From the desk of Brooke Pollard:
We all now know that all allegations against executives and other decision makers at a company can have a serious impact on the value of the business. Just look at shares of CBS immediately after Les Moonves was accused of sexual misconduct, or the value of Guess stock after it was alleged that Paul Marciano used his power to harass models and others.
In an acquisition, we include representations and warranties as a way to assign risk between buyers and sellers for those potential liabilities which may not be known prior to the closing of the sale. Many lawyers are now inserting a new “#MeToo representation” to the representations and warranties. The target company may now have to represent to the buyer that certain key leaders of the target have not been accused of misconduct and that the target has not entered into settlement agreements related to misconduct allegations. The purpose of these representations is two-fold. As an initial matter, during the due diligence process, buyers are now focusing more attention on the management and the workplace environment, how management conducts itself, and turnover rates among those working with or for the management. The representation is a way to ensure that the target company is carefully reviewing its own management teams for misconduct and policing it accordingly.
The second purpose of the #MeToo representation is to allow the buyer with a remedy if there was misconduct which affects the value of the business. The target will generally be required to indemnify, protect and hold harmless the buyer for a breach of any representation. So, if there was misconduct or allegations that the company knew about (or should have known about) and disclosed but held such information, the buyer will be entitled to recover damages directly from the target.
We understand the impact allegations of sexual misconduct can have on a business, and we are working with businesses to minimize and identify these risks. TLD Law Partner, Shannon M. Jenkins, will be conducting a seminar reviewing new laws for 2019 which will include a substantial review of these types of claims. For more information on the seminar, click here.