Now that the Twitter case is over, we can all turn our attention to the things in Delaware corporate law that really matter to us. Francis Pileggi recently provided a reminder about one of them:
The Delaware Court of Chancery prefers “stockholder” as the term uniformly used in the Delaware General Corporation Law for those owning a corporation, though in the past, especially prior to the 2010 DGCL amendments, there were inconsistent references–and court decisions in the past have not always been scrupulous in observing the distinction. See generally In Re Adams Golf Shareholder Litigation, C.A. No. 7354-VCL, transcript (Del. Ch. Oct. 3, 2012) (yes, that’s 10 years ago.)
Does this matter? Well, kind of, I suppose. But I think we lawyers all have a tendency to get a little goofy about this type of thing. For example, I used to have a partner who would absolutely freak out when he saw accountants use the term “common stock” in an Ohio corporation’s financial statements (we’re a “common shares” jurisdiction).
Once, my former colleague was so flummoxed by an accounting firm’s repeated sloppiness in this area that he wrote a letter to the partner at the firm correcting him. This has gone down in firm lore as the “red birds/blue birds” letter. That’s because, in explaining the distinction between common stock and common shares to the accountant, he said something like “there are red birds and blue birds, but although they are both birds, red birds aren’t blue birds, and blue birds aren’t red birds.”
We were subsequently working on an IPO in another city with an accountant from this same firm. One of the other lawyers made a comment about common stock and common shares, and the accountant made the correction and then smiled and said something about how only lawyers care. He then said “Oh, you know there’s this letter that’s been passed around our firm for years that some crazy lawyer wrote about red birds not being blue birds. . .” I didn’t have the heart to tell my colleague of his notoriety among multiple offices of a Big 4 accounting firm.
Today is our “19th Annual Executive Compensation Conference” – Wednesday & Thursday were our “2022 Proxy Disclosure Conference.” Both conferences are paired together and they’ll also be archived for attendees until next August. If you missed these conferences or our “1st Annual Practical ESG Conference” but want to purchase access to the archives, email sales@ccrcorp.com – and we’ll also have a link available soon on this page to do that. Here’s more info for people who are attending:
– How to Attend: We have emailed a direct access link for the Conference to all registered attendees, from info@ccrcorp.com. Use that link to go to the Conference platform, then follow the “Proxy Disclosure/Exec Comp” tab to see the agenda for today, enter sessions, and add them to your calendar. All sessions are shown in Eastern Time – so you will need to adjust accordingly if you’re in a different time zone. Here’s today’s agenda.
If you are experiencing a technical issue on our conference platform and need assistance, please email Evan Blake (eblake@markeys.com) with our Event Manager Victoria Newton (vnewton@ccrcorp.com) on copy, and they will reply to you asap. If you have any other questions about accessing the conference, please email our Event Manager, Victoria Newton (vnewton@ccrcorp.com).
– How to Watch Archives: Members of TheCorporateCounsel.net or CompensationStandards.com who have registered for the Conferences will be able to access the conference archives on these sites using their existing login credentials beginning about a week after the event, and unedited transcripts will be available to these members on TheCorporateCounsel.net and CompensationStandards.com beginning about 2-3 weeks after the event. If you’ve registered for the conferences through CCRcorp but are not a member, we will send login information to access the conference footage and transcripts on TheCorporateCounsel.net or CompensationStandards.com.
If you registered for the conferences through NASPP, you will receive access to the video archives from NASPP.
– How to Earn CLE Online: We are applying for up to 15 hours of CLE credit for the Proxy Disclosure & Executive Compensation Conferences in applicable states – approvals of actual credit vary based on each state. Please read these “CLE FAQs” carefully to confirm that your jurisdiction allows CLE credit for online programs. You will need to respond to periodic prompts every 15-20 minutes during the conference to attest that you are present. After the conference, you will receive an email with a link. Please complete the link with your state license information. Our CLE provider will process CLE credits to your state bar and also send a CLE certificate to your attention within 30 days of the conference.
– Thanks To Our Sponsors! Our sponsors have helped make this event possible, and we are proud and grateful to have their support. Our Platinum Sponsor for the Proxy Disclosure & 19th Annual Executive Compensation Conference is Morrison Foerster, and our Silver Sponsor is Argyle, who also sponsored our 1st Annual Practical ESG Conference this week. Please visit their pages!
You can still register to view today’s event and get on-demand archive access to all of the Proxy Disclosure and Executive Compensation Conference from this week! Email sales@ccrcorp.com or call 1-800-737-1271, Option 1. Archives and transcripts will be available on-demand until July 31, 2023, to help you navigate challenging proxy season issues.
Investor activist Jim McRitchie recently filed a breach of fiduciary lawsuit against Meta in which he contends that in a system that emphasizes stockholder primacy, the directors’ fiduciary duties must consider the impact of the company’s actions on the diversified portfolios of its investors. As the complaint puts it, “if the decisions that maximize the Company’s long-term cash flows also imperil the rule of law or public health, the portfolios of its diversified stockholders are likely to be financially harmed by those decisions.” This excerpt from the complaint summarizes the theory of the case:
For a corporation whose impact is so widespread, the well-established doctrine of stockholder primacy cannot be rationally applied on behalf of investors without recognizing the impact of portfolio theory, which inextricably links common stock ownership to broad portfolio diversification. The economic benefits from—indeed the viability of—a system of corporate law rooted in maximizing financial value for stockholders would vanish if it forced directors to make decisions that increased corporate value but depressed portfolio values for most of its stockholders. But this is precisely how the Company has operated: Defendants have ignored the interests of all of its diversified stockholders, making decisions as if the costs that Meta imposes on such portfolios were not meaningful to stockholder
I can’t imagine that this argument is going to get any traction with the Delaware Chancery Court – and as UCLA’s Stephen Bainbridge has pointed out, it isn’t the first time someone has made this kind of argument. Bainbridge also notes the fundamental problems with the workability of such a standard:
I am dubious about whether managers have the training or expertise to manage a company in the interests of diversified investors at large. Suppose managers have come up with an idea for a new product. Do we really think they can–or should–evaluate whether selling the new product would injure competitors and thus be adverse to the interests of diversified investors?
My guess is that proponents of this fiduciary duty theory would likely respond that the BJR would continue to apply to the board’s ordinary course business decisions. As illustrated by Sarah Murphy’s comments in an interesting exchange with Doug Chia on LinkedIn, they appear to be making a more broadly focused argument:
The board’s job is to optimize value for the benefit of shareholders, but if most shareholders are diversified (as they are in public markets), then a value-maximization strategy that relies on externalizing costs that diversified portfolios internalize is clearly not “for the benefit” of those shareholders. As the plaintiff’s lawyer says, “Investment theory and the law governing investment fiduciaries is built around the importance of diversification, and we think it essential that the law governing corporate fiduciaries acknowledge that reality.”
For a more in-depth explication of this argument, check out Jim McRitchie’s blog. Anyway, “externalized costs” are those that are generated by a particular enterprise but carried by society as a whole, and to me, that makes corporate law the wrong mechanism to use in sorting them out. It seems to me that issues about how to handle the social costs associated with business are best addressed through the political and regulatory process, not through corporate law concepts of fiduciary duty.
Gunster’s Bob Lamm recently blogged about an issue that he’s reluctantly concluded needs to be on the board’s agenda – human trafficking. Here’s his reasoning:
There is a strong case to be made why businesses need to work on [human trafficking’s] elimination, but we need to make that case. One of the key components of that case should be apparent to us all; can you say “supply chain”? As boards increasingly take deep dives into how their companies address supply chain challenges, they should ask questions about the components of their supply chains: Where are goods coming from? Are they the products of forced labor? Child labor? If that doesn’t move a board, how about reputation? How would the company’s investors, employees, customers, and others react if they learned that its products are produced by women who are virtually enslaved, making far less than what we euphemistically call “subsistence wages”? How would that play out in the media?
Just how serious an issue human trafficking is was brought home to me when Cleveland hosted the 2016 Republican National Convention. A friend of mine was working for one of our economic development groups and attended a presentation that the FBI gave to downtown hotel operators about the potential human trafficking issues that surround any large destination event. The presentation was, in his words, “sobering.” Directors have a lot on their plates, but Bob makes a good case that this is another issue that like needs board-level attention.
Today is the second day of our “2022 Proxy Disclosure Conference” – tomorrow is our “19th Annual Executive Compensation Conference.” Here’s more info:
– How to Attend: We have emailed a direct access link for the Conference to all registered attendees, from info@ccrcorp.com. Use that link to go to the Conference platform. Once you log in to the Conference Platform, follow the “Proxy Disclosure/Exec Comp” tab to see the agendas for each day, enter sessions, and add them to your calendar. All sessions are shown in Eastern Time – so you will need to adjust accordingly if you’re in a different time zone. Here’s today’s agenda.
If you are experiencing a technical issue on our conference platform and need assistance, please email Evan Blake (eblake@markeys.com) with our Event Manager Victoria Newton (vnewton@ccrcorp.com) on copy, and they will reply to you asap. If you have any other questions about accessing the conference, please email our Event Manager, Victoria Newton (vnewton@ccrcorp.com).
– How to View Archives & Transcripts: Members of TheCorporateCounsel.net or CompensationStandards.com who register for the Conferences will be able to access the conference archives on these sites using their existing login credentials beginning about a week after the event, and unedited transcripts will be available to these members on TheCorporateCounsel.net and CompensationStandards.com beginning about 2-3 weeks after the event. If you’ve registered for the conferences through CCRcorp but are not a member, we will send login information to access the conference footage and transcripts on TheCorporateCounsel.net or CompensationStandards.com.
If you registered for the conferences through NASPP, you will receive access to the video archives from NASPP.
– How to Earn CLE Online: We are applying for up to 15 hours of CLE credit for the Proxy Disclosure & Executive Compensation Conferences in applicable states – approvals of actual credit vary based on each state. Please read these “CLE FAQs” carefully to confirm that your jurisdiction allows CLE credit for online programs. You will need to respond to periodic prompts every 15-20 minutes during the conference to attest that you are present. After the conference, you will receive an email with a link. Please complete the link with your state license information. Our CLE provider will process CLE credits to your state bar and also send a CLE certificate to your attention within 30 days of the conference.
– Thanks To Our Sponsors! Our sponsors have helped make this event possible, and we are proud and grateful to have their support. Our Platinum Sponsor for the Proxy Disclosure & 19th Annual Executive Compensation Conference is Morrison Foerster, and our Silver Sponsor is Argyle, who also sponsored our 1st Annual Practical ESG Conference this week. Please visit their pages!
It is not too late to register for our Conferences today! You can sign up for today’s “2022 Proxy Disclosure Conference” and tomorrow’s “19th Annual Executive Compensation Disclosure Conference” by emailing sales@ccrcorp.com or by calling 1-800-737-1271, Option 1. If you have missed any of the Conference, archives and transcripts will be available on-demand afterwards!
In a recent Directors & Boards article, GW Law School prof. emeritus Lawrence Cunningham challenged the idea that there is a single set of corporate governance “best practices” that companies should follow. Anyone who has been in a board room during the past couple of decades has heard governance consultants repeatedly explain how the company needs to implement specific actions that may make zero sense for that particular business or else risk be viewed as a governance pariah. How did we get this way? Cunningham points the finger at the rise of what he refers to as the “generalists”:
A dominant reason is the expanding power of generalists offering only a macro-perspective. A generalist viewpoint is understandably held by all passive asset managers and proxy advisors, most policy makers and many empirical researchers who favor working with large general datasets. All have incentives to identify and promote universal practices for all boards.
In contrast, specialists take a micro-perspective on particular companies, including stock-picking shareholders, the directors who serve them, and analysts and researchers prepared to immerse themselves in the details of particular companies. Such cohorts would undoubtedly endorse universal practices that work, but they have an interest in resisting overgeneralized prescriptions.
In recent years, generalists have wielded far more power than specialists in corporate governance, and their worldview now dominates. As a result, gold standards and best practices are everywhere in governance, even if they are not good for particular companies. A catalog of good governance reigns, including refreshment imperatives, such as director age limits and term limits, and control-related rules, like majority voting in director elections and negative views of dual-class capital structures.
The article goes on to point out that the empirical studies purporting to identify governance best practices were based on astonishingly bad data, which, once corrected, calls into question many of the received truths about the link between “good governance” & investment returns.
This isn’t the first time that I’ve blogged about this topic, and I admit that articles like this are like catnip to me. That’s because I absolutely agree that a one-size fits all approach to corporate governance is one of the dumbest ideas that companies and investors have ever bought into, particularly since nobody really seems to have the vaguest idea about what “good governance” really is.
Michael Levin recently shared via Twitter an example of universal proxy cards used by participants in what’s apparently the first contested election to be conducted under the new rules. Here are the preliminary proxy materials filed by Apartment Investment and Management Company, and here are the materials filed by the dissident group. Michael’s tweet includes a link to his TAI newsletter discussing the filings, which provides some interesting insights into the contest & the filings themselves. Here’s an excerpt:
First, the proxy cards recommend how shareholders vote, in addition to properly distinguishing between the AIM and L&B nominees. The SEC rule was largely silent as to how the proxy card (not the proxy materials) should set forth specific voting instructions. We expect to see more companies and activists to test the boundaries of what the SEC will allow them to put on a proxy card.
Second, both of the AIM and L&B proxy statements include a curious statement. AIM’s appears in the Q&A section (p. 5), with a similar idea in the letter to shareholders:
If I want to vote for one or more of Land & Buildings’ nominees can I use the WHITE universal proxy card?
Yes, if you would like to elect some or all of Land & Buildings’ nominees, we strongly recommend you use the Company’s WHITE proxy card to do so.
L&B states (p. 17):
Any stockholder who wishes to vote for one of the Company’s nominees in addition to the Land & Buildings Nominees may do so on Land & Buildings’ BLUE universal proxy card. There is no need to use the Company’s white proxy card or voting instruction form, regardless of how you wish to vote.
[emphasis theirs in each excerpt]
Why would each acknowledge that shareholders might vote for the other’s nominees, and suggest they could do so using their own proxy card? We’d think they would do everything it could to discourage this. It appears each wants to receive as many proxy cards as it can. They can thus track which shareholders have already voted. If AIM receives proxy cards with votes for L&B nominees, and L&B for AIM nominees, then each can easily contact those shareholders, and attempt to persuade them to change their votes. Clever…
Today and tomorrow is our “2022 Proxy Disclosure Conference” – Friday is our “19th Annual Executive Compensation Conference.” Here are the agendas: 18 substantive panels over 3 days – including an interview with Renee Jones, the Director of the SEC’s Division of Corporation Finance. Here’s more info:
– How to Attend: We have emailed a direct access link for the Conference to all registered attendees, from info@ccrcorp.com. Use that link to go to the Conference platform. Once you log in to the Conference Platform, follow the “Proxy Disclosure/Exec Comp” tab to see the agendas for each day, enter sessions, and add them to your calendar. All sessions are shown in Eastern Time – so you will need to adjust accordingly if you’re in a different time zone.
If you are experiencing a technical issue on our conference platform and need assistance, please email Evan Blake (eblake@markeys.com) with our Event Manager Victoria Newton (vnewton@ccrcorp.com) on copy, and they will reply to you asap. If you have any other questions about accessing the conference, please email our Event Manager, Victoria Newton (vnewton@ccrcorp.com).
– How to View Archives & Transcripts: Members of TheCorporateCounsel.net or CompensationStandards.com who register for the Conferences will be able to access the conference archives on these sites using their existing login credentials beginning about a week after the event, and unedited transcripts will be available to these members on TheCorporateCounsel.net and CompensationStandards.com beginning about 2-3 weeks after the event. If you’ve registered for the conferences through CCRcorp but are not a member, we will send login information to access the conference footage and transcripts on TheCorporateCounsel.net or CompensationStandards.com.
If you registered for the conferences through NASPP, you will receive access to the video archives from NASPP.
– How to Earn CLE Online: We are applying for up to 15 hours of CLE credit for the Proxy Disclosure & Executive Compensation Conferences in applicable states – approvals of actual credit vary based on each state. Please read these “CLE FAQs” carefully to confirm that your jurisdiction allows CLE credit for online programs. You will need to respond to periodic prompts every 15-20 minutes during the conference to attest that you are present. After the conference, you will receive an email with a link. Please complete the link with your state license information. Our CLE provider will process CLE credits to your state bar and also send a CLE certificate to your attention within 30 days of the conference.
– Thanks To Our Sponsors! Our sponsors have helped make this event possible, and we are proud and grateful to have their support. Our Platinum Sponsor for the Proxy Disclosure & 19th Annual Executive Compensation Conference is Morrison Foerster, and our Silver Sponsor is Argyle, who also sponsored our 1st Annual Practical ESG Conference this week. Please visit their pages!
It is not too late to register for our Conferences today! You can sign up for today’s “2022 Proxy Disclosure Conference” by emailing sales@ccrcorp.com or by calling 1-800-737-1271, Option 1. If you have missed any of the Conference, archives and transcripts will be available on-demand afterwards!
Remember Vinco Ventures, the company that was the subject of a hostile takeover attempt by means of allegedly swiped EDGAR codes? Well, believe it or not, things have gotten even stranger there. When last we visited with Vinco, a Nevada court had granted a temporary restraining order against Ted Farnsworth & certain of his associates prohibiting them from holding themselves out as being employed by Vinco or acting on its behalf and requiring them to turn over the company’s EDGAR codes.
That Nevada court has now inserted itself more deeply into the question of who should run the company, and ultimately decided that former Nevada Secretary of State Ross Miller should serve as one of its co-CEOs. I suppose that might raise some eyebrows on its own, but what’s really amazing is how the appointment came to pass. This excerpt from a recent post on Business Law Prof Blog explains:
How did Mr. Miller get picked for this role? A transcript of the relatively brief hearing reveals that the idea was pitched to the Court by one of Farnsworth’s attorneys. As the attorney explained it “my proposal is going to be that Mr. Colucci, Lisa King, and then, a third-party, who just happened to wander in the courtroom today, because he was a witness in the case next door, Mr. Ross Miller, be appointed as co-CEO.” The attorney then revealed that he had “vetted Mr. Miller. He said he’ll do it. He used to be the Secretary of State of Nevada. If you remember, his father was the governor for 10 years not even 8, but 10 years. And he does do corporate law. And he says he’s interested in it. So we’re going to propose him as the co-CEO.”
Yes, you read that correctly – a politician randomly walked into a Nevada courtroom & ended up co-CEO of a public company. But that’s not the end of the story. Apparently, Vinco settled the litigation with the Farnsworth Group last week. According to this Form 8-K filing, that settlement resulted in a board and management shakeup, and when the dust settled, Mr. Miller found himself the sole CEO of Vinco Ventures. I’ll grant you that this isn’t your run of the mill executive search process, but there doesn’t appear to be much about Vinco that’s run of the mill.
The September-October issue of “The Corporate Counsel” newsletter is in the mail (email sales@ccrcorp.com to subscribe to this essential resource). It’s also available now online to members of TheCorporateCounsel.net who subscribe to the electronic format – an option many people are taking advantage of in this “remote work” environment. The issue includes articles on:
– When and How to Update Your Shelf Registration Statement
– Officer Exculpation: Q&As on Delaware’s Recent Amendment
Dave & I also have been doing a series of “Deep Dive with Dave” podcasts addressing the topics we’ve covered in recent issues. We’ll be posting one for this issue soon. Be sure to check it out on our “Podcasts” page!
