At the beginning of the COVID outbreak in the US, The Williams Companies adopted an unusually protective poison pill to thwart any activist campaigns that might arise in the then existing market conditions. Vice Chancellor McCormick struck down the pill in a decision published February 26. The Vice Chancellor’s decision is important in at least two regards.
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D&O Insurance: State of the Market
Any General Counsel who has been through a renewal of the company Directors and Officers Liability Insurance policy in the past couple of years has experienced a highly distressed market, with dramatic increases in prices, and challenges with respect to availability in many cases. I sat down (virtually) with Michael Welling, a partner at Meridian Risk Management to discuss the state of the market and strategies going forward.
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Reasonable COVID-19 Preventative Measures Can Breach Ordinary Course of Business Covenant
In AB Stable VIII LLC v. MAPS Hotels and Resorts One LLC et al., the Delaware Court of Chancery, held for the first time that reasonable measures aimed at combatting COVID-19 can violate the ordinary course of business covenant in a sale agreement if those measures “materially change [the] business or business practices” of the target company. In connection with the attempted sale by AB Stable VIII LLC ( “Seller”) of a subsidiary holding 15 hotels to MAPS Hotel and Resorts One LLC ( “Buyer”), the Court held that by temporarily closing two hotels, limiting the capacity and amenities in others, and by furloughing and laying off workers in light of the COVID-19 pandemic, the Seller materially breached its covenant to operate in the ordinary course of business between the signing and closing of the transaction. Accordingly, the Buyer was not required to complete the transaction.
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The Department of Labor, ESG and All Those Undirected Votes
Just before year end, the Department of Labor finalized its new rules on ESG investing and voting for retirement and pension funds. The rules sharply restrict the ability of the fiduciaries of retirement and pension funds to make investments based on ESG factors, or to vote shares held by such funds in favor of ESG issues. The rules are unlikely to prove popular with the Biden administration, but regardless of how long they survive, the rules currently apply to trillions of dollars of investments, and raise interesting questions about who will ultimately control the placement of a huge amount of the public’s investment capital and the voting on ESG matters of shares held by fiduciaries.
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ISS Issues Proxy Voting Guidelines and Policy Updates for 2021
On November 12, 2020, Institutional Shareholder Services (“ISS”) issued its proxy voting guidelines and policy updates for 2021. These guidelines apply for shareholder meetings taking place on or after February 1, 2021. The most noteworthy changes are described below. Companies included in the S&P 500 index should also note that ISS will no longer provide drafts of its reports for company review prior to publication.
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