June 21, 2019

‘Say’ Earnings Calls: Less Boring?

Earlier this year, Broc blogged about how Tesla was using the new “Say” platform to allow retail shareholders to submit questions during earnings calls. This memo from Say reports on how many shareholders are participating in this process – and says they’re more likely to ask about products & consumer experience than financial outlook (compare to these questions that one experienced buy-side advisor would ask). How’s that working out for analysts and Tesla’s IR folks? Here’s an excerpt:

Tesla led the Q&A portions of each call with questions from Say users, ahead of analysts. Like Russell’s questions on Tesla’s Q1 2018 call, Say users’ questions received follow up from traditional equity analysts. During Say’s Q1 2019 call with Tesla, Musk revealed the company would enter the auto insurance market while responding to a Say user question about insuring cars. A Morgan Stanley analyst later asked more about insurance, capturing the media’s attention and creating positive press for Tesla. The original retail shareholder question was submitted on our platform by an 18-year-old.

Our Q1 2019 call also included five questions from institutional Tesla investors, Ark Invest and Domini Impact Investments, who both issue ETFs holding Tesla in their portfolios. Together, they represented $185M in Tesla shares. Their questions, reflected in Figure 3, were largely ESG and product-focused and were not answered by the company. Having them filed on Say, however, captured institutional sentiment for Tesla’s IR department as well.

Allison Herren Lee Confirmed as SEC Commissioner

That was fast. Yesterday morning I blogged that the Senate Banking Committee had approved Allison Herren Lee’s nomination as SEC Commissioner. Yesterday afternoon, the SEC congratulated her on a successful Senate confirmation and welcomed her back to the SEC. Allison had previously served on the SEC staff from 2005 to 2018.

Director Compensation: Delaware Reiterates “Entire Fairness” Applies

Here’s something I blogged recently on This Bracewell memo notes that – in light of the Delaware Supreme Court’s 2017 Investors Bancorp decision – nearly 75% of surveyed LTIPs now include a director-specific limit on the size of annual grants, with many plans also capping total annual compensation for board members.

That trend isn’t likely to die out any time soon. Recently, the Delaware Court of Chancery reaffirmed that the entire fairness standard applies to most decisions that directors make about their own compensation. The opinion – Stein v. Blankfein – says that director pay decisions can be actionable even if the directors held a “good-faith, Stuart-Smalley-like belief” that they were “good enough, smart enough, and doggone it, they were worth twice—or twenty times—the salary of their peers” (bravo to the Vice Chancellor on the SNL reference – and in this case, it’s not much of a stretch to envision the Goldman Sachs directors holding that belief).

This Stinson blog has the details about the case & its implications – here’s an excerpt:

The following courses of action remain available to public company boards in approving director compensation:

– Have specific awards or self-executing guidelines approved by stockholders in advance; or

– Knowing that the entire fairness standard will apply, limit discretion with specific and meaningful limits on awards and approve director compensation with a fully developed record, including where appropriate, incorporating the advice of legal counsel and that of compensation consultants.

It may also be possible to obtain a waiver from stockholders of the right to challenge future self-interested awards made under a compensation plan using the entire fairness standard. To do so, stockholders would have to approve a plan that provides for a standard of review other than entire fairness, such as a good faith standard. In addition stockholders would have to be clearly informed in the proxy statement that director compensation is contemplated to be a self-interested transaction that is ordinarily subject to entire fairness, and that a vote in favor of the plan amounts to a waiver of the right to challenge such transactions, even if unfair, absent bad faith. Note that the Court did not conclude, because it was not required to do so, that such a waiver was even possible.

Culture & Human Capital Management: Buzz on the Board’s Role

In the past couple of months, my inbox has been even more inundated than usual with memos – and even media articles – about corporate culture and human capital management. Of course I’m dutifully posting in our “Corporate Culture” and “ESG” Practice Areas. But for your convenience, here’s a few that stood out:

PwC’s “Boards Need to Make Sure Culture is an Asset, Not a Liability”

PwC’s “The Board Imperative for Talent Management”

Davis Polk’s “Potential Legislation on HCM Reporting & Stock Buybacks”

Directors & Boards’ “Reputational Harm: Liability Risks for Companies & Boards”

Just Capital’s “Disclosure of Workforce Policies Correlates With ROE”

Mike Melbinger’s “Should Compensation Committees Take on the Responsibility of Human Capital Management?”

As You Sow’s “Workplace Equity Disclosure Statement”

CNBC’s “A Coalition of CEOs Wants to Get Boards to Commit to Diversity”

Liz Dunshee