Which is why you get an extra blog post this week.

So I’m reading this entire fairness conflicted controller opinion and right there at the end, VC Laster preemptively wanders into a Caremark discussion – and the reason this is important is it hits on some of the issues I’ve blogged about previously with respect to the (over) extension of Caremark.

The case is Firefighters’ Pension System v. Foundation Building Materials, and I’ve got threads up at other social media spaces of the horror show of fiduciary breaches (help yourself), but here I’ll talk about the Caremark piece, which is tangential to the actual claims but important for theory. 

The traditional rule is that “Delaware law does not charter law breakers,” articulated in In re Massey Energy Co., 2011 WL 2176479 (Del. Ch. May 31, 2011), and part of a general family of cases that fall under the Caremark rubric that requires Delaware managers to take reasonable steps to ensure legal compliance.

Here’s what VC Laster writes in Foundation Building Materials:

timing principles govern Massey and Caremark claims. Before a plaintiff can invoke those theories, the plaintiff must point to some sufficiently concrete corporate injury.

…

Maybe this is a time when other news has overtaken corporate governance disputes, but governance disputes are we do here, so.

Also, what obviously has my attention right now are two issues: the upcoming Tesla vote on Musk’s pay and redomestication to Texas, and the proposed amendments to the DGCL.  This blog post is a couple of quick notes about both.

On the Tesla vote.

I previously blogged that a good argument could be made that restoring Musk’s pay package now offers no economic benefit to Tesla, and therefore would fall into the legal category of waste – which, under current doctrine (even if subject to challenge in the modern era) would require unanimous shareholder approval.  At the time, I offered the reservation that, from a practical perspective, waste would be difficult to litigate (and yes, if shareholders vote in favor, the effect of the vote will absolutely be litigated, by Tornetta, the current plaintiff, if no one else).  That’s because a court might be hesitant to hold that major institutional shareholders – with a fiduciary duty to maximize value for their beneficiaries – would cast an economically irrational vote.  From there, the court might reason backward and conclude that it…

I previously posted about the proposed changes to Delaware law, the latest version of which would allow shareholder agreements insofar as they don’t go further than what a charter – including a preferred share issuance – could allow (except for the exemption from DGCL 115). 

One thing I should have mentioned, though, highlighted by Marcel Kahan and Edward Rock here, is that the difference between a share issuance/charter provision, and a contract, is highly salient for purposes of an exchange listing.  Exchanges define control in terms of voting power, not contractual power; moreover, they prohibit corporate actions that would limit shareholder voting power after listing; dual class shares are fine, they just need to be established prior to listing rather than taking away shareholder voting power mid-stream.  What they don’t address, though, is power through shareholder agreements.  Which means, if the DGCL is amended as proposed, a public company could hand over additional governance powers to particular shareholders through contract, without affecting the formal voting power of existing shareholders, and very possibly remain compliant with Exchange rules.

To put it concretely: Elon Musk has vocally demanded 25% voting power of Tesla so that he…

Earlier this month, VC Glasscock issued an opinion in Kormos v. Playtika Holding UK II, where he dismissed breach of fiduciary duty claims against the Chair/CEO and CFO of a controlled company.  The opinion made reference to an earlier bench ruling where he sustained claims against the company’s controlling shareholder, Giant/Alpha, which is what alerted me to the bench ruling – which issued in January – in the first place.  And that bench ruling is actually what has my attention.

Playtika Holding Corp is a publicly traded company with a controlling shareholder, Playtika Holding UK II Limited (“Holding”).  Holding is a wholly-owned subsidiary of Giant/Alpha.  In 2021, Giant/Alpha faced a liquidity crisis and desperately needed to raise cash, which it sought to do by selling Holding’s Playtika stock, potentially in connection with a sale of the entire company.  But the process was rushed and messy, with Playtika itself and Giant/Alpha running separate inquiries; eventually, Giant/Alpha instructed Playtika’s board to stop talking to potential buyers, but to instead cause Playtika to institute a self-tender for its own stock.  SEC rules require that tender offers treat all shares of a class equally, which meant that the public shareholders – as…

A few weeks ago, I blogged about the proposed amendments to the DGCL, and the questions they raised.  Well, I wasn’t the only one who had concerns, and so, now, there are new amendments to the amendments (which The Chancery Daily has posted here).  And once again, I just got these last night and I read quickly (in the middle of end-of-semester grading) so I reserve the right to be completely wrong, but, here is my quick reaction.

As I explained in my prior post , many of the original amendments were intended as a response to VC Laster’s decision in West Palm Beach Firefighters’ Pension Fund v. Moelis & Co.  Moelis struck down a shareholder agreement that functionally conveyed management power on a particular stockholder, by giving him veto power over most board decisions.  VC Laster held that a board’s authority can only be cabined to such a degree in the charter, including through a preferred share issuance – and he also suggested that there may be some outer limits on how far even a charter provision could go in restricting board authority.

The original proposed DGCL amendments would have overruled Moelis in both respects.  They…

I very much enjoyed Edwin Hu, Nadya Malenko, and Jonathon Zytnick’s new paper, Custom Proxy Voting Advice.   They find that most institutional investors who buy proxy voting advice from ISS and Glass Lewis don’t use their benchmark recommendations, but instead create a tailored set of preferences and get recommendations that are based on those preferences.  Then, in particular cases, they may depart from those recs and vote another way – which in fact appears to happen quite a bit for shareholders who use customized recommendations, because, the authors speculate, the customized recommendations free up attention from less contentious votes, and permit shareholders to focus on the more contentious ones.

The point is important because, first, it may mean that headlines like “ISS recommends XXX” may be less meaningful than we think, because the benchmark recommendation may not be what many clients receive.  And second, these findings continue to demonstrate the folly of the perennial corporate complaints that proxy advisors have too much power and/or shareholders “robovote” in response to proxy advisor recommendations.   The real complaint is that shareholders have too much power and too many preferences, and if that’s the problem – well, management should take it…

Previously, I posted about the grumbles of discontent from the corporate bar regarding several recent Delaware Court of Chancery rulings, resulting in proposals for statutory amendments that seemed somewhat hasty and poorly thought-out.  Sujeet Indap had a piece in the Financial Times about it; before that, there was coverage in a local Delaware outlet.

Now, Law360 reports on a new memo issued by Wilson Sonsini, reminiscent of Martin Lipton’s famous Interco memo, warning that Delaware may no longer be as friendly to business.  From the memo:

In recent months, a conversation has emerged as to whether Delaware should remain the favored state of incorporation for business entities. Indeed, many of our clients have asked us whether they should remain in Delaware or choose Delaware as the state of incorporation for their new ventures. In this discussion, we provide our reflections on that question and various factors that entrepreneurs, investors, and companies should consider when weighing incorporation in Delaware against incorporation in another state. …

In the conversations that we have had with clients, businesspeople, and others in the corporate bar, we have heard the following reasons given for reconsidering incorporation in Delaware:

• A growing

…