Corporate governance - Vigil

Who should make decisions for a corporation? And how should decisions about who makes decisions be made? These fundamental governance questions motivate much of corporate law, as lawmakers seek to strike a sensible balance of power between managers, shareholders, creditors, suppliers, and other players in the corporate system. Historically, much of the governance interplay has been retrospective. Shareholders expelled directors or sued their firms when something went wrong, not in anticipation that something bad might occur. Directors defended against (or, more likely, settled) questionable lawsuits as the cases arose; they did not enact structural incentives to discourage specious filings. Yet this is now changing: corporate governance tactics are increasingly shifting from the ex-post to the ex-ante. My new article, Ex-Ante Corporate Governance, explores this trend and illustrates how both shareholders and directors are turning to strategies that might shape the future balance of power instead of just reacting to historical concerns.

As election season enters full swing, with political candidates at all levels actively soliciting campaign donations from individuals and companies, it is an ideal time for all companies to review the policies and procedures in place for political donations. While the SEC’s pay-to-play rules governing registered investment advisers and their “covered associates” are well known, the rules governing swap dealers are more obscure. Specifically, swap dealers and security-based swap dealers are subject to the “pay-to-play” rules of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) respectively, which impose restrictions on the making of campaign contributions to officials of certain government entities with which a swap dealer does business.

Activist investors that push for better returns by urging corporate actions such as sales and acquisitions and cost cutting posted their best returns in months in August, when bets on a wide range of smaller companies paid off.

In an important governance development, on August 3 the influential Business Roundtable (“BRT”) released a 2016 edition of its well-known “Governance Principles” monograph. The new BRT Principles follows closely on the heels of the July 21 release of the “Commonsense Principles of Corporate Governance” (“the Commonsense Principles”), by a diverse, twelve-member coalition of executives of major corporations, asset managers and one shareholder activist. The 2016 edition of the BRT Principles is an important contribution to governance discourse and, together with the Commonsense Principles, is valuable fodder for consideration by the board’s governance committee.

In her new role as the Director of Corporate Solutions for the National Association of Corporate Directors (NACD), Stephanie Mullette is exploring opportunities to forge stronger relationships between the general counsel and the board of directors. “When we think about good governance at an organization, most of us associate those practices with the board of directors,” she explains, “which seems logical as the board is typically the final decision maker. Click here to edit the content

[On August 31, 2016], the Ninth Circuit issued an opinion in SEC v. Jensen. The court held that Rule 13a-14 of the Securities Exchange Act confirms that the SEC has a cause of action against CEOs and CFOs who sign false or misleading certifications. (Op. at 5, 24.) Importantly, the court also held that Section 304 of the Sarbanes-Oxley Act (“SOX 304”) allows the SEC “to seek disgorgement from CEOs and CFOs even if the triggering restatement did not result from misconduct on the part of those officers.” (Op. at 28 (emphasis added).) Although the SEC has taken this position in prior settlements, the Ninth Circuit is the first Court of Appeals to endorse the SEC’s interpretation.

In a new paper, Political Lending, we investigate a previously unexplored channel that could be used by firms to enhance the wealth of individual politicians: the amount and terms of the personal debt taken on by politicians and their close family members. Personal debt is economically significant as liabilities are close to 40% of the overall net worth of the average U.S. congressional member.

Investors’ beliefs about whether a severe market crash is impending can affect the prices and expected returns on risky assets, such as publicly traded stocks. However, beliefs regarding extreme market events are difficult to measure using typical economic data, precisely because they are low-probability outcomes. Observed asset prices are also determined by investor preferences, such as their degree of risk tolerance, as well as by beliefs about future outcomes. Probabilities about extreme events are usually inferred from asset prices, and disentangling probabilities from risk preferences presents problems.

Since Business Roundtable last updated Principles of Corporate Governance in 2012, U.S. public companies have continued to adapt and refine their governance practices within the framework of evolving laws and stock exchange rules. Business Roundtable CEOs continue to believe that the United States has the best corporate governance, financial reporting and securities markets systems in the world. These systems work because they give public companies not only a framework of laws and regulations that establish minimum requirements but also the flexibility to implement customized practices that suit the companies’ needs and to modify those practices in light of changing conditions and standards.

If you glanced through the recent 341-page Regulation SK ‘concept release’ issued by the SEC, you probably missed it. But it’s there, under the heading ‘Plain English’ at the bottom of page 18 and the top of page 19: ‘In 1998, the commission adopted rules intended to improve the readability of prospectuses by promoting clear, concise and understandable disclosure (‘Plain English Rules’). These rules required registrants to write the cover page, summary and risk factors section of prospectuses in plain English and were extended to Exchange Act reports in 2005.’

Washington D.C., Sept. 7, 2016 —

The Securities and Exchange Commission today announced that Sarah G. ten Siethoff has been named Deputy Associate Director in the Division of Investment Management’s Rulemaking Office. As Deputy Associate Director, Ms. ten Siethoff will develop recommendations for rulemaking and other policy initiatives under the Investment Company and Investment Advisers Acts of 1940. Ms. ten Siethoff also will oversee management of key rulemaking projects related to funds and investment advisers.

Compensation committees composed of independent outside directors were created as the check-and-balance guardians against management compensation engorgement. But as the Roman philosopher Cicero famously posed, “Who guards the guards?”

Sports Direct International Plc said it will look into its corporate governance as part of a wider review of labor practices, bowing to investor concerns after Chairman Keith Hellawell faced a call to resign.