New Year’s Resolutions for Director Compensation from Investors Bancorp

In recent years, shareholder plaintiffs have brought a series of claims before the Delaware Court of Chancery alleging that directors of Delaware companies have abused their discretion in granting themselves excessive equity compensation for their board service.  These cases raised the threshold question of whether the plaintiffs’ challenges should be reviewed under the “entire fairness” standard, which requires the company to bear the burden of proving that the director awards were fair, or the more deferential “business judgment” standard, which grants considerable discretion to directors’ decisions, often resulting in dismissal of claims that fail to plead particularized facts indicating fiduciary … Read more

Davis Polk discusses Down-Round Financings of Private Companies: Considerations for Outstanding Equity Compensation Awards

The recent market turmoil has forced VC firms and other private company investors to examine closely the real possibility of seeking financing at a lower valuation – what is often referred to as a “down round.” More recently, the New York Times observed in January, “The unicorn1 wars are coming, as the downturn in the market will force these onetime highfliers to seek money at valuations below their earlier billion-dollar-plus levels[.]”

While down-round financings impact all private company stakeholders, one demographic that can become particularly disaffected are employees – often, the one group of stakeholders that start-ups cannot afford … Read more