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

Alea iacta est

Boards often settle actual or threatened proxy fights by trading away board seats to activists. Delaware courts will analyze this trade as a defensive device, much like greenmail, where the board trades away something valuable to avoid a battle for corporate control.  It follows that, like greenmail or a poison pill, this defensive device would be subject to scrutiny under the Unocal standard[1].  Yet boards in general seem to be remarkably lax in analyzing whether they have fulfilled their fiduciary duties in making such a trade. Below are questions boards should be able to answer before awarding partial control of their company to an activist.
Continue Reading Activist Settlements: Fiduciary Questions for Boards

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

On September 1, 2022, new universal proxy rules adopted by the Securities and Exchange Commission (“the SEC”) formally went into effect. These rules mandatorily apply to public company director elections held after August 31, 2022. This post summarizes the key provisions of Rule 14a-19 of the Securities Exchange Act of 1934, as amended (“Rule 14a-19”), and provides recommendations for potential corporate bylaw amendments.
Continue Reading Bylaw Amendments to Address Universal Proxy Rules

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 Litigation & Arbitration partners Antonia M. Apps and Adam Fee, and special counsel Matthew Laroche, who recently rejoined the firm after his tenure as an Assistant United States Attorney in the Southern District of New York, have authored an article on modern ransomware attacks for the Harvard Law School Forum on Corporate Governance, a leading online resource on corporate governance issues.
Continue Reading Milbank Litigators Publish Article on Addressing the Escalating Threat of Ransomware in Harvard Law School Forum on Corporate Governance

On June 15, 2021, within hours of her Senate confirmation as a Federal Trade Commission (FTC) Commissioner, 32-year-old Lina Khan was appointed by President Biden to serve as the youngest FTC Chair in history.
Continue Reading What Does Lina Khan’s Appointment as FTC Chair Mean for Your Business?