The Examiners: Insider Pay Disclosures Can Spark Troubling Unintended Consequences, Wall Street Journal, November 18, 2015 […] Whatever the merits of the disclosure debate may be, the debate is swept up in the larger controversy surrounding executive pay faced by healthy and distressed businesses alike. For example, in their controversial treatise on the unfulfilled promise of executive compensation, Lucian Bebchuk and Jesse Fried weave a detailed account of how structural flaws in corporate governance have enabled managers to influence their own pay and have produced widespread distortions in pay arrangements. They believe that directors must focus on shareholder interests and operate independently from the executives whose compensation they set by making directors more directly accountable to shareholders.
Members of Congress Ask SEC to Divulge Corporate Political Spending, Corporate Counsel, October 28, 2015 Some 58 members of the House of Representatives this week sent a letter to the U.S. Securities and Exchange Commission supporting a mandate for corporations to disclose their political spending to investors, hoping to get the agency to reconsider a rule-making petition. […] The representatives join 44 U.S. senators who sent White a similar letter in August supporting the rule-making petition submitted by a committee chaired by law professors Lucian Bebchuk of Harvard and Robert Jackson Jr. of Columbia.
The Case For and Against Activist Hedge Funds, ValueWalk, October 20, 2015 Activist hedge funds can count on a number of supporters in academia and in the media rising up in defense of their actions. No doubt activist hedge funds have found their most persistent academic supporters in Professor Lucian Bebchuk of the Harvard Law School and his co-authors. In several papers, but most particularly in the Bebchuk, Brav and Jiang (2013) paper, the authors make several claims, which are summarized in Bebchuk’s op-ed piece in the Wall Street Journal: […]
Some Companies Balk at Disclosing Details of Political Giving, Wall Street Journal, September 15, 2015 Shareholders are hitting a wall with some major companies in their effort to persuade them to disclose how they spend corporate money to support political candidates. According to the Center for Political Accountability, at least one in 10 big publicly traded companies doesn’t reveal details of its donations to electoral candidates, parties or causes on its website, where investors could easily find it...Many investors want to know how and where companies put corporate funds to work, said Lucian Bebchuk, a professor at Harvard Law School. “Without disclosure and accountability, companies may well spend funds on political causes that insiders favor but shareholders do not.”
‘Trading the gap’ give insiders a big advantage in stock trades. And it’s perfectly legal. The Washington Post, September 15, 2015 Stock markets today move by the microsecond. Fortunes are made and lost in the blink of an eye. Yet public companies are still allowed to wait four business days before announcing a major merger, bankruptcy, layoff or a new CEO. That kind of news can send share prices soaring or crashing. And a potential 96-hour delay in revealing those events translates into an eon by the clock that runs modern markets...It’s called “trading the gap.” And in the last six years, corporate insiders have earned $105 million in above-market profits by doing it, researchers found. It’s not illegal. But the findings raise questions about whether this was the intended effect of financial regulations, write study authors Alma Cohen of Harvard Law and Robert J. Jackson, Jr. and Joshua R. Mitts at Columbia Law.
Insiders Beat Market Before Event Disclosure: Study, Wall Street Journal, September 14, 2015 Corporate executives and board members regularly make market-beating returns from buying and selling their companies’ stock in the days before disclosing a significant event, according to a study that says it has found a link between insider knowledge and investment profits. Researchers at Columbia and Harvard universities analyzed 42,820 insider purchases and sales reported by companies between 2004 and 2014. The findings wade into a long-running debate over whether U.S. securities laws, many of them decades old, can effectively police a trading market that has grown ever faster and more complex. Critics say the lag time allowed by current disclosure rules is a relic of an era before electronic filings and is ripe for abuse. “To leave open a gap like that is an invitation to insider trading,” said Robert Jackson, a Columbia Law School professor who co-wrote the study with his colleague Joshua Mitts and Alma Cohen of Harvard.
Top US bank executives abandon share sale taboo, Financial Times, June 16, 2015
However, Lucian Bebchuk, director of the corporate governance programme at Harvard Law School and a former adviser to the US government’s “pay tsar”, argued there should be tighter restrictions on the amount of annual selling by executives. “When bank executives have substantial freedom to unload equity incentives given to them as part of their compensation, and when executives can be expected to make significant use of their freedom to unload such equity incentives, the executives’ pay arrangements produce distorted incentives to engage in excessive risk-taking,” he said. “Providing bank executives with desirable risk-taking incentives requires precluding them, as long as they lead their bank, from unloading a significant fraction of their holdings in any given year.”
How Wall Street Enabled A Controversial Power Grab At A Wannabe Berkshire Hathaway, Forbes, June 14, 2015
“The tender offer is an aggressive entrenchment move aimed at enabling the CEO to use the shareholders’ money to gain control over the company,” says Lucian Bebchuck, director of the program on corporate governance at Harvard Law School. “Given that the CEO’s management and performance has been controversial, it is especially important for this company’s shareholders to retain the power to vote for a change of control. Unfortunately, if the tender offer is successful, the CEO would become fully entrenched,” he adds.
Wall Street will always crush the little guy, but the stock market could be fairer, MarketWatch, May 21, 2015
A paper by Harvard Law School professor Lucian Bebchuk found that CEOs who earn more than the average “pay slice” of 35% of a firm’s total compensation for its top five executives significantly underperform their peers. That is because such companies make poor acquisition decisions, reward their CEOs for “luck” when industry conditions improve, fail to hold CEOs accountable for poor performance, and grant options that are timed “opportunistically,” Bebchuk found.
Wall Street Executives from the Financial Crisis of 2008: Where Are They Now?, Vanity Fair, March 19, 2015
[Former Lehman Brothers C.E.O. Dick] Fuld remains fabulously wealthy, although just how wealthy remains a subject of some dispute. During the same October 2008 congressional hearing in which he sparred with Mica and Henry Waxman, the committee chairman, about how much money he had made at Lehman, Waxman released a chart showing that Fuld had been paid $484 million between 2000 and 2007. Under oath, Fuld argued he had received closer to $310 million. Later in the hearing he conceded that it may have been $350 million. A subsequent analysis by Harvard law professor Lucian Bebchuk and colleagues concluded that the figure was $522.7 million; Oliver Budde, formerly a lawyer who worked at Lehman on regulatory matters, has calculated that Fuld made $529.4 million between 2000 and 2007.
Shareholder capitalism on trial, Washington Post, March 19, 2015
Similarly, most executives don’t automatically favor share purchases over hard investment projects, argues Harvard law professor Lucian Bebchuk, an expert on corporations. If they had hard projects that were more profitable than purchasing shares, they would actually do better personally, he says. Firms would become more profitable, so their stock prices and executive compensation would rise even further. What’s happening, Bebchuk says, is that investment funds are being channeled from slow-growing to fast-growing sectors.
The Morning Risk Report: Petrobras Underlines Corruption Risks for Investors, Wall Street Journal, March 17, 2015
Anger over the [Petrobras corruption] revelations sent more than a million Brazilian protesters into the streets last weekend, in a sign that the issues may lead to a broader, more painful reorganization of the firm, said Stephen Davis, an associate director of Harvard Law School’s program on corporate governance. “It has elevated corruption on the risk hierarchy within the investor community,” Mr. Davis said. The case begs the question “if a company is looking the other way or tolerating corruption what else is the company doing that might not be in the shareholders’ interest?”
Activist funds: An investor calls, The Economist, February 7, 2015
A study of activism in 1994-2007 by Lucian Bebchuk of Harvard Law School, and his colleagues, found that activist interventions lead to a sustained, if modest, improvement in operating performance and better shareholder returns. Its period of interest precedes the recent growth in activism, but there is reason to believe that the pattern persists.
An Unusual Boardroom Battle, in Academia, New York Times DealBook, January 5, 2015
At the heart of the dispute is an academic paper written last month by Daniel M. Gallagher, a member of the Securities and Exchange Commission, and Joseph A. Grundfest, a professor at Stanford Law School and himself a former S.E.C. commissioner, that was titled “Did Harvard Violate Federal Securities Law? The Campaign Against Classified Boards of Directors.” The paper took aim at Lucian A. Bebchuk, a Harvard Law School professor who has long researched corporate governance issues and has been an outspoken advocate for increased democracy in corporate America’s boardrooms. Through Harvard’s Shareholder Rights Project, a group he created, Mr. Bebchuk, on behalf of public pension funds, has helped wage proxy contests at 129 companies to change policies that prevent shareholders from electing, or overthrowing, an entire board at once.
Is The Harvard Shareholder Rights Program Breaking The Law?, ValueWalk, December 18, 2014
The Harvard Shareholder Rights Program (HSRP) has spent the last few years pushing back against board staggering, where directors are given multi-year terms so that they don’t all go up for re-election at the same time (the Senate, for example, follows a similar system). The ‘Harvard Proposal,’ developed by the project, has been used in more than 100 campaigns against large US companies by shareholders trying to force boards to de-stagger, and the HSRP is credited with pushing the public debate steadily against staggered (or classified) boards. But according to Stanford professor of law and business Joseph Grundfest and SEC commissioner Daniel Gallagher, the ‘Harvard Proposal’ is illegal because it misleads shareholders.
Did Harvard Violate Federal Securities Law? SEC Commissioner Gallagher Thinks So, Business Law Prof Blog, December 13, 2014
In a new paper posted to SSRN, SEC Commissioner Daniel Gallagher and Professor Joseph Grundfest accuse the [Harvard Shareholder Rights Project] of making misleading statements regarding the benefits of declassified boards. They suggest that Harvard could be vulnerable to lawsuits by shareholders or the SEC under Rule 14a-9, which forbids false statements in proxy solicitations. The paper, with the provocative title “Did Harvard Violate Federal Securities Law?” is discussed in the Wall Street Journal.
SEC's Gallagher says Harvard liable for proposals, CQ Roll Call, December 12, 2014
Daniel M. Gallagher, a Republican commissioner at the Securities and Exchange Commission, said the agency could bring enforcement action against Harvard University alleging that a law school project presented materially false or misleading data in shareholder proposals to declassify company boards. Harvard Law School's Shareholder Rights Project, which works on behalf of shareholders seeking to improve corporate governance, has assisted shareholders in submitting almost 130 proposals to companies requesting that their board members face reelection annually. Those proposals were misleading, Gallagher said in a paper co-written with Stanford Law School professor Joseph Grundfest.
SEC Commissioner Warns Harvard of Vulnerability, Wall Street Journal, December 10, 2014
A top official at the Securities and Exchange Commission has taken the unusual step of saying Harvard University could be vulnerable to legal action from the agency or investors over a corporate governance project. In an academic paper, Daniel Gallagher, one of five SEC commissioners, criticized the Shareholder Rights Project at Harvard, which helps large investors like pension funds file shareholder ballot measures meant to help investors get more influence over corporate boards. … Lucian Bebchuk, director of the Harvard project, rejected any suggestion the project’s efforts violate securities laws, saying its work is “entirely consistent with SEC rules and not false or misleading in any way.”
Bonuses influence where bankers go but it’s not all about pay, The Conversation, December 1, 2014
Finally, it has been argued that large compensation packages for senior executives of companies may have more to do with the so-called agency problem than with either competition for managerial talent or failure in the market for managerial talent. Boards can find it difficult to negotiate compensation packages of executives without giving these executives a significant influence over their compensation packages. Such managerial power over their own pay obviously has direct implication for the level of the compensation and Bebchuk and Fried argue that managerial influence over their own pay can also de-couple their pay from firm performance.
Poison Pill Adoptions Head for Record Low, Agenda, November 24, 2014
Harvard University law professor Lucian Bebchuk, a longtime critic of using poison pills to block takeovers, particularly disapproves of pills used to block [shareholder] activists. “State law, including Delaware law, still provides boards with expansive and in my view excessive latitude to adopt both types of pill,” Bebchuk says in an e-mail response. “In my opinion, anti-activists pills are especially pernicious because an activist’s purchase of a significant stake falling far short of control tends to benefit rather than harm non-selling shareholders.”
Perspectives on Investor Activism, National Law Review, November 10, 2014
A forthcoming paper (by Lucian Bebchuk, Alon Brav, and Wei Jiang) examines the operating and stock price performance of firms that are targets of hedge fund activists. The authors document neutral to positive performance for the five years following activism, which they interpret as evidence against the claim that “myopic” activists push for short-term improvements that sacrifice value in the long run.
Did Bill Ackman just kill the poison pill?, Fortune, November 6, 2014
Lucian Bebchuk, a Harvard professor who has called laws that uphold poison pills provisions unconstitutional in the past, isn’t claiming a victory yet. He says the California judge’s ruling doesn’t change much. Activists always had the ability to vote out board members to get around poison pill agreements. “The poison pill remains highly relevant and [is still] the key defense tool that targets use to block offers,” says Bebchuk.
Federalist Society 2014 National Lawyers Convention, The Washington Post, October 30, 2014
The Federalist Society’s 2014 National Lawyers Convention is happening Thursday, November 13 to Saturday, November 15, and it should be an excellent event. Speakers will include Justices Scalia and Alito, Senators Mike Lee and Orin Hatch, former Attorney General Michael Mukasey, former ACLU head Nadine Strossen, Carly Fiorina, and former BB&T Corp. head John Allison (now head of Cato). Academic panelists will include — among many others — Richard Epstein, Chai Feldblum, Gail Heriot, Lucian Bebchuk, Jonathan Turley, Neal Katyal, Randy Kennedy, our own Jonathan Adler and Nick Rosenkranz, and me [Eugene Volokh].
As Dark Money Floods U.S. Elections, Regulators Turn a Blind Eye, Newsweek, September 30, 2014
In addition, nearly a dozen senators and more than 40 members of the House have supported [the SEC rulemaking petition], according to one of the petition’s drafters, Lucian Bebchuk, a professor of law, economics and finance at Harvard. Bebchuk scoffs at those who say new rules to disclose corporate political spending will hurt confidentiality. “One could understand such an argument for letting individuals anonymously contribute their money,” he told Newsweek. “But such an argument loses its force when public companies make political contributions. In such a case, executives contribute not their own money but shareholders’ money, and there is little basis for allowing them to keep the contribution hidden from the shareholders whose money is spent.”
Time to put an end to the cult of shareholder value, Globe and Mail, September 26, 2014
Paul Polman, the CEO of Unilever, thinks American-style capitalism is broken, and he blames, in good part, the cult of shareholder value that has been all the rage since the 1980s. … He has railed against the theories of economists and biz-school gurus like Milton Friedman, Michael Jensen and Lucian Bebchuk, the high apostles of shareholder power and democracy.
Alibaba IPO bulls are missing some red flags, Wall Street Journal MarketWatch, September 20, 2014
Harvard University Professor Lucian Bebchuk, director of the Harvard Law School’s Program on Corporate Governance, noted that the governance issues “are concerns that go to the economic value of the shares at present. To the extent that public investors can be expected not to share a significant portion of the value will produce, that should be reflected in investors’ current valuation of the stock.”
Alibaba's IPO, The Conglomerate, September 19, 2014
Investors apparently aren't listening to Harvard Law's Lucian Bebchuk, who earlier this week expressed governance worries about the firm, particularly its control by insiders. In Alibaba, control is going to be locked forever in the hands of a group of insiders known as the Alibaba Partnership. These are all managers in the Alibaba Group or related companies. The Partnership will have the exclusive right to nominate candidates for a majority of the board seats. Furthermore, if the Partnership fails to obtain shareholder approval for its candidates, it will be entitled “in its sole discretion and without the need for any additional shareholder approval” to appoint directors unilaterally, thus ensuring that its chosen directors always have a majority of board seats.
The Risks of Alibaba’s Wall Street Splash, The Diplomat, September 19, 2014
Writing in the New York Times, Harvard law School’s program director on corporate governance Lucian Bebchuk warns that despite the IPO, the corporate structure of Alibaba allows for control “to be locked forever in the hands of a group of insiders known as the Alibaba Partnership. These are all managers in the Alibaba Group or related companies. The Partnership will have the exclusive right to nominate candidates for a majority of the board seats,” despite only holding a small percentage of the company’s equity capital. This type of structure could allow the board to make deals that are beneficial to companies that these members have a substantial stake in, but that might be unfavorable to Alibaba.
Everything You Need to Know About Alibaba and its Mega-IPO, Time, September 18, 2014
The Partnership structure was rejected by the Hong Kong Stock Exchange, which is how Alibaba ended up on Wall Street in the first place. Though members of the Partnership must have a “meaningful” equity stake in Alibaba, according to the company prospectus, it’s not spelled out how large the stake must be. As Harvard Law School professor Lucian Bebchuk points out, partners could choose to later pare down their stakes in Alibaba and attempt to influence the company in ways that are not beneficial to other shareholders (remember, Yahoo and Softbank have basically handed their votes to the Partnership).
Alibaba's stock market listing a risky prospect as insiders hold all the cards, The Guardian, September 18, 2014
Lucian Bebchuk, a professor of law, economics and finance at Harvard Law School, put the problem this way in a sharp piece for the New York Times: "With an absolute lock on control and a limited fraction of the equity capital, the Alibaba insiders will have substantial incentives to divert value from Alibaba to other entities in which they own a substantial percentage of the equity. This can be done by placing future profitable opportunities in such entities, or making deals with such entities on terms that favour them at the expense of Alibaba."
4 reasons to skip the Alibaba IPO frenzy, CBS MoneyWatch, September 18, 2014
As Harvard Law School professor Lucian Bebchuk noted in The New York Times, "insiders have a permanent lock on control of the company but hold only a small minority of the equity capital." It means a small group has total control of Alibaba. "With an absolute lock on control and a limited fraction of the equity capital, the Alibaba insiders will have substantial incentives to divert value from Alibaba to other entities in which they own a substantial percentage of the equity," Bebchuk wrote.
Levine on Wall Street: Calpers's Exit and Alibaba's Debut, Bloomberg View, September 17, 2014
Here is Lucian Bebchuk: "It is important for investors, however, to keep their eyes open to the serious governance risks accompanying an Alibaba investment." He focuses on the fact that the people who run Alibaba hold only a relatively small chunk of the equity, and so are not aligned with shareholders; in particular Jack Ma is a bigger owner of Alipay than he is of Alibaba (itself the result of a transaction that left people a bit puzzled), and so the worry is that he will seek to benefit Alipay at the expense of Alibaba shareholders.
Can Alibaba Shares Climb Wall of Worry?, Barron's, September 17, 2014
In a coluimn in the New York Times Tuesday, Lucian Bebchuk, a professor who heads Harvard Law School's program on corporate governance, writes that investors need to "keep their eyes open to the serious risks accompanying an Alibaba investment." For one, insiders have a permanent lock on control of the company but hold only a small minority of the equity capital," Bebchuk writes. "Then, there are many ways to divert value to affiliated entities, but there are weak mechanisms to prevent this. Consequently, public investors should worry that, over time, a significant amount of the value created by Alibaba would not be shared with them."
Record Response Urges SEC To Require Disclosure Of Corporate Political Spending, MintPress News, September 11, 2014
“The overwhelming support from public comments the petition has attracted, and the strength of the arguments for transparency put forward in the petition, provide a strong case for SEC initiation of a rulemaking process,” Lucian Bebchuk, director of the corporate governance program at Harvard Law School and one of a group of academics who, in 2011, submitted the original petition on the issue, said at a press conference here last week. “Furthermore, opponents of the petition have failed in their comments to provide any good basis for avoiding such a process.”
One Million Comments Urge the SEC to Stop Secret Corporate Political Spending, Truthout, September 8, 2014
"The overwhelming support from public comments the petition has attracted, and the strength of the arguments for transparency put forward in the petition, provide a strong case for SEC initiation of a rulemaking process," said Lucian Bebchuk, professor and director of the program on Corporate Governance at Harvard Law School and co-chair of the committee that filed the petition. "Furthermore, opponents of the petition have failed in their comments to provide any good basis for avoiding such a process."
One Million Americans Want Corporations to Reveal Political Spending, Moyers & Company, September 8, 2014
A coalition of academics, good-government advocacy groups and shareholder activists announced last week that one million Americans have written the Securities and Exchange Commission (SEC) asking for a rule to make corporations reveal how they spend money for political purposes. … In a blog post, [Robert] Jackson and fellow petitioner Lucian Bebchuk noted that the issue had attracted far more comments than any other the SEC had ever considered. Asked why, Bebchuk, a widely cited professor of law, economics and finance at Harvard, said, “The case for transparency in this area is clear and compelling to a broad spectrum of people, including individuals who would otherwise not consider expressing a view on SEC matters. The current freedom of public companies to spend money on politics without telling their investors is clearly unacceptable to a large number of people who care enough about it to write to the SEC.”
Study Says Activist Investors Good For Long Term, ValueWalk, August 21, 2014 Harvard University’s Lucian Bebchuk, Duke University’s Alon Brav and Columbia University’s Wei Jiang examined activist targets from 1994 to 2007, monitoring the stock price of activist target stocks against a benchmark index three years before and five years after the target intervention month. In almost all cases, the activist intervention improved long term stock performance.
Do Hedge Funds Create Sustainable Company Growth?, IEDP Blog, August 18, 2014 Three researchers, Lucian Bebchuk of Harvard Law School, Alon Brav of Duke Fuqua School of Business, and Wei Jiang of Columbia Business School […] discovered that despite much hype to the contrary the long-term effect of hedge funds and ‘activists shareholders’ is largely positive. They tested the conventional wisdom that interventions by activist shareholders, and in particular activist hedge funds, have an adverse effect on the long-term interests of companies and their shareholders and found it was not supported by the data.
Should you follow an activist into a stock?, Fortune, July 24, 2014 Evidence shows that buying stocks after change-oriented campaigns are instigated can yield superior returns for several years. … S&P Capital IQ examined 874 companies between 2003 and 2013 and found that those targeted by activists outperformed the Russell 3000 by 6.3 percentage points in the 23 days before and after the initial filing an activist made with the Securities and Exchange Commission. (About half of that rise occurred before the filing.) Lucian Bebchuk, a Harvard Law School professor who also heads the university’s Program on Corporate Governance, found similar initial gains in a study of some 2,000 activist campaigns between 1994 and 2007.
Cash allowances for CEOs? They're not kids, USA Today, May 24, 2014 Governance experts say allowances, some in lieu of other perks, some on top of other corporate freebies, are unwarranted. "There's little economic logic for public companies to reward top executives with perks,'' says Lucian Bebchuk, director of Harvard Law School's Program on Corporate Governance.
What Thomas Piketty Gets Wrong About Capitalism, Reason.com, May 23, 2014 For [Thomas] Piketty, the only plausible explanation for skyrocketing executive pay is self-dealing: managers are taking advantage of weak corporate governance to benefit themselves at the expense of shareholders. This is certainly a popular view, and it has its scholarly defenders—most notably, Lucian Bebchuk and Jesse Fried at Harvard Law School.
Is This Warren Buffet or Thomas Piketty?, Huffington Post, May 1, 2014 Most scholars claiming that high pay for CEO is rent seeking or appropriation from stockholders explain that the problem is that most big public corporations in the US have a dispersed ownership: The board members have a principal agent problem - they are "captured" by management and have no real incentive to negotiate the compensation at arm's length. Shareholders, they explain don't have a real voice in the board. Professor Lucian Bebchuk from Harvard together with Professor Jessie Fried from Harvard Law School articulated those ideas 10 years ago in a series of papers and book "Pay without performance".
How to Outsmart Activist Investors, Harvard Business Review, May, 2014 [Shareholder activists] buy stocks they view as undervalued and pressure management to do things they believe will raise the value, such as giving more cash back to shareholders or shedding divisions that they think are driving down the stock price. […] Multiple studies have shown that activism succeeds in raising share prices, at least temporarily. A major recent study by Lucian Bebchuk, Alon Brav, and Wei Jiang of activist investments from 1994 through 2007 also found five-year improvements in the operating performance of targeted companies.
Carl Icahn defends Ackman, slams Lipton, CNBC, April 23, 2014 Icahn added that contrary to [Martin] Lipton's claims, he has invested "billions" in his companies and helps many of them for the long term. He also cited recent research by Harvard Law School professor Lucian Bebchuk that shows the long-term benefits to companies of activist investor involvement.
Activists Wept for There Were No More Worlds to Conquer, Wall Street Journal, April 22, 2014 The exotic came into view on Monday, when Valeant Pharmaceuticals International Inc. announced a pre-emptive alliance with activist William Ackman to coax Allergan Inc. into a $40 billion-plus merger. […] The stock market applauded the approach, pushing up both Valeant and Allergan shares. Similarly, a highly-cited and controversial 2013 study by Harvard Law School's Lucian Bebchuk of 2,000 activist situations found that operating performance at affected companies actually improved over time.
Why Give Hedge Fund Raiders 10 Days to Disclose?, Bloomberg View, April 22, 2014 Outside investors must disclose their stakes publicly within 10 days after reaching the 5 percent mark […] This is a subject that Harvard Law School professor Lucian Bebchuk and famed corporate lawyer Marty Lipton have been arguing about for years in various open forums. […] Bebchuk has argued that the disclosure rules for large stockholders don't need to be changed. In his view, outside blockholders can be a useful check on entrenched, inefficient management and shouldn't be discouraged from acquiring stakes.
Time to rein in grossly overpaid CEOs, Al Jazeera America, April 21, 2014 The question is how much does the CEO contribute compared with the next person in line for the job? Given the experience of large corporations in other countries, there is every reason to believe that there are lots of next people who could do the job as well or better and for much less. (Anyone who believes that CEO pay actually reflects the CEO’s value to the company should read Lucien Bebchuk’s outstanding book, Pay Without Performance.)
Now It's Strine Taking Aim at Bebchuk Over Governance, American Lawyer, March 25, 2014 Delaware Supreme Court Chief Justice Leo Strine has challenged Harvard Law School professor Lucian Bebchuk to rethink his focus on unfettered shareholder democracy. […] According to Strine's essay, the crux of his disagreement with Bebchuk is the unequal treatment that boards get compared to shareholders, not all of whom necessarily have long-term value at heart themselves.
Activists crash dealmaker party, Breakingviews, March 25, 2014
Uppity investors publicly targeted 237 companies last year, an 8 percent increase from 2012, according to Activist Insight. And while Lipton, of the New York firm Wachtell, Lipton, Rosen & Katz, and Harvard shareholder-rights advocate Lucian Bebchuk still publicly butt heads over whether such investors seek long-term value or just a quick buck, the tone is decidedly less combative behind the scenes.
Dealpolitik: Are Poison Pill Takeover Defenses Unconstitutional?, Wall Street Journal, March 25, 2014 Two prominent corporate law professors are arguing in a paper soon to be published in the Columbia Law Review that the ubiquitous poison pill used by target companies to defend against hostile takeovers is vulnerable to being challenged as unconstitutional. […] In reaching the conclusion that courts may someday reject poison pills as unconstitutional, Professors Lucian Bebchuk of Harvard and Robert Jackson of Columbia look back at two U.S. Supreme Court cases decided in the 1980s, in the relatively early days of takeovers.
Bebchuk Fires Back at Lipton in Williams Act Debate, American Lawyer, March 18, 2014 A contentious debate over the validity of the so-called poison pill defense against unsolicited corporate takeover continued to simmer Monday, after Harvard Law School professor Lucian Bebchuk parried Wachtell Lipton Rosen & Katz founding partner Martin Lipton’s scathing response to a recent paper coauthored by Bebchuk that suggests the 45-year-old federal law known as the Williams Act is the best weapon for defeating such a takeover defense.
Academic highlight: Rethinking securities class actions, SCOTUSblog, March 7, 2014 [Economists] have long debated the efficient capital markets thesis, which may be why the Court is now taking a second look at Basic. Academic experts in securities law are weighing in as well in the hopes of shaping the Supreme Court’s view of these issues. In their article Rethinking Basic — cited in both both sides’ briefs — Lucian Bebchuk and Allen Ferrell argue that Justices should avoid addressing the thorny question whether markets are perfectly efficient, and instead focus on whether there has been actual fraudulent distortion of market price — a determination they argue can be made through the use of “event studies.”
Law Profs Bebchuk, Johnson Float Poison Pill Preemption Tactic, American Lawyer, March 5, 2014 Two legal academics say it is time for a close examination of a 45-year-old federal statute that they believe could be employed to preempt state laws that allow so-called poison pill defenses against unwanted corporate takeovers. In a paper entitled, “Toward a Constitutional Review of the Poison Pill,” Harvard Law School professor Lucian Bebchuk, who directs the school’s corporate governance program, and Robert Jackson Jr., an associate professor of law at Columbia Law School, write that the potential of the law in question, the Williams Act, to trump poison pills has been largely ignored since its passage in 1968.
Anything you can do, Icahn do better, The Economist, February 15, 2014 [Critics] argue that activists encourage firms to do things that boost their share price in the short run but harm their long-term performance. This critique has plenty of adherents, in academia, business and government. Yet empirical proof that activists exacerbate short-termism is strangely elusive. Indeed, such evidence as there is suggests the opposite.“The Long-Term Effects of Hedge-Fund Activism”, a recent paper by Lucian Bebchuk of Harvard Law School and others, examined the roughly 2,000 interventions at companies by activist funds from 1994 to 2007. Over the five years following an intervention both the share price and the operating performance of the target company improved, on average. The operating performance got stronger towards the end of the five-year period, not weaker.
Even Among the Richest of the Rich, Fortunes Diverge, New York Times, February 10, 2014 By just about any measure, earnings for executives are near their highs, achieved during the stock-market bubble that occurred around the millennium. Not all of that increased compensation for managers is because of improving performance, either. The growth of earnings for executives has outpaced growth in the stock market or in corporate earnings, by a wide margin. So why are executives making so much? Researchers point to a few causes. Executives seem to have managed to co-opt passive corporate boards to extract fatter and fatter compensation packages, for one. “Boards have not been operating at arm’s length from the executives whose pay they set,” Lucian A. Bebchuk and Jesse M. Fried of Harvard Law School contend in an exhaustive study of the phenomenon. “The constraints imposed by market forces and shareholders’ power to intervene are not tight enough to prevent such deviations.”
Better way to elect directors, Pensions & Investments, February 3, 2014
If proxy voting is the principal way shareholders influence corporate governance and the direction of corporations, the rules of the Securities and Exchange Commission fall short in enabling shareholders in contested elections to select the combination of nominees they believe will best foster long-term value creation. … Lucian A. Bebchuk, professor of law, economics and finance at Harvard Law School, calls the shareholder franchise a myth, in part because of constraints on shareholders' voting choices.
Overhaul of Israel’s Economy Offers Lessons for United States, New York Times, January 7, 2014
In October 2010, the Israeli government formed a committee of 10 government regulators known as the concentration committee to examine the issue of the tycoons’ control of the Israeli economy. The committee was advised by Lucian A. Bebchuk, a Harvard Law professor and occasional contributor to DealBook, who strongly advocated breaking up the more significant pyramids. […] The lobbyists’ attempts to influence legislators got so bad that at one point in a Knesset committee meeting, the lobbyists were asked to identify themselves and leave the room. It even got personal, with one lawyer for the tycoons claiming in an interview with an Israeli paper that Mr. Bebchuk had “hypnotized the committee.”
Why shield corporations from disclosing political spending?, Reuters, December 16, 2013
Corporate disclosure of political spending has been kicking around in shareholder proposals for about a decade, but the SEC was pushed into the debate in 2011, when a group of 10 law professors with varying views on the impact of such spending joined together to petition the SEC to develop disclosure rules. The professors, led by co-chairs Lucian Bebchuk of Harvard and Robert Jackson of Columbia, argued that the U.S. Supreme Court assumed when it expanded the First Amendment rights of corporations to engage in political speech in Citizens United v. Federal Election Commission that shareholders could monitor corporate expenditures to assure themselves that such spending was in their interests.
Corporate 'Dark Money' To Get Free Pass After SEC Drops Disclosure Proposal, IR Magazine, December 4, 2013
‘The [SEC’s 2014] agenda now includes only overdue rules that the SEC is required to develop under Dodd-Frank and the JOBS Act,’ notes Lucian Bebchuk, a Harvard University law professor who has persistently petitioned the SEC to require corporate political spending disclosure […] Bebchuk was among 10 professors who submitted a petition to the SEC in 2011 requesting the disclosure rule. ‘While we are disappointed by the SEC’s decision to delay its consideration of rules requiring disclosure of corporate political spending, we hope the commission will consider such rules as soon as it is able to devote resources to rulemaking other than that required by Dodd-Frank and the JOBS Act,’ Bebchuk writes.
SEC Drops Political Spending Disclosure from 2014 Agenda, OpenSecrets.org, December 3, 2013
While corporations won't need to worry about having to disclose their "dark money" in the 2014 midterms, transparency advocates are still optimistic about the future. In a blog post by two of the original sponsors of the SEC petition, Professors Lucian Bebchuk and Robert Jackson Jr. explain that despite the decision they are still "hopeful that, before too long, the SEC will consider, as it should, the merits of a rule requiring disclosure in this area."
Corporate 'Dark Money' To Get Free Pass After SEC Drops Disclosure Proposal, Huffington Post, December 2, 2013
"Although disclosure of corporate political spending is no longer formally on the SEC's agenda, this issue is not going away," wrote Columbia Law School professor Robert Jackson, who wrote the initial proposal submitted to the SEC, and Harvard Law School professor Lucian Bebchuk on Monday. "Shareholder proposals requesting information on political spending have been submitted to a substantial number of large public companies, and many such public companies have been responding to shareholder concerns by voluntarily disclosing some information."
Golden Hellos, the Latest CEO Compensation Practice to Come Under Fire, Businessweek, November 27, 2013
For years corporate boards have used so-called golden handcuffs (retention incentives) to keep treasured chief executive officers in the fold or provided golden parachutes (severance packages) to ease their departures. Lately, another gilded pay practice has taken hold: golden hellos, or multimillion-dollar signing bonuses used to get CEO candidates to join the team. … “Investors should be skeptical of golden hellos, which represent pay decoupled from performance and provide no retention incentives,” says Lucian Bebchuk, a Harvard Law School professor who has studied CEO pay.
More CEOs receiving ‘golden hellos’ upon company arrival, InsideCounsel, November 20, 2013
A study from governance-advisory firm GMI Ratings Inc. shows that more companies are recruiting CEOs through “golden hellos,” or multimillion-dollar signing bonuses that the new CEOs receive without working a day. Seventy different U.S. companies have given out these bonuses in 2013, up from just 41 in 2012. … “Investors should be skeptical of golden hellos, which represent pay decoupled from performance and provide no retention incentives,” said Harvard Law School Lucian Bebchuk, who has researched CEO pay, to Bloomberg. “Equity incentives that have not vested yet should best be viewed as ones that have not been earned yet.”
Levine on Wall Street: Dysfunction at Dish, Bloomberg, November 19, 2013
[Signing bonuses] are a reasonable way to attract an executive with lots of unvested comp at another firm that she'd be giving up to take a new job. But that has a bit of an arm's-race problem: You pay a big up-front bonus to lure a new CEO, you pay her millions of dollars of stock and deferred comp to keep her loyalty if she's good, and then she goes somewhere else that pays her a signing bonus to buy out that deferred comp. The signing bonus doesn't just "provide no retention incentives," as Lucian Bebchuk is quoted saying; it actually undermines the whole structure of executive retention.
Golden Hellos Surge as CEOs Get Jumbo Signing Bonuses, Bloomberg, November 19, 2013
More U.S. companies are luring top executives with multimillion-dollar “golden hello” signing bonuses, undeterred even as high-profile flameouts such as Ron Johnson’s short tenure at J.C. Penney Co. expose the risks. … “Investors should be skeptical of golden hellos, which represent pay decoupled from performance and provide no retention incentives,” said Lucian Bebchuk, a Harvard Law School professor in Cambridge, Massachusetts, who has researched CEO pay. “Equity incentives that have not vested yet should best be viewed as ones that have not been earned yet.”
Petition for Disclosure on Political Spending Gains Support, Wall Street Journal, November 12, 2013
In 2011, a group of 10 corporate- and securities-law professors, including Harvard Law School’s Lucian Bebchuk and Columbia Law School’s John Coffee, petitioned the Securities and Exchange Commission to write a rule requiring public companies to disclose their political activities, including campaign donations and lobbying efforts. Since then, the agency has received about 641,799 form letters and 1,800 other letters commenting on the petition, according to Felicia Kung, chief of the rule-making office in the SEC’s corporation-finance division.
Bebchuk v. Lipton on Corporate Activism, Conglomerate, October 29, 2013
We've been following the debate between Lucian Bebchuk and Martin Lipton on the value of activist shareholders with interest, and it still seems as if the protagonists see the world very differently. The debate has been occasioned by a paper from Bebchuk and his co-authors arguing, essentially, that activist shareholders increase returns to investors.
The Morning Risk Report: Apple, Icahn, Gross, and Mother Teresa, Wall Street Journal, October 28, 2013
In a 2010 paper entitled “Is Carl Icahn Good for Long-Term Shareholders: A Case Study in Shareholder Activism” researchers found positive stock price moves on announcement of Mr. Icahn’s taking a position in a firm, and attributed the difference in performance between firms he subsequently acquired or took private and firms that remained independent to the fact that the latter were able to resist his recommendations. This is consistent with research we spotlighted last month in which Harvard Law School professor Lucian Bebchuk found long term stock price and operating performance improvements in companies targeted by activists.
The legal brain drain, Globes, October 20, 2013
The Israeli pioneer among the faculty at Harvard is Prof. Arye (Lucian) Bebchuk, who is currently considered one of the most important scholars worldwide in the economic analysis of law. Bebchuk still teaches at Harvard, and he is responsible for bringing more than a few Israelis over. The doors for the two other Israeli faculty members, Prof. Yochai Benkler and Prof. Gabriella Blum, were opened in no small measure thanks to help from Bebchuk.
Will Twitter Have Second-Class Shareholders? Bloomberg, October 20, 2013
Harvard Law School professor Lucian Bebchuk studied about 2,000 companies for five years after takeover attempts, buyouts and other activists’ interventions from 1994 to 2007. He found that their performance improved -- and kept on improving over five years -- when compared with their peers.
Viewpoint: Twitter’s All-Male Board Spells Failure, Time, October 7, 2013
Twitter needs to build a board that can adapt to the marketplace, quickly. Instead, Twitter has chosen to have a so-called classified board, in which elections of its seven directors will be spread out over a three-year period and is designed more for continuity than adaptability. Critics of the practice often point out that this leads to longer terms of service, thereby keeping turnover low. According to a report from the Harvard Law School Forum on Corporate Governance and Financial Regulation, the modern best practice is to moving to 1-year terms. This allows for more independently minded directors, not rubber stamps.
Directors need to see social media as part of the job, Financial Times, October 6, 2013
Nowhere is the generation gap more apparent than in the parallel universes inhabited by social media users and board directors. Stephen Davis of Harvard Law School, an expert on corporate governance, has written that “corporate governance and social media are trends newly met, and market participants are only at the very beginning of a learning curve”.
Twitter’s Corporate Governance a Mixed Bag, Wall Street Journal, October 4, 2013
Shareholders have put increasing pressure on companies to declassify their boards, with aid from Harvard Law School’s Shareholder Rights Project. According to the SRP, which is led by governance expert and Harvard Law professor Lucian Bebchuk, board declassification proposals represented over 11% of all governance proposals submitted to companies in the Russell 3000-stock index during the recent proxy season. It said nearly all of those proposals were submitted by pension funds that coordinated with the SRP.
Activist Investors Go Big, Wall Street Journal, October 1, 2013
Between 1994 and 2007, companies targeted by activist hedge funds experienced, on average, an initial 6% rise in their stock price and improved their performance against peers by about two-thirds, according to a study by Lucian Bebchuk, director of the corporate-governance program at Harvard Law School.
Lipton Takes on Bebchuk over Shareholder Activism, Wall Street Journal, September 30, 2013
Earlier this year, Martin Lipton, a founding partner of law firm Wachtell Lipton Rozen & Katz, and inventor of the poison pill, threw down a gauntlet to shareholder rights advocate Lucian Bebchuk, professor of law, economics and finance at Harvard Law School and director of its corporate governance program. The challenge: prove that shareholder activism has long-term benefits. Experts who spoke with Risk & Compliance Journal say that Bebchuk met the challenge, in a paper published in July.
Memo to CEOs: Put shareholders second, Globe and Mail, September 26, 2013
Paul Polman, the CEO of Unilever, thinks American-style capitalism is broken, and he blames, in good part, the cult of shareholder value that has been all the rage since the 1980s. Since taking the helm in 2009 of the Anglo-Dutch consumer products giant … Polman has eliminated quarterly profit reports, refused to give earnings guidance to analysts and informed hedge funds that they will not be indulged. He has railed against the theories of economists and biz-school gurus like Milton Friedman, Michael Jensen and Lucian Bebchuk, the high apostles of shareholder power and democracy.
Some see opening for creditors in Tribune 'safe harbor' ruling, Reuters, September 25, 2013
Creditors have finally won a ruling in their favor regarding the bankruptcy code's "safe harbor" provision, which protects investors who profit from a leveraged buyout that renders a company insolvent.
The ruling by U.S. District Judge Richard Sullivan in New York found that the safe harbor did not bar individual creditors, including Aurelius Capital Management, from pursuing state court lawsuits against scores of former Tribune Co investors.
While Sullivan's ruling on Monday dismissed the case for reasons of standing, experts said his safe harbor finding could have wider implications.
"This is some pushback," said Mark Roe, a professor at Harvard Law School. It follows growing concern among academics and lawyers that the "safe harbor" provision had been expanded well beyond its original intent, Roe said.
Feature: corporate governance, Lexology, September 16, 2013
The Harvard Law School Forum on Corporate Governance and Financial Regulation posted a summary of an article written by three finance and accounting professors on how blockholders of a company's shares can affect corporate governance when they sell, or threaten to sell, those shares.
With Huge War Chests, Activist Investors Tackle Big Companies, New York Times, August 30, 2013
Unlike the [corporate] raiders, the current activists contends they are fighting for the interests of shareholders. … There is some evidence that the results bear that out. A study led by Lucian Bebchuk, a professor at Harvard Law School, published last month argues that companies singled out by these investors improved their operating performance within three years of an activist campaign.
Legal Giants Wage War Over Role Of Activist Investors (A.K.A. Hedge Funds), Forbes, August 28, 2013
In another corner is Harvard Law Professor Lucian Bebchuk, a prominent expert on corporate governance issues, who has been extolling a recent academic study of 2000 separate interventions by hedge funds into the process of creating “long-term value.” Bebchuk believes that “activist hedge funds benefit and do not have an adverse effect on the targets over the five-year period following the attack.” Bebchuk also has led the charge against the obscene compensation earned by American CEOs even when their companies do not perform in spectacular growth and profits.
The long-term benefits of short-term investing, Globe and Mail, August 27, 2013
Lucian Bebchuk of Harvard University and his co-authors looked at 2,000 hedge fund interventions over 14 years, and analyzed the results over the five years that followed. Their striking takeaway? “We find no evidence that interventions are followed by declines in operating performance in the long term.” In fact, they found that hedgies’ interventions are followed by improved operating performance.
Are Activist Investors Really as Evil as CEOs Claim They Are? Fox Business, August 22, 2013
Despite ample criticism of activist investors, a paper released last month that examined 2,000 interventions by activist hedge funds in a recent 13-year period found that operating performance meaningfully improves following activist interventions. … The paper, which was authored by Duke University professor Alon Brav, Harvard Law School’s Lucian Bebchuk and Columbia Business School’s Wei Jiang, found [that] … on average, target companies enjoy significant operational improvements in each of the five years following the investment disclosure.
Pro-active, Breakingviews, August 16, 2013
There is an ivory tower barbarian at the gate. Lucian Bebchuk, a Harvard Law School professor is ratcheting up his battle against corporate defenders like veteran lawyer Martin Litpon. … Lipton reckons Bebchuk has “aided and abetted” uppity investors in “a form of extortion.” Bebchuk, with the aid of two colleagues, fired back in a study that undermines Lipton’s credo that activists create only short-term share price props.
In praise of activist investment, Reuters, August 14, 2013 A new study, however, shows that not only do activist hedge funds prompt short-term gains in the shares of the companies they pressure, they do it without hurting longer-term returns and while improving long-term operating performance. … The study, by Lucian Bebchuk of Harvard, Alon Brav of Duke, and Wei Jiang of Columbia, looked at the data from about 2,000 interventions by activist hedge funds between 1994-2007, looking not just at performance before and just after, but for five years from the date of the intervention.
Welcome to the golden age of activist investors, CNBC, August 14, 2013
Last month, Harvard shareholder governance expert Lucian Bebchuk, professor Alon P. Brav of Duke University's Fuqua School of Business, and professor Wei Jiang of Columbia Business School published a paper that looked at 2,000 interventions by hedge fund activists from 1994 to 2007. They found that in the short run, stocks tend to rise around 6 percent when activist investors get involved.
More interestingly, their research showed that the gains were not temporary.
In the five-year period after an activist investor shows up on the scene, the stock prices of companies targeted by activists tended to hold onto those gains. What's more, this is true even when the activism employs hostile tactics, demands that companies increase leverage, or urges bigger payouts to shareholders.
Penney's Bill Is Past Due, Wall Street Journal, August 14, 2013
The rap on activist hedge funds—that together they hurt the long-term interests of companies and their shareholders—doesn't stand up to the data, according to a recent analysis conducted by Alon Brav of Duke University's Fuqua School of Business with Lucian Bebchuk of Harvard Law School and Wei Jiang of Columbia Business School.
77-Year-Old Man Good At Twitter, Dealbreaker, August 13, 2013
Here you can read Lucian Bebchuk’s claim that activist investors tend on the whole to improve the long-term operational performance of the companies they invest in, and here you can read Justin Fox’s application of that result to defend Bill Ackman, pointing out that his job is to “identify companies that [he thinks] could be worth a lot more than their share price indicates, and push for changes.”
CEO Pay Continues Its Crazy Upward Spiral, PolicyMic, July 17, 2013
“Short-term shareholders” is one of those loaded phrases that embattled companies love to use to describe troublesome activist hedge funds. How real is the label? Well, it may actually be a myth. And a new study shows that so-called short-term hedge funds actually create long-term value. … Mr. Lipton’s sometime foil, Lucian A. Bebchuk, a shareholder governance activist at Harvard and columnist for DealBook, took up this challenge. A recent paper by Mr. Bebchuk, Alon P. Brav and Wei Jiang examined more than 2,000 hedge fund activist events from 1994 to 2007. The authors found that in the short run, hedge fund interventions produced a 6 percent rise in stock prices. Over the longer term, a five-year period, these gains held and the firms did not underperform. Looking at other measures of returns, like returns on assets, they found similar results. The long-term gains from activism held even when the hedge funds advocated taking on leverage or other “quick buck” strategies.
A Label for Activist Investors That No Longer Fits, New York Times, July 9, 2013
The United States' economic recovery continues to limp and wheeze along, but that hasn’t stopped CEOs from raking in millions in compensation and getting a big raise last year. The New York Times recently reported that median pay package of CEOs in 2012 was $15.1 million, a hefty jump of 16% from 2011. (Compensation included salary, cash bonuses, perks, and other forms of cash, and stock as well as stock options.) …Rather, boards of directors — who set CEO packages — are influenced by “various economic incentives, reinforced by social and psychological factors, to go along with arrangements favorable to top managers,” according to professors Lucian Bebchuk at Harvard Law School and Rakesh Khurana at Harvard Business School.
Allowing Firms to Restrict Suits to Delaware to Change Legal Landscape, Wall Street Journal, July 7, 2013
A recent ruling in Delaware is poised to change the landscape in big-ticket corporate litigation-to the delight of many companies and the likely chagrin of some shareholders. Chancellor Leo Strine of the Delaware Court of Chancery late last month ruled that corporate boards may adopt bylaws requiring that most shareholder lawsuits against the companies be filed in Delaware. … The ruling effectively gives the thousands of businesses incorporated in Delaware home-field advantage in shareholder suits. … "It is undesirable for boards to have the power to adopt such limitations unilaterally without shareholder approval," said Lucian A. Bebchuk, a law professor at Harvard University and an expert on corporate governance. "Directors should not be setting the rules governing how they themselves may be sued."
New Momentum for Change in Corporate Board Elections, New York Times, July 7, 2013
Shareholder efforts that actually succeed in changing dubious corporate governance policies are so rare that when they happen, it makes you sit up and take notice. So it's worth examining the results achieved so far this year by the Shareholder Rights Project, a program operating at the Harvard Law School. And with any luck, its success might shame do-nothing investment managers, like those running many mutual funds, into action. … Directed by Lucian A. Bebchuk, a professor at the Harvard Law School and director of its Program on Corporate Governance, the Shareholder Rights Project works with seven large pension funds and a foundation to effect change at companies whose shares they own.
Annual Elections for Corporate Boards: For or Against? Huffington Post, July 7, 2013
Important developments were highlighted today by Gretchen Morgenson in The New York Times about "35 Big Steps To Accountability" in corporate board governance. According to her column, 35 additional companies have joined with the 42 that had already agreed with the Shareholder Rights Project (SRP) to reject staggered corporate board elections in favor of annual ones. The SRP is led by Harvard Law School Professor Lucian A. Bebchuk.
Big investors should follow code of conduct, advocate says, Globe and Mail, June 18, 2013
The world'’s largest investment funds – including pension plans and mutual funds – should adopt a code of conduct to ensure they will wield their growing power appropriately in a new “age of the institutional investor,” according to Stephen Davis, a leading governance advocate. … The Harvard University professor spoke Tuesday at the annual meeting of the Canadian Coalition for Good Governance (CCGG), telling Canada's largest institutional investors that governments have increasingly shifted power to major investors in the hope they will police the capital markets.
Law profs, ex-SEC chair protest CommonWealth arbitration bylaw, Reuters, June 12, 2013
A group of 11 securities law professors, including Bernard Black of Northwestern, John Coates of Harvard and James Cox of Duke (the first three signatories), assert in a joint affidavit that mandatory arbitration of shareholder disputes would undermine U.S. capital markets. … Harvard Law professor Jesse Fried filed a separate affidavit because the other law professors distinguished the rights of shareholders who bought CommonWealth stock prior to the bylaw’s enactment from those who acquired shares with knowledge of the mandatory arbitration provision.
Harvard Prof. Says SEC Can Require Political Donation Info, Corporate Counsel, June 4, 2013
There is nothing in the Constitution—including the First Amendment—that bans the Securities and Exchange Commission from requiring public companies to disclose their spending on politics, according to Harvard law professor Lucian Bebchuk…. In a post on his Harvard law blog Monday, Bebchuk countered critics who oppose a petition [PDF] filed by him and eight other law professors asking the SEC to develop rules making public companies disclose their political spending. Bebchuk, along with Columbia associate law professor Robert Jackson Jr., co-chairs the group.
C.E.O.’s Don’t Need to Earn Less. They Need to Sweat More, New York Times, May 29, 2013
Most C.E.O.’s used to be able to handle their pay negotiations in private, but the Dodd-Frank reforms, which were passed in 2010, now give shareholders the right to vote on executive compensation. This has helped usher in a so-called “say on pay” revolution, which tries to stop executives from making more money when their companies don’t do that well …Lucian Bebchuk, a professor at Harvard Law School and perhaps the leading academic voice for corporate reform, told me that the problem isn’t (just) greed. It’s the boards of directors. The directors are supposed to represent the stockholders’ interests, he says, but most public firms, where C.E.O.’s can have considerable influence over board appointments, neuter those interests. They are structured so that a board tends to side with its chief.”
White to Republicans - SEC not writing political spending rule, Reuters, May 16, 2013
The head of the U.S. Securities and Exchange Commission told lawmakers on Thursday that her agency, despite pressure from liberal groups, is not currently drafting a rule that would call for public companies to disclose their political spending. … The fifth commissioner, Democrat Elisse Walter, recently told reporters the issue was "not high" on the SEC's rulemaking agenda, and she declined to offer an opinion on the substance of the proposal. … Still, Lucian Bebchuk, a professor at Harvard Law School and one of the principal drafters of the petition, said he is optimistic that it will prevail in the end.
SEC pressed to abandon corporate political spending disclosures petition, The Washington Post, May 16, 2013
During a three-hour hearing, lawmakers said they were disturbed to learn that the SEC is considering a petition that would require publicly traded companies to disclose their political contributions. …
The professors who submitted the petition have noted that they did not agree on whether corporate political spending helped or hurt shareholders, but they all shared the view that public companies should not have free reign to spend their shareholders’ money on political communication without revealing what they’re doing. … One of the professors, Lucian Bebchuk of Harvard Law School, said the SEC would merely be doing its job if it adopted the disclosure rule, not playing politics.
Job Split Doesn't Always Work Magic, Wall Street Journal, May 8, 2013
A 2009 review of studies on independent chairmen by the Millstein Center for Corporate Governance and Performance concluded the impact on performance "was inconclusive," said Stephen Davis, associate director of Harvard Law School's programs on corporate governance and institutional investors, who helped oversee the review. … "It isn't driven by research," Mr. Davis said of the push to separate the top two jobs. "It's driven by investors' views about accountability."
As Companies Step Up Buybacks, Executives Benefit, Too, Wall Street Journal, May 5, 2013
Researchers say companies that tie executive pay to per-share earnings are more likely to buy back stock. … But researchers are divided over whether that hurts investors. … “Just because these people are getting rich doing these repurchases, that doesn't mean it's bad for shareholders,” said Jesse Fried, a professor at Harvard Law School. Mr. Fried is a frequent critic of executive-pay schemes, but he said per-share earnings targets can be valuable.
Editorial: SEC could lead on disclosure of campaign funds, The Sacramento Bee, April 28, 2013
Oil companies, the chamber and other corporate interests have come out against an informed public. Specifically, they're opposing a petition urging the Securities and Exchange Commission to develop a rule requiring that publicly traded corporations disclose their political donations. … Petitioners include deep thinkers such as law professors Lucian A. Bebchuk of Harvard and Robert Jackson of Columbia, who have led the effort, and advocates such as Public Citizen, which helped organize the petition drive. There also are thousands of investors who are trying to follow their conscience.
Herbalife investors meet -- briefly, Los Angeles Times, April 26, 2013
Experts in corporate governance said Herbalife mangled an opportunity to soothe investors, who have seen its stock price pingpong as [Bill] Ackman and [Carl] Icahn made enormous, opposing wagers on the company's future. … "If I'm a shareholder, I want to see a board that's responsive and accountable and prepared to [address] any risks that face the company. That probably doesn't translate into a 14-minute meeting," said Stephen Davis, a senior fellow at the Harvard Law School Program on Corporate Governance.
Shareholder Loyalty Is A 2-Way Street, Pension Funds Say, Law360, April 24, 2013
Executives at Dutch pension fund manager PGGM Investments and Britain's RPMI Railpen Investments, which control about $200 billion in retirement investments, want to see more engagement from independent directors — those not holding executive positions at the companies they oversee — to “create a culture of no surprises.” … Writing in a blog post for Harvard Law School's corporate governance program, the executives said some boards do solicit input before proxy battles erupt, an “encouraging” sign. But that's not the norm, and the two pension funds said many boards scrape by with the bare minimum — federally required disclosure statements.
Group Tells White to Make Issuer Disclosure Of Political Spending Her First Priority at SEC, Bureau of National Affairs, April 17, 2013
In a telephone conference with reporters, Liz Kennedy, counsel at CRC member Demos, noted that American investors and the public have submitted more than 500,000 comments in support of a rulemaking petition calling on the SEC to require the disclosures. … The rulemaking petition in question was submitted to the SEC in August 2011 by the Committee on Disclosure of Corporate Political Spending, a group comprising securities and corporate law professors co-chaired by Harvard Law professor Lucian Bebchuk and Columbia Law School professor Robert J. Jackson Jr. (153 SLD, 8/9/11).
Harvard Study: Boards, Not Shareholders, Are Short-Term Thinkers, aiCIO, April 17, 2013
The Chinese Wall between boards and shareholders that some corporations believe leads to long-term value serves the opposite end, according to a paper. … Lucian Bebchuk, the director of Harvard Law School's corporate governance program, has published an exhaustive study and literature review on the argument for board insulation. His conclusion: it's utter baloney.
Corporate governance case study: AIG and the business judgment rule, Thomson Reuters, April 8, 2013
In an appendix to the motion, AIG included an unredacted version of the letter sent to Starr after the board's vote in January by the directors' outside law firms, Seitz Ross Aronstam & Moritz and Simpson Thacher & Bartlett. The letter detailed the board's four-month process for considering Starr's claims, which included obtaining expert opinions from Harvard Law professor John Coates and University of Califronia Irvine Law School Dean Erwin Chemerinsky.
At Banks, Board Pay Soars Amid Cutbacks, New York Times DealBook, March 31, 2013
Since the financial crisis, compensation for the directors of the nation’s biggest banks has continued to rise even as the banks themselves, facing difficult markets and regulatory pressures, are reining in bonuses and pay. … “While the Goldman pay is high, the directors are paid all in equity that cannot be cashed until they leave the board,” added Lucian A. Bebchuk, a professor at Harvard Law School. “These features are beneficial for shareholders but reduce the value of the compensation for the directors.”
Short-Term Shareholders Aren’t Looking Out For The Long Term, And Vice Versa, Dealbreaker, March 28, 2013
Yesterday we talked a little about Dell and its vague desire to escape the short-term obsessions of the public equity market yesterday. Today I came upon this new paper by Harvard Law professor Jesse Fried, about how long-term shareholders are really just as bad as the short-term ones. The argument is: companies like to talk about favoring long-term shareholders over short-term ones, because they think (er, say) that short-term shareholders want things (slashing R&D, earnings manipulation) that reduce the overall economic value of the firm, while long-termers only want to grow its value, but in fact long-term shareholders also want things that reduce the overall economic value of the firm, so maybe favoring the long-term isn’t as good an idea as people think.
Fed pushes banks to ignore rivals when setting bonuses, Reuters, March 22, 2013
The Federal Reserve is pushing banks to ignore competitors' performance when awarding bonuses, and focus squarely on their own profitability, according to pay consultants and other people familiar with the matter. … Proponents of relative value metrics say that the measures prevent executives from getting bonuses simply because the economy is growing. "I remain a strong supporter of relative performance over absolute performance," said Lucian Bebchuk, a professor at Harvard Law School who focuses on compensation and corporate governance. Bebchuk advised pay czar Kenneth Feinberg when the latter was charged with keeping bonuses in check at bailed-out banks. "Absolute performance rewards managers for improvements that are not due to their own performance," he said, adding that "when the sector as a whole does not do well, absolute performance might well fail to reward those executives who do relatively well."
Teva Investors File Suit to Seek Management Pay Details, Bloomberg, March 18, 2013
Remuneration for each executive should still be reported because both U.S. and Israeli rules require the breakouts for domestically listed companies, the investors said, citing the support of Jesse Fried, a Harvard Law School professor and co- author of “Pay Without Performance: The Unfulfilled Promise of Executive Compensation.”
Season's greetings, Breakingviews, March 17, 2013
Proxy advisers and advocates like Harvard Law School's Shareholder Rights Project have boosted their influence, too. So far in 2013, all six Harvard project-backed proposals to eliminate staggered boards have passed overwhelmingly.
On Executive Comp, the Swiss Aren’t Neutral — Will the U.S. Be Persuaded?, TIME, March 7, 2013
[D]espite an on-going debate in America over growing income inequality and exorbitant CEO compensations, analysts say that Swiss-like change – if it sweeps the U.S. at all – will not happen overnight. […] This analysis strikes a chord with Stephen Davis, Associate Director of Harvard Law School Programs on Corporate Governance and Institutional Investors. “The vote will be seen as a warning signal to US boardrooms, but the odds of binding votes on pay are remote.”
Shareholders question corporate political spending, Wall Street Journal MarketWatch, February 7, 2013
The [Securities and Exchange Commission] said last month that it plans to announce a rule proposal in April requiring public companies to disclose their spending on politics … “Because the interests of managers and investors often diverge when it comes to political spending,” Harvard Law’s Lucian Bebchuk and Columbia Law’s Robert Jackson said in a blog post welcoming the SEC announcement, “disclosure is necessary to ensure that insiders are held accountable when they decide to spend investors’ funds on politics.”
Security Detail Protects NYSE Deal, Wall Street Journal, January 30, 2013
When IntercontinentalExchange Inc. ICE -0.35% announced an $8.2 billion deal for NYSE Euronext, observers speculated other suitors could follow due to the exchange industry's recent history. […] Court rulings generally say an agreement that makes business sense for the seller, and its shareholders, is allowable, says Harvard Law School professor John C. Coates, a former M&A lawyer. "Delaware law is always a mixture of effects and motives," he said.
Group Applauds SEC for Movement On Corporate Political Spending Issue, Bureau of National Affairs, January 14, 2013
During the CRC press call, coalition members told reporters that it is unusual for the SEC to state in its regulatory agenda that it is considering acting on a rulemaking petition. They said that sends a strong signal that the commission intends to move forward on the matter. “I'm quite optimistic that the SEC consideration will result in the issuance of a proposed rule this year,” said Harvard Law professor Lucian Bebchuk, co-chair of the Committee on Disclosure of Corporate Political Spending.
Campaign finance fight lands at the SEC’s door, Politico, January 8, 2013
Coming off the most expensive election in the country's history, the Securities and Exchange Commission is weighing a move to force public companies to stop hiding their political spending of shareholders’ dollars. [...] The push to require more disclosure began in August 2011 when a group headed by Harvard Law professor Lucian Bebchuk and Columbia Law School professor Robert J. Jackson, Jr. petitioned the agency to put a rule in place.
Fund Files Novel Suit in Delaware to Inspect Qualcomm Records on Political Expenditures, Bureau of National Affairs, January 7, 2013
The rulemaking petition thus far has resulted in more than 320,000 comments, the overwhelming majority by shareholders voicing support for mandated disclosures. In response to the large number of comments, the SEC's Division of Corporation Finance currently is considering whether to recommend that the commission move forward with the rulemaking (44 SRLR 2072, 11/12/12) [...] Harvard Law professor Lucian Bebchuk, co-chair of the Committee on Disclosure of Corporate Political Spending, Jan. 4 told BNA that the New York state fund's lawsuit is “yet another manifestation” of investors' strong interest in how companies spend their resources on political activities.
The price of sadness. And other surprising insights from the social sciences, Boston Globe, Novemeber 25, 2012
Political corporations hurt shareholders: In the Citizens United decision, the Supreme Court ruled that “no sufficient governmental interest justifies limits on the political speech of nonprofit or for-profit corporations.” But a recent analysis by … Harvard Law School [Professor John Coates] suggests that political action by corporations undermines corporations themselves, or at least their shareholders. [...] The analysis found that corporate political activity among the S&P 500 increased after the Citizens United decision, and that this increase was associated with “a significant attendant drag on shareholder value.”
Can Huge CEO Golden Parachutes Hurt You?, US News and World Report, Novemeber 14, 2012
One of the unpleasant facts about investing in equity funds is the idea that you're paying for all sorts of things you probably shouldn't be—this obscure management fee, that needless trading cost. Can we add CEO extravagance to the pile? In a world now casually described as the 1 percent versus everyone else, few things pique investor ire like the notion of C-level executives of publicly listed companies feasting on lavish compensation packages that don't appear to be matched by lavish performance. […] Perhaps the best-known scholar of the subject is Lucian Bebchuk, who, along with Harvard colleague Alma Cohen and Stanford economist Charles Wang, wrote a 2010 paper that illustrates several perverse consequences of golden parachutes. Among them, firms that offer them are more likely to be acquired and to get a lower acquisition premium (relative to firms without golden parachutes). Golden parachutes tend to impair firm value, they found.
SEC Staff Considers Proposal on Corporate Political Donations, Wall Street Journal CFO Report, November 8, 2012
While many companies do make some disclosures about their political activities, there are no formal disclosure rules that make the information comparable between organizations. Companies are hesitant to disclose the donations, saying it is part of ordinary business operations...But the professors who submitted the petition, including Harvard Law School’s Lucian Bebchuk and Columbia Law School’s John Coffee, said that political spending disclosures should be required.
Get What You Pay For? Not Always, The New York Times, November 6, 2012
Campaign spending by politically active concerns and their executives increased sharply after the Supreme Court’s decision to remove limits on corporate donations. According to a study by John Coates of the Harvard Business School, the jump in spending led to a deterioration of companies’ market value compared with firms that did not spend on political campaigns. “These results are inconsistent with a simple theory in which corporate political activity can be presumed to serve the interests of shareholders,” Mr. Coates wrote.
Defining the General Counsel's Role in CEO Succession Planning, Corporate Counsel, October 18, 2012
The abrupt departure of Citigroup CEO Vikram Pandit this week may have come as quite a surprise to those outside the bank’s boardroom. But the company’s CEO switch provides a timely reminder that while all eyes are on the directors and the chief executive during a high-profile transition, a company’s general counsel has a key role to play in succession planning. [...] “There are two quite different scenarios,” says Ben Heineman, the former general counsel of General Electric Company, who is currently a senior fellow at Harvard's Law and Kennedy Schools and an occasional contributor to Corporate Counsel.
Fairness For Shareholders Who Bust Their Butts, TechCrunch, September 22, 2012
In designing the co-sale mechanism, we were assisted by a smart team of advisors, including Harvard Professor and corporate governance expert Lucian Bebchuk. I asked Professor Bebchuk if he would give me a quote for this piece, and he replied: “I was impressed by how much Ronen and his team strived to design a win/win/win mechanism that would be fair and beneficial for all involved. Their commitment, I believe, paid off, producing an arrangement that should be expected to serve shareholders, employees, and the company.”
Do ‘Good’ Boardrooms Boost Returns?, Wall Street Journal SmartMoney, September 13, 2012
Corporate governance advocates have long tried to persuade investors they can have it both ways: Do good, and you end up doing well too. New research suggests that advice may not hold true. [...] “Just because something is a good governance provision doesn’t mean it’s a good investment,” says co-author Lucian Bebchuk. Bebchuk, who wrote the paper with two other researchers, Alma Cohen and Charles C.Y. Wang, is well-known for his criticism of the way public companies are run — in particular for his arguments that outsize executive pay reflects top executives’ political sway within the corporate world rather than realistic prices set by the market.
GE Elects Ex-Chairman of Vanguard to Board, Wall Street Journal, July 30, 2012
General Electric Co., GE +0.34% still struggling to get investors excited about its prospects, has named a person affiliated with its biggest shareholder to its board. The chairman emeritus of Vanguard Group Inc., John Brennan, was elected as a director on Friday, expanding the board's ranks of independent directors to 16. Mr. Brennan, who remains a Vanguard senior adviser, is also the lead governor of the Financial Industry Regulatory Authority, the financial industry's self-regulatory body. [...]
Bringing a representative from an investor onto a board is unusual, according to some governance experts. "Mutual funds have generally avoided board representation, because it creates legal issues for money managers," said Lucian Bebchuk, a Harvard law professor and head of the law school's corporate-governance program.
More Shareholders Are Just Saying No on Executive Pay, Bloomberg, July 19, 2012
It is often said that social change can’t occur until what was seen as misfortune is seen as injustice. There is a corollary in the financial world. It says change can’t occur until what was seen as immaterial is seen as risky. That’s happening with executive compensation. [...] Compensation-committee members with longer-than-average tenure are associated with no votes, according to research from Stephen M. Davis, a senior fellow at Harvard Law School’s Program on Corporate Governance, and Jon Lukomnik, executive director of the Investor Responsibility Research Center Institute.
Employing Novel Ways of Negotiating Merger Deals, New York Times, July 18, 2012
Contrary to popular wisdom that auctions were better for obtaining higher prices, the [recent study] found that the returns were largely the same, regardless of the method used. [...] These findings are contrary to basic auction theory, which would say that having as many bidders as possible is the optimal strategy to achieve the highest price. [...] But auction theory assumes that the auction is one in which all bidders have the same information and are on a level playing field, eager to participate. Prof. Guhan Subramanian, in his excellent book “Negotiauctions,” explains when negotiation may be better than an auction in selling a company.
Investors Continue to Press SEC for Rules On Corporate Disclosure of Political Spending, BNA Money and Politics Report, July 18, 2012
A coalition of 14 investor and public interest groups July 16 urged the Securities and Exchange Commission to issues rules requiring companies to disclose their political expenditures, saying that shareholder interest in such disclosures is reaching new highs in 2012. [...] Harvard law professor Lucian Bebchuk, co-chair of the Committee on Disclosure of Corporate Political Spending, told BNA that he believes the SEC ultimately will take up the rulemaking. “The petition has attracted a record number of comments, and the comments have been overwhelmingly positive,” Bebchuk said. “There is strong evidence that investor interest in receiving more information on the subject is substantial, and the case for greater transparency in this area is very strong. I therefore fully expect that the SEC will give a serious consideration to the rulemaking petition.”
The Upcoming Showdown on Shareholder Proxy Access, Huffington Post, July 11, 2012 Op-ed by HLS and HBS Professor Guhan Subramanian, with HBS Professor Bo Becker and Brandeis University Professor Daniel Bergstresser: The spring of 2013 will be a watershed moment in the battle between shareholders and boards for control of publicly-traded corporations in the United States. At issue will be whether significant shareholders should be allowed to place nominees for the board on the company's own proxy statement. In the absence of this kind of "shareholder proxy access," shareholders who disagree with the company's direction have to engage in an expensive and time-consuming campaign against the incumbent board, which (as a practical matter) has meant that virtually all director slates run unopposed.
Can Shareholder Activism Affect Corporate Political Spending?, Reuters, July 9, 2012
[...] Disclosure may not impact corporate donations. [...] But there's a lot of debate right now about whether political spending benefits corporations and their shareholders. Harvard Law professor John Coates published a study last December with the counterintuitive finding that campaign donations don't serve shareholder interest; the Manhattan Institute questioned his methodology in June and he fired back last week at the HLS Forum on Corporate Governance. Disclosure of corporate political involvement seems to me the only way to assess the costs and benefits to shareholders of campaign spending.
The Great Debate, Corporate Counsel, July 1, 2012
But it appears that broader support is out there. Last August a group of 10 corporate and securities law experts submitted a petition to the Securities and Exchange Commission urging the agency to develop rules that require public companies to disclose to shareholders the use of corporate resources for political activities. In May the group reported that the proposal had won massive support from a record 260,000 comment letters. On average the commission receives about 70 comments from the public on a rule-making petition, and even high-profile rules proposed by the SEC itself often garner only 500 to 600. "To the best of our knowledge, the petition has drawn considerably more commentary than any other rule-making petition in the SEC's history," wrote group cochair and Harvard law professor Lucian Bebchuk in a Harvard law blog.
Could the U.K.’s ‘Shareholder Spring’ Cross the Pond?, Wall Street Journal, June 25, 2012
But could similar uprisings take place in the U.S.? Slim chance, experts say. Blame it on culture or more lenient corporate governance laws, but American shareholders of U.S. firms simply don’t have as much pull, which means CEOs and boards here can afford to ignore shareholder votes if they so choose, says Jesse Fried, a Harvard Law School professor specializing in executive compensation, corporate governance and corporate law.
Paycheck Fairness and Market Failure, New York Times Economix, June 25, 2012
Professor Eisenberg argues that pay secrecy helps explain why the salaries of chief executives have skyrocketed in recent years. Drawing on research by Lucian Bebchuk and Jesse Fried, summarized in their book “Pay Without Performance,” she points out that institutional arrangements — such as the structure of corporate boards — influence chief executive compensation more than the forces of supply and demand.
Novel Maneuvers in Battle for Quest Software, New York Times DealBook, June 21, 2012
The battle for Quest Software highlights a board’s quandary when a chief executive makes a play for the company. [...] But Insight and Mr. Smith most likely thought that the chances of a competing bid emerging were low. Mr. Smith is the chief executive and controls a large stake that could almost block another bid. In many other deals, like the buyout of J.Crew, executives have used their positions and share ownership to frighten off competing bidders who fear a disadvantage in the bidding process. This finding has been confirmed empirically by Guhan Subramanian at Harvard, who found that go-shop periods are less likely to produce competing bids when management is part of the buyout group.
Is Your Fund's Board Watching Out for You?, Wall Street Journal, June 9, 2012
Apart from the obvious turmoil of the times, however, there were an array of hidden reasons for [Charles Schwab's popular YieldPlus bond fund]'s sudden fall. [...] While the incident involved just one fund, it shines a rare spotlight on something that could affect any investor in the $12 trillion fund industry: [...] the fund's highly paid internal trustees. The lapses in oversight that occurred with YieldPlus, experts say, are part of a system of governance that is almost designed to fail. [...] [O]bservers say directors don't have the incentive to push back on fees. "Absolutely, the board does not negotiate the lowest price," says John Coates, a Harvard University law professor and author of studies on mutual funds. "They shelter the advisers from lawsuits," he says of the boards; "in return, they provide a weak check on advisers."
We Need a Stronger Glass-Steagall Act to Regulate Financial Firms, Los Angeles Times, May 30, 2012
But the 1990s brought an explosion of new forms of short-term capital to the banking industry. This capital looked like deposits, in that it was cheap to acquire and subject to instant demands for redemption; investment banks and securities dealers got hooked on it because other forms of capital, such as equity, were more expensive. But the new funding sources aren't insured like deposits, and their issuers haven't been supervised the way the FDIC keeps its eye on deposit-taking banks. [...] The result, says Morgan Ricks, was the crash of 2008. Ricks, a former Treasury Department official now at Harvard Law School, proposes to update Glass-Steagall, in effect, by redefining banks as any institutions reliant on short-term capital and significantly tightening their regulation. In the recent past, those institutions included Bear Stearns and Lehman Bros., non-banks whose failures arguably launched the financial crisis.
Shareholders Making Voices Heard To Boards, Philadelphia Inquirer, June 1, 2012
Lopsided favorable vote tallies in most corporate elections are so routine that it’s only when a company loses a vote that you realize that, occasionally, shareholders can rally to send a message to the board. [...] The proposal, sponsored by the Illinois State Board of Investment, attracted 77.98 million "for" votes, or 60 percent of the votes cast. The public pension fund, with $11.5 billion in assets as of June 30, was advised by the Harvard Law School Shareholder Rights Project, which has been involved in similar declassification efforts at 35 other public companies in 2012.
Chesapeake Could Use a Fresh Start in a New Home, Reuters, May 24, 2012
Entrenching a so-called classified board puts Chesapeake out of step with about three-quarters of the S&P 500. This proxy season, dozens more corporations have agreed to declassify. The evidence isn't clear-cut, but research by Harvard Law School's Lucian Bebchuk and Alma Cohen shows companies with annual elections fetch higher valuations.
JPMorgan Gave Risk Oversight to Museum Head, Businesseek, May 24, 2012
What the risk committee of the biggest U.S. lender [JPMorgan Chase & Co.] lacks, and what the five next largest competitors have, are directors who worked at a bank or as financial risk managers. … JPMorgan should have “put together a risk committee with more expertise in financial institutions and the risks produced by their decisions,” said Lucian Bebchuk, director of Harvard Law School’s program on corporate governance.
Political Advocacy Piques Shareholders' Interest, Chicago Tribune, May 18, 2012
In this presidential election year, shareholders are increasingly curious about the political agendas of public companies. [...] Residents also have been flooding the SEC with comments in support of a petition calling for mandatory reporting. The petition was filed last year by a group of academics led by Lucian Bebchuk of Harvard Law School and Robert Jackson Jr. of Columbia Law School.
CEOs Stumble over Ethics Violations, Mismanagement, USA Today, May 14, 2012
Yahoo CEO Scott Thompson lasted just four months before revelations of résumé padding forced him to resign over the weekend. [...] "Boards do seem to move faster" to deal with scandals and public failings that attract shareholder and media attention, says Lucian Bebchuk, director of the corporate governance program at Harvard Law School.
Did Say On Pay Cost A CEO His Job?, Forbes, May 8, 2012
A story from the U.K. is raising the question of whether shareholders’ decision to vote against a CEO’s pay package, even when the vote is non-binding, can cause that CEO to lose his job. Today Andrew Moss, the chief of Britain’s second-largest insurer, Aviva, resigned unexpectedly after 54% of shareholders voted against his pay package. [...] Did the shareholder vote cause Moss to resign? Those who closely track executive compensation think not. “It’s probably the straw that broke the camel’s back,” says Harvard Law professor Jesse Fried, author of Pay without Performance: The Unfulfilled Promise of Executive Compensation. “I don’t think that by itself a negative vote on pay is going to make a CEO resign.”
Before The IPO: A Private Market For Tech Shares, NPR, May 7, 2012
Very soon, Facebook will go public. That means anyone will be able to buy shares of the social networking giant on the Nasdaq exchange. But sophisticated investors have already been buying pieces of Facebook and many other hot tech stocks, on private exchanges. And now it seems that trading in private company shares is poised to grow, thanks to recent changes in the law. [...] In just a few years, trading in private company shares has grown from practically nothing to several billion dollars' worth of transactions. [...] It's a trend that worries Harvard Law professor John Coates. "There's no agency looking over their shoulder to make sure that they don't have conflicts of interest," he says, "or know about problems that they're not revealing to the people trading on their exchanges."
Yahoo CEO Scott Thompson's Resume 'Error' Could Get Him Booted, MSNBC, May 7, 2012
That's true, but the alleged falsehood could still spell trouble for the struggling Internet company. "To the extent that the CEO misreported his education, such misreporting would raise significant concerns regardless of whether the misreporting could be linked directly linked to underperformance," said Lucian Bebchuk, director of the program on corporate governance at Harvard Law School. "Misreporting and lack of integrity are detrimental to shareholders’ long-term interests even if the direct link to performance is not observed."
GM Rakes in Big Profits, Avoids U.S. Income Tax, Detroit News, May 4, 2012
General Motors Co., which has earned more than $13 billion since 2009, said Thursday its worldwide tax rate will increase to as much as 13 percent. But the Detroit automaker, which reported $1 billion in profits for the first three months of the year, has legally avoided paying U.S. federal income taxes since exiting bankruptcy. And GM likely will pay no income taxes for many more years. [...] Since the government owned 61 percent of GM after it exited bankruptcy, the credits should not have transferred, some say. "It was basically just ignoring the law," said J. Mark Ramseyer, a Harvard law school professor who wrote a 2011 paper on the Treasury's decision to exempt GM.
Silicon Valley Is Moving Backward on Shareholder Rights, Bloomberg, May 3, 2012
It’s springtime in America and that means it’s proxy season, when most publicly traded companies hold annual meetings, and shareholders elect corporate directors. So it seems a good time to review the state of corporate governance: It’s slipping. [...] Numerous companies have recently agreed to consider ending staggered boards, also known as classified boards. Studies by Bebchuk, a leader in efforts to end the practice, show that such boards depress a company’s value. But Silicon Valley’s dual-class model probably has more entrenchment power than staggered boards ever did.
Chesapeake and the Executive Pay Sell Signal, Reuters, May 3, 2012
As Chesapeake Energy Corp shows, fat executive compensation all too often comes twinned with lousy investor returns. [...] Another 2009 study by Lucian Bebchuk of Harvard, Martijn Cremers of Yale and Urs Peyer of French business school Insead, found lower stock market returns tend to go hand-in-hand with periods when companies are reporting an increase in the share of overall compensation going to top executives.
The Cost of Well-Run Companies, Financial Times, May 2, 2012
Shareholders are revolting, and not the way Occupy might claim. On both sides of the Atlantic, companies face embarrassing shareholder rebellions over pay. They are long overdue. [...] Harvard Law School academics Lucian Bebchuk, Alma Cohen and Charles Wang found last year that during the past decade the previously strong link between corporate governance and share price performance broke down. They argue this is because investors understood the importance of good corporate governance, so it was already in the price.
Wal-Mart's Four "Most Worrisome" Governance Issues, Corporate Counsel, May 1, 2012
Wal-Mart Stores Inc. took a double hit last week from both the legal and the business experts at Harvard University over the giant retailer’s Mexican bribery scandal. And now Ben Heineman Jr., the former general counsel of the General Electric Company, is calling on Wal-Mart’s board of directors to “get to the bottom” of the alleged scheme and cover-up—and to “possibly discipline or remove the past CEO (who still sits on the board) or the current CEO.” [...] [Heineman] is now a senior fellow at both Harvard’s law school and its Kennedy School of Government.
Hunting for Hot Stocks, Some Investors Head to Private Markets, WNYC, April 30, 2012
[...] The growth of secondary markets like SharesPost and SecondMarket mirrors the increasing time it takes for new companies to go public. [...] The Securities and Exchange Commission doesn’t directly oversee secondary markets. It does have some regulations for people that want to use them. But it does require all individual buyers to be accredited investors with over $1 million in assets (excluding their home), or annual income above $200,000. [...] John Coates, a professor of law and economics at Harvard University, said that cutoff includes about ten percent of the U.S. population, including many people who have done well for themselves, but who may not be shrewd stock pickers. “You know, a plumber, an electrician, over the course of a good career, will have a decent shot of accumulating a million dollars by the time they get to retirement,” Coates said.
How to Get a Pay Raise (If You're a CEO), Businessweek, April 26, 2012
[...] CBS (CBS) directors decided to give Chief Executive Officer Leslie Moonves a $69.9 million pay package last year only after assessing the competitive market for senior executive talent. The board of directors, however, looked at companies that are, on average, more than twice as large as CBS and included many in businesses far afield from media. [...] Many directors “have incentives to make compensation decisions that are more favorable to executives” than to shareholders, says Lucian Bebchuk, a Harvard Law School professor who has researched CEO pay. One reason: Directors may not want to risk upsetting their board position or their relationship with a CEO, he says.
Chesapeake Backtracks on What Board Knew of CEO's Transactions, Wall Street Journal, April 26, 2012
Just last week, Chesapeake Energy Corp.'s CHK -3.64% general counsel, Henry Hood, said the company's board of directors was "fully aware of the existence" of Chief Executive Aubrey McClendon's financing transactions. Thursday, the company backtracked, saying that it wished "to clarify" that statement. [...] The board is "seeking to distance itself from the sweeping endorsement suggested by the general counsel's earlier statement," said Harvard Law School professor Lucian Bebchuk, adding that the board now seems to appreciate "the necessity of a more careful and detailed review of the transactions than has been undertaken in the past."
Moonves Making $69M Shows Boards Biased, Businessweek, April 25, 2012
CBS Corp. (CBS) directors decided to give Chief Executive Officer Leslie Moonves a $69.9 million pay package last year after assessing the competitive market for senior executive talent. [...] Many directors “have incentives to make compensation decisions that are more favorable to executives” than to shareholders, said Lucian Bebchuk, a Harvard Law School professor who has researched CEO pay. Directors may not want to risk upsetting their board position or their relationship with a CEO, he said.
Bebchuk Defends Shareholder Proposals, Lawdragon, April 23, 2012
Harvard Law professor Lucian Bebchuk, a prior member of our Lawdragon 500 guides, defended the work of the school’s Shareholder Rights Project, for which he serves as director, in an op-ed on the Times DealB%k page. Specifically, the esteemed professor is defending how the clinical program has assisted pension funds and other investors in submitting proposals to large public companies that they move away from staggered boards, and instead have members face election each year – which “is viewed by investors as a best practice of corporate governance.”
White House Burns as MIT’s Johnson Broods Over Default, Bloomberg, April 16, 2012 A review of the new book, “White House Burning,” by MIT’s Simon Johnson and James Kwak, a fellow in HLS’s Program on Corporate Governance: Alexander Hamilton knew the secret for making public credit “immortal”: Back up your borrowing with taxes, to prove you can pay the money back. So Simon Johnson and James Kwak say in “White House Burning,” a selective survey of how the U.S. government, ignoring Hamilton’s precepts, has piled up $15.6 trillion in debt.
The In-House World According to Ben Heineman, Jr., Part II, Corporate Counsel, April 10, 2012 A Q&A with Benjamin Heineman Jr., distinguished senior fellow with HLS’s Program on the Legal Profession: Below is the second and final installment of CorpCounsel.com’s Q&A with former General Electric general counsel Ben Heineman, Jr. In this edited conversation, Heineman discusses corporate regulation, anticorruption efforts, and the post-Citizens United role of U.S. companies in politics and elections.
The In-House World According to Ben Heineman, Jr., Corporate Counsel, April 9, 2012 A Q&A with Benjamin Heineman Jr., distinguished senior fellow with HLS’s Program on the Legal Profession: Ben Heineman, Jr., never planned on becoming general counsel of a major multinational corporation. But in 1987 Jack Welch tapped the then-Supreme Court litigator for the GC position at General Electric after a 20-minute interview. What followed was a career that helped transform the in-house legal profession. … CorpCounsel.com recently spoke with Heineman about his career, and specifically his thoughts on compliance, regulation, corporate political spending, and corporate integrity. The first installment of a two-part, edited conversation follows.
From Congress, a Law Befitting a Sausage Factory, New York Times Dealbook, April 3, 2012
Whether the Jump-start Our Business Start-ups Act will create jobs or only encourage fraud is open to debate, but one thing is clear: this piece of legislation is a reminder that Congress, both Democrats and Republicans, are completely inept at regulating our financial system. [...] Given the iffy supporting evidence, the whole JOBS Act is an experiment. For this reason, Prof. John C. Coates IV of Harvard Law School has recommended that the terms of the act have a two- or three-year sunset provision allowing for renewal if the provisions are found to work.
Columbia Professor Defends Harvard Law from Wachtell Attack, Thomson Reuters, April 3, 2012
In the rarified interactions between elite law firm partners and elite law schools, the former usually fall all over themselves to shower the latter with praise, and, even more importantly, money. It's a heartwarming tale of romance between Mr. White Shoe Alumnus and Ms. Ivy League 3L (or vice versa). But even perfect - and perfectly codependent - relationships have their bumps, which is perhaps the mildest way to describe a post by Wachtell, Lipton, Rosen & Katzon Harvard Law School's blog on corporate governance and financial regulation on March 23. As you'll see, the Wachtell memo was no mash note. Of course, there's nothing that draws attention quite like a high-profile lovers' quarrel. On Tuesday, Columbia Law School professor Jeffrey Gordon rushed to defend his alma mater with a response to Wachtell at the HLS blog.
The Endless Spending Spree, Wall Street Journal, March 30, 2012
Herbert Hoover, who learned a thing or two about debt and adversity, warned in his memoirs that, unless the dollar was convertible into gold, the people would lose control of the public finances, "their first defense against tyranny." Simon Johnson and James Kwak, the authors of "White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You" could not seem to disagree more. To them, the problem today isn't paper money but a government that hovers too little and taxes too lightly. More regulation—especially financial regulation—and selectively higher taxes are the answers, they contend.
JOBS Act Would Ease Sarbox Standard, but Might Pave Way for Fraud, CFO, March 26, 2012
Proponents of the Jumpstart Our Business Startups Act argue the law could be a game-changer for smaller companies by relaxing disclosure requirements and making it easier for them to go public and attract financing. But critics warn the act could grind investment activity to a halt. [...] The law would also roll back one of the most contentious elements of Sarbanes-Oxley for companies that decide to make initial public offerings. [...] That would ease a big operational headache for CFOs at newly public companies, according to Harvard law professor John Coates. [...] “That’s a rollback of Sarbanes-Oxley for those companies for a limited amount of time, which is probably not a terrible idea, considering they ought to be focused on growing the business post-IPO,” says Coates. “The rest of the bill doesn’t have anything to do with Sarbanes-Oxley, but it is, however, a big change to existing securities law.”
Weighing the Arguments For and Against Staggered Boards, Corporate Counsel, March 23, 2012
To have a staggered board, or not to have a staggered board? That’s the corporate governance question sparked by this week’s progress report from the Harvard Law School Shareholder Rights Project (SRP), and an ensuing sharp rejoinder penned by AmLaw 100 firm Wachtell, Lipton, Rosen & Katz. [...] Bebchuk begs to differ, and says the clinic’s agenda is neither narrow nor his alone. “While Wachtell does not find the evidence persuasive, a majority of investors have formed a decidedly different view,” he says in an email response to CorpCounsel.com. [...] Between January 1, 2010, and June 30, 2011, “the average percentage of votes cast in favor of shareholder proposals to declassify boards of S&P 500 companies has exceeded 75 percent,” according to Bebchuk.
Jobs' Bill Clears Senate, Moves Back To House, Dow Jones Newswires, March 23, 2012
By a wide, bipartisan margin, the Senate voted 73-26 Thursday to approve a bill pitched as a way to boost jobs by easing business regulations, likely the measure's last significant hurdle before it can be signed into law. [...] But economists and policy experts warned the Jumpstart Our Business Startups, or JOBS, act is unlikely to create jobs, at least not on a large scale or anytime soon. [...] John Coates, a law professor at Harvard, said job creation only would materialize years from now, after the SEC adjusts its rules to reflect the bill's changes. He also cautioned that the U.S. capital markets could become more like Russia's in that corporate disclosures could become less meaningful and, because of the shareholder-cap changes, there could be more trading in private markets where there is less antifraud enforcement. Individual investors would be more on their own, Coates said.
Spat Over Staggered Corporate Boards Pits Wachtell Against Harvard's Bebchuk, American Lawyer Daily, March 21, 2012
On Wednesday morning, Wachtell, Lipton, Rosen & Katz issued a sharply worded memo in which four of its top partners attacked a Harvard Law School initiative aimed at pressing large corporations to drop their staggered boards of directors. By day's end, Harvard Law professor Lucian Bebchuk was firing back. In the memo, Wachtell—whose profits per partner rank at the top of the Am Law 100—objected to this week's announcement by The Harvard Law School Shareholder Rights Project (SRP) touting its success in persuading a significant number of S&P 500 companies to move to annual elections by declassifying their staggered, or classified, boards.
Wachtell Defends Staggered Boards, New York Times DealBook, March 21, 2012
Despite a campaign led by a Harvard Law School professor to remove them, staggered boards still have an outspoken defender in Wachtell, Lipton, Rosen & Katz. [...] In a memorandum published on Wednesday entitled “Harvard’s Shareholder Rights Project Is Wrong,” the law firm stood up for the practice, in which only a portion of a company’s directors come up for election in a given year. Staggered boards have been criticized by some corporate governance experts as potent antitakeover devices.
The Case Against Staggered Boards, New York Times DealBook, March 20, 2012
Here is a corporate governance puzzle to ponder. Companies that are already public are rushing headlong to ditch their staggered boards. More evidence of this comes from the Harvard Law School Shareholder Rights Project. [...] The project has succeeded in getting about a third of all the S.&P. 500 companies that had a staggered board to eliminate it. The rights project is led by a corporate governance advocate, Professor Lucian A. Bebchuk, and a research fellow, Scott Hirst, both from Harvard Law School.
You Scratch My Back..., New York Times, March 19, 2012
With their eye on campaign cash, President Obama and lawmakers from both parties have decided they can all get more from corporate constituents if they cooperate to enact legislation that big donors want. [...] The legislation is the JOBS Act [...] is not about jobs. It is about undoing investor safeguards in federal law, including parts of the Sarbanes-Oxley law and other landmark protections, so that companies can raise money without having to follow rules on disclosure, accounting, auditing and other regulatory mainstays. [...] John Coates of Harvard Law School recently told a Senate banking subcommittee that the proposals in the JOBS Act “could not only generate front-page scandals, but reduce the very thing they are being promoted to increase: job growth.”
Bill to Help Businesses Raise Capital Goes Too Far, Washington Post, March 14, 2012 An op-ed co-written by HLS Professor John Coates and Harvard Business School Professor Robert Pozen: The House voted 390 to 23 last week for a bill to provide regulatory relief for small companies trying to raise capital. The bill is moving quickly through the Senate; no one likes unnecessary regulations that burden economic growth. But this bill does more than trim regulatory fat; parts of it cut into muscle. Small businesses will have a harder time raising capital if investors do not receive sufficient disclosures or other legal protections.
AIG Shouldn't Get Tax Breaks - Ex-Watchdogs, CNN Money, March 12, 2012
Four former members of a watchdog panel on Monday urged the Treasury Department to end tax breaks for government-bailed-out insurer AIG. [...] Other bailout beneficiaries, including General Motors (GM, Fortune 500), Citigroup (C, Fortune 500), Fannie Mae and Freddie Mac get similar tax benefits -- which Treasury engineered to get those firms out from under the government's thumb more quickly, according to an academic paper by Harvard law school professor J. Mark Ramseyer and Indiana University-Bloomington business professor Eric Bennett Rasmusen.
Extraordinary Popular Delusions and the Madness of Crowd (Funding), Huffington Post, March 6, 2012
Although the bills making up the JOBS Act are typically described as "non-controversial," they have been severely criticized by leading securities law experts and are opposed by investor advocates and unions, among others. … In testimony before the Senate Securities Subcommittee, Harvard Professor of Law and Economics John Coates cautioned that, in combination, two of the legislation's other components -- one dramatically expanding the exemption that allows small private offerings to be sold to the general public and one greatly increasing the number of shareholders a company could have before it would be required to register -- "would effectively gut the securities laws for all but the largest issuers."
The Other GM Bailout:The $18 Billion Tax Gift Obama Didn't Mention, Wall Street Journal, February 29, 2012
President Obama appeared at a United Auto Workers tent revival meeting Tuesday [...] [and] said the bailouts succeeded not "because of anything the government did."The lacuna in this account is the $81.8 billion that taxpayers surrendered to General Motors and Chrysler, and we detailed the many other costs in a February 25 editorial "Halftime in Detroit." As it happens, however, we missed one big thing the government did that deserves more attention: GM's tax gift courtesy of the U.S. Treasury. [...] In a 2011 working paper, J. Mark Ramseyer of Harvard and Eric Rasmusen of Indiana University argue that by manipulating corporate tax rules by fiat, "Treasury gave the firm (and its owners, including the UAW) $18 billion more in assets." Thus a Democratic Administration gave "a massive tax benefit to one of the party's biggest supporters." The other problem is that the move put Ford and GM's other competitors at a disadvantage, as bailouts always do.
Cash Bonuses on Wall Street to Drop 14%, MarketWatch, February 29, 2012
Cash bonuses paid to Wall Street employees for 2011 are expected to drop 14% to their lowest level since the global financial crisis, according to an estimate released Wednesday that highlights the ongoing challenges faced by the securities industry. [...] “The financial sector is beginning to recognize and internalize that they cannot expect the high and ever-growing levels of profits the financial sector became used to expecting in the pre-crisis years,” said Lucian Bebchuk, a professor at Harvard Law School who is also the author of a book on executive pay.
Wall Street Bonuses Down 14%, GlobalPost, February 29, 2012
Wall Street bonuses fell 14 percent to $19.9 billion in 2011, according an estimate from New York State Comptroller Thomas DiNapoli released today, CNN reported. [...] “The financial sector is beginning to recognize and internalize that they cannot expect the high and ever-growing levels of profits the financial sector became used to expecting in the pre-crisis years,” Lucian Bebchuk, a Harvard Law School professor and author of a book on executive pay, told MarketWatch.
Fight Looms as SEC Mulls Campaign Money Disclosures, Law360, February 28, 2012
Executives at public companies are feeling intense pressure to disclose corporate political donations made legal by the U.S. Supreme Court's Citizens United ruling, but experts say the U.S. Securities and Exchange Commission will face resistance as it begins crafting a rule that would force the issue. [...] Some executives have resisted disclosure on grounds that they simply should be free to manage corporations as they see fit, according to Harvard Law School Professor Lucian Bebchuk. Executives have argued that "companies and their shareholders will benefit from being able to contribute without the contribution becoming public," Bebchuk said.
Bending the Tax Code, and Lifting A.I.G.’s Profit, New York Times Dealbook, February 27, 2012
Last week, the American International Group reported a whopping $19.8 billion profit for its fourth quarter. [...] But if you dug into the numbers, it quickly became clear that $17.7 billion of that profit was pure fantasy — a tax benefit, er, gift, from the United States government. [...] The tax benefit is notable for more than simply its size. It is the result of a rule that the Treasury unilaterally bent for A.I.G. and several other hobbled companies in 2008 that has largely been overlooked. [...] “We suggest that Congress give its members standing to challenge such manipulation in court,” J. Mark Ramseyer, a Harvard professor, and Eric B. Rasmusen, a professor at Indiana University, wrote in a paper last year. The paper provocatively asked: “Can the Treasury Exempt Its Own Companies From Tax?”
Wikileaks Release Suggests Stratfor Inside Info Plan with Goldman Sachs Exec, International Business Times, February 27, 2012
WikiLeaks released more than 5 million e-mails Monday hacked from U.S.-based global intelligence firm Strategy Forecasting Inc. (Stratfor), revealing an alleged plan between the firm's CEO and a Goldman Sachs executive to set up an investment fund that would rely on inside information gathered by the company. [...] That StratCap is an investment arm of Stratfor in all but name is not necessarily a legal transgression in and of itself. John C. Coates, Professor of Law and Economics at Harvard, explained that laws governing insider trading do not proscribe a company, whether or not it is a subsidiary of another, from making investments based on market information obtained through another company, so long as the information itself does not violate insider trading statutes.
Economics and Society: Barrier to a Breakthrough, Financial Times, February 22, 2012
Economic rents arise from other legal monopolies such as extended copyright protection. The financial sector is riddled with them; some analysts say that part of the reason for high executive pay is because managers can extract rents from shareholders. [...] The social argument for copyright is that it gives an incentive for artists to create work. [...] Executive pay is a more contentious case. [...] “We know that executive pay consists at least partly of rents because both the level and insensitivity to performance of compensation increases with executive power vis a vis shareholders,” says Jesse Fried, a professor at Harvard Law School and co-author of “Pay Without Performance,” a book critiquing executive pay practices.
The Dumbest Investment Move: Why Owning Your Company's Stock In Your 401(K) Can Be a Big Mistake, SmartMoney, February 22, 2012
[T]he most foolish investment of all may be right in front of you. And there's a worrying chance you're buying it. The investment? Stock in your own employer. [...] [A]re CEOs really investing in the company? Most just get free stock and options -- which they then sell. Among top executives, stock "sales outweigh purchases by a substantial margin," says Lucian Bebchuk, a Harvard professor and a leading expert on executive pay; most of them, he adds, "keep getting equity incentives as part of their compensation and they unload them over time."
John Coates on Drafting M&A Agreements, Running a Law Firm, Deal Magazine, February 17, 2012
Academics don't generally immerse themselves in the details of legal practice and often have no firsthand experience of it, but John Coates IV is an exception. [...] In "Managing Disputes Through Contract: Evidence from M&A," [...] the professor combed through 120 mergers and acquisitions agreements to analyze terms that provide for the resolution of disagreements arising from a deal. And in "Hiring Teams, Firms and Lawyers: Evidence of the Evolving Relationships in the Corporate Legal Market," [...] Coates and Harvard Law co-authors Michele DeStefano Beardslee, Ashish Nanda and David Wilkins discuss how Fortune 500 companies choose their outside counsels.
The Fast Track to a Balanced Budget, Reuters, February 8, 2012 An opinion piece by HLS Professor Howell Jackson: The state of the union, fiscally speaking, is perilous. Despite record deficits and dire warnings from Europe as to the consequences of sustained fiscal imbalance, our leaders have been unable to find common ground. [...] Yet despite these failures, Congress now has the opportunity to move us onto a path toward prompt national consensus on fiscal reform. Congressional leaders are this week debating legislation to extend the payroll tax cut. If they are smart, they will include in that bill a small, but important, provision that grants the winner of the 2012 presidential election something called fast-track authority.
AT&T Shareholders Demand Answers, Politico, February 7, 2012
Some AT&T shareholders want more than just dollars and cents from the board of directors in the aftermath of the company’s aborted takeover of T-Mobile: They want to know how company money is being spent to influence politics. [...] The divide over political disclosure at AT&T is nothing new — shareholder groups have been pressuring the company on the issue since 2004. [...] “AT&T’s recent complete disaster in the Deutsche Telekom deal [...] that’s exactly the kind of thing that will make the board and managers and shareholders think long and hard about disclosure of political activity,” said John Coates, a corporate governance expert and professor at Harvard Law School.
Overheard, Wall Street Journal, February 3, 2012
Companies dislike the idea of giving investors more say over who runs for board seats. Among their arguments: It could shift power to shareholders, such as unions, which may have goals at odds with maximizing value. The stock market doesn't agree, according to economists Bo Becker, Daniel Bergstresser and Guhan Subramanian.
What U.S. Companies Can Learn From Olympus, Fortune, January 26, 2012
Olympus is not to be applauded for its alleged fraud or cover-up, but U.S. companies should pay close attention to its response. [...] [Olympus’s] board of auditors (an oversight structure in Japan that does not exist in the U.S.) commissioned [...] a report in May 2009 and found no wrongdoing. But in contrast, the December 2011 independent third party report by five attorneys (including former judges) and one accountant hits hard. [...] Curtis Milhaupt, professor of Japanese corporate law at Columbia, says the frankness of the report is a "good sign for Japanese corporate governance" and, as professor Mark Roe at Harvard Law says, it shows an Olympus committee much "more willing to be negative" than we are used to seeing in similar reports in the U.S.
Shift Index 2011: The Most Important Business Study - Ever?, Forbes, January 25, 2012
[...] It would thus be useful to separate out extraordinary gains in compensation documented in Lucian Bebchuk and Jesse Fried’s comprehensive book, Pay without Performance), the retirement benefits documented in Ellen Schultz’s incisive book, Retirement Heist (Portfolio, 2011) and the returns to private equity documented in Josh Kosman’s book, The Buyout of America, (2005).
The Payout to the Boss of RBS Is a Disastrous Deal for the Taxpayer, Guardian, January 23, 2012
[...] Well, we know how much the RBS boss got last year. The bank's annual report shows his salary as £1.22m. Add in the benefits and pensions and the shares awarded as part of the company's incentive scheme, and Hester was awarded a total of £5.85m last year. You may not have thought he was on so much, largely because the press normally quotes only the not-so-basic pay. But the rest would be what Harvard law professor and corporate-governance expert Lucian Bebchuk calls "camouflage" compensation – that is, payment expressly designed not to be noticed by the public and so not stir up outrage.
Citizens United Turns 2—and It's Still Wrong, Atlantic, January 20, 2012 Op-ed by James Kwak, Program on Corporate Governance Fellow: In January 2010, the Supreme Court handed down the landmark decision Citizens United v. Federal Election Commission, which held that political spending by corporations could not be prohibited by the government, under the First Amendment. [...] Last September, I argued on this site that corporations should be required to disclose their political activities and spending. [...] Since then, Harvard law professor John Coates has put some effort into figuring out just what corporations are doing with their political spending, and how it affects their shareholders. The short answer, revealed in his new working paper, is that political activities are bad for shareholders.
Why Should Captains Stick By Their Ships?, Forbes, January 18, 2012
We need only look at the captains of industry to see how far the pervasive phenomenon looking after oneself ahead of one’s charges has come to be the norm. In Lucian Bebchuk and Jesse Fried’s comprehensive book, Pay without Performance), “Flawed compensation arrangements have been widespread, persistent, and systemic, and they have stemmed from defects in the underlying governance structure that enable executives to exert considerable influence over their boards...”
A Former Treasury Adviser On How To Really Fix Wall Street, New Republic, Decemeber 17, 2011 An opinion piece by HLS Visiting Assistant Professor Morgan Ricks: Any serious program for Wall Street reform should start with two words: “term out.” “Terming out” is a financial term of art, but its meaning is easily grasped. It simply means funding your business with long-term financing instead of short-term IOUs. To a far greater extent than is commonly understood, our financial sector funds its operations with extremely short-term borrowings. These IOUs must be paid back in a day, a week, or a month. By contrast, termed-out financial firms shun borrowings that come due in less than a year. A terming-out requirement would be costly for Wall Street, but the reward would be a safer and more resilient financial system. That’s a trade we should be willing to make.
Focus on Donations Grows, Inside Investor Relations, Decemeber 16, 2011
When the US Supreme Court ruled in 2010 that corporate political contributions are protected by free speech, the five-four split-decision signaled deep divisions. [...] Writing in the Harvard Law Review last year, Robert Jackson of Columbia Law School and Lucian Bebchuk of Harvard Law School, the two prime movers behind the petition, pointed out that while the Supreme Court made clear the free speech rights of corporations, the question of ‘who should have the power to decide whether a corporation will engage in political speech’ remains unanswered.
Pet Food Lawsuit Won't Neuter Wall Street, The Street, Decemeber 2, 2011
A settlement involving Barclays Capital (BCS) and Del Monte Foods' over its pet food business sale is being described by lawyers as leading to "sweeping change" in investment banking, but longtime industry watchers think it will be much harder to teach old Wall Street dogs new tricks. [...] About the settlement, John Coates of Harvard Law School asks, 'is it temporary attention, or will it change practices over a long period of time?" Since the Delaware court ruling hinged on Barclays' disclosure and not its actual investment banking practice, Coates believes in the former.
10 Things We Didn't Learn From [the] Enron Scandal, ABC News, Decemeber 1, 2011 #9: Still building fragile financial structures: "We could have taken a deep look at the special purpose vehicles, derivatives, repos, and the rest of the 'new' finance that was core to Enron's business model, in order to see what needed to be done better," Mark Roe, professor at Harvard Law School, said. "The outright fraud of the type that was the core of Enron's ultimate collapse --- bogus transactions that generated accounting entries but not real profits - was contained after Enron (even if other frauds, like Madoff's arose)."
Friends of alum endow new fellowship, Harvard Gazette, November 29, 2011
Friends of Henry Hubschman, HLS ’72, M.P.P. ’73, have set up a fellowship in his memory at Harvard Kennedy School (HKS) and Harvard Law School (HLS). Established shortly after Hubschman’s death in February 2011, the fellowship has received more than $550,000 in contributions and is now permanently endowed. It will provide financial assistance to students pursuing dual HLS/HKS degrees beginning in academic year 2012–13. [...] “This fellowship is a perfect tribute to Henry,” said longtime friend Ben W. Heineman Jr., who is a distinguished senior fellow at HLS’s Program on the Legal Profession and a senior fellow at HKS’s Belfer Center for Science and International Affairs. “He had a brilliant professional career at the intersection of law, policy, politics, and business, and was always grateful for the skills and perspectives he developed as a joint-degree student almost 40 years ago.”
Citigroup May Need to Pay More to Keep SEC Deal, Lawyers Say, Bloomberg Businessweek, November 23, 2011
Citigroup Inc., whose $285 million settlement with U.S. regulators over a collapsed collateralized debt obligation was faulted by a federal judge as too lenient, may have to pay more money to avoid admitting it did anything wrong, said lawyers following the case. … “Here an agency of the U.S. is saying, in effect, ‘although we claim that these defendants have done terrible things, they refuse to admit it and we do not propose to prove it, but will simply resort to gagging their right to deny it,’” he wrote in a decision approving the settlement. [...] Rakoff, who in 2009 rejected a $33 million deal between the SEC and Bank of America Corp., has said his role is to determine whether the Citigroup settlement is “fair, adequate and reasonable” and in the public interest. He’s limited to approving or disapproving the settlement and can’t rewrite it to impose terms the parties don’t want, said James Kwak, a professor at the University of Connecticut School of Law in Hartford. [...] Kwak, a fellow at the Harvard Law School corporate governance program, said he thinks Rakoff will approve the Citigroup settlement or a rewritten version of it without any admission of liability.
Delaware Chancery Court Hears Cheers and Critiques at Columbia, Corporate Counsel, November 21, 2011
It's not every day that law professors get to tell the members of the country's premier business court—the Delaware Court of Chancery—what their academic research reveals about the bench's decision-making. [...] According to the academic literature, close to three-fifths of U.S. public companies incorporate in Delaware, providing the court with a large case flow upon which their expertise is based. In fact, said Harvard Law professor Mark Roe, U.S. corporate law is essentially made in two places: Washington, D.C.—with a mix of public policymakers, consumers, employees, unions, managers, and investors influencing the feds—and Delaware, where a smaller circle of parties (managers, boards, and investors) influences the chancery. Roe also remarked that Delaware's own influence on Washington action is "underplayed" in the understanding of U.S. corporate law.
Why Are Fannie & Freddie CEOs Paid So Much?, Forbes, November 16, 2011
One could look at the Fannie/Freddie salaries as a one-off single decision on excessive pay. That would be a mistake. In fact, the salaries reflect a pervasive phenomenon of “pay without performance” at the CEO level, and in particularly in the financial sector, as documented in the insightful book by Lucian Bebchuk and Jesse Fried, Pay without Performance: The Unfulfilled Promise of Executive Compensation.
America’s New Robber Barons, New York Review of Books, November 16, 2011
One reason for the discrepancy between the US and other countries is that boards of directors in the US are especially willing to give their CEOs and other high level executives big raises and generous stock options. Lucian Bebchuk of Harvard has done a lot of research on this so-called “governance” issue. Meantime, as Bebchuk’s work shows, shareholder influence over executive compensation is far too weak. And there is also the issue of culture itself.
Chancery Court Praised at NYC Meeting, Delaware Online, November 14, 2011
At Friday's conference, law professors and litigators all talked about the "genius" of the Delaware Chancery Court system and its influence not only on corporate America and corporate governance but on Washington and federal regulation. [...] But not all the presentations on Chancery Court were positive. Professor Mark Roe of Harvard Law School talked about how some new federal regulations have been passed that appear to intrude on areas previously dominated by Chancery Court. But he also said a shift in rulings from the Delaware Chancery Court, like those that give more access to shareholders, has appeared to calm federal policymakers and their constituents. "Delaware's position affects Washington," he said, and vice versa.
At Olympus, Western Questions for Old-School Ways, The New York Times, October 26, 2011
[W]hen [Olympus’] English president, Michael C. Woodford, confronted the Japanese chairman, Tsuyoshi Kikukawa, last summer over $1 billion in murky payouts and questionable acquisitions Olympus had made during Mr. Kikukawa’s tenure, their worlds clashed. And so began a boardroom battle that has now cost both men their jobs, wiped out over half the company’s stock-market value. [...] But the Olympus scandal is unusual because it follows an era of aggressive government crackdown on bribery and suspicious business deals, said J. Mark Ramseyer, a professor of Japanese legal studies at Harvard Law School. “The activity seems to have gone down quite a bit,” Mr. Ramseyer said.
High CEO Salaries Can Mean Lower Profits,The Australian, October 17, 2011
Profitability tends to suffer when chief executives get paid significantly more than their senior executive cohort, new research shows. [...] The US research Mr Jordan worked with, by economists Lucian Bebchuk, Martijn Cremers and Urs Payer, produced five conclusions about companies with a high chief executive pay slice.
Volcker Rule To Restrict Banks' Proprietary Trading Contains Loopholes, Experts Say, Huffington Post, October 11, 2011
Federal regulators released on Tuesday a draft of the long-anticipated Volcker rule, a regulation that will limit large banks' bets with their own money. [...] Some experts said that [...] the Volcker rule includes enough loopholes to allow banks to continue a certain amount of proprietary trading under a different name. "Unless they’re actually embedded in banks, they may have a great deal of trouble determining whether permissible or banned activities are going on," said Andrew Tuch, a law professor at the University of Sydney and [an S.J.D. candidate] at Harvard Law School. Tuch said that the Dodd-Frank Act's provisions for the Volcker rule unsuccessfully tried to accomplish two aims at once: promoting financial stability and reducing conflicts of interest. The Volcker rule's effectiveness now will depend on banks' own internal compliance, he said.
US Banks Defer 60% of Executive Bonuses, Financial Times, October 5, 2011
The largest US banks are deferring more than 60 per cent of senior bank executives’ bonuses, according to a survey by the Federal Reserve. [...] Regulators argue this ensures employees keep their company’s overall performance in mind when taking risks but pay expert Lucian Bebchuk of Harvard Law School reckons that stock grants simply incentivise bankers and traders to take bigger risks. The more risk taken, the greater the potential the bank’s share price – and the value of the banker’s bonus – will rise, he says.
A Growing Consensus on What to Do About Citizens United, Huffington Post, September 25, 2011
But election wonks are not the only ones worried about the impact of corporate dollars in American elections. Corporate law experts have also voiced their objections. Corporate law professors including Bebchuk and Coates at Harvard, Jackson and Gilson at Columbia and Klausner at Stanford have expressed concern that the Supreme Court has fundamentally misunderstood how corporate democracy works.
Governance Leaders Recognized, Corporate Secretary, September 16, 2011
The International Corporate Governance Network (ICGN) has honored Colette Neuville, Lucian Bebchuk and Dr. Stephen Davis with awards for their outstanding contributions to corporate governance. [...] The second ICGN award was presented to Professor Lucian Bebchuk of Harvard Law School, who has conducted extensive research on executive compensation and provided other extensive work in the field, including what the ICGN described as ‘unprejudiced analysis’. Bebchuk’s widely acclaimed book, co-authored by Jesse Fried and entitled Pay without performance: the unfulfilled promise of executive compensation, was published in 2004.
One Thing Can Stop Corporations From Buying the 2012 Election: Transparency, Atlantic, September 13, 2011 Op-ed by James Kwak, Program on Corporate Governance Fellow: As the 2012 campaign season draws near, one of the major questions is what impact corporate spending will have on the balance of power in Washington and around the country. [...] Last month, an all-star committee of corporate law professors petitioned the Securities and Exchange Commission to write rules requiring corporate disclosure of political activities.
Picking Apart the ‘Ponzi Scheme’: Is Rick Perry Right?, ABC News, September 9, 2011
Social Security “is a Ponzi scheme,” presidential candidate Rick Perry said during Wednesday’s Republican debate. “It is a monstrous lie. It is a Ponzi scheme to tell our kids that are 25 or 30 years old today, ‘You’ve paid into a program that’s going to be there.’ Anybody that’s for the status quo with Social Security today is involved with a monstrous lie to our kids, and that’s not right.” But to be a true Ponzi scheme the federal government would have to convince people to voluntarily pay [...] “The critical thing that makes a Ponzi scheme despicable to me is the fraud, and Perry’s exaggerating a little bit if he’s implying that there is fraud,” said Harvard Law professor Mark Roe.
Fulfilling the Promise of 'Citizens United,' Washington Post , September 6, 2011 An opinion piece by HLS Professor John C. Coates and Public Citizen’s Taylor Lincoln: The Supreme Court’s January 2010 Citizens United decision to permit corporations to spend unlimited sums to influence federal elections was premised on a pair of yet-unfulfilled promises: Corporations would disclose their expenditures, and shareholders would be able to police such spending. The best chance to fulfill those promises may now rest with the Securities and Exchange Commission. The SEC could require disclosure of political spending by public companies and facilitate action by shareholders to sign off on such spending.
The U.S. Legal System: Good At Some Things, Wretched At Others, Forbes, September 6, 2011
One thing President Obama won’t talk about in his jobs speech Thursday is the deadening effect of litigation on the U.S. economy. And maybe he’s right to ignore it. [...] It’s the unique aspects of U.S. law — specifically, class actions and mass torts — that give the entire system a bad name. That’s the conclusion of Harvard Law School’s J. Mark Ramseyer and Eric Rasmusen of Indiana University in a paper I recently stumbled across. The paper, “Are Americans More Litigious?” is filled with the statistics tort-reformers love to trundle out.
From Blood Transfusions to Poison Pills, Deal Magazine, September 2, 2011 Interview with William B. Chandler III, former Chancellor Delaware's Court of Chancery: I got the views of all of my colleagues on the court on both the pill question, which was Airgas II, and on the bylaw question, which was Airgas I. They were very helpful to me in writing it and getting it out in a timely way. If the question is, "Would I have written this as long or in the same way?" probably not, because back when I wrote Unitrin in the mid-1990s, there hadn't been as much ink spilled by academics. You saw a lot of academic references in the opinion, and that probably resulted in a slightly different approach to how to write it, because I was writing it for the parties but also acknowledging the views of various academics on this question from professor [Lucian] Bebchuk to others.
SEC Proposal Would Disclose Political Donations by Public Companies, Washington Post, August 31, 2011
A group of 10 law professors filed a formal petition asking the [Securities and Exchange Commission] to require corporations to list political contributions in annual proxy statements sent to shareholders. The professors cite a growing interest among shareholders for disclosure of political contributions. "Many shareholders recognize that the interests of executives and directors with respect to political spending might differ from those of shareholders," said Lucian Bebchuk, a Harvard Law School professor who co-chaired the group of professors seeking the new rule. "Such shareholders are naturally concerned when, as is commonly the case, their company provides them with no information about its political spending."
More Board Elections Mean Easier Targets for Icahn, MarketWatch, August 23, 2011
As recently as 2000, almost two-thirds of America’s biggest companies maintained a controversial policy that discourages hostile takeovers and limit the kinds of investor insurgencies Icahn and others have conducted at dozens of U.S corporations. [...] The policy - known as a staggered or classified board - typically means than every year only a third of the corporation’s directors come up for election.[...] Harvard Law School Professor Lucian Bebchuk, a leader in efforts to declassify boards, cites a study he conducted that found classified boards are associated with lower firm valuation.
Will Funny Money Elect The Next President?, United Press International, August 21, 2011
Is the American political process drowning in corporate money, dammed-up funds in long confinement finally set loose by a U.S. Supreme Court decision so controversial even its supporters defend it with a wink and a smirk? [...] Concern over the source of independent money led 10 corporate law law professors, including Harvard Law School's Lucian Bebchuk and Columbia Law School's Robert Jackson, to petition the Securities and Exchange Commission, The Wall Street Journal reported Aug. 5.
Courts Should Curb Executive Pay, National Law Journal, August 15, 2011
Well-respected scholars of corporate law have also pointed out that CEO remuneration is not geared to rewarding the performance of those top officers. In their book Pay Without Performance, professors Lucian Bebchuk and Jesse Fried of Harvard Law School attacked what they call the "official view" that directors fix executive pay in arm's-length negotiations with corporate leaders to provide them incentives to increase shareholder wealth. In reality, those top executives set their own pay through captured boards that they control.
Law Professors Ask SEC to Require Disclosure of Campaign Donations, Wall Stret Journal, August 5, 2011
A group of 10 corporate law professors asked the Securities and Exchange Commission to require corporations to disclose to shareholders most political spending. [...] The law professors, led by Lucian Bebchuk, of Harvard Law School, and Robert Jackson, of Columbia Law School, argue that while the Supreme Court declared unconstitutional any restrictions on corporate speech during elections, the high court’s ruling in the case, Citizens United v. Federal Election Commission, assumed shareholders would be able to monitor the use of corporate resources on political activities.
SEC Urged To Make Companies List Political Spending, Reuters, August 5, 2011
A group of securities law experts are pushing for federal regulations forcing companies to reveal how much they spend on political activities. The 10 professors have formally petitioned the U.S. Securities and Exchange Commission to quickly write rules requiring regular disclosures to shareholders. [...] The group of academics includes Lucian Bebchuk from Harvard Law School; John Coffee from Columbia Law School; James Cox from Duke Law School; Robert Jackson, Jr. from Columbia Law School; and Donald Langevoort from Georgetown Law School.
SEC Urged To Require Disclosure of Corporate Political Spending, Dow Jones Newswires, August 5, 2011
A group of 10 law professors is asking the Securities and Exchange Commission to draft rules requiring public companies to disclose the political contributions they make, a followup to a recent Supreme Court decision prohibiting the government from banning corporate spending in political campaigns. [...] The petition is led by Lucian Bebchuk, of Harvard Law School, and Robert Jackson, of Columbia Law School.
Are Dual-Class Shares Bad For Investors?, SmartMoney, August 1, 2011
The News Corp. phone hacking scandal has drawn attention to a class issue on Wall Street. Most traded companies have only one type of common stock. A small number of firms, including several media giants, issue two: one class for anyone who wishes to buy a stake and another with super voting rights that allows a privileged few to hoard operational control. Is that dual system bad for returns? [...] Media firms, including the New York Times Company and the Washington Post Company, also use dual-class structures to protect their editorial vision from potentially hostile shareholders, says Guhan Subramanian, a professor at Harvard Business School and Harvard Law School who teaches corporate governance.
Icahn’s Power Stems from His People, Boston Globe, July 5, 2011
Investor Carl Icahn is dispatching his Harvard team to a new corporate confrontation at yet another medical company. [...] Most recently, Icahn has challenged the management at drugmaker Forest Laboratories Inc., the company that paid $1.2 billion for Newton’s Clinical Data Inc. in February. He acquired 6.9 percent of the company’s shares and proposed four candidates for a nine-member board. Among them: Richard Mulligan and Lucian Bebchuk.
10 Things CEOs Won't Tell You, SmartMoney, July 5, 2011
It's shocking to discover the average CEO of an S&P 500 company made $11.4 million in total compensation in 2010. That's enough to pay the salaries of more than 250 firefighters, according to the AFL-CIO. But for investors, there's more to executive compensation than pure sticker shock. Over the years, a series of academic studies have tied higher CEO pay to lower returns for shareholders. [...] How much the CEO makes compared to the other executives in the C-suite also matters: Companies where the CEO grabs a bigger piece of the total compensation pie awarded to the top five executives tend to have a lower value and generate lower stock returns as the CEO's share of the pay pie increases, according to a 2009 study by Harvard Law School professor Lucian Bebchuk and colleagues at the Yale School of Management and INSEAD.
When Companies Do the Right Thing, Motley Fool, July 1, 2011
Good corporate governance isn't just the right thing to establish; it may also encourage better shareholder returns. The Harvard Law School Forum on Corporate Governance and Financial Regulation recently published empirical evidence supporting the purely financial reasons in favor of declassifying boards. According to studies the forum cited in its blog post, classified boards can be correlated with lower valuation, worse performance, and value-destroying acquisitions.
Why they’re winning on CEO pay, Washington Post, June 24, 2011
We’ve been having this argument about executive pay for 30 years, and we’re still pretty much where we began: Executives think the market has affirmed that they are worth every penny of what they get, and the rest of us think they’re grossly overpaid. By my lights, the best academic work on this subject has been done by two law school professors, Lucian Bebchuk and Jesse Fried at Harvard, who unlike most finance professors understand that the market for executive compensation is essentially rigged. Their studies have found that the top five executives capture about 10 percent of the net profits of large public companies, up from about 5 percent in the early 1990s, which means that it has a material effect on shareholders. [...] Put more simply, the firms with high CEO pay turn out not to be the best performers.
Bonus Cuts, Pay Raises, Then Layoffs, New York Times DealBook, June 20, 2011
It’s hardly surprising that Wall Street is bracing for layoffs. The European debt crisis is rocking the markets. New regulations are crimping bank profit centers. And smaller bonuses are sending other compensation costs soaring. [...] Lucian A. Bebchuk, the director of the Program on Corporate Governance at Harvard Law School, said he was not convinced that raising salaries was the problem at all. "Look, it makes things less flexible, but not in a bad way," he said. To Mr. Bebchuk, the larger problem is that overall compensation has not come down. "I’m surprised it hasn’t come down more."
U.S. Lawmakers Press Regulators on Bank Capital, Derivatives, Bloomberg, June 16, 2011
U.S. financial regulators sought to reassure lawmakers that they can achieve global coordination and maintain industry competitiveness as they implement the biggest rewrite of Wall Street oversight since the Great Depression. [...] The [House Financial Services Committee] heard testimony from a second panel including … Harvard Law School professor Hal Scott [...]
CalPERS, CalSTRS told to back political disclosure, Pensions & Investments, June 3, 2011
CalPERS and CalSTRS would have to support proxy proposals calling for disclosure of political spending by corporations under a request by Bill Lockyer, California state treasurer and a trustee of both retirement systems. [...] His letters cites two academic studies that he said show a negative link between a company's political spending and its shareholder value. One is by John C. Coates IV, professor of law and economics at Harvard Law School; the other by Rajesh K. Aggarwal, professor in financial markets and institutions, Carlson School of Management, University of Minnesota, and two other academics.
Do We Really Need 2 Shareholders Suits Challenging Warner Deal?, Thomson Reuters, May 20, 2011
[...] That’s probably not going to sit very well with the judges of Delaware Chancery Court, who have lately been on the warpath about M&A shareholder suits being litigated in multiple jurisdictions. You’ve heard about Vice-Chancellor Travis Laster’s fit of pique in the Nighthawk case, but he’s not the only one. As (plaintiffs lawyer!) Mark Lebovitch of Bernstein Litowitz Berger & Grossmann wrote this week in a comprehensive post on multiforum deal litigation at the Harvard Law School Forum on Corporate Governance blog, “The current system is prone to manipulation and gamesmanship [and] the judiciary is becoming more sensitive to some of these issues.”
Companies Rewarded for All-Cash Deals, Wall Street Journal, May 17, 2011
U.S. corporations are learning that it’s impossible to hide $1 trillion in cash on their balance sheets. Both investors and bankers alike are clamoring to get their hands on it. Today, Jim Woolery, North American co-head of M&A at J.P. Morgan, makes his pitch for why companies are well served using some of that cash to make acquisitions. His argument: right now, markets are rewarding those that do. (Woolery’s research can be found here at the Harvard Law School Forum on Corporate Governance and Financial Regulation blog.)
APS Elects Four from Harvard, Harvard Gazette, May 17, 2011
The American Philosophical Society, the oldest learned society in the United States, recently elected four new members from Harvard into this year’s class of scholars. The society, founded in 1743 by Benjamin Franklin for the purpose of “promoting useful knowledge,” honors and engages distinguished scientists, humanists, social scientists, and leaders in civic and cultural affairs [...] This year’s elected members from Harvard follow: Ben Heineman, senior fellow, Belfer Center for Science and International Affairs; distinguished senior fellow, Harvard Law School.
The Raj Insider Dealing Sideshow, Reuters, May 12, 2011
And in fact the times of worst excess in compensation are exactly the same times when shares are rising to unsustainable peaks, as in 2000 and 2007, as boards and executives play a cozy game of writing and cashing in share options. Now theoretically shareholders can oust boards and thereby impose pay discipline on executives, but the reality is that there are massive impediments to them doing so. Lucian A. Bebchuk, a Harvard Law School professor, went so far as to describe the idea of the power of the shareholder franchise as a “myth,” though given the way investors are treated like children perhaps the better term would be fable.
The Case Against Favored Treatment Of Derivatives, The Deal, May 10, 2011
Perhaps the best widely available review of resolution authority issues comes in University of Pennsylvania law professor and bankruptcy expert David Skeel's "The New Financial Deal: Understanding the Dodd-Frank Act and its (Unintended) Consequences," which was published earlier this year [...] Now Skeel gets some academic support. Harvard Law School's Mark Roe has a new paper in the Stanford Law Review, "The Derivatives Market's Payment Priorities as Financial Crash Accelerator," that tackles the same subject and makes roughly the same recommendations. Roe focuses on the failures of AIG, Bear Stearns Cos. and Lehman Brothers and argues that this "favored treatment" of derivatives and repurchase agreements, which gives them super-priority status in a bankruptcy situation, sapped "the failed firms' counterparties' incentives to account well for counterparty risk - the risk that their financial trading partner would fail."
Declassification: Florida Strikes Back at Entrenched Corporate Boards, BNET, May 10, 2011
While other shareholder activists have taken on CEO pay not tied to performance and the responsible (or irresponsible) directors who approve it, Florida’s state pension fund has quietly made unprecedented progress in making all directors accountable to shareholders on an annual basis. The Florida State Board of Administration (FSBA), the $158.9 fund administered by the state for pensions and other purposes, has announced that seven major companies have agreed to eliminate their classified boards. Instead of electing directors to staggered three-year terms so that only a third of them are put to a vote each year, the companies have agreed to switch to annual election of the entire board. Working with the American Corporate Governance Institute (ACGI), headed by Harvard Law School professor Lucian Bebchuk, FSBA has withdrawn shareholder proposals in exchange for a promise to switch to annual election [...]
7 CEOs Who’ve Made Over $200 Million Since 2006, Business Insider, May 7, 2011
Overall, the financial crisis may have had a positive effect on CEO compensation. “Short-term incentive has been de-accentuated over the last year or two, and long-term incentive has been restored,” says James Reda, managing director of the executive compensation firm James F. Reda & Associates. When CEOs are incentivized over the long-term, they tend to make decisions that are good for the enduring strength of their company rather than ones that boost stock prices – and compensation -- in the short term, according to a 2010 paper by Harvard Law Professor and corporate governance expert Lucian A. Bebchuk.
Quiet Proxy Season Means Fewer Fights in the Boardroom, New York Times DealBook, May 3, 2011
Proxy season is a bust. Shareholder activism intended to spur change in the boardroom is down significantly so far this year. At the same time, activism by hedge funds to oppose takeover transactions is rising. [...] And the corporate governance activist Lucian A. Bebchuk at Harvard Law School and his American Corporate Governance Institute have continued to push for boards to hold annual elections of directors instead of electing directors in one-third tranches each year, making them harder to unseat.
Revered Chandler Leaving Chancery Court, The News Journal, April 25, 2011
In a significant development for the state's lucrative incorporation business, the chief judge of the Delaware Court of Chancery will leave the bench in June. [...] Mark Roe, a corporate law professor at Harvard Law School, said given the court's contribution to the state coffers, it may be necessary to increase their compensation. One of the court's great strengths is its continuity of judges. "It's not a good trend if too many judges leave too quickly because they find better financial opportunities off the bench," Roe said. "That would risk having stable, high-quality judges."
Capital Market Regulation Needs an Overhaul, Wall Street Journal, April 20, 2011 An opinion piece by HLS Professor Hal Scott: Securities and Exchange Commission Chair Mary Schapiro recently informed the House Committee on Oversight and Government Reform that the SEC is reviewing ideas to reduce the regulatory burdens on small-business capital formation. This should translate into a review of how we regulate offerings in private and public markets. Both need major fixes.
'Eroded' Takeover Law Favors Directors, Delaware’s Chief Business Judge Says, Westlaw Journal, April 18, 2011
Delaware case law balancing the conflicting interests of directors and shareholders in corporate takeovers has been "eroded," tilting the merger and buyout playing field in favor of management, the state business court’s chief judge said at a legal conference Monday. [...] Chandler presided over a recent high-profile case involving a takeover battle between Airgas Inc. and Air Products & Chemicals. [...] Famed Harvard law professor Lucian Bebchuk predicted that at least one of the takeover defenses that Airgas relied on, the “staggered board” provision, will fade away as shareholders refuse to approve them for the charters of new companies.
More Directors Face Yearly Votes, Wall Street Journal, April 18, 2011
This proxy season, an unusually high proportion of companies have accepted activists' demands that all board members stand for annual elections by shareholders, replacing staggered terms for directors that typically last three years. [...] The Florida State Board of Administration and the Nathan Cummings Foundation, advised by Harvard law professor Lucian Bebchuk, recently dropped half of 28 resolutions seeking yearly elections after 14 of the big companies they targeted agreed—ahead of a vote—to support the change at 2011 or 2012 annual meetings. [...] Board declassification "could be expected to benefit shareholders by improving firm value and performance," Mr. Bebchuk says.
Are CFOs Smarter Than CEOs — or Do They Just Invest That Way?, BNET, April 14, 2011
Lucian A. Bebchuk, J. Martijn Cremers, and Urs Peyer have created a new measure they have dubbed the CEO Pay Slice to assess the relative importance of the CEO within the hierarchy of a firm, with a paper examining the proportion of the total pay for the top five executives at a firm that goes to the CEO as a component of performance. My firm, GovernanceMetrics International, considers it a red flag if the ratio of the CEO’s pay to the median pay of other named executive officers is 3x or more.
Peltz Pushes Greater Latitude in Proxy Voting, MarketWatch, April 4, 2011
Shareholder activist Nelson Peltz on Monday applauded a provision in the Dodd-Frank financial-reform law, held up by a lawsuit from a top business lobby, intended to give stockholders a greater say in corporate board elections. [...] "He wants and it seems a reasonable idea that once he satisfies all the disclosure requirements, there would be some card that has all the candidates, dissident and management candidates, and people can make their choices from the options there," said Harvard Law School Professor Lucian Bebchuk.
At Forum for Deal Makers, M.&A. Meets the Law, New York Times DealBook, March 29, 2011
The 23rd annual Tulane Corporate Law Institute, an annual gathering of deal makers in New Orleans, begins on Thursday [...] A number of roiling issues are at the top of the deal-making agenda. [...] The proper balance of takeover defenses will be a topic at Tulane. The Delaware Chancery Court recently allowed Airgas the use of a poison pill to defeat a hostile bid by Air Products. [...] But the decision is spurring shareholder activists to seek work-arounds. Lucian A. Bebchuk, a Harvard Law professor and a leading advocate for shareholders, has written that shareholders need to increase their lobbying efforts to force corporations to drop staggered boards because of Airgas.
Is Ford CEO Alan Mulally Overpaid?, CBS MoneyWatch, March 23, 2011
United Auto Workers President Bob King is not happy with the $54.5 million compensation package Ford Motors CEO Alan Mulally is receiving for his performance at the company. [...] But theory does not always translate into practice, and high CEO pay may cause performance to get worse rather than better. A recent paper by Lucian Bebchuk, Martijn Cremers and Urs Peyer found that the pay slice of CEOs has been increasing over time, and CEOs receive a larger fraction of the total pay of the top four executives than they did in the past.
The Conference Board Issues Poison Pill Recommendations, Conference Board, March 18, 2011
The recent Delaware Court of Chancery Air Products v. Airgas decision and the spate of poison pill adoptions in recent months lends credence to the theory that the anti-takeover shareholder rights plans are alive and well. [...] However, in a Feb. 24 Wall Street Journal Op-Ed piece (An Antidote for the Corporate Poison Pill) the well-known Harvard Law School professor and director of its corporate governance program, Lucian Bebchuk, warns that while the Delaware court decision upholds the validity of certain poison pills, pressure by shareholders could "substantially limit their toxicity."
Compensation for Corporate Directors Rises Sharply, USA Today, March 4 2011
Compensation for corporate directors is rising sharply, a USA TODAY analysis of 2011 proxy filings finds. Behind the gains: higher cash retainers, fees and rising values of stock and stock option grants. [...] Harvard University governance expert Lucian Bebchuk says paying for savvy board members is worthwhile for shareholders. But excessive pay has drawbacks.
Inequality and Political Power, New York Times Economix, March 3, 2011 Inteview with Jacob Hacker and Paul Pierson - Hacker: As Lucian Bebchuk of Harvard and others have documented, many features of American corporate pay practices seem designed to maximize C.E.O. leverage and minimize oversight— something the corporate scandals of the early 2000s cast in stark light.
'Go Shop' Can Be a Fig Leaf for a Deal to Hide Behind, New York Times DealBook, February 28, 2011
The "go shop" on Wall Street is quickly becoming a "no shop." [...] as the recent sale of J. Crew and other management-led buyouts show, the go-shop process looks more like window dressing — a way to subvert a true auction and enrich management. … in most cases, the structure of the deals may be spooking potential bidders. Incumbent managers, said Guhan Subramanian, a Harvard professor who studied the effectiveness of a go-shop period, have "a significant advantage over other potential buyers."
How to End the Housing Mess, Boston Globe, February 25, 2011
There are solutions that could restore a normal housing market [...] Howell Jackson of Harvard Law School wants government to use its power of eminent domain to turn securitized loans back into whole mortgages. The reduced market value of the security would translate into a subsidy for the new mortgage. [This] approach would enable millions of distressed homeowners to keep their homes, and thus arrest the decline in real estate values.
Lehman Bankruptcy Seen Undeterred by Laws Curbing Compensation, Bloomberg, February 23, 2011
The Financial Crisis Inquiry Commission said last month that Wall Street pay practices pushed traders and managers to disregard risk. New rules must include longer restrictions on selling shares and require higher levels of stock ownership among top traders and managers in order to be effective in promoting risk awareness, said compensation experts including Harvard Law School professor Lucian Bebchuk.
A Pill of a Swan Song, TheDeal Magazine, February 18, 2011
Chancellor William B. Chandler III's Feb. 15 opinion finding for Airgas Inc. in a case where Air Products and Chemicals Inc. sought to force Airgas to redeem its poison pill is one of the most remarkable decisions from a Delaware court in many years. [...] As he came to the end of the opinion, Chandler nodded to the two great antagonists in the debate over the poison pill, Lucian Bebchuk of Harvard Law School and Martin Lipton, the lawyer most closely identified with the pill, whose firm, Wachtell, Lipton, Rosen & Katz, represented Airgas.
Buzz Tracker, New York Times DealBook, February 2, 2011
Staggered Boards and Valuations: A new research paper from Lucian Bebchuk, Alma Cohen and Charles Wang finds that while the Delaware courts “appear to disagree, the markets believe that staggered boards are value reducing.”
Harvard Professor Warns of Cutting Regulators’ Budgets, Wall Street Journal, January 26, 2011
House Republicans have appeared to harden their stance in recent days against giving funding increases to regulators that were authorized in the Dodd-Frank financial-overhaul law. In particular, they’ve discussed blocking hefty budget increases for the Securities and Exchange Commission and the Commodity Futures Trading Commission. But squeezing regulators’ budgets could create serious problems for the financial system, warned Hal Scott, a Harvard Law School professor who testified before the House Financial Services Committee Wednesday.
Investors Want a Right to Know About CEO Health, Wall Street Journal, January 24, 2011
Apple Inc.'s limited disclosure about its ailing chief executive is stirring debate about whether corporate boards should be forced to tell investors more about ill leaders and CEO succession plans. [...] "Unless there are SEC standards for disclosures about CEO health, the recalcitrant boards won't discuss what the diagnosis or the illness is," contends Ben Heineman [...] [ a senior fellow of the Program on the Legal Profession at Harvard Law School and senior fellow of the Belfer Center for Science and International Affairs at the Kennedy School of Government].
Air Products Ruling Will Set Takeover Benchmark, Financial Times, January 23, 2011
Defining moments in corporate law are pretty infrequent. [...] But this week promises one [...] as a Delaware court assesses the latest legal battle in the year-long hostile takeover attempt by Air Products of its industrial gases rival Airgas. [...] "Delaware wants to continue to be the pre-eminent jurisdiction on corporate law issues," says Prof Guhan Subramanian, a corporate governance expert at Harvard Law School. "If it strays too far in the balance between boards and shareholders, there is potential for the federal government to step in and take over certain aspects of corporate law."
Oxford's New B-School Dean Readies a Game Plan, Businessweek, January 12, 2011 A Q&A with incoming University of Oxford Said Business School Dean Peter Tufano: Q. How do you envision shaping the curriculum at Said? Any plans to add new classes or programs? A. I personally won't be creating new classes, but I firmly believe innovation and pedagogy can be incredibly powerful, not only for students but faculty. At Harvard, I co-teach a class with Howell Jackson, of Harvard Law School, on consumer finance. We look at consumer finance businesses and how the consumer financial sector is regulated, as well as the psychological and social side. The students who leave that class are well-armed with not just one perspective, but multiple perspectives of the consumer, businesses, and regulators.
Making Fear and Greed Pay in Investing, New Zealand Herald, December 29, 2010
[...] Fear and greed, together with the desire to follow the herd, are the primary emotions underpinning investment decisions and business strategy, as countless academic studies have shown. [...] The misalignment of interests and assessment of risk is also a fault highlighted by Harvard University professors Lucian Bebchuk and Holger Spamann in their analysis of the financial crisis.
Banks Best Basel as Regulators Dilute or Delay Capital Rules, BusinessWeek, December 22, 2010
More than 500 representatives from 27 nations, including top regulators and central bankers, met dozens of times this year to hammer out 440 pages of new rules to govern the world’s banks. [...] “Nobody’s been able to fix too-big-to-fail around the world because nobody knows how to do it,” said Hal Scott, a Harvard Law School professor who also is director of the Committee on Capital Markets Regulation, a nonpartisan group of academics and business executives. “Even figuring out how to resolve giant banks nationally is tough. How can you do it internationally? That was the biggest lesson of the crisis, systemic risk, but that’s still unresolved.”
Market Group Challenges ‘Flawed’ Dodd-Frank Rulemaking Process, Bloomberg, December 16, 2010
U.S. regulators implementing the Dodd-Frank Act are following a “seriously flawed” process that may damage the financial system and hinder economic recovery [...] R. Glenn Hubbard, John Thornton and Hal Scott said in a letter to lawmakers dated yesterday. “The current rulemaking process is sacrificing quality and fairness for apparent speed, risking lengthy court challenges and poor rules that will damage our financial system and hinder economic recovery,” the three men said in the letter addressed to leading members of the Senate Banking and House Financial Services committees. [...] The letter from Hubbard, Thornton and Scott -- leaders of the Committee on Capital Markets Regulation, a nonpartisan research group -- raises concerns similar to those expressed by Republicans who will take control of the House of Representatives next month. [...] Scott, who teaches at Harvard Law School, is director.
Wall Street Shrinks From Credit Default Swaps Before Rules Hit, Bloomberg, November 29, 2010
Trading in credit-default swaps, Wall Street’s fastest-growing business before the credit crisis, has tumbled 40 to 60 percent from three years ago as banks prepare for new regulation of derivatives. [...] "This was a major profit center for a lot of banks," said Hal Scott, a Harvard Law School professor who also is director of the Committee on Capital Market Regulation, a nonpartisan group of academics and business executives that in May 2009 called for measures to reduce the risks derivatives pose. "It’s part of a bigger picture of reduced financial activity due to uncertainty and regulatory reform."
Deal for J. Crew Allows It to Go Shopping, New York Times DealBook, November 23, 2010
J. Crew is on sale for the holidays. The retailer’s agreement to sell itself includes a go-shop provision, which allows it to solicit other bidders even though its $3 billion deal with two private equity firms has been announced. In other words, J. Crew can go shopping for a higher bid. [...] The go-shop is somewhat suspect among market participants. It is viewed as primarily cosmetic. It provides cover for the fact that the chosen buyer has a head start but does not do much more. But in one study of private equity go-shops, Guhan Subramanian, a Harvard business professor, found that despite the conventional wisdom, go-shops were generally effective and did indeed result in subsequent bids.
Staggered Boards and Company Value, New York Times DealBook, November 12, 2010
A background issue in the battle between Airgas and Air Products and Chemicals is the effectiveness of staggered boards and what academic research has to bear on the issue. [...] This back and forth on this issue in the debate over Airgas and Air Products also raises another chance to review these studies. Lucian A. Bebchuk, Alma Cohen and Charles Wang, professors at Harvard, have seized this opportunity. In a study released on Wednesday, the professors examine how a Delaware Chancery Court decision in the Airgas dispute affected corporate value.
Activists pressure U.S. companies on political money, Reuters, November 5, 2010
Two social activist investment groups said this week they have begun pressuring major U.S. companies, including Pfizer Inc and PepsiCo Inc to review contributions to trade groups such as the Chamber of Commerce. [...] The activists' proposals ask each of the four companies to review political spending and contributions, with an eye on their own corporate rules against political spending.
Shareholders are likely to introduce more such measures as similar legislation stalls in Washington, said Lucian Bebchuk, a Harvard University law school professor who studies corporate governance.
Hershey Trust bought neighboring land for well above market value, Philadelphia Inquirer, October 25, 2010
The Milton S. Hershey School, whose mission for 100 years has been educating impoverished children, is also the owner of Pumpkin World USA, a roadside attraction north of Hershey where you can buy vegetables, country crafts, and gourds galore. [...] In 2006, the Hershey Trust paid a total of $8.6 million in school money for Pumpkin World - a sum more than nine times greater than the property's fair-market value, according to the Dauphin County tax office. [...] "Paying eight to nine times the assessed value requires an extraordinary explanation," said Robert Sitkoff, a Harvard law professor and national expert on trusts.
Death of a democracy, MarketWatch, October 19, 2010
[...] In case you missed it, recent Supreme Court rulings mean that corporations can now effectively spend freely on political campaigns, including during elections. Loopholes in the tax code, particularly pertaining to 501(c)4 nonprofits, mean they can do so secretly through anonymous front groups. [...] Shareholders will have no say. “Political-speech decisions can be made without input from shareholders, a role for independent directors or detailed disclosure,” law professors Lucian Bebchuk of Harvard and Robert Jackson of Columbia will report in a forthcoming paper on the issue. As Bebchuk told me: “Companies certainly are not required, and do not disclose, contributions to intermediaries that engage in political spending.”
Trial to Amplify the Citi-EMI Discord, New York Times, October 13, 2010
[...] On Monday, Mr. Hands and Mr. Wormsley will face off in a federal courtroom in Manhattan. Barring an 11th-hour settlement, a six-person jury will decide the outcome of a lawsuit brought by Mr. Hands’s private equity firm against Citigroup over its role in EMI’s sale. Mr. Hands accuses his once-trusted adviser of deceiving him during the auction process. … "Bringing a lawsuit is a common strategy to employ in order to gain leverage in a negotiation," said Guhan Subramanian, a professor of law and business at Harvard whose recent book "Negotiauctions" (W. Norton & Company) examines complex deal-making situations. "Even though Citigroup believes this is a frivolous lawsuit, it’s risky to expose itself to the uncertainties surrounding the wild card of a jury trial."
SEC will examine faulty pay data, Boston Globe, October 11, 2010
US securities regulators say they plan to look into dozens of cases in which publicly traded Massachusetts companies misstated how much their top executives earned over the past few years. [...] "The company does not believe any further action was warranted," said James Levine, its chief financial officer. "The compensation components reported in the table were all correct — the errors were in select totals." But a Harvard Law School professor, Lucian Bebchuk, said "there is a good chance" the SEC will order companies to correct significant errors, including Verenium's.
Pa. attorney general probes millions in land deals by Hershey School's trust, Philadelphia Inquirer, October 8, 2010
The expenditure of $17 million on a golf course and clubhouse by the trustees of the Hershey School - just one of a number of land deals costing tens of millions of dollars made in the last six years - has resulted in an investigation by the Pennsylvania Office of the Attorney General. [...] Robert Sitkoff, a trust law professor at Harvard Law School who has written about the Hershey Trust, said the golf course deal was possible because of the immense wealth of the charity compared with its modest philanthropic program. The trust fund that operates the school is worth $7 billion to $8 billion, while the school enrolls about 1,800 students. "If the school and the program were pushing up against the trust's capacity, it would be hard to see the trustees doing things like this. Because the school is so small, and the trust corpus so large, there is a temptation to skim," Sitkoff said.
Non-Bank Companies Poised for Fed Scrutiny on Systemic Risk, Bloomberg, October 7, 2010
It has the makings of a Wall Street parlor game: Guess which firms will be designated for Federal Reserve oversight because they could pose a risk to U.S. financial stability. A council of regulators, which met for the first time Oct. 1, will review non-bank financial companies for possible inclusion under the Fed’s regulatory umbrella, taking into account everything from size and debt to hidden liabilities, Bloomberg Businessweek reports in its Oct. 11 issue. [...] “There’s going to be a lot of controversy once they start doing this, and the decisions will be very difficult to defend,” says Hal S. Scott, a Harvard Law School professor. “When the first one is designated,” he says, “everyone’s going to ask why them and not us, or why us and not them.”
Corporate political activities and governance, The Deal, October 4, 2010
Last week, Harvard Law professor John Coates IV posted a paper on the Harvard Corporate Governance and Financial Regulation blog that attempts to pin down the cost to shareholders of corporate political activity. The provocation for the study is the Citizens United case, in which the Supreme Court, as Coates writes, "relaxed the ability of corporations to spend money on elections." In doing so, the court, he writes, "rejected a shareholder-protection rationale for restrictions on spending, in part on the ground that shareholders are generally capable of defending their own interests through 'corporate democracy.' "
In reporting pay, firms can err big, Boston Globe, October 4, 2010
In its annual report on executive pay last spring, Verenium Corp. of Cambridge told shareholders its top lawyer had earned less than $629,000 in 2008. In fact, he earned nearly twice that amount. [...] These are among the dozens of mistakes publicly traded companies in Massachusetts made in reporting executive compensation to shareholders and federal regulators over the past few years, according to a Globe review of documents filed with the Securities and Exchange Commission. [...] Lucian Bebchuk, a Harvard Law School professor who has studied executive compensation, said he was troubled by the error rate, saying it raised serious concerns.
U.S. Chamber Unveils Study Highlighting Consequences of Proposed ‘Bank Tax’, The Financial, September 29, 2010
The U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness released a study on September 28 conducted by Hal S. Scott, Nomura professor of international financial systems, Harvard Law School that highlights the unintended consequences the proposed “bank tax” would have on access to credit, job creation, and the overall economy. The study, “Financial Crisis Responsibility Fee: Issues for Policymakers,” concludes that imposing the tax now – more than three years in advance of the legislative deadline – could lead to a $1 trillion decline in lending, reducing access to credit for job creators and consumers at a time when the economy is still struggling to recover.
Influential Voices in U.S. Board Rooms, Business Ethics, September 21, 2010
Regulators and rulemakers led the list of 100 most influential people affecting corporate governance in America’s board rooms in 2010, according to the National Association of Corporate Directors. [...] Based on the selections, Harvard University claimed bragging rights. According to the Harvard Law School Forum on Corporate Governance and Financial Regulation blog, the Directorship 100 list includes twenty-seven individuals who are Harvard Law School faculty or fellows, guest Contributors to the blog, and/or Harvard Law School alumni – suggesting, the blog says, that Harvard and its governance program play “a central role in the corporate governance landscape.”
Calling on Corporate Law to Defend Democracy, Boston Review, September 15, 2010
While Lessig is rightly concerned about institutional corruption, Congress is not the only institution at risk. Corporations themselves may be corrupted by political spending. As Harvard Law professor Lucian Bebchuk has noted, corporate meddling in politics is potentially bad for capitalism because managers may seek to water down corporate-governance rules to the detriment of investors. Moreover, given that shareholders likely will hold a range of political convictions, corporate managers’ spending inclinations may not match up with shareholders’ preferences.
Rusal Hopes to Regain Norilsk Board Seats, Wall Street Journal, September 10, 2010
Russian aluminum giant United Co. Rusal is pursuing its efforts to extend its influence over the world's largest nickel producer, OAO Norilsk Nickel, which it partially owns. [...] Rusal is also courting minority investors, and has launched a website called "SaveNorNickel" that lays out its views on the miner. Rusal is trying to marshal support ahead of special meeting of Norilsk shareholders scheduled to take place next month, after Rusal lost one of its four board seats at Norilsk's annual meeting in June. One person it has approached to run for the Norilsk board is Lucian Bebchuk, who heads the program on corporate governance at Harvard Law School. Mr. Bebchuk said he has agreed to run for the Norilsk board.
Analysis: Crowded Oracle management bench could mean friction, Reuters, September 8, 2010
Two's company, but three could be a crowd at the top of Oracle Corp. Larry Ellison, co-founder of the world's No. 3 software maker, risks friction with his top lieutenant and perhaps eventually himself by bringing on board his old friend and former Hewlett-Packard Co Chief Executive Mark Hurd, experts warn. "They're building in a structure of potential conflict," said Ben Heineman, a Harvard law professor and former general counsel for General Electric Co. "That doesn't mean it won't work out, but you have to ask the question."
The Directorship 100, Directorship Magazine, September 1, 2010
A consummate proponent of shareholder activism, and a sometimes participant, Harvard’s Lucian A. Bebchuk is among the most influential academics on the corporate governance scene In addition to being professor of management practice at Harvard Business School and former CEO of device maker Medtronic, William W. George currently serves as a director of Exxon Mobil and Goldman Sachs, and is a frequent critic of those who shirk their executive duties. Earlier this year, he took Toyota CEO Akio Toyoda to task for not accepting responsibility for problems at the automaker. Ben W. Heineman Jr. is a distinguished senior fellow at Harvard Law School and senior fellow of the Belfer Center for Science and International Affairs at the Kennedy School of Government.
Dodd-Frank's 'say on pay' could impact executive pay, MarketWatch, August 26, 2010
One of the lesser-known elements of the sweeping Dodd-Frank Act aimed primarily at reforming the nation's banks is directing the Securities and Exchange Commission to write rules that could temper the compensation of executives across multiple industries. [...] Harvard Law School Professor Lucian Bebchuk contends that shareholders understand that compensation packages should differ based on unique expectations at each firm. However, he argued that there are some compensation arrangements that investors can agree are undesirable and should be removed from all U.S. corporations. A golden parachute pay-package for a CEO that is retained as a top executive by an acquiring firm, is a good example of the kind of compensation provisions that could be removed, he said.
Wall Street reform gives regulators power over executive pay, Washington Post, August 19, 2010
That largely overlooked provision of the law gives federal agencies expanded powers to write regulations dictating pay at financial firms. How they choose to use these powers could have a major impact on whether banks pursue excessive risks.
"The financial crisis made patently clear that the direct regulation of the choices that banks make is bound to be imperfect because regulators are often following behind," said Lucian A. Bebchuk, a Harvard Law School professor who has advised the Obama administration on executive compensation issues. "It's valuable for regulators to have an extra tool to influence the private incentives that will shape executives' decision-making."
Message to Potash Corp: Poison pills taste bad, Globe and Mail, August 18, 2010
It's commonly known as a poison pill provision, a sometimes-controversial tactic used to stall a takeover bid or put the kibosh on it altogether. If it seems at odds with the concept of free markets and shareholder interests, it often is. [...] According to Lucian Bebchuk, professor of law, economics and finance at Harvard Law School, a problem arises however when they are used as more than a stalling tactic. "From the perspective of shareholders and good corporate governance, it is undesirable to allow the use of poison pills to just say 'no' indefinitely to an offer," he said in an e-mail.
Why Corporate Governance Matters to Everyone, Huffington Post, August 17, 2010
In recent years, corporate governance scholars such as Lucian Bebchuck of Harvard Law School, Nell Minow of The Corporate Library and James McRitchie of CorpGov, activist investors such as CalPers, CalSTERS, Carl Icahn, Andrew Shapiro and Bill Ackman and, to some extent, the Delaware courts, have sought to change this situation by facilitating better process and more inclusive boards of directors. [...]
Shareholders Wise Up, Corporate Board Member, August 9, 2010
Investing in companies that are well governed no longer guarantees the superior returns it once did, according to a study by three university professors. Harvard Law School’s Lucian A. Bebchuk, Tel Aviv University’s Alma Cohen, and Stanford’s Charles C. Y. Wang divided companies into two groups, ones with good governance and ones with bad, and compared their performance from 2000 to 2008. They found that investors gained little advantage by favoring well-governed companies versus putting their money into ill-governed ones.
Why the SEC’s Proxy-Access Plan Won’t Help Tame Wall Street, BNET, August 5, 2010
[T]he SEC is set to make it easier for shareholders to nominate corporate directors! [...] Citing data from CalPERS, California’s giant state pension fund, governance expert Lucian Bebchuk of Harvard recently noted that the 10 largest pension funds hold less than 2.5 percent of Bank of America, Exxon Mobile, IBM and Microsoft. Even if these giant investors were to join forces, in fact, they’d still fall short of the three percent ownership requirement.
Geithner's Hollow 'Speed' Pledge to Business, Wall Street Journal, August 5, 2010 An op-ed by HLS Professor Hal Scott and Glenn Hubbard: Businesses must know the rules of the game before risking their capital. And so, in his speech at New York University's Stern School of Business on Aug. 2, Treasury Secretary Tim Geithner assured his audience that the massive regulatory reforms of the new Dodd-Frank legislation would be implemented quickly to remove the drag of uncertainty on the economy. "First we have an obligation of speed," he said, and asked to be held accountable if his pledge was not honored.
Say What? Pay What? Real World Approaches to Executive Compensation Reform, Corporate Counsel, August 5, 2010
In their new paper, "Paying for Long-Term Performance" (University of Pennsylvania Law Review, v. 158 No. 7, at 1915), professors Lucian Bebchuk and Jesse Fried offer some concrete suggestions for ways to tie executive compensation to a company's long-term performance. Bebchuk and Fried argue that equity incentives can be designed to prevent the gaming of equity grants both at the front end, when they are granted, and at the back end, when they are exercised.
In devising punishments, SEC faced with competing interests, Washington Post, August 3, 2010
What’s $75 million? For Citigroup, it’s a week of profits, less than 0.1 percent of its market value, a rounding error on a balance sheet worth more than $2 trillion. And for the Securities and Exchange Commission, it’s a fair price to pay for the bank to settle allegations that it misled its shareholders about nearly $40 billion in subprime mortgage investments it held in 2007, the year before the bank began its slide into the abyss. [...] "The punishment of a corporate entity like Citigroup serves a limited purpose," said Mark J. Roe, a professor at Harvard Law School. "There’s a lot of smoke and drama around it, but it ends up shifting money from one group of shareholders to another."
Oracle's Ellison: Pay King, Wall Street Journal, July 27, 2010
Larry Ellison, founder and chief executive of software maker Oracle Corp., topped the list of best-paid executives of public companies during the past decade, receiving $1.84 billion in compensation, according to a Wall Street Journal analysis of CEO pay [...] The disparity between those CEOs' fortunes and those of their shareholders is "pretty depressing," and "suggests there's a fair amount of pay without performance," said Jesse Fried, a law professor at Harvard University and co-author of a 2004 book, "Pay Without Performance: The Unfulfilled Promise of Executive Compensation."
Ken Feinberg's Lame Report on Wall Street Pay Shows We're Back to Square One, BNET, July 23, 2010
Common shareholders in banks tend to be equally thrill-seeking, studies show, and for similar reasons. The more risk a company takes, the more money they can make. That’s why say-on-pay doesn’t work in banking. Because when both bankers and investors benefit the more risk a company takes, giving shareholders a voice over how those bankers should be compensated merely reinforces the firm’s taste for action. As Harvard’s Lucian Bebchuk, a leading corporate governance expert, has written: [...]
Pay CEOs in debt, Business Spectator, July 17, 2010
This emphasis has been likely been driven by the long-standing belief that, empirically, executives don’t hold debt. [...] Indeed, recent empirical studies (eg, Bebchuk and Jackson 2005, Sundaram and Yermack 2007, and Gerakos 2007) found that CEOs do in fact hold substantial amounts of debt in their own firm (known as “inside debt”), in the form of defined benefit pensions and deferred compensation.
Heading Off The Next Credit Crisis, Forbes, July 12, 2010
[...] This sort of self-fulfilling credit crunch is the focus of Wharton research that explores alternative ways to prevent inefficient credit tightening from causing further damage to an already wounded economy. In a paper titled, "Self-Fulfilling Credit Market Freezes," Wharton finance professor Itay Goldstein and Lucian A. Bebchuk of Harvard Law School examine different approaches to halt an overreaching credit crunch.
Playing paymaster, Mint, July 5, 2010
[...] The old regulatory principle of letting managers' incentives align with those of shareholders needn't hold true here. That’s because, for commercial banks that are important for the financial system, shareholders' incentives are already skewed. Harvard Law School’s Lucian Bebchuk has argued that shareholders know the government will bear the downside risk: They could well be goading managers to take on more risk.
Should executives be paid with debt? No!, Fortune, July 2, 2010
As investigators comb through the wreckage of the financial meltdown, one fact remains clear and startling: Credit default swaps and collateralized debt obligations, as well as debt and equity from large financial firms were useless as indicators of fiscal health. One of the biggest revelations has been the utter failure of markets to capture the relevant information required to set accurate prices on securities [...] But is tying pay to debt, even as a partial solution, really the answer? Harvard Law School professor Lucian Bebchuk has argued in a series ofpapers prepared for the Investor Research Responsibility Center Institute that it is.
Harvard’s Bebchuk Urges More Shareholder Control of Executive Pay, Investment Advisor, June 17, 2010
Standard pay arrangements reward executives for short-term gains and generate incentives for them to take excessive risks and trade off long-term stock performance, says an in-depth Harvard study on how to tie compensation to shareholder value.
“The standard narrative assumed that the executives of [Bear Stearns and Lehman Brothers] saw their own wealth wiped out together with the firms when the firms melted down,” said one of the study’s authors, Lucian Bebchuk, a Harvard Law School professor and director of the school’s program on corporate governance, in a Tuesday, June 15, webinar about the study’s findings.
States Want Your Trust, Wall Street Journal, June 14, 2010
If you're considering establishing a trust, it may pay to shop out of state [...] Between 1985 and 2003, some $100 billion—about 10% of reported trust assets held by federally regulated financial institutions—moved to states that allowed long-term trusts and didn't tax trusts created by nonresidents, according to a study by Robert Sitkoff, a professor at Harvard Law School, and Max Schanzenbach, a professor at Northwestern University School of Law, published in the Yale Law Journal.
Rich, failed bankers show pay-reform shortcomings, Baltimore Sun, June 6, 2010
There is a seductive myth that the economic destruction of recent years had nothing to do with the limitless pay dangled like a 10,000-pound jelly doughnut before American CEOs. [...] The top five executives at Bear Stearns pulled $1.4 billion out of the company from 2000 through 2008, calculates Harvard's Lucian Bebchuk with two colleagues in a paper being published in the Yale Journal on Regulation. The top five bosses at Lehman Brothers pocketed $1 billion over the same period.
Buenos Aires Loves NYC Judge Rescuing Argentines From Default, Business Week, May 24, 2010
U.S. District Judge Thomas Griesa can walk down the streets of New York unrecognized, even after handling Chrysler LLC’s bankruptcy and a trademark lawsuit last year by film director Woody Allen [...] “If there is a very high participation rate, obviously litigation will decrease,” said Hal Scott, who heads Harvard Law School’s international finance systems program and has written about Argentina’s default. “The question is going to be: who’s left?”
Practice meets theory: Academia, The Deal Magazine, May 14, 2010
The Harvard Law School Program on Corporate Governance brings together leading thinkers on all sides of the shareholder rights divide. Its 2009 roundtable on proxy access attracted Delaware Court of Chancery Vice Chancellor Leo E. Strine Jr.; senior Securities and Exchange Commission adviser Kayla Gillan; Dean Shahinian, senior counsel for the Senate Committee on Banking, Housing and Urban Affairs; and AFL-CIO associate general counsel Damon Silvers, among others. [...]
Fuld Understated Pay More Than $200 Million, Lehman’s Budde Says, Bloomberg, April 29, 2010
Before Lloyd Blankfein of Goldman Sachs Group Inc. took his place, Richard S. Fuld Jr.’s angry face was the universal symbol of Wall Street greed. [...] In “The Wages of Failure: Executive Compensation at Bear Stearns and Lehman, 2000-2008,” Harvard Law professor Lucian Bebchuk; Alma Cohen, a visiting professor from Tel Aviv University; and Holger Spamann, a Harvard Law lecturer, calculate that Fuld earned $522.7 million from 2000 to 2007, only slightly less than Budde’s tally.
The rewards of virtue, The Economist, April 26, 2010
Once again, corporate-governance reform is back on the legislative agenda, not least in the United States. [...] Critics of reform were never convinced. A new study co-written by Lucian Bebchuk, a Harvard professor who is also an activist for corporate-governance reform, gives rise to further doubts—at least at first glance. “Learning and the Disappearing Association Between Governance and Returns,” by Mr Bebchuk, Alma Cohen and Charles Wang, repeats the study by Mr Gompers and his colleagues for 2000-08. It finds that, in contrast with the 1990s, neither the 24-factor index nor the six-factor one would have helped investors beat the market.
Goldman Sachs: The fraud that isn't, Calgary Herald, April 21, 2010
The U.S. Securities and Exchange Commission’s unfathomable and illogical Goldman Sachs case appears to be heading off in two directions [...] The Times reported that Harvard Law professor Allen Farrell said the SEC suit was based on a strange definition of material information. “We normally think of material information as specific to the mortgages, not somebody’s prediction about the future course of macro-economic events.”
Professors Discuss Goldman Suit, Harvard Crimson, April 21, 2010
The Securities and Exchange Commission’s recent suit against Goldman Sachs raises new questions about securities regulation from both legal and ethical standpoints, according to professors from Harvard Law School and Harvard Business School [...] According to Law School Professor Jesse M. Fried ’86, the question at the heart of the case is whether or not hedge fund manager John Paulson’s involvement in structuring the portfolio in 2006 was “material”—that is, significant to a buyer’s decision to purchase the securities [...] Law School Professor Allen Ferrell noted that Paulson’s actions likely did not constitute wrongdoing, since the hedge fund was independently speculating on future market movements—which is not fraudulent behavior on its own [...] According to Law School Professor Howell E. Jackson, the SEC has a plausible case and Goldman will not be confident enough to go to trial. Ferrell, Jackson, and Fried said they believe that Goldman will settle.
A Difficult Path in Goldman Case, New York Times, April 19, 2010
In accusing Goldman Sachs of defrauding investors, regulators are not only taking aim at a company with deep pockets and a will to fight — they are also pursuing an unusual claim that could be difficult to prove in court, legal experts said. [...] Allen Ferrell, a law professor at Harvard, said the suit rested on an unusual definition of material information.
Lawmakers Dodge Key Issues in Reg Reform, Financial Planning, April 12, 2010
Though touted as a way to avert the next financial crisis, the massive regulatory reform bill awaiting a Senate vote ignores key contributing factors, including an inefficient and outdated regulatory structure, a broken housing finance market and weak underwriting standards that spurred a wave of unaffordable mortgages [...] Hal Scott, the director of the Program on International Financial Systems at Harvard Law School, agreed. "It doesn't address GSE reform, which arguably is the most costly part of the entire bailout process," he said. "If you look at the money we've actually spent on the bailout … the GSEs are costing us billions. There is no solution to that. That fact is the biggest gap in the reform."
Toyota e-mails reveal debate over Toyota recall, Christian Science Monitor, April 8, 2010
E-mails exchanged between Toyota company executives, published Wednesday, suggest a heated debate within the company about when to release information about the company’s now notorious mechanical problems with an accelerator assembly [...] At GE, “we started to do training [with employees] to write accurately and not in an inflammatory way,” says Ben Heineman, now a senior fellow at Harvard University’s schools of law and government in Cambridge, Mass. That means encouraging employees to stick to facts in e-mails, rather than trying to draw conclusions.
HLS Boasts Top Gov. Leaders, Harvard Crimson, April 5, 2010
Thirty-four of the 100 most influential figures in corporate governance are affiliated with Harvard Law School, according to a review by Directorship Magazine. [...] The majority of Harvard’s affiliates on the list are part of the Law School’s Forum on Corporate Governance.
Learning from Ken Feinberg, Reuters Blog, March 25, 2010
When Pay Czar Kenneth Feinberg first slashed executive compensation at U.S. firms that benefited most from a government bailout the cry was that this would hurt these weakened firms when they could least afford it, as the best and brightest would leave for better money elsewhere, where the free market still ruled. […] Lucian Bebchuk of Harvard Law School has argued that relations between top executives and boards are not truly arm’s length. There are simply too many ways for management to reward boards for overpaying them.
Secondary Sources: Paid to Fail, Libertarians, Inflation Targeting, Wall Street Journal Blog, March 24, 2010
A roundup of economic news from around the Web. "Paid to Fail": Writing for Project Syndicate Lucian Bebchuk, Alma Cohen and Holger Spamann say that Bear Stearns and Lehman executives made out pretty well. “After Bear Stearns and Lehman Brothers melted down, ushering in a worldwide crisis, media reports largely assumed that the wealth of these firms’ executives was wiped out, together with that of the firms they navigated into disaster.
The Big Wall Street Pay Days That Ken Feinberg Missed, Wall Street Journal Blog, March 23, 2010
As the pay czar reviews bonuses paid out to Wall Street firms that received Troubled Asset Relief Program funding, it is worth remembering the big pay days that preceded the federal bailout and some might say helped create the need for one.
We are talking about stock sales by Bear Stearns and Lehman Brothers Holding executives. A trio of Harvard researchers, including Lucian Bebchuk, recently calculated that the top five executives at Bear and Lehman cashed out $1.1 billion and $850 million, respectively, from 2000 to 2008.
Goldman executives benefit from fund investments, Financial Times, March 21, 2010
Goldman Sachs’ executives took home millions of dollars last year from investments in funds run by the bank, after the furore over pay forced Wall Street banks to rein in awards to their top staff. [...] Some experts say that amounts to a monetary benefit. Lucian Bebchuk, a professor at Harvard, said: “Given the size of the distributions to the top executives, it seems that they likely have rather large amounts invested in those funds and that saving the costs of management fees and overrides can be substantial.”
Obama, Lehman and ‘The Dragon Tattoo’, The New York Times, March 20, 2010
Far from being held liable for the chicanery and recklessness that would destroy their company and threaten their country’s economy, these executives benefited big time. In a study late last year, three Harvard Law School researchers examined public documents to assess whether one “standard narrative” of the crash was true — that “the meltdown of Bear Stearns and Lehman Brothers largely wiped out the wealth of their top executives.” It turned out to be a fairy tale.
Semiannual Bonuses Gain Traction, The Wall Street Journal, March 15, 2010
More bosses are getting two bites at their bonus apples...The trend also troubles Lucian Bebchuk, co-author of the book "Pay Without Performance." The economic crisis proved "it's important to link pay to long-term results," says Mr. Bebchuk, a Harvard law professor and head of its corporate-governance program. "Semiannual bonuses move companies in exactly the opposite direction from which they should be heading with their pay practices."
U.S. takeover defenses come tumbling down, Financial Times, March 11, 2010
US companies are finding themselves increasingly exposed to unwanted takeover attention after a dismantling of companies’ poison pills prompted by pressure from corporate governance activists [...] Guhan Subramanian, professor of business law at Harvard Law School, however says: "Once a threat has been identified, the court does seem to be giving target boards a blank cheque to do anything they want. But the question remains, what kind of threat is sufficient to trigger that response?"
Study Finds, for First Time, Data Boards Bundle Items for Votes, Securities Regulation & Law Report, March 8, 2010
In a new study, two professors from Harvard Law School and the University of Southern California Gould School of Law are reporting that, for the first time, they have found empirical evidence that corporate management, to obtain outcomes it wants, bundles charter amendments that might be unfavorable to shareholders with measures that enjoy shareholder support. The study, authored by Harvard's Lucian Bebchuk and USC's Ehud Kamar, reviewed the bundling of corporate mergers with a move to a staggered board structure. It used hand-collected data relating to governance changes in 393 public mergers occurring in companies of similar size from 1995 to 2007.
An Irish Mirror, The New York Times, March 7, 2010
Everyone has a theory about the financial crisis. These theories range from the absurd to the plausible — from claims that liberal Democrats somehow forced banks to lend to the undeserving poor (even though Republicans controlled Congress) to the belief that exotic financial instruments fostered confusion and fraud. But what do we really know? [...] Third, key players had an incentive to take big risks, because it was heads they win, tails someone else loses. [...] There was a lot of this in the United States, too: as Harvard’s Lucian Bebchuk and others have pointed out, top executives at failed U.S. financial companies received billions in “performance related” pay before their firms went belly-up.
Doubts grow about inclusion of Volcker rule in Senate bill, Risk Magazine, March 4, 2010
The White House sent legislative language outlining its contentious 'Volcker rule' to Congress on Wednesday, which is designed to prevent bank holding companies from engaging in proprietary trading. However, doubts remain about the need for such a rule, with increasing numbers of participants speculating it will be scrapped [...] That opinion may not be shared by senators, however. Hal Scott, Nomura professor and director of the programme on international financial systems at Harvard Law School in Massachusetts, says he detected a distinct lack of enthusiasm among committee members when he testified before the Banking Committee on February 4.
Congress Is Wasting a Good Crisis, The Wall Street Journal, March 3, 2010
Has anyone in Congress actually explained to taxpayers how much they could be on the hook for if the banking system were to crater again? [...] What should Congress have done instead? First, instead of enshrining a system for backstopping liabilities like market debt, legislation should have put defined limits on it—and forced firms that use a lot of it to hold more capital. Second, the advantageous treatment derivatives counterparties enjoy under bankruptcy law should have been reversed. These perks undermine market discipline and can actually increase systemic instability when a firm fails, says Harvard University law professor Mark Roe.
These CEOs Are Bleeding Your Investments, The Motley Fool, February 27, 2010
New research on compensation suggests that highly paid CEOs are taking money out of your pocket. Finance professor Raghavendra Rau of Purdue University and two co-researchers examined the relationship between executive pay and stock returns for around 1,500 businesses per year over the 12-year period ending in 2006. [...] This trend seems to be confirmed by another study on compensation by Lucian Bebchuk at Harvard Law School. Bebchuk examined CEO pay at more than 2,000 companies. He concluded that the higher the chief exec's proportion of pay, the less the company was likely to earn in the future.
Regulatory group warns global co-ordination slipping, Financial Times, February 26, 2010
A group of 15 private sector regulatory experts from 11 countries on Friday said they had formed a new advisory body on global regulatory issues, warning that there had been signs in recent months that countries were going their own way on how to reform the global financial system [...] The new group, known as the Council on Global Financial Regulation, will be co-chaired by Michel Prada, former president of the Autorité des Marchés Financiers, the French markets regulator, and Hal Scott, director of the Program on International Financial Systems at Harvard Law School.
Will the Citizens United Ruling Prove Harmful to Capitalism?, Wall Street Journal Law Blog, February 26, 2010
We’ve read lots — trust us, lots — on the pros and cons of the Citizens’ United case. Frankly, at this point, the debate is getting a little shopworn. [...] But Harvard law professor and corporate governance expert Lucian Bebchuk, the author of Pay Without Performance, which took a critical look at current executive compensation practices, weighed in on Thursday with a thoughtful piece about why fewer limits on corporate campaign expenditures is a bad thing.
Some CEOs Are Selling Their Companies Short, BusinessWeek, February 25, 2010
Some companies, including Procter & Gamble and Kellogg, ban executive hedging, but they are a minority. Lucian Bebchuk, head of the Program on Corporate Governance at Harvard Law School, predicts growing problems with hedges as companies make executives hold on longer to shares as a way of prodding them to work for long-term gains. A manager might have to keep a stock award for three years after it vests, for example. If he can hedge his shares and essentially cash out of them before the holding period ends, he eludes that restriction. That's why Bebchuk sees an all-out ban as the only solution. "Allowing executives the freedom to hedge," he says, "defeats the purpose of equity compensation."
Despite outrage, AIG bonus fiasco could happen again, Reuters, February 19, 2010
To many Americans, it's a matter of common sense: traders who failed so spectacularly at their jobs that they nearly brought down the global economy should be fired, not rewarded with handsome bonuses. [...] "Many financial firms have already announced they will be using clawbacks going forward, but unfortunately they have not given outsiders the ability to assess whether the clawbacks are effective or merely cosmetic," said Lucian Bebchuk, a professor at Harvard Law School and a leading expert on the subject of compensation. "The devil is in the details."
A different class, The Economist, February 18, 2010
The spectacular collapse of so many big financial firms during the crisis of 2008 has provided new evidence for the belief that stockmarket capitalism is dangerously short-termist. After all, shareholders in publicly traded financial institutions cheered them on as they boosted their short-term profits and share prices by taking risky bets with enormous amounts of borrowed money. [...] Although no American firms have dual classes of shareholders, they do sometimes resort to another device designed to resist pressure to pursue short-term goals: “staggered boards”, in which only a minority of directors face re-election each year. According to Lucian Bebchuk of Harvard Law School, who has studied their impact, they are strongly associated with lower long-term returns.
Obama’s ‘Volcker Rule’ May Not Survive Congressional Skepticism, Business Week, February 5, 2010
President Barack Obama’s "Volcker Rule" to ban proprietary trading at U.S. banks may not survive in Congress, hampered by criticism that the administration waited too long and offered too few details [...] Drawing a line between bank and customer trading won’t be easy, said Hal Scott, a professor at Harvard Law School who specializes in international financial systems. A narrow definition probably won’t reduce risk, Scott said, while a broad one could "seriously impair the basic function of modern banks as market-makers" in government and non-government securities and as packagers of consumer debt into bonds.
Bankers question definition of 'prop trading' at Senate Volcker rule hearing, Risk Magazine, February 5, 2010
Senior bankers and academics have questioned the feasibility of new rules to prohibit US bank holding companies from engaging in proprietary trading, pointing to the difficulty of defining the activity and the limited impact such a ban could have as a systemic risk mitigant [...] "If the limits on proprietary trading only apply where banks take positions unrelated to serving customers they will have little impact. For example, with respect to Wells Fargo and Bank of America, such activity represents around 1% of revenues. While proprietary trading has been estimated to be 10% of the revenues of Goldman Sachs, that firm could easily avoid these requirements by divesting itself of its banking operations as deposit-taking constitutes only 5.19% of its liabilities," said Hal Scott, professor of international financial systems at Harvard Law School.
Dodd Denounces Pace of Banking Overhaul, New York Times, February 4, 2010
Executives at Goldman Sachs and JPMorgan Chase expressed misgivings on Thursday about the Obama administration’s new proposals to restrict the size and risk-taking of the country’s largest financial institutions [...] Two scholars who appeared before the committee also clashed in their views. Hal S. Scott, professor of international finance systems at Harvard Law School, said the Volcker proposals were too broad and that the banking reforms required international coordination.
Even Better Volcker Rules, New York Times, February 4, 2010
This morning the Senate Banking Committee again takes up the issue of the "Volcker rule." [...] Today’s hearing is actually the second of a pair. The financial industry is represented by heavyweights, including Gerry Corrigan of Goldman Sachs; and John Reed, former chief executive of Citibank. The panel also includes Hal Scott of Harvard Law School; Barry Zubrow, chief risk officer of JP Morgan Chase; and Simon Johnson.
Will Sharpened Clawback Provisions at J.P. Morgan Chase, Bank of America Corp., and Morgan Stanley Quiet Populist Rage?, American Banking News, January 28, 2010
The big banks continue to respond to the growing outrage focused on their compensation practices. The Wall Street Journal reports that many banks including J.P. Morgan Chase (JPM), Bank of America Corp. (BAC), and Morgan Stanley (MS) have announced enhanced provisions that will allow them to seize bonus compensation for employees whose bets or other actions do not pan out, and expose the company to excessive risk. [...] "Firms have not been providing outsiders with the information that is necessary to assess whether the clawbacks are meaningful and effective or merely cosmetic," remarks Lucian Bebchuk, a Harvard University law professor who runs the college’s corporate-governance program.
Can Financial Firms Get Executives to Give Back Pay?, Time, January 27, 2010
In the past few months, a number of financial firms have instituted or beefed up rules that would allow them to force employees to return year-end bonuses. So-called clawbacks would be triggered by subsequently discovered misconduct and some firms say they may even apply in cases where employees made trades that looked profitable at first, but go sour. [...] On Friday, Wall Street pay was again in the spotlight in Washington. The House Committee on Financial Services held a hearing on executive compensation. Harvard professor Lucian Bebchuk, who recently consulted pay czar Kenneth Feinberg in setting compensation limits at bailed-out firms, said Congress should regulate and "place limits" on Wall Street pay.
Wall Street Toughens Rules on Clawbacks, Wall Street Journal, January 27, 2010
Banks and securities firms are toughening rules that give them power to seize pay from employees whose bets or other actions blow up later. But they still mightn't be tough enough. [...] "Firms have not been providing outsiders with the information that is necessary to assess whether the clawbacks are meaningful and effective or merely cosmetic," says Lucian Bebchuk, a Harvard University law professor who runs the college's corporate-governance program.
Ailing Banks Favor Salaries Over Shareholders, New York Times, January 26, 2010
Finding the winners on Wall Street is usually as simple as looking at pay. Rarely are bankers who lose money paid as generously as those who make it. But this year is unusual. A handful of big banks that are struggling in the postbailout world are, by some measures, the industry’s most magnanimous employers. Roughly 90 cents out of every dollar that these banks earned in 2009 — and sometimes more — is going toward employee salaries, bonuses and benefits, according to company filings. [...] “It’s heads I win, and tails they don’t lose too badly,” said Jesse M. Fried, a professor at Harvard Law School and co-author of “Pay Without Performance.”
A failure of public financial sector governance, Financial Times Online, January 26, 2010
As the Financial Crisis Inquiry Commission begins looking at the causes of the recent financial crisis, we need to consider that crisis is a failure of governance. Lucian Bebchuk from Harvard Law School has written extensively on the failure of private sector governance: boards that failed to make informed judgments or control the risks incurred by their institutions, self-serving management that lost control over reckless risk taking and compensation systems that invited speculation by traders. Although Sheila Bair, chair of the Federal Deposit Insurance Corporation (FDIC), has openly expressed her discontent with the governance of the banks and the FDIC is considering tying premiums to compensation, we are likely to witness the largest bonus season the industry has ever seen.
Protect Consumers First and Reduce Loan Principals; We Owe it to the People who Stay, Huffington Post, January 25, 2010
It was music to my ears listening to President Obama talk tough to the financial sector. My organization, the National Community Reinvestment Coalition, publicly commended him for his remarks…We have proposed that the Treasury Department acquire mortgage loans at a discount through the powers granted to the Administration under TARP or through the power of eminent domain. This would allow for the permanent and sustainable modification of loans, including principal reductions, which could then be packaged and resold to the market. Professor Howell Jackson of Harvard Law School has demonstrated how the government could use eminent domain in this instance.
Stock backdating investigations changed Silicon Valley, Mercury News, January 24, 2010
Hoping to spare her client from prison, an attorney for former Brocade executive Stephanie Jensen stood before a federal judge this month and argued that the furor over stock-option backdating was a "so-called scandal" that never amounted to much. [...] That doesn't mean no harm was done, argues Harvard law professor Jesse Fried, another expert on corporate governance. He said the practice artificially inflated company earnings and stock values, in many cases "enabling executives to reap larger cash bonuses and sell their stock at a higher price."
Economists: More must be done on executive pay, Boston Globe, January 22, 2010
Top US economists warned at a House Financial Services Committee hearing today that more must be done to reign in pay practices which led to the 2008 financial collapse. The witnesses called by US Representative Barney Frank—Nobel Laureate Joseph Stiglitz, Harvard Law School professor Lucian Bebchuk and The Corporate Library co-founder Nell Minow—testified that shareholders should have more power over executive pay and better rules were needed to limit the incentives tied to compensation that lead to excessive risk taking.
US lawmakers seek to give investors more say on pay, Reuters, January 22, 2010
The hearing comes as the White House ratchets up its attacks on Wall Street banks with a proposal to rein in their risky activities and a plan to force the firms to pay up to $117 billion to reimburse taxpayers for the bailout. [...] Lucian Bebchuk, a Harvard Law School professor, told the House panel that giving shareholders say on pay was only part of the reform of shareholder rights that is necessary.
Frank taking aim at Wall Street bonuses, Boston Globe, January 22, 2010
As bonus season arrives on Wall Street, heralded by yesterday’s announcement that Goldman Sachs set aside $16.2 billion for total compensation, Representative Barney Frank is opening a new review by the House Financial Services Committee of ways to impose limits on executive pay. [...] No banking executives will testify at Frank’s hearing today, but a witness list includes Nobel laureate Joseph Stiglitz; Harvard professor Lucian Bebchuk; and Nell Minow, cofounder of the Corporate Library, a major compensation and financial services research firm.
The real world, The Deal Magazine, January 22, 2010
Guhan Subramanian is one of the most prominent -- and ambitious -- legal academics of his generation. The 39-year-old is the only person who's ever held tenured positions at Harvard's law and business schools, and on the side he advises companies on M&A and corporate governance. After authoring numerous academic papers and a corporate law textbook with former Delaware Chancellor William Allen and Harvard Law's Reinier Kraakman, Subramanian is set to publish "Negotiauctions: New Dealmaking Strategies for a Competitive Marketplace" next month with W. W. Norton & Co.
Strong Year for Goldman, as It Trims Bonus Pool, New York Times, January 21, 2010
No one was crowing about their big paychecks at Goldman Sachs headquarters in New York on Thursday. Despite a record 2009, the bank announced that it had set aside only $16.2 billion to reward its employees. [...] Goldman’s move undermined banks’ claims that they could never cut bonuses because they would lose talent, said Lucian A. Bebchuk, a professor of finance at Harvard and an adviser to the United States Treasury on compensation. “This announcement suggests that firms have flexibility in setting pay levels,” he said.
Hershey May Lose Market Share as Cadbury Slips Away, Business Week, January 20, 2010
Hershey Co.’s third failed effort to merge with Cadbury Plc in eight years may leave the U.S. chocolate maker and the charitable trust that controls it grappling to retain investors and market share [...] The legacy of 2002 has been a drag on Hershey, said Harvard Law School professor Robert Sitkoff, who co-wrote a paper for the Columbia Law Review in 2008 saying that the trust’s controlling stake has impeded shareholder value. "They succeeded in keeping Hershey Co. independent and under the control of the Hershey Trust, but look at what’s been lost," Sitkoff said in an interview yesterday. "The industry is passing them by."
Analysts: Kraft bid puts Cadbury out of Hershey's league, Philadelphia Inquirer, January 19, 2010
The Hershey Co. would have to borrow heavily and look to its controlling shareholder, the Hershey Trust, for more than $1 billion to help bankroll a bid for Cadbury P.L.C., according to published reports and experts [...] "In the real world, people would get fired for this," said Robert Sitkoff, a Harvard University law professor and trust expert who has extensively studied the Hershey Trust. "What they should be doing is selling the company."
FDIC reveals plans to crack down on executive pay, Risk Magazine, January 13, 2010
The US Federal Deposit Insurance Corporation (FDIC) is seeking to increase levies on banks with short-term compensation policies, under proposed rules released for comment yesterday. The FDIC cites a recent study by Harvard researchers Lucian Bebchuk, Alma Cohen and Holger Spamann into pay at the failed banks Lehman Brothers and Bear Stearns, which found that senior executives at both banks received a total of $2.4 billion via unrecoverable bonus payments and stock sales in the eight years leading up to the banks' collapse in 2008.
The Board That Couldn’t Think Straight, The Conference Board Review, January 13, 2010
Most of the condemnation heaped upon Merrill Lynch, Bear Stearns, Bank of America, Citigroup, Lehman Brothers, and Countrywide has fallen not on the non-executive board members but upon the CEOs. The tallest trees take the lightning hits. Perhaps their directors have escaped ignominy because they are perceived as feckless, the human analog to "parsley on fish—decorative but useless," in the words of U.S. Steel chairman Irving Olds some six decades ago. [...] Only when tacitly accepted bad behavior becomes sufficiently serious to violate what Harvard’s Lucian Bebchuk calls the "outrage constraint" do outside authorities step in and attempt to “reform” boards with measures such as SarbOx.
Goldman Tries to Put a Halo on Bonuses, Time, January 13, 2010
Goldman Sachs is doing its best to prove that what's good for them is good for the rest of us. But image consultants and corporate-compensation experts say the Wall Street firm's recent moves won't quell the growing anger against the world's most profitable bank. [...] Lastly, according to Harvard law professor Allen Ferrell, who has studied corporate giving, where Goldman employees donate may matter as much as how much they end up contributing to charity.
Fresh round of Wall Street bonuses rekindles scrutiny, Washington Post, January 12, 2010
As resurgent Wall Street banks prepare to hand out billions of dollars in bonuses - their first since returning federal bailout funds - the payments are drawing intense scrutiny from regulators and politicians. [...] "All indications are that levels continue to be quite high," said Lucian Bebchuk, a Harvard law professor who has advised the Obama administration on executive compensation. "Thus far, the evidence is not encouraging, with neither levels or structures being reformed to the extent that is necessary for addressing the problems of the crisis."
U.S. Bankers Are Fed Up With British Regulations, New York Times, January 10, 2010
A tough new requirement by Britain’s securities regulator that top banking executives and earners must defer 60 percent of their total compensation for a three-year period is pushing some American banks with extensive London operations to say that they just won’t take it anymore. [...] “The U.K. may be ahead, but it is not the only one going in this direction,” said Lucian A. Bebchuk, a professor of finance at Harvard and an adviser to the United States Treasury on compensation. “This is a consensus view all over the world.”
Delaware on defense, The Deal Magazine, January 8, 2010
Delaware's corporate law has a target on its back again. Since the late 1970s, shareholder activists and their allies in the academy have complained that the state's law favors management and boards at the expense of shareholders and have lobbied Congress and the Securities and Exchange Commission to adopt rules more favorable to shareholders. [...] "I don't want to speak for Delaware," says Vice Chancellor Leo E. Strine Jr., one of the five judges on the state's Court of Chancery, "but I think the concern is that there is an awful lot of economic growth and jobs related to the ability of U.S. businesses to shape structures that work for them" under the state's corporate law, which gives companies broad leeway to craft an appropriate governance regime.
Did Pay at Bear, Lehman Cause Collapses?, SmartMoney, January 8, 2010
Top bosses at Bear Stearns and Lehman Brothers lost bundles on company stock when those firms collapsed. Just punishment for excessive risk-taking, you might say. But was it?
A new post-mortem report suggests not. A trio of Harvard Law School professors have tallied the cash these management teams collected for their performance during the boom years that preceded — caused, really – the bust. The numbers make failure look lucrative.
Bank Bailout Overseer, an HLS Professor, Named Bostonian of the Year, Harvard Crimson, January 5, 2010
The Boston Globe has named Harvard Law School Professor Elizabeth Warren its 2009 Bostonian of the Year for bringing “a sense of sanity to the economic crisis” as the official overseer of the U.S. bank bailout program. [...] "As head of the TARP oversight panel, Elizabeth Warren has been an extremely effective and influential monitor of one of the consequential economic programs in history, and in this role she has successfully and effectively put a spotlight on issues of great significance," said Law School Professor Lucian A. Bebchuk, who has written prolifically about TARP and executive pay, in an e-mailed statement from abroad.
High CEO Pay May Correlate With Lower Long-Term Stock Value, According To Two Studies, Huffington Post, December 31, 2009
But two recent studies suggest that lavish CEO compensation may in fact undermine shareholder wealth. [...] A separate study led by Harvard Law's Lucian Bebchuk investigated the relationship between future company performance and "CEO pay slice" (CPS) -- the percentage of the total compensation for the top five executives that is allocated to the CEO alone. Bebchuk and his colleagues found a negative relationship between a higher CEO share of the executive compensation pot and firm value.
Does Golden Pay for the CEOs Sink Stocks?, Wall Street Journal, December 26, 2009
Why does it seem that it's always Christmas in corporate boardrooms? And how can investors tell whether those glittering pay packages are worth the cost? …The first study, led by corporate-governance expert Lucian Bebchuk of Harvard Law School, looked at more than 2,000 companies to see what share of the total compensation earned by the top five executives went to the CEO. The researchers call this number—which averages about 35%—the "CEO pay slice."