Yearly Archives: 2025

No Exit

Posted by Brian Broughman (Vanderbilt Law School), Matthew Wansley (Cardozo School of Law), and Sam Weinstein (Cardozo School of Law), on
Wednesday, July 2, 2025
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Brian Broughman is a Professor at Vanderbilt Law School. Matthew Wansley and Sam Weinstein are Professors at Cardozo School of Law. This post is based on their paper.

The six most valuable companies in the world were once venture-backed startups. Alphabet, Amazon, Apple, Meta, Microsoft, and Nvidia, started out as small, private companies. They raised money from venture capitalists (VCs) to fuel their growth. They developed new technologies—search engines, online marketplaces, personal computers, social networks, operating systems, and graphics processing units. And then they did what most fast-growing private companies used to do—they went public.

Venture-backed startups used to have predictable lifecycles. A startup would raise a new round of capital every twelve to twenty-four months. After several rounds, the startup’s founders and employees would want to convert their shares to cash, and its VCs would need to deliver returns to their limited partners (LPs). The startup would exit the private market, so its shareholders could exit their investments. For some startups, the exit was an initial public offering (IPO). For others, the exit was an acquisition by a larger company.

The predictability of the startup lifecycle made the private-public divide coherent. When a startup grew enough to have a significant impact on society, it would usually become a public company or be sold to one.

Around the turn of the century, though, the startup lifecycle began to change, and the private-public divide began to blur. The number of IPOs fell precipitously. The share of startups exiting by acquisition rose. Many startups stayed private even as they grew into large companies. Some became “unicorns”—private companies valued over $1 billion. READ MORE »

The Board Observer: Considerations and Limitations

Posted by Michelle Gasaway, and Jeremy Winter, Skadden, Arps, Slate, Meagher & Flom LLP, on
Wednesday, July 2, 2025
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Michelle Gasaway and Jeremy Winter are Partners at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on their Skadden memorandum.

Overview

Appointing a board observer has long been a tool in an investor’s arsenal. Board observers can represent the interests of the appointing investor by monitoring and participating in the activities and decisions of the company’s board of directors. They can observe meetings of the board, ask questions of the other directors and weigh in on key deliberations. By observing the inner workings of a company’s board of directors and indirectly influencing board decisions, a board observer can help to monitor—and protect the value of—the appointing entity’s investment.

Board observers are distinguishable from board directors in terms of voting power, fiduciary liability, and the source of their rights and obligations. While board observers can indirectly influence a board’s decisions by asking pointed questions and providing constructive feedback at board meetings, only members of a company’s board of directors have the right to formally vote on matters submitted for approval by the company’s board of directors. While members of a board of directors generally have fiduciary duties to the corporation on whose board they serve (including, in the case of corporations organized in Delaware, the fiduciary duties of care and loyalty, including the subsidiary duties of good faith, oversight, and disclosure), board observers do not owe fiduciary duties to the corporations whose boards they observe or to other stakeholders in such corporations. Rather, the rights and duties of board observers are defined by contract between the corporation and the appointing investor.

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Tariffs, Targets and Transparency

Posted by Alexa Kierzkowski and Metin Aksoy, on
Tuesday, July 1, 2025
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Alexa Kierzkowski and Metin Aksoy are Managing Directors at FW Cook. This post is based on their FW Cook memorandum.

ACCOUNTING FOR UNKNOWNS is always the most challenging aspect of executive compensation design—and that exercise is shaping up to be particularly tricky this year. In addition to ongoing external forces like geopolitical tension and inflationary pressure, boards now also face uncertainty around tariffs as they address goal-setting and incentive pay practices.

“How tariff actions will actually unfold and what impact those actions will have on businesses and industries are still unknown,” says Alexa Kierzkowski, a managing director at FW Cook. “And the challenge of ensuring that payouts align with actual performance is that much more difficult when boards are dealing with the prospect of an exogenous item that is out of everyone’s control.”

Timing will also factor heavily in how compensation committees anticipating an impact on operational performance can approach addressing tariff uncertainty in their compensation plan design. Companies grappling with the challenge fall into two camps—those that have yet to finalize their plan terms for the year and those that have already established goals and incentive pay terms, which includes most companies with a December 31 fiscal year end.

PRE-PLAN DESIGN OPTIONS

Some companies still in the design phase of annual incentive pay planning when tariff actions were initially announced opted to postpone goal-setting. “In some cases, companies set first-half goals and delayed goal-setting for the second half of the bonus plan due to the uncertainty related to tariffs,” says Kierzkowski, who adds that as hope of the picture clarifying dwindles, compensation committees seeking to proactively account for external disruptions in their incentive pay programs can consider four approaches: READ MORE »

Remarks by Jill Fisch Before the Investor Advisory Committee of the U.S. Securities and Exchange Commission

Posted by Jill E. Fisch (University of Pennsylvania), on
Tuesday, July 1, 2025
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Jill E. Fisch is the Saul A. Fox Distinguished Professor of Business Law at the University of Pennsylvania Law School. This post is based on her remarks before the SEC’s Investor Advisory Committee.

Thank you for the opportunity to participate in the committee’s discussion about engaging with beneficial owners. I come to today’s discussion in two capacities. As an academic, I have researched and written extensively about mutual funds, shareholder voting and the distinctive challenges to effective retail investor participation in corporate governance. As a retail investor, I can speak from personal experience as to those challenges.

I am a chaired professor at the University of Pennsylvania Carey Law School where I have been teaching and writing about securities regulation and corporate governance since 2009. Prior to that I taught at Fordham Law School for almost 20 years. I previously practiced law at a Wall Street firm and the US Department of Justice.

Statistically we know that retail investor participation in corporate governance is extremely limited. Retail investors own almost 1/3 of publicly traded equity, yet only about 29% of retail shares are voted, compared to around 90% of shares held by institutional investors. So retail investors often own enough stock to make a difference, and the question is why don’t they participate more?

Several factors limit retail participation in corporate governance. One is information. Unlike institutional investors, retail investors generally do not have access to efficient sources of information about shareholder votes such as the reports and recommendations of proxy advisors. Although proxy statements contain extensive information, they are so long and detailed that, as a practical matter, most investors ignore them completely. Tesla’s 2024 proxy statement, while concededly an outlier, was 443 pages including appendices. Media reports provide information on certain high-profile votes like proxy contests and mergers, but that information is often the product of journalistic choices and need not include information investors might want to know.

A second constraint is time. Voting is a cumbersome process. For retail investors, it generally requires logging into their brokerage account and then logging into a separate platform such as proxy vote to vote their shares. Multiple accounts may not be integrated and may require multiple logins. Then the investor must populate each individual voting decision separately. This process must be repeated each time there is new voting period for an issuer – so it isn’t like an investor can go through this once each proxy season. There is no mechanism to prepopulate according to an investors’ general voting policies, a procedure of providing advance or standing voting instructions that institutional investors have access to and that I have recommended be extended to retail investors.[1] READ MORE »

Delaware Supreme Court Reaffirms Protection of Arm’s-Length Bargaining

Posted by Arthur R. Bookout, Joseph O. Larkin, and Edward Micheletti, Skadden, Arps, Slate, Meagher & Flom LLP, on
Tuesday, July 1, 2025
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Arthur R. Bookout, Joseph O. Larkin and Edward B. Micheletti are Partners at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on their Skadden memorandum, and is part of the Delaware law series; links to other posts in the series are available here.

On June 17, 2025, the Delaware Supreme Court reversed a post-trial finding of aiding and abetting liability against a third-party arm’s-length buyer. In doing so, the court built upon another recent decision and reaffirmed its commitment to protecting arm’s-length bargaining by requiring “actual knowledge” of wrongful conduct and substantial active assistance of such conduct to prove liability against an independent third-party buyer.

Background

In 2016, Columbia Pipeline Group, Inc. was acquired by Canadian energy company TC Energy Corp. (formerly TransCanada) for approximately $10 billion. The transaction resulted in significant change-in-control payments to Columbia’s top executives, who were also leading the sale negotiations.

After the deal closed, Columbia’s stockholders sued, alleging that Columbia’s executives and board of directors had breached their fiduciary duties by prioritizing their own interests — specifically, their lucrative retirement packages — over maximizing value for stockholders. The stockholders also claimed that TC Energy, as the buyer, had aided and abetted these breaches.

The Columbia executives settled before trial for $79 million, while TC Energy went to trial. READ MORE »

Bob Monks: A Life in Corporate Governance

Posted by Lucian Bebchuk and Stephen Davis (Harvard Law School), on
Monday, June 30, 2025
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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; Stephen M. Davis is a Senior Fellow at the Harvard Law School Program on Corporate Governance and a Co-organizer of the Capital+Constitution project.

Robert A.G. Monks, HLS ’58, passed away earlier this spring at the age of 91.  Bob, a lifelong friend of both of us, was a remarkable figure who left a lasting mark on the world of corporate governance. His passing is a moment to reflect on his legacy.

But before proceeding to discuss various contributions that he made to the field in general, we wish to acknowledge his contributions to the Harvard Law School Program at Harvard Law School, with which we are both associated. Bob was an early member of the Program’s Advisory Board, and his advice and encouragement significantly helped the development of the Program.

He also actively participated in some of the Program’s roundtables, and he visited Lucian’s courses several times for presentations that students found both inspiring and intriguing. Program projects that he closely and supportively followed were its Shareholder Rights Project, a clinical program that during three academic years (2011-2012 through 2013-2014) contributed to board declassification at about 100 S&P 500 and Fortune 500 companies, and the Program’s research projects on shareholder rights and on executive compensation.

Robert A.G. Monks would begin his life as a transformer of markets in the unlikely role of a government official in the Reagan administration. In 1984, US institutional investors considered proxy voting to be all but meaningless. Most, according to an IRRC study at the time, routinely either trashed ballots or cast them automatically in favor of corporate management at portfolio companies. So, when retirement savings plan administrators met at a conference dinner that April 5 in Washington, DC, they could hardly have been prepared for the speech that the then-little-known Monks was about to deliver. Bob was the US Department of Labor’s newly-installed pension regulator, giving his first public remarks. The vision he set out from the podium can in retrospect be seen as the foundational manifesto for modern corporate governance and investor stewardship. READ MORE »

An Ode to Robert Monks

Posted by Charles W. Elson (University of Delaware), on
Monday, June 30, 2025
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Charles W. Elson is the Founding Director of the Weinberg Center for Corporate Governance and Woolard Chair in Corporate Governance (ret.) at the University of Delaware.

The corporate governance community lost one its most significant and influential members on April 29, 2025. The passing of Robert Monks was a sad but important event that must be noted. Very few of us can claim a substantial impact on the broader communities in which we live. Even fewer can be said to have truly changed the world. Bob Monks was such a man.

His work over forty years dramatically altered the relationships between shareholders, boards and management world-over and led to greater corporate responsibility, accountability and economic success. Directors, though his efforts, achieved a much needed and much more important role in the stewardship of the institutions for which they are fiduciaries than was true for many decades. Rather than being simply “the parsley on the corporate fish” in so many public and private companies, boards assumed the oversight power and responsibilities the position was originally conceived to entail as a result of his efforts.

But how was he so influential and exactly who was he? Monks was born into a wealthy and prominent New England family. He attended St. Paul’s, Harvard, Cambridge and Harvard Law School. He practiced law briefly, but soon turned to the corporate managerial world, making him a very rich man. He chaired to Boston Company, a large asset management firm, until it was sold to Shearson in 1981 and was a respected and influential investor and corporate director. Bob was the consummate corporate insider.

However, he always felt that the most significant problem with the American corporate system was the lack of accountability of company management and boards to the business’s ultimate owners, the shareholders, leading to poor performance and stifling economic progress. Beginning in the mid-1980’s he sought to dramatically reform traditional corporate norms that created such a troubling state. His approach was quite simple. As the Washington Post noted, he “mobilized the power of shareholder blocks to redefine the rules of engagement in American capitalism.”

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Tribute to Bob Monks

Posted by Nell Minow, ValueEdge Advisors, on
Monday, June 30, 2025
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Nell Minow is the Vice Chair of ValueEdge Advisors.

I was eight months pregnant with my second child in December of 1985 when Bob Monks offered me a job as the first general counsel, and the fourth person on staff at Institutional Shareholder Services (ISS). We had met when he was working for then-Vice President George H.W. Bush and I was working at the Office of Management and Budget. I was immediately impressed with his incisive analysis, his ability to understand the most complex policy conundrums and isolate the key elements, his vigorous intellect, and – quite rare among people of his level of accomplishment and status – his openness to questions and disagreement. He even seemed to relish that.

Bob told me his new company was going to “advise institutional investors on corporate governance issues.” In that sentence, the only words I recognized were “advise,” “on,” and “issues.”  But I was taken with his vision that ERISA, then just 11 years old, had created a category of investor, big enough, smart enough, and, as fiduciaries, obligated to resolve all conflicts in favor of the beneficial holders, that could reverse the separation of ownership and control defined by Adolf Berle and Gardiner Means in 1932.

He explained to me that this change was being accelerated because the creation of securities to finance any size of takeover had led to unprecedented abuses of shareholders by what we then called corporate raiders READ MORE »

Protecting GP Discretion in Valuing Incentive Units: Lessons from Walker v. FRP

Posted by Gail Weinstein, Jeffrey Ross, and Rati Ranga, Fried, Frank, Harris, Shriver & Jacobson LLP, on
Sunday, June 29, 2025
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Gail Weinstein is a Senior Counsel, Jeffrey Ross is a Partner and Chair, and Rati Ranga is a Special Counsel at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Ms. Weinstein, Mr. Ross, Ms. Ranga, Steven Epstein, Philip Richter, and Steven J. Steinman, and is part of the Delaware law series; links to other posts in the series are available here.

In Walker v. FRP Investors GP, LLC (Apr. 15, 2025), the Delaware Court of Chancery, in a post-trial opinion, held that the general partner, FRP Investors GP, LLC (“GP”), of a limited partnership, FRP Investors, L.P. (the “Partnership”), breached its obligations under the Limited Partnership Agreement (the “LPA”) when determining the “Threshold Value” of newly issued incentive units (“B Units”) of the Partnership. The B Units permitted key managers of Foundation Risk Partners Corp., a company held by the Partnership (the “Company”), to participate in the growth in value of the Company above the Threshold Value of the B Units issued to them. Private equity firm Warburg Pincus controlled GP, which controlled the Partnership.

The Plaintiff, who was the former CFO of the Company, did not receive any of the newly issued B Units and his existing Partnership stake thus was diluted by the new issuance. He claimed that, as a result of GP’s breach, the Threshold Value for the newly issued units was set too low, which exacerbated the dilution of his stake. The court awarded the Plaintiff damages for the increased dilution that resulted from GP setting the Threshold Value too low.

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Remarks by Commissioner Uyeda at the Executive Compensation Roundtable

Posted by Mark T. Uyeda, U.S. Securities and Exchange Commission, on
Saturday, June 28, 2025
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Mark T. Uyeda is a Commissioner of the U.S. Securities and Exchange Commission. This post is based on his recent remarks. The views expressed in the post are those of Commissioner Uyeda and do not necessarily reflect those of the Securities and Exchange Commission or the Staff.

Thank you, Chairman Atkins, for convening today’s roundtable. I look forward to engaging in a dialogue with panelists and commenters on whether the executive compensation disclosure framework can be improved. Already, the Commission has received a number of public comment letters on executive compensation, which I found helpful in preparation for today’s roundtable. [1]

At the outset, the Commission has no authority to set or limit compensation paid at public companies, whether with respect to executives, workers, or contractors. SEC disclosures should not drive executive compensation decisions or seek to influence compensation practices. Moreover, it is inappropriate to use SEC regulations with the intent of addressing desired political or social outcomes with respect to income and wealth inequality in the United States. To the contrary, executive compensation disclosures should provide information material to an informed investment or voting decision.

Attempts to control executive pay through indirect means have proven clumsy and often resulted in the exact opposite result. In the 1990s, Congress passed tax legislation to make it less favorable to provide chief executive officer (CEO) salaries in excess of $1 million. Rather than limit CEO pay, the legislation significantly accelerated equity-based forms of executive compensation. In 2006, then-Chairman Christopher Cox described this effort, which backfired: “[w]ith complete hindsight, we can now all agree that this purpose was not achieved. Indeed, this tax law change deserves pride of place in the Museum of Unintended Consequences.” [2]

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