The Post-Recapitalization Compensation Dilemma for Private Companies: Rebuilding Long-Term Incentives After a Restructuring

Posted by Hannah Reich, Erin Bass-Goldberg, and Michael Marino, FW Cook, on
Thursday, October 29, 2026
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Hannah Reich is a Consultant and Erin Bass-Goldberg and Michael Marino is a Managing Director at FW Cook. This post is based on their FW Cook report.

A recapitalization can give a private equity portfolio company the financial foundation for its next phase of growth. It can also create a compensation problem when the restructuring materially changes the equity available to management. When pre-recap awards are cancelled or replaced, management may emerge with materially lower incentive value and retentive equity just as the company is asking the team to rebuild enterprise value and deliver the sponsor’s investment thesis.

We call this the post-recap compensation dilemma. Sponsors understandably want to manage dilution following a restructuring, but changes to the post-recap equity structure can materially reduce the number or value of shares available to management. The result can be a meaningful gap between the value of original equity awards and replacement awards, with an even larger gap in potential realizable value at exit.

This gap matters. A management team that has navigated a restructuring is often being asked to execute an ambitious operating plan, restore growth, and ultimately deliver a successful liquidity event. Replacement awards with materially lower value can reduce the motivational power of the program at a time when alignment and retention become especially important.

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Continuation Vehicles Grow as GPs and LPs Tackle Conflicts and Alignment

Posted by Oreste Cipolla, Stephen Culhane, and Timothy Clark, White & Case LLP, on
Thursday, October 29, 2026
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Oreste Cipolla, Stephen Culhane, and Timothy Clark are Partners at White & Case LLP. This post is based on their White & Case memorandum.

Top takeaways

  • GP-led deal value is heading for a record year
  • CVs are becoming strategic tools for retaining high-quality assets
  • Longer hold periods and fixed fund lives create structural room for growth
  • Valuation, timing and rollover terms remain the biggest sources of conflict
  • Early LP engagement, competitive pricing and meaningful GP commitments are critical

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Remarks by Chair Atkins on IPO Modernization and Regulation Crowdfunding

Posted by Paul Atkins, U.S. Securities and Exchange Commission, on
Wednesday, October 28, 2026
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Paul S. Atkins is the Chairman of the U.S. Securities and Exchange Commission. This post is based on his recent remarks. The views expressed in the post are those of Chairman Atkins and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

Good morning, ladies and gentlemen. It is a pleasure to welcome you to today’s Committee meeting. While I very much regret that I am unable to join you in person, I am grateful for the opportunity to share a few reflections with you virtually.

Before discussing the items on today’s agenda, I should like to recognize the prior work of this Committee to help widen pathways for individuals to qualify as accredited investors, particularly based on criteria beyond income or wealth.

Expanding investor access to private markets—while maintaining fraud prevention measures—has long been one of my top priorities. Thanks in part to this Committee’s robust discussions and prior recommendations, last month the Commission issued notices of potential designations of additional ways to qualify as accredited investors, including by passing an exam to be developed by the Financial Industry Regulatory Authority (FINRA). The Commission’s notices followed this Committee’s previous recommendation, on three separate occasions, for a test demonstrating sophistication as an avenue to achieve accredited investor qualification. I have long advocated for that same idea, and I am happy to be leading the agency’s effort on this front. Looking ahead, I very much look forward to public comments, including those of this Committee, on the concept of an examination and other designations.

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A Tale of Two Jurisdictions: Red-Chip Companies Going Private

Posted by Yan Xu (Singapore Management University) and Wei Zhang (Singapore Management University), on
Wednesday, October 28, 2026
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Wei Zhang is a Professor of Law and Yan Xu is a PhD candidate at Yong Pung How School of Law, Singapore Management University. This post is based on their recent paper.

Over the past quarter century, hundreds of Chinese companies have listed on major U.S. stock exchanges. These firms are commonly referred to as “red-chip” companies, a colloquial term referencing the color traditionally associated with China. Most red-chip firms entered U.S. capital markets through initial public offerings (IPOs), while a smaller number became public through reverse mergers with public shell companies. Companies that went public through IPOs are almost always incorporated offshore in the Cayman Islands. By contrast, firms that became public through reverse mergers frequently inherited the incorporation jurisdiction of the shell companies they acquired, which were often organized in Delaware.

In the past decade, waves of privatizations have swept through this population of U.S.-listed Chinese firms. Because red-chip firms are incorporated in different jurisdictions, the legal regimes governing these going-private transactions diverge accordingly. A minority of these firms are subject to Delaware corporate law, whereas the majority are governed by the corporate law of the Cayman Islands.

This jurisdictional divergence raises an important question: do differences in corporate law affect the outcomes of controller-initiated privatizations? In particular, does stronger legal protection for minority shareholders translate into more favorable deal terms for those shareholders?

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Cloudflare: Important Lessons for Conflict Transactions

Posted by Kevin Schwartz, Steven Winter, and Theo. Mirvis, Wachtell Lipton Rosen & Katz, on
Wednesday, October 28, 2026
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Kevin S. Schwartz and Steven P. Winter are Partners and Theo. Mirvis is Of Counsel at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Schwartz, Mr. Winter, Mr. Mirvis, Zachary M. David, Claudia T. Morgan, and John-Francis S. Flynn, and is part of the Delaware Law Series; links to other posts in the series are available here.

As discussed in our recent memorandum, the Delaware Court of Chancery’s Cloudflare decision confirms the substantial protections new Section 144 of the Delaware General Corporation Law offers for conflicted transactions while requiring fidelity in implementation.  In re Cloudflare, Inc. Stockholder Litigation, C.A. No. 2026-0772-JTL (Del. Ch. Oct. 16, 2026).  The Court’s discussion of the preliminary record in that case—which the Court said included pressure tactics from the interested founders outside formal negotiations and attempts to enlist non-committee directors to intervene with the special committee on their behalf—also offers specific lessons for special committee process, board communications, documentation, and preservation of electronic evidence.

During negotiations over a recapitalization that would preserve founder control, according to the Court’s review of the preliminary record, directors and founders created new Signal chats with autodeletion turned on, and either enabled or shortened autodeletion in existing chats.  In the Court’s view, everyone anticipated litigation but no one disabled autodeletion until after the first litigation hold was issued, with some defendants failing to disable Signal’s autodeletion function for nearly two weeks after receiving a litigation hold.  Use of autodeleting chats increased, the Court observed, after one of the conflicted founders sent a committee member a late-night barrage of expletive-laden and threatening messages.  In the Court’s view, surviving messages contradicted testimony that Signal had been used only for coordination.  Inferences the Court drew from the record—and its gaps—fed preliminary doubts about the special committee’s good faith.  Several lessons emerge:

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Cloudflare: Controllers Unbound, as Long as an Adequate Paper Trail is Kept

Posted by Lucian Bebchuk (Harvard Law School), on
Tuesday, October 27, 2026
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Lucian Bebchuk is the James Barr Ames Professor of Law, Economics, and Finance and Director of the Program on Corporate Governance at Harvard Law School. This post is part of the Controlling Shareholder Series; links to other posts in the series are available here.

In a recent study, Controllers Unbound, Kobi Kastiel and I explain how the relaxation of control constraints following the adoption of SB21 should be expected to have substantial adverse effects on public investors and controlled companies. Among the risks that we identified were those resulting from enabling controllers to pursue recapitalizations using nonvoting shares to retain a lock on control while cashing out a substantial fraction of the controller’s equity stake. The recent Cloudflare decision (discussed in the Forum here) focused on such a recapitalization. Although the decision allowed the dismiss shareholder suit challenging the recapitalization to proceed to trial, it nonetheless validates and reinforces the concerns we raised in Controllers Unbound.

Delaware’s recent SB21 legislation provided controllers with a safe harbor for conflicted transactions (other than freezeouts) that satisfy certain process requirements. Under SB21 cleansing such transactions generally would not require approval by public investors; controllers would just need to obtain approval from two independent directors that are willing to go along. As a result, our study explained, post-SB21, controllers would have an array of ways to benefit themselves considerably at the expense of public investors – including by control-perpetuating recapitalizations, elimination of long-standing sunsets, large related-party transactions, extraction of mega-pay packages, and so forth and so on.

Some observers have nevertheless retained hope after the adoption of SB21 that Delaware courts would in many cases find ways to protect public investors from being harmed by conflicted transactions. Cloudflare should greatly curtail any such hopes.

In Cloudflare, the shareholder suit sought to use some language in SB21 to argue that SB21’s safe harbor does not cover conflicted transactions that are control-enhancing. The case was assigned to Vice Chancellor Travis Laster, who in pre-SB21 days contributed to a line of cases that SB21 reversed. However, Laster concluded that SB21 compelled him to reject the claimed exception to the statute.

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How Investors Vote

Posted by John Galloway, Vanguard, Inc., on
Tuesday, October 27, 2026
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John Galloway is the Global Head of Investor Engagement at Vanguard, Inc. This post is based on his Vanguard report.

Executive Summary

Vanguard Investor Choice empowers individual investors, their financial advisors, and retirement and 529 plan sponsors to direct how their share of eligible funds are voted at company shareholder meetings.

Investor Choice is an extension of our longstanding mission to take a stand for all investors. Just as Vanguard made index investing accessible to everyday investors, Investor Choice extends that philosophy to proxy voting by making participation simple, accessible, and free. Historically, index funds, on behalf of their fund investors, have voted at public company shareholder meetings according to the funds’ voting policies.

As index investing has become more accessible, more investors have expressed an interest in having a voice on matters affecting the companies held through their funds. Through Vanguard Investor Choice, investors can now make a single policy selection to have their voices heard on thousands of individual ballot items for the companies held in their eligible Vanguard equity index funds. Clients can choose from a menu of clear and distinct policy options that align with their preferences.

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Advance Notice, Fair Warning: Delaware Court Says Bylaw Provisions Aren’t Moving Targets

Posted by Sean W. Brownridge, Patrick Gibbs and Polina A. Demina, Cooley LLP, on
Tuesday, October 27, 2026
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Sean W. Brownridge and Patrick Gibbs are Partners and Polina A. Demina is a Special Counsel at Cooley LLP. This post is based on their Cooley memorandum and is part of the Delaware law series; links to other posts in the series are available here.

As most public companies prepare for their director nomination window to open between December and February, the Delaware courts have delivered a timely reminder: Advance notice bylaws are important tools for boards facing shareholder activism, but only when their requirements are clear and their enforcement is grounded in the bylaws’ text.

In ATG Capital Opportunities Fund LP v. Empery Digital, Inc., the Delaware Court of Chancery held that a board’s rejection of an activist nomination notice was both contractually improper where the alleged deficiencies were not required by the company’s bylaws and inequitable.

The decision offers practical guidance: Companies should draft advance notice bylaws carefully, apply them fairly and avoid using them to import disclosure obligations the bylaws do not clearly contain.

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The New Board Imperative: Governing What’s Next

Posted by Martha Carter, Diane McIntyre, and Sean Quinn, Teneo, on
Monday, October 26, 2026
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Martha Carter is the Vice Chairman & Head of Governance Advisory, Diane McIntyre is the CEO, and Sean Quinn is a Senior Managing Director at Teneo. This post is based on a Teneo memorandum by Ms. Carter, Ms. Mclntyre, Mr. Quinn, Louise Angel, David Scott, and Amanda Grant, all at Teneo.

Executive Summary

Today’s board directors are being asked to govern a broader and more dynamic set of issues, yet the core mandate is familiar. Set strategy, steward the business, choose leaders and oversee risk. AI, cyber threats, geopolitical and trade uncertainty and expanding regulation are increasing the complexity of those responsibilities and raising the premium on judgment.

Across 42 interviews with board directors in the U.S., UK and Canada, a consistent description emerged of the markets their companies are navigating. Faster, more interconnected, less patient. A corresponding analysis of board composition data over 15 years for the U.S. S&P 500, UK FTSE 100 and Canadian TSX 60 companies revealed how boards have been evolving and adapting to new pressures.

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Chancery Awards Buyer Damages for Founder’s Overly Aggressive Efforts to Achieve Earnout

Posted by Gail Weinstein, Philip Richter, and Steve Epstein, Fried, Frank, Harris, on
Monday, October 26, 2026
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Gail Weinstein is a Senior Counsel, Philip Richter is a Partner and Co-Head of the M&A and Private Equity Practice, and Steven Epstein is the Managing Partner at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Ms. Weinstein, Mr. Richter, Mr. Epstein, Randi Lally, Stephen B. Amdur, and Matthew V. Soran, and is part of the Delaware law series; links to other posts in the series are available here.

In In re Saama Technologies Litigation (Sept. 26, 2026), the Delaware Court of Chancery held that a private equity firm affiliate (the “Buyer”), which acquired a controlling stake in Saama Technologies (the “Company”), does not owe the Company and its founder-CEO (the “Founder”) a $67.5 million earnout payment. The decision is notable for the court’s further finding that the Founder—who had continued as CEO of the Company during the earnout period—breached his fiduciary duty of loyalty to the Company by taking overly aggressive actions in seeking to achieve the revenues-based earnout targets. The court ordered that the Founder pay damages of $7.3 million for the harms his actions caused the Company.

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