Boards of Directors

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ISS and Glass Lewis have arrogated to themselves the power to make law, promulgating a civil code of astounding breadth and detail, ruling over decisions on board composition, director qualifications, term limits, majority voting standards, executive compensation, capital structure, poison pills, staggered boards, the advisability of  mergers, spin-offs and recapitalizations, and, increasingly, ESG policies ranging from animal welfare to climate change, diversity, data security and political activities.  They enforce this civil code by advising their clients, institutional investors with huge, varied and increasingly concentrated holdings across the economy, to vote against proposals or against directors if any aspect of the new civil code is disobeyed.  The vote of these clients is often decisive, and the implications of the votes – especially when considered in the aggregate – have far-reaching consequences for the operation and performance of US public corporations.
Continue Reading The New Civil Code: Obey

On July 10, 2020, the Securities and Exchange Commission (the “SEC”) proposed changes that would substantially reduce the number of investors required to file quarterly reports showing their holdings of U.S.-listed equities on Form 13F. The SEC’s proposal would increase the 13F reporting threshold 35 fold — from $100 million to $3.5 billion — and…

On June 1, 2020, the Criminal Division of the U.S. Department of Justice (the “Department”) released revisions to its guidance regarding the Evaluation of Corporate Compliance Programs, which the Department uses in assessing the “adequacy and effectiveness” of a company’s compliance program in connection with any decision to charge or resolve a criminal investigation, including…

In an important decision for M&A professionals and other board advisors, the Delaware Court of Chancery addressed a stockholder plaintiff’s claims that the target board’s financial advisor and law firm, as well as the private equity buyer, aided and abetted a breach of fiduciary duty by the target board in connection with a take-private merger.  See Morrison v. Berry, C.A. No. 12808-VCG (Del. Ch. June 1, 2020).  While the claim against the financial advisor was allowed to proceed, the claims against the law firm and buyer were dismissed.  These diverging results provide early guidance as to when the Delaware courts will (and when they will not) dismiss aiding and abetting claims.  In many cases, the determining factor will be whether the complaint pleads facts raising a reasonably conceivable inference that the advisor, buyer, or other third party knew the board was engaging in a breach of its fiduciary duty.  This has important implications for the way board advisors and M&A buyers should approach a situation in which they become aware that the board of a target company is unaware of some material fact that could conceivably affect its ability to fulfill its fiduciary duties.
Continue Reading Knowledge Is Key: Recent Decision Addresses Aiding and Abetting Claims Against Board Advisors And Buyer

The COVID-19 pandemic is likely a watershed moment for the traditional structure of America’s business workforce.  Although there is much uncertainty and opaqueness about the future, it seems clear that in the short term “remote” work arrangements – remote from large commercial office complexes and from concentrated city centers – will become more common for a substantial part of the workforce.

In the medium and longer terms, the pandemic may also support trends toward a more gig-based workforce in sectors of the labor market that are not currently significantly gig-based, specifically for workers in white-collar, business service industries.  We lay out below a few of the reasons to anticipate that result and briefly explore the principal legal implications for business.  As virtually all companies are considering the impact of the pandemic on their businesses, and specifically the cost-saving potential tied to remote work where feasible, they should take the opportunity now to also consider the possibility that gig-based workforce trends will impact them and how the steps they take in the short term may influence any such impact.  For many public companies, the trends and issues discussed below fall under the umbrella of human capital management strategy, as to which the board of directors may be expected to exercise oversight.[1]
Continue Reading The Gig is Up? COVID-19 & Remote Work Trend Toward Growth in Gig Labor*

While much of the focus today is on restarting segments of the economy and developing action plans to reopen businesses, history outside of corporate America teaches us important lessons on how incentives can play a role in driving effective outcomes.  It shows us that incentives, not just rules, may be the solution businesses need.  Consider the British prisoner dilemma over two centuries ago as a powerful lesson in incentives and how these lessons can be applied to the current pandemic.
Continue Reading Incentives in the Pandemic

This is an updated version of our prior post to address Governor Cuomo’s most recent Executive Orders.

In response to the COVID-19 pandemic, Governor Cuomo declared a disaster emergency and ceased operation of all non-essential businesses in New York state with the March 7 Executive Order 202 and its successor Executive Orders.  In particular, the March 20th Executive Order 202.8 provided temporary suspension of several state law regulatory requirements, including with respect to shareholder meetings of New York corporations.
Continue Reading UPDATE: Cuomo Executive Order Gives New York Corporations Relief on Physical Annual Meetings

In the current climate of market volatility prompted by the COVID-19 pandemic, more and more public companies with valuable US tax assets (e.g., net operating loss carryforwards) may, or at least should, consider adopting a shareholder rights plan in order to preserve those tax assets.  These plans are commonly referred to as “NOL rights plans” (or “NOL poison pills”).
Continue Reading Is Now a Good Time to Adopt an NOL Rights Plan?

On April 8, Institutional Shareholder Services (“ISS”) published additional guidance on application of its benchmark voting policies amid the COVID-19 pandemic.[1] ISS had previously issued its 2020 benchmark policies update to be applied for shareholder meetings on or after February 1, 2020.[2] Noting the societal and economic uncertainty wrought by COVID-19 since its prior update, ISS provides further guidance focused on four key areas:

  • Annual General Meeting (“AGM”) Issues;
  • Poison Pills, Shareholder Rights and Boards/Directors;
  • Compensation Issues; and
  • Capital Structure and Payouts.

Continue Reading ISS Issues Additional Voting Policy Guidance in Response to COVID-19 Pandemic

Executive pay in the midst of the pandemic presents an obvious dilemma.  On the one hand, it would be a stretch to blame fairly management teams for most of the adverse financial performance that will stretch across a broad range of industries.  On the other, they cannot escape the consequences either.

Consider that while stock values may bounce back for many companies in the reasonably short term, it is unlikely that business will quickly return to the status quo ante.  In some industries, the markets for products and services may change permanently; in other industries, supply chain and inventory management may also be permanently affected.  Not least, rank and file employees and other stakeholders across the economy will suffer.  Many executives will take short-term salary cuts in recognition of the hardship, but that is a preliminary and largely symbolic step and compensation committees need to find the right overall balance between reward and respect for the economic environment.
Continue Reading The Executive Pay Dilemma