The New Neutral

The New Neutral is the name for our near-term economic future according to William Gross, founder and Chief Investment Officer of PIMCO, one of the largest of investment funds.

He and his investment team pride themselves on discerning the big trends and avoiding herd mentality when plotting the course of PIMCO fund investments.

After prematurely calling the end of the era of interest rate declines and predicting a more rapid rebound in interest rates, Gross is now predicting a new trend, “The New Neutral”.  In this environment, he suggests the US economy is in for a period of market stability with moderate to low returns (broadly, bonds returning 3-4% and stocks 4-5%) with relatively lower volatility.

Of course, he points out that the US economy is subject to impacts from our major trading partners and specifically calls out the risk of Japan’s current economic policy.

While his reputation as an economic wizard has been tarnished, his predictions, in my view, still merit consideration.

Excerpt

In 2014, the tide may be turning again as demographics, fear of another Lehman, or just income-starved insurance companies and similarly structured liability-influenced institutions, reach for anything they can get. The era of income may be, at the margin, replacing the era of capital gains, despite artificially low current yields.

Click here to read the PIMCO article.

I admit, my posts predicting a slow growth environment were also premature. Click here.

US Supreme Court Maintains Securities Fraud Status Quo

The US Supreme Court has essentially maintained the status quo in corporate securities fraud litigation.

The Court had taken up for consideration a lower court case which overturned the 25 year precedent, set in Basic v Levinson that aids plaintiff’s counsel in obtaining class certification. (Click here for background on the issue and the case.)

Statistics show that once a class is certified, a high percentage of corporate defendants settle rather than go to trial.

Hopes were high among corporate executives and their legal advisers (potential “defendants”) that the Court would even the playing field by raising the bar which plaintiff’s counsel must meet to obtain class certification.

The defendants’ small victory is that the Court made uniform among the lower courts the procedure that defendants can challenge, at the class certification stage, a key assumption that fraudulent information provided by the defendants impacted the defendant’s stock price.

Click here for ReedSmith’s summary on this case.

Proxy Season Recap 2014

There are valuable lessons to be learned from the 2014 proxy season.

Georgeson, the proxy solicitor, and Latham & Watkins, the law firm, have produced a valuable webinar to efficiently inform us of “takeaways” and trends from the proxy season.

LogoGeoLatham

Click here to go to the webcast

Topics

• Executive Compensation Developments, including updates on this year’s Say on Pay votes, proxy injunction and other executive compensation lawsuits, ISS and Glass Lewis practices and SEC rules

• Evolving Trends in Shareholder-Investor Engagement, including newly recommended protocols and differing investor approaches for making a difference over the long term

• Issues of Increasing Concern to Investors, including director qualifications, tenure and board structure; environment and social issues; and the hottest shareholder proposals

• Activist Investors, including preparing for and responding to their latest playbooks

Speakers
Jim Barrall, Partner, Latham & Watkins LLP
Rhonda Brauer, Senior Managing Director – Corporate Governance, Georgeson
Steven Stokdyk, Partner, Latham & Watkins LLP

Sponsors

Latham & Watkins LLP is a leading global law firm dedicated to working with clients to help them achieve their business goals and overcome legal challenges anywhere in the world. The firm has earned considerable market recognition based on a record of landmark matters and a unified culture of innovation and collaboration. From a global platform of offices covering the world’s major financial, business and regulatory centers, the firm’s lawyers help clients succeed. For more information, visit www.lw.com.

Georgeson is the world’s leading provider of strategic proxy and corporate governance advisory services to corporations and shareholder groups working to influence corporate strategy. For over half a century, Georgeson has specialized in complex solicitations such as hostile and friendly acquisitions, proxy contests and takeover defenses. The firm also provides issuers with expertise in corporate events solutions such as post-merger unexchanged holder programs and information agent services. For more information, visit www.georgeson.com.

 

Questions
michele.bravo@lw.com |
+1.213.892.3054

SEC Trends for Public Companies

This webinar will include practical tips to help your company avoid SEC trouble.

Latham & Watkins, the law firm, has produced valuable webinars which are well worth the time (which is not universal with webinars, in my opinion).

LathamLogo

Please join Latham & Watkins for a complimentary webcast discussing SEC trends for public companies in the areas of accounting and financial fraud.

Click here to go to the webinar.

Topics

• The Re-Tooled SEC – A smarter SEC takes on big data analytics

• The New Era of Creative and Aggressive Enforcement – The “broken windows” approach to enforcement and the lower bar for SEC actions

• Hitting and Avoiding the SEC’s Radar Screen – Practical tips for avoiding compliance issues and enforcement action

Speaker
John Sikora, Partner, Latham & Watkins LLP (Chicago), former SEC Assistant Director in Enforcement and the Asset Management Unit

Sponsor
Latham & Watkins LLP is a leading global law firm dedicated to working with clients to help them achieve their business goals and overcome legal challenges anywhere in the world. The firm has earned considerable market recognition based on a record of landmark matters and a unified culture of innovation and collaboration. From a global platform of offices covering the world’s major financial, business and regulatory centers, the firm’s lawyers help clients succeed. For more information, visit www.lw.com.

REGISTER HERE

A confirmation message will be sent to your email address with instructions for logging on to the webcast.
Questions
michele.bravo@lw.com
+1.213.891.3054

M&A Deal Term Study by Practical Law

CvrImgPractical Law, the Thomson Reuters online resource for corporate legal information, produced its yearly study of M&A deal terms.

Practical Law also produced a valuable webinar describing a portion of its survey results.

This material is most useful for M&A professionals but may also be helpful to corporate executives active in M&A.

Click here to go to the webinar at Practical Law.

Click here to go to Practical Law to review their service offerings.

 

D&O Coverage for Subpeona Response Costs

I found this article both interesting and an easy read of a important topic.  It’s something that corporate executives and board members should know.

In summary, insurers may challenge whether the cost of responding to a subpoena is a covered cost under a company’s D&O policy.  This article (click here) by Benjamin Tievsky on Law360 describes the risk and how to reduce it by careful drafting of your policy.

Activist’s Big Ally

BlackrockLogoActivists have an ally in Blackrock Inc., which reportedly manages $4 trillion in assets.

An excerpt from Blackrock’s recent Annual Report,

Better Governance Means Better Performance

Our fiduciary duty to our clients leads us to use the ownership position we hold in companies around the world to protect their interests by advocating for good corporate
governance. Through direct engagement with management teams and effective use of our proxy voting power, we work to ensure the strong leadership and prudent management that we believe ensures sustained performance and better returns on our clients’ investments.”

Blackrock has been using its position as a large corporate shareholder to influence change.  As reported in the New York Times “Dealbook”, Chairman and CEO, Laurence Fink, sent a letter to the heads of the S&P 500 companies recommending that the companies focus on actions to promote sustainable growth vs short-term fixes.

Click here to read the NYTimes “Dealbook” article which includes a link to the Blackrock Annual Report.

Court Finds Conflicts in Rural/Metro Sale

WarningSignThe Delaware Court of Chancery has found the Board of Directors of Rural/Metro Corporation breached its fiduciary duties to its shareholders in its 2011 sale.  The Court also found the company’s lead adviser liable for aiding and abetting the breach.

The Rural Board was subject to undisclosed conflicts and failed to probe the company’s lead adviser for additional potential conflicts.

This case and prior high profile cases of conflict, such as the Del Monte and El Paso cases, should alert boards to be vigilant.

Click here to go to an article by White & Case, the law firm on JDSupra, the online legal magazine or click on the download button below.

Love Letters, They’re Not

CorpDuelTwo well-regarded participants in the corporate governance debate have issued letters to the public recently, defending their views.

In one letter, Carl Icahn, perhaps one of the best known corporate activists, defends his view that corporate management, if left unsupervised by a corporation’s shareholders, would make sub-optimal or perhaps deleterious decisions for the corporation.  Naturally, he sites his current targets, Lions Gate and eBay, as examples.

Excerpt:

“I have made a great deal of money by understanding some simple facts.  Very often assets of significant value are mismanaged by highly-compensated, but less than highly-competent, managers and boards of directors, all whom are protected by highly-compensated lawyers and bankers – with stockholders not only paying the fees of these advisors but also losing out on the returns that they otherwise could be enjoying if they took on their proper role as business owners.   In such situations, if investors can install good managers and elect directors that will hold those managers accountable, then the true value of those assets can be realized.”

Click here or past the link to read the Carl Icahn Letter on the website shareholdersquaretable.com – http://www.shareholderssquaretable.com/a-watershed-moment-for-stockholder-participation/

In the next letter, Leo Strine, Jr., Chancellor of the Delaware Chancery Court and legal scholar affiliated with several universities, addresses and counters a pro-activist essay by Professor Lucian Bebchuck, Professor of Law, Economics and Finance at Harvard Law School (Click here for Prof Bebchuck’s bibliography and links to additional information.)

Excerpt:

“Bebchuk has spent his entire career obsessed with ensuring that stockholders are not harmed by corporate managers, whether intentionally or because those managers have incentives that do not align exactly with those of the stockholders. He has been remarkably successful in seeing his agenda to make corporate managers more directly responsible to
stockholders become the predominant market reality. Fidelity to his own insights would seem to suggest a new agenda, which is ensuring that the entities of which most ordinary Americans are in fact equity investors—money managers in the form of mutual funds and pension funds—are as accountable as the managers of the productive enterprises on which our nation’s economic future is largely dependent. Until he broadens his lens to make sure that all who wield power using the funds of American investors are accountable, Bebchuk is himself fairly labeled an insulation advocate.”

Click here or paste the link to read Chancellor Leo Strine’s letter in the Columbia Law Review –  http://columbialawreview.org/can-we-do-better-by-ordinary-investors-a-pragmatic-reaction-to-the-dueling-ideological-mythologysts-of-corporate-law/

Unintended Consequences for Bond Market Liquidity

Regulatory changes under the Dodd-Frank Act designed to reduce the risk of another financial market downturn may have the reverse effect so suggests an article in “FierceCFO”, the online magazine.

My takeaway from the article is that new regulations forcing large banks out of proprietary bond trading and concentrating it in the hands of hedge funds will increase the risk of illiquidity in the event of another period of instability.

The article suggests that in the event of another period of economic uncertainty, hedge funds will quickly step away from the market accelerating illiquidity.  Regulators have much less leverage over hedge funds to maintain some level of liquidity than they have over the banks.

Click here to read the article on “FierceCFO”.

“FierceCFO” article summary

Liquidity: How regulators are fueling the next crash

We’re not fans of deregulation, but the opposite does have unintended consequences. And TABB Group just released a report that suggests the changes brought about by Dodd-Frank and other regulatory moves made in response to the last financial crisis may set the stage for the next one. How so? By shifting bond trading from banks to hedge funds, which have more freedom to pull in their horns just when the market needs the opposite. In other words, liquidity could dry up at just the wrong time. The money quote comes from Colin Teichholtz, co-head of fixed income trading at Pine River Capital Management: “These new liquidity providers can just turn off the machine in bad times,” Teichholtz said. “Illiquidity can beget illiquidity and there is no obligation on these players to make market. The danger is that the dealers won’t be around to pick up the slack. The optimum business model won’t be to warehouse risk.”

In an interesting development on this topic, Liquidnet, an equity trading “dark pool” is expanding into bond trading to provide an additional trading venue for the bond market.  As the article above stresses, the trading activity conducted by hedge funds through “dark pools” can dry up at any time if parties step to the sidelines.

Click here to read the article on FierceFinanceIT about Liquidnet entering bond trading.