Unreasonableness Or Carelessness Is Insufficient to Prove Liability in Nevada
Nevada’s exculpatory statute, NRS 78.138(7), requires a plaintiff to both rebut a statutory presumption of good faith and prove a breach of fiduciary duty involving intentional misconduct, fraud, or a knowing violation of the law. In Tsatas v. Airborne Wireless Network, Inc., 2015 WL 973840 (March 31, 2025), the plaintiff brought a derivative action against, among others, the CEO (Warrent) and another officer of Airborne. U.S. District Court Judge Richard F. Boulware, II’s ruling illustrates the high hurdle that plaintiffs’ must overcome when suing directors and offices of Nevada corporations:
A jury may find from this that Warren was unreasonable or careless as CEO, but that is not sufficient to show intentional misconduct, fraud, or a knowing violation of law.
This is a higher standard of care than the gross negligence standard applied by Delaware courts. See, e.g. , Stone v. Ritter , 911 A.2d 362, 369 (Del. 2006) ( “. . . the conduct giving rise to a violation of the fiduciary duty of care (i.e., gross negligence)”).
Corporate Transparency Act Update: U.S. Companies No Longer Subject to Reporting Obligations
As promised, FinCEN has adopted its interim final rule and narrowed the filing requirements for Beneficial Ownership Information (“BOI”) reporting under the Corporate Transparency Act (“CTA”). This rule exempts U.S. entities from BOI reporting requirements and only requires foreign reporting companies to report.
Per the interim final rule, entities previously defined as “domestic reporting companies” are exempt from filing BOI reports. A domestic reporting company is any entity that is a corporation, limited liability company, limited partnership, or other similar entity that is created by the filing of a document with a secretary of state or any similar office under the law of a state. Thus, all entities created in the U.S., along with their beneficial owners, are no longer subject to BOI reporting obligations.
Only certain companies, specifically companies formed in a foreign country and registered to do business in the United States, must report BOI to FinCEN. With that being said, U.S. persons who are beneficial owners of a foreign reporting company are exempt from being included in such company’s BOI report. Foreign reporting companies subject to the CTA’s reporting obligations must file their BOI reports to FinCEN no later than April 25, 2025.
FinCEN is accepting comments from the public on the interim final rule, and intends to adopt a final rule later this year.
Basic but Important Considerations for Corporations—Both For-Profit and Non-Profit: Understanding Director and Officer Liability Insurance
Insurance commonly referred to in the insurance industry as “directors and officers” or “D&O” insurance is insurance that is payable to directors and officers of a corporation, or to the corporation itself, as indemnification for losses or the advancement of defense costs in the event the corporation suffers a loss as a result of legal action brought for alleged wrongful acts by the corporation’s directors and/or officers that were taken in their capacity as directors and/or officers.
Depending on the scope of the policy, the policy may also provide coverage for members of corporate committees or defined classes of volunteers.
Who Needs D&O Insurance Anyway
Corporations do! Whether for-profit or non-profit, corporations act through their boards of directors and officers, whose decisions are subject to scrutiny and second-guessing by the corporation’s stockholders. As a result, the corporation’s directors and officers become targets of lawsuits brought by the corporation’s stockholders. Understanding this practical reality, a critical and recommended step that any corporation can take in an effort to protect its board members and officers, and in doing so, itself, is to obtain D&O insurance.
Non-profit corporations occasionally question whether they need D&O coverage given the additional protections provided by Chapter 55A. However, the additional protection afforded to non-profit officers and directors does not shield them from defending against D&O claims. D&O coverage offers great value to non-profits.
Purchasing Power
Both the North Carolina Business Corporation Act, which can be found in Chapter 55 of the North Carolina General Statutes, and the North Carolina Nonprofit Corporation Act, which can be found in Chapter 55A of the North Carolina General Statutes, specifically authorize—but does not require—for-profit and non-profit corporations, respectively, to purchase insurance on behalf of an individual who is or was a director, officer, employee, or agent of the corporation (and in the case of a non-profit corporation, also a committee member) to protect against liability asserted against, or incurred by, the individual in the individual’s official capacity or arising from his/her status as a representative of the corporation.
Considerations to Bear in Mind When Shopping for D&O Insurance
Corporations in the market for D&O insurance do themselves a service by being mindful that not all insurance policies are created equal, and not all policies cover every type of risk or need. Typically, the broader the coverage, the better protection the policy will afford the corporation’s directors and officers. However, carefully considering all options available and discussing the businesses’ needs and nuances with the corporation’s insurance broker are important steps for the corporation to take when obtaining D&O (and any other type of) insurance.
While not an exhaustive list, the following are important questions to ask when shopping for D&O insurance:
Does the policy’s definition of “insured” extend beyond the actual directors and officers (i.e., does it include, where applicable, committee members and desired classes of volunteers)?
Does the definition of “insured” protect past as well as present D&Os?
Does the policy provide a defense to claims and lawsuits (as opposed to just reimbursing for a judgment if one is eventually entered)? Even a successful defense can result in large attorney and court costs.
Does the policy cover against defamation (i.e., libel and slander) claims?
Does the policy provide a defense against claims seeking non-monetary remedies?
A non-monetary, or non-pecuniary, claim is one in which the plaintiff is not seeking money but instead asks the court for a declaration that the director or officer has acted wrongly (i.e., a suit for not fulfilling their mission or challenging an unpopular decision of the directors or an officer).
Does the policy cover derivative lawsuits?
A derivative action is a lawsuit brought by the corporation’s stockholders “in the name” of the corporation.
Does the policy defend against a claim or lawsuit for failure to maintain or obtain insurance?
Does the policy provide coverage for decisions directors/officers make in accepting or rejecting contracts?
Does the policy provide coverage for an investigation of a claim not yet in suit?
A shareholder accuses the director/officer of misconduct and demands an investigation, prior to filing a lawsuit.
Does the insurer provide the nonprofit corporation with risk management advice/training?
D&O Coverage as an Endorsed v. Standalone Insurance Policy
For many corporations, insurance premiums represent a significant annual cost of doing business. The list of typical policies/coverage types carried is not short and tends to grow rather than shrink, with many businesses carrying commercial general liability, commercial property, commercial auto, worker’s compensation, and employer’s practices liability coverages. In recent years, additional coverages have increasingly become more prevalent as typical coverages to see in place, such as crime, fidelity, and cyber insurance.
With the growing expense insurance premiums often represent for businesses, it is not uncommon for companies to source ways to lessen their insurance expense burden. Some do so by adding additional coverages as endorsements (i.e., provisions that add to, remove from, or otherwise alter a policy’s original scope of coverage) to their existing liability or businessowners’ policies as opposed to procuring a standalone D&O policy.
A downside of an endorsed policy is that too many claims against an endorsed policy can cause the premiums of the liability/property casualty coverage to increase, and sometimes dramatically, or can impact the policy’s renewal. There are other potential downsides to endorsed policies as well, to discuss with the corporation’s broker, like how aggregate limits can come into play when there is more than one claim or more than one insured involved in a claim under the same policy in a policy period.
While a standalone policy could be more expensive than an endorsed policy, standalone policies often provide better coverage, which can save money in the long run.
Characteristics of D&O Insurance to Keep in Mind
D&O insurance has several characteristics worth keeping in mind, as the application of these characteristics can have a significant impact on whether, and/or to what extent, there is coverage for a given claim/suit that has been brought and tendered to the D&O carrier for coverage. While not exclusive to D&O policies, these features tend to either not appear or to be less common in a number of the coverages that many businesses may be accustomed to interacting with to a higher degree of frequency, like their commercial general liability and commercial property coverages, for example. This article highlights but two of these characteristics.
First, D&O policies are typically either “claims-made” or “claims-made and reported” policies, meaning to trigger coverage the claim has to have been made during the policy period (claims-made) or both made and reported during the policy period (claims-made and reported). If these timing requirements, which are strictly interpreted and enforced, are not satisfied, there will be no coverage.
Second, D&O policies are generally “eroding limits” policies, meaning amounts spent on defending a covered claim/lawsuit reduce the policy’s available limit. For example, if the policy has a $1,000,000.00 limit applicable to the claim/suit, and $250,000.00 is spent on legal fees and expenses defending the case, the most the D&O insurer would ever be responsible to pay out under the policy would be $750,000.00 for indemnity, and that assumes there is full indemnity coverage. Of course, any applicable deductible/retention would need to be satisfied by the insured. Eroding limits can be a significant issue with the rising costs associated with litigating claims, and where multiple insureds may need to be defended by different sets of attorneys, should there be potential conflicts of interest that require engaging more than one set of legal counsel under the policy to defend those insureds.
One final note regarding D&O policies is that an insured generally has more freedom to select their counsel than under other types of coverage where the insurer assigns the matter to panel counsel without input from the insured.
Conclusion
Having proper D&O insurance coverage in place is an important risk management tool that corporations should secure and seek to tailor to meet their needs.
What Should Contractors and Grant Recipients do in Response to the DEI Executive Orders?
In Part 1 of our blog series, we outlined the Trump Administration’s new Executive Orders (“EOs”) on Diversity, Equity, Inclusion (“DEI”) and Diversity, Equity, Inclusion, and Accessibility (“DEIA”) programs, and the current legal status of those EOs. In this second part, we provide several observations on what actions federal contractors and grant recipients might want to consider taking in response to these EOs to ensure compliance and mitigate risks.
Review and catalog your various DEI and DEI‐related programs and initiatives. The EO directs agencies to terminate all federal DEI programs, and further directs the Office of Personnel Management (“OPM”), Office of Management and Budget (“OMB”), and the Department of Justice (“DOJ”) to work together to ensure this happens. The forthcoming FAR clause will require contractors to certify to the same. The EO also emphasizes that the Government will be looking for agencies and contractors disguising their DEI programs under other names, and directs the termination of such programs “under whatever name they appear.” Having identified all such programs will prepare you to be ready to take action quickly.
Catalog and re‐assess your diversity‐based alliance initiatives. To be clear, we are not recommending at this point terminating all vendor diversity initiatives. We think it highly likely, however, the Government will view such programs as contrary to the spirit, if not the letter, of the EOs. While the EOs do not explicitly refer to corporate programs designed to promote disadvantaged businesses by giving them a preferential path to becoming a subcontractor or supplier, it may be hard to identify a meaningful distinction between internal DEI programs and subcontractor preference programs.
Review your Code of Conduct, your Environmental, Social, and Governance (“ESG”) reports, your hiring materials, and your website to identify and remove language (and programs) contrary to the EOs. The EOs are very clear that they are intended to end “dangerous, demeaning, and immoral race‐ and sex‐ based preferences under the guise of so‐called ‘diversity, equity, and inclusion’ (DEI).” The Government will be looking for companies continuing to promote DEI, and especially for companies that appear to have changed the names of their programs in an effort to, in the words of the OPM, “obscure their connection to DEIA programs.” But remember, you must ensure your programs that focus on Title VII of the Civil Rights Act (which prohibits discrimination, harassment, and retaliation), the Equal Pay Act, the Age Discrimination in Employment Act, and the Americans with Disabilities Act are not identified for termination because the EOs do not eliminate the equal opportunity requirements of those laws.
Consider terminating DEI programs that run afoul of the law, and rethinking DEI-related affiliations, sponsorships, speaking engagements, and marketing materials that are arguably covered by the EOs. You probably remember the urge to slow-roll the internal implementation of prior EOs (e.g., the COVID 14042 EO), but the recent DEI EOs are different in light of their specificity, the clear intent to unleash the DOJ to take action against contractors dragging their feet, and the near-term introduction of a new certification. Again, as noted above, this does not mean contractors must cease their legal efforts to make holistic hiring and promotion decisions. Just keep in mind, this is a fine line to walk and one that may come under intense Government scrutiny.
Be careful not to over‐correct in a manner that creates collateral risks – retain programs focused on non‐discrimination. Although the EOs are clear and authoritative in many ways, they do not override existing federal nondiscrimination, non‐harassment, and anti‐retaliation obligations of Title VII of the Civil Rights Act of 1964, the Equal Pay Act, the Age Discrimination in Employment Act, or the Americans with Disabilities Act (as amended). These laws protect employees from discrimination, harassment, and retaliation on the basis of race, color, gender, sexual orientation, sexual preference, pregnancy, religion, national origin, age, and disability. Similarly, while inconsistent state laws likely will fall prey to the Preemption Doctrine (the general rule that federal laws trump inconsistent state laws), state laws that are not inconsistent with the EOs likely remain operative, and contractors will be held accountable for compliance with those laws.
Review and catalog contracts and grants that incorporate DEI performance requirements. The EOs contemplate the termination of all DEI (actually, DEIA) performance requirements “for employees, contractors, and grantees” within 60 days. To facilitate implementation of this directive, the EOs instruct agencies to recommend actions to align programs, including contracts and set‐aside contracts, with the EO. Additionally, the White House’s Fact Sheet describes the EOs as expanding “individual opportunity by terminating radical DEI preferencing in federal contracting and directing federal agencies to relentlessly combat private sector discrimination.” Finally, the EOs instructs agencies to inform the White House of programs that may have been “mislabeled” to conceal their true purpose.
If you have a contract that could be suspended or terminated (e.g., providing DEI training to federal agencies, supporting foreign aid programs, etc.), take immediate steps to record and track all costs incurred relating to the stop work, suspension, or termination. The Government already has begun taking steps to pause contracts, primarily in the foreign aid space. Such pauses, whether effected pursuant to the Changes Clause, the Suspension of Work Clause, the Stop Work Order Clause, or the Terminations Clause, will create significant risks to contractors. Beyond obvious cost risks, such Government actions could create risks of disputes between primes and impacted subcontractors and suppliers.
Prepare for the elimination of EO 11246‐based Affirmative Action obligations. The new EOs revoke EO 11246 to, among other things, ensure “the employment, procurement, and contracting practices of Federal contractors and subcontractors shall not consider race, color, sex, sexual preference, religion, or national origin in ways that violate the Nation’s civil rights laws.” As EO 11246 also is an EO, the deletion is self‐executing. In other words, EO 11246 is terminated. The EOs also direct OFCCP from taking any enforcement action and to stop promoting diversity, holding contractors accountable for affirmative action, and workplace balancing.
If you are involved in pending audits or investigations relating to EO 11246 or DEI matters, consider reaching out to the investigating agency to confirm whether they will be terminating their activities. The EOs specifically direct Federal agencies to “terminate all . . . enforcement actions.” Moreover, the Office of Federal Contract Compliance Programs (“OFCCP”) guidance states that the agency shall immediately cease “holding Federal contractors and subcontractors responsible for taking ‘affirmative action.’” Thus, it is likely that all ongoing OFCCP investigations relating to the employment of women or minorities are over.
Ensure your internal affinity groups are not afforded privileges unavailable to non‐members. There is nothing in the EOs that prelude the existence of affinity groups within an organization. Likewise, there is nothing in the Supreme Court’s decision in Students for Fair Admission v. Harvard that precludes such groups. That said, if certain affinity groups are afforded special treatment unavailable to other groups, it is likely the Government will view them as illegal DEI programs. In early February, OPM issued guidance that helps shed some light on what kind of employee groups violate the EOs. The memorandum states that employee resource groups (“ERGs”) “that . . . advance recruitment, hiring, preferential benefits (including but not limited to training or other career development opportunities), or employee retention agendas based on protected characteristics” are prohibited. Additionally, ERGs that are open only to “certain racial groups but not others, or only for one sex, or only certain religions but not others” and events that limit attendance to only members of an ethnic group, or discourage attendance from those outside the group are prohibited. In contrast, the guidance states the following is not illegal: Affinity/resource group events that allow “employees to come together, engage in mentorship programs, and otherwise gather for social and cultural events.”
The Memorandum cautions, however, that discretion must be exercised to ensure such events do not cross the line into “illegal DEI.” The Memorandum offers this specific warning to Government officials: “When exercising this discretion, agency heads should consider whether activities under consideration are consistent with the [EOs] . . . and the broader goal of creating a federal workplace focused on individual merit.” The Memorandum warns that, for any activities that are retained, “agencies must ensure that attendance at such events is not restricted (explicitly or functionally) by any protected characteristics, and that attendees are not segregated by any protected characteristics during the events.”
Keep a close eye on your inbox for CO/GO notices regarding modifications to your contracts and grants. The EOs require the inclusion in every contract of a certification that the contractor does not operate any program promoting DEI that violates any federal anti‐discrimination laws. Only a few weeks after the EO was issued, certain federal agencies began including such certifications in their contracts, even before a FAR deviation was issued. On February 19, GSA issued a class deviation directing all GSA COs to remove DEI and affirmative action related FAR clauses from contracts and solicitations, however, it does not add a new FAR clause or certification requirement (yet). Relatedly, the EOs give the requirements teeth by adding a related clause that acknowledges that compliance with all anti‐discrimination laws is material to the Government’s decision to pay all invoices for purposes of the civil False Claims Act. This clause will make it much easier for the Government and whistleblowers to bring False Claims Act cases against contractors who they believe have not fully implemented the new requirements. The EOs are very clear that OMB and the DOJ must take action to implement the EOs and to excise all DEI elements of process, programs, contracts, grants, etc.
Once your federal agreements are modified, be sure to modify your subcontracts. Remember, the goal of these EOs is “to encourage the private sector to end illegal discrimination and preferences, including DEI.” By continuing to require your subcontractors to comply with these “illegal” FAR/DFARS/Uniform Guidance (for grants) clauses, you could be viewed as running afoul of the prohibition. When your prime agreement (or higher‐tier subcontract agreement) is modified, it’s important to do the same for your subcontractors.
Keep your Corporate Governance team in the loop. Companies should review their public disclosures (e.g., statements in the 10-Ks and 10-Qs, proxy statements, etc.) to ensure they reflect any material changes to the company’s DEI programs, including any such changes undertaken in an effort to maintain compliance with the current state of the law. Publicly traded companies are often targets of shareholder litigation related to governance matters. Companies may see a material increase in shareholder litigation as a result of the new EOs. Even where a company thoughtfully maintains legal elements of its DEI program (recall, the EOs talk only about “illegal DEI”), shareholder plaintiffs could still claim decision-makers did not adequately disclose these remaining DEI programs and/or exposed the company to needless litigation and reputational risk and/or failed to disclose such risks to the investing public regardless of the company’s response to the EOs and related caselaw.
Ensure your internal reporting and investigation plans are up to date. In addition to the direction to the DOJ to be vigilant in pursuing contractors (and non‐contractors) that act in a manner inconsistent with the new rules, employees, competitors, and members of the general public have been incentivized to take advantage of the FCA to bring suits against contractors. We believe the DOJ will pursue contractors that do not comply with the EOs. We likewise well recognize the forthcoming contract modifications that will make it easier for whistleblowers to bring FCA cases. In fact, the Equal Employment Opportunity Commission (“EEOC”) issued two documents designed to inform workers of their rights if they believe they have experienced “discrimination related to DEI at work.” These documents could further motivate potential whistleblowers to raise allegations against their employers. It is against this background that we recommend taking a moment to ensure your hotlines, your internal investigations plans, your Mandatory Disclosure Rule policies, and your related programs and tools are up to date (including those flowing from the DOJ published guidance for corporate compliance programs).
Contractors must navigate a complex legal landscape in response to the DEI Executive Orders. By proactively adjusting DEI programs, preparing for certifications, and staying informed on legal developments, contractors can mitigate risks and ensure compliance with federal mandates.
Trump DEI Executive Orders – Impacts on Small Businesses and Small Business Subcontracting
On January 20 and 21, 2025, President Trump signed two executive orders focused on Diversity, Equity, and Inclusion (DEI) programs: EO 14151, “Ending Radical and Wasteful Government DEI Programs and Preferencing” and EO 14173, “Ending Illegal Discrimination and Restoring Merit‐Based Opportunity” (the “EOs”). You can read more about the content of these EOs here. While the EOs have broad ranging impacts on federal contractors in a number of areas, this blog focuses on the potential impacts specific to small businesses generally and to large businesses via small business subcontracting.
At the outset, the EOs require “Each agency, department, or commission head” to “direct the deputy agency or department head to . . . recommend actions . . . to align agency or department programs, activities, policies, regulations, guidance, employment practices, enforcement activities, contracts (including set-asides), grants, consent orders, and litigating positions with the policy of equal dignity and respect identified in section 1 of this order. . . .” EO 14151 (emphasis added).
The EOs take this approach because, unlike many policies and programs that are the creature of EOs, regulations, and contract terms; the various federal set-aside programs are creatures of statute – most notably the Small Business Act of 1953. Importantly, although the Small Business Act created the small business preference categories most likely to be in the crosshairs of the EOs (women-owned small businesses and socially/economically disadvantaged small businesses), the EOs do not (and cannot legally) do away with those statutory preferences.
To remove these preferences (or other subcategories), or to eliminate small business subcontracting preferences altogether, Congress would have to amend the Small Business Act. Although the President currently controls both houses of Congress, it still may be a tough political task to eliminate a program responsible for $178.6 billion dollars (FY23) annually awarded to small businesses. Accordingly, at the moment, the various federal set-aside programs remain in place.
The Small Business Administration’s (“SBA”) “Day One” Memo
Although the Trump administration cannot unilaterally eliminate the federal set-aside programs, it certainly can reprioritize. On February 24, 2024, in what is being labeled “a new day at SBA,” newly installed SBA Administrator Kelly Loeffler outlined her top priorities for “rebuilding the SBA into an America First engine for free enterprise.”
The first six priorities are directed at supporting the President’s “America First agenda.” These are largely internal changes, which include the following:
Transforming the SBA’s Office of International Trade into the Office of Manufacturing and Trade with the goal of “promoting economic independence, job creation, and fair trade practices to power the next blue‐collar boom.”
Enforcing the President’s anti‐DEI (EO 14151), only‐two‐sexes (EO 14168), and less restrictive environmental controls (EO 14154) Executive Orders.
Supporting the Department of Government Efficiency’s (“DOGE”) cost cutting efforts by, among other things, prioritizing the elimination of fraud and waste within the agency.
Mandating SBA’s employees return to the office full‐time.
Evaluating workforce reduction (e.g., assessing opportunities for workforce reductions).
Cracking down on fraud across all SBA programs, including establishing “a Fraud Working Group” and a “Fraud Czar” ‘to identify, stop, and claw back criminally obtained funds….”
The next four priorities outlined in Loeffler’s memo are directed at eliminating waste and reducing fraud. These are more likely to have a more immediate impact on federal contractors. They include:
Conducting an independent SBA‐wide financial audit in an effort to identify and counter delinquencies, defaults, and charge‐offs on SBA loan programs.
Evaluating SBA’s lending programs to maintain the “zero‐subsidy status” of some of its programs, reviving its collection programs, and restoring its underwriting standards, among other actions.
Banning illegal aliens from receiving SBA assistance.
Restricting “hostile foreign nationals,” particularly those with ties to the Chinese Communist party, from receiving SBA assistance.
The final five priorities are identified as “Empowering Small Businesses” and likely will have the largest and most immediate impact on small businesses. They include:
Establishing a “strike force” “to identify and eliminate burdensome regulations promulgated by all federal agencies….”
Improving SBA’s customer service, technology and cybersecurity, to improve digital interfaces, response times, and customer satisfaction.
Reducing the contractual goals for contracting with 8(a) companies – i.e., Small Disadvantaged Businesses – from the current 15% down to the statutory 5%. The rationale for this change is the concern that the higher goal had been “negatively impacting many veteran‐owned small businesses.”
Changing the locations of SBA regional offices to remove them from “sanctuary cities” and relocate them to “to less costly, more accessible locations in communities that comply with federal immigration law.”
Terminating SBA funded voter registration activities.
While most of the priorities above appear relatively straightforward, the shift away from 8(a) contracting (by reducing the contracting goals), is notable for a couple of reasons. First, the rationale suggests this administration is not interested in reducing preferences for veteran-owned small businesses, so those programs and goals very likely are safe. Second, this reprioritization suggests it is likely we may see a concurrent effort to reduce 8(a) small business subcontracting goals, which will have an impact on both small and large businesses, as discussed in more detail below.
Small Business Subcontracting Plans
Most large businesses contracting with the Federal Government are required to adopt subcontracting goals, make good faith efforts to achieve those goals, and to report to the Government the contractor’s success in meeting those goals. The goals cover subcontract spending on small businesses, minority owned small businesses, women owned small businesses, and more.
As noted above, the Federal Government’s small business subcontracting program is a preference program of the sort targeted by the EOs. Like the prime contract set-aside preference programs, however, most of the small business subcontracting requirements are established by statute. Thus, here again, it would take an act of Congress to eliminate certain preference categories, or the program altogether. Although we have little doubt Congress will take steps to align the law with the EOs, that has not happened yet. Accordingly, the subcontracting rules continue to apply. That is not to say the Government will expend any effort enforcing those rules. It would be unsurprising to see a directive to the SBA and other contracting agencies (most likely General Services Administration (“GSA”), Department of Defense (“DOD”), and National Aeronautics and Space Administration (“NASA”)) not to audit or enforce the Subcontracting Plan requirements. Still, large businesses should not ignore existing compliance obligations. Indeed, while the Government may not seek to enforce the rules, whistleblowers may. As such, noncompliance with the Subcontracting Plan requirements still presents a risk to large businesses.
Time will tell how the Trump administration’s priorities (including the 15 SBA priorities) will be implemented, and, thus, what impact they will have on small—and large—businesses. In the meantime, small business would be well advised to reassess compliance programs to ensure they are in sync with all current rules, regulations, and guidelines. Additionally, small businesses may want to take steps to prepare for an audit as we are likely to see an uptick in SBA audit activities. Likewise, large business would be well advised to do some advanced planning since (a) it is likely there will be a concurrent change in the SBA’s subcontracting programs and (b) the SBA’s new priorities likely will impact the pros and cons of partnership choices on federal opportunities.
Delaware Enacts Significant Changes to Delaware General Corporation Law
As discussed in Foley’s Corporate Governance Update last month, SB 21: Delaware Responds In The DExit Battle, the Delaware legislature has been moving quickly to ensure that Delaware remains the preeminent home of choice for many corporations by amending the DGCL. The comprehensive changes, known as SB 21, became law on March 25, 2025, when the Delaware House of Representatives passed the Bill, and Delaware Governor Matt Meyer signed it into law. A copy of SB 21 as finally adopted is available here.
Delaware’s legislature and Governor acted with dispatch to pass a law with a number of changes intended to reduce litigation targeting directors, officers, and controlling stockholders. Our previous update contained a detailed explanation of the Bill. Here is a summary of the most notable changes to DGCL Section 144 and DGCL Section 220:
Raising the bar for deeming a stockholder to be a “controlling stockholder”. One of the major criticisms of existing case law is the scope creep in the definition of who is a controlling stockholder. This has significant implications because having a controlling stockholder on both sides of a transaction pushes the standard of review into the enormously pro-plaintiff entire fairness standard. The new law effectively introduces a floor of one-third ownership in order to be deemed to be a controlling stockholder.
Easing the standard for shielding controlling stockholder transactions from judicial review outside the “going private” context. Recent case law required the double protections of approval by both disinterested and independent directors and a majority of minority stockholders in order to obtain the business judgment standard of review. The new law only requires one of these two protections. It also further relaxes the standard in other ways, such as by relaxing the test for directors of listed companies to be deemed disinterested, and lowering the voting standard for obtaining majority of minority stockholder approval.
Narrowing the ability to make Books-and-records demands. The scope of available books-and-records under DGCL Section 220 has been narrowed under most circumstances to exclude emails, text messages, or informal board communications, and to limit books and records to a three-year look-back. In addition, a complainant must now show a “proper purpose” for any books-and-records demand and must do so with “reasonable particularity” while showing that the requested materials are “specifically related” to that purpose. These changes give Delaware corporations more tools to fight back against nuisance requests.
SB 21 was signed into law only 36 days after it was first introduced—in large part due to the legislature’s bypassing the normal process for amending the DGCL. In the House, the Bill faced nearly two hours of debate and five failed amendments. The motive for acting quickly was clear and explicit: Governor Meyer had asked for a bill like SB 21 to be on his desk by month’s end in an effort to preserve Delaware’s status as the preeminent place to incorporate in response to a growing movement by companies to exit the State following some unfavorable decisions from the State’s judiciary over the last few years.
Notably, the amendments to Sections 144 and 220 apply retroactively unless (1) an action commenced in court concerning an act or transaction is already completed or pending or (2) a books-and-records demand was made on or before February 17, 2025, when SB 21 was first introduced in the Delaware Senate.
SB 21’s changes to the DGCL have been heralded by some in the legal community, but criticized by others as engaging in a race-to-the-bottom with Texas and Nevada that risks long-term repercussions because they push Delaware’s carefully constructed balance too much in favor of corporate controllers and insiders and away from the rights of minority stockholders. Only time will tell whether Delaware remains the domicile of choice for so many of America’s corporations, but the State’s legislative and executive branches have made quite clear that they intend to do whatever is in their power to preserve the advantages of incorporating in the State.
Another Post SB21 Proposal To Reincorporate From Delaware To Nevada
The ink has barely dried on Delaware’s hotly debated amendments to its General Corporation Law and already another company has proposed reincorporation in Nevada. In preliminary proxy materials filed yesterday with the Securities and Exchange Commission, Roblox Corporation, an NYSE listed company, gave the following reasons for the reincorporating in Nevada:
Our Board believes that there are several reasons the Nevada Reincorporation is in the best interests of the Company and its stockholders. Our Board and the NCGC [Nominating & Corporate Governance Committee] determined that to support the mission of innovation of the Company it would be advantageous for the Company to have a predictable, statute-focused legal environment. The Board and the NCGC considered Nevada’s statute-focused approach to corporate law and other merits of Nevada law and determined that Nevada’s approach to corporate law is likely to foster more predictability in governance and litigation than Delaware’s approach. Among other things, the Nevada statutes codify the fiduciary duties of directors and officers, which decreases reliance on judicial interpretation and promotes stability and certainty for corporate decision-making. The Board and the NCGC also considered the increasingly litigious environment in Delaware, which has engendered costly and less meritorious litigation and has the potential to cause unnecessary distraction to the Company’s directors and management team. The Board and the NCGC believe that a more predictable legal environment will better allow the Company to pursue its culture of innovation as it pursues its mission.
Note that the Roblox’s statement focuses on Nevada’s statutory approach as opposed to Delaware’s judge-made development of the law. In the recent debate over Delaware’s amendments to its General Corporation Law, some decried the Delaware legislature’s interference with lawmaking by the courts:
The Delaware General Corporate Law is characterized by the strength of judicial oversight, whereas the bill seemingly has as its express purpose the disempowerment of the Court of Chancery and Supreme Court—a key feature and reason why companies incorporate in Delaware. The bill would overturn decades of precedent and carve out avenues for the most conflicted transactions to proceed unchallenged.
Council of Institutional Investors Letter dated March 18, 2025 to Chair of Delaware General Assembly’s Senate Judiciary Committee. The effrontery of the General Assembly in presuming to make law! Based on recent proposals, it would seem that the Court of Chancery and Supreme Court are the reason that companies are looking for the exit.
Opposition to Renewed COPA Application in Indiana Reveals FTC Leadership’s Views on Hospital Merger Enforcement
The Federal Trade Commission (FTC) recently submitted comments in opposition to a renewed application for a certificate of public advantage (COPA) that would, if granted, allow two hospitals in Indiana to merge despite potential antitrust concerns.
In its submission, the FTC suggested that it had no institutional bias against COPAs but routinely objects because of the price increases, declines in quality, and lower wages that the FTC argues result from most mergers subject to a COPA.
The FTC also said that it takes “failing-firm” defense arguments (i.e., the claim that one of the parties to the transaction will fail unless the merger is permitted) seriously and “never wants to see a valued hospital exit a community.” Furthermore, the FTC stated that it “has not challenged mergers with hospitals that are truly failing financially and cannot remain viable without the proposed acquisition.”
Nevertheless, the FTC noted the potential for cross-market harms as a reason to object to the Indiana hospitals’ COPA application. The FTC identified businesses with employees in counties not directly in the hospitals’ service areas who might be adversely affected by the transaction, the impact on the cost of health care for state employees, and the purported effect on patients insured by Medicare and Medicaid as reasons to object to the proposed application.
Trump’s Pick for Chief Legal Officer May Signal More Changes for DOL
This week President Donald Trump nominated attorney Jonathan Berry to be the next solicitor of the Department of Labor (DOL). Berry worked in the department during the first Trump administration, and he was the sole author of Chapter 18 of Project 2025’s treatise Mandate for Leadership, which contained a set of policy recommendations for the DOL and related agencies (EEOC, NLRB, etc.). With his nomination, we thought it would be helpful to review Berry’s recommended policy changes for the DOL.
What does Chapter 18 say?
Much of Chapter 18 is dedicated to rolling back DEI initiatives, and the current administration has clearly made that a priority during the first three months of 2025. Other changes proposed by Berry include:
Overtime changes – Several proposals are focused on using the DOL to collect more data on the “state of the American family” (Mandate, p. 588) and refocus regulations to have an impact on family lives. Examples include allowing non-exempt workers to elect to receive paid time off instead of overtime, incentivizing on-site childcare, forcing employers to pay overtime rates for employees that have to work on Sunday (or Saturday depending on the particular religion), limiting overtime to employees who work remotely unless they work over 10 hours in a specific day, and removing home offices from OSHA regulations.
Worker independence – As we reported recently, the DOL will likely rescind the Biden administration’s 2024 independent contractor rule and return to the test from the first Trump administration in 2021. Berry’s proposals include that change as well as establishing a “bright-line test” that would determine employee or contractor status across all federal laws, and creating a safe harbor for businesses that provide certain benefits (such as healthcare or retirement programs) to independent contractors.
Protecting small businesses and entrepreneurship – Berry champions the franchise structure as “a proven business model” for small businesses and proposes that the DOL return to a definition of joint employment based on “direct and immediate control” rather than a variety of direct and indirect control factors. Other proposals include a lower salary threshold for exempt status in certain geographic regions, such as the Southeast, and giving employers the flexibility to calculate overtime over a longer period of time (so extra hours worked one week could be offset by lesser hours in a subsequent week without triggering overtime obligations).
Reducing hazard regulations – Berry proposes the relaxation of current regulations limiting teenage workers from certain inherently dangerous jobs so long as the teenager receives training and parental consent.
Prioritizing American workers – Another key focus of Chapter 18 is a series of immigration changes to increase the utilization of American citizens, including limitations on the H-2A visa program, giving employers the freedom to prefer to hire American workers over workers from other countries, and even mandating a minimum percentage of American workers on federal contracts (up to 95% over a 10-year period).
Wait and See
The Trump administration acted with lightning speed during the first three months of 2025 to implement many of the specific DEI recommendations in Chapter 18 of Project 2025’s treatise. Now that Berry has been appointed the chief legal officer for the DOL, it will be interesting to see how many of these other initiatives are implemented in the months and years to come.
Listen To This Post
CSRD and CSDDD Officially Delayed, With Huge Majority of MEPs in Support
On 3 April 2025, the European Parliament voted to postpone the implementation dates for corporate sustainability due diligence and reporting requirements, as the first step in the European Commission’s “Omnibus” simplification package to reduce administrative requirements of companies and aimed to bolster the competitiveness of the European Union. With 531 votes for, 69 against and 17 abstentions, Members of the European Parliament overwhelmingly supported the European Commission proposal.
Key Aspects of the Postponement:
Corporate Sustainability Reporting Directive (“CSRD”):
The application of CSRD has been delayed by two years for certain companies.
“Large companies”, as defined in CSRD, are now required to report on financial year of 2027, to be published in 2028.
Listed small and medium-sized enterprises (SMEs) will commence reporting one year later on their 2028 financial year, to be published in 2029.
The second stage of the Omnibus is proposed to alter these thresholds, to significantly reduce the scope of companies needing to report, which we covered in our alert here.
Corporate Sustainability Due Diligence Directive (“CSDDD”):
Member States now have until 26 July 2027 to transpose the due diligence directive into national law, extending the deadline by one year.
Large EU companies with over 5,000 employees and a net turnover exceeding €1.5 billion, as well as non-EU companies meeting the same turnover threshold within the EU, are required to comply with the rules starting in 2028.
Similarly, EU companies with more than 3,000 employees and a net turnover above €900 million, along with equivalent non-EU companies, will also need to adhere to these regulations from 2028.
To expedite the adoption of these postponement measures, the European Parliament agreed on 1 April 2025 to handle the proposals under its urgent procedure. The draft law now awaits formal approval by the Council of the European Union, which endorsed the same text on 26 March 2025.
Whilst the updates to the reporting standards and exact scope of companies required to report remains under development as part of the second stage of the Omnibus, as we reported on here, there is at least certainty for businesses on a delay.
Tempus Fugit Ad Nevada
Three days after Delaware’s governor, Matt Meyer, signed into law controversial amendments to Delaware’s General Corporation Law, another publicly traded company filed preliminary proxy materials with the Securities and Exchange Commission seeking stockholder approval of a reincorporation in Nevada.
“Fugit inreparabile tempus”*
Tempus AI, Inc. describes itself as “a healthcare technology company focused on bringing artificial intelligence and machine learning to healthcare in order to improve the care of patients across multiple diseases”. Although its principal executive offices are in Chicago, Illinois, it was incorporated in Delaware. Tempus’ proxy materials emphasize Nevada’s “statute focused” approach and its board’s belief “that Nevada can offer more predictability and certainty in decision-making because of its statute-focused legal environment”. The company also faults the litigation environment in Delaware:
The Board also considered the increasingly litigious environment in Delaware, which has engendered less meritorious and costly litigation and has the potential to cause unnecessary distraction to the Company’s directors and management team and potential delay in the Company’s response to the evolving business environment. The Board believes that a more stable and predictable legal environment will better permit the Company to respond to emerging business trends and conditions as needed.
I expect that Tempus’ board was aware of the Delaware legislation, but the changes were not enough to convince it to remain in the Blue Hen state.
* Time flies irretrievably. Publius Vergilius Maro, Georgics, Liber III.
SEC Policy Shift and Recent Corp Fin Updates – Part 1
Since the beginning of the year, the US Securities and Exchange Commission’s (SEC) Division of Corporation Finance staff (Corp Fin Staff) has issued several important statements and interpretations, including a Staff Legal Bulletin on shareholder proposals and multiple new and revised Compliance and Disclosure Interpretations (C&DIs). Given the pace and importance of these recent changes, it is critical that public companies be aware of the significant policy shift at the Division of Corporation Finance and the substance of the updated statements and interpretations.
This is the first part of an ongoing series that will discuss recent guidance and announcements from the Corp Fin Staff. This alert will review the new and revised C&DIs released by the Corp Fin Staff relating to Regulation 13D-G, proxy rules, and tender offer rules.
Regulation 13D-G
On 11 February 2025, the Corp Fin Staff revised one C&DI and issued a new C&DI with respect to beneficial ownership reporting obligations. Revised Question 103.11 clarifies that determining eligibility for Schedule 13G reporting (as opposed to Schedule 13D reporting) pursuant to Exchange Act Rule 13d-1(b) or 13d-1(c) will be informed by all relevant facts and circumstances and by how “control” is defined in Exchange Act Rule 12b-2. This revised C&DI removed the examples previously given as to when filing on Schedule 13D or Schedule 13G would be appropriate.
New Question 103.12 states that a shareholder’s level of engagement with a public company could be dispositive in determining “control” and disqualifying a shareholder from filing on Schedule 13G. This new C&DI notes that when the engagement goes beyond a shareholder informing management of its views and the shareholder actually applies pressure to implement a policy change or specific measure, the engagement can be seen as “influencing” control over a company. Together, these revised and new C&DIs present a significant change in beneficial ownership considerations with respect to shareholder engagements.
Since the issuance and revision of these two C&DIs, the Corp Fin Staff has further indicated that the publishing of a voting policy or guideline alone would generally not be viewed as influencing control. However, if a shareholder discusses a voting policy or guideline when engaging with a company and the discussion goes into specifics or becomes a negotiation, it could be seen as influencing control. Additionally, the Corp Fin Staff explained that, while statements made by a shareholder during an engagement may indicate that it is not seeking to influence control, a shareholder’s actions may still be considered an attempt to do so.
For companies that actively engage with shareholders that report ownership of the company’s holdings pursuant to a Schedule 13G, the new and revised Regulation 13D-G C&DIs may have the unintended effect of causing additional time and resources to be spent engaging with a broader pool of investors if engagements with larger shareholders are canceled, postponed, or lessened in scope.
Proxy Rules and Schedules 14A/14C
Over the past several proxy seasons, there has been an increase in the number of voluntary Notice of Exempt Solicitation filings by shareholder proponents and other parties in what is often seen as an inexpensive way to express support for a shareholder proposal or to express a shareholder’s views on a particular topic. This can be seen as contrary to the intended purpose of a Notice of Exempt Solicitation filing, which was to make all shareholders aware of a solicitation by a large shareholder to a smaller number of shareholders. Many companies that had these voluntary Notice of Exempt Solicitation filings made in connection with a shareholder proposal have found them to be confusing to shareholders since there was limited information required by these filings and there was uncertainty about how to respond to materially false and misleading statements in them.
On 27 January 2025, the Corp Fin Staff revised two C&DIs and issued three new C&DIs relating to voluntary Notice of Exempt Solicitation filings. The new and revised C&DIs clarify that voluntary submissions are allowed by a soliciting person that does not beneficially own more than US$5 million of the class of subject securities, so long as the cover page to the filing clearly indicates this fact. Additionally, the notice itself cannot be used as a means of solicitation but instead should be a notification to the public that the written material has been provided to shareholders by other means. The Corp Fin Staff also confirmed that the prohibition on materially false or misleading statements contained in Exchange Act Rule 14a-9 applies to all written soliciting materials, including those filed pursuant to a Notice of Exempt Solicitation.
For companies that have had voluntary Notice of Exempt Solicitation filings made to generate publicity for a shareholder proposal or express a view on a particular topic, the new and revised Proxy Rules and Schedules 14A/14C C&DIs are intended to significantly limit the number of or stop these voluntary filings, which are simply made for publicity or to express a viewpoint.
Tender Offer Rules
On 6 March 2025, the Corp Fin Staff added five new C&DIs relating to material changes to tender offers after publication. According to Exchange Act Rule 14d-4(d), when there is a material change in the information that has been published, sent, or given to shareholders, notice of that material change must be promptly disseminated in a manner reasonably designed to inform shareholders of the change. The rule goes on to say that an offer should remain open for five days following a material change when the change deals with anything other than price or share levels.
In new C&DI Question 101.17, the Corp Fin Staff clarified that while the SEC has previously stated that an all-cash tender offer should remain open for a minimum of five business days from the date a material change is first disclosed, it understands this may not always be practicable. The Corp Fin Staff believes that a shorter time period may be acceptable if the disclosure and dissemination of the material change provides sufficient time for shareholders to consider this information and factor it into their decision regarding the shares subject to the tender offer.
New C&DIs 101.18–101.21 address material changes related to the status or source of the financing of a tender offer. In Question 101.18, the Corp Fin Staff indicated that a change in financing of a tender offer from “partially financed” or “unfinanced” to “fully financed” constitutes a material change that requires shareholder notice and time for consideration on whether a shareholder will participate. In Question 101.20, however, the Corp Fin Staff clarifies that the mere substitution of the source of financing is not material. The Corp Fin Staff did note that an offeror should consider whether it needs to amend the tender offer materials to reflect the material terms and the substitution of the funding source. While this may seem contrary to the Corp Fin Staff’s guidance in this C&DI, an immaterial change in the funding source could trigger an obligation to amend the tender offer materials to reflect other changes, such as the material terms of the new source of funding.
In Question 101.19, the Corp Fin Staff indicated that a tender offer with a binding commitment letter from a lender would constitute a fully financed offer, while a “highly confident” letter would not. The answer to Question 101.21 builds on the guidance from the previous three new C&DIs to establish that when an offeror has conditioned its purchase of the tendered securities on the receipt of actual funds from a lender, a material change occurs when the lender does not fulfill its contractual obligation and the offeror waives it without an alternative source of funding.
In light of these new C&DIs, companies planning tender offers should play close attention to the status of any necessary funding, as changes in unfunded, partially funded, or fully funded financing can trigger the need to disclose a material change to stakeholders as well as to amend the tender offer materials.
Conclusion
This publication is the first in a series that seeks to highlight these policy changes and help public companies stay up to date on the Corp Fin Staff’s guidance. Our Capital Markets practice group lawyers are happy to discuss how these policy and guidance changes can impact companies as they consider how to address the new and revised Regulation 13D-G, proxy rules, and tender offer rules C&DIs.