Trends in the environmental, social and governance movement 

Aspects of ESG, especially related to investing, continue to be controversial and politically sensitive. Investment funds seeking to take climate risk into account, for example, may end up being accused of sacrificing investors’ interests to ideology. 

The panel took a step back from the heated rhetoric, with Lisa Boyd, managing director at Joele Frank, Wilkinson Brimmer Katcher, reframing ESG as being more about risk management. She distilled it down to an examination of investor expectations, how those tie to the flow of capital, and the ability to operate and grow business over the long term. That filter “can really help cut out a lot of the noise and focus on the most critical aspects,” she said. 

Rick Alexander, founder and CEO of The Shareholder Commons, a nonprofit that advocates system-wide responsibility, noted a big shift in investing that has influenced the discussion. In the past, he pointed out, individuals held most investments, in contrast to today when the bulk of portfolios share risk across funds. That means shareholders may think more big-picture — worried more about the future of the economy as a whole, and less about the value of an individual company, Alexander said. 

He also said there’s a growing sense that divestment, or selling off shares in companies, doesn’t really work — that it just offloads stocks to other people who want them. Rather, Alexander sees stewardship as a better tool. 

ESG is a bad acronym that doesn’t capture the core concept, Atkins of Patomak Global Partners said. The more important angle, he argued, is governance, preventing misuse of company resources. 

He noted lawsuits over pension funds divesting from fossil fuels. 

“I would say that most investors want to have a solid return on their investment,” he said.

Picking the brain of the SEC

Over lunch, attendees got a glimpse into the thinking at the Securities and Exchange Commission (SEC). They heard from Elad Roisman, attorney and former commissioner and acting chairman of the SEC, and Prashant Yerramalli, former chief of staff for current SEC Chairman Gary Gensler. Robert Stebbins, former general counsel for the SEC, served as moderator.

One topic was the role of the SEC in arbitrating disputes, like which shareholder proposals should be included in proxy statements before shareholder votes. Recent proposed policy changes for the SEC brought this into focus. 

Roisman expressed discomfort with the way companies turn to the SEC with disputes about proxy statements, saying, “I don’t think you should have, essentially, [a handful of people] deciding whether a shareholder proposal is a social policy issue that is worthy of all shareholders voting. I think if I were king for a day, I think we would revisit that entire rule.” 

They also delved into changes driven by technology, like rules affecting cryptocurrency and trading apps like Robinhood. 

The SEC has been in a significant battle with large crypto traders like Coinbase over whether these trading platforms have violated the rules. There’s a lot of money on the line in what has been a bit of a Wild West industry, with investors making and losing millions quickly in speculation on digital currencies and tokens. The panelists seemed to hope lawmakers would take some oversight responsibility from the SEC in this battle. 

Part of the issue, as Yeramalli sees it, is that some crypto assets are commodities, some are securities, and they’re all marketed in the same platforms in a way that doesn’t fit neatly into the current regulatory systems. 

Yeramalli doesn’t think there is a path for a completely unregulated financial system as some hope for cryptocurrency. 

“I just don’t think it’s going to work, for a variety of reasons,” he said. “I think people are going to be harmed and lose their money. I don’t think sitting outside the regulatory department is a good idea for the crypto industry, writ large.” 

In the end, he thinks Congress will need to step in.  

Concerns about board liability 

Another major topic was the developing precedent around the 1996 Caremark case, which deals with liability for failures in board oversight. Moderator John White, a partner at Cravath, Swaine and Moore, laid out the context: It’s traditionally been seen as difficult, bordering on impossible, to advance cases in which directors are held liable for failures in a company. But in recent years, many more of these have survived motions to dismiss, and courts have expanded potential liability to company executives. 

Chancellor McCormick sought to ease concerns over directors being exposed to more liability risk, calling the increased discussion of these cases “an interesting but not an alarming story.” 

She said despite more cases getting past the motion to dismiss, there has not been a significant uptick in filings of this kind, and none has gone to trial. She framed recent rulings as simply dispelling the myth that these cases were impossible to file. 

Now, the perception is that it is possible, but probably in more extreme cases, McCormick said. These are a “bright red indicator that something wrong happened. And these don’t tend to be subtle failures … you know, like people die from eating ice cream” (an allusion to a key contamination case involving Blue Bell Creameries). 

Panelist Lawrence Cunningham, a special counsel for Mayer Brown and former professor at George Washington University Law School, praised the value of the conversation for clarifying these cases and easing minds. 

“The broadest arc [from the discussion] is that things are not so bad … directors doing their level best and acting in good faith don’t really have anything to worry about,” he said.

On the court’s role in case law

Another panel unpacked the nuances of MFW, attorney shorthand for the precedent established in the 2014 case Kahn v. M&F Worldwide Corp.  

That precedent deals with the requirements to ensure fairness in cases when a controlling shareholder forces out minority shareholders, or what’s called a squeeze-out merger. 

Melissa Sawyer of Sullivan and Cromwell discussed special committees and transactional practice after MFW. Panelists Hamermesh and Greg Varallo, of Bernstein Litowitz Berger and Grossmann, made counterarguments on the application of MFW. Steven Haas of Hunton Andrews Kurth served as moderator.    

The 2014 case was another step in precedent that has developed over decades. Asked why it took so long, Chief Justice Seitz said, “We’re pretty deliberate about major changes in Delaware corporate law, and I think that’s a good thing. We like to move at the speed of business, but that’s not always best for the highest court in the state.” 

He tells his law clerks, "'We’re not just deciding … for this case, we’re deciding this case for the future. What does it mean for the future when we push any decision out the door?' So we really try and be careful.” 

The impact of diversity efforts on boards

Amid a wide-ranging discussion on how to have an effective board, a panel led by Frank Placenti of Greenberg Traurig reflected on the increased push for diversity on boards.

Mary Beth Vitale, CEO of Pallera, remembered being the first woman to join one particular board and how the men there assumed she would not be joining them for scotch and cigars afterward.

She warned against that kind of unconscious bias and how it can show up. 

“When you bring in a new board member, especially one that’s diverse, whether it be gender, ethnicity or age … listen to them,” she said. “You need to have them feel comfortable enough to voice their opinion, talk about where they came from, ideas they have.”  

That kind of leadership needs to come from the chair, she said, “otherwise it’s an uphill battle.” 

Regarding cultural divisions on a board, James Cole of the Jasco Group has yet to see as much of that as expected. 

“There was a fear that [these] subgroups could form along the lines of gender, along the lines of race,” he said. Instead, while interest groups may form, they often don’t do it along anticipated diversity lines, he said. 

In cases where there is a fracture among different groups, it comes on boards with a poor culture that have not been proactive and stepped in to address issues, he said, also citing the importance of leadership in this process.  

Top-of-mind topics in the state where it happens

“There’s really just a good mix of people talking about issues that are very pertinent to practitioners in the corporate governance space,” said Ron Llewellyn, counsel at Fenwick and West, who is based out of the firm’s New York office. 

He was glad for the peek behind the curtain at the SEC. 

“Having the perspective of former commissioners was particularly helpful because they were able to provide some inside perspective and perspective and some insight on timing for certain rules, and considerations that the SEC and the staff [have] when they enact these rules,” he said.

Gillian Andrews, a corporate litigator with Heyman, Enerio, Gattuso and Hirzel, also valued the SEC portion. These topics are top of mind, “so to get to hear from people who were in the trenches, and know that agency from the inside, was really cool,” she said. 

Her co-worker Elena Sassaman, an associate at the firm, appreciated the closing discussion on board diversity. 

“I thought it was [an] important conversation to have,” said Sassaman, a UD alumna who earned an honors bachelor's degree in political science in 2016. “I think it definitely shows that there’s still more work to do, but there’s definitely an eye towards the future.”