7/25/24 – Issue 9.27 – Your weekly news on all things board. 

As expected, Delaware’s governor signed into law a controversial bill amending the state’s statue on corporations to give company founders or very large shareholders the right to make some major business decisions without board or shareholder approval. While some argue that the new law, slated to take effect August 1, simply reflects practices that have become commonplace, others say the law will allow company founders to make sweeping changes to board composition or governance structures without shareholder approval. While today most U.S. companies are incorporated in Delaware, critics of the law and other recent decisions by the state’s Chancery Court say that companies are now contending with less certainty as legal interpretations and the laws themselves change, and as a result companies may seek to incorporate elsewhere.

In other news: Shareholder activism is on the rise, Elliott Management takes a stake in Starbucks, Oracle CEO Safra Catz exits Disney board as Larry Ellison invests $6 billion in his son’s competing entertainment venture New Paramount, Ford Foundation CEO Darren Walker steps down, boards rethink what it means to oversee risk in the ESG era, and the changing face of cyber governance.

In the Spotlight

Delaware Governor Signs Controversial Corporate Law Bill

Opponents criticized the bill process, saying it was rushed through the legislatures

“Delaware Gov. John Carney on Wednesday signed a controversial new bill into law that amends the state's statute on corporations…. The bill was introduced after the Chancery Court's decision in West Palm Beach Firefighters' Pension Fund v. Moelis & Company, which invalidated parts of an agreement that gave the investment bank's founder approval rights on major business decisions and board composition…. The bill establishes that companies can enter into such agreements with stockholders without having to amend their charters or articles of incorporation — actions that typically require shareholder approval.… Opponents of the bill — including dozens of U.S. corporate law professors — say that the bill was a hasty response, and the judicial process via the state's supreme court should be a venue for considering the legal issues at hand. Opponents also worry the bill allows companies to change their governance and boards to give away their authority without shareholder approval or scrutiny. The bill also effectively creates a separate set of internal corporate claims that can be litigated under non-Delaware law, as the law professors note.” AXIOS 

Will Delaware Remain Home to American Corporations?

The legislature clarified that contracts imposing remedies on the corporation are allowed, including for action or inaction of its board or stockholders

“There are numerous reasons why founders choose Delaware to incorporate their companies, particularly the flexible nature of their corporate laws, which are often more favorable to businesses than other states, allowing companies to structure in a way that best fits their needs. But 2024 saw the Chancery Court wade into some murky waters, upending decades of market practice and expectations about what Delaware law means—some of these decisions nullified corporate decisions based on predictable and established market practices. The result created uncertainty. In response, more than one of America’s leading technology businesses have announced plans to move to Texas and other jurisdictions deemed more attractive for doing business. And the legislature in Delaware has responded. On July 17, the Governor of Delaware signed a new bill that will amend the statute on corporations in the state, allowing agreements that would shift authority away from the board to founders or large shareholders for major decisions.” FOLEY & LARDNER LLP

From Boardspan this Week:

The 2024 Board Benchmark Report

The power of performance benchmarking is undeniable. For boards, it’s essential to understand how they stack up against peers, identify new trends and lean into the broader governance landscape.  The 2024 Board Benchmark Report enables boards to build on successes and identify areas for improvement, ensuring continuous growth and effectiveness. Learn how your board compares and what you can do to achieve excellence.

Across the Board

Activist Elliott Takes Big Stake in Starbucks

Elliott has been discussing privately ways to boost the coffee giant’s share price

“Elliott Investment Management has built a sizable stake in Starbucks and the activist has been pushing the coffee giant privately on ways to boost its stock price… Elliott has been engaging with the company behind the scenes in recent weeks, the people said. The situation is fluid, and it is possible they will reach an agreement privately soon… The exact size of Elliott’s previously undisclosed position couldn’t be determined. Elliott’s other demands, including whether it is seeking board seats, couldn’t be learned either. Elliott’s investment comes as Starbucks, the biggest coffee company in the world by locations and sales, is at a major crossroads. Starbucks has long sought to be a ‘third place’ between home and work for its customers to gather. But now, the to-go business is the engine of its growth, and the company is having trouble keeping up. Competition has also intensified in China, a key market.”  THE WALL STREET JOUNRAL

How To Survive Shareholder Activism

Long gone are the days when companies could know which of their shareholders would be passive and patient, and which might turn to activist tactics

“In an era where shareholder activism is on the rise, companies of all sizes are finding themselves in the crosshairs of activists looking to catalyze change. In the first half of 2024, around 300 public companies faced a public bout of activism in the U.S. The number of proxy fights in the first half of 2024 has also surpassed the number of fights in each of the first six months of the last four years, with much of the increase in activity taking place at publicly traded closed-end funds. And although large-cap companies received a disproportionate share of media attention, around 75% of activist campaigns during 2023 and year-to-date 2024 took place at small- and micro-cap companies. ….. In this article, we explore the factors that make companies targets for proxy contests and shareholder activism, and we discuss what companies can do in response.” ORRICK HERRINGTON & SUTCLIFFE LLP

Safra Catz Steps Down from Disney’s Board

The Oracle CEO’s amicable departure
 

“The high-stakes $28 billion deal between Hollywood studios Paramount and Skydance Media Company has careened into Oracle CEO Safra Catz. Catz, who has spent the past decade at the helm of Oracle, served on the Walt Disney board for six years. She has now stepped down, the media and entertainment giant announced yesterday…. One complicating factor about that success, however, is that Disney is a direct competitor to the entity forged by the Paramount-Skydance deal, New Paramount. New Paramount is led by David Ellison as chairman and CEO. David Ellison is heir to Oracle cofounder, chairman, and chief technology officer Lawrence Ellison, who is also Catz’s boss on the Oracle board. Ellison also happens to be among the richest people in the world with an estimated $172 billion net worth and is investing $6 billion in his son’s Paramount takeover. While there’s nothing legally wrong about Catz serving on the board of the competitor to a company funded and run by the son of one of her bosses and colleagues, it might make things a bit awkward in the Disney boardroom.” FORTUNE 

Darren Walker, Who Reoriented the Ford Foundation, Will Step Down
Mr. Walker, who oversaw $7 billion in grants, plans to leave at the end of 2025 after what will have been 12 years

“It is a momentous departure. In reorienting the Ford Foundation to address inequality, Mr. Walker was aiming to address ‘not just wealth disparities,’ he wrote in 2015, ‘but injustices in politics, culture and society that compound inequality and limit opportunity.’ He played a key role in getting Ford and other foundations to donate hundreds of millions of dollars to help the City of Detroit exit bankruptcy in a way that spared retirees from deeper pension cuts and safeguarded the collection at the Detroit Institute of the Arts. But he also faced criticism at times, and raised eyebrows early in his tenure when he joined the board of PepsiCo, which struck some philanthropy experts as discordant, given the company’s role lobbying against public health legislation… Mr. Walker said he had begun discussions about his departure with the board two years ago. 'George Washington had it right: You should leave before it's time to go,' he said.” THE NEW YORK TIMES 

Understanding the “G” in ESG
Where boards play a significant role

“In the current dynamic realm of corporate governance, the risks posed by weak governance are profound and multifaceted and can impact organizations in many ways.... In the context of ESG, boards play a vital role in addressing the question, ‘How do we, as a company, address relevant risks, capture pertinent opportunities, and handle compliance matters that arise from the environment and society, including from policymakers and regulators?’ Furthermore, ‘What oversight framework enables communication and collaboration between the company’s board, management, and risk and compliance functions in a way that helps establish clear responsibilities, accountability, and transparency when it comes to monitoring and attaining responsible and sustainable business making?’ More than 50 years ago, the discussion around corporate governance focused mainly on mechanisms of direction and control. More recently, corporate governance has evolved at a fast pace to include additional dimensions such as decision-making capacities, responsibilities, and organizational structures, as well as fairness and transparency in working and communicating with shareholders and other stakeholders. ESG has become one of the guiding principles for good corporate governance.” JD SUPRA 

The Changing Face of Corporate Governance in Cybersecurity
Standard playbooks for incident response are still not well established

“The evolving landscape of cybersecurity risks means different responsibilities and roles for boards – especially in light of the new SEC reporting rules. Pushback from numerous parties is commonplace, yet real-world data and scholarship show that a lack of cybersecurity expertise among board members hinders proper understanding and prioritization of cybersecurity risks. Cybersecurity suffers from large-scale misalignments in top-down and bottom-up coordination, prioritization and resourcing. The effects of such misalignments are manifold, with cybercriminals deftly exploiting gaps and seams to squeeze out data and dollars, now estimated at trillions of dollars per year. While many corporate boards are gaining familiarity about cyber risks and strategies, through table-top incident response exercises, off-sites and information sharing, dilemmas on cyber reporting and board expertise remain.” INFOSECURITY MAGAZINE 

Seat at the Table

• Software firm Marqeta appoints to its board Mark Graf, former CFO of Discover Financial Services

• Professional services firm Jacobs welcomes to its board Mary Jackson, retired Vice Admiral of the United States Navy

• Pharmaceutical firm Moderna elects to its board David Rubenstein, Co-Founder and Co-Chairman of private equity firm The Carlyle Group 

• Noodles & Company adds to its board Britain Peakes, VP at investment firm Hoak & Co

• Power management firm Eaton welcomes to its board Karenann Terrell, former Chief Digital and Technology officer at GlaxoSmithKline 

• Automobile repair and parts firm LKQ announces to its board Andrew Clarke, former CFO of freight broker C.H. Robinson

• Equipment firm Oshkosh adds to its board William Burns, CEO of Zebra Technologies

• Software firm Atlassian elects to its board Scott Belsky, Chief Strategy Officer and EVP of Design & Emerging Products at Adobe

• Electro-optic polymer firm Lightwave Logic adds to its board Yves LeMaitre, former Head of the Optical Coherent Division of IPG Photonics

• Software firm JFrog elects to its board Luis Visoso, CFO of Unity Software

• Drone technology firm Draganfly appoints to its board Kim Moody, founder of Moody's Private Client Law LLP

• Scilex Holding Company welcomes to its board Dr. Annu Navani, CEO of Comprehensive Spine and Sports Center

• Weatherford International adds to its board Steve Beringhause, former CTO of Sensata Technologies

• Valens Semiconductor welcomes to its board Tal Yaacobi, Managing Partner at Value Base Fund

• Fintech firm Jack Henry & Associates appoints to its board Tammy Locascio, SVP and Chief Operating Officer of holding company First Horizon Corporation; and Lisa Nelson, President of International Business for Equifax

About Boardspan
Boardspan is the leading provider of digital governance solutions for boards across all sectors. Our cloud-based assessments, benchmarking analytics and governance education programs complement our board search and advisory services to deliver a holistic approach to governance. Boards of all sizes and stages rely on Boardspan to deliver analytics, insights and outcomes that improve their effectiveness and performance. Clients include KKR, The Kellogg Foundation, Ingersoll Rand, Farfetch, McAfee, Beyond Meat, Box, e.l.f. Beauty, Satellite Healthcare and the U.S. Olympic & Paralympic Committee.