Monthly Archives: July 2021

Chancery Denies Corwin Cleansing In Light of Process Concerns

Matthew J. Dolan is partner at Sidley Austin LLP. This post is based on his Sidley memorandum, and is part of the Delaware law series; links to other posts in the series are available here.

Last month Vice Chancellor Zurn issued a significant, 200+ page decision on a motion to dismiss filed by defendants in the ongoing Pattern Energy transaction litigation, captioned In re Pattern Energy Group Inc. Stockholders Litigation, C.A. No. 2020-0357-MTZ. As we previously reported, class actions had been filed in Chancery Court and Delaware Federal District Court following the $6.1 billion going-private sale of Pattern Energy Group, Inc. to Canada Pension Plan Investment Board (“Canada Pension”). Both cases present overlapping breach of fiduciary duty claims. The Chancery Court case has moved forward faster, with that Court now issuing a decision denying defendants’ motion to dismiss. The decision is a reminder to directors and their advisers that without careful adherence to an independent sales process and transaction structure, directors risk losing the liability protections that Delaware law otherwise provides.

The Sales Process

Pattern Energy was formed nine years ago by Riverstone Pattern Energy Holdings, L.P.(“Riverstone”), a private equity fund, for the purpose of operating renewable energy facilities developed by another Riverstone affiliate. (The summary of pertinent background facts is taken from the Chancery Court’s lengthy recitation of transaction found in its Order from pages 4 to 81.) Riverstone is not a Pattern Energy stockholder. Instead, plaintiffs alleged that Riverstone exercised control through Pattern Energy’s primary upstream supplier of energy projects (“Supplier”), which provided most of Pattern Energy’s business. Pattern Energy was itself a limited partner in Supplier, and Riverstone controlled Supplier. Importantly, the applicable partnership agreement prohibited Pattern Energy from selling its stake in Supplier without Supplier’s consent, although a transaction could potentially be structured to avoid triggering this consent right. This effectively gave Riverstone (through Supplier) a veto right on a sale of Pattern Energy’s stake in Supplier.


Statement by Commissioner Peirce on the IFRS Foundation’s Proposed Constitutional Amendments Relating to Sustainability Standards

Hester M. Peirce is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on her recent public statement. The views expressed in this post are those of Ms. Peirce and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

The International Financial Reporting Standards (“IFRS”) Foundation oversees the International Accounting Standards Board, one of the world’s preeminent accounting standard-setters. In recent months, the IFRS Foundation’s gaze has drifted to sustainability reporting. In September 2020, the IFRS Foundation began formally exploring the creation of an International Sustainability Standards Board under the Foundation’s governance structure.

Earlier today, I submitted a comment letter responding to the IFRS Foundation’s proposed amendments to its constitution that would make the creation of the International Sustainability Standards Board possible. [1] I urge the IFRS Foundation not to wade into sustainability standard-setting because doing so would (i) improperly equate sustainability standards with financial reporting standards, (ii) undermine the Foundation’s current important, investor-centered work, and (iii) raise serious governance concerns. The letter is included as an appendix below.

Strong financial reporting standards are the bedrock of our capital markets. They enable investors to make informed decisions about how to allocate capital. We must be careful not to compromise accounting standard-setting in an effort to achieve objectives other than high-quality financial reporting, no matter how noble those objectives may be.


Key Considerations for Companies Looking to Integrate ESG and DE&I Into Compensation Programs

Blair Jones is Managing Director at Semler Brossy Consulting Group. This post is based on her Semler Brossy memorandum. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here).

Eager to give greater attention to stakeholders beyond investors, corporate boards have been adding environmental, social and governance (ESG) issues to their agenda. Prompted by institutional investors and proxy advisors—and from other stakeholder groups— they’ve begun considering translating those concerns into their executive pay packages. At Semler Brossy, we’ve seen a dramatic increase in client inquiries on this challenge.

Linking ESG metrics to executive pay is a powerful way to drive change, but compensation is a sensitive instrument, so we urge caution. Compensation real estate is limited. Each new metric may dampen the emphasis on existing metrics. It is important to balance all incentive metrics to gain the most powerful effect. Companies can be most effective with ESG metrics starting with just the most relevant issues for them and their industry or sector, rather than trying to address all ESG elements.

Companies can assess a number of worthy goals against the company’s specific strategy for customers, employees and other stakeholders. Where can you make the biggest impact or where do you have the biggest gaps? What metrics best drive competitive advantage? Are you looking to limit a major risk or capture a big opportunity?


The False Hope of Stewardship in the Context of Controlling Shareholders: Making Sense Out of the Global Transplant of a Legal Misfit

Dan W. Puchniak is associate professor of law at the National University of Singapore. This post is based on his recent paper, forthcoming in the American Journal of Comparative Law. Related research from the Program on Corporate Governance includes The Agency Problems of Institutional Investors by Lucian Bebchuk, Alma Cohen, and Scott Hirst (discussed on the Forum here); Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy by Lucian Bebchuk and Scott Hirst (discussed on the forum here); and The Specter of the Giant Three by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

The 2008 Global Financial Crisis (GFC) rocked the foundation of the United Kingdom’s financial system. As the dust settled, the UK tried to figure out what went wrong. An autopsy of UK corporate governance revealed that it had developed an acute problem. Institutional investors had come to collectively own a substantial majority of the shares of listed companies, but often lacked the incentive to use their collective ownership rights to monitor them. The failure of these rationally passive institutional investors to act as engaged shareholders—or, as is now the popular vernacular, to be “good stewards”—allowed corporate management to engage in excessive risk taking and short-termism, which were primary contributors to the GFC.

In 2010, the UK enacted the world’s first stewardship code (UK Code) to solve this problem. The goal of the UK Code was to incentivize passive institutional investors to become actively engaged shareholder stewards. After a decade, there are still divergent views on whether the UK Code will ever be able to achieve this goal.


Weekly Roundup: June 25–July 1, 2021

More from:

This roundup contains a collection of the posts published on the Forum during the week of June 25–July 1, 2021.

The Board Diversity Census of Women and Minorities on Fortune 500 Boards

A New Angle on Cybersecurity Enforcement from the SEC

Phantom of the Opera: ETF Shorting and Shareholder Voting

How Companies Should Respond to the SEC’s Enhanced Focus on Rule 10b5-1 Plans

Tone at the Bottom: Measuring Corporate Misconduct Risk from the Text of Employee Reviews

Key Corporate Governance Issues at Mid-Year 2021

What Does Codetermination Do?

Measuring Up To HCM

How Do Asset Managers Create Subsidies for Certain Firms?

Keynote Address by Commissioner Lee on Climate, ESG, and the Board of Directors

ESG & Long-Term Disclosures: The State of Play in Biopharma

Rights Offers and Delaware Law

Jesse M. Fried is Dane Professor of Law at Harvard Law School. This post is based on his recent paper, and is part of the Delaware law series; links to other posts in the series are available here.

Under Delaware law, a securities issuance by a public or private firm in which all investors may participate pro rata (a “rights offer”) is generally seen as treating corporate insiders and existing outside investors alike. This view makes it difficult for nonparticipating outsiders to prevail on a “cheap-issuance” claim: that the insiders sold themselves cheap securities via the rights offer.

In a paper recently posted on SSRN, Rights Offers and Delaware Law, I explain how insiders can use rights offers to sell themselves cheap securities at outsiders’ expense, and suggest how courts applying Delaware law should probe the fairness of rights offers.

Under Delaware law, any transaction (including a securities issuance) allegedly benefitting insiders at outsiders’ expense can give rise to “entire fairness” review, under which insiders must prove that both price and process were fair. However, by structuring an issuance as a rights offer, which appears to protect outsiders, insiders have gained substantial legal insulation from outsiders’ claims. Certain cases (e.g., WatchMark v. ARGO (Del. Ch. 2004)) suggest that the use of a rights offer could lead to review under the much more lenient business judgment rule. When a rights offer is followed by a merger, other cases (e.g., Feldman v. Cutaia (Del. Ch. 2007)) suggest that insiders may well be able to avoid any judicial review whatsoever. And, even if fairness review cannot be avoided, the use of a rights offer may well go far to help satisfy entire fairness.


ESG & Long-Term Disclosures: The State of Play in Biopharma

Anuj A. Shah is Partner and Head of US & UK at KKS Advisors; Brian Tomlinson is Director of Research at the CEO Investor Forum, Chief Executives for Corporate Purpose (CECP); Emilie Kehl is Senior Associate and Lukas Rossi is an Associate at KKS Advisors. This post is based on their recent paper. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); Socially Responsible Firms by Alan Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here); and Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock by Leo E. Strine, Jr. (discussed on the Forum here).

Executive Summary

How much forward-looking information do public companies disclose, including on ESG themes? Do they provide targets and KPIs on themes key to long-term value creation? In this paper, we analyze the accessibility, quantity, and time frame of forward-looking information disclosed by the 25 constituents in the S&P 500 Pharmaceuticals, Biotechnology & Life Sciences GICS industry classifications.

Using an updated version of CECP’s Long-Term Plan (“LTP”) Framework, we assess four key disclosure channels (annual reports/10-K, stand-alone sustainability reports, proxy statements, and investor day transcripts) and find that forward-looking information is dispersed, and locating it is complex and time-consuming.

In addition, the amount of forward-looking disclosure varies across the LTP Framework’s nine themes, with the most found across the themes of Competitive Positioning and Trends. We find that near-term disclosures are most common.

We conclude with a practical set of executive-ready recommendations for corporate managers focused on setting targets, increasing transparency, refreshing materiality, and providing commentary on ESG disclosures.


Tech Companies Come Together on Climate-Related Disclosures

Melissa Pfeuffer is Capital Markets Business Development Practice Group Specialist at Mayer Brown LLP. This post is based on her Mayer Brown memorandum.

In a comment letter to the Securities and Exchange Commission on June 11, seven well-known tech companies responded to SEC Acting Chair Allison Herren Lee’s March 2021 request for public input on climate change disclosures (see our related blog post). The letter expressed support for consistent reporting by public companies regarding climate-related matters.

With acknowledgement regarding the severity and urgency of addressing climate change issues, the letter mentions that the companies believe “…it is critical to regularly measure and report on progress towards climate commitments.” The letter notes the importance of sharing updates with investors and stakeholders, stating, “Investors need clear, comprehensive, high-quality information on the impacts of climate change for market participants.”

The letter addressed to Chair Gensler specifically outlined some climate disclosure suggestions for the SEC to consider, including:


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