Over on DealLawyers.com, I recently blogged about the Delaware Chancery Court’s decision inATG Capital Opportunities Fund LP v. Lane, (Del. Ch.; 8/26), which involved an activist’s successful challenge to an effort its slate of nominees under the terms of the company’s advance notice bylaw. This Sidley memo focuses on an interesting aspect of the case – in addition to the board minutes, the company apparently had an AI transcription of its board meeting, and both were introduced into evidence. As this excerpt from the memo explains, they didn’t match, and that didn’t help the board’s argument:
The court had two written records of what happened in the boardroom: the official minutes and AI-generated transcripts of the same meetings. The minutes described the board’s decisions in the way minutes typically do, recording the action taken and the stated reasons for it. The AI transcripts purported to capture the discussion itself. At one meeting, for example, the minutes recorded that a defensive measure was adopted to protect stockholders; the AI-generated transcript recorded the chairman describing it as “necessary in order for the board to remain in its position.”
Notwithstanding common warnings about inaccuracies in AI-generated material, nothing in the opinion suggests that the admissibility or reliability of the transcripts was contested; they were joint trial exhibits, cited alongside testimony without qualification. After reviewing the record, the court ruled for the investor on its challenge to the board’s rejection of the nomination notice.
In the court’s view, the board’s concerns were matters for stockholders to weigh in the election rather than grounds to exclude the nominees from the ballot. Although the AI transcripts did not decide the case, they informed the court’s account of the board’s deliberations, and the court cited them in the portion of the opinion assessing the board’s motivations.
The memo identifies several practical takeaways for companies from the decision, including the need to decide deliberately when and how AI transcription can be used, and to treat board and other sensitive meetings with particular caution. In addition, the memo says that companies should articulate a risk-based policy for AI transcription, decide whether AI transcripts should be kept as corporate records, and train directors and officers to speak knowing a transcript may exist, and to draft minutes with that in mind as well.
Last month, I blogged about Corp Fin’s new CFIs addressing 13G eligibility. This Weil memo summarizes the key takeaways from those CFIs for public companies and 13G institutions:
– Company-initiated engagement is on firmer footing. Because issuer initiation is now an explicit mitigating factor, public companies seeking substantive dialogue with large passive stockholders should consider extending the invitation themselves and documenting that they did so.
– Do not expect a return to 2024. Institutional investors’ engagement protocols were rebuilt around the 2025 guidance. Companies should anticipate that many institutional holders will remain measured in engagement heading into the 2027 proxy season.
– Limited comfort in proxy contests. CFI 103.14 confirms that 13G filers can hear out and share views with both sides of a proxy contest. Companies in contested or potentially contested situations should assume their passive holders are talking to the other side, and calibrate their own solicitation and engagement strategy accordingly.
– Structure the conversation. Agendas and framing still matter. Well-prepared companies will make it easier for their shareholders to stay in the 13G lane.
– Safer ground for 13G investors, within limits. For institutional investors, issuer-initiated meetings, explaining the rationale for a past or upcoming vote, and seeking clarification of a company’s disclosures are now expressly safer ground. Pressuring management, including conditioning voting support on the adoption of specific measures, remains disqualifying, and 13G eligibility continues to turn on all of the facts and circumstances. Investors should consider documenting who initiated each engagement.
If you’re interested in other perspectives on the new CFIs, check out the other memos we’ve posted in our “Schedule 13G” Practice Area.
At an open meeting yesterday, the SEC announced that it was considering potential designations of additional credentials that would qualify an individual as an accredited investor. That may seem like an unusual way to expand accredited investor status, but remember that Rule 501(a)(10) of Reg D allows the Commission to designate “one or more professional certifications or designations or credentials from an accredited educational institution” as qualifying an individual for accredited investor status.
Here are the credentials that the SEC proposes to designate as conveying accredited investor status along with links to the individual notices the agency issued with respect to each potential designation:
(1) Passing an accredited investor examination to be developed by FINRA;
(2) Holding a license as a U.S. certified public accountant;
(3) Holding a charter as a Chartered Financial Analyst;
(4) Holding a certification as a Certified Financial Planner in the United States;
(5) Holding a license as a FINRA Investment Banking Representative license (Series 79) or a FINRA Research Analyst license (Series 86 and Series 87).
Rule 501(a)(10) requires the SEC to designate qualifying credentials only after notice and an opportunity for public comment, and to post the credentials recognized as satisfying the criteria for accredited investor status on its website. The comment period for the proposed designation of these credentials will end 60 days after publication of the relevant notices in the federal register.
Commissioner Hester Peirce’s last day on the job is Friday, October 2nd, and her departure will leave the SEC with just two sitting commissioners. As Meredith blogged earlier this year, the way the SEC’s quorum rules work, having only two commissioners won’t affect its ability to act, but yesterday the SEC nevertheless opted to amend its quorum rule to account for the possibility that one commissioner might recuse himself from a particular matter. Here’s an excerpt from the SEC’s release adopting the amendment:
In prior years, the Commission has occasionally been in the position of having fewer than three members and believes it prudent to adapt its quorum rule to further accommodate that contingency. Moreover, the Commission has found that situations often arise in which one or more Commissioners have disqualified themselves or are otherwise disqualified from participating in a matter.
When such situations arise, it is important that the Commission be able to continue to conduct business. Accordingly, the Commission is amending the quorum rule to specify that, in a situation in which only one Commissioner is able to participate in a matter because all other Commissioners currently in office are disqualified from participating in that matter, the remaining member would constitute a quorum for that particular matter.
By now, you may well be asking how the Commission could adopt this rule without notice and opportunity for comment. The adopting release addresses that issue too:
The Commission finds, in accordance with the Administrative Procedure Act (the “APA”), that these amendments relate solely to agency management and organization and do not constitute a substantive rule. Accordingly, the APA’s provisions regarding notice of proposed rulemaking and opportunity for public comment are not applicable.
I doubt very much that appointing new SEC commissioners is high on the Trump administration’s agenda right now, but for the record, this is no way to run a railroad.
Check out our latest “Timely Takes” podcast featuring Cleary’s J.T. Ho & his monthly update on securities & governance developments. In this installment, J.T. reviews:
– SEC’s Rule 14a-8 Recission & Proxy Solicitation Modernization Proposals
– New CFIs on 13G/D & Form S-1
– SEC Proposal to Modernize Transfer Agent Regulation
– Insights from ISS’s 2026 Policy Survey
– NYSE’s Proposed five-year On-Ramp for Internal Audit Function
As a bonus, J.T. also discussed the SEC’s recent roundtable on 24-hour trading.
As always, if you have insights on a securities law, capital markets or corporate governance issue, trend or development that you’d like to share in a podcast, we’d love to hear from you. You can email me and/or Meredith at john@thecorporatecounsel.net or mervine@ccrcorp.com.
