Join lawyers from Sullivan & Cromwell LLP as they share insights into the latest developments in law, business and policy. Whether your interests are litigation or regulation, corporate or tax, emerging topics or industry-specific developments across the globe, S&C Critical Insights can keep you informed about the most pressing issues facing our world and your business today. Content may include attorney advertising.
In this episode of S&C's Critical Insights, Nader Mousavi, Co-head of S&C's Artificial Intelligence Practice, and Jay Clayton, Senior Policy Advisor and Of Counsel to S&C, discuss key considerations for boards in their oversight of a company's AI technologies and policies, and how to build an effective AI governance framework. Boards should stay informed and be proactive, Nader and Jay note. With regulations around AI still evolving, having a robust governance framework can protect a company from potential legal issues and enhance a company's reputation for responsible and ethical AI use. Disclaimer: This is not legal advice.
In this episode of S&C's Critical Insights, Bill Monahan, Head of S&C's Products Liability & Mass Torts Group, and Shane Palmer, an associate in the Firm's Litigation Group, examine the new proposed Rule 16.1 of the Federal Rules of Civil Procedure, which the Judicial Conference of the United States' Advisory Committee on Civil Rules recently voted to adopt as the first rule governing multidistrict litigation. They discuss the original proposal for Rule 16.1 that was published last year, the defense and plaintiffs bars' reaction to the proposed rule, and the final proposed rule that was adopted last month and its implications for MDLs. Since Congress passed the Multidistrict Litigation Act in 1968 and created the MDL process, there have been no specific rules dictating how judges should manage MDLs, beyond the Federal Rules of Civil Procedure that apply in every federal civil case. In 2017, the Advisory Committee established an MDL Subcommittee to consider whether new rules should be added to address the unique challenges of MDLs. Rule 16.1, which is designed to guide MDL courts in addressing the various and complex issues unique to MDL proceedings, is the first proposed rule to come out of the MDL Subcommittee's efforts.
In this episode of S&C's Critical Insights, Annie Ostrager, Co-Head of S&C's Labor & Employment Group, and Jeannette Bander, a partner in S&C's Executive Compensation Group, provide an update on the FTC's final rule containing a sweeping ban on non-compete agreements.
In this episode of S&C's Critical Insights, Annie Ostrager, Co-Head of S&C's Labor & Employment Group, and Jeannette Bander, a partner in S&C's Executive Compensation Group, discussed non-compete agreements and the evolving nature of their enforceability, including developments at the federal and state level.
In this episode of S&C's Critical Insights, Sharon Cohen Levin, Craig Jones and Eric Kadel, Co-Heads of S&C's National Security Practice, Adam Szubin, Of Counsel in S&C's National Security Practice, and Andrew DeFilippis, Special Counsel in S&C's National Security Practice, continue their discussion of significant developments in national security enforcement.
In this episode of S&C's Critical Insights, Sharon Cohen Levin, Tony Lewis and Eric Kadel, Co-Heads of S&C's National Security Practice, Adam Szubin, Of Counsel in S&C's National Security Practice, and Andrew DeFilippis, Special Counsel in S&C's National Security Practice, continue their discussion of significant developments in national security enforcement.
In this episode of S&C's Critical Insights, Annie Ostrager, Co-Head of S&C's Labor & Employment Group, and Kamil Shields, a partner in S&C's Litigation Group, discussed recent developments in whistleblower enforcement investigations and new whistleblower programs. Annie and Kamil cover the increase in enforcement actions and investigations into employment and other agreements that the SEC and other regulators view as potentially impeding, preventing or discouraging whistleblower activity. They also discuss new programs aimed at further incentivizing whistleblower reporting to the government, such as the Whistleblower Pilot Program created by the United States Attorney's Office for the Southern District of New York.
Ten years ago, international companies typically needed to monitor national security developments only if they were doing business with a U.S. government agency or operating in higher risk jurisdictions or sectors such as military or dual-use goods. Over the past decade, however, Western governments—led by the United States—have expanded the use of sanctions, export controls, import restrictions and investment laws to more jurisdictions and more sectors, requiring nearly every multinational company to be attuned to and anticipate developments in these laws and regulations, including those seeking to prevent espionage, theft of trade secrets, cyber attacks and other similar threats. In addition, the governments of nations such as Russia and China have enacted an array of sanctions, export and other control measures, which can subject multinational companies to highly challenging situations with conflicting sanctions regimes. In this environment, companies and financial institutions must address a range of national security risks and considerations when establishing or executing their business operations, legal decision-making and compliance programs. In this podcast, former federal prosecutors Sharon Cohen Levin, Nicky Friedlander, Tony Lewis and Amanda Houle discuss major developments in national security enforcement, including the Department of Justice's increased focus on this area. Sharon led the Money Laundering and Asset Forfeiture Unit in the U.S. Attorney's Office for the Southern District of New York for two decades; Nicky is a former Chief of the Complex Frauds and Cybercrime Unit in the U.S. Attorney's Office for the Southern District of New York; Tony was the Deputy Chief of the Terrorism and Export Crimes Section in the U.S. Attorney's Office for the Central District of California; and Amanda was Co-Chief of the National Security & International Narcotics Unit in the U.S. Attorney's Office for the Southern District of New York.
In this episode of S&C's Critical Insights, Michelle Chen, a partner in S&C's Financial Services Group, and June Hu, special counsel in the Firm's General Practice Group, provide key takeaways for financial institutions as they navigate environmental, social and governance considerations in 2024. Michelle and June review key ESG developments in 2023, noting a trend of growing divergence in ESG requirements and expectations at the international, federal and state level. This trend creates uncertainty and challenges for financial institutions. In light of the uncertainty and rapid developments in the ESG space, Michelle and June offer practical guidance for financial institutions, including the need to continue to closely monitor the changing ESG landscape and to adopt a coordinated approach to compliance in order to mitigate the risks of fragmented and reactive responses.
In this episode of S&C's Critical Insights, Senior M&A Partner Frank Aquila and Global Head of M&A Melissa Sawyer discuss major takeaways from M&A in 2023 and potential developments for 2024. While we avoided a recession in 2023, ongoing economic uncertainty, rising interest rates, regulatory headwinds and geopolitical tensions contributed to a second year of falling activity levels in global M&A following 2021's record-breaking year. M&A deals continued to face scrutiny from antitrust and foreign investment regulators in the United States and globally. In 2023, the EU adopted its new Foreign Subsidies Regulation, and in the United States, the FTC and DOJ proposed changes to the HSR rules and issued Draft Merger Guidelines. Cross-border M&A activity remained significant at $707 billion during the first nine months of 2023, but was down 21 percent compared to a year ago. Geopolitics, sanctions and foreign investment and competition regulation explain some of the trends in cross-border M&A, as investment pivots to align with countries' political affiliations. Frank and Melissa expect to see more blends of traditional acquisition financing mixed with private credit solutions in 2024. They anticipate a significant uptick in activity this year with an increase in strategic buyers executing on deals, private equity buyers and a rebound in the cross-border deals.
In this episode of S&C's Critical Insights, Marc Treviño and Melissa Sawyer, Co-Heads of S&C's Corporate Governance Practice, discuss corporate governance developments and what to expect in 2024. Marc and Melissa explore the ongoing trend of increased shareholder proposals focused on environmental, social and political topics and touch on ESG as it relates to the broader legislative and political climate. ESP-focused shareholder proposals and ESG issues are at the center of a growing web of legislation and government actions at multiple levels. They also note that companies may be looking to implement an officer exculpation provision in 2024.
In this episode of S&C's Critical Insights, Julie Jordan, Tracy Richelle High and Annie Ostrager, Co-Heads of S&C's Labor and Employment Group, discuss the Supreme Court's decision in two consolidated cases against Harvard and the University of North Carolina. The Court held that the schools' admissions programs—both of which used race as an explicit factor in admissions decisions—violated the Fourteenth Amendment's Equal Protection Clause and Title VI of the Civil Rights Act of 1964, which prohibits discrimination in education. Julie, Tracy and Annie examine pending employment and contracting cases that may be affected by the Court's decision, cover related shareholder proposals and offer guidance for employers, including reviewing hiring and promotion processes and procedures to examine whether any decisions are expressly based on race, gender or other protected classes.
In this episode of S&C's Critical Insights, Connor Schillerstrom from our Sydney office, John Anselmi from our Melbourne office and Sam Saunders from our New York office discuss how Australia and the United States are working together to address climate change. Connor, John and Sam provide insight on how Australia might benefit from the Australia-United States Climate, Critical Minerals and Clean Energy Transformation Compact, which was formed this year to provide a framework for the countries to work together to reduce the cost of clean energy technologies and lay the foundation for the global clean energy economy. They also discuss the possible designation of Australia as a “domestic source” for purposes of the U.S. Defense Production Act, which would provide benefits to Australian companies operating under certain contracts with the U.S. government. Finally, they provide an overview of loans and tax credits under the U.S. Inflation Reduction Act that are available for Australian companies with critical minerals and clean energy projects in the United States.
In this episode of S&C's Critical Insights, Melissa Sawyer, Global Head of S&C's M&A Group, and Joe Matelis, a partner in S&C's Antitrust Group, discuss how the draft merger guidelines issued by the Department of Justice and Federal Trade Commission may affect M&A deals. Joe, who helped develop the 2010 horizontal merger guidelines that would be replaced by the new guidelines, notes that the new guidelines would create more uncertainty about what kinds of mergers the government is going to choose to challenge. Joe expects that the government is most likely to focus on merger activity by so-called dominant firms that have more than a 30 percent market share, even though a much broader set of concerns is raised in the new guidelines. He also expects that going forward courts may not give as much credence to the new guidelines given their break from prevailing tradition, and thus paradoxically the new guidelines may make it harder for the government to prevail in court. Melissa points out some of the practical ways the draft guidelines might impact M&A deals. Parties would need more advance planning around potential antitrust issues, with hostile and topping bidders in particular needing to create clear plans to obtain timely clearances. She also would expect to see a shift in antitrust risk allocation provisions, including changes in reverse break fees, operating restrictions that apply between signing and closing, and “hell or highwater” clauses.
In this episode of S&C's Critical Insights, Annie Ostrager and Tracy Richelle High, Co-Heads of S&C's Labor & Employment Group, discuss the Supreme Court's June 16 decision in United States ex. rel. Polansky v. Executive Health Resources and implications for qui tam whistleblowers. The False Claims Act (FCA) authorizes qui tam actions by private parties, called “relators,” who sue on behalf of the United States. The government may intervene and take over litigating the case during the “seal period”—the window at the outset of the action during which the case is sealed. If the government chooses not to intervene, the relator litigates the action. But the government has a right to intervene later for “good cause.” In Polansky, the government chose not to intervene during the seal period, but years later, moved to dismiss the case. The relator argued that the government could not do so because it had not intervened during the seal period. The government responded that it could move to dismiss without intervening at all. The Supreme Court adopted neither position. Instead, it held that the government may move to dismiss over a relator's objection an FCA action so long as it moved to intervene at some point. Annie and Tracy note that the qui tam provision of the FCA remains a powerful tool for prosecutors to encourage whistleblowers to come forward. But a relator's path to success may seem more uncertain after the Court's decision.
In this episode of S&C's Critical Insights, Annie Ostrager and Tracy Richelle High, Co-Heads of S&C's Labor & Employment Group, discuss recent developments in the Securities and Exchange Commission's whistleblowing program. The Sarbanes-Oxley Act, as modified by the Dodd-Frank Act, provides protections and incentives for whistleblowers who report potential violations of the securities laws. Dodd-Frank also incentivizes potential informants to come forward by authorizing the SEC to grant awards to whistleblowers. Annie and Tracy discuss two recent amendments by the SEC to its whistleblower program that appear to reflect the agency's readiness to grant more and larger awards. One authorizes the SEC to make awards for related, non-SEC actions, even if they may be more directly connected to other agencies. The second gives the SEC discretion to grant a larger award in appropriate circumstances. They also discuss two cases recently brought by whistleblowers against the SEC in the Third and Fifth Circuits involving the agency's denials of whistleblower awards.
In this episode of S&C's Critical Insights, associates from our London, Paris and Frankfurt offices—Costanza Posarelli, Matt Triggs, Alexis Madec and Stephan Rauch— discuss key considerations for carve-out transactions for EU and U.K. businesses, and their recent experience assisting S&C clients with these complex transactions. In the current economic climate, many companies are evaluating whether they are deploying their assets in a way that maximizes value, and financial sponsors are open to more complex opportunities. Carve-out transactions, in either an M&A or a spin-off context, can be a particularly attractive option. In either context, there are several considerations to keep in mind, including tax aspects and impacts on financing arrangements for the parent company; the need for third-party consents; the relationship between the carved-out business and parent company going forward; and, if the company opts for a spin-off, the choice of listing venue and potential flowback risks.
In this episode of S&C's Critical Insights, Jeff Scott and Julia Malkina, Co-Leads of S&C's Securities Litigation Practice, discuss the Supreme Court's June 1 decision in Slack Technologies v. Pirani and the potential implications for securities litigation. Slack Technologies went public through a direct listing, which allows existing shareholders to sell their unregistered securities on the first day of public trading at the same time as the company's registered shares are sold. Slack claimed that the plaintiff in this case lacked standing to sue because he could not trace the purchase of his Slack shares to the registration statement. The issue before the Court was whether Section 11 of the Securities Act of 1933 requires plaintiffs to plead and prove that they purchased securities registered under the registration statement they allege is materially false or misleading. In a win for defendants, the Supreme Court unanimously held that the plaintiffs must plead and prove these facts, reversing the U.S. Court of Appeals for the Ninth Circuit. Jeff and Julia discuss how the ruling reaffirms the longstanding interpretation of Section 11 and note that the Court's decision could encourage more companies to go public through a direct listing. The ruling might also encourage legislative efforts to improve tracking of the ownership and registration of securities, including through the use of blockchain technology.
In this episode of S&C's Critical Insights, Inosi Nyatta, Isaac Wheeler and Sam Saunders discuss the unanswered questions about requirements and qualifications for receiving tax credits for clean energy projects under the Inflation Reduction Act (IRA). The IRA, which was passed in August 2022, is the largest investment in clean energy in U.S. history and is expected to unleash a new wave of energy transition projects across the United States. It introduced new or enhanced credits for renewable energy, clean electricity investment and production, energy storage, clean hydrogen, electric vehicles, clean technology manufacturing, sustainable fuels and carbon capture. While the IRA has opened up numerous opportunities for energy transition projects, there are still a number of uncertainties, including final rules on direct pay and transferability, the potential impact of the OECD's Pillar Two rules and how debt ceiling discussions may impact availability of IRA tax credits.
In the webinar “Pharmaceutical Deal Outlook: U.S. and European Perspectives,” Frank Aquila, Matt Hurd, Carsten Berrar, Olivier de Vilmorin and Jeremy Kutner discuss the outlook for M&A deals in the sector. The group of partners, who came together from S&C's New York, Frankfurt, Paris and London offices, focus in particular on outlining how patent law impacts the tenor of mergers and acquisitions, how the regulatory landscape in both the United States and Europe is affecting dealmaking, and the different considerations for acquirers as opposed to sellers.
In this episode of S&C's Critical Insights, Juan Rodriguez, Co-Head of S&C's European Competition Group and the Firm's Antitrust Group, and associate Marielena Doeding discuss the European Court of Justice's ruling in the Fiat case and its implication for future state aid investigations. This landmark judgment—in which the Court of Justice annulled a General Court judgment and European Commission decision –clarified the parameters under which the Commission may investigate individual tax rulings under state aid rules. Although the judgment reaffirms that the Commission may investigate tax measures for compliance with state aid rules, in doing so, it cannot apply its own version of the arm's length principle to tax measures; in particular, it cannot apply the arm's length principle to tax measures in jurisdictions unless – and then only to the extent that – the law of the jurisdiction incorporates that principle. Instead, the Commission must carefully consider national tax rules to assess whether or not a measure confers a selective advantage for state aid purposes. Sullivan & Cromwell represented Fiat in this litigation.
In this episode of S&C's Critical Insights, partners Audra Cohen, Frank Aquila and Melissa Sawyer share important updates for dealmakers in the consumer and retail sector following the COVID-19 pandemic. Frank and Melissa discuss the impact of support legislation on various business models and explore how a continued shift in consumer priorities and product availability might change fundamental aspects of future M&A in these industries.
In this episode of S&C's Critical Insights series, Sergio Galvis, head of the Firm's Latin America practice, outlines best practices for companies making cross-border acquisitions in view of updates to the FCPA Resource Guide issued by the U.S. Department of Justice and the Securities and Exchange Commission. With increased cooperation by regulators and law enforcement authorities across jurisdictions leading to more enforcement actions, acquirers should reevaluate their due diligence and compliance programs under these guidelines. Sergio addresses topics including: • designing and implementing an effective risk-based due diligence program for M&A, • the benefits of voluntary disclosure to the authorities of potential corruption issues, • the implementation of an effective compliance program, and • the importance of integration and remediation under the guidelines.
In this episode of S&C's Critical Insights podcast series, Olivier de Vilmorin, head of the Firm's European M&A practice, discusses the measures proposed by France's securities regulator, the Autorité des marchés financiers (the “AMF”), concerning shareholder activism. Following a growing number of activist campaigns in France over the past several months, the AMF has clarified its position with pragmatic and constructive proposals to better control excessive behavior in shareholder activism campaigns, without preventing them. Olivier explores how these proposals will improve transparency and dialogue between shareholders and issuers and also strengthen AMF's response capabilities during activist campaigns.
S&C partners Jim Bromley and Andy Dietderich, the co-heads of our Global Restructuring practice, discuss strategies for boards confronting the “zone of insolvency” during the COVID-19 crisis.
S&C partners Carsten Berrar, Krystian Czerniecki and John Horsfield-Bradbury discuss the impact of the COVID-19 crisis on capital raising in Europe, and how issuers can adjust structures to address the current situation.
In this episode of S&C's Critical Insights, Inosi Nyatta, Craig Jones and Sam Saunders discuss new and proposed regulations involving critical minerals in the United States and European Union. Critical minerals, referred to as critical raw materials in the EU, are generally defined to include, among others, cobalt, graphite, lithium, manganese, nickel and rare earth minerals and are key components to clean energy technologies (in particular batteries) and other high-tech products. In the United States, the Inflation Reduction Act (IRA), which was passed in August 2022, provides an estimated $369 billion in investments in energy security and climate change programs and also creates significant tax incentives for critical minerals to be extracted, processed and/or recycled in the United States or countries that are trade partners with the U.S. Proposed by the European Commission in March 2023, the Critical Raw Materials Act (CRMA), aims to secure the EU's supply of critical raw materials and bolster Europe's own extraction, processing, refining and recycling of strategic raw materials. The CRMA would create a European Critical Raw Materials Board, set EU-wide targets for annual consumption of strategic raw materials, and establish a streamlined permitting process for strategic projects. However, unlike the IRA, it does not provide any additional funding.
In this episode of S&C's Critical Insights podcast series, Alex Willscher, Deputy Managing Partner of S&C's Criminal Defense and Investigations Group, and Aisling O'Shea, co-head of the Firm's FCPA and Anti-Corruption Group, discuss recent changes to the U.S. Department of Justice Criminal Division's guidance on its evaluation of corporate compliance programs. Alex and Aisling identify key changes from the DOJ's guidance this past April, unpack what the DOJ may be attempting to achieve with these changes, and explore considerations for corporate legal, compliance and other professionals in light of these updates.
In this episode of S&C's Critical Insights, Annie Ostrager and Diane McGimsey, Co-Heads of S&C's Labor & Employment Group, discuss two recent decisions from the U.S. Court of Appeals for the Second and Ninth Circuits involving preemption and Section 1 of the Federal Arbitration Act. They analyze how those courts interpreted two recent U.S. Supreme Court decisions addressing the FAA's scope in the employment context: Viking River Cruises v. Moriana and Southwest Airlines v. Saxon. In Bissonnette v. LePage Bakeries Park St., the plaintiffs, who delivered baked goods to stores and restaurants, claimed they were transportation workers, which would exempt them from Section 1 of the FAA. The Second Circuit held that because the plaintiffs charged for the baked goods, the transportation was incidental and the plaintiffs were in the baked goods industry and therefore not excluded from the FAA. After the Supreme Court issued its Saxon ruling a month later, the Second Circuit panel reconsidered Bissonnette, but adhered to its original ruling, which affirmed the district court order compelling arbitration. In Chamber of Commerce v. Bonta, a divided Ninth Circuit panel examined a California law, A.B. 51, that broadly prohibits employers from requiring mandatory arbitration agreements. Reversing a district court, the majority held that the A.B. 51's restrictions are valid but could not be enforced if an unlawful agreement was entered into. After the Supreme Court issued its ruling in Viking River Cruises, the Ninth Circuit panel reheard the case and came to the opposite conclusion, upholding the district court's injunction against A.B. 51. Annie and Diane said that in light of the Chamber of Commerce ruling, they expect California employers who had temporarily gotten rid of their arbitration agreements to be revising those policies. The Saxon and Bissonnette decisions left things less clear, but clients may wish to reexamine arbitration agreements to ensure employees' work is characterized properly.
In this episode of S&C's Critical Insights, Isaac Wheeler and Davis Wang, Co-Heads of S&C's Tax Group, discuss the IRS's year-end guidance in areas including the scope of the stock buyback tax and the Foreign Investment in Real Property Tax Act (FIRPTA). Isaac and Davis start off by discussing Internal Revenue Code Section 4501, commonly referred to as the one percent buyback tax, which is intended to encourage corporations to reinvest excess cash in their operations rather than buy back stock. The IRS clarified that some transactions will not be considered buybacks, such as corporate liquidations for many SPACs, while redemptions of preferred stock do appear to be subject to the tax. On FIRPTA, they discussed guidance to determine in if an entity qualifies for an exemption from U.S. real property holding company status, including whether the IRS will look through partnerships and certain corporations.
In this episode of S&C's Critical Insights, Michelle Chen, a partner in S&C's Financial Services Group, and June Hu, an associate in the Firm's General Practice Group, discuss key ESG considerations for U.S. financial institutions in 2023. Michelle and June recap recent ESG-related legal and regulatory developments in the banking, asset management and insurance sectors. The OCC, FDIC and the Federal Reserve proposed principles for climate-related financial risk management for large financial institutions, and the federal banking regulators plan to work together to issue consistent interagency guidance. State-level regulators, including the New York Department of Financial Services, are beginning to propose climate-related guidance which is intended to align with the work of federal and international banking regulators. A key development in 2022 was the SEC's proposal of climate disclosure rules. Michelle and June discuss the impact that the proposed rules may have on financial institutions, as well as the impact of overlapping ESG-related requirements from lawmakers abroad, including in the United Kingdom and the European Union. Michelle and June also examine other ESG challenges that financial institutions may face, including “anti-ESG” scrutiny around climate targets and memberships in net-zero alliances, increased regulatory enforcement and litigation risk related to ESG and the potential impact of the Supreme Court's decision last year in West Virginia v. EPA on U.S. federal agencies' ability to regulate ESG activities.
In this episode of S&C's Critical Insights, Annie Ostrager, a Co-Head of S&C's Labor & Employment Group, and Kamil Shields, a member of the Firm's Criminal Defense & Investigations Group, provide an update on recent developments in whistleblower enforcement in the United States under the False Claims Act (“FCA”). Annie and Kamil discuss recent Department of Justice enforcement activity involving whistleblowers under the FCA's qui tam provision, which permits private citizens with knowledge of fraud to sue on behalf of the government. In particular, several of the matters involved the healthcare industry, underscoring that this an active area for qui tam litigation and enforcement actions. In addition, Annie and Kamil discuss several qui tam cases currently pending before the U.S. Supreme Court. One of those cases, United States, ex rel. Jesse Polansky v. Executive Health Resources, Inc., addresses the issue of whether the government has the authority to dismiss a FCA suit after declining to proceed with the action. The Supreme Court will also hear argument on two consolidated cases from the Seventh Circuit regarding the applicable standard for scienter under the FCA. The Supreme Court's decisions in these cases will be of critical importance for FCA whistleblowers and entities contracting with the government more broadly.
In this episode of S&C's Critical Insights, Steve Peikin, who leads S&C's Securities & Commodities Investigations Practice, and Jeff Scott and Julia Malkina, co-leads of the Firm's Securities Litigation Practice, review recent private securities litigation trends. Steve, Jeff and Julia discuss numerical trends in private securities litigation. Although such litigation has slowed overall, certain types of lawsuits, including those with ESG and SPAC-related claims, have increased. The episode also explores recent court rulings from the Second Circuit, the Ninth Circuit and the California Court of Appeal with significant implications for securities litigation, as well as noteworthy developments in cryptocurrency-related filings. For an in-depth discussion of these topics, read S&C's Securities Enforcement and Litigation Update.
In this episode of S&C's Critical Insights, Melissa Sawyer, Lauren Boehmke and Susan Lindsay analyze trends and developments in shareholder activism and activist settlement agreements over the past year. They also highlight a few factors that are likely to shape activism throughout 2023. Among the topics discussed, the group examined the record-breaking activist campaign activity in the first quarter of 2022, which persisted despite the continued market volatility and macroeconomic uncertainty that dampened activity levels in 2020 and 2021. Additionally, they explored how the nature of campaigns shifted in 2022, with a greater focus on corporate strategies and operations and a reduced focus on capital allocation and M&A. Companies have shown greater resistance to activist demands, they noted, by adopting shareholder rights plans and settling with activists more slowly. This led to decreased success in activists obtaining board seats compared to recent years. They explained that shareholder activism activity in 2023 is expected to be impacted by a variety of factors, including new and proposed policies for institutional investors, new universal proxy rules, the DOJ's enhanced scrutiny of interlocking directorates under Section 8 of the Clayton Act, upcoming implementation of the Inflation Reduction Act and the potential adoption of the SEC's proposed rules on share buybacks and amendments to Schedule 13D. For more information about this topic, read S&C's review of 2022 U.S. Shareholder Activism and Activist Settlement Agreements.
In this episode of S&C's Critical Insights, Steve Peikin, who leads S&C's Securities & Commodities Investigations Practice, and Jeff Scott and Julia Malkina, co-leads of the Firm's Securities Litigation Practice, discuss the priorities of the Securities and Exchange Commission's Enforcement Division and enforcement trends. Steve, Jeff and Julia discuss the SEC's enforcement and regulatory activity relating to ESG disclosures, digital assets and SPACs. They also highlight the SEC's focus on insider trading, market manipulation and recordkeeping. The episode concludes with a review of court challenges to the SEC's enforcement powers. For an in-depth discussion of these topics, read S&C's Securities Enforcement and Litigation Update.
In this episode of S&C's Critical Insights, Senior M&A Partner Frank Aquila and Global Head of M&A Melissa Sawyer discuss major takeaways from M&A in 2022 and potential developments for 2023. Following a record-setting year in 2021, a numbers of factors at the beginning of 2022, including soaring inflation, rising interest rates and geopolitical events, such as Russia's invasion of Ukraine and the deterioration of U.S.-China relations, led to some of the slowest quarters in M&A globally since the onset of the pandemic. The regulatory landscape for mergers has also shifted, both in the United States and globally, with the Federal Trade Commission and U.S. Department of Justice under the Biden administration taking a more aggressive approach to antitrust enforcement, especially in the labor, agriculture, healthcare and tech sectors. Despite the agencies' willingness to bring enforcement actions and litigation against proposed mergers, judges have frequently relied upon existing precedent to rule in favor of merging companies. De-SPAC transactions have seen increased focus as well, both from regulators and litigants, resulting in the demise of SPACs throughout last year, which is expected to continue into 2023 and beyond. Despite a general slowdown, several factors may lead to an uptick in activity in the first quarter of 2023, such as the strength of the U.S. dollar, a continued push for M&A activity by activists in the United States and abroad, the death of potential antitrust bills in Congress and the shift to more realistic projections from potential target companies, which make it more likely for buyers to make attractive offers.
In this episode of S&C's Critical Insights, Tax Group co-heads Isaac Wheeler and Davis Wang welcome the Firm's Government Affairs Specialist, Tom Mullins, to discuss anticipated developments in U.S. tax policy following the midterm elections. With Democrats and Republicans narrowly controlling the Senate and House, respectively, it is unlikely that the United States will see significant standalone tax policy passed in the next two years. However, progress is possible on a few fronts, including the Extenders Bill, which would extend expiring deadlines for a range of tax legislation, and the Secure 2.0 Act, which will give part-time workers better access to retirement benefits and increase the age when required minimum distributions must start. Some tax legislation could also become law by being included in a must-pass bill, such as the National Defense Authorization Act. Most likely, changes to tax policy will occur at the Treasury- or IRS-level rather than through Congressional action, although political dynamics and other factors could slow policymaking in those arenas as well. They also discuss how the new balance of power in Congress could make it more difficult for the United States to align with global tax initiatives, such as the Organisation for Economic Co-operation and Development's Pillar II proposals for a global minimum corporate tax.
In this episode of S&C's Critical Insights, Melissa Sawyer, the Global Head of S&C's M&A practice, is joined by Carsten Berrar, the Managing Partner of the Firm's Frankfurt office, and Olivier de Vilmorin, the Head of the Firm's European M&A practice, to discuss cross-border M&A transactions in the current economic environment. Carsten and Olivier discuss some of the macro-economic trends impacting the European market, including the energy supply crisis, inflation, recession as well as transformational issues, such as the mobility car industry. Additionally, heightened Antitrust scrutiny and an increased relevance of Foreign Direct Investment (FDI) Screening add to deal complexity and have reduced the pace of M&A transactions significantly. Despite these factors, a significant number of deals have been struck in the energy, infrastructure and cybersecurity sectors in Europe. Cautiously optimistic, Carsten and Olivier expect a significant number of P2P, carve-out and distressed M&A transactions in the coming months. Moreover, China's softening of pandemic restrictions and the slowdown of inflation in the United States have had a positive impact on the European markets and could provide a boost for M&A deals. Melissa provides a U.S. perspective of the market for cross-border transactions into Europe. She points out that this is a great time for U.S. acquirers to be thinking about making investments in Europe as the market is less competitive than in recent years.
In this episode of S&C's Critical Insights, Litigation partners Brendan Cullen and Tony Lewis provide an update and some key takeaways for building and sustaining an effective compliance program in light of recent remarks from Department of Justice officials, including September comments by Deputy Attorney General Lisa Monaco. Brendan and Tony build on their previous podcasts from 2020 and 2021 and discuss the agency's enforcement priorities and its newest compliance expectations. These developments come at a time when U.S. enforcement agencies appear to be increasingly focused on corporate compliance. Topics include the DOJ's focus on data analytics in testing the effectiveness of a company's compliance function and culture, using compensation systems to provide incentives or disciplinary measures to improve compliance, and on companies' use of electronic messages on personal devices. For more information about compliance programs, read Brendan and Tony's chapter in the Latin Lawyer Guide to Corporate Compliance, “Developing a Robust Compliance Programme in Latin America.”
In this episode of S&C's Critical Insights, S&C Partners Rita-Anne O'Neill and Joe Matelis provide an overview of Section 8 of the Clayton Act and discuss how the Department of Justice's recent enforcement actions may affect private equity firms.
In this episode of S&C's Critical Insights, Julia Malkina, the co-lead of S&C's Securities Litigation practice, is joined by Judd Littleton, the co-head of the Firm's Supreme Court and Appellate practice, to discuss the upcoming Supreme Court oral argument in SEC v. Cochran and the case's potential implications for SEC enforcement actions. In SEC v. Cochran, the Court will decide whether federal district courts have jurisdiction to consider structural constitutional claims that challenge ongoing SEC administrative proceedings. Julia and Judd discuss the background of SEC v. Cochran, the key issues and arguments before the Supreme Court, and how the Court's decision may affect SEC enforcement actions going forward.
In this episode of S&C's Critical Insights, Isaac Wheeler and Davis Wang, Co-Heads of S&C's Tax Group, are joined by Morgan Ratner from the Firm's Supreme Court and Appellate practice, to discuss In Re Grand Jury, a case in which the U.S. Supreme Court recently granted certiorari to address when “dual purpose” communications are afforded attorney-client privilege. In In re Grand Jury, an unnamed law firm that specializes in international tax issues was asked to turn over documents that the firm argued are protected by the attorney-client privilege. The dual purpose communications at issue were made with the purpose of obtaining legal advice, which is generally privileged, and discussing the preparation of the client's tax returns, which is not generally protected. A federal district court held the firm in contempt for its failure to produce the documents, and the U.S. Court of Appeals for the Ninth Circuit upheld that ruling. Morgan, Davis and Isaac also explore hypothetical scenarios to showcase the challenges of distinguishing legal advice from what has been determined to be non-legal advice, especially in the tax field.
S&C Corporate Governance co-heads Marc Treviño and Melissa Sawyer conclude their discussion of shareholder proposal trends from the 2022 proxy season by discussing governance proposals. They note that nearly all of the increase in shareholder proposals over the past decade is due to environmental, social and political proposals, as opposed to governance proposals. Still, governance proposals raise important issues and their proponents have become sophisticated about how they submit these proposals. Proposals seeking to lower the threshold of ownership needed for shareholders to call a special meeting was the largest category of structural governance proposals this year. Marc and Melissa note that the companies that defeated these proposals mostly demonstrated that the requested threshold would essentially give too much power to a single shareholder or to a couple of large holders. Click here to learn more about S&C's 2022 Proxy Season Review and watch our recent webinar.
S&C Corporate Governance co-heads Marc Treviño and Melissa Sawyer continue their discussion of shareholder proposal trends from the 2022 proxy season. In this episode of S&C's Critical Insights, they explore social and political proposals, including in increase in those from so-called “anti-ESG” proponents. This year saw big growth in social and political proposals, with an 81 percent increase in civil rights, human rights and racial equity impact-related proposals. Marc and Melissa explore the different categories of social and political proposals, including those calling for racial equity audits and civil rights audits and challenges to corporate political spending. In prior years, this category was largely taken up by DEI-related proposals. This year, proposals increasingly focused on workplace characteristics, harassment, inadequate paid sick leave, employee health and safety issues. Click here to learn more about S&C's 2022 Proxy Season Review and watch our recent webinar.
In this episode of S&C's Critical Insights, Sarah Payne, John Savva and Melissa Sawyer are joined by Kelly Sullivan, partner at communications firm Joele Frank, and Scott Winter, managing director at proxy solicitation firm Innisfree, to discuss the new universal proxies required by the Securities and Exchange Commission. They discuss how companies can prepare for these proxies, which must include all director nominees properly presented for election, and what to expect for the upcoming season. The group discussed how the new ballots will likely lead to more activism, especially from smaller investors, and how companies can respond. On a positive note, the new proxy process has spurred many companies to refresh their bylaws to better address this new process.
Corporate Governance co-heads Marc Treviño and Melissa Sawyer and associate June Hu continue their discussion of shareholder proposal trends from the 2022 proxy season, discussing trends in environmental proposals, as well as how to prepare for 2023. Environmental proposals have steadily increased over the past decade, with an explosion in 2021 and 2022. In 2021, these proposals rose 40 percent year-over-year and this year they jumped a further 38 percent. With proponents more reluctant to settle and the Securities and Exchange Commission less likely to grant no-action relief, 78 percent more environmental proposals reached a shareholder vote compared to 2021. One of the most notable trends was the increased granularity of these proposals. Correlated with this increasing granularity, however, the 2022 environmental proposals received lower levels of shareholder support. Looking forward, they expect that companies will have an even harder time negotiating a compromise or excluding environmental shareholder proposals, which may become even more granular in their demands. Learn more from S&C's 2022 Proxy Season Review and watch our recent webinar.
Corporate Governance co-heads Marc Treviño and Melissa Sawyer and associate June Hu open a four-part series discussing prevalent shareholder proposal trends from the 2022 proxy season. They outline the significant impact of recent actions by the Securities and Exchange Commission on this proxy season and discuss how SEC rulemaking could affect the 2023 season. SEC Staff Legal Bulletin No. 14L—which reversed prior SEC guidance and altered the staff's approach to the ordinary business and economic relevance exclusions—had a significant impact on the submission and voting trends this year. The SEC's new approach correlated with a significant decrease in the likelihood of companies obtaining no-action relief, as the staff now assesses whether a proposal raises issues with a broad societal impact in determining whether a proposal is excludable. As a result, shareholder proposals made it to a vote much more frequently this proxy season. Yet the number of passing proposals decreased, as shareholder support for social, environmental and political proposals decreased after steadily rising throughout the last decade. Looking ahead, they expect ESG proponents to continue to submit more proscriptive and granular proposals to attract shareholder support. They also expect increased focus by the SEC on director qualifications, cyber security and human capital management disclosure. Click here to learn more about S&C's 2022 Proxy Season Review and watch our recent webinar.
: In this episode of S&C's Critical Insights, Davis Wang and Isaac Wheeler, co-heads of S&C's Tax Group, are joined by Lauren Boehmke, partner in the Firm's M&A practice, to discuss the recently enacted Inflation Reduction Act and a few of its key impacts on companies and corporate transactions. They analyze three key changes introduced by the Act: the corporate minimum tax, the one percent buyback tax and clean energy initiatives.
In the fourth episode of S&C's Supreme Court Business Review series, hosts Judd Littleton, Julia Malkina and Morgan Ratner are joined by partners Diane McGimsey and Annie Ostrager to discuss two employment arbitration cases from the past term and their implications for employers. In Viking River Cruises v. Moriana, the Supreme Court held that the Federal Arbitration Act preempts a California Supreme Court ruling insofar as it prohibits bringing certain state law claims to arbitration and reaffirmed that no party can be made to arbitrate a claim without expressly agreeing to do so. In Southwest Airlines Co. v. Saxon, the Court held that certain airline workers, baggage handlers and some of their supervisors, qualify for an exemption under Section 1 of the FAA for workers involved in interstate commerce or the transportation of goods or people.
In this episode of S&C's Critical Insights, Melissa Sawyer, the Global Head of S&C's M&A practice, is joined by the Co-Heads of the Firm's Antitrust group, Renata Hesse and Juan Rodriguez, to discuss recent developments surrounding the vertical merger of Illumina and GRAIL, which make DNA sequencing devices and blood-based tests for cancer screening, respectively. In the United States, an administrative law judge recently denied the Federal Trade Commission's request to prohibit the transaction on competition grounds. In Europe, the European Commission opened a highly publicized suspensory investigation into the transaction, which is seen as a test case for the EC's recently revised policy on reviewing mergers that do not require mandatory reporting to the EC. The partners discuss these developments and how they might impact M&A deals going forward, especially in the pharmaceutical and tech sectors.
In this episode of S&C's Critical Insights, Paris partner Olivier de Vilmorin, London partner John Horsfield-Bradbury and London associate Sarah Mishkin discuss the unexpected ways that the European Union's new ESG laws and regulations may affect U.S. and other non-EU companies. They discuss how the laws will apply to certain companies with EU-listed securities or whose operations in the EU meet certain thresholds. They also touch on how the new climate-related disclosure requirements proposed by the U.S. Securities and Exchange Commission compare to the new EU laws.