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

At the end of January, partners Daniel Ilan and Alexis Collins participated in a panel co-hosted by The Conference Board and Cleary Gottlieb to discuss cybersecurity and board oversight.

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.

This article first appeared in the January/February 2019 issue of PLC Magazine. Read the full article here.

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.

Last week, in SEC v. Scoville, the U.S. Court of Appeals for the Tenth Circuit held that Dodd-Frank allows the Securities and Exchange Commission to bring fraud claims based on sales of securities to foreign buyers where defendants engage in fraudulent conduct within the United States.

In so holding, the Court concluded that Dodd-Frank abrogated in part the Supreme Court’s rule, announced in Morrison v. National Australia Bank Ltd., that fraud claims under the federal securities laws can only be brought with respect to transactions in securities listed on a U.S. exchange or transactions in other securities in the U.S.  If adopted more broadly, this ruling would restore in government enforcement actions the more expansive conduct-and-effects test that the Morrison Court rejected.

Please click here to read the full alert memorandum.

On December 19, 2018, the Delaware Court of Chancery issued an opinion holding that Delaware law does not permit corporations to use charter provisions to require stockholders to litigate certain claims brought under the federal securities laws in a specific forum.  In Sciabacucchi v. Salzberg, Vice Chancellor Laster determined that such forum-selection provisions are invalid and unenforceable to the extent that they require any claim under the Securities Act of 1933 (the “1933 Act”) to be filed only in federal court.

The decision built on case law providing that a corporation may include forum-selection clauses in its governing documents where the claims involve intra-corporate disputes stemming from the rights and relationships established under Delaware corporate law (including between corporations and stockholders), but may not do so for claims that are external to the corporate relationship, like those based on tort, contract, labor or environmental law.  The decision may have implications for the use of other forum-selection provisions that mandate arbitration or contain class action waivers.

Please click here to read the full alert memorandum.