Mark Roe

An op-ed by Mark Roe. Congress is poised to retroactively validate hardball restructuring tactics in the bond market that courts have struck down in major reorganization cases like that of Caesars Entertainment. The underlying problem is that since the 1930s, the securities laws has barred basic free contracting among bondholders, via the Trust Indenture Act of 1939. Although the ban is exceedingly poor — one can think of few groups less in need of contractual guidance in the United States than institutional bondholders — the lurking amendment would worsen the plight of the bondholder.

While families all across the country were shopping for the final ingredients for that special Thanksgiving dinner, someone was hard at work on another type of stuffing: a two-page amendment to legislation that could have shifted hundreds of millions of dollars from one set of powerful financial investors to another. That amendment – which had nothing to do with transportation but was inserted into the $305 billion transportation bill that appears set to be signed by the president shortly – would have changed a portion of securities law know as the Trust Indenture Act, or TIA. To be sure, that amendment did not make the final text of the bill...If this amendment was inserted, it could have sunk those bondholders’ argument – to the benefit of those who own and control Caesars. “The amendment may be good for Caesars’ owners, but it’s not good for the bond market going forward or for out-of-bankruptcy restructurings going forward,” according to Professor Mark Roe, who teaches corporate law and corporate bankruptcy at Harvard School of Law.

Proposed changes to an obscure Depression-era law are causing a ruckus among the Wall Street investment funds that are battling over the debt restructuring at Caesars Entertainment and other companies. Tucked away in the omnibus spending bill in Washington is an amendment to that law, the Trust Indenture Act of 1939, that critics say would hand a victory to Apollo Global Management, which owns the casino company, at the expense of some bondholders...Mark J. Roe, a professor at Harvard Law School, said he agreed that the Trust Indenture Act could use changes, like adding a provision that says bondholders should be able to vote on whether to accept a debt modification deal. But, he said, the proposed amendment “isn’t a good result for the bond market in general.”

An op-ed by Mark Roe. Bankruptcy experience provides good reason for rules requiring disclosure of managers’ compensation for the year before bankruptcy. A longstanding problem for bankruptcy has been to limit transfers that insiders make to themselves and their business associates when the firm fails. It is no surprise that debtors sometimes prefer to see their firm’s value in stockholders’ hands rather than in creditors’ hands. Although most insiders don’t act this way, insider transfers have been enough of a problem over the long-run that bankruptcy has generated rules—some going back for centuries—to police and recover these transfers for creditors’ benefit.

The debate has been raging in various forms for the last 30 years — whether corporate short-termism is a problem and, if it is, is it hurting American businesses and the economy? Short-termism is exactly what it sounds like: companies managed for the short term, with decisions driven by the need to meet shareholder expectations about quarterly earnings and stock prices...Mark J. Roe, a professor at Harvard Law School, is not ready to demonize short-termism and activist investors. He said some of the consequences of activist investor efforts have been good for companies. “On average I think activist investors are probably a good thing, with some problems,” Mr. Roe said. “The good thing is that managers and boards can get complacent and rest on their laurels. Activist investors can give them a kick when they aren’t moving fast enough.” However Mr. Roe is not a fan of those investors pushing companies to borrow more so they can deduct more interest from their tax bill. “I don’t think we should be producing wealth by creating more leverage and a bigger tax deduction,” he said. The way to fix the problem is not to stop activists, he added, but to change the tax code so that debt and equity are taxed equally.

An op-ed by Mark Roe. The idea that financial markets are too focused on the short term is gaining ground in the media and among academics. And now it is attracting political attention in the United States. Investors’ obsession with short-term returns, according to the new conventional wisdom, compels corporate boards of directors and managers to seek impressive quarterly earnings at the expense of strong long-term investments. Research and development suffers, as does long-term investment in plant and equipment. Similarly, short-term thinking leads major companies to buy back their stock, thereby sapping them of the cash they need for future investments. None of this is good news for the economy – at least, it wouldn’t be, if it were real. Upon closer inspection, the supposed negative consequences of investor short-termism appear not to be happening at all.

An op-ed by Robert C. Pozen and Mark J. Roe. The clamor against so-called corporate short-term thinking has been steadily rising, with a recent focus on eliminating the quarterly earnings report that public firms issue. Quarterly reports are said to push management to forgo attractive long-term projects to meet the expectations of investors and traders who want smooth, rising earnings from quarter to quarter...But while quarterly reporting has drawbacks, the costs of going to semiannual reporting clearly outweigh any claimed benefits.

An op-ed by Mark Roe. Courts are striking down and calling into question an important class of contentious bond restructurings that until now have been viable. The barred restructurings are so-called “exit exchange offers,” in which the debtor company offers new bonds for old bonds. Those exchanging old bonds for new ones must first vote to delete some or all of the bonds’ protections. This structure is controversial—and is now being struck down—because it drops nonparticipating bondholders into a “death trap.” Either the bondholder takes the deal (even if they don’t want to) or suffers as its bonds lose protections and value.

An op-ed by Mark Roe. Stock buybacks are big and controversial. Hillary Clinton, the frontrunner for the US Democratic presidential nomination, says they undercut the American economy at the expense of needed investment. Larry Fink, head of BlackRock, wrote that buybacks “deliver immediate returns to shareholders” while their companies are “underinvesting in innovation, skilled workforces or essential capital expenditures”. High-end publications pronounce stock buybacks to be killing the American economy and, as buybacks spread in Europe and Asia, they have become more controversial there too. Fine companies, the idea runs, sacrifice their future to satisfy cash-hungry hedge funds. Buybacks are indeed up, amounting to about a half-trillion dollars annually. But is that bad? Is American business really liquidating itself, destroying businesses with buybacks? No.

Video: Mark Roe, Harvard Law School professor, discusses the impact of ending quarterly earnings reports and why short-term thinking often makes sense for U.S. businesses.

An op-ed by Mark Roe. Corporate “short-termism” may not be as interesting as Donald Trump’s latest gaffe, but it’s becoming an issue in the 2016 presidential race. Corporations, the idea goes, are being run too much with an eye toward quarterly earnings instead of the long-term good of their businesses, their employees and the economy. Investors are to blame, and something needs to be done. Hillary Clinton has proposed making changes to capital-gains taxes and holding periods to encourage long-term investments. But it isn’t just Democrats who are concerned about short-termism...Among those who opine on the topic, most take for granted that corporate short-termism is pervasive, and more important damaging to the U.S. economy. But is it? Or is it a small issue on which we could do better but that’s been blown out of proportion by those fearful of change? I see it as just that.

An op-ed by Mark Roe. Do shoppers suffer too much in bankruptcy, or should they be expected to share the pain? Brick-and-mortar retailing is in upheaval. The Internet is changing the way people shop and buy, in case any brick-and-mortar retailer hasn’t yet noticed. Traditional retailers that can’t adjust quickly enough will end up in chapter 11. When one does, customers can face problems with their gift cards, warranty claims, return-if-not-satisfied privileges and assurances of privacy protection regarding their customer information.

An op-ed by Mark Roe. A deal between Greece and its creditors might not happen. Several factors are in flux; Greek and northern European interests are not aligned; and personal animosities are in play. For Greece, an exit from the euro would not be easy, but if the alternative is endless austerity without debt forgiveness, its government may conclude that leaving the eurozone is the better choice.

A federal judge Tuesday that Education Management Corp. ’s debt restructuring violated the rights of bondholders that didn’t support the deal, forcing the for-profit education company to continue making payments on bonds owned by a hedge fund...Mark J. Roe, a professor at Harvard Law School, said the said the ruling could have broader restructuring implications even though Education Management, as an educational institution, couldn’t use bankruptcy effectively. “Firms often would like to restructure outside of bankruptcy,” he said. “This opinion will make restructurings more difficult for bondholders due to the Trust Indenture Act.”

The legal journal Corporate Practice Commentator recently announced the 10 Best Corporate and Securities Articles of 2014. Half of those selected this year were written by Harvard Law School faculty members.

An op-ed by Mark Roe. Headlines about banks’ risks to the financial system continue to dominate the financial news. Bank of America performed poorly on the US Federal Reserve’s financial stress tests, and regulators criticised Goldman Sachs’ and JPMorgan Chase’s financing plans, leading both to lower their planned dividends and share buybacks. What was also of interest was Citibank’s hefty build up of its financial trading business that raises doubts about whether it is controlling risk properly. These results suggest that some of the biggest banks remain at risk. And yet bankers are insisting that the post-crisis task of strengthening regulation and building a safer financial system has nearly been completed, with some citing recent studies of bank safety to support this argument. So which is it: are banks still at risk? Or has post-crisis regulatory reform done its job?

An op-ed by Mark Roe. China has begun to stretch its economic and military muscles in recent years. In the South China Sea, it has built a series of quasi-military bases on the tiny Spratly Islands and deployed warships to defend them. Meanwhile, it is sponsoring the new Asian Infrastructure Investment Bank (AIIB) – an international institution that threatens to rival the World Bank in Asia – and has persuaded countries like the United Kingdom, Germany, and France to join, over the vocal objections of the United States. It is easy to conflate China’s saber-rattling with its economic and diplomatic initiatives such as the AIIB, as some US officials seem to have done. But, while China’s rise does merit some caution, it does not make sense to resist the country at every turn; sometimes, it is wiser to leave well enough alone.

An op-ed by Mark Roe. Headlines about banks’ risks to the financial system continue to dominate the financial news. Bank of America performed poorly on the US Federal Reserve’s financial stress tests, and regulators criticized Goldman Sachs’ and JPMorgan Chase’s financing plans, leading both to lower their planned dividends and share buybacks. And Citibank’s hefty buildup of its financial trading business raises doubts about whether it is controlling risk properly. These results suggest that some of the biggest banks remain at risk. And yet bankers are insisting that the post-crisis task of strengthening regulation and building a safer financial system has nearly been completed, with some citing recent studies of bank safety to support this argument. So which is it: Are banks still at risk? Or has post-crisis regulatory reform done its job?