Recently, Vanguard updated its Vanguard Fund proxy voting guidelines, disclosing a proxy voting policy relating to what Vanguard considers to be overboarded directors, based on the evolving role of directors and its assessment of the time and energy required to effectively fulfill director responsibilities.  Continue Reading How Many Directorships is Too Many? Vanguard’s Evolving View

The German Federal Court of Justice (Bundesgerichtshof) recently had the opportunity to clarify a number of important practical questions of corporate law in connection with asset disposals, the allocation of responsibilities among directors and transactions concluded with board members. We summarize the three relevant decisions from 2018/2019 below. Continue Reading Recent Important Corporate Law Decisions by German Federal Court of Justice

On Friday, the SEC proposed extensive amendments to the rules governing financial disclosures by registrants about businesses they buy or sell.

The proposed amendments primarily relate to disclosures required by Rule 3-05 and Article 11 of Regulation S-X in registration statements and 1934 Act reports, and, for the most part, they would reduce the burden of preparing historical financial statements and pro forma financial information. The proposal follows a broader 2015 concept release on financial disclosures about entities other than the registrant, and it represents another step by the SEC to reduce the burdens on registrants in a careful way that does not take away information that is material to investors.

Please click here to read the full alert memorandum.

The modus operandi of shareholder activism is to agitate for change, often involving campaigns to convince other shareholders to support proposals to change the composition of the board and the company’s strategy.

Under UK law a shareholder activist, in its capacity as shareholder, can attack the board and its strategy in the press and in discussions with other shareholders free from the constraints of corporate law duties.  However, in a recent UK High Court decision, Stobart Group v Tinkler, the High Court considered a number of issues which are pertinent to the criticism of boards by shareholder activists who have nominated a director to the board.  This case is a clear warning of the risks to board nominees of shareholder activists who in furtherance of an activist campaign brief against the board in discussions with other shareholders and misuse the company’s confidential information.

Please click here to read the full alert memorandum.

In late March 2019, the Hertz Corporation and Hertz Global Holdings, Inc. (collectively, “Hertz”), filed two complaints (the “Damages Proceedings”) against its former CEO, CFO, General Counsel and a group president seeking recovery of $70 million in incentive payments and $200 million in consequential damages resulting from Hertz’s 2015 decision to restate its financial statements and an ensuing SEC settlement against Hertz and federal class action lawsuit (which was dismissed).  At the same time, the defendants in those actions each filed separate complaints (which have been consolidated in the Delaware Chancery Court) demanding advancement of their legal fees in the Damages Proceedings (the “Advancement Proceedings”).  The litigation between Hertz and its former executives raises novel questions about whether executives have a legally cognizable duty to set the right “tone at the top” and the consequences if they fail to do so.  The litigation also raises important and interesting questions regarding clawbacks and indemnification.[1]     Continue Reading Hertz Pursues Novel Theory to Hold Former Management Team Personally Liable for Restatement and Ensuing Legal Proceedings

In the wake of the Securities and Exchange Commission’s proposed clawback rules under the Dodd-Frank Wall Street Protection and Consumer Reform Act of 2010, many US public companies began implementing clawback policies.[1]  Although the proposal was originally issued in 2015 and the SEC has yet to adopt final clawback rules, instances of alleged executive misconduct in recent years has begun leading to claims under the clawback policies.  Increased scrutiny from legislators, institutional investors, shareholders and the general public has put significant pressure on boards of directors and compensation committees to exercise their rights to claw back compensation in the event of a corporate scandal.[2]

This post discusses two recent developments related to the exercise of compensation clawbacks.  The first confirms that boards should have broad discretion in deciding when to exercise a clawback, and the second discusses important indemnification and advancement issues that can arise in connection with a claim for the enforcement of a clawback policy. Continue Reading Courts Considering Clawback Claims

As discussed in our most recent blog post, on April 30, 2019, the Criminal Division of the U.S. Department of Justice (“DOJ” or “the Department”) announced updated guidance for the Criminal Division’s Evaluation of Corporate Compliance Programs (“the Guidance”).  The Guidance is relevant to the exercise of prosecutorial discretion in conducting an investigation of a corporation, determining whether to bring charges, negotiating plea or other agreements, applying sentencing guidelines and appointing monitors.[1]  The Guidance focuses on familiar factors: the adoption of a well-designed compliance program that addresses the greatest compliance risks to the company, the effective implementation of the company’s compliance policies and procedures, and the adequacy of the compliance program at the time of any misconduct and the response to that misconduct.  The Guidance makes clear that there is no one-size-fits-all compliance program and that primary responsibility for the compliance program will lie with senior and middle management and those in control functions. Continue Reading DOJ Guidance on Corporate Compliance Programs: A Checklist for Directors

On April 30, 2019, the Criminal Division of the U.S. Department of Justice announced updated guidance for the Criminal Division’s Evaluation of Corporate Compliance Programs (“the Guidance”) in charging and resolving criminal cases.  This memorandum highlights key updates and discusses the themes present across versions of the Guidance.  Overall, this newest version places greater emphasis on distilling “lessons learned” from misconduct, and on incorporating those lessons into the compliance program using objective metrics collected from monitoring and information gathering.  The Guidance also reinforces the Department’s review of third party management and the implementation of compliance tools in the M&A context.

Please click here to read the full alert memorandum.

On March 15, 2019, the National People’s Congress of China (the “NPC”) approved the Foreign Investment Law of the People’s Republic of China (the “FIL”), which is set to become effective on January 1, 2020.  The FIL introduces sweeping changes to China’s current legal regime governing foreign investments and, if properly implemented, holds the promise of ushering in a new era for foreign investments in China.

The FIL, when effective, will supersede three laws separately governing foreign investments[1], namely the Foreign Invested Enterprise Law (the “FIE Law”), the Sino-Foreign Equity Joint Venture Law (the “EJV Law”) and the Sino-Foreign Cooperative Joint Venture Law (the “CJV Law”, and together with the FIE Law and EJV Law, the “Existing Laws”).  Under the current regime, which of the Existing Laws applies to a foreign investment depends entirely on the type of Chinese entity through which such investment is made (such entity being referred to as a foreign invested enterprise, or “FIE”).  An FIE that is a wholly owned Chinese subsidiary of the foreign investor is subject to the FIE Law, whereas investments in Chinese joint venture entities are governed by either the EJV Law or the CJV Law.  FIEs of one type typically have equity and governance structures that are different from those of other FIEs, as well as those of Chinese domestic companies.  Furthermore, the current regime is marked by its disparate treatment of FIEs and Chinese domestic companies.  For example, FIEs, especially joint ventures, are typically subject to governmental approval or filing requirements at every step of its life cycle and generally cannot be listed on a Chinese stock exchange.  By unifying the currently fragmented regime, the FIL will simplify the structuring of foreign investments and also, for the first time in the context of a national law, provide for equal treatment as between FIEs and Chinese domestic companies. Continue Reading The New Foreign Investment Law Ushers in New Regime for Foreign Investments in China

The Delaware Supreme Court issued a decision last week that further clarifies when MFW’s “dual protections” must be put in place in order to qualify the transaction for deferential business judgment review.  See Olenik v. Lodzinski, No. 392, 2018 (Del. April 5, 2019).

Under MFW, business judgment review applies to a merger proposed by a controlling stockholder conditioned “ab initio” on two procedural protections: (1) the approval of an independent, adequately-empowered special committee that fulfills its duty of care; and (2) the uncoerced, informed vote of a majority of the minority stockholders.  If the controlling stockholder does not commit to these dual protections ab initio, i.e., from the beginning of negotiations, then the traditional entire fairness standard applies instead.[1] Continue Reading Delaware Supreme Court Provides Further Guidance on Timing Requirement Under <i>MFW</i>