Current Posts


August 27, 2015 | Ning Chiu

The SEC Office of Economic and Risk Analysis has made available on its website a lengthy working paper on proxy access, specifically on the trade-offs between universal proxy access through federal regulation and the “private ordering” of proxy access through shareholder proposals. The main question that the paper attempts to address is whether private ordering would be able to realize or surpass the enhancement in shareholder value that could result from universal proxy access. The paper concludes that while private ordering does lead to an increase in shareholder value, since the announcement of the adoption of a bylaw causes a 0.5% boost, it is nonetheless a “second best outcome” that does not efficiently deliver proxy access to the companies that the authors find need it most.

Since this is an economics analysis, the authors focused on market... Read More

August 20, 2015 | Ning Chiu

Our memo on the court’s decision upholding its ruling on the SEC’s conflict minerals disclosure is here.

EY's recent analysis of the second year of conflict minerals reporting concludes that companies are reluctant to conduct additional due diligence amidst an uncertain regulatory environment, so that disclosure did not change much from the prior year. 

In 2015, over 1,200 companies filed a Form SD, a slight decline from the year before, with 88% of the companies based in North America. The average Form SD remained at 3.4 pages while the CMR exhibits lengthened from 4.8 to 6.4 pages due to... Read More

August 13, 2015 | Ning Chiu

“Remember what we learned in school. Acquiescing to bullies only gives them more ammunition and makes it worse.” 

Those were part of Commissioner Piwowar's passionate remarks during the SEC open meeting adopting the final pay ratio rule, or, as he said, the “name and shame” rulemaking from the “Big Labor playbook.” He also questioned the timing of the vote as “peculiar” since some members of Congress have recently introduced bills to repeal the pay ratio provision and were heading into recess. He urged the Commission to “stand up to the bullies” because they “will be back for more,” perhaps in the form of political spending disclosure or share buyback prohibitions. 

Part two of Commissioner Piwowar's dissenting comments were simply posted on the SEC website. Unlike his public remarks, it contains a detailed list of perceived defects in the rulemaking procedures that provides an outline of possible litigation issues, including allegations that the SEC: 

August 11, 2015 | Susan Peters

Davis Polk lawyers have once again authored the “Global Overview” chapter of Getting The Deal Through – Corporate Governance 2015, an annual guide that examines issues relating to board structures and directors’ duties in 32 jurisdictions worldwide.

As we note in our chapter, corporate governance is no longer just a hot topic; it is a permanent element in corporate valuation. 

  • In the U.S. portion of our chapter, we discuss, among other things, shareholder activism, shareholder proposals and shareholder engagement. We also discuss some recent, high-profile issues in the financial institution corporate governance area. 
  • In the Europe portion of our chapter, we discuss, among other things, compensation reform measures, and social, environmental and diversity centered disclosure. 
  • In the Asia portion of our chapter, we discuss dual-class... Read More
August 6, 2015 | Ning Chiu

As another example of how proxy access has entered into an advance stage of the governance dialogue, we are now wading into discussions regarding specific bylaw provisions, first with the ISS policy survey discussed here, and now with the issuance of CII’s best practices for proxy access.

ISS notes that about 5% of the S&P 500 have adopted, or committed to adopting, proxy access, leading many to compare proxy access to majority voting and board declassification in terms of perhaps becoming another inevitable mainstream governance practice.  But proxy access is much more complex.  It establishes an entire alternative director nomination mechanism, adding several pages to a... Read More

August 5, 2015 | Ning Chiu

The SEC held an open meeting today to adopt the final rules requiring pay ratio disclosure, which were just released. A company’s first reporting period for the pay ratio disclosure is its first full fiscal year beginning on or after January 1, 2017. This appears to mean the 2018 proxy statement for companies with fiscal years ending December 31st.

In her opening comments, Chair White noted that the Commission received over 287,000 comment letters, including more than 1,500 unique letters, that both criticized and endorsed the pay ratio rule. In her view, the Commission’s responsibility is to implement the mandates of Congress in a cost-effective way: “It is the law and we’re required to carry it out.”

We will issue a detailed memo. Below is a brief summary of the major changes from the proposed rule that include the ability for companies to:

  • Calculate the median employee only... Read More
August 4, 2015 | Ning Chiu

Changes to charters and bylaws by boards, director and executive compensation, proxy access, director independence and overboarding are the key topics of focus in the ISS survey for the 2016 proxy season. The survey responses from investors, issuers and others help inform ISS policy formulation for the 2016 season, and will have an impact on how the proxy advisory firm makes recommendations, especially on director elections. The survey closes on September 4th at 5:00pm.  

A summary with selected examples of the survey questions that pertain to U.S. companies are set forth below. A copy of the entire survey is here. A link that allows you to respond to the survey is here

Charter and bylaw amendments by boards.  What types of charter or... Read More

August 4, 2015 | Ning Chiu

A recent survey by the Brunswick Group counters beliefs that retail investors are always “pro-management” in any voting contest.  The survey examined the views of 801 US-based individuals who play an active role in their personal investment decisions. 

Two-thirds are aware of shareholder activism and 74% think shareholder activism adds value to companies “by pushing corporate executives and boards to make decisions about issues that company management is otherwise unwilling to make.”  Most of these investors say that activists force companies to aim for long-term value creation for shareholders, while only a slight majority indicate that companies are already doing enough to return value to shareholders.  51% do not believe that boards of directors are working in retail investors’ best interest. ... Read More

July 29, 2015 | Ning Chiu

The SEC has announced an open meeting next Wednesday, August 5, 2015 at 10:00 am, to consider final adoption of the pay ratio rule.  It is scheduled to be the last of three rule-related topics, the others pertain to security-based swap dealers. 

Open meetings are accessible through this link.

July 28, 2015 | Ning Chiu

The WSJ reports that the SEC will likely adopt a pay ratio rule next week.  Amidst intense speculation over whether the final rule will provide any flexibility to companies regarding counting non-U.S. and part time or temporary workers when determining the median employee, the article states that the SEC intends to allow companies to exclude 5% of its overseas workforce.  

A June 4 memorandum by the SEC Division of Economic and Risk Analysis, which we previously discussed here, found that the exclusion of 5% of employees may cause the pay ratio estimate to decrease by up to 3.4% or increase by up to 3.5%.  The Division later updated the memo on June 30 for more detailed scenarios... Read More

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