By Benjamin Horney

Law360 (March 9, 2020, 7:52 PM EDT) -- The state of shareholder activism, an increased push for environmental, social and governance policies at publicly traded companies, and fallout from the ongoing coronavirus outbreak on the world of mergers and acquisitions were among the hot topics at Tulane Law School's 32nd Corporate Law Institute in New Orleans.

Here, Law360 explores the major takeaways from last week's conference for anyone who wasn't there, or was distracted by the fun of the French Quarter. 

Shareholder Activism Continues to Evolve

Unsurprisingly, the conference featured plenty of discussion about the state of shareholder activism, which in recent years has morphed to include far more than the proxy contests it is most well-known for. The buzz comes after a year in which the number of new activist campaigns increased, with a record 147 investors launching fresh campaigns in 2019, including 43 first-timers that didn't have a previous record of activism, according to Lazard's 2019 Review of Shareholder Activism, released in January.

Marni Lerner, a partner at Simpson Thacher & Bartlett LLP who spoke during one of the Friday panels, told Law360 that activists will continue to generate M&A activity.

"That's entirely consistent with the activist playbook," noted Lerner, who is head of Simpson's private equity mergers and acquisitions practice. "Activists are not going away."

One of the reasons activists are seeking to evolve the way they push for action is that companies are learning lessons from activist campaigns of the recent past and self-applying lessons so that they don't get tripped up by the same challenges, according to Daniel Wolf, a partner at Kirkland & Ellis LLP who spoke during one of the Thursday panels at Tulane. Thus, activists can no longer bank on campaigns centered solely on the general idea that a company is underperforming, for instance.

"They've run out of low-hanging fruit," Wolf said during his panel discussion.

About half of the activist campaigns in the last year have had some kind of M&A-related angle, whether it's seeking to block a deal, urging a company to sell a particular business unit, or pushing for the breakup of a company into separate pieces so that each individual business can thrive, according to Wolf.

"It's probably about evenly divided between those," he said. "This has certainly been one of the main themes we've been looking at in the M&A market."

He also said there's been a notable increase in activism on the sell side. In those instances, more often than not, activists are attempting to block a deal that they believe does not generate an appropriate return, according to Wolf.

He pointed to the current situation being faced by private equity firm Thoma Bravo LLC as it tries to buy education software company Instructure Inc., a deal that has faced a rash of shareholder backlash, as an example. Multiple Instructure shareholders separately came out against the original proposal, including New York-based investment manager Praesidium Investment Management Co. LLC, which owns a 7.5% stake in Instructure, as well as Rivulet Capital, which owns more than 5% of Instructure's outstanding shares.

The shareholders voiced concerns about the process that led to the agreement, saying it was rushed, lacked transparency and was potentially riddled with conflicts of interest, and last month Thoma Bravo sweetened its offer from $47.60 per share to $49 per share as a result.

Additionally, Wolf cautioned that lawyers should be careful when crafting deal documents, because the traditional merger agreement structure, which often provides that an agreement must be approved by investors holding two-thirds of the outstanding shares, can leave the door "wide open for activists to be disruptive."

"It doesn't take much for activist shareholders to jump in and put a deal at risk," he said.

Meanwhile, standard deal protections, such as no-shop provisions, don't really account for activism, and are instead more focused on potential interlopers coming into the process, he said.

"There's no magic answers, but these are things you probably want to spend some time thinking about when structuring deals," he said.

An Increased Push for ESG at Public Companies

Not only are shareholders changing the ways in which they go on the offensive, they are increasingly showing concern about environmental, social and governance issues at publicly traded companies.

At last year's Tulane conference, former Delaware Supreme Court Chief Justice Myron T. Steele and his successor, Leo E. Strine Jr., detailed potential pitfalls of requiring public companies to adopt a standardized set of ESG policies through legislation or other regulatory means, but in 2020 the topic of putting ESG-related rules of some kind in place remained top of mind.

ESG matters include a wide range of topics that do not necessarily have a short-term economic implication for companies, such as environmental sustainability, climate change, sexual harassment, or board and employee diversity. In recent years, institutional investors, which are often among those that contribute capital to private equity funds, have begun to push the benefits of addressing ESG matters as a way of promoting long-term shareholder value. But the idea of instituting ESG requirements for public companies seems to be taking hold.

"This is the next frontier," said Tamara Belinfanti, a professor at New York Law School and co-director for the school's Center for Business and Financial Law, speaking during one of the Friday panels. "People want to get serious about that stuff, and not just with investing and divesting into impact funds."

Joele Frank, founder of communications firm Joele Frank Wilkinson Brimmer Katcher, said during a Friday panel that public companies will start considering ESG issues in a major way if the debt-ratings agencies start incorporating them into their valuation systems.

"If they bring ESG into debt ratings, there's going to be a huge cost if you don't fulfill what they want," she said.

Meanwhile, she said that one important step could be actually striving to make changes that can be pointed to a year from now, with one example being whether any CEOs in 2021 have an ESG clause in their compensation package.

"I think next year we should have a list of things that have changed," she said. "I'm very practical."

Overall, there's no indication that the push for more focus on ESG issues is going to reverse anytime soon, with Lerner saying it is likely to gain more prominence going forward.

"It's interesting because on the private equity side, ESG is definitely a big consideration for PE funds," she told Law360. "Limited partners have already looked to private equity funds and have been asking 'what are you doing about ESG in companies?' It was interesting to hear it discussed in the more public company context."

"People are still grappling with how to reconcile it with Delaware law," Lerner added, noting that the Delaware courts have historically placed great importance on maximizing shareholder value and operating companies for the benefit of shareholders.

"It will be interesting to see how that tension will develop as time goes on," she said.

Coronavirus, an Overarching Theme

Almost every panel touched on the ongoing coronavirus outbreak, and although this year's conference wasn't canceled, the specter of the virus was felt throughout. Attendees were encouraged to bump elbows rather than shake hands, and some speakers showed up via videoconference instead of in person.

"People were understandably being cautious," Lerner said.

As a matter of fact, attendance was slightly down from a year ago, with a representative for the conference telling Law360 that this year saw 748 people compared to 815 in 2019.

Blair Effron, founder of investment bank and private equity firm Centerview Partners, focused a significant portion of his Thursday morning talk on the impact the coronavirus and related market volatility is having on M&A.

"Volatility hurts M&A," he said. "The longer it goes, the more quiet it is."

Meanwhile, Ted Yu, chief of the U.S. Securities and Exchange Commission's office of M&A, participated in his Thursday panel via videoconference. Yu was originally scheduled to speak at the conference in person, but was told by the SEC two days before the conference that he couldn't travel. He spoke about rules related to the disclosure responsibilities of proxy advisory firms, which are expected to be finalized before the end of this year, and also noted that further extensions for certain filings might be warranted if the coronavirus continues to spread.

His panel came only a day after the SEC said that publicly traded companies affected by the coronavirus will have an additional 45 days to file certain materials that would otherwise have been due between March 1 and April 30. The order may apply to U.S. companies located in areas affected by the virus or those with operations in those areas, and will cover a range of materials, including annual reports for companies with different financial calendars, as well as the 6-Ks filed by certain foreign companies and 8-Ks, which signal notable events.

In order to qualify for the relief, companies must submit a report explaining why the relief is needed within 45 days of the original deadline, the SEC said. The commission could later decide to extend the time frame for the relief, the announcement said.

According to Yu, companies shouldn't fret if they feel the additional 45 days is not going to be enough, saying that the SEC is open to extending the deadline even further depending on what happens with coronavirus going forward.

"We are open to further relief," he said. "Those looking for guidance, please reach out."

--Additional reporting by Chelsea Naso and Elise Hansen. Editing by Breda Lund.

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