James Whitaker is partner and Riku Ode is a trainee solicitor at Mayer Brown LLP. This post is based on their Mayer Brown memorandum.
Introduction
Companies—both public and private, and in multiple sectors—continue to grapple with the challenges of today’s economic climate. Nuanced, complex and consequential (perhaps even existential) decisions must often be made under significant time pressures. As a result, the interests and views of shareholders—particularly minority shareholders—may not always receive the attention they deserve, or require. Increasingly, those shareholders are looking for means of redress.
In this post, we look at unfair prejudice actions, which have long formed an important weapon in shareholders’ arsenals. These allow minority shareholders to seek redress for perceived injury or prejudice they have suffered, unfairly, as a result of corporate action (or inaction), at the hands of those who manage the company, perhaps in breach of some promise or agreement.
The growing number of unfair prejudice actions over recent years, and months, reflects the dual emerging trends of stakeholders—particularly minority shareholders—litigating to protect their rights, and of courts considering, and perhaps expanding, the scope of the unfair prejudice jurisdiction.
These trends are likely to continue. We consider some of the factors to keep in mind when preparing, or responding to, unfair prejudice petitions.
What are Unfair Prejudice Petitions and How Do They Work?
Aggrieved shareholders, unhappy with the performance of those running the company, commonly have two potential courses available to them (absent a wish to seek to wind up the company). First, in specific (and rather limited) circumstances, they may be able to pursue a so-called derivative action, in the company’s name, against its directors. Secondly, they may be able to establish that their interests have been unfairly prejudiced through the conduct of the majority shareholders, and/or, increasingly, the directors of the company, and obtain relief by way of an unfair prejudice petition.
What the Volume and Diversity of Comment Letters to the SEC Say About its Climate Proposal
More from: Lawrence Cunningham
Lawrence A. Cunningham is the Henry St. George Tucker III Research Professor at George Washington University Law School.
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 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, by Lucian Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here).
The Securities and Exchange Commission presents its new climate proposal as a modest evolution in its longstanding rules requiring environmental disclosure. While supporters echo that pitch, most recognize the proposal as a large leap beyond the SEC’s traditional focus on material financial matters.
Who has the better of it may be inferred from the breadth of comments the SEC’s proposal received during the three-month comment period that ended June 17.
By sheer number, the proposal is record setting. The SEC has posted some 14,000 letters it received: These letters come from an astounding array of people and organizations, a far larger and diverse group than SEC rule proposals usually attract.
By comparison, only a handful of the thousands of SEC rule proposals have garnered anywhere near the level of comment letters as this one, and few with the diversity of views. For instance, the SEC’s proposal rules on disclosing compensation ratios and political contributions both drew large volumes of form letters (30,000 and 1.2 million!), neither drew as many tailored letters as the climate rule (those drew ~1500 and ~3400 respectively). Notably too, while the climate rule comment period has been open 3 months, those were open far longer: 1 year and 6 years, respectively. Suffice it to say: the climate rule is attracting inordinate attention.
While the SEC simply posts comments as received, with no attempt to classify them, here is a rundown based on my own classification effort:
A breakdown of most of the first category by type illuminates.
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