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Hardly a day goes by without a headline about the brewing tension between the United States and China. But even as the Trump administration mulled de-listing Chinese firms traded in American securities markets, and Nasdaq reportedly planned to tighten its listing rules for Chinese IPOs, Chinese grocery delivery company Dada made its debut on the Nasdaq on June 5, 2020, with a valuation of $3.5 billion. Dada, along with mega-Chinese firms like Alibaba and Baidu, are now a hot topic on Wall Street. This burst of activity raises the question of whether Delaware is still the preferred state of incorporation for foreign firms. [...] Delaware popularity has, in fact, fallen dramatically among foreign corporations listed in American stock markets. Its share of foreign firms listed in the United States has declined from 29.5 percent in 1985 to 11.7 percent in 2016. The trend is particularly striking among corporations based in China, which have largely abandoned Delaware in favor of offshore jurisdictions in the Caribbean. As documented in my paper, the Cayman Islands is now home to over 50 percent of Chinese companies listed on American stock markets, compared with Delaware’s 4.8 percent. In recent years, companies like Sohu.com and China Biologic Products have spent millions of dollars hiring elite American law firms to change their legal domiciles from Delaware to the Cayman Islands. [...] Delaware’s unpopularity among foreign firms listed in the United States also reveals a paradox. If foreign firms choose to be bound by federal securities law to raise capital from American investors, why wouldn’t they also choose to be bound by Delaware corporate law? After all, American investors are most familiar with Delaware corporate law, and a robust body of empirical work indicates that incorporating in Delaware enhances firm value.
Private equity fund managers are planning for a summer like no other. Flush with more cash than ever before – a $2-trillion war chest – fund managers around the world are aggressively pitching deals to businesses battered by the economic fallout from the novel coronavirus. Canadian players are in the heart of the action, with everyone from multibillion-dollar pension plans and global fund managers to smaller PE funds that buy family-owned companies looking past COVID-19, and trying to find ways to invest in an economy that is bouncing back. There is only one problem: Few are willing to sell – at least so far. Business owners and boards who might have been willing to negotiate just a few months ago are now refusing to engage with potential buyers, based on well-founded fears they would be selling at virus-induced discounts. Propped up by government wage and credit support, many are opting instead to wait for an expected recovery and a return to heady, pre-pandemic price tags. It’s creating a delicious dynamic in corporate Canada and around the globe. Sophisticated private equity investors are itching to put capital to work at what they perceive as bargain-basement prices, while equally savvy sellers are holding out for better offers. [...] Bruce Flatt, chief executive at Brookfield Asset Management Inc., gave an optimistic assessment of the situation at a recent conference. [...] Mr. Flatt, who oversees US$60-billion of what’s known as “dry powder” – uncommitted capital from clients of Toronto-based Brookfield – told a virtual meeting of the Canadian Venture Capital and Private Equity Association (CVCA) that the crisis will leave many businesses in need of new capital or under pressure to sell divisions. As a virtual audience of 600 nodded their heads approvingly, he said, “There are going to be a lot of opportunities for private equity over the next six to 12 months.”
Corporate boards, both private and public, need to address cyber threats and protect against attacks. Melissa Krasnow, VLP Law Group partner, discusses findings from two recent National Association of Corporate Directors surveys that can be useful to boards to benchmark their companies’ cyber-risk oversight practices. The cyber−risk oversight practices performed by boards of directors over the past year were highlighted in the National Association of Corporate Directors (NACD) 2019-2020 Public Company Governance Survey and 2019-2020 Private Company Governance Survey. Public and private companies can use this information to benchmark their practices, and, according to NACD, to plan priorities, validate risk and oversight practices, identify areas for improvement in governance practices, and compare time allocation for fulfilling key board activities. Board Cyber−Risk Oversight Practices Public and private company boards engaged in the same top seven and the bottom cyber−risk oversight practices over the past year, with differences in terms of percentages. [...] Scheduling Cyber-Risk at Least Once a Year on a Board Agenda Over 60% of public companies scheduled cyber risk at least once on the board agenda over the last year, versus over 40% of private companies. Of these companies, it would be interesting to find out the percentages for which cyber risk was scheduled on the board agenda more frequently than once over the past year, such as on a quarterly basis.
(1) Excessive focus on quarterly performance has contributed to short-termism.
(2) Public boards must be empowered to ensure shareholders’ interests in the long term.
(3) Public companies should lessen the burden of short-term reporting where feasible.
As we move through the COVID-19 pandemic, the importance of active ownership to accelerate the public market shift to “stakeholder capitalism” is becoming even more clear – particularly as inequalities are exacerbated and both investors and companies look to do the right thing for their partners and shareholders, as well as for society at large. However, the concept of active ownership has been building momentum as a topic of keen interest within the investment community for several years. Higher demand from clients, who increasingly expect managers to not only identify promising investments but also aid in creating long-term value, has served as a strong motivator for investment managers across all asset classes to look for ways to increase and improve their engagement with portfolio companies. “If anything, the current pandemic will aggravate both inequalities as well as the need for a long-term approach to value creation, thereby forcing capitalism in general and public companies in particular to become more inclusive and depart from short-termism.” (—Jean-Baptiste Wautier, BC Partners)
Helping organizations build resilience is one of the key objectives of the Ivey Academy executive education programs that I teach at the Ivey Business School. Prior to the pandemic, I was asked to give a keynote at an HR conference. After discussing topic ideas, we landed on “Organizational Resilience: How to Handle Shocks and Stressors.” Weirdly prophetic? Not really. At that point, resilience was already a hot topic. In the pre-COVID period, VUCA (short for volatility, uncertainty, complexity, and ambiguity) was the trendy acronym that summed up the four major challenges faced by managers in the so-called Age of Disruption. As pointed out in “What VUCA Really Means for You,” a 2014 HBR article by Nathan Bennett and G. James Lemoine, the term is somewhat misleading because it conflates four distinct types of external challenges that demand different responses. Bennett and Lemoine offered various strategic responses to the four underpinnings of a VUCA context. Unfortunately, our VUCA world has now been disrupted by a pandemic—which has essentially triggered all four dimensions simultaneously for most—if not all—organizations. And this perfect storm of turbulence means that organizational resilience is now more important than ever before. [...] Resilience is a reflex, a way of facing and understanding the world, that is deeply etched into a person’s mind and soul. Resilient people and companies face reality with staunchness, make meaning of hardship instead of crying out in despair, and improvise solutions from thin air. Others do not. This is the nature of resilience, and we will never completely understand it.
Calls for a more responsible capitalism have gone louder in recent years. A major shift happened last August 2019 when the Business Roundtable (BRT) published a ‘Statement on the Purpose of a Corporation’. For the first time, the BRT, an organisation that represents the CEOs of America’s largest companies, embraced the concepts of corporate purpose and stakeholder capitalism. This was followed by the World Economic Forum’s Davos Manifesto which highlighted that a company serves not only its shareholders, but all its stakeholders. Meanwhile, investors are placing greater focus on how companies “create value” for the longer term and what their “purpose” is. They have been progressively integrating environmental, social and governance (ESG) factors in their investment decisions while they have experienced a rise of inflows in their sustainable investing products.[...] In this journey to a more responsible capitalism, companies that have defined their purpose will have a head start as they should be better at managing the tradeoffs between their different stakeholders. Some shareholders like BlackRock have been quite vocal in their support of the concept of corporate purpose but most have remained silent. Therefore, SquareWell Partners decided to go directly to the source and aggregated the views of investors collectively managing approximately $22.1 trillion in assets in order to understand how relevant the concept of purpose is seen on the investor side.
Proxy advisory services like Institutional Shareholder Services continue to give Berkshire Hathaway poor grades for corporate governance. Is the board of Berkshire Hathaway doing a bad job for shareholders? At least two firms that advise pension plans and other big investors say yes, governance is poor.. How can this be? Warren Buffett (Trades, Portfolio), the chairman and CEO, is widely considered the best investor of the past century. Long-time shareholders of Berkshire have been richly rewarded. If any of them have complained, it hasn’t been recorded. Furthermore, through his letters to shareholders, seminars with business students and countless interviews, Buffett has championed rationality in management. Yet Institutional Shareholder Services (ISS) and Sustainalytics say that corporate governance at Berkshire is close to the worst there is among publicly traded companies. They fault the board for not ticking the right boxes when it comes to what the firms consider good policy. In a report issued earlier this month, ISS faulted the board for several things:
(A) Directors are too old.
(B) Directors have served too long.
(C) There is not a 50-50 representation of men and women.
(D) There is insufficient detail that shows how executive pay is determined. ISS does note that Buffett is paid less than 98% of his peers.
COVID-19 will likely accelerate remote working and the need for companies to speed up their efforts to digitize support functions—improving efficiency and user experience without increasing cost. Faced with ever-growing pressures to optimize costs and improve performance, most companies have taken steps to increase the efficiency of their support functions. An estimated 80 percent of Fortune 500 companies report using some form of a centralized shared-services operating model—but most companies have only scratched the surface of the potential value available. Worse, many have wasted significant time debating the right approach. Should they focus on centralizing processes and functions to increase efficiency, or automate processes through digital technology? The COVID-19 pandemic has forced companies to act fast. It has also created a window for companies to reimagine the way support functions operate. In the next normal, we believe that the answer to long-debated question is ‘yes’ to both. Companies that centralize processes and functions first are still likely to find that they need to automate them—the “ship then fix” approach. Conversely, other companies may make faster progress by automating processes first and then centralizing them—“fix then ship.” The right sequence depends on the organization’s starting point and its unique combination of circumstances and needs. And, regardless of the path a company chooses, there are a set of foundational measures that will lead to better results. Rather than continuing to debate, companies can take action now to capture value that otherwise may slip away.
European Central Bank head, Christine Lagarde, told European Union leaders on Friday that their economy was in a “dramatic fall” and called on the bloc to act to spearhead revival, diplomatic sources and officials said.
Montreal cancer drug developer Repare Therapeutics Inc. is set to start trading Friday on the Nasdaq exchange after increasing the size of its initial public offering Thursday for the third time this week. It could become the latest in a slew of Canadian drug developers to reach a US$1-billion valuation, if recent trends hold.
In a dismal year for most companies, a minority have shone: pharmaceutical groups boosted by their hunt for a Covid-19 vaccine; technology giants buoyed by the trend for working from home; and retailers offering lockdown necessities online.
Jeff Bezos's vision of a world shopping online is coming true faster than ever. But the job of running Amazon hasn’t got any easier
Combination of an estimated total of $169 billion in federal spending on emergency aid and a historic drop in economic output
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It has been two years since the Supreme Court’s decision in Cyan v. Beaver County Employees Retirement Fund[1] permitted securities class actions alleging violations of the Securities Act of 1933 to be litigated in state courts nationwide. The court recognized that, in enacting the Securities Litigation Uniform Standards Act (SLUSA), Congress apparently intended to withdraw jurisdiction over Securities Act cases from state courts, but it held unanimously that the terms of SLUSA failed to accomplish that goal. The result, as shown in Figure 1, has been a dramatic increase in the volume of state-filed ’33 Act cases – and, in particular, cases litigated simultaneously in both state and federal courts. Nearly all of these cases alleged violations of Section 11 of the Securities Act, so for simplicity we will refer to this litigation as “Section 11 litigation.” The Stanford Securities Litigation Analytics (SSLA) project has collected data on state Section 11 litigation from 2011 (federal cases from 2000) to the present. A more detailed analysis of the data can be found here.
Cineplex Inc said on Friday it adopted a shareholder rights plan, popularly known as a “poison pill,” nearly a week after Britain’s Cineworld Group Plc abandoned its $1.65 billion deal to buy the Canadian theater chain. The implementation of the rights plan will prevent investors from acquiring 20% or more of the company’s outstanding common shares without complying with certain provisions of the plan, Cineplex said. Cineworld scrapped the deal last week citing what it termed Cineplex’s breaches in the merger agreement between the cinema operators. The rights plan has not been adopted in response to any specific takeover bid or other proposal to acquire control of Cineplex, it added. Cineplex said the rights plan is subject to ratification by the company’s shareholders and will have an initial term of three years.
CALGARY – Alberta has tapped Mark Wiseman, the former head of the Canada Pension Plan Investment Board, to chair its pension fund at a time when the province is considering breaking away from the Canada Pension Plan and take control of its own pension assets. On Friday, the Alberta government appointed Wiseman, who was most recently with New York-based investment management firm BlackRock Inc., to head the board of the Alberta Investment Management Corp., which manages $119 billion of the province’s public pension assets. [...] The appointment comes as Alberta’s Fair Deal Panel released a report this week on how the province should take control of its affairs and reduce its contributions to Ottawa, as many Albertans believe they’ve paid far more into the country than they receive in return. Premier Jason Kenney created the panel last year to gauge the mood of Albertans and determine better ways the province could assert itself in the country. [...] In recent months, AIMCo has come under increasing scrutiny for losing billions of dollars through its volatility-based investment program and for directly investing in a number of small and risky Alberta-based oil and gas companies, which have continued to struggle with persistently low oil prices and lack of access to markets. [...] Most recently, Wiseman was the global head of active equities at BlackRock, Inc., the world’s largest asset manager with US$7 trillion in assets under management. Analysts believed he was on the short list of executives capable of succeeding Blackrock chairman and CEO Laurence Fink. But Wiseman left the firm abruptly last year for violating the company’s “relationship at work” policy.
While Trump’s U.S. Department of Labor recently opened the door for plan sponsors to add private equity funds to their 401k plans, only the most foolhardy sponsors will rush through. Despite any assurances Trump’s DOL is gratuitously offering, the risk of getting sued is monumental. Corporate sponsors of 401k retirement plans who opt to include private equity in their investment menus could, in my opinion, be sued. Here’s why: First, private equity investments are the highest cost, highest risk investments ever devised by Wall Street. 401k sponsors will be hard pressed to conclude the fees and risks are justified in the pursuit of promises of superior performance. Further, as a result of the weighty fees and other risks, PE investments will more-often-than-not underperform resulting in 401k losses. A decade-plus of private equity investing by so-called “well-managed” pensions has resulted in increasingly disappointing, not to mention inflated and unauditable performance results. A recent Working Paper by Professor Ludovic Phalippou of the University of Oxford concluded higher cost, higher risk PE funds have returned about the same as lower cost, lower risk public equity indices since at least 2006. And Warren Buffett, arguably the world’s most respected investor, recently escalated his criticism of private equity industry ethics and dubious performance claims.
On June 1, 2020, the Criminal Division of the U.S. Department of Justice released updated guidance to its prosecutors on how to evaluate the design, implementation, and effective operation of corporate compliance programs in determining whether, and to what extent, the DOJ considers a corporation’s compliance program to have been effective at the time of the offense and to be effective at the time of a charging decision or resolution. [1] The guidance updates a prior version issued on April 30, 2019. [2] The updated 2020 guidance makes several notable changes to the language of its predecessor, but the core structure and content of the guidance remains the same. DOJ policy and the U.S. Sentencing Guidelines for years have directed federal prosecutors and sentencing judges to evaluate corporate compliance programs. [3] For example, the Justice Manual’s “Principles of Federal Prosecution of Business Organizations” state that prosecutors, in deciding whether to bring criminal charges against a corporation, should consider “the adequacy and effectiveness of the corporation’s compliance program at the time of the offense, as well as at the time of a charging decision” and the corporation’s remedial efforts “to implement an adequate and effective corporate compliance program or to improve an existing one.” [4] Further, in determining potential criminal fines against corporations under the U.S. Sentencing Guidelines, sentencing judges consider whether the corporation had an effective compliance program at the time of the misconduct as a mitigating factor in calculating a corporation’s culpability score. [5]
As companies refine and implement their return-to-work plans, they must wrestle with complex legal compliance risks posed by the continuing threat of the COVID-19 pandemic. In addition to complying with established laws governing worker safety, accommodation of those with disabilities, and personal privacy, companies will need to ensure that their reopening plans comply with an evolving series of federal, state, and local orders issued in response to the pandemic. While back-to-work plans are necessarily prepared by management taking into account the different needs and regulatory postures of each individual business, the board of directors has an important oversight role. [...] While Delaware corporations often include in their certificates of incorporation provisions eliminating monetary liability of directors for breaches of the duty of care, conduct not in good faith, and breaches of the duty of loyalty, cannot be exculpated. Because a Caremark duty is an attribute of the duty of loyalty, practically speaking, this means that a successful Caremark claim can result in personal liability for directors. Breaches of the duty of loyalty likewise may not be covered by indemnification.
Shareholder proposals should not be used for “micromanaging” boards or drawing them away from their main responsibilities, the investment manager said. Norges Bank Investment Management, the investment vehicle for the world’s largest sovereign wealth fund, has issued new voting guidance warning other investors that shareholder proposals should not be used for “micromanaging” boards or side tracking boards with fringe agendas. The notice comes as it becomes recognised in markets around the world that shareholder proposals have grown significantly since the financial crisis of 2008 and especially on sustainability issues. Norges Bank’s guidance asks investors to think about the materiality of their concerns; whether proposals impose unreasonable expectations on companies and to use a case-by-case approach rather strict voting rules. [...] In addition, Norges Bank expressed concerns about the diverging agendas of shareholders generating more proposals that appeal to niche interests. They should therefore “limit their prescriptiveness”, asking themselves whether a proposal places “unreasonable expectations on the company or appear to impose a strategy”. It also suggested that a “rules-based” approach to voting can frequently ignore the unique circumstances of a company. That, Norges Bank said, therefore requires more “case-by-case” thinking before filing a resolution.
At 1.5 million, fewest weekly applications since mid-March, but shows pace of layoffs is no longer significantly easing
Bombardier Inc., burning cash as it tries to weather the novel coronavirus pandemic, is in contact with the Canadian and Quebec governments about its financial situation but has not made a request for help, according to its chief executive.
The chief executive of Wirecard resigned on Friday after the search for $2.1 billion of cash missing from the embattled electronic payments firm hit a dead end in the Philippines.
Canadian retail sales plummeted 26.4% in April, posting a record decline for a second consecutive month, as the coronavirus pandemic continued to wallop the economy, Statistics Canada data showed on Friday.
Laurentian Bank's shares are down more than 35% over the past 5 years, a sign that things haven’t been working, even before the pandemic
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