Posts Tagged ‘Skadden’

Reliance by Directors: What’s a Conscientious Director to Do?

Posted by Peter Atkins, Skadden, Arps, Slate, Meagher & Flom LLP, on Friday April 11, 2014 at 9:01 am
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Editor’s Note: Peter Atkins is a partner of corporate and securities law matters at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a Skadden, Arps memorandum by Mr. Atkins. The views expressed in this post are those of Peter Atkins, a senior partner of the firm, and are not presented as those of the firm. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

In its recent decision in In Re Rural Metro Corporation Stockholders Litigation, [1] the Delaware Court of Chancery, in a footnote, touches on what it means for directors to be “fully protected” by §141(e) of the Delaware General Corporation Law when they rely on information, opinions, reports or statements provided to them by officers, employees, board committees or experts. While not central to the Rural Metro decision, this is an issue that should be of interest to conscientious public company directors. Below I suggest that, as currently applied, §141(e) does not sufficiently protect conscientious directors, examine why that may be so, highlight the need for alternative approaches to provide truly full protection without undermining other important conduct imperatives Delaware law imposes on directors and others, and offer some suggestions toward that end.

…continue reading: Reliance by Directors: What’s a Conscientious Director to Do?

The Volcker Rule: A First Look at Key Changes

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday December 18, 2013 at 9:02 am
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Editor’s Note: The following post comes to us from Skadden, Arps, Slate, Meagher & Flom LLP, and is based on a Skadden memorandum.

On December 10, 2013, five U.S. financial regulators (the Agencies) adopted a final rule implementing the Volcker Rule. [1] The text of the final rule and its accompanying preamble are available here. [2] The Volcker Rule was created by Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) and prohibits banking entities from engaging in “proprietary trading” and making investments and conducting certain other activities with “private equity funds and hedge funds.”

In October 2011, the Agencies released a proposed rule to implement the Volcker Rule. Our analysis of the proposed rule is available here. [3] The proposal generated extensive and diverse feedback from industry participants, policymakers and the public. After more than two years of deliberation, the final rule reflects the efforts of the Agencies to incorporate this feedback to the extent consistent with statutory requirements and policy objectives.

…continue reading: The Volcker Rule: A First Look at Key Changes

Shareholder Activism in the US Banking Industry

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday December 3, 2013 at 9:30 am
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Editor’s Note: The following post comes to us from William Sweet, partner and head of the Financial Institutions Regulation and Enforcement Group at Skadden, Arps, Slate, Meagher & Flom LLP, and is based on a Skadden memorandum by Mr. Sweet, Brian D. Christiansen, David C. Ingles, Sven G. Mickisch, William S. Rubenstein, and Andrew P. Alin.

Although the 2012 and 2013 proxy seasons saw increased (and highly publicized) shareholder activism across a range of industries, that trend has not yet made its way to the U.S. banking industry. Over the last two proxy seasons, aside from Nelson Peltz’s well-publicized campaign for action at State Street Corporation, certain negative say-on-pay recommendations from ISS and shareholder proposals on governance matters at some large banking organizations (e.g., the campaign to separate the Chairman and CEO positions and to vote against certain directors at JP Morgan Chase), as well as a handful of examples of shareholder activism at community banking institutions, the banking industry has seen relatively little investor activism by comparison. And no investor has conducted a proxy solicitation against a large banking organization since Relational Investors waged a proxy battle against the management and board of directors of Sovereign Bancorp in 2005-06.

The relative absence of activist campaigns targeting banking organizations over the last several years may be explained mainly by current market conditions in the industry, which are not conducive to investor expectations for realizing a profit from an activist campaign against a bank. Most significantly, the absence of a robust bank M&A market with willing buyers that are able to execute transactions at attractive valuations (i.e., a premium to the market price at which the activist acquired the stock) has undermined one of the key exit opportunities for activist investors in the industry. The bank M&A market has been and continues to be adversely affected by uncertainties around asset quality, capital expectations, the regulatory and legislative environment, and the future prospects for the industry as a whole.

…continue reading: Shareholder Activism in the US Banking Industry

Agencies Propose Revised Risk Retention Rule

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday September 14, 2013 at 9:43 am
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Editor’s Note: The following post comes to us from Susan M. Curtis, partner and co-head of the Structured Finance Group at Skadden, Arps, Slate, Meagher & Flom LLP, and is based on a Skadden memorandum.

On August 28, 2013, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the U.S. Securities and Exchange Commission, the Federal Housing Finance Agency and the Department of Housing and Urban Development (collectively, Agencies) issued a notice of proposed rulemaking (Proposed Rule) in connection with the risk retention requirement mandated by Section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Proposed Rule can be found here.

Background

The risk retention requirements of Section 941 of the Dodd-Frank Act are intended to align the interests of securitizers with those of other securitization transaction participants by requiring securitizers to retain some of the credit risk in the assets they securitize, or to have “skin in the game.” Section 941 added Section 15G to the Securities Exchange Act of 1934, which requires the Agencies to prescribe risk retention rules. Section 15G also generally requires a securitizer to retain no less than 5 percent of the credit risk in assets it sells into a securitization and prohibits a securitizer from directly or indirectly hedging or otherwise transferring the credit risk that the securitizer is required to retain, subject to limited exemptions. The Proposed Rule follows the initial rule proposal and request for comment by the Agencies released in April 2011 (the Original Proposal). As described below, the Proposed Rule reflects comments received on the Original Proposal and re-proposes the risk retention rules with a number of modifications.

…continue reading: Agencies Propose Revised Risk Retention Rule

Central European Distribution Corporation’s Chapter 11 Plan Incorporates Dutch Auction

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday August 20, 2013 at 9:10 am
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Editor’s Note: The following post comes to us from Mark S. Chehi, a partner in the Corporate Restructuring Group of Skadden, Arps, Slate, Meagher & Flom LLP, and is based on a Skadden memorandum by Mr. Chehi, Glenn S. Walter, Jay M. Goffman, and Mark A. McDermott.

On May 13, 2013, the U.S. Bankruptcy Court for the District of Delaware confirmed a prepackaged Chapter 11 plan of reorganization in the case of Central European Distribution Corporation (CEDC) [1] that incorporated an unmodified reverse Dutch auction. A reverse Dutch auction is a type of auction employed when a single buyer accepts bids from numerous sellers, and lowest-priced seller bids are accepted as winning bids.

The CEDC plan is perhaps the first instance of a Dutch auction process being incorporated successfully into a Chapter 11 reorganization plan. This precedent provides guidance for the use of Dutch auctions that may offer creditors distribution alternatives and maximize the utility of limited cash (or other limited property) available for distribution under a plan.

…continue reading: Central European Distribution Corporation’s Chapter 11 Plan Incorporates Dutch Auction

The Landscape of CEO Succession Issues

Posted by Brian Breheny, Skadden, Arps, Slate, Meagher & Flom LLP, on Tuesday July 23, 2013 at 9:10 am
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Editor’s Note: Brian V. Breheny is a partner at Skadden, Arps, Slate, Meagher & Flom LLP. The following post is based on a Skadden memorandum by Mr. Breheny, Regina OlshanNeil M. LeffMarc S. GerberMichael R. Bergmann.

A board’s decision as to whether, when and how to terminate the employment of a CEO and hire a successor is among the most critical decisions facing the board of any company—large or small, public or private, established or start-up. In most cases, however, a CEO termination is a rare event and one with respect to which—as would be expected—the board, the company’s general counsel and its human resources professionals may have little or no experience. In addition, the situation is further complicated by contractual, regulatory and personal factors.

This post describes the substantive and procedural considerations that boards will want to take into account when there is a change of CEO. In it, we assume that the board has made the business decision relating to CEO succession and is focused on strategy, implementation and minimizing potentially costly and/or embarrassing oversights and errors. Many but not all of the same considerations apply in respect of executive officers other than the CEO, and some additional considerations may apply to such other officers; in any event, their relative significance likely will differ from the case of the CEO.

…continue reading: The Landscape of CEO Succession Issues

Rethinking Director Nomination Requirements and Conduct

Editor’s Note: Peter Atkins is a partner of corporate and securities law matters at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a Skadden, Arps memorandum by Mr. Atkins, Richard J. Grossman, and Edward P. Welch; the full text, including appendix, is available here.

This post identifies and discusses a number of steps public companies may wish to consider regarding director nomination requirements and conduct in light of the heightened potential for arrival on the board of activist shareholder-nominated directors.

Background

Increased Incidence of Nomination Proposals: Based on publicly reported information published by Activist Insight, [1] during 2012 activist shareholders threatened to initiate or initiated 58 director election proposals, and in 45 of them succeeded in electing at least one director either in an election contest or by agreement with the target’s board. During the first quarter of 2013, activist shareholders are reported by Activist Insight [2] to have threatened to initiate or initiated 36 director election proposals and in an election contest or by agreement in 13 of them succeeded in electing at least one director. By way of comparison, in the first quarter of 2012, activist shareholders threatened to initiate or initiated only 18 director election proposals.

…continue reading: Rethinking Director Nomination Requirements and Conduct

Activist Shareholders in the US: A Changing Landscape

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday June 28, 2013 at 9:44 am
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Editor’s Note: The following post comes to us from Stephen F. Arcano, partner concentrating in mergers and acquisitions and other corporate matters at Skadden, Arps, Slate, Meagher & Flom LLP, and is based on a Skadden alert by Mr. Arcano and Richard J. Grossman.

Shareholder activism in the U.S. has increased significantly over the past several years, with activist campaigns increasingly targeting well-known, larger market capitalization companies, such as Apple, Hess, Procter & Gamble and Sony. In 2013, the number, nature and degree of success of these campaigns has garnered the attention of boards of directors, shareholders and the media. While the continued level of success of activists is uncertain, and the longer-term impact of activism is unknown, at the moment shareholder activism is exerting considerable influence in the M&A and corporate governance arenas. In this evolving landscape, public company boards and their managements need to be aware that virtually any company is a potential target for shareholder activism.

Key Factors Influencing the Current Paradigm

Activism has become a viable and increasingly applied (arguably mainstream) tool for shareholders to seek to influence corporate policy. Several changes have occurred over the past few years that have contributed to the heightened — although not universal — success now being enjoyed by activism, including factors related to the activists, institutional investors and corporate defenses.

…continue reading: Activist Shareholders in the US: A Changing Landscape

From Vigilance to Vision

Posted by Jennifer Mailander, Corporation Service Company, on Wednesday May 29, 2013 at 9:27 am
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Editor’s Note: Jennifer Mailander is director of CSCPublishing at Corporation Service Company. This post is an excerpt from the 2013 Edition of The Directors’ Handbook, by Thomas J. Dougherty, partner and head of the Litigation Group of Skadden, Arps, Slate, Meagher & Flom LLP.

Directors receive a continuous stream of information and try to be vigilant in order to discern from the mix of background and foreground company data those dissonant notes, those underappreciated inputs, those gaps in analysis. They listen to identify the things that don’t add up.

But it’s getting harder to detect those subtle yet critical notes buried in the morass of reading material now available to directors. Only a few years ago, the volume of pre-meeting materials was limited to the width of a three-ring binder and the size of a standard FedEx box, which typically arrived at the director’s office or home a few days before the meeting. As I’ve pointed out in this Handbook, the director most up-to-speed on these “pre-reading” materials was often the director who made the longest plane trip to attend the meeting. Those directors, poring through their binders stuffed with pre-reading materials, were a common sight in the first-class sections of commercial airliners. The binder was a bulky carry-on, but at least its size limited the volume of pre-reading. Not so anymore.

Today, services like BoardLink permit companies to transmit vast amounts of information to dedicated devices supplied by boards to their directors. There is a consequent proliferation of PowerPoints, appendices, memos, advisories, agendas, draft minutes, and so on. There is also a potential collapse in timing, because content can be added or revised and resent without FedEx deadlines. The result: significantly more pre-reading, less time.

Directors need the board to put reasonable limits and priorities on this phenomenon. It is true that so long as directors make well-informed decisions without conflict of interest, they should not be held liable for business judgments that do not lead to successful outcomes, and under Delaware law can be exonerated from personal liability by company charter so long as they meet that standard of conduct. However, having more data does not necessarily mean that directors are better informed.

…continue reading: From Vigilance to Vision

Disclosure of Non-GAAP Financial Measures

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday May 23, 2013 at 9:26 am
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Editor’s Note: The following post comes to us from David J. Goldschmidt, partner in the corporate finance department at Skadden, Arps, Slate, Meagher & Flom LLP, and is based on a Skadden alert; the full text, including footnotes, is available here.

Companies commonly supplement their reported earnings under U.S. generally accepted accounting principles (GAAP) with non-GAAP financial measures that they believe more accurately reflect their results of operations or financial position or that are commonly used by investors to evaluate performance. A non-GAAP financial measure is a numerical measure of a company’s historical or future financial performance, financial position or cash flows that includes or excludes amounts from the most directly comparable GAAP measure. Non-GAAP financial measures are used by companies to bridge the divide between corporate reporting that is standardized under GAAP and reporting that is tailored to a particular industry or circumstance.

The Securities and Exchange Commission (SEC) permits companies to present non-GAAP financial measures in their public disclosures as well as registration statements filed under the Securities Act of 1933 (Securities Act) and periodic reports filed under the Securities Exchange Act of 1934 (Exchange Act), subject to compliance with Regulation G and Item 10(e) of Regulation S-K (Item 10(e)). These regulations were adopted to ensure that investors are provided with financial information that is fulsome and not misleading.

…continue reading: Disclosure of Non-GAAP Financial Measures

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