Today [November 19, 2014], the Commission considers adopting Regulation Systems, Compliance, and Integrity (or Regulation SCI). These rules and amendments are intended to establish a foundational regulatory framework for the technological market infrastructure that has become increasingly intertwined with the functioning of our securities markets. The rules being considered for adoption today represent a clear improvement over the proposed version, which offered only a hollow promise that our markets would be safer, more resilient, and more stable.
We have written a detailed essay presenting practical vision of the responsibilities of lawyers as both professionals and as citizens at the beginning of the 21st century. Specifically, we seek to define and give content to four ethical responsibilities that we believe are of signal importance to lawyers in their fundamental roles as expert technicians, wise counselors, and effective leaders: responsibilities to their clients and stakeholders; responsibilities to the legal system; responsibilities to their institutions; and responsibilities to society at large. Our fundamental point is that the ethical dimensions of lawyering for this era must be given equal attention to—and must be highlighted and integrated with—the significant economic, political, and cultural changes affecting major legal institutions and the people and institutions lawyers serve.
The Comptroller of the City of New York, who oversees pension funds with a combined $160 billion in assets, recently submitted proxy access shareholder proposals at 75 U.S. public companies as part of its Boardroom Accountability Project.  These 75 companies, representing a wide range of industries and market capitalizations, were targeted based on three “priority issues”: climate change, board diversity, and executive compensation.
“Proxy access” proposals seek to provide shareholders with a mechanism for placing their nominees for director in a company’s proxy statement and on its proxy card, thereby avoiding the cost to a shareholder of sending out its own proxy statement. Under a typical proxy access bylaw, shareholders must hold a specified amount of stock in the company (e.g., 3 percent) for a certain period (e.g., 3 years), in addition to meeting other procedural requirements. Proponents of proxy access argue that it provides shareholders with a cost-effective means of running their own candidates for director, providing all shareholders with greater ability to shape the composition of the board.
In our paper, Revisiting Executive Pay in Family-Controlled Firms, which was recently made publicly available on SSRN, we reexamine executive pay in family-controlled firms and challenge the findings in the existing literature.
According to the prior literature, family executives of family-controlled firms receive lower compensation than non-family executives. Using 82 family-controlled firms in the U.S. in 1988, McConaughy (2000) report that family CEOs are paid lower compensation than non-family CEOs. Likewise, Gomez-Mejia, Larraza-Kintana, and Makri (2003) show similar findings using a sample of 253 family-controlled firms in the U.S. during 1995-98.
Motions to dismiss have been called “the main event” in securities class actions. They are filed in over 90% of securities class actions and they result in dismissal close to 50% of the time they are filed. In contrast, out of 4,226 class actions filed between 1995 and 2013, only 14 were resolved through a trial, and of those, only five resulted in verdicts for the defendant. In between a denial of a motion to dismiss and a trial are i) discovery, ii) opposition to class certification, iii) motion for summary judgment, iv) mediation, and v) settlement. Unfortunately for defendants in securities class actions, class certification is granted in whole or in part 84% of the time, and there is no summary judgment decision at all over 90% of the time. Thus, for most defendants in securities class actions, a denial of a motion to dismiss usually results in writing a settlement check, often after years of costly discovery. Defendants that fail to give adequate attention to motions to dismiss are shortchanging the very best opportunity they have to avoid what may otherwise become multi-year, expensive litigation.
The Basel Committee on Banking Supervision (BCBS) last month proposed revisions to its operational risk capital framework. The proposal sets out a new standardized approach (SA) to replace both the basic indicator approach (BIA) and the standardized approach (TSA) for calculating operational risk capital. In our view, four key points are worth highlighting with respect to the proposal and its possible implications:
…continue reading: Operational Risk Capital: Nowhere to Hide
“[T]he fact that a federal statute has been violated and some person harmed does not automatically give rise to a private cause of action in favor of that person.”
—Touche Ross & Co. v. Redington, 442 U.S. 560, 568, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979).
In June 2008, I posted a short piece on this website entitled A Different Perspective on CSX/TCI: Should Courts Reject a Private Right of Action Under Section 13(d)? In that posting, I questioned whether, after Alexander v. Sandoval, 532 U.S. 275 (2001), a private right of action existed to enforce the Williams Act, in that case, section 13(d) of the 1934 Securities and Exchange Act. It drew a grand total of zero comments.
Let’s fast forward to the lawsuit du jour. Allergan and one of its employees who was a shareholder that sold some shares while Bill Ackman was buying and before Valeant announced its intent to acquire Allergan have sued Ackman in the United States District Court for the Central District of California for allegedly violating Rule 14e-3. Judge David O. Carter concluded that Allergan did not have standing to sue Ackman but that that a selling shareholder did have standing and that there were “serious questions” that need to be decided by a jury to determine whether Ackman violated Rule 14e-3. A number of respected commentators have weighed in on the merits of the case and about a potential class action lawsuit to recoup Ackman’s “illegal” profits.
ISS and Glass Lewis, two influential proxy advisory firms, have both released updates to their policies that govern recommendations for how shareholders should cast their votes on significant ballot items for the 2015 proxy season, including governance, compensation and environmental and social matters.
ISS policy updates are effective for annual meetings after February 1, 2015. We understand that the new Glass Lewis policies are effective for annual meetings after January 1, 2015, but clarifications to existing policies are effective immediately.
Economists have long worried that a stock market listing can induce short-termist pressures that distort the investment decisions of public firms. Back in 1985 Narayanan wrote in the Journal of Finance that “American managers tend to make decisions that yield short-term gains at the expense of the long-term interests of the shareholders.” More recently, a growing number of commentators blame the sluggish performance of the U.S. economy since the 2008–2009 financial crisis on short-termism. For example, in a recent Harvard Business Review article, Barton and Wiseman, global managing director at McKinsey & Co. and CEO of the Canada Pension Plan Investment Board, respectively, argue that “the ongoing short-termism in the business world is undermining corporate investment, holding back economic growth.”
Yet, systematic empirical evidence of widespread short-termism has proved elusive, largely because identifying its effects is challenging. A chief challenge is the difficulty of finding a plausible counterfactual for how firms would invest absent short-termist pressures. In our paper, Corporate Investment and Stock Market Listing: A Puzzle?, which is forthcoming at the Review of Financial Studies, we address this difficulty by comparing the investment behavior of stock market-listed firms to that of comparable privately held firms, using a novel panel dataset of private U.S. firms covering more than 400,000 firm years over the period 2001–2011. Building on prior work, our key identification assumption is that, on average, private firms suffer from fewer agency problems and, in particular, are subject to fewer short-termist pressures than are their listed counterparts. This assumption is motivated by the fact that private firms are often owner managed and, even when not, are both illiquid and typically have highly concentrated ownership. These features encourage their owners to monitor management more closely to ensure long-term value is maximized.
On November 7, 2014, the Antitrust Division of the U.S. Department of Justice brought a lawsuit against Flakeboard America Limited, its foreign parents, and SierraPine, charging that Flakeboard exercised operational control over SierraPine prior to expiration of the statutory pre-merger waiting period, prematurely assuming beneficial ownership of the target assets in violation of the Hart-Scott-Rodino Act and conspiring in violation of Section 1 of the Sherman Act. Flakeboard and SierraPine settled the case, with each agreeing to pay $1.9 million in HSR fines and Flakeboard disgorging an additional $1.15 million in unlawful profits.