We had a lot of folks rushing to sign up last week for our “Proxy Disclosure & 23rd Annual Executive Compensation Conferences” – which are being held in Orlando October 12-13th in Orlando and virtually. Our “Early Bird” rate was set to expire on July 24th, but several members told us that they’ve been traveling and busy in July and they needed a few more days to get internal approval. I can empathize – I had 6 trips in 5 weeks over June and July – all very worthwhile, but I am still digging out! It was great to see many of you in Nashville!
Anyway, we want to do what we can to help, so we’re extending our “early bird” reduced rate by one week. Register by the end of this Friday, July 31st to save on your in-person or virtual registration! You can register online or by contacting us at info@CCRcorp.com or 1-800-737-1271.
Here are the agendas for the Conferences – 14 sessions over two days – with a terrific speaker lineup, valuable course materials, and on-demand replay of all sessions for a year after the event:
– Christina Thomas: The Latest From Corp Fin
– The SEC All-Stars: Proxy Season Insights
– The Fate of Shareholder Proposals
– Fireside Chat with Top Activism Defense Lawyers
– Scary Stories to Tell in the (Securities Law Conference Spot)light
– Keeping Governance In Focus When the Future Is Hazy
– The SEC All-Stars: Executive Pay Nuggets
– Your Compensation Disclosures: New & Improved (We Hope)
– The Top Compensation Consultants Speak
– Bodyguards & Private Jets: Perks on the Radar
– Navigating ISS & Glass Lewis
As I mentioned above, our early bird rates apply to both in-person and virtual attendance, so register online or contact us at info@CCRcorp.com or 1-800-737-1271 before the reduced rates expire – this Friday, July 31st!
Russell Rebalance Day happened a little over a month ago – belated good tidings to all who celebrate every year on the fourth Friday in June. This year is actually the first year that the Index is moving to semi-annual rebalancing, in response to our modern era of volatile markets and heavy index investing, so we will all get another chance to celebrate in December.
For companies “on the bubble,” the reconstitution can have a big impact on stock holdings – and sometimes the legal team is involved with answering questions about what this all means. FTSE Russell’s summary of the June 2026 changes gives a sense of the trading volume that’s involved:
As of June 2025, approximately $12.2 trillion in assets were benchmarked to Russell US Indexes, and reconstitution day continues to rank among the highest trading volume days of the year, with $217.2 billion traded across US stock exchanges at the close of the June 2025 reconstitution.
A recent note from InvestorCom explains what happens when a small company gets big enough to be added to the Russell 2000 or 3000:
– Inundation of Passive Capital: The most immediate shift is a forced wave of buying from passive index funds, ETFs, and quantitative funds that mechanically mirror the Russell indexes. These rigid, “sticky” holders become a permanent fixture of the shareholder base.
– Hedge Fund and Event-Driven Inflows: Ahead of the actual rebalance date, active hedge funds and arbitrageurs “front-run” the inclusion, buying up shares to capture the expected price pop, introducing temporary short-term traders to the register before handing shares over to passive funds.
– Increased Active Institutional Access: Being part of a major benchmark puts the company on the radar of traditional, long-only mutual funds. Many institutional mandates forbid managers from buying unindexed “orphan” stocks. Inclusion unlocks a vast new tier of long-term fundamental investors.
These dynamics have ripple effects too – e.g., they may mean that proxy advisors and institutional stewardship teams will apply different elements of voting policies to the company. And of course, there is a flip side for companies leaving the index – some holders are liquidating, and day-traders may become a bigger part of the base. Weighting matters too – so if a company moves from the Russell 2000 to the Russell 1000, passives may have to sell shares because the company now carries lower weight in the overall index. This Nasdaq article from last year adds color:
– Large caps can have 21% of their float held by Russell 1000 and S&P 500 index tracking funds, up to 28% if it’s also in the Nasdaq-100®.
– Small caps could have 10% of their float held by Russell 2000 tracking funds, up to a total of 27% if they’re also in the S&P 600.
Nasdaq notes that index inclusion tends to create long-term improvements in demand and liquidity. That ultimately makes it easier for companies to raise capital.
Here’s a recent update on litigation surrounding contractual blockers (common tool in offerings of preferred stock and warrants to cap an investor’s beneficial ownership at 4.9% or 9.9%, which can effectively prevent the investor from becoming subject to Section 13(d) or Section 16 if they’re both binding and not illusory) from Alan Dye’s Section16.net Blog:
Resolving an issue of first impression in the Second Circuit, a panel has affirmed the SDNY’s holding that blocker provisions in the defendant’s derivative securities were valid and binding and not illusory, such that the defendants did not beneficially own shares in excess of the cap and therefore were not subject to Section 16(b) as ten percent owners. As discussed in my blog about the district court’s dismissal of the complaint, the plaintiff is the post-bankruptcy successor to Bed Bath & Beyond (BB&B), which sought to recover $310 million of short-swing profits from an investment manager and its client fund based on their conversions of derivative securities and immediate sale of the securities acquired, often executing multiple conversions/sales in a single day, each time acquiring up to 9.9%, selling, and then converting again.
The district court held that a valid blocker must be both contractually binding and not illusory and that the blockers in BB&B’s derivatives met both tests. On appeal, BB&B argued that the blockers were illusory and also constituted a “scheme to evade” the Section 13(d)/(g) reporting requirements within the meaning of Rule 13d-3(b).
Illusoriness. In determining that the blockers were not illusory, the Second Circuit applied the three factors suggested by the Second Circuit’s 2001 decision in Levy v. Southbrook (which are not the same factors suggested by the SEC in an amicus brief filed in Levy that the district court judge had applied, but which the court here did not consider binding):
Whether the holder may waive the blocker in its sole discretion. The blockers did not allow the defendants to waive them unilaterally, but BB&B argued that the parties could have mutually agreed to waive or amend the blockers, and that BB&B would have happily agreed to a waiver to allow for additional cash infusions. The Second Circuit rejected the argument (which the SDNY said was “nonsensical”), saying that deeming a contractual provision to be illusory because the parties could waive or amend it “would render virtually every clause of every contract a sham.”
Whether the blocker lacks a means of ensuring compliance. BB&B argued that it had no means of enforcing the blockers because it had no means of ascertaining the defendants’ total ownership. The court held that the defendants’ obligation to certify, in each notice of conversion, that conversion would not cause them to own more than 10% of the outstanding common was sufficient under Levy to ensure compliance. Here, in addition, the blockers provided that any shares acquired in excess of the cap would automatically be deemed null and void, which prevented the defendants from exceeding the cap.
Whether as a practical reality the investor has ever exceeded the conversion cap. BB&B argued that multiple serial conversions and sales in a single day resulted in the defendants’ ownership of all shares held in the account pending settlement, which exceeded 10% of the class at the end of some trading days. The court held that shares were no longer beneficially owned at the moment of execution of sale, regardless of the technicalities of passing of title or moving shares out of the account. At the moment of execution, the defendants lost beneficial ownership because (i) they no longer had the power to dispose of the shares, since they’d already been sold, and (ii) they could not vote the shares because the governing documents rendered void any shares exceeding the cap.
BB&B argued that the district court’s holding promoted form over substance and gave “a free pass to essentially any competently drafted blocker.” In rejecting that argument, the Second Circuit said that “a comprehensive and legally binding blocker generally should insulate a defendant from Section 16(b) liability” and “it is only when the parties have ignored the terms of their contract and allowed the investor to exceed the conversion cap that we will look beyond the otherwise binding language of the blocker.”
Scheme to Evade. BB&B also argued that the blockers were invalid because they constituted a scheme to evade the reporting requirements of Section 13(d)/(g) (and, indirectly, Section 16). The Second Circuit forcefully rejected that argument, citing Judge Winter’s concurring opinion in the CSX case to say that BB&B confused arrangements “that conceal a defendant’s effective ownership with contractual provisions that prevent an investor from owning a security in the first place.” Judge Winter was expressing disagreement with the district court’s holding that cash-settled total return swaps represent a scheme to evade and said there that Rule 13d-3(b) applies only when “the transaction … [involves a] substantial equivalence of the rights of ownership relevant to control, or include[s] steps that stop short of, or conceal, the vesting of ownership, while nevertheless ensuring that such ownership will vest at the signal of the would-be owner.” The court seemed clearly to endorse Judge Winter’s articulation of what constitutes a scheme to evade for purposes of Rule 13d-3(b), which is consistent with the longstanding view of the SEC staff, as coincidentally restated in new CFIs published only last week.
Most “DExit” activity to-date has involved controlled companies. But as recapped in this Vinson & Elkins blog, three widely held public companies have proposed reincorporating to Texas this year (not all from Delaware, but “DExit” is such a catchy phrase…). They each took different approaches to governance structures, and experienced varied voting outcomes. Here’s an excerpt (names redacted here but available in V&E’s blog):
While all three companies extolled their nexus to Texas (including operational and financial links) and lack of connection to Delaware (characterized as a “historical footnote” by Company A) in their proxy statements, only Company A’s and Company B’s reincorporation proposals prevailed. These divergent outcomes underscore that the path to Texas must be carefully tailored to each company’s shareholder base.
* Company A: Anticipating concerns that a reincorporation would be perceived to weaken shareholder rights, Company A emphasized in its proxy materials that it declined to adopt certain TBOC provisions—specifically the derivative litigation ownership threshold, the shareholder proposal ownership threshold, and the jury trial waiver. However, Company A stopped short of committing not to adopt such provisions in the future, which could be accomplished by board-only bylaw amendments without a shareholder vote under Texas law. Company A also filed multiple proxy supplements to directly refute ISS and Glass Lewis claims that the move would harm shareholders’ rights and to further explain differences in Texas’s legal structure. In supplemental proxies, Company A also responded to concerns raised in a filing by New York City Comptroller Mark Levine that a Texas move “sets the stage for the potential erosion of shareholder rights under Texas state law.”
* Company B: While Company B similarly did not adopt ownership thresholds for initiating derivative litigation or bringing shareholder proposals, it went a step further than Company A by explicitly opting out of those provisions in its Texas charter. Accordingly, future adoption of either provision would require shareholder approval (rather than board-only action). ISS has called this approach a “best practice.”
* Company C: Company C implemented a different approach altogether, proposing Texas governing documents that included a one-percent derivative litigation ownership threshold (significantly below the three-percent limit) and seeking a shareholder advisory vote prior to adopting the shareholder proposal ownership threshold. Both measures, along with the reincorporation proposal itself, failed to win shareholder approval.
In addition to wanting to move to Texas, the companies had at least one thing in common: Each of them had to overcome proxy advisor opposition to their reincorporation proposal. The blog explains:
As with most other recent Texas reincorporation proposals, ISS and Glass Lewis recommended against all three companies’ redomestication proposals, citing harm to shareholder rights. ISS, in particular, warned that a Texas reincorporation would make it more difficult for shareholders to hold directors and officers accountable.
During the course of its proxy season, Company A pushed back aggressively, filing proxy supplements contending that ISS’s and Glass Lewis’s respective recommendations were based on “flawed analysis,” “speculation” and “immaterial factors,” and that the proxy advisors failed to disclose their “obvious” conflicts of interest resulting from their ongoing legal battle with the Texas Attorney General.[5]
Company A also ran a widespread media campaign, which included running ads in major newspapers, like the Wall Street Journal, to support the reincorporation. By contrast, Company B and Company C did not publicly refute the proxy advisor recommendations prior to their shareholder meetings. Following its failed vote, Company C cited ISS’s and Glass Lewis’s “ill-informed influence and recommendation against the firm re-domiciling in its home state” as a significant factor contributing to the proposal’s rejection by shareholders.
ISS and Glass Lewis have recommended against the vast majority of Texas reincorporation proposals, despite the case-by-case analysis described in their voting policies.
Delaware currently remains the state of choice for the vast majority of public companies, so these reincorporation proposals and decisions are still relatively novel and at this point there isn’t a well-developed, standardized playbook for a winning proposal. That said, companies can learn from this year’s outcomes – especially when it comes to the timeline and planning. As the V&E team notes, each of the three companies submitting Texas reincorporation proposals this year spent a lot of time teeing up the ask – 7 months or more. So, if you’re considering a move in 2027, now might be the time to start discussing the strategy.
John blogged last month that the Delaware General Assembly had passed this year’s amendments to the Delaware General Corporation Law. Last week, Delaware Governor Matt Meyer signed the amendments into law, and they’ll go into effect August 1st.
See the legislative history page for all the details. Here’s a reminder of what the changes will do, from John’s earlier blog and the official synopsis:
Section 1. Section 1 of this Act confirms that if a certificate of incorporation includes a provision that “opts out” of the class vote specified in § 242(b)(2) of Title 8 to increase or decrease the number of shares of a class of stock authorized for issuance, including a provision that requires the affirmative vote of the holders of a majority of the stock (or a majority of the votes of such stock) entitled to vote, that “opt out” will not be deemed an express provision that has the effect of “opting out” of the default provisions of § 242(d). Instead, § 242(d) will apply unless the § 242(b)(2) “opt out” expressly states that the corporation is not governed by § 242(d)(1) or (2), or the § 242(b)(2) “opt out” provision specifies a greater or additional vote to increase or decrease the authorized number of shares of 1 or more classes of stock.
Section 2. Section 2 of this Act amends § 275 of Title 8, which addresses the dissolution of a corporation. New § 275(h) provides that the authority and responsibilities of the registered agent of the corporation terminate at the time the dissolution of the corporation becomes effective, except with respect to service of process that the registered agent has received before that time. New § 275(i) establishes procedures for the Secretary of State to accept service of process for a dissolved corporation after the dissolution has become effective. The amendments to § 275(d) and (f) require a corporation to include in its certificate of dissolution an agreement that the dissolved corporation may be served with process in the State by service to the Secretary of State in accordance with the Secretary of State’s rules and regulations.
Section 3. Section 3 of this Act amends § 312(j) of Title 8, which addresses the revival of the certificate of incorporation of a nonstock corporation if the certificate has become forfeited or void. The amendments delete reference to actions taken by members of a nonstock corporation who are entitled to vote on a dissolution of the corporation. The provisions of § 312(j), when read together with § 312(h), contemplates member action only to elect persons to the governing body of the corporation if there are no such persons then in office to revive the corporation. Because no action by members entitled to vote on a dissolution is required for revival, the reference to these members is being deleted. In addition, because no member action is required to revive a corporation if there are persons then serving on the governing body of the corporation, amended § 312(h) also clarifies that member action will be taken for a revival only “if any” member action is necessary.
Section 4. Section 4 of this Act provides that this Act takes effect on August 1, 2026. This Act requires a greater than majority vote for passage because § 1 of Article IX of the Delaware Constitution requires the affirmative vote of two-thirds of the members elected to each house of the General Assembly to amend the general corporation law.
To advise on whether an internal investigation is needed, you don’t just need to understand the applicable legal issues – you also need to exercise judgment and be familiar with the process. Sometimes, though, it can be challenging in the moment to recognize whether or not an issue is pointing towards an investigation.
This Faegre Drinker memo provides a helpful framework to identify common triggers for internal investigations and execute an effective, privilege-protected investigative process. The memo flags these stockholder demand triggers and summarizes the applicable Delaware law:
– Books and records demands
– Appraisal demands
– Derivative demands
Other triggers that the memo covers include white collar and government notices and internal misconduct. The memo explains that an internal investigation may be appropriate where:
– There are credible allegations of misconduct, and this includes gatekeeping reviews to determine credibility.
– A regulator has indicated, through formal or informal means, that there is potential misconduct.
– The issue could affect:
* Financial reporting or disclosures
* A pending or contemplated transaction
* Regulatory compliance or enforcement exposure
– The company must respond to stockholders, auditors, or regulators.
– The board is required to make a formal decision, such as responding to a derivative demand.
In these circumstances, engaging experienced counsel — often outside counsel — can help ensure that the investigation is conducted effectively and with appropriate independence.
The memo then walks through the steps of the investigative process and how to preserve privilege and independence and outlines key considerations for an external communications strategy during and after the investigation. Of course, practice makes perfect, and the Faegre Drinker team notes that for companies facing significant risk, tabletop exercises can be a valuable tool. Here’s an excerpt:
These exercises simulate scenarios such as:
– Receipt of a subpoena or search warrant
– Parallel civil and criminal investigations
– Media or market disclosures
The memo concludes with these best practices and pitfalls:
– Respond promptly and in good faith to all stockholder and government demands — delay or intransigence can result in adverse inferences, fee-shifting, or reputational harm.
– Maintain a clear record of the board’s oversight and involvement; this is critical protection if the investigation is later scrutinized by a court or regulator.
– Carefully consider privilege risks when communicating with auditors, business partners, or third parties.
– If criminal or regulatory action is possible, coordinate closely with outside counsel to avoid interfering with government investigations and to manage parallel proceedings.
– Use investigation findings as an opportunity to strengthen compliance, remediate issues, and update company policies or training as needed.
Programming Note: Our blogs will be off tomorrow in honor of Juneteenth. We will return on Monday, June 22nd.
The comments are rolling in on the SEC’s semiannual reporting proposal – so far, many of the submissions are from individual investors who oppose (or strongly oppose!) the proposal. This tracker from Professor Tzachi Zach at The Ohio State University Fisher College of Business categorizes the letters so that you can see at a glance the number that oppose, support, or conditionally support the proposal.
Although the overwhelming majority of commentors currently oppose the proposal, it’s worth noting that not all of the feedback is in quite yet – more on that below – and also that trade organizations often submit letters on behalf of all their members. That means the feedback may not translate neatly to a “one vote per letter” type of tally at the end of the day. But it’s still useful to see how different groups of market participants are reacting, and it will be up to the SEC to decide what’s persuasive. For extra credit, Professor Zach also built a comment tracker for the 2018 proposal on this topic – that proposal ultimately generated mixed feedback.
Many market participants have not yet submitted letters – and as this letter from MFA, AIMA and SIFMA Asset Management notes, it’s a bit challenging to have the deadline fall on the first business day after Independence Day (where we will be celebrating the 250th anniversary of the US Declaration of Independence, no less)! That 5-page letter essentially says, “Please sir, may we have until September 4th?”
As someone who has worked on comment letters for SEC rulemaking and knows how much effort goes into them – not the one-paragraph submissions that seem to be most common on this proposal to-date, but the more thorough variety – an extension sounds great to me! Whether that’s realistic or not in terms of the SEC accomplishing agenda items, might be another story.
The SEC’s recent semiannual reporting proposal has given public companies and their lawyers plenty to think about – and so has Nasdaq’s decision to permit extended 23/5 trading later this year. The semiannual reporting rules are just at the proposal stage – i.e., not a done deal – and Nasdaq’s move to extend trading hours seems to be more of a competitive and service-oriented response to market dynamics that are already happening, rather than something intended to cause big changes to corporate practices. Nevertheless, some proactive clients are already asking, “what’s everyone else planning to do?”
To be ready to answer that question, head over to this 18-question anonymous survey – prepared in collaboration with our friends at Fenwick & West and Orrick.
You don’t have to be a member of TheCorporateCounsel.net to take the survey, so we invite all of our readers to take a few minutes to complete it. We’ll share the results on this site when the survey closes!
Most corporate and securities lawyers I talk to are happy to have litigation be someone else’s problem. But sadly, we can’t entirely ignore it – especially when there’s interplay with public disclosures or it’s significant enough to hit the board agenda.
So, it’s helpful to know which issues plaintiffs are focusing on. This midyear update from Norton Rose Fulbright gathered perspectives from 135 general counsel and in-house litigation leaders across four US industries: energy, financial institutions, healthcare and technology. Here are the key takeaways:
• Cybersecurity and data privacy is the leading area where dispute exposure has deepened since the start of 2026. More than half of all respondents report increased federal- (56%) and state-level (53%) exposure, outpacing expectations outlined in the firm’s January 2026 research.
• AI litigation exposure is elevated as adoption advances. Forty-six percent report more federal dispute exposure, and 42% cite state-level increases.
• Class action risk still centers on cybersecurity and employment issues. Data or cybersecurity breaches (51%) are the leading events that all respondents consider likely to trigger class action litigation in 2026, followed by workforce changes such as layoffs or policy shifts (47%).
And here are trends at the industry level:
• Energy: Nearly six in 10 (57 percent) energy respondents report increased employment and labor dispute exposure at the federal level and 51 percent at the state level, the highest shares across industries. Energy respondents are also the most likely (57 percent) to consider workforce changes a likely class action trigger in 2026.
• Financial institutions: More than half of financial institutions respondents report increased federal exposure to cybersecurity and data privacy (53 percent) and consumer protection (53 percent) disputes, followed by AI at 47 percent. Data breaches or cybersecurity incidents are also this group’s most-cited class action trigger for 2026 (56 percent).
• Healthcare: Federal AI exposure increased for 53 percent of healthcare respondents, with the same share citing AI-enabled product deployments and product launches as a likely trigger of class action litigation. They are also the most likely to say AI governance and oversight issues have heightened (26 percent) since late 2025.
• Technology: Three-quarters of technology respondents report increased federal litigation exposure and 72 percent report state-level increases since the start of 2026, the highest shares of any industry surveyed. More than half (56 percent) expect privacy or data protection violations from AI use to contribute to litigation exposure; half also cite bias or discrimination claims and intellectual property disputes involving AI.
The 20-page memo also notes that public disclosures, earnings announcements, and ESG and sustainability statements remain some of the top triggers for class actions. We’ve posted this resource in our “Securities Litigation” Practice Area.
Ben Franklin said only two things were certain in life – death and taxes – but it sure seems like shareholder activists also find a way to persist no matter the conditions. According to this Barclays update, the number of shareholder activist campaigns increased in Q1 this year compared to 2025 – at least in the US. This mid-year update from Olshan identifies the key drivers so far this year. Here’s the intro:
A strong 2025 for shareholder activism has carried forward into the first half of 2026, with a variety of significant activist engagements and campaigns this proxy season. Activist campaigns have largely focused on operational, strategic, capital allocation, and governance-related improvements, with new activity in the M&A and IPO markets expected to impact activist demands and the corporate governance landscape overall.
Settlement agreements remain a key means for activists to change the composition of boards of directors, and C-suite turnover prior to and following campaigns reinforces the importance of succession planning and accountability in the boardroom. The evolving regulatory environment, geopolitical uncertainty, and a shift in institutional investor engagement have also impacted this proxy season, with the growing importance of AI also playing a significant role.
Many of us are pondering what types of trade-offs companies may face if the SEC moves to a more principles-based disclosure framework. The Olshan team offers these thoughts:
The evolving regulatory landscape continues to impact companies and activists this proxy season. Following last year’s 13G/13D guidance affecting engagement between companies and investors, the SEC is proposing a number of significant rule changes in an effort to encourage companies to become and remain public, as part of its “Make IPOs Great Again” agenda. These include proposed changes to securities offering disclosure rules and a proposed rule to give public companies the option to file periodic reports on a semiannual rather than quarterly basis. If semiannual reporting becomes available as an alternative, we expect that many companies will continue to report on a quarterly basis (at least initially) or find other avenues for providing investors with material financial information, and those that do not will likely face criticism for lack of transparency, and potentially see negative implications in director elections. If the financial information flowing to investors changes, investors will need to adapt their approaches to monitoring and engaging with companies. We do not expect that would significantly affect the volume of activist activity, but it may have an impact on the timing and cadence of campaigns, and lead to changes in governance best practices promoted by institutional investors and proxy advisors.
The SEC has also proposed rule changes that would make significantly more public companies qualify for exemptions from mandatory “say-on-pay” votes, pay-versus-performance disclosures, and auditor attestations of internal controls over financial reporting. If adopted, these changes would similarly decrease the information investors have available and eliminate certain compensation-related data points that activists have historically used to help identify potential targets, gauge investor sentiment and support their campaigns. For most proxy campaigns involving seasoned activists, however, executive compensation is just one of the multitude of issues that activists can point to while making their case for change, with concerns surrounding performance, strategy, operations, capital allocation and governance remaining at the forefront.
