Are corporations people? Are they entitled to the same “certain unalienable rights” as human beings – including free speech, as in the Supreme Court’s decision in Citizens United?  These and similar questions struck me as pretty important and presumably interesting. So when I heard about “We the Corporations – How American Businesses Won Their Civil Rights”, I picked it up.

The good news is that the history of corporate civil rights is interesting, and Adam Winkler (a professor at UCLA Law School) does a decent job of telling it.  The bad news is that his negative views regarding corporations infect the narrative and make me question the impartiality, if not the accuracy, of much of the book.

Early on, Professor Winkler discusses the monopolistic practices of Standard Oil and other late nineteenth- and early twentieth-century trusts.  So far, so good.  However, he then discusses the “migration” of Standard Oil from Ohio to New Jersey due to the increasingly pro-corporate laws of the Garden State.  He characterizes this development as a “race to the bottom” in corporate law.  Again, so far, so good – maybe.  But then he goes on to state that Delaware has become the jurisdiction of choice for so many corporations because it favors corporations, presumably to the detriment of their constituencies – possibly including society at large.  To be fair, that may have been an accurate characterization in the past.  However, to really be fair, Professor Winkler should have acknowledged that in recent decades Delaware has become far more judicious (all puns intended) as to the exercise of corporate rights than most states.  And he also should have acknowledged that a (the?) major reason so many corporations organize under Delaware law is the existence and wisdom of and predictability afforded by its corporate judicial system – i.e., its Court of Chancery and Supreme Court – rather than its lax laws.  (Ironically, the book ends with a lengthy discussion and citation of Delaware Supreme Court Chief Justice and former Chancellor Leo Strine, who strongly disagrees with the Citizens United decision.  One wonders if Chancellor Strine was aware of Professor Winkler’s views of his state’s laws.)

Continue Reading Interesting issue, weak execution: a review of “We the Corporations”, by Adam Winkler

A few weeks ago, I attended the “spring” meeting of the Council of Institutional Investors in Washington (the quotation marks signifying that it didn’t feel like spring – in fact, it snowed one evening).  These meetings are always interesting, in part because over the 15+ years that I’ve been attending CII meetings, their tone has changed from general hostility towards the issuer community to a more selective approach and a general appreciation of engagement.

So what’s on the mind of our institutional owners?  First, an overriding concern with capital structures that limit or eliminate voting rights of “common” shareholders.  CII’s official position is that such structures should be subject to mandatory sunset provisions; that position strikes me as reasonable (particularly as opposed to seeking their outright ban), but it’s too soon to tell whether it will gain traction.

Continue Reading News from the front

For the first time since 2015, the SEC has its full complement of five commissioners.  That’s a good thing.  And at least one new Commissioner – Robert Jackson – seems to have hit the ground running.  For example, he made a speech in San Francisco just the other day in which he expressed his disfavor of dual-class stock, suggesting that it would create “corporate royalty”. Specifically, because shareholders in at least some dual-class companies have no voting rights, leadership of the company could be passed down through the generations in perpetuity.

Commissioner Jackson is a smart man – I’ve seen him speak at a number of programs, and he’s demonstrated his intelligence as well as his telegenic appearance.  His use of the “corporate royalty” meme also shows that he’s witty, though don’t think we need to worry too much about CEO titles becoming hereditary.

What I do think we may need to worry about is where he goes with his concerns.  Specifically, the point of his speech is to suggest that exchanges adopt mandatory sunset provisions so that their dual-class structures would fade away over time.

Continue Reading Dual-class shares: marching toward merit regulation?

When governance nerds hear the term “public employee pension fund”, they may think of CalPERS or CalSTRS, the California giants. However, Florida has its very own State Board of Administration, which manages not only our public employee funds, but also our Hurricane Catastrophe Fund. I’m a big fan of the governance team at the Florida State Board; I don’t always agree with their views, but they are smart and fun and a pleasure to talk to.

The Florida State Board has just published an interesting – and mercifully brief – report on over-boarded directors – i.e., men and women (OK, usually men) who serve on too many boards. The report, entitled Time is Money, is subtitled “The Link Between Over-Boarded Directors and Portfolio Value”, and the following are among its key points: Continue Reading Over-boarding: multitasking by another name (and with predictable results?)

It may be nice to be your own boss, but setting your own compensation – and, at least arguably, giving yourself excessive pay – may get you in trouble.  A number of boards of directors have found that out, as courts have given them judicial whacks upside the head for paying themselves too much.  Not surprisingly, shareholders have gotten on the bandwagon as well.

Executive compensation – at least for public companies – has to be scrutinized and blessed by independent directors and, since the advent of Say on Pay, approved by shareholders (albeit on a non-binding basis).  In contrast, directors have long set their own pay, with little or no scrutiny and no requirement for independent review, much less approval.  (Director plans generally must get shareholder approval if they provide for equity grants, but neither the overall director compensation program nor specific awards have to be approved.) Continue Reading Pigs and hogs — a note on director compensation

Each January, I depart from my focus on securities law and corporate governance matters to cite my top 10 books of the year gone by – five each in fiction and non-fiction.  As always, my top 10 list reflects books that I’ve read, rather than books that were published, during the year.

My reading tastes seem to have changed a tad in 2017.  Specifically, two of my fiction favorites were not at all the kind of books that I thought I’d like.  In the non-fiction area, if you’d asked me my favorite type of book at the beginning of the year, I doubt that I’d have mentioned biography and memoirs, yet they comprised three of my top non-fiction works.  I’ll also note that coming up with a fifth non-fiction favorite was a bit challenging, as only four really blew me away.

With that as prologue, here goes: Continue Reading My top 10 books of 2017

No, I’m not referring to my age (I’m old, but not THAT old).

Rather, I’m referring to the supermajority shareholder votes that ISS has required, and that Glass Lewis now requires, for various matters.  Specifically, for the past several years, ISS policy has looked askance at any company whose say-on-pay proposal garnered less than 70% of the votes cast.  More recently, Glass Lewis has adopted a policy stating that boards should respond to any company proposal, including say-on-pay, that fails to receive at least 80% shareholder approval or any shareholder proposal that receives more than 20% approval.

Putting aside the irony that ISS and Glass Lewis have long railed against supermajority voting requirements imposed by companies, one wonders what the rationale is for upping the ante.  One possible reason is frustration that, despite negative voting recommendations from proxy advisory firms, the overwhelming majority of say-on-pay proposals pass – and by relatively large margins.  However, my hunch is that the real frustration is that companies don’t usually respond to shareholder proposals that don’t pass, and most shareholder proposals don’t pass.

Continue Reading 80 is the new 50

Yes, it’s that time of year again.  Turkey, Black Friday, decking the halls, office parties, and the annual issuance of ISS’s voting policies for the coming year.

To make sure I’m on Santa’s good list, I need to be honest – and, to be honest, the 2018 changes seem rather benign.  In fact, as noted below, ISS hasn’t gone as far as some of its mainstream members in terms of encouraging board diversity and sustainability initiatives.

Here’s a quick rundown on the key changes for 2018:

  • Director Compensation: Director compensation – or at least excessive director compensation – has been looming ever larger as a hot topic in governance.  ISS continues the trend by determining that a two-consecutive-year pattern of excessive director pay will result in an against or withhold vote for directors absent a “compelling” rationale.  Since the policy contemplates a two-year pattern, there will be no negative voting recommendations on this matter until 2019.

Continue Reading Tis the season

The still relatively new SEC Chair, Jay Clayton, has let it be known that one of his missions is to improve the health of our IPO market and, thereby, to improve our capital markets generally.  His minions – including a senior SEC Staff member I recently heard in Washington – have been spreading this gospel according to Jay.

I wish him (and them) luck, but I wonder if the mission is impossible.  I’m thinking of some recent articles, including one by the inimitable Andrew Ross Sorkin entitled “Fixing the ‘Brain Damage’ Caused by the I.P.O. Process”, that makes the resuscitation of IPOs seem unlikely.  As if the title weren’t off-putting enough, one of the executives quoted in the article described his company’s IPO process as “a way of living in hell without dying”.  Not a good start.

Continue Reading Can the US IPO market be brought back from the dead?

 

With Chair Jay Clayton and Corp Fin Director Bill Hinman now in office for several months, the SEC seems to be gaining traction in a number of areas of interest to
public companies.

Pay Ratio Disclosures

As we noted in a Gunster E-Alert, on September 21, the SEC issued interpretations to assist companies in preparing the pay ratio disclosures called for under Item 402(u) of Regulation S-K.  The consensus (with which we agree) is that the interpretations will make it much easier for companies to prepare their ratios and related disclosures and hopefully to reduce litigation exposure associated with those disclosures.

Continue Reading Your tax dollars at work (at the SEC)