Securities Regulation

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Christopher Bruner has posted Center-Left Politics and Corporate Governance: What Is the ‘Progressive’ Agenda? on SSRN. You can download the paper here.  Here is the abstract:

For as long as corporations have existed, debates have persisted among scholars, judges, and policymakers regarding how best to describe their form and function as a positive matter, and how best to organize relations among their various stakeholders as a normative matter. This is hardly surprising given the economic and political stakes involved with control over vast and growing “corporate” resources, and it has become commonplace to speak of various approaches to corporate law in decidedly political terms. In particular, on the fundamental normative issue of the aims to which corporate decision-making ought to be directed, shareholder-centric conceptions of the corporation have long been described as politically right-leaning while stakeholder-oriented conceptions have conversely been described as politically left-leaning. When the frame of reference for this normative debate shifts away from state corporate law, however, a curious reversal occurs. Notably, when the debate shifts to federal political and judicial contexts, one often finds actors associated with the political left championing expansion of shareholders’ corporate governance powers, and those associated with the political right advancing…

Shortly after the election in November, I blogged about Eleven Corporate Governance and Compliance Questions for the President-Elect. Those questions (in italics) and my updates are below:

  1. What will happen to Dodd-Frank? There are already a number of house bills pending to repeal parts of Dodd-Frank, but will President Trump actually try to repeal all of it, particularly the Dodd-Frank whistleblower rule? How would that look optically? Former SEC Commissioner Paul Atkins, a prominent critic of Dodd-Frank and the whistleblower program in particular, is part of Trump’s transition team on economic issues, so perhaps a revision, at a minimum, may not be out of the question.

Last week, via Executive Order, President Trump made it clear (without naming the law) that portions of Dodd-Frank are on the chopping block and asked for a 120-day review. Prior to signing the order, the President explained, “We expect to be cutting a lot out of Dodd-Frank…I have so many people, friends of mine, with nice businesses, they can’t borrow money, because the banks just won’t let them borrow because of the rules and regulations and Dodd-Frank.” An executive order cannot repeal Dodd-Frank, however. That would require a vote of 60…

As readers may recall, I posted on broker fiduciary duties back at the end of December, focusing on a WaPo op ed written by friend-of-the-BLPB, Ben Edwards (currently at Barry, but lateraling later this year to UNLV).  He has a new op ed out today in the WaPo that says everything I could and would say regarding the POTUS’s recent executive order on this topic (referenced by Ann in her post earlier today), and more.  I commend it to your reading.  

It’s important to remember as you read and consider this issue what Ben’s op ed focuses in on at the end: the rule the POTUS executive order blocks is a narrow one, since it only applies to activities relating to retirement investments. A broader fiduciary duty rule for brokers has not yet been adopted.  Suitability is still the standard of conduct for brokers outside the application of any applicable fiduciary duty rule.  The central question at issue is whether a broker must recommend investments in retirement planning that are in the best interest of the client investor or whether, e.g., a broker can recommend a suitable investment to a retirement investor that makes the broker more money/costs the client more money.

I have had…

Although it may have gotten a bit lost in the shuffle of the POTUS’s first ten days in office, the nomination of Representative Tom Price for the post of Secretary of Health and Human Services has received some negative attention in the press.  In short, as reported by a variety of news outlets (e.g., here and here and here), some personal stock trading transactions have raised questions about whether Representative Price may have inappropriately used information or his position to profit personally from securities trading activities, in violation of applicable ethical or legal rules.  This post offers some preliminary insights about the nature of the concerns, which are set forth in major part in this New York Times editorial from January 18, and joins others in calling for reform.

Concerns about legislators’ securities trading activities are not new.  As you may recall, a 2011 study (using data from 1985-2001) found that members of the U.S. House of Representatives do make abnormal returns on stock trades.  A 60 Minutes exposé, “Insiders,” then followed, which helped catalyze the adoption in 2012 of the Stop Trading on Congressional Knowledge (“STOCK”) Act.  A recently released paper catalogues this history and effects on those abnormal returns.  The findings in this paper, which focuses on Senate trading transactions, are summarized below.

Before “Insiders” aired, the market-value weighted hedged portfolio earns an annualized abnormal return of 8.8%. This abnormal return comes entirely from the sell-side of the portfolio, which earns an annualized 16.77% abnormal return. Post-60 Minutes, we find no evidence of continued outperformance in our market-value weighted portfolios. On average, abnormal returns to the market-value weighted sell portfolio are 24% lower post-60 Minutes, relative to the pre-60 Minutes sample. Taken together, our evidence suggests that, Senators, on the whole, outperformed the market pre-60 Minutes, and this systematic outperformance did not survive the attention paid to Senators’ investments surrounding the broadcast of “Insiders” and subsequent passage of the Stop Trading On Congressional Knowledge (STOCK) Act.

The New York Times DealB%k reports today on the role women are playing in shaping corporate governance at the largest mutual funds.

 “The corporate governance heads at seven of the 10 largest institutional investors in stocks are now women, according to data compiled by The New York Times. Those investors oversee $14 trillion in assets.”  

Mutual and pension funds are some of the largest stock block holders casting crucial votes in director elections and on shareholder resolutions that will span the gamut from environmental policy to political spending to supply chain transparency.  While ISS and other proxy advisory firms have a firm hand shaping proxy votesFN1 (and have released new guidelines for the 2017 proxy season), that $14 trillion in assets are voted at the behest of women is new and noteworthy.  As the spring proxy season approaches– it’s like New York fashion week, for corporate law nerds, but strewn out over months and with less interesting pictures–these asset managers are likely to vote with management. FN2 Still, there is growing consensus that institutional investors’ corporate governance leaders are “working quietly behind the scenes to advocate for greater shareholder rights” fighting against dual class stock and fighting for gender…

On Friday, I will present as part of the American Society of International Law’s two-day conference entitled Controlling Corruption: Possibilities, Practical Suggestions & Best Practices. The ASIL Conference is co-sponsored by the University of Miami School of Business Administration, the Business Ethics Program of the University of Miami School of Business Administration, UM Ethics Programs & the Arsht Initiatives, the Zicklin Center for Business Ethics Research, Wharton, University of Pennsylvania, Bentley University, and University of Richmond School of Law.

I am particularly excited for this conference because it brings law, business, and ethics professors together with practitioners from around the world. My panel includes:

Marcia Narine Weldon, St. Thomas University School of Law, “The Conflicted Gatekeeper: The Changing Role of In-House Counsel and Compliance Officers in the Age of Whistle Blowing and Anticorruption Compliance”

Todd Haugh, Kelley School of Business, Indiana University, “The Ethics of Intercorporate Behavioral Ethics”

Shirleen Chin, Institute for Environmental Security, Netherlands, “Reducing the Size of the Loopholes Caused by the Veil of Incorporation May lead to Better Transparency”

Edwin Broecker, Quarles &Brady LLP, Indiana,& Fernanda Beraldi Cummins, Inc, Indiana, “No Good Deed Goes Unpunished: Possible Unintended Consequences of Enforcing Supply Chain Transparency”

Stuart Deming, Deming PLLC…

The late December announcement of Carl Icahn as a special advisor overseeing regulation piqued my professional interest and raises interesting tension points for both sides of the aisle, as well as for corporate governance folks.  

Icahn’s deregulatory agenda has the SEC in his sights.  Deregulation, especially of business, is a relatively safe space in conservative ideology.  Several groups such as the Chamber of Commerce and the Business Roundtable may be pro-deregulation in most areas, but, and this is an important caveat– be at odds with Icahn when it comes to certain corporate governance regulations.  Consider the universal proxy access rules, which the SEC proposed in October, 2016.  The proposed rules would require companies to provide one proxy card with both parties’ nominees–here we don’t mean donkeys and elephants but incumbent management and challengers’ nominees.  Including both nominees on a single proxy card would allow shareholders to “vote” a split ticket—picking and choosing between the two slates.  The split ticket was previously an option only available to shareholders attending the in-person meeting, which means a very limited pool of shareholders.  “Universal” proxy access– a move applauded by Icahn–is opposed by House Republicans, who passed an appropriations bill – H.R. 5485 –that would eliminate SEC funding…

The members of Friday’s AALS discussion group about which I wrote last week came to an inescapable–if unsurprising–overall conclusion: the U.S. Supreme Court’s opinion in the Salman case does little to address major unresolved questions under U.S. insider trading law.  That having been said, we had a wide-ranging and sometimes exciting discussion about the Court’s opinion in Salman and what might or should come next.  I found the discussion very stimulating; a great way to start a new semester–especially one in which I am teaching Securities Regulation and Advanced Business Associations, both of which deal with insider trading law.  I will offer brief outtakes from the proceedings here for your consideration and (as desired) comment.

John Anderson and I framed three questions around which we structured the formal part of the discussion session (which commenced after brief introductory comments from each participant).

  • What, if anything, does the Court’s Salman opinion say by its silence?
  • What, if anything, is left of the Second Circuit opinion in the Newman case after Salman?
  • Is law reform needed after Salman, and if so, should we continue to permit it to occur through further, incremental judicial developments or should reform be undertaken through legislation or regulatory rule-making or guidance?

The…

Last week, friend of the BLPB Steve Bainbridge published a great hypothetical raising insider trading tipper issues post-Salman.  He invited comments.  So, I sent him one!  He has started posting comments in a mini-symposium.  Mine is here.  Andrew Verstein’s is here.  There may be more to come . . . .  I will try to remember to come back and edit this post to add any new links.  Prompt me, if you see one before I get to it . . . .

Postscript (January 5, 2017): James Park also has responded to Steve’s call for comments.  His responsive post is here.

Postscript (January 9, 2017, as amended): Mark Ramseyer has weighed in here.  And then Sung Hui Kim and Adam Pritchard added their commentary, here and here, respectively.  Steve collects the posts here.

Tomorrow, I am headed to the Association of American Law Schools (“AALS”) Annual Meeting in San Francisco (from Los Angeles, where I spent NYE and a bit of extra time with my sister).  I want to highlight a program at the conference for you all that may be of interest.  John Anderson and I have convened and are moderating a discussion group at the meeting entitled “Salman v. United States and the Future of Insider Trading Law.”  The program description, written after the case was granted certiorari by the SCOTUS and well before the Court’s opinion was rendered, follows:

In Salman v. United States, the United States Supreme Court is poised to take up the problem of insider trading for the first time in 20 years. In 2015, a circuit split arose over the question of whether a gratuitous tip to a friend or family member would satisfy the personal benefit test for insider trading liability. The potential consequences of the Court’s handling of this case are enormous for both those enforcing the legal prohibitions on insider trading and those accused of violating those prohibitions.

This discussion group will focus on Salman and its implications for the future of insider…