Recent Delaware Cases Reinforce Director Accountability for Risk Oversight

Guest post by attorneys at Davis Polk & Wardwell LLP

Recent Delaware Decisions Focus on Director Oversight Liability

Two recent Delaware decisions may give ammunition to stockholder plaintiffs seeking to assert claims against directors under a Caremark theory for failing to comply with their oversight obligations. The decisions—Marchand v. Barnhill (“Blue Bell”) and In re Clovis Oncology, Inc. Derivative Litigation—make clear that courts will not give business-judgment rule deference when presented with allegations that directors acted in bad faith by failing to implement or monitor systems of oversight. Although each case was before the courts on a motion to dismiss and therefore did not finally adjudicate the question of director liability, each decision undoubtedly strengthens the plaintiff’s hand in settlement negotiations needed to avoid trial. Importantly, because these claims are for breaches of the duty of loyalty, directors face the risk of personal liability without the protection of exculpation or indemnification, or possibly even D&O insurance coverage.

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Yet Another Proposal to Require Disclosure of Board’s Cyber Expertise

Guest post by Stephanie Teplin and Craig A. Newman from Patterson Belknap Webb & Tyler LLP

Before investing in a company, would you want to know whether the board of directors had cybersecurity expertise?

A bipartisan group of senators have proposed a bill, Senate Bill 592, that would require every public company to disclose the cybersecurity background of its directors, and, if none exists, explain why the company doesn’t believe it is necessary.

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CAUTION: Director Veto Rights in Financing Documents May Constitute “Disproportionate Voting”

Guest post by Lewis J. Geffen, Soobin Kim of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. 

Section 141(d) of the Delaware General Corporations Law (DGCL) allows the certificate of incorporation (COI) of a Delaware corporation to confer upon one or more directors voting powers greater than or less than those of other directors, thus resulting in “disproportionate voting” rights amongst the Directors.  When VC funds, their portfolio companies and VC lawyers read or think about DGCL 141(d) and this disproportionate voting, they usually, and narrowly, have in mind only the question of whether certain directors may have more than or less than one vote per Director on matters voted on by the Board, or a committee of the Board. 

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Completing A Name Change Without Shareholder Approval

Guest Post by Laura Anthony, Esq – Legal & Compliance, LLC

Generally a name change is completed through an amendment to a company’s articles of incorporation.  Moreover, amendments to articles of incorporation generally require shareholder consent, which can be time-consuming and expensive and become even more so if the company is subject to the reporting requirements of the Securities Exchange Act of 1934.

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‘Get Out of Jail Free’ Card

Joseph W. Bartlett, Co-Founder of VCExperts.com

Various attacks are mounted against the boards and managers of U.S. publicly held companies based on alleged deficiencies in the disclosure of financial results, the prosecution’s case buttressed by a emails discovered in the cloud from disgruntled insiders. The legal issues have been analyzed ad infinitum by the media and legal commentators. There is no effort from this corner to add to that enhanced commentary.

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Activists – The Problem for U.S. Leadership in Global Capital Markets

Joseph W. Bartlett

A lively debate is cascading through the U.S. Capital Markets, triggered by the success of well-heeled investors in public markets labeled “activists.”

Bebchuk vs. Lipton

On the one hand, the applause in favor of activists is led by certain academics, the chief being Professor Lucien Bebchuk, who has reported.

“Empirical studies show that attacks on companies by activist hedge funds benefit, and do not have an adverse effect on, the targets over the five year period following the attack.

“Only anecdotal evidence and claimed real-world experience show that attacks on companies by activist hedge funds have an adverse effect on the targets and other companies that adjust management strategy to void attacks.

“Empirical studies are better than anecdotal evidence and real-world experience.

“Therefore, attacks by activist hedge funds should not be restrained but should be encouraged.”

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