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Eric Geringswald
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Eric Geringswald Posted on : Insider Community

Delaware’s deference to director discretion lifts “cloud of litigation” hanging over corporate boards

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“Just five years ago, the board of directors of a public corporation could reasonably expect that any major decision they made would be challenged in court,” writes co-author Paul Lockwood in the all new Foreword to the 2019 Edition of The Directors’ Handbook, now in its 24th edition. “These lawsuits were almost always settled at no monetary cost to the directors, but the distraction, hassle, and stress still made left their mark on boards.”

However, recent cases decided by the Delaware courts in recent years have largely eliminated meritless litigation challenging board decisions, Lockwood explains. The courts have gotten tough on settlements in merger cases that only benefit the plaintiffs’ lawyers, and they have also increased their deference to shareholder decisions to approve M&A transactions, resulting in fewer opportunities for litigation to challenge board decision making.

“It is now rare for a case challenging a board’s approval of an M&A transaction to proceed to discovery, where plaintiffs can ask for documents or question directors under oath,” Lockwood notes.

The originator of The Directors’ Handbook, Tom Dougherty has spent his career in boardrooms and courtrooms of America addressing the standards applicable to directors’ exercise of their fiduciary duties in the varied circumstances in which they act. For the last 24 years, he has shared his experience and insights in The Directors’ Handbook, a “gem” that serves as a comprehensive primer and hands-on guide, and provides thoughtful commentary on the latest challenges faced by boardroom directors.

In this 2019 Edition, Tom, who retired as a partner from Skadden Arps at the end of 2018, bids farewell to a loyal readership and introduces Skadden colleagues Paul Lockwood and Graham Robinson as the new co-authors of The Directors’ Handbook. Graham and Paul are “deeply experienced in the dynamics of corporate director activities,” Tom writes. “Their decades of collective work representing directors from boardroom to courtroom in advisory, compliance, and transactional matters provides perfect Directors’ Handbook DNA.”

The 2019 Edition provides important information and updates regarding the hot button issues faced by today’s directors of publicly held companies. In addition to a look at the Delaware courts’ deference to director discretion, highlights include:

Significant updates to discussion on proxy advisory firm proxy voting guidelines, including board gender diversity, auditor ratification, virtual-only shareholder meetings, director qualifications, and shareholder proposals.

  • A new section that adds cybersecurity risk oversight to the list of director due diligence hot buttons.
  • Updates regarding the SEC amendments to executive compensation and corporate governance disclosure.
  • New information about the Public Company Accounting Oversight Board’s (PCAOB) model for auditor reports, which is being implemented in two phases.
  • Analysis of the results of the 2018 Semler Brossy survey of say-on-pay votes: Data over the past five years show that companies with say-on-pay votes lower than 70 percent received approximately 11 percentage points less support on equity plan votes that same year.
  • Updated perspective on international corporate governance, including the “Shakespearean drama” that is Brexit and the latest corruption index figures from Transparency International.

One of today’s leading guides to corporate governance, The Directors' Handbook offers directors insight on how to best handle hostile takeover attempts and proxy battles, and addresses the creation of an audit committee charter, crisis management, and director and officer insurance. Directors can find up-to-date information about majority (rather than plurality) voting for directors; staggered board repeals; best practices for handling restatement crises; the role and practice of the corporate secretary; and the political economy of corporations and corporate governance approaches around the world. The companion CD ROM contains key corporate governance regulations, case law and other relevant resources.

The Directors’ Handbook is available as a softbound book or as an ebook, compatible with dedicated e-reader devices, computers, tablets and smartphones that use e-reader software or applications. It is also available on the LexisNexis Digital Library.