Corporate Governance

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Earnout provisions in acquisition agreements can be a useful tool in bridging the valuation gap by deferring portions of the purchase price until certain post-closing milestones are achieved, and they are particularly common in developmental-stage pharmaceutical transactions.  Practitioners should take note of the September 5, 2024 opinion in Shareholder Representative Services LLC v. Alexion Pharmaceuticals, Inc., in which the Delaware Court of Chancery held a buyer, Alexion, liable for breach of contract both for its failure to use commercially reasonable efforts to achieve milestones for which future earnout payments may have become due and for its failure to pay an earned milestone payment to selling securityholders of Syntimmune, Inc.[1]Continue Reading Delaware Court of Chancery Finds Buyer Failed to Use Commercially Reasonable Efforts in Pharma Milestone Payment Case

On March 6, 2024, the U.S. Securities and Exchange Commission approved in a 3-2 vote final rules that require most reporting companies to provide certain climate-related information in their registration statements and annual reports filed with the SEC. This memorandum summarizes a portion of the final rules, the amendments to Regulation S-X, as amended (Regulation S-X), under the Securities Act of 1933, as amended (the Securities Act), and the Securities Exchange Act of 1934, as amended (the Exchange Act), that require a new footnote in audited financial statements, analyzes some of the key challenges these requirements may impose and concludes with some general takeaways. This memorandum does not address the GHG emissions and attestation report disclosure requirements or the governance, business, risk and targets disclosure requirements set forth in the final rules’ amendments to Regulation S-K, as amended (Regulation S-K), under the Securities Act and Exchange Act.Continue Reading SEC’s Final Climate-Related Disclosure Rules: A Closer Look at the Climate Note to Audited Financial Statements

On Friday, March 15, 2024, the Council of the European Union reached an agreement on a final version of the Corporate Sustainability Due Diligence Directive (“CS3D”). The vote on an earlier version of the CS3D had been postponed several times after some Member States announced that they were going to abstain from voting. After further changes and compromises, the now agreed version obtain the required majority amongst Member States. The last step for the directive to enter into force now is for it to be approved by the European Parliament. The CS3D seeks to integrate human rights and environmental concerns into business operations and to promote sustainable and responsible business behavior along the supply chain and require the remaining Member States to implement the due diligence requirements it sets out into law.Continue Reading Update on the Corporate Sustainability Due Diligence Directive

The Financial Reporting Council (FRC) has published an updated UK Corporate Governance Code (the Code), most of which will take effect from 1 January 2025. These revisions will replace the current version of the Code published in 2018. Continue Reading FRC publishes updated UK Corporate Governance Code and Guidance

On January 30, 2024, the Delaware Court of Chancery struck down Tesla CEO Elon Musk’s $55 billion performance-based stock option package, ruling that Tesla’s directors did not satisfy the stringent “entire fairness” standard in approving his compensation. This case comes on the heels of a $735 million settlement in which Tesla directors disgorged previously-received compensation following shareholder claims of unjust enrichment and breach of fiduciary duty.[1] The court applied the entire fairness standard because of Musk’s enormous control over the transaction, referring to him as a “Superstar CEO”[2] who wielded maximum possible influence over the board. While the compensation package was approved by a majority of disinterested shareholders, the court concluded proxy disclosure was deficient and therefore shareholders were not fully informed.[3] Ultimately, the Tesla board was not able to prove the benefit received from Musk’s leadership was worth the $55 billion Tesla paid for it.Continue Reading It’s Not DE, It’s You: 55 Billion Reasons Tesla is Not ‘Your Company’

As 2024 gets off to a busy start, companies, boards and management teams are facing a host of new and developing business issues and a large array of regulatory developments, from new and growing risks and opportunities from the adoption of artificial intelligence, to ever-changing ESG issues and backlash, as well as enhanced focus on government enforcement and review. As has become a tradition, we have asked our colleagues from around our firm to boil down those issues in their fields that boards of directors and senior management of public companies will be facing in the coming year, yielding focused updates in eighteen topics that will surely feature at the top of board agendas throughout the year.Continue Reading Selected Issues for Boards of Directors in 2024

Delaware law provides parties with significant flexibility to restrict or eliminate fiduciary duties in LLC agreements.  Sophisticated parties regularly take advantage of this flexibility by eliminating fiduciary duties of members and directors of LLCs.  These same parties, however, often choose not to extend these waivers to officers of the LLCs, often stemming from a desire to ensure that officers still have a fiduciary duty to be loyal to the LLC.  A new ruling from the Delaware Court of Chancery highlights the unintended consequences of excluding officers from the scope of the fiduciary duty waiver.Continue Reading New Delaware Ruling Highlights Unintended Consequences of Excluding Officers from Fiduciary Duty Waivers

Much has been written lately about a circuit split on the question whether a company’s forum selection bylaw mandating shareholder derivative lawsuits be brought in Delaware state court trumps a federal lawsuit asserting a derivative claim under Section 14(a) of the Securities Exchange Act of 1934 (which can only be asserted – if at all – in federal court).  The Seventh Circuit answered this question “no”[1] while the Ninth Circuit sitting en banc answered “yes,”[2] in both cases over vigorous dissents.  Many have speculated that the U.S. Supreme Court may weigh in to resolve this clear circuit split.Continue Reading Bringing an End to “Derivative” Section 14(a) Claims – Without Waiting for the Supreme Court to Weigh In

Earlier this week, the New York State legislature passed a bill banning all non-competes entered into on or after 30 days past the bill’s enactment, including those entered into by employees or in connection with the sale of a business.  If the bill becomes law, it would make New York the fifth state in the U.S. to enact a ban on non-competes.  California, Minnesota, North Dakota, and Oklahoma have also enacted bans on non-competes, but theirs do not go as far as New York’s full ban, instead banning only employee non-competes, but preserving those that are entered into in connection with the sale of a business.Continue Reading New York Advances Towards Banning All Non-Competes