The prevalence of settlements in class and derivative litigation challenging mergers and acquisitions in which the only payment is to plaintiffs’ attorneys suggests potential systemic dysfunction arising from the increased frequency of parallel litigation in multiple state courts. After examining possible explanations for that dysfunction, and the historical development of doctrines limiting parallel state court litigation — the doctrine of forum non conveniens and the “first-filed” doctrine — this paper suggests that those doctrines should be revised to better address shareholder class and derivative litigation. Revisions to the doctrine of forum non conveniens should continue the historical trend, deemphasizing fortuitous and increasingly irrelevant geographic considerations, and should place greater emphasis on voluntary choice of law and the development of precedential guidance by the courts of the state responsible for supplying the chosen law. The “first-filed” rule should be replaced in shareholder representative litigation by meaningful consideration of affected parties’ interests and judicial efficiency.

Putting Stockholders First responds to the observation that in 2011, only 5% of settlements of shareholder litigation challenging mergers and acquisitions involved an additional payout to stockholders, 84% of such settlements were based on additional disclosure only, but all of such settlements involved payment of fees for plaintiffs’ attorneys. These figures reflect a significant change from 1999 to 2000, when 52% of suits filed on behalf of shareholders produced a financial benefit for the class, and only 10% of settlements were “disclosure-only.”

…continue reading: Putting Stockholders First, Not the First-Filed Complaint

The 2012 proxy season saw a continued high rate of governance-related shareholder proposals at large U.S. public companies, including proposals on separation of the roles of the CEO and chair, the right to call special meetings, action by written consent, declassified boards and majority voting. As in prior years, these governance-related proposals received high levels of support, and were the category of proposal that had the best chance of receiving shareholder approval. Proposals on social issues (particularly those related to political contributions and lobbying costs) and compensation-related issues (including equity retention policies) also remained common but, as in the past, these proposals rarely received a majority vote, generally had lower levels of support than governance-related proposals, and served primarily as a vehicle for shareholder activists to express their views.

…continue reading: 2012 Proxy Season Review: Overall Trends in Shareholder Proposals

When I left CalPERS in 1996 after ten years (having founded and run their corporate governance program for all ten years), I bought shares in ten companies that I felt listen to shareowners, had or were developing good corporate governance, and would be (hopefully!) a good economic investment. Of those ten companies, eight have done very well, with one doing so-so, and one not doing so good. Chevron, a Fortune Ten Company, was one of those ten companies. I have held Chevron stock for 16 years now, and it has done quite well.

Spring is proxy season and my mailbox, both postal and electronic, has filled with proxy materials and annual reports. I try to read/look over all these materials and to carefully vote my proxies. Recently, I turned to my Chevron proxy and noted item No. 4, entitled: “Shareholder Proposal Regarding Exclusive Forum Provisions.” This proposal states: “RESOLVED: The shareholders of Chevron Corporation (the “Company”) hereby ask the board of directors to repeal the Company’s “exclusive forum” bylaw which was unilaterally adopted by the board of directors and which generally requires shareholders to bring certain types of legal actions only in Delaware, the state where the Company is incorporated.”

I have fought for good corporate governance for over 26 years, first as a CalPERS “shareowner activist,” and then as a counselor to corporate boards for the last 15+ years, and as a corporate board member of various public companies for the last 13 years.

…continue reading: A Proposal to Repeal Exclusive Forum at Chevron

In February 2012, several purported class action lawsuits were filed in the Delaware Court of Chancery challenging corporate bylaw amendments adopted by companies pursuant to 8 Del. C. § 109. Generally speaking, the challenged bylaw amendments would require that certain types of corporate law claims by shareholders be brought and resolved in the Delaware Court of Chancery, and not elsewhere. [1] In the Delaware class actions, the shareholder plaintiffs sued a dozen companies, as well as members of their respective boards of directors. Each of the cases was assigned to Chancellor Leo E. Strine, Jr.

The complaints in the various actions are similar. Plaintiffs allege that the forum selection bylaw amendments are invalid under Delaware and other law, that they violate shareholder rights because they were adopted by boards of directors without the consent of the shareholders, and that the directors who adopted the bylaw amendments violated their fiduciary duties.

Of the 12 companies that were sued, the majority repealed the challenged bylaw prior to the deadline for responding to the complaint. In those cases, the parties stipulated that the claims were moot, and the actions were dismissed.

…continue reading: An Update on the Forum Selection Bylaw Cases

In response to concerns that the plaintiffs’ bar is rushing [1] to sue Delaware corporations “anywhere but Delaware,” to avoid the predictability and speed of Delaware courts and potentially to obtain larger settlements, 195 Delaware corporations (including Chevron, DIRECTV, Life Technologies and 24 other members of the S&P 500) have adopted or proposed adopting charter or bylaw provisions requiring that derivative actions, fiduciary duty claims and other intra-corporate disputes be litigated exclusively in the Delaware Court of Chancery. Among other things, these provisions seek to address the phenomenon of Delaware corporations facing parallel, competing litigation in Delaware and another state or in federal court, [2] often in connection with M & A activity. The January 2012 edition of my Study of Delaware Forum Selection in Charters and Bylaws analyzes these provisions and the trends they reveal.

…continue reading: Delaware Corporations Seek to Counter Forum Shopping

With the M&A market recovery losing steam in the second half of 2011, dealmakers are faced with increased global macro-economic jitters, election year incertitude and tightened financing markets. But corporations and private funds still have capital to deploy, leading pundits and practitioners alike to be cautiously hopeful that the M&A market in 2012 may show signs of renewed vitality.

With that in mind, we look back at 2011 for lessons learned in the M&A space with implications for the coming year – from the birth of Airgas and further dismantling of staggered boards to the reported (but possibly not exaggerated) death of Omnicare and hyperbolized demise of proxy access.

…continue reading: Forward-Looking Statements – Deal Market Trends for 2012

As an advisor to underwriters and issuers in initial public offerings, we surveyed the corporate governance practices of recent U.S. IPOs to identify current market trends. We focused on the top 50 IPOs of U.S. companies from January 1, 2009 through August 31, 2011 in terms of deal size of the IPO. [*] The deal size of the examined IPOs ranged from $132.0 million to $18.14 billion.

Significant Findings

In doing our research, we compared our findings in this survey to those in our 2009 survey. We found that generally, despite the growing pressure for certain corporate governance provisions in seasoned issuers, the corporate governance practices at the IPO companies that we surveyed in 2011 remained in many ways unchanged from those in our 2009 survey. In both surveys, there were approximately similar results for the existence of classified boards, voting standards in uncontested board elections and the percentage of audit committee independence at the time of the IPO. Indeed, we found many fewer companies separating the role of CEO and Chairman of the board in our 2011 survey—34% as compared with 52% in the 2009 survey.

…continue reading: Corporate Governance Practices of U.S. Initial Public Offerings

Since the Delaware Chancery Court’s opinion in In re Revlon, Inc. Shareholders Litig., [1] where Vice Chancellor Laster endorsed a Delaware entity’s right to mandate in its governance documents a chosen forum for the resolution of intra-corporate disputes, numerous boards of public companies have determined that such a provision is in the best interests of the corporation and its shareholders.

At least 36 boards of public companies have enacted bylaw amendments seeking to designate Delaware’s Chancery Court as the exclusive jurisdiction for intra-corporate disputes, [2] and at least 37 companies have included such provisions in their charters. [3] In addition, at least 11 public companies have included an exclusive jurisdiction provision for their charter or bylaws in proxy materials for their 2011 annual meetings. As of April 28, 2011, three of those proposals have been voted on and approved and the remaining eight will be voted on later in this proxy season. [4]

…continue reading: New Challenges and Strategies for Designating Delaware as Jurisdiction for Corporate Disputes

The pot of multi-forum stockholder litigation against deals continues to boil. The recent Allion decision, the subject of our recent memo, spotlights one solution that our Firm developed that has shown some promise.

That litigation follows in the wake of a deal’s announcement is nothing new. But participants in the M&A markets are still grappling with the increasingly prevalent trend of multiple shareholder actions challenging the same deal in different courts. The Delaware Court of Chancery recently endorsed a pragmatic solution to this endemic problem. In re Allion Healthcare Inc. S’holders Litig., C.A. No. 5022-CC (Del. Ch. Mar. 29, 2011).

…continue reading: Delaware Court of Chancery Addresses Multi-Forum Deal Litigation

In a matter of first impression, the United States Federal District Court for the Northern District of California recently denied motions to dismiss a derivative action for improper venue, finding the forum selection clause in the corporate bylaws of a Delaware corporation to be unenforceable.  The decision in Galaviz v. Berg, No. 10-cv-3392, slip op. (N.D. Cal. Jan. 3, 2011), calls into question the ability of corporations to effectively mandate a chosen forum for the resolution of intra-company disputes.

The plaintiffs in Galaviz brought a claim in the Federal District Court for the Northern District of California against the directors of Oracle Corporation (“Oracle”) alleging that each director is individually liable for breach of fiduciary duty and abuse of control in connection with certain actions allegedly taken by Oracle from 1998 to 2006.

…continue reading: Forum Selection Bylaw Clause Rejected by Court