Corporate governance - Vigil

In a recent article prepared for the ABA’s National Institute on Class Actions, which is now posted on SSRN (available here), I and Professor Alexandra Lahav survey recent class action developments, and I focus particularly on the special case of securities litigation.

As we approach the start of the 2018 proxy season, developments since January 2015 prompt a brief review of the state of play.

On September 13, 2017, President Trump issued an Executive Order blocking the $1.3 billion acquisition of a U.S. semiconductor manufacturer, Lattice Semiconductor Corporation (“Lattice”), by a Chinese government-backed private equity fund, Canyon Bridge Capital Partners (“Canyon Bridge”).

Two investment funds are calling for new leadership at discounted housewares retailer Tuesday Morning Corp., the latest in a series of activist campaigns targeting chief executives.

Vanguard cast more than 171,000 individual votes at nearly 13,000 companies in 68 countries for the 12-month period ending June 30th, making the firm one of the most influential investors in public companies. Its recent Investor Stewardship Report and letter to CEOs highlights two key governance priorities.

Many institutional investors have made increasing the diversity of corporate boards a priority, yet activist investors that rely on the support of these institutional investors often make boards less diverse. Boards should take advantage of this divergence between the priorities of institutional investors and the actions of activist investors in resisting activist campaigns, and prepare for those campaigns by increasing board diversity.

As we approach the start of the 2018 proxy season, developments since January 2015 prompt a brief review of the state of play.

On 29 August 2017, the UK Government published its response [1] (the “Response Document”) to its consultation on UK corporate governance reform. The consultation was launched following the Government’s publication of a green paper [2] (the “Green Paper”) on 29 November 2016. The Response Document summarizes the responses received to the consultation and sets out 12 reforms that the Government intends to make to the UK corporate governance regime.

One of the three major U.S. consumer credit reporting agencies, Equifax, last week reported that sensitive information of roughly 143 million Americans had been breached. Given the magnitude of the breach, government officials have indicated that this event could result in stronger cybersecurity regulations that would enhance the protection of customers’ data.

The Dodd-Frank Act’s worthy objectives were to improve the safety, resilience, efficiency, and transparency of our financial system. Yet the law has drastically diminished the credit available to low-income Americans – the very people it was supposed to help.

Controlling stockholder buyouts of Delaware corporations are generally scrutinized under the lens of “entire fairness” to determine whether the transaction was the product of fair dealing and fair price. Notably, however, under M&F Worldwide, [1] the Delaware Supreme Court confirmed that a target corporation’s use at the outset of a transaction of a special committee of disinterested directors and an informed vote of a majority of the minority of the target’s stockholders, among other factors, will result in a transaction that would be reviewed under the deferential business judgment rule instead of the stringent entire fairness test. The burden of proving entire fairness and the perception of a significant risk of a negative outcome under an entire fairness review frequently results in deal participants allowing the fate of the transaction to be determined not only by a special committee, but, even more critically, by the majority of the minority stockholder vote. However, the recent Delaware Chancery Court decision in ACP Master, Ltd. v. Sprint Corp. / ACP Master, Ltd. v. Clearwire Corp. highlights that entire fairness may not be fatal, and that a finding of entire fairness may overcome earlier instances of conduct or process that may fall short or that otherwise had “flaws” and “blemishes.”

The compliance date is fast approaching for the US Securities and Exchange Commission’s (“SEC”) recently adopted amendments to Part 1A of Form ADV. Initial or amended Form ADVs filed on or after October 1, 2017 (with limited exception, as discussed below) must comply with the amendments. The Part 1A amendments require advisers to provide additional information about their business, including information about their separately managed accounts (“SMAs”), social media activity, branch offices, source of chief compliance officer (“CCO”) compensation, and participation in wrap fee programs. The amendments also codify the “relying adviser” method by which private fund advisers operating as a single advisory business can register using a single Form ADV, referred to as “umbrella” registration.

With the introduction of say-on-pay (SOP) in 2011 and the increased clout of proxy advisory firms on executive compensation program designs, the performance share unit (PSU) has become a common feature of executive long-term incentive (LTI) programs among U.S. public companies.

Over the past few decades, the ownership of public corporations has been turned on its head. While private individuals owned approximately two-thirds of U.S. equities in 1970, today it is institutional investors like Blackrock, Vanguard, and State Street that control two-thirds of such shares. This increase in institutional assets, often referred to as fiduciary capitalism or mutual fund capitalism, came with the rise of pension funds and mutual funds. More recently, the popularity of Exchange Traded Funds (ETFs) has shifted assets from active to passive investment strategies. In a recent paper, available here, I explain how these changes in ownership prompted the recent increase in the engagement by institutional investors with corporate boards and executives.

The amendments passed by the State of Delaware to the General Corporation Law (known as the DGCL) are the first tangible product of the well-known Delaware Blockchain Initiative (DBI or Initiative). This is just one step in a multi-milestone project engaged by the State of Delaware through the Delaware Secretary of State’s Global Delaware arm, in order to maintain Delaware’s leadership in the corporate world. [1]