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Argentina’s Cliffhanger Negotiations on a New Loan Deal with the IMF   

In late March, Argentina and the IMF agreed on a new arrangement that would enable Argentina to avoid falling into arrears on the IMF’s 2018 loan. However, the agreement was reached only after protracted and tortuous negotiations that dragged on for at least 18 months and concluded only at the last minute before a de facto March deadline.

In a new two-part article, I discuss the many twists and turns of the process and review the major substantive policy differences between Argentina and the IMF as well as the political considerations involved in the negotiations.

In August 2020, Argentina restructured … Read more

Paul Weiss Discusses Second Circuit Ruling on Intent Element of a SOX Whistleblower Claim

On August 5, 2022, the Second Circuit held that individuals claiming they were terminated in retaliation for protected whistleblower activities under Sarbanes-Oxley must prove that their employer acted with retaliatory intent. Murray v. UBS Securities LLC, No. 20-4202 (2d Cir.). The decision raises the bar for plaintiffs to plead and prove a claim under Sarbanes-Oxley’s anti-retaliation provision, 18 U.S.C. § 1514A, and may reduce the cost to settle such claims. The decision also creates a split with the Fifth and Ninth Circuits, which previously held that retaliatory intent is not an element of a section 1514A claim, and raises … Read more

Why Cybersecurity Is a Growing Concern in M&A

The Fortune 500 CEO survey in 2021 found that two-thirds of interviewed CEOs consider cybersecurity risk their greatest concern, far greater than the risks presented by political instability or climate change.[1] They are right to be concerned, particularly in the context of mergers and acquisitions (M&A), where the process of migrating and integrating data between merging firms can make them particularly vulnerable to sophisticated cyber terrorists. (IBM, 2019). IT breaches during that process could significantly reduce the gains expected from a deal.

Furthermore, threats to successful deal completion may arise from past cybersecurity weaknesses, as highlighted in two recent … Read more

Sullivan & Cromwell Discusses CFPB’s Focus on Tech Companies and Personal Finance Data

Last week, the CFPB took three actions demonstrating the agency’s continued focus on technology companies and personal financial data protection.  First, the CFPB issued an interpretive rule explaining the CFPB’s view that many digital marketing providers may be “service providers” subject to the CFPB’s supervisory authority under the Consumer Financial Protection Act (“CFPA”), including its authority to address unfair, deceptive, or abusive acts or practices (“UDAAP”).  Second, the CFPB issued a circular explaining that insufficient data protection or information security by covered persons and service providers is an unfair act or practice under the CFPA.  Finally, the CFPB announced an … Read more

How Auditors Helped Spread Stock-Option Backdating

Stock-option backdating, the practice of changing the reported date of a stock-option grant to an earlier date, proliferated in the 1990s and early 2000s, with nearly one-third of public corporations engaging in it, according to some estimates (Heron and Lie, 2009). The discovery of it left many to wonder how such a practice could spread undetected so widely, for so long. Many believe it spread through social ties among executives, but that explanation seems lacking. Most executives who backdated were not versed in accounting rules, and the practice required falsifying several separate, formal documents – including the firm’s quarterly and … Read more

The Interplay Between Private Meetings with Investors and Subsequent Earnings Announcements

Since the passage of Regulation Fair Disclosure, managers have increasingly met privately with investors. During these meetings, investors gather useful information by seeking managers’ feedback, pursuing a deeper understanding of publicly available information, and inquiring about company strategy. That information can help them better interpret subsequent disclosures. In a new study, we investigate whether investor activity around earnings announcements is consistent with the leveraging of a mosaic of soft information obtained from private meetings and subsequently forecasted earnings announcements.

We compare firms that issue stand-alone management guidance in conjunction with private investor meetings with a sample of firms that issue … Read more

Gibson Dunn Offers Annual Activism Update for 2021

Announced shareholder activist activity increased relative to 2020. The number of public activist actions (76 vs. 63), activist investors taking actions (48 vs. 41), and companies targeted by such actions (69 vs. 55) each increased. Suchlevels of activism are comparable to those found prior to the market disruption caused by the COVID-19 pandemic, as reflected in public activist actions in 2019 (76 vs. 75), activist investors taking actions (48 vs. 49), and companies targeted by such actions (69 vs. 64). The period spanning January 1, 2021 to December 31, 2021 also saw several campaigns by multiple activists targeting a single … Read more

The Real Impact of Voluntary ESG Disclosure Standards

Despite the dramatic increase in corporate-sustainability disclosure in recent years, the absence of uniform reporting standards has prompted concern among investors and companies and led to inconsistent disclosure practices, deceptive green marketing, and a lack of useful information. To better understand the role of reporting standards, we examine companies’ voluntary adoption of sustainability standards of the Sustainability Accounting Standards Board (SASB).[1]Specifically, in a new paper, we examine what factors prompt companies to adopt SASB standards and whether standards adoption is associated with real effects on fundamental ESG performance.

Our interest in voluntary adoption of SASB standards stems from … Read more

Davis Polk Discusses What’s Missing from Bipartisan Bills to Regulate Crypto

In the last few weeks, two bills with the potential to bring needed regulatory certainty to the U.S. digital asset industry were introduced in the Senate with solid bipartisan backing.

In June, Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) unveiled the Lummis-Gillibrand Responsible Financial Innovation Act, and in August, Senators Debbie Stabenow (D-MI) and John Boozman (R-AR) announced they would introduce the Digital Commodities Consumer Protection Act of 2022, with support from Senators John Thune (R-SD) and Cory Booker (D-NJ).

Each bill would bring much needed clarity to the regulatory landscape in part by strengthening the role … Read more

Bankruptcy-Remote Structuring: Reallocating Risk Through Law

Bankruptcy-remote structuring – structuring an entity to protect it from internal or external factors that might prevent it from paying its debts as they come due or make it the subject of a bankruptcy case – is crucial to a wide range of important business and financial deals. Investors in securitization, project finance, covered bonds, oil-and-gas and mineral production payments, and other types of structured finance transactions – valued at many trillion of dollars of securities outstanding – require both the entity issuing securities and the transaction itself to be structured as bankruptcy remote. Public service commissions and other regulators … Read more

Revisiting Corporate Bylaws for the Universal Proxy Era

On August 31, 2022, the universal proxy rules adopted last year by the Securities and Exchange Commission (SEC) will go into effect.  The rules require proxy cards distributed by public companies and activist shareholders in a contested director election to include both sides’ director nominees, so that shareholders can “mix and match” nominees from the company’s and dissident’s slates. In this post, I discuss possible changes to customary forms of public company bylaws to address issues likely to result from the implementation of the new universal proxy rules.


Mandatory universal proxy will have significant repercussions for activist campaigns at … Read more

SEC Chair Gensler on Proposed Joint Amendments to Form PF

Today [August 10], the Commission is considering whether to propose joint amendments with the Commodity Futures Trading Commission (CFTC) to Form PF, an important reporting tool that the Commission and the Financial Stability Oversight Council (FSOC) use, respectively, to protect investors and monitor systemic risk. I am pleased to support the proposal because, if adopted, it would improve the quality of the information we receive from all Form PF filers, with a particular focus on large hedge fund advisers.

In response to the 2008 financial crisis, Congress mandated the SEC and CFTC (the Commissions) to establish, after consultation with FSOC,

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The New Corporate Governance

In the last few years, there has been a dramatic increase in shareholder engagement on environmental and social issues. Consider two examples from 2021. Eighty-one percent of DuPont shareholders approved a proposal requiring the company to disclose how much plastic it releases into the environment each year and to assess the effectiveness of DuPont’s pollution policies. Sixty-four percent of ExxonMobil shareholders approved a proposal requiring the company to describe “if, and how, ExxonMobil’s lobbying activities … align with the goal of limiting average global warming to well below 2 degrees Celsius…”

It is hard to explain this behavior using the … Read more

Arnold & Porter Discusses California Challenge to Rulings Rejecting Board Diversification

The California Secretary of State has appealed a decision by the Los Angeles County Superior Court striking down the second of California’s two board diversity laws, which required all publicly traded companies headquartered in California to include a minimum number of female directors. The appeal will challenge the court’s finding that the board diversity legislation violates the Equal Protection Clause of the California Constitution because its classification of director candidates based on gender does not further a compelling government interest.

In addition, the same court—acting through a different judge—has also overturned California’s other board diversity statute, which required boards of … Read more

How Common Are Negative First-Day IPO Returns?

Investors generally expect companies to make a successful and profitable debut on the stock market with their initial public offering (IPO). However, some stock market launches fall short: The price of shares in Deliveroo’s $2.8 billion IPO in 2021, for example, fell by more than 26 percent when launched on the London Stock Exchange, and the price of Uber shares issued in its $75.46 billion IPO in 2019 dropped, 7.6 percent after their first day of trading on the New York Stock Exchange.

In 2021, around $143 billion worth of shares were issued in U.S. IPOs, but more than 25 … Read more

Wachtell Lipton Discusses Delaware Approval of Officer Exculpation from Personal Liability in Charters

For over 45 years, Delaware law has permitted directors of Delaware corporations to be exculpated from personal monetary liability to the extent such protections are set forth in the certificate of incorporation, subject to certain exceptions.  However, such protective statutory provisions did not reach officers.  As contemplated in our April 2022 memorandum, Delaware has now adopted important amendments to Delaware’s General Corporation Law that would expand the right of a corporation to adopt an “exculpation” provision in its certificate of incorporation to cover not only directors (as has been allowed and widely adopted since 1986, following Smith v. Van Read more

How Private Shareholder Engagements on Material ESG Issues Affect Companies

Shareholders have increasingly taken the lead in pushing for corporate sustainability. In 2021, for example, 20 percent of U.S. environmental and social shareholder proposals won over 50 percent of shareholder support, while in 2016 only 3 percent of such proposals were approved by a majority of shareholders. [1] Investors have also strengthened their private engagement efforts, with collaborative groups like Climate Action 100+ urging firms to make their operations more environmentally sustainable. Yet an important question persists: How relevant are these stewardship activities to the financial performance of target firms?

In a new working paper, we use an extensive global … Read more

Davis Polk Discusses Key Takeaways for Banks of Basel Climate Report

Here are the key takeaways from the Basel Committee’s final Principles for the Effective Management and Supervision of Climate-Related Financial Risks (the “Basel Principles”).

  1. The core elements of the Basel Principles align closely with proposed principles from the OCC and FDIC

    • The Basel Principles1 align closely with the climate-related risk management principles proposed by the Office of the Comptroller of the Currency (the “OCC Proposal”)2 and the Federal Deposit Insurance Company (the “FDIC Proposal”).3
    • The Basel Principles are part of the Basel Committee on Banking Supervision’s (the BCBS or the “Basel Committee”) work of assessing how the

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How to Move from Local to Global Regulation of Crypto-Assets

On July 7, 2022, the U.S. Department of Treasury (USDT) published a fact-sheet on the regulation of digital assets(a.k.a. crypto-assets) in which it emphasized the need for global cooperation. However, this fact-sheet is only a drop in an ocean of mostly uncoordinated crypto-regulation initiatives, both domestically (e.g., presidential executive order, a bi-partisan bill submitted to Congress, and diligent SEC enforcement) and abroad (e.g., final steps toward a harmonized regulation in the EU and several declarations by individual countries).

The current wave of crypto-regulation announcements aims to eliminate the confusion that has dominated the cryptomarket since its emergence. In … Read more

The Whistleblower Industrial Complex

How do a few dozen SEC and CFTC staffers sift through the avalanche of tips submitted under Dodd-Frank whistleblower “bounty” programs to determine which ones to investigate?

The answer: They don’t.

Using new data obtained from both agencies under the Freedom of Information Act, my new working paper demonstrates that the tip-triage function has been outsourced to a group of well-connected, repeat-player, private whistleblower lawyers who are exempt from any meaningful transparency, regulation, or public accountability.

Key findings from the analysis, which includes all successful whistleblowers from the programs’ inception through 2020, include the following:

  • Lawyers Dominate – Both the

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Sullivan & Cromwell Discusses EU’s Corporate Sustainability Reporting Requirements

European Union leaders have reached a provisional political agreement on a revised Corporate Sustainability Reporting Directive (“CSRD”) that would introduce more detailed sustainability reporting requirements for all “large” EU companies and companies with securities (including low denomination debt securities or depositary receipts) listed on a regulated EU market. “Large” companies are those that meet at least two of the following: (i) total balance sheet exceeding €20 million, (ii) annual net turnover exceeding €40 million and/or (iii) average number of employees exceeding 250. Under the revised text published on June 30, 2022, non-EU companies would also be required to … Read more

How the Balance of Power Is Changing in the Resolution of Corporate Financial Distress

Among those who study corporate financial distress and reorganization, the notion that senior lenders are in control is deeply ingrained. Celebrated papers in the law and corporate finance literatures attribute lender influence during periods of distress to blue-sky contracting practices.[1] When extending credit, senior lenders take a blanket lien on the borrower’s assets, and the borrower agrees to strict financial maintenance and other covenants. The covenants are designed to hem in the borrower. If its performance declines or it wants to pursue new opportunities that materially alter risk, the borrower has to renegotiate. Lenders use renegotiations to force changes … Read more

Paul Weiss Discusses Second Circuit Ruling on Liability Under Rule 10b-5(a) and (c)

On July 15, 2022, the Second Circuit held[1]  in SEC v. Rio Tinto plc,[2] that the Supreme Court’s ruling in Lorenzo v. SEC[3] did not abrogate the rule in the Second Circuit that alleged misrepresentations and omissions cannot be the “sole basis”[4] for liability under Rule 10b-5(a) and (c).

In Lorenzo, the Supreme Court held that a person who disseminates materially misleading statements with the intent to defraud investors can be held primarily liable under Section 17(a)(1) of the Securities Act, Section 10(b) of the Securities Exchange Act, and SEC Rule 10b-5(a) and (c), … Read more

The Corporation as Trinity

In Adolf Berle’s famous 1954 essay, “Corporate Capitalism and The City of God,” certain passages that once seemed musty and redolent of a bygone era are now eerily timely. Like current critics, Berle chides corporate leaders who think they can simply mind their own business, oblivious to larger social concerns. “For the fact seems to be that the really great corporat[e] managements have reached a position for the first time in their history in which they must consciously take account of philosophical considerations,” Berle wrote. “They must consider the kind of community in which they have faith, and which … Read more

ISS Discusses Class-Action Settlements Requiring Investor Action

Investors have a significant number of opportunities to participate in class actions during the upcoming 3-month period. Specifically, 39 North American settlements valued at $1.14 billion have a claim deadline date from August 1, 2022 – October 31, 2022.

The 39 settlements range from a high of $200 million (General Electric Company) to a low of $250,000 (ABTCOIN LLC). 32 of the 39 settlements occurred in U.S. Federal Court, three with the U.S. Securities and Exchange Commission, two in U.S. State courts, and two in Canadian courts. Not surprisingly, the highest quantity of cases – 12 of the 39 (or

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Realigning Stockholder Inspection Rights

Access to corporate information plays a pivotal role in stockholder litigation. One key to that access is stockholders’ statutory right to inspect a corporation’s books and records prior to filing litigation, enshrined in the Delaware General Corporation Law’s Section 220. In the context of derivative actions – i.e., actions brought by a stockholder on behalf of a company – Section 220 takes on an even greater importance. In order to maintain standing to pursue those claims, the stockholder plaintiff either must have made a wrongfully refused demand of the relevant board that it institute litigation, or must proceed on a … Read more

SEC Chair Gensler Speaks on Re-Proposed Amendments to FINRA Membership Exemption

Today [July 29], the Commission unanimously voted to re-propose amendments to Rule 15b9-1 regarding when broker-dealers are required to register with the Financial Industry Regulatory Authority (FINRA). These amendments would cause some of the most active participants in our equity and fixed-income markets to be required to register with FINRA. I was pleased to support these amendments because, if adopted, they would modernize and improve market oversight for regulators.

Rule 15b9-1 was first put in place in 1965 and expanded in 1976, 46 years ago. The rule set forth an exemption designed for certain exchange floor members and other regional,

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Gibson Dunn Discusses Shareholder Proposal Developments for the 2022 Proxy Season

This post provides an overview of shareholder proposals submitted to public companies during the 2022 proxy season,[1] including statistics and notable decisions from the staff (the “Staff”) of the Securities and Exchange Commission (the “SEC”) on no-action requests.[2]

I.   Summary of Top Shareholder Proposal Takeaways from the 2022 Proxy Season

In November 2021, the Staff issued Staff Legal Bulletin No. 14L (Nov. 3, 2021) (“SLB 14L”).[3]  In SLB 14L, the Staff rescinded Staff guidance and reversed no-action decisions published during the tenure of former Division Director Bill Hinman,[4] upending the Staff’s recent approach to the application … Read more

How Does Delaware Do It? Judges Alone Don’t Explain Chancery’s Speed

On July 19, 2022, in the Twitter v. Musk litigation, Chancellor Kathaleen McCormick presided over what was likely the most widely observed hearing on a motion to expedite in the Delaware Court of Chancery’s history. While deal bust-ups are front page fare for the financial press, the high profile of this case brought the Court of Chancery further into the national consciousness than usual (though who among us hasn’t asked “what is a chancery?”). On the day of the hearing, the public access telephone line was, indeed, “lit,” hitting its maximum capacity with merger arbs (and other interested Read more

Skadden Discusses Ramifications of Cryptocurrency Insider Trading Case

On July 21, 2022, the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) each brought insider trading charges against a former Coinbase product manager, his brother and a close friend for using material non-public information (MNPI) to purchase a variety of crypto assets prior to announcements by Coinbase that the assets would be listed on the company’s platform.

This is the first time an insider trading case has been brought by the DOJ or SEC relating to fungible tokens, and comes on the heels of the first-ever DOJ indictment for alleged insider trading related to non-fungible tokens … Read more

Twitter v. Musk: Where Are the Arbs?

Every pundit and commentator has by now analyzed the ongoing battle between Elon Musk and Twitter over Musk’s attempt to walk away from their deal. Almost all of these evaluations have rated Twitter as having a considerably stronger case, because (among other reasons) Musk did no due diligence, was well aware of the “bot” (or fake user) problem, negotiated no contractual protections directly addressed to these risks, and generally behaved inequitably, disparaging Twitter and toying with the SEC’s rules. Okay, but that raises an interesting puzzle: If the facts favor Twitter, and if Musk’s offer was for $54.20 a share … Read more

SEC Director of Investment Management Speaks at PLI

Good afternoon. Thank you, Paulita and Rajib, for your gracious invitation and kind welcome to this year’s program on current issues and trends in Investment Management.[1] As I suspect many of you know – and as the spring regulatory agenda demonstrates[2] – there is a significant list of current issues and trends in Investment Management under consideration at the Securities and Exchange Commission right now.

Before I turn to that list, please allow me to begin with the disclaimer that my comments today are my own and do not necessarily reflect the views of the Commission, the Commissioners, … Read more

Sovereign Debt Restructuring for Emerging Economies in Turbulent Times

In a new article, I discuss the impact of the currently turbulent global economic environment on the prospect for sovereign debt defaults and restructurings in emerging economies.  I also review three types of emerging markets sovereigns that may be at risk of such defaults and restructurings: countries adversely affected by the economic fallout from the war in Ukraine (e.g., Egypt), countries weighted down by debt incurred in connection with China’s Belt and Road Initiative (BRI) (e.g., Sri Lanka), and countries that have had ongoing sovereign debt problems (e.g., Argentina and Venezuela).

First, it is important to put recent global economic … Read more

SEC Enforcement Chief Testifies Before U.S. House Committee on Financial Services

Thank you for inviting me to testify today on behalf of the Division of Enforcement (“Enforcement” or the “Division”) of the U.S. Securities and Exchange Commission (“SEC” or the “Commission”).

Since its founding more than 85 years ago, the SEC has stayed true to its three-part mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation. Central to that mission is the work of the SEC’s Division of Enforcement. The Division conducts investigations into possible violations of the federal securities laws and prosecutes the Commission’s civil suits in the federal courts and in administrative proceedings. And

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Revisiting the Audit Expectations Gap

As the regulation of public company audits evolves, questions persist over whether there is still a gap between the public and auditors over expectations for the responsibilities of auditors – what we call the expectations gap. In a recent study, we replicate an earlier study by McEnroe and Martens (2001) (hereinafter “MM 2001”) to determine whether the expectations gap has changed.

In the two decades since MM 2001, events such as audit failures and the issuance of new regulations may have affected the expectations gap. Most notably, large-scale accounting scandals, including those at Enron, WorldCom, and Waste Management, have led … Read more

Cleary Gottlieb Discusses Digital Asset Amendments to the UCC

This month, the sponsors of the Uniform Commercial Code (“UCC”) approved wide-ranging amendments to the UCC (the “2022 UCC Amendments”)[1] to provide workable rules for emerging technologies, such as distributed ledger technology and virtual currency.  If adopted by individual state legislatures, these amendments should provide greater certainty regarding the rules governing security interests, competing claims, custodial risks, and other issues associated with digital assets.

The UCC is a uniform law sponsored by the American Law Institute (“ALI”) and the Uniform Laws Commission (the “ULC”) and governs various commercial transactions in personal property, including rules for granting and perfecting security … Read more

A New Podcast Debuts: The Cutting Edge

Today, the Blue Sky Blog launches its newest podcast series, The Cutting Edge: Current Issues in White Collar Crime and Corporate Governance. The series features top scholars, lawyers, and other esteemed figures in the legal world discussing breaking developments in white collar crime and corporate governance and the tough ethical and professional issues they raise. John C. Coffee Jr., the Adolf A. Berle Professor of Law at Columbia Law School, hosts the series, and Jed S. Rakoff, senior federal district judge in the Southern District of New York, joins as a commentator.

In Episode 1, Coffee and Rakoff speak with … Read more

Davis Polk Discusses SEC’s Final Rules on Proxy Advisory Firms

When the SEC adopted the rules governing proxy advisory firms two years ago, then-Chair Clayton emphasized that the rules were “the fruits of a rigorous and well-functioning rulemaking process where final rules reflect and benefit from the input of a wide array of market participants with a myriad of interests and perspectives.” Last Wednesday, when the SEC adopted the new rules that repealed much of the prior rulemaking, Chair Gensler stated that the changes were necessary as a result of continued investor concerns that the rules adopted in 2020 imposed risks on “the independence and timeliness of proxy voting advice,” … Read more

The Role of Transaction Costs in Common Ownership

“Common Ownership” arises when shareholders hold substantial stakes in different firms that impose externalities on each other, and it challenges the assumption that firms act to maximize their own profits. While firm decisions are ordinarily made by its board of directors and managers, most shareholders retain control over the appointment and dismissal of directors. Furthermore, corporate law requires managers to consider the interests of its shareholders when making decisions on behalf of the firm. Accordingly, if the interests of a firm’s shareholders include the profits of other firms, one might expect the firm to not only maximize its own profits, … Read more

Why Do Institutional Investors Request Climate-Related Disclosures?

An important debate is playing out over the role of institutional investors in the global effort to mitigate climate risk and achieve net-zero emissions. While some believe that institutional investors are sufficient catalysts in preparing us for a low carbon economy, others are more skeptical and prefer regulatory interventions. This skepticism is fueled by the perception that a substantial number of institutional investors engage in “greenwashing” (i.e., actions that do little to reduce emissions).

Our paper contributes to this debate by exploring the motivation behind institutional investors’ public requests for climate-related information. We assess whether institutional investors request these disclosures … Read more

Debevoise Discusses Key Questions Recent Crypto Bankruptcy Filings May Answer

One of the key unresolved questions surrounding crypto-custodian bankruptcy proceedings under the U.S. Bankruptcy Code is whether or not digital assets that are held by a crypto exchange on behalf of platform users could be viewed as the exchange’s corporate assets in the proceeding, which in turn could be used to satisfy debts of other creditors.[1]  As we explained in a recent article, such determinations are fact specific and turn on various factors such as: 1) the intent of the parties, as reflected in, for example, the terms of any custodial or other agreements that exist between the … Read more

Legal “Raincoat” Keeps Directors Dry in Going-Private Deals Outside Delaware

Though Elon Musk’s controversy with Twitter has grabbed the headlines, another going-private legal development also merits attention: Meade v. Christie et al., an Iowa Supreme Court decision dismissing shareholder class action claims against directors who approved a going-private merger. The Meade dismissal was based on a director liability shield patterned on Model Business Corporation Act (“MBCA”) Section 2.02(b)(4).  As interpreted and applied in Meade, the MBCA shield is more protective than the comparable Delaware provision, DGCL Section 102(b)(7). Equally important, Meade answers procedural questions that aren’t fully resolved by the MBCA shield text, illustrating key pleading requirements for … Read more

What Are NFTs and Why Are They So Controversial?

Nonfungible token (NFT or Token) was the word of the year in 2021, as NFT sales exceeded $4 billion in monthly trading volume in January 2022 after generating more than $23 billion in sales in 2021.   Celebrities including musicians  Eminem and Grimes  and artists Beeple and Banksy have minted and sold NFTs, and sports leagues like the NBA and NFL have set up NFT marketplaces. Now, large Fortune 100 corporations such as Walmart, Nike, and Spotify are entering the fray, and Mastercard is making it easier to buy NFTs, raising the question, what is an NFT?

What is Read more

Do We Need a Restatement of the Law of Corporate Governance?

In 1978, the American Law Institute (ALI) authorized a project originally intended to result in a Restatement of corporate law.[1] The drafters intended their project to be a departure from traditional restatements.[2] As they visualized it, the project was to offer “a combination of classic Restatement, forward looking guidelines, and perhaps also model provisions.”[3] Their efforts, however, met with immediate resistance. When Tentative Draft No. 1 was published in 1982, it was widely criticized for failing to restate the law but rather proposing major and dramatic changes in the law.[4]

As the decade-long drafting process continued, … Read more

ISS Discusses Securities Class-Action Settlements in First Half of 2022

The value of U.S. shareholder class action settlements in the first half of 2022 totaled $2.32 billion, the exact amount as the same period in 2021. However, the quantity of settlements in the first six months of the year increased by 23.7%, from 59 in 2021 to 73 in 2022. The average value of settlements in 2022 was $31.8 million (or 19.1% less than the $39.3 million average in 2021).

The largest settlement so far in 2022 was with Teva Pharmaceutical Industries at $420 million, accounting for 18% of the total value of settlements. Interestingly, the largest settlement from the

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Stakeholder Capitalism’s Viewpoint Diversity Problem

Concerns about a lack of viewpoint diversity in stakeholder capitalism have been touched upon in commentary about the SEC’s recent climate change proposal. For those not caught up, the SEC has proposed a rule that would “require registrants to provide certain climate-related information in their registration statements and annual reports.”[1] The proposed rule has been widely discussed, and to some extent criticized, in corporate governance circles. Professor Sean Griffith, for example, argued in a recent paper that “the proposed climate rules create controversy by imposing a political viewpoint, by advancing an interest group agenda at the expense of investors … Read more

Debevoise Discusses What the ADPPA Means for U.S. Data Regulation

On June 21, 2022, the House Energy and Commerce Committee formally introduced a new federal privacy bill: the American Data Privacy and Protection Act (“ADPPA”). Notably, the ADPPA has diverse support from both branches of Congress and both political parties. The ADPPA aims to create a national framework that would preempt many, but not all, state privacy laws.

It is unclear whether the ADPPA has sufficient support to become law, as it reportedly lacks key support in the Senate. Further, the fallout from the Supreme Court’s recent Dobbs decision has drawn closer scrutiny of the ADPPA’s provisions. Critics question whether … Read more

How Do Boards Exercise Their Discretion to Resist Takeover Bids?

If a U.S. firm is a takeover target, it is almost entirely up to its board to decide whether to offer resistance, i.e., to formally reject a specific bid, and potentially take financial or operational actions to defend against the bid. Such actions include standstill agreements, litigation, asset/liability restructurings, and targeted repurchases. In contrast, boards in the UK and most EU countries — those that have adopted Article 9 of the E.U. Takeover Directive — are largely prevented from taking any action that could frustrate the bid, unless it has been duly considered and approved by stockholders. There has long … Read more

SEC Chair Gensler Addresses Proposed Amendments to Rule 14a-8, Proxy-Voting Advice Rules

Today [July 13], the Commission will consider proposed amendments to Rule 14a-8 that would provide greater certainty as to the circumstances in which companies are able to exclude shareholder proposals from their proxy statements. I am pleased to support the proposed amendments because, if adopted, they would improve the shareholder proposal process.

When shareholders buy stock in a public company, they own a piece of the company, which comes with certain rights under state law. That includes the right to elect directors to the company’s board and the right to make proposals to the management team for consideration by fellow

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What the Language of Shareholder Stewardship Can Teach Us

Stewardship has, along with sustainability, social equality, biodiversity, and climate risk management, emerged in recent years as a favorite buzzword in corporate governance and investment management circles. But the language used by investors to express stewardship objectives and practices varies significantly. For some, stewardship is nearly synonymous with voting: it is a matter of shareholder engagement with company management and is aimed at maximizing long-term value. Others expand the long-lamented notion of shareholder ownership to include active ownership and responsible investing. For still others, stewardship is about “building stronger portfolios,” both active and passive.

To complicate matters further, stewardship … Read more

ISS Discusses Progress in Racial and Ethnic Diversity on U.S. Boards Since 2020

The summer of 2020 was a turning point in the push for corporate diversity and inclusion initiatives. The tragic murder of George Floyd and the reactions that followed it resulted in demands for racial equality and anti-racism measures that resounded across the globe, including the corporate world.

Subsequently, many companies pledged to do their part to address inequalities and, likewise, many investors began to seriously reflect on their racial and ethnic diversity policies. Some investors adopted or strengthened their proxy voting policies demanding greater transparency from their portfolio companies around racial and ethnic diversity information, believing that which cannot be

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Corporate Culture and Financial Reporting Quality

Corporate culture is an important determinant of companies’ behavior and success and, as a result, has drawn much attention, particularly from the business press. While some companies have received praise for their corporate cultures, others such as Wells Fargo, Valeant Pharmaceuticals, Toshiba, and Hertz have been severely criticized for maintaining cultures that have led to some of the most egregious misconduct in recent years, despite each of these companies having formal ethics and compliance guidelines (Zach 2015). But while the broad impact of corporate culture is clear – it affects everything from ethics decisions (Audi et al. 2016) and economic … Read more

Wachtell Lipton Discusses Legal Considerations for Decentralized Autonomous Organizations

We recently wrote about the emergence of a new breed of business organizations — decentralized autonomous organizations (DAOs) — to contend that the governance design for these blockchain-based organizations should heed some of the hard-fought lessons that have helped to form the pillars of modern corporate governance.  It is also important to confront certain features of DAO governance that present distinct challenges for counterparties seeking to invest or engage in commercial transactions with DAOs.  A few recent DAO controversies highlight the need for greater clarity in the legal status of DAOs, more robust governance, and a reckoning with the distinct … Read more

How SPACs Disable Indirect Investor Protection

Special Purpose Acquisition Companies (SPACs) are a trap for unwary investors. In standard public equity securities, even the most naïve investor is protected, first, by the market price – you pay only for what you get – and, second, by the comfort that nothing else is required of an individual investor to realize the full value of the security. SPACs disable both protections. Because of SPACs’ redemption option, SPAC shareholders need to do something – decide whether to redeem – and cannot rely on the market price to ensure they are getting value for their money. Predictably, sophisticated repeat players … Read more

FTI Law Discusses Accountability at the SEC Enforcement Division

Whistleblower Frances Haugen recently reported Facebook to the U.S. Securities and Exchange Commission (SEC) for allegedly fraudulent statements Facebook made to investors. Millions of people all over the world tuned in to hear Haugen testify before Congress about the wrongdoing she witnessed. Right now, the staff attorneys at the SEC’s Enforcement Division are likely conducting an investigation into those allegations. If the attorneys conclude that Haugen was right and recommend Facebook be prosecuted, the SEC may bring an enforcement action. However, it’s equally possible that the commissioners at the SEC will vote against bringing an enforcement action in a closed-door … Read more

Paul Hastings Discusses Japanese Poison Pills Without Shareholders’ Blessing

In many jurisdictions, poison pills are devised and implemented by the board of directors without shareholders being involved. Since the 2007 Supreme Court case[1] (in re Bulldog Sauce) in Japan, however, courts have largely relied on the voice of shareholders in reviewing the legality of pills. This raises several issues: how realistic it is to rely on shareholders’ resolution as a matter of corporate governance, and whether it is practically appropriate to seek shareholders’ approval when in-market purchases can be achieved in Japan in a short period of time in large quantities. We discussed a similar issue … Read more

SEC Commissioner Peirce Discusses Chief Compliance Officer Liability

I write in support of the settled administrative proceeding against Hamilton Investment Counsel LLC (“HIC”) and Jeffrey Kirkpatrick.[1] Because Mr. Kirkpatrick was both a principal and the chief compliance officer (“CCO”) of HIC, the action against him merits close consideration.

The SEC’s determinations about whether to charge a compliance officer are consequential not only for the particular compliance officer, but more generally for the profession. CCOs play a vital role in ensuring that investment advisers, broker-dealers, and other registered entities comply with the securities laws. A good CCO expertly weaves compliance into all of a firm’s activities. Attracting well-qualified

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Does the Adoption of Say-on-Pay Laws Affect Firms’ ESG Performance?

Can investors successfully advocate for improved ESG outcomes at their portfolio companies? We examine whether the introduction of say-on-pay (SOP) laws provides investors with a way to increase the extent to which executive compensation is tied to ESG metrics and whether doing so, in turn, improves a firm’s ESG performance.

Surveys have found that investors value firms’ commitment to sustainability and social issues.  For example, a recent survey of 325 investors internationally by PwC found that 79 percent of investors agreed with the statement, “ESG risks are an important factor in investment decision-making” (The Economic Realities of ESG, … Read more

Issuer Liability: Ownership Structure and the Circularity Debate

In many countries, investors can hold publicly traded companies liable for public misstatements. Issuer liability is intuitively appealing because statements are generally made on behalf of the company by its representatives. Moreover, large companies typically have deep pockets, which ensures compensation for investors who incurred losses because they traded during the period when stock prices were distorted by false information.

However, in the United States – the country where securities class actions are most prevalent –, many scholars are highly skeptical about the social value of issuer liability through securities class actions. The critique is usually framed under the rubric … Read more

Wachtell Lipton Discusses Important Supreme Court Business Cases

Last Thursday, the Supreme Court concluded its most tumultuous Term in recent memory.  The Term was marked by a number of closely divided decisions on contentious issues ranging from President Biden’s vaccination mandate to gun rights to religious liberty.  Anticipation of and speculation surrounding the Court’s decision in Dobbs, fueled by the leak of Justice Alito’s draft opinion, dominated headlines for months.  And the decision itself, overturning a half-century of precedent and eliminating the constitutional right to an abortion, has sent shock waves across the nation and is certain to trigger years of follow-on litigation.

The Court’s business docket … Read more

The Two-Front War on the Administrative State: How Far Will the Supreme Court Go?

The hostility of at least a plurality of the Supreme Court to the Administrative State has become increasingly evident. This faction has been pursuing a two-front war: First, it has significantly curbed (or seems about to curb) the enforcement powers of administrative agencies. Initially, it did this by finding that administrative law judges (“ALJs”) must be appointed by someone under presidential control[1]; more recently, it granted certiorari on the issue of whether ALJs must also be subject to a corresponding presidential removal power.[2] Second, it seems intent on overruling a longstanding “implied preclusion” doctrine under which defendants … Read more

Reimagining Board Committees to Accommodate Worker Voice

Employees at U.S. public corporations have increasingly demanded that their concerns be heard at the very senior levels of management.  If current trends continue, boards of directors could also be challenged to accommodate “worker voice” more formally.  Rather than being caught flat-footed, boards should reimagine the process through which they receive information about employee sentiment with the goal of penetrating existing structural barriers.  Boards can start by establishing a dedicated board committee with the proper remit and resources, thereby creating a mechanism for, and demonstrating a commitment to, hearing and understanding worker voice.

In a recent essay, I contribute … Read more

The Pros and Cons of Disclosing News in Distressed Organizations

Regulation affecting managers’ disclosure of news in U.S. organizations has been affected by three main changes over the past three decades: (a) The Private Securities Litigation Reform (PSLR) Act, 1995, which protected managers from litigation arising from the disclosure of forecasted numbers that didn’t turn out to be accurate, (b) Regulation Fair Disclosure (Reg F.D.), adopted by the Securities and Exchange Commission (SEC) in 2000, which stopped managers from disclosing news to a select group of people, and (c) Sarbanes-Oxley Act (SOX), 2002, which expanded the scope, accuracy, and completeness of disclosures to stakeholders.

Managers tend to either withhold news, … Read more

The Challenge of Holding Big Business Accountable

Is big business ungovernable? Some of today’s calls to break up and intensely regulate big business do not hinge on harms to consumers as consumers, but rather on the claim that giant corporations with market power treat legal requirements as mere recommendations, and routinely engage in behavior that harms others as long as it maximizes their own bottom line. Importantly, the big-is-ungovernable claim has by now firmly entered policy circles. To illustrate, in 2020, a congressional subcommittee investigating the conduct of big tech platforms maintained that Google, Amazon, Facebook, and Apple leverage their power to shape the regulatory framework that … Read more

ISS Discusses 2022 Shareholder Resolutions on Political Spending

Shareholder resolutions filed in the 2022 proxy season included several different types of proposals focused on political spending by corporations, reflecting investor concerns that support of certain candidates and causes may be inconsistent with the stated values of the company.

In this series of snapshots, ISS Corporate Solutions examines the key corporate issues raised by this season’s shareholder resolutions. In this installment, we look at resolutions focused in campaign contributions, including calls for greater disclosure. Voting results are based on filings by companies up to June 13, 2022.

More shareholder resolutions were filed in the 2022 proxy season than in

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Rolling Back Dodd-Frank: Investors’ and Banks’ Responses to Financial Market Deregulation

In the wake of the 2007-2008 financial crisis, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Dodd-Frank created a new financial regulatory landscape with intensified federal oversight and an extensive set of regulations on banks, such as stress tests and stricter capital, trading, loan, and mortgage underwriting standards (Acharya and Richardson, 2012; Richardson et al., 2018). These new regulations have triggered a debate over their benefits and the burden they place on banks. Since April 2016, and in May 2018, Congress passed the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCP Act), which makes … Read more

Skadden Discusses Delaware Court Rulings on Advance Notice Bylaws and Incumbent Director Conduct

In early 2020, in BlackRock Credit Allocation Income Tr., et al. v. Saba Capital Master Fund, Ltd.,1 the Delaware Supreme Court reiterated that Delaware courts will enforce clear and unambiguous advance notice bylaws according to their terms using ordinary contractual principles. Its ruling reversed a decision by the Court of Chancery and held that a dissident stockholder was barred from presenting its slates of nominees for two closed-end investment funds and a trust because the nominees failed to provide supplemental information within the time period set by clear and unambiguous bylaws.

The Delaware Supreme Court highlighted that there … Read more

Why the SEC’s Proposal for “Modernization of Beneficial Ownership Reporting” Is Flawed

Last February, the Securities and Exchange Commission proposed to “modernize” the reporting of beneficial ownership of a company’s stock under section 13(d) of the 1934 Securities Exchange Act.  As I explained in a recent comment letter to the SEC, the proposal is flawed in several ways. First, it risks suppressing proxy contests, which are the principal, if not the sole, method for holding corporate managers accountable to shareholders. Second, to the degree the Commission is concerned about improper tipping of information related to activist engagements, that concern can and should be addressed by developing new rules specific to such tipping … Read more

ISS Discusses Shareholder Resolutions on Lobbying

Shareholder resolutions filed in the 2022 proxy season reflect continuing investor concern over lobbying activities and whether they are consistent with a company’s public positions and aligned with shareholder interests. However, the passage of only two such resolutions indicates that the majority of shareholders are satisfied with company efforts to address these concerns.

In this series of snapshots, ISS Corporate Solutions examines the key corporate issues raised by this season’s shareholder resolutions. This time, we look at resolutions on lobbying, including activities focused on climate. Voting results are based on filings by companies up to June 13, 2022.

More shareholder

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The Lummis-Gillibrand Responsible Financial Innovation Act

On June 10, 2022, U.S. senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) introduced S. 4356, their Responsible Financial Innovation Act, to transfer most regulation of cryptoproducts to the Commodity Futures Trading Commission (CFTC}, essentially ousting the SEC, presumably perceived to be a more aggressive regulator, from oversight of cryptoproducts that were securities.

The senators’ timing could not have been worse. Between November 2021 and June 21, 2022, global crypto capitalization fell 69 percent, led by Bitcoin, the industry leader, which declined 70 percent, Coinbase, the leading crypto exchange, which fell 86 percent, and Tether, a supposedly safe form of … Read more

Debevoise Discusses FTC Focus on Private Equity

On June 13, 2022, the Federal Trade Commission’s (“FTC”) five commissioners aired their ideological differences over the regulation of private equity-backed consolidation and the tools used to police such deals via a consent agreement settling the FTC’s challenge to a $1.1 billion merger of veterinary clinics. The Commission’s majority used the consent to impose potentially significant and unprecedented limitations on future acquisitions of related businesses.

The Commission’s statements and relief granted in the consent agreement could have far-reaching implications for future private equity acquisitions, particularly roll-up strategies.

FTC Settles with JAB on Veterinary Clinics Acquisition

Monday’s consent agreement settles an … Read more

The Implications of Complexity in CEO Pay Packages

Tying chief executive officer (CEO) pay to performance goals aims to solve a classic principal-agent problem, helping to ensure that the CEO acts in the best interest of shareholders. But can it be too much of a good thing – can compensation contracts be too complex?  Our research says yes.

Compensation contracts have numerous features, including different forms of compensation (e.g., salary, bonus, stock, and stock options), a variety of performance metrics, multiple periods for measuring performance, and different performance benchmarks (whether measured in relation to a specific pre-set target or the performance of a peer company). Compensation committees use … Read more

SEC Commissioner Peirce Criticizes Regulatory Flexibility Agenda

Chair Gensler’s Regulatory Flexibility Agenda[1] for the Securities and Exchange Commission sets forth flawed goals and a flawed method for achieving them. The agenda, if enacted, risks setting off the regulatory version of a rip current—fast-moving currents flowing away from shore that can be fatal to swimmers. Just as certain wave and wind conditions can create dangerous rip currents,[2]the pace and character of the rulemakings on this agenda make for dangerous conditions in our capital markets.

I. The Agenda Devotes the Agency’s Limited Resources to Rulemaking Proposals Disconnected from Our Core Mission

The Agenda continues to shun

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Corporate Criminal Liability for ESG Initiatives Is on Its Way

The Securities and Exchange Commission (“SEC”) has signaled that it wants to increase enforcement against “greenwashing” – misrepresentation of a company’s environmental actions.  It is not yet clear, though, whether these enforcement efforts will expand the risk of corporate criminal liability. In a new paper, I argue that they will, and that businesses should think about their risks regarding potential criminal fraud in the environmental area.

Setting the Stage for the SEC’s ESG Actions

Frustration with greenwashing has been growing as more and more money chases ESG investments. The term “ESG” – environmental, social, and governance initiatives – is … Read more

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

In recent years, innovation in the blockchain or “Web3” space has been impacted by uncertainty on the regulatory front. Undoubtedly, the greatest area of uncertainty has involved the Securities Exchange Commission (SEC) and its application of the so-called Howey test when determining whether a cryptocurrency or other digital asset is being offered as an investment contract for purposes of applying U.S. securities law. Despite repeated calls for regulatory clarity from industry members, lawmakers and even SEC commissioners, little progress has been made in achieving that clarity.

Industry members have therefore increasingly come to the conclusion that a long-term solution will … Read more

The Need for Engaged Governance During Existential Crises: The Case of Aerojet Rocketdyne

Engaged shareholder voting is often perceived as the linchpin of sound corporate governance. That reputation is well deserved: Even as corporate governance has broadened its sights of late to accommodate a wider set of stakeholders, the pivotal role of shareholders in corporate decision making remains very much at the core of corporate law. Particularly within public companies, the shareholder voting franchise is a signature vehicle through which informed investors voice their approval, their concerns, and even their repudiation of managerial decisions. Highly diversified shareholders and institutional investors frequently engage the services of proxy advisers to help them become informed about … Read more

ISS Discusses Global Crackdown on ESG Greenwashing

The meteoric global rise of ESG investing is increasingly being met with an equally ambitious regulatory disclosure regime, and, targeting greenwashing, policymakers are beginning to bare their teeth. In the latest salvo, on 25 May the US Securities and Exchange Commission (SEC) voted 3:1 to approve two proposals enhancing scrutiny of ESG funds and advisers’ ESG practices. One proposal seeks to expand the rule governing fund naming conventions and the other proposes additional disclosure requirements by funds and investment advisers about ESG investment practices.

Overview of SEC proposals

While the proposed changes to the Names Rule are ostensibly engendered by

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Why Do Companies Going Public Choose Controversial Governance Structures, and Why Do Investors Let Them?

Over the past three decades, there has been increasing concern about how corporate governance structures such as classified boards and dual class stock entrench managers, reduce director effectiveness, and reduce firm value. Likely as a result, mature firms have increasingly eliminated these structures. While almost 60 percent of S&P 1500 companies had classified boards in the 1990s, only 35 percent had them in 2017. The percentage of companies with dual class shares has also dropped, from 12 percent of the S&P 1500 in the 1990s to 7 percent in 2017.

Strikingly, newly public firms’ structures have moved in the opposite … Read more

Sullivan & Cromwell Discusses Supreme Court Decision on Exemption to Federal Arbitration Act

Among other things, the Federal Arbitration Act (FAA) authorizes U.S. courts to enforce arbitration agreements in “contract[s] evidencing a transaction involving commerce,” but excludes from its scope “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”  On June 6, 2022, the U.S. Supreme Court ruled in Southwest Airlines Co. v. Saxon, 596 U.S. ___, 2022 WL 1914099 (June 6, 2022), that workers “who load cargo on and off airplanes belong to a ‘class of workers in foreign or interstate commerce’” to which the FAA does not apply.[1]  In … Read more

Bipartisan Group of Former SEC Officials and Securities Experts Confirms Longstanding SEC Authority on Climate Disclosure

[Editor’s Note: This post is based on a comment letter submitted to the U.S. Securities and Exchange Commission on June 16, 2022. The full letter is available here. Also, please see the Note at the end of this post.]

The Working Group on Securities Disclosure Authority respectfully submits these comments on the Commission’s recent proposal related to mandated, standardized climate-related disclosures for investors. We write to make clear the view among experts in securities law that the Commission has statutory authority to promulgate disclosure rules in this area.

Our bipartisan Working Group is comprised of leading academics, … Read more

SEC Chair Gensler Issues Statement on Request for Comment on “Information Providers”

Today [June 15], the Commission voted to issue a request for comment to help determine which “information providers,” such as index providers, model portfolio providers, and pricing services, might come under the Commission’s definition of an investment adviser. The role of these information providers in today’s markets raises important questions under the securities laws as to if they are providing investment advice rather than merely information. I am pleased to support this request because it will help inform our consideration of when—and under what facts and circumstances—these providers are giving “investment advice.”

In recent decades, the use of information providers

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Asset Managers as Regulators

The corporation’s role in society is in flux. Previous generations saw government as an important bulwark against corporate harm. Today, by contrast, corporate America is thought to be a solution to government dysfunction around issues like inequality and the environment. In addition, the “Big Three” asset manager giants that specialize in index funds – Vanguard, State Street, and BlackRock – have voiced concern over these same issues and promised that they will push companies to address them.

In a new article, I evaluate this shift in the corporate political environment. I argue that demand for regulation has outstripped supply, and … Read more

Wachtell Lipton Discusses Stakeholder Capitalism and ESG as Tools for Value Creation

Recent high profile investigations into greenwashing, the ongoing war in Ukraine and soaring energy costs have prompted questions as to the purpose and value of ESG, and more broadly, stakeholder capitalism.  Some have criticized stakeholder capitalism and ESG as “woke” politics, a threat to shareholder interests and a distraction for boards and management.  Others have questioned whether stakeholder capitalism and ESG can straddle “doing good” and “doing well.”  Uncertainty also abounds as to what ESG truly means.

We believe stakeholder capitalism and ESG are fundamentally frameworks to enhance the sustainable long-term value of a corporation.  Both are tools for boards … Read more

The Unsung Upside of Share Repurchases

Stock repurchases by issuing corporations have always been controversial. But they have become even more so recently because of the perception that the excess funds used to finance buybacks have come from tax cuts and other sources (such as government bailouts) that were intended to stimulate reinvestment or enhance wages and benefits for workers. As a result, critics have proposed that tax law be amended to discourage buybacks (and possibly dividends as well) on the theory that the benefits of such distributions go mostly to executives (who are compensated in large part with equity) and to already wealthy stockholders.

The … Read more

Sullivan & Cromwell Discusses SEC Amendments Requiring Electronic Filing

On June 2, 2022, the Securities and Exchange Commission (the “SEC”) adopted amendments[1] to Regulation  S-T, the Securities and Exchange Act of 1934 (the “Exchange Act”) and certain forms, including Forms 144, to mandate the electronic filing or submission of documents that are currently permitted to be filed in paper form, including “glossy” annual reports to security holders, Forms 144 in the case of public companies, Forms 6-K, notices of exempt solicitations and exempt preliminary roll-up communications and annual reports of employee stock purchase, savings and similar plans on Form 11-K. The rules also mandate the use of Inline … Read more

Do Investor Reactions Differ Across the Lifecycle of ESG Initiatives?

Firms often take on environmental, social, and governance (ESG) initiatives to increase their sustainability and the positive feelings among investors. However, specific ESG initiatives, like all business initiatives, rarely continue indefinitely, and “pruning” them is an integral part of firms’ strategic approach to ESG. Firms may discontinue even successful ESG initiatives, perhaps because of financial strain or uncertainty from developments like the COVID-19 pandemic. In a recent paper, we investigate how investors’ reactions to ESG might change over the lifecycle of an ESG initiative. Specifically, we test the idea that investors are most sensitive to the ethical implications of … Read more

Davis Polk Discusses Reopening of Comment Period for SEC’s Dodd-Frank Clawback Rule

On June 8, 2022, the Securities and Exchange Commission announced that it is again reopening the comment period for its proposed clawback rule, a rule that has been required to be promulgated since the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. This new comment period is the SEC’s third request for comments on the clawback rule, with comments previously requested on proposals published in July 20151 and October 20212. As part of this reopening, which did not include a new version of the proposed rule, the SEC Staff released a … Read more

Does Mandatory Board Gender Balancing Reduce Firm Value?

As a social-policy instrument, forced board-gender balancing is in principle unrelated to firms’ economic performance. Nonetheless, imposing such a policy may have unintended consequences (positive or negative) for firm value, which is important for all of a firm’s constituencies – not only shareholders – to understand properly.

In other words, the potential valuation effect of forced director-gender balancing is an empirical question. Our research addresses this important issue using the powerful setting provided by Norway’s pioneering quota law from 2003. This law, which regulated all Norwegian public liability companies (“Allmennaksjeselskaper” or ASA, which can raise equity capital from the … Read more

Debevoise Discusses Shareholder Climate Activism and 401(k) Plans

In December 2021, As You Sow, a non-profit foundation promoting environmental and social corporate responsibility, filed shareholder proposals on behalf of and Comcast Corporation shareholders for action at each of their 2022 annual meetings. The Amazon proposal and the Comcast proposal were identical, requesting that the board of directors prepare a report with the board’s assessment of how the company’s retirement plan options align with the company’s climate action goals. The supporting statement suggested that the report include, at the discretion of the board of directors, how the company could provide employees with more sustainable investment options, such … Read more

Consumer Responses to Corporate Bankruptcy

Distressed firms may avoid an otherwise beneficial Chapter 11 reorganization because they fear losing customers.  In our recent paper, we use two experiments to estimate the effect of corporate bankruptcy on consumer demand for a bankrupt firm’s products. We find that learning about a Chapter 11 bankruptcy filing reduces a consumer’s willingness to pay for the bankrupt firm’s products by 18-35 percent, depending on the industry.

We consider three reasons why consumers might care about a corporate bankruptcy. First, consumers might worry that a bankruptcy could lead to liquidation, preventing them from taking advantage of warranties, return policies, reward … Read more

SEC Chair Gensler Speaks Before Investor Advisory Committee

Good morning. It is great to join the Investor Advisory Committee (IAC) today. As is customary, I’d like to note that my views are my own, and I’m not speaking on behalf of the Commission or Securities and Exchange Commission staff.

I would like to welcome the new members of this Committee. The eight of you bring a wide-ranging set of experiences to this group, coming from government, academia, funds, non-profits, and the U.S. Navy. Thank you for volunteering your time and energy on behalf of investors.

Today’s meeting marks a year since I first had the opportunity to meet

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Investor Information Gathering and the Resolution of Uncertainty

Gathering additional information is an instinctive response to uncertainty. This behavior is found in many settings, perhaps most pervasively in capital markets. For example, if investors observe an earnings number that differs from what they expected, they might seek to better understand the number by gathering additional information and context from financial statements or corporate disclosures. Such efforts may not fully resolve the uncertainty that prompted them, particularly if uncertainty is more difficult to resolve as it increases. Thus, the intensity of investors’ information gathering efforts may reflect both the uncertainty that motivated their search and the residual uncertainty that … Read more

SEC Chair Gensler Speaks on Plans to Overhaul Stock Trading

Thank you, Rich (Repetto), for that kind introduction. It is good to be with you again. As is customary, I’d like to note my views are my own, and I’m not speaking on behalf of my fellow Commissioners or the SEC staff.

Rich, at last year’s conference, you and I spoke about how technology has transformed and continues to transform our equity.[1]

This has led to some good things. For example, retail investors have greater access to markets than any time in the past.

This technological transformation, though, also has led to challenges, including market segmentation, concentration, and potential

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Don’t Forget the “G” in ESG: The SEC and Corporate Governance Disclosure

In March 2022, the SEC proposed rules (the “Proposed Rules”) that, if adopted, will require public companies to include extensive climate-related disclosures in their periodic reports.[1]  According to the SEC, this disclosure will help investors “make informed judgments about the impact of climate-related risks on current and potential investments.”[2]  However, requiring public companies to disclose information about climate-related risks is not enough to protect investors or ensure that they are fully informed.  The SEC also needs to require public companies to disclose additional information about their corporate governance practices, especially those relating to shareholder rights.

In my recent … Read more

Debevoise Discusses European Parliament’s Response to EC’s Proposal to Review AIFMD

On May 16, 2022, the Committee on Economic and Monetary Affairs (ECON) of the European Parliament published a draft report on the European Commission’s proposal for review of AIFMD. We previously reported on the Commission’s proposal at the end of 2021. The new report takes into account many of the concerns raised by the industry and simplifies many of the newly introduced requirements in a helpful manner. It is therefore generally an improvement on the version published last year, but it remains to be seen how many of the proposed changes will be picked up in the course of the … Read more

How Accounting Employees’ Incentives Affect Financial Reporting Quality

An extensive body of literature that spans accounting, corporate finance, management, and other adjacent disciplines examines the relationship between senior executives’ contractual incentives (e.g., bonus plans, stock and option holdings) and various properties of their firms’ financial reporting and disclosures. The collective evidence that emerges from this vast literature is not only surprisingly mixed, but also largely neglects consideration of the contractual incentives of employees lower in the organizational hierarchy. This is a particularly conspicuous oversight since many of these subordinates (e.g., financial accountants, cost accountants, internal auditors, and other accounting and finance employees) have more direct access to, and … Read more

Universal Proxy Cards and the 67 Percent Solution

The upcoming Universal Proxy Card (UPC) presents activist investors with only one potentially significant new burden: solicit two-thirds of the shares in a proxy contest at a portfolio company. Everything else in the new rule, including the new proxy card format and contents and the notice schedule, is largely immaterial to investors.

A close read of the rule and the supporting economic analysis suggests activists can handle this new requirement easily. Almost all proxy contests already hit the 67% level, probably because it means soliciting a surprisingly small number of shareholders. And an activist with an appetite for pushing legal … Read more

The ALI’s Restatement of the Corporate Objective Is Flawed

Almost 30 years after the American Law Institute published the Principles of Corporate Governance, it has launched an effort covering similar ground, this time promising a Restatement of the Law of Corporate Governance.

The difference between the Principles and the new Restatement, according to the ALI’s director, Professor Richard Revesz, is that the Restatement will be “grounded in the sources of positive law” while the Principles presents “best practices for the affected institutions.”  In addition, the Restatement will aim to capture the evolution of corporate law prompted by institutional investors’ increasing share of stock ownership, the rise … Read more

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

While recent gyrations in cryptoasset markets have focused attention on the future contours of stablecoins, market-making, and impending regulation, another feature of the blockchain landscape is also confronting noteworthy challenges.  Specifically, a new breed of business organization has emerged that is defined by its rejection of the centralized, traditional governance structures at the heart of our modern corporations.  These decentralized blockchain-based organizations are conducting a substantial, growing volume of business activity, and many are encountering a variety of governance challenges.  Some of these challenges are novel, but many others strikingly resemble those that corporations have confronted for decades.  We … Read more

How Boards Use Auditor-Provided, Non-Public Information in Overseeing Management

To what extent do directors care about financial reporting? Prior research provides some evidence that financial reporting quality is important to boards and that financial misreporting influences their executive retention decisions. For example, the public revelation of past financial reporting errors or intentional misstatements increases the likelihood that the board will dismiss the CEO or CFO. However, restatement announcements, financial-statement fraud, and other publicly revealed attempts to misstate earnings reflect poorly on both management and the board, creating an incentive for directors to deflect responsibility from themselves. Thus, it is not necessarily clear whether directors respond to financial misreporting because … Read more

Assistant AG for National Security Speaks on Cybersecurity

Good afternoon. I’m Matt Olsen and I am the Assistant Attorney General for National Security at the United States Department of Justice.

I’m very pleased to be here at CyCon. Thank you to Lucas for moderating this panel, to my esteemed fellow panelists, and to the NATO Cooperative Cyber Defense Center of Excellence for hosting this important conference.

This is a crucially important moment for us to gather together, as NATO allies and our partners beyond the alliance. I know for all of us the crisis in Ukraine is front of mind, in particular the inspiring bravery of the Ukrainian

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Mission Critical ESG and the Scope of Director Oversight Duties

How can shareholders hold directors accountable for paying insufficient attention to the broader interests of society? In the past few years, several ESG issues have become a source of major risk for companies and their shareholders. Even if the behavior in question is not punishable by law, failure to address critical ESG concerns could harm a company’s reputation and ability to attract and retain talent, access capital, or sell products. The ESG literature has mostly focused on classic corporate governance mechanisms for shareholders to hold directors accountable, from voting with their feet by investing based on ESG criteria to voting … Read more

In Search of Good Corporate Governance

What is the right governance framework for a public company? This question sits at the core of decades of empirical and theoretical research, and yet we still lack consensus on an answer. In particular, agency-cost essentialists support governance structures that maximize accountability to the company’s shareholders, while proponents of board-centered models, as well as stakeholder governance advocates, prefer arrangements that insulate management from shareholder influence. Still others contend that there is no “one-size-fits-all” governance arrangement. Despite this range of views, agency-cost essentialists have mostly won the day. In both academic and professional circles, “good governance” is generally defined as the … Read more

Skadden Discusses the Growing Complexity of Commercial Rights Issues In NFTs

Although it has only been a little over a year since nonfungible tokens came into the mainstream, the industry has taken a number of twists and turns, not the least of which is the granting of certain commercial exploitation rights in the digital works associated with an NFT.

However, this trend has uncovered an inherent issue with attaching contractual rights to NFTs. It is an issue for which there is not yet a definitive solution, which is creating potential issues for rights holders, NFT issuers and NFT owners.

In order to understand this issue, one needs to keep in mind … Read more

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

Decentralized Finance (DeFi) employs blockchain technology and smart contracts with the goal of enabling perfectly disintermediated financial markets. Despite the far-reaching ambition, DeFi markets are experiencing increasing intermediation recently, as a new type of intermediary, so-called Crypto Funds (henceforth, CFs), reintroduces centralized market structures. In fact, the number of newly established active CFs has substantially grown over the last four years to more than 850 at the end of 2021, with a surge in total assets under management from $8.3 billion in mid-2018 to $57.5 billion in 2021. In a new article, we address the question of why CFs find … Read more

ISS Discusses Growing Disapproval of CEO Pay Proposals

For many companies, 2021 signaled a return to normal business after the COVID-19 pandemic upended the economy and significantly disrupted financial forecasts established at the beginning of 2020. Given the difficulty in meeting financial targets set under short- and long-term incentive plans, CEO pay levels remained essentially flat in FY2020 for both S&P 500 and Russell 3000 (excl. S&P 500) companies. Despite the lack of pay increases, investors rejected compensation proposals in Say-on-Pay votes at a historic rate during the 2021 proxy season, with a record 20 companies in the S&P 500 failing to secure majority support for their proposals.

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A Lawyer’s Guide to Empirical Corporate Governance

Debates about corporate governance ultimately rest on empirical studies that evaluate whether a particular type of governance enhances shareholder value. In recent years, lawyers have increasingly engaged with these studies, by either criticizing or praising them, and given them greater publicity. Likewise, judges in cases involving corporate governance matters such as anti-takeover devices and fiduciary duties have cited those studies when assessing the consequences of different governance mechanisms for firm value. The challenges for lawyers are that, first, many of them are not trained in statistical methods and econometrics and, second, many empirical studies reach conflicting results. Accordingly, it is … Read more

SEC Chair Gensler on ESG Disclosures Proposal

Today [May 25], the Commission is considering a proposal to improve disclosures by certain investment advisers and funds that purport to take Environmental, Social, and Governance (ESG) factors into consideration when making investing decisions. I am pleased to support this proposal because, if adopted, it would establish disclosure requirements for funds and advisers that market themselves as having an ESG focus.

It is important that investors have consistent and comparable disclosures about asset managers’ ESG strategies so they can understand what data underlies funds’ claims and choose the right investments for them.

When I think about this topic, I’m reminded

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SEC Commissioner Peirce on ESG Disclosures Proposal

Thank you, Mr. Chair. A key impetus for today’s [May 25’s] rulemaking[1] is a legitimate concern about the practice of greenwashing by investment advisers and investment companies. This concern is real because advisers can mint money by calling their products and services “green” without doing anything special to justify that label. Only days ago, we settled an enforcement proceeding in which we alleged that an adviser said one thing about ESG and did another.[2] Yet while enforcement proceedings of this sort illustrate the problem, they also show that we already have a solution: when we see advisers that

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Meme Investors and Retail Risk

Dramatic trading in GameStop, AMC, and other “meme stocks” has reignited debates about the efficiency of the stock market, its purposes, and whose interests it should serve. The changing role of retail investors and meme investors, a subset of retail investors involved in recent stock rallies fueled by social media, has raised urgent questions around the need for regulatory agencies to protect them.

In a recent article, I discuss the evolving role of retail investors in price discovery and the stock market. Calls for regulation usually misunderstand the role of retail investors, either dismissing them as victims of suspect … Read more

Katten Discusses Shareholder Litigation Risk in an Unstable Geopolitical Environment

Over the past two years, U.S. public companies faced an unpredictable risk environment.  Two geopolitical crises – the Covid-19 pandemic, and the Russian invasion of Ukraine – strained international supply chains and destabilized financial markets.

It is tempting to view these events as temporary departures from the stable climate for international commerce of the past 75 years.  There are reasonable grounds for that position.  After all, Covid-19 was the first global pandemic since 1919, and the conflict in Ukraine marks the first large-scale conventional conflict in Europe since World War II.  However, geopolitical instability may be the new normal, and … Read more

Predicting the Unpredictable: What Will Musk Do Next?

What did business journalists do before the arrival of Elon Musk? In those by-gone days, their page in the newspaper was gray, dull, and strewn with statistics. Now, it is filled with a continuing soap opera, as exciting as the sports page because it has drama, intrigue, and high emotion. The trash-talking that one hears in the NBA playoffs pales in comparison with Musk’s daily name-calling.

Currently, it appears that Musk wants to re-negotiate his $54.20 share price for Twitter because he offered a price well over Twitter’s peak value in an overheated market. That market is no longer overheated … Read more

Sullivan & Cromwell Discusses Recent Rulings’ Effects on SEC Use of Administrative Forum

Two cases—one recently accepted for review by the Supreme Court, and another recently decided by the Court of Appeals for the Fifth Circuit—could change the manner in which the SEC brings enforcement actions against those accused of violating federal securities laws.

The Supreme Court Accepts Cochran v. SEC

Congress has empowered the SEC to bring civil enforcement actions seeking a variety of sanctions, including monetary penalties, in either a federal court or in agency proceedings before administrative law judges (ALJs) at the SEC.  On May 16, 2022, the Supreme Court agreed to hear a case about when and where the … Read more

How Mandatory Corporate CSR Disclosures Affect Investors

Investment in companies that engage in sustainable corporate practices is growing rapidly, with those companies receiving approximately $17 trillion from investors so far in the United States alone. As a result, the majority of public companies now voluntarily disclose environmental, social, and governance (ESG) information, touting plans to, for example, be “net zero” by a certain date. However, regulators generally allow companies to create socially responsible images without holding them accountable for the ESG goals they profess to have. This has led many stakeholders to accuse companies of “greenwashing:”  portraying a green image while not taking meaningful steps to achieve … Read more

Skadden Discusses Aggressive Antitrust Enforcement and Novel Theories

From April 5 through April 8, 2022, the Antitrust Section of the American Bar Association held its annual Spring Meeting in Washington, D.C. A prominent theme throughout the week was the role of the antitrust laws in the lives of the American public. Carol Sipperly, Acting Deputy Assistant Attorney General at the Department of Justice’s (DOJ) Antitrust Division, said that the DOJ wants to create merger guidelines that can be picked up, read, and understood by anyone, while the Chair’s Showcase began by asking the panelists whether antitrust can repair the world. Between these expressions of antitrust policy’s infiltration beyond … Read more

Poison Pills in a World of Activism and ESG

Since the creation of the poison pill in the 1980s as a response to hostile takeovers, the corporate world has seen the rise of stakeholder governance, ESG, and stockholder activism and a host of other dramatic developments. The stock market decline following the outbreak of COVID-19 prompted a resurgence of pills, and with the recent Williams decision, the structure and strength of pills have changed in meaningful ways. In a new paper, we examine modern poison pills and propose some new ground rules for pills. These rules, we believe, would effectively balance, on the one hand, a board’s interest in … Read more

Sullivan & Cromwell Discusses Changes to UK Takeover Code

On May 5, 2022, the U.K.’s Panel on Takeovers and Mergers (the “Panel”) published the results of a consultation that started in December 2021 to review the City Code on Takeovers and Mergers (the “Code”), together with proposed amendments to the Code.  The amendments cover a broad range of topics, a number of which are of particular significance for prospective bidders.

In summary, the amendments:

  • require bidders to disclose in possible offer announcements whether they are obliged under the Code to offer a minimum level, or particular form, of consideration;
  • prevent bidders who have made a

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Machine Learning and the Future of Tax Valuation

The tax law handles many computational issues with extraordinary efficiency. Need to compute employment taxes? The Internal Revenue Code (“Code”) lays out the rate for doing so. Need to ascertain the dollar amount deductible for business mileage expenses? Treasury regulations provide a formula based upon the number of miles driven.

But the same computational efficiencies do not routinely extend to asset valuations. As we discuss in in a recent article, administration of the tax law in this realm is plagued with problems. Admittedly, the problem is not universal; for example, it does not extend to (i) items that are bought … Read more

Skadden Discusses Court Decision Striking Down Women on Boards Law

On May 13, 2022, a judge of the Los Angeles County Superior Court ruled in Crest v. Padilla, Case No. 19STCV27561, that California’s statute requiring California-based public companies to have one to three women on their boards of directors (S.B. 826), depending on their board size, violated the equal protection clause of the state constitution. Although the decision, which following a bench trial, does not specifically address the related requirement in S.B. 826 that companies disclose board member information to the secretary of state, the court’s decision enjoins enforcement of the entire law.

After determining that the taxpayer plaintiffs could … Read more

Voting for Socially Responsible Corporate Policies

Voting is important in the modern public corporation.  Shareholders often vote on corporate referendums, they vote to elect directors, and the directors vote on major corporate policies.  Yet, despite the significance of voting, there has been little research exploring whether it’s effective in different situations, such as when a company is considering environmental and social objectives.

In a recent paper, my coauthors and I examine voting on corporate policies when investors care about both maximizing firm value and achieving one or more social objectives.  We find that the push towards socially responsible corporate policies may lead to worse corporate … Read more

SEC Chair Gensler Testifies Before U.S. House Financial Services Subcommittee

Good morning, Chairman Quigley, Ranking Member Womack, and members of the Subcommittee. I’m honored to appear before you for the second time as Chair of the Securities and Exchange Commission. It is good to be here alongside Federal Trade Commission Chair Khan. 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.

The Gold Standard of Capital Markets

I’d like to open by discussing two key years in economic policymaking: 1933 and 1934.

We were in the midst of the Great Depression.

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Does the Threat of Securities Class Actions Add Value for Shareholders? Evidence from China

Securities class actions (SCA) are an important governance mechanism in the U.S. securities market, but there is a significant debate about their costs and benefits to investors. SCA are intended to serve two key functions in investor protection: disciplining and deterring fraud and compensating aggrieved investors. On the one hand, SCA are more efficient and powerful than individual securities suits and, thus, can enhance investor protection. As for deterrence, there is growing evidence that lowering directors’ and officers’ (D&Os) liability risk using corporate charter provisions, D&O insurance coverage, or liability law changes can exacerbate agency problems by reducing managerial vigilance … Read more

Wachtell Lipton Discusses Addressing Market Volatility and Risk in M&A Agreements

Significant volatility continues to disrupt the equity markets, with the major stock indexes swinging multiple percentage points often on a daily basis.  Inflation, rising interest rates, the Ukraine crisis, continuing effects of Covid-19, lasting supply chain issues, a difficult regulatory environment, and uncertainty regarding the global and U.S. economies have had an undeniable impact on the pace of M&A activity so far in 2022.  While the opening months of 2022 have witnessed a number of significant transactions despite these headwinds, most have been all-cash deals, with only a handful of large stock or cash and stock mergers announced to date, … Read more

The Causes and Consequences of Repurchasing Shares

Corporate payouts have reached record levels. Over the past half-century, publicly-held U.S. firms have more than tripled inflation-adjusted dividends, while real share repurchase values have ballooned from $5 billion in 1971 to almost $1 trillion in 2018 and become the dominant form of payout. Given the magnitude of these distributions, it is not surprising that they have garnered the attention of researchers and the skepticism of politicians, who have suggested that buybacks are used in ways that are contrary to the health of the economy and workers. In fact, Democrats recently proposed a 1 percent excise tax on stock buybacks … Read more

SEC Enforcement Chief Speaks on Delays of Defense Counsel

Ordinarily at an event like this one, I’d speak about all the ways in which we are working to protect investors, including our increased focus on the private fund space, the additional resources we’ve committed to our Crypto Assets and Cyber Unit, and other enforcement priorities. And I’d likely close by reassuring each of you in the defense bar that we’re not doing away with the White Paper and Wells processes, but rather streamlining them. But I’d like to take a different approach today given some recent experiences and observations. As is customary, my remarks today express my views, and … Read more

Purpose Proposals 

The shareholder proposal has long been an effective tool for shareholders to bring emerging corporate governance issues to the attention of a company’s board of directors, its managers, and their fellow shareholders. Over time, shareholder proposals have driven a variety of governance reforms, from eliminating staggered boards to adopting majority voting in director elections. Although the subjects of shareholder proposals vary substantially, and some fade quickly into obscurity, others gradually build sufficient support leading not only to their implementation but to their incorporation into future standards of good governance.

At the same time, shareholder proposals are controversial. Critics argue that … Read more

Debevoise & Plimpton Discusses SEC Guidance on Ukraine Disclosure Obligations

On May 3, 2022, the Division of Corporation Finance (“CorpFin”) of the U.S. Securities and Exchange Commission (“SEC”) provided guidance to companies of their disclosure obligations with respect to the direct or indirect impact that Russia’s invasion of Ukraine and the international response have had or may have on their business (the “Guidance”).[1]  As on other occasions, the SEC accompanied the Guidance with a sample letter outlining the questions the SEC may ask an issuer regarding its disclosure of relevant implications arising from Russia’s invasion of Ukraine and the sanctions and export controls imposed in response by various jurisdictions.… Read more

Public Corporations’ Bylaws as Standard Form Contracts

Vast corporate growth over more than a century has weakened shareholder voting rights, as highlighted by, among other things, the rise of dual-voting stock IPOs. The extent of that growth, and the lack of people’s power to negotiate with corporations, provide legal justification for the possible application of standard contracts law to corporate law in general, and especially to the laws regulating publicly-trade corporations.

Applying standard contracts law to corporate bylaws was first recognized in Israel in 1997 by the Israeli Supreme Court and applied to cooperative corporations (and in later opinions to other types of corporations). In this … Read more

Davis Polk Discusses CFPB “Dormant” Authority to Examine Wide Range of Companies

The CFPB plans to use its authority to examine any company providing consumer financial products or services that the CFPB has “reasonable cause” to believe poses risks to consumers.

The CFPB has announced its intention to invoke its “dormant” statutory authority to examine any company providing consumer financial products or services that it has “reasonable cause” to believe poses risks to consumers.1 The authority the CFPB is referring to is a catch-all provision in Title X of the Dodd-Frank Act that can capture a wide range of companies that offer consumer financial products or services to individuals as well … Read more

The Connection Between a Firm’s Investor Base and Media Coverage

The financial media provide information to investors by monitoring firms for fraud, excessive CEO pay, and other questionable behavior, as well as mundane activities such as periodic earnings announcements. However, it is unclear why certain firms get extensive media coverage, along with the resulting benefits, while most do not. We examine the extent to which media coverage varies with firms’ investor base. Specifically, we study in our paper whether and to what extent different types of debt and equity investors, who all vary in their reliance on publicly available information, influence media coverage.

Why Should the Media Care About

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SEC Chair Gensler Talks Security-Based Swaps Market to ISDA

Thank you for the kind introduction. It’s good to be back with the International Swaps and Derivatives Association (ISDA) again.

As is customary, I’d like to note that I’m not speaking on behalf of my fellow Commissioners or the SEC staff.

Swaps emerged in the 1980s to provide producers and merchants with a way to lock in the price of commodities, interest rates, and currency rates. Our economy benefits from a well-functioning swaps market, as it’s essential that companies have the ability to manage their risks.

When I first appeared before this group, as Chair of the Commodity Futures Trading

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Does Going Private Affect Peer Firms’ Disclosures?

Disclosure by publicly listed companies provides critical information to the capital markets and benefits not only firms’ stakeholders but also the overall economy (e.g., Badertscher et al. 2013; Shroff et al. 2017; Barrios et al. 2021). However, the number of U.S. public companies has decreased steadily over the past 25 years. Compared with many other developed markets, the U.S. has few public firms, and this “listing gap” has drawn much attention from market participants, legislators, and regulators. In an influential study, Doidge, Karolyi, and Stulz (2017) conclude that a high number of public companies exiting the public equity market explains … Read more

Sullivan & Cromwell Discusses California Governor’s Executive Order on Blockchain

On May 4, California Governor Gavin Newson signed an executive order that is intended “to foster responsible innovation, bolster California’s innovation economy, and protect consumers” and “create a transparent regulatory and business environment for web3 companies which harmonizes federal and California approaches, balances the benefits and risks to consumers, and incorporates California values such as equity, inclusivity, and environmental protection.”[1]  The executive order outlines several priorities to advance these aims.  The executive order indicates that supporting blockchain technologies and crypto-related assets, in connection with other policy concerns, such as consumer protection, and aligning with the federal government’s approach to … Read more

Dual Class Shares in the Age of Common Ownership

Mark Zuckerberg has virtually all his personal wealth invested in Meta Platforms (formerly Facebook). His incentives as controller of Meta are thus clear: Maximize firm value and private benefits of control, irrespective of the effect that might have on other firms. Meanwhile, BlackRock manages $10 trillion invested in thousands of corporations. Its incentives are equally clear: Maximize the value of its portfolio, irrespective of what happens to any given firm therein. Modern day corporations are thus dominated by two kinds of shareholders with drastically different objectives: Firm value maximizing (FVM) shareholders à la Zuckerberg and portfolio value maximizing (PVM) shareholders … Read more

Davis Polk Discusses DOJ’s Focus on Corporate Crimes of Evading Sanctions, Export Controls

At a recent New York City Bar Association event, Deputy Attorney General Lisa Monaco emphasized the Department of Justice’s focus on sanctions evasion and export control violations as key to its work to combat corporate crime.

The DAG’s discussion

At a recent New York City Bar Association event, Deputy Attorney General Lisa Monaco emphasized the centrality of national security to the Department of Justice’s white collar enforcement efforts. In particular, Monaco pointed to the enforcement of sanctions evasion and export control violations as key to the Department’s work to combat corporate crime. “One way to think about this is as … Read more

Do Venture Capital Funds Overstate Their Performance? The Effects of FOIA

Venture capital (VC) has become an increasingly important asset class for institutional investors such as endowments, pension funds, insurance companies, and sovereign wealth funds, as well as for wealthy individuals. A large amount of money is involved: U.S. VC-backed companies raised nearly $300 billion in 2021. Moreover, there is a great deal of hype related to the potential benefits of VC. Everyone is aware of examples of phenomenally successful VC investments, including in Amazon, Facebook, and Tesla. And a quick Google search reveals many sources touting VC returns of 15 to 30 percent (and sometimes much higher).

The appeal of … Read more

SEC Chair Gensler Speaks at Conference on Financial Market Regulation

The field of economic research is central to our work at the SEC. It helps shape every aspect of our policymaking, from the early design phase to the proposing releases to the consideration of public comments to the adopting releases. It helps us determine the size of fines for enforcement actions. It provides important context for every one of our meetings. I look forward to hearing more about the presentations from today’s conference.

As is customary, I’d like to note that my views are my own, and I’m not speaking on behalf of the Commission or SEC staff.

I want

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Does Stakeholder Outrage Affect Executive Compensation?

One-third of S&P 1500 CEOs reduced their base salary in 2020 as the onset of the coronavirus pandemic caused widespread economic disruption. These pay cuts were often accompanied by press releases that emphasized notions of CEOs “leading from the front,” “being all in this together,” and “sharing the pain” of the pandemic with employees. In a new article, we document that a more complex adjustment to CEO pay occurred during this time.  In a controlled analysis of executive compensation, we find that, while many CEO base salaries declined during 2020, the total compensation for all CEOs increased by nearly … Read more

Hedge Funds Versus Private Equity in Hostile Restructurings

July 31, 2020, was an ill-fated day for financier Dan Kamensky. It began on a bright note, as his billion-dollar hedge fund stood to profit from a possible settlement in Neiman Marcus’ bankruptcy.[1] Not only had the Official Committee of Unsecured Creditors on which he served reached a tentative settlement from which they would receive shares in one of Neiman’s valuable subsidiaries, but it looked like Kamensky’s hedge fund could be in the exclusive position to purchase discounted shares from other unsecured creditors who wanted to cash out right away. That is, until 3:15 P.M. that day, when he … Read more

The Twitter Board Bears Personal Responsibility for a Bad Outcome in the Twitter Sale

Let’s be clear about this: The Twitter board was under no legal compulsion to accept Elon Musk’s offer for the company and, from a corporate governance structural point of view, was in an unassailable position until the 2024 shareholders meeting.  The single motivating factor in its decision, apparently, was that the deal was a good one for Twitter shareholders, without apparent regard for how Musk might run the company and the consequence for the social media infrastructure that Twitter had created, much less the public welfare.  In my opinion, the board’s conduct was shockingly near-sighted, and the predictable adverse consequences … Read more

Arnold & Porter Discusses Attacks on Board Diversity Initiatives

Nasdaq’s Board Diversity Rule, approved by the Securities and Exchange Commission (SEC) in August 2021, is the subject of an ongoing, high stakes court battle in the United States Court of Appeals for the Fifth Circuit. The attorneys general of 17 “red” states have faced off against the SEC, the ACLU, an “Ad Hoc Coalition of Nasdaq-Listed Companies,” and a group of “Investors and Investment Advisers.” In an amicus filing, the attorneys general argue that the rule violates the Equal Protection Clause of the Constitution, undermines traditional state authority in the area of corporate governance, and forces companies to … Read more

Do IPOs of Companies with an Innovative “Up-C” Structure Harm Public Shareholders?

The umbrella partnership corporation (“Up-C”) IPO structure allows an entity taxed as a partnership to go public by creating a shell corporation that sits above, and whose sole asset is units of, the historic partnership.  Unlike a traditional IPO where all owners hold shares of the public corporation, in an Up-C structure, shares of the public shell corporation are sold to the public while the pre-IPO owners continue to own their economic interests directly in the historic partnership (see Shobe 2017, Supercharged IPOs and the Up-C, for an overview).  A primary benefit of the Up-C IPO structure is that, … Read more

The Rise of ESG and the Role of Inside Counsel

ESG, sustainability, and stakeholder capitalism are at the center of the global dialogue on the future of the corporation. They are being driven by an evolving legal and regulatory landscape, market dynamics, and societal expectations. In particular, ESG is increasingly perceived by investors, lenders, employees, local communities, suppliers, and customers as an integral part of a company’s business model and an organic element of value creation. In this post, we explore the role that legal, compliance, and governance[1] professionals – whom we refer to, collectively, as inside counsel – play in respect of ESG.

Inside counsel are increasingly taking … Read more

Too Much Information? Increasing Firms’ Information Advantages in the IPO Process

Traditionally, high-growth private firms in the United States have used the public equity markets as their primary source of external financing to fund innovation and expansion. For this reason, well-functioning capital markets have been instrumental to the U.S. economy, supporting job creation and economic growth. In recent decades, however, there has been a decreasing number of U.S. companies going and staying public, attracting significant concern from regulators. In particular, the U.S. Securities and Exchange Commission (SEC) is concerned that firms using private rather than public sources of financing limits investment opportunities for ‘Main Street’ investors and reduces the availability of … Read more

Skadden Discusses What Regulatory Focus on Consolidation May Mean for Private Equity Buyers

Merger control authorities in many jurisdictions are taking a more aggressive and expansive approach when reviewing industry-consolidating transactions, and some are using the merger clearance process to advance policy objectives involving areas far beyond those of traditional competition. In addition, more than 50 countries have implemented regimes giving antitrust regulators discretion to review any transaction, regardless of minimum revenue or asset thresholds. As a result, companies need to provide for the possibility that their deals will draw regulators’ attention, even when the targets have little or no revenue.

In the U.S., the Biden administration and congressional leaders are exerting influence … Read more

How Takeovers Affect  Firms’ Voluntary Disclosure

How does the possibility of being taken over affect the disclosure of information by the management of the target firm? This has been a question of considerable interest in the accounting and finance literature because transparency is very important for a well-functioning takeover market. Whereas some argue that a target firm’s management will withhold information to increase the acquirer’s uncertainty about firm value and deter the takeover, others argue that the management will increase disclosures to inform existing shareholders about the firm’s fair value and prevent value-decreasing or opportunistic takeovers. The empirical evidence is mixed. In my recent article, I … Read more

Debevoise & Plimpton Discusses SEC’s Proposed SPAC Rules and Investment Banks

The new rules relating to special purpose acquisition companies proposed by the Securities and Exchange Commission on March 30, 2022, would, if adopted, have far-reaching effects on investment banks involved in business combination transactions involving SPACs. The proposed rules aim to remove perceived disparities in disclosures and investor protections as between traditional initial public offerings and de-SPAC transactions.[1] In this update, we focus on how the proposed rules may impact investment banks involved in SPAC IPOs, de-SPAC transactions or financings for de‑SPAC transactions.

Investment banks often play multiple roles, and have multiple interests, in connection with de-SPAC transactions. The … Read more

Deep Learning Mutual-Fund Risk Assessment and Performance

The ripple effects of the COVID-19 pandemic have increased market volatility and even caused markets to close in some countries. These fluctuations substantially affected mutual funds, leading to fire sales of their assets and SEC scrutiny of their risk management. Investors responded quickly and withdrew more than $40 billion from mutual funds in the first two months of the pandemic. With nearly half of the households in the United States having their pension plans and life savings invested in mutual funds, understanding the risk-taking behavior of mutual funds is thus of prime importance for investors.

For fund managers, the ability … Read more

SEC Commissioner Speaks on IPOs and the Rise of SPACs

Thank you Hal [Scott] for that kind introduction and for inviting me to speak today. I am honored to precede such an esteemed panel of practitioners and academics. As always, I must give my standard disclaimer that my remarks are my own and do not necessarily represent the views of the Commission or its staff.

I cannot emphasize enough how important discussions such as today’s are – thinking through some of the most pressing questions in our markets. And, one of those areas is Special Purpose Acquisition Companies, or SPACs. Now, of course, this was an issue that we were

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What Does CEO Turnover Data Tell Us About Succession Planning?

Over the past several decades, researchers have taken a serious look at the quality of CEO succession planning at publicly traded corporations. The results have not been encouraging. The evidence suggests that many companies are slow to terminate an under-performing CEO, are caught flat-footed in the event of a sudden CEO departure, and are often unprepared to identify a viable or permanent successor.

The research, however, is not without its shortcomings. A central challenge facing researchers is that it is very difficult for outside observers to determine whether the board in fact terminated the CEO. Rarely does a board explicitly … Read more

ISS Discusses Japanese Board Independence and Diversity

A recent ISS analysis of Japanese board composition finds a marked uptick in board independence and female board representation. At the close of Japan’s March 2022 “mini-season”, ISS found a 13percentage point jump in companies with at least a one-third independent board (based on the Tokyo Stock Exchange (TSE) classification), and a 12-percentage point increase in boards with at least one female director for companies listed on TSE’s Prime (the former First) listing section, compared with the same time in 2021 March.

Based on the 200+ companies listed on the TSE’s Prime listing section that held their 2022 AGMs during

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

The crypto-tokens market has recently emerged as an alternative source of financing for entrepreneurial ventures, with approximately $27 billion raised globally through March 2022.[1] These ventures issue blockchain-based digital “crypto-tokens” to raise external capital through an initial coin offering (“ICO”). In return, a token provides holders with various benefits, such as “utility” value through access to the venture’s current or future product (or service), potential participation in future profit distributions, and the ability to trade the token on crypto-exchanges (e.g., Binance and Coinbase).

The “ICO” designation is inspired by initial public offering (“IPO”) whereby private firms list shares on … Read more

SEC Chair Gensler Speaks on U.S. Bond Market

Thank you. It’s good to be with City Week again. As is customary, I’d like to note that my views are my own, and I am not speaking on behalf of the Commission or SEC staff.

Since we are in London (at least virtually), I wanted to note that this year marks the 60th anniversary of the first James Bond film. I know there are various commemorations of this storied franchise going on in the U.K., but I want to focus my remarks on the lead character’s name.

Bond. James Bond.

Ian Fleming, the author of the spy novels,

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Why We Should Keep Teaching Dodge v. Ford Motor Co.

The question of corporate purpose has been much in the news of late, triggering renewed attention by legal scholars to corporate social responsibility, ESG, and shareholder value maximization. Many of these scholars have been strongly influenced by the late Lynn Stout’s work on the topic. Ten years ago, Stout published her book, The Shareholder Value Myth, [1] which built on her earlier article, Why We Should Stop Teaching Dodge v. Ford.[2] As the latter title suggests, Stout’s principal doctrinal foil was the Dodge case.[3]

Stout’s focus on Dodge was well chosen, since the case and “its statement … Read more

Debevoise & Plimpton Discusses SEC Enforcement Action Highlighting Whistleblower-Related Rules

On April 12, the Securities and Exchange Commission (the “SEC” or the “Commission”) announced settled charges against David Hansen, the co-founder and former Chief Information Officer of a Las Vegas technology company, for violations of Rule 21F-17(a). In settling the charges, Hansen agreed to pay a civil penalty of $97,523. The action, which garnered a spirited dissent from Commissioner Hester Peirce, offers a few important takeaways for companies hoping to avoid running afoul of Rule 21F-17(a) should an employee share concerns about conduct that potentially violates the securities laws.

Rule 21F-17(a). Rule 21F-17(a) prohibits “any action to impede an … Read more

Why Corporate America Should Pay Attention to the Proposed EU Directive on Corporate Sustainability Due Diligence

On February 23, 2022, the European Commission issued its long-awaited proposal for a Directive on Corporate Sustainability Due Diligence (the Proposed Directive). Under the Proposed Directive, large companies operating in the EU market must identify, prevent, and mitigate any actual or potential adverse human rights and environmental impact in their own operations, in their subsidiaries, and at the level of their established direct or indirect business relationships in their value chain. Adverse human rights and environmental impacts are keyed to violations of a long list of human rights and environmental obligations laid out in international conventions and declarations, irrespective of … Read more

Skadden Discusses Antitrust Enforcers’ Supply Chain Initiative

On February 17th, the Department of Justice (DOJ) announced an initiative to protect supply chains from anticompetitive behavior amid global disruptions and persistent inflation. The initiative is yet another example of the Biden Administration’s aggressive approach to antitrust enforcement since inauguration. From the Administration’s “whole-of-government” approach to policing anticompetitive conduct, to abandoning the Vertical Merger Guidelines and recently challenging several mergers, now to the new supply chain initiative, the new Administration has muddled the antitrust landscape and made enforcement less predictable. Despite the altered environment and new initiative, however, certain basic principles of antitrust law have not changed—simply passing costs … Read more

Do Investors Prefer Women CEOs at Firms Targeted by Activists?

Shareholder activism is playing a larger role than ever in companies’ decisions about their operations and reporting, with over 4,600 firms targeted worldwide from 2013 to 2018. Shareholder activists can have several motives for going after a company, from trying to improve its corporate governance by increasing efficiencies and dropping unprofitable segments to trying to improve the company’s reputation by making its practices more ethical and ecologically sound. Recent trends show that investment funds are making it easier for more investors to become involved in activism, which has led to regulatory concerns about the power of these activists and their … Read more

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

On March 21, 2022, the Securities and Exchange Commission proposed, in a 510-page release, climate-related disclosure rules for public companies. Although the proposed rules do not impose industry-specific requirements, in certain areas they would have a particularly significantly impact on companies in the financial sector. In particular, the disclosure of Scope 3 greenhouse gas emissions (which capture financed emissions) and climate scenario analysis will likely be mandatory for many financial institutions. Voluntary climate-related transition plans, targets and goals, which many financial institutions have adopted or set, would also need to be disclosed under the proposed rules. In addition, financial … Read more

Congress Should Grant the SEC Oversight of Digital Asset Spot Markets

The Commodity Futures Trading Commission (CFTC) has classified Bitcoin and Ether – and by extension other cryptocurrencies that are similarly structured – as commodities (courts have also upheld this classification). While the CFTC regulates commodity derivatives, they do not regulate commodity spot markets, although they do have enforcement authority for fraud and manipulation in commodity spot markets. The practical effect of this structure is that cryptocurrency exchanges in the U.S. are not regulated at the federal level (they are required to register with the Financial Crimes Enforcement Network (FinCEN) and obtain state money transmitter licenses). This glaring weakness in digital … Read more

Wachtell Lipton Puts Spotlight on Boards: Spring 2022 Update

The ever-evolving challenges facing corporate boards prompt periodic updates to a snapshot of what is expected from the board of directors of a public company—not just the legal rules, or the principles published by institutional investors and various corporate and investor associations, but also the aspirational “best practices” that have come to have equivalent influence on board and company behavior.

The war in Ukraine and broader geopolitical implications, the coronavirus pandemic and ongoing efforts to return to a “new normal,” as well as other trends and technologies which have been accelerating the pace of disruption, are raising a host of … Read more

The Importance of Independent Internal Investigations

Internal investigations have become a necessity in today’s increasingly complex legal environment. They are now considered standard practice for businesses responding to serious allegations of financial misconduct and, when properly conducted, play a critical role in determining the credibility of the allegations, the identity of the responsible parties, and the impact of the fraud on the company’s financial statements. Many have argued that internal investigations will minimize the risk of regulatory enforcement after financial misconduct. This presumption is not just wishful thinking on the part of business leaders or attorneys, as regulators themselves promote internal investigations as a means through … Read more

Skadden Discusses Proposed 2022 Amendments to Delaware Corporation Law

On April 12, 2022, the Corporation Law Section of the Delaware State Bar Association (DSBA) approved proposed amendments to the Delaware General Corporation Law (DGCL) that include provisions that, if enacted, would authorize exculpation clauses limiting or eliminating the monetary liability of certain officers, make appraisal rights available to beneficial owners of stock and facilitate domestications of non-U.S. entities and consummations of other corporate transactions related to domestications.

Exculpation of Senior Officers

Since its adoption in 1986, Section 102(b)(7) has authorized a corporation’s certificate of incorporation to contain an exculpation clause that limits or eliminates the personal liability of its … Read more

The Innovation and Reporting Consequences of Financial Regulation for Young Life-Cycle Firms

Over the last several decades, financial regulators have increaAdd Newsed governance and reporting requirements for publicly listed firms, frequently with the goal of improving the reliability of financial information available to investors. The implicit assumption in such regulation is that the benefits of improved financial reporting to financial statement users exceed the direct and indirect costs borne by the implementing firms. Former SEC Chair Mary Jo White articulated this trade-off in a 2016 speech at the SEC-Rock Center’s Silicon Valley Initiative: “[P]art of the SEC’s mission is to facilitate capital formation, so it is important that our rules … Read more

Davis Polk Discusses Robust Antitrust Agenda of DOJ and FTC

At a recent Enforcers Summit, leaders of various U.S. and international antitrust enforcement agencies set forth their enforcement priorities. The new heads of the U.S. antitrust agencies emphasized that the agencies are primed to litigate more cases, challenge more mergers, and use all enforcement tools at their disposal. Both U.S. and global enforcement agencies also emphasized their belief that antitrust law must evolve to police anticompetitive conduct in digital and labor markets.

Enforcers emphasized trials, criminal antitrust penalties, and using all the tools at their disposal to combat anticompetitive conduct

The U.S. Department of Justice’s (DOJ’s) Assistant Attorney General for … Read more


In the last half-century, technological progress has stagnated. The century from 1870 to 1970 brought electricity, running water, telephones, television, automobiles, and airplanes. Life expectancy at birth rose from 45 to 72. But since the early 1970s, progress has been incremental. Innovation has become synonymous with computers and smartphones because there have been so few transformative technologies in other fields.

Some economists believe that the economy has simply picked the low-hanging fruit. But there are plenty of emerging technologies with the potential to reignite productivity growth – including artificial intelligence, renewable energy, and nanotechnology. The problem is that each of … Read more

Cleary Gottlieb Discusses the LIBOR Act, State Law, and Litigation Risks

On March 15, 2022, President Biden signed into law the Adjustable Interest Rate (LIBOR) Act  (the “LIBOR Law”).[1] The objectives of the legislation are to facilitate the transition of legacy LIBOR contracts that either (a) lack LIBOR fallback provisions entirely or (b) contain inadequate LIBOR fallback provisions and to avoid related “disruptive litigation”.[2]

When Does the LIBOR Law Apply?

The LIBOR Law applies to contracts that use, as a Benchmark rate, the one-month, three-month, six-month and twelve-month tenors of U.S. Dollar LIBOR as of the applicable LIBOR Replacement Date (each, a “LIBOR Contract”).[3]Read more

Business Risks Stemming from Socio-Economic Inequality

Socio-economic inequality has risen over the last 40 years in almost every part of the world and has been exacerbated by the COVID-19 pandemic. Inequality does not only affect societies – it can also have a significant impact on the success of business. We analyze the ways that socio-economic inequality creates material risks to business and how, despite these risks, there are very few ways for companies to consistently and effectively disclose them to investors. To address this challenge, we look for guidance to another systemic risk facing business: climate change.

Sources of Inequality and Risks to Business

On a … Read more

Cleary Gottlieb Discusses SEC’s Proposed Climate-Change Disclosure Rules: The Climate Note to Audited Financial Statements

On March 21, 2022, the U.S. Securities and Exchange Commission issued for public comment a rule proposal that, if adopted, would require reporting companies to provide certain climate-related information in their registration statements and annual reports filed with the SEC. This memorandum addresses part of the proposal — the proposed amendments to Regulation S-X to require a new footnote in audited financial statements – and concludes with some general takeaways and possible issues for inclusion in comment letters on the proposal. Please see the other two memoranda in this series for a discussion of the GHG emissions and attestation report Read more

Why Delaware and England Win the Global Corporate Law Race

What makes the corporate laws of some jurisdictions more attractive for entrepreneurs and investors than others in the global arena? Within the United States, the competition among state laws is a popular explanation for Delaware’s corporate law prominence. However, interjurisdictional competition over corporate law is not limited by U.S. borders. In recent decades, an international market for corporate law has emerged; consequently, foreign countries compete with Delaware to supply corporate law.

In our recent paper, we used qualitative methods based on interviews with mergers and acquisitions (M&A) practitioners from the United States, United Kingdom, continental Europe, and Israel and … Read more

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

Rounding out a series of quarter-end announcements from the US Securities and Exchange Commission (SEC), the Division of Examinations (Exams) announced its 2022 examination priorities on March 30, 2022. These priorities reflect SEC Chair Gary Gensler’s stated view that the examinations program is crucial to the SEC’s work to protect investors and instill trust in markets. Exams will focus on, among other things, (i) private funds, (ii) broker-dealers, (iii) Environmental, Social, and Governance (ESG) or impact investing, (iv) financial technology (FinTech) and crypto-assets, and (v) information security (InfoSec) and operational resiliency. In addition, a week before the 2022 examination priorities … Read more

A Tokenized Future: Regulatory Lessons from Crowdfunding and Standard Form Contracts

Cryptocurrencies and other digital assets (“crypto”) are surging in popularity.  If cryptos are securities (“investment contracts” under the Howey test), they must be sold in accordance with the federal securities laws.  This likely requires registration with the Securities and Exchange Commission (SEC) and initial and ongoing public filings – the same arduous process that exists for public companies with centralized management teams rather than decentralized autonomous crypto networks.

For those cryptos found to be securities, there is a regulatory scheme in place, as ill-suited to the occasion as it may be.  For cryptos that are not securities, there is substantial … Read more

SEC Chair Gensler Speaks Further on Climate-Risk Disclosure Proposal

Thank you. It’s good to be with Ceres for today’s investor briefing. As is customary, I’d like to note that my views are my own, and I’m not speaking on behalf of the Commission or SEC staff.

As you all likely know by now, in March, the Commission voted on a proposal to mandate climate-risk disclosures by public companies.

A Long Tradition

Let me put the proposal into the context of our long tradition of disclosures.

The core bargain from the 1930s is that investors get to decide which risks to take, as long as public companies provide full and

Read more

Going Private Outside Delaware: Holes in the Director Raincoat and Other Concerns

Meade v. Christie et al., an interlocutory appeal in a shareholder class action challenging a going private merger, is currently pending before the Iowa Supreme Court.[1] The appeal will test the strength of a director-liability shield law patterned on the Model Business Corporation Act template. It also presents questions of corporate law that pertain to going private transactions and are largely unsettled outside of Delaware.

A key question in Meade (and one of first impression in Iowa and other MBCA states) is whether the MBCA director shield exception for “intentional infliction of harm on the corporation or the shareholders”Read more

Skadden on Revisiting Share Repurchases in Volatile Times

In light of the recent increased volatility in the global financial markets,1 a number of companies have raised questions regarding the desirability of repurchasing shares at reduced market prices. This alert addresses questions surrounding share repurchases that companies should consider as they evaluate the advantages, disadvantages, legal implications and strategic considerations of share repurchases in a turbulent market.


As a preliminary matter, any company contemplating a share repurchase should consider the limitations set forth within the Coronavirus Aid, Relief, and Economic Security Act, passed into law on March 27, 2020; the Consolidated Appropriations Act, 2021, passed into law … Read more