Last week, the Delaware Court of Chancery found that a target company in an agreed merger properly terminated the merger agreement following the passage of the specified “end date” where the buyer failed to exercise its right under the agreement to extend the end date. See Vintage Rodeo Parent, LLC v. Rent-a-Center, Inc., C.A. No. 2018-0927-SG (Del. Ch. Mar. 14, 2019). The decision is a stark reminder that courts will enforce the terms of a merger agreement as written, and that the failure to comply with seemingly ministerial formalities can have severe consequences. Continue Reading Target’s Termination of Merger Agreement Approved Based on Plain Contract Language
“If your experiment needs statistics, you ought to have done a better experiment.” Ernest Rutherford
Sometimes you need to get into the fundamentals to understand if your belief system is sound. In corporate governance literature of the last two decades, there is no more fundamental concept than Tobin’s Q, which legions of law professors have used as a proxy for firm value. Based on regression analyses examining variations in Tobin’s Q, they have made definitive pronouncements about any number of corporate governance topics, from staggered boards to the value of activism. Yet tracing the evolution of Tobin’s Q to its current state—a state completely alien to the original conception—reveals a twisted tale, proceeding like an epidemiological disaster in which Tobin’s Q transforms from an innocent and useful organism in macroeconomics to an unrecognizably mutated and widespread disease in corporate governance literature, infecting policies and practices throughout the corporate governance world. Continue Reading Mutant Q – The Superbug Infecting Foundational Studies on Entrenchment, Staggered Boards, and Activism
We were grateful that about 200 of you participated in Cleary Gottlieb’s fifth annual M&A, Antitrust, and the Board Room conference in San Francisco, hosted and co-sponsored by our friends at UC Berkeley School of Law, as well as sponsors Abernathy MacGregor, Finsbury, Gladstone Place Partners, Joele Frank, MacKenzie Partners, and Okapi Partners, and chaired by Cleary partner Ethan Klingsberg and Berkeley Professor Steven Davidoff Solomon. Continue Reading Key Takeaways: M&A, Antitrust, and the Board Room in 2019: Challenges and Conundrums for the West Coast
Cleary Gottlieb and The Conference Board recently hosted the webcast “A Discussion on Long-Termism, Activist Hedge Funds and Staggered Boards”. The webcast was moderated by Doug Chia of The Conference Board Governance Center, and the panelists were:
- Arthur Kohn, Partner, Cleary Gottlieb
- Neil Whoriskey, Partner, Cleary Gottlieb
- Ken Bertsch, Executive Director, Council of Institutional Investors
- Professor Charles Elson, Weinberg Center at the University of Delaware
Topics discussed included:
- Whether or not activists are good (or not-so-good) for US public companies
- The history of staggered boards
- The role staggered boards play in discouraging – or attracting – activists
- The impact activism has on short- and long-term corporate performance
For access to the recording of the webcast, please click here.
It has become customary, over the last few years, for companies and other stakeholders to await annual letters from large institutional investors that provide insight into investor views about companies’ long-term strategy, messaging, goals and shareholder engagement, among other topics.
BlackRock and State Street recently released their letters, and shared similar views: BlackRock reiterated its focus on the need for corporate purpose and the link to successful pursuit of profit and State Street focused on the need for a meaningful corporate culture as a significant driver of intangible value. In addition, in a recent interview with Gladstone Partners, Donna Anderson, the head of T. Rowe Price’s governance policy and engagement, focused on the need to deliver financial results instead of worrying about fending off the next activist investor. Continue Reading How to Practically Synthesize Investor Messages From BlackRock, State Street, and T. Rowe Price
The overarching goal of incentive compensation plan design is, of course, to incentivize management to focus on value creation for shareholders. Recent developments concerning corporate “sustainability” suggest that compensation committees of public company boards of directors, as well as human resources executives, should consider the use of metrics developed to measure sustainability in incentive compensation plans. By way of illustration, Chevron Corporation’s latest climate report, released last week, notes that it plans to set greenhouse gas emissions targets and said the goal would be added to the scorecard that determines incentive pay for executives and approximately 45,000 employees. Continue Reading Using Sustainability Metrics in Incentive Compensation Plans
Moderator Doug Chia, executive director of The Conference Board, Nick Mankovich, Vice President and Chief Information Security Officer (“CISO”) at medical technology firm Becton Dickinson, Daniel, and Alexis discussed current cybersecurity risks, how cyber-attacks are changing, and the role that management and the board should play in ensuring that companies are prepared. Continue Reading Cleary Partners Participate in Panel Discussion on Cybersecurity and Board Oversight
On February 6, 2019, as companies around the United States busy themselves for the annual ritual of parsing their D&O questionnaires, finalizing their proxy statements and submitting them to the board for approval, the Securities and Exchange Commission (“SEC”) released two identical new Compliance and Disclosure Interpretations (“C&DIs”) regarding disclosure, principally in proxy statements, relating to director backgrounds and diversity policies used by nominating committees in evaluating director candidates. Continue Reading Reading Diversity Into Regulation S-K
The market reaction to reports of harassment and misconduct in the wake of the #MeToo movement has led to a re-evaluation of the materiality of these complaints from a due diligence perspective, both in the context of mergers and acquisitions (M&A) and securities offerings. Companies and lawyers therefore need to re-examine the due diligence process, its role in considering harassment and misconduct claims, and how the process in M&A and securities offerings should be tailored to ensure the complete disclosure of these claims.
On January 29, 2019, the SEC announced four settlements with publicly-traded companies for failure to maintain adequate internal control over financial reporting.
None of the companies was charged with making false or inaccurate statements, either about its ICFR or otherwise; indeed, each had repeatedly disclosed material weaknesses in ICFR over many years.
These cases are interesting for at least three reasons:
- They were announced together to send a message about the SEC’s focus on its agenda to strengthen accounting and controls at public companies.
- The cases are about controls, and not about disclosure. Material weaknesses in ICFR are not just a disclosure issue: a continuing failure to maintain adequate controls is a violation of law, even if the failure is fully disclosed and there is no other disclosure problem.
- The cases join several recent instances in which the SEC has shown a willingness to use the internal controls provisions of the Securities Exchange Act of 1934 independently of specific disclosure requirements.
Please click here to read the full alert memorandum.