Corporate governance - Vigil

For many years, companies have often held their initial public offerings (IPOs) while maintaining potentially shareholder-unfriendly features, such as multi-class share structures, restrictions on shareholders’ ability to amend bylaws, supermajority vote requirements, and classified boards. Arguments for those practices include giving management room to maneuver during its initial public years, protecting certain shareholder classes, and more. Recently, however, shareholder tolerance for these features has waned, with proxy advisers following suit as reflected in their voting policies and recommendations.

Gender diversity will be front and centre at the annual conference of the Responsible Investment Association, held in Vancouver on Thursday and Friday

In 2016, the number of reported M&A transactions worldwide dipped by 2%, from a record 34,838 deals in 2015 to 34,191, but still represented the second-highest annual tally since 2000. Worldwide M&A deal value decreased 16%, from $3.64 trillion to $3.06 trillion—a total that was still the third-highest annual figure since 2000, lagging behind only 2015’s record tally and 2007’s $3.17 trillion result.

In Frederic Hsu Living Trust v. ODN Holding Corporation (April 14, 2017, corrected April 25, 2017), Hsu, a common stockholder (and co-founder) of ODN Holding Corporation (the “Company”), brought suit claiming that the Company’s directors had breached their fiduciary duties to the common stockholders, aided and abetted by Oak Hill Capital Partners, a private equity firm that was the controlling stockholder and the holder of the Company’s Preferred Stock. The plaintiff contended that, over the two-year period prior to the exercise date of Oak Hill’s redemption right, rather than managing the Company to maximize its long-term value for the benefit of the common stockholders, the directors had operated the Company so that it would be in a position to redeem the maximum amount of Preferred Stock as quickly as possible after the redemption right was exercised.

Bank in-house legal and governance professionals have been offered more consistency when dealing with regulators over potential enforcements – including in regards to communications with boards and management about their pledges to fix problems.

On May 11, 2017, Chancellor Andre G. Bouchard of the Delaware Court of Chancery issued another noteworthy opinion, dismissing with prejudice post-closing merger claims in In re Cyan, Inc. Stockholders Litigation. [1] The case arose out of the August 2015 acquisition of Cyan, Inc., a networking solutions company, by Ciena Corporation through a mostly stock-for-stock transaction, consisting of 89 percent stock and 11 percent cash. Before the deal closed, shareholder plaintiffs filed five lawsuits in the Court of Chancery, which were later consolidated. The plaintiffs did not seek expedited injunctive relief; rather, they elected to pursue damages for their process and disclosure claims post-closing. Specifically, the plaintiffs’ amended complaint asserted two counts for: (1) breach of fiduciary duty against Cyan’s seven-member board in connection with approval of the merger; and (2) equitable relief in the form of “quasi-appraisal.”

Scholars and regulators generally agree that credit rating agency failures were at the center of the 2007-08 global financial crisis. Government investigations found that the credit rating agencies, particularly Moody’s and S&P, were central villains and that the crisis could not have happened without their misconduct. The Financial Crisis Inquiry Commission called the ratings agencies “key enablers of the financial meltdown.” The U.S. Senate Permanent Subcommittee on Investigations concluded: “Inaccurate AAA credit ratings introduced risk into the U.S. financial system and constituted a key cause of the financial crisis.” The Securities and Exchange Commission and the President’s Working Group on Financial Markets reached similar conclusions.

Recent global cyberattacks have rudely reminded corporate America that cybersecurity risk management must be at the top of the board of directors’ corporate governance agenda. Companies have no choice but to prepare proactively, while directors must understand the nature of cybersecurity risk and prioritize its oversight. Preparation, monitoring, emergency response, and disclosure are topics that boards should consider regularly to properly oversee cyber-risk management. Boards should receive periodic updates from management and its expert advisors on the rapidly developing regulatory cybersecurity environment and on the company’s compliance with applicable cybersecurity standards.

Activist shareholders are casting their eyes beyond the boardroom to focus on the corner office, fueled by an increasing focus beyond simply financial performance to issues such as operations and governance.

 Julie Cays, Chair 
 cordially invites you to attend the
Annual Public Meeting
of the
CANADIAN COALITION for GOOD GOVERNANCE

General counsel may still be rare members of Canadian boards but, when they do have directorships, they are most likely to be women, new research finds.

Research on the causes and consequences of financial misconduct has exploded in recent years, due partly to the availability of electronic databases that make it easy to compile samples of misconduct events. We identify more than 150 papers that examine financial misconduct based on samples drawn from one or more of four electronically-available databases: the Government Accountability Office (GAO) and Audit Analytics (AA) databases of restatement announcements, the Stanford Securities Class Action Clearinghouse (SCAC) database of securities class action lawsuits, and (4) the Securities and Exchange Commission’s (SEC’s) Accounting and Auditing Enforcement Releases, most recently as compiled by the University of California-Berkeley’s Center for Financial Reporting and Management (CFRM).

Spring is in the air, and executive compensation consultants are busy reading a cascade of public filings and proxy advisor reports as we analyze and are asked to predict trends in executive pay in 2017 and beyond. One of the most common questions in executive compensation this year concerns what will become of the Dodd-Frank mandated CEO pay ratio set to be disclosed publicly for most companies beginning with proxies filed in 2018 – if not delayed or overturned beforehand. Earlier this year, acting Securities and Exchange Commission (SEC) Chair Michael Piwowar took the unusual step of requesting additional comments on the cost and burden of complying with the already approved CEO pay ratio rule, which would require companies to disclose the ratio of CEO pay to that of the median employee.

With peak meeting day in the rear-view window and wrapping up the last of the four busiest meeting days of the year today, more and more issuers are reporting their meeting results—and it’s time to take stock of what the numbers are telling us. Through today and among Russell 3000 companies, ISS has issued recommendations on more than 22,000 ballot items at 2,244 companies. And voting results are coming in quickly—we’re calling this proxy season “half-time” because, as of today, just over half—52.4% – of the Russell 3000 has disclosed 2017 shareholder vote results.

Following record levels of financing activity and proceeds in 2014 and 2015, the venture capital market cooled in 2016, with a decrease in the number of financings and a sharp contraction in valuations. Despite the decline in deal flow, however, the $52.4 billion invested in the US venture capital ecosystem still represented the third-highest annual total since 2000. Once all 2016 deals are accounted for, the number of 2016 venture capital financings should be commensurate with the 4,039 deals in 2013. VC-backed company liquidity activity was mixed in 2016, with the M&A market producing strong levels of acquisition activity and attractive valuations, while the IPO market declined for the second consecutive year to its lowest annual level since 2009.

We recently released a study, entitled Dancing with Activists, that focuses on “settlement” agreements between activist hedge funds and target companies. Using a comprehensive hand-collected data set, we provide the first systematic analysis of the drivers, nature, and consequences of such settlement agreements.