The Idea That Led to 10 Years of Double-Digit Growth – HBR

This is an important read for all in leadership and governance who are responsible to make those difficult decisions.  It addresses decisions that all companies face …..  there is a caution against the same innovation that succeeded may not be the best today or even tomorrow.

Excerpt:  In the mid-90s as CEO of Medtronic, I was concerned about whether we could sustain the remarkable success in innovation that we had enjoyed during the previous 10 years. As we grew, I knew it would be very difficult to continue to create the breakthrough innovations that had led to Medtronic’s high growth rate, which had exceeded 18% per annum for a decade. Then I read Clay Christensen and Joe Bower’s 1995 article “Disruptive Technologies: Catching the Wave” in HBR.

Read full article via The Idea That Led to 10 Years of Double-Digit Growth – Bill George – HBS Faculty – Harvard Business Review.

SEC Legal Bulletin on Shareholder Proposals — The Harvard Law School Forum on Corporate Governance

Small business need-to-know SEC update.

Excerpt:  In a prior bulletin, SLB No.14F, the SEC had reconsidered its view as to who constitutes a “record holder” for purposes of Rule 14a-8 and indicated that only DTC participants may provide adequate proof of ownership for shareholder proponents. Consistent with its no-action letter decisions during 2012, the Staff indicated in this bulletin that it would also view ownership letters from affiliates of DTC participants as satisfying the proof of ownership requirement.

Also, the Staff indicated that a shareholder who holds securities through a securities intermediary that is not a broker or a bank can satisfy Rule 14a-8’s documentation requirement by submitting a proof of ownership letter from that securities intermediary. If the securities intermediary is not a DTC participant or an affiliate of a DTC participant, then the shareholder will also need to obtain a proof of ownership letter from the DTC participant, or an affiliate of the DTC participant, that can verify the holdings of the securities intermediary.

Read full article via SEC Legal Bulletin on Shareholder Proposals — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

A Capital Market, Corporate Law Approach to Creditor Conduct — The Harvard Law School Forum on Corporate Governance

Small business of-interest, need-to-know and news-to-watch.

Excerpt:  In this article, we focus on the problem of creditor conduct in distressed firms — for which policymakers ought to have the economically-sensible repositioning of the distressed firm as a central goal. This problem has vexed courts for decades, without coming to a stable doctrinal resolution. It’s easy to see why developing an appropriate rule here has been difficult to achieve: A rule that facilitates creditor operational intervention going beyond ordinary collection on a defaulted loan can induce creditors to intervene perniciously, to shift value to themselves. But a rule that confines creditors to no more than collecting their debt can allow failed managers to continue mismanaging the distressed firm, with the only real alternative to the failed incumbent management — the creditor — being paralyzed by unclear and inconsistent judicial doctrine.

The article proceeds in four steps. For the first step, we show that existing doctrines do not address themselves to facilitating efficacious management of the failing firms. Yet with corporate and economic volatility as important as ever, courts should seek to make doctrine here more functionally-oriented than it now is.

Read full article via A Capital Market, Corporate Law Approach to Creditor Conduct — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

Delaware Court of Chancery Dismisses Hastily Filed Caremark Action — The Harvard Law School Forum on Corporate Governance

Small business of-interest and need-to-know takeaways.

Excerpt:  This decision reaffirms the Chancery Court’s low tolerance for hastily filed shareholder derivative lawsuits brought under the In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996), line of cases where the plaintiff makes little effort to plead any connection between a “corporate trauma” and the conduct of a board of directors.

Read full article via Delaware Court of Chancery Dismisses Hastily Filed Caremark Action — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

The Shareholder Base and Payout Policy — The Harvard Law School Forum on Corporate Governance

Small business of-interest and need-to-know.

Excerpt:  …… we examine the relation between the shareholder base and payout policy. Finance practitioners acknowledge that having a broad shareholder base is an important factor for many corporate decisions. For example, in a recent study of firm payout policy, Brav, Graham, Harvey, and Michaely (2005) survey financial executives and conclude that “With respect to payout policy, the rules of the game include … [to] have a broad and diverse investor base…” Despite the apparent importance of the shareholder base there is little academic evidence relating shareholder base to corporate decisions. In this paper we investigate the effect of the shareholder base on the level and method of payout.

Read full article via The Shareholder Base and Payout Policy — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

Financial Stability Regulation — The Harvard Law School Forum on Corporate Governance

A somewhat detailed review of our current status with implemented changes.   Good read.  Small business of-interest.

Excerpt:  It may not always be the case that the most interesting time to be involved in a regulatory area is at its early stages, but I am reasonably certain it applies to the formation of a system for the regulation of systemic risk. From the standpoint of a regulator, the key challenge in these early stages is to be neither excessively self-confident about what we know about financial stability so as to produce unfortunate unintended consequences, nor excessively tentative so as to fail to take steps to counter the very real risks that do exist, in keeping with the aims stated by Congress. As I hope was apparent, that effort at balance informed my suggestions as to how we should apply the financial stability factor in our pre-merger reviews under the Bank Holding Company Act.

Read full article via Financial Stability Regulation — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

Guide to Public ADR Offerings in the U.S. — The Harvard Law School Forum on Corporate Governance and Financial Regulation

Small business of-interest and need-to-know.

Excerpt:   The following post comes to us from Cleary Gottlieb Steen & Hamilton LLP. This post is based on the introduction of a Cleary Gottlieb memorandum by Leslie Silverman and Jorge Juantorena, titled “Guide to Public ADR Offerings in the United States;” the full publication is available here.

Read full article via Guide to Public ADR Offerings in the U.S. — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

Managerial Overconfidence and Accounting Conservatism — The Harvard Law School Forum on Corporate Governance

Small business takeaways, of-interest and need-to-know.

Excerpt:  In our paper, Managerial Overconfidence and Accounting Conservatism, forthcoming at the Journal of Accounting Research, we provide evidence on the relation between CEO overconfidence, an important managerial trait, and the aggressiveness of financial reporting. Building on a growing literature in finance which shows that overconfidence can distort investment, financing, and dividend policies, we demonstrate that firms with overconfident CEOs make more aggressive financial reporting choices than other firms.

Overconfident managers are defined as managers who overestimate future returns from their firms’ investments and systematically overestimate the probability of good performance

Read full article via Managerial Overconfidence and Accounting Conservatism — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

Innovation and Institutional Ownership — The Harvard Law School Forum on Corporate Governance

Small business of-interest and points to ponder.

Excerpt:  In our forthcoming American Economic Review paper, Innovation and Institutional Ownership, we examine the incentives to innovate at the firm level by studying the relationship between innovation and institutional ownership. Innovation is the main engine of growth. But what determines a firm’s ability to innovate? Innovating requires taking risk and forgoing current returns in the hope of future ones. Furthermore, while any type of financing is plagued by moral hazard and adverse selection, the financing of innovation is probably the most vulnerable to these problems (Arrow, 1962) since the information that needs to be conveyed is hard to communicate to outsiders. This paper is an attempt at analyzing the corporate governance of innovation and more specifically the role of institutional owners in fostering (or hindering) innovation.

Read full article via Innovation and Institutional Ownership — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

From Independence to Politics in Financial Regulation — The Harvard Law School Forum on Corporate Governance

Small business of-interest, need-to-know and news-to-watch.

Excerpt:  But after the 2007-08 crisis, this Article argues, the independent agency paradigm is under attack. To monitor financial institutions more thoroughly and address future failures more effectively, the U.S. and other industrialized nations redesigned the framework of financial regulation. Post-2008 laws allocate new powers not to independent bureaucrats, but to elected politicians and their direct appointees.

To document this global paradigm shift, the Article examines the laws of fifteen key jurisdictions for international banking: the U.S., the U.K., France, Germany, Japan, Spain, Switzerland, Belgium, Ireland, Italy, Denmark, Canada, Australia, Mexico, and South Korea

Read full article via From Independence to Politics in Financial Regulation — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

Lessons from the Wet Seal Consent Solicitation — The Harvard Law School Forum on Corporate Governance

Small business of-interest, need-to-know and news-to-watch.

Excerpt:  This was a resounding victory for shareholders and an unusual exercise of their rights. Shareholders owning as much as 63% of the stock consented to the proposals, which involved removal of four of the five sitting directors and the election of four new directors in their stead. Among the consenting investors were mutual funds, institutional investors, large individual investors, former executives and hedge funds. The stock was held widely and dozens of professional investors consented to the proposals. At least one very large mutual fund was on the verge of adding their consent to the pile (which would have brought the totals into the high 60s) when we elected to deliver the consents to the company.

Consent solicitations are relatively rare

Read full article via Lessons from the Wet Seal Consent Solicitation — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

Bank Recovery and Resolution: What About Shareholder Rights? — The Harvard Law School Forum on Corporate Governance

Small business of-interest, need-to-know and news-to-watch.

Excerpt:  The article begins by studying the rationale for shareholder protection, especially in the banking sector. It subsequently studies the main shareholder rights, which include: property rights, governance rights (including pre-emption rights, appointment of directors and involvement in management), procedural rights, protection of minority shareholders, and protection of shareholders in banking groups (through the principles of separate legal personality and limited liability).

The article continues by examining whether interference with shareholder rights in the context of bank crisis management is justified as a matter of policy.

Read full article via Bank Recovery and Resolution: What About Shareholder Rights? — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

Stock Options — The Harvard Law School Forum on Corporate Governance

Good read —  the author gives you a comprehensive explanation and definition of a stock option  —  I am quite sure there are small business owners out there who are not clear on what-is and how-handled  ……

Excerpt:  What is a backdated option? Indeed, you may not even be quite sure about what an option is and how it works. So, let me start there.

 An option is a type of security that gives a person the right to buy a share of a company’s stock at a specified price. For example, an option might give you the right to buy a share of Google at $5. That would be a very valuable option. Or an option might give you the right to buy a share of Google at $5,000. That would not be so valuable.

Typically, when a company gives options to its employees as a form of compensation, the employees are allowed to buy shares in the company (which is called “exercising the options”), and the price at which they may buy the stock is called the option’s “exercise price,” or “strike price.” Typically, however, they can exercise their options only after a defined span of time (called “the vesting period”) and before a certain date (called “the expiration date”).

Read full article via Rich-Hunt: The Speech — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

A Corporate End-User’s Handbook for Dodd-Frank Title VII Compliance — The Harvard Law School Forum on Corporate Governance

Hey guys, check this out.  With the complexities involved in implementation of DODD-FRANK Act, we welcome a how-to “guide” .

Excerpt:  The following post comes to us from Geoffrey B. Goldman, partner focusing on derivatives and structured products at Shearman & Sterling LLP. This post is an abridged version of a Shearman & Sterling publication, titled A Corporate End-User’s Handbook for Dodd-Frank Title VII Compliance, available in full (including footnotes) here.

I. Introduction

Almost four years after the financial crisis and over two years after the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), the overhaul of the US derivatives market is rapidly shifting into the implementation phase. Many of the key elements of Dodd-Frank relating to OTC derivatives will begin to take effect on October 12, 2012, although the CFTC has delayed implementation of some requirements until the beginning of 2013.

Read full article and download full report via A Corporate End-User’s Handbook for Dodd-Frank Title VII Compliance — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

Gender Diversity on Public Company Boards — The Harvard Law School Forum on Corporate Governance

Small business of-interest, need-to-know and news-to-watch.

Excerpt:  The issue of gender diversity in the corporate boardroom has risen to new prominence in the wake of recent efforts to impose quotas for women directors for companies in the European Union. The EU’s recent initiative has provoked controversy not only as to the optimal gender balance of boardrooms but also as to whether a quota system is a fair or effective way to achieve the underlying objective of women’s full and equal participation in corporate affairs. In the United States, the relative dearth of women directors on public company boards, and the potential effect on company performance of increased gender diversity, has been a topic of interest in the corporate governance sphere for many years.

The meaningful participation of women at all levels of the corporate hierarchy is an important goal. From a practical perspective, however, we believe that aspects of the European experience demonstrate the downsides of using a quota system to obligate this result. Individual public companies, and the U.S. corporate culture generally, would, in our view, be best served by corporate boards’ taking a dedicated, thoughtful and individualized approach to the nomination, election and full integration of women directors. This approach seems likely to yield the most successful substantive result in the short and long term, producing benefits both for corporate performance and the common weal.

Read full article via Gender Diversity on Public Company Boards — The Harvard Law School Forum on Corporate Governance and Financial Regulation.