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.
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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]
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On March 25, 2019, partners Lev Dassin and Arthur Kohn participated in a webcast hosted by The Conference Board, entitled “Corporate Prosecutions: What Companies, Boards and Executives Need to Know.”  Daniel Gitner, a partner at Lankler Siffert & Wohl, also participated on the panel.

The panelists and moderator Doug Chia, executive director of The Conference Board, began by discussing corporate prosecutions generally, including the history of corporate prosecutions and how DOJ attitudes regarding corporate prosecutions have changed over time.  Dassin explained that the DOJ has more recently refocused its attention on prosecuting individuals engaged in corporate misconduct.
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In recent years, in part in response to decisions like Corwin that have raised the pleading standard for stockholder plaintiffs, the Delaware courts have encouraged stockholders to seek books and records under Section 220 of the Delaware General Corporation Law (DGCL) before filing stockholder derivative or post-merger damages suits, and – in response – each year more stockholders have done so.  As a result of this trend, we have already seen several important decisions addressing books and records demands in 2019.  These decisions have (i) clarified the types of documents that may be obtained, including (in some limited circumstances) personal emails or text messages; (ii) explained when a stockholder’s demand will be denied as impermissibly lawyer-driven (and when it will not be); and (iii) described the threshold showing of suspected wrongdoing that stockholders must make.  As the plaintiffs’ bar makes more use of Section 220, these are important issues for boards of directors to consider.
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If your experiment needs statistics, you ought to have done a better experiment.”  Ernest Rutherford

Sometimes you need to get into the fundamentals to understand if your belief system is sound.  In corporate governance literature of the last two decades, there is no more fundamental concept than Tobin’s Q, which legions of law professors have used as a proxy for firm value.  Based on regression analyses examining variations in Tobin’s Q, they have made definitive pronouncements about any number of corporate governance topics, from staggered boards to the value of activism.  Yet tracing the evolution of Tobin’s Q to its current state—a state completely alien to the original conception—reveals a twisted tale, proceeding like an epidemiological disaster in which Tobin’s Q transforms from an innocent and useful organism in macroeconomics to an unrecognizably mutated and widespread disease in corporate governance literature, infecting policies and practices throughout the corporate governance world.
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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.
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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.
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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.
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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. 
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