Wachtell Lipton Offers Thoughts for Boards of Directors in 2018

By Martin Lipton, Steven A. Rosenblum, Karessa L. Cain, Sabastian V. Niles, Vishal Chanani and Kathleen C. Iannone December 5, 2017 by Sabastian V. Niles

As 2017 draws to a conclusion and we reflect on the evolution of corporate governance since the turn of the millennium, a recurring question percolating in boardrooms and among shareholders and other stakeholders, academics and politicians is: what’s next on the horizon for corporate governance? In many respects, we seem to have reached a point of relative stasis. The governance and takeover defense profiles of U.S. public companies have been transformed by the widespread adoption of virtually all of the “best practices” advocated to enhance the rights of shareholders and weaken takeover defenses.

While the future issues of corporate … Read more

Wachtell Lipton Discusses SEC’s Guidance on Shareholder Proposals

By David A. Katz, Trevor S. Norwitz, Sabastian V. Niles and S. Iliana Ongun November 6, 2017 by Sabastian V. Niles

The SEC Division of Corporate Finance recently provided useful guidance on excluding certain Rule 14a-8 shareholder proposals (Staff Legal Bulletin No. 14I). While helpful, we hope the SEC will undertake a much-needed comprehensive review of Rule 14a-8, including its outdated eligibility requirements.

“Ordinary Business” and “Economic Relevance” Exclusions. A shareholder proposal relating to a company’s ordinary business operations may generally be excluded from the company’s proxy statement unless significant policy issues transcending ordinary business are involved (Rule 14a-8(i)(7)). Noting that this exclusion often involves difficult judgment calls (and without addressing the distinction between the SEC’s interpretive approach … Read more

Wachtell Lipton Shines a Spotlight on Boards for 2017

By Martin Lipton and Sabastian V. Niles January 27, 2017 by Sabastian V. Niles

This past year witnessed a number of new corporate governance initiatives. Among the most significant:

BlackRock, State Street and Vanguard each issued strong statements supporting long-term investment, criticizing the short-termism afflicting corporate behavior and the national economy and rejecting financial engineering to create short-term profits at the expense of sustainable value.
The Business Roundtable issued an updated version of its Principles of Corporate Governance.
The International Business Council of the World Economic Forum issued The New Paradigm: A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth and over 100

Wachtell Lipton discusses SEC Narrowing Shareholder Proposal Exclusion for Rule 14a-8 Proposals that “Directly Conflict” with Company Proposals

By David A. Katz and Sabastian V. Niles October 26, 2015 by Sabastian V. Niles

Yesterday [October 22, 2015], the Staff of the Securities and Exchange Commission’s Division of Corporation Finance issued Staff Legal Bulletin No. 14H. SLB14H formally narrows the long-standing approach to interpreting Rule 14a-8(i)(9), which permits a company to exclude a shareholder proposal that otherwise complies with Rule 14a-8 from its proxy statement “[i]f the proposal directly conflicts with one of the company’s own proposals to be submitted to shareholders at the same meeting.”

Prior to the 2015 proxy season, the exclusion applied in many corporate governance, shareholder rights and executive compensation contexts to avoid the risk of inconsistent and confusing … Read more

Wachtell Lipton discusses SEC Regulatory Guidance on Proxy Advisory Firms and Proxy Voting Responsibilities

By David A. Katz, Trevor S. Norwitz and Sabastian V. Niles July 2, 2014 by Sabastian V. Niles

Yesterday the Staff of the Securities and Exchange Commission’s Divisions of Investment Management and Corporation Finance issued regulatory guidance (in the form of a user-friendly Q&A) concerning the proxy voting responsibilities of investment advisers (such as fund managers), the use of proxy advisory firms and the applicability of the proxy rules to such firms. The Staff also made clear their expectation that proxy advisory firms and investment advisers will change current processes and systems to conform to the new guidance “promptly, but in any event in advance of next year’s proxy season.”

This welcomed guidance is part of the … Read more

Wachtell Lipton discusses A New Takeover Threat: Symbiotic Activism

By Martin Lipton, Adam O. Emmerich, Trevor S. Norwitz and Sabastian V. Niles April 25, 2014 by Sabastian V. Niles

The Pershing Square-Valeant hostile bid for Allergan has captured the imagination. Other companies are wondering whether they too will wake up one morning to find a raider-activist tag-team wielding a stealth block of their stock. Serial acquirers are asking whether they should be looking to take advantage of this new maneuver. Speculation and rumor abound of other raider-activist pairings and other targets.

Questions of legality are also being raised. Pershing Square and Valeant are loudly proclaiming that they have very cleverly (and profitably) navigated their way through a series of loopholes to create a new template for hostile acquisitions, one … Read more

Wachtell Lipton discusses SEC Guidance on Use of Social Media in Offerings and Proxy Fights

By Trevor S. Norwitz, Sabastian V. Niles, Eitan S. Hoenig and Matthew I. Danzig April 25, 2014 by Sabastian V. Niles

The SEC staff has released new guidance regarding the use of social media such as Twitter in securities offerings, business combinations and proxy contests (as a senior SEC official telegraphed at the Tulane Corporate Law Institute conference). Until now, SEC legending requirements have restricted an issuer’s ability to communicate electronically using Twitter or similar technologies with built-in character limitations before having an effective registration statement for offerees, or definitive proxy statement for stockholders (as the legends generally exceed the character limits). Companies using Twitter and similar media with character limits can now satisfy these legend requirements by using an active … Read more

ISS Publishes Guidance on Director Compensation (and Other Qualification) Bylaws

By Martin Lipton, Andrew R. Brownstein, Steven A. Rosenblum, Trevor S. Norwitz, David C. Karp and Sabastian V. Niles January 16, 2014 by Sabastian V. Niles

In the latest instance of proxy advisors establishing a governance standard without offering evidence that it will improve corporate governance or corporate performance, ISS has adopted a new policy position that appears designed to chill board efforts to protect against “golden leash” incentive bonus schemes. These bonus schemes have been used by some activist hedge funds to recruit director candidates to stand for election in support of whatever business strategy the fund seeks to impose on a company.

In its new FAQ, ISS warns that if a board adopts “restrictive director qualification bylaws” designed to prohibit “golden leashes” without submitting … Read more

Wachtell Lipton on ISS Addressing Dissident Director Compensation Bylaw

By Martin Lipton, Andrew R. Brownstein, Steven A. Rosenblum, Trevor S. Norwitz and Sabastian V. Niles December 3, 2013 by Sabastian V. Niles

ISS Proxy Advisory Services recently recommended that shareholders of a small cap bank holding company, Provident Financial Holdings, Inc., withhold their votes from the three director candidates standing for reelection to the company’s staggered board (all of whom serve on its nominating and governance committee) because the board adopted a bylaw designed to discourage special dissident compensation schemes. These special compensation arrangements featured prominently in a number of recent high profile proxy contests and have been roundly criticized by leading commentators. Columbia Law Professor John C. Coffee, Jr. succinctly noted “third-party bonuses create the wrong incentives, fragment the board and … Read more

Wachtell Lipton discusses Commissioner Gallagher’s Critiques of Proxy Advisory Firms

By Michael J. Segal, Trevor S. Norwitz and Sabastian V. Niles July 17, 2013 by Sabastian V. Niles

In a speech last week to the Society of Corporate Secretaries & Governance Professionals, SEC Commissioner Daniel M. Gallagher voiced “grave concerns,” which we have long shared, as to “whether investment advisers are indeed truly fulfilling their fiduciary duties when they rely on and follow recommendations from proxy advisory firms.” He also said:

“It is troubling to think that institutional investors, particularly investment advisers, are treating their responsibility akin to a compliance function carried out through rote reliance on proxy advisory firm advice rather than actively researching the proposals before them and ensuring that their votes further their clients’ … Read more

Wachtell Proposes Bylaw to Ward Off Threat of Conflicted Directors

By Martin Lipton, Theodore N. Mirvis, Andrew R. Brownstein, Steven A. Rosenblum, Trevor S. Norwitz, David C. Karp, William Savitt and Sabastian V. Niles May 10, 2013 by Sabastian V. Niles

This year, the practice of activist hedge funds engaged in proxy contests offering special compensation schemes to their dissident director nominees has increased and become even more egregious. While the terms of these schemes vary, the general thrust is that, if elected, the dissident directors would receive large payments, in some cases in the millions of dollars, if the activist’s desired goals are met within the specified near-term deadlines.

These special compensation arrangements pose a number of threats, including:

undermining Board prerogatives to set director pay and select the timeframe over which corporate goals are to be achieved;
creating a