Report applies annual highlights to key issues for Boards, General Counsel and Compliance Officers in 2015
Nashville, Tenn. (March 26, 2015) – Corporate America may well remember 2014 as the year that bylaws and cybersecurity moved to the top of boardroom agendas, according to the Securities & Shareholder Litigation: 2014 Year-End Review released last week by Bass, Berry & Sims PLC. The firm's annual report identifies and examines the most important trends and developments during 2014, with an eye toward what corporate boards, general counsel and compliance officers can expect moving forward in 2015. Download the full 2014 Securities and Shareholder Litigation Report here.
"The stakes are high for public companies that are faced with complex corporate and securities litigation and shareholder class actions," said W. Brantley Phillips, Jr., co-chair of Bass, Berry & Sims' Securities & Shareholder Litigation Practice Group. "We want our annual Securities and Shareholder Litigation Year-End Review to be a go-to reference that succinctly summarizes the events, trends and case law shaping the current compliance landscape for public companies and their directors."
Among the five key case law and regulatory policy trends and topics covered in the report—all of which continue to be important issues for board governance, legal practice and media coverage in 2015—are:
2014: The Year of the Bylaws – The year was notable for two decisions addressing the validity of bylaws affecting forum selection and fee shifting. This section discusses the jurisprudence that led up to the 2015 proposed amendments to the Delaware General Corporation Law, which will provide companies further guidance on revising their bylaws.
The Attorney-Client Privilege in Change of Control Transactions – During the past several years, a fairly significant body of case law has developed governing the treatment of the attorney-client privilege in the mergers and acquisitions context. Boards should be aware of two common situations in which privilege questions have arisen and created unexpected problems post-closing: Sharing privileged communications between prospective parties to a merger and who holds the privilege post-closing. First, parties to any transaction should pay close attention to the law that might govern any dispute over privilege. Second, parties probably should assume that any communications made prior to the signing of a merger agreement, any communications made directly to the other party (without attorneys copied), or communications shared with the other party's investment banker will not be covered by the attorney-client privilege as extended by the common interest doctrine. Third, parties should make sure that both parties have a clear understanding of who will hold the privilege for certain documents post-closing and clearly define the scope of any retention of control by the seller and its controlling shareholders.
2014 Mergers and Acquisitions (M&A) Case Law Review – As the leading forum for business law in the United States, Delaware courts issued several important decisions in 2014 that impact mergers and acquisitions. While not exhaustive, the highlights of 2014's most significant developments included cases related to: controlling stockholder transactions, merger objection lawsuits, revisiting Revlon review and change of control transactions, and aiding and abetting liability for financial advisors of merger transactions.
Halliburton II: Preserving Basic – On June 23, 2014, the Supreme Court of the United States released its decision in Halliburton v. Erica P. John Fund, No. 13-317. The decision was easily one of the most anticipated of October Term 2013, as it involved fundamental questions about the viability of securities fraud class action litigation and had many securities litigators holding their breath about the future of their practice. The Supreme Court refused to overturn the "fraud-on-the-market" presumption, while at the same time clarifying that defendants should be allowed to rebut the presumption at the class certification stage using evidence of no price impact.
Cybersecurity: Lessons Learned From [the Breaches of] 2014 – Amid fallout from several major corporate data breaches, 2014 witnessed efforts by shareholders to hold companies' boards responsible for alleged security shortcomings that led to the breaches. There also were calls for new legislation and/or regulation designed to ensure that corporations are adequately addressing cyber risk. First, in light of several high-profile data breaches, it is clear that, going forward, data infrastructure and protection is now a responsibility of the company's board. Directors should closely monitor the company's cybersecurity infrastructure, and propose procedures and policies the board can implement to minimize the expense and exposure associated with a cybersecurity event. Second, boards should know the National Institute of Standards & Technology (NIST) Framework, the benchmark for measuring a company’s approach in developing, implementing and testing security policies. The NIST Framework encourages the adoption of several policies, including creation of: a written information security plan; a responsibility map outlining who will do what in terms of preventing, responding to and recovering from a cybersecurity event; a data flow map that will help the board understand the firm's business uses for data and the data's vulnerability and how to protect it; and, a response plan that can be implemented in the event of a breach to minimize the scope of damage. Third, the board should take the lead in developing and implementing the company's cybersecurity policy. Fourth, the board should communicate with investors what is being done to prevent an attack. Fifth, the board should document all efforts to mitigate cybersecurity risks. Sixth, the board should know what is covered under its insurance policies.
About Bass, Berry & Sims Securities & Shareholder Litigation Practice
The Bass, Berry & Sims Securities & Shareholder Litigation team represents more than 35 publicly traded companies. In the past five years, the team has represented clients in dozens of investigations, securities, corporate governance and merger-related lawsuits, including more than 25 class actions and more than 30 actions involving sub-prime investments. The group also has defended clients in litigation involving leveraged buyout and merger transactions totaling more than $75 billion.
About Bass, Berry & Sims PLC
With more than 220 attorneys representing numerous publicly traded companies and Fortune 500 businesses, Bass, Berry & Sims PLC has been involved in some of the largest and most significant business transactions and litigation matters in the country. For more information, visit www.bassberry.com.