September 21, 2020

Volume X, Number 265

September 21, 2020

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September 18, 2020

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Managing the Commercial Impact of the Coronavirus: Board Oversight and Implications of Marchand

“Caution is appropriate. Preparedness is appropriate. Panic is not.” (~ U.S. Surgeon General Dr. Jerome Adams, commenting on the coronavirus outbreak)

As the coronavirus outbreak continues to wreak havoc on markets and industries in the U.S. and around the world, businesses are now confronting significant and unique challenges.  Successful navigation of these challenges will require thoughtful and comprehensive planning.  

In light of last year’s decision from the Delaware Supreme Court, Marchand v. Barnhill, 2019 WL 2509617 (Del. June 18, 2019), all businesses, including private, non-profit and public companies, should consider implications for regularly-scheduled board meetings and whether to call one or more special meetings of boards of directors to discuss the impact of the coronavirus on their businesses.

Marchand involved a suit against the board of a private company that manufactured ice cream, which suffered a listeria outbreak in early 2015 that forced the company to recall all of its products, stop production at all of its plants, and lay off over a third of its workforce. The company’s board of directors – despite meeting monthly – became the subject of a Caremark claim for utterly failing in its oversight and compliance-monitoring roles, which ultimately constituted a breach of the Board’s fiduciary duties (specifically, the board’s duty of loyalty).  All relevant “red flags” were not identified by the Board, as they did not implement any Board-level system of compliance monitoring and reporting through which to address matters which were “intrinsically critical to the company’s business operation.

With COVID-19’s impact changing every day, boards of all public, private and non-profit companies should determine whether they are taking actions that are sufficient to fulfill their fiduciary duties of care and loyalty including those actions and duties highlighted by Marchand.  

Boards may consider the following basic actions: 

  • Call a special meeting of the Board if a regularly scheduled meeting is not on the near-term calendar.

  • Seek input as to how the coronavirus is impacting the company and what short-term measures are being put into place and what long-term plans are being developed.

  • Create a special committee to monitor and assess the impacts of the coronavirus and provide oversight to the company and its management.

  • Ensure that monitoring and reporting protocols are in place to gather and provide the board with relevant and up-to-date information as to all impacted areas including: employee and customer health and safety, human resources, IT, cybersecurity, cash flow and cash on hand, credit capacity, customer outlooks, supply chains and such other areas that may be applicable to a particular business and industry.  Any identified deficiencies in reporting protocols should be addressed immediately.

  • Obtain updated calendars for all Board members for the near-term and confirm contact information to ensure availability if additional special meetings need to be called on short notice.

  • Create an accurate and detailed record of the Board’s considerations and actions.

The Board also has to assess how its meetings, requests and actions will impact the time available to management to deal with this rapidly-evolving situation.  For example, the Board needs to weigh whether detailed written reports are worth the time required to prepare or whether management’s time is better spent directly addressing the myriad challenges currently presented.  

It is interesting that the Marchand decision was issued less than one year ago and almost anticipated the current situation and how the Board’s duty of oversight is measured and valued.

For more information about recommended steps, please contact your Foley relationship partner. For additional web-based resources available to assist you in monitoring the spread of the coronavirus on a global basis, you may wish to visit the CDC and the World Health Organization

© 2020 Foley & Lardner LLPNational Law Review, Volume X, Number 76

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About this Author

James P.  Patterson Milwaukee
Partner

James P. Peterson is a business lawyer with Foley & Lardner LLP. His practice includes acquisitions, divestitures, investment of private equity and venture capital funds and general corporate law. Mr. Peterson represents private equity acquirers, as well as emerging and mature businesses. He is a member of the firm's Private Equity & Venture Capital, Transactional & Securities and International Practices.

Prior to practicing law, Mr. Peterson represented the State of Wisconsin's interests at the State of Wisconsin Office of Federal-State Relations in Washington, D.C. and...

414-297-5892
Patrick G. Quick Partner Milwaukee Automotive Sports & Entertainment Manufacturing
Partner

Patrick G. Quick is a partner and business lawyer with Foley & Lardner LLP. Mr. Quick practices corporate law, with an emphasis in securities law compliance, acquisitions, activism preparedness, and takeover defense. He regularly counsels several public companies concerning compliance requirements and governance matters and has participated in securities offerings for numerous corporations. Mr. Quick also has participated in many complex acquisition transactions representing both buying and selling parties in a variety of industries. He has been actively involved in the representation of clients doing advanced activism and takeover preparedness planning and has counseled clients who have been the subject of activism campaigns or received unsolicited takeover proposals or similar overtures. He is a member of the firm’s Transactional & Securities Practice and Sports, Manufacturing, and Automotive Industry Teams.

414-297-5678
Patrick Daugherty Corporate Attorney Foley Lardner
Partner

Patrick Daugherty directs a corporate, M&A, finance, financial regulatory, and fintech practice devoted to capital formation, innovation, and return of and on investment. He leads teams of lawyers that provide the particular array of services needed by each client day-to-day and has helped clients monetize billions of dollars in sweat equity. He also leads the firm’s blockchain task force. As a confidential adviser, Patrick helps clients resolve sensitive legal matters out of court, quickly and quietly.

Corporate, M&A and Finance Practice

Patrick manages relationships...

312.832.5178 Detroit
Zane Hatahet Corporate Lawyer Foley Lardner
Associate

Zane Hatahet is a business law associate with Foley & Lardner LLP. He is a member of the Transactions Practice where he advises on a wide range of business matters, including securities regulation, mergers & acquisitions, and corporate finance & governance.

A Detroit native who spent part of his childhood growing up in Dubai, Zane also advises on energy/environmental matters and international legal matters. Prior to joining Foley, Zane worked four years as an attorney at a large Detroit-based law firm. During his studies at the...

313.234.7182
Ann Marie Uetz, Foley Lardner, Debtor Representation, Bankruptcy Lawyer
Partner

Ann Marie Uetz is a partner and trial attorney with Foley & Lardner LLP, where she represents clients in a variety of industries in all aspects of their contracts and business disputes. She also represents debtors, creditors and secured and unsecured lenders in all facets of restructuring. Ms. Uetz focuses her practice on business litigation and bankruptcy, two of Foley’s practice areas recently ranked by U.S. News—Best Lawyers® as “national First-Tier” practices in recognition of excellence in client service.

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