The Winter 2026 edition of the Shareholder Advocate, our quarterly securities litigation and investor protection newsletter, is now available. This issue features:
- Richard Lorant on investors’ $34 million preliminary settlement with Deloitte over audits of a nuclear energy project
- Benjamin Jackson and Kay Jewler on investors’ lawsuit against Block, parent company of Square and Cash App
- Suzanne Dugan on how pension plan fiduciaries can rededicate themselves the best practices in the new year
- A team profile of Benjamin Brown, Cohen Milstein’s Managing Partner
On July 22, 2025, Judge Robert J. Colville of the U.S. District Court for the Western District of Pennsylvania granted preliminary approval of a $167.5 million all-cash settlement to resolve claims that EQT Corporation overstated the synergistic benefits of its $6.7 billion merger with Rice Energy, another natural gas drilling company operating in the Marcellus shale of Western Pennsylvania, in violation of the federal securities laws.
The $167.5 million settlement is the largest securities class action recovery ever in the history of the Western District of Pennsylvania and the 14th largest in the history of the Third Circuit.
As co-lead counsel in the case, Cohen Milstein represents a lead plaintiff group consisting of the Eastern Atlantic States Carpenters Annuity Fund, Eastern Atlantic States Carpenters Pension Fund, Government of Guam Retirement Fund, and Cambridge Retirement System.
In particular, the case alleged that from June 19, 2017 through June 17, 2019, Defendants made materially false and/or misleading statements and omissions regarding EQT’s drilling performance and capability, and about the purported benefits of acquiring Rice Energy, a competitor. The alleged false and misleading statements concerned, among other things, the combined company’s ability to drill 1,200 lateral wells at an average lateral length of 12,000 feet, and to realize $2.5 billion in synergies. The complaint alleged that, after the acquisition, following disappointing financial results midway through the class period, former Rice executives launched and ultimately won a proxy contest to take control of the combined company, citing in part EQT’s failure to seek or realize the stated synergies. The complaint asserted that Defendants’ alleged misrepresentations and omissions caused investors to purchase EQT common stock at artificially inflated prices and/or to approve EQT’s proposed Acquisition. The complaint further alleged that the truth was revealed to the public in a series of partially corrective disclosures on October 25, 2018, February 5, 2019, and June 17, 2019, that caused the price of EQT common stock to decline, causing investors to suffer damages when the truth was revealed.
In arriving at this settlement, Cohen Milstein and its co-lead counsel reviewed over 7 million pages of documents, subpoenaed over 50 third parties, participated in over 50 depositions of fact and expert witnesses, retained and worked with experts on the subjects of damages, loss causation, natural gas drilling, and corporate due diligence, and thoroughly reviewed the applicable facts and law. Furthermore, the parties extensively briefed motions to dismiss, for class certification, for summary judgment, and to exclude expert opinions and testimony.
During the hard-fought litigation, the Court certified the class on August 11, 2022, and on September 23, 2022, the U.S. Court of Appeals for the Third Circuit denied Defendants’ petition for interlocutory review of the Court’s order granting class certification.
The case team at Cohen Milstein included Steven J. Toll, Daniel S. Sommers, S. Douglas Bunch, Christina D. Saler, Benjamin F. Jackson, and Alexandra Gray. A hearing to consider final approval of the settlement is set for October 30, 2025.
Friday Q and A: Under Chairman Paul Atkins, the SEC has been aggressively pursuing corporate governance reforms that could fundamentally alter the balance of power between public companies and their investors. Despite the broad reach of the initiatives, which take aim at shareholder proposals, securities class action lawsuits and financial reporting requirements, they haven’t provoked much of an outcry.
In recent weeks, however, that’s been changing. This week, we sat down with one of the leaders of the growing and increasingly vocal opposition movement. Laura Posner is a partner in the securities litigation and investor protection practice at Cohen Milstein Sellers & Toll, one of the largest plaintiffs law firms in the country. She’s also a former state securities regulator.
Unsurprisingly, Posner has strong opinions about what’s going on at the SEC during what she calls “the most anti-investor administration” ever. Read on for her take on the commission’s recently adopted policy statement that frees up companies to use mandatory arbitration clauses, as well as its controversial decision this week to largely stop reviewing shareholder resolutions this proxy season. She also discusses the benefits of class actions – even for the firms being sued. And corporate leaders, she argues, are also worried about Atkins’ efforts. What follows is our (lightly edited and condensed) conversation.
Capitol Account: What’s your background?
Laura Posner: I have been doing securities litigation and investor protection work my entire career. I’ve been at a number of private firms, but also was appointed by the New Jersey attorney general to be the [state] securities regulator for three years, between 2014 and 2017.
CA: What’s your broad take on the revamp of corporate governance that’s taking place at the SEC?
LP: It’s fair to say that this has been the most anti-investor administration that certainly I’ve seen in my lifetime, and I think it’s probably fair to say ever. We’re seeing that materialize in a lot of different ways.
CA: That’s quite a statement. Why hasn’t there been more of an uproar?
LP: There are dozens of public pension funds and a multitude of investor advocacy organizations…that are quite attuned to what’s going on right now…They are extremely concerned about the various edicts that are coming out.
CA: What about individual investors? These are somewhat arcane issues.
LP: You are correct that the average retail investor is certainly not understanding or really even aware of a lot of these things. Some of the topics have broken through in the public press, like, for example, [Donald] Trump’s desire, and what sounds like Chair Atkins’ desire, to move from quarterly reporting to semi-annual reporting. But some of these other things…it’s taking a little bit longer to break through.
CA: Is part of the reason that many of these changes are being conveyed in guidance, policy statements or even speeches?
LP: I think that’s very intentional because the SEC knows that if they actually issue rules, they have to open them up to public comment. And the overwhelming majority of comments are going to be negative. Not just from investors, by the way, [but] from corporations, from [directors and officers] insurers, from underwriters and accountants. There are a lot of folks who would view these proposals as really problematic.
CA: What do you think of Atkins’ contention that this effort is necessary to spur IPOs and make being a public company `cool again’?
LP: These changes are going to have the exact opposite reaction. I think you’re less likely to see IPOs. You’re going to see less investment in U.S.-based companies. People want to be able to vindicate their rights. They want to be able to get timely information to make smart investment decisions. And if we’re no longer having those rights available to us, or that information available to us in a disclosure-based regime, why invest in a U.S. company?
CA: The most controversial of these reforms might be the commission’s new policy statement that assures companies going public that they can include a mandatory arbitration clause in their bylaws. At least for now, though, the impact seems pretty limited. Do you agree?
LP: How big a deal it is depends on how many issuers take advantage of it.
CA: Will they?
LP: Companies don’t think these provisions are in their best interest. And when you think about the practical side of things, that’s self-evident.
CA: What’s the advantage for a corporation to face a class action in federal court as opposed to a private arbitration?
LP: More than 50 percent of securities cases are dismissed at the motion to dismiss stage. That is higher than any other kind of claim you could possibly bring in the United States. They also get the benefit under the [law] of no discovery obligations until a motion to dismiss is decided against them. You don’t get those benefits if you are in front of an unsophisticated arbitrator.
CA: Would there be fewer claims though?
LP: [Institutional] investors have fiduciary obligations to their members. They are going to have to bring arbitrations. We’re not talking about one litigation or five litigations or 10 litigations. We are talking, in certain circumstances, likely hundreds of separate arbitrations. The defendants in these cases are the CEO, the CFO – the senior executives are the witnesses. So you’re going to have your CEO deposed 200 times? That is not a manageable way to conduct business.
CA: Why are class actions good for investors?
LP: They benefit from not having to be an active participant [in the litigation]. The vast bulk of investors are absent class members who get to recover as part of any settlement or judgment without having to do anything. Part of the problem of arbitration is that all of those pension funds, all of those investors who don’t bring litigation…they’re going to have to file in arbitration.
CA: And if they don’t?
LP: They are going to lose out on the money that they would otherwise obtain through the class process.
CA: There’s also an argument that class actions serve as a complement to government enforcement. Was that your experience?
LP: As a former regulator, I really believe in the importance of regulators, both the SEC and state. They play a critical role. But in terms of actually providing financial recovery to investors, it’s not even close. The overwhelming majority of successful securities cases, the SEC never brings [and] no state regulator brings. So absent a class action, those claims are not brought. Even when there is a pending SEC action or state action, the amount recovered by the private bar on behalf of investors is seven, 10, sometimes 20 times more. Even in the most egregious of frauds.
CA: Government overseers also have limited budgets.
LP: I saw that firsthand. There’s no question that we did not have the resources necessary to police the markets by ourselves, and that the private bar played an absolutely crucial role in helping deter fraud and then recover money for investors.
CA: Why do you think the SEC’s majority took this step? Republicans have long complained about the trial bar bringing frivolous cases.
LP: That’s a good question. You might have to ask them.…We’ve recovered hundreds of billions of dollars for investors. These are not frivolous cases.
CA: What do you make of Atkins’ efforts to discourage, or perhaps do away with, shareholder proposals?
LP: Like a lot of things with this administration, it seems to be a remedy in search of a problem. I don’t think that companies are overwhelmed by shareholder proposals.
CA: How so?
LP: A lot of companies welcome – and find value in – hearing from their investors about ways in which they could properly manage or disclose things. Various funds have really made an effort behind the scenes to encourage companies to take certain actions. And companies [may say], `We weren’t focused on that issue, but you’re right.’ They affirmatively change their policies or their practices or their disclosures because they recognize these things are problematic.
Read the article in full, courtesy of Capitol Account.
Responding to a call to action by President Donald Trump, Securities and Exchange Chair Paul Atkins is “fast-tracking” a proposal that would allow publicly traded US companies to file financial reports twice a year instead of quarterly. The proposed rule change has triggered opposition by some stakeholders.
If the rule is relaxed, it would end a practice that has undergirded the US investment framework for 55 years. Since 1970, US companies have been required to file unaudited “Form 10-Q” reports with the SEC to share certain information about their financial performance with shareholders, in addition to submitting audited annual Form 10-K reports.
The quarterly reporting requirement makes the US somewhat of a global outlier—to some, quarterly reporting is part of what makes US stock markets the gold standard for transparency; others consider it costly red tape that encourages short-termism.
President Trump falls squarely in the latter camp. During his first term in 2018, he urged the SEC to ditch quarterly reports, but the initiative stalled after the Commission issued a request for comment on the matter. On September 15, President Trump again pushed the idea in a social media post as a way for corporations to “save money” spent on compliance “and allow managers to focus on properly running their companies” instead of doing so “on a quarterly basis.”
This time, however, President Trump has an important ally in SEC Chair Atkins, who voiced immediate support and pledged to fast-track the rule in a September 29 Financial Times opinion piece.
“The government should provide the minimum effective dose of regulation needed to protect investors while allowing businesses to flourish,” Chair Akins wrote, saying he was “fast-tracking President Trump’s proposal to equip companies with the option to report on a semi-annual basis, rather than locking them into the current quarterly reporting regime.”
In the article, Chair Atkins praised President Trump for ending the “mission creep” by which the SEC had “drifted from the precedent and predictability that sustain … confidence” in capital markets and abandoned “its core mission of protecting investors, maintaining fair, orderly and efficient markets, and facilitating capital formation.”
Specifically, he blasted predecessors who he believes strayed from the “principle of materiality” to write rules “for shareholders who seek to effect social change or have motives unrelated to maximising the financial return on their investment.”
“It is time for the SEC to remove its thumb from the scales and allow the market to dictate the optimal reporting frequency based on factors such as the company’s industry, size and investor expectations,” Chair Atkins said. “Giving companies the option to report semi-annually is not a retreat from transparency.”
Chair Atkins noted that foreign companies listed on US exchanges are only required to file semiannual reports, as are companies in the European Union and the United Kingdom. Both imposed quarterly financials for a time before reverting to twice-yearly reports, the EU from 2004 to 2013 and the UK from 2007 to 2014. Most Canadian and Japanese companies, like those in the US, file quarterly financial reports, as do all companies in India and China, which is ironic, given President Trump’s assertion in his social media post that “China has a 50 to 100 year view on management of a company …”
Critics say less frequent reporting will hurt shareholders, especially retail investors, by widening the gap between publicly available information and facts known by company insiders. Unlike Chair Atkins, they say the move will undermine transparency by reducing the steady flow of reliable financial information to market participants.
In a 2020 research article in The Accounting Review, researchers studying thousands of US and European peer companies across multiple industries found that when US companies announced quarterly earnings, the European companies’ stock price more closely tracked their US counterparts when the European companies weren’t reporting.
The authors of article, “The Dark Side of Low Financial Reporting Frequency,” concluded that the “information vacuum” created by semiannual reporting caused investors to “periodically overreact to peer-firm earnings news in the absence of own-firm earnings disclosures in interim periods.” In addition, investors overcorrected when the European peer companies finally issued their semiannual earnings reports.
“We conclude[d] that less-transparent reporting causes more volatile and less efficient stock prices,” said Salman Arif, an associate professor at the University of Minnesota’s Carlson School of Management and one of the paper’s authors.
Some also take issue with the idea that semiannual reporting will motivate managers to make longer-term decisions. On September 19, columnist James Mackintosh of The Wall Street Journal argued that President Trump was “wrong in every possible way.” For one thing, six months isn’t the long term, he wrote. For another, US companies actually do invest for the long term despite quarterly reporting, he said, citing technology companies’ investment of “nearly $400 billion this year in long-term artificial intelligence projects.”
Furthermore, Mackintosh wrote, there was “no effect on investment or research spending for companies that switched to half-yearly reporting” in the UK since quarterly requirements were eliminated in 2014. “Indeed, if quarterly reporting were such a huge barrier to companies, it’s odd that the U.S. market is thriving, while London is struggling to attract new listings or even hold on to existing once,” he said.
Chair Atkins has said he would present a proposed rule for public comment late this year or in early 2026. SEC rule changes typically take more than a year go into effect, even when expedited, and there is no guarantee the new rule will be approved or what exact shape it will take. Given the strong opposition to less frequent reporting among academics, institutional investors, and shareholder advocates, the public comment period should yield a vigorous debate.
On September 17, 2025, the U.S. Securities and Exchange Commission (SEC) issued a “policy statement” endorsing the inclusion of forced arbitration provisions in initial public offering (IPO) registration statements.
Issued with just one week of public notice, with no opportunity to comment, and without any analysis of the impact of such a “policy” change on either investors or the public markets, the move reverses the Agency’s decades[1]long opposition to such clauses. Though touted by SEC Chairman Paul Atkins as part of his plan to “make IPOs great again,” this dramatic policy shift overlooks the significant costs that forced arbitration imposes not only on investors, but also on the companies it purports to benefit.
The harm to investors is clear. Forced arbitration strips them of the well-established right to pursue class-wide recovery in court. Without the class action mechanism, only the wealthiest shareholders will have the resources to bring claims, leaving retail investors without any recompense when companies engage in fraud. Further, because arbitration is confidential and non-public, the deterrent effect of such litigation will evaporate, likely leading to more fraud.
But smaller investors aren’t the only ones at risk. Fragmenting singular class actions into multiple individual arbitrations will also burden companies with duplicative claims from deep-pocketed, sophisticated investors. Litigating identical allegations across dozens, if not hundreds, of separate arbitrations will significantly inflate legal costs and risks by increasing the likelihood of adverse outcomes, compelling company officers and executives to be deposed in each separate arbitration, and driving up directors’ and officers’ insurance premiums. Companies will also lose key protections available under the Private Securities Litigation Reform Act (PSLRA) and the Federal Rules of Civil Procedure, such as heightened pleading standards and discovery stays during motions to dismiss. Moreover, early adopters of forced arbitration provisions will face an onslaught of litigation challenging the constitutionality and viability of such provisions under both federal and state law.
The structure of private arbitration adds further risk for both sets of stakeholders. Arbitrators are not bound by precedent, and decisions are not published, thereby depriving investors and companies alike of guidance on what conduct is permissible. And without a guaranteed right to appeal, parties have few avenues for recourse if an arbitrator issues a ruling untethered to law.
Both investors and issuers have recognized these risks. In recent years, shareholders and corporations alike have opposed adding forced arbitration clauses to corporate bylaws. In 2018, pharmaceuticals giant Johnson & Johnson sought an SEC no-action letter to exclude a shareholder proposal mandating arbitration for securities fraud claims. The SEC granted such relief, agreeing the provision would violate both federal law and New Jersey state law. More recently, 97.5% of Intuit shareholders— including all major asset managers—voted against a similar proposal.
Ultimately, forced arbitration undermines the integrity of U.S. public markets as a whole. These markets have long attracted investors by operating under a disclosure-based regime that provides material information and a path for redress in cases of fraud. If investors are unable to vindicate their rights, they will exit the market, eroding investor confidence and, in turn, company valuations.
The Fall 2025 issue of the Shareholder Advocate, our quarterly securities litigation and investor protection newsletter, featuring:
- Laura Posner and Christina Schiciano on the SEC’s endorsement of forced arbitration provisions in IPOs
- Richard Lorant on the proposal to ease companies’ financial reporting requirements
- S. Douglas Bunch on investors’ preliminarily approved settlement with EQT
- Jay Chaudhuri on the Trump and Biden Administrations’ differing approaches to regulating investment advisors’ AI use
For shareholders seeking to police corporate misconduct, the right to assert derivative claims— to sue on behalf of a corporation against officers, directors, and third parties whose actions have harmed the company—is a critical corporate governance tool.
Derivative litigation empowers shareholders to enforce compliance with fiduciary duties and ensure managerial accountability. A stockholder can assert such derivative claims either by filing a derivative complaint on the company’s behalf or by making a demand that the Board of Directors (Board) investigate and, if warranted, initiate a derivative action against the alleged wrongdoers. In either situation, the Board may appoint a Special Litigation Committee (SLC) which often becomes a central player in the investigation, any pending derivative litigation, and possible resolution of these claims.
To properly function, the SLC must be comprised of independent Board members. Once formed, the SLC should conduct a thorough investigation involving a review of internal documents, witness interviews, and consultations with independent counsel or experts, then produce a report of its findings and recommendations. The SLC’s ultimate recommendation may provide grounds for rejecting the claims, settling the action, or continuing to prosecute the lawsuit. If the SLC report recommends dismissal, shareholder plaintiffs have the right to obtain discovery as to the independence of the SLC and the basis for its findings.
Recently, Cohen Milstein has represented shareholder plaintiffs in several proceedings that illustrate the interplay between an SLC and a shareholder derivative litigation. In a pending stockholder derivative action involving Abbott Laboratories, plaintiffs allege a breach of fiduciary duties concerning the contamination of infant formula. An SLC appointed by Abbott’s Board to investigate plaintiffs’ claims moved to stay the case until it had finished its investigation. In partially denying the SLC’s motion, the Court held that plaintiffs were entitled to discovery of the same documents provided to the SLC to prepare its report. The Court noted that “[T]his discovery is necessary to prevent a special litigation committee from cherry-picking the facts highlighted in their report.” Armed with the discovery they obtain through the ruling, shareholders will have the right to challenge the SLC’s independence and conclusions if the SLC report seeks dismissal of the pending derivative litigation.
Similarly, Cohen Milstein recently filed a derivative action against officers and directors of Pegasystems Inc. related to a $2 billion judgment against the company for violating a competitor’s trade secrets. After several shareholders made demands on the company to investigate the board and management, it appointed an SLC, which rejected bringing claims against the alleged wrongdoers. In response, shareholders filed derivative litigation challenging the SLC’s report and independence.
In a different context, Cohen Milstein, on behalf of a shareholder client, recently sent a demand to a company’s board to investigate and commence derivative litigation against a third party who was culpable for participating with the company’s CFO in securities fraud. After an SLC investigation into potential claims, the board agreed to accept the demand and initiated litigation against the third party, which eventually settled for a substantial amount.
In sum, SLCs are a significant aspect of shareholder derivative litigation. They must be genuinely independent, procedurally thorough, and substantively fair. Shareholders, through the courts, must rigorously evaluate these attributes to ensure the integrity of the process and the protection of the corporation’s and shareholders’ interests.
In a major victory for shareholders, Cohen Milstein has reached a $38 million settlement in the Bayer Securities Litigation, a complex and hard-fought class action brought under the Securities Exchange Act of 1934.
The settlement, which is currently awaiting court approval, will provide a financial recovery for damaged investors who purchased Bayer American Depositary Receipts (ADRs) between May 23, 2016, and March 19, 2019.
The settlement follows nearly five years of intensive litigation and reflects the tireless efforts of Cohen Milstein’s team to hold Bayer accountable on behalf of a class of Bayer ADR investors. The firm is proud to have achieved this meaningful recovery in a case marked by challenging legal and factual issues.
Background and Allegations
This case, filed on July 15, 2020, in the U.S. District Court for the Northern District of California, stems from Bayer’s high-profile and controversial acquisition of Monsanto. In their Amended Complaint, plaintiffs allege that Bayer, along with its CEO, the chairman of its Supervisory Board, and several other senior executives, made false and misleading statements concerning the company’s due diligence on Monsanto—particularly regarding the risks associated with mass tort litigation alleging that Roundup, Monsanto’s flagship glyphosate-based herbicide, causes non-Hodgkin’s lymphoma.
A Long and Hard-Fought Case
This litigation was exceptionally contentious. It began with two full rounds of motion to dismiss briefing. In response to the Amended Complaint, defendants sought to dismiss all claims, challenging the adequacy of plaintiffs’ allegations under the heightened pleading standards of the Private Securities Litigation Reform Act (PSLRA). On October 19, 2021, the Court denied defendants’ motion in part, finding that plaintiffs had stated a claim with respect to Bayer’s statements about its merger due diligence—but dismissed claims relating to alleged misstatements about Roundup’s safety and Bayer’s financial disclosures.
Plaintiffs then, with the Court’s permission, filed a Second Amended Complaint, and defendants again moved to dismiss. On May 18, 2022, the Court reaffirmed its prior ruling by upholding the sufficiency of the due diligence-related claims.
Class Certification and Discovery
The litigation advanced into a vigorously contested class certification and discovery phase. Central to this stage were novel and complex questions about whether plaintiffs’ and the Class’s purchases were essentially foreign transactions outside the scope of U.S. securities laws. To address these issues, plaintiffs issued dozens of subpoenas to financial institutions and market participants, seeking evidence that transactions in Bayer’s ADRs occurred domestically. Plaintiffs also worked closely with Professor Joshua Mitts, PhD, of Columbia Law School, who provided valuable expert analysis and insights into the mechanics and structure of the ADR transactions at issue.
In May 2023, the Court granted class certification, appointing the lead plaintiffs as class representatives and Cohen Milstein as Class Counsel. Notably, the Court ruled in plaintiffs’ favor on the extraterritoriality issue. Plaintiffs successfully refuted defendants’ arguments that jurisdictional concerns undermined class typicality or predominance, securing a landmark decision affirming the rights of ADR purchasers on the over-the-counter market—and particularly those of sponsored ADRs like Bayer’s.
Merits discovery was expansive and complex, spanning multiple continents and legal systems. It included international depositions, voluminous document production, and expert analysis from eight experts who addressed far-ranging issues of ADR market mechanics, merger due diligence practices, economic and behavioral incentives under the merger agreement, loss causation, and damages. The process also entailed court resolution of several privilege and evidentiary disputes. Further, plaintiffs were required to initiate proceedings under the Hague Convention to obtain the testimony of Bayer’s former general counsel in Germany—a process that demanded significant coordination with German counsel and judicial oversight from both U.S. and German courts.
Settlement Process and Outcome
Settlement discussions began in the second half of 2024, when the parties agreed to engage in private mediation to resolve the case. After a brief pause during which the parties unsuccessfully attempted to resolve the case, litigation and expert discovery resumed. Ultimately, after two full-day mediation sessions held months apart, the parties reached an agreement to settle the case for $38 million in cash.
This substantial settlement represents a strong outcome for investors, offering a meaningful recovery while avoiding the additional time, risk, and expense associated with continued litigation, trial, and potential appeals. After years of contested motion practice, extensive international discovery, and complex legal challenges—including novel questions about the rights of ADR holders and merger related disclosures—this resolution ensures accountability and provides closure for investors harmed by Bayer’s alleged misleading statements.
Looking Ahead
The Bayer settlement brings closure to an important case that addressed critical questions about the adequacy and transparency of disclosures concerning due diligence in high-profile corporate mergers. The litigation also reaffirms that investors who purchase ADRs on the over-the-counter market have enforceable rights under U.S. securities laws.
As home to 2.2 million legal entities, including two-thirds of all Fortune 500 companies, Delaware earns more than a third of its annual state budget from corporate fees, some $2.2 billion a year.
In that context, it’s unsurprising that high-profile corporate departures would prompt attention among lawmakers. When those same elected officials hurriedly amended the state’s foundational business law to address corporate complaints, however, it was anything but business as usual.
The rush to rewrite portions of Delaware General Corporation Law (DGCL) broke longstanding precedent and undermined a legal feature essential to the state’s historic appeal to businesses—its reliance on the venerable and experienced Delaware Court of Chancery to interpret the DGCL gradually over time. To add drama, Senate Bill 21 (SB21) was written, in part, by the law firm that represented Elon Musk before the Delaware Chancellor who invalidated his $56 million pay package at Tesla, triggering the company’s reincorporation in Texas. Tesla is perhaps the highest-profile company to leave Delaware. The departing companies, primarily majority shareholder-controlled companies, claim that a series of recent decisions in favor of minority shareholders has made Delaware less friendly to business and will encourage more litigation.
Gov. Matt Meyer signed SB21 into law March 25 after it sailed through both houses of the state legislature with bipartisan approval despite a vigorous campaign by shareholder advocates, institutional investors, academics, consumer groups, and plaintiffs’ attorneys to stop its passage. The new law narrows the DGCL’s definition of a “controlling stockholder,” makes it easier to avoid shareholder examination of potentially conflicted transactions, and makes it harder to show that directors are beholden to controlling stockholders or management.
These changes significantly weaken minority shareholders’ ability to challenge mergers, acquisitions, and other corporate deals they believe unduly benefit controlling stockholders, like Musk and Meta’s Mark Zuckerberg, who exercise effective control over corporate votes due to the sheer size of their holdings, coupled with dual class voting structures that give their shares more weight.
The day after news broke that Meta was considering its own “DExit,” Gov. Meyer held a meeting with legislators and lawyers who represented Meta, Tesla, and others in Delaware court to discuss the “corporate franchise”—a discussion that led to SB21, which Gov. Meyer called a “course correction” that would balance power between stockholders and corporate boards. By having a group of corporate lawyers and legislators draft SB21 behind the scenes, lawmakers bypassed Delaware’s normal process for amending the DGCL, which involves recommendation by the Council of the Corporate Law Section of the Delaware Bar Association. The departure from precedent, perhaps as much as the contents of the law itself, raises concerns that Delaware’s corporate law has become politicized in a way that may undermine stability, rather than backers’ state goal of promoting it.
In the conversation that follows, Cohen Milstein Partner Molly J. Bowen discusses the implications of SB21’s passage for institutional investors with the Shareholder Advocate’s Richard Lorant.
Richard Lorant: If you followed the coverage over SB21 closely and accepted the arguments of investor groups and plaintiffs’ law firms, you’d be forgiven for thinking passage of this bill signals the end of the world as we know it in terms of shareholder rights in Delaware. Now that it has become law, how important are the changes and how much will they weaken shareholder oversight of companies?
Molly Bowen: It’s essential to separate the question of how SB21 came to be, from how it changes the DGCL. The reason SB21 is so significant is because it represented a major departure from the usual process by which Delaware law is made, which traditionally has allowed the Delaware judiciary, the national experts in corporate law, to slowly elaborate the law—to decide what it means and to respond to changing dynamics in the stock market and corporate governance. For decades, this process of corporate law developing through judicial review process has fostered stability and predictability and is an important part of what makes the state attractive to so many corporations and shareholders.
In the case of SB21, the legislature, responding to advocacy from some large corporations, made a very quick intervention to overturn decades of Delaware Supreme Court and Chancery Court precedent, principally related to controlling shareholder transactions. Academics have identified dozens of cases that they believe will no longer be good law after SB21.
So, the way this all happened has been extremely unsettling in terms of our expectations going forward for the development of the law in Delaware. It remains to be seen whether there will be new interventions like this from the legislature every time there is a major judicial opinion or trend that is not favored by the major corporations headquartered in Delaware. The process piece, in other words, is a big deal.
In terms of the impact of the law itself, remember that SB21 largely focuses on the rules governing corporate transactions—mergers, acquisitions, going-private deals, things like that. In that area, it has dramatically scaled back the checks on corporate transactions and the safeguards in place to prevent undue influence from a controlling shareholder. That is very significant for investors because those are deals that change the future of the company for better or worse. So, giving more deference to a board that is not independent and making these huge decisions is concerning.
But SB21 did not touch a major area of the law that is important to our firm and many of the funds that we work with, which is the whole area of corporate law devoted to directors’ fiduciary duties of care, loyalty, and oversight and their obligation to ensure that their company follows the law and doesn’t do things that bring disrepute to the company. Consequently, the bulk of shareholder derivative litigation that our firm has been involved in over the past decade—cases like Nikola, Alphabet, FirstEnergy, and Abbott—the major issues in those cases are unaffected by SB21.
SB21 did impose some limited restrictions on investors’ rights to access a company’s books and records, which are obviously important building blocks when you investigate cases. But candidly, the reality is that process has always been somewhat limited. And one of the ways in which our firm, I think, has really distinguished itself is in the strength of our investigations: our ability to develop cases by speaking to former employees, working with experts, doing intense factual research beyond the corporate books and records. So, we’ll continue to do that and build impactful cases regardless of what happens with Delaware law.
Richard: Returning to the process, the way the legislature acted, you’re saying there’s a risk that Delaware will effectively abandon the evolutionary approach that has served the state so well and have the legislature step in every time Delaware-based corporations feel the pendulum has swung too far in favor of shareholders.
Molly: Yes, absolutely. I don’t think it’s controversial to say that that is what happened in this case. There are documents showing meetings between the governor and large corporations that had left or threatened to leave Delaware, which led directly to this legislation being written and proposed. In that context, it’s fair to ask whether this process will repeat itself or was this event so cataclysmic that the legislature will take a step back. Another late-breaking twist is that shareholders have recently filed a case attacking SB21’s constitutionality. Obviously, that will take time to resolve while the law remains in effect which adds another layer of uncertainty to the state of Delaware corporate law.
Richard: Is it true that while the forces behind SB21 were driven by a perceived need to stop corporations from de-incorporating and cutting into the $2 billion a year the state collects in franchise fees, the law’s fast-tracked passage could conceivably have the opposite effect?
Molly: Yes, that is a possible consequence. The publicly stated motivation behind SB21 was to keep corporations in Delaware, to preserve Delaware as the leading state for incorporation, and to protect the franchise as the economic driver of the state. But because SB21 deviated from a time-honored process for making law and how far it went to favor controlling stockholders, it may lead some corporations to look elsewhere for a stable legal home.
But before we get ahead of ourselves, where do they reincorporate? Texas is making huge investments in business courts to woo companies. Same with Nevada. It remains to be seen whether there is a somewhat more balanced jurisdiction that emerges to provide a new option or if any company will want to go there, but the landscape for that kind of analysis has certainly changed because of SB21.
Finally, with Delaware now revealing the influence politics can have in the development of corporate law, investors may be more supportive of companies that want to reincorporate elsewhere. Indeed, the head of the International Corporate Governance Network said weakened protections for minority shareholders could “undermine the attractiveness of Delaware incorporated companies for investors.”
Richard: That seems like as good a place as any to stop. Thanks, Molly.
Molly: You’re welcome.
The Spring 2025 issue of the Shareholder Advocate, our quarterly securities litigation and investor protection newsletter, features:
- Carol V. Gilden and Benjamin F. Jackson on the Bayer securities litigation settlement
- Molly J. Bowen and Richard E. Lorant on changes to the Delaware General Corporation Law
- Richard A. Speirs on Special Litigation Committees in shareholder derivative litigation
- Daniel S. Sommers on the Private Securities Litigation Reform Act
- Suzanne M. Dugan’s interview with Andrew Roth, CEO of Colorado Public Employees’ Retirement Association