Tag Archives: Shareholders

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.

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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.

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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.

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For Whom Golden Parachutes Shine — The Harvard Law School Forum on Corporate Governance

They still exist and there are still those that believe them to be beneficial.  Personally, haven’t seen a company with one of these in a very long time.  What do you think?  Human resources management

Excerpt:  Golden parachutes, those packages that reward top executives if their company is acquired, have attracted much attention from investors and public officials for more than two decades. Defenders of golden parachutes believe that they provide executives with incentives to facilitate a sale of their companies. While the evidence confirms this, it indicates that golden parachutes have significant costs as well and might fail to serve the interests of shareholders over all.

Shareholder resolutions opposing golden parachutes have often received substantial support over time. Congress adopted tax rules aimed at discouraging large golden parachutes, and the rules created during the financial crisis precluded companies receiving government support from providing golden parachute payments to top executives. Subsequently, the Dodd-Frank Act mandated advisory shareholder votes on all future adoptions of golden parachutes.

Read full article via For Whom Golden Parachutes Shine — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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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.

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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.

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Derivatives Trading and Negative Voting — The Harvard Law School Forum on Corporate Governance

Small business need-to-know, of-interest and heads up.

Excerpt:  Securities regulators, practitioners, and legal commentators worry that derivatives may provide shareholders and creditors incentives to destroy value in their corporation (references here). The basic concern is that if shareholders or creditors own a sufficient amount of off-setting derivatives such as put options or credit default swaps (CDS), any losses on their shares or debt will be more than off-set by the corresponding gains on their derivatives (“over-hedging”). In this case, shareholders and creditors benefit by using the control rights inherent in their shares or debt to reduce the corporation’s value (“negative voting”).

An important question that is generally not considered, however, is whether it would ever be profitable for shareholders or creditors to acquire so many derivatives in the first place. After all, any gains to shareholders and creditors come at the expense of their counterparties on their derivative contracts. These counterparties would therefore prefer not to sell the derivatives, or only at a price that compensates them for the future payouts, thus depriving shareholders and creditors of any profit in the overall scheme. This is an important difference from the related problem of vote-buying, which forces (dispersed) counterparties into a collective action problem approaching a prisoners’ dilemma. By contrast, derivative counterparties have the option simply to abstain from the transaction.

Read full article via Derivatives Trading and Negative Voting — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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Aligning Pay to Value Creation and Performance

More today on executive compensation  —  the what, why and how-to advice.  Governance

Excerpt:  The compensation landscape for 2012 and 2013 will include all of the above touchpoints. They will require most importantly compensation committees with courage and expertise, particularly if there are systemic problems or questionable linkages to performance and value creation for shareholders.

Read full article via Governance Gateway Blog » Aligning Pay to Value Creation and Performance.

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Blockholder Disclosure, and the Use and Abuse of Shareholder Power — The Harvard Law School Forum on Corporate Governance

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

Excerpt:  The petition sought to ensure that the reporting rules would continue to operate in a way broadly consistent with the statute’s clear purposes that an investor must promptly notify the market when it accumulates a block of publicly traded stock representing more than 5% of an issuer’s outstanding shares, and that loopholes that have arisen by changing market conditions and practices since the statute’s adoption over forty years ago could not continue to be exploited by stockholder activists, to the detriment of market transparency and fairness to all security holders. Among other things, the petition proposed that the time to publicly disclose such block acquisitions be reduced from ten days to one business day, given activists’ current ability to take advantage of the ten-day window to accumulate positions well above 5% prior to any public disclosure, in contravention of the clear purposes of the statute.

Read full article via Blockholder Disclosure, and the Use and Abuse of Shareholder Power — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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The Focus on Shareholder Activism, Value and Engagement: A Counterpoint

Good read, points and food for thought here  — article takes you through the points from a counterpoint discussion format.   Leadership, governance and management

There has been a critique lately by retained advisors to management and academics about activist investors and the focus on shareholder value. See for example, here, here and here. This is a counterpoint on why shareholder activism occurs, what “shareholder value” is and is not, and what “shareholder engagement” really means.

Read full article via Governance Gateway Blog » The Focus on Shareholder Activism, Value and Engagement: A Counterpoint.

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The Labor Market for Directors, Reputational Concerns, and Externalities — The Harvard Law School Forum on Corporate Governance

Small business and boards of directors of-interest, need-to-know and thoughts to ponder.    Regardless of which side of this collaboration and governance you are on ….  this study has takeaways for you.

Excerpt:  Being a director on the board of a public company is a privilege that often brings generous monetary compensation, prestige, publicity, power, and access to valuable networks. In order to retain old board seats and gain new ones, directors need to develop a reputation and prove they are a good match for other companies. However, it is not clear what reputation is “relevant” in this context. If corporate governance is strong and boards of other companies protect the interests of their shareholders, then building a reputation for being shareholder-friendly can help in obtaining more directorships. On the other hand, if corporate governance is weak and boards of other companies are captured by their managers who want to maintain power, then having a reputation for being management-friendly might be more useful. The goal of this paper is to understand how the labor market for directors and these conflicting reputational concerns affect directors’ behavior and the quality of corporate governance.

To study this question, we develop a model with three key ingredients.

Read full article via The Labor Market for Directors, Reputational Concerns, and Externalities — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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Board Engagement with Corporate Shareholders — The Harvard Law School Forum on Corporate Governance

Small business of-interest, need-to-know takeaways and news-to-watch.   Board of directors and shareholders communication.

Excerpt:  Historically, there has been little direct dialogue between individual board members and shareholders. This is changing, however, as directors, particularly lead directors, face increasing pressure to meet directly with their companies’ largest shareholders. Accordingly, at many companies, individual directors are beginning to engage with investors on an ongoing basis, and not just in response to a particular issue or crisis.

The Lead Director Network (the “LDN”), a group of lead directors, presiding directors and non-executive chairmen from many of America’s leading companies, met on June 19, 2012 to discuss the relationship between directors and major shareholders. Representatives of two institutional investors also participated in the meeting. Following this meeting, King & Spalding and Tapestry Networks have published a 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 LDN meeting, as described in the ViewPoints report.

Read full article via Board Engagement with Corporate Shareholders — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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Corporate Director Elections and Majority Withhold Votes — The Harvard Law School Forum on Corporate Governance

I guess even with oodles of experience,  I am  —  or perhaps, just prefer to be   —   naive.  Every time I read of rules and regulations that are largely show and rarely to never come to the fore unless the brown stuff hits the fan,  I marvel at our many systems of “it is” , at least, “until it is not”.   Since I am one of the most independent creatures one might meet, I am not advocating a totalitarian system or anarchy but isn’t there some better ground than the one upon which we stand?

Excerpt:  In theory, the most significant corporate governance check and balance between public company shareowners and the company is the ability to elect corporate directors. In reality, that control mechanism is complicated and often compromised for a host of reasons. Nonetheless, there has been an increased focus on director elections in the past few years. This study examines what happens when shareowners withhold a majority of votes from a director nominee.

The significance of majority withhold votes for corporate directors is the subject of some debate in the governance and business community. It is sometimes argued that majority withhold votes are of little import because they are infrequent, rarely lead to director resignations, and typically come in response not to corporate-specific failings, but to violations of perceived best practice (such as the adoption of a poison pill without shareholder approval). At the same time, however, some academic literature has suggested that high levels of withhold votes may be an indicator of generally negative market perceptions of a company.

Read full article via Corporate Director Elections and Majority Withhold Votes — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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“Say on Pay” in the 2012 Proxy Season — The Harvard Law School Forum on Corporate Governance

Small business of-interest, update on 2012 proxy season hottest topic, say on pay.  A look back at past months values.

Excerpt:  Say on pay was a topic of paramount concern to issuers this year and was the basis for a great deal of work both before and during the proxy season. Looking back on the past few months, two primary themes emerge: First, the importance of understanding and responding to the methodology of ISS Proxy Advisory Services (ISS), as its recommendations continue to be highly significant; and second, the importance of direct, frequent communication with shareholders and investment decision makers.

Directors who make compensation decisions that result in a negative ISS recommendation, shareholder disapproval, or other public criticism will wish to consider taking steps to minimize controversy surrounding company compensation practices.   And, while, in some cases, shareholders have sued boards on the basis of a negative say on pay vote, directors can be confident that their compensation decisions, when made in good faith and in accordance with their fiduciary duties, are protected by the business judgment rule.

Read full article via “Say on Pay” in the 2012 Proxy Season — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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How’s That Shareholdery-Valuey Stuff Working Out for Ya? – HBR

Interesting read.  Was it the shareholders who launched the “purpose of the corporation is to maximize shareholder wealth”?   Governance, leadership and board of directors

Excerpt:  The purpose of a corporation is to maximize shareholder wealth. And a corporation’s board of directors’ chief fiduciary responsibility is to shareholders.

These are plain and simple facts — and have been so forever. Right?

No, and no, actually. The idea that shareholder value should be the organizing principle of the corporation is of relatively recent vintage — it was only in the 1990s that it really became widely accepted — and as legal scholar Lynn Stout keeps explaining, corporate law has far from fully embraced it. Which makes the statements in the first sentence just arguments, not facts.

Now, as Joe Nocera wrote last week in The New York Times, there’s a “movement” gaining strength to replace shareholder value with a broader definition of corporate purpose that includes satisfying customers, providing good jobs, even paying taxes. I am now a card-carrying member of this movement, thanks to my article with Jay Lorsch in the July/August HBR, “What Good Are Shareholders?”

There is, however, a big barrier standing in the way of the movement’s triumph ….

Read full article via How’s That Shareholdery-Valuey Stuff Working Out for Ya? – Justin Fox – Harvard Business Review.

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