BCLP – US Securities and Corporate Governance – Bryan Cave Leighton Paisner

US Securities and Corporate Governance

Corporate Governance

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U.S. Board oversight of “culture shock” as employees return to radically different workplaces

As states slowly move to reopen their economies, many returning employees will be shocked by the radical changes in their workplaces.  Collaborative spaces, ping pong tables and community break rooms, among other areas, will be transformed or closed for social distancing.  Employers will monitor and collect employee health information as never before.  Some employers already have announced they are exploring contact tracing and testing apps and wearable wristbands to alert employees if they are within six feet of each other or have come into close proximity with someone who has tested positive for COVID-19.

Directors will play a crucial role in overseeing these pandemic-related corporate culture and privacy challenges, far beyond typical oversight of operations and finance.  Directors have duties of care and loyalty to make well-informed decisions and act in the best interest of company stockholders.  To fulfill those duties and protect themselves under the business judgement rule, directors should require management to provide appropriate and timely reports  so they can monitor and consider up-to-date information in order to provide strategic direction and oversight in the rapidly-changing COVID-19 environment.

While there is always tension and management sensitivity about possible board over-reach into day-to-day operations, management and directors may need to work together more closely than in the past so that directors are fully informed in order to monitor management’s real-time decisions to re-open while fulfilling their oversight duties.

Conflicts in workplace protocols are likely, as management and directors grapple to balance risks and uncertainties with employee and customer privacy

U.S. public companies should evaluate their preparedness and triggers to adopt a rights plan

As public companies watch sharp market declines in their stock prices, many are wondering how they should respond.

A number of companies have adopted shelf rights plans that are reviewed by the board of directors on a “clear day” — in the absence of any takeover or activist activity — and at reasonable intervals. The plan would be adopted at a future date if deemed warranted, after consulting with legal and financial advisors.  Shelf plans became popular over the past 15-20 years as institutional investors and proxy advisors expressed strong opposition to rights plans generally, unless short-term in nature and approved or ratified by shareholders.

Typically, a shelf rights plan can be adopted quickly by the board in response to a threat. However, it should be noted that HSR rules only require notification where the acquirer would hold total voting securities in excess of $94 million, which represents almost 20% of a $500 million market cap company.  And a Schedule 13D needs only be filed within 10 days after acquiring beneficial ownership of more than 5%.  Further, state takeover statutes may have thresholds of 15% or 20% beneficial ownership.  As a result, in light of lower stock prices and high trading volumes, a potential acquirer might accumulate a large percentage of a company’s shares before the board becomes aware of that fact and is able to adopt the plan.

Under Delaware law, the adoption of a rights plan in the absence of a takeover threat would likely be subject to

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