Jesse Fried

Former Securities and Exchange Commission chairman Jay Clayton isn’t a fan of the new 1% tax on stock buybacks. “It is a tax on shareholders,”…

Democrats have pulled off a quiet first in their just-passed legislation addressing climate change and health care: the creation of a tax on stock buybacks,…

Unilever faces an uphill battle to sell Ben & Jerry's, with lawyers warning that the ice-cream brand's Left-wing political activism could pose problems for any prospective buyer. The consumer goods giant unveiled ambitions last week to offload parts of its business, including lower-growth food brands, in an effort to supercharge a push into health and hygiene. ... Jesse Fried, Dane Professor of Law at Harvard Law School, said any new buyer for Ben & Jerry's would "step into the shoes of Unilever and inherit the current board arrangement, as the merger agreement binds Unilever as well as any successors". He said a new owner could decide to litigate against the issue - and in his view, they would win the right to override Ben & Jerry's board decisions.

After a brief pandemic respite, share buybacks are back with a vengeance. In the third quarter of 2021, S&P 500 companies spent a record $235 billion on buybacks, adding to the $6.3 trillion spent on stock repurchases in the decade before the pandemic. In a time of supply chain snafus, a justifiably restive workforce, and great economic transitions, corporate America could be investing that money in the future of our economy—in logistics, workers and productive capacity. Instead, buybacks are artificially tipping the scales of skittish markets, while rewarding executives unjustifiably. ... Corporate insiders need to be completely prohibited from personally benefiting during periods of stock buyback activity. The research of former SEC Commissioner Robert Jackson Jr., economist Bill Lazonick, Harvard Law Professor Jesse Fried, and Lenore Palladino (a co-author of this essay) has identified the legal loopholes that allow corporate insiders to sell their own personal shares when they know that buyback purchases are happening, even though such activity has not yet been disclosed to the outside world. Large net sales of insider holdings are more than twice as likely to take place in periods of substantial buyback activity, Palladino has found. It is time we end senior executives’ opportunities to squander value by self-dealing through timely buybacks.

Chinese stocks that trade in the U.S. have always been a double-edged sword for investors, but Americans now face a wicked blade as years of buildup leads to an inevitable end. After hundreds of sketchy offerings on U.S. markets for young China-based companies with huge potential for either growth or complete collapse, the market in these stocks fell apart in 2021. “Valuations have declined sharply. There have been no IPOs in the last few months. And there have been a number of going-private transactions,” said Jesse Fried, a professor at Harvard Law School.

A group consisting of seven US state treasurers has written to Unilever urging the company to override Ben & Jerry’s boycott of Judea and Samaria. The treasurers, from Arizona, Idaho, Nebraska, Oklahoma, West Virginia, Louisiana and Mississippi, said that as it was their responsibility to manage the assets of their states in accordance with the law, they were requesting “further clarification” on the company’s ability to override the boycott put in place by their subsidiary Ben & Jerry’s. ... “Key legal experts have recently attested to Unilever’s authority and discretion after reviewing Ben & Jerry’s acquisition agreement,” the treasurers went on to say. “In their joint Newsweek article, Jesse Fried and David Webber, law professors at Harvard and Boston University respectively, clarified Unilever and Ben & Jerry’s joint liabilities pursuant to that agreement. They noted that Unilever’s acquisition of Ben & Jerry’s ‘specifically requires the latter to ‘help Unilever sell the premium ice cream in Israel.”

Investors are still speculating about exactly what Didi Global, a ride-hailing giant, did to draw the ire of Chinese regulators. Some say it foolishly pushed forward with its $4.4bn initial public offering (ipo) in New York despite being told by officials to delay the listing. Others suggest it stole the thunder from leaders in Beijing by kicking off trading on June 30th, the eve of the 100th anniversary of China’s Communist Party. Whatever its sin, Didi now says it plans to delist from New York and relist in Hong Kong. ... Many have held out hope of an eventual agreement between American and Chinese regulators that would revive a once-booming cross-border listing business. However, the suggestion that Chinese regulators are behind Didi’s delisting—an unprecedented intervention by a foreign government in the American market—makes a deal much more difficult to strike, says Jesse Fried of Harvard Law School.

China ride-hailing giant Didi Global’s shares plunged more than 22% in the US on Friday, losing about $8.4 billion in market value, to end a week in which the decoupling of the equity markets of the world’s two biggest economies gathered pace. The plunge followed Didi’s announcement that it planned to delist from the New York Stock Exchange less than six months after its bumper $4.4 billion IPO there.  Didi’s decision followed China’s swinging crackdown on tech companies amid its concerns that reams of customer data risked falling into foreign hands, and a US decision to boot 248 Chinese companies off its exchanges for failing to comply with auditing requirements. ... Previous delistings provide the best window on what the future may hold for investors – and it doesn’t look good. In late 2017, China-based and US-listed Qihoo 360 announced a deal to be taken private by a group of investors led by its CEO, Zhou Hongyi, who held a 61% majority stake in the company. The deal valued Qihoo at about $9.3 billion. It was then relisted on the Shanghai stock exchange, where its market cap soared to $56 billion. In a 2019 article published in the Harvard Law School Forum on Corporate Governance, Harvard Law School professor Jesse Fried and Burford Capital’s Matthew Schoenfeld assert that Qihoo’s CEO alone made $12 billion in the relisting exercise. ”Beijing may be deliberately tanking these companies’ shares to pave the way for Chinese investors to acquire interests at lower prices,” they said.

Few blockbuster public share sales have been as tortured as Didi Global’s. Within four days of raising $4.4bn in New York in June the Chinese ride-hailing group was hit with an investigation by the authorities in its home market and its mobile application was dropped from app stores in China, preventing new customers from using it. The firm’s share price remained above its initial public offering (ipo) price for just three trading days and has since fallen by more than 40%. Now the company, which was once valued at $70bn and backed by Japanese investment firm SoftBank, says it will delist from American exchanges altogether and relist in Hong Kong. ... Such action—an unprecedented intervention by a foreign government in the American market—would make an agreement between America and China far more difficult to strike, says Jesse Fried of Harvard Law School. “Didi’s exit will thus be a preview of what is to come,” he says.

By now, it’s clear that Beijing is greatly discouraging, if not completely forbidding, listings of Chinese tech companies in the U.S. What’s unclear is what Beijing will do with existing Chinese ADRs, an overwhelming majority of which used variable-interest entities to circumvent Chinese laws to get listed. ...The fate of VIEs isn’t the only concern for Chinese ADRs. Under a law (HFCA) passed under the Trump administration in December, Chinese companies may face delisting if they refuse to hand over financial information to American regulators, a demand that Beijing has refused so far. “Unless something unexpected happens, the Chinese ADR market should be eliminated within three years because of HFCA,” said Jesse Fried, professor at Harvard Law School. “Even absent the HFCA, China might have prevented companies from listing in the U.S. to build up its own markets and have greater control over the companies. But the U.S. government seems to be doing China’s work for it.”

The clock is ticking on a three-year timeline for the forced delisting from US exchanges of 248 Chinese stocks that are defying auditing requirements. ... The deal valued Qihoo at about $9.3 billion. It was then relisted on the Shanghai stock exchange, where its market cap soared to $56 billion. In a 2019 article published in the Harvard Law School Forum on Corporate Governance, Harvard Law School professor Jesse Fried and Burford Capital’s Matthew Schoenfeld assert that Qihoo’s CEO alone made $12 billion in the relisting exercise. ”Beijing may be deliberately tanking these companies’ shares to pave the way for Chinese investors to acquire interests at lower prices,” they said.

Corporate America is making some gains in expanding its commitment to diversity. According to a new study from The Conference Board, 2021 marks the first time that a majority of S&P 500 companies—59%—have disclosed the racial makeup of their boards. The increased transparency is widely considered an important step in advancing equity and inclusion. ... Some have opposed the measures, including the two Republicans on the SEC. Commissioner Hester Peirce registered her opposition in a lengthy statement that, among other things, argued that the new requirements “encourage discrimination and effectively compel speech by both individuals and issues in a way that offends protected Constitutional interests.” Others, such as Harvard Professor Jesse Fried, refuted Nasdaq’s claims that diverse boards are linked to enhanced financial performance, arguing that they do not result in higher stock prices, “the outcome investors actually care about.”

Senate Banking Committee Chairman Sherrod Brown (D-Ohio) and Senate Finance Chairman Ron Wyden (D-Ore.) want to impose a new tax on stock buybacks. This proposal is based on the flawed assumption that buybacks only benefit CEOs and corporate executives and comes at the expense of R&D and workers. If passed into law, it would hamstring an important tool public companies use to provide equity to shareholders, like Americans with retirement accounts, and potentially smaller companies. The Stock Buyback Accountability Act would apply a 2 percent tax of the “value of any securities” involved repurchases starting in 2022. ... Additionally, shareholder payouts via buybacks are not draining companies’ investment in R&D. In fact, according to an article by Jesse M. Fried and Charles C.Y. Wang in the Harvard Business Review, R&D as a percentage of revenue is now at levels “not seen since the late 1990s.

An op-ed by Jesse M. Fried and David H. Webber: Since Unilever subsidiary Ben and Jerry's announced an Israel boycott last month, triggering numerous state anti-boycott laws, Unilever's market capitalization has fallen by almost $14 billion. Unilever's contractual rights give it a strong basis for overturning the boycott. Its puzzling failure to do so shows immense disregard for its own investors.

A Texas nonprofit wants a federal court to reverse a rule approved by the Securities and Exchange Commission that requires more than 3,000 companies on Nasdaq’s U.S. stock exchange list to meet board diversity quotas. The Alliance for Fair Board Recruitment (AFFBR) filed a petition for review in the 5th U.S. Circuit Court of Appeals that argues the rule is discriminatory and the SEC‘s approval violates constitutional equal protection rights. ... Mr. Blum, however, said in a press release that the rule will not fulfill its promised benefits. He cited a paper published in April by Harvard Law professor Jesse M. Fried, who said studies show “stock returns suffer when firms are pressured to hire new directors for diversity reasons.”

An op-ed by Jesse Fried: Nasdaq recently asked the Securities and Exchange Commission (SEC) to approve new diversity rules. To avoid forced delisting, a firm must “diversify or explain”: either have a certain number of “diverse” directors or say why it does not. In its proposal, Nasdaq tips its hat to the social justice movement. But investors should be nervous. Rigorous scholarship, much of it by leading female economists, suggests that increasing board diversity—which Nasdaq’s rules will likely pressure firms to do—can actually lead to lower share prices. The rules aim at ensuring Nasdaq-listed firms with six or more directors have at least one self-identifying as female and another self-identifying as an underrepresented minority or LGBTQ+. Nasdaq CEO Adena Friedman says “there are many studies that indicate that having a more diverse board… improves the financial performance of a company.” But while Nasdaq’s 271-page proposal cites studies finding a positive link between board diversity and good corporate governance, it fails to cite a single well-respected academic study showing that board diversity of any kind leads to higher stock prices, the outcome investors actually care about.

Nasdaq has, in its own words, embraced “the social justice movement.” The actual job of a stock exchange, however, is to ensure that trading is orderly and its listed companies follow standard governance rules. But doing that doesn’t earn the applause of the political left...Nasdaq claims board diversity protects investors because it might reduce the likelihood of “fraudulent and manipulative acts and practices” and increase shareholder value. But social scientists agree only that there is no agreement: Academic research hasn’t established a positive correlation between female board directors and firm performance. Even ambivalent studies that find a weak correlation aren’t evidence that having one or more women as directors improves shareholder value, which is what Nasdaq must prove. Nasdaq is also suspiciously silent about many other studies that undermine its argument. As Harvard professor Jesse Fried has pointed out, some of the best evidence suggests that pushing for increased diversity at the expense of other priorities hurts shareholder value.

Yahoo Finance’s Alexis Christoforous and Jesse Fried, Harvard Law School Professor, discuss lawmakers grilling Robinhood’s CEO amid Congress’ probe into the GameStop trading frenzy.

Social media services including Facebook Inc and Reddit restrict discussions about weapons, drugs and other illegal activity, but their rules do not specifically mention another lucrative regulated good: stocks. Some people think they should. Users of a Reddit group, in which 5 million members exchange investment ideas, generated significant profits by gorging on shares of GameStop Corp and other out-of-favor companies that had been shorted by big hedge funds...Social media companies are generally not liable for user activity under a statute commonly known as Section 230. Still, their rules bar illegal behavior like facilitating gun and drug transactions or distributing offensive content that could rile advertisers or generate calls for tighter regulation. Section 230 also has some carve-outs that in theory could lead to a tech company being penalized for user-generated content, including violations of federal criminal law, said Jeff Kosseff, a cybersecurity law scholar who wrote a book on the law...Harvard Law School professor Jesse Fried said the stock trading forums appear to be “purely legal behavior: irrationally exuberant buying by amateur investors.”

An op-ed by Jesse M. Fried and Charles C.Y. Wang: The European Commission recently released a sustainable corporate governance report claiming to find a problem of investor-driven short-termism, and proposing as a solution that power be shifted in EU-listed firms to other stakeholders. But the report’s findings are deeply flawed. And its proposed policies would, perversely, reduce business sustainability in the EU. As supposed proof of short-termism, the report points to rising levels of gross shareholder payouts — dividends and repurchases — and declining levels of investment. The claim: firms are increasingly showering cash on shareholders, stripping them of assets that could be used for long-term value creation. But the report mischaracterizes capital flows, mismeasures investment, and fails to consider firms’ cash balances. The actual data paint a very different picture. Start with capital flows. Oddly, the Commission’s report fails to account for equity issuances in measuring capital flows between firms and shareholders, focusing exclusively on flows in the other direction — dividends and repurchases. But as we have shown in a recent paper, stock issuances in the EU are substantial, far exceeding repurchases. During 2010-2019, for example, gross shareholder payouts represented 63% of net income. But equity issuances were almost half as large: 27% of net income. Thus, the ratio of net shareholder payouts to net income was 36%, a figure very similar to U.S. public firms.