Business Law Prof Blog

14a-8 alternatives

Not a whole lot going on this week in terms of legal developments, so I thought I'd reach back to an older post of mine, where I talked about a case pending before the Fifth Circuit regarding 14a-8.  The original petitioner, the National Center for Public Policy Research, argued that the SEC engages in viewpoint discrimination when it issues no-action letters; an intervenor challenged the entire basis for Rule 14a-8 as unauthorized by statute and unconstitutional to boot.  The SEC, for its part, addressed these substantive arguments but concentrated most of its energies on arguing that no-action letters are not final orders subject to challenge in the first place.

Normally, I'd assume a case like this wouldn't have much chance of succeeding, but it's the Fifth Circuit, which tends to take an entrepreneurial approach to issues like corporate rights, standing, and administrative authority.  Even then, I'd say the petitioners were likely out of luck, because the panel turned out to be Jones, Douglas, and Dennis - meaning, two Democrats and a Republican - and, indeed, only Judge Jones demonstrated any sympathies for the petitioners during oral argument.  But! The last time sec reg ended up before a 2-1 Democratic panel of the Fifth Circuit, the Democrats' ruling in favor of the NASDAQ's diversity rule was taken en banc where its prospects apparently are rather dim.

So what happens if Rule 14a-8, at least in the form we know it, dies?

Well, that brings me to the United Mine Workers' tactic against Warrior Met.  As Mike Levin described in his Activist Investor blog here, United Mine Workers took advantage of the universal proxy rule to run a shareholder proposal proxy contest.  That is, because it can now list incumbent director candidates on its own proxy card, that's just what it did - it offered several shareholder proposals (14a-8 would limit it to just one), ignored all of Rule 14a-8's other strictures, filed its own proxy materials, sent out proxy cards, and hired a vendor to collect them.  Having done that, Warrior Met was backed into a corner and forced to include the proposals in its own proxy materials - because otherwise it risked losing control over, and insight into, how proxy cards collected by Mine Workers were being voted or if they were being returned at all.  The expenses for this entire effort by the Mine Workers totaled just $15,000, which sounds very feasible for at least some repeat-player proposal proponents.  It also may just scratch the surface of what the universal proxy enables in the future.

But that, of course, assumes the proposal is one that United Mine Workers can, in fact, bring to the floor - i.e., state corporate law has to allow shareholders to raise these proposals at a shareholder meeting and vote on them, before anything else can happen.  Mohsen Manesh lays out the argument for how corporations can - via bylaw or charter provisions - limit shareholders' power to make proposals in the first place, which would not only prohibit United Mine Workers' tactic, but also limit the use of 14a-8 (which is only supposed to enable shareholders to exercise their state-law created governance rights).  If he's right, and if companies/management take advantage of that ability, we could lose a lot of shareholder proposals entirely (and a major source of entertainment for corporate academia).  Prof. Manesh explains that companies might not want to limit shareholders' ability to bring proposals - maybe investors would be annoyed if their rights were curtailed that way - but, as I previously observed, there wasn't much pushback when Exxon sued its own shareholders over a proposal, so maybe there's space for companies to rid themselves of proposals entirely.

The Continuing Unpaid Award Problem

For decades, we've known that many arbitration awards in the FINRA arbitration forum go unpaid.  This happens because many brokerage firms collapse after liability for abusive sales practices comes home.  Last Friday, arbitrators rendered an award finding SW Financial liable for over $13 million in damages to a group of dozens of investors.  SW Financial was expelled by FINRA in 2023 for, among other things, making false statements to customers and failing to supervise its personnel.  

Congress has noticed the problem.  The Senate Committee on Appropriations recently found that “FINRA has failed to undertake steps to address unpaid arbitration awards by its members.”  It directed the SEC to "continue to engage with FIRNA to identify ways to reduce and eliminate the occurrence of unpaid awards."  This comes after a 2018 bipartisan proposal to create a recovery pool failed to pass.

FINRA has tracked this issue for some time and keeps statistics on unpaid awards.  That an award goes unpaid, does not mean that every customer with an unpaid award recovers nothing.  FINRA explains it this way:

At times when an arbitration panel does award monetary damages to the claimant, the respondent may fail to pay the awarded damages. If a customer is not able to recover monetary damages awarded in the FINRA arbitration forum, that does not always mean that a customer did not receive any monetary payment in connection with the underlying dispute. In many cases that result in unpaid awards, a customer settles with one or more parties pre-award, but proceeds to obtain an award against other parties named in the case, who then fail to pay the award. 

Ultimately, this is a problem that has lingered for far too long.  Although FINRA has made some moves on the issue, including requiring certain "restricted firms" to keep more money on deposit, too many investors get stuck with the short end of the stick. Part of the problem is that a small firm can cause big damages for a large number of people.   For investors with claims against smaller brokerage firms, I'd encourage them not to dawdle on seeking justice.  Whether they get paid at all may depend on when they get in line.

 

SEALS Conference Reflection -- Mind, Soul, and Body?

Last month, I was able to attend the SEALS Conference for the first time in a few years. It was good to see a number of old friends and meet some new ones. And I really enjoyed the many discussions on a wide variety of legal topics. 

While most academic panels are understandably focused on the mind, it was interesting to see a number of discussions focus on soul-related issues, including a couple on mindfulness/meditation and a few focused on religiously affiliated law schools. 

Traditionally, legal academics do an excellent job sharpening the mind. “Think like a lawyer” is a phrase even my colleagues across campus know. The soul gets much less attention at most schools, but that seems to be changing a bit, especially with increasing concerns for lawyer well-being. 

The body, however, seems almost entirely neglected both at the SEALS Conference and at law schools nationwide. Yes, there were tennis and pickleball tournaments, but I don’t think there was a single panel related to the physical health of our students, faculty, and staff.

At the undergraduate level, many universities have one or more required fitness classes, but I don’t know of any law school with similar requirements. And most law schools, frankly, require so much time devoted to mental exercise that they leave very little time for physical fitness. I probably wouldn’t advocate for requiring fitness classes at law schools, but I do think they could make more effort to reduce friction and create opportunities for physical health. A few possible examples:

• Healthier food than pizza and doughnuts at campus events (of course these have the benefit of ease and relatively low expense, but law schools could (and sometimes do) make a more conscious effort to order more nutritious snacks and meals). 
• Encourage walking office hours (often there is no need to sit during these meetings)
• Promote intramural teams (I know some law schools have softball and flag football teams).
• Corporate challenge 5K teams for the law school (we have one at Belmont, which competes against area nonprofits and businesses).
• A gym on or near the law school campus (even if just a few treadmills and hand weights. Just the friction of going across campus can deter exercise, especially when pressed for time.) 
• A pickleball court near the law school.

What other examples? Or do folks think that law schools are best to stay out of the business of promoting physical health for faculty, staff, and students?

Lebovitch on DGCL § 122(18)

As you may recall, Ann and I got a bit wound up last summer about the Delaware General Assembly's consideration of Delaware S.B. 313 (and, within it, the proposed addition of § 122(18) of the General Corporation Law of the State of Delaware ("DGCL")). We each offered brief oral testimony and even wrote letters to the Delaware House Judiciary Committee, which you can find here and here.

A comrade in that effort, Mark Lebovitch, has taken time to reflect a bit on the crazy summer that brought a new and troubling corporate purpose to Delaware's venerable corporate law and to prognosticate about the future impact of DGCL § 122(18).  The result?  Soap Opera Summer: Five Predictions About DGCL 122(18)’s Effect on Delaware Law and Practice.  The abstract follows.

Predictability and stability are often cited as leading reasons for why Delaware’s corporate law system is world renowned and widely emulated, giving the First State dominance in the competition for domiciling business entities. The first half of 2024 was anything but predictable and stable in Delaware’s legal community. Rarely has an amendment to the Delaware General Corporation Law (“DGCL”) triggered as much public debate as SB 313, which became effective as of August 1, 2024. The crux of the dispute turned on identifying the greater risk to Delaware’s standing as the global leader in corporate law – a few recent judicial opinions that would have forced certain market practices to change, or the legislative fix seeking to nullify those opinions.

This article focuses on the most controversial aspect of SB 313. New DGCL Section 122(18) overrides the Court of Chancery’s February 23, 2024, Opinion in West Palm Beach Firefighters’ Pension Fund v. Moelis & Company ("Moelis"), by broadly allowing corporate boards to contractually delegate to any stockholder or prospective stockholder the power to cause the company to act or refrain from acting in almost any manner, including many decisions normally reserved for the board itself. Now that the debate about recent cases and new legislation is over, this article takes the opportunity to assess how the new law will actually affect Delaware’s corporate law doctrine and litigation practice. Looking beyond the atypical drama of the past six months, this article offers five subtle (but hopefully not boring) predictions and observations about how new Section 122(18) is likely to affect the corporate world going forward.

Time will tell whether Mark gets the predictions "right" or not.  In the meantime, I am prepared for the eventual advent of legal challenges.  Like Mark, I see them coming . . . .

Three Things Make a Post

Thing One:  I jotted!  Which is to say, I wrote a Jotwell review of Hilary Allen’s Interest Rates, Venture Capital, and Financial Stability, forthcoming in the University of Illinois Law Review.  Her paper is here, and you can find my review here.

Thing Two:  I have a new paper-ish thing.  As y’all know, I’ve been keeping an eye on litigation-limiting bylaw and charter provisions, including – as I previously posted – the Ninth Circuit’s en banc decision in Lee v. Fisher, which permitted The Gap to enforce a forum selection bylaw directing derivative Section 14(a) claims to Delaware’s Court of Chancery – even though that court has no jurisdiction to hear Section 14(a) claims.  In practical effect, then, the bylaw operated as a waiver of the federal claim.

That decision cited a draft version of an article by Professors Mohsen Manesh and Joseph Grundfest, Abandoned and Split But Never Reversed: Borak and Federal Derivative Litigation, in which they defended such bylaws.  The article was published in the Business Lawyer late last year, and is available here.

Anyhoo, I now have a (very short) reply to Professors Manesh and Grundfest, also forthcoming in the Business Lawyer, called Not Dead Yet.  The Reply is available here, and this is the abstract: 

In their article, Abandoned and Split, But Never Reversed: Borak and Federal Derivative Litigation, Professors Mohsen Manesh and Joseph Grundfest argue that corporations should be permitted to waive derivative Section 14(a) claims in their constitutive documents, partly because such claims are duplicative of other causes of action, and partly because of the weakness of the original Supreme Court case to recognize them. In this Reply, I defend the continuing vitality of the derivative Section 14(a) cause of action, and its necessity as a source of investor protection

But! Mine is not the last word; Mohsen and Joe will have a reply to my reply in the same issue.  When that’s public, I’ll edit this post with a link.

Thing Three:  The Lee v. Fisher case was one of a series of cases arguing that companies were lying about their efforts to diversify their boards.  Another such case was brought against Qualcomm, and it was dismissed by a federal district court in 2021.

The plaintiff in that case then sought books and records in Delaware, and relied on those to file a state law complaint, which once again alleged that the company lied about its efforts to diversify when seeking director candidates.  This time, however, the complaint was brought for breach of state law fiduciary obligations rather than federal proxy fraud, and the claim was direct rather than derivative.  Not long ago, Vice Chancellor Laster dismissed that claim in a bench ruling. 

The transcript is worth a read.  Among other things, VC Laster explicitly (though not unsurprisingly) held that directors only have a duty to maximize firm value.  Demographic diversity may further that goal by fostering innovation; demographic diversity may also further that goal by inspiring the confidence of stakeholders, who would otherwise lose faith if they “only see very few people who look like them.”  But boards have discretion to make their own judgment as to the financial value that diversity provides.

What they can’t do, of course, is explicitly lie to shareholders in their proxy statement, or omit material information, which is what the plaintiff was alleging.  And here was the second interesting point: VC Laster noted that a voting rights claim based on a misleading or incomplete proxy statement is not, per se, subject to the business judgment rule.  As he put it, “Directors have a duty to disclose material information, but there is no separate standard of review that overlays that obligation, such as the business judgment rule…. [I]n a case involving stockholder action, a plaintiff need only plead two elements: First, that there was a request for stockholder action, and certainly there was here.  These were elections of directors. And second, that there was a material misrepresentation or omission.”

With that set up, however, he found that Kiger had not in fact stated facts that made it reasonably conceivable that Qualcomm misled shareholders about its diversity efforts, and that was the end of that.

Duncan (Lincoln Memorial) Law Faculty Openings

Lincoln Memorial University Duncan School of Law in Knoxville, TN, seeks entry-level and lateral candidates for full-time, tenure-track faculty positions starting July 2025. LMU Law aims to provide legal education to students from underserved regions, focusing on practice-oriented training for diverse backgrounds. The goal is to produce graduates who will pass the bar and serve their communities, particularly addressing the legal needs of Appalachia and other underserved areas.

We welcome applications from all subject areas, with particular need for expertise in business associations, civil procedure, evidence, property, constitutional law, and criminal law and procedure. As we expand our predominantly online hybrid program, we seek candidates across all doctrinal areas and are particularly interested in those who would enjoy the challenges of online teaching.

Educating the next generation of lawyers is our top priority. Faculty members are committed to supporting students in their academic, professional, and personal development. Our campus design ensures faculty accessibility and active engagement in law school life. We work collaboratively to provide innovative legal education, incorporating skill-based and experiential learning and best practices from academic and bar success. We seek candidates who share this ethos and are excited to contribute.

Candidates must have a J.D. or equivalent, strong academics, and a commitment to legal education. We value diverse experiences, including teaching, scholarship, legal practice, clerkships, and post-law-school work. Candidates without teaching experience but showing promise in teaching and scholarship are welcome. This can be evidenced by involvement in student-focused activities, mentoring, educational presentations, writing for legal publications, or leadership in professional or community organizations.

This position offers a twelve-month contract with teaching responsibilities in alternate summers. Our tenure and promotion policies consider this when determining scholarship requirements.

We are committed to diversity and actively seek applications from underrepresented groups, including people of color, women, individuals with disabilities, LGBTQ+ individuals, and veterans. We value candidates who can enrich our community, program, and mission through their diverse life experiences, perspectives, and philosophies.

Our law school is located in downtown Knoxville, offering vibrant city life, a rich cultural scene, and stunning natural beauty with the Great Smoky Mountains as a backdrop. Knoxville has been recognized as one of the top 25 places to live in the United States.

Inquiries may be directed to Sydney Beckman, Chair of the Faculty Appointments Committee, at [email protected]. Applications can be submitted here and must include a cover letter detailing your interest in LMU Law, a CV, and a list of three professional references. Candidates are welcome, but not required, to provide a statement of teaching philosophy, research agenda, or diversity statement. Candidates invited for campus visits will be requested to provide teaching evaluations from the past three years, if available. The committee anticipates beginning application review immediately.

Emory Law Named Professorship Seeks Applicants

Hiring Announcement: Emory University School of Law

Robert T. Thompson Professorship in Business Law

Emory University School of Law seeks applications from outstanding tenured scholars for the Robert T. Thompson Professorship in Law. This professorship recognizes outstanding achievement in scholarship and teaching in disciplines related to business law, including mergers & acquisitions, securities regulation, corporate finance, and other related business law fields.  Candidates should have exceptional records in research, teaching, and service and have attained a J.D., Ph.D., or equivalent degree. Candidates should currently hold a tenured academic appointment and should be eligible for appointment as a full professor at Emory. 

Candidates must complete the online application which requires creating an account, uploading a resume or CV, and providing basic demographic information. In addition, applicants should submit a cover letter, a current CV, a published or unpublished academic article, a brief research agenda, and an indication of teaching interests (if not listed on the CV) to the chair of the Appointments Committee: Professor Joanna Shepherd, at [email protected]. Applications will be considered on a rolling basis. 

W&L Law Hiring Announcement - Business Law Focus

Description

The Washington and Lee University School of Law warmly invites applications for up to two tenure-track or tenured faculty positions that will begin on July 1, 2025. We are excited to advance our trajectory of outstanding scholarship and teaching with these new hires. A central aspect of the mission of our Law School is to promote a diverse, equitable, and collaborative intellectual community. To do so, we continually strive to foster an inclusive campus community that recognizes the value of all persons regardless of identity. In keeping with the University’s Strategic Plan, we welcome applications from candidates belonging to communities traditionally underrepresented in the legal academy.

Qualifications

A J.D. from an ABA-accredited law school or equivalent is required. We particularly encourage applications from entry-level and junior lateral candidates (either pre-tenure or recently tenured) to join our faculty at the Assistant or Associate Professor level, but we welcome applications from candidates at all levels of experience. Candidates should have a distinguished record of scholarly achievement or demonstrated potential for high scholarly achievement, effective teaching, active service, and a record of inclusion. Our search will focus on applicants whose research and teaching interests include corporate and business law (including commercial law) and/or tax law.

Application Instructions

Applicants should submit the following materials through Interfolio at apply.interfolio.com/152352: (1) a cover letter describing their interest in the position; and (2) a current curriculum vitae, including references. Please address these materials to Professor Chris Seaman, Chair, Faculty Doctrinal Appointments Committee. Additionally, we encourage prospective applicants to contact Prof. Seaman ([email protected]) with any questions.  All inquiries will be treated as confidential.  Review of applications will begin immediately and continue on a rolling basis. 

Equal Employment Opportunity Statement

Washington and Lee is an Equal Opportunity Employer.  As such, we are interested in candidates who are committed to high standards of scholarship, performance and professionalism and to the development of a campus climate that supports equality and diversity in our faculty, staff and student body. Job description requirements are representative, but not all‐inclusive of the knowledge, skill, and abilities needed to successfully perform this job. Reasonable accommodations may be made to enable qualified individuals with disabilities to perform essential functions.

NVIDIA

In 1995, Congress passed the Private Securities Litigation Reform Act (PSLRA), which dramatically heightened the pleading burden for plaintiffs bringing securities fraud cases.  At the same time, the PSLRA also instituted a mandatory stay on discovery until resolution of any motions to dismiss, which means plaintiffs have to use their own investigation – relying on public information, confidential sources, and the like – to draft a complaint that is sufficiently particular to satisfy PSLRA standards.

In 2002, Steve Bainbridge and Mitu Gulati published How Do Judges Maximize? (The Same Way Everybody Else Does – Boundedly): Rules of Thumb in Securities Fraud Opinions.  The paper explained that, given the high pleading standards of the PSLRA, judges deciding motions to dismiss lighten the workload by coming up with various rules of thumb for determining whether a complaint pleads materiality or scienter.  For example, they identified the puffery doctrine (presuming that investors treat vague statements of optimism as immaterial), the bespeaks caution doctrine (predictions of the future are immaterial if they are caveated by warnings of future uncertainty), and fraud by hindsight (refusing to draw inferences about what the company knew at an earlier time due to negative disclosures at a later time), as new bright line rules that judges employ to dismiss complaints, disconnected from the general fact pattern.

I can add a bunch more.  For example, a refusal to infer knowledge from one’s position in the company (except in generally rare instances where the “core operations” doctrine kicks in), a refusal to treat bonuses and similar compensation as a motive for fraud, a refusal to treat corporate departures as indicative of fraud unless there are “particularized allegations connecting the departures to the alleged fraud,” In re Hertz Global Holdings, 905 F.3d 106 (3d Cir. 2018), and a refusal to treat insider trades by non defendants as indicative of scienter (an issue I blogged about here).  These are more “rules” for complaints that, I’d argue, contradict our common sense understanding of how to go about inferring other people’s states of mind on a day to day basis just, you know, as a consequence of living as human beings on this planet.

Additionally, a couple of years ago, I published Fact or Fiction: Flawed Approaches to Evaluating Market Behavior in Securities Litigation, which identified still more rules of thumb that judges have developed over time.  For example, when addressing loss causation, courts often require revelation of the fact of falsity (rather than a revelation of problems traceable to the fraud), and will further hold that notice of an investigation, without more, categorically cannot cause a loss. 

You see the problem.  The question whether a complaint pleads falsity or a strong inference of scienter or loss causation or materiality is a holistic factual inquiry; but as these rules build up, pleading or litigating a securities case becomes about whether plaintiffs have complied with an increasingly arcane set of rules.  I like to quote then-Chief Judge William Young from 1999, describing the PSLRA as a “Byzantine pleading code …for securities actions.”  In re Number Nine Visual Tech. Corp., 51 F. Supp. 2d 1 (D. Mass. 1999).

Which is what I was thinking about when going over NVIDIA’s opening brief in NVIDIA Corporation v. E. Ohman J:or Fonder AB, currently pending before the Supreme Court. 

The plaintiffs pled falsity by relying, in part, on an expert report that drew inferences based on market information.  The assumptions and inferences on which the report was based were in the complaint.  Nonetheless, NVIDIA seeks to have the Supreme Court adopt a bright line rule that an expert opinion does not constitute an allegation of fact sufficient to satisfy PSLRA pleading standards.  NVIDIA also challenges the market evidence and factual assumptions that underlay the report as too generic.  Finally, NVIDIA admits that sometimes expert reports may be helpful, but here, the complaint rests too much on the expert report alone, so that the other facts surrounding it are not sufficient.

I see no way the Supreme Court can give NVIDIA what it wants without either acting as a district court and weighing this specific complaint and these specific allegations without regard for future cases, or - more likely - adding more artificial rules to securities pleadings.  Expert reports are still pretty rare in complaints, but if the rule is you can’t have them be the sole support of a complaint, then we’ll see endless litigation over what counts as “sole” (especially since, in this very case, the plaintiffs offer additional allegations).  And if plaintiffs can’t use expert reports that draw inferences based on detailed market information, can they use short seller reports that do the same?  (The Ninth Circuit, for example, has held that short seller reports analyzing public information may be a basis for alleging loss causation if they involve “extensive and tedious research involving the analysis of far-flung bits and pieces of data.” In re BofI Holding, Inc. Securities Litigation, 977 F.3d 781 (9th Cir. 2020)).

If plaintiffs can’t use short seller reports, what happens if the plaintiffs’ attorneys draw inferences based on public information – does that go too far?  Suddenly what started out as a simple rule about experts becomes whole new categories of prohibited inferences being added to the list.  And ruleification ends up obscuring the ultimate inquiry, namely, whether there is a sufficient basis to infer that the defendants’ statements were false.

There’s a similar issue with respect to the other question presented in this case, which is about pleading scienter.  In NVIDIA, the plaintiffs offer a lot of circumstantial evidence of scienter, plus make allegations regarding the existence of documents allegedly reviewed by the defendants, but the plaintiffs haven’t seen the documents so they can’t plead their exact contents.  NVIDIA wants the Court to adopt a bright line rule that the contents of the documents must be described, because “Plaintiffs built their entire scienter case around NVIDIA’s internal documents and data.  By choosing this route, Plaintiffs were required by the PSLRA’s pleading standards to allege with particularity what those documents and sources said and how they supported Plaintiffs’ preferred inference of scienter.”  Which means, were the Court to accept NVIDIA’s argument, the next step is litigation over what counts as the “entire” case, and how much description of a document is enough, and how much support a generally-described document can provide when there are other allegations of scienter.  The argument becomes about the contours of the rule, not whether the substantive standard for pleading scienter is met.

Securities complaints are now hundreds of pages long – and sometimes, ironically, dismissed for being too long and confusing, because Goldilocks-like, they must be just right.  See, e.g., Macovski v. Groupon, Inc., 2021 WL 1676275 (N.D. Ill., Apr. 28, 2021).  (Apparently, plaintiffs must also take a class in narrative exposition before they can survive a motion to dismiss.)  Selecting a lead plaintiff takes months, drafting an amended complaint typically is 60 days or so after that, plus another 60 for the motion to dismiss, 60 for the opposition, and 30-60 for a reply – weeks or months before an oral argument and god knows how long before a decision, and all of this before there’s been any discovery.  By the time you get to depositions, witnesses will be able to say “I don’t remember” and be completely credible.  The last thing this system needs is more up front rules about what plaintiffs can and cannot plead.

Dell Decision Out

Yesterday, the Delaware Supreme Court released its decision in the Dell fee award appeal.  It's available here.  The Dell case presents a question for blockbuster shareholder litigation--when the damages numbers in dispute grow particularly large, should courts apply a declining percentage when setting the attorneys' fees?  (Disclosure, I joined an amicus brief on this issue at the trial level.)  The Dell plaintiffs secured a billion dollars in settlement.  Delaware's Chancery Court opted to give the lawyers $267 million in fees.  

Ultimately, funds holding about 24% of the class objected to the fee award.  This is how the Delaware Supreme court stated their argument:

Pentwater argued that awarding a percentage of the settlement sought without considering the size of the settlement was unfair to the class. They contended that, in this case, the proposed fee was disproportionate to the value of the settlement. The objectors urged the court to apply a declining percentage to the fee award, which is similar to the approach used by federal courts in large federal securities law settlements. The declining percentage method reduces the percentage of the fee awarded to counsel as the size of the recovery increases. According to Pentwater, fee awards “are meant to reasonably incentivize the attorneys taking these cases,” and, in its view, “the amount of work, time, and effort spent on a case does not grow proportionately with the transaction size.”10 In other words, “it is not a hundred times more difficult (or riskier) to litigate and try a $10 billion case than it is to litigate and try a $100 million case.” They argued that the Delaware Supreme Court and Court of Chancery have applied the declining percentage method in other cases. (footnotes omitted)

In these cases, the trial court's fee awards are reviewed under a deferential abuse-of-discretion standard.  After Dell, the basic framework remains unchanged.  Delaware courts consider five factors to decide fee awards:  "(1) the results achieved; (2) the time and effort of counsel; (3) the relative complexities of the litigation; (4) any contingency factor; and (5) the standing and ability of counsel involved."  

But the devil is always in the details.  How should courts, after Dell, apply the five factors?  The decision has some language indicating to me that courts need to consider declining percentages in mega-settlements.  Consider these statements and a quotation:

• Given the equitable principles underpinning fee awards in common fund cases, and this Court’s concern for excessive compensation or windfalls, it is entirely appropriate, and indeed essential, for the court to consider the size of the award in a megafund case when deciding the fee percentage. An award can be so large that typical yardsticks, like stage of the case percentages, must yield to the greater policy concern of preventing windfalls to counsel.
• At some point, the percentage of fees awarded in a megafund case exceed their value as an incentive to take representative cases and turn into a windfall.
• But a point exists at which these incentives are produced, and anything above that point is a windfall. In other words, if a fee of $500,000 produces these incentives in a particular case, awarding $1 million is a windfall, serving no other purpose than to siphon money away from stockholders and into the hands of their agents. Thus, it is important that we attempt, in a self-conscious and transparent manner, to estimate the point at which proper incentives are produced in a particular case. (favorably quoted from Seinfeld v. Coker)

What will this mean for future fee awards?  My thought here is that it seems likely that Chancellor McCormick will read the decision closely as she considers fee awards in the two outstanding Tesla cases. 

The Delaware Supreme Court approved the Dell award as within the bounds of discretion.   Yet how wide will the discretion be in the future?  As the numbers go up to the billions as in the Tornetta case, the math changes.  There, attorneys blocked a $56 billion dollar compensation plan.  They've requested about $6-7 billion in compensation.  (The numbers change depending on the stock price.). Although it's not even 15% of the benefit they obtained for the class, $6-7 billion is still a staggering amount.  It works out to about $300k+/hour for the attorneys involved.  

Ultimately, the question remains:  where is the line between adequate compensation to ensure skilled litigation in challenging cases and a windfall to the attorneys involved?  Now, we wait to see where Chancellor McCormick draws that line in awarding fees.  The Dell lawyers collected about $5,000 per hour worked.  It's a big jump from $5,000/hour to $300,000/hour.  I don't envy her job to settle on the right number.

Allison Frankel also has covered this case here.  

 

Bocconi July Corporate Governance Workshop: ESG Information and Compliance

Last month I had the privilege of presenting some of my current work at Bocconi University in Milan, Italy.  The promotional poster for the event is included below. All of the workshop presentations (present company excepted) were engaging.

I presented on part of an ongoing research project--a series of papers on environmental, social, and governance (ESG) information.  The first two papers on the series, The Materiality of ESG Information: Why It May MatterT, 84 LSU L. Rev. 1365 (2024), and ESG and Insider Trading: Legal and Practical Considerations, 26 U. Penn. J. Bus. L. __ (forthcoming 2024), address the significance of ESG information under the U.S. federal securities laws and the potential and actual involvement of ESG information in insider trading.  In Milan, I shared my ideas and preliminary research for a third paper currently titled Corporate Information Compliance in an ESG World.  I expect to turn to work on this paper in earnest in the coming months.  I will briefly lay out my current thoughts here in the hope that you may have some feedback.

ESG information plays a role in many business operational settings that are invoked in legal compliance and addressed in compliance policies and programs.  These include:

• Obligations to disclose and report information;
• Protection of intellectual property protection;
• Information exchanges with competitors;
• Execution of a significant transaction;
• Clearance of a barrier to an operational action or anticipated transaction;
• Default under or breach of an important contract;
• Pending changes in mission-sensitive business structures, policies, or programs; and
• Imminent judicial, executive, legislative, or regulatory action.

ESG information is likely to impact legal risk in some of these areas of business operations.  The potential and actual effects of ESG information on legal risk raise questions about the adequacy of current business compliance regimes.

My work in this area is designed to meet a number of objectives, including confirming the connection between ESG information and legal risk, identifying related compliance review practices, offering preliminary suggestions about ESG information’s potential impacts, and proposing specific solutions.  My focus will be on securities regulation compliance, but I hope to make points that are more broadly applicable to business firm compliance practices.  Overall, I desire to use this research to create a heightened awareness of the potential legal significance of ESG information, catalyze specific ESG-related firm (and governmental) compliance activity, provide processes for engaging related compliance program review and revision, and offer substantive compliance guidance.  The ultimate core audiences for this work include compliance lawyers (in-house and outside counsel), compliance business professionals, firm management as a whole, plaintiff and defense bar litigators, and the judiciary.

Let me know what you think of this general idea--using ESG information as a leverage point for the inspection, reflection, and revision of business compliance policies and programs.  Please also respond to any of the rest of the content of this post that either resonates with you or raises questions or concerns.  And if you would like to see the current draft of the forthcoming paper, please let me know.  I am happy to send it to you.

AALS 2025 - Section on Agency, Etc. - Calls for Papers

AALS Section on Agency, Partnerships, LLCs, and Unincorporated Associations

Calls for Papers

The AALS Section on Agency, Partnerships, LLCs, and Unincorporated Associations is pleased to announce two calls for papers, one for a panel presentation and one for a works-in progress session geared to workshopping the research and writing of junior faculty.

Panel Presentation:

Up to three paper presenters will be selected for the section's principal panel to be held during the AALS 2025 Annual Meeting in San Francisco, CA. The program is entitled Technology's Intersection with Agency, Partnerships, and Unincorporated Associations. Co-Sponsored by the Sections on Technology, Law and Legal Education and Transactional Law and Skills, the session is designed to explore research and teaching involving the interactions of principal/agent relationships, partnerships, and unincorporated business associations with artificial intelligence, blockchains, cybersecurity, and other technological developments.

Works-in-Progress Session:

The section seeks paper proposals from junior scholars for a works-in-progress program.  Submissions for this session may relate to any topic within the scope of the law governing agency, partnerships, LLCs, or unincorporated associations.

Submission Information: 

To respond to either or both calls for papers, please submit a substantial abstract (five or more pages) or draft of an unpublished paper to Joan Heminway at [email protected] before September 6, 2024.  Please remove the author's name and identifying information from the submission. Please include in the submission email your institution, your tenure status, and the number of years you have been in your current position, as well as a statement indicating whether the paper has been accepted for publication and, if not, when you anticipate submitting the article for publication. The subject line of the email should read: "Submission – Panel" or "Submission – WIP Program," as applicable.  Authors of selected papers will be notified in September. Presenters are responsible for paying their registration fee, hotel, and travel expenses.  Inquiries about the section's programs also should be directed to Joan Heminway at [email protected] or (865) 974-3813.

Tulane is hiring!

Two job announcements, early career and later stage:

Tulane University Law School invites applications from entry-level and early career lateral candidates (less than three years of tenure-track teaching experience) for one or more tenure-track faculty positions.  We welcome applications from candidates with teaching and research interests in all topics, but we are particularly interested in candidates who focus on maritime law and the first year curriculum: civil procedure, contracts, property, and torts. Please direct any questions about this position to Freddy Sourgens at [email protected]. To learn more about the law school, visit our website at https://law.tulane.edu/. Interested applicants may apply at the following link: http://apply.interfolio.com/150799.

Tulane University is committed to creating a community and culture that foster a sense of belonging for all. We are a recognized employer and educator valuing AA/EEO, Protected Veterans, and Individuals with Disabilities. We encourage all qualified candidates to apply. We are intentionally seeking candidates who contribute to fostering equity, diversity, and inclusion in support of Tulane’s strategic initiatives.  

Also:

Tulane University Law School seeks to fill these faculty positions:

Houck Chair in Environmental Law (and Director of the Center for Environmental Law)
Niels F. Johnsen Chair in Maritime Law
David Boise Distinguished Chair in Law

Position Description:

Tulane University Law School invites nominations and applications for three Chairs in the following areas: Environmental Law; Maritime Law; and Public Law. We seek academic leaders with a record of distinguished scholarship, excellence in teaching, and the demonstrated capacity to direct well-established programs in their respective fields. The appointments will be made at the level of tenured, full professor.

The responsibilities of the chair holders include scholarly research and publication; classroom teaching; and participation in faculty governance. The chair holders are also expected to be actively engaged with faculty both within the Law School and throughout the University, providing leadership for integrative research activities and significant engagement with academic institutions and professional organizations in their respective fields. The chair holders are expected to provide leadership in terms of research, curriculum, and public engagement. Tulane Law School, with world-leading strength in environmental, energy, maritime, as well as international and comparative law, provides the chair holders the unique opportunity and support to lead and expand an already prominent program in these areas. Competitive salary commensurate with experience.

The qualifications required for the chair are:
• Juris Doctor (J.D.) and/or Ph.D. (or equivalent doctoral degree) in Law
• Broad recognition for scholarly distinction
• Established publication record
• Clearly developed long term research agenda
• Extensive teaching experience
• Demonstrated capacity for programmatic leadership

Application Instructions:

Interested candidates should apply through the Interfolio link. Please be prepared to submit your C.V., writing sample, teaching evaluations, and a transcript as part of your application.

All inquiries about the positions should be directed to:

Freddy Sourgens
James McCulloch Chair in Energy Law
Tulane University Law School
[email protected]

Review of applications will begin in the fall and continue until completion.

Position URL: http://apply.interfolio.com/150805

 

Southern Illinois Law Faculty Search Includes Business Law

The Southern Illinois University Simmons Law School is searching for three tenure-track professors to join us next fall. The successful candidates will teach doctrinal law courses. Current needs include Criminal Law, Criminal Procedure, Evidence, Business Courses, Contracts, Labor & Employment, Family Law, and Trust & Estates. Other courses are dependent on the needs of the institution and the candidate's experience. 

See the position description for additional information.

Ohio State Law Faculty Searches

THE OHIO STATE UNIVERSITY MORITZ COLLEGE OF LAW Location: Columbus, OH Subjects: Contracts, Intellectual Property, Business Law, Constitutional Law Start Date: August 15, 2025

The Ohio State University Moritz College of Law seeks to hire up to two entry-level or lateral candidates for positions in Private Law (especially contracts, intellectual property, and business law and complementary areas, including securities regulation, corporate finance, and tax) and Public Law (especially constitutional law and complementary areas).

The Ohio State University's Shared Values include Excellence and Impact, Diversity and Innovation, Inclusion and Equity, Care and Compassion, and Integrity and Respect. Ouruniversity community welcomes differences, encourages open-minded exploration and courageous thinking, and upholds freedom of expression. We define diversity broadly andvalue multiple dimensions of diversity, including, but not limited to, demographic, religion, country of origin, perspective, ability status, and background.

Ohio State prides itself on welcoming a wide range of viewpoints and providing opportunities for all to deepen and develop their intellectual curiosities. As a land-grant university, werecognize and understand that a diverse faculty, staff, and student body in which all may engage in open dialogue, be exposed to new ideas and perspectives, belong, and feel valuedand included is essential to our efforts in meeting our mission of academic excellence and public service.

We invite applicants to share their demonstrated efforts in research, teaching, and/or outreach and engagement that reflect Ohio State's Shared Values and that might further advance our mission and institutional excellence.

All qualified applicants will receive consideration for employment without regard to age, ancestry, color, disability, ethnicity, gender identity or expression, genetic information,HIV/AIDS status, military status, national origin, race, religion, sex, gender, sexual orientation, pregnancy, protected veteran status, or any other basis under the law.

Candidates should send their materials to Brenda Robinson, Program Coordinator, by email ([email protected]). For full consideration, candidates must also apply through Workday (reference number R110475).

 

Ninth Circuit Follows Frutarom

Previously, I blogged about Mivtachem Insurance v. Furtarom, 54 F.4th 82 (2d Cir. 2022), where the Second Circuit held that false statements about a target company - most of which were included in the acquiring company's S-4 - were not made "in connection with" sales of the acquirer's securities, and therefore, purchasers of the acquirer's stock did not have standing to bring Section 10(b) claims against target company officers.

Inevitably, the same thing came up in a pair of cases about SPACs, where purchasers in the publicly-traded SPAC entity wanted to bring claims based on pre-merger false statements about the target company.  A New York district court, following Frutarom, denied the claims; a California district court rejected the Second Circuit's reasoning (and dismissed the claims on other grounds, namely, that at the time of the false statements it wasn't clear that the target company really was going to be a target company).

Anyway, the California case, which involved the Lucid de-SPAC, was just appealed to the Ninth Circuit and the Ninth Circuit ... followed the Second Circuit's rule.  In Max Royal LLC v. Atieva, it held:

As noted above, Blue Chip limits standing to “purchasers or sellers of the stock in question.” 421 U.S. at 742.  Plaintiffs contend that the “stock in question” is “the security about which Plaintiffs allege injury,” and not necessarily a security of the company that made the alleged misrepresentations. Plaintiffs further contend that the “Blue Chip rule merely checks whether plaintiffs allege injury from the purchase or sale of a security” and that standing is determined based on “whether the security plaintiff purchased is sufficiently connected to the misstatement.” For several reasons, we conclude that Plaintiffs’ construction of standing is inconsistent with Blue Chip. …

Plaintiffs ignore the plain language of Blue Chip and assert that Section 10(b) standing extends to any stockowner who claims that the misstatements of another person or company negatively affected the value of the owner’s stock. Under Plaintiffs’ desired formulation of the standard, hypothetical plaintiffs would need only to have purchased a security—any security—to satisfy the purchaser-seller requirement. But Plaintiffs’ interpretation of the securities laws would vastly expand the boundaries of Section 10(b) standing and contradict the express limiting purpose of the Birnbaum Rule. The Supreme Court has cautioned that Section 10(b) does not “provide a cause of action to the world at large,” and “should not be interpreted to provide a private cause of action against the entire marketplace in which the issuing company operates.” Stoneridge, 552 U.S. at 162 (cleaned up) (quoting Blue Chip, 421 U.S. at 733 n.5)….

We agree with the Second Circuit’s reasoning in Menora and likewise reject Plaintiffs’ “sufficiently connected” test. The Supreme Court adopted a bright-line rule for standing—even at the risk of it being “arbitrary” in some cases—to avoid the type of “endless case-by-case” analysis contemplated by Plaintiffs....

It is undisputed that the securities about which Defendants allegedly made misrepresentations were those of Lucid. Under the Birnbaum Rule, Plaintiffs would need to have purchased or sold Lucid stock to have standing to bring this action under Section 10(b). Here, Plaintiffs did not purchase or sell Lucid stock, as Lucid was a privately held company during the relevant period. Plaintiffs purchased CCIV stock, but their complaint does not allege that anyone made misrepresentations about CCIV stock. Because Plaintiffs did not purchase or sell the securities about which the alleged misrepresentations were made, Plaintiffs lack standing under Section 10(b).

That CCIV later acquired Lucid does not change our analysis.

One interesting point about the Ninth Circuit's reasoning is that the court added, "If Congress wants to treat SPAC acquisitions differently than traditional mergers, it has the authority to do so."

Except the SEC, anyway, did do so - inapplicable to this transaction, but applicable to transactions going forward, the SEC adopted new rules requiring target company officers to sign the registration statement issued in connection with the de-SPAC transaction.  And in the adopting release, it said:

Given that the target company therefore is, in substance, an “issuer” of securities in a de-SPAC transaction regardless of transaction structure, the Commission proposed to amend Instruction 1 to the signatures section of both Form S-4 and Form F-4 to require that, when the SPAC would be the issuer filing the registration statement for a de-SPAC transaction, the term “registrant” would mean not only the SPAC but also the target company....

As discussed in more detail below, it is our view that in a de-SPAC transaction the target company is an issuer of securities under section 2(a)(4) of the Securities Act, and, therefore, the target company along with its required officers and directors must sign a registration statement filed by a SPAC or another shell company for the de-SPAC transaction, because both in substance and by operation of new Securities Act Rule 145a, the target company is issuing or proposing to issue securities in a de-SPAC transaction, regardless of the transaction structure....

Now, the SEC was explicitly contemplating Section 11 liability, not 10(b) liability, and it therefore was talking about the S-4 rather than statements made outside the securities filings, but that might be the kind of thing that ... informs ... a court's analysis, no?

I also wonder how this reasoning impacts SEC v. Panuwat, i.e., the "shadow" insider trading case, which I previously blogged about here.  That case also involved information about one company being used to trade in the securities of another company - and after trial, a jury found the trader liable.  I assume Panuwat will cite Max Royal on appeal, though I suppose the Ninth Circuit might limit its holding to private Section 10(b) actions.

Anyway, here's Marc Steinberg and Antonio R. Partida criticizing Frutarom. 

Nevadaware Divergence

Wendy Gerwick Couture has posted a thoughtful article entitled, Nevadaware Divergence in Corporate Law.  It's available here.  She presents some new perspectives on Nevada corporate law and emphasizes that Nevada has adopted a different policy balance than Delaware. She does this through three thorough sections analyzing exculpation, appraisal, and freeze-out mergers under both Nevada and Delaware law.  

This detailed focus gives some real insights.  She recognizes that many of the claims about Nevada exculpating for breaches of the duty of loyalty are overstated.  Nevada exculpates for breach of fiduciary duty under a single standard.  To the extent that any breach of the duty of loyalty involves any intentional misconduct, it would not be exculpated under Nevada law. It's a much narrower category--unintentional breaches of the duty of loyalty--that may be exculpated under Nevada law.

She also recognizes that burden of proof differences in exculpation may shift outcomes.  Delaware places the burden of proof on a party seeking exculpation.  Nevada places the burden of proof on the party aiming to impose monetary liability.  This difference undoubtedly shifts litigation costs for many disputes.

If you're interested in TripAdvisor case or other comparative corporate law issues, her work helps bring real light to these issues.  Ultimately, I agree with her that Nevada has struck a different balance than Delaware to prioritize avoiding the negative effects of litigation over maximizing deterrence and ensuring compensation for all possible wrongs.  Depending on what the Delaware Supreme Court does in the TripAdvisor case, I expect that Delaware and other courts might soon look to her work here to help understand Nevada law.

2024 Cornell Law Review Symposium - September 20

Cornell Law Review will be hosting its 2024 symposium, Mass Torts Inferno: New Battle Lines in the Resolution Debate, on September 20, 2024 in Ithaca, New York. Modern mass torts involve hundreds of thousands of victims affected by various types of tortious conduct ranging from sexual abuse and asbestos exposure to opioid trafficking. This symposium brings together diverse scholars to address the new, non-class aggregate litigation strategy that is reshaping the field. It also seeks to create a dialogue among scholars and practitioners of tort law, bankruptcy law, civil procedure, and constitutional law. The law review is proud to partner with Andrew Bradt, Sergio Campos, Zachary Clopton, Alexandra Lahav, and Samir Parikh to present this event.  

For those interested in attending, please contact Griffin Perrault at [email protected].

Mississippi College Law - Faculty Openings (Property+)

Mississippi College School of Law invites applications from entry-level candidates for multiple tenure-track faculty positions expected to begin in July 2025. Our search will focus primarily on candidates with an interest in teaching one or more of the following subject areas: Real Property, Intellectual Property, Sports/Entertainment Law, and Cyber Law/Law & Technology.

We seek candidates with a distinguished academic background (having earned a J.D. and/or Ph.D.), a commitment to excellence in teaching, and a demonstrated commitment to scholarly research and publication. We particularly encourage applications from candidates who will enrich the diversity of our faculty. We will consider candidates listed in the AALS-distributed FAR, as well as those who apply directly.

Applications should include a cover letter, curriculum vitae, a scholarly research agenda, the names and contact information of three references, and teaching evaluations (if available). Applications should submitted using the following link: https://www.mc.edu/offices/human-resources/employment?rID[32]=389.

Guest Post: Shareholder Proposals and the Next Step in Overboarding Disclosures

I am please to be able to publish this post authored by our former BLPB editor/co-blogger Stefan Padfield.  We miss his voice here, but he is doing good work in his current role, as this post shows!  Thanks for contributing this, Stefan.

+++++

On November 14, 2023, the National Center for Public Policy Research (NCPPR) – where I work – submitted a shareholder proposal to Johnson & Johnson that sought disclosures related to overboarding. (For the uninitiated, overboarding refers to the issue of corporate directors sitting on too many boards but can also be extended, as it is here, to other commitments.) On March 1, 2024, the SEC staff informed J&J that no action would be recommended against the company by the staff if J&J excluded NCPPR’s proposal. This no-action relief arguably represents a change in the long-standing SEC practice of supporting proposals related to overboarding and is thus worthy of further examination. (The underlying documents can be accessed here; the SEC staff also granted no-action relief to Verizon and Lowe’s on the same proposal.)

By way of background, the SEC staff is on record as saying that an overboarding proposal “relates to director qualifications.” Accordingly, the SEC staff has stated in the past that it does “not believe that [a company] may omit [such a] proposal from its proxy materials in reliance on rule 14a-8(i)(7)” as improperly relating to the ordinary business of the company.

Admittedly, our proposal was unique in that it asked directors to “disclose their expected allocation of hours among all formal commitments set forth in the director’s official bio, with allocation being permissible “on a weekly, monthly, or annual basis.” And perhaps this is sufficient for some to categorize our proposal as excludable micromanagement, as the SEC staff did. However, there is a good argument to be made that “the SEC has incorrectly applied the micromanagement rule to exclude disclosure proposals.” More generally, the active shareholder proponent just quoted also noted in the same piece the SEC’s heavy and arguably excessive reliance on the micromanagement exclusion this season:

In reality, the most significant substantive development in the Rule 14a-8 process in the last two seasons has been largely ignored in the anti-shareholder furor. Far from representing a system unfairly tilted toward proponents, the SEC is more readily concurring with issuers’ increasingly aggressive use of the micromanagement exclusion…. According to preliminary calculations by the Shareholder Rights Group, in 2023, micromanagement arguments accounted for 8 out of 27, or 30%, of successful Rule 14a-8(i)(7) requests. In 2024 so far, micromanagement arguments have accounted for 25 of 56, or 44.6%, of winning requests based on the ordinary business/micromanagement rule.

Regardless, in addition to prior no-action decisions that deemed overboarding proposals nonexcludable, we later submitted a similar proposal to Verizon and added the following stakeholder perspectives to urge the SEC staff to reconsider its conclusion in Johnson & Johnson:

• Weil, Gotshal & Manges LLP: “The board should assess whether directors that may be overcommitted have sufficient time and ability to take on the significant tasks relating to public company directorship.” (Emphasis added.)
• Wachtell, Lipton, Rosen & Katz: “As board responsibilities grow, so has the focus on director bandwidth; directors should be realistic about their bandwidth when considering new opportunities for board service.”
• Vanguard: “The role of public company directors is complex and time-consuming, and the funds believe that directors should maintain sufficient capacity to effectively carry out their responsibilities to shareholders. For this reason, the funds look for directors to appropriately limit their board and other commitments to ensure that they are accessible and responsive to both routine and unexpected board matters …. The funds look for boards to have in place policies regarding director commitments and capacity and to disclose such policies (and any potential exceptions) to shareholders ….” (Emphasis added.)
• The Conference Board: “[W]hile adopting an overboarding policy can be useful, it is more important for boards to have candid conversations about their evolving time requirements and the ability of directors to devote the time necessary to the role.... In light of expanding workloads, boards should take a fresh look at the time commitments expected of directors …. Overboarding policies are now a predominant practice, embraced by three-quarters of the S&P 500 and over half the Russell 3000 and supported by the proxy advisory firms. But policies alone are insufficient. As part of the annual evaluation process, directors should assess their ability, both on an individual and collective level, to dedicate the necessary time to fulfill their responsibilities effectively and make informed decisions.” (Emphasis added.)
• State Street: “[I]n its Summary of Material Changes to State Street Global Advisors’ 2023 Proxy Voting and Engagement Guidelines, State Street[i] indicates that starting in 2024 for companies in the S&P 500, it will no longer use numerical limits to identify overcommitted directors and instead ‘require that companies themselves address this issue in their internal policy on director time commitments and that the policy be publicly disclosed.’” (Emphasis added.)

Furthermore, the need for the requested disclosure can be demonstrated by looking at the bio of a director at CVS, where our proposal was unopposed: J. Scott Kirby. Doing so reveals the following nine commitments.

1. Director, CVS
2. CEO, United Airlines
3. Director, United Airlines
4. Executive Committee, United Airlines Board
5. Finance Committee, United Airlines Board
6. Director, SONIFI Solutions
7. Chairman, Star Alliance Chief Executive Board
8. Member, Board of Governors of the International Air Transport Association
9. Director, U.S. Air Force Academy Foundation

Suffice it to say, many would presume that Mr. Kirby would more than have his hands full simply as CEO of United Airlines. Accordingly, it seems a small thing for CVS shareholders to ask for an estimate of how exactly there will be enough hours in the day for Mr. Kirby to juggle these nine commitments without depriving CVS of the critical attention he is being nominated to provide as director. And to the extent some might argue that listing committee assignments as discrete commitments improperly inflates the perceived workload, we say: (1) either the discrete commitment is material or the disclosure of that commitment in the official bio is misleading; (2) a company is free to attribute zero hours to any disclosed commitment, and is thereby free to clarify for shareholders that, for example, membership on the finance committee is a nominal position.

Given the ever-increasing responsibilities of corporate directors, as well as generally increasing demands on their time, limiting oversight of overboarding to counting board seats and CEO spots is unsustainable. Accordingly, we will likely be submitting a similar proposal next season and urging the SEC staff to reconsider its conclusion in Johnson & Johnson. Asking prospective directors how they intend to allocate their hours among their often numerous commitments should not be viewed as improper micromanagement but rather basic accountability fully within the ambit of shareholders to request.

_____

[i] Our overboarding proposal at CVS was apparently defeated by a vote of 97% against. In light of the comments here by State Street and the preceding comments by Vanguard, it would be interesting to see how those asset managers voted (assuming they hold shares in CVS).