March 2016

Over the past few years there has been a significant amount of attention to the issue of director tenure, particularly focused on the intersection between tenure and entrenchment and its impact on board diversity.  On the one hand, certain stakeholders advocate for experience and continuity of culture and on the other, there is the fear that a lack of turnover and refreshment prevents boards from balancing skills, strategy and diversity and adversely affects a director’s independence.  Institutional investors, proxy advisory firms, shareholder activists and governance advocates have all been publicly weighing in on the debate.  Recently, The California Public Employees’ Retirement System (“CalPERS”) solidified its position in the recent update of their Global Governance Principles (the “Principles”).  CalPERS’ revised Principles state that “director independence can be compromised at twelve years of service”.  As a result, the Principles call for companies to conduct “rigorous evaluations” of director independence, which it believes should result in either (i) classification of the director as non-independent or (ii) annual inclusion of a detailed explanation regarding why the director continues to be independent. In addition to the evaluation of individual directors, CalPERS believes there should be routine discussions and succession planning regarding board refreshment to ensure that boards continue to have the necessary mix of skills, diversity and other strategic objectives over time.
Continue Reading Considerations for Companies After Changes to CalPERS Global Governance Principles

The Pension Benefit Guaranty Corporation’s (the “PBGC”) widely reported[1] recent settlement agreement with The Renco Group, Inc. (“Renco”) illustrates the risks inherent in pursuing certain transactions where underfunded pensions are present.  Among the highlighted risks is the potential for the joint and several liability provisions of federal pension law[2] to enable the PBGC to reach for assets unrelated to a pension plan sponsor’s business, including personal assets of controlling persons, to satisfy underfunded pension claims.

Based on published reports, the Renco settlement, after a trial but before a decision was handed down by the Federal court in New York, is unusual in three respects.  First, the PBGC returned the plans at issue to Renco – that is, “restored”[3] the plans – rather than negotiating for Renco or an affiliate to make payments to improve the plans’ funded status.[4]  Second, the situation involves a rare instance in which the PBGC has pursued a litigation on the basis of a claim under Section 4069 of ERISA, the anti-evasion section of the pension termination provisions of ERISA.  Third, the PBGC used the controlled group joint and several liability provisions of ERISA to assert claims against entities that are not involved in the steel business but that are controlled by Renco and its controlling shareholder Ira Rennert.  While the PBGC has on many occasions used the controlled group liability provisions of ERISA to reach controlled group affiliates that are in separate lines of business from the plan sponsor, the facts in Renco are reminiscent of the PBGC’s lengthy fight with Carl Icahn beginning in the early 1990’s over responsibility for TWA’s underfunded pension obligations.[5]
Continue Reading PBGC-Renco Settlement Highlights Risk and Reach of ERISA’s Pension Underfunding Joint and Several Liability Provisions

Companies based in the People’s Republic of China have committed to over $100 billion of overseas acquisitions since January 1, 2016, including a number of high profile targets in the United States and Europe.[1] The ties of these buyers to governmental entities in the PRC, coupled with the unpredictability of the PRC government, and the challenges that a non-PRC counterparty faces when seeking to enforce contractual obligations and non-PRC judgments in PRC courts has led practitioners to implement an array of innovative provisions in M&A Agreements.
Continue Reading How M&A Agreements Handle the Risks and Challenges of PRC Acquirors

Directors of UK companies which are “for sale” are not (unlike directors of Delaware companies) subject to Revlon type duties to take active steps to obtain the best price reasonably available to shareholders.

However, directors of UK companies are subject to a duty to act for proper purposes, which has been interpreted by UK Courts as requiring strict board neutrality when battles for corporate control arise.  (This duty to act for proper purposes, which originated in common law principles, applies in addition to the restrictions on frustrating action applicable to listed companies under the UK Takeover Code.)  The UK proper purposes duty would for instance likely prohibit directors of UK companies from taking actions permitted under the Delaware Unocal principles, such as the establishment of a poison pill in response to an unsolicited offer which posed a threat to corporate policy.
Continue Reading Staying Neutral – UK Supreme Court Re-emphasizes Primacy of Board Neutrality When Battles for Corporate Control Arise

The Delaware Court of Chancery’s recently published opinion in Amalgamated Bank v. Yahoo!, Inc.[1] (the “Opinion”) provides a reminder for  directors about the importance of process in satisfying fiduciary duties when evaluating and approving executive compensation packages.  In the Opinion, which deals with Amalgamated’s demand under Section 220 of the Delaware General Corporation Law to inspect certain books and records of Yahoo! in connection with the hiring and firing of its Chief Operating Officer, Vice Chancellor Laster discusses practices that should be routine in a board’s review of executive compensation proposals and highlights procedural pitfalls that have been noted in numerous Delaware law decisions dating back at least to the series of cases involving compensation practices at Disney beginning more than a decade ago.
Continue Reading Delaware Court of Chancery Offers Practical Lessons for Compensation Committees