One of the surprises of the 2018 proxy season was the use of Notices of Exempt Solicitation by shareholders that almost certainly did not meet the $5 million holding threshold that would require filing under Exchange Act Rule 14a-6(g).  Rule 14a-6(g) requires a person who owns more than $5 million of the company’s securities and engages in a solicitation without seeking to collect, or act as, a proxy to file solicitation materials with the SEC. Continue Reading SEC Staff Releases Two New C&DIs on the Use of Notices of Exempt Solicitation

Over the last few years, boards have come under mounting pressure to focus on board composition and refreshment, including length of tenure, individual and aggregate skills mix and diversity.  A few years ago, CalPERS’ revised its Global Governance Principles to call for companies to conduct rigorous evaluations of director independence after twelve years’ service, and ISS’ QualityScore metric rewards companies where the proportion of non-executive directors with fewer than six years tenure makes up more than one-third of the board, in addition to scrutinizing boards where average tenure exceeds 15 years.  Companies also face demands to justify the contributions of individual directors and to conduct rigorous evaluations to ensure that the board functions effectively and with the right mix of skills.  Correspondingly, refreshment is one of the top areas of continued governance focus from other investors and advocates.  This update is intended to provide boards with data that brings them up to date on developments in this area, since it is certain to be an area of continuing focus for various constituencies in the near future. Continue Reading Update on Board Diversity Developments

Beyond the cacophonous din of voices calling for companies to serve a “social purpose,” adopt a variety of governance proposals, achieve quarterly performance targets, and listen to (and indeed even “think like”) activists, there is now, most promisingly, a call from genuine long term shareholders for public companies to articulate and pursue a long term strategy.[1]  This latest shareholder demand directly supports the achievement of traditional corporate purposes, and seems, more than any other shareholder demand of the last decade, the most likely to increase shareholder value.  Yet in current circumstances, where all corporate defenses have been stripped in the name of “good governance,” boards and management have been given zero space in which to formulate and implement a long term strategy.  Indeed, the very fact that shareholders must demand corporations focus on long term strategy demonstrates just how effectively the governance movement has been co-opted by market forces to serve the interests of short term activists and traders to the detriment of long term investors.  It is time for long term investors to recognize that aspects of the good governance movement have in fact come at significant cost to their own investors, to be perhaps a bit more wary of partnerships with activists, and to actively create the conditions that will allow boards and management to focus on the long term.  Exhortations are not enough. The first step should be to bring back staggered boards. Continue Reading Long-Term Investors Have a Duty to Bring Back the Staggered Board (and Proxy Advisors Should Get on Board)

Many clients are now turning from their annual meeting to plans for off-cycle engagements with their institutional investors, including the passive strategy behemoths (Blackrock, State Street and Vanguard which tend to own, in the aggregate, around 20% of many of our mid- and large-cap clients), traditional actively managed funds, pension funds, and hedge funds.[1]  The rationale for these meetings is that postponement of outreach until a threat of a contested situation (such as a short-slate proxy contest or aggressive shareholder proposal) may be “too little, too late” and that these one-on-one meetings on “sunny days” (and even “partly cloudy days”) are critical, if not for locking up support, at least for establishing a foundation for obtaining support if and when the storm clouds arrive. Continue Reading How to Avoid Bungling Off-Cycle Engagements With Stockholders

Maintaining a workplace environment free of discrimination, sexual harassment and other misconduct is critical to both the short-term productivity and long-term health of a business.  Reports of sexual harassment allegations at public corporations can have material negative effects on stock price, with some corporations seeing double digit single day drops after accusations are made public.  As we have written elsewhere, the primary obligation to manage these risks on a day-to-day basis falls to executive leadership.[1]  But the #MeToo movement also has raised questions about the role of boards of directors to provide oversight of management and, to the extent that senior management may be a source of the problem, the board’s obligation to take more direct action.

This note discusses some key issues for General Counsel to consider as they advise corporate boards about how to navigate their responsibilities in this environment.  Continue Reading Bringing The #MeToo Movement Into The Board Room

Forbes has published an interesting article that opens as follows:

Every CEO and every board member of every publicly traded company (and every thinking-about-being-publicly traded company) should drop whatever they are doing and read two short things right now:

  • This week’s annual letter to CEOs from BlackRock chief executive Larry Fink; and
  • The January 8 client bulletin from Cleary Gottlieb, “The Schizophrenic Investor Landscape: The Significance for Boards and Management of the JANA/CalSTRS Letter to Apple.”

BlackRock is the largest investor in the world, managing $6 trillion in assets. Cleary is one of the largest and most prestigious international law firms in the world. These are two of the most influential institutions that drive the behavior of the corporations that shape our society and our lives. . . . Let’s hope . . . that investors are beginning to see—and will begin to act—more “Cleary”-eyed.

Click here for the Forbes article and here for the original Cleary blog post by our partner Ethan Klingsberg.

On December 5, 2017, the Financial Reporting Council launched a consultation on its proposal to significantly revise the UK Corporate Governance Code.

The amendments seek to encourage continued improvement in the quality of corporate governance in the UK and are centered around the themes of company culture and diversity, employee and other stakeholder representation, responding to significant shareholder opposition, independence of the chairman and other non-executive directors and executive remuneration. In this memorandum, we briefly explore the main proposed reforms.

Click here, to continue reading.

Over the past couple of years, we have seen traditional, actively managed funds, such as Neuberger Berman, borrow activist tactics and push for changes to accelerate increases in share prices.  In parallel with this arguable trend toward convergence between actively managed funds and activist funds, a chasm appeared to be developing elsewhere in the investor landscape as pension and passive strategy funds increasingly focused on “social good” issues, while brand name activist funds remained primarily focused on nearer term financial performance and returns.  But the activists desperately need the support of the pension and passive strategy funds, as evidenced by the proxy contests over the past year where support from these funds was neither predictable nor easily locked up.  The announcement on January 6, 2018 by JANA Partners, a high profile activist fund, and CalSTRs, an outspoken pension fund, that they have teamed up to accumulate a $2 billion equity position in Apple for the purpose of launching a specific “social good” campaign is the strongest indication to date that the magnitude of assets under management focused on social good matters cannot be ignored and that even a successful activist fund like JANA needs to burnish its reputation in this area.  Continue Reading The Schizophrenic Investor Landscape: The Significance for Boards and Managements of the JANA/CalSTRs Letter to Apple

In a recently published decision of November 7, 2017, the German Federal Court of Justice (Bundesgerichtshof) has added another twist to the much debated acquisition of German Celesio AG by US pharma wholesaler McKesson.  McKesson had launched a takeover offer to the free float of Celesio in late 2013, and had entered into a purchase agreement with its then main shareholder Franz Haniel & Cie. to acquire its shareholding of slightly above 50% alongside the takeover bid.  The transaction attracted the interest of Paul Singer.  Elliott acquired a position of approximately 24% in shares and, in addition, convertible bonds of Celesio, and opposed the initial offer due to an alleged undervaluation.  As a result, the initial offer, which was subject to a minimum acceptance threshold of 75%, failed in early January 2014. The 75% acceptance threshold is key under German law, for a bidder to be in a position to exercise control over a German listed corporation and access the cash flows, prior to having effected a squeeze-out of all remaining minorities. Continue Reading Treating Shareholders Equally – Another Chapter in the McKesson/Celesio Saga

  • The Impact of New Trends in Asset Management and Investor Expectations
  • The Relationship between the CEO and an Activist Director

The keynote presentation at the 2017 Tulane Corporate Law Institute featured a discussion among

  • Gerald Hassell, Chair and CEO of Bank of New York Mellon;
  • Ed Garden, CIO and Founding Partner of Trian Partners; and
  • Ethan Klingsberg, partner in Cleary Gottlieb’s New York office.

The discussion focused on:

  • How new trends in asset management and investor expectations are impacting boards of publicly traded companies – a topic on which the participants had insights in view of Mr. Hassell’s  experience leading not only a publicly traded issuer with engaged investors but also a business that hosts a growing stable of passive-strategy funds as well as actively managed funds, and Mr. Garden’s experience with asset managers and boards through his roles as a high profile shareholder and board member of publicly traded companies on behalf of Trian.  A transcript of this portion of the discussion was published in the new issue of The M&A Journal that is available here; and
  • Bank of New York Mellon’s experience engaging with and managing its relationship with Trian and Mr. Garden – featuring perspectives from both sides of the relationship and offering guidance useful for directors and executives preparing for or in the midst of handling activism.  A transcript of this portion of the discussion was published in the new issue of The M&A Journal that is available here.