Individual- and family-owned businesses are a vital part of our economy. If you or your family owns such a company you understand how important the company’s success is to your personal wealth and to future generations. If you’re a nonfamily executive at a family company, you also recognize that its profitability and resilience is vital to your job security and financial well-being.
Archive for the ‘Practitioner Publications’ Category
Recently issued SEC staff guidance addresses concerns that have been raised about proxy advisory firms by emphasizing that the investment adviser that retains and pays a proxy advisory firm is uniquely positioned to monitor the proxy advisory firm and is required to actively oversee the firm if it wants to benefit from the firm’s services to discharge its fiduciary duty. As a result of the greater oversight exercised by all of their investment adviser clients, the proxy advisory firms will presumably respond by enhancing their policies, processes and procedures, as well as the transparency of these policies, processes and procedures. In turn, the corporate community may indirectly benefit to some degree.
Over the past several years, judicial decisions involving Citizens United, McCutcheon and SpeechNow.org have lifted caps on total political contributions, and also expanded the number of avenues through and amounts which companies can lawfully contribute to political campaigns. Corporate donations can still be made to recipients like political action committees and third-party organizations (such as trade associations). Now, however, companies can also contribute directly to campaigns and to organizations that support candidates and political causes, including Section 501(c)(4) social welfare organizations.
The U.S. Securities and Exchange Commission (SEC or Commission) issued a cease and desist order on June 16, 2014 (the Order) against Paradigm Capital Management, Inc. (Paradigm) and its founder, Director, President and Chief Investment Officer, Candace King Weir (Weir).  The Order alleged that Weir caused Paradigm’s hedge fund client, PCM Partners L.P. II (Fund), to engage in certain transactions (Transactions) with a proprietary account (Trading Account) at the Fund’s prime broker, C.L. King & Associates, Inc. (C.L. King). Paradigm and C.L. King were allegedly under the common control of Weir. The Order further alleged that, because of Weir’s personal interest in the Transactions and the fact that the committee designated to review and approve the Transactions on behalf of the Fund was conflicted, Paradigm failed to provide the Fund with effective disclosure and failed effectively to obtain the Fund’s consent to the Transactions, as required under the Investment Advisers Act of 1940 (Advisers Act).
Following a merger (or consolidation), Section 262 of the Delaware General Corporation Law (“DGCL”) requires notice to be sent to any stockholder of record who has demanded appraisal informing that stockholder that the transaction was accomplished. For long-form mergers approved pursuant to a stockholder vote (i.e., under Section 251(c) of the DGCL), Section 262(d)(1) requires notice of the effective date of the merger to be sent within 10 days of the merger becoming effective. For mergers approved pursuant to Sections 228, 251(h), 253 or 267 of the DGCL (e.g., mergers approved by written consent, certain mergers following a tender or exchange offer, short-form mergers between parent and subsidiary corporations and short-form mergers between a non-corporation parent entity and its subsidiary corporation) the notice of the effective date is governed by Section 262(d)(2), which sets its own timing requirements.
Today’s [July 23, 2014] reforms will fundamentally change the way that most money market funds operate. They will reduce the risk of runs in money market funds and provide important new tools that will help further protect investors and the financial system in a crisis. Together, this strong reform package will make our financial system more resilient and enhance the transparency and fairness of these products for America’s investors.
This has been called “the heyday of hedge fund activism,” and it is certainly true that today boards of directors must constantly be vigilant to the many and varied ways in which activist investors can approach a target. Commencing a proxy fight long has been an activist tactic, but it is now being used in a different way. Some hedge funds are engaging in proxy fights in order to exercise direct influence or control over the board’s decision-making as opposed to clearing the way for a takeover of the target company or seeking a stock buyback. In some cases, multiple hedge funds acting in parallel purchase enough target shares to hold a voting bloc adequate to elect their director nominees to the board. A recent Delaware case addressed a situation in which a board resisted a threat from hedge funds acting together in this manner. The court determined that a shareholder rights plan, or poison pill, could, in certain circumstances, be an appropriate response. As a general matter, boards of directors facing activist share accumulations and threats of board takeovers can take comfort in this latest affirmation of the respect accorded to an independent board’s informed business judgment.
Today [July 23, 2014], the Commission considers adopting long-considered reforms to the rules governing money market funds. I commend the hard work of the staff, particularly the Division of Investment Management and the Division of Economic and Risk Analysis (“DERA”), who worked tirelessly to present these thoughtful and deliberate amendments. It is well known that the journey to arrive at the amendments considered today was a difficult one, and I can confidently say that this has been, at times, perhaps one of the most flawed and controversial rulemaking processes the Commission has undertaken.
About a year ago, Professor Lucian Bebchuk took to the pages of the Wall Street Journal to declare that he had conducted a study that he claimed proved that activist hedge funds are good for companies and the economy. Not being statisticians or econometricians, we did not respond by trying to conduct a study proving the opposite. Instead, we pointed out some of the more obvious methodological flaws in Professor Bebchuk’s study, as well as some observations from our years of real-world experience that lead us to believe that the short-term influence of activist hedge funds has been, and continues to be, profoundly destructive to the long-term health of companies and the American economy.
Where do we go from here? As we mark another milestone in regulatory reform with the fourth anniversary of the enactment of the Dodd-Frank Act, it strikes us that although most studies required to be undertaken by the Act have been released and final rules have been promulgated addressing many of the most important regulatory measures, we are still living with a great deal of regulatory uncertainty and extraordinary regulatory complexity.