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

The Pension Benefit Guaranty Corporation’s (the “PBGC”) widely reported[1] recent settlement agreement with The Renco Group, Inc. (“Renco”) illustrates the risks inherent in pursuing certain transactions where underfunded pensions are present.  Among the highlighted risks is the potential for the joint and several liability provisions of federal pension law[2] to enable the PBGC to reach for assets unrelated to a pension plan sponsor’s business, including personal assets of controlling persons, to satisfy underfunded pension claims.

Based on published reports, the Renco settlement, after a trial but before a decision was handed down by the Federal court in New York, is unusual in three respects.  First, the PBGC returned the plans at issue to Renco – that is, “restored”[3] the plans – rather than negotiating for Renco or an affiliate to make payments to improve the plans’ funded status.[4]  Second, the situation involves a rare instance in which the PBGC has pursued a litigation on the basis of a claim under Section 4069 of ERISA, the anti-evasion section of the pension termination provisions of ERISA.  Third, the PBGC used the controlled group joint and several liability provisions of ERISA to assert claims against entities that are not involved in the steel business but that are controlled by Renco and its controlling shareholder Ira Rennert.  While the PBGC has on many occasions used the controlled group liability provisions of ERISA to reach controlled group affiliates that are in separate lines of business from the plan sponsor, the facts in Renco are reminiscent of the PBGC’s lengthy fight with Carl Icahn beginning in the early 1990’s over responsibility for TWA’s underfunded pension obligations.[5] Continue Reading PBGC-Renco Settlement Highlights Risk and Reach of ERISA’s Pension Underfunding Joint and Several Liability Provisions

Companies based in the People’s Republic of China have committed to over $100 billion of overseas acquisitions since January 1, 2016, including a number of high profile targets in the United States and Europe.[1] The ties of these buyers to governmental entities in the PRC, coupled with the unpredictability of the PRC government, and the challenges that a non-PRC counterparty faces when seeking to enforce contractual obligations and non-PRC judgments in PRC courts has led practitioners to implement an array of innovative provisions in M&A Agreements. Continue Reading How M&A Agreements Handle the Risks and Challenges of PRC Acquirors

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

The Delaware Court of Chancery’s recently published opinion in Amalgamated Bank v. Yahoo!, Inc.[1] (the “Opinion”) provides a reminder for  directors about the importance of process in satisfying fiduciary duties when evaluating and approving executive compensation packages.  In the Opinion, which deals with Amalgamated’s demand under Section 220 of the Delaware General Corporation Law to inspect certain books and records of Yahoo! in connection with the hiring and firing of its Chief Operating Officer, Vice Chancellor Laster discusses practices that should be routine in a board’s review of executive compensation proposals and highlights procedural pitfalls that have been noted in numerous Delaware law decisions dating back at least to the series of cases involving compensation practices at Disney beginning more than a decade ago. Continue Reading Delaware Court of Chancery Offers Practical Lessons for Compensation Committees

On February 19, 2016, the SEC approved a new NYSE proposed rule, requiring NYSE-listed foreign private issuers to submit semi-annual financial information to the SEC on Form 6-K, aligning with the existing NASDAQ-listed requirement for FPIs. Continue Reading New NYSE Rule Requiring FPIs to Submit Semi-Annual Financial Information

Updating our recent posting concerning the enforcement of disclaimers of extra-contractual liabilities under Delaware law, in FdG Logistics LLC v. A&R Logistics Holdings, Inc. (Del. Ch. Feb. 23, 2016) the Delaware Court of Chancery held, in the context of a motion to dismiss, that any such disclaimer must be unambiguously expressed as a statement by the aggrieved party in order to be effective.

FdG Logistics arose out of the purchase of a trucking company by a private equity firm through a merger transaction.  The purchaser alleged that the target company “engaged in an extensive series of illegal and improper activities that were concealed from it during pre-merger due diligence” and asserted, among other things, that the selling securityholders had committed common law fraud based on alleged misrepresentations in extra-contractual materials, including a confidential information memorandum and a management presentation. Continue Reading Another Update on Disclaimers of Extra-Contractual Liability in Delaware

The SEC stepped back into the proxy access arena on February 12, 2016, with a volley of 18 no-action letters on a single day that sharply reduced uncertainty about an important tactical point.

At issue was the circumstances under which a company with an existing proxy access bylaw can exclude a shareholder proxy access proposal based on “substantial implementation” under Rule 14a-8(i)(10).  Of the 18 companies, 14 adopted a bylaw after receiving a shareholder proxy access proposal for the 2016 proxy statement, and then sought to exclude the shareholder proposal.  That tactic was tried only once in 2015, by General Electric; there, the sole distinction between the adopted bylaw and the proposal was that the adopted bylaw imposed a limit (20) on the number of shareholders who may form a group, while the shareholder proposal simply referred to “a group of shareholders,” and the SEC granted no-action relief. Continue Reading Proxy Access: The SEC Re-enters the Arena

In December 2015, President Obama signed into law the Fixing America’s Surface Transportation Act (the “FAST Act”), which, among other legislation in its 1300+ pages, includes several bills designed to facilitate the offer and sale of securities. We believe that not only will these new provisions facilitate offerings by so-called emerging growth companies (“EGCs,” a category of issuer established by the JOBS Act in 2012), but that the SEC, using its rulemaking authority, may and should expand some of these accommodations to a much broader set of issuers, offerings and forms. The impact of this proposed expansion would, inter alia, make these changes significant for WKSI issuers and the use of the SEC’s M&A forms.  We set forth the arguments for extension of the scope of these accommodations in the linked comment letter, which we authored last week on behalf of the Securities Industry and Financial Markets Association (“SIFMA”) in response to the SEC’s FAST Act-related interim final rules and request for comment dated January 19, 2016. Continue Reading Cleary Gottlieb and SIFMA Push for Broader Based Reform by SEC of Offering Process and Disclosure

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