In this episode, I visit with QuantaVerse CEO/Founder David McLaughlin on the company’s new tool, the Chief Audit Executive Checkup service, which leverages the QuantaVerse AI Financial Crime Platform to analyze enterprise data and more efficiently and effectively identify insider threats, bribery, corruption, money laundering, fraud, terrorism financing and third-party risks that traditional internal audit investigations routinely [...]
2017 has seen interest in board composition intensify. Investors have long scrutinized individual directors’ qualifications; however, increasingly they are asking how those individuals complement each other, and whether the overall board reflects a diverse mix of backgrounds, skills and qualifications. Investors want to know how boards ensure that they are recruiting directors whose expertise aligns with company strategy, and numerous investment firms have updated their proxy voting policies to punish boards that lack diversity.
David J. Berger is a partner at Wilson Sonsini Goodrich & Rosati. This post is based on a WSGR publication by Mr. Berger, Amy Simmerman, Katherine Henderson, and Brad Sorrels, and is part of the Delaware law series; links to other posts in the series are available here. Related research from the Program on Corporate Governance includes The Untenable Case for Perpetual Dual-Class Stock by Lucian Bebchuk and Kobi Kastiel (discussed on the Forum here), and The Geography of MFW-Land, by Itai Fiegenbaum.
On December 11, 2017, the Delaware Court of Chancery issued a decision that will be important for companies looking to implement measures to extend or make changes to dual-class voting structures and for companies with controlling stockholders. The decision addressed stockholder fiduciary duty challenges to a recapitalization undertaken by NRG Yield, Inc. (the “Company”), which, prior to the recapitalization, had a dual-class stock structure and a controlling stockholder. The court held that the transaction was conflicted because it was specifically designed to benefit the controlling stockholder. Despite this conflict, the court dismissed the litigation because of the process employed by the Company in adopting the recapitalization.
The differential treatment of large financial institutions has drawn substantial interest in recent financial regulatory discussions. In particular, several regulatory measures put in place after the 2008 financial crisis have singled out large banks as subjects of increased regulatory scrutiny. At the same time, the U.S. banking industry has experienced a secular increase in concentration: The total number of U.S. banks has dropped from 25,000 in the 1920’s, to 14,000 in the 1970’s, to less than 6,000 as of today, while the top 10 bank holding companies now control more than 50% of total bank assets. These developments suggest that concerns about too-big-to-fail banks are now more important than ever before.
Sasja Beslik always knew life would not be straightforward. Born into a non-Muslim family in a Muslim-dominated city, he didn’t need anyone to tell him as much. All the same, not even a soothsayer could have guessed the twists and turns that lay ahead.Image: Channels: Communications & ReportingTags: SRIESGgreen financeStars FundUNHCRUnicefOne Planet summit
The theme of global economic development in 2017 was undoubtedly “turbulence.”
As populism and polarization gripped global politics, new, previously marginal economic ideas entered mainstream discourse, including the notion of a universal basic income.
The governments of North America grappled with the implications of legacy trade agreements in the modern age, and the financial sector sought creative solutions to disruption ushered in by changing regulatory demands and emerging customer preferences.
Meanwhile, politicians, policymakers and business leaders sought to make sense of the international economic order coalescing before them by putting into historical context the developments that have fundamentally altered global exchanges.
Against this backdrop, here are five economic stories that captured the attention of BRINK readers in the past year.The Pros and Cons of a Universal Basic Income
Swiss voters rejected a ballot initiative last summer to introduce an unconditional basic income that would “allow the whole population to lead a decent life and participate in public life.” It lost badly but also represented how far the idea had come among supporters.
Although people have advocated for some type of universal basic livelihood or support for centuries, recent advocacy has been closely linked to fears about extensive job losses due to technology, especially artificial intelligence (AI) and robotization of work, writes Rick McGahey, senior vice president for programs at the Institute for New Economic Thinking.
Futurist author Martin Ford details these dystopian scenarios in “Rise of the Robots: Technology and the Threat of a Jobless Future.” Ford says he sees new technologies pushing the economy towards “permanent technological unemployment,” implying that some form of UBI is necessary, although “you’d have to phase it in at a relatively low level.”Canadian Free Trade Framework Mitigates a NAFTA Demise
Politicians and policymakers in Canada, Mexico, and the United States reopened tough negotiations over the North American Free Trade Agreement last year, trading pointed language throughout. The agreement has come under particular scrutiny from President Donald Trump and his administration.
However, while NAFTA is a very valuable agreement, “it wouldn’t be the end of the world if it disappeared,” writes John M. Weekes, the former Canadian Chief Negotiator on NAFTA. In this piece, Weekes outlines the reasons a withdrawal from NAFTA might not be as catastrophic as some critics predict, citing among other things the existence of a bilateral trade agreement between Canada and the U.S.
The biggest thing business should do is analyze what the actual effects of different scenarios would be and advise their governments on how to defend their interests, Weekes writes.Design Thinking: The New DNA of the Financial Sector
Facing disruptive challenges such as increasing regulatory demands and changes in customer preferences, the banking sector has sought innovation to address a shifting landscape.
Significant investment has gone toward attracting new talent, such as designers and artists, who have skills not typically associated with the banking industry, write authors Josemaria Siota, a project leader at IESE Business School, and Inigo Ania, a principal in Oliver Wyman’s Financial Services Practice. A LinkedIn job search using the term “design” within the financial services sector in the U.S. revealed more than 15,000 related jobs, the authors note.
As a new tool for tackling disruption and innovation questions in the financial services industry, design thinking is enabling banks to boost growth by adapting to a rapidly changing environment.A Walk Through an Open World Economy in Crisis
In a year during which economic discourse revolved around questions of disenfranchisement within the the modern financial system, a primer on the state of the economy was essential. Jeffry Frieden, a professor of government at Harvard University, delivered just such a primer.
“The first era of globalization became politically unsustainable,” writes Frieden. “Its stability had depended on a willingness among those who mattered to subordinate a country’s domestic concerns to the requirements of its global position. But those who mattered were usually a small elite, for virtually no country was democratic. The middle classes, farmers, and the working classes—the people who bore the brunt of adjusting to international economic trends—had little or no voice.”
Bringing the historical detail into a contemporary context, Frieden writes that “until existing political parties and leaders are able to present a workable, attractive vision of how our societies can address the economic and social costs of globalization, an open world economy will be in danger.”Cargo Loss Control: How to Make a Million in Two Hours
Captain John Dalby, the CEO of Marine Risk Management, dives deep into loss, a relevant topic for any professional in the risk sector, using the lens of the shipping industry as a mechanism. Dalby outlines how the cargo shipping industry miscalculates losses—and how those losses can lead to huge windfalls for skilled grifters.
“There are a myriad of so-called losses that can be either physical (that is, some are stolen or mislaid and never arrive at their destination or were never shipped in the first place) or of a documentary nature—mistakes (deliberate or otherwise) in recording data on the shipping documentation, miscalculation, and/or mismeasurement,” writes Dalby. “Almost all of these involve criminal intent and can be carried out with surprising efficiency and at small risk of detection.”
Companies face increasing challenges from management and protection of data from hackers and breaches of sensitive commercial and personal data. Recent headlines have underscored the threats to companies from such breaches. The risk of reputational harm to companies is serious. Complaince departments are starting to play an increased role in mitigating these serious risks.
In this episode, Michael Volkov and Lauren Connell, Managing Associate from the Volkov Law Group discuss the important of data security and privacy compliance and coordination with information technology departments.
On December 13, 2017, the Delaware Supreme Court issued an opinion, In re Investors Bancorp, Inc. Stockholder Litigation, Case No. 169, holding that, except under limited circumstances, the court will not apply the deferential “business judgment rule” in reviewing challenges to director compensation awards granted pursuant to stockholder-approved equity plans. Instead, such awards are subject to an “entire fairness” standard of review. The ruling increases the likelihood that a plaintiff will defeat a motion to dismiss and potentially embroil the company in costly litigation and discovery.
Public companies should work with their compensation consultants to conduct a peer review of their director compensation programs in order to determine whether their director compensation, including equity grants, are reasonable. Companies should carefully document this process and consider the extent to which it may be beneficial to describe the process in their annual proxy disclosure. In light of the Delaware Supreme Court’s opinion, companies also may wish to consider whether to provide for grants of director compensation awards pursuant to a stockholder-approved formula plan, or via grants of awards specifically approved by stockholders.
Despite vigorous attempts, through judicial decisions,  and legislative provision on forum selection and fee shifting provisions  to limit the number of post-merger litigation filings, the fact remains that in 2016, almost a third of the mergers and acquisitions (“M&A”) in Delaware resulted in such filings. 
This paper: (i) describes the kinds of contractual breaches giving rise to post-closing M&A related litigation; (ii) examines contractual provisions that act to expand or reduce the amount of damages; (iii) determines whether tort based claims should be treated differently than those sounding in contract; (iv) reviews Delaware opinions meeting discrete screening criteria and; (v) presents the conclusion that Delaware courts, (or indeed any court) should make findings of fact on whether the damage caused by Target’s breach was transient or permanent in nature measured by whether the breach resulted in permanent damage to Target’s current or future cash flows. In my view, courts should award damages on a dollar-for-dollar in basis for transient damages and on a price earnings (“P/E”) multiple or discounted cash flow (“DCF”) basis where damages are non-transient. Further, I describe which of the holdings in the cases studied could have benefited from that distinction.
There are numerous reasons to put some serious work into your compliance policies and procedures. They are certainly a first line of defense when the government comes knocking. The 2012 FCPA Guidance made clear that “Whether a company has policies and procedures that outline responsibilities for compliance within the company, detail proper internal controls, auditing [...]
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What is the value of having a Code of Conduct? I have heard many business folks ask that question over the years. In its early days, a Code of Conduct tended to be lawyer-written and lawyer-driven to wave in regulator’s face during an enforcement action by using it to claim we are an ethical company. [...]
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Recent research suggests that the inherent optionality present in intra-firm rank-order tournaments provides senior managers with distinct and incremental career-enhancing incentives from option-based compensation schemes to implement riskier but value-enhancing firm policies (Kale, Reis, and Venkateswaran (2009) and Kini and Williams (2012)). Extending the notion of tournaments beyond the top management team to focus on the CEO, Coles, Li, and Wang (2017) find that CEO industry tournament incentives (henceforth ITI), as captured by the pay differential between the firm’s CEO and the maximal industry CEO pay, encourage the adoption of riskier but value-enhancing corporate investment and financing policies. In our article, Industry Tournament Incentives and the Product Market Benefits of Corporate Liquidity, forthcoming in the Journal of Financial and Quantitative Analysis, we add to the literature on managerial tournaments by examining whether and how ITI shape corporate cash policy. To shed light on this issue, we empirically examine the impact of ITI on the: (i) level of cash holdings, (ii) marginal value of cash holdings, and (iii) strategic actions that entail the use of excess cash to obtain competitive benefits in the firm’s product markets.