ICWAI bags recognition for excellence in Corporate Governance

by Roshan, for My News In, December 23, 2009.

New Delhi: Institute of Cost and Works Accounts of India (ICWAI), an apex body to regulate the profession of cost and management accountancy in India, bagged recognition for itsexcellence and exemplary contributions in the field of corporate governance in India.

The President of India Ms Pratibha Devisingh Patil handed over the “Recognition for Excellence” to Mr. G N Venkataraman, President ICWAI, Mr. Kunal Banerjee, Past President ICWAI, Mr. Chandra Wadhwa, Past President, ICWAI and Mr. J P Singh, Director (Technical), ICWAI at a function in Vigyan Bhawan on Monday 21st December 2009 in the concluding function of the India Corporate Week 2009…(continue reading)

A Reference Point Theory of Mergers and Acquisitions

by Jim Naughton, for The Harvard Law School Forum at Harvard Law School, December 23, 2009.

In our recently updated working paper A Reference Point Theory of Mergers and Acquisitions, we propose a “reference point” view of mergers which holds that salient but largely irrelevant reference point stock prices of the target help to explain several aspects of mergers and acquisitions, involving both the pricing and the types and quantities of firms traded.

The standard textbook story on mergers emphasizes synergies. The offer price starts with an estimate of the increased value of the combined entity under the new corporate structure, deriving from a variety of cost reductions. This value gain is then divided between the two entities’ shareholders according to their relative bargaining power. In theory, all of this leads to an objective and specific price for the target’s shares. In practice, however, valuing a company is subjective. A large number of assumptions are needed to justify any particular valuation of the combination. In addition, relative bargaining power may not be fully established. These real-life considerations mean the appropriate target price cannot be set with precision, but established only to be within a broad range…(continue reading)

Will There Be More Voluntary “Say on Pay” Adoptions?

by Ted Allen, for RiskMetrics Group, December 23, 2009.

“Say on pay” proponents are hopeful that the U.S. House of Representatives’ approval of an annual advisory vote requirement and Goldman Sachs Group’s agreement to hold a shareholder pay vote will prompt more companies to follow suit.

“There will be an increase, as the waiters jump on board to try to get credit for doing it before being ‘forced’ to,” said John Keenan of the American Federation of State, County, and Municipal Employees, an advisory vote proponent. “Goldman did this to try and get away from being ‘public pay enemy number one,’ and this move only hastens the tipping point for other companies.”

Some of these voluntary adoptions likely will occur during the next three months before the proxy statement filing deadlines for companies with spring 2010 meetings. Once again, proponents plan to submit about 100 proposals seeking annual advisory votes on compensation. Those proposals averaged 45.6 percent support at 76 meetings in 2009, up from 41.5 percent in 2008, according to RiskMetrics Group’s proxy season scorecard.

Another pay vote proponent, Tim Smith, a senior vice president with Walden Asset Management, observes that some companies still are reluctant to take action because they don’t know whether the Senate will also approve advisory vote legislation. “It’s hard to predict the trends here, though we obviously feel the Goldman Sachs decision sets a significant precedent and adds pressure, especially on financial companies,” Smith said…(continue reading)

Panels Discuss International Mergers and Acquisitions

by Scott Hirst, for The Harvard Law School Forum at Harvard Law School, December 23, 2009.

Recently, Vice Chancellor Leo Strine, Jr. hosted two sessions on international aspects of mergers & acquisitions practice in his Mergers and Acquisitions class here at Harvard Law School.

In a presentation entitled Viva Là Difference: Anatomy Of A Cross-Border Deal, David Katz, a partner at Wachtell, Lipton, Rosen & Katz, discussed cross-border mergers and acquisitions, focusing on two French transactions that he’d been involved in, as well as discussing several recent developments relevant to cross-border mergers and acquisitions practice. In particular, he focused on Sanofi’s hostile acquisition of Aventis, and contrasted it with the merger of equals of Alcatel and Lucent. The video of this session is available here.

In the second panel, distinguished practitioners and academics discussed takeover transactions in Europe with the Vice Chancellor…(continue reading)

Split offices of chairman, CEO, govt tells India Inc

by Pankaj Doval, for The Times of India, December 22, 2009.

NEW DELHI: In a bid to strengthen corporate governance across India Inc, the government on Monday came out with a set of voluntary guidelines for the industry, making significant recommendations like separation of offices of chairman and CEO and a cap of seven on the number of directorships an individual can accept. Other important recommendations are rotation of audit firms every five years and an annual review of the effectiveness of the company’s internal controls, something considered crucial to prevent recurrence of Satyam-like fraud.

Corporate affairs minister Salman Khurshid said corporate governance norms required to be strengthened. “The existing set of corporate governance framework needs to be taken to a higher level to ensure greater level of accountability to shareholders,” the minister said at the concluding event of ‘India Corporate Week’ where President Pratibha Patil, who was the chief guest, asked companies to work for the development of rural economy…(continue reading)

Some Thoughts for Boards of Directors in 2010

by Steven Rosenblum, for The Harvard Law School Forum at Harvard Law School, December 22, 2009.

Never before in the history of American business has the role of the corporate director been more important or more challenging. Boards today must navigate a tremendously difficult business environment featuring intense competition from foreign manufacturers, weak consumer confidence, growing unemployment, volatility in financial and commodity markets and a host of other complex challenges. At the same time, directors are currently undergoing intense public and political scrutiny of their basic role and functioning at the helm of public companies. As we begin to emerge from the worst recession since the Great Depression, the search for root causes of the economic crisis and second-guessing of corporate decisions has generated a multitude of corporate governance reform proposals, legislative initiatives and rule-making that seek to shift decision-making authority from boards to institutional shareholders and shareholder activists. Despite the stated intention of these initiatives, this shift will impede the ability of boards to resist pressures for short-term gain and tie their hands at a time when the need for effective board leadership is particularly acute…(continue reading)

SEC approves changes in corporate governance requirements for companies listed in the NYSE

by IR Global Rankings, December 22, 2009.

On November 24, SEC approved a few changes to the corporate governance requirements for companies listed in the NYSE, including those with ADR programs, laid down by Section 303A of the NYSE Listed Company Manual.

All the changes come into force on January 1, 2010, with some of them important and others meant to eliminate red tape.

The main changes are:

• Allow greater use of the Company’s website as a communication tool (instead a the proxy statement or 20F annual report) to disclose, among others, the name of officer elected as chairman of the Board of Directors and the procedure adopted so that shareholders can contact him or other Board members;
• Listed companies will no longer be required to mention in their proxy statement or annual report that printed copies of the documents relating to corporate governance practices available on the website will be provided to any shareholder upon request;
• Companies no longer have to mention in their annual report that the CEO has submitted the declaration that the company has complied with all the corporate governance obligations of the NYSE and that the company sent the declarations from the CEO and CFO required by SEC;…(continue reading)

Developments in Corporate Governance: Looking Ahead to 2010

by Cornell Wright and Leslie McCallum, for Torys, December 22, 2009.

A number of developments occurred in corporate governance during 2009. This bulletin recaps some of the key developments affecting Canadian companies and reviews where things stand as we head into 2010.

Canadian Securities Regulators Back Off Overhauling Corporate Governance.

Canada’s securities regulators have decided not to proceed with their proposed overhaul of the corporate governance regime. The proposals would have introduced a more principles-based regime, including eliminating the bright-line tests in the current definition of independence. Market participants expressed mixed reactions to the proposals, some questioning whether they would bring about meaningful improvements in governance and others expressing concern about introducing significant changes in the face of challenging economic conditions and the upcoming transition to International Financial Reporting Standards.

The regulators are still considering possible changes to the corporate governance regime, but have stated that no changes will take effect before the 2011 proxy season. In 2010, the Ontario Securities Commission (OSC) is planning to review compliance with the existing corporate governance disclosure requirements, as discussed further below. We also expect the regulators to publish proposals in early 2010 aimed at improving communication with beneficial shareholders and access to proxy materials under National Instrument 54-101, Communication with Beneficial Owners of  Securities of a Reporting Issuer…(continue reading)

Did Fair-Value Accounting Contribute to the Financial Crisis?

by Christian Leuz, for The Harvard Law School Forum at Harvard Law School, December 21, 2009.

In a recently released working paper co-authored with Christian Laux entitled Did Fair-Value Accounting Contribute to the Financial Crisis? we investigate whether there is merit to the claim that fair-value accounting exacerbated the severity of the 2008 financial crisis. The main allegations are that fair-value accounting contributes to excessive leverage in boom periods and leads to excessive write-downs in busts. The write-downs deplete bank capital and can set off a downward spiral, as banks are forced to sell assets at “fire sale” prices, which in turn can lead to contagion as prices from asset-fire sales become relevant for other banks.

We begin our analysis by explaining in more detail how pure mark-to-market accounting can cause problems in a crisis. We then outline extant accounting rules for banks’ key assets, which is different from pure mark-to-market accounting. Extant rules allow banks to deviate from market prices under certain circumstances. In addition, not all fair value changes enter the computation of banks’ regulatory capital. We then examine possible mechanisms through which fair-value accounting could have contributed to the financial crisis, and conclude that it is unlikely that fair-value accounting added to the severity of the financial crisis…(continue reading)

SEC Adopts Final Rules on Enhanced Proxy Statement Disclosures

by Eduardo Gallardo, for The Harvard Law School Forum at Harvard Law School, December 21, 2009.

At an open meeting held on December 16, 2009, the Securities and Exchange Commission (”SEC”) approved a set of proposed rules to enhance the information provided to shareholders in company proxy statements regarding a number of risk oversight, compensation, board leadership and composition and other corporate governance matters.  The SEC approved the final rules by a 4-to-1 vote, with Commissioner Kathleen Casey dissenting.  The SEC released the text of the final rules on the same date they were adopted, with the 129 page adopting release available here.

The new rules have an effective date of February 28, 2010, except that a rule change on how equity awards are reported in the Summary Compensation Table applies to all companies with fiscal years ending after December 20, 2009.  Because all of the rule changes other than the equity reporting rule call for enhanced disclosures, companies presumably could, but would not be required to, voluntarily comply with all of the new rules even if they file their definitive proxy statements before February 28, 2010…(continue reading)