Select Page

Commentary

Commentary

04/08/20 [UPDATED] Poison Pills

NEW:  Latham & Watkins suggests that market conditions may favor adoption of a stockholder rights plan, and discusses terms of a plan that should be tailored to circumstances that justified its adoption in Proactively Adopting a Poison Pill in Response to the COVID-19 Crisis.

Cleary Gottlieb notes the uniquely threatening nature of current depressed market conditions for unsolicited acquisition or activist agitation, suggesting defensive measured including implementation of “on the shelf” poison pills in Rewriting the Poison Pill Prescription: Consider Active Defenses During COVID-19.

Wachtell, well-known as the creator of the stockholder rights plan popularly known as the “poison pill,” discusses the possible desirability of adopting an “on the shelf” plan in view of recent declines in equity value Rights Plans (“Poison Pills”) in the COVID-19 Environment — On the Shelf and Ready to Go.

Gibson Dunn notes activist accumulation of stakes in publicly traded companies during recent declines in stock prices, and suggests that boards and advisors consider implementation of a stockholder rights plan in Reconsidering Poison Pills.

Davis Polk suggests that, in light of severely depressed stock prices, companies prepare for the possibility of a hostile campaign with an “on the shelf” poison pill ready for adoption in Should companies play strong defense in these hostile times?

Akin Gump discusses adoption of poison pills to deter exploitation of recent declines in stock prices by hostile bidders and activists in Preserving Stockholder Value in a Volatile Market.

Morgan Lewis discusses the potential utility of takeover defense or Net Operating Loss poison pills given extreme drops in market capitalization, noting the prevalent use of such measures during the 2008-2009 financial crisis in As COVID-19 Disrupts Financial Markets, is it Time to Consider a Poison Pill?

Boston College’s Professor Brian JM Quinn discusses the “shadow pill” — a company’s ability to adopt a stockholder rights plan at any time — in the context of bargaining between Hewlett Packard and Xerox in The Shadow Pill is a Powerful Thing.

The Consequences to Directors of Deploying Poison Pills examines career outcomes for directors on boards that adopt poison pills, and whether pills have negative, positive, or inconsequential effects on firms that adopt them.

04/07/20 [UPDATED] ESG

NEW:  Wachtell discusses Environmental, Social, and Governance-related scenario analysis disclosures and the need to take precautions to ensure that such disclosures are not misleading, providing examples of such disclosures in ESG Disclosures and Litigation Concerns.

Schulte Roth & Zabel discusses the EU regulation on Sustainability-Related Disclosures, scheduled to take effect in March 2021, and related legislation that establishes a framework for classifying financial products as “sustainable investments,” in New ESG Disclosure Obligations.

Is Managerial Entrenchment Always Bad and Corporate Social Responsibility Always Good? examines simultaneous adoption of managerial entrenchment and corporate social responsibility governance provisions, finding evidence that in the absence of entrenchment provisions, market discipline reduces managers’ incentives to invest in long-term relationships with stakeholders and increases incentives to spend company resources generously on symbolic CSR activities.

ShareAction explores the role and influence of proxy advisors, analyzing their recommendations on Environmental, Social, & Governance shareholder resolutions compared to asset managers’ voting decisions in Another Link in the Chain: Uncovering the Role of Proxy Advisors in Investor ESG Voting.

Wachtell responds to The Illusory Promise of Stakeholder Governance — a critical analysis of stakeholder primacy proposed in the Business Roundtable’s 2019 Statement that questions its efficacy and warns against its adoption — in Professor Bebchuk’s Errant Attack on Stakeholder Governance.

Cooley discusses a recent report by Morningstar — Proxy Voting by 50 U.S. Fund Families — on institutional investor voting on Environmental, Social, and Governance-related proposals, noting that support has increased over a five-year period but the largest funds have consistently voted against such proposals in How do the largest fund families vote on shareholder proposals related to ESG?

The Illusory Promise of Stakeholder Governance critically examines stakeholder primacy proposed in the Business Roundtable’s 2019 Statement, distinguishing between two versions of “stakeholderism” — “enlightened shareholder value” and “pluralistic” — and conducts economic and empirical analyses of their expected consequences, concluding that stakeholderism will not benefit stakeholders, but would impose substantial costs on shareholders, stakeholders, and society (disagreeing with academics signatories of the Corporate Governance for Sustainability Statement).

NEW: Wachtell discusses board legal obligations, and adjustment to board functions, communications, and engagement in response to increasing investor concern over Environmental, Social, & Governance, stakeholder interests, and sustainable long-term investment strategies in Spotlight on Boards.

NEW: FTI Consulting discusses issues of likely importance to companies in connection with anticipated adoption of Environmental, Social, & Governance-related practices in Top 10 ESG Trends for the New Decade.

Wachtell discusses the relevance of corporate income tax to Environmental, Social, and Governance disclosure, noting the likelihood of tax arbitrage — shifting profit among jurisdictions — as a focus, and possible governance risks that may arise in response to aggressive tax planning in Tax and ESG.

Morrow Sodali’s John Wilcox discusses approaches to defining corporate purpose and corporate culture in the evolving governance environment that increasingly emphasizes Environmental, Social, and Governance, sustainability, and stakeholder interests in Corporate Purpose and Culture.

Wachtell suggests that Environmental, Social, and Governance considerations will increasingly impact M&A activity, discussing their relevance to due diligence and communications regarding transactions, as well as differential concerns between acquirer and target concerns, and the relationship between ESG performance and cost of capital in The Coming Impact of ESG on M&A.

Stewardship and Collective Action: The Australian Experience discusses collective action of investors in promoting corporate stewardship utilizing Australian stewardship codes, and suggests considerations for development of policy guiding investor participation in corporate governance in other jurisdictions.

Eric Scheiner and Jennifer Quinn Broda of Kennedys discuss risks that companies may assume in efforts to satisfy or failure to meet corporate social responsibility objectives having potential implications for D&O insurers and policyholders in Potential D&O Risks Arising from Corporate Social Responsibility.

Wachtell discusses BlackRock’s recent announcements regarding its commitment to sustainability as a key focus of its investment strategy in Sustainability in the Spotlight.

The CFA Institute discusses the results of surveys addressing how finance professionals and investors believe investments can support environmental, social, and governance objectives without undermining their monetary value in Sustainable Value for Money: How to reconnect finance with the needs of society.

McKinsey discusses socioeconomic risks attributable to climate change, and considerations for companies and governments Integrating climate risk into decision-making in Climate risk and response: Physical hazards and socioeconomic impacts.

Cooley discusses a McKinsey study of the economic effects of climate change as a possible impetus supporting increased focus of financial investors on issues of sustainability in McKinsey looks at socioeconomic impact of climate risk.

BlackRock discusses the ways in which it is accelerating integration of sustainability into technology, risk management, and investment in Sustainability as New Standard for Investing.

Cooley discusses BlackRock’s recent announcements regarding its commitment to sustainability as a key focus of its investment strategy in BlackRock puts sustainability at the center of investment strategy, expects more transparency in sustainability disclosure.

BlackRock discusses the economic consequences of climate change and its commitment to making sustainability the center of its investment strategy in A Fundamental Reshaping of Finance.

The Role of ESG in the Financial Performance of Banks finds a positive correlation between the return on assets and Environmental, Social, & Governance performance for European banks.

ISS discusses the link between Environmental, Social, & Governance performance and financial performance, presenting evidence that firms with favorable ESG performance ratings are more profitable, less volatile, good allocators of capital, and less cyclical, in ESG Matters.

Morningstar discusses “encouraging” findings from proxy votes of large asset managers in 2019 demonstrating support for shareholder-proposed sustainability resolutions, while noting that the largest fund providers were significantly less supportive of such resolutions, in How Can Fund Providers Protect the Future for Worker-Investors?

State Street discusses the results of a global survey of Environmental, Social, & Governance investing, noting factors affecting adoption and barriers to adoption of ESG factors by institutional investors Into the Mainstream: ESG at the Tipping Point.

04/06/20 [UPDATED] Fiduciary Duties Owed Creditors

NEW:  Keith Bishop discusses fiduciary duties owed creditors under California law in Directorial Duties To Creditors – Getting To The Bottom Of The California Trust Fund Theory

Wachtell, noting the potential for financial challenges such as liquidity shortages, debt defaults, and revenue declines in the current economic environment, discussed duties that directors owe creditors under Delaware law in Fiduciary Duties in Times of Financial Distress.

D&O Diary’s Kevin LaCroix discusses directors’ fiduciary duties to creditors, which may arise when companies become insolvent, in Cash-Crunched Companies Face Insolvency; Will Directors Face Claims?

Fried Frank discusses directors’ duties to creditors duties when a company is financially troubled, approaches insolvency, or becomes insolvent in Examining Director Duties As Insolvencies Appear Imminent.

04/06/20 [UPDATED] MAE/MAC Clauses

NEW:  Fried Frank discusses the possibility that the coronavirus pandemic might constitute a material adverse change or material adverse effect under existing merger or financing agreements, noting that some parties have recently entered agreements that expressly exclude the coronavirus pandemic, and discusses Delaware case law interpreting MAE / MAC clauses in COVID-19 As A Material Adverse Change In M&A Agreements.

$$$ Law360 discusses the possibility that parties to mergers may seek termination by asserting that material adverse effect clauses were triggered by coronavirus in Why Material Adverse Effect Clauses Aren’t Escape Hatches.

Professors Matthew Jennejohn, Julian Nyarko, and Eric Talley forewent learning to paint like Bob Ross and devoted some coronavirus-avoidant downtime to updating their previous  analysis of material adverse change / material adverse event provisions from historical M&A transaction documents (incorrectly described in a prior mention on chanceryblog as an analysis of pending transaction documents) to discern trends in use of terns likely to be triggered by a viral pandemic, to also examine transaction documents for pending deals in A “Majeure” Update on COVID-19 and MAEs.

Professors Matthew Jennejohn, Julian Nyarko, and Eric Talley use machine learning techniques to analyze material adverse change / material adverse event provisions in 150 pending M&A transaction documents, and consider whether common terms are likely to be triggered by a viral pandemic in Coronavirus Is Becoming a “Majeure” Headache for Pending Corporate Deals.

Nixon Peabody discusses the results of its annual survey of the terms of Material Adverse Change clauses in merger agreements in its 2019 MAC Survey.

04/06/20 Stockholder Meetings

Delaware Governor John Carney, in a Tenth Modification of the Declaration of a State of Emergency for the State of Delaware Due to a Public Health Threat (Apr. 6, 2020), noting that the Delaware General Corporation Law does not address certain aspects of stockholder meetings implicated by a public health emergency, provides rules governing notice of changes of physical meetings to meetings conducted by remote communications, and adjournment of scheduled meetings.

Cleary Gottlieb discusses adjournment of scheduled stockholder meetings and conversion of scheduled stockholder meetings to virtual meetings, and related notice and procedural requirements under Delaware and New York law in Coronavirus & Postponing/Adjourning Annual Meetings and Coronavirus & Virtual Annual Meetings.

03/30/20 [UPDATED] Appraisal Rights

NEW:  Sutter Securities discusses “market exception” / “market-out” in 38 state appraisal statutes that deny appraisal rights to stockholders of public companies in The “Market Exception” in Appraisal Statutes.

Tulane’s Professor Ann Lipton discusses proposed terms of Xerox’s proposed takeover of Hewlett Packard under 8 Del. C. § 251(h) via tender offer followed by second-step merger pursuant to which stockholders would under various contingent circumstances either be permitted to choose ore required to receive consideration in cash, stock, or both, noting that Delaware’s appraisal statute does not clearly provide stockholders with appraisal rights under the various scenarios because it lacks a coherent statutory scheme  in In these uncertain times, we can take comfort in normalcy: Appraisal law makes no sense.

Lowenstein Sandler excerpts commentary regarding Delaware appraisal law from Sullivan & Cromwell’s M&A Hot Topics January 14, 2020 (discussing various topics) in Law Firm Recaps the “Post-Aruba” Appraisal Landscape.

Lowenstein Sandler discusses services offered by the Depository Trust Company that may assist stockholders seeking to perfect appraisal rights at Reviewing the Mechanics: DTCC’s Proxy Services.

03/30/20 Stockholder Proposals

Bulldog Investors describes a purported “scheme” of business trusts successfully requesting no action letters from the SEC finding some basis to exclude stockholder proposals to those subject to stockholder ratification, noting that a corporation could rely on that authority to support a bylaw limiting proposals stockholder may vote on to those submitted by the board or  required by statute in Can a Public Company Effectively Opt Out of Rule 14a-8?

03/30/20 CA Director Advisors

Keith Bishop discusses California case law supporting the rule that advisors of individual directors may attend board meetings at the discretion of the board, as contrasted with commentary regarding Delaware law, which suggests that directors should generally be permitted to have advisors present for board meetings to assist with their discharge of fiduciary  duties in Can Directors Bring Their Personal Advisors To Board Meetings?

03/30/20 [UPDATED] Duty of Oversight

NEW: Kaplan & Walker discusses recent Delaware decisions addressing board oversight of compliance systems, noting the particular need of attention in high-risk and highly-regulated industries in Insights from the Delaware courts on board oversight of compliance programs.

Sheppard Mullin discusses recent Delaware caselaw involving the duty of oversight, noting directors’ obligations to inform themselves of fundamental business issues impacted by the coronavirus pandemic in  COVID-19 Directors’ Duties of Oversight: Reporting and Monitoring.

Akerman discusses recent Delaware case law and trends in federal regulation involving oversight of legal, ethical, and reputational risks, illustrating that boards can be held legally accountable for oversight failures.

Drinker Biddle discusses recent Delaware decisions involving claims for breach of the duty of oversight under Caremark, and suggests steps that corporate directors can take to help protect themselves from oversight liability in They Had One Job.

Foley & Lardner discusses takeaways from recent Delaware decisions addressing the duty of oversight under Caremark, presented as relevant specifically to directors and officers of health care providers, in Health Care Provider Director and Officer Liability: Important Takeaways from Clovis and Marchand.

McDermott Will & Emery’s Michael Peregrine discusses the recent release of former WorldCom CEO Ebbers from prison, noting aspects of Ebbers’ conscious marginalization of WorldCom in-house counsel as part of the conduct that led to his conviction, as relevant to duty of oversight concerns raised in recent Delaware case law in Bernie Ebbers’ and Board Oversight of the Office of Legal Affairs.

Corporate Oversight and Disobedience discusses the duty of oversight in connection with the obligation of obedience, under 8 Del. C. § 101(b), which requires that corporations serve a lawful purpose.

McDermott Will & Emery proposes a plan of action for corporate boards responsive to recent Delaware case law addressing the duty of oversight under Caremark in The Board’s Marchand/Clovis Reaction Plan.

Richards Layton & Finger discusses the nature and scope of directors’ duty of oversight under recent Delaware case law in What Is Oversight? Del. Courts Continue to Provide Clarification Post-‘Marchand’.

CorpGov.com discusses directors’ duties with respect to environmental, social, and governance risk in relation to recent Delaware Court decisions involving the duty of oversight under Caremark in ESG and Mission-Critical Issues for Director & Officer Liability.

Davis Polk discusses recent decisions of the Delaware Court of Chancery addressing the duty of oversight in Recent Delaware Cases Reinforce Director Accountability for Risk Oversight.

Wachtell summarizes emerging and recent developments involving the duty of oversight, including recent Delaware case law, the importance of engaged board oversight of corporate risk, and the record of such oversight, presented in Risk Management and the Board of Directors (WLRK November 2019), in Risk Management and the Board of Directors.

[$$$] Bloomberg Law discusses recent decisions of the Delaware Court of Chancery addressing Caremarkclaims in Corporate Boards May Face Higher Legal Hurdle in Risk Oversight.

Boston College Professor Brian JM Quinn notes that recent case law addressing Caremark claims has changed his view of the likelihood that duty of oversight claims involving Boeing’s 737 Max, asserted in Kirby Family Partnership, LP v. Dennis Muilenburg, et al. and Boeing Co., C.A. No. 2019-0907-, compl. (Del Ch. Nov. 8, 2019; red. Nov. 18, 2019), could survive a motion to dismiss.

Paul Weiss discusses recent decisions of the Delaware Court of Chancery addressing Caremark claims in Recent Delaware Decisions Signal Renewed Focus on Board Level Compliance Oversight.