Corporate governance - Vigil

Under acting Comptroller Keith A. Noreika, one of the first financial regulatory agency appointees put in place by the Trump administration, the Office of the Comptroller of the Currency (“OCC”) has staked out a position as the first of the federal banking agencies to take substantial steps to implement a new financial deregulatory agenda.

In the paper, The Effects of Hedge Fund Interventions on Strategic Firm Behavior, forthcoming in Management Science, we examine the impact of hedge fund interventions on target firms’ voluntary disclosure and earnings management strategies.

The dramatic escalation in enforcement activity by federal agencies against large financial institutions since the financial crisis is well known. These days the latest multi-billion dollar deal between regulators and Wall Street banks has lost blockbuster status and hardly even makes front page news. In my forthcoming article, Regulation by Settlement, I take stock of the broader significance of this development for both the financial system and the regulatory process. The main claim is that settlements have emerged as a primary tool for setting policy in financial regulation.

Over time, the range of expectations for performing the job of corporate director has widened, and the job has become a prism: how it's defined shifts depending on the perspective of the observer. We examine how different stakeholders view this prism in a series of more than 10 reports based on roundtables with different groups: proxy advisors, directors, active and passive investors, corporate secretaries, activist hedge funds, academics, Delaware bench and bar, auditors, media, and regulators. With the aim of fostering a common understanding among market participants, we ask each group to consider how the role of the director has evolved, what the current range of expectations is, and where gaps in understanding have resulted in conflict.

In our paper, we consider the emergent practice of including clauses in corporate certificates of incorporation or bylaws that specify an exclusive judicial forum for lawsuits. So far, state and lower federal courts that have considered whether such clauses are valid or enforceable have applied a contractual approach that mimics judicial treatment of forum-terms in ordinary contracts.

Tom Manning is a corporate advisor, board director, and educator. Currently, he serves on the boards of Dun & Bradstreet (Lead Director), CommScope, and Clear Media Limited. He was based in Hong Kong for 17 years, where he served as the CEO of Cerberus Asia, Capgemini Asia, and EY Global Consulting Asia, and as a partner with Bain & Company. Formerly, he was an independent director of several of China’s largest listed companies, including the Bank of Communications, Gome Electrical Appliances, AsiaInfo-Linkage Holdings, and iSoftStone; earlier in his career, he was with McKinsey & Company. He speaks Mandarin and teaches corporate governance, private equity, U.S.-China relations, and innovation at the University of Chicago Law School.

U.S. and European companies continue to receive bids to sell themselves and their significant assets to companies based in the People’s Republic of China.

The Delaware Court of Chancery recently denied a motion to dismiss a shareholder derivative suit brought against an externally managed REIT. The shareholder alleged that the board of directors breached its fiduciary duties by (1) renewing the REIT’s management agreement with its external manager each year and (2) approving a transaction in which the REIT internalized its manager. The court held that the plaintiff had created a reasonable doubt as to whether the board of directors was adequately informed in making these decisions. Thus, the derivative demand requirement was excused.

The capstone of regulatory reform in the wake of the financial crisis can be characterized as an effort to change the financial industry by getting bankers to behave more ethically.

On [August 23, 2017], in United States v. Martoma, the United States Court of Appeals for the Second Circuit overruled its own 2014 decision in United States v. Newman and altered the standard for determining whether the personal benefit element of insider trading has been satisfied. The decision had been eagerly anticipated as a key test for how courts would interpret the U.S. Supreme Court’s 2016 decision in Salman v. United States.

On August 29, the UK Business Secretary Greg Clark has set out the British government’s plans for corporate governance reform, which are intended to “enhance the public’s trust in business”.

Trian’s P&G whitepaper is a unique support document for an activist proxy contest. Its 93 pages are replete with suggestions and criticisms that should be taken into account by companies in connection with their preparations to avoid an activist attack and for dealing with an activist. The whitepaper raises the not unusual issues of comparative peer TSR, declining market shares, executive compensation in relation to performance, board complacency and weak corporate governance, among others. The unique aspects are:

Relatively little is known about board chairs as most of their work is done behind closed doors. They deal with highly sensitive matters but rarely appear in public. They have no executive power but preside over the most powerful body in the organisation – the board of directors. Their performance is critically important for every company but they still need help to improve it. Yet they have no boss, no peers, no one to turn to for an advice. They learn mostly by trial and error.

In In re Martha Stewart Living Omnimedia Inc. Stockholder Litigation (Aug. 18, 2017), the Delaware Court of Chancery dismissed claims made by former stockholders of Martha Stewart Living Omnimedia (“MSLO” or the “Company”) against the Company’s former controlling stockholder, Martha Stewart, for alleged breaches of her fiduciary duties in connection with the 2015 sale of the Company to third party buyer Sequential Brands, Inc. The lawsuit alleged that, although Stewart received the same merger consideration as the other stockholders for her shares, she had leveraged her position as the controlling stockholder of the Company to secure greater consideration for herself through “side deals” with the buyer.

In July 2016, a coalition of 13 CEOs and heads of major investment firms—which included names like JPMorgan Chase CEO Jamie Dimon, Berkshire Hathaway CEO Warren Buffett, General Motors CEO Mary Barra and BlackRock CEO Larry Fink—released the Commonsense Principles of Corporate Governance (discussed on the Forum here). These Principles emphasize the critical role of director independence in corporate America, stating that: “[t]ruly independent corporate boards are vital to effective governance, so no board should be beholden to the CEO or management” and that “[d]irectors should be strong and steadfast, independent of mind and willing to challenge [management] constructively.” Indeed, this recent statement echoes the importance and emphasis that academics, investors, regulators and companies alike, have placed on director independence.