In the CBS-NAI litigation, the Court of Chancery denied CBS’s request for a TRO, which would have prevented NAI from exercising its rights as a controlling stockholder to protect its voting control before the CBS board could attempt to dilute such control. This important decision resolved an “apparent tension” in the law between the rights of boards and controlling stockholders in disputes over corporate control.
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This is the third in a series of posts discussing certain issues and lessons for practitioners arising out of the recently settled dispute between CBS and its controlling stockholder.[1]Relevant background can be found here and additional posts in this series can be found here.

As described in a prior post, on May 17, 2018, the majority of the CBS board (other than the three directors with ties to NAI) considered and purported to approve a dividend of a fraction of a Class A (voting) share to be paid to holders of both CBS’s Class A (voting) common stock and Class B (nonvoting) common stock for the express purpose of diluting NAI’s voting interest in CBS, with the payment of such dividend conditioned on Delaware court approval.  In addition to diluting NAI’s voting power from about 80% to about 20%, such dividend would have also diluted the voting rights of other Class A stockholders.
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This is the second in a series of posts discussing certain issues and lessons for practitioners arising out of the recently settled dispute between CBS and its controlling stockholder.[1] Relevant background can be found here and additional posts in this series can be found here.

The vast majority of public company shares are owned in “street name” – e.g., through a broker.  When holding shares in “street name,” a stockholder’s brokerage account reflects his or her ultimate beneficial ownership of such shares, but the records of the issuer (maintained by the issuer’s transfer agent) indicate that the broker (or more often, another intermediary through which the broker holds the shares) is the record holder of such shares.  In the typical case of “street name” registration, Cede & Co., as nominee for the Depository Trust Company (“DTC”), is listed on the issuer’s records as the holder of record of most of the issuer’s shares.  DTC, in turn, keeps its own account records, which list the DTC participants that hold those shares through DTC, including a number of brokers.  Finally, those brokers keep their own account records, listing the ultimate beneficial owners of such shares.  Contrast this with direct registration, sometimes referred to as “record ownership,” where the ultimate beneficial holder holds the shares directly and therefore the records of the issuer indicate that such person is also the holder of record of such shares.
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This is the first in a series of posts discussing certain issues and lessons for practitioners arising out of the recently settled dispute between CBS and its controlling stockholder.

Introduction

  • National Amusements, Inc. (“NAI”) owns approximately 80% of the voting shares of CBS Corporation and Viacom Inc., and in early 2018, NAI proposed that CBS and Viacom consider a merger. Each of the boards of CBS and Viacom formed a special committee of independent directors unaffiliated with NAI to consider and potentially negotiate such a merger.[1]
  • On Sunday, May 13, 2018, the CBS special committee met and took steps:
    • to call a special meeting of the full CBS board on May 17 to consider and vote on a dividend of a fraction of a Class A (voting) share to be paid to holders of both CBS’s Class A (voting) common stock and Class B (nonvoting) common stock for the express purpose of diluting – very substantially – NAI’s voting interest in CBS; and
    • to commence litigation against NAI in the Chancery Court of Delaware seeking approval of the proposed dilutive dividend and moving for a temporary restraining order to block NAI from taking certain steps as the controlling stockholder of CBS, including any actions prior to the special board meeting that would interfere with the proposed dilutive dividend.
  • On May 16, prior to the special board meeting (and prior to a scheduled court hearing on the directors’ motion for a TRO), NAI exercised its right as the holder of a majority of CBS’s voting shares to act by written consent to adopt amendments to the CBS bylaws (the “Bylaw Amendments”).[2] These Bylaw Amendments imposed a 90% supermajority voting requirement on any Board declaration of dividends or any board adoption of bylaw amendments, and also imposed certain procedural requirements for any such actions.  Since three of the fourteen CBS directors were individuals with ties to NAI, the Bylaw Amendments, if valid and in effect, would effectively preclude the declaration and payment of the proposed dilutive dividend.
  • The CBS board met the next day as scheduled (and following the court’s decision not to grant the TRO) and purported to approve the dilutive stock dividend by a majority vote of less than 90% of the directors, which would dilute the voting power of NAI to about 20% (and also dilute the voting rights of other Class A stockholders), the payment of such dividend conditioned on Delaware court approval.
  • On September 9 (after several months of motion practice and discovery), CBS and NAI entered into a settlement agreement providing for the rescission of the dividend, a reconstitution of the CBS board and dismissal of the litigation.


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DOJ has expanded its efforts to give more concrete guidance to companies facing FCPA risk to M&A transactions and the question of successor liability.  In a speech on July 25, 2018, at the American Conference Institute’s 9th Global Forum on Anti-Corruption Compliance in High Risk Markets, Deputy Assistant Attorney General Matthew S. Miner highlighted DOJ’s views on successor liability for FCPA violations by acquired companies.[1]  Miner sought to clarify DOJ’s policy regarding the voluntary disclosure of misconduct by successor companies and to highlight the benefits of such disclosure as spelled out in the joint DOJ and SEC FCPA Resource Guide (the “Resource Guide”).[2]  In general, as with other recent pronouncements and actions by DOJ, such as the FCPA Corporate Enforcement Policy,[3] Miner’s speech seemed intended to highlight ways in which firms can gain cooperation credit (up to and including a declination) in FCPA investigations.
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On 16 July 2018, the Financial Reporting Council (FRC) published the final, revised version of the UK Corporate Governance Code (UK CGC).[1] This will apply (on a “comply or explain” basis) to all companies with a premium listing in the UK for accounting periods beginning on or after 1 January 2019.

The new UK CGC is one of a range of corporate governance reforms currently being implemented in the UK in response to the UK Government’s wide-ranging Green Paper Consultation on UK corporate governance reform.[2] Its publication concludes a seven-month consultation by the FRC, following the publication of a draft revised UK CGC in December 2017.[3] The FRC received 275 responses to its consultation from a wide range of stakeholders and has made a number of changes to its original proposals to address the feedback received. We briefly explore the most significant of these changes below.
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On July 10, 2018, The Conference Board and Cleary Gottlieb Steen & Hamilton LLP hosted a panel discussion on the highlights of the 2018 proxy season and the key topics, including shareholder proposals trends, including with respect to environmental and social issues; the most surprising moments in the 2018 proxy season; the effect of the Staff’s release of Staff Legal Bulletin 14I; board composition, refreshment and diversity; shareholder engagement; and significant institutional investor developments. Participants in the panel discussion included Pamela Marcogliese, Partner, Cleary Gottlieb, Elizabeth Bieber, Associate, Cleary Gottlieb, Jason Alexander, Managing Director, Okapi Partners and Bill Ultan, Managing Director, Corporate Governance, Morrow Sodali.
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As “social good” objectives (like the protection of the environment, the improvement of public health and the alleviation of poverty) rise up the corporate agenda in the UK, we examine how UK companies are reconciling the pursuit of these objectives with their directors’ duties, which normally require the prioritisation of the creation of shareholder value above other objectives. We also briefly explore the current trend of UK companies seeking to embed social and environmental purposes in their constitutions.
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In a previous post, we wrote that the UK Government announced a series of reforms to the UK Corporate Governance regime in August 2017. Some of these reforms are being addressed through the on-going consultation on revisions to the UK Corporate Governance Code (UK CGC) (see our previous post for further details). The UK CGC is the main corporate governance code in the UK and applies (on a “comply or explain” basis) to all UK companies with a premium listing in the UK.

Another of the announced reforms was the development of a corporate governance code for large private companies, backed by new reporting requirements. This was a significant proposal because corporate governance efforts in the UK have historically focussed on publicly listed companies where shareholders are often distant from executives running the company. The Government’s proposal was driven by evidence that private companies constitute a vast (and increasing) portion of the UK economy and its recent experience that their actions (including several recent large-scale failures) can have a significant impact on their employees, suppliers and other stakeholders. This reform is expected to have important implications for a wide variety of large private companies in the UK, including UK subsidiaries of multinational groups and UK portfolio companies of private equity funds.


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On May 31, 2018, Cleary Gottlieb submitted a comment letter to MSCI regarding its public consultation on the treatment of unequal voting structures in the MSCI Equity Indexes.  Cleary’s letter asserts that the approach in the proposal is highly problematic, arguing that the composition of broad equity market indexes is the wrong mechanism to address