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Academics in Hong Kong have found that companies that have adopted executive compensation clawback provisions tend to substitute one type of earnings manipulation for another, and that this trend is more pronounced in companies with high growth or transient institutional ownership.In an article published in the American Accounting Association’s journal, the authors analyzed companies from the Russell 3000 that voluntarily adopted clawback provisions of the type required by Section 954 of the Dodd-Frank Act. Because the Securities and Exchange Commission has not yet finalized the rules to implement this section, only some companies have adopted these measures. Section 954 is intended to deter financial misstatements.By carefully matching about 250 companies that have adopted clawback provisions with those that have not, the authors investigated two main questions: (1) do clawbacks lead companies to substitute one type of earnings manipulation with another; and (2) which kind of … [Read more...] about Hong Kong Study Finds Executive Compensation Clawback Provisions Do Not Eliminate Possible Earnings Manipulation

Insurance is not often discussed as an element of good corporate governance. It should be. Broadly understood, good governance is the maintenance of an appropriate level of accountability for directors and managers so that there is both transparent decision-making and an effective means to take action for poor performance or decisions. Much of the discussion about corporate governance centers on structural safeguards (for example, that board committees tasked with important decisions contain a majority of independent directors; that there are guidelines for the timing and substance of the information provided to directors in advance of meetings; and that directors are able to obtain independent advice when appropriate). These safeguards are intended to create a system of checks and balances that lead to conflict-free decisions that are in the best interests of an organization's stakeholders. After learning that the risks of a bubble economy cannot be avoided by opaque financial … [Read more...] about Insurance and Good Corporate Governance: A Modest Proposal

On April 5, 2012, President Obama signed into law the Jumpstart Our Business Startups, or “JOBS,” Act (H.R. 3606), which is designed to streamline or eliminate the regulatory and legal barriers many emerging companies currently face when attempting to raise capital. The JOBS Act contains multiple amendments to the federal securities laws that could have significant effects on small businesses, broker-dealers, private investment funds, banks and bank holding companies, and existing public companies. This alert explains the principal provisions of the JOBS Act and various practical ramifications for our clients.I. IPO On-Ramp for Emerging Companies To begin with, Title I of the JOBS Act seeks to improve access to capital for certain newly-registered public companies, known as “emerging growth companies” or “EGCs,” by easing them into SEC reporting requirements. An EGC is defined as a company that had total annual gross revenues of less than $1 billion … [Read more...] about Jumpstart Our Business Startups (JOBS) Act Signed Into Law

Any bank holding company with trust preferred securities (“TRuPs”) outstanding and in need of capital in this stressed operating environment for banks has had its strategic options limited by a recent decision of the Delaware Chancery Court. The court’s opinion makes it more difficult to recapitalize a distressed bank by giving the TRuPs bondholders enhanced blocking power. This newsletter summarizes the recent court action, explains its implications for bank recapitalizations, and offers the strategic solution of a Bankruptcy Code Section 363 sale to address capital needs while reconciling the rights and remedies of TRuPs trustees and bondholders.The February 27, 2012 decision of the Delaware Court of Chancery to permanently enjoin the proposed sale of the stock in a financially distressed bank as “substantially all of the assets” of a savings bank holding company in violation of several indentures for outstanding issues of TRuPS offers many lessons for … [Read more...] about The BankAtlantic Bancorp Decision — Roadblock or Detour to Open Bank Sale of Distressed Banks?

Leading the Past WeekAs the first full week of the Federal government’s sequestration comes to a close, the effects have been palpable.  The Dow Jones closed just shy of 14400, after hitting a 52 week high earlier in the day.  The Department of Labor announced Friday that the economy added 236,000 jobs in February, significantly higher than the consensus prediction of around 165,000 and that unemployment now stood at 7.7 percent.  Earlier in the week, the Fed’s latest beige book found that the US economy is continuing along a moderate growth trend.  While these last three metric’s are on a month lag, the bullish nature of the equity markets, coupled with tangible loss in services, has complicated the Administration’s “sky is falling” rhetoric surrounding the impact of the sequester.Against the backdrop, significant attention and ink was devoted to the President’s decision to put on a charm offensive, which … [Read more...] about Financial Services Legislative and Regulatory Update – March 11, 2013