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Commentary

09/22/20 [UPDATED] Board Diversity

NEW:  D&O Diary’s Kevin LaCroix discusses a stockholder action challenging alleged failures to achieve board diversity and misleading disclosures regarding commitments to diversity filed against Monster Beverage in Monster Beverage Hit With Latest Board Diversity Lawsuit.

Olshan Frome Wolosky discusses passage of a bill by the California legislature that would require increased racial and ethnic diversity on corporate boards of directors for domestic and foreign corporations having their principal place of business in California in California State Legislature Passes Bill Requiring Each Public Company Headquartered in the State to Include a Minimum Number of Directors from Underrepresented Communities on its Board.

Reuters discusses challenges of increasing diversity on corporate boards posed by lack of disclosure and self-reporting of ethnicity in Color blind? How boardroom diversity data eludes advocates.

D&O Diary’s Kevin LaCroix discusses the Board Challenge, pursuant to which corporate Pledge Partners agree to add a Black director in the next twelve months in Growing Number of Companies Pledge to Address Board Diversity Issues.

D&O Diary’s Kevin LaCroix discusses a stockholder action challenging alleged failures to achieve board diversity and misleading disclosures regarding commitments to diversity filed against Danaher in Yet Another Board Diversity Derivative Lawsuit, This Time Against Danaher’s Board.

D&O Diary’s Kevin LaCroix discusses a stockholder action challenging alleged failures to achieve board diversity and misleading disclosures regarding commitments to diversity filed against The Gap in The Gap Hit with Board Diversity Derivative Lawsuit.

Keith Bishop discusses passage of a bill by the California legislature that would require racial, ethnic, gender, and gender role diversity in the composition of corporate boards of directors for domestic and foreign corporations having their principal place of business in California in California Legislature Passes Corporate Board Racial/Ethnic/Gender Quota Bill.

Cooley discusses companies’ increasing concern with expanding board diversity, and considerations raised in the study Why Do Boards Have So Few Black Directors? and the Black Corporate Directors Time Capsule Project survey in Addressing the challenge of board racial diversity.

D&O Diary’s Kevin LaCroix discusses the latest stockholder action challenging alleged failures to achieve board diversity and misleading disclosures regarding commitments to diversity filed against NortonLifeLock in NortonLifeLock Hit with Board Diversity Derivative Suit.

Cleary Gottlieb discusses stockholder actions challenging alleged failure to uphold commitments to diversity at Oracle, Facebook, and Qualcomm in 3 Cases Spotlight Shareholder Interest In Public Co. Diversity.

The Origins and Real Effects of the Gender Gap: Evidence from CEOs’ Formative Years examines demographic data on the socioeconomic backgrounds of CEOs, finding CEOs raised in male-dominated families—those where the father was the only income earner and had more education than the mother—hire fewer women and allocate smaller capital budgets to female managers.

Shearman & Sterling discusses stockholder breach of fiduciary duty actions suits recently filed against directors and officers of Oracle, Facebook, and  Qualcomm based on failure to uphold commitments to diversity in Shareholder Derivative Complaints Allege Lack Of Board And Senior Executive Diversity.

Gender and Executive Job Mobility: Evidence from Mergers and Acquisitions – examines gender differences in job mobility based on senior managers displaced when their employers are acquired, finding a significant “gender penalty” for women.

Wachtell discusses increasing pressures public companies face to increase gender and racial diversity on boards in Corporate Governance Update: Raising the Stakes for Board Diversity.

D&O Diary’s Kevin LaCroix discusses ra ecent derivative breach of fiduciary duty and securities actions challenging alleged failures to achieve board diversity and misleading disclosures to stockholders regarding commitments to internal policies regarding diversity filed against Qualcomm in Qualcomm Hit with Board Racial Diversity Derivative Lawsuit.

D&O Diary’s Kevin LaCroix discusses recent derivative breach of fiduciary duty and securities actions challenging alleged failures to achieve board diversity and misleading disclosures to stockholders regarding commitments to internal policies regarding diversity filed against Oracle and Facebook in Oracle Directors Hit with Derivative Suit on Board Diversity Issues, and Facebook Board Hit with Derivative Lawsuit on Board Diversity and Other Race-Related Issues.

Barington Capital Group discusses its activist investor perspective on board diversity that companies benefit most from demographically diverse directors who also help improve cognitive diversity in the boardroom in Maximizing the Benefits of Board Diversity: Lessons Learned From Activist Investing.

Keith Bishop discusses a bill introduced in the California legislature that would require domestic and foreign publicly held corporations having their principal place of business in California to include individuals who are African-American, Hispanic, or Native American on their board of directors in Bill Would Impose Minimum Number Of “Directors From An Underrepresented Community”.

The New York City Office of the Comptroller discussed progress of its Boardroom Accountability program in obtaining commitments from companies with which it does business to engage in search processes that ensure that women and people of color are considered for executive and board positions in NYC Comptroller’s Boardroom Accountability 3.0 Results.

Shearman & Sterling reports that a recent amendment to Washington State corporation law require that public companies have a “gender-diverse board” by January 1, 2022 or provide board diversity disclosures in Washington State Becomes Next to Mandate Gender Diversity on Boards.

Jackson Lewis discusses measures that twelve states have enacted or are considering to enhance diversity on corporate boards in States are Leading the Charge to Corporate Boards: Diversify!

Cooley discusses research suggesting that, despite recent efforts to promote diversity on corporate boards, diversity in corporate executive positions remains low, in The sorry state of C-suite diversity.

Wachtell reports the dismissal of a lawsuit challenging California’s law mandating gender diversity on corporate boards for lack of standing in Creighton Meland v. Alex Padilla, C.A. No. 19-2288, compl. (E.D. Cal. Nov. 13, 2019), noting that plaintiff has already appealed the ruling, in Federal District Court Dismisses Challenge to Board Diversity Statute.

Davis Polk reports that the New York City Comptroller announced 75% of companies have approved stockholder proposals establishing diversity search policies seeking to increase board representation by women and people of color, submitted by the New York City Retirement Systems as part of the city’s Boardroom Accountability Project 3.0, which seeks to foster diversity in leadership of companies in which the Retirement System invests, in NYC Comptroller Stringer Reports Progress on Project to Boost Board/CEO Diversity.

Cooley reports that Creighton Meland v. Alex Padilla, C.A. No. 19-2288, compl. (E.D. Cal. Nov. 13, 2019), a lawsuit challenging the constitutionality of California’s board gender diversity statute filed by a conservative legal organization on behalf of a public company stockholder has been dismissed for lack of standing in  Federal District Court dismisses a challenge to California board gender diversity statute.

Cooley reports findings that California’s California’s SB 826 board gender diversity statute has led to significant gains in board diversity, and discusses other states that have introduced similar legislation in Will other states follow California in adopting board gender diversity mandates?

Reuters reports Goldman Sachs’ announcement that from June 30, it will only help take companies having at least one diverse member company, citing superior performance of such companies after going public, in Goldman Sachs to companies: Hire at least one woman director if you want to go public.

Spencer Stuart discusses key takeaways from the 2019 U.S. Spencer Stuart Board Index finding that boards have increasingly added new directors with diversity of gender, age, race/ethnicity and professional backgrounds, but that board turnover remains low, with new directors representing only 8% of all S&P 500 directors. 2019 U.S. Spencer Stuart Board Index.

Deloitte discusses the latest statistics on global boardroom diversity, efforts to increase gender diversity in 66 countries, and political, social, and legislative trends. Women in the Boardroom: A Global Perspective.

Keith Paul Bishop discusses a study of negative effects of California’s SB 826, imposing gender quotas on the boards of publicly traded companies headquartered in California. Business Professors Find “Large Negative Stock Market Reaction” To California’s Board Quota Law.

The New York City Comptroller calls on boards of directors to adopt a policy requiring that searches for director and officer candidates include qualified female and racially/ethnically diverse candidates, and candidates from non-traditional environments such as government, academic, or non-profit. NYC Comptroller Boardroom Accountability 3.0.

Davis Polk’s Betty Moy Huber and Paula H. Simpkins report findings from the 2019 U.S. Spencer Stuart Board Index that S&P 500 companies are accelerating the addition of women and minority directors. Spencer Stuart Shows How Boards Are Transforming.

09/21/20 [UPDATED] Federal Forum Selection

NEW:  Dechert discusses the California Superior Court’s ruling in Sunny C. Wong v. Restoration Robotics, Inc., et al., C.A. No. 18-2609, order (Cal. Super. Sept. 1, 2020), declining jurisdiction over a securities class action where the corporation included a federal forum selection provision in its certificate of incorporation in California Superior Court Enforces Federal Forum Selection Provision Under California Law.

Freshfields discusses the California Superior Court’s ruling in Sunny C. Wong v. Restoration Robotics, Inc., et al., C.A. No. 18-2609, order (Cal. Super. Sept. 1, 2020), declining jurisdiction over a securities class action where the corporation included a federal forum selection provision in its certificate of incorporation in Get thee to Federal Court: California court enforces federal forum provision for IPO securities lawsuits.

Orrick discusses the California Superior Court’s ruling in Sunny C. Wong v. Restoration Robotics, Inc., et al., C.A. No. 18-2609, order (Cal. Super. Sept. 1, 2020), declining jurisdiction over a securities class action where the corporation included a federal forum selection provision in its certificate of incorporation in Dismissing Securities Act Claims, California State Court Holds That Federal Forum Selection Provision in Delaware Corporate Charter Is Enforceable.

Fenwick & West discusses the California Superior Court’s ruling in Sunny C. Wong v. Restoration Robotics, Inc., et al., C.A. No. 18-2609, order (Cal. Super. Sept. 1, 2020), declining jurisdiction over a securities class action where the corporation included a federal forum selection provision in its certificate of incorporation in California Judge Rules That Federal Forum Provisions May Be Permitted.

Kramer Levin discusses the California Superior Court’s ruling in Sunny C. Wong v. Restoration Robotics, Inc., et al., C.A. No. 18-2609, order (Cal. Super. Sept. 1, 2020), declining jurisdiction over a securities class action where the corporation included a federal forum selection provision in its certificate of incorporation in California Superior Court Dismisses Securities Act Claims in Favor of Federal Forum Selection Provision in Company’s Charter.

Cooley discusses the California Superior Court’s ruling in Sunny C. Wong v. Restoration Robotics, Inc., et al., C.A. No. 18-2609, order (Cal. Super. Sept. 1, 2020), declining jurisdiction over a securities class action where the corporation included a federal forum selection provision in its certificate of incorporation in California court enforces Delaware exclusive federal forum provision.

Reuters’ Alison Frankel discusses the California Superior Court’s ruling in Sunny C. Wong v. Restoration Robotics, Inc., et al., C.A. No. 18-2609, order (Cal. Super. Sept. 1, 2020), declining jurisdiction over a securities class action where the corporation included a federal forum selection provision in its certificate of incorporation, finding that use of the forum provision was not illegal under California law in Are Delaware federal forum selection clauses unconstitutional?

Keith Bishop discusses the California Superior Court’s ruling in Sunny C. Wong v. Restoration Robotics, Inc., et al., C.A. No. 18-2609, order (Cal. Super. Sept. 1, 2020), declining jurisdiction over a securities class action where the corporation included a federal forum selection provision in its certificate of incorporation, finding that use of the forum provision was not illegal under California law in California Court Rules Federal Forum Bylaw Provision To Be “Procedurally unconscionable. Indeed, glaringly so.”

$$$ Law 360 discusses the California Superior Court’s ruling in Sunny C. Wong v. Restoration Robotics, Inc., et al., C.A. No. 18-2609, order (Cal. Super. Sept. 1, 2020), declining jurisdiction over a securities class action where the corporation included a federal forum selection provision in its certificate of incorporation, finding that use of the forum provision was not illegal under California law in Calif. Judge Rules Cyan Loophole ‘Not Illegal’ Under State Law.

Cooley discusses the Delaware Supreme Court’s Blue Apron decision upholding the validity of charter provisions requiring that federal securities claims that are subject to the jurisdiction of both state and federal courts be brought only in federal courts, and a current action challenging the validity of a federal forum selection bylaw in a California State Court securities action in Will the California courts enforce a Delaware exclusive federal forum provision?

Reuters’ Allison Frankel discusses Seafarers Pension Plan v. Robert A. Bradway, et al. [Boeing], C.A. No. 2020-0556-, compl. (Del. Ch. July 8, 2020), in which stockholder plaintiff, whose derivative securities claims were dismissed by a Federal Court under a Delaware forum selection bylaw, brings suit in the Court of Chancery alleging that the bylaw is invalid and unenforceable, and that nominal defendant’s board breached the bylaw by enforcing the forum selection clause to dismiss the federal action in Boeing shareholder challenges forum selection clause for barring federal derivative claim.

Reuters’ Allison Frankel discusses former Delaware jurist’s submission of an amicus brief supporting the validity of a federal forum selection bylaw in a California State Court securities action in Ex-Dela. judges defend Securities Act forum clauses in Calif. Dropbox case.

Tulane Law’s Professor Ann Lipton discusses the U.S. District Court for the Northern District of Illinois’ ruling in Seafarers’ Pension Plan v. Robert A. Bradway, et al. and The Boeing Company, C.A. No. 19-8095, order (N.D. Ill. June 8, 2020), which dismissed a stockholder’s derivative securities action under Section 14(a) of the Exchange Act on forum non conveniens grounds, finding that Boeing’s forum selection bylaw providing that the Delaware Court of Chancery is the exclusive forum for any derivative action brought on behalf of the Corporation, and the sole forum for any action asserting a claim for breach of fiduciary duty owed to the corporation in And the Salzberg v. Sciabacucchifallout begins.

Amending the Delaware Corporate Code by Going to Court: Some Thoughts on Sciabacucchi v. Salzberg argues that Delaware statutory law governing corporate charter provisions and bylaws should not be interpreted in light of the internal affairs doctrine, but amend the statute to expressly provide that it applies only to powers of stockholders that arise under Delaware law.

Professor Joseph A. Grundfest discusses the recent appeal from Matthew Sciabacucchi v. Matthew B. Salzberg, et al. and Blue Apron Holdings, Inc., et al., C.A. No. 2017-0931-JTL, memo. op. (Del. Ch. Dec. 19, 2018), which found charter provisions requiring that claims under the Securities Act of 1933 be brought in Federal Court impermissible under Delaware law, arguing why the provisions should be upheld in “If I Agreed With You, We’d Both Be Wrong:” Section 11 Claims as “Internal Corporate Claims” Under DGCL 115.

Cooley discusses the recent appeal from Matthew Sciabacucchi v. Matthew B. Salzberg, et al. and Blue Apron Holdings, Inc., et al., C.A. No. 2017-0931-JTL, memo. op. (Del. Ch. Dec. 19, 2018), which found charter provisions requiring that disclosure claims under the Securities Act of 1933 be brought in Federal Court impermissible under Delaware law in Will the Delaware Supreme Court revive exclusive federal forum provisions for ’33 Act claims?

09/21/20 [UPDATED] Earnout Provisions

NEW:  Seyfarth Shaw discusses components of earnout provisions in merger agreements and practices intended to minimized disputes over earnout payments in Anatomy of an Earnout in the Era of COVID-19: Best Practices for Designing Earnouts to Avoid Disputes.

Mintz Levin updates a February 2014 report — “Using Earnouts to Find an Exit” — to look at how legal and business considerations relevant to negotiating and drafting earnout provisions have evolved over the last six years in Revisiting Earnouts During Coronavirus Pandemic.

DealLawyers.com’s John Jenkins discusses contractual language addressing a buyer’s obligation to pursue achievement of milestones in earnout provisions, citing the Delaware Superior Court Complex Commercial Litigation Division’s Collab9, LLC v. En Pointe Technologies Sales, LLC, et al., C.A. No. N16C-12-032-MMJ-CCLD, opinion (Del. Super. Sept. 17, 2019), as illustrative. Earnouts: “Comprehensive & Explicit” Language Wins the Day for Buyer.

09/16/20 [UPDATED] Duty of Oversight

NEW:  Boards Should Care More About Recent “Caremark” Claims and Cybersecurity discusses recent Delaware case law addressing the Caremark duty of oversight and their implications for potential risk of liability related to cybersecurity risk.

Potter Anderson discusses recent Delaware decisions in which claims for oversight liability survived motions to dismiss, noting dissimilarities in the analyses that do not support interpretation of multiple such decisions as constituting a trend in Three Is Not A Trend: Another Caremark Claim Survives A Motion To Dismiss, But Does Not Reflect A Change In The Law.

McDermott Will & Emery discusses criminal prosecution of the CEO of Blue Bell seeking to prove specific intent, and its implications for board oversight obligations in The Blue Bell Dairy CEO Indictment and its Implications for Executive Liability.

Sidley discusses recent Delaware decisions in which claims for oversight liability survived motions to dismiss, suggesting heightened risk associated with the coronavirus pandemic supports greater board emphasis on oversight in Board Oversight in Light of COVID-19 and Recent Delaware Decisions.

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.

08/25/20 New York Business Entity Law

NEW:  Farrell Fritz discusses New York case law governing the enforceability of oral agreements concerning the rights of owners different types of business entities in Enforceability of Oral Operating, Shareholder, and Partnership Agreements.

Farrel Fritz discusses validity and effect of transfers of LLC membership interests under New York law, noting that transfer rights can be subject to restrictions that are strengthened, weakened, or eliminated by the terms of an LLC Agreement, but statutory default rules leave involuntarily withdrawn members with economic interest rather than membership interests in Turmoil Follows Involuntary Transfers of LLC Membership Interests.

Farrel Fritz discusses the New York Appellate Division’s decision in Julius Behrend v. New Windsor Group, LLC, et al., No. 17-01392, opinion (N.Y. App. Jan. 29, 2020), affirming a ruling that the purported transfer of an interest in an LLC without unanimous consent of the other LLC members, required under the LLC agreement, did not make the transferee an LLC member, and resulted only in transfer of entitlement to receive distributions and profit and loss allocation, in Always Check Provenance Before Taking an Assignment of LLC Interest.

Farrel Fritz discusses the New York Court of Appeals’ decision in Luciano Bonanni, et al. v. Horizons Investors Corp., et al., No. 2017-06803, opinion (N.Y. App. Jan. 29, 2020), affirming a Trail Court’s finding that an asset sale between an LLC and a PLLC was a de facto merger based on cessation of business by the predecessor and continuity of business operations, management, assets, and personnel by the successor, and that the successor retained the predecessor’s liabilities, in  Bending the Rules of Standing: The De Facto Merger Doctrine.

Farrel Fritz discusses the New York Supreme Court’s decision in Culligan Soft Water Co., et al. v Clayton Dubilier & Rice, LLC, et al., No. 651863/12, opinion (N.Y. Sup. Mar. 19, 2020), which found, in a derivative action, that futility of a litigation demand for claims asserted in an amended complaint must be considered as to liquidators appointed after plaintiff filed its original complaint but before plaintiff filed its amended complaint, rather than corporate directors, in The Pre-Suit Demand Requirement for a Corporation in Liquidation or Receivership.

Farrell Fritz discusses the New York Superior Court’s decision in Amit Doshi v. Michael Besen, No. 651696/19, opinion (N.Y. Sup. Ct. Dec. 30, 2019), judicially dissolving a deadlocked company, finding that resignation of one of the company’s two 50% stockholders as a director did not resolve deadlock, in Resignation: Antidote for Internal Dissention and Deadlock?

Farrell Fritz’s Peter Mahler discusses case law interpreting purpose and audit provisions of a New York LLC Agreement in Court Takes Ambiguity Off the Menu of Restaurant’s LLC Agreement.

Farrell Fritz discusses the New York Supreme Court’s decision in Lois Weinstein v. RAS Property Management, LLC, et al., No. 653735/19, opinion (N.Y. Sup. Feb. 5, 2020), finding that a successor in interest to a deceased limited partner succeeds to the decedent’s economic rights but not partner status for purposes of derivative standing in Death of Limited Partner Disarms Derivative Action.

Farrell Fritz’s Peter Mahler discusses New York case law addressing the ability of a minority LLC member to force dissolution in LLC Member’s Petition to Dissolve Boxing Club Dealt First Round KO.

Farrell Fritz discusses the New York Supreme Court’s decision in Robert Shapiro v. Gabriel Ettenson, et al., No. 654641/17, memo. op. (N.Y. Sup. Ct. Dec. 23, 2019), finding that an LLC member’s claim for wrongful expulsion in breach of the LLC Agreement was direct rather than derivative, where defendants allegedly failed to follow the Agreement’s dissociation procedures, in The Curious Case of the Expelled LLC Member Bound by Operating Agreement He Never Signed.

Lowenstein Sandler discusses the New York Appellate Division’s ruling in Mark A. Galasso v. Cobleskill Stone Products, Inc., et al., No. 527237, memo. op. (N.Y. App. Div. Feb. 28, 2019), an appraisal action, holding that a valuation was not protected by attorney-client privilege because it was created for an estate tax filing before the appraisal action commenced, in Are Communications With Third Parties Still Attorney-Client Privileged in Appraisal?

Bryan Cave discusses the New York Appellate Division’s ruling in Kevin Askari, et al. v. McDermott, Will & Emery, LLP, et al., No. 606862/15, opinion (N.Y. App. Div. Nov. 27, 2019), finding that New York law governed privilege applicable to seller’s pre-transaction communications notwithstanding a contractual Delaware choice of law clause, and differences between New York and Delaware law addressing privilege applicable to pre-transaction communications in post-transaction disputes in Buyer’s Purchase or Seller’s Privilege? Attorney-Client Communications in the Post-Sale Context.

McGuireWoods discusses the New York Appellate Division’s ruling in Kevin Askari, et al. v. McDermott, Will & Emery, LLP, et al., No. 606862/15, opinion (N.Y. App. Div. Nov. 27, 2019), finding that New York law governed privilege applicable to seller’s pre-transaction communications despite a purchase agreement’s Delaware choice of law clause due to New Yok’s greater interest in the litigation in NY Appellate Division Affirms Seller Retains Privilege for Certain Pre-acquisition Communications.

Shearman & Sterling discusses the U.S. Court of Appeals for the Second Circuit’s decision in Chufen Chen, et al. v. Dunkin’ Brands, Inc., No. 18-3087, opinion (2d Cir. Mar. 31, 2020), finding that registration to do business in New York does no subject a company to general personal jurisdiction in The Second Circuit Holds that New York Business Registration Does Not Constitute Consent to General Personal Jurisdiction.

Sheppard Mullin discusses the U.S. Court of Appeals for the Second Circuit’s decision in Chufen Chen, et al. v. Dunkin’ Brands, Inc., No. 18-3087, opinion (2d Cir. Mar. 31, 2020), finding that registration to do business in New York does no subject a company to general personal jurisdiction in Second Circuit Holds that Registering to do Business in New York Under Section 1301 of the Business Corporation Law Does Not Constitute Consent to General Personal Jurisdiction in New York Courts.

08/21/20 [UPDATED] Standard Shifting

$$$ Richards Layton & Finger discusses Court of Chancery decisions addressing the ab initio requirement that transactional mechanisms that, under with M&F Worldwide, will shift the standard of review applicable to controlling stockholder transactions from entire fairness to business judgment be implemented before substantive economic negotiations take place, since the Supreme Court last addressed the issue in Nicholas Olenik v. Frank A. Lodzinski, et al. and Earthstone Energy, Inc., No. 392, 2019, opinion (Del. Apr. 5, 2019), in Court of Chancery’s Post-‘Olenik‘ Interpretation of the ‘Ab Initio’ Requirement.

Did Delaware Really Kill Corporate Law? Shareholder Protection in a Post-Corwin World empirical examines transactions following the Delaware Supreme Court’s decision in Robert A. Corwin, et al. v. KKR Financial Holdings, LLC, et al., No. 629, 2014, opinion (Del. Oct. 2, 2015), finding no evidence that it has led to an increase in flawed deal processes.

08/20/20 [UPDATED] Shareholder Primacy and the Business Roundtable Statement

NEW:  Harvard Law’s Lucian Bebchuk and Roberto Tallarita point at inconsistencies between purported intent of signatories to the 2019 Business Roundtable Statement and commentators who have expressed support for the Statement and the actions of the signatories’ companies and ostensibly inconsistent statements of supportive commentators in Was the Business Roundtable Statement on Corporate Purpose Mostly for Show? — (1) Evidence from Lack of Board Approval, Was the Business Roundtable Statement Mostly for Show? — (2) Evidence from Corporate Governance Guidelines, and Was the Business Roundtable Statement Mostly for Show? — (3) Disregard of Legal Constraints.

Shareholder Rights Group’s Sanford Lewis suggests recovery from the coronavirus pandemic provides an opportunity to unity stakeholder interests, while questioning the realistic implementation of stakeholder capitalism in the absence of rules and concepts of stakeholder governance in Stakeholder Capitalism and the Pandemic Recovery.

Wachtell argues that the shareholder value maximization model of corporate governance is unsustainable in the contemporary political and commercial environment, and anticipates consequences that corporate directors may expect to confront in the coming year in Thoughts for Boards of Directors in 2020.

Equilar, Inc. examines whether the Business Roundtable’s 2019 Statement asserting that companies should embrace the stakeholder model over shareholder primacy represents a “fundamental departure from corporate governance trends.” Performance Metrics: Accelerating the Stakeholder Model.

Professor Jesse Fried argues that the Business Roundtable’s 2019 Statement moving away from shareholder primacy will change nothing given control that stockholders have over corporate directors and officers, but that the move away from shareholder primacy would be harmful in that corporate managers could decide to use assets to serve other stakeholders rather than stockholders.  The Roundtable’s Stakeholderism Rhetoric is Empty, Thankfully.

Barron’s discusses whether it is possible to predict if or when the stakeholder model from the Business Roundtable’s 2019 Statement will supplant shareholder primacy, suggesting governance changes are cyclical,. Are the Days of Shareholder Primacy Numbered? It will Take More Than a Few White Papers to Force a Change.

UCLA’s Professor Stephen Bainbridge subtly maintains that Martin Lipton and William Savitt’s response to criticisms of the Business Roundtable’s 2019 Statement that argue a corporation has no purpose other than profit maximization “contains an astonishing number of erroneous statements about the purpose of the corporation.” Wachtell, Lipton’s False Gospel of the Law of Corporate Social Responsibility and the Reasoning Behind It.

Wachtell’s Martin Lipton and William Savitt discuss the UK’s adoption of The UK Stewardship Code 2020, which parallels proposed corporate governance, stewardship and engagement principles advocated in the New Paradigmframework that Lipton presented at the World Economic Forum in 2016. The New Paradigm.

08/19/20 [UPDATED] Stockholder Meetings

NEW:  How Shifting from In-Person to Virtual Shareholder Meetings Affects Shareholders’ Voice evaluates the conduct of virtual stockholder meetings following shifts from in-person meetings in response to the coronavirus pandemic, finding decreases in meeting length and discussion of various topics that suggest virtual meetings increase potential stockholder participation by reducing costs, but that in practice, less time has been spent addressing stockholder concerns.

Stockholder and sustainable investment organizations write to the SEC to raise concerns based on recent experience with widespread use of remote virtual platforms to conduct stockholder meetings in Letter to Clayton and Hinman on Virtual and Hybrid Meetings.

Soundboard Governance discusses use of remote, virtual platforms to conduct stockholder meetings following recent increases in use in Key Takeaways and Best Practices from Virtual Shareholders Meetings in 2020.

Vorys discusses the use of virtual board meetings, their management, and how mitigate  additional risks they pose in Virtual board meetings and risk mitigation during Covid-19.

Broadridge provides statistics on virtual stockholder meetings it hosted between January 1 and May 22, 2020, representing a more than 6X increase over the same period in 2019, at Broadridge Virtual Shareholder Meetings (“VSMs”): Preliminary Statistics.

Wachtell discusses increases in the use of virtual annual meetings during the coronavirus meeting, and the first virtual meeting used in a proxy contest in Lessons From the Future – The First Contested Virtual Annual Meeting.

Cleary Gottlieb reports that New York’s Governor Cuomo has issued Executive Order 202.18, Continuing Temporary Suspension and Modification of Laws Relating to the Disaster Emergency (New York, Apr. 16, 2020), extending his previous Executive Order 202.8, Continuing Temporary Suspension and Modification of Laws Relating to the Disaster Emergency (New York, Mar. 23, 2020), which suspended New York’s Business Corporation Law Sections 602(a) — requiring physical stockholder meetings — and 605(a) and (b) — requiring prior notice of annual meetings and adjournments — “to the extent they require meetings of shareholders to be noticed and held at a physical location.” Cuomo Executive Order Gives New York Corporations Relief on Physical Annual Meetings.

Olshan discusses Delaware Governor Carney’s 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), which authorized Delaware corporations to switch noticed in-person stockholder meetings to remote virtual meetings of adjourn them in favor of a later remote meeting, which it commended as preferable to a proposed emergency amendment to 8 Del. C. § 110, which would give broads discretion to postpone annual meetings irrespective of whether an emergency prevented a quorum from being convened in Delaware Emergency Order: Remote Shareholder Communication Meetings.

Sheppard Mullin discusses considerations regarding the use of virtual stockholder meetings, including hybrid meetings that can be attend either in-person or remotely, in Virtual and Hybrid Shareholder Meetings in the Era of COVID-19: What Public Companies Need to Know.

UCLA Law Professor Stephen Bainbridge discusses recent sources of authority for conducting virtual stockholder meetings, and suggests a platform offered by Broadridge for conducting virtual meetings in Conducting the Annual Shareholder Meeting during the COVID19 Pandemic.

ISS discusses SEC guidance regarding the conduct of virtual stockholder meetings in Annual General Meetings & COVID-19.

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.

08/12/2020 [UPDATED] M&A Litigation

NEW:  Cooley discusses recent Delaware case law emphasizing the obligation of corporate directors and officers to keep a company board or special committee informed of material developments throughout a sale process, including after signing, in Renegotiating Deal Terms? Delaware Reminds Fiduciaries of Unremitting Duties.

Gibson Dunn provides a chart showing common M&A fact patterns and the standard of review likely to apply in such situations under Delaware law in Determining the Likely Standard of Review Applicable to Board Decisions in Delaware M&A Transactions.

White & Williams – M&A Litigation Rising Amidst COVID-19 Uncertainty: Considerations for Litigators and Deal-Makers.

Paul Weiss discusses recent decisions of the Delaware Court of Chancery addressing claims regarding M&As in Delaware M&A Quarterly.

08/12/20 [UPDATED] ESG

NEW:  Cooley discusses the issuance of a Government Accountability Office study on investor demand for Environmental, Social, & Governance-related disclosure, current company disclosure practices, and policy implications in GAO finds lack of consistency in ESG disclosure — how will the SEC respond?

Caremark and ESG discusses Employee, Environmental, Social, & Governance concerns as related to the duty of corporations and directors to implement and monitor compliance programs and the requirement that corporations operate lawfully, noting that by adopting EESG standards that require more than the legal minimum required to benefit employees, its consumers, the environment, and society, companies ensure compliance with minimum requirements.

Wachtell discusses proposed Department of Labor rules that would limit Employee Retirement Income Security Act-governed investment based on Environmental, Social, & Governance factors rather than solely on stockholder returns, noting that ESG funds have demonstrated superior performance, and speculating that the proposed rules would increase demand for ESG-related data to support investment decisions in DOL Proposes New Rules Regulating ESG Investments.

Tulane Law’s Professor Ann Lipton notes that the Department of Labor approved inclusion of private equity investments in 401(k) plans and proposed new rules that discourage Employee Retirement Income Security Act-regulated retirement plan investment based on Environmental, Social, & Governance factors by requiring that investments be based “solely on pecuniary factors that have a material effect on the return and risk of an investment” in Private Equity In, ESG Out.

FTI Consulting reports, based on communications with companies and investors, that attempts to address “Social” considerations under an Environmental, Social, & Governance framework have contributed to business risk and caused reputational damage in Time to Rethink the S in ESG.

The New York Times reports that the Department of Labor has proposed rules governing investments under the Employee Retirement Income Security Act preventing investments based on Environmental, Social, & Governance factors that “subordinate return or increase risk for the purpose of nonfinancial objectives” in Labor Dept. seeks to Restrict Social Goals in Retirement Investing.

Davis Polk discusses a proposed Department of Labor rule proposed rule governing investments under the Employee Retirement Income Security Act requiring that only “pecuniary factors” be used to evaluate investments, to the exclusion of Environmental, Social, & Governance factors that sacrifice return or increase costs or risk in Department of Labor Proposes Investment Duties Rule Affecting ESG Investments.

The Need for Employee Buy-in for ESG to Work examines the relationship between Environmental, Social, & Governance considerations, employee satisfaction, and financial value, finding that neither ESG practices nor employee satisfaction alone improve financial value, but the combination of ESG practices and employee satisfaction had a large effect on financial value.

Wachtell’s Kirby Smith and Leo E. Strine, Jr. propose the use of compensation committees having responsibility for a company’s entire workforce rather than just senior management, tasked with ensuring that workers are fairly compensate in How A Reconceived Compensation Committee Can Help Tackle Inequality.

The Board Director Training Institute of Japan’s Nicholas Benes discusses possible means of effecting sustainability-oriented corporate governance, noting potential limitations of Environmental, Social, & Governance as insufficiently tied to incentives, and proposing inventive-based reforms in Redesigning Corporations: Incentives Matter.

Wachtell discusses how corporate directors should incorporate Environmental, Social, & Governance and stakeholder-oriented considerations into board decision-making processes in A Framework for Management and Board of Directors – Consideration of ESG and Stakeholder Governance.

Is Stakeholderism Bad for Stakeholders? responds to recent academic arguments that corporate focus on stakeholder interests will harm stakeholders and that shareholder value maximization remains the proper purpose of the corporation, asserting that objections are not inherently harmful to stakeholders, and depend on proper implementation of stakeholder-oriented reforms.

How Corporate and Securities Laws Affect Social Responsibility and Corporate Purpose discusses the role of state corporate law and federal securities regulation in promoting the role of corporates social responsibility and environmental, social, and governance concerns, and advocates for ways in which the law can better accommodate corporate promotion of such concerns.

UCLA’s Professor Stephen Bainbridge discusses research in Environmental & Social Voting at Index Funds, which supports the conclusion that passively managed index funds, despite touting commitments to Environmental, Social, and Governance objectives, do not meaningfully participate in ESG activism in ESG Voting by Index Funds.

How Committed Are Active-Investment Managers to ESG? examines active fund managers’ commitments to Environmental, Social, and Governance principles based on compliance with voluntary commitments to the United Nations 2006 Principles for Responsible Investment, concluding that only certain funds improve ESG while many others use their commitment to the Principles for Responsible Investment to attract capital without notable changes to ESG, and suggest the need of metrics to assess compliance, greater investor oversight of investment managers, and greater transparency by investment managers.

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.