Corporate Governance

New Kids on the Block: The Effect of Generation X Directors on Corporate Performance

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Generational identity can influence many aspects of life, from family and work to political views to consumer and corporate behavior. In the United States today, there are four adult generations: Millennials (born 1982 – 2005), Generation X (born 1961 – 1981), Baby Boomers (born 1943 – 1960), and the Silent Generation (born 1925 – 1942).[1] Of these four, only one – the Baby Boomers – have a dominating presence in U.S. corporate boardrooms. While the Millennial and Silent generations may be too young and too old, respectively, to have meaningful representation on corporate boards, Gen Xers (between the ages … Read more

Is Stakeholderism Bad for Stakeholders?

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A series of recent papers (here, here, and here, for example) have argued that maximizing shareholder value remains the proper goal of the modern corporation – and in some cases that stakeholderism is in fact harmful to stakeholders. Yet giving up on stakeholderism for the sake of stakeholders cannot be the right answer or strategy, even though there are significant challenges to steering away from the currently prevailing framework.

Although the papers differ in the details of their arguments, they share some common themes:

  • Corporate managers do not and will not use discretion to benefit non-shareholder

… Read more

Should the Modern Corporation Maximize Shareholder Value?

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Fifty years ago this year, Milton Friedman, later to be a Nobel laureate in economics, famously argued that corporate governance should focus solely on shareholder value maximization, while conforming to applicable laws and regulations.  That view was controversial then.  After years of dominance as a governance idea, shareholder primacy is once again controversial.  We argue that it is more or less still correct.

Recently, the Business Roundtable’s Statement on the Purpose of a Corporation commits the board to other stakeholders as well — including customers, employees, suppliers, and communities the company operates in. But importantly, if labor markets and product … Read more

Wachtell Lipton on Lessons From the Future – The First Contested Virtual Annual Meeting

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The 2020 proxy season has been anything but routine, with the COVID-19 pandemic and the resulting state shelter-in-place orders requiring many companies to make the shift from physical to virtual annual meetings, and state corporate laws being amended to allow these virtual meetings to occur. Yet we had not seen a virtual annual meeting used in a proxy contest until April 30, 2020, when shareholders of TEGNA Inc. participated in the first election contest conducted at a virtual, rather than physical, annual meeting (all of the company’s twelve nominees were re-elected).

While the concept and technology have existed for several … Read more

More Than Meets the Eye: Reassessing the Empirical Evidence on U.S. Dual-Class Stock

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Since Google (now Alphabet) issued dual-class stock at its IPO in 2004, the subject has been vigorously debated throughout the world.  Unlike firms whose shares all have equal voting rights (“one-share, one-vote firms”), companies with dual-class stock allow a founder to attach enhanced voting rights to the shares that he or she holds, while issuing shares with inferior voting rights to public stockholders.  All classes of such stock possess equal rights to share in the cash-flow of the corporation, thereby creating a divergence in voting and cash-flow rights in the capital structure of the company.  Dual-class stock therefore enables a … Read more

How Corporate and Securities Laws Affect Social Responsibility and Corporate Purpose

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For nearly 90 years, scholars have debated whether the sole purpose of the business corporation is to maximize profits.  This debate has been reframed over the past 50 years and now seems to have settled on a middle ground: Corporate social responsibility (CSR) and profitability can coexist as corporate goals.  The question, though, is what is the appropriate balance between the two?

In a new article, available here, I explore the role of state corporate law and federal securities law in answering that question. So far, the Securities and Exchange Commission and the courts have made only limited progress … Read more

Davis Polk Discusses Reductions in Executive Pay Due to Covid-19

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The coronavirus (COVID-19) pandemic and the ensuing market uncertainty, as well as recently enacted legislation, have upended the compensation and benefit programs of many companies. This is the fifth memorandum in a series of client memoranda that we are preparing regarding how companies may wish to consider addressing their compensation programs in this context.[1]

The recent market volatility has disrupted many companies’ day-to-day operations resulting in economic hardship that has caused companies to consider or implement various measures to reduce personnel costs, including pay cuts, furloughs and/or layoffs. When implementing such personnel cost-cutting measures, a number of companies have … Read more

Why Delaware Dominates Incorporations and the Creation of Other Forms of Business

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Delaware’s success in attracting corporate formations is well known, but explanations for it vary. In a recent paper, I test these explanations as well as the reasons for Delaware’s success in attracting other types of business formation I find evidence consistent with Delaware’s making a credible commitment to creating quality corporate law, particularly through its judiciary, and this commitment extends to LLCs and other organizational forms. These results provide insight into why Delaware leads corporate formations, how that lead expands to related organizational forms, and how the future of state competition for organizational formations might unfold.

The Delaware saga of … Read more

Debevoise Discusses Private Equity Options in Face of Liquidity Crunch

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As significant economic sectors grind to a halt around the world due to coronavirus-related lockdowns and travel restrictions, many portfolio companies will face liquidity crunches, raising concerns for private equity fund managers and their investors. Uncertainty around the duration and extent of coronavirus-related business interruptions presents a further challenge for sponsors trying to manage financing needs across their portfolio. In this hazardous environment, many sponsors are considering how to preserve financial flexibility for present and future needs, including:

  • amending limitations on follow-on investments in the fund’s governing documents;
  • amending recycling provisions in the fund’s governing documents to permit additional re-investment;

… Read more

Why Proxy Advice Might Be Slanted

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In the last two decades, the proxy advice market has consolidated into two companies that some believe control as much as 97 percent of that market, leaving little diversity in available advice. The companies, ISS and Glass Lewis, are opaque about the bases for their recommendations, and critics accuse them of offering simplistic one-size-fits-all solutions that do not increase shareholder value. [1] Complicating matters, investors don’t always agree on what sort of advice they want, especially when it comes to social issues: Traditional funds and socially responsible investors (SRI) disagree about whether firms should sacrifice profit for social goals. … Read more

The Pandemic’s Impact on Board Oversight of Enterprise Risk

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One of the most significant corporate governance implications of the pandemic may be its impact on the role and function of a board’s enterprise risk committee. From one perspective, the pandemic may increase that committee’s significance, potentially putting it on a par with the audit committee. From a related perspective, it may prompt the board to contemplate how much oversight it expects from that committee.

The catalyst for such change is grounded in six interconnected factors: (i) the broad-based creation of board committees focused on enterprise risk management (ERM); (ii) the nature and scope of the pandemic; (iii) second guessing … Read more

Columbia’s Program in the Law and Economics of Capital Markets Anticipates Hiring a Post-Doctoral Research Fellow

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Columbia Law School and Columbia Business School’s Program in the Law and Economics of Capital Markets is seeking a full-time Capital Markets Research Fellow. The appointment is anticipated to run from July 1, 2020, to June 30, 2022.

This position is for a person who expects to begin a law school teaching career at the start of the 2022-23 academic year and who desires an interim position that would help the person prepare for such a career by offering the time and facilities needed to do serious research and to develop further expertise.  A candidate should have an exceptional academic … Read more

How Effective Start-up Governance Attracts Investors

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In a recent paper, we argue that outside investors are cautious about financing start-ups because such companies often lack a track record and tend to be managed in a less-than professional manner, with founders sometimes putting their own interests above the company’s. We posit that investors can alleviate their fears by identifying early stage firms that have effective corporate governance already in place.

We propose that debtholders can provide a valuable signal that a company has good governance by demanding that the company be accountable to external constituents. Debt has a magnified impact on governance at entrepreneurial firms. It … Read more

The Risks and Rewards of Shareholder Voting

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[Editor’s Note: This and the following piece offer a point/counterpoint on shareholder voting.] The SEC’s recently proposed rules on proxy advisers and shareholder proposals have made shareholder voting one of the most prominently debated corporate governance issues ever.  In a new article, “The Risks and Rewards of Shareholder Voting,” I seek to shed more light on the role of shareholder voting in the governance of public companies.

Shareholders Are Notoriously Uninformed

Shareholder voting allows shareholders to participate in corporate decisions, but very few public company decisions are based on it.  This is understandable, because shareholder voting suffers from a collective … Read more

The Value of Shareholder Voting

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Recent debates have sometimes obscured the value of shareholder voting, which the Council of Institutional Investors (CII) regards as a key element in the legitimacy and functioning of the corporate governance system in the United States and elsewhere.

A factor in confusion on this may be overstatement of supposed claims made by institutional investors generally for “shareholder democracy.” In a current paper, for example, Bernard Sharfman writes that “Shareholder voting provides a means by which shareholders can participate in corporate decision making.”[1] However, he goes on to say, “very few public company decisions involve this decision-making mechanism.” Well, one … Read more

Columbia Law Professors Write Two of Top Corporate and Securities Articles

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John C. Coffee, Jr., Zohar Goshen, and Joshua R. Mitts were among the authors of two of the best corporate and securities articles last year, the Corporate Practice Commentator has announced. The Columbia Law School professors were joined by Robert J. Jackson, Jr., a former professor at Columbia Law School and commissioner of the U.S. Securities and Exchange Commission and now a professor at NYU School of Law.

The Corporate Practice Commentator’s Robert Thompson, a professor at Georgetown University Law Center, conducted the 26th annual poll to compile the list. Teachers of corporate and securities law voted to select

… Read more

Wachtell Lipton Discusses UK and EU Regulators’ Latest Moves on ESG

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Amid the ongoing push for standardized, comparable and decision-useful ESG disclosures, regulators in the United Kingdom and the European Union have proposed additional disclosures and benchmarks to promote sustainable economic activity. The United Kingdom’s Financial Conduct Authority (FCA) has published a consultation paper proposing that certain U.K. issuers make climate change disclosures consistent with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) or explain why they have not. The European Commission’s Technical Expert Group on Sustainable Finance has published its final Taxonomy report for screening environmentally sustainable activities.

FCA Climate Change Disclosure Proposal

Under the FCA proposal, … Read more