Corporate Governance

The False Dichotomy of Corporate Governance Platitudes

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Last August, the Business Roundtable (an organization of around 200 corporate CEOs) announced it was amending its Principles of Corporate Governance to eliminate the statement that the “primary purpose” of a corporation was to serve its shareholders.  The CEOs wanted to reconcile the statement of principles to what they felt they actually do – namely, balance the interests of a number of corporate stakeholders, including customers, employees, suppliers, and communities.

The amendment reinvigorated the “shareholders vs. stakeholders” debate. The shareholder wealth maximization absolutists, like Professor Stephen Bainbridge at UCLA and a number of op-ed columnists at the Wall Street Journal… Read more

How to Integrate New Corporate Directors Online

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The coronavirus may have ended the office era. Even though governments allowed businesses to reopen, few workers have returned to offices. It is not clear how many will ever return. Tech giant Facebook, for example, plans to shift up to half of employee to remote work arrangements. Adjusting to this new normal requires firms to revisit and revise many practices and processes.

One of the most essential processes in corporate life is “onboarding” new directors: preparing them for their role at the company through a strategic process. Some analysts have even asked whether it is possible to onboard … Read more

Skadden Reviews ESG for First Half of 2020

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Interest in the environmental, social and governance (ESG) policies of companies and their impact on the wider community has continued to increase amongst institutional investors, retail shareholders and the media during the first half of 2020. The COVID-19 pandemic and the Black Lives Matter movement have both resulted in the “S” in ESG becoming rapidly more important as companies seek to reaffirm their public image in response to such events, defying any concerns that ESG issues would fall to the wayside at the onset of an economic crisis. In this article, we review some of the key ESG developments and … Read more

Artificial Intelligence in Hiring: Problem or Solution?

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In my new paper, I explain how the creation of responsible artificial intelligence (AI) can address why women and under-represented minorities have a difficult time gaining a foothold in male-dominated industries. This is an especially important topic today as companies may hesitate to use AI because they fear that it may create discriminatory outcomes.

The ability of job applicants to submit materials online can leave employers with far more information than they need, giving rise to new technological methods for screening applicants. However, some companies have gone further by creating AI programs to not only screen resumes and cover letters, … Read more

Wachtell Lipton Discusses the Purpose and Objective of the Corporation

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As we approach the first anniversary of the Business Roundtable’s abandonment of shareholder primacy and embrace of stakeholder governance, and the fourth anniversary of our development for the World Economic Forum of The New Paradigm:  A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth, we thought it useful to consider in broader context the key issues of corporate governance and investor stewardship today.  While there is no universal consensus, the question underlying these issues can be expressed as:  What is the corporation trying to achieve?  What is its objective… Read more

The Case for Contingent Shareholder Action

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Shareholder action is restricted to a binary choice, a decision that requires a “yes” or a “no.”  For example, shareholders may be asked whether or not to participate in a tender offer, redeem SPAC shares, exercise preemptive rights, or approve a proposed shareholder resolution.

My forthcoming article, The Case for Non-Binary, Contingent, Shareholder Action, challenges this limited binary regime and calls for amending the law so that shareholders could act contingently, thus allowing more nuanced decisions.  They could incorporate relevant information without having to rely on costly disclosure rules and condition their actions on the acts of others, such … Read more

Could Social Media Give Small Investors Greater Say in Corporate Governance?

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In a new paper, we ask whether social media could have a role in corporate governance. Prior to the advent of social media, a small shareholder faced prohibitive costs to reach other investors. For example, she would have had to obtain the shareholder lists, which the firm might have only reluctantly made available, and to pay for printing, postage and more, if a proxy solicitation firm were hired. These costs and the prospect that others would simply free ride on these efforts effectively discouraged small shareholders from playing any meaningful role in corporate governance.

The rise of social media, in … Read more

Executive Private Misconduct

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Over the last few years, misbehavior of corporate executives like Harvey Weinstein, Steve Wynn, Leslie Moonves, and Elon Musk has outraged many people around the world.  The misconduct has ranged from the inadvisable to the unethical to the criminal.  Almost all of it – when made public – has damaged the executives’ public reputations, diminished the value of their companies’ stock, and raised some serious legal and policy issues.

My recent article, Executive Private Misconduct, in The George Washington Law Review examines this convergence of private lives and public consequences of executive misbehavior.  The article puts the legal issues … Read more

Caremark and ESG

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Climate change, economic insecurity and inequality, and worries that some companies and industries have grown too large, concentrated, and powerful have heightened concern about whether business entities conduct themselves in society’s best interests.  The profound human and economic harm of COVID-19 will only deepen concern about whether our corporate governance system is working well for the many or instead subordinating the interests of employees and society to please the stock market.  As a result, we are witnessing an increased demand that corporations, and the institutional investors who control the bulk of their stock, respect the best interests of society and … Read more

Sullivan & Cromwell Discusses Amendments to Delaware’s General Corporation Law

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On July 16, 2020, Delaware’s Governor signed House Bill 341 (the “Amendments”),[1] amending key provisions of Delaware’s General Corporation Law (“DGCL”).  Among other things, the Amendments modify existing statutory provisions governing boards of directors’ power to adopt emergency bylaws, address other emergency board powers and effect changes to provisions enabling the indemnification of corporate officers.  Except as noted below with respect to emergency powers, holding company mergers, the change to the definition of “officer” in DGCL § 145(c) and appraisal rights, the Amendments became effective on July 16, 2020.

Overview of Signficant Changes

Emergency Bylaws

  • Adoption. DGCL §110, which

… Read more

The New Civil Code: ISS and Glass Lewis as Lawmakers

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ISS and Glass Lewis have arrogated to themselves the power to make law, promulgating a civil code of astounding breadth and detail, ruling over decisions on board composition, director qualifications, term limits, majority voting standards, executive compensation, capital structure, poison pills, staggered boards, the advisability of  mergers, spin-offs and recapitalizations, and, increasingly, ESG policies ranging from animal welfare to climate change, diversity, data security and political activities.  They enforce this civil code by advising their clients, institutional investors with huge, varied and increasingly concentrated holdings across the economy, to vote against proposals or against directors if any aspect of the … Read more

Wachtell Lipton Puts a Spotlight on Boards

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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 coronavirus pandemic and resulting recession, combined with the wide embrace of ESG, stakeholder governance and sustainable long-term investment strategies by the Business Roundtable, the World Economic Forum, the British Academy, BlackRock, Vanguard, State Street and other investors and asset … Read more

Davis Polk Discusses ESG Disclosure Frameworks

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Updates in the past two months to voluntary ESG disclosure frameworks raise questions for companies about these overlapping and arguably competing standards.

GRI Launches Sector-Specific Disclosure Framework

On July 8, 2020, the Global Reporting Initiative (GRI) published an initial draft of a standard for ESG disclosures for the oil & gas industry. The draft, open for public comment until October 6, 2020, marks the first sector-specific ESG disclosure framework created by GRI, which, unlike the Sustainability Accounting Standards Board (SASB), has before now provided only a uniform framework for all industries.

The GRI sector program, currently in its pilot … Read more

The Specter of Political Bias Is Haunting Corporate Governance

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In 1985, the Delaware Supreme Court, in Unocal Corp. v. Mesa Petroleum Co.,[1] held that the “omnipresent specter” of a conflict of interest sufficiently clouds judicial review of anti-takeover measures to require application of enhanced scrutiny.  Notably, the court essentially took judicial notice of the inherent nature of the conflict that “of necessity” confronts the directors in these cases.  Thus, the court delayed application of the deferential business judgment rule until directors could satisfy the court that a threat to the corporation existed and that adopted anti-takeover devices were reasonably related to the perceived threat.

Today, political divisiveness … Read more

How Investors Respond to CEO (In)Activism

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CEO activism – CEOs expressing their views on social, environmental, and political issues – is growing, likely driven by popular opinion that CEOs have a duty to stand up for important issues of the day. A 2018 survey of 3,544 individuals across the U.S. found that 65 percent of respondents think “CEOs of large companies should use their position and potential influence on behalf of environmental, social, or political issues that they care about personally.”[1]

CEOs themselves recognize this pressure. Brian Moynihan, CEO of Bank of America, recently commented to the Wall Street Journal that “Our jobs as CEOs … Read more

Separating Voting and Control: Shareholder Agreements and Corporate Governance

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In corporate democracy, the default system for electing directors is voting, but shareholders are free to commit their votes by contract. In private companies, shareholders routinely do so, using shareholder agreements – contracts among the owners of a firm – to bargain directly over directorships and other rights of control. In recent years, disputes involving these agreements have increasingly appeared before Delaware’s courts. In late 2019, the Delaware Supreme Court issued a controversial decision addressing whether the parties to a shareholder agreement together formed a controlling shareholder and holding that, in this case, they did not. Economists and legal scholars, … Read more

The Fall of Wirecard

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In the public imagination, Wirecard was Germany’s biggest tech company success story – a €24 billion high-growth payment processor doing deals across the globe and pioneering new technologies.  While naysayers complained about its opaque corporate and financial practices and raised doubts about its business model, most observers admired its nimble approach to surmounting regulatory barriers to international expansion. In a world intoxicated by companies with unlimited growth prospects, it was a winner.

The reality was much different.  Most of Wirecard’s reported business didn’t exist.  And the company hadn’t made any money in years.  How could something like this happen in … Read more

Wachtell Lipton Offers Thoughts for Boards of Directors in 2020

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The past six months have been marked by a profound upheaval that has accelerated the growing focus on both the purpose of the corporation and the role of the board in overseeing and leading the corporation in ways that promote sustainable business success.  For a number of years, there has been a growing sense of urgency around issues such as climate change, environmental degradation, globalization, workplace inequality and the need to keep pace with rapidly evolving technologies.  Then, in recent months, the COVID-19 pandemic prompted a systemic shock, which has been accompanied by a long overdue awakening regarding endemic racial … Read more

Fried Frank Discusses Delaware Chancery’s Dell Technologies Decision and the Business Judgment Rule

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 In re Dell Technologies Inc. Class V Stockholders Litigation (June 11, 2020) can be viewed as a routine decision analyzing the MFW prerequisites to post-closing review of a transaction proposed by a controlled company under the deferential business judgment standard. We would suggest, however, that – possibly – the opinion should be read more generally as indicating that going forward the court may apply a more restrictive approach to the availability of business judgment review of challenged transactions under MFW (and, in the non-controlled company context, under Corwin).

Dell Technologies involved a post-closing challenge to a negotiated redemption … Read more

Accounting and Convergence in Corporate Governance

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Convergence in corporate governance – the adoption by various countries of similar governance laws and practices – and whether it is even occurring have been a hot topic of debate over the past 20 years, particularly in the legal and the law-and-economics literature. The legal literature, however, has sometimes neglected the important role of accounting and financial disclosure in corporate governance.

Proponents of convergence theories have suggested that certain laws and practices would be an advantage in a competitive and globalizing economy. Firms subject to efficient norms would be better run and more successful in the product market, and they … Read more