Tuesday, June 17, 2014
A new poll, conducted by Greenberg Quinlan Rosner Research, suggests that the desire for new Wall Street regulations has not been maximized by candidates for political office. Here are some of the poll's key findings. The release about the poll states:
A strong, bipartisan majority of likely 2014 voters support stricter federal regulations on the way banks and other financial institutions conduct their business. Voters want accountability and do not want Wall Street pretending to police themselves: they want real cops back on the Wall Street beat enforcing the law.
As evidence, the release notes that David Brat's upset win over Eric Cantor in the Virginia 7th District Republican primary, may have been related to Brat's attack on Wall Street, sharing Brat's words from a radio interview: "The crooks up on Wall Street and some of the big banks — I'm pro-business, I'm just talking about the crooks — they didn't go to jail, they are on Eric's Rolodex."
The poll found that voters consider Wall Street and the large banks as "bad actors," with 64% saying, “the stock market is rigged for insiders and people who know how to manipulate the system.” Another 60% want “stricter regulation on the way banks and other financial institutions conduct their business.” Finally,
Voters believe another crash is likely and that regulation can help prevent another disaster. An 83 percent majority of voters believe another crash is likely within the next 10 years, and 43 percent very likely. Another 55 percent, however, agree “Stronger rules on Wall Street and big financial institutions by the federal government will help prevent another financial collapse.”
I don't doubt that voters believe this, but I also don't think this poll data will lead to much (if any) significant change. I concede the poll shows that the issue resonates with voters, but I think Brat's quote shows where the wiggle room is (and perhaps how other astute Republicans, particularly, may use the issue in their races). That is, I think the majority of Americans are "pro-business" and anti-crooks. That's not news. When it comes time to vote on new regulation, though, I expected Mr. Brat (should he win the election) would find that the proposals before him would only "hurt business" and "not punish crooks."
I could be wrong, of course, but I doubt it. Like "energy independence" and "good schools," I think this poll shows us another one of those issues where voters care more about hearing that the system needs to be fixed rather than an issue where voters will be keeping score to see if progress is made.
Monday, June 16, 2014
I have been working on a draft article for the University of Cincinnati Law Review based on a presentation that I gave this spring at the annual Corporate Law Symposium. This year's topic was "Crowdfunding Regulations and Their Implications." My draft article addresses the public-private divide in the context of the Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act--more commonly known as the CROWDFUND Act. I am using two pieces coauthored by Don Langevoort and Bob Thompson (here and here), as well as three works written by Hillary Sale (here, here, and here) to engage my analysis.
I also will be participating in a discussion group at the Southeastern Association of Law Schools annual conference in August on the publicness theme. That session is entitled "Does The Public/Private Divide In Federal Securities Regulation Make Sense?" and is scheduled for 3:00 pm on Augut 6th, for those attending the conference. Michael Guttentag was good enough to recruit the group for this discussion.
All this work on publicness has my head spinning! There are a number of unique conceptions of pubicness, some overlapping or otherwise interconnected, with different conceptions being useful in different circumstances. I am attracted to a number of observations in both the Langevoort/Thompson and Sale bodies of work, but there's clearly a lot more to think about from the standpoint of both scholarship and teaching.
So, today I ask: What does publicness mean to you? Does there continue to be salient meaning in the distinction between piublic and private (offerings, companies, etc.)? If so, what should publicness mean in these contexts? I am curious to see what others think.
Tuesday, June 10, 2014
A few weeks ago, Tim Carney wrote a piece in the Washington Examiner that is stuck in my mind. The piece titled Conservatives, big government and the duty to care for the poor discusses what Carney sees as a shift in the rhetoric conservatives are using in reference to the poor and other vulnerable populations. Carney notes that Senate Minority Leader Mitch McConnell (R-KY) recently referenced a “shared responsibility for the weak.” Carney continues:
Step away from policy debates and think about that phrase. Do you have a responsibility to help the weak? Do you have a responsibility to feed the hungry? To aid the poor?
I think I do. I think everyone does. The Catholic Church teaches us we do.
Conservatives sometimes shy away from this idea, though. One reason is a strong (and overblown) distaste to "helping the lazy." Another reason is that conservatives fear it implies the Left’s answer: big federal programs.
But, in fact, you can grant that you have a duty to the poor and the weak, and then have a really good debate:
Is that duty individual, or some sort of a communal duty?
Does the government have the legitimate right to transfer wealth to satisfy that duty, or is it solely an individual responsibility to fulfill that duty.
If aiding the poor is a legitimate government role, at what level is the aid appropriately delivered — local, state, federal?
I really don't see this as a new debate, but I agree it is a shift from the poverty debate I have seen over the past decade or so. This shift, though, goes back (at least) to the debates of what I remember in the 1980s and early 1990s. The question then, as I recall my vigorous (sometimes informed) college and early career discussions, was not whether the poor needed help. The question was how best to provide that help. (I'll note that even then, conservatives were likely to call me liberal, and liberals often called me conservative. Some things remain the same, I guess.)
Carney frames the conversation appropriately, and asks the right questions because it starts with the right assumption: that helping the poor is required. He notes:
Then there’s plenty of very practical debates: Are federal programs inevitably too bloated and inflexible? Or alternatively, maybe only the federal government has the economies of scale (and ability to make its own money) needed to run a safety net, particularly in economic downturns.
So, what does this have to do with business law? Well, in part, if we agree there is a duty, we must talk about whose duty it is. Is it individual? Is it a communal governmental duty? A communal non-governmental duty? Is it a duty of all people, including corporate persons? To what extent?
Further, the role of government in protecting the weak extends beyond poverty programs. It applies to securities regulation, environmental regulation, and tax policy, all of which are directly, or at least very closely, related to business law. In all of these cases, I think the question of the poverty debate carries through: how do we carry out, as Sen. McConnell put it, our “shared responsibility for the weak?”
The conversation that follows that question is a good one because it does not reduce all arguments to some version of "caveat emptor" or only the "government/market will fix it." Instead, the questions can be, for example: Does less regulation increase risks to vulnerable parties or increase access to opportunities for such parties? If the answer is both, as it often is, how do we balance those risks and opportunities?
The market is often the best solution, but one still needs to explain why that's true, rather than blindly relying on some amorphous, all-knowing "market." And as those of us who work closely with regulated industries know, we need to acknowledge that all markets have rules (public and/or private), and those rules impact how effective that market will be and for whom. As such, the poverty debate is also largely a regulatory debate. In all cases, if we start in the right place, better policy is likely to follow.
Monday, June 9, 2014
Today, we finished two days of amazingly rich discourse on business law issues at the Association of American Law Schools (AALS) Workshop on Blurring Boundaries in Financial and Corporate Law in Washington, DC. (Full disclosure: I chaired the planning committee for this AALS midyear meeting.) All of the proceedings have been phenomenally interesting. I have learned so many things and been forced to think about so much . . . . For those of you who couldn't be there, I tried to faithfully pick up a bunch of salient points from the talks and discussions on Twitter using #AALSBB2014. Moreover, some of the meeting was recorded. I will try to remember to let you know when, to whom, and how those recordings are being made available. (Feel free to remind me if I forget . . . .)
One idea shared at the workshop that I am particularly intrigued by is the use of a new standard in federal securities regulation, suggested by Tom Lin in his talk as part of this morning's plenary panel on "Complexity". He argues for an "algorithmic investor" standard (working off/refining the concept of the reasonable investor) in light of the growth of algorithmic trading. It's predictable that I would be interested in this idea, given that I write about materiality in securities regulation (especially insider trading law, in articles posted here and here), in which the reasonable investor standard is central. (In fact, Tom was kind enough to mention my work on the resonable investor standard in his talk.)
Tom is not the first to argue for a securities regulation standard that better serves specific investor populations. Memorable in this regard, at least for me, is Maggie Sachs's paper arguing for a standard focused on the "least sophisticated investor". But many other fine works contending with materiality or the concept of the reasonable investor in securities regulation also question (among other things) the clarity and efficacy of the reasonable investor standard in specific contexts.
Today, rather than my usual profound insights, I’m going to pose a question to our readers. (What do you mean, what “usual profound insights”?)
I have been thinking about applying for a Fulbright to teach overseas. The problem is that Fulbright applications are country-specific and I’m having trouble deciding where I would like to teach.
There are several ways to approach this problem. The first approach would be to look for the greatest possible geographical distance from Lincoln, Nebraska. I think this would be my Dean’s preference. But, as my Dean will tell you, pleasing her is almost never one of my criteria.
The second approach would be to choose the place with the greatest beach. This seems like a sound approach to me, but there seems to be a serious shortage of teaching opportunities in places like Tahiti.
That leaves but one possibility—choosing a location that best fits my particular teaching and research interests. My primary focus is securities regulation, particularly the application of securities law to small businesses. Given that focus what would be the best country to visit? Where would I find both (1) interesting things going on in securities regulation of small businesses and (2) people interested in learning about the U.S. approach to these issues?
China is an obvious choice, but what other countries would make sense? (I’m a coward, so please don’t suggest any countries that would require me to dodge bullets.)
Here’s your chance, blog readers: tell me where to go. (Keep it nice.)
Thursday, June 5, 2014
Last week I posted about proxy advisory firm ISS and its recommendations regarding Wal-Mart and Target.
This week the US Chamber of Commerce weighed in on the two main proxy advisory firms, what the organization sees as their potential conflict of interests and the lack of transparency, and the SEC’s imminent release of guidance on the firms. It’s worth a read and has some great links.
Next week I will be blogging from Salvador, Brazil where I will be enjoying the World Cup. I will post a brief recap of some of the business-related Law and Society sessions I attended in Minneapolis last weekend. With all of the controversy that invariably surrounds a large sporting event in a country that scores high on the corruption perception index, I may even be inspired to write a law review article on the FCPA.
Monday, June 2, 2014
Thanks for the warm welcome to the Business Law Prof Blog, Stefan et al. Having avoided a regular blogging gig for many years now (little known fact: I was the first guest blogger on The Conglomerate – or at least the first one formally listed as a guest – back in 2005), I recently determined that I should sign on to work with this band of thieves scholars on a regular basis. I appreciate the invitation to do so.
I already feel right at home, given that my post for today, like Steve Bradford's, is on mandatory disclosure. Unlike Steve, however, my focus is on the creep of mandatory disclosure rules in U.S. securities regulation into policy areas outside the scope of securities regulation. I think we all know what "creep" means in this context. But just to clarify, my definition of "creep" for these purposes is: "to move slowly and quietly especially in order to not be noticed." I participated in a discussion roundtable in which I raised this subject at the Law and Society Association annual meeting and conference last week.
My concerns about this issue were well expressed by Securities and Exchange Commission Chair Mary Jo White back in early October 2013 in her remarks at the 14th Annual A.A. Sommer, Jr. Corporate Securities and Financial Law Lecture at Fordham Law School:
When disclosure gets to be too much or strays from its core purposes, it can lead to “information overload” – a phenomenon in which ever-increasing amounts of disclosure make it difficult for investors to focus on the information that is material and most relevant to their decision-making as investors in our financial markets.
To safeguard the benefits of this “signature mandate,” the SEC needs to maintain the ability to exercise its own independent judgment and expertise when deciding whether and how best to impose new disclosure requirements.
For, it is the SEC that is best able to shape disclosure rules consistent with the federal securities laws and its core mission. But from time to time, the SEC is directed by Congress or asked by interest groups to issue rules requiring disclosure that does not fit within our core mission.
She goes on to note that some recent disclosure rules mandated by Congress:
. . . seem more directed at exerting societal pressure on companies to change behavior, rather than to disclose financial information that primarily informs investment decisions.
That is not to say that the goals of such mandates are not laudable. Indeed, most are. Seeking to improve safety in mines for workers or to end horrible human rights atrocities in the Democratic Republic of the Congo are compelling objectives, which, as a citizen, I wholeheartedly share.
But, as the Chair of the SEC, I must question, as a policy matter, using the federal securities laws and the SEC’s powers of mandatory disclosure to accomplish these goals.
Parts of these remarks—those on information overload—were echoed in a speech that Chair White gave to the National Association of Corporate Directors Leadership Conference.
Chair White's words ring true to me. I derive from them two main contestable points for thought and commentary.
Wednesday, May 28, 2014
Professor Joan MacLeod Heminway (Tennessee) has a new article posted on SSRN entitled Investor and Market Protection in the Crowdfunding Era: Disclosing to and for the 'Crowd.' I look forward to reading the article this summer. The article abstract is posted below:
This article focuses on disclosure regulation in a specific context: securities crowdfunding (also known as crowdfund investing or investment crowdfunding). The intended primary audience for disclosures made in the crowdfund investing setting is the “crowd,” an ill-defined group of potential and actual investors in securities offered and sold through crowdfunding. Securities crowdfunding, for purposes of this article, refers to an offering of securities made over the Internet to a broad-based, unstructured group of investors who are not qualified by geography, financial wherewithal, access to information, investment experience or acumen, or any other criterion.
To assess disclosure to and for the crowd, this short symposium piece proceeds in three principal parts before concluding. First, the article briefly describes securities crowdfunding and the related disclosure and regulatory environments. Next, the article summarizes basic principles from scholarly literature on the nature of investment crowds. This literature outlines two principal ways in which the behavioral psychology of crowds interacts with securities markets. On the one hand, crowds can be “mad” — irrational, foolish, and even stupid. On the other hand, crowds can be “wise” — rational, sensible, and intelligent. After outlining these two strains in the literature on the behavioral attributes of crowds, the article assesses the possible implications of that body of literature for the regulation of disclosure in the securities-crowdfunding setting. The work concludes by asserting that, when considering and designing disclosure to and for the securities-crowdfunding crowd, the insights from this behavioral literature should be taken into account.
Tomorrow kicks off the 2014 Law & Society Annual meeting in Minneapolis, MN. Law & Society is a big tent conference that includes legal scholars of all areas, anthropologists, sociologists, economists, and the list goes on and on. A group of female corporate law scholars, of which I am a part, organizes several corporate-law panels. The result is that we have a mini- business law conference of our own each year. Below is a preview of the schedule...please join us for any and all panels listed below.
0575 Corp Governance & Locus of Power
U. St. Thomas MSL 458
Participants: Tamara Belinfanti, Jayne Barnard, Megan Shaner, Elizabeth Noweiki, and Christina Sautter
1412 Empirical Examinations of Corporate Law
U. St. Thomas MSL 458
Participants: Elisabeth De Fontenay, Connie Wagner, Lynne Dallas, Diane Dick & Cathy Hwang
1468 Theorizing Corp. Law
U. St. Thomas MSL 458
Participants: Elizabeth Pollman, Sarah Haan, Marcia Narine, Charlotte Garden, and Christyne Vachon
1:00 Business Meeting Board Rm 3
Roundtable on SEC Authority
Participants: Christyne Vachon, Elizabeth Pollman, Joan Heminway, Donna Nagy, Hilary Allen
1473 Emerging International Questions in Corp. Law
U. St. Thomas MSL 458
Participants: Sarah Dadush, Melissa Durkee, Marleen O'Conner, Hilary Allen, and Kish Vinayagamoorthy
1479 Examining Market Actors
U. St. Thomas MSL 321
Participants: Summer Kim, Anita Krug, Christina Sautter, Dana Brackman, and Anne Tucker
1474 Market Info. & Mandatory Disclosures
U. St. Thomas MSL 321
Participants: Donna Nagy, Joan Heminway, Wendy Couture, and Anne Tucker
Sunday, May 4, 2014
"Schools Try Philosophy to Get B-School Students Thinking Beyond the Bottom Line" http://t.co/umFzkKP3vF— Stefan Padfield (@ProfPadfield) May 1, 2014
May 4, 2014 in Business School, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Financial Markets, Securities Regulation, Social Enterprise, Stefan J. Padfield, Teaching | Permalink | Comments (0)
Thursday, May 1, 2014
Last week I had the pleasure of speaking on a panel on global human rights compliance and enterprise risk management with Mark Nordstrom of General Electric and John Sherman of Shift. The panel was part of a conference entitled New Challenges in Risk Management and Compliance at the UConn School of Law Insurance Law Center.
I spoke about the lack of direct human rights obligations under international law for multinationals, the various voluntary initiatives such as the Universal Declaration of Human Rights, the ILO Tripartite Declaration, the UN Global Compact, ISO 26000, the OECD Guidelines for Multinational Enterprises, the Global Reporting Initiative, and accusations of bluewashing. I also discussed Dodd-Frank 1502 (conflict minerals), sustainable stock exchange indices, ESG reporting, SEC proxy disclosure on risk management oversight, socially responsible investors, and the roles of the Sustainability Accounting Standards Board and the International Integrated Reporting Council in spurring transparency and integrated reporting.
Sherman focused on the UN Guiding Principles on Business and Human Rights, which were unanimously endorsed by the UN Human Rights Council in 2011 and which contain three pillars, namely the state duty to protect people from human rights abuses by third parties, including business; business’ responsibility to respect human rights, which means avoid infringing on the rights of others and addressing negative impacts with which a business is involved; and the need for greater access to effective remedy for victims of corporate-related abuse, both judicial and non-judicial.
He pointed out that American Bar Association endorsed the Guiding Principles in 2011 concluding that under Model Rule 2.1 of the ABA Rules of Professional Conduct, a lawyer’s obligation to provide independent and candid legal advice includes the responsibility to go beyond the black letter of the law, and to advise the client on moral, economic, and social and political standards that can affect the lawyer’s advice. This includes the impact of the Guiding Principles when relevant. An advisory group to the Law Society for England and Wales has made even stronger recommendations. Sherman is chairing a working group of the International Bar Association that is developing guidance for bar associations around the world on the Guiding Principles. He observed that Marty Lipton of Wachtel Lipton, has strongly endorsed the Guiding Principles as a “balanced and prudent process for corporations to manage their human rights risks.” Firms such GE, Total, and Coca Cola have met to discuss how their in house counsel can implement the Guiding Principles. Interestingly, Nordtsrom from GE relayed a troubling example of a human rights dilemma in which one of their medical devices was used in China for sex selection purposes rather than for the life saving purposes for which it was intended.
A number of businesses around the world have adopted these voluntary Guiding Principles, but in 2013 Halliburton, McDonalds and Caterpillar faced shareholder proposals based on them. The Guiding Principles have influenced the Dodd-Frank conflict minerals legislation; the US regulations requiring companies investing more than $500,000 of new money in Myanmar to report on their human rights policies and due diligence; the European Commission's 2011 recommendation that all EU countries develop their own National Action Plans to implement the Guiding Principles; the European Union’s Parliament recent directive in April 2014 requiring close to 6,000 companies in the EU to disclose their environmental, social and human rights policies including their due diligence processes, outcomes, and principles risks; the proposed Canadian conflicts minerals legislation; ISO 26000; and the OECD Guidelines for Multinational Enterprises.
Although I now teach business associations and civil procedure, I used to teach a seminar in corporate governance, compliance and corporate social responsibility and found that my students really enjoyed the discussions on human rights and enterprise risk management. Some of the sessions I attended in Geneva on Business and Human Rights at the UN in Decemeber were led by lawyers from around the world who were already advising large and small businesses about the Guiding Principles and how to respond to the numerous comply or explain regimes around the world that are asking about environmental, social and governance factors.
Earlier this week, I sat in on a webinar on the role of the board in overseeing sustainability issues, including human rights, which I will write about next week. There isn’t enough time to address these kinds of issues in a traditional business associations course, but as the ABA and Marty Lipton pointed out, the time is coming for attorneys to counsel their clients on these risks. This means that we as business professors need to prepare our students for this new world.
Sunday, April 27, 2014
[The following post comes to us from Lawrence E. Mitchell, Joseph C. Hostetler - Baker & Hostetler Professor of Law at Case Western Reserve University School of Law. All formatting errors should be attributed to me, Stefan Padfield.]
The March 5, 2014 oral argument in Halliburton Co. v. Erica P. John Fund, Inc.1 made clear that one of the issues being considered by the Supreme Court is whether to supplant the "market efficiency" analysis currently required at the class certification stage in securities fraud class action cases with a "price impact" analysis instead. Our purpose is not to debate the relative merits of that potential change. Rather, it is to identify a critical point that seemed to get lost in the argument: neither the Justices nor the advocates addressed what a price impact analysis would look like in the context of the most common securities fraud scenario—the making of false statements designed to mask bad news. While some of the briefing before the Court touches on the issue, the authors of a working paper cited by proponents of both sides have supplemented their views with a recent blog post that, while brief, discusses potential approaches to measuring the "price impact" of such fraudulent statements more comprehensively than anything the parties or their amici filed with the Court. The author-bloggers are law professors, but they are not the same law professors whose amicus brief dominated the questioning at the oral argument itself.
"The Law Professors' Brief"
Given the large number of amicus briefs filed in Halliburton—ten for petitioners, twelve for respondent, and one ostensibly in support of neither party—a disproportionally large portion of the oral argument was focused on the brief Professors Adam C. Pritchard of the University of Michigan Law School and M. Todd Henderson of the University of Chicago Law School filed in support of petitioner Halliburton. Their operating premise is that the "efficient capital markets hypothesis is not necessary to the use of the fraud on the market theory—whenever the market incorporates fraudulent information into the price, a 'fraud on the market' has occurred, whether the market is efficient or not."2 They argue in favor of eliminating one of the current requirements that securities fraud class action plaintiffs must establish to invoke the fraud-on-the-market presumption at the class certification stage, namely the requirement that "the market" in which the security at issue trades be shown to be "efficient." Instead, in determining reliance, they support using event studies to examine whether an alleged misrepresentation caused a movement in the price of the stock.
Justice Kennedy posed specific questions about the "position" or "theory" of "the law professors" to counsel for both sides, Justice Scalia asked about the effect of the professors' "Basic writ small" approach on the provisions of the Private Securities Litigation Reform Act, and Justice Kagan sought from the Solicitor General's Office the government's view "if the law professors' position were adopted."3 More broadly, four of the Justices (Roberts, Kennedy, Breyer, and Alito) asked questions specifically containing the terms "event study" or "event studies."4
The Halliburton Oral Argument Did Not Contemplate The Typical Securities Fraud Case
The vast majority of securities fraud cases do not involve alleged false statements of positive news that might be expected to increase the value of the stock price. Rather, in a typical securities fraud class action, the false statement is one that conceals a development adversely affecting the issuing corporation. Under those circumstances, there is little or no "impact" on the stock at the time the false statement is made; the false statement minimizes or prevents the decline that would otherwise have occurred had investors been given the opportunity to fully consider the negative development and reassess the value of their investments. A measurable "impact" on the stock price in such circumstances would not be seen until a "corrective disclosure" occurs, which could be substantially after the fraudulent statement is made.
However, to the extent the Justices dabbled in hypotheticals from the bench, they contemplated false statements that were accompanied by stock price increases. Justice Alito appeared to suggest that a stock price increase at the time of the misrepresentation is a necessary prerequisite for fraud, although the question could equally be taken as addressing an "inefficient" market where there is a time lag until new information was absorbed. He asked:
to say that false representation affects the market price is quite different from saying that it affects the market price almost immediately, and it's hard to see how the Basic theory can be sustained unless it does affect the market price almost immediately in what Basic described as an efficient market. Isn't that true? Why should someone who purchased the stock on the day, shortly you know, an hour or two after the disclosure, be entitled to recovery if in that particular market there is some lag time in incorporating the new information?5
The Other Law Professors
The amicus brief of Professors Pritchard and Henderson makes passing reference in a footnote to the fact that the impact of a misrepresentation may occur when corrective information is disseminated to the market.6 Two other law professors, Lucian Bebchuk and Allen Ferrell of Harvard Law School, also touch on the issue in a 2013 working paper, and although their paper was cited by petitioner and in one of respondent's amicus briefs, the citations were in support of other propositions.7 In a post-argument blog entry, Professors Bebchuk and Ferrell expand on their working paper, noting that "[w]hile event studies at the time of misrepresentation are an important tool, it is crucial to emphasize that the tools available for implementing a fraudulent distortion approach are not limited to event studies at the time of misrepresentation. A fraudulent distortion approach should not be generally implemented by conducting an event study at the time of misrepresentation."8 As further explained in their blog post:
there are reasons to expect that event studies at the time of misrepresentation would fail to identify a fraudulent distortion in some cases in which it exists. This would be the case when the misstatement was a so-called confirmatory lie—that is, a misstatement made so as to meet market expectations. In such a case, failure to document a price reaction to it would not be expected even assuming the misstatement had a fraudulent impact. In such a fact situation, the confirmatory lie might prevent a stock price drop that would have occurred had the truth been told.9
Professors Bebchuk and Ferrell go on to discuss "event studies at the time of corrective disclosure" and "[a]nother potential analytical tool, with a long tradition in the finance and accounting literature [called] forward-casting."10 They conclude that "the determination of fraudulent distortion would not always be best done by conducting an event study at the time of the misrepresentation."11
* * * *
Should the Supreme Court opt to change the rules of the road by adopting a "price impact" approach, the only rule that would make sense is one that recognizes that the impact can occur not only when a false statement is made, but alternatively (and indeed more often) when the truth is revealed. A rule in which the false statement must cause a measurable "impact" on the price of a company's stock at the time the statement is made would not legitimately incorporate the "price impact" approach as a workable test.
 No. 13-317 (S. Ct.).
 Brief of Law Professors as Amici Curiae in Support of Petitioners at 2 Halliburton Co. v. Erica P. John Fund, Inc., (No. 13-317), 2014 WL 60721 at *2.
 See Oral Argument at 17:10-18; 29:15-17; 34:11-13; 41:11-13, 48:2-11 Halliburton Co. v. Erica P. John Fund, Inc. (No. 13-317), available at http://www.supremecourt.gov/oral_arguments/argument_transcripts.aspx.
 See id. at 17:10-18, 18:7-12; 20:3-9, 21:3-6; 22:8-9, 24:8-14; 29:15-17; 34:11-13; 45:1-4; 52:22 -53:4.
 Id. at 32:1-11 (emphasis added). See also, id. at 21:19-25 (hypothetical by Justice Breyer in which “everybody . . . bought on the New York Stock Exchange and our theory of this case is that the stock exchange did absorb the information and the price went up and then went down.”) (emphasis added).
 See Brief of Law Professors as Amici Curiae in Support of Petitioners at 26 n.9 Halliburton Co. v. Erica P. John Fund, Inc., (No. 13-317), 2014 WL 60721 at *26.
 Lucian A. Bebchuk & Allen Ferrell, Rethinking Basic, Discussion Paper No. 764, Harvard Olin Ctr. for Law, Bus. & Econ. (Dec. 2013), revised April, 2014, available at, http://www.law.harvard.edu/programs/olin_center/papers/764_Bebchuk.php (cited in Brief of Petitioners at 39, Brief of Securities Law Scholars as Amici Curiae in Support of Respondent at 11, 13.
 Lucian Bebchuk and Allen Ferrell, Remarks on the Halliburton Oral Argument (2): Implementing a Fraudulent Distortion Approach, The Harvard Law School Forum on Corporate Governance and Financial Regulation (March 12, 2014, 9:10 AM), (Emphasis added). https://blogs.law.harvard.edu/corpgov/2014/03/12/remarks-on-the-halliburton-oral-argument-2-implementing-a-fraudulent-distortion-approach/.
Thursday, April 24, 2014
Last week the DC Circuit Court of Appeals generally upheld the Dodd-Frank conflict minerals rule but found that the law violated the First Amendment to the extent that it requires companies to report to the SEC and state on their websites that their products are not “DRC Conflict Free.” The case was remanded back to the district court on this issue.
As regular readers of the blog know I signed on to an amicus brief opposing the law as written because of the potential for a boycott on the ground and the impact on the people of Congo, and not necessarily because it’s expensive for business (although I appreciate that argument as a former supply chain professional). I also don’t think it is having a measurable impact on the violence. In fact, because I work with an NGO that works with rape survivors and trains midwives and medical personnel in the eastern Democratic Republic of Congo, I get travel advisories from the State Department. Coinicidentally, I received one today as I was typing this post warning that “armed groups, bandits, and elements of the Congolese military [emphasis mine] remain security concerns in the eastern DRC….[they] are known to pillage, steal vehicles, kidnap, rape, kill and carry out military or paramilitary operations in which civilians are indiscriminately targeted… Travelers are frequently detained and questioned by poorly disciplined security forces [I was detained by the UN] at numerous official and unofficial roadblocks and border crossings…Requests for bribes [which I experienced] is extremely common and security forces have occasionally injured or killed people who refused to pay.”
None of this surprises me. I commend the efforts of companies to clean up their supply chains and to cut off income sources to rebel groups who control some of the mines or brutally insert themselves into the mineral trade. But what the State Department advisory makes clear (and what many people already know) is that the problem that the Dodd-Frank law is trying to solve is not something that can be cured through a “name and shame” corporate governance disclosure, especially one that may no longer have the “shame” factor of having companies brand themselves “not DRC Conflict Free.”
Earlier this week, Senator Ed Markey and eleven other members of Congress sent a letter urging SEC Chair Mary Jo White to avoid any delay in implementing the rule. The letter states in part “…the law we passed was simple. Congress said that any company registered in the United States which uses any of a small list of key minerals from the DRC or its neighbors has to disclose in its SEC filing the use of those minerals and what is being done, if anything, to mitigate sourcing from those perpetuating DRC's violence. Such transparency allows consumers and investors to know which companies source materials more responsibly in DRC and serves as a catalyst for industry to finally create clean supply chains out of Congo.”
The "law" may have been “simple,” but the implementation is not for a large number of companies. That’s probably why the EU has proposed a voluntary self-certification scheme focused on importers rather than manufacturers and sellers like Dodd-Frank. That’s probably why a large number of companies are not ready to comply, according to a recent PwC survey of 700 companies.
Chair White, who has made no secret of what she thinks of the SEC’s role in solving human rights crises, still has to reissue Dodd-Frank 1504, the resource extraction rule that was struck down after a court challenge. According to a Davis Polk report, as of April 1, 2014, a total of 280 Dodd-Frank rulemaking requirement deadlines have passed. Of these 280 passed deadlines, 45.7% have been missed and 54.3% have been met with finalized rules. The SEC has a lot of financial rule making to complete and should consider how to prioritize and retool the conflicts minerals rule using the agency's discretion and going beyond the fixes that may be required by future rulings on the First Amendment issue.
I will continue to monitor the future of this law. I am now on my way to a conference for businesspeople, lawyers, academics and students at UConn entitled New Challenges in Risk Management and Compliance. I will discuss regulatory issues related to global human rights and enterprise risk management on a panel with the human rights initiative leader for General Electric and the General Counsel for the Shift Project, who worked with John Ruggie on the UN Guiding Principles on Business and Human Rights. I am excited to meet and learn from them both. The Guiding Principles and earlier iterations of Ruggie’s work greatly influenced both the US and EU conflict mwinerals laws.
Next week I will report back on some of the outcomes from the conference.
Monday, April 14, 2014
In an opinion released earlier today, the D.C. Circuit Court struck down the SEC's Dodd-Frank Conflict Mineral Rule under the compelled speech doctrine for failing the least restrictive alternative prong.
We therefore hold that 15 U.S.C. § 78m(p)(1)(A)(ii) & (E), and the Commission’s final rule, 56 Fed. Reg. at 56,362-65, violate the First Amendment to the extent the statute and rule require regulated entities to report to the Commission and to state on their website that any of their products have “not been found to be ‘DRC conflict free.’”
Not striking down the need for information about conflict minerals, but rather the required approach, the Court suggested that:
[A] centralized list compiled by the Commission in one place may even be more convenient or trustworthy to investors and consumers. The Commission has failed to explain why (much less provide evidence that) the Association’s intuitive alternatives to regulating speech would be any less effective.
In August, 2012, the SEC released final Dodd-Frank rules for conflict minerals "requir[ing] companies to publicly disclose their use of conflict minerals that originated in the Democratic Republic of the Congo (DRC) or an adjoining country."
Thursday, April 10, 2014
[I]t is counterproductive for investors to turn the corporate governance process into a constant Model U.N. where managers are repeatedly distracted by referenda on a variety of topics proposed by investors with trifling stakes. Giving managers some breathing space to do their primary job of developing and implementing profitable business plans would seem to be of great value to most ordinary investors. -Hon. Leo E. Strine Jr., Can We Do Better by Ordinary Investors? A Pragmatic Reaction to the Dueling Ideological Mythologists of Corporate Law, 114 COLUMBIA L. REV. 449, 475 (2014).
When was the last time you remember the U.S. Chamber of Commerce, the National Association of Corporate Directors, the National Black Chamber of Commerce, American Petroleum Institute, the Latino Coalition, Financial Services Roundtable, Center On Executive Compensation, and the Financial Services Forum joining forces on an issue? Well yesterday they signed on to a petition for rulemaking that was submitted to the SEC regarding the resubmission of shareholder proposals that “fail to elicit meaningful shareholder support.”
Shareholders who own at least $2,000 worth of a company’s stock for at least one year may require a company to include one shareholder proposal in the company’s proxy statement to all shareholders under Rule 14a-8(b) of the ’34 Act. Under Rule 14a-8(i)(12), companies may exclude shareholder proposals from proxy materials under thirteen circumstances, including but not limited to proposals that deal with substantially the same subject matter as another proposal that has been previously included in the company’s proxy materials within the preceding 5 calendar years and did not receive a specified percentage of the vote on its last submission. Specifically a company can exclude a proposal (or one with substantially the same subject matter) if it failed to receive 3% support the last time it was voted on if voted on once in the last five years, 6% if it was voted on twice in the last five years, and 10% if it was voted on three or more times in the past five years for resubmission. Note that the SEC itself proposed and then withdrew the idea of raising the threshold to 6%, 15% and 30% in 1997. The Resubmission Rule is supposed to protect the interests of the majority of shareholders so that a small minority cannot burden the rest of the shareholders with proposals that the majority have repeatedly expressed that they have no interest in and to ensure that management can focus on issues that are important to the company.
Why is this important? The petition includes the following enlightening statistics:
1) The two largest proxy advisory firms, Institutional Shareholder Services (ISS) and Glass Lewis command 97% of the market for proxy advisory firms meaning that they can, in the petitioners view, “dictate” what should be included in proxy solicitations. Proposals favored by ISS may receive up to 24.7% greater support than those do not have their support and proposals favored by Glass Lewis may receive up to 12.9% greater support, all independent of other factors.
2) According to the Manhattan Institute, since 2011, 437 shareholder proposals relating to questions of social policy have been submitted just to the Fortune 250. These proposals have been opposed by an average of 83.7% of votes cast.
3) Between 2005-2013, 420 shareholder proposals focusing on environmental issues were proposed to US companies but only one passed (I would note that many environmental issues never make it to the proxy because shareholders are now engaging with management earlier).
4) Between 2005-2013, 237 labor-related proposals were submitted to US companies. Only three proposals received majority support and the other 234 labor-related proposals received less than 20% support.
5) A Navigant study estimates that companies incur direct costs of $87,000 per proposal or $90 million annually in the aggregate.
6) The website shareholderactivist.com calls shareholder activism a "participatory sport" where investor activists submit similar proposals to multiple companies so that they can "advance a larger agenda.”
The petitioners argue that the current Resubmission Rule fails to protect shareholders and forces the majority of shareholders to “wade through and evaluate” numerous proposals that have already been “viewed unfavorably” by 90% or more of shareholders year after year and have no realistic likelihood of winning the support of a substantial number of shareholders. The petitioners recommend that the SEC reconsider the Resubmission Rule because the existing rule was adopted without cost-benefit analysis. To better serve shareholders, the petitioners contend that SEC should significantly increase the voting percentage of favorable votes a proposal must receive before the company is obligated to include a repeat proposal in subsequent years in its proxy. To read the Petition for Rulemaking click here. The comment period for the SEC will be open soon.
As a side note, my business associations class studied Rule 14a-8 and drafted their own shareholder proposals last week. I saw one of my students today and excitedly told her I was working on this blog post and that we were going to discuss this proposal on Monday. Her response- oh no- will we have to know this for the final? Must be the end of the semester.
Continuing with the theme, I want to highlight a new hybrid resource, JURIFY, which is a mostly-free, online transactional law resource.
“Jurify provides instant access to high-credibility, high-relevance legal content, including forms and precedent in Microsoft Word® format written by the world’s best lawyers, white papers and webinars from top-tier law firms, articles in prestigious law journals, reliable blog posts and current versions of statutory, regulatory and case law, all organized by legal issue.”
Here are the stats: Jurify, launched in 2012, covers 5 broad transactional areas: General Corporate, Governance, Mergers & Acquisitions, Securities and Startup Companies. The 11,000+ sources that the website currently contains have been verified by transactional attorneys and generated from free on-line platforms or submitted by private attorneys who are voluntarily sharing their work. Documents are organized according to 586 tags. Three transactional attorneys started this website (husband/wife duo and their former law-firm colleague); none take compensation from editors, publishers or law firms.
Jurify is a unique transactional law resource for the following reasons:
- FREE (mostly). Website contents including primary law, secondary sources and template agreements and forms. All content is searchable; most is free; some templates/forms, available in Microsoft word version, require either a fee or a paid membership. In the future, Jurify founders hope to generate revenue by providing performance metrics and career services components.
- Emphasis on Primary Sources—collecting the most current and complete versions of governing statutes, and here is the important part—putting relevant sources together. Want to find out registration obligations? A search on Jurify will pull from several different sources to give you a comprehensive look at the governing law.
- Organization. The website resources are organized in a consumer-friendly, vertically integrated platform (like the searching functions on YouTube). If you search for one term of art, (the example used was break-up fees), the search results pull all related terms of art (i.e., termination fees, reverse break-up fees, etc.). The data base has been encoded with 1600 corporate law synonyms in the platform to facilitate more robust natural language searches.
- Multiple search modes (i.e., accessible for the novice). Non-experts can search for information using tags and drop down boxes to sort information by source type (news articles, videos, journals, statutes and regs, etc.). The site also includes a glossary of terms, and those terms serve as searchable categories that have documents associated with them.
- Narrowing the field. You don’t need every document- you just need the right document. Researchers can narrow search results through subcategories, which include definitions on all of the subcategories to assist the non-expert (i.e., students, generalist attorneys like some in-house teams). Within general categories, researchers can also conduct granular searches within a topic and can narrow by specific fields (i.e., M&A).
- Sorting the results. Search results are displayed in order of relevance. Relevance, in Jurify, is determined by the tags assigned by Jurify attorneys reviewing and labeling each document in the database. While a document may have 15 tags, 2 or 3 tags will be the primary tag, and the document will be flagged as “noteworthy” for that particular topic. The idea is that you review the most relevant documents first not just any document that contains any reference to your search fields.
- Networking Component. Some of the documents are voluntarily provided by practicing attorneys and their names remain associated with the document(s). If an attorney wants to establish herself as an expert in an area, she may do so in part, by contributing high-quality documents on that topic. Top contributors are highlighted on the website, using in part, a Credibility Score. In the future, a ranking/review feature will be added so that users can provide feedback on the quality/relevance of a document as well.
Erik Lopez, co-founder of Jurify, contacted the BLPB editors earlier this spring. As a result, I test drove the site with Erik a few weeks ago, which formed the basis of my comments above. Thanks Erik! (Note: Neither BLPB nor I, individually, received any compensation as a result of this post. I am passing it along because I genuinely am intrigued by the platform, business model, and potential for the website to be a valuable transactional resource.)
If anyone currently uses Jurify, or test drives the site after reading this post, please share your experience in the comments.
Wednesday, April 9, 2014
On March 27th, SEC commissioner Daniel M. Gallagher’s delivered the keynote address at the 26th Annual Corporate Law Institute at Tulane University Law School. Addressing the intersection of governance and securities disclosure, Commissioner’s Gallagher’s remarks (available here) are summarized below:
Dodd Frank increased the federalization of corporate law.
“This mandated intrusion into corporate governance will impose substantial compliance costs on companies, along with a one-size-fits-all approach that will likely result in a one-size-fits-none model instead.”
Shareholder proposals are costly, problematic and used by only a small group of shareholders with particular interests and agendas that may not be alligned with other shareholders. Citing first to the 41% increase in shareholder proposals post Dodd-Frank, and the meager 7% passage rate, Commission Gallagher outlined which shareholders use the proposal process and the punch line is that only 1% are brought by ordinary institutional investors.
- 34% are from organized labor;
- 25% are from social, policy or religious institutions; and
- 24% of the proposals were brought by just two individuals whom the Commissioner described as “corporate gadflies.”
The shareholder proposal process should be reformed by narrowing the scope of those eligible to bring proposals and the subject matter of the proposals.
- Increase holding amounts and time (specifics not provided);
- Clarify the application guidelines for the “ordinary business operations” exclusion and the “significant policy issue” exception to the exclusion;
- Have commissioners vote on exclusions, not leave it to the staff;
- Create greater authority to exclude misstatements; and
- Substantially strengthen resubmission thresholds (suggesting a three strikes you are out rule).
While not a heading of the remarks, another clear take away is the Commissioner’s stance against viewing climate change as a serious policy issue and that conflict mineral reports do not “provide investors with the information they need to make informed investment decisions.” To further this point, he discredited third parties, like the Sustainability Accounting Standards Board, as having no role in shaping disclosure requirements.
You should read the full remarks, if nothing else, for this line: “Mike D. of the Beastie Boys—who, by helping to bring the proposal to a vote, at least succeeded in his fight for the right to proxy.”
Thursday, April 3, 2014
As regular readers of this blog may know, I sit on the Department of Labor's Whistleblower Protection Advisory Committee. The Occupational Health and Safety Administration, a division of the Department of Labor, may not be the first agency that many people think of when it comes to protecting whistleblowers, but in fact the agency enforces almost two dozen laws, including Sarbanes-Oxley and the Consumer Financial Protection Bureau's law on whistleblowers. The Consumer Financial Protection Act was promulgated on July 21, 2010 to protect employees against retaliation by entities that offer or provide consumer financial products.
Today OSHA released its interim regulations for protecting CFPB whistleblowers. The regulation defines a “covered person” as “any person that engages in offering or providing a consumer financial product or service.” A “covered employee” is “any individual performing tasks related to the offering or provision of a consumer financial product or service.” A “consumer financial product or service” includes, but is not limited to, a product or service offered to consumers for personal, family, or household purposes, such as residential mortgage lending and servicing, private student lending and servicing, payday lending, prepaid debit cards, consumer credit reporting, credit cards and related activities. The Consumer Financial Protection Act protects “covered employees” of “covered persons” from retaliation who report violations of the law to their employer, the CFPB, or any other federal, state, or local government authority or law enforcement agency. Employees are also protected from retaliation for testifying about violations, filing reports or refusing to violate the law.
Retaliation is broadly defined as firing or laying off, reducing pay or hours, reassigning, demoting, denying overtime or promotion, disciplining, denying benefits, failing to hire or rehire, blacklisting, intimidating, and making threats. An employee or representative who believes that s/he has suffered retaliation must bring a claim within 180 days after the alleged retaliatory action. If OSHA finds that the complaint has merit, the agency will issue an order requiring the employer to put the employee back to work, pay lost wages, restore benefits, and provide other relief. Either party can request a full hearing before an ALJ of the Department of Labor. A final decision from an ALJ may be appealed to the Department’s Administrative Review Board and an employee may also file a complaint in federal court if the Department of Labor does not issue a final decision within certain time limits.
Although the statute is part of Dodd-Frank, the CFPB whistleblowers don’t get the same monetary benefits as Dodd-Frank whistleblowers who go to the SEC. The SEC Dodd-Frank whistleblower rule allows the recovery of between 10-30% of any monetary award of more then $1million of any SEC enforcement action to those individuals who provide original information to the agency. The SEC announced that in 2013 it awarded $14,831,965.64 during its fiscal year to 4 whistleblowers based on 3,238 tips. The vast majority—more than $14 million went to a single individual. The top three allegations involved corporate disclosures and financials (17.2%), offering fraud (17.1%) and manipulation (16.2%).
Should there be such a disparity between those whistleblowers who protect consumers and those who protect investors? Maybe not, but studies consistently show that whistleblowers don’t report to government agencies for the money so perhaps the absence of a large financial reward won’t be a deterrence. Time will tell as to whether any of these whistleblower laws will prevent the next financial crisis. But at least those who work in the financial sector will have some protection.
Thursday, March 27, 2014
I wonder how many people are boycotting Hobby Lobby because of the company’s stance on the Affordable Health Care Act and contraception. Perhaps more people than ever are shopping there in support. Co-blogger Anne Tucker recounted the Supreme Court’s oral argument here in the latest of her detailed posts on the case. The newspapers and blogosphere have followed the issue for months, often engaging in heated debate. But what does the person walking into a Hobby Lobby know and how much do they care?
I spoke to reporter Noam Cohen from the New York Times earlier today about an app called Buycott, which allows consumers to research certain products by scanning a barcode. If they oppose the Koch Brothers or companies that lobbied against labels for genetically modified food or if they support companies with certain environmental or human rights practices, the app will provide the information to them in seconds based on their predetermined settings and the kinds of “campaigns” they have joined. Neither Hobby Lobby nor Conestoga Woods is listed in the app yet.
Cohen wanted to know whether apps like Buycott and GoodGuide (which rates products and companies on a scale of 1-10 for their health, environmental and social impact) are part of a trend in which consumers “vote” on political issues with their purchasing power. In essence, he asked, has the marketplace, aided by social media, become a proxy for politics? I explained that while I love the fact that the apps can raise consumer awareness, there are a number of limitations. The person who downloads these apps is the person who already feels strongly enough about an issue to change their buying habits. These are the people who won’t eat chocolate or drink coffee unless it’s certified fair trade, who won’t shop in Wal-Mart because of the anti-union stance, and who sign the numerous change.org petitions that seek action on a variety of social and political topics.
I had a number of comments for Cohen that delved deeper than the efficacy of the apps. The educated consumer can make informed choices and feel good about them but how does this affect corporate behavior? Although the research is inconsistent in some areas, most research shows that companies care about their reputations but the extent to which a boycott is effective depends on the amount of national media attention it gets; how good the company’s reputation was before the boycott (many firms with excellent reputations feel that they can be buffered by previous pro-social behavior and messaging); whether the issue is one-sided (child labor) or polarizing (gay marriage, Obamacare, climate change); how passionate the boycotters are; how easy it is to participate (is the product or service unique); and how the message is communicated.
Many activists have done an excellent job of messaging. The SEC Dodd-Frank conflict minerals regulation made it through Congress through the efforts of NGOs that had been trying for years to end a complex, geopolitical crisis that has killed over 5 million people. They got consumers, social media and Hollywood actors talking about “blood on the mobile” or companies being complicit in rape and child slavery in Congo because when they changed the messaging they elicited the appropriate level of moral outrage. The conflict minerals “name and shame” law depends on consumers learning about which products are sourced from the Congo and surrounding countries and making purchasing decisions based on that information. Congress believes that this will solve an intractable human rights crisis. The European Union, which has a much stronger corporate social responsibility mandate for its member states has taken a different view. Although it will also rely on consumers to make informed choices, its draft recommendations on dealing with conflict minerals makes reporting voluntary, which has exposed the EU to criticism. As I have written here, here, here here and here, relying on consumers to address a human rights crisis will only work if it leads to significant boycotts by corporations, investors or governments or if it leads to legislation, and that legislation cannot harm the people it is intended to help.
So what do I think of apps like GoodGuide, BuyCott and 2ndVote (for more conservative causes)? I own some of them. But I also send letters to companies, vote regularly, call people in Congress and write on issues that inspire me. How many of the apps’ users go farther than the click or the scan? Some researchers have used the word “slacktivists” to describe those who participate in political discussions through social media, online petitions and apps. The act of pressing the button makes the user feel good but has no larger societal impact.
What about the vast majority of consumers? The single mother shopping for her children in a big-box retailer or in the fast food restaurant that has been targeted for its labor practices may not have the time, luxury or inclination to buy more “ethically sourced” products. Moreover, studies show that consumers often overreport on their ethical purchasing and that price, convenience and costs typically win out. The apps’ developers may have more modest intentions than what I ascribe to them. If they can raise consumer awareness- admittedly for the self-selected people who buy the app in the first place- then that’s a good thing. If the petitions or media attention lead to well-crafted legislation, that’s even better.
Thursday, March 20, 2014
It’s proxy season and the Conference Board has released a series of reports on investor engagement and corporate governance. In “The Conference Board Governance Center White Paper: What is the Optimal Balance in the Relative Roles of Management, Directors, and Investors in the Governance of Public Corporations?” the authors provide a 76-page overview of the evolution of US corporate governance, describing key trends and issues.
The report begins by discussing the history of the allocation of roles and responsibilities for governance of public companies. If I thought my law students would read it, I would assign this section to them. The second part of the paper addresses the legal, social and market trends that have influenced the historical allocation of rights. Specifically, it reviews:
a) the increasing influence of institutional investors resulting from the concentration of ownership in institutional investment, changes in voting rules and practices and more assertive shareholder activism;
b) shifting conceptions about the purpose of the corporation and the duty to maximize corporate value, with a strong emphasis on shareholder wealth maximization;
c) decreased public trust of business leaders following the corporate scandals of 2001-2002 and 2007-2008;
d) federal regulation intended to enhance the influence of shareholders and increase board and management accountability;
e) continuing related to executive compensation and incentives; and
f) the growth of proxy advisory firms in the shareholder voting process.
Some interesting statistics:
a) in 2013, 25% of all shareholder proposals were sponsored by two individuals and their family members and family trusts;
b) from 2006-2013, 33% of shareholder proposals submitted to Fortune 250 companies were sponsored by investors affiliated with labor; 26% by corporate gadflies; 25% by religious, social impact and public policy organizations; and 15% by other individual investors;
c) 241 activist campaigns were launched in 2012 up from 187 in 2009;
d) 69% of proxy contests against the management of Russell 3000 companies during the 2013 proxy season were launched by activist hedge funds; and
e) one third of the activist hedge fund contests sought full control of the board.
The third part of the report briefly summarizes but does not provide any conclusions about the work of Professors Bainbridge, Stout, Anabtawi, Bebchuk, Laverty, and others. It considers the following questions (but does not answer them):
a) Do federal mandates undermine the benefits of a historically state-driven corporate law?
b) Are further changes to board processes and composition desirable?
c) Should shareholders assume a more active role in corporate governance?
d) Do proxy advisory firms replace, rather than augment, the shareholder voice, and should the proxy advisory industry be subject to greater regulation and oversight?
e) Can changes to voting mechanisms improve the effectiveness of corporate governance?
f) Is short-termism a cause of concern, and is so, what are its causes and remedies?
g) What new challenges are presented by vote decoupling, high-speed trading, and hyper portfolio diversification?
In next week’s post I will discuss the “Guidelines for Engagement” and the “Recommendations of the Task Force on Corporate/Investor Engagement.” In the meantime, I highly recommend downloading these complimentary reports.