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(More) Observations on the Universal Proxy Card

Posted by Ele Klein and Sean Brownridge, Schulte Roth & Zabel LLP, on
Thursday, June 6, 2024
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Ele Klein and Sean Brownridge are Partners at Schulte Roth & Zabel LLP. This post is part of the Delaware law series; links to other posts in the series are available here.

In our previous article, (Much Too Early) Observations on the Universal Proxy Card, we reviewed what had occurred in the months immediately following the efficacy of the universal proxy rules, including by providing select observations regarding the first three contests in the universal proxy era.  As our concluding observation, we noted that the more things changed, the more they stayed the same.  That is, despite the universal proxy rules’ refinement of the mechanics by which directors are elected, the purposes and objectives of proxy contests involving board representation had not yet evolved.  That can no longer be said, in light of the 2024 proxy season.

The universal proxy era has, in recent months, welcomed numerous firsts, including, among others, the first (i) proxy fight constructed with an E&S focus (the Strategic Organizing Center’s campaign at Starbucks), (ii) multiparty proxy fight (the concurrent campaigns run by Trian and Blackwells at Disney, which were accompanied by ValueAct’s solicitation in support of the company), and (iii) control contest to go to a vote at a U.S.-based company subject to the universal proxy rules (Ancora’s campaign at Norfolk Southern).  In each instance, the activist fell short of its board-related objectives but nonetheless walked away with significant ancillary successes. READ MORE »

Boeing 737 MAX

Posted by David F. Larcker and Brian Tayan (Stanford University), on
Thursday, June 6, 2024
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David F. Larcker is the James Irvin Miller Professor of Accounting and Brian Tayan is a Researcher at the Stanford Graduate School of Business. This post is based on their recent working paper.

We recently published a paper on SSRN (“Boeing 737 MAX”) that examines the organizational, leadership, and cultural breakdowns that contributed to the failure of the Boeing 737 MAX aircraft.

In November 2018, a Boeing 737 MAX airplane crashed off the coast of Indonesia, killing all 189 passengers and crew members. Four months later, a second 737 MAX flying from Ethiopia to Nairobi crashed, killing 157 individuals. Government authorities around the globe grounded the aircraft. Approximately 400 737 MAX were in operation and over 4,000 in production or on order at the time.

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Recent Developments in Asset Management M&A Transactions

Posted by Ariel Deckelbaum, Paul Van Houten, and Sarah Davis, Ropes & Gray LLP, on
Thursday, June 6, 2024
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Ariel Deckelbaum and Paul Van Houten are Partners and Sarah Davis is a Counsel at Ropes & Gray LLP. This post is based on a Ropes & Gray memorandum by Mr. Deckelbaum, Mr. Houten, Ms. Davis, Scott Abramowitz, Greg Davis, and Deb Lussier.

From buyers looking to add AUM or talent, to sponsors looking for third-party investors to fund growth initiatives, transaction volume for asset management M&A remains strong in 2024. In this edition of PErspectives, Ropes & Gray explores the strategic imperatives driving recent transaction activity, outlines the various deal structures and strategies that have been adopted and reflects on what these developments mean for participants in the asset management industry as a whole.

The asset management industry is in the middle of a radical period of transformation, with unprecedented levels of consolidation.

The groundwork for this shift has been building since 2023. According to PitchBook, publicly disclosed deal value for private equity sponsors executing consolidation transactions reached a record $9 billion in 2023, rising 38% year-over-year. Deal volume also reached a decade high, with 78 transactions announced or closed in 2023.[1] An improved dealmaking environment in 2024 paired with heightening competition in the asset management space could bolster near-term dealmaking activity.

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Unions Seek Influence in Corporate Battles

Posted by Jonathan Doorley, Brunswick Group LLP, on
Wednesday, June 5, 2024
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Jonathan Doorley is Partner at Brunswick Group LLP. This post is based on his Brunswick memorandum.

The collision of financial, political and social issues in deal-making and proxy contests has never been more apparent in the United States than it was in 2023 and thus far in 2024. While shareholder value creation remains the sine qua non of transactions and proxy contests, investors of all kinds have long been imposing their own specific agendas on issuers. In addition to the widening scope of activism, there are new players for senior management teams and boards to contend with – most notably organized labor.

Recent activism cases in the US reveal how labor unions have inserted themselves more aggressively into transactions and shareholder disagreements. Unions are not a monolith – they each have their own distinct agendas and cultures, reflected in the ways they interact with the capital markets. Below, we review three recent examples of this trend – two that have recently reached a resolution and one that is ongoing – and we offer some lessons to help executives prepare for this kind of engagement with their workers.

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Half the Firms, Twice the Profits

Posted by Mark J. Roe (Harvard Law School) and Charles C.Y. Wang (Harvard Business School), on
Wednesday, June 5, 2024
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Mark J. Roe is David Berg Professor of Law at Harvard Law School and Charles C.Y. Wang is Tandon Family Professor of Business Administration at Harvard Business School. This post is based on their recent article forthcoming in the Journal of Law, Finance, and Accounting.

The number of public firms in the United States has nearly halved since 1996, causing consternation among some corporate leaders and securities law regulators.

Representative analyses plead for a “wake-up call for America” because of a “decimation of the U.S. capital markets structure [and a] demise of the IPO market,” that led to “the systemic decline in the number of publicly listed companies.” Jamie Dimon, JP Morgan Chase’s CEO, lamented in his 2023 JPMorgan Chase letter to shareholders the “shrinking public markets” and the “diminishing role of public companies. . . . From their peak in 1996 at 7,300, U.S. public companies now total 4,300. . . . The trend is serious. . . . Is this the outcome we want?” Those who lament the decline in number since 1996 often bring forward over-regulation as a central cause, as did Mr. Dimon.

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Continuation Funds: What You Need To Know

Posted by Greg Norman, Delphine Jaugey and Laurence Hanesworth, Skadden, Arps, Slate, Meagher & Flom LLP, on
Wednesday, June 5, 2024
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Greg Norman is a  Partner, Delphine Jaugey is a Counsel and Laurence Hanesworth is an Associate at Skadden, Arps, Slate, Meagher & Flom LLP, This post is based on their Skadden memorandum.

Over the last 10 years, continuation funds have evolved to be a well-established potential exit route for private fund sponsors. According to advisory estimates, some $40 billion deals were completed in 2023, with more than $150 billion worth of transactions in the market in total.

As the continuation fund market matures, the structure and terms of these transactions have become increasingly complex, presenting challenges that should be carefully navigated by participants to ensure a successful transaction process.

In this article, we discuss some of those issues, and the dynamics we have observed as sponsors, existing limited partners (LPs) and new investors negotiate these transactions.

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Board effectiveness: A survey of the C-suite

Posted by Carin Robinson, PricewaterhouseCoopers LLP, on
Tuesday, June 4, 2024
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Carin Robinson is Director at the PricewaterhouseCoopers (PwC) Governance Insights Center. This post is based on her PwC memorandum.

Against a backdrop of increasing fragmentation and complexity, companies are seeking to develop and execute coherent strategies, and corporate governance needs to keep pace, with directors addressing more topics and fielding input from more stakeholders. Through it all, business leaders are looking for their boards to move beyond traditional roles and expertise and offer greater guidance, leadership and knowledge in emerging areas such as digital, GenAI and environmental/sustainability.

To explore how executives perceive board performance today, PwC and The Conference Board conducted our fourth annual survey of more than 600 public company C-suite executives in the fall of 2023.

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Poor ESG: Regressive Effects of Climate Stewardship

Posted by Zohar Goshen (Columbia Law School), Assaf Hamdani (Tel Aviv University), Alex Raskolnikov (Columbia Law School), on
Tuesday, June 4, 2024
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Zohar Goshen is Jerome L. Greene Professor of Transactional Law at Columbia Law School, Assaf Hamdani is Professor of Law at Tel Aviv University, and Alex Raskolnikov is Wilbur H. Friedman Professor of Tax Law at Columbia Law School. This post is based on their working paper.

The failure of the U.S. political system to adequately address climate change has shifted focus from public to private action. Driven by the Environmental, Social, and Governance (ESG) movement, investors pressure corporations to adopt climate policies to reduce carbon emissions. Today, many view ESG as a market-based solution to a public policy failure. Where Congress failed, ESG will succeed.

In a recent paper, we argue that even if ESG-driven climate stewardship were to achieve the scale necessary to have a real impact on global warming, it would also have a disproportionate impact on low-income households and displaced workers. Curbing global warming is fraught with difficult distributional challenges that corporate ESG measures will neither solve nor circumvent. Interventions to combat climate change are nearly always regressive, with the costs of such policies impacting those with the least, the most. ESG implemented at scale will inevitably replicate the regressive effects of various legislative interventions on which all ESG carbon-reduction strategies are based. But, in contrast with congressional action, ESG solutions will not raise any revenue that could be used to offset ESG regressivity.

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Exxon court challenge to Arjuna shareholder proposal survives dismissal

Posted by Cydney Posner, Cooley LLP, on
Tuesday, June 4, 2024
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Cydney Posner is Special Counsel at Cooley LLP. This post is based on her Cooley memorandum.

You may recall that, in January, ExxonMobil filed a lawsuit against Arjuna Capital, LLC and Follow This, the two proponents of a climate-related shareholder proposal submitted to Exxon, seeking a declaratory judgment that it may exclude their proposal from its 2024 annual meeting proxy statement. Then, the two proponents notified Exxon that they had withdrawn their proposal.  End of story? Hardly. In a status update filed in February, Exxon explained that it would not withdraw the complaint because it believed that there was still a critical live controversy for the Court to resolve. Arjuna and Follow This both moved to dismiss the case for lack of personal and subject matter jurisdiction. The Federal District Court for the Northern District of Texas has just issued its opinion:  the Court dismissed the case against Follow This, an association organized in the Netherlands, for lack of personal jurisdiction, but the case against Arjuna survives on the basis of both subject matter and personal jurisdiction. Arjuna has now responded by letter. However, this conflict isn’t just about Exxon and two small activist shareholders. It has taken on much larger proportions: some business groups have joined with Exxon to bemoan the “hijacking” by special interest groups of Rule 14a-8 to “advance their preferred social policies” and “inundate public corporations with proposals designed to push ideological agendas.” Others have questioned whether, under the First Amendment, the SEC, through Rule 14a-8, has the right to compel companies to use their proxy statements to speak about contentious political issues. On the other side, some investors lament Exxon’s “aggressive tactics” that threaten to “diminish the role—and the rights—of every investor.” Stay tuned on this one.

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Pro-ESG Shareholder Proposals Regaining Momentum in 2024

Posted by Subodh Mishra, ISS STOXX, on
Monday, June 3, 2024
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Subodh Mishra is Global Head of Communications at ISS STOXX. This post is based on an ISS-Corporate memorandum by Jun Frank.

Governance is back on focus this proxy season, with both the volume and support on proposals aiming to enhance shareholder rights and companies’ governance practices gaining steam. Environmental and social proposals are showing a sign of reversing trend of declining support from the 2021 peak, while anti-ESG proposals are gaining volume but not support.

We reviewed proposals submitted for Russell 3000 company AGMs held between Jan. 1 and May 31 for each year since 2020 to shed light on how investors were bringing up their concerns ahead of the May 23 peak U.S. AGM date, which topics carry the greatest currency, and their level of success.

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