Delaware Law and the “End of History” in Creditor Protection

What should a judge do when creditors claim that they were harmed by management and a board’s carelessness or disloyalty?  If the creditors were shareholders, the judge would apply fiduciary duty doctrines to determine liability.  Yet it’s unclear what legal doctrines offer creditors redress.  In a new chapter, we examine how judges have struggled with that issue over much of American history.  We pay special attention to the approach of judges in Delaware, the most important jurisdiction for corporate law.  We trace three generations of jurisprudence that each takes a different approach to whether judges should use equitable doctrines to … Read more

Does Environmental and Social Disclosure Affect Innovation at Companies?

Companies are typically not compelled to disclose environmental and social (E&S) information because this information does not meet the materiality standard used in many jurisdictions. However, some shareholders have an explicit mandate to screen potential investments based on E&S criteria. The growing popularity of socially responsible investing, which accounts for more than one in four dollars under professional management in the United States (US SIF 2018), has raised questions about the optimal standard of materiality for E&S information. Recent statements by the SEC’s Investor Advisory Committee indicate that the environmental and social information provided by firms lacks the materiality, comparability, … Read more

The Social Voice of CEOs

CEOs have increasingly been speaking out on social issues that are not directly related to their core businesses. Why are they doing so, and what are the consequences for their companies?

In a new paper, I examine the phenomenon of CEO activism.  Using textual analysis of the public statements and social media posts of CEOs, I classify a statement as activist if the CEO comments on gender equality, racial diversity, immigration, gun control, environmental issues, universal healthcare, or human rights. In total, there are 187 activist statements by CEOs of S&P 500 firms in the 2014-2019 period – most of … Read more

Wachtell Lipton Discusses Executive Compensation Considerations – Looking Ahead and Staying Nimble

Unpredictability has dominated the economic climate over the last six months and likely will continue in the months ahead. Companies that swiftly and thoughtfully assess and respond to evolving challenges will most effectively manage through the pandemic. This theme applies with equal force when it comes to executive compensation. The volatility of the business cycle challenges compensation committees to proactively assess compensation programs and to pivot, fine-tune or stay the course, as events warrant.­­­

Assessing 2020 Performance. Director discretion will be as important as ever when it comes to assessing and rewarding 2020 performance. If a company’s preset financial … Read more

How to Address Nonprofit Governance Failures

Governance failures at for-profit corporations are the topic of frequent media stories, judicial opinions, and academic analyses. Nonprofit governance, however, has received significantly less attention. This lack of attention is not because nonprofits are immune from governance failures, and recent allegations against the National Rifle Association may prove the point. In our paper, Nonprofit Governance in an Age of Compliance,  we identify the factors that give rise to critical nonprofit governance failures, and we offer attainable reforms to address them.

Most nonprofit governance failures stem from the key legal difference between nonprofit and for-profit corporations. By law, nonprofits are … Read more

Changing the Guard: Improving Corporate Governance with D&O Insurer Rotations

Insurance companies try to detect and reduce risk. Health insurers encourage preventative care, fire insurers insist on functioning sprinklers, police insurers investigate alleged misconduct and drop departments that tolerate excessive force, and Hollywood insurers flag risky scenes as requiring stunt doubles. These efforts make sense – it is the insurer’s money on the line if the client makes a claim – and they tend to benefit society.

Unfortunately, something is different about D&O insurance, which protects directors and officers from suits by shareholders alleging self-dealing or mismanagement. As Professors Tom Baker and Sean Griffith concluded from extensive interviews, “D&O insurers … Read more

Wachtell Lipton Discusses the Other “S” in ESG:  Building a Sustainable and Resilient Supply Chain

The current pandemic, blind spots in information flows through supply lines, the shutdowns in meat processing plants around the world, the ongoing shortages in personal protective equipment and, most recently, the scandal involving British retailer Boohoo, have all underscored the importance of resilient, sustainable, legally compliant and ethical supply chains.  In addition to geographic and industry-specific challenges, issues relating to health and safety, labor practices and climate risk have become top priorities for investors, regulators and consumers.  Failure to ensure proper oversight and management of supply chains can result in significant reputational and economic losses, as well as regulatory scrutiny.  … Read more

The False Dichotomy of Corporate Governance Platitudes

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 JournalRead more

How to Integrate New Corporate Directors Online

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

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?

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

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 objectiveRead more

The Case for Contingent Shareholder Action

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?

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

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

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

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

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The New Civil Code: ISS and Glass Lewis as Lawmakers

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

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

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