Investor Rights in a Global Marketplace, with Dr. Daniel Summerfield of Pomerantz

It’s a measure of how important a role ESG (Environmental, Social and Governance) now plays in corporate litigation that when securities law giant Pomerantz opened its first London office in October 2022, it didn’t only appoint a lawyer to head the office. Instead, it named a British corporate governance expert, Dr. Daniel Summerfield, as co-manager and UK business development director, along with Pomerantz Partner Jennifer Pafiti.

Summerfield joined Pomerantz after 20 years at the Universities Superannuation Scheme (USS), the UK’s largest private pension fund, where he was head of corporate affairs and, before that, co-headed the Responsible Investment Team at USS Investment Management, leading the fund’s efforts to improve the corporate governance performance of the companies, hedge funds and markets in which it invests.

During Summerfield’s tenure at USS, the fund, for the first time, chose to serve as lead plaintiff in an American shareholder class action. The litigation, led by Pomerantz against Brazilian energy giant Petróleo Brasileiro S.A.–Petrobras, arose from a massive corruption scheme that wiped out about $90B of the value of the Brazilian oil company in six months. USS and Pomerantz obtained a $3B settlement for damaged investors, the largest ever in a U.S. class action involving a non-U.S. issuer. Summerfield worked closely with Pomerantz attorneys Jeremy A. Lieberman and Jennifer Pafiti on corporate governance aspects of the case, commissioning a report that recommended 13 governance changes to prevent a repetition of the problems that contributed to the scandal.

Summerfield earned a Bachelor of Arts degree from University College London and a PhD in History from SOAS University of London. He has also served as head of corporate governance at the UK’s Institute of Directors. Recently, Daniel was shortlisted for the 2024 European Pensions Personality of the Year Award. The finalist will be announced in May.

Summerfield, now Pomerantz’s director of ESG and UK Client Services, recently spoke to Lawdragon about his work addressing corporate governance in the context of securities litigation and his move to Pomerantz.

Lawdragon: You're the Director of ESG and UK Client Services at Pomerantz. What exactly does that entail?

Daniel Summerfield: During my role as Head of Responsible Investment at USS, I became very aware of securities litigation. I was involved in a number of cases right from the start of my career at USS. We were involved in cases such as AOL Time Warner and News Corp, which was a very interesting lawsuit. In that case, I saw the positive influence that securities litigation can have when addressing a particular corporate governance issue that cannot be resolved in another way.

This was back in 2005, when Rupert Murdoch decided to move News Corp’s primary market listing out of his homeland of Australia to its headquarters in New York. He gave Australian and other investors assurances that he would not put in place a poison pill when he moved the listing. Of course, as soon as he did move over, he put in place a poison pill. Poison pills are designed to deter investors from amassing enough shares to take control of a company. It appeared to many that Murdoch’s poison pill was meant to protect his family, which owned, at the time, a 30% share in News Corp. A group of institutional investors from Australia, Europe and the States took him to court, and the judge ruled in our favor. It may not sound particularly earth-shattering, but it was a really important point of principle that companies are accountable to their shareholders and it should not be seen as a negotiable proposition.

When companies try to find loopholes, they may breach their commitments to shareholders, and we have this engagement tool of litigation at our disposal to utilize as appropriate. So that's when I first realized there's huge potential here, particularly in the States where perhaps shareholder rights are not, let's say, as high up the scale as they are in other markets, and you may not be able to use standard engagement tools that you have in other jurisdictions.

When companies try to find loopholes, they may breach their commitments to shareholders, and we have this engagement tool of litigation at our disposal to utilize as appropriate.

LD: Where did you file the case?

DS: The investors were based in many markets but we brought the case in Delaware actually, where the company was incorporated. USS was also involved in cases against RBS, BP and Tesco.

Litigation is mainly about financial restitution, but it's also about holding management to account, sending an important signal that shareholders take their fiduciary responsibilities and accountability to members and clients very seriously and we will take the necessary action if we deem it appropriate.

The most important case I was involved in at USS was Petrobras, which is how I got to know Pomerantz very well. It was groundbreaking because we obtained the largest ever settlement against an overseas company involving a non-U.S. lead plaintiff. But it wasn't just about the money, although it was a $3B settlement. During the legal process, we also commissioned an independent corporate governance advisor to write a number of reports that looked at some of the shortfalls in the governance of Petrobras, bearing in mind that we were likely to remain as investors in the company and wanted to strengthen the governance of Petrobras and future-proof the company. That's why we brought about these corporate governance changes as part of that process.

Again, that demonstrated to me the importance of securities litigation as a way of bringing about corporate governance changes and also sending a very strong signal to other companies that we as shareholders are not prepared to sit back and let companies ride roughshod over our rights.

When I was at USS, our trustees were adamant that if we were going to be involved in any legal actions, they would also have to include corporate governance reforms. As well as securing the appropriate financial redress, we also sought long-term improvements to the company, particularly if we were going to remain invested in the company.

LD: Why did you decide to make the move to Pomerantz and what's different about your role at USS versus there?

DS: I have known Pomerantz for probably 10 years at least and I know it to be a very professional organization. And I felt after 20 years at USS, I wanted to do something different. I wanted to stay within the ESG world working with institutional investors. And because we're seeing an increase in cases outside the U.S. as well as ESG-related cases in the States, it felt like the right time to move to an organization like Pomerantz.

What's different? I learned about securities litigation at USS, and now I’m working on communicating to other institutional investors in the UK, Australia, Canada and other markets all the ways it can be used. I feel that I am helping to pioneer a new way to see securities litigation – it is not just about filing cases and litigating motions, but about connecting with investors to open up how they are thinking about securities litigation as part of an ecosystem of shareholder action and corporate governance discourses.

LD: So now you have a much broader perspective?

DS: Yes. Before, as an investor, I was looking at it from an “inside out” perspective. Now I'm at the other end of the spectrum where I'm looking “outside in.” I'm looking at these cases that are taking place externally and identifying potential partners with whom we can work on certain cases.

LD: Are there any trends that you're seeing in ESG that are either worrying or encouraging?

DS: One of the trends we're unfortunately identifying is a regulatory race to the bottom. A number of jurisdictions, namely the UK and Italy, in their desire to try and attract IPOs into their markets, are proposing a reduction in the criteria and the thresholds which companies need to meet in order to list in these markets. Even in the UK where the one share, one vote rule used to be sacrosanct, it looks like we're going to introduce dual class shares and allow for special purpose acquisition companies (SPACs) which have largely been an unmitigated disaster in the U.S.

One of the trends we're unfortunately identifying is a regulatory race to the bottom.

Their approach is based on the assumption that if regulators reduce investor protections, more companies will list in their markets. This, to my mind, can only have a detrimental effect on the quality of listings. We saw this back in 2006 when a number of companies with dubious governance standards came to list in the UK. Many were Eastern European companies that didn't have very good governance in place and they ultimately imploded at a huge cost to investors. In 2013, the UK listing authority enhanced the listing rules and raised the threshold for standards which companies needed to meet in order to list. So it's ironic that we're now planning to reduce them. If I'm correct in my assumption that we're going to get more companies listing in the UK with dubious governance in place and as we won't have the mechanisms by which we can address those companies with governance shortfalls because our rights have been slightly curtailed, then I think we're going to see a greater use of securities litigation.

LD: Are there any positive trends that you're seeing?

DS: In the U.S., the UK, the EU, there are attempts to standardize disclosure requirements on ESG within each jurisdiction, which can only be a good thing. But there is a “but” here. If you're a global investor, can you compare what the SEC requires say of Exxon versus what the UK’s Financial Conduct Authority will require of Shell? Are there global comparisons that one is able to make as a global investor? I'm not sure of the answer to that. It’s positive in the sense that this is a standardization, but is it a global standardization or is it just a domestic market standardization?

LD: What are you working on at Pomerantz right now?

DS: There are a number of interesting cases we are discussing with clients. With securities litigation, there's always a governance angle. One of the key reasons why a company comes unstuck and something untoward happens is that the board or the management are asleep at the wheel or do something deliberate that causes destruction of shareholder value. There's always a human factor, a human dynamic involved, which leads to a decision being made that could be fraudulent or lead to something being covered up.

And that's where that correction mechanism can come into play to bring about changes. It can send a signal to other companies that this is not something we will tolerate and that can lead to market-wide changes in behavior. For example, I would argue that very few companies in Brazil now want to go through the hard-fought litigation that Petrobras went through, with its expenses and public exposure, and they have likely looked more carefully at their own governance. I would imagine some company boards in the States are looking at the decision by the Delaware Court of Chancery striking down Elon Musk’s $55.8B equity compensation package from Tesla, thinking, "Have we got the right independence in terms of directors in place to pass muster with shareholders' best interests?”

LD: Back in college, did you think that your career was going to look anything like this?

DS: When I was at university, I was always very interested in leadership issues, whether it was in youth leadership or political engagement. And what intrigued me is the process by which decisions are made. Although companies are entities, they are still run by humans. And unless AI takes over, which I doubt will happen, we're always going to have people in control of situations. People will always be people, and there are lots of good people, but people also make mistakes.

I was fascinated by leadership and how people get to the top, how those people make their decisions. What are the accountabilities in place, what are the correction mechanisms? I was quite involved in one of my first jobs in looking at Swiss gold and stolen art during the Second World War, what was the chain of events that led to that works of art being taken from someone's house and ending up in an art gallery? And tracing the provenance and the process really fascinated me. Someone's always accountable.

LD: What do you like about working with lawyers and what are the challenges?

DS: The lawyers at Pomerantz are not only very professional but a real sense of purpose runs through the organization. Even though I'm a few thousand miles away from the main office, I feel very much part of the team. It just doesn't seem like a foreign culture to me. There’s also a very quick decision-making process in place, but a very thoughtful and thorough one at the same time. It doesn't drown in levels of bureaucracy and governance. We can make decisions quite promptly. And I've never felt at a disadvantage that I'm not a lawyer myself. There's a huge pool of expertise within Pomerantz, which I can tap into and we can get meetings very quickly with the lawyers with whom we need to work. And the system works very smoothly. It's a well-oiled machine.