Archive for the ‘Practitioner Publications’ Category

Elements of an Effective Whistleblower Hotline

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday October 25, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Bill Libit, Chief Operating Partner concentrating in the corporate and securities area at Chapman and Cutler LLP, and is based on a Chapman publication by Mr. Libit, Walt Draney, and Todd Freier.

It has been reported that approximately two-thirds of companies in the U.S. are affected by fraud, losing an estimated 1.2% of revenue each year to such activity. [1] Indirect costs associated with fraud, such as reputational damage and costs associated with investigation and remediation of the fraudulent acts, may also be substantial. When and where implemented, an internal whistleblower hotline is a critical component of a company’s anti-fraud program, as tips are consistently the most common method of detecting fraud. [2] Consequently, it is essential that companies consider implementing, if they have not already done so, effective whistleblower hotlines. [3] To the extent hotlines are currently in place, companies need to evaluate them to ensure that the hotlines are operating as intended and are effective in preventing and identifying unethical or potentially unlawful activity, including corporate fraud, securities violations and employment discrimination or harassment. This evaluation should be a key element of every company’s assessment of its compliance and ethics program.

…continue reading: Elements of an Effective Whistleblower Hotline

ISS Proposes Equity Plan Scorecards

Posted by Carol Bowie, Institutional Shareholder Services Inc., on Friday October 24, 2014 at 9:04 am
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Editor’s Note: Carol Bowie is Head of Americas Research at Institutional Shareholder Services Inc. (ISS). This post relates to draft policy changes to the ISS Equity Plan Scorecard issued by ISS on October 15, 2014.

As issues around cost transparency and best practices in equity-based compensation have evolved in recent years, ISS proposes updates to its Equity Plans policy in order to provide for a more nuanced consideration of equity plan proposals. As an alternative to applying a series of standalone tests (focused on cost and certain egregious practices) to determine when a proposal warrants an “Against” recommendation, the proposed approach will incorporate a model that takes into account multiple factors, both positive and negative, related to plan features and historical grant practices.

Feedback from clients and corporate issuers in recent years, beginning with the 2011-2012 ISS policy cycle, indicates strong support for the proposed approach, which incorporates the following key goals:

…continue reading: ISS Proposes Equity Plan Scorecards

Updated CD&A Template Aims to Improve Communication

Posted by Matt Orsagh, CFA Institute, on Friday October 24, 2014 at 9:02 am
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Editor’s Note: Matt Orsagh is a director at CFA Institute.

In 2011, CFA Institute released the Compensation Discussion and Analysis (CD&A) Template as a tool to help companies produce a more succinct and informative CD&A that served the needs of both companies and investors. At the time there were complaints from both issuers and investors that the typical CD&A was seen by too many issuers as a compliance document that was too lengthy and too opaque to serve as the communication tool investors desired.

In the intervening years disclosures in the CD&A have improved a great deal, due in part to increased engagement between issuers and investors, a better understanding of disclosure best practices by issuers, and more willingness by some issuers to experiment with more creative ways of telling their stories.

…continue reading: Updated CD&A Template Aims to Improve Communication

Shareholder Returns of Hostile Takeover Targets

Posted by Sabastian V. Niles, Wachtell, Lipton, Rosen & Katz, on Friday October 24, 2014 at 9:00 am
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Editor’s Note: Sabastian V. Niles is counsel in the Corporate Department at Wachtell, Lipton, Rosen & Katz, where he focuses on rapid response shareholder activism, takeover defense and corporate governance. This post is based on a Wachtell Lipton firm memorandum by Mr. Niles and Eric S. Robinson.

This morning [October 22, 2014], Institutional Shareholder Services (ISS) issued a note to clients entitled “The IRR of ‘No’.” The note argues that shareholders of companies that have resisted hostile takeover bids all the way through a proxy fight at a shareholder meeting have incurred “profoundly negative” returns following those shareholder meetings, compared to alternative investments. ISS identified seven cases in the last five years where bidders have pursued a combined takeover bid and proxy fight through a target shareholder meeting, and measured the mean and median total shareholder returns from the dates of the contested shareholder meeting through October 20, 2014, compared to target shareholders having sold at the closing price the day before the contested meeting and reinvesting in the S&P 500 index or a peer group.

A close look at the ISS report shows that it has at least two critical methodological and analytical flaws that completely undermine its conclusions:

…continue reading: Shareholder Returns of Hostile Takeover Targets

Statement on Credit Risk Retention

Posted by Mary Jo White, Chair, U.S. Securities and Exchange Commission, on Wednesday October 22, 2014 at 5:05 pm
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Editor’s Note: Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s remarks at a recent open meeting of the SEC, available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today [October 22, 2014], the Commission will consider the recommendation of the staff to adopt, jointly with five other federal agencies, final rules for the asset-backed securities market that will require securitizers to keep “skin in the game.” Specifically, we will consider rules to require certain securitizers to retain no less than five percent of the credit risk of the assets they securitize. These rules, which are mandated by Section 941 of the Dodd-Frank Act, are part of a strong and comprehensive package of reforms that will address some of the most serious issues exposed in the asset-backed securities market that contributed to the financial crisis.

…continue reading: Statement on Credit Risk Retention

Proxy Access in the US

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday October 22, 2014 at 9:02 am
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Editor’s Note: The following post comes to us from Matt Orsagh, director at CFA Institute, and is based on the summary of a CFA publication, titled Proxy Access in the United States: Revisiting the Proposed SEC Rule; the complete publication is available here.

In this summary of CFA Institute findings, we take a brief look at the history of proxy access, discuss the pertinent academic studies, examine the benefits and limits of cost–benefit analysis, analyze the use of proxy access in non-US jurisdictions, and draw some conclusions.

How We Got Here

Proxy access refers to the ability of shareowners to place their nominees for director on a company’s proxy ballot. This right is available in many markets, though not in the United States. Supporters of proxy access argue that it increases the accountability of corporate boards by allowing shareowners to nominate a limited number of board directors. Afraid that special-interest groups could hijack the process, opponents of proxy access are also concerned about its cost and are not convinced that proxy access would improve either company or board performance.

…continue reading: Proxy Access in the US

Key Privacy Issues in M&A Transactions

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday October 21, 2014 at 9:29 am
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Editor’s Note: The following post comes to us from Paul A. Chandler, Counsel at Mayer Brown LLP, and is based on a Mayer Brown Legal Update by Mr. Chandler and Lei Shen.

Many merger and acquisition (“M&A”) agreements lack specific representations and warranties regarding privacy issues. Often, this is because deal lawyers do not recognize potential privacy risks where the target company (the “Target”) lacks e-commerce websites or retail stores that collect consumer data. Nonetheless, significant privacy issues may exist even if the Target is a traditional “brick and mortar” business. Early attention to privacy issues in M&A transaction planning and due diligence can mitigate risks for both buyers and sellers.

…continue reading: Key Privacy Issues in M&A Transactions

Delaware Reaffirms that Corporate Control Lies in the Boardroom

Editor’s Note: Edward D. Herlihy is a partner and co-chairman of the Executive Committee at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton memorandum authored by Mr. Herlihy, William SavittDavid E. Shapiro, and Ryan A. McLeod. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

In an important ruling [October 14, 2014], the Delaware Court of Chancery dismissed a merger challenge on the pleadings and reaffirmed the primacy of director authority, the significance of the vote of disinterested stockholders, and the vibrancy of the business judgment rule. In re KKR Fin. Holdings LLC S’holder Litig., C.A. No. 9210-CB (Del. Ch. Oct. 14, 2014).

…continue reading: Delaware Reaffirms that Corporate Control Lies in the Boardroom

FINRA To Propose Market Structure Actions

Posted by Annette L. Nazareth, Davis Polk & Wardwell LLP, on Saturday October 18, 2014 at 7:18 am
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Editor’s Note: Annette Nazareth is a partner in the Financial Institutions Group at Davis Polk & Wardwell LLP, and a former commissioner at the U.S. Securities and Exchange Commission. The following post is based on a Davis Polk client memorandum.

On September 19, 2014, the Financial Industry Regulatory Authority (“FINRA”) announced that its Board of Governors (the “Board”) approved a series of regulatory initiatives primarily focused on equity and fixed income market structure issues. This is a direct response by FINRA to two important speeches this summer by SEC Chair Mary Jo White, in which she articulated an ambitious agenda of market structure reforms. [1]

The Board authorized FINRA staff to prepare Regulatory Notices soliciting comments or issuing guidance on the following:

…continue reading: FINRA To Propose Market Structure Actions

APG Asset Management Issues Remuneration Guidelines

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday October 17, 2014 at 9:06 am
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Editor’s Note: The following post comes to us from David Shammai, Senior Governance Specialist and Martijn Olthof, Senior Portfolio Manager, both at APG Asset Management. APG’s remuneration guidelines are available here.

One of the world largest fiduciary asset managers, APG recently issued remuneration guidelines that will be applied to its portfolio of European listed companies. APG believes that the innovation in the new guidelines is twofold. First in that they are based on its practical experience of company engagements and therefore reflect an integrated investment and governance outlook. More specifically, the guidelines place a clear emphasis on value creation. By issuing the guidelines APG is aiming to make its ongoing discussions with companies around pay more effective, thus freeing up time for it to focus on other important corporate governance areas such as board structure, succession and nominations.

…continue reading: APG Asset Management Issues Remuneration Guidelines

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