Tuesday, March 15, 2016, 9:00 AM to 5:00 PM @Clayton Hall, University of Delaware :
The focus of the 2016 Corporate Governance Symposium was “Governance Issues of Critical Importance to Boards and Investors in 2016.” The Symposium began with a panel of public company directors, investors, proxy advisory firms, and other representatives from the corporate and investor community, and the Delaware judiciary, during which each panelist will shared what matters most to them in 2016. The Symposium provided attendees with cutting edge governance discussion and debate. The panelists included:
- Les Brun, Chairman and Chief Executive Officer of Sarr Group, LLC; Chairman of the Boards 0f Broadridge Financial Solutions, Inc. and CDK Global, Inc.; Audit Committee Chair, Merck & Co, Inc.; Director, Hewlett Packard Enterprise Company and NXT Capital, Inc.
- Margaret M. Foran, Chief Governance Officer, Senior Vice President and Corporate Secretary, Prudential Financial, Inc.; Director, Occidental Petroleum Corporation
- Michael Garland, Assistant Comptroller for Corporate Governance and Responsible Investment, Bureau of Asset Management, Office of the New York City Comptroller
- The Honorable J. Travis Laster, Vice Chancellor, Delaware Court of Chancery
- Robert M. McCormick, Chief Policy Officer, Glass Lewis & Co.
- Patrick S. McGurn, Special Counsel and Head of Strategic Research and Analysis, Institutional Shareholder Services (ISS)
- Allie Rutherford, Principal, CamberView Partners, LLC
- Thomas E. Sandell, Chairman and Chief Executive Officer, Sandell Asset Management Corp
- Anne Sheehan, Director of Corporate Governance, California State Teachers’ Retirement System (CalSTRS)
Moderator: Charles Elson, Director, John L. Weinberg Center for Corporate Governance, Alfred Lerner College of Business & Economics, University of Delaware; Edgar S. Woolard Chair in Corporate Governance; and Professor of Finance
The Symposium continued with a special academic paper presentation by Professor Lucian A. Bebchuk from Harvard Law School. The paper was “Making Independent Directors Work.” This was followed by the presentation of three additional academic papers on topics that are of critical importance to boards and investors today. The three academic papers presented were:
- “Shareholder Power and Corporate Innovation: Evidence from Hedge Fund Activism” Alon Brav, Duke University (Presenter); Wei Jiang, Columbia University; Song Ma, Duke University; Xuan Tian, Indiana University (Bloomington)
This paper studies how hedge fund activism reshapes corporate innovation. Firms targeted by hedge fund activists experience an improvement in innovation efficiency during the five-year period following the intervention. Despite a tightening in R&D expenditures, target firms experience increases in innovation output, measured by both patent counts and citations, with stronger effects seen among firms with more diversified innovation portfolios. We also find that the reallocation of innovative resources and the redeployment of human capital contribute to the refocusing of the scope of innovation and lead to gains in efficiency. Finally, the authors show that improvement in innovation efficiency is a by-product of asset reallocations triggered by activist interventions at the target firms.
Discussant – Sabastian V. Niles, Wachtell, Lipton, Rosen & Katz To read a copy of the paper, click HERE. Winner of the Best Paper Award.
- “Who Controls Corporate Charters? Shareholder Activism and Corporate Charter Amendments” Geeyoung Min, University of Virginia Law School (now with the Millstein Center for Global Markets and Corporate Ownership, Columbia Law School) (Presenter) Prior scholarship has characterized corporate charters as relatively static documents which tend to serve the interests of managers over those of shareholders. This paper challenges the conventional account using newly constructed original data on corporate charters of the 221 largest, publicly traded U.S. companies. The data show not only that there has been a substantial increase in charter amendment activity over the past decade, but also that the amendments have substantially empowered shareholders. As a descriptive matter, this paper argues that the flurry of charter amendments can be explained by the rise of shareholder activism combined with the more prominent role played by proxy advisory firms. The rise of shareholder activism, as measured by shareholder proposals on corporate governance issues, is not only positively related to the increase in the frequency of charter amendments, but also has influenced the contents of the charter amendments. Furthermore, a new rule from the U.S. Securities and Exchange Commission (“SEC”) in 2003, with its subsequent interpretation in the following year, has played an important role by empowering proxy advisory firms such as the Institutional Shareholder Services (“ISS”). At the same time, despite the general increase of shareholder influence on charter amendments, this paper also shows that directors still have retained strong control. Because the management and directors retain power over amendment proposals and full control over the final drafting of charter provisions, they are able to creatively impose limitations, some of which are potentially substantial, on how shareholders can exercise newly granted rights.
Discussant – Myron T. Steele, Potter, Anderson & Corroon LLP, and former Chief Justice, Delaware Supreme Court To read a copy of the paper, click Here
- “Banker Loyalty in Mergers and Acquisitions” Andrew F. Tuch, Washington University School of Law (Presenter) Investment banks often face conflicts of interest in their role as advisors on merger and acquisition (“M&A”) transactions. In performing their advisory role, are banks fiduciaries of their clients, and thus obliged to act loyally; gatekeepers, and thus required to perform a guardian-like function for investors; or simply arm’s length counterparties with no other-regarding duties? The prevailing scholarly view resists characterizing M&A advisors as fiduciaries, putting faith in the power of contract law and market constraints to discipline errant bank behavior. This Article develops a theoretical account of investment banks as fiduciaries of their M&A clients, showing why they should act loyally toward their clients unless they obtain informed client consent.
Second, the Article develops an analytical framework for assessing what liability rules will best deter disloyalty by investment banks toward their M&A clients. The framework applies optimal deterrence theory, drawing an analogy between bank disloyalty and tortious conduct. It shows why holding only banks liable for disloyalty is unlikely to adequately deter such disloyalty. It suggests the need for fault-based liability rules on corporate directors (of M&A clients) for their oversight of banks and for public enforcement to supplement private enforcement of liability rules. Applying this framework, the Article assesses recent Delaware decisions, including Del Monte, El Paso, and Rural Metro, generally supporting them but suggesting that private enforcement alone under-deters bank disloyalty and includes certain gaps in liability. It proposes modest but potentially significant doctrinal shifts, including subjecting directors’ decisions to “contract out” of fiduciary protections in engagement letters to heightened judicial scrutiny, and argues for increased regulatory oversight of banks in M&A deals. The Article nevertheless argues against imposing aiding and abetting liability on banks, regarding that doctrine as ill-suited to deterring bank disloyalty and, to the extent it hinges on treating banks as gatekeepers, as lacking theoretical justification.
Discussant – The Hon. J. Travis Laster, Vice Chancellor, Delaware Court of Chancery To read a copy of the paper, click HERE