Yearly Archives: 2024

Call to Action: ISSB Global Adoption

Posted by Elisa Cencig, Wilhelm Mohn, and Carine Smith Ihenacho, NBIM, on
Monday, June 10, 2024
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Elisa Cencig is Head of Policy Engagement, Wilhelm Mohn is Global Head of Active Ownership, and Carine Smith Ihenacho is Chief Governance and Compliance Officer at Norges Bank Investment Management (NBIM). This post is based on a statement endorsed by NBIM and other organizations.

The transition to a net zero, sustainable global economy requires an efficient allocation of capital, and effective management of the associated risks and opportunities. In this context, consistent, reliable and decision-useful sustainability data from organisations is essential. With this data:

  • Corporate boards can better exercise their oversight responsibilities on how sustainability-related risks and opportunities should be addressed in corporate strategy.
  • Corporates can more clearly demonstrate their performance to investors and in turn gain greater access to capital to accelerate progress on their sustainability targets.
  • The financial industry can allocate capital efficiently, accounting for sustainability-related financial risks and opportunities, and address sustainability goals.
  • Governments and international organisations can deploy the power of capital markets more effectively to achieve their sustainability priorities and track sustainability-related progress from the private sector.

Yet, as it stands, there remain significant gaps in even the most basic sustainability-related data. For example, 2022 research shows that, of the 4,000 largest listed companies globally, over 40% do not disclose their operational carbon emissions.[1]

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Takeaways from SEC v. SolarWinds Motion to Dismiss Hearing

Posted by Jennifer Lee, Shoba Pillay, and Charles D. Riely, Jenner & Block LLP, on
Sunday, June 9, 2024
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Jennifer Lee, Shoba Pillay, and Charles D. Riely are Partners at Jenner & Block LLP. This post is based on a Jenner & Block memorandum by Ms. Lee, Ms. Pillay, Mr. Riely, Andrew P. Csoros, and Reanne Zheng.

The SEC’s high-profile litigation against SolarWinds and its Chief Information Security Officer (CISO), Timothy Brown, reached a critical juncture on May 15, 2024, when the parties presented oral arguments before Judge Paul A. Engelmayer in the Southern District of New York on Defendants’ motion to dismiss. This client alert discusses the key critiques of the SEC’s approach, important developments in the litigation, and highlights from the motion to dismiss hearing.

Background

As we noted in our prior client alert, the SEC filed its initial complaint against SolarWinds and its CISO Brown in October 2023, alleging that Defendants misled the company’s investors and customers by overstating the company’s cybersecurity practices and concealing mounting cybersecurity risks between October 2018 and January 2021.

The SEC’s complaint focused on SolarWinds’ flagship network monitoring product, Orion, which purportedly had abilities ranging from reducing network outages to improving network performance. Orion was used by virtually all Fortune 500 companies and many US government agencies. The SEC alleged that SolarWinds overstated the strength of its cybersecurity practices and prevention measures, and then failed to tell the whole truth after learning of a massive breach regarding Orion that impacted many of its key customers.

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Investor statement in support of Climate Action 100+

Posted by Jake Barnett, CalSTRS, on
Saturday, June 8, 2024
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Jake Barnett is Managing Director of sustainable investment strategies at Wespath Investments. This post was provided by Mr. Barnett, Kirsty Jenkinson, and Aeisha Mastagni and is based on a statement signed by CalSTRS and other investors.

As asset owners representing USD $4.6 trillion in assets, we remain deeply concerned about the investment risks posed by climate change to the economy, the markets and our portfolios. Investors encouraging companies to adopt ambitious and thoughtful plans to address climate-related risks aligns with our economic interests as long-term and diversified stewards of capital. Working collaboratively with other investors through Climate Action 100+ is an effective and efficient way to address both the specific and systemic risks to our investments posed by climate change, which is why we remain fully committed to participating in this valuable initiative.

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The Perils of Governance by Stockholder Agreements (2): A Note on Unplanned Consequences

Posted by Lucian A. Bebchuk (Harvard Law School), on
Friday, June 7, 2024
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Lucian Bebchuk is the James Barr Ames Professor of Law, Economics, and Finance, and Director of the Program on Corporate Governance, at Harvard Law School.

The Delaware Legislature is considering a proposal (“the proposal”) to amend Section 122 of the Delaware General Corporation Law (“DGCL”) to permit expansive use of stockholder agreements to opt out of the governance arrangements set by a company’s charter. (For a description of this proposal and the rationale offered in its accompanying Synopsis, see here) In an earlier post (available here), I discussed the perils of this proposal, explaining that (1) the proposal would enable opting out without the safeguards involved in the long-established procedures for opting out via the charter and bylaws, and (2) the proposal would have substantial effects in wide-ranging settings that seem not to have been considered by the proposal’s supporters, so the legislation should be paused until they are adequately considered. In light of reactions I received to my earlier post, I would like to discuss point (2) further. In particular, I highlight the significance of (2) by discussing how proposal could have transformative effects on hedge fund activism that the proposal’s supporters have not considered.

Whereas the Moelis decision, and some of the academic articles on stockholder agreements, have focused on stockholder agreements in public companies in their early years post-IPO, I stressed in my earlier post that the proposed amendment would have major effects on the vast number of companies that are further down the road from their IPO and that represent most of the economy’s market capitalization.

Such companies currently enter from time to time into stockholder agreements when they settle with hedge fund activists. In a study titled Dancing with Activists, which Brav, Jiang, Keusch, and I co-authored, we provide an empirical study of hundreds of such settlement agreements and document the types of provisions that they include. We find that the current practice of such agreements largely involves company commitments that avoid tying the board’s hands down the road. However, if the proposed legislation is adopted, this practice should be expected to change greatly.

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Letter in Opposition to the Proposed Amendment to the DGCL

Posted by Sarath Sanga (Yale Law School), Gabriel Rauterberg (Michigan Law School), and Eric Talley (Columbia Law School), on
Friday, June 7, 2024
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Sarath Sanga is a Professor of Law and Co-Director of the Center for the Study of Corporate Law at Yale Law School, Gabriel Rauterberg is a Professor of Law at the University of Michigan Law School, and Eric Talley is the Isidor and Seville Sulzbacher Professor of Law at Columbia Law School. This post provides the text of a letter to members of the Delaware legislature sent by the over fifty law professors listed below.

To the Honorable Members of the Delaware Legislature:

We write to express our opposition to the proposed amendment to Section 122(18) of the Delaware General Corporation Law (“the Proposal”), introduced by the Corporation Law Section of the Delaware State Bar Association and ostensibly designed to respond to the decision in West Palm Beach Firefighters’ Pension Fund v. Moelis & Company, 2024 WL 747180 (Del. Ch. Feb. 23, 2024) (“Moelis”).

We are professors of corporate law, and we routinely disagree over corporate law issues. Yet we are unanimous in our belief that the appropriate response to the Moelis decision is to allow the appellate process to proceed to the Delaware Supreme Court. The issues at stake warrant careful judicial review, not hasty legislative action.

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Weekly Roundup: May 31-June 6, 2024

Posted by the Harvard Law School Forum on Corporate Governance, on
Friday, June 7, 2024

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This roundup contains a collection of the posts published on the Forum during the week of May 31-June 6, 2024

Midyear observations on the board agenda

Posted by John Rodi, David A. Brown and Patrick A. Lee, KPMG, on Friday, May 31, 2024
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The Original Public Meaning of Investment Contract

Posted by Edward Lee (Santa Clara Law), on Saturday, June 1, 2024
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Reporting cybersecurity incidents on Form 8-K

Posted by Cydney Posner, Cooley LLP, on Sunday, June 2, 2024
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Cybersecurity Amendments to Reg S-P

Posted by Charu Chandrasekhar, Johanna Skrzypczyk and Suchita Mandavilli Brundage, Debevoise & Plimpton LLP, on Monday, June 3, 2024
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ESG & Executive Remuneration in Europe

Posted by Marco Dell’Erba (University of Zurich), and Guido Ferrarini (University of Genoa), on Monday, June 3, 2024
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Pro-ESG Shareholder Proposals Regaining Momentum in 2024

Posted by Subodh Mishra, ISS STOXX, on Monday, June 3, 2024
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Exxon court challenge to Arjuna shareholder proposal survives dismissal

Posted by Cydney Posner, Cooley LLP, on Tuesday, June 4, 2024
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Poor ESG: Regressive Effects of Climate Stewardship

Posted by Zohar Goshen (Columbia Law School), Assaf Hamdani (Tel Aviv University), Alex Raskolnikov (Columbia Law School), on Tuesday, June 4, 2024
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Board effectiveness: A survey of the C-suite

Posted by Carin Robinson, PricewaterhouseCoopers LLP, on Tuesday, June 4, 2024
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Continuation Funds: What You Need To Know

Posted by Greg Norman, Delphine Jaugey and Laurence Hanesworth, Skadden, Arps, Slate, Meagher & Flom LLP, on Wednesday, June 5, 2024
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Half the Firms, Twice the Profits

Posted by Mark J. Roe (Harvard Law School) and Charles C.Y. Wang (Harvard Business School), on Wednesday, June 5, 2024
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Unions Seek Influence in Corporate Battles

Posted by Jonathan Doorley, Brunswick Group LLP, on Wednesday, June 5, 2024
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Recent Developments in Asset Management M&A Transactions

Posted by Ariel Deckelbaum, Paul Van Houten, and Sarah Davis, Ropes & Gray LLP, on Thursday, June 6, 2024
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Boeing 737 MAX

Posted by David F. Larcker and Brian Tayan (Stanford University), on Thursday, June 6, 2024
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(More) Observations on the Universal Proxy Card

Posted by Ele Klein and Sean Brownridge, Schulte Roth & Zabel LLP, on Thursday, June 6, 2024
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(More) Observations on the Universal Proxy Card

Posted by Ele Klein and Sean Brownridge, Schulte Roth & Zabel LLP, on
Thursday, June 6, 2024
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Ele Klein and Sean Brownridge are Partners at Schulte Roth & Zabel LLP. This post is part of the Delaware law series; links to other posts in the series are available here.

In our previous article, (Much Too Early) Observations on the Universal Proxy Card, we reviewed what had occurred in the months immediately following the efficacy of the universal proxy rules, including by providing select observations regarding the first three contests in the universal proxy era.  As our concluding observation, we noted that the more things changed, the more they stayed the same.  That is, despite the universal proxy rules’ refinement of the mechanics by which directors are elected, the purposes and objectives of proxy contests involving board representation had not yet evolved.  That can no longer be said, in light of the 2024 proxy season.

The universal proxy era has, in recent months, welcomed numerous firsts, including, among others, the first (i) proxy fight constructed with an E&S focus (the Strategic Organizing Center’s campaign at Starbucks), (ii) multiparty proxy fight (the concurrent campaigns run by Trian and Blackwells at Disney, which were accompanied by ValueAct’s solicitation in support of the company), and (iii) control contest to go to a vote at a U.S.-based company subject to the universal proxy rules (Ancora’s campaign at Norfolk Southern).  In each instance, the activist fell short of its board-related objectives but nonetheless walked away with significant ancillary successes. READ MORE »

Boeing 737 MAX

Posted by David F. Larcker and Brian Tayan (Stanford University), on
Thursday, June 6, 2024
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David F. Larcker is the James Irvin Miller Professor of Accounting and Brian Tayan is a Researcher at the Stanford Graduate School of Business. This post is based on their recent working paper.

We recently published a paper on SSRN (“Boeing 737 MAX”) that examines the organizational, leadership, and cultural breakdowns that contributed to the failure of the Boeing 737 MAX aircraft.

In November 2018, a Boeing 737 MAX airplane crashed off the coast of Indonesia, killing all 189 passengers and crew members. Four months later, a second 737 MAX flying from Ethiopia to Nairobi crashed, killing 157 individuals. Government authorities around the globe grounded the aircraft. Approximately 400 737 MAX were in operation and over 4,000 in production or on order at the time.

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Recent Developments in Asset Management M&A Transactions

Posted by Ariel Deckelbaum, Paul Van Houten, and Sarah Davis, Ropes & Gray LLP, on
Thursday, June 6, 2024
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Ariel Deckelbaum and Paul Van Houten are Partners and Sarah Davis is a Counsel at Ropes & Gray LLP. This post is based on a Ropes & Gray memorandum by Mr. Deckelbaum, Mr. Houten, Ms. Davis, Scott Abramowitz, Greg Davis, and Deb Lussier.

From buyers looking to add AUM or talent, to sponsors looking for third-party investors to fund growth initiatives, transaction volume for asset management M&A remains strong in 2024. In this edition of PErspectives, Ropes & Gray explores the strategic imperatives driving recent transaction activity, outlines the various deal structures and strategies that have been adopted and reflects on what these developments mean for participants in the asset management industry as a whole.

The asset management industry is in the middle of a radical period of transformation, with unprecedented levels of consolidation.

The groundwork for this shift has been building since 2023. According to PitchBook, publicly disclosed deal value for private equity sponsors executing consolidation transactions reached a record $9 billion in 2023, rising 38% year-over-year. Deal volume also reached a decade high, with 78 transactions announced or closed in 2023.[1] An improved dealmaking environment in 2024 paired with heightening competition in the asset management space could bolster near-term dealmaking activity.

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Unions Seek Influence in Corporate Battles

Posted by Jonathan Doorley, Brunswick Group LLP, on
Wednesday, June 5, 2024
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Jonathan Doorley is Partner at Brunswick Group LLP. This post is based on his Brunswick memorandum.

The collision of financial, political and social issues in deal-making and proxy contests has never been more apparent in the United States than it was in 2023 and thus far in 2024. While shareholder value creation remains the sine qua non of transactions and proxy contests, investors of all kinds have long been imposing their own specific agendas on issuers. In addition to the widening scope of activism, there are new players for senior management teams and boards to contend with – most notably organized labor.

Recent activism cases in the US reveal how labor unions have inserted themselves more aggressively into transactions and shareholder disagreements. Unions are not a monolith – they each have their own distinct agendas and cultures, reflected in the ways they interact with the capital markets. Below, we review three recent examples of this trend – two that have recently reached a resolution and one that is ongoing – and we offer some lessons to help executives prepare for this kind of engagement with their workers.

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