A Young Socialist-backed proposal to limit executive pay to twelve times the pay of junior employees was voted down by Swiss voters by a vote of 65 percent. The executive pay limits far exceed the disclosure-based limitations of Dodd-Frank and SEC regulations.
According to the Bloomberg article, at least five of Europe’s highest paid execs are in Switzerland.
Swiss voters reject strong limits on executive pay.
The leader of the Young Socialist party vowed to continue the fight to:
Send Swiss companies fleeing to other jurisdictions
Severely water down the talent pool willing to work in Switzerland or for a Swiss business
Turn the pool of executives working for Swiss companies into easy prey for headhunters in competing companies in other countries
Make Switzerland toxic to anyone who wants to start a business and hire employees
There may be constraints on UBS leaving Switzerland, but you can bet its CEO (or those talented enough to be in line for executive positions) has plenty of means of escape from this sort of income restriction. However, do you think Glencore (giant international commodities trading firm) can’t structure its business away from these restrictions?
These are the types of consequences that result from navel gazing over “income equality” and generally looking to more successful people with envy and anger rather than looking to more successful people and trying to learn about how to become successful.
The Recorder recently ran an article discussing Fenwick & West’s corporate governance study. I believe F&W produces these annually, and they are excellent resources for anyone interested in the up-to-date information about corporate governance practices, particularly for Silicon Valley companies.
However, there was an interesting statement at the beginning of the article:
“When companies are seeking to establish appropriate corporate governance policies, they often look to model themselves after those titans of industry in the Standard & Poor’s 100.”
Well . . . sometimes.
More often, companies will look to the companies that:
they deem somewhat comparable to the themselves; and
they aspire to be.
Typically, that will include prominent companies in their industry, which may or may not include companies in the S&P 100, 500, Pick-A-Number. They also account for size and complexity and other factors.
For many companies, the governance practices of the S&P 100 will be far too complex and have far too many processes and procedures to have any value. There will often be fewer people in the decision-making process, fewer layers of bureaucracy and the fewer issue-specific policies for smaller companies.
That said, the F&W studies tend to be extremely valuable, and I plan to spend a good part of the weekend reading the new one. I hope your weekend is better than that.
In an appeal of an injunction, the Delaware Supreme Court took a look at whether a stock buyback would be a “business combination” requiring stockholder approval under Activision’s bylaws.
Background
Activision Blizzard fights for its rights to buyback its shares.
In 2008 Activision bought Vivendi’s video game subsidiary for Activision shares. Vivendi also made a separate cash investment in Activision. Activision’s bylaws were amended to require approval of unaffiliated stockholders with respect to any merger, business combination or similar transaction between Activision and Vivendi. In 2012, Vivendi wanted to sell its Activision stake but found no takers. Activision agreed to a buyback, under which Vivendi would create a non-operating sub, “Amber,” to hold the assets for sale and Activision would purchase Amber. Activision did not seek stockholder approval, which was the part of the reason for the litigation, which resulted in a preliminary injunction.
Court’s Analysis
The court first looked to see if “business combination” was ambiguous. Nope.
“A provision is ambiguous only if it is “reasonably susceptible to more than one meaning,” and the fact that the parties offer two different interpretations does not create an ambiguity. Moreover, a provision “may be ambiguous when applied to one set of facts but not another. Finally, the provision must be read in context.”
The court decided that while the meaning could be ambiguous in some contexts, it was not ambiguous here because under their agreement, Vivendi will sell 429 million shares of Activision stock back to Activision. Because those shares will become treasury stock, control of Activision will shift from Vivendi to Activision’s public stockholders. Vivendi’s holdings will decrease from 61% to 12%, and Vivendi’s representation on Activision’s board will decrease from six appointees to none.
Since there was no “combination or intermingling of Vivendi’s and Activision’s businesses,” it is not a business combination. In fact it is the opposite of a business combination. These companies will be separating themselves. As a result, the stockholder approval requirement does not apply.
In addition, structuring the sale through Amber does not change the analysis. Neither the form of the transaction nor its size changes its fundamental nature. Amber is a shell created to serve as the transaction vehicle. The court stated that calling Amber a business “disregards its inert status” and “glorifies form over substance.”
The size of the deal does not change the analysis. The plaintiffs argued that it was a “value-moving” transaction. However, the bylaws do not require stockholder approval based on size of the deal.
In addition, the bylaws do not require stockholder approval for any deal between Activision and Vivendi, only specified transactions. While the Chancery Court may have been looking out for the non-interested shareholders’ interests, other provisions of the bylaws already provided for independent director approval for related party transactions.
I had a discussion the other day about how start-ups can increase their odds of success. Since I do a lot of work with start-ups, in legal and consulting roles, I offered three tidbits of advice:
1. Business Idea. Do not pick an idea simply because you think it is cool or you will get rich. For example, the start-up graveyard is littered with music industry apps created by people who believed it was their entry into a “cool” industry.
Find a problem that you think you may share with many people and build a solution. This is what good businesses do. They induce customers to pay them to make the customers’ lives easier in some way. Yes, this includes the Facebooks and Twitters of the world who are good at aggregating and identifying users to make advertisers’ jobs easier in targeting an audience.
2. Pick the Right Team. It is important that founders surround themselves with people they trust to be committed to the venture and, most importantly, to produce quality results. The start-up world is populated with many “flakes,” but the founders need to be able to trust that their associates will do what they commit to do. I have seen this over and over. People show up with visions of options and IPOs and foosball tables, but when it comes to actually working and producing results, enthusiasm and attendance fade.
3. Know When to Step Aside. Very often, the skills necessary to start a business are different from the skills needed to grow a business. For example, founders often underestimate the importance of a skilled and talented sales person. This is a skill set just as computer programming is a skill set, and they does not necessarily overlap. In addition, managing an ongoing enterprise is much different than managing the birth of an enterprise. A skilled manager can often be the difference between a hobby with some potential and a successful, growing business.
Enforcement officials often use DPAs to encourage targets to come forward with information about illegal activities and to cooperate with investigations. The agency agrees not to prosecute, and the target agrees to behave.
In this case, the deferree, a hedge fund administrator, spilled the beans about his boss regarding misuse of about $1.5 million and lying to investors about the fund’s performance. The DPA discusses overstatements of fund returns and discrepancies in the net asset value, or NAV, used for internal and external purposes.
The SEC froze the fund’s and the boss’ assets and is preparing to distribute about $6 million to injured investors.
On Thursday, November 7, 2013, the Financial Industry Regulatory Authority, Inc. (“FINRA”) halted trading in all OTC Equity Securities pursuant to FINRA Rule 6440(a)(3). FINRA determined to impose a temporary halt because of a lack of current quotation information. Therefore, FINRA has determined that halting quoting and trading in all OTC Equity Securities is appropriate to protect investors and ensure a fair and orderly marketplace. The trading and quotation halt began on Thursday, November 7, 2013, at 11:25:00 a.m. E.T. FINRA will notify the market when trading may resume.
