Daily Archives: Monday, July 24, 2023

Greenwashing: Navigating the Risk

Posted by Peter Pears, Tim Baines, and Oliver Williams, Mayer Brown LLP, on
Monday, July 24, 2023
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Peter Pears and Tim Baines are Partners and Oliver Williams is a Trainee Solicitor at Mayer Brown LLP. This post is based on a Mayer Brown memorandum by Mr. Pears, Mr. Baines, Mr. Williams, Henninger S. Bullock, Luiz Gustavo Bezerra, and Wei Na Sim. 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 Tallarita; How Much Do Investors Care about Social Responsibility? (discussed on the Forum here) by Scott Hirst, Kobi Kastiel, and Tamar Kricheli-Katz; Does Enlightened Shareholder Value add Value (discussed on the Forum here) by Lucian Bebchuk, Kobi Kastiel, Roberto Tallarita; and Companies Should Maximize Shareholder Welfare Not Market Value (discussed on the Forum here) by Oliver Hart and Luigi Zingales.

WHAT ARE THE KEY TAKEAWAYS?

  • At its core, greenwashing is about misrepresentation, misstatement and false or misleading practices in relation to environmental, social and governance credentials.
  • Greenwashing carries with it reputational, regulatory and litigation risks for which companies should be prepared.
  • There is no harmonised legal definition and the concept of greenwashing will vary by product, service, regulator and jurisdiction.
  • Greenwashing is not purely a legal or regulatory concept; allegations can have a significant reputational impact.
  • Tackling greenwashing is a priority for regulators around the globe who are taking tougher stances.
  • The prominence of greenwashing litigation is rising. These claims have a wider pool of claimants than in “traditional” litigation, who also have different barometers for what constitutes a “successful” outcome.
  • The best defences for organisations against greenwashing risk lie in existing principles of good practice in governance, disclosure and due diligence, in conjunction with a comprehensive understanding of the sustainability profile of the product, activity or transaction at hand.

Introduction

The risk of an accusation of “greenwashing” is now an important concern for many companies. Greenwashing is an ill-defined concept but, nevertheless, is increasingly a source of litigation and regulatory scrutiny – with more of both expected. It carries with it reputational, regulatory and litigation risks for which companies should be prepared. Whilst the risks are always context specific – varying by jurisdiction, industry and product – there are common themes. Here, we take an in-depth look at those themes and make suggestions for how organisations can think about mitigating greenwashing risk.

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Navigating Global Uncertainty: Do Foreign National Directors Protect US Firms from Supply Chain Disruptions

Posted by Ariel Rava (Harvard Law School), Musa Subasi (University of Maryland) and Rohan D'Lima (Oregon State University), on
Monday, July 24, 2023
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Ariel Rava is a Post-Doctoral Fellow at Harvard Law School’s Program on Corporate Governance, Musa Subasi is an Assistant Professor of Accounting and Information Assurance at the University of Maryland, and Rohan D’Lima is an Assistant Professor of Supply Chain Management at Oregon State University. This post is based on their recent paper.

International trade relies on a complex network of supply chain relationships, which involve navigating various political, legal, and regulatory environments across different countries. Efficient global supply chains require stable and predictable operations in each participating country; however, local government policies can introduce significant uncertainty to the business environment, affecting supply chains across these countries. For example, sudden increases in economic policy uncertainty (EPU) precede declines in investment, productivity, and employment. Furthermore, a change in a country’s EPU can result in a reduction in its exports, subsequently disrupting the operations of firms sourcing from that country.

In this study we investigate the role of foreign national directors in mitigating the adverse effects of supply chain disruptions caused by spikes in economic policy uncertainty (EPU) in their home countries.

The impact of foreign national directors on corporate boards continues to be a subject of ongoing debate. Foreign directors can potentially help reduce their firms’ exposure to EPU induced supply chain disruptions in their home countries for several reasons. Foreign national directors possess unique informational advantages pertaining to their home countries, including language proficiency, cultural knowledge, institutional understanding, and social connections, while staying attuned to news and political developments. However, certain factors could counterbalance the potential benefits that foreign directors offer. These include a lack of adequate information about the firms they serve, coordination costs, limited familiarity with buyer country (US) accounting rules, laws, regulations, governance standards, and management practices, and language and cultural differences that can impede communication and coordination among board members. Our research adds context to this debate by examining whether foreign national directors who serve on the boards of US manufacturing firms can alleviate the impact on these firms of supply chain disruptions triggered by EPU spikes in the foreign nationals’ home countries.

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Buyer Found Liable for Aiding and Abetting Target’s Sale Process Fiduciary Breaches

Posted by Gail Weinstein and Michael P. Sternheim, Fried, Frank, Harris, Shriver & Jacobson LLP, on
Monday, July 24, 2023
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Gail Weinstein is Senior Counsel and  Michael P. Sternheim is a Partner at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Ms. Weinstein, Mr. Sternheim, Steven Epstein, Warren S. de Wied and Brian T. Mangino 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? (discussed on the Forum here) by John C. Coates, IV, Darius Palia, and Ge Wu; and The New Look of Deal Protection (discussed on the Forum here) by Fernan Restrepo, and Guhan Subramanian.

In a 196-page post-trial opinion, the Delaware Court of Chancery found TransCanada Group Inc. (now, TC Energy Corp.) liable for aiding and abetting fiduciary breaches by Columbia Pipeline Group Inc.’s officers and directors during Columbia’s sale process pursuant to which TransCanada, in 2016, acquired Columbia in a $13 billion merger. The merger price represented a premium of 32% over Columbia’s unaffected market price; the Columbia board was advised by two independent financial advisors; and over 95% of Columbia’s outstanding shares voted in favor of the merger.

Columbia stockholders brought suit claiming that Columbia’s officers and directors breached their fiduciary duties in the sale process, aided and abetted by TransCanada. By the time of trial, the directors had been dropped as defendants and the officers had settled, leaving only TransCanada as a defendant. Vice Chancellor Laster found that: (i) Columbia’s CEO and CFO breached their fiduciary duties—by unreasonably favoring TransCanada in the sale process based in part on their personal desire to trigger their change-in-control benefits and then retire; and by failing to disclose to stockholders in the proxy statement their eagerness for a deal and their solicitude toward TransCanada in the sale process; (ii) Columbia’s directors breached their fiduciary duties—by failing to exercise sufficient oversight of the officers in the sale process; and (iv) TransCanada “knowingly participated” in the breaches—and therefore was liable for aiding and abetting. The Vice Chancellor awarded damages of $1 per share (totaling more than $400 million) to be paid by TransCanada to the former Columbia stockholders.

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