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Delaware Supreme Court on Director Risk Oversight and Independence

Key Holding and Facts. In Marchand vs. Barnhill, Chief Justice Leo E. Strine, Jr. writing on behalf of the Delaware Supreme Court earlier this month reversed the Court of Chancery’s 2018 dismissal of a stockholder derivative suit alleging Caremark claims.  Caremark claims are essentially claims asserting bad faith by board members such that the directors breached their duty of loyalty. The facts underlying the case are well documented and spanned over several years, but generally involved a listeria outbreak at the ice cream production facilities of Blue Bell Creameries, a privately held monoline ice cream manufacturer, which resulted in devastating losses, including the death of three consumers, plant shutdowns, financial impairment and various regulatory investigation and private party litigation, including by the Food and Drug Administration (FDA), Centers for Disease Control and Prevention (CDC) and the Department of Justice (DOJ).
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IPO Governance Practices: A Davis Polk Survey

As public company governance remains in the spotlight, we examined the governance structures of the 50 largest U.S. newly public companies at the time of their initial offerings.  Our survey of both controlled and non-controlled companies found that those companies continue to adopt various takeover defenses at the time they enter the public market, a stark contrast to the current practices of the S&P 500.
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ISS Seeks Feedback on Possible New Guidelines

With a focus on longer-term policy changes that extend beyond 2014, ISS has opened a new consultation period on several important topics, including key aspects of how they review director elections. Responses are due by February 2014.

Director tenure. Recognizing that while viewpoints are mixed, investors appear to be concerned with lengthy director tenure though are reluctant to impose strict limits. ISS currently has no policy with respect to director tenure in its evaluation of director elections, but is considering whether to:

  • Weigh the mix of director tenures on the board as a key factor when determining a vote recommendation on members of the nominating committee (for example, if average tenure and/or any individual director’s tenure exceeds a specified level);
  • Classify directors with lengthy tenures as non-independent; or
  • Keep its existing approach and not adopt any new policies on tenure.

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Large Companies Tend to Adopt More Restrictive Director Independence Criteria

We spoke with Agenda for its recent article, “Large Companies Have Strictest Director Independence Standards” (subscription required), which explored the Conference Board’s 2013 Director Compensation and Board Practices report.  The report showed that one-fifth of companies in the financial services sector and one-fifth to one-quarter of companies in other industries have director independence policies that go beyond what the applicable securities exchanges require.  In addition, the largest companies are more likely to maintain more stringent independence standards.

The article provides examples of different types of restrictive standards that some companies are following, such as a longer look-back period for examining certain relationships, or a lower threshold amount for the receipt of direct compensation. 
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Survey of Corporate Governance Practices at Time of IPO Shows Much Latitude for IPO Issuers

Considering that there continues to be growing pressure on larger companies to update their corporate governance provisions in response to both government regulations and pressure from shareholders and advisory groups, we thought this would be a good time to review the corporate governance practices at the time of the IPO to see which of these practices were being adopted by IPO companies.  We surveyed corporate governance at the time of the IPO for the largest 50 U.S. company IPOs from January 2009 through August 2011. Our survey separates the data for “controlled companies” (as defined in NYSE and NASDAQ listing standards) and noncontrolled companies.
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