Corporate governance - Vigil

Shareholder voting plays a central role in corporate governance. Yet, for many public company acquisitions, only the target firm’s shareholders may be able to exercise voting rights. The lack of voting rights for bidder shareholders is problematic given evidence that many acquisitions involve negative returns for bidders.

“Deal Activism,” in which activists invest to oppose announced deals, has become an increasingly frequent component of the activist playbook. While efforts by the target company’s shareholders to oppose a deal to secure a higher bid have received the most media attention, activists have also run campaigns against acquirors to block transactions outright, to extract concessions or to generate pressure against a board. This occurs most frequently in strategic, stock-for-stock transactions where votes are needed on both sides.

In our paper, Changes in CEO Stock Option Grants: A Look at the Numbers, we look at changes in stock option granting behavior towards CEOs. We find that, on average, the number of stock option grants to CEOs changes over time, and that such changes can be predicted by CEO corporate investment decisions; CEOs of firms that have very high or very low levels of investment subsequently receive fewer stock options.

After hearing that the CEO pay ratio rules were still cumbersome and difficult to maneuver, the Securities and Exchange Commission (SEC) recently issued three pieces of guidance that will markedly improve the process, especially for global companies. We believe that the SEC is now much closer to its goal of providing flexibility in a manner that would “reduce costs and burdens for registrants” that should prompt companies to revisit their approaches.

The separation of corporate ownership from control leads to an agency problem caused by the divergent interests of shareholders (the principals) and management (the agent).  One area of contention is the level of risk-taking by the firm.

My remarks will focus on governance and transparency. These issues are, of course, related. Among its many benefits, transparency facilitates effective governance. My first topic will be transparency with respect to the operations of the Securities and Exchange Commission (the “SEC” or the “Commission”). Then I will turn to transparency in our securities markets—or said another way, how we can reduce opacity and, thereby, enhance our efforts to deter, mitigate, and eliminate fraud.

[On October 19, 2017], ISS released the results of its Policy Application Survey. This follows the release of its Governance Principles Survey in late September. The Governance Principles Survey is high-level and covers “one share, one vote,” board gender diversity, cross-market company share issuances and repurchases, the use of virtual meetings, and pay ratio disclosures. The more in-depth Policy Application Survey drills down into key issues by market and region as well as by topic, such as responsible investment, takeover defenses, and compensation. The Policy Application Survey results provide views of investors and non-investors and the results of these surveys often are a precursor of changes to ISS’ voting policies. [1]

Takeover transactions are often the most significant activity affecting corporations and their shareholders. Accordingly, there are intense debates about the value and impact of takeovers and the extent to which law should regulate such transactions. One area of focus for takeover regulation has been the potential impact of takeovers on minority shareholders. The focus on minority shareholders is not surprising as research suggests that laws which protect minority shareholders are associated with stronger financial markets.

Traditionally, activist hedge funds identify a company ripe for improvement, acquire a toehold position in the company’s stock, and then launch a campaign to convince shareholders to dump incumbent directors in favor of candidates nominated by the fund.

Standing Voting Instructions: Empowering the Excluded Retail Investor by Jill E. Fisch could be the most important article on corporate governance this year

As a corporate director, your role is to contribute your expertise to help an organization prosper and better serve its stakeholders. This can be a fulfilling job! But can you make a living as a corporate director? The answer is yes but not without a few different income streams, some work beyond board service, and a few key strategies.

BlackRock is a strong advocate for equal voting rights for all shareholders. However, we disagree with index providers’ recent decisions to exclude certain companies from broad market indices due to governance concerns. Those decisions could limit our index-based clients’ access to the investable universe of public companies and deprive them of opportunities for returns.

This article, which is forthcoming in the Review of Finance, studies empirically how the controlling shareholder uses the firm’s dividend policy to manage the relationship with other shareholders. There are two alternative views. The opportunistic hypothesis recognizes that the controlling shareholder may feel tempted to capture private benefits at the other shareholders’ expense. For instance, the controlling shareholder may make the firm trade at unfair prices with another firm he owns, hire family members at excessive salaries, and use the firm’s resources to build personal prestige. Such actions can reduce the firm’s ability to pay dividends.

Thank you, Keith [Higgins], for that gracious introduction.[1] Let me return the sentiment. Keith – you are a member of an esteemed group of Division Directors, some of whom are here today, who have served the Commission and, most importantly, investors very well. The PLI 49th Annual Institute on Securities Regulation demonstrates the efforts by many to ensure that there is continuous education about the securities laws, as well as ongoing, candid dialogue about the state of our securities markets. I am honored to be here.

The Harvard Law School Program on Corporate Governance is pleased to announce the availability of positions of Post-Graduate Academic Fellows in the areas of corporate governance and law and finance. Qualified candidates who are interested in working with the Program as Post-Graduate Academic Fellows may apply at any time and the start date is flexible.

After months of suspense, both Royal Bank of Canada and Toronto-Dominion have bowed to investor pressure and adopted U.S.-style proxy access. Both companies faced non-binding shareholder proposals requesting the provision at their 2017 AGMs, receiving 47% and 52% support respectively, and both companies have protested that the U.S. standards of a 3% ownership threshold and 25% nominating power are incompatible with the existing proxy access rights provided under the Canadian Bank Act.