Posts Tagged ‘Boards of Directors’

The Benefits of Limits on Executive Pay

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday March 26, 2015 at 9:07 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Peter Cebon of the University of Melbourne and Benjamin Hermalin, Professor of Economics at the University of California, Berkeley. Work from the Program on Corporate Governance about CEO pay includes: The CEO Pay Slice by Lucian Bebchuk, Martijn Cremers, and Urs Peyer (discussed on the Forum here); Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here); and Lucky CEOs and Lucky Directors by Lucian Bebchuk, Yaniv Grinstein and Urs Peyer (discussed on the Forum here).

Our paper, When Less Is More: The Benefits of Limits on Executive Pay, forthcoming in the Review of Financial Studies, addresses the question of whether limits on executive compensation harm or benefit shareholders. In particular, our model shows that if regulation limits executive compensation, this can make it possible for the board to give the CEO incentives that are both more effective and less costly, and for the two parties to create a relationship that is more collaborative. Among the implications—some of which we are exploring in a companion paper in progress—is this collaborative relationship makes it more attractive for the CEO to pursue long-run strategies (e.g., organic growth) that are more profitable than the short-run strategies (e.g., mergers and acquisitions) they would have pursued if firms had to rely on stock-based compensation for their executives.

…continue reading: The Benefits of Limits on Executive Pay

The Corporation as Time Machine

Posted by Lynn A. Stout, Cornell Law School, on Wednesday March 25, 2015 at 9:09 am
  • Print
  • email
  • Twitter
Editor’s Note: Lynn Stout is the Distinguished Professor of Corporate and Business Law at Cornell Law School.

This article, The Corporation as Time Machine: Intergenerational Equity, Intergenerational Efficiency, and the Corporate Form, advances an explanation for the rise of the corporate form and an alternative perspective on its economic function. The article argues that the board-controlled corporate entity is a legal innovation that can transfer wealth forward and sometimes backward through time, for the benefit of both present and future generations. The article was written for a symposium organized around the author’s prior work with Margaret Blair.

The corporate form allows natural persons to aggregate and transfer resources to a legal person with the capacity to hold assets in its own name in perpetuity. When the corporate entity is controlled by a board subject to the fiduciary duty of loyalty, corporate assets can be “locked in” and insulated from the demands of natural persons (e.g., the current generation of shareholders) who want to extract and consume them. Asset lock-in thus permits board-controlled corporate entities with perpetual life to invest in and pursue projects that may generate wealth only in later time periods, possibly even after the current cohort of human beings has ceased to exist.

…continue reading: The Corporation as Time Machine

The Evolving Landscape of Shareholder Activism: Developments and Potential Actions

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday March 24, 2015 at 9:19 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication by Jay Clayton, Mitchell S. Eitel, Joseph B. Frumkin, and Glen T. Schleyer.

It is clear that shareholder activism continues to evolve, expand and increase in influence. There is a growing emphasis, in particular by large mutual funds and other institutional investors, on shareholder engagement and shareholder-friendly governance structures that, together with the increased activity of activist hedge funds and other “strategic” activist investors, make shareholder engagement and preparedness an essential focus for public companies and their boards.

Most recently, BlackRock Inc. and the Vanguard Group, the largest and third largest U.S. asset managers with more than $7 trillion in combined assets under management, have made public statements emphasizing that they are focused on corporate governance and board engagement. Vanguard recently sent a letter to many of its portfolio companies cautioning them not to confuse Vanguard’s “predominantly passive management style” with a “passive attitude toward corporate governance.” The letter goes on to emphasize numerous corporate governance principles and to highlight in detail (as discussed further below) the importance of direct shareholder-director interactions. BlackRock recently updated its voting policies to make clear that they are more than just guides to how BlackRock votes–they represent “our expectations of boards of directors.” The new policies continue an emphasis on direct interaction between investors and directors.

…continue reading: The Evolving Landscape of Shareholder Activism: Developments and Potential Actions

The (Neglected) Value of Board Accountability in Corporate Governance

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday March 17, 2015 at 9:16 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Marc Moore, Director of the Centre for Corporate and Commercial Law at University of Cambridge.

The term “accountability” is virtually ubiquitous within literature and debates on organizational governance, and especially within corporate governance. However, as a social phenomenon it is frequently misunderstood, particularly by corporate lawyers.

To a large extent, this is unsurprising. After all, it is to be expected that complex sociological issues posed by the historically peculiar scale and structure of public companies—such as decisional power, accountability and legitimacy—will be received somewhat uneasily within orthodox corporate law discourse. Indeed, with limited exceptions, Anglo-American corporate law scholarship today remains rooted in the traditional conceptual habitat of private law, with its characteristic focus on the discrete relational transaction. A latent but nonetheless significant consequence of this has been the definitional “fudging” by corporate lawyers of some inherently public-governmental phenomena that are relevant to corporate governance, in an attempt to render them consistent with the logic and language of private law. This is true nowhere more than with respect to the difficult concept of accountability.

…continue reading: The (Neglected) Value of Board Accountability in Corporate Governance

Vice Chancellor Laster and the Long-Term Rule

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday March 11, 2015 at 9:02 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Covington & Burling LLP and is based on a Covington article by Jack Bodner, Leonard Chazen, and Donald Ross. 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.

Vice Chancellor Laster has been writing for several years about the fiduciary duties of directors who represent the interests of a particular block of stockholders. In his opinion in the Trados Shareholder Litigation he found that directors, elected by the venture capital investors who held Trados’s preferred stock, had a conflict of interest in deciding on a sale of the corporation in which all the proceeds would be absorbed by the liquidation preference of the preferred and nothing would go to the common. [1] As a result of this finding, Vice Chancellor Laster applied the entire fairness standard of review to the Trados board’s decision. He concluded that while the directors failed to follow a fair process, the transaction was fair because the common stock had no economic value before the sale and so it was fair for the common stock to receive nothing from the sale. [2] In a recent Business Lawyer article which he co-authored with Delaware practitioner John Mark Zeberkiewicz, [3] Vice Chancellor Laster extended his Trados conflict of interest analysis to other situations in which directors represent stockholder constituencies with short-term investment horizons, including directors elected by activist stockholders seeking immediate steps to increase the near term stock price of the corporation. He states that such directors can face a conflict of interest between their duties to the corporation and their duties to the activists.

…continue reading: Vice Chancellor Laster and the Long-Term Rule

Women on US Boards: What Are We Seeing?

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday March 4, 2015 at 9:02 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Ernst & Young LLP, and is based on a publication by the EY Center for Board Matters.

Despite the value of bringing more women onto corporate boards being increasingly recognized, US companies continue a slow march toward gender diversity. While progress is being made, it is not at the pace needed to compete with public sector approaches being taken in other markets.

This post looks at diversity in US boardrooms at the time of their 2014 annual meetings and, unless otherwise noted, reflects S&P 1500 companies. It is based on the EY Center for Board Matters’ proprietary corporate governance database. It is also part of the Center’s ongoing board diversity series and follows Diversity drives diversity: From the boardroom to the C-suite (2013) and Getting on board: Women join boards at higher rates, though progress comes slowly (2012). For EY’s global perspective, see Women on boards: global approaches to advancing diversity (2014) and Women. Fast forward (2015).

…continue reading: Women on US Boards: What Are We Seeing?

Not Clawing the Hand that Feeds You

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday March 3, 2015 at 9:18 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Sterling Huang, Chee Yeow Lim, and Jeffrey Ng, all of the School of Accountancy at Singapore Management University.

In our paper, Not Clawing the Hand that Feeds You: The Case of Co-opted Boards and Clawbacks, which was recently made publicly available on SSRN, we examine the impact of beholdenness of the directors to the CEO on the adoption and enforcement of clawbacks.

Clawbacks have been increasingly prevalent in recent years, and the aim of such provisions is to provide a punishment mechanism that links an executive’s compensation more closely to his or her financial reporting behavior. Clawbacks typically allow firms to recoup compensation from executives upon the occurrence of accounting restatements. Perhaps not surprisingly, the implementation and enforcement of clawbacks by companies is likely to create tensions between boards and executives because executives are unlikely to want to have a “Sword of Damocles” hanging over the compensation that is already in their pocket and are likely to resist attempts by boards to claw at this compensation when accounting restatements trigger a clawback. Hence, to better understand the use of clawbacks by firms, it is important to understand the type of boards that are more likely to implement clawbacks.

…continue reading: Not Clawing the Hand that Feeds You

Considerations on the Use of Electronic Board Portals

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday February 28, 2015 at 8:40 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication.

Board portals and other mechanisms for the electronic dissemination of information to directors of public companies, non-profits and other organizations are in widespread use. Many companies have found that these portals can offer significant benefits, including improved document security, speed and ease of distribution and, for many directors, improved efficiency and ease of access to board materials.

Boards and management should be aware, however, that there is increasing discussion, including among Delaware jurists and practitioners on both the plaintiff and defense sides, concerning possible negatives associated with board portals and other electronic communications, if not properly managed. There are two areas in particular that merit thoughtful attention.

…continue reading: Considerations on the Use of Electronic Board Portals

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
  • Print
  • email
  • Twitter
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
  • Print
  • email
  • Twitter
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

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