Posts Tagged ‘Board independence’

Delaware Decision Reinforces Need for Proper Procedure in Squeeze-Out Merger

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday March 20, 2014 at 9:04 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from David N. Shine, partner and co-head of the Mergers and Acquisitions Practice at Fried, Frank, Harris, Shriver & Jacobson LLP, and is based on a Fried Frank publication.

The private equity firm that was the controlling stockholder of Orchard Enterprises effected a squeeze-out merger of the minority public stockholders. Two years later, a Delaware appraisal proceeding determined that Orchard’s shares at the time of the merger were worth more than twice as much as was paid in the merger. Public shareholders then brought suit, claiming that the directors who had approved the merger and the controlling stockholder had breached their fiduciary duties and should be held liable for damages. The Orchard decision [1] issued by the Delaware Chancery Court this past Friday adjudicates the parties’ respective motions for summary judgment before trial.

…continue reading: Delaware Decision Reinforces Need for Proper Procedure in Squeeze-Out Merger

Top 10 Topics for Directors in 2014

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday December 31, 2013 at 9:00 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Kerry E. Berchem, partner and co-head of the corporate practice group at Akin Gump Strauss Hauer & Feld LLP. This post is based on an Akin Gump corporate alert primarily drafted by Tracy Crum and N. Kathleen Friday; the full publication, including footnotes, is available here.

U.S. public companies face a host of challenges as they enter 2014. Here is our list of hot topics for the boardroom in the coming year:

  • 1. Oversee strategic planning amid continuing fiscal uncertainty and game-changing advances in information technology
  • 2. Address cybersecurity
  • 3. Set appropriate executive compensation as shareholders increasingly focus on pay for performance and activists target pay disparity
  • 4. Address the growing demands of compliance oversight
  • 5. Assess the impact of health care reform on the company’s benefit plans and cost structure
  • 6. Determine whether the CEO and board chair positions should be separated
  • 7. Ensure appropriate board composition in light of increasing focus on director tenure and diversity
  • 8. Cultivate shareholder relations and strengthen defenses as activist hedge funds target more companies
  • 9. Address boardroom confidentiality
  • 10. Consider whether to adopt a forum selection bylaw

…continue reading: Top 10 Topics for Directors in 2014

Nasdaq Proposes Tweaks to Compensation Committee Independence Requirements

Editor’s Note: Arthur H. Kohn is a partner at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum by Michael Albano, Mary Alcock, and Jonathan Reinstein.

On November 26, 2013, the Nasdaq Stock Market filed a proposal to amend its listing rules implementing Rule 10C-1 of the Securities Exchange Act of 1934, governing the independence of compensation committee members. [1] Currently, Nasdaq Listing Rule 5605(d)(2)(A) and IM-5605-6 employ a bright line test for independence that prohibits compensation committee members from accepting directly or indirectly any consulting, advisory or other compensatory fees from the company or any subsidiary. The requirement is subject to exceptions for fees received for serving on the board of directors (or any of its committees) or fixed amounts of compensation under a retirement plan for prior service with the company provided that such compensation is not contingent on continued service.

…continue reading: Nasdaq Proposes Tweaks to Compensation Committee Independence Requirements

Florida SBA 2013 Corporate Governance Annual Summary

Editor’s Note: Michael McCauley is Senior Officer, Investment Programs & Governance, of the Florida State Board of Administration (the “SBA”). This post is based on an excerpt from the SBA’s 2013 Corporate Governance Report by Mr. McCauley, Jacob Williams and Lucy Reams. Mr. Williams and Ms. Reams are Corporate Governance Manager and Senior Corporate Governance Analyst, respectively, at the SBA.

The Florida State Board of Administration (the “SBA”) takes steps on behalf of its participants, beneficiaries, retirees, and other clients to strengthen shareowner rights and promote leading corporate governance practices among its equity investments in both U.S. and international capital markets. The SBA adopts and reports clearly stated, understandable, and consistent policies to guide its approach to key issues. These policies are disclosed to all clients and beneficiaries.

The SBA supports the adoption of internationally recognized governance practices for well-managed corporations including independent boards, transparent board procedures, performance-based executive compensation, accurate accounting and audit practices, and policies covering issues such as succession planning and meaningful shareowner participation. The SBA also expects companies to adopt rigorous stock ownership and retention guidelines, and implement well designed incentive plans with disclosures that clearly explain board decisions surrounding executive compensation.

…continue reading: Florida SBA 2013 Corporate Governance Annual Summary

Reputation Incentives of Independent Directors

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday November 25, 2013 at 9:14 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Ronald Masulis, Professor of Finance at the Australian School of Business, University of New South Wales, and Shawn Mobbs of the Department of Finance at the University of Alabama.

Reputation concerns create strong incentives for independent directors to be viewed externally as capable monitors as well as to retain their most valuable directorships. In our paper, Reputation Incentives of Independent Directors: Impacts on Board Monitoring and Adverse Corporate Actions, which was recently made publicly available on SSRN, we extend this literature significantly by examining the effects of differential reputation incentives across firms that arise when a director holds multiple directorships.

Firms having boards composed of a greater portion of independent directors for whom this directorship represents one of their most prestigious are associated with firm actions known to reward directors and are negatively associated with firm actions known to be costly to director reputations. Specifically, they are associated with a lower likelihood of covenant violations, earnings management, earnings restatements, shareholder class action suits and dividend reductions. In addition, we also find they are positively associated with stock repurchases and dividend increases.

…continue reading: Reputation Incentives of Independent Directors

Understanding the Board of Directors after the Financial Crisis

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday November 21, 2013 at 9:22 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Joseph A. McCahery and Erik P. M. Vermeulen, both of Tilburg University Law School.

Research on the composition and structure of the board of directors is a thriving subject in the aftermath of the financial crisis. The discussion thus far has assumed that finding the right board members is extremely important because they tend to enhance corporate strategy and decision-making. Consider the case of Apple’s board. Following Steve Jobs’ return to the firm in 1997, he understood well the important role of the board of directors to both improve company productivity and build relationships with its suppliers and customers. In order for the board of directors to become a competitive advantage and help carry Apple forward, its members needed to have a thorough understanding of the computer industry and the firm’s products. Accordingly, a change in the composition of the board of directors was arguably a necessary first step to bring back focus, relevance and interaction (with the outside world) to the company in its journey to introduce disruptive innovations and creative products to its customers. The result was impressive: Between August 6th, 1997 (the day the “new” board was introduced) and August 23rd, 2011 (the last day of Jobs as the CEO of Apple), the stock price soared from $25.25 to $360.30, increasing 1,327 per cent.

…continue reading: Understanding the Board of Directors after the Financial Crisis

Is the Independent Director Model Broken?

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday November 14, 2013 at 9:28 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Roberta S. Karmel, Centennial Professor of Law at Brooklyn Law School, and is based on Professor Karmel’s paper, forthcoming in the Seattle University Law Review.

At common law, an interested director was barred from participating in corporate decisions in which he had an interest, and therefore “disinterested” directors became desirable. This concept of the disinterested, director developed into the model of an “independent director” and was advocated by the Securities and Exchange Commission (SEC or Commission) and court decisions as a general ideal in a variety of situations. The SEC’s view of the need for independent directors should be understood in the context of Adolph Berle’s theory of the 1930s that shareholders had abdicated control of public corporations to corporate managers, and fiduciary duties needed to be imposed upon corporate boards in order to compensate for this loss of shareholder control. Berle’s writings laid the foundation for shareholder primacy as the theory of the firm, a theory embraced by the SEC, which viewed itself as a surrogate for investors.

The SEC has generally succeeded in imposing its corporate governance views in the wake of scandals. Following the sensitive payments enforcement program of the 1970s, the SEC embarked on an activist corporate governance reform program. During the merger and acquisition frenzy of the 1980s, the SEC used the Williams Act to foster the view that the market for corporate control constrained incompetent managers. After the bursting of the technology bubble in 2000, and the financial reporting scandals that ensued, the SEC was able to incorporate its views on independent directors into the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley). Following the financial crisis of 2008, the SEC further enforced its views on the requirements for independent directors in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

The composition and behavior of securities markets and investors has changed drastically since the SEC was established in 1934. Yet, the SEC has persisted in its path-dependent view that independent directors, ever more stringently defined, should dominate the boards of public companies.

…continue reading: Is the Independent Director Model Broken?

Remarks to the Independent Directors Council Annual Fall Meeting

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday November 13, 2013 at 9:21 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Norm Champ, director of the Division of Investment Management at the U.S. Securities and Exchange Commission. This post is based on Mr. Champ’s remarks at an Independent Directors Council Annual Fall Meeting; the full text, including footnotes, is available here. The views expressed in this post are those of Mr. Champ and do not necessarily reflect those of the Securities and Exchange Commission, the Division of Investment Management, or the Staff.

It is a privilege to appear before a group that is so important to the strength and integrity of the fund industry. Independent directors have significant responsibilities, and it requires tremendous effort and time on your part to do your job well. I applaud your efforts to learn from the professionals who are participating in this conference. The insights of the panels you heard yesterday and this morning, and those you will hear after lunch will provide valuable information.

The importance of mutual funds in the lives of American investors is clear. Mutual funds hold close to $14 trillion of the hard earned savings of over 53 million American households. The majority of Americans access the markets through mutual funds. They invest in funds, and hope their investments will grow, for many reasons—to make a down payment on a house, to save for a college education, and ultimately to pay for a retirement.

…continue reading: Remarks to the Independent Directors Council Annual Fall Meeting

The Autonomous Board

Editor’s Note: John Wilcox is chairman of Sodali, a co-chair of ShareOwners.org, and former Head of Corporate Governance at TIAA-CREF. This post is based on a Sodali publication by Mr. Wilcox.

“Can we end the long tradition of the boardroom as a sealed chamber…? Can we move toward more transparency about the boardroom process…?”
—Leon Panetta
[1]

Companies preparing for their annual shareholder meetings in 2014 should be aware of a new governance challenge: opposition to the election of individual directors is becoming a strategy of choice not only for activists but for “responsible” investors seeking change at portfolio companies. Withholding (or threatening to withhold) votes for incumbent directors, supporting short slate campaigns, or voting for dissident candidates in proxy contests are no longer considered hardball tactics for use only in extreme cases. Institutional investors who in the past would routinely support incumbent directors have learned an important lesson from the success of hedge funds and activists: targeting directors gets the immediate attention of companies, promotes dialogue, attracts media coverage and increases pressure on other investors to support shareholder initiatives.

…continue reading: The Autonomous Board

Director Independence: Interplay Between Delaware Law and Exchange Rules

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday October 7, 2013 at 9:17 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Jay P. Lefkowitz, senior litigation partner and member of the Global Management Executive Committee at Kirkland & Ellis LLP, and is based on a Kirkland publication by Mr. Lefkowitz, Andrew B. Clubok, Yosef J. Riemer, and Matthew Solum. 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.

The MFW decision that was issued earlier this year by the Chancellor of the Delaware Chancery Court has been the subject of much discussion with respect to transactions involving controlling shareholders. [1] But the decision also addressed another important topic: the interplay between the exchange rules and Delaware law with respect to director independence. MFW seemed to align the Delaware law test for director independence with the specific, detailed independence requirements in the exchange rules, but Delaware decisions since MFW continue to reflect highly fact-intensive inquiries that look beyond the bright-line exchange rules. Accordingly, it is important to consider both the exchange rules and the latest guidance from Delaware courts when assessing director independence.

…continue reading: Director Independence: Interplay Between Delaware Law and Exchange Rules

Next Page »
 
  •  » A "Web Winner" by The Philadelphia Inquirer
  •  » A "Top Blog" by LexisNexis
  •  » A "10 out of 10" by the American Association of Law Librarians Blog
  •  » A source for "insight into the latest developments" by Directorship Magazine