Boards of Directors

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Cleary Gottlieb and PwC’s Governance Insights Center have teamed up to create the Executive Compensation Series, which looks at the factors motivating boards to increasingly engage with shareholders about executive compensation. The first edition of the series is now available and discusses issues such as the impact of Dodd-Frank on executive compensation, elements of effective CD&A design and the influence of proxy advisors on compensation.
Continue Reading Boards, Shareholders and Executive Pay

On May 6, the Delaware Supreme Court issued an Order that sets forth concisely the contours of the defendant-favorable standards for determining liability of directors and their advisors following the closing of sales of control of companies.  These standards are available, however, only following an uncoerced and informed approval of the sale by the target stockholders, including a majority of the disinterested holders.  Thus, while the Order clarifies a roadmap (set forth recently in Corwin v. KKR and discussed here) for obtaining easy dismissal of post-merger damages claims against directors and advisors, the need for directors and their advisors to avoid, or at least ferret out and disclose, any deficiencies in sales processes remains as strong as ever.  Only if these deficiencies are avoided or uncovered and disclosed in advance of the shareholder approval will the lower courts be able to rely on these defendant-favorable standards to dismiss claims.
Continue Reading Delaware Supreme Court Enhances Defenses Available to Directors and Financial Advisors Where Well-Run Sale Processes and Adequate Disclosure

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

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

In February 2016, Blackrock CEO Laurence Fink issued his annual letter to the CEOs of S&P 500 companies.  In addition to repeating themes from prior years (the value of long-termism and the need for more thoughtfulness before allocating capital to buybacks and special dividends), this year’s letter had one notable omission and four of areas of specific emphasis that merit the attention of boards and managements.
Continue Reading What the 2016 Blackrock Letter Means for Shareholder Engagement and Disclosure Practices

It is well known that specified employees of publicly-traded companies must wait at least six months following a separation from service to receive payments of deferred compensation triggered by such separation.  The six-month delay requirement must be set forth in the plan establishing the right to the payment of deferred compensation on or before the date the applicable individual first becomes a specified employee.  Failure to do so, either as a matter of documentary or operational compliance, could result in the imposition of draconian penalty taxes and interest charges on the service provider under Section 409A of the Internal Revenue Code of 1986 (the “Code”).
Continue Reading Section 409A and the Six Month Delay – Don’t Forget Your Directors

The Oregon Supreme Court, overturning a lower court ruling, has enforced a Delaware exclusive forum bylaw.  The case, Roberts v TriQuint Semiconductor, Inc., is notable for its clear approach to the choice of law issues raised in this type of challenge and supports the increasingly common practice of public company targets adopting exclusive forum bylaws when entering into mergers agreements.
Continue Reading Oregon Supreme Court Enforces Delaware Exclusive Forum Bylaw Adopted on a Cloudy Day

After several years that seemed defined by turmoil and uncertainty, 2015 delivered some unexpected and much-needed clarity for corporate directors on issues such as proxy access, compensation disclosure, investor expectations regarding board composition, certain director and financial advisor conflicts of interest, and audit committee processes and related disclosure. The past year also saw corporations adopting…

Joining a rising chorus of criticism of “disclosure settlements” in merger class actions, Chancellor Bouchard (in In re Trulia, Inc. Stockholder Litigation) rejected a proposed settlement of a stockholder class action challenging Zillow, Inc.’s acquisition of Trulia, Inc. in a stock-for-stock merger that closed in February 2015.  After defendants agreed to moot plaintiffs’ disclosure claims by supplementing their disclosures before the stockholder vote, the proposed settlement would have resulted in a fee to plaintiffs’ counsel and broad releases for defendants, but no economic benefit to the stockholder class.  Although not the first to express distaste for such settlements and the incentives they create, the Chancellor’s Opinion is notable for its comprehensive discussion of their problems and firm proposals to avoid such problems going forward, including a clear message that the Court will no longer hesitate to reject disclosure settlements involving supplemental disclosures of dubious value and overbroad releases, even if unopposed.
Continue Reading Chancery Court Rejects Disclosure-Only Settlement, Suggests in Future Such Settlements Will Be Approved Only in Narrow Circumstances

On Friday, December 18, ISS issued new guidance on how a board implements a majority-supported shareholder proposal for a proxy access bylaw.  The guidance is contained in its Frequently Asked Questions on U.S. Proxy Voting Policies and Procedures.

This guidance identifies situations in which ISS may recommend votes against a company’s individual directors, nominating/governance committee members, or the entire board, based on the specific provisions of a company’s enacted proxy access bylaw.
Continue Reading ISS Releases Guidance on Proxy Access