MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION
Date: January 29, 2024
To: Howard Bellamy, Partner, Calderwood & Harkness LLP Priya Sundaram, EVP, General Counsel & Corporate Secretary, Cascade Retail Holdings Inc.
From: Eric Johannsen, Associate, Calderwood & Harkness LLP Claire Dempsey, Associate, Calderwood & Harkness LLP
Re: Governance Gap Analysis — Cascade Retail Holdings Inc. (C&H Matter No. 1038-00005)
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I. Executive Summary
This memorandum identifies and analyzes gaps between the existing governance documents of Cascade Retail Holdings Inc. ("CRH" or the "Company") — specifically the Amended and Restated Bylaws last amended May 14, 2019 (the "2019 Bylaws," consisting of 38 sections across 8 articles) and the existing board committee charters — and current best practices, regulatory requirements, proxy advisory firm expectations, Delaware law developments, and peer company norms. The memorandum further provides specific recommendations for addressing each identified gap and proposes a timeline for implementation ahead of CRH's upcoming 2024 Annual Meeting of Stockholders.
This analysis is prompted by several converging catalysts that, taken together, create a compelling case for prompt and comprehensive governance reform:
(1) A contested director election at CRH's June 8, 2023 Annual Meeting of Stockholders, in which incumbent director David Hargrove received only 54.1% of votes cast and activist nominee Franklin Gu received 38.2% of votes cast — a margin that, under a majority voting standard, would still have resulted in Hargrove's election but that nonetheless reflects significant shareholder dissatisfaction;
(2) Activist shareholder pressure from Ridgepoint Capital Partners LP ("Ridgepoint"), which filed a Schedule 13D/A on November 17, 2023 disclosing a 4.7% stake (approximately 3,290,000 shares out of 70,000,000 shares of common stock outstanding) and publicly calling for governance reforms including majority voting, proxy access, and an independent board chair requirement;
(3) A December 5, 2023 "Governance Health Assessment" prepared by Glassman & Torrey LLP (the "G&T Assessment"), which scored CRH at 58/100 against a peer group of 18 public retail companies — nine points below the peer median of 67/100 — and identified material deficiencies in voting standards, shareholder rights provisions, committee structure, and ESG oversight;
(4) Evolving proxy advisory firm policies for the 2024 proxy season, with both Cobalt Ridge Solutions ("ISS") and Adriatic Services Inc. ("Tarrant Partners LLC") having published updated voting guidelines that place increased emphasis on majority voting standards, proxy access, annual board evaluations, and cybersecurity oversight; and
(5) Recent Delaware case law developments — including In re McDonald's Corp. Stockholder Derivative Litigation (Del. Ch. 2023) and In re Harborview & Co. Derivative Litigation (Del. Ch. 2021) — that have heightened director and officer oversight standards under Caremark, as well as the August 1, 2022 amendment to DGCL § 102(b)(7) permitting officer exculpation charter provisions.
Summary of Key Findings. This memorandum identifies governance gaps in seven principal areas and provides recommendations for each:
(a) Director Voting Standard — CRH employs plurality voting for all director elections; the market standard is majority voting in uncontested elections with a plurality carve-back and a mandatory director resignation policy;
(b) Proxy Access — The 2019 Bylaws contain no proxy access provision, which is increasingly viewed as a baseline governance feature by institutional shareholders and proxy advisory firms;
(c) Advance Notice Provisions — The existing advance notice provisions lack modern enhanced disclosure requirements covering derivative positions, short interests, hedging arrangements, and update/supplement obligations;
(d) Forum Selection — Neither the 2019 Bylaws nor the Restated Certificate of Incorporation contain an exclusive forum selection clause, exposing CRH to multi-forum litigation risk;
(e) Emergency Bylaws — The 2019 Bylaws contain no emergency bylaw provisions as authorized by DGCL § 110;
(f) Officer Exculpation — CRH's Restated Certificate of Incorporation has not been updated since 2016 and does not include officer exculpation as permitted by the 2022 DGCL amendment (charter amendment required; noted here but outside the scope of this engagement); and
(g) Board Committee Charters — Each of the existing committee charters contains gaps relative to current regulatory requirements and best practices, and CRH lacks a standing Technology & Cybersecurity Committee with a formal charter.
Upcoming Timeline. CRH's 2024 Annual Meeting of Stockholders is scheduled for June 6, 2024, with an anticipated record date of April 11, 2024. Under the modernized advance notice provisions recommended herein, the advance notice window for stockholder nominations and proposals would run from February 7, 2024 to March 8, 2024. Given these timing constraints, prompt adoption of governance reforms ahead of proxy season is strongly advisable. We recommend circulation of a first draft of Amended and Restated Bylaws by February 12, 2024, a board governance workshop on February 22, 2024, and board approval of final documents in March 2024.
II. Background
A. Company Overview
Cascade Retail Holdings Inc. is a Delaware corporation, incorporated on March 12, 2001, and publicly traded on the Nasdaq Stock Market under the ticker symbol "CRHI" (CIK: 0001387442). The Company is headquartered at 4800 Lakeview Blvd, Suite 1100, Bellevue, WA 98004. CRH operates as a multi-channel retail and e-commerce company specializing in specialty apparel, home goods, and outdoor lifestyle products and brands. For fiscal year 2023, the Company reported revenue of approximately $6.14 billion. As of January 2024, CRH's market capitalization is approximately $3.8 billion.
The Company's organizational documents consist of a Restated Certificate of Incorporation filed with the Delaware Secretary of State on October 3, 2016 (the "Restated Certificate"), and the 2019 Bylaws. The Restated Certificate authorizes 200,000,000 shares of common stock, $0.01 par value per share, and 10,000,000 shares of preferred stock, $0.01 par value per share. As of the date of this memorandum, the Company has approximately 70,000,000 shares of common stock outstanding and no shares of preferred stock outstanding. The Restated Certificate includes a Section 102(b)(7) exculpation clause that applies to directors only and has not been updated since its original filing. Article VII, Section 2 of the Restated Certificate prohibits stockholder action by written consent, requiring all stockholder action to be taken at a duly called annual or special meeting of stockholders.
The Board of Directors (the "Board") consists of 11 directors, of whom 3 are inside directors and 8 are independent directors within the meaning of Nasdaq listing standards. The current Chairman of the Board is Thomas R. Kinsley, who serves as an independent, non-executive chairman. The Lead Independent Director is Margaret "Meg" Holliday. The Company's Chief Executive Officer is Julian Voss. The Company's registered agent in Delaware is National Registered Agents of Delaware, Inc., 1209 Orange Street, Wilmington, DE 19801.
B. Existing Governance Documents Under Review
For purposes of this gap analysis, we have reviewed the following governance documents:
2019 Bylaws. The Amended and Restated Bylaws of Cascade Retail Holdings Inc. were last amended on May 14, 2019. The 2019 Bylaws consist of 38 sections organized across 8 articles and govern matters including the conduct of stockholder meetings, the election and removal of directors, the designation and authority of officers, the issuance and transfer of stock certificates, and general corporate matters. Key features of the 2019 Bylaws that are relevant to this analysis include: (i) plurality voting for all director elections, whether contested or uncontested; (ii) conventional advance notice provisions that require stockholders to provide timely notice of director nominations or other proposals but do not include modern enhanced disclosure requirements; and (iii) the absence of any proxy access provision or exclusive forum selection clause. The 2019 Bylaws have not been amended in nearly five years.
Restated Certificate of Incorporation. As noted above, the Restated Certificate was filed on October 3, 2016. In addition to the authorized share capital and written consent prohibition discussed in Section II.A, the Restated Certificate includes a Section 102(b)(7) exculpation clause that eliminates or limits the personal liability of directors for monetary damages for breach of the fiduciary duty of care. Importantly, this provision was adopted prior to the August 1, 2022 amendment to DGCL § 102(b)(7) that expanded the scope of permissible exculpation to include certain senior officers, and the Restated Certificate does not extend exculpation to officers. While the Restated Certificate is reviewed for context in this memorandum, a charter amendment requires stockholder approval and is outside the primary scope of this engagement; we address officer exculpation in Section III.F below as a noted recommendation.
Committee Charters. The Board currently maintains three standing committees, each with a written charter, as well as one ad hoc committee formed by board resolution:
Audit Committee Charter. Last revised in February 2020. The Audit Committee consists of 4 independent members and is chaired by Sandra Chen-Watkins. Dr. Anwar Farouk also serves as a member of the Audit Committee. The charter addresses the committee's oversight of financial reporting, the relationship with the independent auditor, and internal controls, but has not been updated to reflect recent SEC cybersecurity disclosure rules or enhanced Caremark compliance oversight standards.
Compensation & Human Capital Committee Charter. Last revised in March 2021. The committee consists of 3 independent members and is chaired by Robert "Rob" Elliston. The charter addresses the committee's oversight of executive compensation and incentive programs but does not fully address human capital management, pay-versus-performance disclosure, clawback policy administration, or compensation risk assessment.
Nominating & Corporate Governance Committee Charter. Last revised in January 2019. The committee consists of 3 independent members and is chaired by Margaret "Meg" Holliday. The charter addresses the committee's role in identifying and evaluating director candidates and overseeing corporate governance matters but does not address ESG/sustainability oversight, board refreshment and skills matrix review, annual board self-evaluation, or proxy access administration.
Ad Hoc Technology & Innovation Committee. Formed by board resolution on September 15, 2022, this committee operates without a formal charter. Dr. Anwar Farouk is a member of the ad hoc committee. The committee has no defined authority, meeting frequency, reporting obligations, or accountability standards. No standing technology or cybersecurity committee of the Board currently exists.
C. Catalyst Events
The governance reform analysis addressed in this memorandum has been precipitated by a series of converging events that, collectively, underscore the urgency of a comprehensive governance refresh.
2023 Annual Meeting of Stockholders (June 8, 2023). CRH's 2023 Annual Meeting was the site of a contested director election. Ridgepoint Capital Partners LP nominated Franklin Gu as an alternative candidate for the Board. Under CRH's existing plurality voting standard — under which a nominee need only receive more votes than any competing nominee, rather than a majority of votes cast — all management nominees were elected. However, incumbent director David Hargrove received only 54.1% of votes cast, reflecting significant shareholder dissatisfaction with his candidacy or, more broadly, with the Company's governance posture. Activist nominee Franklin Gu received 38.2% of votes cast. While these results did not alter the composition of the Board, the narrow margin of Hargrove's election was widely noted by governance observers and proxy advisory firms and signaled a meaningful level of shareholder discontent that is likely to intensify if governance reforms are not adopted ahead of the 2024 proxy season.
Ridgepoint Capital Partners LP — 13D/A Filing (November 17, 2023). On November 17, 2023, Ridgepoint Capital Partners LP filed an amendment to its Schedule 13D (Schedule 13D/A) with the Securities and Exchange Commission (the "SEC"), disclosing that it had acquired beneficial ownership of 3,290,000 shares of CRH common stock, representing approximately 4.7% of the 70,000,000 shares outstanding. Ridgepoint is managed by Victor Langdon, and the CRH position is managed by Natasha Orlova. Ridgepoint's outside legal counsel is Whitfield & Pratt LLP, with lead partner Daniel Orenstein handling the CRH engagement. In the filing, Ridgepoint publicly demanded three specific governance reforms: (i) adoption of a majority voting standard in uncontested director elections; (ii) adoption of a proxy access bylaw; and (iii) establishment of a requirement that the Chairman of the Board be independent. These demands have been communicated both through the SEC filing and through subsequent informal outreach to CRH's investor relations team. Ridgepoint has not, as of the date of this memorandum, filed a notice of nomination under the 2019 Bylaws for the 2024 Annual Meeting, but the advance notice window has not yet opened under either the current or proposed provisions.
Glassman & Torrey LLP — Governance Health Assessment (December 5, 2023). At the direction of CRH's General Counsel, Glassman & Torrey LLP conducted a comprehensive governance benchmarking analysis. Katherine "Kate" Redfield, Managing Director at Glassman & Torrey, delivered the final Governance Health Assessment on December 5, 2023. The G&T Assessment evaluated CRH's governance framework against a peer group of 18 comparable public retail companies across multiple dimensions and assigned CRH an overall governance score of 58 out of 100, which is nine points below the peer median of 67 out of 100. Key areas of weakness identified in the G&T Assessment include: voting standards (plurality versus majority), shareholder rights provisions (absence of proxy access and limited advance notice), committee structure (no standing technology or cybersecurity committee), ESG oversight (no formal committee mandate or charter language), board evaluation process (no annual self-evaluation), and emergency preparedness (no emergency bylaws). The G&T Assessment has been provided to the Board and will serve as a reference point for the governance reform recommendations set forth in this memorandum.
ISS and Tarrant Partners LLC 2024 Policy Updates. Both ISS and Tarrant Partners LLC have published updated proxy voting guidelines for the 2024 proxy season that are directly relevant to CRH's governance posture. ISS's 2024 U.S. Proxy Voting Guidelines favor majority voting in uncontested director elections, proxy access with market-standard terms (3% ownership / 3-year holding period / cap at the greater of 2 nominees or 20%–25% of the board), annual board evaluations, and board diversity. ISS will generally recommend "withhold" or "against" votes for directors at companies that fail to adopt shareholder proposals receiving majority support. Tarrant Partners LLC's 2024 Proxy Voting Policy Guidelines similarly emphasize majority voting and proxy access and include enhanced focus on board skills disclosure, cybersecurity oversight, and ESG integration at the board level. Given that CRH currently lacks several of these features, the Company faces a meaningful risk of adverse proxy advisory firm recommendations at the 2024 Annual Meeting absent governance reform.
Recent Delaware Case Law. The Delaware Court of Chancery has issued a series of opinions in recent years that have meaningfully expanded the scope of directors' oversight duties under In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996). In In re Harborview & Co. Derivative Litigation, C.A. No. 2019-0907-MTZ (Del. Ch. Sept. 7, 2021), the Court of Chancery denied a motion to dismiss Caremark claims against Camberwell Holdings's board of directors for allegedly failing to implement and monitor a reporting system regarding airplane safety. In In re McDonald's Corp. Stockholder Derivative Litigation, C.A. No. 2021-0324-JTL (Del. Ch. Jan. 25, 2023), the Court of Chancery further extended Caremark principles, finding that directors could face personal liability for failing to exercise oversight over the company's workplace culture and HR-related risks. These decisions underscore the importance of committee-level oversight mandates that go beyond traditional financial reporting to encompass legal and regulatory compliance, risk management, and enterprise-level oversight of critical business functions.
DGCL § 102(b)(7) Amendment — Officer Exculpation. Effective August 1, 2022, the Delaware General Corporation Law was amended to expand DGCL § 102(b)(7) to permit certificate of incorporation provisions exculpating certain senior officers — including the CEO, CFO, COO, CLO, and controller, as well as any person identified in the company's SEC filings as one of the most highly compensated officers — from personal liability for breach of the fiduciary duty of care in direct (but not derivative) claims brought by stockholders. A significant and growing number of Delaware public companies have adopted or proposed officer exculpation charter amendments since the effective date, and proxy advisory firms have generally not opposed such proposals. CRH's Restated Certificate has not been updated to include this provision.
III. Gap Analysis — Bylaws Provisions
This Section III sets forth our detailed analysis of each identified gap in CRH's 2019 Bylaws, together with our specific recommendations for remediation. We have organized the analysis into seven subsections, each addressing a discrete bylaws topic.
A. Director Voting Standard
Current State. The 2019 Bylaws provide for plurality voting in all director elections, whether the election is contested (i.e., the number of nominees exceeds the number of seats available) or uncontested (i.e., only the management slate is nominated). Under a plurality standard, each stockholder may cast one vote per share for each nominee up to the number of directors to be elected, and the nominees receiving the highest number of votes are elected, regardless of whether any nominee receives a majority of the votes cast. The 2019 Bylaws do not include any form of director resignation policy applicable to directors who fail to receive specified levels of stockholder support.
Best Practice and Peer Benchmark. Market practice among large-capitalization public companies, and the expectation of both ISS and Tarrant Partners LLC under their 2024 proxy voting guidelines, strongly favor a majority voting standard in uncontested director elections. Under a majority voting standard, a director nominee in an uncontested election must receive more votes "for" his or her election than votes "against" in order to be elected. Abstentions and broker non-votes are not counted as votes "for" or "against." The majority voting standard is paired with a plurality carve-back for contested elections — that is, where the number of director nominees exceeds the number of board seats to be filled as of a specified determination date, the election reverts to a plurality standard to avoid the possibility that no candidate receives a majority and the seats remain unfilled.
A mandatory director resignation policy is an essential companion to a majority voting standard. Under a typical resignation policy, any incumbent director who fails to receive a majority of votes cast in an uncontested election is required to promptly tender his or her resignation for consideration by the Nominating & Corporate Governance Committee (or another committee of independent directors). The committee is then required to evaluate the tendered resignation and recommend to the full Board whether to accept or reject it, considering any factors the committee deems relevant (including the director's qualifications, the stated reasons for the vote, and the impact on the composition and balance of the Board). The Board is required to act on the committee's recommendation within a specified period (typically 90 days) and to publicly disclose its decision and reasoning.
According to the G&T Assessment, a substantial majority of CRH's 18-company peer group has adopted majority voting in uncontested elections, and plurality voting was flagged as a primary scoring deficiency contributing to CRH's below-median governance score. Both ISS and Tarrant Partners LLC will generally recommend "withhold" or "against" votes for members of the governance committee at companies that have not adopted majority voting, particularly where shareholders have previously expressed support for such a change.
Gap Significance. CRH's continued use of a plurality voting standard is a meaningful governance gap that has been directly implicated in recent events. The contested 2023 Annual Meeting highlighted the limitations of the plurality standard: although David Hargrove received only 54.1% of votes cast — a level that, while sufficient for election under plurality voting, reflects substantial shareholder opposition — he was nonetheless elected without any mechanism for the Board to address the significant dissent. Under a majority voting standard with a resignation policy, a director receiving less than majority support would have been required to tender a resignation, providing the Board with an opportunity to evaluate the underlying shareholder concerns.
The plurality standard is also explicitly called out in Ridgepoint's November 17, 2023 Schedule 13D/A as the first of three governance demands. Failure to address this demand ahead of the 2024 proxy season risks further activist escalation, including the possibility of a renewed proxy contest, additional public statements critical of the Board's governance posture, and efforts to build broader institutional shareholder support for governance reform.
Moreover, ISS and Tarrant Partners LLC policies for the 2024 proxy season both favor majority voting and may result in adverse voting recommendations for CRH's directors — particularly members of the Nominating & Corporate Governance Committee — if the Company fails to adopt this standard. Such adverse recommendations could materially impact the vote results at the 2024 Annual Meeting and create reputational risk with institutional investors.
Recommendation. We recommend that the Board amend the bylaws to adopt a majority voting standard for uncontested director elections, with a plurality carve-back for contested elections. The amended provision should:
(i) Define an "uncontested election" as an election in which the number of director nominees does not exceed the number of directors to be elected as of the later of (x) the tenth day preceding the date the Company first mails its notice of meeting to stockholders and (y) the date on which the Company determines the number of nominees;
(ii) Provide that in an uncontested election, each director nominee shall be elected by a majority of the votes cast with respect to that nominee (i.e., the number of votes "for" the nominee must exceed the number of votes "against"), with abstentions and broker non-votes not counted as votes cast;
(iii) Provide that in a contested election, director nominees shall be elected by a plurality of the votes cast;
(iv) Adopt a mandatory director resignation policy, either within the bylaws themselves or as a standalone Board policy that is cross-referenced in the bylaws. The resignation policy should require any incumbent director who fails to receive a majority of votes cast in an uncontested election to tender his or her resignation within five business days following certification of the vote. The Nominating & Corporate Governance Committee should be charged with evaluating the tendered resignation and recommending to the Board whether to accept or reject it. The Board should be required to act within 90 days and to promptly disclose its decision and the rationale therefor by press release and Current Report on Form 8-K.
We note that this change can be implemented through a Board-approved bylaw amendment without the need for stockholder approval, providing the Company with the ability to act expeditiously ahead of the 2024 proxy season.
B. Proxy Access
Current State. The 2019 Bylaws do not contain a proxy access provision. Under the current governance framework, stockholders wishing to nominate director candidates have two options: (1) submit a nomination through the advance notice process set forth in the bylaws, which requires the stockholder to conduct and bear the cost of its own proxy solicitation to support its nominees, or (2) conduct a full independent proxy solicitation under SEC Rule 14a-8 or the proxy contest rules. Neither option provides stockholders with the ability to include their director nominees in the Company's own proxy statement and proxy card, which is the fundamental benefit of a proxy access provision.
Best Practice and Peer Benchmark. Proxy access has evolved from a cutting-edge governance feature to a mainstream and expected provision among S&P 500 and mid- to large-capitalization public companies. According to recent data from proxy advisory firms and governance organizations, more than 80% of S&P 500 companies have adopted some form of proxy access bylaw, and the trend is extending to smaller public companies as well.
The market-standard proxy access provision includes the following terms:
• Ownership Threshold: A stockholder or group of stockholders owning at least 3% of the Company's outstanding shares of common stock.
• Holding Period: Continuous ownership of the required percentage for at least 3 years preceding the date of the nominating stockholder's notice.
• Nominee Cap: The number of proxy access nominees included in the Company's proxy materials is capped at the greater of 2 nominees or 20% of the total number of directors on the Board (rounded down to the nearest whole number).
• Aggregation: Up to 20 stockholders may aggregate their holdings to meet the 3% ownership threshold.
• Informational and Procedural Requirements: The nominating stockholder(s) must provide detailed information regarding beneficial ownership (including derivative positions), representations regarding intent to maintain ownership through the meeting, compliance with applicable securities laws, and information about the nominee (including completed questionnaires and representation agreements).
• Loaned-Share Exclusions: Shares that have been loaned by the nominating stockholder are generally excluded from the ownership calculation unless the stockholder has the right to recall such shares on no more than five business days' notice and provides a representation that such shares will be recalled promptly upon notification.
• Re-nomination Restrictions: A nominee who is included in the Company's proxy materials under the proxy access provision but either withdraws from or becomes ineligible for the election, or who fails to receive a specified minimum percentage of votes cast (typically 25%), may be subject to restrictions on re-nomination under the proxy access provision for a specified period (typically 2 years).
Application to CRH. Application of market-standard proxy access terms to CRH's current capital structure yields the following parameters:
• 3% Ownership Threshold: 70,000,000 shares outstanding × 3% = 2,100,000 shares.
• Ridgepoint's Current Position: Ridgepoint's disclosed stake of 4.7% (approximately 3,290,000 shares) exceeds the 3% ownership threshold by a significant margin. If Ridgepoint has held its position continuously for at least 3 years (a fact that should be verified through review of its filing history and may not yet be satisfied depending on the timing of share accumulation), it would qualify as an eligible stockholder under a proxy access provision. Even if Ridgepoint has not yet satisfied the 3-year holding period, other long-term institutional stockholders may be eligible.
• 20% Nominee Cap: 11 directors × 20% = 2.2, rounded down to 2 nominees. The "greater of 2 or 20%" formulation would permit a minimum of 2 proxy access nominees. If the Board were reduced to 9 directors at a future date, 20% × 9 = 1.8, rounded down to 1 — but the "greater of 2" floor would still ensure that at least 2 nominees are available through proxy access.
Gap Significance. The absence of a proxy access provision is a significant governance gap that has been flagged in multiple contexts. The G&T Assessment identified the lack of proxy access as a contributor to CRH's below-median governance score. Ridgepoint's November 17, 2023 Schedule 13D/A explicitly demands the adoption of proxy access as one of its three primary governance reform requests. ISS and Tarrant Partners LLC 2024 policy guidelines view the absence of proxy access as a governance concern and may issue adverse recommendations to directors at companies that have not adopted proxy access, particularly where shareholder proposals requesting proxy access have received majority support or where activist investors have publicly demanded it.
From a practical standpoint, the adoption of proxy access is a meaningful governance concession that demonstrates the Board's responsiveness to stockholder concerns while maintaining the Board's ability to manage the nomination process through reasonable procedural and informational safeguards. Many companies have found that the adoption of proxy access helps to defuse activist campaigns by removing it as a point of contention and signaling a constructive approach to shareholder engagement.
Recommendation. We recommend that the Board adopt a proxy access bylaw provision with the following terms:
(i) An eligible stockholder or group of up to 20 stockholders that has continuously owned at least 3% of the Company's outstanding common stock for at least 3 years may nominate and include in the Company's proxy materials director candidates constituting the greater of 2 nominees or 20% of the Board (rounded down);
(ii) The provision should include customary procedural and informational requirements, including detailed disclosure of beneficial ownership (encompassing derivative positions, swaps, short interests, and hedging arrangements), representations regarding intent to maintain ownership through the annual meeting, compliance with SEC proxy rules (including Rule 14a-19, the universal proxy rule), and completed nominee questionnaires and representation agreements;
(iii) Loaned shares should be excluded from the ownership calculation unless the stockholder has the ability to recall such shares on no more than five business days' notice and provides a representation to that effect;
(iv) A nominee who fails to receive at least 25% of the votes cast at the applicable annual meeting should be ineligible for re-nomination through the proxy access process for a period of 2 years;
(v) The provision should include reasonable information requirements for nominees, including questionnaires addressing background, qualifications, independence, and any agreements or arrangements regarding the nomination; and
(vi) Proxy access nominees should be counted toward any maximum number of stockholder-nominated candidates established in the Company's advance notice provisions.
As with the majority voting standard, this bylaw amendment can be adopted by the Board without stockholder approval.
C. Advance Notice Provisions
Current State. The 2019 Bylaws contain basic advance notice provisions that require stockholders to provide advance written notice of director nominations or proposals for other business to be brought before an annual meeting. The notice must be delivered within a specified window measured from the annual meeting date. However, the existing provisions are relatively spare by contemporary standards and contain several significant deficiencies. In particular, the current provisions:
(i) Do not require disclosure of derivative positions, short interests, hedging arrangements, or other synthetic equity positions held by the nominating stockholder;
(ii) Do not require disclosure of material agreements, arrangements, or relationships between the nominating stockholder and the nominee, or between the nominating stockholder and any other person acting in concert;
(iii) Do not impose update or supplement obligations requiring the nominating stockholder to update the information provided in the original notice through the meeting date;
(iv) Do not include questionnaire or representation requirements for director nominees;
(v) Do not include separate procedures for nominations at special meetings of stockholders; and
(vi) Do not define the determination of whether a notice is timely with sufficient precision.
Best Practice and Peer Benchmark. Contemporary advance notice bylaws among public companies — particularly those that have experienced or may experience activist shareholder engagement — include significantly more detailed requirements than CRH's current provisions. Best-practice advance notice bylaws typically include the following elements:
(i) Notice Window: A stockholder's notice must be received at the Company's principal executive offices not earlier than 120 days and not later than 90 days before the first anniversary of the preceding year's annual meeting. If the annual meeting is convened more than 30 days before or more than 60 days after such anniversary date, the notice must be received not earlier than 120 days before the meeting and not later than the later of 90 days before the meeting or 10 days after the Company first publicly announces the date of the meeting.
(ii) Comprehensive Disclosure Requirements: The nominating stockholder must disclose: (a) the name and address of the stockholder and any associated persons; (b) the number and class of shares beneficially owned (including shares owned of record, shares as to which the stockholder has a right to acquire, and shares subject to any derivative position); (c) any derivative, swap, option, warrant, convertible security, stock appreciation right, or similar instrument or agreement with an exercise or conversion privilege or settlement payment or mechanism at a price related to, or with a value derived in whole or in part from, the value or price of the Company's shares; (d) any short interest in any security of the Company; (e) any hedging, risk arbitrage, or other arrangement that has the purpose or effect of reducing the nominating stockholder's economic exposure to ownership of shares; (f) any material agreements, arrangements, or understandings between the nominating stockholder and the nominee or any other person; (g) a description of all direct and indirect compensation, indemnification, and other material monetary arrangements between the nominating stockholder and the nominee during the past three years; and (h) any other information that would be required to be disclosed in a proxy statement filed pursuant to Section 14 of the Securities Exchange Act of 1934.
(iii) Update and Supplement Obligations: The nominating stockholder must update and supplement the notice so that the information provided is true and correct as of (a) the record date for the meeting and (b) the date that is 10 business days prior to the meeting, with such updates delivered within 5 business days after the applicable date.
(iv) Questionnaire and Representation Requirements: Each nominee must complete a questionnaire (in a form provided by the Company's Corporate Secretary) and provide representations regarding: (a) voting commitments or agreements; (b) compensation or indemnification arrangements in connection with service on the Board; (c) willingness to comply with the Company's corporate governance guidelines, policies, and codes of conduct; (d) intent to serve if elected for the full term; and (e) compliance with applicable securities laws.
(v) Special Meeting Procedures: Separate advance notice procedures should apply to nominations at special meetings of stockholders at which directors are to be elected.
Application to CRH 2024 Annual Meeting. With the 2023 Annual Meeting having been held on June 8, 2023, and the 2024 Annual Meeting scheduled for June 6, 2024, the advance notice window under the proposed 120-day/90-day formula would operate as follows:
• Window Opens: February 7, 2024 (120 days before June 6, 2024)
• Window Closes: March 8, 2024 (90 days before June 6, 2024)
Accordingly, any stockholder wishing to submit a director nomination or proposal for other business at the 2024 Annual Meeting would need to deliver a compliant notice to the Company's Corporate Secretary at its principal executive offices no earlier than February 7, 2024 and no later than March 8, 2024.
Gap Significance. The current advance notice provisions are materially outdated and do not provide the Company with sufficient information to evaluate the economic interests, potential conflicts, and motivations of nominating stockholders. The absence of derivative and hedging disclosure requirements is particularly problematic in an environment of activist shareholder engagement, where investors may hold complex positions that include both long and short exposure to the Company's shares. Without comprehensive disclosure, the Board and the Company's stockholders may be unable to fully assess whether a nominating stockholder's interests are aligned with those of the stockholder body as a whole.
The G&T Assessment identified CRH's limited advance notice provisions as a contributor to the Company's below-median governance score. Enhanced advance notice provisions are a standard protective mechanism adopted by the vast majority of public companies, and their absence creates unnecessary risk for CRH, particularly in light of Ridgepoint's known position and history of engagement.
Recommendation. We recommend that the Board modernize the advance notice provisions of the bylaws to include:
(i) A 120-day/90-day notice window measured from the first anniversary of the preceding year's annual meeting, with an adjusted window for meetings held more than 30 days before or 60 days after the anniversary date;
(ii) Comprehensive disclosure requirements covering beneficial ownership, derivative positions, short interests, hedging arrangements, material relationships, compensation arrangements, and all other information required under SEC proxy rules;
(iii) Update and supplement obligations requiring the nominating stockholder to update all disclosed information as of (a) the record date for the meeting and (b) the date that is 10 business days prior to the meeting;
(iv) Separate procedures for stockholder nominations at special meetings of stockholders;
(v) Questionnaire and representation requirements for all director nominees, including representations regarding voting commitments, compensation arrangements, compliance with corporate governance policies, and intent to serve the full term; and
(vi) Provisions clarifying the interaction between the advance notice process and the proxy access provision (if adopted) and confirming that compliance with Rule 14a-19 (the universal proxy rule) does not excuse compliance with the Company's advance notice requirements.
D. Forum Selection
Current State. The 2019 Bylaws do not contain an exclusive forum selection clause. CRH's Restated Certificate of Incorporation similarly does not include a forum selection provision. As a result, stockholders may bring internal corporate claims — including derivative suits, fiduciary duty claims, DGCL claims, and claims arising under the internal affairs doctrine — in any court of competent jurisdiction, including courts outside of Delaware. Similarly, claims under the Securities Act of 1933 could potentially be brought in state courts in jurisdictions other than Delaware, leading to duplicative and potentially inconsistent litigation.
Best Practice and Peer Benchmark. Exclusive forum selection bylaws have become widely adopted among Delaware corporations, particularly following the Delaware Supreme Court's decision in Salzberg v. Sciabacucchi, 227 A.3d 102 (Del. 2020), which upheld the enforceability of certificate of incorporation provisions designating federal district courts as the exclusive forum for Securities Act claims. A typical exclusive forum provision consists of two components:
(i) Delaware Forum Provision (Internal Corporate Claims): Unless the corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have subject matter jurisdiction, any other state court located within the State of Delaware or, if no state court located within the State of Delaware has subject matter jurisdiction, the federal district court for the District of Delaware) shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the corporation, (b) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, or other employee of the corporation to the corporation or its stockholders, (c) any action asserting a claim arising pursuant to any provision of the DGCL, the certificate of incorporation, or the bylaws, or (d) any action asserting a claim governed by the internal affairs doctrine.
(ii) Federal Forum Provision (Securities Act Claims): Unless the corporation consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended.
It is important to note that the exclusive forum provision does not — and, under applicable law, cannot — cover claims arising under the Securities Exchange Act of 1934, which must in any event be brought exclusively in federal court pursuant to Section 27 of the Exchange Act.
Gap Significance. Without an exclusive forum selection provision, CRH is exposed to multi-forum litigation risk. Stockholder plaintiffs could file internal corporate claims in jurisdictions outside Delaware — including states with less developed corporate law jurisprudence or less efficient dockets — forcing the Company to litigate in unfamiliar and potentially unfavorable venues while simultaneously defending parallel actions in Delaware. Multi-forum litigation increases legal costs, creates the risk of inconsistent rulings, and diverts management attention. The G&T Assessment noted the absence of a forum selection clause as a scoring deduction, and adoption of such a provision is consistent with the practices of the vast majority of CRH's peer group.
Recommendation. We recommend that the Board adopt an exclusive forum bylaw provision consisting of:
(i) A Delaware forum provision designating the Court of Chancery of the State of Delaware (with fallback to other Delaware courts and the federal District of Delaware) as the exclusive forum for internal corporate claims, including derivative actions, fiduciary duty claims, DGCL claims, and internal affairs claims; and
(ii) A federal forum provision designating U.S. federal district courts as the exclusive forum for claims arising under the Securities Act of 1933.
The enforceability of both provisions under current Delaware law is well established. The Board should be advised that the provision does not extend to Exchange Act claims, and the bylaw language should be drafted to avoid any overreach that could jeopardize enforceability.
E. Emergency Bylaws
Current State. The 2019 Bylaws do not contain emergency bylaw provisions. There is no existing framework in CRH's organizational documents for the governance and operation of the Board during an emergency in which a quorum of directors cannot be readily assembled due to a catastrophic event, natural disaster, public health emergency, or other crisis.
Best Practice and Peer Benchmark. Section 110 of the DGCL authorizes Delaware corporations to adopt emergency bylaws that become operative during emergency conditions. Specifically, DGCL § 110 provides that the board of directors may adopt emergency bylaws, subject to repeal or change by action of the stockholders, that shall be operative during any emergency in the conduct of the business of the corporation resulting from an attack on the United States or on a locality in which the corporation conducts its business or customarily holds meetings of the board or its stockholders, or during any nuclear or atomic disaster, or during the existence of any catastrophe, or other similar emergency condition, as a result of which a quorum of the board or a standing committee thereof cannot readily be convened for action.
Emergency bylaws have become a governance best practice, particularly in the aftermath of the COVID-19 pandemic, which highlighted the need for clear contingency frameworks for board operations during periods of disruption. Typical emergency bylaws address:
(i) Reduced Quorum Provisions: Establishing a reduced quorum requirement (e.g., one-third of the directors, or one director, or such other number as the emergency bylaws may specify) during the period of the emergency;
(ii) Meeting Procedures: Authorizing meetings to be called by any available director or officer and permitting meetings to be held by telephone, video conference, or other electronic means;
(iii) Succession Provisions: Designating additional or substitute directors or officers to serve during the emergency, including provisions for the designation of successors by available officers or directors;
(iv) Authority of Officers: Expanding the authority of available officers to take actions necessary to preserve the business and affairs of the corporation during the emergency;
(v) Notice Provisions: Modifying or waiving notice requirements for emergency meetings; and
(vi) Automatic Sunset: Providing that the emergency bylaws cease to be operative when the emergency ends and normal operations resume.
Gap Significance. The absence of emergency bylaws leaves CRH without a clear legal and procedural framework for maintaining board-level governance during crisis conditions. While the DGCL provides certain default rules applicable during emergencies (including DGCL § 110(a), which provides that actions taken in good faith during an emergency are binding even if taken in a manner inconsistent with other bylaw provisions), the absence of affirmative emergency bylaws means that CRH's Board and officers would need to rely entirely on these default provisions, which may be insufficient to address all contingencies. The G&T Assessment identified the absence of emergency bylaws among the factors contributing to CRH's below-median governance score.
Recommendation. We recommend that the Board add a new article to the bylaws (proposed as new Article IX) addressing emergency bylaws consistent with DGCL § 110. The emergency bylaws should cover:
(i) Reduced quorum provisions (e.g., one-third of all directors or, if no such quorum can be assembled, one director);
(ii) Authorization for telephonic, video, and electronic meetings during emergencies;
(iii) Succession provisions for officers and directors;
(iv) Expanded officer authority for emergency actions;
(v) Modified notice requirements; and
(vi) Automatic sunset upon the termination of the emergency condition.
F. Officer Exculpation (Charter Amendment — Out of Scope but Noted)
Current State. CRH's Restated Certificate of Incorporation, filed on October 3, 2016, includes a provision pursuant to DGCL § 102(b)(7) that eliminates or limits the personal liability of directors for monetary damages for breach of the fiduciary duty of care. This provision applies only to directors and does not extend to officers of the Company.
Effective August 1, 2022, the DGCL was amended to expand Section 102(b)(7) to permit certificate of incorporation provisions exculpating certain "senior officers" from personal liability for breach of the duty of care in direct claims brought by stockholders. The officers eligible for exculpation under the amended statute include (i) the president, (ii) the chief executive officer, (iii) the chief operating officer, (iv) the chief financial officer, (v) the chief legal officer, (vi) the controller, (vii) the treasurer, and (viii) the chief accounting officer, as well as any other individual identified as one of the corporation's most highly compensated executive officers in filings with the SEC. Importantly, officer exculpation under the amended statute applies only to direct claims — not to derivative claims brought on behalf of the corporation — and does not apply to breaches of the duty of loyalty, acts or omissions not in good faith, or transactions from which the officer derived an improper personal benefit.
Best Practice and Peer Benchmark. Since the effective date of the 2022 DGCL amendment, a significant and growing number of Delaware public companies have adopted or are proposing officer exculpation charter amendments. According to available data, a substantial majority of companies that have held annual meetings since August 2022 and that have proposed officer exculpation amendments have received stockholder approval, typically by wide margins. Both ISS and Tarrant Partners LLC have generally not opposed officer exculpation proposals, provided that the proposals are limited to the scope permitted by the DGCL and are accompanied by adequate disclosure regarding the rationale for the amendment.
Gap Significance. CRH's Restated Certificate has not been updated since 2016 and does not include an officer exculpation provision. Given the heightened litigation environment — including the expansion of Caremark oversight duty claims to encompass officer conduct and the increasing frequency of direct claims against officers arising from stockholder suits — officer exculpation is a meaningful and important protection for CRH's senior officers. The failure to adopt this provision may also place CRH at a disadvantage in recruiting and retaining senior executives, as candidates may prefer to serve at companies that offer the full scope of permissible exculpation.
Recommendation. Although a certificate of incorporation amendment is outside the scope of this engagement, which is focused on bylaws and committee charters, we strongly recommend that CRH pursue an amendment to its Restated Certificate of Incorporation to add officer exculpation at the earliest practicable opportunity. The most efficient approach would be to include a proposal for stockholder approval of the charter amendment in the proxy statement for the June 6, 2024 Annual Meeting of Stockholders. This will require:
(i) Board approval of the proposed amendment language;
(ii) Inclusion of the proposal in the Company's 2024 proxy statement, with supporting disclosure regarding the scope and rationale of the amendment;
(iii) Stockholder approval at the 2024 Annual Meeting; and
(iv) Filing of a Certificate of Amendment with the Delaware Secretary of State following stockholder approval.
A timeline for drafting and filing should be coordinated with the proxy preparation process. We will prepare a separate Delaware law update memorandum addressing the officer exculpation amendment in greater detail, including recommended language, disclosure considerations, and any potential stockholder concerns.
G. Stockholder Action by Written Consent
Current State. Article VII, Section 2 of CRH's Restated Certificate of Incorporation prohibits stockholder action by written consent, requiring all stockholder action to be taken at a duly called annual or special meeting of stockholders.
Best Practice. The prohibition on stockholder action by written consent is a common and widely accepted governance feature among public companies. The prohibition ensures that all stockholder action is taken at duly noticed meetings at which all stockholders have an opportunity to participate and vote, rather than through written consents that may be solicited from a subset of stockholders outside of the meeting process. ISS and Tarrant Partners LLC have generally not objected to the prohibition on written consent at companies that provide stockholders with a meaningful right to call special meetings (which should be confirmed as part of this review).
Recommendation. No change to the written consent prohibition is needed or recommended. The existing prohibition in the Restated Certificate should be retained. For clarity and completeness, we recommend that the bylaws include a cross-reference to the Restated Certificate's prohibition on written consent, confirming that any action required or permitted to be taken by stockholders must be taken at a duly called annual or special meeting and may not be taken by written consent.
IV. Gap Analysis — Board Committee Charters
This Section IV addresses each of CRH's existing board committee charters, as well as the need for a new standing Technology & Cybersecurity Committee, and identifies gaps relative to current regulatory requirements, best practices, and proxy advisory firm expectations.
A. Audit Committee Charter
Current State. The Audit Committee Charter was last revised in February 2020. The Audit Committee consists of 4 independent directors and is chaired by Sandra Chen-Watkins. Dr. Anwar Farouk also serves on the Audit Committee. The Company's independent auditor is Mercer & Holloway LLP, with lead engagement partner Philip Tanaka; the firm has served as CRH's independent auditor since fiscal year 2018. The current charter addresses the committee's oversight of the Company's financial reporting and disclosure processes, internal controls over financial reporting, the relationship with the independent auditor, and the internal audit function. However, the charter has not been substantively revised in nearly four years and does not reflect several significant regulatory and governance developments that have occurred since February 2020.
Identified Gaps.
1. Cybersecurity Risk Oversight. The charter does not reflect the SEC's cybersecurity disclosure rules adopted in July 2023 (Final Rule: Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure). These rules require public companies to disclose the board's oversight of risks from cybersecurity threats and management's role and expertise in assessing and managing material cybersecurity risks. The rules also require disclosure of material cybersecurity incidents on Form 8-K within four business days of determining that an incident is material. The Audit Committee charter should be updated to include explicit cybersecurity risk oversight responsibilities, including: (a) oversight of the Company's cybersecurity risk management program and policies; (b) oversight of management's role in assessing and managing cybersecurity risks; (c) oversight of incident response plans and disclosure controls related to cybersecurity incidents; and (d) periodic reporting from the Chief Information Security Officer or other appropriate management personnel regarding the Company's cybersecurity posture, threat landscape, and incident response readiness.
We note that the recommendation in Section IV.D below to establish a standing Technology & Cybersecurity Committee will address the primary responsibility for cybersecurity oversight. If a standing Technology & Cybersecurity Committee is established, the Audit Committee charter should be coordinated with the new committee's charter to delineate responsibilities — for example, the Audit Committee could retain oversight of cybersecurity disclosure controls and the financial implications of cybersecurity incidents, while the Technology & Cybersecurity Committee oversees the broader cybersecurity program and strategy.
2. Caremark Compliance Oversight. In light of the Delaware Court of Chancery's decisions in In re McDonald's Corp. Stockholder Derivative Litigation (Del. Ch. 2023) and In re Harborview & Co. Derivative Litigation (Del. Ch. 2021), the Audit Committee charter should include enhanced Caremark-informed compliance oversight language. These decisions have reinforced that directors — and, in particular, committee members charged with oversight responsibility — may face personal liability for failing to implement and monitor reporting systems designed to ensure that the board receives adequate information regarding the company's compliance with applicable laws and regulations and its exposure to significant legal and regulatory risks. The charter should be updated to include requirements for: (a) regular reporting from management (including the General Counsel and Chief Compliance Officer, if applicable) on the Company's legal and regulatory compliance programs; (b) oversight of internal controls over legal and regulatory compliance; (c) mechanisms for the escalation of compliance failures and significant legal or regulatory matters to the committee and the full Board; and (d) periodic assessment of the effectiveness of the Company's compliance programs.
3. Whistleblower Procedures. The current charter references the committee's responsibility for establishing procedures for the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, consistent with the requirements of Section 301 of the Sarbanes-Oxley Act of 2002. However, the charter's treatment of this topic is brief and does not explicitly address whistleblower protections, anonymous reporting channels, or the committee's role in overseeing the Company's response to whistleblower complaints. The charter should be updated and expanded to: (a) explicitly reference the committee's oversight of whistleblower protections and the Company's non-retaliation policy; (b) require the maintenance of one or more anonymous reporting channels (such as a confidential ethics hotline); and (c) require periodic reporting to the committee regarding the volume, nature, and resolution of complaints received through these channels.
4. Nasdaq Listing Standards Alignment. The charter should be reviewed and, as necessary, updated for alignment with current Nasdaq listing rules. Nasdaq Rule 5605(c) sets forth requirements regarding the Audit Committee's composition, authority, and responsibilities, including: (a) the committee must be composed of at least three independent directors; (b) the committee must have a written charter that addresses the committee's authority to engage independent counsel and other advisors, the committee's funding, the committee's oversight of the independent auditor, and the committee's procedures for handling complaints regarding accounting or auditing matters; (c) the committee must review and discuss the Company's annual audited financial statements and quarterly financial statements with management and the independent auditor; and (d) the committee must have authority to approve or disapprove related party transactions (Nasdaq Rule 5630). The current charter should be confirmed to comply with all current Nasdaq requirements, including any updates to listing standards that have occurred since the last