Category Archives: Corporate Governance

Proxy Preview 2016

Source: Heidi Welsh, Michael Passoff, As You Sow, 2016

From the summary:
Shareholder activists have filed fewer resolutions in 2016 concerned solely with environmental and social issues at U.S. companies—a total of 370 as of February 15, down from the record 433 filed at this point last year and 417 in 2014. But when you add in the 72 sustainability resolutions from the New York City pension funds that ask for “proxy access” rights to enable large investors to easily nominate their own directors, the total is about where it has been for the last several years. (The resolutions are at companies that have high carbon footprints, low levels of board diversity and low investor support for executive pay.)

The Invisible Hand of Law: Private Regulation and the Rule of Law

Source: Joel Bakan, Cornell International Law Journal, Vol. 48 no. 2, Spring 2015

…Until the 1980s, and over the previous half century, law had served (albeit unevenly and incompletely) as the main institutional vehicle for policing corporations in aid of public interests, thereby protecting people, communities, and the environment from corporate excess and malfeasance. Over the course of the 1980s and thereafter, however, law’s protective role began to diminish, and privately promulgated voluntary regimes (hereinafter “private regulation”) emerged in its place.

Importantly, no such diminishment occurred in relation to law’s parallel and prominent role in protecting corporations and their interests. Here, state legal regimes continued to operate as robustly as ever; incorporate companies; establish their mandates; protect their rights as “persons”; shield their managers, directors, and shareholders from legal liability; compel their officers to prioritize their “best interests” (typically construed as increasing shareholder value); articulate and enforce their contract and property rights; and repress dissidents and protesters who opposed their growing power.

Corporations— indeed, corporate capitalism— could not exist without these legal foundations and supports, which taken together represent a massive infusion of state legal power into society. Despite that massive infusion, many private regulation advocates and commentators presume that globalization eviscerates state legal power, and prescribe, on that basis, that private regimes should take law’s place. This Article challenges that presumption and prescription. Following examination of the rise of private regulation in Part I, Part II reveals how private regulation advocacy and commentary often obscure, and effectively render invisible, law’s robust role in constituting and protecting corporations, thereby exaggerating globalization’s alleged diminishment of state legal power. Part III claims that private regulation weakens the rule of law and its democratic potential, with the effect, Part IV explains, of exacerbating corporate threats to public interests…..

Investigate – What are you invested in?

Source: American Friends Service Committee, 2015

This free investment screening tool is provided to help individuals and institutions identify companies on their investment portfolios that are directly complicit in ongoing severe violations of human rights and international law. These corporate violations have not been researched or reported by the investment community until recently, and the information provided is meant to encourage investors to make fully informed decisions as shareholders of these companies.

Securities Enforcement Empirical Database (SEED)

Source: New York University – Pollack Center for Law & Business and Cornerstone Research, 2015

From the press release:
The NYU Pollack Center for Law & Business, in partnership with Cornerstone Research, has announced the launch of the Securities Enforcement Empirical Database (SEED), located at SEED tracks and records information for US Securities and Exchange Commission (SEC) enforcement actions against public companies. With data on SEC actions filed since October 1, 2009, SEED offers insight into multiyear trends and priorities in federal securities enforcement.

Opportunistic Proposals by Union Shareholders

Source: John G. Matsusaka, Oguzhan Ozbas, Irene Yi, University of Southern California, CLASS Research Paper No. CLASS15-25, October 8, 2015

From the abstract:
Effective corporate governance requires mechanisms that allow shareholders to influence corporate decisions. This paper investigates the use of shareholder proposals, an increasingly prominent governance mechanism, by labor unions. Activist union pension funds are subject to cross-pressures: they wish to increase fund returns to help beneficiaries but also to aid current union workers. We show theoretically that shareholder proposals can be used as bargaining chips in contract negotiations. Empirically, we use variation in the expiration of collective bargaining agreements to identify exogenous changes in the value of making proposals. We find that during contract negotiation years, unions increase the number of proposals they make by about one-quarter (and by about two-thirds during contentious negotiations), and change the subject of proposals to focus on matters personally costly to managers. We do not find similar changes in proposal behavior by nonunion shareholders. Opportunistic union proposals are also associated with better wage agreements for the union. The evidence suggests that some union proposals are intended to influence collective bargaining outcomes rather than maximize shareholder value, and that increasing proposal rights will not necessarily help shareholders at large if some shareholders use those rights to advance their private interests.

Fining McWalmart: Charging Employers for the Social Costs of Poverty Wages

Source: Erica Smiley, New Labor Forum, Vol. 24 no. 3, Fall 2015
(subscription required)

From the abstract:
… The “low-wage employer fee” is actually any strategy that attempts to win back the resources workers lose when large, low-wage corporations transfer their costs to the public while continuing to increase their own profits…. Once such a fee is implemented, low-wage employers can either negotiate directly with workers over wages and conditions of the industry or they can pay the low-wage employer fee that workers will appropriately allocate to subsidize the community’s assumed costs of low-wage work. How they pay the fee, and how often, would be set based on the local context—either in a lump sum or in intervals throughout the year. The hope is that it ultimately expands workers’ ability to collectively define industry standards—either directly with employers or around them via smartly crafted state interventions. ….

Offshore Shell Games 2015 – The Use of Offshore Tax Havens by Fortune 500 Companies

Source: Robert S. McIntyre, Richard Phillips, Phineas Baxandall, U.S. PIRG and Citizens for Tax Justice, 2015

From the summary:
U.S.-based multinational corporations are allowed to play by a different set of rules than small and domestic businesses or individuals when it comes to the tax code. Rather than paying their full share, many multinational corporations use accounting tricks to pretend for tax purposes that a substantial portion of their profits are generated in offshore tax havens, countries with minimal or no taxes where a company’s presence may be as little as a mailbox. Multinational corporations’ use of tax havens allows them to avoid an estimated $90 billion in federal income taxes each year.

Who’s Calling the Shots in State Politics? Corporations playing politics with ballot measures

Source: Liz Essley Whyte, Center for Public Integrity, September 2, 2015

….The Center for Public Integrity reviewed 55 publicly traded companies and top corporate givers to ballot measures and found nine instances of curious positions — positions taken even when the companies’ policies emphasize their business interests as the overriding criteria in doling out political contributions. The areas of interest were fairly diverse, but most seemed to focus on social issues or were aimed at fundamental changes to how state government operates….

….Some of the contributions that don’t line up with company policy appear to be aimed at building corporate political clout in the states. Companies are keen to make governors and legislatures as friendly as possible to business, according to Paul Kelly, a board member of the Association of Government Relations Professionals, which represents lobbyists. Sometimes that means contributing to issues that control how those politicians are elected…..

In Defense of Corporate Persons

Source: Kent Greenfield, Constitutional Commentary, Vol. 30, 2015

From the abstract:
This essay is a critique of this attack on corporate personhood. It explains that the corporate separateness – corporate “personhood” – is an important legal principle as a matter of corporate law. What’s more, as a matter of constitutional law, corporate “personhood” deserves a more nuanced analysis than has been typically offered in arguing in favor of an amendment to overturn Citizens United. Indeed, the concept of corporate “personhood” can in fact be marshaled in arguments against corporations being able to assert constitutional rights. In the nascent category of cases brought by corporations asserting rights of religious freedom, for example, corporations typically derivatively assert the religious claims of their shareholders. Attention to corporate “personhood” would lead courts to separate the claims of shareholders from those of the corporation itself, leading to a dismissal of corporate religious claims asserted on behalf of shareholders.

Finally, it proposes that the concerns motivating the movement against corporate personhood should be ameliorated with adjustments in corporate governance rather than constitutional law. In corporate law, what we need are changes in corporate governance to make corporations more like persons, not less. Unlike persons, corporations are expected to act if they have only one goal – the production of shareholder value. People must balance a range of obligations, both moral and legal. Requiring corporations to attend to a broader range of stakeholders would make corporations more like people, would make them better citizens, and would make their political participation less problematic.

How Corporate Governance Is Made: The Case of the Golden Leash

Source: Matthew D. Cain, Jill E. Fisch, Sean J. Griffith, Steven Davidoff Solomon, University of California, Berkeley – School of Law, UC Berkeley Public Law Research Paper No. 2635161, July 1, 2015

From the abstract:
This Article presents a case study of a corporate governance innovation — the incentive compensation arrangement for activist-nominated director candidates colloquially known as the “golden leash.” Golden leash compensation arrangements are a potentially valuable tool for activist shareholders in election contests. In response to their use, several issuers adopted bylaw provisions banning incentive compensation arrangements. Investors, in turn, viewed director adoption of golden leash bylaws as problematic and successfully pressured issuers to repeal them.

The study demonstrates how corporate governance provisions are developed and deployed, the sequential response of issuers and investors, and the central role played by governance intermediaries — activist investors, institutional advisors, and corporate law firms.

The golden leash also presents an opportunity to test the response of share prices to governance innovation. We conduct two cross-sectional event studies around key dates that affected the availability of the golden leash. Our core finding is that share prices of those firms facing activist intervention reacted positively to events that make golden leashes more available and negatively to events that make golden leashes less available. Moreover, we find that this governance innovation did not affect every firm in the same way. Only the share prices of those firms most likely to be subject to activist attention experienced statistically significant share price reactions.

Our research contributes to the debate over how corporate governance is made and its economic significance. Although we find that corporate governance provisions may be priced, at least in some circumstances, our study also suggests that corporate governance is a complex story involving the actions and reactions not merely of the firm and its shareholders but a variety of intermediaries and interest groups that have agendas of their own.