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:

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

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

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

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

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,

As 2019 begins, companies continue to face global uncertainty, marked by volatility in the capital markets and global instability. And while change is inevitable, what has been particularly challenging as we enter this new year is the frenzied pace of change, from societal expectations for how companies should operate, to new regulatory requirements, to the evolving global standards for conducting business.

As companies navigate how to adapt, they are being held to increasingly higher standards in executing a coherent, thoughtful and profitable long-term strategy in this ever-evolving landscape. This memorandum identifies the issues across a number of different areas on which boards of directors, together with management, should be most focused.

We invite you to review these topics by clicking on the links below.

For a PDF of the full memorandum, please click here.
Continue Reading

In In re Xura, Inc. Stockholder Litigation,[1] decided earlier this week, the Delaware Court of Chancery denied the target CEO’s motion to dismiss claims that he breached his fiduciary duties by “steer[ing]” the company into an allegedly unfair acquisition by a private equity firm that promised to retain him post-acquisition, while knowing that his job was in jeopardy if the target remained independent.  This case is yet another example of why disclosures are so important in the post-Corwin[2] era:  Vice Chancellor Slights rejected the CEO’s argument that the claims against him were extinguished by the stockholder vote approving the transaction, finding that a number of material omissions precluded a finding that the stockholders’ vote was fully informed.  The vote was thus ineffective to invoke the business judgment rule at the pleading stage.
Continue Reading

Voting rights held by shareholders who are “acting in concert” are mutually attributed for purposes of the German Securities Trading Act (“WpHG”) and the German Takeover Act (“WpÜG”).  Such attribution may thus not only trigger (additional) voting rights notifications, if the relevant voting rights thresholds are reached or crossed, but also the obligation to launch a mandatory offer, if based on the voting rights so attributed a shareholder acquires control of a company.  In light of these implications, the question of what type of behavior constitutes acting in concert is of high practical relevance.  Unfortunately, the definition in statutory law is open-ended, and several details are heavily disputed.  In its decision of September 25, 2018 (II ZR 190/17), the German Federal Court of Justice (“FCJ”) had the opportunity to clarify two important questions:

First, the coordination of shareholder behavior in an individual case does not qualify as acting in concert. According to the FCJ, the question of whether coordination among shareholders is limited to an “individual case” is to be determined applying a formal rather than substantive test. Second, mutual coordination of conduct among shareholders does not constitute acting in concert if it is aimed at maintaining an existing corporate strategy (or defining it for the first time), rather than at bringing about a permanent and material change to an existing corporate strategy.
Continue Reading

The Delaware Court of Chancery recently denied Corwin cleansing[1] in a case involving the sale of a public company while it was engaged in a restatement of its prior audited financial statements.  See In re Tangoe, Inc. S’holders Litig., C.A. No. 2017-0650-JRS (Del. Ch. Nov. 20, 2018).  If this sounds familiar, that is because it is the second time in two years that the Court of Chancery has denied a motion to dismiss shareholder litigation on Corwin grounds where the target was in the middle of a restatement process.[2]  Together, these decisions suggest that if a board decides to sell the company while under a cloud of an ongoing restatement process, it would need to satisfy a heightened level of scrutiny of its disclosures in order to obtain the benefit of Corwin.  The court in Tangoe, however, sought to reassure practitioners that it is not impossible to satisfy Corwin in a case involving an ongoing restatement by the target, and provided a checklist of the kinds of facts that, if disclosed, would result in pleading stage dismissal of a shareholder lawsuit in such a case.
Continue Reading