Corporate governance - Vigil

In a recent blog post on the Conference Board Governance Center’s website, “Activists Are Not the Culprit: So Don’t Shoot the Messenger”, Charles Nathan argues that criticism of short-termism is simultaneously misguided and hopeless. We agree with his ultimate practical advice—that companies have to engage more effectively with their major institutional shareholders to persuade them of the merits of long-term strategies—but he is wrong to dismiss concerns about short-termism and to surrender to its inevitability.

There are two different organizational forms of mutual funds: closed-ended and open-ended. Closed-end funds (CEFs) issue a fixed number of shares that trade on secondary markets, while open-end funds (OEFs) issue and buy back shares at a price equal to the underlying net asset value on a daily basis. When the Investment Company Act, an overarching law governing the mutual fund industry, was enacted in 1940, the dominant form of mutual funds in the U.S. was the CEF. However, by the end of 2014, the total value of net assets managed by U.S. CEFs amounted to less than 2% of the value of net assets managed by OEFs ($289 billion versus $15.9 trillion). The predominance of the open-end structure is puzzling because, from a portfolio management perspective, the closed-end structure has many advantages. For example, it allows fund managers to take illiquid positions without worrying about money flows into or out of their funds.

Over the past several months, many federal agencies have adopted rules significantly increasing the maximum civil monetary penalties (“CMPs”) they can potentially impose. The increased penalty amounts were adopted in response to recent legislation from Congress requiring that federal agencies make adjustments to “catch up” with inflation. The catch up adjustments allow agencies to increase their penalty amounts by as much as 150% of their November 2, 2015 values. In addition, agencies must make annual adjustments to their CMPs for inflation going forward.

In a new paper, Putting Directors’ Money Where Their Mouths Are: A New Approach to Improving Corporate Takeover Dynamics, I put forward a new arrangement to protect shareholders from underpriced bids in takeover situations. Target boards, as stewards of the corporation who typically possess superior information about the desirability of unsolicited bids, could be expected to protect their shareholders from such bids. Unfortunately, because they have a conflict of interest with their shareholders in takeover situations, they tend to reject hostile bids to an excessive degree. Moreover, the current Delaware doctrine is ineffective in monitoring boards’ responses to takeovers, largely because boards might use selective inside information to which the courts lack access and because their judgments are backed by subjective, hard-to-attack legal and financial expert opinions that courts are ill-equipped to challenge.

We examine how directors’ political ideologies, specifically the board-level average of how conservative or liberal directors are, influence boards’ decisions about CEO compensation.

In their recent article, Jeff Schwartz and Alexandra Nelson critique the Securities and Exchange Commission’s cost-benefit analysis accompanying the Conflict Minerals Rule.

The average base salary for a Fortune 500 CIO is $512,800, according to a market trends review by executive recruiter and consulting firm Korn/Ferry International.

U.S. companies’ adoption of proxy access bylaws—which give qualifying shareholders the right to nominate director candidates on the company’s proxy ballot—in response to shareholder pressure has been the big corporate governance story of 2015 and 2016.

Who does a better job in managing money—Democrats or Republicans? We finally have at least a partial answer.