Bo Becker and Guhan Subramanian
Stephen Choi, Jill Fisch, and Marcel Kahan
Adam J. Levitin and Susan M. Wachter
This Article shows that the commercial real estate price bubble was accompanied by a change in the source of commercial real estate financing. Starting around 1998, securitization became an increasingly significant part of commercial real estate financing. The commercial mortgage securitization market underwent a major shift in 2004, however, as the traditional buyers of subordinated commercial real estate debt were outbid by collateralized debt obligations (CDOs). Savvy, sophisticated, experienced commercial mortgage securitization investors were replaced by investors who merely wanted “product” to securitize. The result was a decline in underwriting standards in commercial mortgage backed securities (CMBS).
The commercial real estate bubble holds important lessons for understanding the residential real estate bubble. Unlike the residential market, there is almost no government involvement in commercial real estate. The existence of the parallel commercial real estate bubble presents a strong challenge to explanations of the residential bubble that focus on government affordable housing policy, the Community Reinvestment Act, and the role of Fannie Mae and Freddie Mac.
Jay W. Lorsch
Fair Markets and Fair Disclosure: Some Thoughts on the Law and Economics of Blockholder Disclosure, and the Use and Abuse of Shareholder Power
Adam O. Emmerich, Theodore N. Mirvis, Eric S. Robinson, and William Savitt
In their article The Law and Economics of Blockholder Disclosure, Professors Lucian A. Bebchuk and Robert J. Jackson Jr. challenge the need for any modifications to the ten-day reporting window. Bebchuk and Jackson argue that, given the purported benefits of blockholder accumulations, extensive cost-benefit analysis should be done before Section 13(d)’s reporting rules are modified.
We argue that Bebchuk and Jackson offer no sound basis for the cost-benefit analysis they suggest nor any reason to question the need for the modernization of Section 13(d)’s reporting rules proposed in the petition. Specifically, we explain that Bebchuk and Jackson’s position follows largely from an erroneous interpretation of the statute’s legislative history and that the blockholder interests for which they advocate run directly contrary to Section 13(d)’s underlying purpose—“to alert the marketplace to every large, rapid aggregation or accumulation of securities.” We also discuss how developments in market liquidity and trading—which allow massive volumes of public company shares to be traded in fractions of a second—have made the Section 13(d) reporting regime’s ten-day reporting window obsolete, allowing blockholders to contravene the purposes of the statute by accumulating vast, control-implicating positions prior to any disclosure to the market. Finally, we explain how corporate governance developments since the passage of the Williams Act offer no reason to fail to update Section 13(d)’s reporting rules. To the contrary, we note that the blockholder reporting rules in other major capital markets jurisdictions only confirm the need to modernize the Section 13(d) reporting regime to ensure that it once again fully achieves the statute’s express purposes.
Lucian Bebchuk, Scott Hirst, and June Rhee
First, negotiated outcomes involving a commitment to board declassification were reached with 48 S&P 500 companies––slightly over half of the companies receiving proposals. Following the agreements into which these 48 companies entered, 37 of the companies brought management proposals to declassify for a vote at 2012 annual meetings, and 11 companies will do so in their future annual meetings.
Second, declassification proposals brought by SRP-represented investors received majority support at the 2012 annual meetings of 38 S&P 500 companies (all but 2 of the annual meetings in which such proposals went to a vote), with average support of 82% of votes cast.
Third, a total of 42 S&P 500 companies declassified their boards during 2012 as a result of the work of the SRP and SRP-represented investors (including declassifications following 2012 agreements, 2011 agreements with SRP-represented investors, and successful 2012 precatory proposals). The 42 companies whose boards were declassified during 2012 represent one-third of the 126 S&P 500 companies that had classified boards as of the beginning of 2012.
The work of the SRP and SRP-represented investors is expected to produce a significant number of additional board declassifications during 2013 as a result of (i) management declassification proposals that will go to a vote pursuant to 2012 agreements, (ii) companies agreeing to follow the preferences of shareholders expressed in 38 successful precatory declassification proposals, and (iii) ongoing engagement by the SRP and SRP-represented investors. We estimate that, by the end of 2013, this work will have contributed to movements towards board declassification by a majority of the 126 S&P 500 companies that had classified boards at the beginning of 2012.
Finally, beyond board declassification, the SRP’s 2012 work also facilitated a substantial increase in successful engagement by public pension funds and in their ability to obtain governance changes favored by shareholders. The proposals that the SRP worked on represented over 60% of the shareholder proposals by public pension funds that received majority support in 2012, and over 30% of all precatory shareholder proposals (by all proponents) that received majority support in 2012.
Joshua L. Boehm