Corporate governance - Vigil

Do institutional investors demand corporate disclosure? A central question in finance and accounting is whether corporate transparency benefits or hurts investors. This issue is complicated by the fact that information provision could affect groups of investors differentially. Public information may crowd out the private information advantage of some institutional investors; alternatively, investors, particularly those following more passive trading strategies, may not be information sensitive. However, even passive institutional investors may benefit from an increase in monitoring by other stakeholders following improved disclosure. Further, regardless of the preferences of institutional investors, whether or not they are able to affect corporate policy on this margin is unclear. This tradeoff is reflected in mixed empirical evidence on the relationship between institutional ownership and corporate disclosure.

On September 28, 2016, the federal government introduced Bill C-25 in Parliament, proposing significant amendments to the Canada Business Corporations Act (CBCA) (the Proposed Amendments). If adopted, the Proposed Amendments will impose obligations on reporting issuers (and other distributing and prescribed corporations, defined in the CBCA) in line with current governance best practices, including the following:

After the financial crisis of 2008, there was an explosion of lawsuits by shareholders against their corporations, particularly in mergers and acquisitions transactions. Partly in response to this “flood” of litigation, a number of corporations began devising strategies to deter shareholder lawsuits. One strategy was the fee-shifting bylaw, which would obligate the plaintiff-shareholder to reimburse the corporation’s expenses (including attorneys’ fees and other costs) when the plaintiff is unsuccessful in litigation.

2016 began with a flurry of bank M&A activity that decelerated somewhat as fears of Brexit and an overall slowdown in global growth overtook the financial markets and dampened expectations of a near-term interest rate increase. While commodity and stock prices have gradually recovered, the yield curve is now flatter than when the year began. It remains unclear whether the Federal Reserve will increase interest rates this year, but it will likely take several rate hikes to meaningfully alleviate NIM compression. At the same time, the regulatory environment for financial institutions continues to prove very challenging and volatile, with higher capital requirements and increased compliance expenses weighing heavily on profitability. The lack of a discernible economic tailwind is gradually motivating a number of financial institutions to seize the day and find ways to adapt and thrive.

Even in a record-breaking year for money in politics, America’s largest publicly traded companies are steadily moving toward making disclosure and oversight of corporate political spending a common practice. The sixth annual CPA-Zicklin Index of Political Disclosure and Accountability contains this and other key findings, providing for the very first time a year-to-year comparison of the transparency and accountability policies and practices of the entire S&P 500.

CEO succession practices S&P 500 CEO succession

Also non-competes, yes-competes, whistle-blowers, tennis, duration and unicorns.

Above and beyond their traditional financial roles, contemporary corporations are increasingly assuming a normative role, promoting social agendas. According to 2015 Sustainability reports, the normative outreach of contemporary S&P 500 corporations is growing with exuberance, notwithstanding their ultimate commitment to shareholder value.

The Second Circuit Court of Appeals this week handed down two decisions important to investor rights: In re Vivendi, S.A. Securities Litigation (“Vivendi“) and GAMCO Investors, Inc. v. Vivendi Universal, S.A. (“GAMCO“).

For decades public companies have complained that the enormous damage awards threatened in securities class actions renders settlement of even non-meritorious cases rational, promoting the filing of frivolous suits. This argument convinced Congress to enact the Private Securities Litigation Reform Act of 1995 (PSLRA), which includes a variety of measures designed to deter the filing of weak cases. Most importantly, the PSLRA heightened the standard for pleading scienter in securities fraud cases brought under SEC Rule 10b-5. The PSLRA did not, however, heighten the pleading requirement for materiality, a notoriously vague element of plaintiffs’ prima facie case under not only Rule 10b-5, but also Section 11 of the Securities Act of 1933, and which serves to define the scope of public companies’ disclosure obligations more generally. Today, materiality is the main fodder for merits-based critiques of securities class actions.

The value of an incentive compensation award to an executive often is significantly less than the award’s “target value.” Target value for this purpose means the amount “targeted” for payout at the end of an award period if conditions to which the award is subject are satisfied. These conditions may be based on achievement of performance targets or simply based on continued employment during a stipulated period of time.