Topic: Corporate Governance

The United States Sentencing Commission voted unanimously on April 7, 2010 to modify the Federal Sentencing Guidelines for organizations, including the provisions that set forth the attributes of an effective compliance and ethics program.  After considering a number of proposed changes to these Guidelines, the Commission voted to:

On February 26, 2010, the Court of Chancery of the State of Delaware issued an important opinion validating the use of a net operating loss (NOL) shareholder rights plan or poison pill.[1]  The case, Selectica, Inc. v. Versata, Inc.,[2] arose out of the intentional triggering of Selectica’s NOL rights plan in December 2008 by its competitor Trilogy and Trilogy’s subsidiary, Versata Enterprises.  The decision provides boards of directors of Delaware corporations with guidance as to the steps they should take in adopting and implementing an NOL rights plan.  It also reflects Delaware courts’ continuing deference to well-informed boards that run a methodical and well-reasoned process, even in the face of the so-called Unocal enhanced standard of review.

During the last decade, activist shareholders and corporate governance groups have been fairly successful in pressuring companies to voluntarily surrender a number of anti-takeover defenses, most notably the use of staggered boards and shareholder rights plans (also referred to as “poison pills”).  In fact, according to FactSet SharkRepellent, between December 2002 and December 2009 the percentage of S&P 1500 companies with a staggered board decreased from 62.3% to 44.8%, and the percentage having a rights plan dropped from 61.6% to 23%.  The success of activists and governance groups, at least as measured by these numbers, is partly attributable to the view held by certain groups that anti-takeover mechanisms are a reflection of poor corporate governance practices and, thus, antithetical to shareholder value.  Also, given the healthy equity markets and high M&A transaction multiples, at least until recently companies may have been more willing to shed defense mechanisms as an easy give to appease activists and corporate governance groups.  With respect to the termination of rights plans, companies also probably considered that, unless otherwise provided in the company’s organizational documents, the voluntary decision to terminate a rights plan did not restrict the board’s future ability to adopt a rights plan if it were to become the subject of an unsolicited tender offer.

On November 19, 2009, RiskMetrics Group (RiskMetrics), a leading proxy advisory firm, released its U.S. and international corporate governance policy updates for the 2010 proxy season.  Please see the U.S. Corporate Governance Policy 2010 Updates (2010 Policy Updates) for details. The 2010 Policy Updates apply to annual meetings held on or after February 1, 2010.  This client alert reviews the most significant U.S. policy updates and analyzes related matters for companies to consider now.