Monthly Archives: January 2008

The Constituency Director

This post is from Joseph Hinsey of Harvard Business School.

“Constituency director” is a somewhat unfamiliar term in the corporate lexicon for public companies. Perhaps even less familiar, in terms of corporate law and corporate governance, is the status of a “constituency director” vis-à-vis the duty of loyalty and traditional fiduciary duty; specifically, is it different than time-honored expectations imposed upon a typical director serving on the board of a public company?

What is a “constituency director”? We deal here with public company directors whose board membership is attributable to one or more particular constituencies, such as a director whose board election is (or would seem to be) otherwise traceable to a recognizable voting constituency or “sponsor”. [nota bene: this commentary is focused upon – and limited to – the public company environment, for private company situations will often present understandably different considerations (e.g., the family corporation).] Classic examples would include parent company executives serving on the board of a majority-owned subsidiary that is still a public company and union representatives serving on the board pursuant to a collective bargaining agreement. Other examples would typically be (i) private equity or venture capital representatives continuing on the board of the enterprise, after it has again become a public company, until their firm’s investment has been completely liquidated, (ii) directors elected by a separate class of securities (such as a preferred) entitled to board representation so long as that class of securities is outstanding, and (iii) family board members (with significant equity ownership – directly or in family hands) continuing their directorships after their privately-held family enterprise becomes a public company.


The Corporate Governance Blog’s Exponential Growth

Our Blog, which was founded just 13 months ago, has experienced tremendous growth over this period. Traffic increased more than tenfold during 2007, reaching 144,431 hits in December. Altogether, the Blog received 874,622 hits during 2007. We featured some 191 posts during the year, covering a wide range of subjects.

A chart of the traffic to our Blog, depicting our exponential growth during 2007, is displayed below:

The Harvard Law School Corporate Governance Blog 2007 Stats

We are grateful to the many readers who have visited, commented, and published on our Blog. We also thought this would be a good opportunity to remind readers that you can easily sign up to receive email announcements on our new posts. To sign up, just follow these steps:

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Highlights of a Dialogue with Vice Chancellor Leo Strine and Martin Lipton

Recently, the New England Chapter of the National Association of Corporate Directors hosted a breakfast panel featuring Vice Chancellor Leo E. Strine, Jr. and Martin Lipton of Wachtell Lipton Rosen & Katz. (John L. Reed of Edwards Angell Palmer & Dodge previously posted on the talk here.)

The NACD has released highlights of the talk, entitled The Delaware Courts, the Corporate Bar, and Being a Director. The summary describes the panelists’ insights on the upcoming proxy season, executive compensation, the committee structure in today’s boards, and the role of independent directors.

The highlights of the panel discussion are available online here.

The Top Five Delaware Cases of 2007

Editor’s Note: This post is from Francis G.X. Pileggi of Eckert Seamans Cherin & Mellott, LLC. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Professor J. Robert Brown of the University of Denver College of Law (and a Guest Contributor on this Blog) recently provided a “Top Five” list of Delaware cases that–in his view–show why Delaware is “anti-shareholder and anti-plaintiff.” I realize that there are many experts who can rebut the professor’s arguments far more persuasively than I, and I am well aware that the Delaware bench certainly does not need my help to defend it.

Nonetheless, having just completed my review of key 2007 Delaware corporate decisions, I offer my own “counter-list” of the Top Five Cases of 2007 that show that the Delaware courts take shareholder rights and director duties very seriously. I could easily provide a longer list–but, for starters, here is an alternative list of the Top Five Delaware Cases of 2007.

Justice Jacobs on Delaware’s Takeover Law

This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.


Recently, in Reinier Kraakman‘s Corporations course here at Harvard Law, Justice Jack B. Jacobs of the Delaware Supreme Court treated students to a highly insightful talk on Delaware’s Takeover Law. Justice Jacobs’s talk provided a rare insider’s perspective on the evolving standards of international takeover law–and the Delaware cases that govern most American acquisitions.

Justice Jacobs gave a detailed analysis of the institutions that regulate takeovers in the United Kingdom, continental Europe, and elsewhere, providing fascinating context for the relative dominance of the common law in Delaware. In the course of his talk, Justice Jacobs noted that the choice among regulatory institutions has had critical, and often overlooked, implications for the substantive approach to takeovers in each jurisdiction: the importance of defenses, the role of directors, and the rights of shareholders. The discussion also provides a striking perspective on Delaware’s leading takeover cases and their relevance to contemporary merger practice.

An audio recording of Justice Jacobs’s talk is available online here.

Chancery Declines to Require Specific Performance in a Case of Buyer’s Remorse

This post is from Edward B. Micheletti of Skadden, Arps, Slate, Meagher & Flom LLP. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

On December 21, 2007, Chancellor William B. Chandler issued his post-trial opinion in United Rentals, Inc. v. RAM Holdings Corp. The suit, which has been closely monitored by members of the M&A bar and the business press, sought specific performance of a merger agreement whereby Cerberus (through wholly-owned subsidiaries known as “RAM”) would have acquired United Rentals (“URI”) for $34.50 per share in cash. As described by the court, “the dispute between URI and Cerberus [was] a good, old fashioned contract case prompted by buyer’s remorse.”

Nearly four months after agreeing to acquire URI on July 22, 2007, RAM sent URI a letter advising that it was not prepared to proceed with the acquisition on the original terms, but was willing to re-negotiate the price or simply pay URI a $100 million “reverse” termination fee to walk away from the deal. The central issue in the case was whether two terms of the merger agreement– section 9.10 (entitled “Specific Performance”) and section 8.2(e) (entitled “Termination, Amendment and Waiver”)–provided URI with the right to seek specific enforcement of the deal, or whether RAM had the ability to walk away from the deal upon payment of the $100 million termination fee.

Section 9.10 expressly invested URI with a right to seek specific performance. However, section 9.10 explicitly states that it is “subject in all respects to section 8.2(e) hereof, which Section shall govern the rights and obligations of the parties . . . under the circumstances provided therein.” Section 8.2(e) describes the $100 million termination fee payable to URI as the “sole and exclusive” remedy against RAM under the merger agreement in the event of a termination; and, critically, further stated that:

In no event, whether or not this Agreement has been terminated pursuant to any provision hereof, shall [RAM or Cerberus] . . . be subjected to any liability in excess of the [termination fee] for any or all losses or damages relating to or arising out of this Agreement or the transactions contemplated by this Agreement, . . . and in no event shall [URI] seek equitable relief or seek to recover any money damages in excess of such amount from [RAM or Cerberus].

URI contended that specific performance under section 9.10 remained a viable remedy despite the language of section 8.2(e), in part because the $100 million termination fee was the “sole and exclusive” remedy only in the event of a “Termination” (as defined in the merger agreement) and not a breach of the agreement. In contrast, RAM argued that because section 9.10 is “subject in all respects to section 8.2(e)”, the terms of section 8.2 control, and effectively nullify any right to specific performance that may have been authorized by section 9.10.

The Court held that the meaning of the provisions was ambiguous, and thus denied a motion for summary judgment filed by URI (calling it a “close call”). The parties proceeded to a two-day trial where extrinsic evidence (including the negotiating history between the parties and their respective advisors) was extensively scrutinized by the Court.


Cross-Border Checklist and Mergers and Acquisitions in 2008

This post is from Theodore Mirvis of Wachtell, Lipton, Rosen & Katz.

Cross-border M&A nearly doubled from 2006 to 2007 as a percentage of total activity, and some observers see it as the savior of 2008. Here is a quick checklist of critical issues for US/non-US deals.

And sometimes less really is more: here is a one-pager on M&A in 2008.

Hedge Fund Activism

Recently, in the Mergers, Acquisitions, and Split-Ups course here at Harvard Law, co-taught by Professor Robert Clark and Vice Chancellor Leo Strine, Jr., practitioners from three major hedge funds gave a fascinating talk on the complex legal matters facing funds that take activist positions in publicly traded companies. The panel discussion, entitled Hedge Fund Activism, provided considerable practical insight on the range of regulatory, competitive, and political issues a fund manager must consider before participating actively in a contested election.

The panelists, including William Ackman and Roy Katzovicz of Pershing Square Capital, Sy Lorne of Millennium Partners, and Robert Knapp of Ironsides Partners, emphasized the regulatory risks hedge fund activists face–especially the antitrust and securities issues raised when a fund enters a proxy fight. The talk also addressed the effects of public perception of hedge funds and increased use of derivatives on fund activism. In addition, the panelists shared their insights on the complex voting issues that inevitably arise in a closely contested election–including which shareholders should have been entitled to vote, and which party should have prevailed.

A video of the discussion can be accessed online here.

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