Monthly Archives: July 2025

The Overlooked Elements of Executive Pay: Perquisites, Retirement and Severance

Posted by Edward Hauder, Meridian Compensation Partners, on
Thursday, July 31, 2025
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Edward Hauder is the Head of Research & Content at Meridian Compensation Partners. This post is based on his Meridian memorandum.

While perquisites, retirement and severance are not ordinarily an annual focus of Compensation Committees, these non-core elements can play a critical role in crafting executive compensation programs that enable companies to achieve their strategic goals and objectives. This issue of the Beacon looks at these non-core elements, outlines important committee considerations and highlights the questions committees should ask when evaluating these non-core elements.

When people think of executive compensation, they naturally think of salaries, annual bonuses, and long-term incentives. While these are the foundational elements of pay that predominantly occupy Compensation Committees’ time and attention. The non-core elements play a material role in retention, motivation and governance.

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The Big Picture on A Small State: The Charter Competition Debate

Posted by Lawrence Cunningham (University of Delaware), on
Thursday, July 31, 2025
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Lawrence Cunningham is the Director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. This post is part of the Delaware law series; links to other posts in the series are available here.

The debate over state competition for corporate charters was a lively topic in academic and policy circles in the 1970s but then settled into relative dormancy, punctuated only by occasional flareups over federal interventions. In recent years, however, the issue has returned to center stage. This renewed attention originated with a small number of influential critics of the field’s longtime leader, Delaware, largely in reaction to a handful of judicial opinions. The critique has widened as rival states ramped up their campaigns to attract new incorporations.

Professional observers—from the private bar to academic law—have weighed in with increasing frequency. Much of the discussion reflects the wide range of factors that influence the choice of incorporation and rightly resists one-size-fits-all conclusions. Yet some influential voices fall prey to reductionism and cherry picking—oversimplifying the issue by spotlighting narrow grievances without engaging the broader institutional context. This is the corporate-policy equivalent of choosing where to live based on a single difficult interaction with city hall, ignoring the school system, safety, infrastructure, and long-term value. It may be cathartic, but it is not a sound strategy.

A good example of this problem is the recent, public declaration by Andreessen Horowitz (AH) that it is moving its corporate domicile from Delaware to Nevada. While dozens of notable companies switch jurisdictions every month for a range of reasons, AH widely publicized its decision and justified it with specific concerns that highlight a particular perspective in a multifaceted decision. AH declares its goal to be to influence others. As such, it warrants assessing. READ MORE »

Chancery Court Bars Discovery to Support Demand Futility

Posted by Heather Speers and Bingxin Wu, Cooley LLP, on
Thursday, July 31, 2025
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Heather Speers is a Partner and Bingxin Wu is a Resource Attorney at Cooley LLP. This post is based on their Cooley memorandum, and is part of the Delaware law series; links to other posts in the series are available here.

When a company experiences an adverse event, it and its directors and officers are often subject to multiple shareholder lawsuits and demands. These matters proceed on different timelines, creating scenarios in which discovery may have begun in one case while others remain in pre-discovery. As a result, plaintiffs in the latter cases may seek access to documents produced in the former to bolster their allegations.

This scenario occurred in a recent shareholder derivative action against Boeing’s directors and officers in the Delaware Court of Chancery, where the plaintiffs sought documents produced by Boeing in related federal court actions, even though the defendants intended to file a motion to dismiss for failure to plead demand futility and failure to state a claim. The defendants filed a motion to stay discovery, which was granted by Vice Chancellor Morgan Zurn on June 26. Vice Chancellor Zurn noted that the plaintiffs had already obtained documents in a books and records demand and that discovery was not available to “aid derivative plaintiffs in pleading demand futility.”

As we discussed previously, the recent amendments to Section 220 narrow the scope of books and records productions to formal documents, and requests for emails and texts are generally not permitted. To increase their odds of surviving a motion to dismiss, derivative plaintiffs may try to seek documents through alternative means, including via related actions where discovery is underway. Vice Chancellor Zurn’s decision provides some relief for defendants, reinforcing that, absent unusual circumstances, derivative plaintiffs are limited to books and records productions only in pleading demand futility.

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Keynote Address for the ICGN Conference

Posted by Nell Minow, ValueEdge Advisors, on
Wednesday, July 30, 2025
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Nell Minow is the Vice Chair of ValueEdge Advisors. This post is based on her keynote address for the ICGN Conference.

VEA Chair Nell Minow gave the keynote address at ICGN’s 30th anniversary conference in New York on July 18, 2025. Her remarks:

It is a great honor to be here and I want to begin with my thanks for the invitation and especially for the extraordinary support Jen and ICGN have provided in our struggles to respond to the US attacks on shareholder rights and good corporate governance. I also appreciate the lovely tribute to Bob Monks, who would be so proud of all you have done.

As we celebrate the 30th anniversary, I want to remind you of how far we have come. I will begin with Bob’s light bulb moment. He was driving by a polluted river and asked himself, “Who wants this?” Not the community, not the local or federal government, not the customers or shareholders of the company dumping toxic chemicals into the water. And then he realized he was responsible. As the Chair of an investment firm, he was managing accounts holding shares in that company and routinely voting in favor of everything the board put on the proxy card for approval.

Bob had a unique perspective. In addition to heading up an investment firm, he had been CEO of an oil company, a board member of one of the largest financial services firms in the world, and served in government, including as an aide to Vice President, George H.W. Bush. He realized that the new world of institutional investors had created for the first time a chance for true capitalism, with accountability to the ideal, big, smart, fiduciary representatives of long-term public good.

Back then there was a New Yorker cartoon with a woman raising her hand at an annual shareholder meeting, and one of the executives whispering to another, “This is the part of capitalism I hate.” READ MORE »

ESG Aversion: Uncovering the Hidden Tension Between Profitability and Preference

Posted by Ye Zhang (Stockholm School of Economics) and Eric Zou (University of Michigan and NBER), on
Wednesday, July 30, 2025
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Ye Zhang is Assistant Professor at the Stockholm School of Economics and an Eva and Mats Qviberg Research Fellow at Swedish House of Finance, and Eric Zou is Assistant Professor of Economics at the University of Michigan and a Faculty Research Fellow at NBER. This post is based on their recent paper.

Environmental, Social, and Governance (ESG) considerations have moved from a fringe concern to a central topic in corporate strategy and investment. Yet, as debates over fiduciary responsibility and ideological overreach intensify, the ESG landscape becomes increasingly polarized and fast evolving. At the heart of the debate lies a fundamental question: do markets really value ESG? And if so, is it because ESG enhances firm value, or because investors value sustainability for its own sake (i.e., the “value versus values” question)

In our recent NBER working paper, we tackle this question with a novel experimental framework designed to disentangle belief-based (financial) and taste-based (non-financial) motives for ESG engagement. We focus on the venture capital (VC) market, a vital and understudied segment of private finance, and examine how both startup founders and investors respond to ESG signals in a two-sided matching context.

Experimental Design: A Real-Stakes Two-Sided Matching Setup

We recruited 409 U.S. startup founders and 129 VC investors to participate in incentivized experiments. Each participant evaluated hypothetical profiles—founders reviewed potential investors, and investors reviewed startups—believing their responses would influence an algorithm that would generate real-world recommendations. We randomly assigned ESG attributes (e.g., an environmental focus) to some profiles and also orthogonally varied other key profile features known to influence participants’ decisions. This allowed us to identify the causal effect of an “ESG label”—the extent to which ESG labelling affected participants’ expressed interest in collaboration with candidates in each profile—while controlling for all other characteristics.

A Revealing ESG Penalty

Across both sides of the market, we find a robust and significant ESG penalty:

  • Startup founders were 5.7% less likely to express interest in an ESG-oriented investor compared to an otherwise identical profit-focused investor.
  • VC investors were 5.4% less likely to pursue a startup labelled as ESG-driven.

These effects are economically meaningful: for founders, the ESG penalty is on par with effect of the disadvantage associated with an investor lacking entrepreneurial experience. For VCs, its effect is roughly as large as a startup losing one key competitive edge and about 40% of the benefit of having a founder from a top university. Environmental attributes (“E”) drive most of the negative effect, while “S” and “G” have more mixed or muted impacts. READ MORE »

When Term Sheet Provisions Survive the Execution of Definitive Agreements

Posted by Jonathan Dhanawade, Frank Favia, and Andrew Stanger, Mayer Brown, on
Wednesday, July 30, 2025
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Jonathan Dhanawade and Frank Favia are Partners, and Andrew Stanger is Knowledge Counsel at Mayer Brown. This post is based on their Mayer Brown memorandum, and is part of the Delaware law series; links to other posts in the series are available here.

Deal parties may be surprised to learn that a term sheet signed as part of early negotiations can, in some circumstances, continue to be binding after the execution of a definitive transaction agreement contemplated by the term sheet. This is true even when the definitive agreement includes an integration clause, and Delaware case law offers several examples where a party successfully asserted rights found only in a previously executed term sheet. This Legal Update reviews recent Delaware opinions and offers guidance on how parties can avoid surprises from old term sheets through clear and unambiguous drafting at both the term sheet stage and in definitive documentation that is intended to fully supersede a previously executed term sheet.

Background

Term Sheets: Parties to a proposed transaction often use a term sheet in the early stages of negotiation to agree to key deal terms at a high level before committing additional time and resources to due diligence and the negotiation of definitive documents. The terms outlined in a term sheet are typically intended to be non-binding and for discussion purposes, without committing the parties to enter into a transaction. However, in some cases, parties may agree that specific provisions in the term sheet are binding. These are often ancillary terms relating to confidentiality, exclusivity, choice of law, and treatment of expenses. In some cases, parties might agree to binding provisions that have a more substantive effect on the transaction; we discuss examples of these below.

Superseding Definitive Agreements: In most cases, a term sheet serves a limited purpose and is replaced by a definitive agreement (or set of agreements) that incorporates the full set of deal terms. With a definitive agreement in place, parties may believe that the binding provisions of the term sheet are no longer in force. However, under Delaware Law, a definitive agreement does not supersede the binding provisions of a term sheet unless one of the following is true:

  • The provisions of the definitive agreement contradict the binding provisions of the term sheet, in which case the term sheet will be superseded only to the extent of those contradictions.
  • The parties expressly agree that the term sheet is no longer binding. Often, a definitive agreement will accomplish this by including an integration clause (sometimes referred to as a “merger” or “entire agreement” clause). A standard integration clause states that the definitive agreement supersedes all other agreements between the parties with respect to its subject matter. An integration clause creates a presumption that there are no additional terms outside of the agreement (including a term sheet) that will change the terms of the agreement. However, like any other contractual provision, integration clauses are interpreted according to their plain meaning, and the presumption of integration may be rebutted with evidence (including contractual terms and the parties’ course of dealing) that show an intention for the term sheet to remain in force alongside the definitive agreement.

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ESG Mid-Year Update: Who Still Cares, and Why You Should

Posted by Miriam Wrobel and Alanna Fishman, FTI Consulting, on
Tuesday, July 29, 2025
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Miriam Wrobel and Alanna Fishman are Senior Managing Directors at FTI Consulting. This post is based on their FTI Consulting memorandum.

The Key Takeaway for Business Leaders

The key takeaway for business leaders: Regardless of political winds, the stakeholders who ultimately determine your company’s market value, operational license and competitive position continue to prioritize ESG performance. Understanding and responding to their expectations isn’t about political positioning; it’s about sound business strategy.

At the midpoint of 2025, the ESG landscape continues to evolve amid rising political rhetoric and regulatory change. While some believe that ESG is losing momentum, the reality is that the business case for ESG remains strong. This is driven by three critical stakeholder groups — investors, regulators and issue-focused parties — who maintain significant influence and should not be underestimated as the space continues to evolve.

The Investor Imperative: ESG Moves from Blunt Tool to Specialized Instrument

Public Markets Maintain Focus
Despite some high-profile retreats from ESG terminology — particularly in how ‘ESG’ and ‘DEI’ are used in public reporting — global institutional investors controlling trillions of dollars in assets continue to integrate sustainability factors into their investment decisions. Why? Because they show strong results, often outperforming traditional funds.[1]

For this reason, major pension funds, sovereign wealth funds and asset managers are not abandoning their ESG frameworks — they’re refining them. The focus has shifted from broad ESG expectations to specific, material factors that drive long-term returns. While this was often the case before, recent anti-ESG rhetoric has prompted these investors to sharpen their pencils and become more specific about the value proposition.

Recent data shows that ESG-focused funds, while experiencing some outflows in certain regions, mainly the United States, continue to attract significant capital globally.[2] More importantly, mainstream investment strategies increasingly incorporate ESG analysis as a risk management tool rather than a separate investment category. This evolution suggests permanence rather than retreat.

Private Capital Doubles Down
Private equity and private credit investors have also become more sophisticated in their ESG approach in recent years. Limited partners – particularly European Institutional investors – continue to demand comprehensive ESG due diligence and portfolio company-level improvement plans. In a recent FTI Consulting survey of more than 500 global PE leaders, 64% reported seeing ESG as a viable value lever, either significantly or situationally.[3] Private capital will use all attractive tools to drive value. When buyers are increasingly sophisticated about utilizing ESG screens to determine valuation, ESG factors can have a material impact on a successful transaction, including an exit. This fact appears to be immune to short-term political cycles. READ MORE »

The Law and Economics of An Act to Encourage Privateering Associations

Posted by Stephen Bainbridge (UCLA School of Law), on
Tuesday, July 29, 2025
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Stephen Bainbridge is the William D. Warren Distinguished Professor of Law at UCLA School of Law. This post is based on his recent article.

I recently posted on SSRN an article The Law and Economics of An Act to Encourage Privateering Associations that examines New York’s 1814 Act to Encourage Privateering Associations, the second general incorporation statute in U.S. history and a unique example of early industrial policy designed to facilitate private maritime warfare. The article situates the 1814 Act within the broader context of the War of 1812, examining the costs, risks, and organizational challenges that made both the privateering business and incorporation of that business attractive to potential investors. This early experiment in using incorporation to advance public policy objectives through private initiative offers valuable insights into both the historical development of American corporate law and the relationship between legal innovation and economic development in the early Republic.

The Business of Legalized Piracy

To understand the 1814 Act, we must first understand privateering itself. Privateers were privately owned ships, armed and equipped by their owners rather than the government, but authorized by letters of marque and reprisal to prey on enemy shipping. Unlike pirates, privateers operated under strict government regulation, posting bonds and bringing captured vessels before admiralty courts for legal adjudication before selling ships and cargo for profit.

The economics of privateering were brutal. Outfitting a dedicated privateer cost around $40,000—a massive sum in 1814. The business model was simple but risky: cruise the seas hunting for enemy merchant vessels while avoiding British warships, capture prizes, and sail them to port for sale. Under standard agreements, crews received half the net profits while ship owners split the remainder.

The risks were enormous. Treasury Secretary Albert Gallatin compared privateering to a lottery, noting the “uncertain and improbable chance of a large, easy profit.” Statistics bear this out: an estimated 73% of privateers commissioned in 1812 failed to earn a profit. Many ships were captured or destroyed by the Royal Navy, with crews facing imprisonment in the notorious Dartmoor Prison. Yet the potential rewards were spectacular—the most successful privateer, the Surprize, captured 37 enemy vessels.

Three Theses

Through detailed analysis of the Act’s provisions and historical context, this article advances three principal arguments. First, it demonstrates that early general incorporation statutes functioned as deliberate instruments of industrial policy rather than neutral procedural mechanisms, with the 1814 Act representing a novel state effort to harness private capital for national defense. Second, it provides insight into the contested evolution of essential corporate attributes by analyzing which features of the modern corporation the Act provided and which it omitted, contributing to ongoing scholarly debates about the truly indispensable characteristics of the corporate form. The statute’s design reveals contemporary understanding of how corporate privileges could encourage high-risk entrepreneurial ventures by providing limited liability, centralized management, and rudimentary asset partitioning. Third, it offers a case study of how economic necessity can drive the functional development of corporate features—particularly asset partitioning and limited liability—even when formal legal architecture remains incomplete. READ MORE »

Executives Sentenced Under CPSA for Not Reporting Product Hazards

Posted by Theodore Chung, Kristina Cercone, and David Morrell, Jones Day, on
Tuesday, July 29, 2025
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Theodore Chung, Kristina Cercone, and David Morrell are Partners at Jones Day. This post is based on a Jones Day memorandum by Mr. Chung, Ms. Cercone, Mr. Morrell, Jeff Rabkin, and Rasha Gerges Shields.

In Short

The Background: In June 2025, two former executives were each sentenced to more than three years in prison for conspiracy and failure to report hazardous products to the U.S. Consumer Product Safety Commission (“CPSC”), marking the first criminal prosecution and sentencing of corporate executives under the U.S. Consumer Product Safety Act (“CPSA”).

The Result: The case underscores the growing regulatory and criminal risks for companies and their executives who fail to promptly report product safety hazards to the CPSC.

Looking Ahead: Companies that manufacture, import, distribute, or sell consumer products should review their product safety compliance programs and ensure that all relevant personnel are aware of, and trained on, their reporting obligations under the CPSA.

Legal Obligations and Enforcement Mechanisms

The CPSA and its implementing regulations require that companies notify the CPSC of product hazards “immediately”—defined as “within 24 hours” after the company obtains information that reasonably supports the conclusion that a product defect could create a substantial hazard or unreasonable risk of serious injury or death. See 15 U.S.C. § 2064(b)(4); 16 C.F.R. § 1115.14. Importantly, the duty to notify the CPSC applies equally to all entities in the chain of distribution: manufacturers, importers, distributors, and retailers. See 15 U.S.C. § 2064(b).

For decades, the CPSC has enforced this reporting requirement through civil penalties imposed against corporate entities, but the 2008 amendments to the CPSA allow for criminal sanctions against companies for late-reporting violations, as well as any director, officer, or agent of a corporation who “knowingly and willfully authorizes, orders, or performs” such violations. 15 U.S.C. § 2070(b). READ MORE »

Director Skills for Navigating a Complex Business Environment

Posted by Christine Davine, Caroline Schoenecker, and Jamie McCall, Deloitte LLP, on
Monday, July 28, 2025
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Christine Davine is a Managing Partner, Caroline Schoenecker is an Experience Director, and Jamie McCall is a Research & Insights Manager at Deloitte LLP. This post is based on a Deloitte memorandum by Ms. Davine, Ms. Schoenecker, Mr. McCall, Elizabeth Molacek, Maureen Bujno, and Krista Parsons.

Why it matters

Boards are navigating a business climate defined by rapid change and growing complexity. A recent analysis of Fortune 100 companies reveals distinct patterns in director skills and backgrounds. Understanding these trends could help inform board refreshment strategies at companies of any size.

Globalized leadership:
Almost all directors have leadership experience (90%), and the majority (63%) have skills in international business.

Potential skill gaps:
The least common skills are related to mergers and acquisitions (31%) and information security (20%).

Risk skill premiums:
Directors who are new to the board are more likely to have risk management skills (70%) compared to incumbents (60%).

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