Posts Tagged ‘Transparency’

Boardroom Confidentiality Under Focus

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.

In our Age of Communication, confidential information is more easily exposed than ever before. Real-time communication tools and social media give everyone with Internet access the ability to publicize information widely, and confidential information is always at risk of inadvertent or intentional exposure. The current cultural emphasis on transparency and disclosure—punctuated by headline news of high-profile leakers and whistleblowers, and exacerbated in the corporate context by aggressive activist shareholders and their director nominees—has contributed to an atmosphere in which sensitive corporate information is increasingly difficult to protect. There is limited statutory or case law to guide boards and directors in this area, and there exists a range of opinions among market participants and media commentators as to whether leaking information (other than illegal insider tipping) is problematic at all.

…continue reading: Boardroom Confidentiality Under Focus

SEC’s Non-Decision Decision on Corporate Political Activity a Policy and Political Mistake

Posted by John Coates, Harvard Law School, on Friday December 13, 2013 at 8:51 am
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The SEC’s recent decision to take disclosure of political activities off the SEC’s agenda is a policy mistake, as it ignores the best research on the point, described below, and perpetuates a key loophole in the investor-relevant disclosure rules, allowing large companies to omit material information about the politically inflected risks they run with other people’s money. It is also a political mistake, as it repudiates the 600,000+ investors who have written to the SEC personally to ask it to adopt a rule requiring such disclosure, and will let entrenched business interests focus their lobbying solely on watering down regulation mandated under the Dodd-Frank Act and the 2012 securities law statute, rather than having also to work to influence a disclosure regime.

…continue reading: SEC’s Non-Decision Decision on Corporate Political Activity a Policy and Political Mistake

The Impact of CEO Divorce on Shareholders

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday December 3, 2013 at 9:28 am
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Editor’s Note: The following post comes to us from David Larcker, Professor of Accounting at Stanford University; Allan McCall of the Department of Accounting at Stanford University; and Brian Tayan of the Corporate Governance Research Program at the Stanford Graduate School of Business.

Recent events suggest that shareholders pay attention to matters involving the personal lives of CEOs and take this information into account when making investment decisions. In our paper, Separation Anxiety: The Impact of CEO Divorce on Shareholders, which was recently made publicly available on SSRN, we examine the impact that CEO divorce can have on a corporation.

There are at least three potential ways in which a CEO divorce might impact a corporation and its shareholders. The first is loss of control or influence. A CEO with a significant ownership stake in a company might be forced to sell or transfer a portion of this stake to satisfy the terms of a divorce settlement. This can reduce the influence that he or she has over the organization and impact decisions regarding corporate strategy, asset ownership, and board composition. Shareholder reaction to loss of control will vary, depending on the view that investors have of CEO performance and governance quality. If they view performance and governance quality favorably, they will react negatively to the news; if they view management as entrenched or a poor steward of assets, they will react positively. Shareholder reaction will also depend in part on what happens to divested shares, including whether they are transferred to the spouse, sold in a block to a third-party, or dispersed in the general market. Each of these can shape the future governance of a firm.

…continue reading: The Impact of CEO Divorce on Shareholders

The SEC Delays its Consideration of Rules Requiring Disclosure of Corporate Political Spending

Posted by Lucian Bebchuk, Harvard Law School, and Robert J. Jackson, Jr., Columbia Law School, on Monday December 2, 2013 at 9:46 am
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Editor’s Note: Lucian Bebchuk is Professor of Law, Economics, and Finance at Harvard Law School. Robert J. Jackson, Jr. is Associate Professor of Law, Milton Handler Fellow, and Co-Director of the Millstein Center at Columbia Law School. Bebchuk and Jackson served as co-chairs of the Committee on Disclosure of Corporate Political Spending, which filed a rulemaking petition requesting that the SEC require public companies to disclose their political spending, discussed on the Forum here. Bebchuk and Jackson are also co-authors of Shining Light on Corporate Political Spending, recently published in the Georgetown Law Journal. A series of posts in which Bebchuk and Jackson respond to objections to an SEC rule requiring disclosure of corporate political spending is available here.

Last week the Securities and Exchange Commission released its regulatory agenda, and this agenda no longer includes rules requiring public companies to disclose their spending on politics. The agenda now includes only overdue rules that the SEC is required to develop under Dodd-Frank and the JOBS Act. While we are disappointed by the SEC’s decision to delay its consideration of rules requiring disclosure of corporate political spending, we hope that the SEC will consider such rules as soon as it is able to devote resources to rulemaking other than that required by Dodd-Frank and the JOBS Act. The submissions to the SEC over the past two years have clearly demonstrated the compelling case and large support for requiring such disclosure.

We co-chaired a committee of ten corporate and securities law professors that filed a rulemaking petition urging the SEC to develop rules requiring public companies to disclose their spending on politics. In the two years since the petition was submitted, the SEC has received more than 600,000 comment letters on our petition—more than on any other rulemaking project in the Commission’s history. The overwhelming majority of these comments—including letters from institutional investors and Members of Congress—have been supportive of the petition. At the end of 2012, the Director of the SEC’s Division of Corporate Finance acknowledged the widespread support for the petition, and the Commission placed the rulemaking petition on its regulatory agenda for 2013.

…continue reading: The SEC Delays its Consideration of Rules Requiring Disclosure of Corporate Political Spending

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

Hedge Funds—A New Era of Transparency and Openness

Posted by Mary Jo White, Chair, U.S. Securities and Exchange Commission, on Tuesday October 29, 2013 at 8:58 am
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Editor’s Note: Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s remarks to the Managed Funds Association Outlook 2013 Conference; the full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Private funds, including hedge funds, play a critical role in capital formation, and are influential participants in the capital markets. And, perhaps more than ever before, the hedge fund industry as a whole is experiencing dynamic change—moving from what some would say was a secretive industry, to a widely-recognized and influential group of investment managers.

Today [Oct. 18, 2013], I want to focus on this change within your industry, as well as on what the SEC must do as the primary regulator in this space.

There is little doubt that hedge funds have entered a new era of transparency and public openness—a transformation that I believe will benefit investors, the public and regulators. And, one that I believe will ultimately and significantly redound to your benefit as well.

It is a substantial and fairly sudden change brought on as a result of two recent and significant pieces of legislation: the Dodd-Frank Act and the JOBS Act. Although both are designed to promote additional transparency, they do so from different, but complementary perspectives.

…continue reading: Hedge Funds—A New Era of Transparency and Openness

2013 CPA-Zicklin Index of Corporate Political Accountability and Disclosure

Posted by Bruce F. Freed, Center for Political Accountability, on Thursday October 17, 2013 at 9:17 am
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Editor’s Note: Bruce F. Freed is president and a founder of the Center for Political Accountability. This post is based on the 2013 CPA-Zicklin Index of Corporate Political Disclosure and Accountability by Mr. Freed, Karl Sandstrom, Sol Kwon, and Peter Hardin; the full report is available here. Work from the Program on Corporate Governance about corporate political spending includes Shining Light on Corporate Political Spending by Lucian Bebchuk and Robert Jackson, discussed on the Forum here. A committee of law professors co-chaired by Bebchuk and Jackson submitted a rulemaking petition to the SEC concerning corporate political spending; that petition is discussed here.

Leading US public companies are making political disclosure and accountability a mainstream corporate practice. That’s a key finding of the 2013 CPA-Zicklin Index of Corporate Political Accountability and Disclosure released on September 25. Now in its third year, the Index benchmarked the top 200 companies of the S&P 500 on their policies and practices for disclosing, decision-making and managing the risks associated with their political spending. (The actual total was 195 after discounting mergers and other factors.)

The increase in the average overall Index score of all companies—a 41 percent jump from 38 last year to 51 in 2013—showed strong across the board improvement in company policies. Over three quarters of these companies—about 78 percent—saw their scores rise. Biggest gains came in board oversight, with 66 percent of the companies improving scores in that area, followed by disclosure, with 57 percent improving, and political spending policies, with 42 percent improving.

…continue reading: 2013 CPA-Zicklin Index of Corporate Political Accountability and Disclosure

Responding to Objections to Shining Light on Corporate Political Spending (7): Claims About the Costs of Disclosure

Posted by Lucian Bebchuk, Harvard Law School, and Robert J. Jackson, Jr., Columbia Law School, on Monday June 24, 2013 at 9:39 am
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Editor’s Note: Lucian Bebchuk is Professor of Law, Economics, and Finance at Harvard Law School. Robert J. Jackson, Jr. is Associate Professor of Law, Milton Handler Fellow, and Co-Director of the Millstein Center at Columbia Law School. Bebchuk and Jackson served as co-chairs of the Committee on Disclosure of Corporate Political Spending, which filed a rulemaking petition requesting that the SEC require public companies to disclose their political spending, discussed on the Forum here. Bebchuk and Jackson are also co-authors of Shining Light on Corporate Political Spending, published in the April issue of the Georgetown Law Journal. This post is the seventh in a series of posts, based on the Shining Light article, in which Bebchuk and Jackson respond to objections to an SEC rule requiring disclosure of corporate political spending; the full series of posts is available here.

The Securities and Exchange Commission is currently considering a rulemaking petition urging the Commission to develop rules requiring public companies to disclose their political spending. In our first six posts in this series (collected here), we examined six objections raised by opponents of such rules and explained why these objections provide no basis for opposing rules requiring public companies to disclose their spending on politics. In this post, we consider a seventh objection: the claim that disclosure rules in this area would impose substantial costs on public companies—and that the SEC lacks the authority to develop such rules because these costs would exceed any benefits that the rules would confer upon investors.

Several opponents of the petition have argued that the SEC may not require public companies to disclose their spending on politics because the costs of such rules would exceed their benefits. For example, the American Petroleum Institute and the U.S. Chamber of Commerce, which are both significant intermediaries through which undisclosed corporate political spending is currently channeled, recently argued in letters to the SEC that the “Commission could not rationally find that the benefits of such a rule” “could outweigh the huge costs.” There is currently considerable debate over the precise weight that cost-benefit analysis should be given in the SEC rulemaking process generally. Whatever position one takes on that general issue, however, cost-benefit analysis does not preclude the SEC from adopting rules requiring public companies to disclose their spending on politics.

…continue reading: Responding to Objections to Shining Light on Corporate Political Spending (7): Claims About the Costs of Disclosure

Striving to Restructure Money Markets Funds to Address Potential Systemic Risk

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Thursday June 6, 2013 at 9:20 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 statement at a recent open meeting of the SEC; the full text 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.

Today [June 5, 2013], the Commission considers amending the rules that govern money market funds to address potential systemic risks. Before I begin, I would like to recognize the efforts of the staff throughout the SEC, especially the Division of Investment Management and the Division of Risk, Strategy, and Financial Innovation. I acknowledge and appreciate the staff’s good work in examining the 2010 amendments to Rule 2a-7 and the staff’s report, which concluded that, among other things, the 2010 amendments would not have been adequate to prevent the systemic risks that we saw in 2008. This report has resulted in the much-improved proposal that is before us today.

The staff’s work is a testament as to why the SEC should take the helm of matters that are within its jurisdiction. I appreciate that the Financial Stability Oversight Council (“FSOC”) recently said as much in its 2013 Annual Report. [1] The SEC’s expertise brings a clear-eyed experience and practical knowledge that can target needed change, while being mindful of unintended consequences.

I am supportive of the staff’s recommendations and will first put the proposed amendments in context, and then highlight a few items.

…continue reading: Striving to Restructure Money Markets Funds to Address Potential Systemic Risk

Responding to Objections to Shining Light on Corporate Political Spending (6): The Claim that Disclosure Rules are Prohibited by the Constitution

Posted by Lucian Bebchuk, Harvard Law School, and Robert J. Jackson, Jr., Columbia Law School, on Monday June 3, 2013 at 9:53 am
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Editor’s Note: Lucian Bebchuk is Professor of Law, Economics, and Finance at Harvard Law School. Robert J. Jackson, Jr. is Associate Professor of Law, Milton Handler Fellow, and Co-Director of the Millstein Center at Columbia Law School. Bebchuk and Jackson served as co-chairs of the Committee on Disclosure of Corporate Political Spending, which filed a rulemaking petition requesting that the SEC require public companies to disclose their political spending, discussed on the Forum here. Bebchuk and Jackson are also co-authors of Shining Light on Corporate Political Spending, published last month in the Georgetown Law Journal. This post is the sixth in a series of posts, based on the Shining Light article, in which Bebchuk and Jackson respond to objections to an SEC rule requiring disclosure of corporate political spending; the full series of posts is available here.

The Securities and Exchange Commission is currently considering a rulemaking petition that we filed along with eight other corporate and securities law professors asking the Commission to develop rules requiring that public companies disclose their spending on politics. In our first five posts in this series (collected here), we examined five objections raised by opponents of such rules and explained why these objections provide no basis for opposing rules requiring public companies to disclose their political spending. In this post, we consider a sixth objection: the claim that the Constitution prohibits the SEC from requiring companies to disclose their spending on politics.

…continue reading: Responding to Objections to Shining Light on Corporate Political Spending (6): The Claim that Disclosure Rules are Prohibited by the Constitution

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