In its recent decision in Manti Holdings, LLC v. The Carlyle Group Inc., C.A. No. 2020-0657-SG (Del. Ch. Jan. 7, 2025), the Delaware Court of Chancery reaffirmed the high bar plaintiffs must meet to show that a private equity fund’s motivation to complete the sale of a portfolio company prior to the end of the fund’s life creates a problematic conflict of interest.
Continue Reading Delaware Court of Chancery Clarifies Controller Transaction Conflict of Interest Rules
Public companies would be well advised, on a lovely, clear day (in the Delaware sense), to update their advance notice bylaws. In the normal course these bylaws receive little attention, but in the event of an activist campaign they are critical to the board’s ability to discharge its fiduciary duties. The board will have a positive duty to inform itself, among other things, of the activist’s plans and proposals, the degree of the activist’s financial alignment with long-only stockholders, and the qualifications and independence of the activist’s nominees. This information will inform any settlement discussions, support a recommendation for or against the activist’s nominee and allow the board to ensure that stockholders receive accurate and timely disclosure regarding the nomination.
Continue Reading Alignment Advance Notice Bylaw
The Delaware Supreme Court in Kellner v. Aim Immunotech[1]recently ruled on the enforceability of a “modern” set of advance notice bylaws. Advance notice bylaws are the key tool corporations have to regulate the director nomination process and ensure full and fair disclosure to stockholders in a proxy fight. Critically, advance notice bylaws also allow the board to gather information necessary to guide its recommendation for or against a nominated candidate. While the headline may be that the court found all the challenged bylaws to be unenforceable, looking at each bylaw individually reveals a much less discouraging picture for corporations.[2]
Continue Reading Delaware Supreme Court Ruling on Advance Notice Bylaws – What’s In, What’s Out and What’s Missing from Advance Notice Bylaws
Summary
Founders and controlling stockholders often seek to retain control over their companies even after taking them public, typically via high-vote share classes or, as was at issue in this case, via stockholder agreements granting the pre-IPO owners broad governance rights.
In West Palm Beach Firefighters’ Pension Fund v. Moelis & Company, the Delaware Court of Chancery recently held that a “new wave” stockholder agreement between Moelis & Company (the “Company”) and its founder, CEO, and board chairman, Ken Moelis was invalid under Section 141(a) of the Delaware General Corporation Law (the “DGCL”) because it contained “pre-approval rights” over a number of corporate actions, required the board to recommend individuals designated by Moelis for a majority of directorships and fill committee positions and board vacancies with Moelis designees, impermissibly constraining the board’s ability to manage the business and affairs of the company—powers the statute does not allow the board to delegate via contract.[1]
Moelis is a strong reminder that the foundation of the corporate form in Delaware is the independent authority of a board of directors, elected by stockholders and entrusted to manage the business and affairs of the corporation as fiduciaries. Delaware will not permit this foundation to be eroded through contractual arrangements with stockholders.
Continue Reading Delaware Court of Chancery Rejects Validity of “New Wave” Stockholder Agreement Terms that Constrain Traditional Board Authority
On May 12, 2023, the Delaware Court of Chancery reaffirmed a key principle for transactions involving interested directors: process is everything. Vice Chancellor Sam Glasscock III, in his opinion in In re Oracle Corporation Derivative Litigation, provides reassurance that the Court will not rush to second-guess board decisions involving conflicted transactions as long as adequate safeguards are present.Continue Reading Delaware Chancery Court Finds for Defendant Director, CTO and Founder of Oracle, Larry Ellison, in Derivative Suit Involving Conflicted Transaction
On March 28, 2023, the U.S. Securities and Exchange Commission reached a $55.9 million settlement with Vale S.A., a NYSE-traded mining company, to resolve allegations that Vale committed securities fraud by presenting intentionally misleading information in its annual Sustainability Reports and investor presentations. The SEC’s enforcement action against Vale was brought by the agency’s Climate and ESG Task Force, which was created to “proactively identify ESG-related misconduct consistent with increased investor reliance on climate and ESG-related disclosure and investment.” For companies seeking to highlight ESG and sustainability goals and progress, this case serves as an important reminder of the need to ensure the accuracy of these public statements, lest they too end up in the crosshairs of government regulators. Continue Reading Misleading Public Company ESG Disclosure Results in SEC Enforcement Action – and $55.9 Million Settlement
For the past several years, boards of directors have increasingly faced claims that they have failed in their duty of oversight. These so-called Caremark claims can arise in a number of contexts involving allegations of systemic failures or intentional wrongdoing. Recently, the Delaware Court of Chancery held for the first time that officers owe the same duty of oversight as directors, an expansion of Caremark which had previously only been applied to directors.
In In re McDonald’s Corp. Stockholder Derivative Litigation,[1] the Delaware Court of Chancery denied a motion to dismiss a breach of fiduciary duty claim against the former Executive Vice President and Global Chief People Officer of McDonald’s Corporation (“McDonald’s” or the “Company”) relating to alleged sexual misconduct and inadequate oversight.Continue Reading Recent Delaware Chancery Court Decision Finds That Corporate Officers Owe the Same Caremark Oversight Duties as Directors
The Delaware General Assembly recently adopted amendments to the Delaware General Corporation Law (the “DGCL”), effective as of August 1, 2022. Among other changes, the amended DGCL provides for exculpation of officers from liability for breaches of the duty of care and also expands the ability of boards to delegate authority to members of management in connection with the issuance of shares of common stock and options. The change with the most potential for far-reaching impact is with respect to officer exculpation. For existing corporations, a charter amendment is required to take advantage of the new officer exculpation, and it is an open question as to whether shareholders (and proxy advisory firms) will support extending exculpation to officers.
Continue Reading 2022 Amendments to the Delaware General Corporation Law
Milbank LLP Environmental partner Matt Ahrens, Global Project, Energy & Infrastructure Finance partner Allan Marks and associates Allison Sloto (Environmental) and Pinky Mehta (Global Risk & National Security) recently co-authored a chapter titled “ESG Considerations in Project, Energy and Infrastructure Finance” in the International Comparative Legal Guide: Environmental, Social & Governance Law 2022, Second Edition. Global Corporate partners Iliana Ongun and Neil Whoriskey also contributed.
Continue Reading Milbank Attorneys Co-Author Chapter on ESG Considerations in ICLG: Environmental, Social & Governance Law 2022
SPACs, or “blank check” Special Purpose Acquisition Companies, have surged over the past two years, raising over $75 billion (about half the total US IPO market) last year alone. Recent SEC statements add complexity to accounting and disclosure rules for SPACs and could chill the market. Even so, De-SPAC (the merger of a SPAC into a private company, taking it public) transactions will trigger more M&A and PIPE deals at least through 2022.
Continue Reading SPACs Fuel Hot M&A and IPO Markets – Will SEC Cool the Fire?