Archive for the ‘Boards of Directors’ Category

Proxy Access, SEC Uncertainty and Related Issues in 2015

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday February 24, 2015 at 9:09 am
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Editor’s Note: The following post comes to us from Bill Libit, Chief Operating Partner concentrating in corporate and securities and municipal finance at Chapman and Cutler LLP, and is based on a Chapman publication by Mr. Libit and Todd Freier; the complete publication, including footnotes, is available here.

The rise of shareholder activism in the realm of corporate governance has increasingly focused on board performance and the right of shareholders to replace those directors who are perceived to underperform. One proposed approach to facilitate the replacement of underperforming directors is to give shareholders direct access to the company’s proxy materials, including permitting the inclusion of a shareholder-proposed director nominee (or slate of nominees) and a statement in support thereof in the company’s proxy statement (which such approach is more commonly referred to as “proxy access”). Although current U.S. securities regulations do not grant shareholders access to company proxy materials, proxy access may be available to shareholders by way of a company’s organizational documents (e.g., articles of incorporation, bylaws or corporate governance guidelines), as permitted by state corporate law.

While proxy access did not garner significant attention over the past two proxy seasons, it is one of the most notable early developments of the 2015 proxy season. It has been reported that shareholders have submitted an estimated 100 proxy access proposals to U.S. companies, a considerable number of which will be voted upon by shareholders over the next several months. Proxy access will very likely be one of the most contentious corporate governance issues this proxy season.

…continue reading: Proxy Access, SEC Uncertainty and Related Issues in 2015

Say on Pay in Italian General Meetings

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday February 24, 2015 at 9:08 am
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Editor’s Note: The following post comes to us from Sabrina Bruno at University of Calabria and Fabio Bianconi at Georgeson Srl.

Our paper, Say on Pay in Italian General Meetings: Results and Future Perspectives, provides an analysis of the empirical data of shareholders’ say on pay in Italian general meetings in 2012, 2013 and 2014. Say on pay, a shareholders’ advisory vote on a company’s remuneration policy, was introduced in Italy following the European Commission (EC) Recommendations N. 2004/913/EC, N. 2005/162/EC, N. 2009/384/EC and N. 2009/385/EC, which allowed member States to choose between implementing a binding or non-binding advisory shareholder vote on a company’s remuneration policy. Like most European states, Italy has opted for the “weaker” non-binding option. Reference is made to both approval votes (by controlling shareholders) and dissenting votes sometimes casted by minority shareholders (mainly, foreign institutional investors). The dissenting vote, in particular, shows a paramount critical value as originating by shareholders who are independent from the directors involved by the resolution—unlike the controlling shareholders who have nominated and subsequently elected the directors (to whom may often be linked by family or economic ties). In recent years, a significant increase in voting by minority shareholders, mainly foreign institutional investors, regarding—but not limited to—remuneration policies has been noted. This is a direct consequence of the procedural changes introduced by the Shareholder Rights’ Directive n. 36/2007/EC (e.g. record date, reduction of threshold to call special meeting, relaxation of proxy voting and solicitation rules, extension of time—prior to general meeting—to release relevant information for the items of the agenda and translation of documents into English, etc.).

…continue reading: Say on Pay in Italian General Meetings

Ensuring the Proxy Process Works for Shareholders

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Friday February 20, 2015 at 9:00 am
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Editor’s Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today’s [February 19, 2015] Roundtable on Proxy Voting is certainly timely since over the course of the next several months, thousands of America’s public companies will hold annual shareholders meetings to elect directors and to vote on many important corporate governance issues. The start of the annual “proxy season” is an appropriate time to consider the annual process by which companies communicate with their shareholders and get their input on a variety of issues. Whether it’s voting on directors, executive compensation matters, or other significant matters, the annual meeting is the principal opportunity for shareholders—the true owners of public companies—to have their voices heard by the corporate managers of their investments. At these annual meetings, shareholders can express their support, or disappointment, with the direction of their companies through the exercise of their right to vote.

…continue reading: Ensuring the Proxy Process Works for Shareholders

Governance Issues in Spin-Off Transactions

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday February 19, 2015 at 9:05 am
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Editor’s Note: The following post comes to us from Stephen I. Glover, Partner and Co-Chair of the Mergers & Acquisitions practice at Gibson, Dunn & Crutcher LLP, and is based on a Gibson Dunn M&A Report by Mr. Glover, Elizabeth Ising, Lori Zyskowski, and Alisa Babitz. The complete publication, including footnotes, is available here.

Spin-off transactions require a focused, intensive planning effort. The deal team must make decisions about how best to allocate businesses, assets and liabilities between the parent and the subsidiary that will be spun-off. It must address complex tax issues, securities law questions and accounting matters, as well as issues related to capital structure, financing and personnel matters. In addition, it must resolve a long list of governance issues, including questions about the composition of the spin-off company board, the importance of mechanisms for dealing with conflicts of interest and the desirability of robust takeover defenses.

…continue reading: Governance Issues in Spin-Off Transactions

What’s New in 2015: Cybersecurity, Financial Reporting and Disclosure Challenges

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday February 18, 2015 at 9:02 am
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Editor’s Note: The following publication comes to us from Weil, Gotshal & Manges LLP and is based on a Weil alert; the complete publication, including footnotes, is available here.

As calendar-year reporting companies close the books on fiscal 2014, begin to tackle their annual reports on Form 10-K and think ahead to reporting for the first quarter of 2015, a number of issues warrant particularly close board and management attention. In highlighting these key issues, we include guidance gleaned from the late Fall 2014 programs during which members of the staff of the Securities and Exchange Commission (SEC) and other regulators delivered important messages for companies and their outside auditors to consider. Throughout this post, we offer practical suggestions on “what to do now.”

While there are no major changes in the financial reporting and disclosure rules and standards applicable to the 2014 Form 10-K, companies can expect heightened scrutiny from regulators, and heightened professional skepticism from outside auditors, regarding compliance with existing rules and standards. Companies can also expect shareholders to have heightened expectations of transparency fostered by notable 2014 events such as major corporate cyber-attacks. Looking forward into 2015, companies will need to prepare for a number of significant changes, including a new auditing standard for related party transactions, a new revenue recognition standard and, for the many companies that have deferred its adoption, a new framework for evaluating internal control over financial reporting (ICFR). The role of the audit committee in helping the company meet these challenges is undiminished—and perhaps, in regulators’ eyes, more important than ever.

…continue reading: What’s New in 2015: Cybersecurity, Financial Reporting and Disclosure Challenges

Why Do Dual-Class Firms Have Staggered Boards?

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday February 18, 2015 at 9:00 am
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Editor’s Note: The following post comes to us from Mira Ganor, professor at the University of Texas School of Law. Recent work from the Program on Corporate Governance about staggered boards includes: How Do Staggered Boards Affect Shareholder Value? Evidence from a Natural Experiment (discussed on the Forum here).

The paper, Why Do Dual-Class Firms Have Staggered Boards?, which was recently made publicly available on SSRN, identifies a relatively high incidence of the combination of two of the strongest anti-takeover mechanisms: a dual-class capital structure with a staggered board. On its face this combination seems superfluous and redundant. If we already have a dual-class capital structure, why do we need a staggered board?

Even more puzzling are the results of the empirical studies of the combined use of staggered boards and dual class capital structures that find a negative correlation between staggered boards and firm value (as measured by Tobin’s Q) similar to the correlation found in firms with single class capital structures. This statistically significant and economically meaningful correlation persists even when controlling for special cases such as founder firms and family firms. Similarly, there are no significant changes in the results when controlling for effective dual class structures, i.e., dual class structures that grant de jure control and not merely the likelihood of de facto control.

…continue reading: Why Do Dual-Class Firms Have Staggered Boards?

Key Considerations for Board and Audit Committee Members

Posted by Mary Ann Cloyd, PricewaterhouseCoopers LLP, on Tuesday February 17, 2015 at 9:05 am
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Editor’s Note: Mary Ann Cloyd is leader of the Center for Board Governance at PricewaterhouseCoopers LLP. This post is based on a PwC’s 2014-2015 Key considerations for board and audit committee members report.

The changing business landscape, technological advances, and significant risks such as cybersecurity continue to present opportunities and challenges for companies today. Directors will want to take a fresh and critical look at their boardroom agenda to ensure it is meeting today’s needs.

PwC’s 2014-2015 edition of Key considerations for board and audit committee members, an annual publication from PwC’s Center for Board Governance, can help enhance the quality of board and management discussions in the coming year.

Here are some highlights:

…continue reading: Key Considerations for Board and Audit Committee Members

Cybersecurity and Privacy Diligence in a Post-Breach World

Posted by Paul Ferrillo, Weil, Gotshal & Manges LLP, on Sunday February 15, 2015 at 9:00 am
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Editor’s Note: Paul A. Ferrillo is counsel at Weil, Gotshal & Manges LLP specializing in complex securities and business litigation. This post is based on a Weil Alert authored by Mr. Ferrillo and Randi Singer; the complete publication, including footnotes, is available here.

“By the time you hear thunder, it’s too late to build the ark.”
— Unknown

In November 2014—just two weeks after Admiral Michael Rogers, director of the National Security Agency, testified to the House Intelligence Committee that certain nation-state actors had the capability of “infiltrating the networks of industrial-control systems, the electronic brains behind infrastructure like the electrical grid, nuclear power plants, air traffic control and subway systems”—Sony Pictures announced it had experienced a major cyber-attack, one many sources believe was likely perpetrated by or on behalf of a nation-state. This destructive cyber-attack was a game-changer for corporate America because it became clear that hackers are not simply focused on credit card numbers or personal information. Indeed, the attack on Sony was designed to steal the Company’s intellectual property, disseminate personal emails of high-ranking executives, and destroy Sony servers and hard drives, rendering them useless.

…continue reading: Cybersecurity and Privacy Diligence in a Post-Breach World

Beyond Term Limits: Using Performance Management to Guide Board Renewal

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday February 13, 2015 at 9:00 am
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Editor’s Note: The following post comes to us from Stan Magidson, President and CEO of the Institute of Corporate Directors and Chair of the Global Network of Directors Institutes. This post is based on portions of an ICD publication titled Beyond Term Limits: Using Performance Management to Guide Board Renewal; the complete survey is available here.

The debate over board renewal is moving into sharper focus in Canada. New public company disclosure requirements demand greater transparency on such things as term limits and other renewal mechanisms, and some large investors are sending the implicit message that companies must renew the board or they will seek to do it instead. The ICD agrees that the composition and renewal of the board are vital processes that demand rigour and analysis and are best undertaken by the board pro-actively.

In the paper Beyond Term Limits: Using Performance Management to Guide Board Renewal we seek to provide a framework for boards to build a renewal process that increases accountability and achieves the right mix of skills and experience to create long-term effectiveness.

…continue reading: Beyond Term Limits: Using Performance Management to Guide Board Renewal

NACD Investor Perspectives: Critical Issues for Board Focus in 2015

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday February 7, 2015 at 9:12 am
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Editor’s Note: The following post comes from Peter Gleason, president of the National Association of Corporate Directors (NACD), and is based on an NACD publication; the complete publication, including appendix and additional resources, is available here.

As part of our mission to advance exemplary board leadership, the National Association of Corporate Directors (NACD) engages in ongoing dialogue with major U.S. institutional investors representing approximately $14 trillion in assets under management. [1] This post reflects NACD’s perspectives on recent conversations, including group and individual discussions with eight leading investors and several roundtable meetings between investors and Fortune 500 committee chairs. Several themes emerged regarding important issues for boards to consider in preparation for the upcoming proxy season:

…continue reading: NACD Investor Perspectives: Critical Issues for Board Focus in 2015

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