Posts Tagged 'HLS'

SEC Strengthens Shareholders’ Role In Corporate Political Speech Decisions

by  Robert J. Jackson, Jr for The Harvard Law School Forum, May 15th, 2011.

The Supreme Court’s recent decision in Citizens United v. FEC makes clear that corporations have considerable freedom to spend corporate funds on elections. In an article published in the Harvard Law Review last November, Lucian Bebchuk and I argued that, in the wake of Citizens United, lawmakers should reconsider the corporate-law rules governing who decides how corporations use this freedom. Specifically, we argued that these rules should give shareholders a greater role in corporate political speech decisions. Recently, the Securities Exchange Commission provided important guidance that will strengthen shareholders’ role in deciding whether and how corporations spend on elections.

Under existing corporate-law rules, corporate political speech decisions are subject to the same rules as ordinary business decisions. Thus, political speech decisions can generally be made without input from shareholders, a role for independent directors, or detailed disclosure—the safeguards that corporate-law rules establish for special corporate decisions. In our article, we argued that the rules governing ordinary business decisions are inappropriate for corporate political speech, and proposed rules to strengthen the role of shareholders and independent directors, and mandate special disclosure, when directors and executives seek to spend corporate funds on elections.

Among the existing corporate-law rules governing who decides on corporate political speech is the Securities Exchange Commission’s Rule 14a-8, which allows shareholders to include proposals on the company’s proxy ballot for a vote by shareholders. Rule 14a-8 includes an exception for proposals related to ordinary business operations, providing that companies can exclude such proposals from the corporate ballot. The SEC staff has previously concluded that this exception applies to shareholder proposals related to corporate political spending. For example, as we noted in our article, the staff has permitted companies to exclude shareholder proposals recommending that a corporate political action committee be disbanded, and proposals requesting that the company provide shareholders with a report on lobbying activities (continue reading… )

Comparing CEO Employment Contract Provisions

by R. Christopher Small for The Harvard Law School Forum, November 17th, 2010.

In our paper, Comparing CEO Employment Contract Provisions: Differences between Australia and the U.S., forthcoming in the Vanderbilt Law Review, we compare and contrast CEO employment contracts across two very different common law countries.

In the wake of the global financial crisis, executive compensation is front page news, with soaring rhetoric about excessive pay to ungrateful bank employees and personal attacks on CEOs and other executives. Frequently missing from the discussion, however, are basic facts surrounding the terms and conditions of the executives’ relationships with their firms. While several recent studies in the United States have begun to fill in some of the details surrounding American executive employment contracts, or the lack thereof, none have fully captured the U.S. experience, particularly from a legal perspective. Likewise, none of these studies even touch on Australian CEOs’ contractual employment relationships.

Our empirical study is designed to fill this gap. Our study also provides an additional perspective on the optimal contracting and managerial power models of executive pay in U.S. academic literature. Even if one accepts that a particular model has greater explanatory power in the U.S. context, this will not necessarily be the case in another jurisdiction, such as Australia. The United States and Australia, while enjoying many comparable regulatory features, display interesting differences in terms of capital market and regulatory structures. For example, capital markets in Australia differ markedly from the classic U.S. dispersed model of share ownership. (continue reading… )

Proxy Access Rule Will Lead to Greater Controversy

by Kathleen L. Casey for The Harvard Law School Forum, August 27th, 2010.

Let me start with an observation and a prediction. The observation is that it appears that a primary, if unstated, objective of this rule is to put the issue of proxy access behind the Commission once and for all. My prediction is that, paradoxically, the rule that the Commission adopts today virtually guarantees that the Commission will be forced to deal with this issue for years to come. I say this for two reasons. First, I believe that the rule is so fundamentally and fatally flawed that it will have great difficulty surviving judicial scrutiny. Second, an inevitable consequence of this rule, if it survives, is that the staff will be tasked with the unenviable responsibility of brokering disputes and addressing a broad array of issues arising from the operation of this new federal right every proxy season.

This result is unfortunate, because it was so clearly avoidable — it was not a necessary consequence of adopting a rule that would truly facilitate shareholders’ state law rights to nominate directors.

Unfortunately, the adopting release goes through a jiu-jitsu exercise of purporting to give deference to state law and to increase shareholder choices under state law, when in fact the rules do exactly the opposite. As a result, the logic does violence to our historical understanding of the roles of federal securities law, state law, shareholder suffrage and private ordering, with potentially far-reaching implications. The consequences of this exercise include a series of arbitrary choices that are not tethered to empirical data and a number of internal inconsistencies that make the rules difficult to defend. Furthermore, the rules continue a disturbing trend of empowering institutional shareholders to the detriment of individual shareholders. Finally, the policy objectives underlying the rule are unsupported by serious analytical rigor, and the release fails to fairly and adequately consider the costs and impact of these rules. In this regard, I believe these rules are likely to result in significant harm to our economy and capital markets. (continue reading… )

The Board’s Role in Risk Management

by Scott Hirst, HLS Forum on Corporate Governance and Financial Regulation, August 8, 2009.

(Editor’s Note: This post comes to us from Jeff Stein and Bill Baxley of King & Spalding.)
Risk management is currently a topic of considerable interest to public company boards. While taking measured and
informed risks is an important element of any company’s strategy, the financial and economic crisis has led
companies and boards to change their approaches to risk management. Moreover, given the events in the capital
markets over the past year, institutional investors, regulators and the public are scrutinizing public company
boards’ oversight of risk more closely.
Against this background, the Lead Director Network, a group of lead directors, presiding directors and
non-executive chairmen from many of America’s leading companies created by King & Spalding and Tapestry Networks,
met on July 8, 2009 to discuss the board’s role in risk management. Following this meeting, King & Spalding and
Tapestry Networks have published the ViewPoints report here, to present highlights of the discussion that occurred
at the meeting and to stimulate further consideration of this subject. The following provides highlights from the
meeting, as described in the ViewPoints report.

(Editor’s Note: This post comes to us from Jeff Stein and Bill Baxley of King & Spalding.)

Risk management is currently a topic of considerable interest to public company boards. While taking measured and informed risks is an important element of any company’s strategy, the financial and economic crisis has led companies and boards to change their approaches to risk management. Moreover, given the events in the capital markets over the past year, institutional investors, regulators and the public are scrutinizing public company boards’ oversight of risk more closely.

Against this background, the Lead Director Network, a group of lead directors, presiding directors and non-executive chairmen from many of America’s leading companies created by King & Spalding and Tapestry Networks, met on July 8, 2009 to discuss the board’s role in risk management. Following this meeting, King & Spalding and Tapestry Networks have published the ViewPoints report here, to present highlights of the discussion that occurred at the meeting and to stimulate further consideration of this subject. The following provides highlights from the meeting, as described in the ViewPoints report…

To read the complete article please click here.

Directors’ and Officers’ Insurance

by Igor Kirman for The Harvard Law School Forum at Harvard Law School, August 7, 2009.

This post was written together with my colleagues Warren R. Stern and Martin J.E. Arms.

At a time of historically significant dislocation in the corporate world, directors and officers now more than ever need to focus their attention on directors’ and officers’ (“D&O”) insurance, as part of their overall strategy involving effective corporate governance and risk management. Although the best protection should continue to come from conscientious attention to directorial and management responsibilities, an effective D&O insurance program, in combination with well-drafted indemnification and exculpation provisions in corporate charters and by-laws, is a critical component of protection for directors and officers at a time of increased scrutiny by shareholders, courts and regulators. Recent judicial developments further highlight the need for careful attention to policy terms, which can be outcome-determinative in significant litigation. Below are some thoughts on D&O insurance in these troubled times…(read the complete article here)

 

Bank CEO incentives and the credit crisis

by René Stulz for The Harvard Law School Forum at Harvard Law School, August 6, 2009.

In the search of explanations for the dramatic collapse of the stock market capitalization of much of the banking industry in the U.S. during the credit crisis, one prominent argument is that executives at banks had poor incentives. Rudiger Fahlenbrach and I have completed a working paper titled “Bank CEO incentives and the credit crisis” that investigates how closely the interests of the CEOs of banks were aligned with those of their shareholders before the start of the crisis, whether the alignment of interests between CEOs and shareholders can explain the performance of banks in the cross-section during the credit crisis, and how CEOs fared during the crisis. Traditionally, corporate governance experts and economists since Adam Smith have considered that management’s interests are better aligned with those of shareholders when managers’ compensation increases when shareholders gain and falls when shareholders lose. On average, bank CEOs had powerful incentives to maximize shareholder wealth as of 2006. We show that in our sample the median value of a CEOs equity stake (taking into account options) was $36 million. Typically, a CEO’s equity stake was worth more than ten times his compensation in 2006…

To continue reading please click here.

Coates testifies before Senate subcommittee on improving corporate governance

by the Harvard Law School News & Articles at the Harvard Law School, July 31, 2009.

On July 29, HLS Professor John C. Coates testified during a hearing of the Subcommittee on Securities, Insurance and Investment of the Senate Committee on Banking, Housing, and Urban Affairs.  In the hearing titled “Protecting Shareholders and Enhancing Public Confidence by Improving Corporate Governance,” Coates offered his recommendations for corporate governance reform…

Coates recently issued a set of recommended reforms regarding the regulation of mutual funds. The recommendations were made to the Committee on Capital Markets Regulation, an independent and nonpartisan organization whose research is aimed at improving financial regulations and practices…

To read the complete article please click here.


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