Monthly Archives: March 2021

C-Suite Challenge 2021: Leading in a Post-COVID-19 Recovery

Charles Mitchell is Executive Director of Knowledge Content & Quality at The Conference Board, Inc. This post is based on a Conference Board memorandum by Mr. Mitchell, Rebecca L. Ray, Ataman Ozyildirim, Ilaria Maselli, and Dana Peterson.

Executive Summary: Meeting the Challenges Ahead

Since 1999, The Conference Board CEO Challenge® survey has asked CEOs across the globe to identify the most critical issues they face and their strategies to meet them. Since 2017, the C-Suite Challenge has expanded the survey pool beyond CEOs to the entire C-suite. This year’s survey, conducted following the US elections in November 2020, asked CEOs and C-suite executives for their views on the external stress points they face and the strategies they will focus on to mitigate risk and seize opportunity as part of the post-COVID-19 recovery. In addition, the survey asked respondents for their views on the long-term impacts that will emerge from the pandemic. A total of 1,538 C-suite executives, including 909 CEOs across the globe, responded.

Insights for What’s Ahead

When asked which issues outside of management control will have the greatest impact on their business in the coming year, CEOs cite the COVID-19 virus, vaccine availability, and changing consumer buying behaviors as the key potential game changers in 2021. However, despite modest growth expectations for the global economy in both the short and long term, business leaders seem unable to shake lingering recession concerns.


Speech by Acting Chair Lee on Meeting Investor Demand for Climate and ESG Information at the SEC

Allison Herren Lee is Acting Chair at the U.S. Securities and Exchange Commission. This post is based on her recent public statement. The views expressed in the post are those of Acting Chair Lee, and do not necessarily reflect those of the Securities and Exchange Commission or the Staff.

Thank you, John [Podesta], and thanks to the whole team here at the Center for American Progress, for hosting me today. I’ve had the honor of serving as Acting Chair of the SEC for nearly two months now, and I appreciate the opportunity to reflect on the enhanced focus the SEC has brought to climate and ESG during that time, and on the significant work that remains. Along with shepherding the agency through the transition and supporting the work of the SEC staff, no single issue has been more pressing for me than ensuring that the SEC is fully engaged in confronting the risks and opportunities that climate and ESG pose for investors, our financial system, and our economy.

Today I want to map out the ways in which we have brought investors’ voices to the forefront on these issues in recent months. The progress to date is a tribute to the hard work of the staff, both in my office and throughout the SEC. I especially want to thank my Senior Policy Advisor for Climate and ESG, Satyam Khanna, who has worked tirelessly and effectively across the agency on these issues. I know climate and ESG is of great interest to CAP as well, and I thank you for your critical work in this area.


Delaware Chancery Court Invalidates “Anti-Activist” Poison Pill

Lori Marks-EstermanSteve Wolosky, and Andrew Freedman are partners at Olshan Frome Wolosky LLP. This post is based on their Olshan memorandum, and is part of the Delaware law series; links to other posts in the series are available here. Related research from the Program on Corporate Governance includes Toward a Constitutional Review of the Poison Pill by Lucian Bebchuk and Robert J. Jackson, Jr. (discussed on the Forum here).

On February 26, 2021, the Delaware Court of Chancery issued a landmark decision invalidating a stockholder rights plan, commonly known as a “poison pill,” that was adopted by the board of directors of The Williams Companies, Inc., an NYSE listed company (“Williams” or the “Company”), at the outset of the COVID‑19 pandemic. Steve Wolosky, the co-chair of Olshan’s Shareholder Activist Group, was a lead plaintiff in the class action lawsuit seeking to invalidate the pill. The Williams pill was one of many rights plans adopted by dozens of public companies during the pandemic, purportedly in response to specific control threats and/or precipitous drops in share price due to extreme market volatility.

The Williams pill, however, was “unprecedented” in that it was adopted purely as an “anti-activist pill” and contained a series of extreme features, including a 5% trigger and expansive “acting in concert” language that included a “daisy chain” provision. In the class action lawsuit, the certified class of plaintiffs asserted that the board of directors of the Company (the “Board”) breached its fiduciary duties when adopting the pill. In an 89-page opinion written by Vice Chancellor McCormick, the Court held that this unprecedented pill could not be justified given the Board’s motivations for its adoption and the “extreme combination of features” it possessed.


Delaware Court of Chancery Allows Merger-Based Breach of Fiduciary Duty Claims to Proceed

Jason Halper and Jared Stanisci are partners and Sara Bussiere is an associate at Cadwalader, Wickersham & Taft LLP. This post is based on a Cadwalader memorandum by Mr. Halper, Mr. Stanisci, Ms. Bussiere, Victor Bieger, and Victor Celis, and is part of the Delaware law series; links to other posts in the series are available here. Related research from the Program on Corporate Governance includes Are M&A Contract Clauses Value Relevant to Target and Bidder Shareholders? by John C. Coates, Darius Palia, and Ge Wu (discussed on the Forum here); and The New Look of Deal Protection by Fernan Restrepo and Guhan Subramanian (discussed on the Forum here).

On January 29, 2021, Vice Chancellor Laster of the Delaware Court of Chancery refused to dismiss a shareholder class action stemming from the 2019, $2.2 billion sale of Presidio, Inc., an IT solutions provider specializing in digital infrastructure and cloud and security solutions, to BC Partners Advisors L.P. (“BCP”), a private-equity firm. In Firefighters’ Pension System of the City of Kansas City v. Presidio, Inc., a shareholder of Presidio filed suit against Presidio’s CEO, its board of directors, Apollo Global Management LLC (Presidio’s controlling shareholder, owning approximately 42% of its outstanding common stock), LionTree Advisors, LLC (financial advisor to both Presidio and Apollo), and the acquiror, BCP.

The shareholder claimed that Apollo, Presidio’s CEO, and LionTree all favored—out of their own self-interests—a sale to BCP rather than a more competitive sales process. Apollo was allegedly seeking an exit from its investment in Presidio and favored a quick sale to BCP rather than a drawn-out bidding war. Presidio’s CEO allegedly favored steering the sale to BCP because BCP had promised him a lucrative post-sale pay package. As for LionTree, it allegedly was motivated by ongoing, lucrative relationships with both BCP and Apollo and tipped off BCP to another incoming bid so that BCP could stave-off a bidding war. The shareholder claimed that, as a result, Apollo, Presidio’s CEO, and the board breached their fiduciary duties and that LionTree and BCP aided and abetted the fiduciary duty breaches.


Transparency and the Future of Corporate Political Spending

Caroline Crenshaw is a Commissioner at the U.S. Securities and Exchange Commission; and Michael E. Porter is the Bishop William Lawrence University Professor at Harvard Business School. The views of Commissioner Crenshaw expressed in this post do not necessarily reflect the views of the Securities and Exchange Commission, its staff, or other commissioners.

Related research from the Program on Corporate Governance includes The Untenable Case for Keeping Investors in the Dark by Lucian Bebchuk, Robert J. Jackson Jr., James David Nelson, and Roberto Tallarita (discussed on the Forum here); Shining Light on Corporate Political Spending by Lucian Bebchuk and Robert J. Jackson Jr., (discussed on the Forum here); and Corporate Politics, Governance, and Value Before and After Citizens United, by John C. Coates, IV.

In the wake of January’s attack on our democracy, business leaders across America are rightly reconsidering whether, and how, public companies should participate in politics. Household names ranging from Coca-Cola to Facebook are halting campaign contributions to certain elected officials after the Capitol siege. These leaders now understand that the longstanding system for corporate participation in politics—giving shareholder money to dark intermediaries that indirectly fund campaigns—is broken. In its place, a new playbook for corporate political participation is emerging—one that focuses on solving the Nation’s problems rather than funding partisan gridlock. We know that if we truly want American companies to change their role in politics, we must first require transparency on how shareholder money is spent on politics, and for what.

For years, public companies have used money from American investors to finance secretive social welfare, trade associations, and third parties in Washington. Investors have repeatedly requested information on political spending—last year, shareholders voted in favor of greater disclosure 80% of the time that question was on a corporate ballot. Yet, the U.S. Securities and Exchange Commission is not able under current rules to require transparency for all public companies. The reason is that Congress, reinforced by party partisanship, has conditioned the SEC’s funding on not finalizing a rule that requires disclosure of corporate political spending. With our nation’s financial watchdog sidelined, American investors have no way to determine whether and how their money is spent on corporations’ preferred political causes.


The SEC Should Address the Risk of Activist “Lightning Strikes”

Adam O. Emmerich, Trevor S. Norwitz, and William Savitt are partners at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell memorandum by Mr. Emmerich, Mr. Norwitz, Mr. Savitt, Sabastian V. Niles, and Karessa L. Cain. Related research from the Program on Corporate Governance includes The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here); Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon Brav, Robert J. Jackson Jr., and Wei Jiang.

As the new leadership of the Securities and Exchange Commission considers the agency’s regulatory priorities, they might take note of the recent decision of the Delaware Court of Chancery in The Williams Companies Stockholder Litigation. As we recently noted, the primary import of that decision was to remind corporate boards not to overreach in their efforts to protect corporations from threats, including those exacerbated by regulatory gaps. The question for the SEC is why corporate boards should have to engage in such “gap-filling” exercises at all.

It has long been recognized that the regulatory framework designed more than 50 years ago to provide early warning for shareholders, companies and the market in general of impending changes of corporate control is anachronistic, lags behind disclosure rules in every other modern economy, and is in urgent need of reform. Yet American corporations are still vulnerable to sudden and dramatic changes in control as a result of what the Delaware Court referred to as “lightning strikes” during the Regulation 13D ten-day window by shareholder activists maneuvering under cover of regulatory darkness, utilizing derivative securities not reached by the 13D disclosure requirements, and backed up by “wolf packs” of me-too investors who often have information about the activist scheme that gives them an unfair advantage over regular Main Street investors, but whose behavior is carefully calibrated to evade the 13D disclosure rules.


Limiting SPAC-Related Litigation Risk: Disclosure and Process Considerations

Caroline Bullerjahn and Morgan Mordecai are partners at Goodwin Procter LLP. This post is based on their Goodwin memorandum.


2020 marked an incredible surge in the prevalence of Special Purpose Acquisition Company (“SPAC”) initial public offerings and business combinations (“deSPAC transactions”). In 2020, there were 248 SPAC IPOs (raising total gross proceeds of over $83 billion) and 66 deSPAC transactions, as compared with 2019’s 59 SPAC IPOs (raising approximately $13.6 billion in gross proceeds) and 28 deSPAC transactions. [1] And the pace continues to skyrocket in 2021 with 160 SPAC IPOs in the first two months of the year and 13 completed deSPAC transactions. [2] This spectacular rise, and the related profits, has unsurprisingly garnered attention from both the United States Securities and Exchange Commission (“SEC”) and plaintiffs’ law firms. Most recently, the SEC’s Division of Corporation Finance released guidance [3] (the “SEC’s SPAC Guidance”) concerning disclosure obligations for SPAC IPOs and deSPAC transactions, highlighting many process and disclosure-related issues that plaintiffs’ lawyers typically raise and have focused on in recent SPAC lawsuits. As we anticipate that plaintiffs’ firms will continue to hone in on SPAC-related litigation in 2021 (likely using the SEC’s SPAC Guidance as its new and more tailored playbook), SPAC sponsors, their boards of directors, and the directors and officers of acquisition targets should all be focused on key steps to limit litigation risks and minimize costs associated with these risks.

Disclosure-Based Claims and the SEC’s SPAC Guidance

Given that SPAC transactions have not historically been the subject of significant litigation, particularly as compared to traditional IPOs and public-to-public M&A transactions, plaintiffs’ firms played catch-up in this area during 2020, largely recycling their traditional M&A playbook. Accordingly, following the filing of the initial Form S-4 in connection with the deSPAC transaction, plaintiffs’ firms have alleged disclosure-based claims under Section 14(a) of the Exchange Act, claiming that the proxy statements issued are deficient due to the failure to disclose financial projections for the SPAC entity, immaterial details relating to negotiations or pursuit of other potential acquisition targets, reasoning for not hiring a financial advisor, or financial analyses that the SPAC board considered. See Wheby v. Greenland Acquisition Corp., C.A. No. 1:19-cv-01758 (D. Del. Sept. 19, 2019) (basing Section 14(a) action on alleged failure to make disclosures related to line items and reconciliations underlying financial statements, the target’s financial projections, terms of a non-disclosure agreements and letters of intent with potential targets, the basis for not hiring a financial advisor, and communications regarding future employment of the SPAC sponsors). More recently, however, plaintiffs’ firms are couching such pre-closing disclosure-based claims as breach of fiduciary duty claims, often filing in New York state courts, and are honing in on the unique aspects of SPACs and deSPAC transactions.


ESG Disclosure – Keeping Pace with Developments Affecting Investors, Public Companies and the Capital Markets

John Coates is Acting Director of the Division of Corporation Finance at the U.S. Securities and Exchange Commission. This post is based on his remarks at the 33rd Annual Tulane Corporate Law Institute. The views expressed in the post are those of Mr. Coates, and do not necessarily reflect those of the Securities and Exchange Commission or the Staff.

Not long ago, the title of this statement would have needed to unpack “ESG” into Environmental, Social and Governance. That ESG no longer needs to be explained illustrates how important these issues have become to today’s investors, public companies and capital markets. It also illustrates the pace of ESG developments. There remains substantial debate over the precise contents and details of what ESG disclosures might or should encompass. Part of the difficulty is in the fact that ESG is at the same time very broad, touching every company in some manner, but also quite specific in that the ESG issues companies face can vary significantly based on their industry, geographic location and other factors. As such, there is no one set of metrics that properly covers all ESG issues for all companies. Moreover, the landscape is changing rapidly so issues that yesterday were only peripheral today are taking on greater importance. It is against this backdrop that I think about the regulation of ESG disclosures.

Going forward, I believe SEC policy on ESG disclosures will need to be both adaptive and innovative. We can and should continue to adapt existing rules and standards to the realities of climate risk, for example, and the fact that investors increasingly are asking for ESG information to help them make informed investment and voting decisions. We will also need to be open to and supportive of innovation—in both institutions and policies on the content, format and process for developing ESG disclosures.


2020 Say on Pay & Proxy Results

Todd Sirras is managing director, Austin Vanbastelaer is senior consultant, and Justin Beck is a consultant at Semler Brossy Consulting Group LLC. This post is based on a Semler Brossy memorandum by Mr. Sirras, Mr. Vanbastelaer, Mr. Beck, Basil Williams, and Sarah Hartman.

Our first Say on Pay and Proxy Results report of the 2020 proxy season included four predictions for voting trends. At that time, it was difficult to estimate the impact that COVID-19 would have on 2020 corporate performance and compensation programs (and significant uncertainty still exists). Compensation-related actions in response to COVID-19 will be a major discussion point in CD&As and proxy advisor reviews that are released in early 2021. Below are the trends we observed through the 2020 proxy season.

  • We did not observe any change in the average Say on Pay vote support for Russell 3000 companies from 2019 to 2020, despite a significant number of companies disclosing mid-year pay We expect the 2021 average vote support and failure rate to reflect more of COVID-19’s impact as shareholders learn the full breadth of actions (such as discretionary bonus adjustments, modifications to outstanding equity, and other design changes) taken by companies through proxy filings covering FY20 executive compensation
  • Based on the Say on Pay failure rate’s cyclical trend since 2011, we predicted the Say on Pay failure rate for Russell 3000 companies would fall below 2% after two consecutive years above 5%. The failure rate decreased to 2.3% in 2020
  • We expected the standard deviation of Say on Pay voting to increase above the 13% standard deviation observed in 2019 due to differing approaches from investors measuring company’s pay-and-performance relationship; however, this shift was not as impactful as expected and the standard deviation decreased from 13% to 12.3% in 2020
  • We anticipated average Director vote support would fall below 94.5% as shareholders continue to increase expectations for Average vote support in 2020 (94.9%) did not drop as drastically as predicted; however, we expect this trend will continue at the current pace in 2021 as pay-related decisions in the COVID-19 environment are assessed in next year’s proxies
  • We predicted the median vote support for Environmental and Shareholder proposals would reach 30%. Overall, vote support did not increase in 2020, but the number of proposals receiving above 50% support increased significantly. Investors are tightening their expectations around ESG-related actions and are holding companies accountable to these expectations through other avenues beyond shareholder proposals


Board Priorities for 2021 Abound Amid Slow Economic Recovery

Amy Rojik is a National Assurance Partner at the BDO Center for Corporate Governance. This post is based on her BDO memorandum.

Board members are reconsidering their oversight priorities after a tumultuous 2020 and slow economic recovery. For many, this means navigating some level of financial difficulty that will take a combination of outside capital, resourcefulness and innovation to overcome. For others, it means focusing on emerging or elevated risks and opportunities impacting corporate strategy execution.

Concurrently, shareholders, regulators and other stakeholders have expanding expectations for board action in the wake of the pandemic. Boards of directors are being prompted to address financial and social pressures, a reimagined workplace, evolving regulatory demands and increased scrutiny on environmental, social and governance (ESG) activities. The 2021 BDO Winter Board Pulse Survey reveals how public company boards are moving forward despite continued uncertainty.


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