Yearly Archives: 2025

White Squires, Black Knights, Spin-offs, and Succession: The Four Horsemen of Hedge Fund Activism in 2025

Posted by Scott A. Barshay, Krishna Veeraraghavan, and Carmen X. Lu, Paul, Weiss, Rifkind, Wharton & Garrison LLP, on
Saturday, February 22, 2025
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Scott A. Barshay, Krishna Veeraraghavan, and Carmen X. Lu are Partners at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on their Paul Weiss memorandum.

Last year saw global hedge fund activism activity reach record highs, both in the volume of campaigns and the number of new entrants. U.S. activism activity also increased year over year and accounted for nearly half of global activity. With activism now an established investment strategy for delivering returns uncorrelated to the broader equity market, we should continue to see robust activity throughout 2025.

A confluence of factors, however, may see activist strategies evolve in the coming months. These factors include pent-up dealmaking ambitions, a significant pool of private equity dry powder, a changing regulatory environment, shifting macroeconomic conditions, geopolitical turbulence and accelerating structural shifts in the global economy underpinned by the rise of AI and automation. Together, these factors are helping set the stage for the following trends in activism:

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Delaware

Posted by Martin Lipton, Wachtell, Lipton, Rosen & Katz, on
Friday, February 21, 2025
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Martin Lipton is a Founding Partner at Wachtell, Lipton, Rosen & Katz. This post is based on his Wachtell Lipton memorandum.

For generations now, Delaware has been the incorporating jurisdiction of choice for publicly-traded business enterprises. This is no accident. Delaware offers structural advantages no other jurisdiction can match: an enabling corporate statute; a rich body of corporate law; expert judges on the Court of Chancery, always ready to resolve complex business disputes, on an expedited basis when necessary; a Supreme Court available to issue equally prompt definitive rulings on contested matters of business-entity law; a sophisticated corporate bar coupled with a welcoming attitude toward out-of-state practitioners; and a Legislature prepared to consider modifications to the statute in the face of evolving conditions and caselaw. These distinctive advantages of Delaware corporate law remain intact.

In the wake of certain judicial rulings that surprised many practitioners, voices from various quarters have called into question the wisdom of Delaware incorporation. We do not join them. While there is no one-size-fits-all answer to important business judgments, and every company’s incorporating decision must be made on its individual merits, we believe Delaware incorporation remains a wise choice for most widely-held business organizations. Delaware remains the gold standard for corporate law in the United States and beyond.

Yesterday, legislation was introduced in the Delaware General Assembly proposing amendments to the Delaware General Corporation Law. These salutary amendments will ensure that Delaware law gives full respect to the good-faith decisions of independent directors and recognizes the primacy of disinterested stockholders when they vote for a transaction. The amendments will also place sensible limits on requests for corporate books and records. Both of these amendments restore conventional rules that have long served Delaware well.

We support these proposed amendments as a step toward restoring confidence in Delaware’s corporate law, and as confirmation that Delaware remains able and willing to address the concerns of its corporate constituents as they arise.

Delaware Corporate Law Myth-Busting: The “Expanding Definition” of Controlling Stockholder

Posted by Ben Potts, Andrew Blumberg, and Tom James, Bernstein Litowitz Berger & Grossmann LLP, on
Friday, February 21, 2025
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Ben Potts is a Senior Counsel, and Andrew Blumberg and Tom James are Partners, at Bernstein Litowitz Berger & Grossmann LLP. This post is based on a BLB&G memorandum by Mr. Potts, Mr. Blumberg, Mr. James, and James Janison, and is part of the Delaware law series; links to other posts in the series are available here.

This note is the first in a series intended to bust several burgeoning myths about the history and trajectory of Delaware common law governing controlling stockholders.  These myths are being framed as new and dangerous problems that must be solved if Delaware is to remain the preferred domicile in the United States for corporations, and especially for controlled corporations.  In the words of one commentator, “Delaware courts need a course correction” because “[t]hey have pushed the law governing controlling shareholders far beyond legitimate policing into unnecessary and unwise overregulation.”[1]

We argue that the as-framed “problems” are not new, dangerous, or real.  The judicial decisions on which the commentators seize uphold Delaware law’s uncontroversial purpose to minimize agency costs, including by preventing or remedying controllers’ tunneling of value away from corporations and their minority stockholders.  Rather than a dramatic or unexpected shift in the law of controllers, the decisions represent a conservative and common-sense application of longstanding equitable principles.  The result is a clear and approachable framework that appropriately accounts for the ways control rights are allocated in modern corporations.  That makes for both good law and good policy and best facilitates wealth creation.

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Weekly Roundup: February 14-20, 2025

Posted by the Harvard Law School Forum on Corporate Governance, on
Friday, February 21, 2025

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This roundup contains a collection of the posts published on the Forum during the week of February 14-20, 2025

The Evolving Anti-DEI and Anti-ESG Landscape: Implications for the Public Sector

Posted by Allison Wyderka and Wickham Egan, Egan-Jones Ratings Company, on Friday, February 14, 2025
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Implications of Tornetta v. Musk II for Executive Compensation and for Stockholder Ratification

Posted by Gail Weinstein, Philip Richter, and Steven Epstein, Fried, Frank, Harris, Shriver & Jacobson LLP, on Saturday, February 15, 2025
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The Industry Veteran CEO: Friend or Foe?

Posted by Jonathan Doorley and Greg Roumeliotis, Brunswick Group LLP, on Sunday, February 16, 2025
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ISS 2025 US Benchmark Policy Guidelines

Posted by Alessandra Murata, Michael Bergmann, and Michael Mencher, Cooley LLP, on Monday, February 17, 2025
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New C&DIs on Types of Shareholder Engagement Could Cause Loss of Schedule 13G Eligibility

Posted by Amy R. Dreisiger, Joseph A. Hearn, and Dalia O. Blass, Sullivan & Cromwell LLP, on Tuesday, February 18, 2025
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Granting Favors: Insider-Driven Corporate Philanthropy

Posted by Leeor Ofer (Harvard Law School), on Tuesday, February 18, 2025
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Corporate Governance Trends in the United States

Posted by Rich Fields, Melissa Martin, and Rusty O’Kelley, Russell Reynolds Associates, on Tuesday, February 18, 2025
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Shareholder Proposals: Staff Legal Bulletin No. 14M (CF)

Posted by Cicely LaMothe, Securities and Exchange Commission (SEC), on Thursday, February 20, 2025
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Corporate Governance and Firm Value

Posted by Marcel Kahan (NYU Law) and Emiliano Catan (NYU Law), on Thursday, February 20, 2025
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Thirty Years Later – Why Corporations Continue to Choose Delaware: General Perspectives and Thoughts on Proposed Amendment

Posted by Eric S. Klinger-Wilensky, William M. Lafferty, and John P. DiTomo, Morris, Nichols, Arsht & Tunnell LLP, on Thursday, February 20, 2025
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Thirty Years Later – Why Corporations Continue to Choose Delaware: General Perspectives and Thoughts on Proposed Amendment

Posted by Eric S. Klinger-Wilensky, William M. Lafferty, and John P. DiTomo, Morris, Nichols, Arsht & Tunnell LLP, on
Thursday, February 20, 2025
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Eric S. Klinger-Wilensky, William M. Lafferty, and John P. DiTomo are Partners at Morris, Nichols, Arsht & Tunnell LLP. This post is based on their Morris Nichols memorandum.

Thirty years ago, our now-retired partner Lew Black released his widely read article, “Why Corporations Choose Delaware.” Describing the legislature’s role in the Delaware corporate franchise, Lew wrote, “[a]s a result of its long experience with corporation law matters, and the importance of those matters to Delaware, the legislature has developed a philosophy which emphasize[s] the stability of Delaware corporate law.” Lew also observed that “[t]he guiding principle that underlies legislation affecting corporations in Delaware is to achieve a balanced law.”

Consistent with that philosophy and guiding principle, on Monday, February 17, 2025, the General Assembly publicly released proposed amendments to the Delaware General Corporation Law (“DGCL”). [1] The amendments, which we refer to in this memorandum as the “Balancing Amendments,” are intended to rebalance certain aspects of Delaware law relating to conflict transactions, controlling stockholder liability, and books and records demands. They do so by: (i) clarifying the means by which disinterested directors or disinterested stockholders may approve conflict transactions; (ii) limiting the liability of controlling stockholders to breaches of the duty of loyalty and actions taken in bad faith or involving improper self-interested actions; and (iii) setting forth certain conditions that a stockholder must satisfy in order to demand inspection of a corporation’s books and records, and describing the materials that a stockholder may obtain in such an inspection. The Balancing Amendments, if adopted, would offer a practical path for corporations to approach conflict transactions while still preserving accountability of corporate decisionmakers to stockholders. At the same time as the Balancing Amendments were released, the General Assembly released a proposed concurrent resolution (“Concurrent Resolution”) that would direct the Council (“Council”) of the Corporation Law Section of the Delaware State Bar Association (“DSBA”) to present a report to the Governor and the General Assembly on or before March 31, 2025, with recommendations for legislative action that might help the judiciary ensure that awards of attorney’s fees provide incentives for litigation appropriately protective of stockholders but not so excessive as to act as a counterproductive toll on Delaware companies and their stockholders. The Concurrent Resolution would direct the Council, in considering any such recommendation, to examine the utility of a cap on such awards based on a multiple of lodestar amounts (i.e., amounts determined by multiplying the time devoted by plaintiffs’ counsel to the matter by their ordinary hourly billing rates).

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Corporate Governance and Firm Value

Posted by Marcel Kahan (NYU Law) and Emiliano Catan (NYU Law), on
Thursday, February 20, 2025
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Marcel Kahan is the George T. Lowy Professor of Law at New York University School of Law, and Emiliano Catan is the Catherine A. Rein Professor of Law at New York University School of Law. This post is based on their recent paper.

Scholars have long debated how corporate governance affects firm value. The topics analyzed include, among many others, board composition, proxy access, poison pills, antitakeover statutes, staggered boards, hedge fund activism.

Confronted with conflicting arguments, scholars have turned to empirical evidence to resolve the theoretical debates. An approach that has become increasingly popular over the past few decades is to measure the effect of governance mechanisms on Tobin’s Q: the market value of a company divided the replacement cost of the company’s assets.

Q regressions come in two variants, cross-sectional and “within firm.” A typical within firm study uses a panel dataset involving many firms that become treated during the sample period to regress firm Q  against a treatment indicator, a vector of firm indicators, a vector of time indicators, and possibly other control variables. This research design effectively compares the post-treatment changes in the Q of treated firms to contemporaneous changes in Q in firms for which treatment status has not changed during the same period. If the coefficient estimate for the treatment indicator is positive (or negative), this is taken as evidence that treatment enhanced (or reduced) firm value.

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Shareholder Proposals: Staff Legal Bulletin No. 14M (CF)

Posted by Cicely LaMothe, Securities and Exchange Commission (SEC), on
Thursday, February 20, 2025
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Cicely LaMothe is a Deputy Director of Disclosure Operations at the Securities and Exchange Commission (SEC).

A. The Purpose of This Bulletin

This bulletin is part of a continuing effort by the Division to provide guidance on important issues arising under Exchange Act Rule 14a-8. Based on a review of Staff Legal Bulletin No. 14L and the staff’s experience applying the guidance contained in it, and after re-examining the Commission’s statements on the matters addressed in that bulletin, the Division is rescinding Staff Legal Bulletin No. 14L. [1] This bulletin is intended to clarify the Division’s views on the scope and application of Rule 14a-8(i)(5) and Rule 14a-8(i)(7). In addition, this bulletin addresses certain other aspects of Rule 14a-8 and provides responses to questions that may arise in light of the timing and content of this bulletin.

When explaining the ordinary business exclusion in Rule 14a-8(i)(7), the Commission has said that “[c]ertain tasks are so fundamental to management’s ability to run a company on a day-to-day basis that they could not, as a practical matter, be subject to direct shareholder oversight. . . . However, proposals relating to such matters but focusing on sufficiently significant social policy issues . . . generally would not be considered to be excludable, because the proposals would transcend the day-to-day business matters and raise policy issues so significant that it would be appropriate for a shareholder vote.” [2] In addition, the Commission has said that the determination as to whether a proposal deals with a matter relating to a company’s ordinary business operations is “made on a case-by-case basis, taking into account factors such as the nature of the proposal and the circumstances of the company to which it is directed.” [3] In light of these statements, it is the staff’s view that a “case-by-case” consideration of a particular company’s facts and circumstances is a key factor in the analysis of shareholder proposals that raise significant policy issues. In addition, the text of Rule 14a-8(i)(5) references the relationship of the proposal to the individual company, requiring analysis of whether the proposal is “significantly related to the company’s business.” Accordingly, where relevant to the arguments raised to the staff by companies and proponents, the staff will consider whether a proposal is otherwise significantly related to a particular company’s business, in the case of Rule 14a-8(i)(5), or focuses on a significant policy issue that has a sufficient nexus to a particular company, in the case of Rule 14a-8(i)(7). Our views on the application of both rules are described below.

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Delaware Legislators and Governor Propose Landmark Legislation

Posted by William B. Chandler III, Amy Simmerman, and Brad Sorrels, Wilson Sonsini Goodrich & Rosati, on
Wednesday, February 19, 2025
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William B. Chandler III, Amy Simmerman, and Brad Sorrels are Partners at Wilson Sonsini Goodrich & Rosati. This post is based on their Wilson Sonsini memorandum, and is part of the Delaware law series; links to other posts in the series are available here.

On February 17, 2025, Delaware’s legislative leaders and Governor announced landmark legislation and initiatives that would, if enacted into law, result in welcome and much-needed amendments to Delaware corporate law to address problems of recent vintage. The legislation and initiatives address critical topics, including director independence, controlling stockholders, stockholders’ books and records inspection rights, and plaintiffs’ attorney fee awards. The legislative efforts have been introduced at a time of growing debate over the vitality of Delaware corporate law and in response to case law developments that have frustrated boards of directors, corporate management, and investors. These legislative efforts would, in our view, restore Delaware law to what it was before those recent developments and mark a return to the stability, predictability, and balance that long characterized Delaware law.

Many clients have been discussing with us their concerns about Delaware law. We think that clients evaluating these issues will want to seriously consider the potential benefits of the proposed amendments, combined with the already significant built-in advantages that have long made Delaware the primary state of incorporation, and closely monitor their status.

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Too Many Mergers? The Golden Parachute as a Driver of M&A Activity in the 21st Century

Posted by Jeffrey N. Gordon (Columbia Law School), on
Wednesday, February 19, 2025
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Jeffrey N. Gordon is Richard Paul Richman Professor of Law at Columbia Law School. This post is based on his recent paper.

This paper argues that the prevailing corporate governance regime in the United States has produced a level of mergers and acquisition activity that is higher than the social optimum because of a high-powered incentive for a CEO to exit through target-side M&A, the contemporary golden parachute.

In the late 19th through the 20th century M&A activity was characterized by “waves” that reflected adaptations to changing external environment, whether the efficient production frontier, regulatory constraints, or capital market developments.  Economically motivated parties saw the opportunities in changing the boundaries of the firm; successful first-movers spawned imitators, hence a wave, which eventually subsided, often alongside deteriorating capital market conditions.  The 21st century is different.  There is a persistently high level of M&A.  Yes, there are fluctuations but not “waves.”  The troughs in M&A activity over the past 25 years commonly exceed the peaks of prior waves.

This pattern can be explained at least in part by the introduction of an internal driver of M&A activity, the “golden parachute,” a super-bonus payoff to a target CEO.   Golden parachutes were introduced as a corporate governance innovation in the 1980s to overcome managerial hostility to an unsolicited premium bid. Over time, especially as executive compensation radically shifted toward stock-based pay, golden parachutes have become increasingly lucrative, platinum in many cases They now provide a CEO with a high-powered incentive to become a target CEO, compensating the CEO like a deal-hunting investment banker, and thus have changed the pattern of M&A activity.

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Climate and Energy Executive Orders: Implications for Corporate Sustainability

Posted by Matteo Tonello and Andrew Jones, The Conference Board, Inc., on
Wednesday, February 19, 2025
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Matteo Tonello is Head of Benchmarking and Analytics and  Andrew Jones is a Senior Researcher, ESG Center at The Conference Board, Inc. This post is based on their Conference Board memorandum.

On January 20, 2025, the president signed three significant climate and energy-related executive orders—“Declaring a National Energy Emergency,” “Unleashing American Energy,” and “Putting America First in International Environmental Agreements”—and rescinded several executive orders from prior administrations, including those focused on reducing emissions and expanding clean energy infrastructure. This article analyzes the key provisions of each order and their potential impact on corporate sustainability practices.

Key Insights

  • Intended to strengthen US energy security and boost economic competitiveness, these climate- and energy-related executive orders mark a pivotal shift in federal climate policy.
  • Despite federal rollbacks, large and multinational corporations will remain subject to new ESG regulations such as California’s climate disclosure laws and the EU’s Corporate Sustainability Reporting Directive, maintaining momentum toward decarbonization.
  • Diverging state and federal climate policies are creating a fragmented regulatory landscape in the US, challenging corporations to develop flexible compliance strategies that address both progressive state mandates and federal deregulatory initiatives.
  • While withdrawal from the Paris Agreement is unlikely to significantly impact corporate climate efforts, the absence of federal contributions to global climate finance could prompt firms to play a larger role in funding climate adaptation and mitigation initiatives.
  • The recent growth in voluntary corporate climate disclosures, risk management, and renewable energy investments highlights the strong influence of market trends, investor expectations, and global standards in driving sustainability, beyond domestic policy shifts.

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