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Ann Lipton

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Ann M. Lipton is a Professor of Law and Laurence W. DeMuth Chair of Business Law at the University of Colorado Law School.  An experienced securities and corporate litigator who has handled class actions involving some of the world’s largest companies, she joined the Tulane Law faculty in 2015 after two years as a visiting assistant professor at Duke University School of Law.

As a scholar, Lipton explores corporate governance, the relationships between corporations and investors, and the role of corporations in society.  Read more.

No not that one.

I speak of the proposed redomestication of Natural Gas Corporation from Colorado to Texas. As Bloomberg reported, ISS recommended in favor of the move, even though it had recommended against Exxon’s move, which prompted accusations of opacity.

(Exxon, ludicrously, argued that Glass Lewis and ISS objected to its move because of their litigation over Texas’s proxy advisor law, conveniently ignoring that well before Texas moved to insulate corporate managers and instigated its war on proxy advisors, Glass Lewis objected to Tesla’s move, and ISS only tentatively recommended in favor, specifically on the understanding that Texas’s legal protections for shareholders were, at that time, comparable to Delaware’s. Also, I note, under Texas law – currently on hold on First Amendment grounds – merely for recommending a vote against management based on governance considerations, Glass Lewis and ISS would have had to announce publicly that they do not provide advice solely in the financial interests of shareholders and notify Ken Paxton of their recommendation.)

Anyhoo, ISS’s change of heart for Natural Gas is interesting and worth unpacking. Natural Gas Corporation currently has a staggered board, which can only be destaggered by an overwhelming vote…

Well, it’s here, the SpaceX S-1.

I still haven’t gone through the whole thing, so I’m jumping specifically to the provisions limiting shareholder litigation rights. 

As we all know, Texas does plenty of that all on its own, by immunizing officers and directors against any liability absent a showing of “fraud, intentional misconduct, an ultra vires act, or a knowing violation of law,” and by allowing (as SpaceX will opt into) its corporations to bar derivative claims unless the plaintiff holds at least 3% of the outstanding stock.

Naturally, SpaceX proposes to go further, with various forum selection and arbitration clauses.

First, interestingly, SpaceX has chosen to put these in the bylaws, and not in the charter.  Why is this interesting?  As we all know, bylaws can be amended unilaterally by directors; charter amendments require a shareholder vote.  Back when the Delaware Supreme Court first authorized forum selection clauses governing federal securities claims in Salzberg v. Sciabacucchi, it did a very curious thing: first, it held these clauses would be treated as contractually binding in part because charters require a shareholder vote, and second, it held – with no further explanation – that bylaws are contractually binding as well.

I, of course, have long argued charters aren’t contracts, bylaws certainly aren’t contracts, and none of this can cover federal securities claims, etc etc, but after Salzberg, courts in other jurisdictions began to enforce forum selection provisions for federal securities claims, both in bylaws and charters, as contractually binding without much further thought (which I have angsted over repeatedly both in this blog, and in a paper).  My sense was always, courts – especially generalist courts with no corporate expertise – really didn’t want to be bothered with the issue, especially when forum selection, directing federal securities cases to federal court, didn’t seem particularly unreasonable.  Except that precedent exists now, that bylaws are contracts, as are charters, and that’s the precedent SpaceX will rest upon when it argues its arbitration bylaws are contracts.  We’ll see if courts apply any more scrutiny to the issue now, if they distinguish between bylaws and charters, or if perhaps they figure that so long as the company went public with the bylaws in place, there’s no need to draw a distinction and they can worry about that onion slicing when an arbitration bylaw is unilaterally adopted by a corporate board midstream.

Moving on, and here’s where it gets long because I need to block quote a buncha stuff, so under the cut it goes.

The traditional line is that shareholders have three powers with respect to the corporations in which they invest: to vote, to sell, and to sue, and through these mechanisms, they can protect their investment and discipline management. 

Voting can oust unfaithful or incompetent managers; the prospect of a lawsuit can deter misconduct and compensate shareholders for losses; sales both allow investors to exit if they view an investment unfavorably, and can drive down stock prices, which will then pummel the stock options of recalcitrant managers and encourage activist interventions.

So what happens when shareholders have none of these?

I speak, of course, of the upcoming SpaceX IPO (I was going to wait to talk about it until the S-1 was public, but at this point so much has leaked – here’s me and Mike Levin talking about the implications of those leaks on our podcast – that waiting seemed unnecessarily coy).  So with the caveat that maybe the S-1 will have information contrary to what’s been publicly reported, what we know is:

(1)  SpaceX will have dual or multiple classes of stock that will give Elon Musk voting control and require his votes to remove him from…

So, the SEC is out with its proposal to allow companies to choose whether to provide interim reports quarterly or semi-annually.  The Commission currently consists of three Republican members, two of whom seem pretty committed to the idea, so I suspect the “request for comments” is pro forma and the rule will be finalized soon.  

Previously, I posted about how this new rule might affect securities fraud litigation; now that the rule is out, I’ll point out it allows registrants to shift to between quarterly reporting and semi-annual reporting – back and forth – every year, by checking a box on the 10K.  Since the 10K is usually filed around 3 months into the following fiscal year, registrants will already know what the first quarter of the new fiscal year looks like when they make the election to report semi-annually or quarterly.  Which … I mean, Rule 10b5-1 was just changed to add a cooling-off period after amending the plan, you’d think reporting frequency could be at least as rigorous.  I’m sure market norms will develop around sudden changes, but, well, it seems to me to be a recipe for abuse.

Meanwhile, there are already a bunch of…

This post highlights a collection of new developments revolving around recent attacks on shareholder rights, in the name of “wealth maximization,” naturally.

First, a couple of weeks ago, I posted about how Indiana went and passed the model proxy advisor act proposed by “Consumer Defense,” which burdens any proxy advice to vote against management, prompting a lawsuit by ISS. (Mike Levin and I also talked about the act on our podcast.) Well, the update is that Glass Lewis has also filed a lawsuit to challenge Indiana’s law – and it turns out, Kansas passed its own version, so ISS is challenging that one, too.

Second, Texas Capital Bancshares, a Delaware corporation, recently held a vote on a proposal to reincorporate to Texas – which failed, rather convincingly. (Interestingly, an even bigger failure – one might say a resounding one, actually – was TCBI’s “advisory” proposal to adopt a 3% threshold for shareholder proposals if the Texas move were approved).

Now, what’s striking here is that TCBI is not a controlled company; its largest shareholders are BlackRock, Vanguard, T. Rowe Price, Dimensional Fund, and State Street – so presumably, these holders were largely opposed to the…

This week, we have some new developments in the conservative/Trump Admin effort to control and/or undermine shareholder power.

First, we have these new releases from the Department of Labor.

Now, I previously posted about how ERISA regulation could be used to undermine shareholder voting; these new releases come at the problem from a different angle.  They hypothesize that any proxy advisor serving an ERISA-regulated plan is necessarily an ERISA fiduciary – and, as I understand it, that would potentially include proxy advisors who serve mutual funds that are included in a 401(k) menu.  Notably, proxy advisors’ pivots to offering “research only” products won’t save them; the releases explain even providing research might render a proxy advisor an ERISA fiduciary.

The releases also suggest that the funds themselves included in a 401(k) menu – and the investment advisers that serve them, i.e., BlackRock and its stewardship team – are ERISA fiduciaries.  

All of this would dramatically expand the regulatory ambit of ERISA, and though the administration says the implication is that these entities should only act to maximize plan wealth, what they mean is that (1) any measures pertaining to social responsibility will be treated as…

On our podcast, Mike Levin and I previously discussed Exxon’s new retail shareholder voting program.  In sum, Exxon got SEC permission to allow its retail shareholders to adopt standing voting instructions to automatically cast their proxy votes in accordance with Exxon’s management.

I’ve heard a lot of shareholder-rights advocates speak favorably of the program, but I disagree.  I’m all for making it easier for retail shareholders to vote – including allowing them to adopt standing voting instructions (Jill Fisch had a whole thing on this) – but Exxon’s program only allows retail to vote for Exxon’s board.  Exxon is almost certainly expecting that, just as retail tend not to vote much at all, those who opt in to the program will likely never bother to revisit their instructions, leaving Exxon with a banked set of votes to oppose any activist interventions (including, of course, what I call “little a” activism, i.e., shareholder proposals).  The way the program is currently constructed, it’s a board entrenchment device.

Which is why I was happy to see that the New York City Comptroller’s Office, on behalf of the New York City Police Pension Fund, has submitted a shareholder proposal for…

From this Law360 article, I learned that Clearway Energy proposes to simplify a complex capital structure. It has two classes of stock that trade on the NYSE: A and C. The A’s have 1 vote per share; the C’s have 1/100th of a vote per share.

It also has B and D shares, held exclusively by CEG, who as a result controls 55% of the company’s voting power.

Clearview proposes a charter amendment to convert the A shares into C shares and, recognizing that this would cause CEG’s own voting power to increase, proposes to fix that problem by putting a bunch of CEG’s shares into a Voting Trust in a mirror voting arrangement that ensures CEG’s voting power does not rise above 55% as a result of the reclassification.

Here is the proxy explaining the proposed changes. As required under Delaware law, for the amendment to take effect, the Class A shareholders must vote in favor.

Anyway, the Law360 article is about a lawsuit filed by the New England Teamsters Pension Fund challenging the scheme as a conflict transaction, because the scheme will allow CEG to sell down its stake while maintaining its voting power. That’s…