Monthly Archives: April 2024

SEC Fines Two Investment Advisers for “AI Washing”

Posted by David Blass, Meaghan Kelly, and Michael Osnato, Simpson Thacher & Bartlett LLP, on

Tuesday, April 9, 2024

AI, Artificial intelligence, disclosures, Investment advisers, SEC
More from: David Blass, Meaghan Kelly, Michael Osnato, Simpson Thacher

David Blass, Meaghan Kelly, and Michael Osnato are Partners at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher memorandum by Mr. Blass, Ms. Kelly, Mr. Osnato, and Rajib Chanda.

On March 18, 2024, the SEC announced settled charges against two investment advisers for making false and misleading statements about their use of artificial intelligence (“AI”), which the SEC refers to as “AI washing.” By analogy, the SEC has pursued “greenwashing” cases in connection with false and misleading statements about ESG, which has been anticipated to provide a playbook for the SEC to pursue AI-related perceived disclosure failures.

In the settlements, the advisers settled anti-fraud charges (Sections 206(2) and 206(4) of the Advisers Act), violations of the Marketing Rule (Rule 206(4)-1), and policy violations (Rule 206(4)-7). The advisers paid combined civil penalties of $400,000.

One settlement involved a registered investment adviser that provided robo-advisory services to retail accounts and also managed pooled investment vehicles. The Order found that the adviser made false and misleading statements in its Form ADV Part 2A brochures, in a press release, and on its website, a sampling of which is as follows:

Delaware Supreme Court Holds Entire Fairness Applicable to All Conflicted Controller Transactions

Posted by Gregory V. Gooding, Maeve O'Connor, and William D. Regner, Debevoise & Plimpton LLP, on

Monday, April 8, 2024

Controller, controller transactions, delaware, Delaware Supreme Court, In re Match, MFW
More from: Gregory Gooding, Maeve O'Connor, William Regner, Debevoise & Plimpton

Gregory V. Gooding, Maeve O’Connor, and William D. Regner are Partners at Debevoise & Plimpton LLP. This post is based on a Debevoise memorandum by Mr. Gooding, Ms. O’Connor, Mr. Regner, Susan Reagan Gittes, and Jeffrey J. Rosen, and is part of the Delaware law series; links to other posts in the series are available here.

The Delaware Supreme Court, in In re Match Group Deriv. Litig., C.A. No. 2020-0505 (April 4, 2024), has held that the test of entire fairness—Delaware’s most stringent standard of review—applies whenever a controlling stockholder stands on both sides of a transaction, absent the procedural protections contemplated by Kahn v. M&F Worldwide Corp. (Del. 2014). The Court further held that, for a transaction to be eligible for business judgment (rather than entire fairness) review under MFW, the special committee must be entirely independent.

The Neoclassical View of Corporate Fiduciary Duty Law

Posted by Zachary J. Gubler (Arizona State University), on

Monday, April 8, 2024

corporate boards, corporate law, directors, Fiduciary duties, Shareholder value, Stakeholders
More from: Zachary Gubler

Zachary J. Gubler is Marie Selig Professor of Law at the Arizona State University Sandra Day O’Connor College of Law. This post is based on his article forthcoming in the University of Chicago Law Review.

There’s an old and venerable way of talking about corporate fiduciary duties that maintains that they are owed to the corporate entity itself. Sometimes this way of talking about fiduciary duties is embraced by advocates of stakeholder value maximization in support of their position, with their sparring partners on the shareholder-value side of the continuum brushing that formulation aside as an outmoded way of thinking. But what if both camps are wrong? In other words, what does it actually mean to owe duties to the corporate entity? In a recent article, I develop an answer to that question that is different from saying that duties are owed merely to shareholders or to stakeholders. The argument is that the point of saying that fiduciary duties are owed to the corporate entity is to fix those duties on the one thing that is essential about that entity, which is to say, the permanent equity capital. If fiduciary duties are to be understood in light of the permanent nature of the equity capital, then a maximization norm won’t have anything to do with any impermanent flesh and blood shareholder but with a hypothetical permanent investor. And saying that duties are owed to some hypothetical permanent holder of the equity capital is definitely not to endorse a stakeholder value maximization norm. But it’s also not the same thing as saying that those duties are owed to shareholders, who, at least in a public corporation, come and go and whose interests are therefore focused on the relative short term.

Not at Any Price – Contested M&A, The New Normal

Posted by Riyaz Lalani and Dan Gagnier, Gagnier Communications, on

Monday, April 8, 2024

boards, Institutional Shareholders, M&A, Public Companies, Shareholders
More from: Dan Gagnier, Riyaz Lalani, Gagnier Communications

Riyaz Lalani is Managing Director, and Dan Gagnier is Founder and Managing Partner at Gagnier Communications. This post is based on their Gagnier Communications memorandum.

What Changed?

Friendly, board-supported M&A transactions, are routinely being challenged by shareholders. While this is not a new phenomenon, the frequency and organized public nature of shareholder opposition to announced transactions has caught many public companies by surprise.

In the past, institutional shareholders unhappy with a deal might have just sold their shares or privately communicated their displeasure with a transaction, they have become increasingly comfortable in publicly voicing their opposition – with some initiating full-blown proxy contests to defeat a transaction.

Another critical difference is investor opposition does not hinge on an incremental improvement in economics, a practice we call “bumpitrage”, but rather outright opposition to the transaction proceeding.

2024 Annual Meeting Filing and Disclosure Requirements

Posted by Brian V. Breheny, Raquel Fox, and Ryan J. Adams, Skadden, Arps, Slate, Meagher & Flom LLP, on

Sunday, April 7, 2024

disclosures, EDGAR, Proxy Card, Proxy season, proxy statements, SEC
More from: Brian Breheny, Raquel Fox, Ryan Adams, Skadden

Brian V. Breheny and Raquel Fox are Partners, and Ryan J. Adams is Counsel at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on their Skadden memorandum.

When finalizing proxy materials for annual shareholder meetings, companies should consider the following areas, which are described in more detail below:

SEC Proxy Filing Requirements
Proxy Statement Disclosures and Tagging Requirements
Website and Submission Requirements
Post-Meeting Requirements

SEC Proxy Filing Requirements

File Proxy Card, Notice of Internet Availability and Other Soliciting Materials With the SEC. In addition to filing the proxy statement, companies should confirm that the proxy card, the Notice of Internet Availability of Proxy Materials (if applicable) and any other written communication materials used in connection with the annual meeting solicitation are filed with the SEC. Companies should file the proxy card together with the proxy statement and separately file the Notice of Internet Availability of Proxy Materials as additional proxy soliciting materials.

Submit Annual Report on EDGAR. Annual reports distributed to shareholders in connection with the annual meeting must be furnished electronically on EDGAR as an “ARS” submission. The ARS submission should be in PDF format and is due no later than the date on which the report is first sent or given to shareholders. Notably, the ARS must be submitted on EDGAR regardless of whether the annual report is also posted on the company’s website. In addition, the requirement applies regardless of whether the company is filing a “glossy” annual report or using the shorter “10-K wrap” method of complying with Exchange Act Rule 14a-3.

Order Issuing Stay In the Matter of the Enhancement and Standardization of Climate-Related Disclosures for Investors

Posted by Vanessa Countryman, U.S. Securities and Exchange Commission, on

Saturday, April 6, 2024

Climate Disclosure, order, SEC, securities act of 1933, Securities Exchange Act of 1934
More from: Vanessa Countryman, U.S. Securities and Exchange Commission

Vanessa Countryman is Secretary of the U.S. Securities and Exchange Commission. This post is based on a recent SEC order.

On March 6, 2024, the Commission promulgated amendments to its rules that will require registrants to provide certain climate-related information in their registration statements and annual reports (“Final Rules”).[1] Between March 6 and March 14, 2024, petitions seeking review of the Final Rules were filed in multiple courts of appeals.[2]

Practice Points in Response to Activision

Posted by Gail Weinstein, Philip Richter, and Warren de Weid, Fried, Frank, Harris, Shriver & Jacobson LLP, on

Saturday, April 6, 2024

Court of Chancery, delaware, DGCL, moelis
More from: Gail Weinstein, Philip Richter, Warren de Wied, Fried Frank

Gail Weinstein is a Senior Counsel, Philip Richter and Warren de Wied are Partners at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Ms. Weinstein, Mr. Richter, Mr. de Wied, Steven Epstein, and Steven Steinman, 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 Allocating Risk Through Contract: Evidence from M&A and Policy Implications (discussed on the Forum here); Are M&A Contract Clauses Value Relevant to Bidder and Target Shareholders? (discussed on the Forum here) both by John C. Coates, Darius Palia and Ge Wu; The New Look of Deal Protection (discussed on the Forum here) by Fernan Restrepo and Guhan Subramanian; and Deals in the Time of Pandemic (discussed on the Forum here) by Guhan Subramanian and Caley Petrucci.

In Ap-Fonden v. Activision (Feb. 29, 2024)—a decision that came as a surprise to practitioners, and has far-reaching consequences—the Delaware Court of Chancery held that common practices the board of Activision Blizzard, Inc. (the “Company”) followed in approving its October 2023 merger with Microsoft Corporation may not have complied with technical requirements in the Delaware General Corporation Law relating to mergers, and therefore the merger may have been invalid. On that basis, the court, at the pleading stage of litigation, let survive the plaintiff’s claim for unlawful conversion of his shares in the merger (i.e., an unlawful taking—essentially, a tort of theft).

Notably, the court followed the approach taken in the Moelis decision, issued just days before Activision, which also upended longstanding common corporate practice based on a literal reading of DGCL requirements. In Moelis, the court, after trial, held that the grant of extensive governance and control rights in a stockholders agreement violated the DGCL’s requirement that the business and affairs of a corporation be managed by the board unless provided otherwise in the statute or the company’s charter.

A Deeper Dive into the SEC’s Landmark Climate Disclosure Rules for Public Companies

Posted by Matthew Morreale, Elad Roisman, and Michael L. Arnold, Cravath, Swaine & Moore LLP, on

Friday, April 5, 2024

carbon emissions, Climate change, Climate Disclosure, Final Rule, GHG, SEC
More from: Elad Roisman, Matthew Morreale, Michael Arnold, Cravath

Matthew Morreale, Elad Roisman, and Michael L. Arnold are Partners at Cravath, Swaine & Moore LLP. This post is based on a Cravath memorandum by Mr. Morreale, Mr. Roisman, Mr. Arnold, John W. White, and Kimberley S. Drexler.

Introduction

As we previously reported,[1] on March 6, 2024, the Securities and Exchange Commission (the “SEC” or the “Commission”) adopted (in a three-two vote) long-awaited climate-related disclosure rules for public companies (the “Final Rules”).[2] The Final Rules, although not as prescriptive as the rules that were proposed almost two years prior (the “Proposed Rules”),[3] contain broad-sweeping requirements that constitute a significant expansion of the amount of climate-related disclosure that public companies will have to make. Accordingly, the Final Rules will impose significant burdens in terms of the amount of time, resources and effort necessary for companies and their advisors to comply.

The Final Rules, which will become effective 60 days after publication in the Federal Register, apply to both domestic and most foreign private issuers (“FPIs”), regardless of industry sector, and to annual reports and registration statements.[4] As explained in Section 03 below, compliance obligations are phased in at different times depending on the requirement and the registrant’s filer status, with the first filing deadline occurring as early as March 2026 for large accelerated filers (“LAFs”), covering fiscal years beginning (“FYB”) in 2025.

Proposed Amendments to DGCL on Stockholder Contracting Would Create More Problems Than They Purportedly Solve

Posted by Sarath Sanga (Yale) and Gabriel Rauterberg (University of Michigan), on

Friday, April 5, 2024

amendments, delaware, DGCL, moelis, stockholder contracting
More from: Gabriel Rauterberg, Sarath Sanga

Sarath Sanga is a Professor of Law and Co-Director of the Center for the Study of Corporate Law at Yale Law School and Gabriel Rauterberg is a Professor of Law at the University of Michigan Law School. Related research from the Program on Corporate Governance includes Letting Shareholders Set the Rules by Lucian A. Bebchuk.

A new frontier of corporate law jurisprudence has emerged. At issue are the limits of corporate contractual freedom and stockholders’ power to change the rules of Delaware corporate law. Recent key cases include the Delaware Supreme Court’s decision in Manti v. Authentix (on waiving appraisal rights) and last year’s decision in New Enterprise Associates v. Rich (on waiving the right to sue for breach of fiduciary duty). Both decisions affirmed stockholders’ power to contract around the rules of corporate law.

Weekly Roundup: March 29-April 4, 2024

Posted by the Harvard Law School Forum on Corporate Governance, on

Friday, April 5, 2024

Weekly Roundup
More from:

This roundup contains a collection of the posts published on the Forum during the week of March 29-April 4, 2024

Minutes Are Worth the Minutes: Good Documentation Practices Improve Board Deliberations and Reduce Regulatory and Litigation Risk

Posted by Leo E. Strine, Jr. (University of Pennsylvania), on Thursday, April 4, 2024

Tags: corporate minuting, corporate records, Delaware Court of Chancery, Delaware Supreme Court, documentation

Diversifying demographics of assets under management

Posted by Victoria Tellez and Jessica Pollock, FCLTGlobal, on Thursday, April 4, 2024

Tags: Diversity, ESG, investors, Management

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Monthly Archives: April 2024

SEC Fines Two Investment Advisers for “AI Washing”

Delaware Supreme Court Holds Entire Fairness Applicable to All Conflicted Controller Transactions

The Neoclassical View of Corporate Fiduciary Duty Law

Not at Any Price – Contested M&A, The New Normal

What Changed?

2024 Annual Meeting Filing and Disclosure Requirements

SEC Proxy Filing Requirements

Order Issuing Stay In the Matter of the Enhancement and Standardization of Climate-Related Disclosures for Investors

Practice Points in Response to Activision

A Deeper Dive into the SEC’s Landmark Climate Disclosure Rules for Public Companies

Introduction

Proposed Amendments to DGCL on Stockholder Contracting Would Create More Problems Than They Purportedly Solve

Weekly Roundup: March 29-April 4, 2024

Legal Risk and Insider Trading

SEC Adopts New Rules for Climate-Related Disclosures

Questioning technology governance orthodoxy

Key Implications of SEC’s Climate-Related Disclosure Rules

Prestige, Promotion, and Pay

BlackRock has expanded Proxy Voting Choice to millions of U.S. retail shareholder accounts

Corporate Transparency Act Ruled Unconstitutional, but Scope of Judgment Is Limited

Corporate Technocracy ESG Governance Beyond Shareholder Democracy or Managerialism

The SEC Climate Disclosure Rule: Separating Signal from Noise

DOJ Announces New Whistleblower Program and Enforcement Initiatives

How Did Corporations Get Stuck in Politics and Can They Escape?

Women in the boardroom

Proposed Amendments to the DGCL Address Recent Caselaw on Stockholder and Merger Agreements

Minutes Are Worth the Minutes: Good Documentation Practices Improve Board Deliberations and Reduce Regulatory and Litigation Risk

Diversifying demographics of assets under management

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