Corporate governance - Vigil

Tim Koller and Marc Goedhart, two of the coauthors of Valuation, McKinsey’s handbook on corporate valuation (now in its sixth edition), explain why focusing on current shareholders isn’t really a requirement of good business. A McKinsey & Company article.

The Delaware Supreme Court has issued its much anticipated opinion in RBC Capital Markets v. Joanna Jervis, affirming all of the principal holdings of the Court of Chancery’s series of decisions in In re Rural/Metro Corp. S’holder Litig. The opinion speaks to a multitude of issues, but we focus on the breach of fiduciary duty and aiding and abetting liability claims in this post.

In an October 2015 post, I posed the question: Will a New Paradigm for Corporate Governance Bring Peace to the Thirty Years’ War? As we approach the end of 2015, I thought it would be useful to note some of the most cogent recent developments on which the need, and hope, for a new paradigm is based. These developments include, among other things, the accumulation of a critical mass of academic research that discredits the notion that short-termism, activist attacks and shareholder-centric corporate governance tend to create rather than destroy long-term value.

Proxy advisory firm Glass Lewis recently issued its U.S. voting policy guidelines for the 2016 proxy season. The guidelines include a few key changes, a summary of which is outlined below. Conflict...

In our paper, Disclosure Standards and the Sensitivity of Returns to Mood, forthcoming in the Review of Financial Studies, we provide evidence that high-quality disclosure standards are negatively associated with return-mood sensitivity (RMS). Using daily data, we estimate RMS for each country-year as the association between market returns and deseasonalized cloudiness in the city that hosts a country’s stock exchange. We interpret RMS as reflecting noise in returns because short-term moods are unlikely to convey fundamental information.

Dow Chemical and DuPont are in advanced talks to merge, in a tie-up that would cap off the strongest year ever for takeovers and come amid a surge of deal activity in the agriculture industry.

The Second Circuit’s decision in United States v. Newman has led many commentators to predict fewer insider trading enforcement actions, a prediction quickly validated by Preet Bharara, United States Attorney for Manhattan, who has both unwound guilty pleas and dropped active prosecutions. For Newman’s critics and defenders alike, it is obvious that insider trading prosecution in the stock market is now in a period of stumbling retreat.

The traditional view in the finance literature is that shareholders that hold a large stake in a company are more likely to take costly actions, such as initiating a proxy fight or confronting management, while small shareholders will enjoy a free ride. In our recent paper, entitled Which Shareholders Benefit from Low Cost Monitoring Opportunities? Evidence from Say on Pay, we examine which shareholders are likely to take advantage of a low-cost monitoring opportunity, specifically, the Say-On-Pay vote (SOP).

In preparation for the 2016 proxy season, proxy advisors Institutional Shareholder Services (ISS) and Glass Lewis & Co. have issued updates to their proxy voting guidelines, which take effect for annual meetings held on or after Feb. 1, 2016 (ISS) and Jan. 1, 2016 (Glass Lewis). [1] The policy changes and their expected impact on issuers are discussed in more detail in Alliance Advisors’ November newsletter.

Carl Icahn (Trades, Portfolio) disclosed a 12.1% stake in Pep Boys (NYSE:PBY) on Friday, a company that has already agreed to sell itself and which has at least three Mario Gabelli (Trades,Portfolio) directors on its board.