Corporate governance - Vigil

The 2017 season that just passed witnessed two kinds of proposals asking companies to amend existing proxy access bylaws. The first type sent to companies earlier in the season sought to amend several provisions, including requesting that the number of board seats available for nomination increase to 25% of the board instead of 20%, and also that an unlimited number of shareholders be allowed to aggregate their holdings to form a nominating group.

The past 5 years have seen a significant number of companies spinning off one or more businesses into separate, free-standing companies. S&P’s Capital IQ reports a total of 86 full or partial spin-offs that began trading on a major U.S. exchange from mid-2011 through mid-2016 — an average of 17 per year.1

Also Snap, Blue Apron, email etiquette, gold suspicions, the VIX and tripping unicorns.

For this edition of The Canada Summit, Economist editors, policymakers, business decision-makers and leading critical thinkers will gather to discuss

In our study Investment Banking Relationships and Analyst Affiliation Bias: The Impact of the Global Settlement on Sanctioned and Non-Sanctioned Banks, we examine the impact of the 2003 Global Analyst Research Settlement on affiliation bias in sell-side analyst recommendations. Affiliation bias refers to the well-known finding that analysts are overly optimistic when their employers have underwriting relationships with covered firms.

The first half of 2017 was unusually quiet for the SEC’s Division of Enforcement. This undoubtedly stemmed from the change in administration following the November election. With Chair Mary Jo White and various other members of the agency’s senior leadership (including the Director of the Division of Enforcement) stepping down, and only two sitting Commissioners for much of the period, authorization of new cases slowed somewhat.

Many initial coin offerings (ICOs) have recently raised large amounts of capital without the regulatory constraints of traditional initial public offerings (IPOs) and other capital-raising strategies. On July 25, the U.S. Securities and Exchange Commission (SEC) reminded the industry and so-called “disruptors” that federal securities laws may apply to some of these offerings.

Corporate finance textbooks describe shareholders as the owners of a corporation and teach future managers how to create “shareholder value.” Increasing shareholder value is generally seen synonymous with increasing “shareholder wealth” as measured by the market value of their shares. The academic literature views conflicts between managers and shareholders as the main challenge of corporate governance. Common practices to align managers’ interests with those of shareholders include paying managers with stocks or options and rewarding them based on financial metrics such as (accounting) profits and return on equity.

Companies issuing multiple classes of stock—such as social media company Snap Inc.—are now barred from the S&P 500 index, Reuters reports. In March, Snap made its initial public offering (IPO) to the tune of $3.4 billion, but in doing so, it offered new investors a class of stock that allowed no voting rights. Following an outcry from investors, the S&P Dow Jones announced on Monday that its new rule means that companies with multiple share classes are ineligible for membership in the S&P 500, MidCap 400, and SmallCap 600 indices. Companies with varied share class structures that are already on S&P indices, such as Berkshire Hathaway, Facebook, Alibaba, and Alphabet will not be affected by the rule.

To oversee executive compensation, board members need to understand what makes a pay package effective for their company

On 13 July 2017, the UK government published the European Union (Withdrawal) Bill, known as the “Great Repeal Bill.” This major piece of constitutional legislation sets out the government’s proposals for transforming existing EU laws into UK laws and ending the supremacy of EU laws in the UK after Brexit.

With 371 public campaigns against U.S. companies, according to a recent J.P. Morgan report on the new normal in shareholder activism, the 2017 proxy season proved to be fairly active. Although only 19 of the 54 actual contests that were completed by June went to vote, while the same number settled and the remainder were withdrawn, activists were able to obtain at least one board seat 46% of the time, compared to 41% last year.