‘Weinstein clauses’ in Nigerian M&A agreements

May 2025  |  SPECIAL REPORT: MERGERS & ACQUISITIONS

Financier Worldwide Magazine

May 2025 Issue

Environmental, social and governance (ESG) considerations have become an integral part of modern M&A transactions. No longer are deals evaluated purely on financial metrics or strategic fit; today, stakeholders demand alignment with sustainability goals and robust ESG compliance.

A core part of ESG compliance is the increasing emphasis on ethical considerations and corporate governance. In this regard, one notable development is the emergence of ‘Weinstein clauses’ (otherwise called ‘Weinstein warranty’ or ‘#MeToo representation and warranty’), in M&A agreements.

Named after the infamous Harvey Weinstein scandal, Weinstein clauses are designed to address and mitigate risks associated with sexual harassment and misconduct within target companies. As Nigeria continues to attract foreign investment and Nigerian entities engage in cross-border M&A activities, the incorporation of Weinstein clauses in Nigerian law-governed M&A agreements deserves careful consideration.

This article explores the implications and best practices for integrating these clauses into Nigerian law-governed M&A agreements. The history of Weinstein clauses started with the 2017 New York Times report that dozens of women, including more than 60 women in the film industry, had accused Harvey Weinstein, then chief executive of The Weinstein Company, of sexual misconduct.

The accusations sparked the #MeToo social media campaign and subsequent sexual abuse allegations against many senior business executives worldwide. The infamy of the Weinstein scandal led to the rapid fall of The Weinstein Company – a downfall characterised by potential acquirers of the company or its assets withdrawing to avoid reputational risks.

This development heightened global regulatory scrutiny of workplace misconduct, prompting legal and other professional advisers to explore mechanisms that protect acquirers from the repercussions of undisclosed allegations of sexual misconduct in target companies.

Consequently, the Weinstein clause emerged as a core feature in the suite of warranties in definitive M&A agreements, aimed at mitigating risks associated with unethical behaviour.

Despite these developments and their successful implementation in several common law jurisdictions, Weinstein clauses have yet to become a standard feature in M&A transactions governed by Nigerian law.

This article argues for their incorporation into Nigerian transactions, emphasising that their inclusion could play a crucial role in mitigating reputational, legal and financial risks, while promoting greater corporate accountability.

Weinstein clauses and the legal framework in Nigeria

The Weinstein clause is a representation commonly included in M&A agreements to address the risks associated with workplace misconduct. It is typically linked to a materiality threshold, requiring the seller to confirm that, within the past five years – or another agreed upon period – no senior employee of the target company has been subject to allegations, claims or settlements related to sexual harassment or misconduct.

In addition, the clause asserts that the target company has not entered into any undisclosed settlement agreements related to such matters. While some versions of the clause incorporate a materiality threshold, others can impose an absolute standard to ensure full disclosure.

The growing inclusion of the Weinstein clause in M&A transactions is driven by two key factors. First, the financial impact of such claims can be significant, prompting companies to mitigate the costs of defending, litigating and resolving sexual misconduct allegations involving senior employees. Second, the #MeToo era has heightened societal awareness of such behaviour, thereby amplifying the reputational risks associated with these claims.

A closer examination of the financial fallout from high-profile cases highlights the cost of failing to incorporate this clause. For instance, The Weinstein Company, once valued at $200bn, ultimately collapsed into bankruptcy due to the allegations against its co-founder. Similarly, shareholders of Wynn Resorts suffered losses of approximately $3.5bn, following sexual harassment claims against casino mogul Steve Wynn. These cases illustrate how unchecked misconduct can lead to severe financial and reputational damage, reinforcing the need for robust contractual protections in M&A transactions.

Fundamentally, the Weinstein clause permits the acquiring party to revisit, renegotiate, seek compensation or even withdraw from a transaction if evidence of unethical behaviour by a key executive emerges, post-closing. Typically, the clause specifies types of misconduct – such as sexual harassment, discrimination or other severe breaches – and may establish the evidentiary threshold necessary to trigger its operation. This provision is not intended to encourage frivolous litigation but rather to safeguard the acquirer’s interests, ensuring that undisclosed misconduct does not undermine the deal’s value.

In Nigeria, the legal framework governing corporate conduct, employment practices and misconduct is shaped by several key statutes and codes. The 2020 Companies and Allied Matters Act serves as the foundational legislation for corporate governance, outlining the responsibilities of company directors and officers while mandating adherence to fiduciary duties and ethical standards to promote corporate accountability.

Similarly, the Labour Act regulates employment relationships by setting standards for working conditions, employee rights and employer obligations. Additionally, the 2018 Nigerian Code of Corporate Governance 2018, issued by the Financial Reporting Council of Nigeria, provides principles and guidelines to enhance corporate governance practices.

Notably, principle 19 of the code underscores the importance of establishing whistleblowing mechanisms to encourage the reporting of unethical or illegal activities within organisations. The emphasis on whistleblowing aligns with the objectives of Weinstein clauses, as both promote transparency, accountability and ethical corporate governance.

Furthermore, the recognition of whistleblowing protections within Nigerian law reinforces the legitimacy of such clauses, demonstrating that the existing legal framework supports measures designed to prevent misconduct and mitigate potential liabilities in transactions.

M&A transactions in Nigeria have traditionally prioritised financial, regulatory and operational considerations, often neglecting evaluation of ethical risk. As a result, deal assessments have centred on quantifiable measures such as valuation, market share and synergy realisation. The pursuit of rapid market expansion and competitive advantage has led to an underestimation of non-financial risks, particularly those related to executive misconduct.

However, global precedent has now shown that failing to conduct ethical due diligence can result in significant liabilities, including reputational damage and sometimes, regulatory sanctions. The Weinstein clause, originally developed as a risk management tool in response to such misconduct, thus presents a valuable mechanism to integrate ethical safeguards into Nigerian M&A deals.

Despite the proven advantages of Weinstein clauses in other jurisdictions, they have yet to gain widespread acceptance in Nigerian M&A practices. It has been argued that a major barrier is the prevailing business culture, which has traditionally approached issues like sexual harassment and discrimination with caution and limited openness.

This cultural reticence has, in turn, perhaps made practitioners reluctant to incorporate explicit ethical safeguards into standard contractual documents. To advance the adoption of the Weinstein clause, these concerns must be addressed while demonstrating clear benefits.

A critical step would be to define what conduct would trigger liability under the clause. Rather than using ambiguous language, the provision should clearly list specific forms of misconduct, such as sexual harassment, discrimination or other severe breaches, and establish quantifiable evidentiary standards.

This precision may reduce potential misunderstandings, minimise disputes and enhance contractual certainty during the transaction process.

Implications and best practices

The advantages of incorporating a Weinstein clause extend well beyond risk mitigation. While some argue that these clauses introduce additional complexity into transactions, they serve as a form of insurance against unforeseen liabilities.

If undisclosed misconduct by a key executive surfaces, companies may experience sharp declines in share price, expensive legal battles and erosion of investor confidence. In contrast, a well-defined Weinstein clause provides a contractual safeguard – whether through an exit provision, indemnification or renegotiation trigger – that helps mitigate such risks and protect long-term value. Consequently, the cost of negotiating this clause is justified by the substantial reputational and financial protection it offers.

When drafting a Weinstein clause, one of the most critical considerations is defining its temporal applicability. Market practice generally follows different approaches, such as limiting the clause’s coverage strictly to the period between signing and closing, extending its protections into the post-closing phase to account for potential future revelations of misconduct or even extending to periods pre-signing.

The choice between these approaches hinges on several deal-specific factors, including the transaction’s valuation, the industry’s inherent risk profile and the robustness of the target company’s existing governance structures. Properly calibrating these temporal parameters allows for effective risk mitigation without introducing unnecessary complexity into the transaction.

Beyond their immediate contractual utility, Weinstein clauses could play a transformative role in strengthening corporate governance standards within emerging markets like Nigeria. As Nigerian businesses increasingly position themselves to attract foreign investment, there is a growing recognition that ethical risk management deserves parity with financial due diligence in strategic importance.

By formally embedding accountability mechanisms into M&A agreements, these clauses provide tangible incentives for companies to enhance whistleblower protections, institute regular ethics audits for executives and establish transparent protocols for misconduct disclosures.

Such reforms would not only raise Nigeria’s corporate accountability benchmarks but also foster greater investor confidence and market sophistication. For Nigerian firms aspiring to global partnerships or public listings, this governance advantage could prove instrumental in demonstrating institutional maturity and operational integrity.

Conclusion

Looking ahead, the incorporation of Weinstein clauses into Nigerian M&A transactions appears both inevitable and necessary, reflecting the global shift toward comprehensive risk management frameworks that incorporate ethical considerations.

As investors, regulators and other stakeholders increasingly prioritise ethical conduct in corporate dealmaking, Nigerian businesses must adapt their practices to meet these evolving international standards.

 

Terry Akaluzia is a senior associate, Chidiebere Obialor is an associate and Favour Onyekere is a legal intern at Olaniwun Ayaji LP. Mr Akaluzia can be contacted on +234 (1) 270 2551 or by email: takaluzia@olaniwunajayi.net. Mr Obialor can be contacted on + 234 (1) 270 2551 or by email:

cobialor@olaniwunajayi.net.

© Financier Worldwide

BY

Terry Akaluzia, Chidiebere Obialor and Favour Onyekere

Olaniwun Ayaji LP

©2001-2025 Financier Worldwide Ltd. All rights reserved. Any statements expressed on this website are understood to be general opinions and should not be relied upon as legal, financial or any other form of professional advice. Opinions expressed do not necessarily represent the views of the authors’ current or previous employers, or clients. The publisher, authors and authors' firms are not responsible for any loss third parties may suffer in connection with information or materials presented on this website, or use of any such information or materials by any third parties.