A short decision issued in January by the Delaware Supreme Court provides helpful insight into an issue of practical import in the context of Section 220 demands: when does a stockholder have a right to go beyond formal communications, such as board minutes, presentations, and resolutions, to conduct a more invasive and burdensome search of informal methods of communication, such as text messages and emails?
Alex Bäcker did not like to wait in line. Nor did he want to give up control of the company he co-founded and led, QLess, which produces a “virtual queue management system that reduces the time that retail customers must wait in line for services.” The Delaware Supreme Court’s rejection of Bäcker’s apparent subterfuge in an effort to maintain that control is a reminder that director actions are subject to equitable review.
It’s proxy season, and for most companies, the time for annual meetings is just around the bend. Publicly traded companies are coming off a tumultuous year. The link between corporation and community has never been more at the forefront — from COVID-19 to racial justice to worker treatment. And businesses are facing activist pressure. How should they navigate this complex environment?
Our latest episode of The Sidley Podcast addresses the interplay between shareholder activism and hostile M&A, including as to how ESG may impact activism. It also offers practical advice on what you can do as you prepare for a potential attack by an activist or hostile bidders. Join host and Sidley partner, Sam Gandhi, as he speaks with three of the firm’s thought leaders on proxy season — Beth Berg, Kai Liekefett, and Derek Zaba.
The Delaware Court of Chancery recently showcased its commitment to maintaining open judicial records and proceedings. In a derivative suit predicated on the widely covered Boeing crashes from 2018 and 2019, in which the Complaint featured materials that had been produced pursuant to a books-and-records inspection demand under Section 220 of the Delaware General Corporation Law, the Court rejected all but one of Boeing’s attempts to shield its internal documents from the public spotlight. Most cases, of course, will not be so charged with public interest. Nonetheless, the Court’s analysis should serve as a reminder that keeping information confidential in Delaware courts may be an uphill battle.
We are pleased to share Cornerstone’s latest annual report on federal and state securities class actions, which reflects that new securities case filings fell substantially in 2020. (more…)
The Delaware Court of Chancery decision in In re WeWork Litigation, issued on December 22, 2020, underscores the need for heightened care with respect to corporate communications and the preservation of the attorney-client privilege.
The above-referenced turn of phrase was penned by Benjamin Franklin in admonishing his fellow Philadelphians to take heed of fire prevention strategies. Although the benefits discussed here are short of life-saving, attention to implementation and periodic review of your practices for the preparation and maintenance of board minutes and related materials can yield significant dividends in managing and mitigating litigation risk, including the risk of personal liability for directors. In addition to providing an accurate record of board decisions, to the extent that minutes evidence directors’ good faith, diligence, and absence of conflict (or appropriate handling of conflict), minutes can help support early termination of stockholder suits for breach of duty. Attention to board (and board committee) minutes is especially important given the increase in demands by would-be stockholder plaintiffs for corporate books and records to assist them in assessing potential claims and constructing their allegations.