Monthly Archives: March 2023

March 31, 2023

Interlocking Directorates: The Heat is On

Earlier this month, the DOJ announced that five directors resigned from four corporate boards and one company declined to exercise board appointment rights in response to the Antitrust Division’s efforts to enforce Section 8 of the Clayton Act’s prohibition on interlocking directorates.

That proceeding follows one last October, in which the Antitrust Division’s Section 8 enforcement efforts prompted the resignation of seven directors. It also follows close on the heels of a letter from Senate Judiciary Committee Chair Dick Durbin (D-IL) urging the DOJ & FTC to investigate interlocks in the life sciences industry.

This Norton Rose Fulbright memo addresses the DOJ’s enforcement program and the recent Congressional interest in interlocking directors. This excerpt notes the DOJ’s broad interpretation of the prohibition and the potential implications for companies singled out for enforcement:

DOJ’s recent enforcement is significant beyond the numerical increase in resignations. Importantly, it illustrates the agencies’ commitment to a broad interpretation of Section 8. DOJ has not limited enforcement to the most obvious interlocks, such as where a director serves simultaneously on competitor boards or a company nominates its own officer to a competitor’s board. DOJ secured a resignation under Section 8 against an interlocked director who was nominated to both boards by an investment firm8 and also secured resignations of two directors where the alleged interlocks were only “affiliated” with the competitor (i.e. not officers or directors).9

Although enforcement of Section 8 is mostly limited to resignation of board members or abstention from exercising appointment rights, interlocking directors are relatively low-hanging fruit that can serve as the launch pad for a broader antitrust investigation.

The memo says that with the uptick in enforcement and antitrust regulators’ commitment to a broad interpretation of the prohibition on interlocks, Sen. Durbin’s letter “serves as a reminder for companies in the life sciences industry: a compliance program to actively monitor board membership and appointments is a crucial precautionary step to avoid Section 8 liability.” Sen. Durbin may have targeted the life sciences industry, but given the current climate, the memo’s advice about the need for a solid compliance program addressing interlocks is something that companies in all industries should heed.

John Jenkins

March 31, 2023

Fairness Opinions: One Tool in the Board’s Toolbox

This Perkins Coie blog provides an overview of the role that fairness opinions can play in helping boards of directors fulfill their fiduciary duties. This excerpt summarizes why boards should consider fairness opinions in appropriate circumstances:

Courts give special deference to Boards that seek truly independent third-party advice, such as that of an investment bank, valuation consultant or law firm, to assist disinterested directors in assessing a transaction. An opinion from a reputable third-party financial advisor that a transaction is fair to the company and its shareholders from a financial point of view may substantially reduce the risk of a successful challenge to the Board’s decision under any standard of review. A fairness opinion can also help independent directors make an informed decision.

Fairness opinions are typically thought of as coming into play in connection with M&A, but in some cases they may also have a role to play in the board’s evaluation of related party transactions. As someone who represented investment banks in a lot of fairness opinion engagements over the years and who sat in on more fairness opinion committee meetings than I care to recall, I would like to throw in a few caveats when it comes to fairness opinions.

The reason for engaging an investment bank to furnish a fairness opinion is that, in fulfilling their fiduciary duties, state corporate statutes typically permit boards to rely in good faith on expert guidance, but only if the directors reasonably believe that the matter is within the expert’s professional competence. That can be a problem when it comes to framing what the opinion will cover.

Many lawyers representing boards want the banker to opine as broadly as possible about the fairness of the deal. This “sprinkling holy water on the deal” approach to the opinion is counterproductive and – in the unlikely event that the bank would agree to do that – could undermine the board’s ability to rely on the bank’s opinion, because it’s easy to challenge whether the bank is truly an expert with respect to such matters. Investment banks’ expertise is in the financial aspects of a transaction, and so what they are generally willing to address is the fairness, from a financial point of view, of the price to be paid or received in the transaction.  And that’s really what it’s appropriate for boards to ask them to cover.

Another issue that sometimes comes up in negotiating a fairness opinion is the “fair to whom?” question. Some lawyers will press for the opinion the fairness of the consideration to the company’s stockholders in situations that don’t involve a sale of the company.

That’s standard language in an opinion addressing a sale, but bankers usually won’t agree to this in buy side or other opinion engagements addressing transactions in which stockholders aren’t being paid. The bankers’ position is that whether the transaction is in the best interests of stockholders is a board decision, and so their opinion should address only the fairness to the company of the consideration to be paid or received.

John Jenkins

March 31, 2023

Foreign Investment: Dept. of Commerce BE-12 Filings Due May 31st

This recent Lowenstein Sandler memo highlights the obligation that certain companies with foreign investors have to submit BE-12 survey filings to the Dept. of Commerce’s Bureau of Economic Analysis. The BE-12 benchmark survey is required for all U.S. entities in which a foreign investor directly or indirectly owns or controls a 10% or greater voting interest and asks for information related to fiscal year 2022.  This excerpt from the memo provides additional details about what companies are required to file:

All U.S. business enterprises (including real estate held for nonpersonal use) in which a foreign individual or entity owns or controls, directly or indirectly, at least 10 percent of the voting interest or equivalent. Complex business structures file on a consolidated basis, so U.S. affiliate entities should be included in a parent company’s filing when a parent holds at least 50 percent of the affiliate’s voting rights.

Even if a business is contacted by the BEA to submit a filing, exemptions are available if foreign ownership is less than 10 percent, the business is consolidated with another U.S. affiliate, or the business was liquidated or dissolved. Note, the business must still file a form to claim the exemption.

Additionally, certain private funds1 that do not hold direct or indirect interests in any operating companies2 may be automatically exempt or may qualify to file a claim for exemption. When assessing the direct or indirect voting interest of foreign entities in funds, note that limited partner interest is not considered to be voting interest.

The survey is due by May 31, 2023, and the memo also provides an overview of what the information is used for and what other BEA filing requirements might apply to particular companies.

John Jenkins

March 30, 2023

Officer Exculpation: Del. Chancery Says No Class Vote Required

Yesterday, Vice Chancellor Laster issued an oral ruling holding that companies with multiple classes of stock don’t have to hold a separate class vote on officer exculpation charter amendments. This Wilson Sonsini memo addresses the plaintiff’s allegations and the Vice Chancellor’s reasoning:

The plaintiffs argued that the right to sue is a “power” of stock and that the defendants’ charter amendments adversely affected that power of the non-voting stock, such that a separate class vote of such stock was required. The court rejected that argument, determining that the companies did not need class votes and could instead rely on a majority of stockholder voting power to adopt officer exculpation.

The court concluded that the case was controlled by established Delaware case law interpreting Section 242 and also cited the expectations of practitioners and the market based on that case law. Under that case law, and accompanying legislative history, the phrase “powers, preferences, or special rights” of a class refers to the intrinsic, peculiar rights assigned to a class or series in the corporation’s capital structure, and Section 242(b)(2) is designed to protect class- or series-based interests.

For example, a liquidation preference given to a particular class of stock or the right of a particular class of stock to elect a board seat would be a class-based power, preference, or special right. Applying that precedent here, the right to sue and seek monetary damages against officers is not a peculiar “power” or “special right” of any given class but is instead a generalized right of all stockholders that exists at common law.

The decision provides some certainty to multi-class companies that are seeking to adopt these amendments and avoids opening the kind of can of worms with respect to prior charter amendments that many SPACs have had to deal with as a result of Vice Chancellor Zurn’s decision in Garfield v. Boxed (Del. Ch.; 12/22).

John Jenkins

March 30, 2023

Nasdaq Board Diversity Matrix: Compliance Considerations for Year 2

Nasdaq’s board diversity listing standards required companies to include the Board Diversity Matrix in their proxy statement or on their website for the first time in 2022. This Wilson Sonsini blog provides some tips to companies with respect to the requirements applicable to the second year of these disclosures. Here’s an excerpt:

Under Nasdaq Rule 5606(a), after the first year of disclosure, “all companies must disclose the current year and immediately prior year diversity statistics using the Board Diversity Matrix.”

Nasdaq later published FAQ 1753 clarifying that “if the immediately prior year data is publicly disclosed elsewhere (i.e., a proxy statement, information statement or company website), then the company can choose to disclose the current year data only.” Accordingly, so long as the prior year statistics are still publicly available, a company can continue disclosing only the current year statistics in its Board Diversity Matrix.

However, it’s important to note that if a company complied with Rule 5606 by posting its Board Diversity Matrix on its website (instead of in a proxy statement or information statement), it must maintain the prior year statistics on its website, or otherwise publish it alongside the current year statistics in its next proxy statement.

The blog says that before deciding how to proceed, companies should assess whether there are any advantages to disclosing two years of board diversity statistics, either because they can demonstrate year-over-year improvement or because their investors may want to see the two years of diversity statistics in the same location.

John Jenkins

March 30, 2023

Timely Takes Podcast: 2023 Annual Meeting & Proxy Disclosures

Check out the latest edition of our “Timely Takes” Podcast featuring my interview with Skadden’s Brian Breheny and Ryan Adams on disclosure issues that you need to keep in mind when preparing your proxy statement for this year’s annual meeting. In this 17-minute podcast, Brian & Ryan addressed the following topics:

– Compliance issues under the SEC’s new requirement to furnish glossy annual reports via EDGAR for companies that file 10-K “wraps.”
– Do’s and don’ts for complying with the requirement to disclose proposals “clearly and impartially” on the proxy card.
– How to coordinate proxy disclosure of notice and other requirements under Rule 14a-19(b) with disclosure about advance notice bylaw provisions.
– Tips for dealing with pay versus performance disclosures.
– This year’s other “hot button” proxy disclosure issues.

Speaking of annual meetings, don’t forget to tune in to today’s webcast – “Conduct of the Annual Meeting” – for additional tips and insights into important issues for this year’s annual meetings. If you have insights on a securities law, capital markets or corporate governance trend or development that you’d like to share, I’m all ears – just shoot me an email at

John Jenkins

March 29, 2023

Clawback Listing Standards: “It is Later Than You Think”

I tipped my hand about one of my quirky obsessions a little while ago when I mentioned the old-time radio writer & auteur Arch Oboler at the end of a recent blog.  Yes, I admit I’m a fan of 1940s and 1950s radio shows, and I find many of the ones that Oboler had a hand in to be among the best. One of his shows that I’ve always been particularly fond of is the supernatural themed “Lights Out,” which opened each episode with the ominous tagline, “It . . . Is . . .Later. . .Than . . .You . . .Think . . .”

I thought of that line when I responded to a recent member question on our Q&A Forum (Topic #11526).  The member read the proposed clawback listing standard filings by Nasdaq & the NYSE, and noticed that although the standards aren’t required to be adopted until November 28, 2023, the SEC’s notice requesting comments on them suggests that they could be in place a lot sooner than that:

The SEC’s notice requesting comments on the NYSE listing standards, for example (available at ), which were published in the Fed. Reg. on March 13, 2023 says that “[w]ithin 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days . . . the Commission will: (A) by order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved.”

Forty-five days from March 13, 2023 would be April 27, 2023 — much earlier than November 28, 2023. If 60 days after April 27, 2023 is the deadline for adopting a compliant clawback policy, I would guess that a lot of companies will have to scramble to get Board approval (by written consent if they don’t have a meeting scheduled). Yet I haven’t seen much commentary on this. Is anyone else concerned about the timing, or is there a tacit understanding that the SEC will take longer than 45 days?

As part of my response, I pointed out this excerpt from Weil’s memo on the proposed listing standards, which acknowledges that these standards may be in place a lot earlier than expected:

Although SEC Rule 10D-1 permits the stock exchanges to have an effective date for the Proposed Listing Standards by an outside date of November 28, 2023, they could become effective sooner. The NYSE and Nasdaq filings with the SEC contemplate that their Proposed Listing Standards would be approved by the SEC (and become effective) within 45 days of the date of their publication in the Federal Register or within such longer period, up to 90 days, (i) as the SEC may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the listing exchange consents.

This date could be many months earlier than the November outside date most companies had expected. It is possible that the stock exchanges could amend their filings with the SEC to provide for an effective date closer to the outside date. Comments on the Proposed Listing Standards are due 21 days from publication in the Federal Register.

An earlier than expected adoption of listing standards is potentially a big deal, because as the member noted, listed companies will be required to adopt a compliant clawback policy no later than 60 days following the date on which the applicable listing standard becomes effective. So, if you’ve been counting on a November effective date, you may want to accelerate your efforts to pull together a clawback policy – because when it comes to the timing of those standards, it just may be later than you think.

John Jenkins

March 29, 2023

SVB Collapse: Disclosure Issues for Public Companies

In the wake of the collapse of SVB and the resulting uncertainties in the banking sector, public companies need to give some thought to what they need to say about the implications of the current environment on their businesses in their SEC filings and other public disclosures.  This Mayer Brown memo addresses those issues,and highlights specific line-item requirements that may trigger disclosures.  Here’s an excerpt from the memo’s discussion of MD&A disclosure considerations:

Overall, there are many possible questions for companies in assessing the materiality of the bank failures as they prepare their MD&As. For example, have the bank failures affected liquidity? Has the company drawn down on bank facilities for any reason, including because it has not been able to access the capital markets? Is the company party to contracts with “Defaulting Lender” provisions that are or may be triggered by the banks’ failures, and, if so, is that having a material impact on the company’s business? Has the company experienced problems within its supply chain or distribution networks, and, if so, are such issues anticipated to be ongoing?

Other potentially applicable Reg S-K line-item disclosure requirements addressed in the memo include risk factors, business, legal proceeding, exhibits and disclosure controls & procedures. The memo also reviews potential financial statement impacts of disruption in the banking sector, as well as the possible need for some companies to consider Form 8-K filings.

John Jenkins

March 29, 2023

Tomorrow’s Webcast: “Conduct of the Annual Meeting”

Join us tomorrow at 2 pm eastern for the webcast – “Conduct of the Annual Meeting” – to hear Grocery Outlet’s Lauri Fischer, Georgeson’s Edward Greene, Summit Materials’ David Hamm and the one & only Carl Hagberg, Independent Inspector of Elections and Editor of The Shareholder Service Optimizer, provide insights on investor expectations as well as practice pointers on meeting format & logistics, vote tabulations and disclosure, officer & director participation, and meeting security & rules of conduct.

Members of this site are able to attend this critical webcast at no charge. If you’re not yet a member, try a no-risk trial now. Our “100-Day Promise” guarantees that during the first 100 days as an activated member, you may cancel for any reason and receive a full refund. The webcast cost for non-members is $595. You can sign up by credit card online. If you need assistance, send us an email at – or call us at 800.737.1271.

We will apply for CLE credit in all applicable states (with the exception of SC and NE who require advance notice) for this 1-hour webcast. You must submit your state and license number prior to or during the program. Attendees must participate in the live webcast and fully complete all the CLE credit survey links during the program. You will receive a CLE certificate from our CLE provider when your state issues approval; typically within 30 days of the webcast. All credits are pending state approval.

John Jenkins

March 28, 2023

New Fortune 500 General Counsels a More Diverse & Experienced Group

A recent Russell Reynolds report on GC hiring trends among Fortune 500 companies includes a number of interesting conclusions about the increasingly diverse makeup of CGs and how their roles are evolving. Here are some of the highlights:

– More women than men were appointed to the Fortune 500 general counsel role for the first time in history. 38% of appointed GCs were ethnically diverse for the first time in history. This was an increase of 12% over 2021, which was already a high water mark at 34% of appointments.

– Despite the impressive diversity headline, female legal executives below the GC level are less likely to get the opportunity to step into the top legal job compared to their male counterparts. 67% of male GCs are first timers in the role, vs. only 60% of female GCs and only 51% of ethnically diverse GCs. The report also suggests that female and ethnically diverse GCs need stronger educational credentials than their male counterparts in order to achieve their positions.

– The crisis environment under which many companies have operated in recent years has put a premium on experience. Only 56% of GCs appointed after the start of the pandemic (March 2020) are first-timers in the job, compared to 67% of those appointed pre-pandemic. Industry experience is also highly valued, although that preference varies among industries.

The report also notes that the percentage of newly hired Fortune 500 GCs responsible for their company’s compliance program declined from 37% in 2021 to 22% in 2022, while the percentage of those who served as corporate secretary remained relatively constant (62% in 2021 v. 60% in 2022).

John Jenkins