Wells Fargo’s bogus customer account scandal is back in the news again, most recently because of the bank’s release on Monday of the report of its independent directors’ investigation of the bank’s improper sales practices. The April 10, 2017 report, which the bank posted on its website, makes for some interesting reading. Of particular interest, the report discloses that as result of the independent directors’ investigative findings, the bank has imposed compensation clawbacks on former bank officials in excess of $180 million. The clawbacks, which the bank said in its April 10, 2017 press release are “among the largest in corporate history,” raise a number of interesting issues, as discussed below. Continue Reading Thinking About the Wells Fargo Executive Compensation Clawbacks
Are We Witnessing the Sunset of the U.S. Public Company?
There is a long and venerable tradition of predicting the demise of the American public corporation. For example, back in 1989, Harvard Business School Professor Michael Jensen famously questioned whether we were seeing the “eclipse of the public corporation.” In a February 2017 paper entitled “Is the American Public Corporation in Trouble?” (here) University of Arizona finance professor Kathleen Kahle and Ohio State University finance professor René M. Stulz reexamine the question and suggest that in the years since Jensen’s landmark article, there have been “striking changes” in the landscape for American corporations. The relatively few remaining public companies are, in effect, “survivors,” and few “want to join their club,” as new enterprises prefer private equity and other non-public finance sources to the public securities markets. A March 24, 2017 summary of the authors’ paper on the Harvard Law School Forum on Corporate Governance and Financial Regulation can be found here. Continue Reading Are We Witnessing the Sunset of the U.S. Public Company?
A Continued Focus on Corporate Governance in Europe and the U.K.
Just as the new Presidential administration leads a charge to roll back corporate regulation, “the rest of the world seems to be headed in the opposite direction,” according to a recent post in the PubCo@Cooley blog. Last month, the European Parliament approved a new Shareholder Rights Directive that is intended to “sharpen big EU firms’ focus on their long-run performance, by fostering their shareholders’ commitment to it, according to the legislature’s press release announcing the Directive’s adoption. As the same time, a recent report from a U.K. Parliamentary Committee may signal further governance changes ahead in the U.K., as well. Both of these initiatives proceed from perceived governance shortcoming and concerns over disproportional corporate focus on short-term results. Continue Reading A Continued Focus on Corporate Governance in Europe and the U.K.
A Clash of Names
It all began over a bottle of wine. A bottle of wine from Portugal, to be precise. The wine was from the the Tejo region, named for its proximity to the Rio Tejo, the river that runs through the heart of the Iberian peninsula and on which sits Lisbon, Portugal’s capital city. As I pointed out to my wife, the Rio Tejo is known to English-speaking people as Tagus River, a language-based distinction that has always struck me as odd. Continue Reading A Clash of Names
Cornerstone Research: 2016 Accounting-Related Securities Suit Filings and Settlements Again Increased
According to Cornerstone Research’s latest annual survey of accounting-related securities suits, the number of accounting-related securities suit filings rose to the highest level in years in 2016, largely as a result of the number of federal court merger objection lawsuit filings involving accounting-related allegations during the year. The total value of accounting settlements during the year was also at the highest level in years. The Report, entitled “Accounting Class Action Filings and Settlements: 2016 Review and Analysis,” can be found here. Cornerstone Research’s April 5, 2017 press release about the report can be found here. Continue Reading Cornerstone Research: 2016 Accounting-Related Securities Suit Filings and Settlements Again Increased
Securities Litigation: What if the Real Exposure is Less Than Supposed Damages?
Most securities class action lawsuits that are not dismissed outright ultimately settle. One of the starting points for securities suit settlement negotiations is what is referred to as “plaintiffs’ style” damages estimate. The plaintiffs’ damages estimate is usually adjusted to reflect the composition of the class, the duration of the class period, trading patterns in the defendant company’s stock, and so on. Even with these adjustments, the dollar amount under discussion, at least on the plaintiffs’ side of the equation, is still some form of the plaintiffs’ damages estimate.
One specific fact that would be useful in the dialogue would be to know how much the estimated damages exceed the dollar amount of the damages claims that will actually be submitted and approved for payment if the case settles or if the plaintiffs prevail at trial. It is difficult to come up with the data to calculate these amounts because the outcomes of securities class action lawsuit settlement claims processes are not publicly available and because few cases go to trial and reach a verdict.
However, in a recent paper, several researchers from Cornerstone Research examined the claims data following two recent securities suit jury verdicts. Their analysis identifies actual claims rates in these two cases, information that may be useful to securities litigators and to their clients’ D&O insurers. Continue Reading Securities Litigation: What if the Real Exposure is Less Than Supposed Damages?
Policyholder Group Supports Appeal Involving Professional Services Exclusion
Regular readers know that one of my hobby-horse issues is what I perceive as insurers’ overbroad application of the professional services exclusion typically found in private company D&O insurance policies, particularly with respect to policyholders in services businesses. Because of this long-standing concern, I was interested to see that a policyholders’ rights group has filed an amicus brief in the Ninth Circuit in support of a policyholder’s appeal of a district court ruling that coverage under a D&O insurance policy for the underlying claim was precluded by the professional services exclusion. While the amicus brief may help focus the appellate court on the problems involved in what is a recurring situation, the larger point may be that as an industry we need to address a problem that affects all industry participants. Continue Reading Policyholder Group Supports Appeal Involving Professional Services Exclusion
You Need to Know This: YTD Securities Class Action Lawsuit Filings are Off the Charts
Securities class action lawsuit filings have been going crazy. Securities suit filings during the first quarter 2017 set a pace that if continued would mean an unprecedented number of securities lawsuit by year end. But even more significant than the sheer number of lawsuits is the rate of litigation. The percentage of listed companies sued in the first quarter, if annualized, would mean that U.S. public companies are being sued at four times the long-term historical rate. As discussed below, three factors account for much of the upsurge in securities suit filings. Continue Reading You Need to Know This: YTD Securities Class Action Lawsuit Filings are Off the Charts
Guest Post: Three Cybersecurity Lessons From Yahoo’s Legal Department Woes
The recent news that Yahoo’s general counsel had resigned following a probe of high-profile data breaches at the company has generated a great deal of discussion and concern. In the following guest post, David Fontaine and John Reed Stark take a look at the circumstances surrounding the resignation and consider the implications of and lessons from this development. David is the CEO of Kroll and its parent company, Corporate Risk Holdings, and John is President of John Reed Stark Consulting and former Chief of the SEC’s Office of Internet Enforcement. A version of this article originally appeared on CybersecurityDocket. I would like to thank Dave and John for their willingness to publish their article on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is Dave and John’s guest post. Continue Reading Guest Post: Three Cybersecurity Lessons From Yahoo’s Legal Department Woes
D&O Insurance: When Is a Claim a “Securities Claim”?
Public company D&O insurance policies typically provide coverage for the corporate entity only for “Securities Claims.” A recent case in the Delaware Superior Court involved the question of whether a bankruptcy trustee’s claim related to Verizon’s multi-billion dollar spinoff of its electronic directories business was a “Securities Claim.” In an interesting and detailed opinion dated March 2, 2017 and released March 15, 2017 (here), Judge William C. Carpenter, Jr. ruled that the bankruptcy trustee’s claim was a “Securities Claim” within the meaning of the Verizon’s D&O insurance policy and therefore that Verizon’s insurers were liable of the costs incurred in defending against the trustee’s claim. The opinion makes for interesting reading for anyone interested in how these kinds of disputes can arise, and also has some important practical lessons. Continue Reading D&O Insurance: When Is a Claim a “Securities Claim”?