Corporate governance - Vigil

NEW YORK, NY (August 24, 2017) – Shareholder activism at S&P 1500 companies results in corporate board members who are younger and more independent yet less diverse along gender, racial and ethnic lines, according to a new report, The Impact of Shareholder Activism on Board Refreshment Trends at S&P 1500 Firms.

Following the 2016 election, corporate governance circles have focused intently on what will happen in the nation’s capital with regard to a potential roll back of the current regulatory regime. The Trump Administration immediately signaled a strong desire for wide-ranging regulatory reform through a series of executive orders directed at federal agencies.

As we previewed in our 2016 Year in Review, several significant developments in the federal securities laws occurred during the first half of 2017.

In 2014, the Delaware Supreme Court ruled that a control stockholder buying out the public minority interest could achieve the safe haven of business judgment review, provided that the controller structured the transaction to provide certain protections, notably special committee approval, full disclosure and a majority-of-minority vote condition. Kahn v. M&F Worldwide, 88 A.3d 635 (Del. 2014) (“MFW”). (Our previous post on the case is here.)

The recent global financial crisis increased the attention paid by policy makers, regulators, and academics to financial stability. While much attention has been devoted to deficiencies in the banking system, high levels of corporate debt have also triggered concerns. Highly leveraged firms may enter financial distress during a crisis, exacerbating cutbacks in investment and employment and contributing to the persistence of the downturn. As such, the practices of the private equity (PE) industry, which raised close to $2 trillion in equity before the crisis, raised significant concerns.

Corporate Board Leaders' Blog

On July 17, SEC Commissioner Michael Piwowar extended an important invitation to U.S. public companies. “For shareholder lawsuits,” Piwowar offered, “companies can come to [the SEC] to ask for relief to put… mandatory arbitration into their charters.” To some, this idea may be unfamiliar or even controversial. But, as someone who has studied the U.S. securities class action system and its impact on our capital markets extensively, I know this policy is a sound one that serves U.S. investors and markets well.

The rights of stockholders to demand to inspect a corporation’s books and records under state corporation laws are a powerful method of ensuring the stockholders’ rights and interests are safeguarded. Such inspection rights are not, however, unfettered. Exercising them involves balancing the inspection rights with the rights of corporations “to be free of frivolous or vexatious demands to examine records, and to avoid production of records to individuals pursuing interests other than those relating to stock ownership.” To strike an appropriate balance, stockholders must first comply with certain requirements. Among these are requirements governing the making of an inspection demand on the corporation and the requirement of articulating a proper purpose for the demanded inspection.

Over the past 20 years, there has been a major shift in how large public companies have compensated their outside Directors.1 These changes have included the elimination of Board meeting fees, granting of equity compensation in the form of full-value shares, the elimination of Director retirement plans and other perquisites, adoption of stock ownership guidelines for Directors, and giving of supplemental cash retainers to Committee Chairs in recognition of their substantial time commitments to committee work.

On August 3, 2017, the proxy advisory firm Institutional Shareholder Services (“ISS”) launched its annual policy survey. Each year, ISS solicits comments in connection with the review of its proxy voting policies. ISS then uses the data to inform its voting policy review. At the end of this process, ISS will announce its updated proxy voting policies applicable to 2018 shareholder meetings.

There is growing interest in using stock indexes to shape corporate behavior and the standards of corporate governance. Over the past weeks, two of the largest index providers—S&P Dow Jones and FTSE Russell—announced their decisions to exclude certain firms with multiple share-class structures from their indexes. Despite these significant moves, empirical research has not established whether and how stock indexes can be effective in shaping standards of corporate behavior.

Virtual reality (VR) can be a powerful, low-cost way of giving board directors and senior executives a tour of key corporate sites, as seen by Teck Resources’ recent use of the technology.

This update provides an overview of key class action developments during the second quarter of 2017 (April through June):

Sales practices in the financial services industry have come under increased scrutiny from both regulators and financial institutions since last year. The attention so far has been largely on the financial institutions’ sales practices, which include activities throughout the customer relationship lifecycle from marketing to sales, servicing, and collection. However, the scope is broadening to include third parties, which have been used over the last decade to help institutions grow revenues, cut costs, and improve the customer experience. [1]

The myriad problems with the Dodd-Frank Act’s ban on proprietary trading by banks have led to a rare bipartisan consensus: the Volcker Rule must be pared back or even repealed. At the root of the Rule’s problems is a fundamental definitional challenge. Whether a particular trade is banned turns on its motivation—is the trade intended to profit from short-term price movements or is it incidental to core financial intermediation functions such as market marking and underwriting—which is difficult for regulators to determine.