ISS recently released updates to its Frequently Asked Questions (“FAQs”) on U.S. Compensation Policies and Equity Compensation Plans.[1]  The FAQs are intended to provide general guidance regarding the way in which ISS will analyze certain issues as it prepares proxy analyses and determines vote recommendations for U.S. public companies.

A summary of updates to the FAQs is provided below.  In addition to the ISS and Glass Lewis proxy voting guidelines that were released in the fall of 2018, U.S. public companies should consider the applicability of the ISS FAQs in light of their individual facts and circumstances.[2] Continue Reading ISS Finalizes Updates to its FAQs on Compensation Policies and Equity Compensation Plans

In late December 2018, the Securities and Exchange Commission adopted a final hedging disclosure rule, as required by Section 955 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Final Rule generally requires U.S. public companies to disclose any company practices or policies regarding the ability of employees, officers, directors or their respective designees to engage in hedging transactions. Although most companies will be required to comply with the Final Rule for proxy and information statements for fiscal years beginning on or after July 1, 2019, companies may wish to begin reviewing their existing hedging policies and practices in light of the new disclosure requirements.

Please click here to read the full alert memorandum, which provides a summary of the Final Rule and relevant changes from the SEC’s 2015 proposed rule.

Earlier this week, the SEC published a release requesting comment on the quarterly reporting system.  The release is thoughtful and concise, but it mostly asks questions, so it provides little indication of what action the agency might consider taking.

Two major flaws are regularly attributed to the reporting practices of public companies: complexity and short-termism.  The release engages with these criticisms, but we doubt this is the start of a process that will eventually result in significant regulatory change.

  • The complexity point has been voiced repeatedly by investors and by reporting companies, although they speak from very different perspectives. It has also been taken up by Congress in the JOBS Act (2012) and the FAST Act (2015).  The SEC has addressed it in a series of initiatives over the last decade, only partly at congressional direction, and these have resulted in salutary but minor tweaks to its reporting requirements.
  • The short-termism point is voiced regularly by business leaders and even, on a few memorable occasions, by the President. It is a recurring theme in battles between management and activist investors, in controversies over management compensation, and in laments over the decline in IPOs and in the number of public companies.

Please click here to read the full alert memorandum.

Major transactions dominate the German M&A market in 2018. While valuations remain at high levels, in the midmarket segment, the number of transactions declined. The big bangs in 2018 include the announced reorganization of RWE and E.ON, which involves a significant asset swap and breaking up of innogy. The construction material group Knauf is taking over its US competitor USG. HSH Nordbank is the first Landesbank to be privatized. SAP manages two US takeovers, acquiring Qualtrics and Callidus, while Merck found a buyer for its OTC business in Procter & Gamble. Signa and Hudson`s Bay agree to merge Karstadt and Kaufhof, and Thor Industries acquires the Hymer RV business. Continue Reading

In In re Xura, Inc. Stockholder Litigation,[1] decided earlier this week, the Delaware Court of Chancery denied the target CEO’s motion to dismiss claims that he breached his fiduciary duties by “steer[ing]” the company into an allegedly unfair acquisition by a private equity firm that promised to retain him post-acquisition, while knowing that his job was in jeopardy if the target remained independent.  This case is yet another example of why disclosures are so important in the post-Corwin[2] era:  Vice Chancellor Slights rejected the CEO’s argument that the claims against him were extinguished by the stockholder vote approving the transaction, finding that a number of material omissions precluded a finding that the stockholders’ vote was fully informed.  The vote was thus ineffective to invoke the business judgment rule at the pleading stage. Continue Reading Claim Against Target CEO Survives Dismissal, While Aiding and Abetting Claim Against Private Equity Buyer is Dismissed

The German Government published a draft legislation which would facilitate the dismissal of so-called “risk takers” in the German financial sector.  This is one of various measures by which the German Government intends to address upcoming Brexit challenges and to increase the attractiveness of Germany as business location for financial institutions currently based in the UK.

Current Legal Situation

German employees are benefitting from extensive protection against dismissal.  Under German labor law, the termination of an employment relationship requires a valid justification (e.g., redundancy or misconduct) for which the German labor courts have set high standards.  Therefore, the affected employee is often in a good position to challenge the validity of the termination and claim the continuation of the employment relationship before court.

Continue Reading German Government Plans to Reduce Dismissal Protection for “Risk Takers” in the Financial Sector

Voting rights held by shareholders who are “acting in concert” are mutually attributed for purposes of the German Securities Trading Act (“WpHG”) and the German Takeover Act (“WpÜG”).  Such attribution may thus not only trigger (additional) voting rights notifications, if the relevant voting rights thresholds are reached or crossed, but also the obligation to launch a mandatory offer, if based on the voting rights so attributed a shareholder acquires control of a company.  In light of these implications, the question of what type of behavior constitutes acting in concert is of high practical relevance.  Unfortunately, the definition in statutory law is open-ended, and several details are heavily disputed.  In its decision of September 25, 2018 (II ZR 190/17), the German Federal Court of Justice (“FCJ”) had the opportunity to clarify two important questions:

First, the coordination of shareholder behavior in an individual case does not qualify as acting in concert. According to the FCJ, the question of whether coordination among shareholders is limited to an “individual case” is to be determined applying a formal rather than substantive test. Second, mutual coordination of conduct among shareholders does not constitute acting in concert if it is aimed at maintaining an existing corporate strategy (or defining it for the first time), rather than at bringing about a permanent and material change to an existing corporate strategy. Continue Reading German Federal Court of Justice on Acting in Concert of Shareholders

The Delaware Court of Chancery recently denied Corwin cleansing[1] in a case involving the sale of a public company while it was engaged in a restatement of its prior audited financial statements.  See In re Tangoe, Inc. S’holders Litig., C.A. No. 2017-0650-JRS (Del. Ch. Nov. 20, 2018).  If this sounds familiar, that is because it is the second time in two years that the Court of Chancery has denied a motion to dismiss shareholder litigation on Corwin grounds where the target was in the middle of a restatement process.[2]  Together, these decisions suggest that if a board decides to sell the company while under a cloud of an ongoing restatement process, it would need to satisfy a heightened level of scrutiny of its disclosures in order to obtain the benefit of Corwin.  The court in Tangoe, however, sought to reassure practitioners that it is not impossible to satisfy Corwin in a case involving an ongoing restatement by the target, and provided a checklist of the kinds of facts that, if disclosed, would result in pleading stage dismissal of a shareholder lawsuit in such a case. Continue Reading Corwin Cleansing Denied For Company Sold During Restatement Process—Sound Familiar?

Following its 2019 benchmark voting policy consultation period, Institutional Shareholder Services (“ISS”) recently released its updated voting guidelines for the 2019 proxy season.[1]

A summary of notable governance and compensation policy updates is provided below.  Most significantly, the updated guidelines suggest that ISS continues to be focused on enhancing shareholder rights through increased board responsiveness and accountability.  In general, the updated proxy voting guidelines will be in effect for annual meetings occurring on or after February 1, 2019.  In connection with their preparations for the 2019 proxy season, U.S. public companies should consider the applicability of the new guidelines in light of their individual facts and circumstances. Continue Reading ISS Updates its 2019 Proxy Voting Guidelines

Foreign investors who, for many years, eagerly awaited the ability to establish majority or wholly owned businesses in the United Arab Emirates (“UAE”) outside the free zones can prepare their bait—but cannot go fishing yet.

Following an announcement made by the UAE Council of Ministers earlier this year, the long-awaited Foreign Direct Investment Law was issued in September 2018 through federal Legislative Decree No. 19 of 2018 (the “Foreign Direct Investment Law”). While not repealing the restrictions on foreign ownership under the federal Commercial Companies Law No. 2 of 2015 (the “Commercial Companies Law”), the Foreign Direct Investment Law sets forth a framework entitling foreign investors to apply for a special status for their UAE-based investment vehicles that would accord them certain derogations from the provisions of the Commercial Companies Law, including in relation to the limit on foreign ownership. The new law does not relax foreign ownership limitations across the board.

In the memorandum, we summarize the key provisions introduced by the new Foreign Direct Investment Law and analyze the potential impact on the investment landscape in the UAE.