December 22, 2022

Preparing for 2023: Recommendations for Boards

As you look ahead to the new year, this 5-page Freshfields memo identifies trends in 7 key areas that you may want to raise with your board (or at least be prepared to discuss). Specifically:

– How to Be Prepared for M&A Strategies in 2023

– Fiduciary Duties in a Distressed Market

– Risk Oversight

– Activism

– Governance (Proxy Season & Disclosure)

– Compensation

– Cyber & Privacy

The Freshfields team explains that Delaware developments & recent SEC initiatives make it important that boards have adequate time to oversee “mission critical” risks – and that the record clearly reflects those efforts. They recommend 4 improvements to board structure & documentation (see the memo for even more context):

1. We are recommending that boards consider, as appropriate, creating specialized board committees to monitor discrete [“mission critical”] risks or ensuring that review of such risks expressly lies within the purview of existing committees, requiring dedicated management level teams to report periodically to the board on these risks, and engaging outside experts to conduct risk audits to ensure that the mission critical areas are being properly identified and addressed.

2. To receive credit for their work in fulfilling their duty of care, we are recommending that boards and committees adopt a more nuanced approach to minute-keeping, adding sufficient detail to show monitoring, consideration of, and reaction to, risks. We also recommend that minutes reflect factors and analyses considered in reaching decisions and list requests for management follow-up.

The minutes of subsequent meetings should reflect the extent to which management follow-up has occurred and whether the board is satisfied with management’s response or requests more follow-up. It is further important to record in the minutes (through addendums and introductory paragraphs) director interactions that occur between formal meetings, particularly if these discussions bear on significant board issues.

3. We recommend ensuring that comprehensive board-level records exist to obviate the need to delve into the directors’ and management’s emails, texts and internal materials [in response to expansive “books & records” demands]. In addition, we recommend additional management and board level trainings on best record-keeping practices and the use and preservation of privilege.

4. On the federal enforcement side, we recommend that audit committees review company preparedness for responding to regulatory inquiries and have a roadmap for responding constructively to potential subpoenas or requests for voluntary cooperation.

This memo is posted along with other current resources in our “Governance” Practice Area.

Liz Dunshee