Yearly Archives: 2023

Shareholder Proposal No-Action Requests in the 2023 Proxy Season

Marc S. Gerber is a Partner and Ryan J. Adams is Counsel at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on their Skadden memorandum.

Key Points

  • Companies lodged fewer no-action requests for the exclusion of shareholder proposals in the 2023 proxy season after the SEC Staff outlined new guidelines in 2021 and the Staff rejected many requests in the 2022 season.
  • Companies are finding it more difficult to predict how their no-action requests will be treated, but some lessons can be drawn from the SEC Staff’s responses in the 2023 proxy season about the types of requests that will fare best.
  • The SEC Staff continues to grant no-action requests in some cases where companies argue that a shareholder proposal relates to ordinary business matters, would result in micromanagement or suffers from a procedural defect, among other things.

Following a tumultuous 2022 shareholder proposal no-action letter season, the 2023 season contained fewer surprises from the Staff of the Division of Corporation Finance (Staff) of the Securities and Exchange Commission (SEC). Nevertheless, companies continued to struggle to decipher the contours of the Staff’s approach to requests for no-action relief regarding shareholder proposals.

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English High Court Rejects Climate Case Against Energy Company Board

Elise Edson is Counsel, and Nick Withers and Jonathan Swil are Partners at Shearman & Sterling LLP. This post is based on a Shearman & Sterling memorandum by Ms. Edson, Mr. Withers, Mr. Swil, Richard Porter, and Michael Scargill. 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 TallaritaStakeholder Capitalism in the Time of COVID (discussed on the Forum here) by Lucian Bebchuk, Kobi Kastiel, Roberto Tallarita; and 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.

Key Takeaways

  • The claim alleged breaches of the U.K. Companies Act 2006, including of the directors’ duty to promote the success of the company, as well as the related duty to exercise reasonable care, skill and diligence.
  • The High Court held that ClientEarth had failed to establish a prima facie case, which was fatal to the application.
  • The reasoning of the High Court reinforces the English courts’ longstanding reticence to interfere in company management, including on climate change matters. The Court emphasized the array of risks a large and complex global business such as Shell faces, requiring the directors to balance a range of competing considerations in their decision making, in respect of which the courts were ill-equipped to intervene.
  • The High Court rejected attempts to formulate specific directors’ duties in respect of climate change. In this regard, the Court confirmed that approaches to managing climate risk fell to be assessed within the existing statutory framework, which affords company managers considerable latitude in the performance of their duties.
  • The High Court moreover stressed the relevance of a shareholder’s motivation in bringing a derivative claim, finding that ClientEarth’s de minimis shareholding gave rise to a clear inference that the claim had been brought for a purpose other than promoting the success of the company for the benefit of its members as a whole.

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Weekly Roundup: June 30-July 6, 2023


More from:

This roundup contains a collection of the posts published on the Forum during the week of June 30-July 6, 2023.

High Bar for Challenge of Business Decisions by an Independent Board


Delaware Rulings Underscore the Importance of Preserving Documents



Chancery Court Finds for Oracle Founder and CEO in Post-Trial Decision



Board Effectiveness: A Survey Of The C-Suite


Chancery Court Offers Guidance on Waivers Not to Sue for Breach of Fiduciary Duty



Compliance Gatekeepers


ESG Recent Developments


ESG Recent Developments

Miriam Wrobel is Senior Managing Director and Global Leader of FTI Consulting’s Environmental, Social and Governance and Sustainability practice, Ben Herzkowitz is Senior Managing Director and Peter Reilly is Managing Director at FTI Consulting. This post is based on their FTI Consulting memorandum. 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 TallaritaFor Whom Corporate Leaders Bargain (discussed on the Forum here) and Stakeholder Capitalism in the Time of COVID (discussed on the Forum here) both by Lucian Bebchuk, Kobi Kastiel, 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 Corporate Purpose and Corporate Competition (discussed on the Forum here) by Mark J. Roe.

Transparency just a step on the road to gender pay parity

Legislation and directives that are forcing companies to be more transparent regarding gender pay appear to be having some effect on the gender pay gap, according to Bloomberg. One standout success story has been Iceland where 2018 legislation that forced companies to explain their gender pay gaps and bonuses helped the country cut its gender pay gap by half in the past 10 years. Their success has spawned similar initiatives in the EU, Japan, and Australia. However, regional dynamics also play a role in determining the success of pay transparency measures.

For example, data shows that these measures are more effective in countries with high levels of union membership due to the influence of collective bargaining. Belgium, which has 50% union membership, saw its pay gap halve between 2010 and 2021 to 5%. In the US, where only 10% of the workforce belongs to a union, the gender pay gap stands at 16.3%.

Legislation appears to fail to effect change without enforcement – in the 5 years of its existence, the UK’s gender pay reporting requirements have failed to make a dent in the pay gap there. Enforcement measures that have been implemented elsewhere include fines and government inspections. Additionally, experts say the legislation is just one piece of the puzzle and that governments play a key role in addressing the underlying structural issues that inhibit women’s career progression. These include more accessible childcare and placing greater value on female-dominated professions such as caring and educational roles. While pay transparency may help to shine a spotlight on the problem, the solutions will require greater effort.

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Compliance Gatekeepers

Asaf Eckstein is Associate Professor at Hebrew University and Roy Shapira is Professor of Law at Reichman University. This post based on their article forthcoming in the Yale Journal on Regulation.

Compliance has become a critical corporate governance issue. Companies are facing increased societal demands, heavier regulatory burdens, and a marked uptick in enforcement. In response, companies pour billions of dollars into compliance programs meant to prevent and detect wrongdoing by their employees. Yet there remains much skepticism regarding the effectiveness of these compliance programs. In one major corporate debacle after another, companies that boasted an elaborate compliance program are caught engaging in elaborate wrongdoings and coverups. And systematic empirical studies suggest that the gigantic investment in compliance is not serving its purported purpose of curbing corporate wrongdoing and promoting overall welfare.

What determines the effectiveness of corporate compliance? Who is accountable for compliance failures, and how can we mitigate them? Corporate governance scholars, regulators, and judges tend to answer these questions by focusing on internal compliance actors: debating what the scope of director oversight duties should be, how to structure board committees and design executive pay packages, and whether to divide the roles of Chief Compliance Officer and General Counsel. Yet in reality all these corporate insiders – directors, executive managers, chief compliance officers, and general counsels – rarely perform compliance tasks on their own. They rather heavily rely on outside compliance advisors.

In a new Article (forthcoming in Yale Journal on Regulation), we examine the understudied role of these outside compliance advisors and make the following three contributions.

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The Fall of “Affirmative Action” and Its Implications for Employers

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton, John F. Savarese, and Noah B. Yavitz. 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; Stakeholder Capitalism in the Time of COVID (discussed on the Forum here) by Lucian Bebchuk, Kobi Kastiel, Roberto Tallarita; and Lifting Labor’s Voice: A Principled Path Toward Greater Worker Voice And Power Within American Corporate Governance by Leo E. Strine, Jr., Aneil Kovvali, and Oluwatomi O. Williams.

Late last week, the Supreme Court held that the Constitution does not permit universities to consider race as a “plus” factor in admissions. The principal effect of the decision is to more closely align anti-discrimination protections in academia with those in the workplace — where courts have long permitted “reverse-discrimination” lawsuits against race-conscious hiring practices, subject to affirmative defenses. However, the decision’s broad language and cultural prominence will likely embolden opponents of workplace diversity initiatives.

In a majority opinion authored by the Chief Justice, the Court sharply criticized the practice of “affirmative action” in higher education as inconsistent with the constitutional imperative of equality established in the Fourteenth Amendment’s Equal Protection Clause. Although the Court acknowledged that such programs serve the “commendable goal[]” of achieving the social and educational benefits flowing from greater diversity in education, it held that these objectives were insufficiently compelling to justify outright racial preferences.

In a separate concurrence, Justice Gorsuch emphasized an overlap between the majority’s constitutional analysis and Title VII’s workplace protections, which, in his view, “codify a categorical rule of individual equality, without regard to race.” Several amicus briefs, filed by major U.S. corporations, had advanced the view that preserving affirmative action in higher education was important to preserving employers’ ability to recruit the kind of diverse and well-credentialed workforces that many American companies believe are necessary to effectively run their business. While the majority opinion did not address the broader debate over diversity, equity, and inclusion (DEI) initiatives raised by those amici and in oral argument, it is likely that critics of such initiatives will seek to take advantage of the Court’s decision to support further challenges to DEI programs.

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Chancery Court Offers Guidance on Waivers Not to Sue for Breach of Fiduciary Duty

Rick S. Horvath, and Allie Misner Wasserman are Partners and Andrew Darnell is an Associate at Dechert LLP. This post is based on their Dechert 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 Monetary Liability for Breach of the Duty of Care? (discussed on the Forum here) by Holger Spamann.

Key Takeaways

  • Delaware Court of Chancery holds contractual waivers of fiduciary duties are facially valid when they are both narrowly tailored to authorize specific transactions and satisfy the Court’s review for reasonableness.
  • Court cautions that blanket contractual waivers of claims for a breach of fiduciary duty are unlikely to survive review.
  • Court will not enforce contractual waivers of claims for an intentional breach of fiduciary duty.

The Delaware Court of Chancery on May 2, 2023, in New Enterprise Associates 14, L.P. v. Rich, approved a covenant binding stockholders not to sue on a claim for breach of fiduciary duty in the context of a drag-along sale. [1] After an exhaustive discussion of various policy arguments in favor of and against a contractual waiver of the ability to pursue a claim for breach of fiduciary duty, the Court concluded that Delaware law authorizes a stockholder-specific, contractual waiver when it is narrowly tailored to apply to a specific transaction that would otherwise constitute a fiduciary breach and where the waiver satisfies a review for reasonableness. Despite affirming the contractual waiver, however, the Court held that the waiver did not bar plaintiffs’ claims in this case because, as a matter of Delaware policy, a contractual party cannot waive claims for an intentional tort, which the plaintiffs had well-pled. [2]  The decision nonetheless provides a path for sophisticated parties to further allocate risk in transactions through such a contractual waiver.

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Board Effectiveness: A Survey Of The C-Suite

Maria Castañón Moats is Leader, Paul DeNicola is Principal, and Carin Robinson is Director at the Governance Insights Center at PricewaterhouseCoopers LLP. This post is based on their PwC memorandum.

Key findings

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Proxy-Voting Insights: How Differently Do The Big Three Vote on ESG Resolutions

Lindsey Stewart is Director of Investment Stewardship Research at Morningstar, Inc. This post is based on his Morningstar memorandum. Related research from the Program on Corporate Governance includes The Agency Problems of Institutional Investors (discussed on the Forum here) by Lucian Bebchuk, Alma Cohen, and Scott Hirst; Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy (discussed on the forum here) and The Specter of the Giant Three (discussed on the Forum here), both by Lucian Bebchuk and Scott Hirst; and The Limits of Portfolio Primacy (discussed on the Forum here) by Roberto Tallarita.

Executive Summary

Attention on proxy-voting decisions has never been higher. Voting outcomes on key shareholder resolutions are an important input to the decisions the largest U.S. companies choose to make on environmental and social themes. Voting decisions on these resolutions by the Big Three, primarily passive, asset managers—BlackRock, Vanguard, and State Street—also clearly indicate the issues the firms are prepared to make a stand on regarding environmental and social themes. This is useful to investors in passive funds who may wish to select a manager whose voting record aligns most closely to their own sustainability priorities.

Scrutiny on voting decisions by the Big Three has been especially high, given their outsize position in U.S. equity markets. Although the ongoing rollout of “pass-through voting” [1] will allow fund investors more choice in how their equity investments in funds are voted, millions of fund investors will continue to rely on their fund manager to make proxy-voting decisions on their behalf. And whether those investors place their capital in a high-intention sustainable fund or a broad index tracker, investors’ thirst for knowledge about how well aligned a manager’s voting decisions are with their own environmental and social priorities will only continue to grow. With that in mind, we have compiled this research paper analyzing how the Big Three voted on 100 key environmental and social resolutions in the two years to March 2023, to help investors assess that level of alignment.

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Chancery Court Finds for Oracle Founder and CEO in Post-Trial Decision

Rick S. Horvath, Steven A. Engel, and Joni S. Jacobsen are Partners at Dechert LLP. This post is based on a Dechert memorandum by Mr. Horvath, Mr. Engel, Ms. Jacobsen, and Taylor Jaszewski 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 Independent Directors and Controlling Shareholders (discussed on the Forum here) by Lucian Bebchuk and Assaf Hamdani.

Key Takeaways

  • Court of Chancery holds that conflicted transactions involving a potential controller may still be considered under the deferential business judgment rule, rather than entire fairness, if the evidence does not establish the potential controller exercised actual control.
  • Procedural safeguards isolating a potential controller from the Board’s decision-making process can preclude a finding of actual control.

The Delaware Court of Chancery issued its Post-Trial Memorandum Opinion in In Re Oracle Corporation Derivative Litigation on May 12, 2023. [1]  Despite having earlier held that Plaintiffs pled sufficient facts to allege that Larry Ellison was a conflicted controller of Oracle in its acquisition of NetSuite, the Court determined that the evidence at trial fell well short of proving control. Namely, the Court held that the evidence (1) did not show Ellison’s actual control over the acquisition, and (2) established that a special committee was empowered to, and actually did, vigorously negotiate the acquisition. As a result, Ellison was not a controller in fact, thereby making the procedural safeguards for a conflicted controller transaction unnecessary. Further, the Court found that Plaintiffs failed to prove a fraud on the board. As such, with the business judgment rule standard restored, the Court ruled for Defendants.

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