CURRENT MONTH (January 2019)

Limited Liability Companies

Louisiana Court Holds that Executor Assignee Does Not Have the Right to Inspect LLC Books and Records

By Elizabeth S. Miller, Baylor Law

During the pendency of a divorce, an LLC member’s wife died, and her son was appointed executor of her estate. As part of the executor’s duties in preparing a detailed description of property in the succession, the executor sought LLC tax returns and other financial and business records from the surviving spouse regarding property believed to be community property.  In Succession of McCalmont, CA 18-344, __ So.3d __ (La. App. 3d Cir. Dec. 12, 2018) [https://law.justia.com/cases/louisiana/third-circuit-court-of-appeal/2018/ca-18-344.htm], an appellate court in Louisiana explained that the Louisiana LLC statute recognizes only one form of transfer of an LLC interest—an assignment—whether voluntary or involuntary, and the statute confers very limited rights on the assignee. The rights of an assignee are limited to the right to receive distributions and allocations of profits, losses, and tax items that the assignor would otherwise have been entitled to receive. As a result, “the law as written allows for the creation of situations whereby an assignee of a deceased member’s rights, while due distributions, may never be able to see company records to ensure he is actually receiving those distributions in full, because remaining members can simply withhold records that would show what, if anything, may be owed.” Thus, while the court acknowledged that the executor and the estate may be entitled to distributions, they were not entitled to the records they sought, and the court reversed the trial court’s discovery order compelling production of business, financial, and tax records of the LLC to the executor and the estate.

Corporate Governance

The State of Play in Corporate Governance as Seen by Key Investors and Advisors 

Prepared by the ABA Business Law Section Corporate Governance Committee

The start of a new year prompts prominent investors and advisors to assess the state of corporate governance practice and the issues for the year ahead.  These summaries provide an excellent overview of current key issues in governance, and are too detailed and wide-ranging to be meaningfully summarized.  Taken together, these articles provide a detailed overview of vital current debates and issues in US corporate governance.

State Street

Blackrock

Wachtel Lipton

Sidley Austin

Ernst & Young

SEC Adopts Hedging Rules

Nearly four years after they were first proposed, the SEC adopted final rules under the Dodd-Frank Act on disclosure of company policies on employees and directors who engage in hedging transactions relating to the company’s equity securities.  The rules will apply to proxy statements covering election of directors in fiscal years starting on and after July 1, 2019.  A discussion of the rules is here

SEC Takes Cease and Desist Action on Non-GAAP Reporting

SEC rules on the use of non-GAAP figures in public company financial reporting require that GAAP amounts be presented with “equal or greater prominence” to non-GAAP amounts.  In earnings press releases issued during 2017 and 2018, ADT presented “adjusted EBITDA” without mentioning comparable GAAP financial measures of net income or loss (the corresponding GAAP amounts). ADT agreed to pay a $100,000 fine and to cease and desist committing further violations. In the Matter of ADT INC.

ISS Publishes FAQ on Compensation Policies

Institutional Shareholder Services (“ISS”) updated to its Frequently Asked Questions (“FAQs”) on U.S. Compensation Policies and Equity Compensation Plans.  ISS issues the FAQs to provide general guidance on ISS handling of particular compensation questions in its proxy analyses and vote recommendations for U.S. public companies.

NACD Releases Governance Survey

The National Association of Corporate Directors (“NACD”) issued its 2018–2019 NACD Public Company Governance Survey, presenting findings from its annual survey taken during June through August 2018.  Among the key findings in the survey:  Strengthening oversight of strategy execution and risk management are top board priorities in 2019, and directors would like to be more active in oversight of environmental, social, and governance (ESG) issues.

Proxy Access Goes Mainstream

Following the legal challenges during the past decade to SEC rulemaking over proxy access (the ability of shareholders to include their proposed nominees for director in the company’s proxy statement), Sidley Austin’s white paper Proxy Access – Now a Mainstream Governance Practice notes that 475 companies, including roughly two-thirds of the S&P 500, have adopted some form of proxy access, including company-by-company details.

Strine: Political Spending by Corporations is a Fiduciary Issue

In his new article, Fiduciary Blind Spot: The Failure of Institutional Investors to Prevent the Illegitimate Use of Working Americans’ Savings for Corporate Political SpendingDelaware Supreme Court Chief Justice Leo Strine argues that institutional investors representing the investment interests of American workers who invest for future retirement and college expenditures using 401(k) and 529 plans (“forced capitalists” or “Worker Investors”) should constrain spending by portfolio corporations on political positions that are adverse to workers:   “Precisely because Worker Investors hold investments for the long term and have diversified portfolios that track the whole economy, political spending by corporate managers to tilt the regulatory playing field is harmful to them, as humans who suffer as workers, consumers, and citizens when companies tilt the regulatory process in a way that allows for more pollution, more dangerous workplaces, less leverage for workers to get decent pay and benefits, and more unsafe products and deceptive services.”

ISS Reports on Environmental and Social Proxy Voting 2000-18

ISS has prepared and published a survey on nearly two decades of shareholder proposals and voting on ESG issues.  The survey shows increasing—but still minority—voting support for ESG proposals.    

CII Issues White Paper on Board Evaluation Disclosure

The Council of Institutional Investors (“CII”) has prepared a white paper on Board Evaluation Disclosure, identifying seven elements of director evaluations that CII recommends companies consider, and disclose to investors.  

PG&E Considered First Climate Change Bankruptcy

Following the bankruptcy filing by PG&E in the wake of the damage created during the 2019 California wildfires, the Wall Street Journal noted that while the PG&E bankruptcy may be the first bankruptcy generated by climate change, it is unlikely to be the last.

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