Corporate governance - Vigil

Last week, the U.S. Court of Appeals for the Second Circuit affirmed the dismissal of purported shareholder derivative claims alleging that directors of JPMorgan Chase, a Delaware corporation, failed to institute internal controls sufficient to detect Bernard Madoff’s Ponzi scheme. Central Laborers v. Dimon, No. 14-4516 (2d Cir. Jan. 6, 2016) (summary order). The decision represents a forceful application of Delaware law holding that, when directors are protected by standard exculpation provisions in the corporate charter, they will not be liable for alleged oversight failures absent a particularized showing of bad-faith misconduct.

Activist investors continue to attract a big spotlight, but a recent study shows that they may be losing a bit of their shine.

Institutional Shareholder Services Inc. (ISS) recently issued, in the form of Frequently Asked Questions, a further update to its 2016 proxy voting guidelines to outline the types of management-sponsored proxy access provisions that ISS will deem responsive to shareholder-supported proxy access prop...

Following are some of the key trends we are following as we enter 2016, while keeping a weather eye on macro market turmoil:

Statistics released publicly by the Social Science Research Network (SSRN) indicate that, as was the case at the end of each of the eight preceding years, Professor Lucian Bebchuk led SSRN citation rankings for law professors at the end of 2015. As of the end of December 2015, Bebchuk ranked first among all law school professors in all fields in terms of the total number of citations to his work (as well as second in the total number of downloads of his work on SSRN).

America needs to rethink resource extraction by ending subsidies and applying revenues toward responsible investments, such as those of Norges Bank. 

In our paper, A New Measure of Disclosure Quality: The Level of Disaggregation of Accounting Data in Annual Reports, recently featured in the Journal of Accounting Research, we develop a new measure of disclosure quality (DQ), which captures the level of disaggregation of accounting line items in firms’ annual reports, with greater disaggregation indicating higher disclosure quality. This measure is based on the premise that more detailed disclosure gives investors and lenders more information for valuation (Fairfield et al., 1996; Jegadeesh and Livnat 2006) and a higher level of disaggregation enhances the credibility of firms’ financial reports (Hirst et al. 2007; D’Souza et al. 2010).

In recent decades, institutional investors have grown and become more active in influencing corporate management. While this development has often been viewed as salutary from a corporate governance perspective, the implications for product market competition have become deeply troubling. As I show in a new article called Horizontal Shareholding (forthcoming in the Harvard Law Review), this growth in institutional investors means that a small group of institutions has acquired large shareholdings in horizontal competitors throughout our economy, causing them to compete less vigorously with each other.