2012

• Op-Ed by Mark Roe: Corporate Short-Termism in the Fiscal Cliff’s Shadow, Project Syndicate, December 2012
• Op-Ed by Lucian Bebchuk: Voluntary Disclosure on Corporate Political Spending Is Not Enough,New York Times DealBook, December 17, 2012
• 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.”
• SEC ‘taking a look’ at having companies disclose political spending, Wall Street Journal MarketWatch, Novemeber 15, 2012
  Meredith Cross, the director of the SEC’s division of Corporate Finance, told MarketWatch Thursday that the unit is taking a look at a political disclosure petition filed by Harvard Law School Professor Lucian Bebchuk and other academics.
• 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.
• Op-Ed by Lucian Bebchuk: Letting Shareholders Know How Their Money Is Spent, New York Times DealBook, November 14, 2012
• 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.
• Op-Ed by Lucian Bebchuk: For Whom Golden Parachutes Shine, New York Times DealBook,October 24, 2012
• Op-Ed by Mark Roe: Money-Market Resistance, Project Syndicate, October 2012
• 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.
• Are Shareholders Happy With Your Company’s Political Spending?, Corporate Counsel, September 26, 2012
  The risk that management’s political goals and views may not align with those held by shareholders or the marketplace is hard to avoid. Highlighting this misalignment problem, academics Lucian Bebchuk and Robert Jackson wrote, “the interests of directors and executives may significantly diverge from those of shareholders with respect to political speech decisions.”
• 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.
• Op-Ed by Lucian Bebchuk: Investing in Good Governance, New York Times DealBook, September 12, 2012
• Op-Ed by Mark Roe: Spooked by Glass-Steagall’s Ghost?, Project Syndicate, August 2012
• Op-Ed by Lucian Bebchuk: Don’t Discourage Outside Shareholders, New York Times DealBook,August 15, 2012
• SEC Wants Activist Hedge Funds To Share With The Rest Of The Class, Dealbreaker, August 15, 2012
  Financial markets are basically about information asymmetries, real and imagined, and financial regulation is largely about limiting those asymmetries to socially acceptable kinds and quantities. […] Harvard professor Lucian Bebchuk has a column in DealBook today about how the SEC shouldn’t prevent activists from secretly buying shares in companies.
• 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.
• Op-Ed by Mark Roe: Greece and the Limits of Anti-Austerity, Project Syndicate, June 2012
• 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.
• New York Times Accuses Walmart of Bribery Cover-Up, PRI’s The Takeaway, April 23, 2012
  An interview with HLS Senior Fellow Ben Heineman: On today’s Takeaway, senior fellow at Harvard Law School Ben Heineman discusses the new investigation from our partner The New York Times that accuses the Arkansas-based retail giant Walmart of a massive corruption scandal […]
• 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.”
• Op-Ed by Lucian Bebchuk: Giving Shareholders a Voice, New York Times DealBook, April 19, 2012
• Op-Ed by Mark Roe: How Brazil Broke Loose, Project Syndicate, April 2012
• 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.”
• Op-Ed by Mark Roe: Tobin Trouble, Project Syndicate, February 2012
• 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.
• Menendez: SEC should require corporations to disclose political spending, The Record, January 19, 2012
  The Securities and Exchange Commission should require public corporations to disclose any political spending, Sen. Bob Menendez said Thursday. […] Harvard professor Lucian Bebchuk said that since the Citizens United ruling, shareholders have been demanding disclosure through proxy votes, and it is common for the SEC to follow those types of initiatives with rules for all public corporations.
• 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…”
• Op-Ed by Ben Heineman: Tough Dilemmas for Companies on Campaign Spending, Harvard Business Review, January 2012