MFA Files Amicus Brief in Support of Shareholders' Rights-related Lawsuit
In an amicus curiae brief filed with the Delaware Court of Chancery in Politan Capital Management LP v. Kiani, the Managed Funds Association ("MFA") supported a plaintiff's claims that certain bylaw amendments adopted by a global medical technology company - which require expanded information from investors making director nominations or stockholder proposals - are invalid and unenforceable, and that the company's board of directors breached its fiduciary duty by adopting them.
The MFA's interest in the case stems from its significant implications relating to shareholder engagement and capital allocation decisions. The MFA said that if the Court declares the bylaws enforceable, many other companies will adopt similar provisions, requiring far more expansive disclosure than has been the case in advance notice bylaws previously evaluated by the court. The MFA argued that widespread implementation of similar bylaws would limit stockholders' incentives and their ability to engage with management teams to effect beneficial change, and would impact capital allocation decisions at both activist and non-activist investment funds.
Specifically, the MFA urged the Court to declare invalid the provisions requiring an investment fund manager that make a director nomination or stockholder proposal to disclose:
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the identity of each individual investor in the fund that (i) holds a 5 percent or larger economic interest in the fund or (ii) has invested or committed to invest in a "sidecar vehicle" or special purpose entity formed principally for the purpose of investing in the company's securities;
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whether the fund (or a related person) has any plans or proposals to nominate directors at any other public company within the next 12 months; and
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the identities (and share ownership) of other company stockholders known by the fund to "support" the nomination or proposal.
The MFA argued that, with respect to the above (i) funds generally have confidentiality agreements with their investors preventing the disclosure of their identities; (ii) funds consider their investment plans to be highly sensitive, proprietary intellectual property; and (iii), the concept of "support" (which is undefined in the bylaw) is unworkably vague and does not appear subject to any standard of materiality.