DOJ New Corporate Self-Disclosure Policy

Sarah E. Walters and Edward B. Diskant are Partners and Jennifer Levengood is an Associate at McDermott Will & Emery. This post is based on an MWE memorandum by Ms. Walters, Mr, Diskant, Ms. Levengood, Justin P. Murphy, and Julian L. André.

On February 24, 2023, the US Department of Justice (DOJ) rolled out a corporate self-disclosure policy (the Policy) to be applied by all 93 US Attorneys’ Offices throughout the country. The details of the Policy—which formalizes and defines what will be required for companies seeking credit for a “voluntary self-disclosure”—have been drawn from existing policies within other components of DOJ, including, notably, the Foreign Corrupt Practices Act Unit and Antitrust Division. The new Policy ensures for the first time that uniform standards will be applied at the local level by all US Attorneys’ Offices nationwide.

In short, the Policy heavily encourages timely self-disclosure and cooperation by promising the prospect of more lenient resolutions (including declinations) and reduced penalties for companies that promptly self-report misconduct. Consistent with prior recent statements from DOJ leadership, the Policy puts particular emphasis on the timeliness of self-reporting and provides details on how US Attorneys’ Offices will evaluate certain potentially aggravating factors, including the involvement of senior leadership in the alleged misconduct and the company’s history of regulatory, civil or criminal misconduct. (Seee.g.Remarks from Assistant Attorney General Kenneth A. Polite, Jr., on Revisions to the Criminal Division’s Corporate Enforcement Policy, Jan. 17, 2023; Memorandum from Deputy Attorney General Lisa O. Monaco, “Further Revisions to Corporate Criminal Enforcement Policies Following Discussions with Corporate Crime Advisory Group,” Sept. 15, 2022; Memorandum from Deputy Attorney General Lisa O. Monaco, “Corporate Crime Advisory Group and Initial Revisions to Corporate Criminal Enforcement Policies,” Oct. 28, 2021.) While certain aspects of the Policy may thus be familiar, it nonetheless provides important guidance to those engaging with local US Attorneys’ Offices on corporate investigations and prosecutions, while setting consistent standards for engaging with federal prosecutors nationwide.


The Value of M&A Drafting

Adam Badawi is a Professor of Law at UC Berkeley, Elisabeth de Fontenay is a Professor of Law at Duke University, and Julian Nyarko is an Associate Professor of Law at Stanford University. This post is based on their recent paper. Related research from the Program on Corporate Governance includes Are M&A Contract Clauses Value Relevant to Bidder and Target Shareholders? (discussed on the Forum here) by John C. Coates, Darius Palia and Ge Wu; Allocating Risk Through Contract: Evidence from M&A and Policy Implications (discussed on the Forum here) by John C. Coates; and The New Look of Deal Protection (discussed on the Forum here) by Fernan Restrepo and Guhan Subramanian.

What terms matter in merger agreements? M&A lawyers share a strong sense that merger agreement terms matter for deal outcomes and for the parties’ payoffs. In theory, the specific deal terms reached by the parties affect the likelihood of closing and the various deal risks borne by each party, which should in turn translate to real dollars. Scholars have made little progress mapping specific deal terms to expected payoffs, however. Empirical challenges abound, such as the difficulty of isolating the impact on deal outcomes of deal terms versus deal characteristics. Similarly, scholars have not been able to resolve the debate over whether lawyers tend to draft merger agreements optimally, or whether they tailor deal terms either too much or too little.

In The Value of M&A Drafting, we approach these questions indirectly, by asking what terms M&A lawyers themselves deem most important during the drafting process.  Specifically, we use textual analysis tools to measure how much lawyers choose to tailor different deal terms, when they are under severe time pressure versus when they are not.  We do this by comparing the degree of tailoring in “leaked” deals—those where information about the deal negotiations became public prior to signing—to the degree of tailoring in all other deals. Leaks typically motivate parties to sign the merger agreement as quickly as possible, which puts the lawyers drafting the merger agreement under significant time pressure.  Using a sample of 2,141 public-company M&A agreements signed between 2000 and 2020, we find evidence that time pressure leads lawyers to prioritize negotiating and tailoring certain terms over others, which suggests which deal terms the lawyers believe are most important.


Private Equity—2023 Outlook

Karessa L. Cain and Victor Goldfeld are Partners, and Charles C. See is an Associate at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell memorandum by Ms. Cain, Mr. Goldfeld, Mr. See, Andrew Nussbaum, Steven Cohen, and John Sobolewski.

Despite the challenges the year presented for investors (rising interest rates, tumultuous financial markets, geopolitical upheaval, etc.), private equity showed resilience in 2022. Deal activity declined from 2021, but finished the year above pre-pandemic levels. Although fundraising similarly slowed, sponsors still closed 2022 with approximately $2 trillion in dry powder. And while private equity continues to face headwinds in 2023, market dislocations often provide compelling opportunities for the most thoughtful and sophisticated investors. Now more than ever, creative financing and careful transaction planning are essential.

We review below some of the key themes that drove private equity deal activity in 2022 and our expectations for 2023.

Acquisitions and Exits

Deal Activity Down From 2021, But Above Pre-Pandemic Levels. As we described in our recent memo, Mergers and Acquisitions—2023, after a record-shattering year for M&A in 2021, last year represented a reversion to the mean.

  • Deal volumes down. Announced global private equity M&A deal volume declined from $2.1 trillion in 2021 to $1.4 trillion in 2022, with dealmaking tapering in the second half of the year as credit markets weakened and became more volatile. Private equity’s share of overall M&A volume was steady year-over-year (approximately 36%), and deal volume in 2022 exceeded the pre-pandemic level of $1 trillion in 2019.
  • Public buyout boom continues. While aggregate deal volume shrank, sponsors were active in public company buyouts in 2022, supported by the significant decline in public company market valuations and sponsors’ desire to deploy large amounts of capital. 2022 capped a two-year take-private boom, with 2021 and 2022 each, by both deal count and value, marking the highest levels of public company buyout activity since the 2008 financial crisis.


Communicating Your Company’s ESG Strategy in 2023

Martha Carter is Vice Chair & Head of Governance Advisory, Matt Filosa and Orson Porter are Senior Managing Directors at Teneo. This post is based on a Teneo memorandum by Ms. Carter, Mr. Filosa, Mr. Porter, Andrea Calise, Jeff Sindone and Andy Fitch. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) by Lucian A. Bebchuk and Roberto TallaritaDoes Enlightened Shareholder Value add Value (discussed on the Forum here) by Lucian Bebchuk, Kobi Kastiel, Roberto Tallarita; Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock (discussed on the Forum here) by Leo E. Strine, Jr.; and Stakeholder Capitalism in the Time of COVID (discussed on the Forum here) by Lucian Bebchuk, Kobi Kastiel, and Roberto Tallarita.

U.S. companies are facing a new challenge in 2023 – communicating their ESG strategies in the middle of an intense anti-ESG political campaign. To help companies navigate this landscape, we have provided the below key considerations for communicating strategies within 2023 ESG reports, websites, press releases, social media, proxy statements and annual reports.

The Anti-ESG Political Campaign

Certain U.S. politicians have attacked companies, investors and proxy advisors for their focus on environmental, social and governance (ESG) issues at the expense of financial performance. Despite consistent assertions from both companies and investors that ESG initiatives are driven by financial performance, the anti-ESG political campaign claims that ESG initiatives that focus on climate and diversity are a veiled attempt to move the U.S. towards a more liberal culture at the expense of financial returns. While not directly related to ESG, public statements from companies against certain regulatory initiatives (e.g., voting rights) have also been targeted. As a result, many state and federal regulations banning ESG have been proposed and enacted.

Despite the anti-ESG political campaign’s allegations, both company and investor ESG initiatives have consistently focused on managing business risks and opportunities. That has not changed. Stakeholders have also not de-prioritized their ESG expectations, including investors like BlackRock – which recently reiterated its focus on company’s ESG initiatives. And with global regulators moving forward with ESG disclosure mandates for companies that operate internationally, many U.S. companies will need to disclose their ESG strategy regardless of how the anti-ESG political campaign plays out in the U.S. As such, we expect the pressure on companies for more ESG disclosure to increase, not decrease, in the coming years.


Rodman Ward, Jr.

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. Leo E. Strine, Jr. is the Michael L. Wachter Distinguished Fellow at the University of Pennsylvania Carey Law School; Senior Fellow, Harvard Program on Corporate Governance; Of Counsel, Wachtell, Lipton, Rosen & Katz; and former Chief Justice and Chancellor, the State of Delaware.

On March 18, 2023, the corporate law and corporate governance communities lost a special person special.  Rodman Ward, Jr. graduated from Harvard Law School in 1959.  He was a distinguished partner in the Wilmington law firm of Prickett, Ward, Burt & Sanders for many years, during which he was one of Delaware’s leading corporate litigators and commercial lawyers.

During the 1970’s, Rod became the go-to Delaware litigator for a rising firm named Skadden, Arps, Slate, Meagher & Flom, and Joe Flom asked Rod to leave his successful practice and head the first office of Skadden outside of New York, which Rod did for many years.

During this formative period of Delaware takeover law, Rod and the Skadden Wilmington office were at the center of many of the era’s key takeover cases.   Among other matters, Rod argued and won the iconic case of Mills Acquisition Co. v. Macmillan, Inc., 559 A.2d 1261 (1988).  To Rod’s delight, his convincing advocacy in that case led his adversary to mutter Henry II’s lament, “will no one rid me of this meddlesome priest.”


United States v. Blaszczak Continues to Reshape Insider Trading Law

Charles J. Clark, Gary Stein, and Craig S. Warkol are Partners at Schulte Roth & Zabel LLP. This post is based on a SRZ memorandum by Mr. Clark, Mr. Stein, Mr. Warkol, Peter H. White, Douglas I. Koff and Benjamin Lewson. Related research from the Program on Corporate Governance includes Insider Trading via the Corporation (discussed on the Forum here) by Jesse M. Fried.

On Dec. 27, 2022, the U.S. Court of Appeals for the Second Circuit issued another decision in United States v. Blaszczak (“Blaszczak II”), this time delivering a victory to defendants accused of insider trading based on non-public predecisional government information. [1] The case was heard by the Second Circuit following remand from the Supreme Court after its ruling in Kelly v. United States, 140 S. Ct. 1565 (2020), clarifying what can be considered “property” under federal criminal statutes. We had previously written about the Blaszczak case while the decision from the Second Circuit was pending [2] and, earlier, after the Second Circuit’s initial ruling in the case. [3]

Blaszczak is a prime example of how the law of insider trading is judge-made. To bring insider trading cases in the absence of a federal statute targeting insider trading, prosecutors have adapted various more general statutes, including the anti-fraud prohibitions in Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder and, increasingly, a potpourri of other federal statutes. Blaszczak illustrates the overlapping, conflicting and uncertain scope of these different laws. Going forward, Blaszczak will continue to influence how insider trading cases are prosecuted, although what impact it will have remains to be seen.


The underlying prosecution was brought based on allegations that David Blaszczak shared non-public information given to him by Christopher Worrall, an employee of the Centers of Medicare and Medicaid Services (“CMS”) at the time. The information related to upcoming announcements by CMS adjusting the reimbursement rates for Medicare and Medicaid services. Blaszczak allegedly shared this information with hedge fund analysts Robert Olan and Theodore Huber so they could make investments relating to public companies with the understanding that this news would impact those companies’ stock prices.


Developments in Securities Fraud Class Actions Against U.S. Life Sciences Companies

David Kistenbroker, Joni S. Jacobson and Angela M. Liu are Partners at Dechert LLP. This post is based on a Dechert memorandum by Mr. Kistenbroker, Ms. Jacobson, Ms. Liu, Christine Isaacs and Biaunca S. Morris.

In 2022, the total number of securities class action complaints filed remained below the more elevated levels we saw during 2017-2020, but life sciences companies were nonetheless still popular targets among these filings. [1] In this post, we analyze and discuss trends identified in filings and decisions from 2022 so that prudent life sciences companies can continue to take heed of the results.

Plaintiffs filed a total of 43 securities class action lawsuits against life sciences companies in 2022, which represented almost one in four securities class action lawsuits. Filings against life sciences companies in 2022 represented a 27.1% decrease from the previous year, and a 51.1% decrease from five years prior. Of these cases, the following trends emerged:

  • Consistent with historic trends, the majority of suits were filed in the Second, Third and Ninth Circuits, with a 54.5% decrease in suits filed in the Ninth Circuit – 22 in 2021 and 10 in 2022. The Third Circuit saw a 44.4% decrease in filings from the previous year – from nine in 2021 to five in 2022. For district courts within these circuits, the Southern District of New York had the most filings, with 10 overall
  • A few plaintiff law firms were associated with about three-fourths of the first filed complaints against life sciences companies: Pomerantz LLP (18 complaints), Glancy Prongay & Murray LLP (five complaints) and Bronstein, Gewirtz & Grossman, LLC and Kessler Topaz Meltzer & Check LLP (tied with four complaints each). [2]
  • Slightly more claims were filed in the first half of 2022 than in the second half, with 24 complaints filed in the first and second quarters, and 19 complaints filed in the third and fourth quarters.
  • About a quarter of the securities fraud cases brought against life sciences companies (11 cases) were filed against companies with COVID-19-related products and services.


The Continual Dismantling of the Mandatory Disclosure Framework — The SEC’s Inaction

Marc I. Steinberg is the Rupert and Lillian Radford Chair in Law and Professor of Law at Southern Methodist University. This post is based on his recent piece.

In a recent speech, SEC Commissioner Caroline Crenshaw focused on the sparsity of  disclosure in Rule 506(b) offerings.  Pointing out that more funds are raised in private than registered offerings for over a decade, companies are electing to stay private than undertake the rigorous disclosure and regulatory mandates of public company status.  The result is the growing number of unicorns — privately-held companies (currently, approximately 1,200 such companies) with values exceeding $1 billion — with minimal disclosure required.  As Commissioner Crenshaw implicitly acknowledged, the current Commission thus far has done nothing to address this situation.  To her credit, Commissioner Crenshaw set forth a number of potential reforms, including a heightened disclosure regimen for such larger private issuers (resembling the Regulation A—Tier 2 disclosure requirements) and the reconstitution of the Form D to provide meaningful information. (Crenshaw, “Big Issues in the Small Business Safe Harbor: Remarks at the 50th Annual Securities Regulation Institute” (Jan. 30, 2023)).

As Commissioner Crenshaw acknowledged, the divide between the disclosure required in Securities Act registered offerings contrasted with private offerings is huge.   And, this divide becomes wider when the continuous Exchange Act disclosure mandates are triggered once an issuer elects to go public.   Securities Act registration statements and Exchange Act periodic reports call for a wide spectrum of information, with specificity and detail that critics assert result in information overload.  The SEC’s current focus on ESG disclosure likely will exacerbate this dilemma.


ESG Litigation and Regulatory Enforcement Action

Carolyn Frantz is a Senior Counsel, and Alex Talarides and Mike Delikat are Partners at Orrick Herrington & Sutcliffe LLP. This post is based on Orrick memorandum by Ms. Frantz, Mr. Talarides, Mr. Delikat, and James Stengal. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) and Will Corporations Deliver Value to All Stakeholders? (discussed on the Forum here) both by Lucian A. Bebchuk and Roberto TallaritaRestoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock (discussed on the Forum here) by Leo E. Strine, Jr.; and Stakeholder Capitalism in the Time of COVID (discussed on the Forum here) by Lucian Bebchuk, Kobi Kastiel, and Roberto Tallarita.

In the early days, most company Environmental, Social, and Governance (ESG) programs were more akin to Corporate Social Responsibility, with companies publicly highlighting initiatives that benefit their communities. They called attention to things like employee volunteering, youth training and charitable contributions as well as internal programs like recycling and employee affinity groups. Companies did little to justify these limited investments, and the existence of initiatives that provided at least modest brand and employee relations value were not particularly controversial.

In recent years, however, these programs have become larger and more deeply integrated with companies’ core business strategies, including strategies for avoiding risks, such as those presented by gender and racial discrimination claims, the impacts of climate change, and cybersecurity and privacy gaps. Companies increasingly frame ESG programs as shareholder value creation efforts, in line with the views of institutional investors like BlackRock and the current Securities and Exchange Commission (SEC).

As ESG programs become larger and more integrated into a company’s business, so do the risks of attracting attention from regulators and private litigants. Below, we discuss some potential ESG-related regulatory and private litigation actions we expect to increase in coming years, and how to position your company to avoid them.


Larry Fink’s Annual Letters to Investors

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton, Adam O. EmmerichKevin S. SchwartzSabastian V. Niles, Carmen X. W. Lu, and Anna M. D’Ginto. Related research from the Program on Corporate Governance includes The Agency Problems of Institutional Investors (discussed on the Forum here) by Lucian Bebchuk, Alma Cohen, Scott Hirst; Index Funds and the Future of Corporate Governance: Theory, Evidence and Policy (discussed on the Forum here) and  The Specter of the Giant Three (discussed on the Forum here) both by Lucian Bebchuk and Scott Hirst; and The Limits of Portfolio Primacy (discussed on the Forum here) by Roberto Tallarita.

For more than ten years, Larry Fink, Chairman and CEO of BlackRock, the world’s largest asset manager, has published separate annual letters — one to CEOs and another to BlackRock’s shareholders. This year, Fink combined the two letters into one to underscore that in serving its clients, BlackRock has also created value for its shareholders — a demonstration of stakeholder capitalism at work.

As we recently explained, major asset managers such as BlackRock play a critical role in supporting companies as they seek to fulfill their fundamental purpose of pursuing long-term, sustainable value creation. Central to this mission is recognition that stakeholders (shareholders, employees, customers, suppliers, and communities) are critical to a company’s long-term success, and that boards and management should consider their interests when exercising their business judgment. This is the conception of corporate purpose articulated in The New Paradigm (issued by the World Economic Forum’s International Business Council in 2016), supported by the Business Roundtable beginning in 2019, and widely accepted by corporate leaders, investors, companies, and practitioners. Fink’s letter highlights the importance of this ongoing relationship and partnership between companies and asset managers as well as between companies and their other stakeholders in the context of the stakeholder governance model of corporate purpose.


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