Delaware is home to more than two-thirds of the Fortune 500, and 1.8 million business entities. “The Delaware General Corporation Law is widely considered to be the most thoughtfully developed corporate law in the country,” explains Hon. Lori W. Will, vice chancellor of the Delaware Court of Chancery. In addition, sophisticated judges, responsive executive and legislative branches and extensive supporting infrastructure have solidified Delaware’s reputation as flexible and business-friendly.

Still, a handful of high-profile companies have recently announced plans to reincorporate outside of the state. “I think states like Texas and Nevada are sensing potential market opportunity and are seizing on a moment in time when Delaware is being challenged,” observes Skadden litigation partner Edward Micheletti of the firm’s Delaware office.

Recent amendments to the Delaware corporate code show how responsive the state’s governor, legislature and bar are to the need to update corporate law regularly to stay abreast of changes in the business world, Ed stresses.

Vice Chancellor Will and Ed join host Skadden M&A partner Ann Beth Stebbins to explore the factors that make Delaware the preferred jurisdiction for incorporation. They discuss the importance of corporate incorporations to the state, and the ecosystem that has evolved over time to support corporations. They compare Delaware’s flexible approach to the more rigid, code-based systems of competing states, and provide insight into how corporations should evaluate a potential reincorporation decision.

Name: Ann Beth Stebbins

Title: Partner at Skadden

Connect: LinkedIn

Name: Hon. Lori W. Will

Title: Vice Chancellor of the Delaware Court of Chancery

Connect: State of Delaware on LinkedIn | Facebook | X | YouTube | Instagram

Name: Ed Micheletti

Title: Litigation Partner, Skadden

Connect: LinkedIn

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How do you know if your company is likely to be a target for activists? And what is the best way to respond when approached by an activist?

Skadden M&A partner Ann Beth Stebbins discusses the activist’s playbook with Ted White of Legion Partners Asset Management, a veteran activist investor, and Elizabeth Gonzalez-Sussman, head of the firm’s Shareholder Engagement and Activism Practice.

Activists seek to identify companies where value can be increased. Some activists will focus on operational or governance improvements, while others will press for transactions that could release value, Ted and Elizabeth explain.

Ted and Elizabeth observe that shareholders are not always forthcoming with management, which may make it difficult of a board to understand shareholder concerns. Ted notes that, as an investor, he has observed cultural misalignment in some companies experiencing underperformance, and stresses that it may be important for board members to hear directly from shareholders.

Elizabeth says that, when meeting with activist investors, management and directors should listen to the issues that are raised. Ted says his firm will be trying to gauge if management and the board are aware of the concerns expressed in a meeting, and are willing to address, or at least consider, those. He also notes that directors should assume that the activist has talked to other shareholders about the company and the potential issues that the activist has identified.

Companies should be careful about responding defensively to activists, Ted and Elizabeth say. If the company reacts hostilely or dismissively, that may cause other shareholders to perceive that there is a problem. It could also prompt a more aggressive campaign by the activist to replace directors in the future, and cause proxy advisory firms to be more critical of the company.

If activists succeed in electing new directors, the existing board should attempt to work with them collaboratively, Elizabeth and Ted say, even though the contentious nature of a proxy fight may make cooperation challenging. Ted notes that board dissonance may encourage shareholders to seek to replace more directors at the next annual meeting.

Name: Ann Beth Stebbins

Title: Partner at Skadden

Connect: LinkedIn

Name: Elizabeth Gonzalez-Sussman

Title: Partner; Head of Skadden’s Shareholder Engagement and Activism Practice

Connect: LinkedIn

Name: Ted White

Title: Co-founder and a Managing Director of Legion Partners Asset Management

Connect: LinkedIn

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Investors often believe that companies are too slow to refresh their boards. Directors and CEOs may also think that their companies do not have the right mix of directors, as strategies change and some directors’ skills become dated.

Yet annual board turnover remains low and fairly steady, Spencer Stuart partner Laurel McCarthy tells podcast host, Skadden M&A partner Ann Beth Stebbins. Together with Skadden partner, Elizabeth Gonzalez-Sussman, Laurel and Ann Beth discuss the ways boards should approach refreshment, and the risk that they could be targeted by activist investors if they do not replace directors regularly.

Many board policies do not encourage refreshment. The typical mandatory retirement age for S&P 500 directors, has been increasing, and is now at age 75. “We usually don’t see many stats that surprise us in our annual board index, but this one did,” Laurel says. At the same time, the number of boards with mandatory retirement ages has been dropping.

Meanwhile, board term limits, when present in a company’s bylaws, are usually generous — 15 or 20 years. Proxy advisory services do not have prescriptive policies on term limits, but they question the independence of directors who have served for more than nine years on a board.

As Laurel and Elizabeth explain, age and term limits can encourage turnover, but they should not be the sole mechanism. Boards need to continually analyze the skills required by the board in light of a company’s changing strategies, and develop pipelines of potential new directors to fill those needs.

Elizabeth points out that companies that have a number of long-tenured directors may be vulnerable to activist investor campaigns if the company underperforms. Demands that a company appoint new directors to improve performance often figure prominently in activist campaigns.

Some investors may favor adding younger board members, particularly where the customer base is young or if technology is central to the business, Elizabeth says.

In evaluating potential board members, Laurel and Elizabeth suggest prioritizing candidates who have recent experience, are good cultural fits and ask tough questions that management should be prepared to answer.

Ultimately, they advise boards to be proactive, as succession planning and maintaining a pipeline of potential directors is critical to a company’s future performance.

Name: Ann Beth Stebbins

Title: Partner at Skadden

Connect: LinkedIn

Name: Laurel McCarthy

Title: Consultant, Board and CEO Practice, Spencer Stuart

Connect: LinkedIn

Name: Elizabeth Gonzalez-Sussman

Title: Partner, Shareholder Engagement and Activism, Skadden

Connect: LinkedIn

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