Corporate governance - Vigil

The Delaware Supreme Court heard argument recently in the appraisal proceeding arising out of the 2014 acquisition of DFC Global Corporation by Lone Star, a private equity firm. The Court of Chancery had found that the statutory “fair value” of DFC was higher than the deal price, based on a tripartite equal weighting of the transaction price, a DCF valuation, and a comparable company analysis which the court called “a blend of three imperfect techniques.” One key element of the appeal is the proper role of deal price in fair value determinations. The Court of Chancery noting that the sale process was lengthy, involved financial and strategic buyers, and resulted in an arm’s-length sale with no conflicts determined that the deal price was “one measure” of value. But the court gave the deal price limited weight. It found that the sale process coincided with the company’s being subject to “turbulent regulatory waters” that rendered uncertain its future profitability and even viability; the court suggested that the PE buyer may have understood those uncertainties better than other bidders, and been focused as a financial sponsor on achieving a required internal rate of return consistent with its financing constraints, rather than DFC’s fair value.

One of the most important decisions a financial manager must make is to determine how liquid his firm’s balance sheet should be. More liquidity means that a firm can make investment decisions without having to raise external capital. Consequently, liquidity on the balance sheet is most valuable to a firm when the cost of external finance is relatively high. One such time occurs during poor macroeconomic conditions, since both practitioners’ viewpoints and the academic literature suggest that most firms’ external financing costs are strongly pro-cyclical. Therefore, liquidity should be particularly important in facilitating firms’ abilities to invest efficiently during poor macroeconomic conditions.

Earlier this [month], ExxonMobil released a preliminary tally revealing that 62.3 percent of shareholders supported a non-binding shareholder resolution calling for “an annual assessment of the long-term portfolio impacts of technological advances and global climate change policies, at reasonable cost and omitting proprietary information.” A similar proposal filed just last year garnered only 38.1 percent shareholder support—which leads to the question, what’s changed so dramatically in the past year? We’ll get to that in a moment—but first, let’s take a look at shareholder proposals voted so far in 2017, and put those into some historical context.

How much of your personal data is out there, available for companies to slice and dice—and potentially for hackers to find? Your username and password information to your e-mail account? Your medical records? Your government identification numbers? What about all of the information in your connected devices?

As Kahan & Rock (2007) note “Never has voting been more important in corporate law”. Participation in corporate voting is the main mechanism via which most shareholders voice their opinion and affect management. As part of a general rise in attention to shareholder voting and shareholder activism, regulators have called for greater participation to ensure more representative voting results and better monitoring. However, conventional wisdom questions the usefulness of such requests. Do shareholders vote—unless they own large blocks or they are legally required to vote? There is little guidance, theoretical or empirical, to this discussion. Our paper offers the first comprehensive study of voting participation by shareholders.

Minority shareholders tend not to participate in the decision-making process of public companies with a controlling shareholder, and their voice is rarely heard. Even when they disagree with how the company is being managed, they prefer to express this dissatisfaction through exit, i.e., by selling their shares, rather than by expressing their voice at a shareholder meeting. Contrary to the prevailing view, my article, The Voice: The Minority Shareholder’s Perspective, suggests that minority shareholder voice is important and desirable.

TOKYO -- Japan's publicly traded companies are offering more board seats to foreigners amid a growing realization that diversity can help with overseas expansion.

[On June 9, 2017], the U.S. House of Representatives, voting almost entirely along party lines, passed H.R. 10, the “Financial CHOICE Act of 2017” (the “CHOICE Act”), a Republican proposal that would substantially restructure the post-crisis regulatory framework and provide significant regulatory relief to certain highly capitalized banking organizations. The vote was 233 to 186 and marks the first time either chamber of Congress has passed legislation that would significantly amend the post-crisis financial regulatory framework implemented under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).

This has been a historic proxy season, marking three majority votes for shareholder proposals addressing climate change at Occidental Petroleum, PPL Corp. and ExxonMobil, with the latter proposal exceeding 60% support. As of this writing it is too early to tell which asset managers voted for these proposals, with the exception of BlackRock, which announced that it voted for the proposal at Occidental (Vanguard also reportedly supported that proposal). This year, Fidelity announced that it may support shareholder proposals on sustainability matters and both BlackRock and Vanguard said they were strongly weighing supporting the ExxonMobil proposal.

On behalf of the Council of Institutional Investors and the undersigned investors, I am writing to share with you our concerns about several provisions currently included in the Financial CHOICE Act of 2017 (Act).

Beginning in 1985, the Delaware Supreme Court created a new framework for judicial review of decisions made by boards of directors when considering third-party mergers and acquisitions. Ever since, third-party M&A events, both hostile and friendly, have been reviewed using an intermediate standard known as enhanced scrutiny. Under that standard, the defendant directors bear the burden of proving that they sought to serve a legitimate corporate purpose and that their actions fell within a range of reasonableness.

In the first part of a series on the job description of corporate directors, The Conference Board Governance Center reports on a roundtable of proxy advisors who sought to define the job description and expectations of the role of the public company director in today’s environment. Governance Center Executive Director Doug Chia concluded from the discussion that proxy advisory firms tend to look at certain components of the job rather than the job as a whole and to give advice based on how best to design or perform each specific component. 

When a corporation sells corporate assets to its (or an affiliate of its) controlling stockholder, Delaware courts generally will review that transaction under the exacting “entire fairness” standard. [1] But what if the corporation’s minority stockholders are given the opportunity to participate along with the controlling stockholder in the purchase of the corporate assets pro rata to the extent of their stock ownership?

On June 1, 2017, the Public Company Accounting Oversight Board voted to adopt a new auditing standard that, if approved by the Securities and Exchange Commission, will significantly expand the current auditor’s report. The new report will augment the traditional pass/fail opinion with a discussion of “critical audit matters” (CAMs), disclosure of the auditor’s tenure and certain other information. The revised report also will have a new format. The adopted standard, AS 3101, is substantially the same as the standard reproposed by the PCAOB in May 2016. The full text of the new standard can be found here and the PCAOB’s fact sheet can be found here.

A board needs its members to be attentive to effectively fulfill its advisory and monitoring roles, but directors inevitably have outside obligations, which sometimes distract them from their board responsibilities. To minimize the possibility of directors becoming overly distracted, public firms have increasingly imposed restrictions on the outside duties that their directors may assume. In particular, firms may restrict outside board service, but this is likely to represent only a small fraction of the competition for directors’ time and attention.