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).