Corporate governance - Vigil

On Tuesday, October 3, 2017, Richard F. Smith the former CEO of Equifax testified before the House Energy And Commerce Committee. In his apology for the exposure from Equifax files of sensitive personal information for nearly 146 million Americans, he indicated that an “individual” in Equifax’s technology department had failed to heed security warnings and did not ensure the implementation of software fixes that would have prevented the breach.

Activist investors often want managers to take specific actions, which they accomplish by methods such as installing their own person on the management team or the board or by writing explicit action-based contracts with management. These contracts have received far less research attention in the activist literature even though they are akin to the classical principal-agent model, where the principal knows exactly what actions the agent should take and will contract on those actions to the extent it is possible. This study examines binding bilateral contracts between shareholders and managers called shareholder agreements.

On October 11, 2017, the SEC proposed a collection of amendments to its rules and forms intended to modernize and simplify some of the disclosure requirements applicable to U.S. public companies.[1]  The proposals would implement a statutory directive under the 2015 FAST Act.  They span a number of topics, including MD&A, property, risk factors, confidential treatment requests and exhibits, and are generally modest changes, although some may prove quite helpful for companies in practice.

In an October 6, 2017 speech, Deputy U.S. Attorney General Rod J. Rosenstein offered further hints on the proposed “soft repeal” of the long-controversial “Yates Memorandum” on corporate liability and individual accountability.

This resource center is a repository for all NACD content, services, and events related to the fast-moving and complex issue of cybersecurity oversight. Here you will find practical guidance, tools, and analyses tailored to the full board, relevant committees, and individual directors.

Various efforts to reform the shareholder proposal process, SEC Rule 14a-8, ask the Securities and Exchange Commission to formally curb the ability of share owners to file proposals.

Last Term, the Supreme Court continued its recent trend of taking up significant securities litigation enforcement matters. For the first time in many years, in Salman v. United States, the Court waded into the thorny question of the scope of insider trading liability. It took a strong stand on the statute of repose for private plaintiffs under the Securities Act of 1933 in CalPERS v. ANZ, and imposed limits on the SEC’s ability to obtain disgorgement in Kokesh v. SEC. It was, by any measure, as active a Term as the Court has had in this area in years.

With institutional shareholders playing a growing role in corporate governance, dialogue between boards and shareholders is increasingly common in the U.S. and Europe. Talking with boards is essential to institutional investors’ stewardship functions, and engaging with institutional investors has become a focus of listed companies’ communication strategies. Empirical analysis shows that private discussions with directors have become institutional investors’ preferred method of engagement, and they resort to shareholder proposals, public criticism, and similar practices only if private conversations fail.

In our article, Why Does Fast Loan Growth Predict Poor Performance for Banks?, which was recently accepted for publication in the Review of Financial Studies, we show that the common stock of U.S. banks with loan growth in the top quartile of banks significantly underperforms the common stock of banks with loan growth in the bottom quartile.

In our paper Busy Directors: Strategic Interaction and Monitoring Synergies, we examine when having a busy director on the board is harmful to shareholders and when it is beneficial. “Busy” directors—individuals who serve on multiple boards—continue to be the subject of debate among academics, practitioners, and policymakers. We develop and test the hypothesis that two factors jointly determine whether a busy board is beneficial or harmful to shareholders: (a) the existence of monitoring synergies across firms when directors serve on multiple boards, and (b) strategic interaction among directors on a firm’s board.

Excessive risk-taking by corporate executives is often blamed for triggering the financial crisis of 2008. Therefore, it is crucial to understand the nature of corporate risk-taking so as to prevent, or reduce the likelihood of, a future crisis. In theory, managers, who represent shareholders, are expected to act in the best interest of the shareholders and only take risks that maximize shareholder wealth. In reality, managers may take either too little risk or too much.

Asset fire sales—namely, the forced sales by distressed sellers at prices lower than what the highest potential bidder could bid if it were not financially constrained as studied by Shleifer and Vishny (1992)—have attracted much attention. They have become important building blocks in much of recent theoretical work in finance and macroeconomics.

A company’s shareholders are to elect or approve the appointment of the non-executive (or supervisory) directors whose fiduciary duties include monitoring the CEO and the other executive directors.

On October 3, the board of directors of Uber reached a truce after a tumultuous summer marked by high-profile resignations, bitter acrimony, and lawsuits among Uber’s principal investors. As reported, Uber’s board agreed to eliminate special voting rights accorded to early investors including Travis Kalanick, its former CEO.

ADP rejected Pershing Square’s recommendation to use a universal proxy card, arguing that given the solicitation has already commenced, changing the voting procedures for a new and untested process could disenfranchise shareholders.