Posts Tagged ‘Board independence’

Shareholder Proposal Developments During the 2014 Proxy Season

Posted by Amy L. Goodman, Gibson, Dunn & Crutcher LLP, and John F. Olson, Gibson, Dunn & Crutcher LLP and Georgetown Law Center, on Wednesday July 2, 2014 at 9:02 am
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Editor’s Note: Amy Goodman is a partner and co-chair of the Securities Regulation and Corporate Governance practice group at Gibson, Dunn & Crutcher LLP and John Olson is a founding partner of Gibson, Dunn & Crutcher’s Washington, D.C. office and a visiting professor at the Georgetown Law Center. The following post is based on a Gibson Dunn alert; the complete publication, including footnotes, is available here.

This post provides an overview of shareholder proposals submitted to public companies during the 2014 proxy season, including statistics, notable decisions from the staff (the “Staff”) of the Securities and Exchange Commission (the “SEC”) on no-action requests and information about litigation regarding shareholder proposals.

…continue reading: Shareholder Proposal Developments During the 2014 Proxy Season

Board Refreshment and Director Succession in Investee Companies

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday May 25, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Rakhi Kumar, Head of Corporate Governance at State Street Global Advisors, and is based on an SSgA publication; the complete publication, including appendix, is available here.

State Street Global Advisors (“SSgA”) believes that board refreshment and planning for director succession are key functions of the board. Some markets such as the UK, have adopted best practices on a comply-or-explain basis that aim to limit a director’s tenure to nine years of board service, beyond which, investors may question a director’s independence from management. Such best practices have helped lower average board tenure, and have encouraged boards to focus on refreshment of director skills and plan for director succession in an orderly manner.

…continue reading: Board Refreshment and Director Succession in Investee Companies

Renewed Focus on Corporate Director Tenure

Posted by David A. Katz, Wachtell, Lipton, Rosen & Katz, on Thursday May 22, 2014 at 8:30 pm
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Editor’s Note: David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz specializing in the areas of mergers and acquisitions and complex securities transactions. This post is based on an article by Mr. Katz and Laura A. McIntosh that first appeared in the New York Law Journal; the full article, including footnotes, is available here.

The issue of director tenure recently has garnered significant attention both in the United States and abroad. U.S. public companies generally do not have specific term limits on director service, though some indicate in their bylaws a “mandatory” retirement age for directors—typically between 72 and 75—which can generally be waived by the board of directors. Importantly, there are no regulations or laws in the United States under which a long tenure would, by itself, prevent a director from qualifying as independent.

Institutional Shareholder Services (ISS) and other shareholder activist groups are beginning to include director tenure in their checklists as an element of director independence and board composition. Yet even these groups acknowledge that there is no ideal term limit applicable to all directors, given the highly fact-specific context in which an individual director’s tenure must be evaluated. In our view, director tenure is an issue that is best left to boards to address individually, both as to board policy, if any, and as to specific directors, should the need arise. Boards should and do engage in annual director evaluations and self-assessment, and shareholders are best served when they do not attempt to artificially constrain the board’s ability to exercise its judgment and discretion in the best interests of the company. In addition, much the same way boards consider CEO succession issues, boards are beginning to address director succession issues as well.

…continue reading: Renewed Focus on Corporate Director Tenure

Powerful Independent Directors

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday May 19, 2014 at 9:16 am
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Editor’s Note: The following post comes to us from Kathy Fogel of the Department of Finance at Suffolk University, Liping Ma of the Department of Finance and Managerial Economics at the University of Texas at Dallas, and Randall Morck, Professor of Finance at the University of Alberta.

In our recent NBER working paper, Powerful Independent Directors, we find that independent directors who are powerful elevate shareholder wealth—in part at least by preventing value-destroying decisions such as economically unsound merger bids and excessive free cash flow retention, by meaningfully linking CEO pay to firm performance, and by forcing out underperforming CEOs. Independent directors who are not powerful do none of these things. These findings may explain why a robust link between independent directors on boards and firm value has proved so elusive; and thereby reconcile Fama’s (1980) thesis that independent directors can maximize shareholder valuations by advising and, where necessary, disciplining or replacing CEOs with the observation of Bebchuk and Fried (2006) that independent directors often do no such thing.

…continue reading: Powerful Independent Directors

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
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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
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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
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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
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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

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