Following completion of a review by the Committee on Foreign Investment in the United States (“CFIUS”), President Trump recently issued an Executive Order requiring ByteDance to, among other things, divest itself of assets and property that enable or support operation of the TikTok application in the United States within 90 days (the “CFIUS Order”).  This was not an unexpected outcome.  We previously reported on the unusual nature of CFIUS’s review here.  The week before, President Trump issued a different Executive Order authorizing the Commerce Department to prohibit transactions involving a U.S. person or within the jurisdiction of the United States with ByteDance (the “Commerce Order”), with details of the restrictions to come in 45 days.  We previously reported on the Commerce Order here.  According to press reports, negotiations for a possible acquisition of TikTok continue, and it remains to be seen whether those restrictions will come to fruition and on what timetable. Continue Reading President Trump Orders TikTok Divestment; Sweeping Order Appears to Indicate a Broadening of CFIUS’s Jurisdiction

On July 23, 2020, The Conference Board and Cleary Gottlieb Steen & Hamilton LLP hosted a panel discussion on the 2020 proxy season highlights and trends, including the impact of COVID-19 on the 2020 proxy season and offseason engagement. The panelists were Francesca L. Odell, Partner, Cleary Gottlieb, Helena K. Grannis, Counsel, Cleary Gottlieb and Rick E. Hansen, Assistant General Counsel and Corporate Secretary, General Motors Company. The panel was moderated by Paul Washington, Executive Director, ESG Center, The Conference Board. Continue Reading Cleary Gottlieb Participates in Panel Discussion on Highlights of the 2020 Proxy Season

For more than a decade, the SEC has been wrestling with whether and how to regulate the activities of the proxy advisory firms – principally ISS and Glass Lewis – that have come to play such an important role in shareholder voting at U.S. public companies.  On July 22, 2020, the SEC adopted rules and interpretive guidance that, together, are probably as far as it will go.

Very generally, the main impact of last week’s actions is that, beginning in the 2022 proxy season:

  • When a proxy advisory firm gives its clients voting advice about a typical shareholders’ meeting, it will have to provide the advice simultaneously to the company.
  • In case the company decides to respond to the proxy voting advice, the proxy advisory firm will need to develop procedures to alert its clients to the company’s response before the vote is cast.
  • If the client is a registered investment adviser, it will need to have procedures to consider any company response.

Please click here to read the full alert memorandum.

Three recently filed shareholder derivative lawsuits contain intentionally provocative allegations that, despite public statements emphasizing the importance of diversity within their respective organizations, the boards and executive management teams of Oracle, Facebook, and Qualcomm remain largely white and male, and have failed to deliver on their commitments to diversity.  While calls to strengthen commitments to diversity at public companies have steadily increased, these complaints go a step further and seek to reshape the boards and executive teams through litigation and hold directors and executive officers personally liable for perceived diversity shortcomings. The plaintiffs will need to overcome a number of hurdles in order to sustain their novel claims.  But the complaints touch upon serious issues at the center of a broader conversation, and the complaints against the Oracle, Facebook, and Qualcomm boards serve as a reminder that stakeholders of companies making public commitments to diversity are increasingly expecting those companies to follow through, and for their boards to focus on diversity and inclusion at all levels within their organizations.  The recent complaints also serve as a reminder that those stakeholders – including stockholders – may pursue litigation in their attempts to hold directors and officers accountable.

Please click here to read the full alert memorandum.

The Securities and Exchange Commission held a roundtable on July 9, 2020 on investing in emerging markets.

Participants with a very wide range of perspectives addressed three concentric circles of topics:

  • At the core is the regulatory impasse between the United States and China over the ability of the Public Company Accounting Oversight Board (PCAOB) to conduct inspections and investigations of Chinese auditing firms.
  • More broadly, many participants discussed whether there are specific risks involved in investing in Chinese businesses with equity securities trading on U.S. exchanges.
  • At the most general level, the discussion addressed risks of “investing in emerging markets,” a term that participants used in different ways.

This memorandum summarizes some themes from the discussion and identifies questions about possible future regulatory developments.

“[T]he formulation of generally applicable rules of private conduct . . . requires the exercise of legislative power.”  Department of Transp. v. Ass’n of American R.R. 135 S. Ct. 1225, 1242 (2015) (Justice Thomas concurring opinion)

ISS and Glass Lewis have arrogated to themselves the power to make law, promulgating a civil code of astounding breadth and detail, ruling over decisions on board composition, director qualifications, term limits, majority voting standards, executive compensation, capital structure, poison pills, staggered boards, the advisability of  mergers, spin-offs and recapitalizations, and, increasingly, ESG policies ranging from animal welfare to climate change, diversity, data security and political activities.  They enforce this civil code by advising their clients, institutional investors with huge, varied and increasingly concentrated holdings across the economy, to vote against proposals or against directors if any aspect of the new civil code is disobeyed.  The vote of these clients is often decisive, and the implications of the votes – especially when considered in the aggregate – have far-reaching consequences for the operation and performance of US public corporations. Continue Reading The New Civil Code: Obey

On July 10, 2020, the Securities and Exchange Commission (the “SEC”) proposed changes that would substantially reduce the number of investors required to file quarterly reports showing their holdings of U.S.-listed equities on Form 13F. The SEC’s proposal would increase the 13F reporting threshold 35 fold — from $100 million to $3.5 billion — and eliminate the ability to exclude de minimis positions from reporting on Form 13F. According to the SEC, almost 90% of the investment managers who file a Form 13F today would no longer be required to do so. However, the SEC’s data shows that the institutional investment managers that would need to continue reporting are responsible for disclosing over 90% of the aggregate dollar value of securities reported on Form 13F — likely reflecting the increase in the proportion of the market held by the largest mutual fund managers. While the proposed increase in the reporting threshold is significant, the SEC’s proposal is also notable for its decision not to consider significant changes to the 13F reporting regime suggested by the various commentators over the past several years.

Please click here to read the full alert memorandum.

These days, most public company mergers continue to attract one or more boilerplate complaints, usually filed by the same roster of plaintiffs’ law firms, asserting that the target company’s proxy statement contains materially false or misleading statements.  These complaints usually also assert that the stockholder meeting to approve the merger should be enjoined unless and until the company “corrects” the false or misleading statements by making supplemental disclosures.  While not too long ago cases like this tended to be filed in the Delaware Court of Chancery and other state courts asserting breaches of state-law fiduciary duties, including the duty of disclosure, after Trulia the vast majority of these cases today are filed in federal court under Section 14 of the Securities Exchange Act of 1934.[1] Continue Reading Rare Federal Court Decision Casts Doubt On Merger Disclosure Claims, But Will It Change Anything?

On June 1, 2020, the Criminal Division of the U.S. Department of Justice (the “Department”) released revisions to its guidance regarding the Evaluation of Corporate Compliance Programs, which the Department uses in assessing the “adequacy and effectiveness” of a company’s compliance program in connection with any decision to charge or resolve a criminal investigation, including whether to impose a monitor or other compliance program obligations. The revised Guidance, while largely consistent with the April 2019 update, highlights the Department’s focus on how companies are assessing and updating their compliance programs. The recent updates are more thematic rather than structural and continue the prior version’s emphasis on incorporating “lessons learned” into a compliance program, continuously assessing and improving it, and using data to track and enhance the program’s operations. The revised Guidance also highlights the continued importance of training employees and, in the M&A context, of integrating a target into the acquiring company’s compliance framework.

Please click here to read the full alert memorandum.