Corporate governance - Vigil

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 the best of almost 400 articles. There are normally 10 selected, but this year there were 11, because of a tie.

Corporate globalization has been the most transformative geoeconomic development of the past half century, and shareholder primacy its force multiplier. Their combination brought great benefits to people and countries well positioned to seize the new opportunities. But that their unfettered expansion would also disrupt social fabrics and overtax natural capital was not only predictable; it was predicted. In a seminal keynote address to the January 1999 Davos gathering, then UN Secretary-General Kofi Annan warned that unless globalization develops stronger social and environmental pillars it will remain vulnerable—“vulnerable to backlash from all the ‘isms’ of our post-cold-war world: protectionism; populism; nationalism; ethnic chauvinism; fanaticism; and terrorism.”

Planning for an unexpected absence or loss of a key person is an important component of enterprise risk management. In the present environment, boards are meeting regularly in real time to address absences of key persons–both temporary and sustained–to ensure that their existing succession plans are withstanding the current test. Another added challenge for some companies has been the need to address multiple absences occurring at the same time. This post briefly discusses best practices and key considerations for companies and their boards as they confront these possibilities in light of the COVID-19 pandemic.

[...] Rather than telling Zweig to be “greedy when others are fearful,” Munger talked about protecting Berkshire Hathaway “for those who have 90% of their net worth in the stock.” Munger’s first point was that nobody has called him and Warren Buffett offering what they call “elephant-sized” investments or desperation bargains. “The typical reaction is that people are frozen," he said. “The playbook doesn’t have this as a possibility,” he added, referring to the coronavirus economic contraction.

Using environmental, social, and governance (ESG) factors to evaluate investments in companies has in recent years become increasingly popular and controversial. One of the most notable and influential initiatives for ESG investing is the United Nations Principles for Responsible Investment (PRI), created in 2006. Asset managers signing on to PRI commit to incorporating ESG into their portfolio decision-making and also to actively monitoring their investment. By 2019, the total assets under management (AUM) of signatories worldwide have grown from just a few hundred-billion dollars to more than $90 trillion – almost three times the market capitalization of companies in the United States.

In over-the-counter (OTC) markets for assets such as currencies, derivatives, and commodities, staggering sums of money are tied to single, critical financial benchmarks.  The London Interbank Offered Rate (LIBOR), for example – often referred to as “the world’s most important number” – determines interest payments on instruments ranging from student loans and mortgages to synthetic derivatives across the globe.  In 2016, estimates of notional exposure to U.S. dollar LIBOR totaled about $200 trillion – 10 times U.S. GDP that year.  

Almost everyone has experienced buyer’s remorse. It’s the feeling of purchasing, say, a big-screen TV at full price, only to see it on sale later for 50 percent off. Imagine, though, agreeing to pay $6 million for a chain of yoga studios just before the government shuts down exercise classes to slow the spread of a highly infectious disease. Or, more generally, agreeing to buy a company just before the stock market drops 30 percent, throwing the economic future of entire industries into turmoil. That’s the kind of buyer’s remorse on steroids hitting scores of acquirers that committed to M&A deals in the months before the coronavirus pandemic.

As COVID-19 continues to rapidly permeate our society and the financial markets struggle to maintain stability, companies engaged in M&A transactions must overcome increased risk and uncertainties. For now, while there are some publicly-announced deals being pulled or being re-evaluated, we have not yet seen a spike in announced signed-deal terminations due to COVID-19. We expect, however, that parties of those deals that signed pre-COVID-19 are re-evaluating their transaction terms and that after the delirious symptoms subside, we may see a wave of deal renegotiations or terminations, while some deals will still proceed as planned or on a delayed basis. We anticipate the path of pending signed M&A transactions (both public and private ) will vary, as parties determine whether or not to proceed, and if so, on what terms and when, as the pandemic continues to impact different industries and geographic regions.

The Securities and Exchange Commission and its senior staff have put out a succession of releases that combine some relief, some guidance and some warnings. The latest in the series came on Wednesday, April 8, in the form of a long, forceful public statement published on the SEC’s website by Jay Clayton, the SEC Chair, and Bill Hinman, the Director of the Division of Corporation Finance.  It focused on upcoming corporate disclosures – with a particular view to first-quarter earnings releases of calendar-year companies – and it contained some helpful guidance about what companies should focus on.