets and our country.  They have shown time and again how fortunate we are as a nation to have individuals of strong character and unwavering commitment serving at this great agency.  Their importance and the impact of their efforts were on full

Read more

Rethinking Corporate Purpose … But Not as One Might Expect

Corporate purpose is having a moment, as it seems to do each generation or so. The Business Roundtable made waves last year by pivoting away from shareholder centrism in its “redefinition” of corporate purpose. Directors, officers, institutional investors, and others have been buffeted by a new enthusiasm for SRI, Social Impact, and ESG investing. B Lab and a growing cadre of academics, public intellectuals, and legislators have generated interest in bespoke organizations capable of fostering social enterprise. Taken in whole, these developments have fed bold predictions of a generational shift toward prosocial preferences amongst investors and entrepreneurs.

At the center … Read more

Cooley Discusses Delaware Chancery Case on MACs and Business Covenants During COVID

In the months following the onset of the COVID-19 pandemic, a slew of parties filed lawsuits in US courts relating to M&A transactions that were signed prior to March 2020 and that buyers were seeking to terminate as a result of the pandemic. In these lawsuits, buyers commonly alleged one (or both) of the following as justification for their failure to close: (i) that the target suffered an MAE as a result of COVID-19’s impact on its business; or (ii) that target materially breached the conduct of business covenant by virtue of its actions (or inactions) in response to COVID-19. … Read more

Covid and the Corporate Family

My article, Corporate Family Matters, proposes a definition of and governance regime for a particular type of corporate group – the family.  I define the family as an enterprise formed by weaving corporations, partnerships, and LLCs together into a mix of public and private entities acting for the benefit of a parent corporation or for the personal gain of one or more leaders of the enterprise.  A corporation should be treated like a family when: (1) there is more than one entity with shared ownership or management or when an entity is wholly-owned by another entity and (2) that … Read more

Paul Weiss Discusses Defense Spending Bill With Provisions Expanding SEC Disgorgement

On December 11, 2020, Congress passed the National Defense Authorization Act for Fiscal Year 2021, H.R. 6395 (the “NDAA”). The $740.5 billion bill includes language amending the Securities Exchange Act of 1934 (the “Exchange Act”) to provide the SEC with express statutory authority to seek disgorgement in civil enforcement actions pending in federal court. The amendments to the Exchange Act—which also double the statute of limitations for disgorgement from 5 to 10 years—are a direct Congressional response to limitations imposed by the Supreme Court in Liu v. SEC, 140 S. Ct. 1936 (2020) and Kokesh v. SEC, 137 Read more

Contract Design, Default Rules, and Delaware Corporate Law

Incomplete contract theory recognizes that parties have neither the interest, nor the time, nor the ability to anticipate and address every contingency in contracts. The more complex and time-sensitive the transaction, the more practical constraints force lawyers to limit the scope of drafting and broadly rely on legal defaults and open‑ended terms to plug holes and address contingencies.  In theory, this should explain why practitioners broadly choose Delaware as the preferred jurisdiction and forum for merger and acquisition (M&A) transactions and other high‑end corporate deals.  Lawyers appear to perceive Delaware as superior to other states both for its default rules … Read more

Weil Gotshal Discusses Supreme Court’s Upcoming Class Certification Case

On Friday night, December 11, 2020, tucked below its order denying Texas’s bid to overturn the results of the Presidential election, the U.S. Supreme Court agreed to review what petitioners Goldman Sachs Group, Inc. and its former top executives (“Goldman”) billed as “the most important securities case to come before the Court since Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014) (Halliburton II).” That the Supreme Court granted Goldman’s petition in Goldman Sachs Group Inc. v. Arkansas Teacher Retirement System without a well-developed circuit split suggests that some members of the Court are … Read more

The Role of Institutional Investors in Stakeholder Capitalism

Institutional investors are increasingly playing a major role in the shift toward stakeholder capitalism.  They are also facing pressure from their clients and others to focus more on ensuring that their investments promote corporate sustainability. Such expectations are reinforced by leading institutional investors’ commitments – such as those included in BlackRock CEO Larry Fink’s 2020 annual letter – to do well by doing good.

In a recent article, I shed fresh light on the role of leading institutional investors in the transition toward stakeholder capitalism. I show that, while institutional investors may encourage the adoption of sustainability-oriented policies by corporations, … Read more

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

The SEC has proposed amendments that would permit, for a temporary five-year trial period, companies to offer equity compensation to “platform workers” (gig economy workers who provide services by means of an internet or other technology based marketplace platform) under the same regulatory framework available for offerings to employees (available here). The amendments would expand Rule 701 (by which non-reporting companies may issue equity-based compensation without a registration statement) by adding a new subsection, Rule 701(h), and Form S-8 (by which reporting companies issue equity-based compensation) by adding a new General Instruction A.1.(b), to permit these offerings.

The proposed … Read more

Independent Central Banks: The Politics of Reversals

In the United States, President Trump has struggled to decide whether Jay Powell or China’s Chairman Xi is the greater enemy to the U.S. In Turkey, President Erdogan concluded that “interest rates are the mother of all evil,” switched out his central bank governor for refusing to lower interest rates, and reined in the independence of the central bank with the stroke of a pen. In India, Indonesia, Ukraine, and elsewhere, lawmakers are tightening the political grip on monetary authorities. These examples reflect a new reality in monetary policy circles: the political retreat from central bank independence, … Read more

SEC Chair Speaks on Resource Extraction Disclosure Rules

Today [December 16], we take another step in a winding, resource-consuming, decade-long journey to implement Section 1504 of the Dodd-Frank Act.  In 2010, Section 1504 added Section 13(q) to the Securities Exchange Act of 1934, which directed the Commission to issue rules, commonly known as the “resource extraction rules,” requiring resource extraction issuers – in essence, certain companies publicly traded on U.S. exchanges – to disclose information about payments made to a foreign government or the Federal government for the purpose of the commercial development of oil, natural gas, or minerals.

The Commission has finalized these rules twice already.  Yes,

Read more

Sex, Power, and Corporate Governance

On December 1, the Nasdaq Stock Market asked the Securities and Exchange Commission (SEC) for authority to adopt new listing rules aimed at increasing board gender and racial diversity. If approved, Nasdaq-listed companies will be required to disclose their board diversity data and have, or explain why they don’t have, one female and one underrepresented minority board member. Nasdaq’s The request is the latest milestone on the business and investment community’s journey to transforming corporate culture by uprooting long-established power imbalances.

As I map out in my recent article, “Sex, Power, and Corporate Governance,” the #MeToo movement first prompted key … Read more

Wachtell Lipton Discusses Recent Developments with DGCL Section 220 as Pre-Complaint Discovery

Two recent decisions of the Delaware courts confirm that Section 220 of the Delaware General Corporation Law will be consistently interpreted to grant pre-complaint discovery to stockholders seeking to prepare fiduciary-breach litigation.

In Pettry v. Gilead Sciences, Inc., a group of Gilead stockholders sought to inspect corporate documents for the purpose of investigating wrongdoing in the development and marketing of HIV drugs.  C.A. No. 2020-0132-KSJM (Del. Ch. Nov. 24, 2020).  Gilead opposed the demand, principally on the ground that the stockholders’ basis to suspect such wrongdoing—unproven allegations in other lawsuits—was inadequate to justify inspection.  The court disagreed, finding … Read more

Funding Crises: An Empirical Study of the Paycheck Protection Program

Soon after the coronavirus pandemic erupted in the spring, Congress enacted the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, pumping $2.2 trillion into the economy. Now, nine months later, many of that law’s critical elements have ended or will soon expire. Senate Majority Leader McConnell and Speaker of the House Pelosi are engaging in talks but have yet to agree on a new stimulus package.[1] When they do, we believe they can learn several important lessons from the effects of the CARES Act. In our article, we conducted an empirical study of important elements of the CARES … Read more

Do Corporate Sustainability and Sustainable Finance Generate Better Financial Performance?

Sustainability in business and environmental, social, or governance (ESG) factors in finance have entered the mainstream. In 2020, the CEO of Blackrock wrote: “Our investment conviction is that sustainability and climate integrated portfolios can provide better risk-adjusted returns to investors.”

At NYU Stern’s Center for Sustainable Business, we set out to study the state of the research on the topic and surveyed 1,141 primary peer-reviewed papers and 27 meta-reviews (based on ~1,400 underlying studies) published between 2015 and 2020. Recent interest is enormous: The research output over the last five years matches the number of articles published prior to 2015.… Read more

The Rise of International Corporate Law

What do the emergence of independent directors in South Korea, the legal reforms on related-party transactions in India, the continued rise of environmental, social, and governance (ESG) factors in the United States, and the global spread of corporate governance codes have in common? They all trace back to efforts by international organizations – the International Monetary Fund (IMF), the World Bank, the United Nations, and the Organisation for Economic Cooperation and Development (OECD), respectively – to shape corporate governance around the world. The different corporate guidelines and norms produced by international organizations have had a noticeable impact on legal changes … Read more

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

Sustainability issues are increasingly high on the list of competition policy priorities both at the European Union and member state levels. The European Commission (EC) and national competition authorities are actively rethinking how competition policy can better support the transition to sustainable economic growth. Whilst recent initiatives are setting the path to much-needed guidance and legal certainty, there are already lessons businesses can take away from the discussions to date.

  • Industry initiatives to tackle sustainability objectives can breach competition rules and should therefore be approached with the same eye to competition law compliance as any other collaboration with competitors. The

Read more

A Tale of Two Enforcement Venues: Why the SEC’s Choice of Where to File Cases Matters

The Dodd-Frank Act of 2010 allows the Securities and Exchange Commission (SEC) to bring enforcement actions and impose civil penalties in administrative proceedings as alternatives to federal district courts. Some argue that this gives the SEC a “home-court” advantage. For example, the SEC serves as both prosecutor and, through the administrative judges it appoints, adjudicator in an administrative proceeding, and no jury trials are allowed.[1] The SEC argues, though, that administrative proceedings can process cases more efficiently than federal courts.[2] Yet the opacity of administrative proceedings and the SEC’s discretion over the choice of venue have prompted criticism and challenges … Read more

Latham & Watkins Discusses IP in the UK After Brexit

On September 28, 2020, the UK government made the Intellectual Property (Amendment etc.) (EU Exit) Regulations 2020 (IP Regulations 2020), which amend the intellectual property (IP) regime in the UK to reflect Brexit-related changes once the transition period ends. The IP Regulations 2020 overlap somewhat complexly with existing UK and EU IP rights. In particular, exhaustion of rights principles seem to have fallen into a lacuna and as a result parallel importation from the UK into the EU may be significantly impacted. Owners of existing registered IP rights and pending IP applications under EU law should carefully consider the … Read more

SEC Chairman Speaks on Revised Rules for Disseminating Market Data

Good morning. This is an open meeting of the U.S. Securities and Exchange Commission on December 9, 2020, under the Government in the Sunshine Act. The Commission today will consider a staff recommendation to adopt amendments to Regulation NMS to modernize the national market system for the collection, consolidation, and dissemination of information with respect to quotations for and transactions in national market system (“NMS”) stocks (“NMS market data”). Broadly speaking, these amendments would, first, expand the content of NMS market data that must be collected, consolidated, and disseminated as part of the national market system under Regulation NMS. Second,

Read more

Insider Trading and Strategic Disclosure

With COVID-19 cases rising rapidly around the world, Pfizer’s announcement on November 9, 2020, that its coronavirus vaccine was highly effective in early trials offered a rare bright spot for the coming winter.[1] But the news was soon dampened by word that the company’s CEO, Albert Bourla, sold some 60 percent of his Pfizer shares on the day of the announcement.[2]  According to Pfizer, Bourla’s sales occurred under a preset arrangement known as a 10b5-1 plan – so named for an obscure SEC rule designed to shield executives from spurious insider-trading accusations. The rule gives an affirmative defense … Read more

Paul Weiss Discusses NY Regulator’s Advice to Financial Companies on Climate Risk

On October 29, 2020, The New York State Department of Financial Services (“DFS”) published an industry letter (the “Industry Letter”) for banks and other financial institutions that it regulates that details the range of climate change risks that could soon impact these institutions.[1] The letter is addressed to both DFS-regulated banking institutions and non-bank institutions, such as money transmitters and virtual currency companies. The letter sets forth DFS’s expectations that banking institutions begin to address the financial risks from climate change in their risk management processes, governance frameworks and business strategies, including by designating a board member or committee … Read more

How Corporate Governance Affects the Success of Initial Public Offerings

In our recent paper, Can Governance Help in Making an IPO “Successful”? New Evidence from Europe, we find that corporate governance affects company performance after an IPO in different ways.  We consider an IPO to be successful if it combines positive performance in the short-term, with a value creation effect, and also in the medium-long-term, with a value protection effect (Bertoni et al., 2014).

As to the short-term, we consider the performance of a company at the date of the IPO, as measured by Q-Tobin, which is calculated as the ratio of the market capitalization of the firm … Read more

Quinn Emanuel Discusses COVID-19 M&A Litigation in Delaware

Many high-profile transactions impacted by the COVID-19 pandemic have fallen apart between signing and closing, resulting in litigation – often in the Delaware Court of Chancery – focused on whether the buyer had an obligation to close.  Buyers backing out of transactions generally have asserted the occurrence of a “material adverse change” or “material adverse event” (“MAE”) and the failure of the to-be-acquired company to operate in the ordinary course of business.  Sellers generally have disputed that COVID-19 caused the failure of closing conditions, and have sued for specific performance of buyers’ obligations to close or damages.  As these cases … Read more

Are M&A Lawyers Really Better Than Other Transactional Lawyers at Contract Drafting?

In a series of papers over the past decade, the three of us have studied extensively the persistence of obsolete terms in sovereign debt contracting. (e.g., here, here and here).  Our interest was motivated by a puzzling observation: Transactional lawyers did not appear to reform their contract clauses promptly in response to changes in the external environment.  In a market with multi-billion dollar transactions, and with some of the most elite law firms in the world, the slow pace of innovation was surprising.  It was especially surprising given the conventional view that good transactional lawyers keep abreast of … Read more

O’Melveny & Myers Discusses the SEC’s Most Recent No-Action Letter on Digital Assets

On Wednesday, November 18, 2020, the staff of the Division of Corporation Finance (the “Division”) of the Securities and Exchange Commission (“SEC” or the “Commission”) took another step forward for crypto regulation by granting a no-action letter to IMVU, Inc. (“IMVU”), a software development company that offers virtual world platforms, to sell its Ethereum-based token, VCOIN. The relief provides that the Division will not recommend enforcement action to the Commission if IMVU offers and sells VCOIN, which is transferable both on and off of IMVU’s platform, without registration under Section 5 of the Securities Act of 1933 (the “Securities Act”) … Read more

On Corporate Purpose, Director Primacy, and the Business Judgment Rule

Historically, how a corporation invests and pursues its goals has been recognized as within the discretion of the board of directors. The business judgment rule insulates directors from liability for exercising that discretion by restricting second-guessing from shareholders absent a showing of fraud, illegality, or self-dealing.  In other words, a business decision that doesn’t turn out well shouldn’t be questioned as long as the directors acted in good faith.

In recent years, though, the business judgment rule seems to have been eroded by forces from both the political right and the political left.  Those leaning right assert that the obligation … Read more

Skadden Discusses California Decision Upholding Uber’s Federal Forum Charter Provision

A California state court dismissed a putative securities fraud class action against Uber, as well as certain individuals and underwriters, on the grounds of inconvenient forum, holding that the federal forum selection provision (FFP) in Uber’s charter was valid and enforceable, and thus plaintiffs were required to bring their claims in federal court.

Plaintiffs, purported shareholders of Uber, brought claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (Securities Act), alleging that the offering documents for Uber’s May 2019 IPO contained false or misleading statements. Uber, along with the individual and underwriter defendants, moved to dismiss

Read more

The Case for Preemptive Oligopoly Regulation

Republican and Democratic leaders have both called for greater scrutiny of the power and influence of Big Tech firms, but, unsurprisingly, they have disagreed about how to address the problem.  Senator Elizabeth Warren and many other leading Democrats have called for breaking up Google, Amazon, and Facebook in a revival of the trust-busting progressive era of the early 20th century.  In contrast, the Trump administration has triggered traditional monopoly review of  a number of leading technology firms, which is likely to lead only to financial sanctions or more modest remedies.

In a recent article, I argue that politicians’ concerns … Read more

Morgan Lewis Discusses SEC Guidance on Disclosure for China-Based Issuers

The SEC Division of Corporation Finance has provided its views regarding certain disclosure considerations for companies based in or with the majority of their operations in the People’s Republic of China.

The US Securities and Exchange Commission (SEC) recognizes the increased exposure of US investors to companies based in or with the majority of their operations in the People’s Republic of China (China-based Issuers) and the SEC’s limited ability to promote and enforce high-quality disclosure standards for China-based Issuers. The Division of Corporation Finance (Corp Fin) published CF Disclosure Guidance: Topic No. 10, Disclosure Considerations for China-Based Issuers (Guidance), on … Read more

Biden and the SEC: Some Possible Agendas

This is the gossip season, and almost everyone has heard a rumor about who will be the next chair of the SEC. Although I was interviewed by the Biden transition team (for my views, not as a candidate), my sources are no better than those of others. Nonetheless, they all tell me that the next chair will be Gary Gensler, the former chair of the Commodity Futures Trading Commission and current chair of the Transition Taskforce for Financial Regulation for President-elect Biden. In my view, he is probably the optimal choice — experienced, tough at enforcement, and well versed in … Read more

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

With the prospect of global vaccines on the horizon, companies worldwide continue to address the challenges of pandemic management and recovery on their businesses, the communities and constituencies they serve and especially on their employees.  As companies seek to prioritize workplace and customer health and safety alongside productivity and the achievement of strategic plans, the psychological, as well as physical, well-being of employees has been brought into sharper focus this year.  The urgent need to address issues of diversity, inclusion, racism and racial injustice, gender equality, and attendant financial and socioeconomic inequities has heightened attention to workplace wellness, as have … Read more

Alternative Venture Capital: The New Unicorn Investors

The COVID-19 outbreak provides fertile ground for sweeping regulatory changes. On May 19, 2020, for example, President Trump issued “Regulatory Relief to Support Economic Recovery Executive Order 13924”, which prompted the U.S. Securities and Exchange Commission (“SEC”) and Department of Labor (“DOL”) to promulgate new rules to protect investors and facilitate capital formation. The SEC adopted amendments aimed at harmonizing and improving the “patchwork” exempt offering framework, while the DOL announced that 401(k) plan fiduciaries have the ability to invest in private equity funds.

The primary purpose of these changes is to democratize and equalize access to … Read more

Gibson Dunn Discusses Consumer Protection Under the Biden Administration

President-elect Biden has signaled that robust consumer protections will be a major focus of his policy agenda in what is anticipated to be a dramatic shift from the deregulatory policies of the Trump administration.  In this article, we preview the incoming administration’s anticipated consumer protection agenda in two areas: data privacy and consumer financial protection.  We also consider what, if any, impact this policy shift is likely to have on state-level enforcement.

Assuming that Republicans retain control of the Senate, and with a divided Congress consumed at least in the short term with negotiations over COVID-19 relief, we expect to … Read more

Resurrecting the Office of Financial Research

The Office of Financial Research (“OFR”) was created by the Dodd-Frank Act to help address the gaps in data availability and analysis that had hampered governmental authorities in their response to the financial crisis of 2008.  It was hoped that the OFR would serve as an “early warning system” that would detect emerging systemic risks through data collection and analysis, but the OFR never really had the opportunity to live up to its promise.  During the Obama administration, it suffered from an unsupportive Treasury Department and pushback from other federal financial regulatory agencies; under the Trump administration, the staff and … Read more

Simpson Thacher Discusses UK Bill to Reform Review Process for Foreign Direct Investment

On November 11, 2020, the Parliament of the United Kingdom (“U.K.”) introduced the National Security and Investment Bill of 2020 (the “NSI Bill”) to modernize the U.K.’s foreign direct investment (“FDI”) screening process and strengthen its ability to investigate and intervene in transactions targeting U.K. businesses. The NSI Bill imposes mandatory notification requirements to the U.K. Department of Business, Energy and Industrial Strategy (“BEIS”) for transactions involving investments in U.K. businesses operating in certain strategic sectors, a regime that will apply to investors from any foreign country.

In the broader context, the NSI Bill is reflective of a global trend … Read more

Debunking Fintech Inside and Outside the Blockchain

The hype over technology-enabled disintermediation of financial services, commonly known as fintech, seems at a peak. Though fintech firms promise to increase competition in the financial industry, it is unclear how much the various forms of fintech, including those working on the blockchain, will disrupt the current competitive environment.

In our paper, we review the market failures justifying financial intermediation. We find that fintech has the potential to improve the efficiency of financial intermediation in, for instance, the area of payments and financial advice. However, the current hype may be exaggerated and partly misleading. We contend that trust, a … Read more

Is Stakeholder Value an Excuse for Underperfoming Managers?

In August 2019, the Business Roundtable released a statement redefining the purpose of a corporation to maximize value “for the benefit of all stakeholders – customers, employees, suppliers, communities, and shareholders.” The statement was signed by 181 CEOs, including Jamie Dimon, chairman and CEO of JPMorgan Chase and chairman of the Business Roundtable, and came after several years of political pressure on behalf of stakeholder objectives, including by U.S. Senator Elizabeth Warren. In 2018, Warren introduced the Accountable Capitalism Act, which would require that directors of large corporations consider the interests of all stakeholders and that at least 40 percent … Read more

Financial Regulators Offer Update on Audit Quality in Emerging Markets

Over the past several years, the exposure of U.S. investors and our capital markets to companies with significant operations in emerging markets, including China, has increased.[1] This increased exposure carries with it a number of significant risks and challenges, many of which we described in our statement of December 7, 2018[2] and our more recent joint statement along with other SEC staff, Emerging Market Investments Entail Significant Disclosure, Financial Reporting and Other Risks; Remedies are Limited, on April 21, 2020.[3]

Among other relevant issues related to emerging market investments, we noted that the Public Company Accounting

Read more

Crypto-Enforcement Around the World

The market for cryptoassets is burgeoning, as distributed ledger technology transforms capital and financial markets.  With the extraordinary growth in the crypto-markets comes the need for regulation to promote efficiency, capital formation, and innovation while protecting investors. With the need for regulation comes enforcement.

In a new article, Crypto-Enforcement Around the World, we elaborate on these issues and report on the results of an international enforcement survey conducted by our Blockchain and Fintech Research Program. Our analysis also builds on the results of the research by one of the co-authors, Prof. Guseva, in her article, The SEC, Cryptoassets, and Read more

Cleary Gottlieb Discusses UK Supreme Court Decision on Law Governing Arbitration Agreement

In an important decision for arbitration users, the U.K. Supreme Court has clarified how English law will determine the governing law of an arbitration agreement which provides for an English seat in the absence of an express choice of law.  In its 9 October 2020 decision in Enka Insaat Ve Sanayi AS v OOO “Insurance Company Chubb” & Ors [2020] UKSC 38, the Supreme Court reaches the same outcome as the Court of Appeal, while employing slightly different reasoning.

The Enka case arises from a typical trap for the unwary. When drafting arbitration agreements, practitioners are well advised to provide … Read more

Enforcement Against the Biggest Banks

My article, Enforcement Against the Biggest Banks, takes a census of the hundreds of enforcement actions by American regulators against the world’s largest banks between the passage of Dodd-Frank in July 2010 and December 31, 2016, near the end of the Obama administration.  The effort allows us to characterize the nature of contemporary American bank enforcement.

Enforcement against big banks can be “cumulative” – increasingly, multiple agencies penalize banks for the same misconduct. One regulator might view the misconduct as, say, a violation of public disclosure duties, but another regulator might see it as a problem with the safety … Read more

Latham & Watkins Discusses Department of Labor Rule on ESG Investing

On October 30, 2020, the US Department of Labor (DOL) published Financial Factors in Selecting Plan Investments (the Rule) and a related Fact Sheet, a codification of the spirit, if not the exact words, of a controversial proposal issued by the DOL in June 2020 (the Proposal). The Rule adopts amendments to certain provisions of the “investment duties” regulation under Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and requires fiduciaries of pension plans (and other benefit plans covered by ERISA) to choose investments “based solely on pecuniary factors” relevant to a particular … Read more

Mandatory Corporate Social Responsibility Legislation Around the World

Corporate social responsibility (CSR) is typically assumed to be a voluntary rather than mandatory initiative. Yet, over the past few decades, a growing number of countries have adopted laws that explicitly require corporations to undertake CSR.

To date, most scholarly and policy attention has focused on laws that require companies to disclose extensive information about their social and environmental plans, actions, or performance.  In recent years, though, a growing number of countries have gone beyond disclosure to require CSR due diligence, corporate philanthropy, certain governance structures, and making CSR a duty under corporate law.

Mandatory CSR Due Diligence

CSR is … Read more

Chairman Clayton Speaks on Putting Principles into Practice: the SEC from 2017-2020

It is wonderful to be back with the Economic Club of New York.  You are a sophisticated, experienced, outcome-oriented, tough and fair audience, interested in economic and wage growth and improving our society more generally.  Just the way it should be.

As John [Williams] noted, today’s program proceeds in two parts, (1) remarks from me on our regulatory activities over the past three-plus years (time flies) and—at the end of that part—a discussion of some of the areas that I believe need continued attention and (2) a Q&A session with market and policy experts Harold Ford, Barbara Novick, Gary Cohn

Read more

Fintech and International Financial Regulation

In the weeks leading up to Ant Financial’s ill-fated IPO, Jack Ma criticized the system of international banking regulation in remarks at the Bund Summit in Shanghai. The Alibaba co-founder contended that the current framework was a poor match for countries like China that needed to innovate in the creation and delivery of financial services. Describing today’s regulatory system as designed for the “elderly” economies that have long relied on a traditional and compliance-heavy system of banking, Ma explained that emerging or “youth” nations depended on their ability to foster innovation in ways that were less constrained by capital-intensive rulemaking.… Read more

Cleary Gottlieb Discusses Case on Collective Action Clauses in Sovereign Debt Restructuring

On July 31, 2020, Judge Caproni in the Southern District of New York denied an emergency motion filed by certain bondholders for a temporary restraining order that would have halted efforts by the Republic of Ecuador (“Ecuador”) to restructure $17.4 billion of its sovereign debt based on allegations of securities fraud arising from statements made by Ecuador in its restructuring-related press releases.  The Court upheld Ecuador’s use of the collective action clauses (“CACs”) in its indentures as the primary tool to accomplish the proposed restructuring.

In addition to its effects on Ecuador, which is restructuring its debt amidst a severe … Read more

Initial Public Offerings Chinese Style

The forced postponement of Ant Group’s initial public offering (IPO), the largest ever, by the Chinese government is the latest example of the heavy-handed regulatory approach that has made it extremely costly for companies to go public in China. The high opportunity cost of going public on the Shenzhen or Shanghai stock exchanges, where the initial return from the offer price to the first unconstrained market price has averaged 170 percent during 1992-2018, has encouraged many Chinese companies to go public in Hong Kong, the U.S., or elsewhere. The high initial returns have resulted in massive oversubscriptions of almost all … Read more

Jones Day Discusses International Data Flows After Schrems II

On July 16, 2020, the Court of Justice of the European Union (“CJEU”) invalidated the EU–U.S. Privacy Shield with immediate effect in Case C-311/18 Data Protection Commissioner v Facebook Ireland Limited and Maximillian Schrems (called “Schrems II,” see our previous Commentary on this case). The court upheld the EU Standard Contractual Clauses (“SCCs”) for the transfer of personal data to processors outside the European Union/European Economic Area (“EU/EEA”) under certain conditions, underscoring the need for companies to conduct an assessment of whether “supplementary measures” needed to be adopted to provide for an essentially equivalent level of data protection.… Read more

Corporations, Directors’ Duties, and the Public/Private Divide

Business history and theory reflect a tension between public and private conceptions of the corporation. This tension and conceptual ambiguity lay close to the surface of The Modern Corporation and Private Property, in which Berle and Means portrayed the modern public corporation as straddling the public/private divide. It is also embodied in the famous Berle-Dodd debate, which provides the basis for contemporary clashes between “different visions of corporatism,” such as the conflict between shareholder primacy and stakeholder-centered versions of the corporation.

In my recent paper, “Corporations, Directors’ Duties and the Public/Private Divide,” I examine a number of … Read more

Goodwin Procter Discusses Shareholder Suits to Increase Board Diversity

A lot of attention has been paid to board diversity – or lack thereof – in recent months. California enacted AB-979, which expanded upon California’s earlier gender diversity law and requires boards to make strides in other types of diversity, including racial and ethnic minorities. The law requires every public company with securities listed on a major U.S. stock exchange and that has its principal executive office in California, as listed on its form 10-K annual report, to have at least one director from an underrepresented community on its board by the end of the 2021 calendar year and upwards … Read more

The European Commission Considers “Short-Termism” (and “What Do You Mean by That?”)

The European Commission retained Ernst & Young (“EY”) to undertake a detailed study of “short-termism” and, implicitly, to report whether it was a major roadblock to more sustainable corporate governance. Their study was then presented at a three day international conference at Oxford on November 11-13. Professor Mark Roe of Harvard Law School and I were asked to make presentations. Professor Roe’s statement ran last week on this blog, here, and a summary of my statement appears below.

In a nutshell, the EY “Study on directors’ duties and sustainable corporate governance” for the European Commission describes a … Read more

Latham & Watkins Discusses IBOR Fallbacks Protocol and Supplement from ISDA

On October 23, 2020, the International Swaps and Derivatives Association, Inc. (ISDA) published its IBOR Fallbacks Protocol (Protocol) and Supplement to the 2006 ISDA Definitions (Supplement) in anticipation of the expected discontinuation of the London Interbank Offered Rate (LIBOR) at the end of 2021. ISDA has also published a related set of Frequently Asked Questions, as well as a User Guide to IBOR Fallbacks and RFRs, to assist market participants in navigating the Protocol and the Supplement.

ISDA collaborated with the Financial Stability Board’s Official Sector Steering Group to devise more robust fallbacks for LIBOR and other key … Read more

How Corporate Social Responsibility Affects Product Market Perception and Firm Value

The prominence of corporate social responsibility (CSR) has been growing in recent years, but the empirical relationship between CSR and firm value is still inconclusive. Though many studies show a positive impact of CSR on firm value, others provide evidence to the contrary. This relationship may be unclear because of the lack of understanding about the mechanisms through which CSR may affect firm value. In a new paper, we investigate whether CSR affects firm value by improving perceived product quality (brand value) and differentiating among products. More specifically, we investigate whether CSR activities, especially those visible to customers such as … Read more

Kirkland & Ellis Discusses New EU Foreign Direct Investment Regulations

The European Union has recently taken a significant step in regulating foreign direct investment (“FDI”). As of October 11, 2020 a new EU regulation related to inbound foreign investment (the “FDI Regulation[1]”) became binding on all 27 Member States.[2] The new FDI Regulation does not create a stand-alone mechanism to vet foreign investment akin to the Committee on Foreign Investment in the United States (“CFIUS”) or national security review systems established by individual Member States. Rather, the new EU FDI regime establishes minimum standards for Member States’ review systems, creates an information sharing channel between the EU … Read more

Bank Lending During the Pandemic

Since the beginning of 2020, COVID-19 has prompted a surge in economic uncertainty, causing interruptions in business supply chains and revenues that now threaten the survival of companies. Companies struggling to meet their fixed expenses and existing obligations respond by increasing the demand for loans, but banks are inclined to reduce the supply. In our new paper “Bank Lending during the COVID-19 Pandemic,” we examine how the COVID-19 crisis affects the pricing and structure of large corporate loans in the global syndicated loan market.

Overall we consider more than 4,000 loans granted from 77 banks to 820 firms in 28 … Read more

Debevoise & Plimpton Discusses State Marijuana Initiatives and Financial Institutions

With ballots still being counted in many races, and threats of litigation in others, the 2020 election season may not be fully complete. Voters in red states and blue states displayed unity on few issues, but among these cannabis ranks high: New Jersey, Arizona, Montana and South Dakota voted to legalize recreational cannabis, and Mississippi and South Dakota voted to legalize use of medical marijuana. Oregon also became the first state to decriminalize small amounts of cocaine, heroin, methamphetamine and other drugs.1

These state-level actions will pose additional compliance challenges for financial institutions that already struggle with the conflict posed … Read more

Presidential Pendulums in Finance

While much attention has been paid to President Trump’s deregulatory efforts and intentions, presidential involvement in the work of the administrative agencies is not new.  Past presidents including Ronald Reagan, Bill Clinton, and Barack Obama have acted up to – and at – the limits of presidential power in efforts to ratchet-up, or ratchet-down, regulation.[1]

My recently published article, Presidential Pendulums in Finance, examines the past decade of presidential involvement in financial regulation in particular.  As the paper explains, presidential involvement in financial regulation over the past 10 years stands to quicken the rate at which regulatory cycles … Read more

The Push Towards Corporate Guidelines

In recent years, there has been a debate in the corporate world about the capabilities and incentives of institutional investors to invest in corporate stewardship – defined as monitoring, voting, and engagement – of their portfolio companies. The main focus has been on mutual funds, which hold most of the assets of institutional investors.

According to conventional wisdom, which finds support in theoretical and empirical studies, institutional investors are not active stewards for four reasons. First, managers of mutual funds have poor incentives to invest in active stewardship because of their compensation structure – a tiny fixed percentage of assets … Read more

Gibson Dunn Discusses the EU Sustainable Finance Framework for Private Fund Managers

The European Commission’s Sustainable Finance Action Plan[1] (the “Action Plan”) proposed a package of measures including, amongst other initiatives, a regulation imposing sustainability-related disclosures on financial market participants (“SFDR[2]) and a regulation to establish an EU-wide common language (or taxonomy) to identify the extent to which economic activities can be considered sustainable (the “Taxonomy Regulation[3]). This briefing note provides an overview of the Taxonomy Regulation and the SFDR and discusses their impact on private fund managers, including non-EU managers who market their funds into the EU and/or the United … Read more

A Critique of the Sustainable Corporate Governance Report from the European Commission

In July 2020, the European Commission published the “Study on directors’ duties and sustainable corporate governance” by EY. The report purports to find evidence of debilitating short-termism in EU corporate governance and recommends many changes to support sustainable corporate governance. In a recent paper, we point out deep flaws in the report’s evidence and analysis.

Here’s a brief summary of those flaws. First, the report defines the corporate governance problem as pernicious short-termism that damages the environment, the climate, and stakeholders. But the report mistakenly conflates time-horizon problems with externalities and distributional concerns. Cures for one are not … Read more

Skadden Discusses the Social Factors in ESG

Investors have historically overlooked social factors amid a focus on the environmental and governance counterparts as they assess the merit of an investment. This may have been due in part to the difficulty in quantifying social concerns as drivers of shareholder return as well as a lack of available data. However, recent trends demonstrate that the “S” in environmental, social and governance factors (ESG) is now an equally important consideration for companies and their shareholders.

In this article, we look at ESG matters in the employment context. An increased focus on social factors — such as diversity, working conditions and … Read more

Racial Diversity, Gender Equality, and Corporate Governance: An Update

Corporate governing boards have a substantial homework assignment given multiple important developments affecting board composition and oversight of workforce culture. These developments encompass new surveys from prominent governance and consulting sources, notable litigation trends, and a new state law.  Collectively, they represent an accelerated focus by third parties on how directors are selected and employees are retained.

Governance Trends

A significant new report from The Conference Board highlights important governance trends relating to board composition and diversity, the profile and skills of directors, and policies on their election, removal, and retirement.  The report is based upon a close review of … Read more

Columbia Law School Presents New Podcast Series, Beyond “Unprecedented”

Columbia Law School has launched a six-episode podcast series called Beyond “Unprecedented”: The Post-Pandemic Economy, hosted by Eric Talley, the Isidor and Seville Sulzbacher Professor of Law. In each episode, he and other experts at the law school explore the challenges facing small businesses, essential workers, corporate boards, and financial institutions in the aftermath of the Covid-19 pandemic. Talley and his guests also discuss the solutions that they believe are necessary to get beyond these “unprecedented” times.

The first five episodes are:

Essential—and Broke (wealth and income inequality), with Katharina Pistor, Edwin B. Parker Professor of Comparative Law, … Read more

Central Bank Digital Currencies and Law

In a new paper, I examine the legal issues surrounding a “retail” central bank digital currency (“CBDC”), one that is used by consumers on a day-to-day basis as an alternative to cash. Most discussions about CBDC focus on its purported benefits and initial design. Little is written about how existing laws and regulations will extend to CBDCs or what new regulations will have to be implemented. My paper engages in that analysis.

The analysis assumes that future retail CBDCs will be account-based, meaning the currency will be represented by book entries in accounts that are held and managed by banks. … Read more

Skadden Discusses Shareholder Derivative Suits Around COVID-19, Racial Equality

As the last few years have shown, shareholder derivative litigation — claims brought by a shareholder purportedly on behalf of a company against its board of directors or senior management for alleged breaches of fiduciary duty — is often brought following the public disclosure of a negative event (so-called “event-driven litigation”). When multiple companies reported the departure of executives in the wake of #MeToo allegations, their boards faced shareholder derivative suits related to the adequacy of the company’s sexual harassment policies or board-level monitoring. Often, litigation also follows when companies disclose data breaches, with claims that the boards of those … Read more

Beyond “Going Dark:” The SEC’s 13F Proposal and Hedge Fund Activism

This past summer, the Securities and Exchange Commission (SEC) proposed eliminating quarterly disclosures for 90 percent of institutional investment managers by raising the reporting threshold under Section 13F of the Exchange Act from $100 million to $3.5 billion.  The proposal generated widespread opposition.  One key criticism — advanced on this blog, in various media outlets, and by many of those who submitted comments to the agency — was that the agency’s proposal would bolster hedge fund activism by allowing many activists to “go dark,” build up positions in companies in secret, and then “ambush” unsuspecting managers.

Although … Read more

Cleary Gottlieb Discusses ESG Regulatory Developments

The last few years have seen a marked worldwide expansion in “ESG”-labelled investment products, bringing sustainable finance into the spotlight as a clear financial industry megatrend.  By 2018, investment in sustainable assets in five of the world’s major markets (Europe, the United States, Japan, Canada and Australia-New Zealand) stood at $30.7 trillion, a 34% increase over the previous two years,[1] and it was estimated that over 80% of institutional investors had an ESG component as part of their investment strategies.[2]

And the trend is only accelerating: capital flows into funds incorporating sustainability and ESG-driven strategies hit an all-time … Read more

Why the Law on Resolving Disputed Presidential Elections Is So Uncertain

As I’ve Zoom-traveled the country speaking about legal issues involving the election, I have found myself, as well as audiences, bewildered and frustrated by one underlying question: Why is there so much legal uncertainty about so many critical questions concerning the rules for resolving a disputed presidential election?

If ever a need existed for clear legal rules established in advance, before we know whose ox will be (Al) Gored, that situation is it.

Let me provide just one critical example. The Constitution does not create rules or an institutional structure for resolving a modern, disputed presidential election. It provides … Read more

SEC Chair Speaks on Simplifying Exempt Offering Framework

Today [November 2] we consider a recommendation from the Division of Corporation Finance that would harmonize, simplify and improve various structural and procedural aspects of our exempt offering framework under the Securities Act of 1933.  The recommended amendments reflect a comprehensive, retrospective review of a framework that has, over time, unfortunately become difficult to navigate, for both investors and businesses, particularly smaller and medium-sized businesses.  Some have referred to it as a “patchwork” – I will explain this in a bit more detail later.  Today’s amendments would rationalize that framework, increase efficiency and facilitate capital formation, while preserving or enhancing

Read more

Toward Racial Equality: The Most Important Things the Business Community Can Do

[The following remarks, delivered on October 29, 2020, opened the first session of the three-part Conference on Racial Equality in Corporate Governance co-sponsored by the Ira M. Millstein Center for Global Markets and Corporate Ownership at Columbia Law School.]

I am honored to kick off this important series of discussions about what corporate governance and corporate America can do to reduce racial inequality and, more specifically, to help black people finally achieve equality after 400 years of systemic racism.

My only regret about this series is that it did not happen long ago.  For most of the period since 1980, … Read more

Skadden Discusses Sustainability-Linked Loans and COVID-19

Pre-COVID-19, pressure from investors, stakeholders and regulators helped jump-start green financing. The onset of the pandemic brought a temporary chilling effect to the global economy, but because sustainability-linked loans (SLLs) were developed to fill a critical gap in financial markets, they are likely here to stay and to continue growing in popularity, even as COVID-19 remains a public health crisis. Quarterly reports and trends — determined by analyzing Bloomberg Terminal data from 2018 through the second quarter of 2020 — indicate a long-term appetite for SLLs, with investors, stakeholders and regulators demanding sustainability now more than ever. Indeed, in evaluating … Read more

Gender Gap at the Top: New Evidence on Policy Effectiveness

The persistent gender gap in corporate leadership has led several European countries to institute board-related policies such as gender quotas, starting with Norway in 2003. Recently, California became the first U.S. state to follow suit, with many more considering similar regulatory measures. Despite this, the World Economic Forum estimates that the gender gap in wages and leadership would not be bridged in the next two centuries at its current pace. It is hard to overstate the need to understand what company-level factors affect the gender pay gap. Moreover, given the public interest in reducing the gender imbalances at all levels, … Read more

Columbia’s Millstein Center Presents Global Investor-Director Survey on Climate Risk Management

Changes in the global climate are having profound impacts on business operations, governance, and organizational management around the world. Boards of directors are searching for ways to account for these changes as they help guide their organizations, and investors are increasingly concerned about how these changes might impact their portfolios. According to some, climate change is “on the top of investors’ 2020 sustainability agendas for engaging with boards of the companies they invest in.”[1] A key component of this competency, likely to be a significant question of corporate governance in the coming years, is climate risk management. Companies, investors, … Read more

To Mask Or Not To Mask? It’s Not a Constitutional Question

In 1979, police in Pensacola, Florida, arrested Ku Klux Klan member B.W. Robinson for covering his face at a rally. He pleaded no contest so he could appeal his conviction to the Florida Supreme Court. Once there, Robinson challenged the constitutionality of Florida’s anti-mask statute. He insisted it deprived him of due process and infringed upon his First Amendment rights. The Florida Supreme Court reversed Robinson’s conviction, ruling that the law was constitutionally overbroad because it was “susceptible of application to entirely innocent activities.”[1]

Wait a second. Are we saying that not too long ago, an ultra-conservative Floridian took … Read more

SEC Chair Clayton Speaks on Regulations for Funds’ Use of Derivatives

Today [October 28], we are considering a new rule to provide an updated and comprehensive regulatory framework for the use of derivatives by registered investment funds, including mutual funds and exchange traded funds (ETFs). I have spoken before on the importance of modernization—ensuring that the implementation of our time-tested, long term investor-oriented regulatory structure keeps pace with today’s marketplace—to the Commission’s mission and our markets more generally.[1]  I have no doubt that this commitment to modernization, which flows through the 4,500-strong SEC staff, greatly enhanced our ability and the ability of market participants more generally to both absorb and

Read more

SEC Officials Issue Joint Statement on Complex Financial Products and Retail Investors

Retail investors have a wide array of investment options available to them, including an increasing number and type of investment products that are more complex than conventional stock and bond investments.[1] These complex products may be exchange-traded or sold directly to investors. Among these products are “leveraged/inverse” products, which seek to provide leveraged or inverse exposure to an underlying index by a specified multiple (e.g., 2x), generally on a daily basis, as well as products that provide investment exposure to less conventional assets, including commodity prices.  We believe that these leveraged/inverse products and other complex products may

Read more

Racial Diversity and Corporate Governance: Assessing California’s New Board Diversity Mandate

Corporate governance is historically perceived as a specialized, idiosyncratic and somewhat arcane field. But increasingly, it has come to serve as a lightning rod for broader public debates. Perhaps no moment underscores this trend more sharply than the 2020 calendar year: Not only did the world face twin crises of unprecedented global pandemic and an invigorated public debate about racial equity and inclusion, but those events accelerated nothing short of a seismic shift in how we think about corporate governance.

And no one does seismic shifts like California: In September of this year, Gov. Gavin Newsom signed into Read more

SEC Chairman Clayton Addresses Regulation Best Interest and Form CRS

Good afternoon and welcome to the SEC’s Staff Roundtable on Regulation Best Interest and Form CRS.[1] We hope that this event provides useful information to broker-dealers and investment advisers in complying with these key regulatory enhancements. Staff from the Commission’s Division of Trading and Markets, Division of Investment Management and Office of Compliance Inspections and Examinations, together with staff from FINRA, will present some insights and feedback as we approach the four-month anniversary of the June 30 Reg BI and Form CRS compliance date.

The Commission adopted Regulation Best Interest, or Reg BI, and Form CRS to enhance significantly

Read more

The Role of Institutional Investor Regulation in Restoring a Fair, Sustainable Economy

In a new essay, available here, I discuss the essential but insufficient role of regulation to promote more effective stewardship by institutional investors. My essay offers a frame for specific policy recommendations that align the responsibilities of institutional investors with the best interests of their human investors in sustainable wealth creation, environmental responsibility, the respectful treatment of stakeholders, and, in particular, the fair pay and treatment of workers. In doing so, the essay: 1) explains how the corporate governance system we now have is fundamentally different from the system we had when the regulatory structures governing institutional investors were … Read more

Paul Weiss Discusses Initiatives to Unify ESG Reporting

ESG reporting is now recognized as a significant agenda item in the ESG space. The plethora of different reporting standards has caused concern and confusion, as those responsible for providing disclosure, as well as the intended beneficiaries of the disclosure, seek to navigate the evolving disclosure landscape. Building upon our recent client alert that provided an overview of ESG disclosure frameworks and standards, available here, we report on two recent initiatives to unify some of the competing standards:

  • In September, five leading standard setters for ESG reporting, including the Global Reporting Initiative (“GRI”), the Climate Disclosure Standards Board (“CDSB”),

Read more

Why Corporate Purpose Will Always Matter

Business persons and lawyers have long debated whether a business corporation does or should have a purpose other than advancing shareholder interests.  In a democratic, pluralist society, the issue of corporate purpose remains important and will not (and should not) go away.  However adamantly divergent descriptive and prescriptive positions are held, it is healthy that, periodically at least, the debate is revisited and disagreements aired.  Neither corporate law nor business practice demands an unequivocal or uniform resolution.  Different businesses will continue to answer the corporate purpose question differently.


Early American business corporations were expected to advance a public-serving purpose.  … Read more

Fenwick & West Discusses Mitigating Class Action Litigation Risk for SPAC Transactions

Special purpose acquisition companies (SPACs) are increasingly being used as an alternate vehicle to traditional initial public offerings. Companies that go public through a traditional IPO process are often subject to shareholder securities class actions. Inevitably, securities class actions will be filed against companies that become publicly traded and file public reports with the U.S. Securities and Exchange Commission as a result of a merger with a SPAC.

One often-referenced advantage of the SPAC process as compared to a traditional IPO is the ability to directly communicate financial projections to the market. Such projections may become a greater area of … Read more

The Deterrent Effect of Whistleblowing on Insider Trading

One of the many significant reforms enacted in The Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 was the creation of a whistleblower bounty program within the SEC. The program increased monetary rewards for whistleblowing and provided protections from retaliation with the goal of encouraging more whistleblowers to report their information to the SEC. While there is a growing literature investigating the effects of many facets of Dodd-Frank, an unanswered question is whether the whistleblower program affected illegal insider trading – an activity that is traditionally hard for the SEC to detect and prosecute. In my recent paper, … Read more

Morrison & Foerster Discusses the Private Side of Going Private Transactions

In this article, we follow up on our overview of going private transactions (available here) by focusing on an important but often overlooked workstream in these deals. Companies are frequently privatized by a group of significant shareholders, outside investors and sometimes members of senior management, and in these “club” or “consortium” deals, the buyer group members must negotiate their rights in the privatized target company against the backdrop of the complicated take-private process. Below, we address key considerations for these negotiations, including the interplay of this process with the going private process and documentation.

A Private Company Investment

Members … Read more

Banking Bailout Law

Bank bailouts during periodic financial crises aim to stop financial panic and restore the stability of the financial system. Even if they are undesirable, future bank bailouts are unavoidable due to political and political economy reasons, whether or not they are regulated or economically efficient. In a new book, I build on existing literature to examine the different bank bailout and resolution techniques and tools through carefully selected case studies from the U.S., the E.U., the U.K., Spain, and Hungary. The pros and cons of the different legal and regulatory options are identified in order to reconstruct a regulatory framework … Read more

Davis Polk Discusses SEC Rebuke Over Stock Buybacks Under 10b5-1 Plan

On October 15, the SEC announced a settlement stemming from a company’s series of stock buybacks undertaken pursuant to a Rule 10b5-1 plan. Although the SEC concluded that the company initiated the 10b5-1 plan at a time when it possessed material nonpublic information (MNPI), the SEC did not charge the company or its executives with fraud or insider trading. Instead, the SEC zeroed in on the company’s accounting controls, and found them inadequate to ensure compliance with the board of directors’ stock buyback authorization, which required the company to execute buybacks in accordance with its insider-trading policy.

The novel theory … Read more

How Shareholders View CEO Pensions and Deferred Compensation

Defined-benefit pension plans and deferred compensation are often sizable and important components of CEO pay packages.  In recent years, though, they have prompted controversy among investors, policymakers, and academics. On the one hand, CEO pension and deferred compensation are unsecured and typically underfunded obligations, and, like debt (they are often known as  inside debt) exposing managers to the same default risks and insolvency treatment as outside do debtholders, and can help strengthen the alignment of executive and debtholder incentives. Consistent with this view, prior studies find that firms that pay CEOs a higher level of debt-like compensation incur lower … Read more

Preparing for the Transition from LIBOR to SOFR: The ARRC Recommendations

The London Interbank Offered Rate (LIBOR) has been the standard floating rate benchmark for debt instruments of all kinds around the world for decades. It is calculated every banking day by polling major banks on their estimated borrowing costs for various currencies and tenors. If your business carries debt, the interest rate on that debt is likely to be linked to LIBOR.  A few years ago, after it came to light that certain banks were effectively manipulating LIBOR, it was announced that LIBOR will cease to be quoted as of the end of 2021.

While the official end of LIBOR … Read more

How SEC Enforcement Affects Insider Leakage

In 2012, Mary L. Schapiro, the chairwoman of the Securities and Exchange Commission,  argued that market participants had “short memories” and that the SEC as a result had to take regular enforcement actions “so that people don’t forget that they have [regulatory] obligations and that somebody is watching and […] willing to hold them accountable.”

Schapiro’s claim has intuitive appeal: If the capital markets regulator does not enforce its rules with some regularity, potential wrongdoers may interpret the resulting inactivity as a reduced risk of apprehension and commit more wrongdoing. In our recently published paper “Short Memories? The Impact of … Read more

Latham & Watkins Discusses SEC Proposal of Safe Harbor Framework for Unregistered Finders

On October 7, 2020, the US Securities and Exchange Commission (SEC) issued a Notice of Proposed Exemptive Order Granting Conditional Exemption from the Broker Registration Requirements of Section 15(a) of the Securities Exchange Act of 1934 for Certain Activities of Finders (the Proposal). The Proposal was issued in response to a recommendation by the SEC’s Division of Trading and Markets. It aims to establish, for the first time, a framework for permissible non-registered finder activity, which until this point has been addressed by a “patchwork of staff guidance and no-action letters.”[1] If adopted, the Proposal would establish a non-exclusive … Read more

Has the Stock Market Become Less Representative of the Economy?

In the summer of 2020, with the U.S. economy bearing the impact of the COVID-19 pandemic, the unemployment rate was as high as it had been any time since 1948, and the NASDAQ and the S&P 500 indices reached their highest values ever. This dramatic difference in trajectories between unemployment and the stock market raises the questions of how much the stock market reflects the health of the American economy and whether in recent years it does so less than it used to. In a new paper, we explore these issues for the period 1950-2019 for a subset of our … Read more

Kirkland & Ellis Discusses Shareholder Activism Trends in Real Estate Investment Trusts After COVID-19

Even before the emergence of the COVID-19 pandemic, shareholder activism had become a mainstay of public company life in the real estate investment trust world. But in the wake of the pandemic, which upended business as usual in a number of Real Estate Investment Trust (REIT) sectors, we expect shareholder activism to accelerate as the dust settles.

Below are some key trends that we believe will begin to play out as hesitation gives way to opportunism. Companies should thoughtfully assess how they intend to navigate the coming resurgence.

Demonstrating Real Estate Bona Fides

In light of recent market dislocation, the … Read more

Closing the “RegLag” Between Prospective Regulated Activity and Regulation

There is often a significant delay between the start of an activity that ends up being regulated and the moment a regulatory response is announced or adopted. This regulatory lag (RegLag) enables individuals, firms, and regulators to engage in undesirable activities while the process of regulation moves slowly along. But reducing RegLag, especially in connection with the financial industry – an issue on which we focus – is challenging.

World-wide, regulators are for various reasons hamstrung in defining “wrongs” and identifying activities that should be regulated.  Similarly, regulator reaction is also impeded by issues such as confusion about the optimal … Read more

Gibson Dunn Offers 2020 Mid-Year Activism Update

This Client Alert provides an update on shareholder activism activity involving NYSE- and Nasdaq-listed companies with equity market capitalizations in excess of $1 billion and below $100 billion (as of the close of trading on June 30, 2020) during the first half of 2020. As the markets weathered the dislocation caused by the novel coronavirus (COVID-19) pandemic, shareholder activist activity decreased dramatically. Relative to the first half of 2019, the number of public activist actions declined from 51 to 28, the number of activist investors taking actions declined from 33 to 10 and the number of companies targeted by such … Read more

Gibson Dunn Discusses Stock-for-Stock Mergers During the Coronavirus Crisis

The widespread economic uncertainty caused by COVID-19 poses distinct challenges for buyers and sellers seeking to identify M&A opportunities, as companies evaluate the impact of the pandemic on their businesses to date, and seek to predict its future impact. Continued volatility in the financial markets and the lack of visibility into how the pandemic will affect the global economy in the near or longer term, as well as the pace and scope of economic recovery, introduce elements of conjecture into the valuation process. Securing financing for a transaction is also likely to be difficult, as traditional credit providers may be … Read more

Short Sellers and Plaintiffs’ Firms: A Symbiotic Ecosystem

On October 8, 2020, in In re BofI Securities Litigation, the United States Court of Appeals for the Ninth Circuit reversed the district court’s finding that the plaintiffs had not adequately alleged loss causation when claiming that BofI Holding portrayed its banking company as a safer investment than it actually was.[1]  These claims originated in two places: a whistleblower lawsuit and blog posts published by a pseudonymous short seller.  The court reversed the district court on the first, holding that a whistleblower lawsuit could serve as a corrective disclosure even though it merely alleged that fraud had occurred.

More … Read more

Arnold & Porter Discusses Waste and Abuse of Covid-19 Relief Funds

For the last several months, Arnold & Porter has been tracking the Department of Justice’s announcements of fraud cases involving the alleged misappropriation of funds provided by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). So far, DOJ has launched more than 50 such criminal prosecutions for fraudulently seeking or obtaining Paycheck Protection Program (PPP) loans and other funds that Congress appropriated to help Americans cope with the pandemic and related economic challenges. Arnold & Porter’s fraud tracker collects these cases in one place and enables users to see how and where DOJ has been pursuing CARES … Read more