Corporate governance - Vigil

A recent Delaware bill is poised to allow private Delaware corporations “use networks of electronic databases (examples of which are described currently as “distributed ledgers” or a “blockchain”) for the creation and maintenance of corporate records, including the corporation’s stock ledger.” The bill is a significant step towards the mainstream adoption of blockchain technology, which has the potential to solve problems that legacy technologies could not previously solve.

Conventional wisdom holds that the primary function of the stock market is to raise cash that companies use to invest in productive capabilities. The conventional wisdom is wrong. Academic research on corporate finance shows that, compared with other sources of funds, stock markets in advanced countries have in fact been insignificant suppliers of capital to corporations. What, then, is their function? If we are to understand employment opportunity, income distribution, and productivity growth, we need an accurate analysis of the role of the stock market in the corporate economy.

A central question in the corporate governance literature concerns the impact of boards on performance. Some studies support the view that governance structures endogenously arise as optimal solutions to the contracting environment of the firm. Many studies support an opposing view that governance structures can be captured by CEOs in ways that reduce monitoring, promote rent seeking by executives, and exacerbate corporate wrongdoing.

Over the past week, two of the world’s largest index providers have announced decisions to partially or fully exclude companies with multiple-class share structures from their indices. These new policies, made after substantive consultation with index users and other stakeholders, have wide-ranging implications for issuers and investors alike and highlight the growing roles of investors and index providers in shaping governance standards.

In DFC Global v. Muirfield (Aug. 1, 2017), the Delaware Supreme Court, en banc, reversed the Court of Chancery’s appraisal decision involving the acquisition of DFC Global Corp., a publicly traded payday lending firm, by a private equity firm, and remanded the case for further consideration by the Court of Chancery.

The Conference Board Governance Center and the Committee for Economic Development (CED) on April 20, 2017 co-hosted more than 100 corporate governance practitioners to discuss the state of corporate governance, corporate political contributions, the job description of a corporate director, and cybersecurity oversight.

The Delaware Supreme Court’s ruling this week in DFC is its first significant statement on the role of market evidence in appraisal “fair value” determinations in seven years. The wide-ranging and thorough opinion marks a robust affirmation of the primacy of real-world evidence in determining fair value. DFC Global Corp. v. Muirfield Value Partners, L.P., No. 518, 2016 (Del. Aug. 1, 2017).

The objective of the forum videoed below was explore how the adoption of mutuality principles and the Economics of Mutuality approach to value creation can contribute to the both society and the commercial success of firms. The notion that business has a significant role in addressing human and social problems has led to a re-evaluation of the purpose of business.

In a recent proxy contest, a dissident stockholder brought a lawsuit against the company claiming that the company’s disclosures about certain incumbent directors were deficient. The court agreed, and enjoined the company’s annual stockholders meeting until at least 10 days after the company supplemented its disclosures. As a result of the court’s ruling, Institutional Shareholder Services (“ISS”) reevaluated its support for the company’s nominees and changed its voting recommendation in favor of the dissident, who ultimately prevailed at the stockholders meeting. Although litigation in proxy contests—whether actual or threatened—is not new, this ruling illustrates how dissident stockholders can use offensive disclosure litigation to influence proxy advisors’ recommendations and win a stockholder vote.

Bursa Malaysia Bhd. said it’s considering whether to allow companies with dual-class share structures.

A report on an objective centric ERM and internal audit approach to board oversight of risk management and long-term value creation.

In the United States and a few other countries, management typically needs only board of director approval to issue common stock. But in most countries by law or stock-exchange rule, shareholders must vote to approve equity issuances undertaken by a certain method or exceeding a specified fractional threshold. In some countries shareholders must approve all equity issuances. Even in the United States shareholder approval is mandatory under certain circumstances.

This is the opening paragraph from Tuesday’s column by Alison Frankel, one of my favorite legal columnists/bloggers:

The decades-old debate on dual-class stock structures in the United States has recently come to a head again as entrepreneurs are adopting such structures with increasing frequency and institutional investors are mounting a concerted effort to have them prohibited, abandoned or excluded from equity indexes.

Populist anger in the U.S., Europe, and Australia has triggered an ongoing debate about whether executives receive excessive compensation, and if so, how to control it. Several countries have instituted say-on-pay rules (shareholders’ right to vote on executive compensation) aimed at reducing excessive compensation.

Recent news of sexual harassment and other legal controversies at Uber and throughout Silicon Valley serves as a vivid reminder that irresponsible and unethical conduct continues across the corporate landscape. Revelations of serious transgressions by senior corporate leaders belies a central assumption underlying contemporary corporate law theory. Much of corporate law is premised on rational actor theory – the idea that the law should be designed to leverage each person’s propensity to act in his rational self-interest. Corporate theorists have invoked this idea to promote a legal regime that relies on a system of incentives to cajole, but not command, corporate executives to act in the interests of shareholders and society.

Financial markets face a new and daunting high-tech mode of manipulation. With this new mode of market manipulation, millions of dollars can vanish in seconds, rogue actors can halt the trading of billion-dollar companies, and trillion-dollar financial markets can be distorted with a simple click or a few lines of code. Almost every investor and institution is at risk. This is the new precarious reality of our financial markets.