This year's Tulane Corporate Law Institute (TCLI) conference took place March 31-April 1 in downtown New Orleans. Started in the late 1980s by former Delaware Supreme Court Justice Andrew G.T. Moore (author of Smith v. VanGorkam and Revlon v. MacAndrews ) and a group of New Orleans and Delaware corporate practitioners, the annual gathering has become the nation's leading corporate law conference.

For each of the past 23 years, the TCLI has served as a "state of the union" for those who make their living in M&A and corporate law. The conference highlights major developments in the deal market, explores past/future trends, and discusses recent developments in Delaware corporate jurisprudence. The 2011 TCLI was well attended, attracting nearly 2,000 corporate lawyers, bankers, journalists, and judges (a TCLI record).

Wasting no time, the first panel tackled the difficult issues surrounding the recent wave of shareholder activism and the trend toward increased proxy access. The panelists, including Vice Chancellor Leo E. Strine, discussed the competing and often conflicting agendas that can exist between corporate boards and activist shareholders.

Shareholder litigation is often driven by two distinct constituencies: Whereas private equity interests tend to focus on a short term return on their investment by aggressively pursuing buybacks/dividends, divestitures, spin-offs and sales of companies, institutional shareholders are more focused on longer-term strategies that seek changes to corporate operations and governance. When it came to greater proxy access, the panel noted the increased push for a "universal ballot" and questioned whether its time had come. There was also a very active debate over how institutional investors such as unions and public pension funds will use these new rights to advance their economic, as well as social and political agendas.

Following panels on executive compensation and the influence of media on M&A activity, the conference focused on the changing landscape facing public companies going into what appears to be a hot 2011 deal environment. Noting that many public companies have permitted their defensive measures to wither, the panel examined the recent spate of court decisions involving hostile takeovers and use of defensive measures. Those in attendance enjoyed a thorough discussion on the current state of poison pills against stock accumulation, the no-shops versus go-shops distinction and termination fees. The panel explored the allocation of financing risk in public company deals through damage caps, accelerated deal structures and reverse break-up fees.

Day one of the conference concluded with a timely discussion led by Vice Chancellor Donald F. Parsons on crisis management and internal investigations. Given the recent issues associated with massive economic collapses, mortgage foreclosure practices, the resignation of HP's CEO Mark Hurd, etc., the panel had no shortage of material. Rather than dwell on the scandals, the panel focused on the necessity to have a well thought-out crisis management plan and the maturity to distinguish between a significant problem versus a true crisis. The discussion further explored the circumstances that would warrant an internal investigation, who should manage the investigation and the need for a best practices protocol for conducting internal investigations.

Of particular interest was the topic of conflicts that can arise between companies, employees, special committees and/or law enforcement when an internal investigation is launched. In the end, it is often difficult to determine who counsel represents, whose interest is aligned with the company and how far the attorney-client or work product privileges will extend.

This year's conference also provided cautionary guidance on the rights and responsibilities of significant and controlling shareholders. A panel that included Vice Chancellor J. Travis Laster of the Delaware Court of Chancery discussed the factors a court considers when determining if a person qualifies as a controlling stockholder, the alternatives to the formation of a special committee and ways for a controlling stockholder to permissibly freeze out minority stockholders. Grappling with the standard of review applicable to controlling stockholder transactions, the panel tried to harmonize holdings in the Delaware Chancery Court cases CNX Gas Corp. (2010), Siliconx (2001) and Lynch (1994). Assuming the case law continues down the current path, the panel surmised that transactions satisfying the CNX requirements could avoid the entire fairness standard of review, thereby limiting the impact of "strike suits" filed by stockholder plaintiffs.

Overall, the panelists anticipated a large increase in 2011 M&A activities with a positive outlook for continued deal-making. The forecast of new deals and business combinations, as well as no shortage of quick-to-follow shareholder litigation, promises to keep the corporate lawyers busy this year.

Some worthy takeaways from the conference for a practitioner's toolbox were:

  • Go shop versus no shop. Target board must have a fiduciary out provision if a buyer insists on a no shop ; notably, go shop is not legally required in any circumstance, though courts generally view a 30-45 day go-shop period (also called a "market test option") as an adequate means to probe the market for competitive bidders.
  • Top-up option is valid under Delaware law. In the tender offer context, an acquirer can buy additional shares from the target directly to reach the required 90 percent threshold in order to effect a short-form merger; non-tendering shareholders have an appraisal remedy under the short-form merger statute.
  • Composition of special committees. Members must be qualified and wholly independent; the mandate must be broad in scope and clear in authority, including the power to say no.
  • Where interests of preferred and common stockholders diverge, generally it will be the duty of the board, where discretionary judgment is to be exercised, to prefer the interest of common stock. (See In re Trados Inc. Shareholder Litigation .)
  • There is no dilution of fiduciary duties for dual directors under Delaware law — once a conflict arises, the designated director should disclose the conflict and consider whether to abstain from participation in the matter under board consideration.
  • Forum selection provisions for intra-corporate disputes: "If boards of directors and stockholders believe that a particular forum would provide an efficient and value-promoting locus for dispute resolution, then corporations are free to respond with charter provisions selecting an exclusive forum for intra-entity disputes." (See the 2010 Chancery Court case In re Revlon Inc. Shareholders Litigation ).
  • A sitting director on a classified board cannot be removed without cause prior to the expiration of a multiyear term by accelerating the date of the annual meeting or reducing the size of the board.
  • Default fiduciary duties for LLC managers exist unless expressly eliminated in the LLC agreement. (See the 2010 Chancery Court case Kelly v. Blum .)
  • Prospective conflict waivers may be permissible according to the recent ABA commentary, but courts remain very skeptical and mandate that the language must be explicit and must articulate the anticipated conflict situation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.