Corporate governance - Vigil

An October 2017 Treasury Department report on the asset management and insurance industries includes an important—and fundamentally flawed—recommendation that could change the way U.S. regulators monitor risk in the financial system.  The Treasury report recommends that regulators focus on identifying and overseeing potentially risky financial activities rather than systemic firms like AIG, Lehman Brothers, and Bear Stearns.

Given ongoing competition between buyers in a strong sellers’ market, the resilience of seller break fees as a feature of the European M&A market is surprising. According to the Latham & Watkins 2017 European Private M&A Market Study (which examined over 190 deals signed between July 2015 and June 2017), 10% of European private M&A transactions featured a seller break fee, slightly up from 8% in 2016.

The concept of human capital (HC) has for more than a half century informed discussion about how corporations are managed. The idea is typically associated with the skills, knowledge and abilities employees bring to their work. In recent years, institutional investors have taken a mounting interest in the subject, in large part due to the increasing awareness that HC policies are material to long-term financial performance and success. (See our 2015 paper The Materiality of Human Capital to Corporate Financial Performance.) However, investors face significant challenges in the quest for data on the topic that they can use to inform decisions about investments or discussions with boards and executives about corporate strategy and competitiveness.

In the 2017 proxy season, 138 of the technology and life sciences companies included in the Silicon Valley 150 Index (SV 150) and all 100 of the S&P 100 companies held annual meetings that typically included voting for the election of directors, ratifying the selection of auditors of the company’s financial statements and voting on executive officer compensation (“say-on-pay”).

The surge in shareholder activism in recent years has promoted fierce debate over the consequences of activism for targeted companies and their shareholders. Of particular interest has been the question of whether shareholder activism has helped improve the long-term shareholder value of targeted companies. Although several studies argue that hedge fund activism improves the performance of targets, exactly how hedge fund activists enhance shareholder value remains an unresolved issue.

It is well known that banks play an important role in monitoring borrowing firms (e.g., Diamond, 1984). Yet, how banks choose among alternative mechanisms that reduce agency costs with borrowers is not completely understood. In our paper, “Bank Relations and Borrower Corporate Governance and Incentive Structures,” we document that, as banks and borrowers develop closer relationships, borrowing firms adopt corporate governance and incentive structures that help to reduce the banks’ risk of expropriation by the managers and shareholders.

The question of how to provide context for their CEO pay ratio proxy disclosure has been one companies have been turning to as they near completion of their calculation work. One perspective on this issue has come from a recent ISS Position Paper that recommends companies include in their disclosure a comparison to peer group disclosures.

Investor Response to Attack by US Chamber of Commerce - Don't put our financial system at risk by gutting shareholder rights under Rule 14a-8.

The SEC Staff recently released Compliance & Disclosure Interpretation 101.01 (the “C&DI”) which provides that financial measures included in forecasts given to a financial advisor and used in connection with a business combination transaction are not non-GAAP financial measures that must be reconciled to GAAP. This applies as long as the forecasts (i) are provided to the financial advisor for the purpose of rendering a fairness or similar opinion and (ii) are disclosed to comply with Regulation M-A Item 1015 (requiring a summary of the analyses supporting a fairness opinion) or to comply with requirements under state or foreign law, including case law, regarding disclosure of financial advisor analyses.

Shorter days and longer nights are a sign for many corporate secretaries and general counsel that proxy drafting season has arrived. Each year presents a new opportunity for issuers to address evolving and emerging areas of investor interest through proxy statement disclosure. Here are five topics around which enhanced disclosure and clear messaging can set a positive tone for companies in the most important document of the year for governance-focused investors.

If you think that your organization is immune to accusations of sexual misconduct...think again. It doesn't only happen to other organizations. Are you prepared to handle this situation if it occurs in your company? Over and above issues relating to human resources management, it appears essential that we remind executives that governance issues should also be considered. What should you be thinking about, you might wonder?

Labour, Employment and Human Rights Bulletin