Purpose Proposals 

The shareholder proposal has long been an effective tool for shareholders to bring emerging corporate governance issues to the attention of a company’s board of directors, its managers, and their fellow shareholders. Over time, shareholder proposals have driven a variety of governance reforms, from eliminating staggered boards to adopting majority voting in director elections. Although the subjects of shareholder proposals vary substantially, and some fade quickly into obscurity, others gradually build sufficient support leading not only to their implementation but to their incorporation into future standards of good governance.

At the same time, shareholder proposals are controversial. Critics argue that … Read more

Public Corporations’ Bylaws as Standard Form Contracts

Vast corporate growth over more than a century has weakened shareholder voting rights, as highlighted by, among other things, the rise of dual-voting stock IPOs. The extent of that growth, and the lack of people’s power to negotiate with corporations, provide legal justification for the possible application of standard contracts law to corporate law in general, and especially to the laws regulating publicly-trade corporations.

Applying standard contracts law to corporate bylaws was first recognized in Israel in 1997 by the Israeli Supreme Court and applied to cooperative corporations (and in later opinions to other types of corporations). In this … Read more

The Connection Between a Firm’s Investor Base and Media Coverage

The financial media provide information to investors by monitoring firms for fraud, excessive CEO pay, and other questionable behavior, as well as mundane activities such as periodic earnings announcements. However, it is unclear why certain firms get extensive media coverage, along with the resulting benefits, while most do not. We examine the extent to which media coverage varies with firms’ investor base. Specifically, we study in our paper whether and to what extent different types of debt and equity investors, who all vary in their reliance on publicly available information, influence media coverage.

Why Should the Media Care About

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Dual Class Shares in the Age of Common Ownership

Mark Zuckerberg has virtually all his personal wealth invested in Meta Platforms (formerly Facebook). His incentives as controller of Meta are thus clear: Maximize firm value and private benefits of control, irrespective of the effect that might have on other firms. Meanwhile, BlackRock manages $10 trillion invested in thousands of corporations. Its incentives are equally clear: Maximize the value of its portfolio, irrespective of what happens to any given firm therein. Modern day corporations are thus dominated by two kinds of shareholders with drastically different objectives: Firm value maximizing (FVM) shareholders à la Zuckerberg and portfolio value maximizing (PVM) shareholders … Read more

Does Stakeholder Outrage Affect Executive Compensation?

One-third of S&P 1500 CEOs reduced their base salary in 2020 as the onset of the coronavirus pandemic caused widespread economic disruption. These pay cuts were often accompanied by press releases that emphasized notions of CEOs “leading from the front,” “being all in this together,” and “sharing the pain” of the pandemic with employees. In a new article, we document that a more complex adjustment to CEO pay occurred during this time.  In a controlled analysis of executive compensation, we find that, while many CEO base salaries declined during 2020, the total compensation for all CEOs increased by nearly … Read more

The Twitter Board Bears Personal Responsibility for a Bad Outcome in the Twitter Sale

Let’s be clear about this: The Twitter board was under no legal compulsion to accept Elon Musk’s offer for the company and, from a corporate governance structural point of view, was in an unassailable position until the 2024 shareholders meeting.  The single motivating factor in its decision, apparently, was that the deal was a good one for Twitter shareholders, without apparent regard for how Musk might run the company and the consequence for the social media infrastructure that Twitter had created, much less the public welfare.  In my opinion, the board’s conduct was shockingly near-sighted, and the predictable adverse consequences … Read more

Arnold & Porter Discusses Attacks on Board Diversity Initiatives

Nasdaq’s Board Diversity Rule, approved by the Securities and Exchange Commission (SEC) in August 2021, is the subject of an ongoing, high stakes court battle in the United States Court of Appeals for the Fifth Circuit. The attorneys general of 17 “red” states have faced off against the SEC, the ACLU, an “Ad Hoc Coalition of Nasdaq-Listed Companies,” and a group of “Investors and Investment Advisers.” In an amicus filing, the attorneys general argue that the rule violates the Equal Protection Clause of the Constitution, undermines traditional state authority in the area of corporate governance, and forces companies to … Read more

The Rise of ESG and the Role of Inside Counsel

ESG, sustainability, and stakeholder capitalism are at the center of the global dialogue on the future of the corporation. They are being driven by an evolving legal and regulatory landscape, market dynamics, and societal expectations. In particular, ESG is increasingly perceived by investors, lenders, employees, local communities, suppliers, and customers as an integral part of a company’s business model and an organic element of value creation. In this post, we explore the role that legal, compliance, and governance[1] professionals – whom we refer to, collectively, as inside counsel – play in respect of ESG.

Inside counsel are increasingly taking … Read more

What Does CEO Turnover Data Tell Us About Succession Planning?

Over the past several decades, researchers have taken a serious look at the quality of CEO succession planning at publicly traded corporations. The results have not been encouraging. The evidence suggests that many companies are slow to terminate an under-performing CEO, are caught flat-footed in the event of a sudden CEO departure, and are often unprepared to identify a viable or permanent successor.

The research, however, is not without its shortcomings. A central challenge facing researchers is that it is very difficult for outside observers to determine whether the board in fact terminated the CEO. Rarely does a board explicitly … Read more

ISS Discusses Japanese Board Independence and Diversity

A recent ISS analysis of Japanese board composition finds a marked uptick in board independence and female board representation. At the close of Japan’s March 2022 “mini-season”, ISS found a 13percentage point jump in companies with at least a one-third independent board (based on the Tokyo Stock Exchange (TSE) classification), and a 12-percentage point increase in boards with at least one female director for companies listed on TSE’s Prime (the former First) listing section, compared with the same time in 2021 March.

Based on the 200+ companies listed on the TSE’s Prime listing section that held their 2022 AGMs during

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Why We Should Keep Teaching Dodge v. Ford Motor Co.

The question of corporate purpose has been much in the news of late, triggering renewed attention by legal scholars to corporate social responsibility, ESG, and shareholder value maximization. Many of these scholars have been strongly influenced by the late Lynn Stout’s work on the topic. Ten years ago, Stout published her book, The Shareholder Value Myth, [1] which built on her earlier article, Why We Should Stop Teaching Dodge v. Ford.[2] As the latter title suggests, Stout’s principal doctrinal foil was the Dodge case.[3]

Stout’s focus on Dodge was well chosen, since the case and “its statement … Read more

Do Investors Prefer Women CEOs at Firms Targeted by Activists?

Shareholder activism is playing a larger role than ever in companies’ decisions about their operations and reporting, with over 4,600 firms targeted worldwide from 2013 to 2018. Shareholder activists can have several motives for going after a company, from trying to improve its corporate governance by increasing efficiencies and dropping unprofitable segments to trying to improve the company’s reputation by making its practices more ethical and ecologically sound. Recent trends show that investment funds are making it easier for more investors to become involved in activism, which has led to regulatory concerns about the power of these activists and their … Read more

Wachtell Lipton Puts Spotlight on Boards: Spring 2022 Update

The ever-evolving challenges facing corporate boards prompt periodic updates to a snapshot of what is expected from the board of directors of a public company—not just the legal rules, or the principles published by institutional investors and various corporate and investor associations, but also the aspirational “best practices” that have come to have equivalent influence on board and company behavior.

The war in Ukraine and broader geopolitical implications, the coronavirus pandemic and ongoing efforts to return to a “new normal,” as well as other trends and technologies which have been accelerating the pace of disruption, are raising a host of … Read more

Skadden Discusses Proposed 2022 Amendments to Delaware Corporation Law

On April 12, 2022, the Corporation Law Section of the Delaware State Bar Association (DSBA) approved proposed amendments to the Delaware General Corporation Law (DGCL) that include provisions that, if enacted, would authorize exculpation clauses limiting or eliminating the monetary liability of certain officers, make appraisal rights available to beneficial owners of stock and facilitate domestications of non-U.S. entities and consummations of other corporate transactions related to domestications.

Exculpation of Senior Officers

Since its adoption in 1986, Section 102(b)(7) has authorized a corporation’s certificate of incorporation to contain an exculpation clause that limits or eliminates the personal liability of its … Read more

Moonshots

In the last half-century, technological progress has stagnated. The century from 1870 to 1970 brought electricity, running water, telephones, television, automobiles, and airplanes. Life expectancy at birth rose from 45 to 72. But since the early 1970s, progress has been incremental. Innovation has become synonymous with computers and smartphones because there have been so few transformative technologies in other fields.

Some economists believe that the economy has simply picked the low-hanging fruit. But there are plenty of emerging technologies with the potential to reignite productivity growth – including artificial intelligence, renewable energy, and nanotechnology. The problem is that each of … Read more

Why Delaware and England Win the Global Corporate Law Race

What makes the corporate laws of some jurisdictions more attractive for entrepreneurs and investors than others in the global arena? Within the United States, the competition among state laws is a popular explanation for Delaware’s corporate law prominence. However, interjurisdictional competition over corporate law is not limited by U.S. borders. In recent decades, an international market for corporate law has emerged; consequently, foreign countries compete with Delaware to supply corporate law.

In our recent paper, we used qualitative methods based on interviews with mergers and acquisitions (M&A) practitioners from the United States, United Kingdom, continental Europe, and Israel and … Read more

Going Private Outside Delaware: Holes in the Director Raincoat and Other Concerns

Meade v. Christie et al., an interlocutory appeal in a shareholder class action challenging a going private merger, is currently pending before the Iowa Supreme Court.[1] The appeal will test the strength of a director-liability shield law patterned on the Model Business Corporation Act template. It also presents questions of corporate law that pertain to going private transactions and are largely unsettled outside of Delaware.

A key question in Meade (and one of first impression in Iowa and other MBCA states) is whether the MBCA director shield exception for “intentional infliction of harm on the corporation or the shareholders”Read more

Skadden on Revisiting Share Repurchases in Volatile Times

In light of the recent increased volatility in the global financial markets,1 a number of companies have raised questions regarding the desirability of repurchasing shares at reduced market prices. This alert addresses questions surrounding share repurchases that companies should consider as they evaluate the advantages, disadvantages, legal implications and strategic considerations of share repurchases in a turbulent market.

Overview

As a preliminary matter, any company contemplating a share repurchase should consider the limitations set forth within the Coronavirus Aid, Relief, and Economic Security Act, passed into law on March 27, 2020; the Consolidated Appropriations Act, 2021, passed into law … Read more

Boardroom Gender-Diversity Reforms and Institutional Monitoring

The past decade has seen an explosion of boardroom gender diversity reforms worldwide. As of 2014, 23 countries have amended governance codes and 14 countries have enacted laws to increase gender diversity on corporate boards. While investors play a critical role in engaging with company boards and are increasingly focused on social equity, the evidence is scant on how these reforms affect investors’ monitoring role. This gap also contrasts with regulators’ reliance on investors to help ensure firms’ faithful implementation of the reforms. In our paper, we assess the change in the association between institutional ownership and female directorships following … Read more

Wachtell Lipton Discusses SEC’s Proposed Climate-Related Disclosure Rules and Audit Committees

The SEC’s proposed amendments to Regulations S‑K and S‑X to require new climate-related disclosures will, if adopted, require an expansion in the scope and responsibilities of audit committees.  As described in our prior memo, the rules contemplate domestic and foreign issuers disclosing, in registration statements, annual reports and audited financial statements, information on board and management climate-related risk oversight and governance, material climate-related risks and opportunities over the short-, medium- and long-term, Scopes 1 and 2 greenhouse gas (GHG) emissions, impact of climate-related events on line items of audited financial statements, and climate-related targets, goals and transition plans (if any).  … Read more