Several new developments are worthy of board notice in
connection with its oversight of the M&A process, with respect
to due diligence, representations and warranties, and
compliance.
One development is the increasing application
of a so-called "Weinstein clause" within a definitive
transaction agreement. The focus of the clause is to make a
representation with respect to the personal conduct of a seller
organization's corporate leadership. In some instances it may
require a form of indemnification escrow to protect against
demonstrable harm. The roots of the clause are obviously found in
the many corporate scandals of late involving #MeToo issues and
other behavioral conduct allegations. They form a major part of
what is often referred to as "social due diligence," and
not only reach matters of officer and director conduct, but also
may extend to a company's social media presence and its
reputation in the online arena.
Another development relates to the situations
in which a successor/acquiror company uncovers wrongdoing in
connection with M&A due diligence. If the successor
subsequently reports that wrongdoing to the US Department of
Justice (DOJ), engages in remedial measures (e.g.,
extending its own compliance program to the seller) and provides
cooperation in any subsequent investigation, the DOJ may provide
the successor/acquiror with meaningful credit. While a senior DOJ
official discussed this scenario in the context of the FCPA, the
suggestion is that DOJ might apply a similar approach in other
scenarios (e.g., high-risk industries).
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