Posts Tagged ‘Institutional Investors’

Shareholders in the United Kingdom

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday March 6, 2015 at 9:00 am
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Editor’s Note: The following post comes to us from Paul L. Davies, Senior Research Fellow at Harris Manchester College, University of Oxford. He was the Allen & Overy Professor of Corporate Law from 2009 to 2014 at University of Oxford, Faculty of Law. Work from the Program on Corporate Governance about lobbying includes Investor Protection and Interest Group Politics by Lucian Bebchuk and Zvika Neeman (discussed on the Forum here).

The United States and the United Kingdom are lumped put together as ‘dispersed shareholder’ jurisdictions and contrasted with the concentrated shareholdings found in the rest of the world. This paper, Shareholders in the United Kingdom, argues that it would be better to view the UK, at least over the past half century, as a semi-dispersed rather than as simply a dispersed shareholder jurisdiction, and that there are interesting contrasts between the UK and the US experience.

Whilst the typical company listed on the main market of the London Stock Exchange certainly lacks a single (or even a cohesive small group) of shareholders with legal control, neither does the typical company display atomised shareholdings, for example, where no single shareholder holds more than 1% of the voting rights. Typically, a coalition of six or so of the largest shareholders can put together enough votes to have a fighting chance of carrying a resolution at a shareholder meeting against the wishes of the management. The question thus becomes one of the incentives and disincentives for those shareholders to coordinate their actions.

…continue reading: Shareholders in the United Kingdom

Proxy Advisors Clarify Proxy Access and Bylaw Amendments Voting Policies

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday March 5, 2015 at 9:04 am
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Editor’s Note: The following post comes to us from Ariel J. Deckelbaum, partner and deputy chair of the Corporate Department at Paul, Weiss, Rifkind, Wharton & Garrison LLP, and is based on a Paul Weiss client memorandum.

On the heels of SEC Chair White’s direction to the Division of Corporation Finance to review its position on proxy proposal conflicts under Exchange Act Rule 14a-8(i)(9), both Institutional Shareholder Services (“ISS”) and Glass Lewis have issued clarifying policies on proxy access, entering the fray of what is becoming the hottest debate this proxy season. The publication of ISS’s updated policy in particular means that market forces may have outpaced the SEC’s review process. In order to avoid risking a withhold or no-vote recommendation from ISS against their directors, many companies will be faced with the choice of (i) including any shareholder-submitted proxy access proposal in their proxy materials (either alone or alongside a management proposal) (ii) excluding the shareholder submitted proposal on the basis of a court ruling or no-action relief from the Division of Corporation Finance on a basis other than Rule 14a-8(i)(9) (conflict with management proposal) or (iii) obtaining withdrawal of the proposal by the shareholder proponent.

…continue reading: Proxy Advisors Clarify Proxy Access and Bylaw Amendments Voting Policies

The Role of Institutional Investors in Open-Market Share Repurchase Programs

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday March 5, 2015 at 9:00 am
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Editor’s Note: The following post comes to us from Thomas Chemmanur, Professor of Finance at Boston College, and Yingzhen Li of The Brattle Group.

In recent years, the number of firms undertaking stock repurchases has increased dramatically, while the proportion of firms distributing value through cash dividends has declined. The popularity of share repurchases has not been mitigated even after the passage of the Jobs and Growth Tax Relief Act of 2003. In our paper, The Role of Institutional Investors in Open-Market Share Repurchase Programs, which was recently made publicly available on SSRN, we empirically analyze whether institutions have the ability to produce information about firms announcing open-market repurchase (OMR) programs, and how their information interacts with the private information held by firm insiders (which they may attempt to convey to the equity market through a repurchase program).

…continue reading: The Role of Institutional Investors in Open-Market Share Repurchase Programs

Proxy Access—a Decision Framework

Posted by Richard J. Sandler and Margaret E. Tahyar, Davis Polk & Wardwell LLP, on Tuesday March 3, 2015 at 9:19 am
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Editor’s Note: Richard J. Sandler is a partner at Davis Polk & Wardwell LLP and co-head of the firm’s global corporate governance group. Margaret E. Tahyar is a partner in the Financial Institutions Group at Davis Polk & Wardwell LLP. This post is based on a Davis Polk client memorandum.

Recent high-profile developments have thrust proxy access back onto the agenda for many U.S. public companies. Here is a framework for how to approach the topic.

Proxy access is back in the news and back on the agenda for many U.S. public companies. Four years after the DC Circuit invalidated the SEC’s proxy-access rule, we are seeing company-by-company private ordering with a vengeance, including a record number of Rule 14a-8 shareholder proposals in the current 2015 proxy season. Events have moved at high speed in the past few weeks, leading many companies to wonder whether they should be initiating their own approach to proxy access.

As we argued in 2009 in response to an earlier SEC proxy-access proposal, we believe that each company’s approach to proxy access should be grounded in a consideration of its particular circumstances. Despite recent high-profile adoptions of proxy-access procedures, we don’t believe that most U.S. public companies should, in knee-jerk fashion, be preparing to revise their bylaws proactively. We do, however, think that boards should be assessing on an ongoing basis the broader issues of board composition, tenure and refreshment, which are not only important in their own right but also relevant to potential vulnerability to proxy-access proposals. We also think that boards should communicate a willingness to exercise their discretion in considering all shareholder suggestions regarding board membership in order to assure shareholders of a means of expressing their views and to create a level playing field for shareholders.

…continue reading: Proxy Access—a Decision Framework

2015 US Compensation Policies FAQ

Posted by Carol Bowie, Institutional Shareholder Services Inc., on Monday March 2, 2015 at 8:55 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 ISS compensation policy guidelines for 2015. The complete publication is available here.

US Executive Pay Overview

1. Which named executive officers’ total compensation data are shown in the Executive Pay Overview section?

The executive compensation section will generally reflect the same number of named executive officer’s total compensation as disclosed in a company’s proxy statement. However, if more than five named executive officers’ total compensation has been disclosed, only five will be represented in the section. The order will be CEO, then the second, third, fourth and fifth highest paid executive by total compensation. Current executives will be selected first, followed by terminated executives (except that a terminated CEO whose total pay is within the top five will be included, since he/she was an within the past complete fiscal year).

2. A company’s CEO has resigned and there is a new CEO in place. Which CEO is shown in the report?

Our report generally displays the CEO in office on the last day of the fiscal year; however, the longer tenured CEO may be displayed in some cases where the transition occurs very late in the year.

…continue reading: 2015 US Compensation Policies FAQ

2015 Benchmark US Proxy Voting Policies FAQ

Posted by Carol Bowie, Institutional Shareholder Services Inc., on Thursday February 26, 2015 at 9:24 am
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Editor’s Note: Carol Bowie is Head of Americas Research at Institutional Shareholder Services Inc. (ISS). The following post relates to ISS’ 2015 Benchmark Proxy Voting Policies.

ISS is providing answers to frequently asked questions with regard to select policies and topics of interest for 2015:

Proxy Access Proposals

1. How will ISS recommend on proxy access proposals?

Drawing on the U.S. Securities and Exchange Commission’s (SEC) decades-long effort to draft a market-wide rule allowing investors to place director nominees on corporate ballots, and reflecting feedback from a broad range of institutional investors and their portfolio companies, ISS is updating its policy on proxy access to generally align with the SEC’s formulation.

Old Recommendation: ISS supports proxy access as an important shareholder right, one that is complementary to other best-practice corporate governance features. However, in the absence of a uniform standard, proposals to enact proxy access may vary widely; as such, ISS is not setting forth specific parameters at this time and will take a case-by-case approach when evaluating these proposals.

Vote case-by-case on proposals to enact proxy access, taking into account, among other factors:

…continue reading: 2015 Benchmark US Proxy Voting Policies FAQ

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
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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

Making the Municipal Securities Market More Transparent, Liquid, and Fair

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Sunday February 22, 2015 at 9:00 am
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Editor’s Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

It is difficult to overstate the importance of the municipal securities market. There is perhaps no other market that so profoundly influences the quality of our daily lives. Municipal securities provide financing to build and maintain schools, hospitals, and utilities, as well as the roads and other basic infrastructure that enable our economy to flourish. Municipal bonds’ tax-free status also makes them an important investment vehicle for individual investors, particularly retirees. Ensuring the existence of a vibrant and efficient municipal bond market is essential, particularly at a time when state and local government budgets remain stretched.

Unfortunately, despite its size and importance, the municipal securities market has been subjected to a far lesser degree of regulation and transparency than other segments of the U.S. capital markets. In fact, investors in municipal securities are afforded “second-class treatment” under current law in many ways. This has allowed market participants to cling to outdated notions about how the municipal securities market should operate. The result is a market that, in the view of many, is excessively opaque, illiquid, and decentralized.

…continue reading: Making the Municipal Securities Market More Transparent, Liquid, and Fair

Engagement and Activism in the 2015 Proxy Season

Posted by David A. Katz, Wachtell, Lipton, Rosen & Katz, on Friday February 6, 2015 at 9:02 am
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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. The following 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.

As the 2015 proxy season approaches, the dominant theme appears to be the interaction between directors and investors. Though, traditionally, there was little to no direct engagement, recent experience indicates that communication between these two groups is now on the rise, in some cases resulting in collaboration. This is potentially a beneficial development, particularly insofar as it may help companies and long-term investors work together to resist pressure from activist shareholders seeking short-term profits. In the current environment where activists and hedge funds appear to wield unprecedented financial and political leverage, and the influence of proxy advisors is as significant as it is controversial, the predominant trend seems to be “toward diplomacy rather than war.” Organizations such as the Shareholder-Director Exchange, which began last year to offer guidance to shareholders and boards on direct engagement, are promoting policies that may reduce the incidence, duration, and severity of contentious public disagreements.

…continue reading: Engagement and Activism in the 2015 Proxy Season

Do Institutional Investors Value the 10b-5 Private Right of Action?

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday January 28, 2015 at 9:00 am
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Editor’s Note: The following post comes to us from Robert Bartlett, Professor of Law at UC Berkeley School of Law.

In my forthcoming article in the Journal of Legal Studies, I empirically test a claim made by institutional investors in the wake of the Supreme Court’s 2010 decision in Morrison v. National Australia Bank Ltd. In Morrison, the Supreme Court limited investors’ ability to bring private 10b-5 securities fraud actions to cases where the securities at issue were purchased on a United States stock exchange or were otherwise purchased in the U.S. Because many foreign firms’ securities trade simultaneously on non-U.S. venues and on U.S. exchanges, institutional investors claimed after Morrison that, such was the importance of the 10b-5 private right of action, they would look to such firms’ U.S-traded securities to preserve their rights under 10b-5.

…continue reading: Do Institutional Investors Value the 10b-5 Private Right of Action?

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