M&A Update: Rise of “Social Due Diligence” and the “Weinstein Clause”

In the midst of a flury of M&A activity, Bloomberg is reporting that buyers are requesting additional language in the representation and warranty provisions of company purchases to protect from the headline risk and drop in value of companies associated with sexual misconduct allegations. This provision is being termed the “Weinstein Clause.” How should you adjust to this information if you are a buyer or seller?

If you are a buyer, you should seek representation and warranties from the seller with specific dates and actions in mind that are the source of greatest liability, including sexual harassment and misconduct in addition to other behaviors which carry headline risk. You should request, under the terms of your NDA with your seller, access to HR records for top executives. You should also request a clawback provision, and in some cases, an escrow account with funds set aside in the event the representation and warranty provision is triggered.

If you are a potential seller, you should assess your M&A readiness by updating language in agreements with key executives. You must assess internally and confidentially any potential risks and discuss with your counsel the strategy prior to a potential sale. Be prepared for additional “social due diligence” in entertainment, technology, and other high-profile areas of your business. Also, an ounce of prevention is worth a pound of cure: institute a culture of accountability from the top down that does not promote performance at the expense of character and your core values. Be prepared to negotiate clawback and other provisions if necessary with the seller.

Fogel & Potamianos LLP‘s General Counsel Group serves as outsourced general counsel to small and middle market companies, as well as high net worth individuals with multiple business interests. We offer expertise in M&A dealmaking.

This blog is provided for general informational purposes only and no attorney-client relationship with Fogel & Potamianos LLP is created. By using the blog, you agree that the information on this blog does not constitute legal or other professional advice. The blog is not a substitute for obtaining legal advice regarding a potential matter from a qualified attorney licensed in your state.



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