Monday, May 11, 2020
Maybe I am just sensitized to these media reports because of my research and teaching, but it seems that the COVID-19 pandemic has sparked new media interest in and engagement with corporate governance issues. I have received four media calls in the past few weeks--two on background and two for source quotations. That is an unusual rate of contact for me. Is anyone else noticing this?
Of course, there has been a lot to talk about. Annual meetings already called and noticed to shareholders needed to move online. As managers and employees moved out of workplaces to shelter at home, well-worn systems of decision-making and information dissemination--as well as the expectations of others in connection with them--changed or were challenged. Filing and other deadlines became guidelines . . . .
The two media calls in which I was asked to provide background information related to
- increased or altered director and legal counsel attentiveness to drafting force majeure clauses and material adverse change/effect definitions in light of what we now know about COVID-19 and its effects and
- prospects for various kinds of shareholder derivative, direct, and class action litigation in light of COVID-19 and related board decision making.
I was glad to be able to help the two journalists who called on these issues. They had great questions; made me think.
The two articles in which I was quoted are both (regrettably) secured behind firewalls. But if any of you are subscribers to Agenda, you will have access to them both. I have linked to each below. Both were written by Jennifer Williams-Alvarez.
The first piece, an April 22nd article entitled "Boards Adopt Emergency Bylaws for Critical Flexibility," put a spotlight on the potential utility of emergency bylaws in light of the pandemic. I admitted that I now am more sensitive and sympathetic to emergency bylaws than I used to be.
Decades ago, Heminway says she would not have necessarily recommended that companies include an emergency bylaw provision when drafting corporate governance documents. But with the financial crisis, the attacks on the United States on Sept. 11, 2001, and the current Covid-19 crisis, she says she would now make the suggestion.
I wonder how many of you who have been in practice for "more than a minute" feel the same way.
The second article, "DPA Forces New Unknowns for Boards to ‘Triage’," posted on April 27, offered insights on the Defense Production Act, the subject of multiple executive memoranda and orders relying to product manufacturing and distribution over the past month. This article picked up on a topic I wrote about here early last month. Since Agenda focuses on issues of importance to corporate directors and those who work with them, the article explored various angles of interest in the Defense Production Act relating to corporate boards. For example, we got into an extended conversation about public company reporting obligations and related information gathering and management.
Board members should think about disclosure responsibilities, says Heminway. For certain companies, such as manufacturers, an assessment must be made about whether it represents a material risk to repurpose operations or reprioritize contracts so that the government is at the front of the line, she says.
Between the two of us, we were able to find a few examples of COVID-19 Defense Production Act disclosures made in public filings with the U.S. Securities and Exchange Commission. Our coverage of applicable mandatory disclosure obligations led to a brief conversation about how boards of directors gather information.
“What I worry about is the board exercising its fiduciary duties in this context,” Heminway says, referring to reporting responsibilities. “The main issues here are going to be duty of care issues,” a requirement that directors fully inform themselves of all material information, she notes.
“The amount of information available now is overwhelming, and it’s changing every day. The Defense Production Act is a piece of that,” says Heminway. “It’s part of what they need to be informed about.
The article covers a lot of ground overall and quotes from a number of sources, including former and current government employees.
I admit that I have been impressed by the level of interest and engagement of the journalists with whom I have been speaking. What they and others like them are producing and publishing fueled my teaching during March and April (I assigned a number of articles to my students relating to COVID-19 and corporate governance) and is likely to continue to catalyze blog posts and, potentially, research projects as time goes on. It is good to know that corporate governance questions are motivating useful media inquiries and publications during the COVID-19 crisis. It also is nice to know that we law professors may be able to use our knowledge to help inform important constituencies during the pendency of the pandemic while, at the same time, expanding our own horizons. A true win-win.