April 15, 2020

Initial Investor Responses to the Covid-19 Pandemic

Rhonda Brauer has provided a couple of guest blogs, here’s her most recent post.  We’re grateful for her work this time that takes a look at where investors are turning their attention during the Covid-19 pandemic:

Recently, we have seen a number of investor-organized responses to the COVID-19 pandemic, which will likely refine investor agendas as we move forward.

As Lynn recently blogged, there will likely be increased calls for tying ESG metrics to executive pay and for more sensitivity to and limits on pay given the harsh impact on the larger workforce.  Two notable additional examples of investor focus are:

First, a global coalition of institutional investors – public pensions, asset managers and faith-based funds – recently called on companies to step up to support their workers, communities, and businesses, as well as the markets, to help respond to the crisis.  The coalition, organized by Domini Impact Investments, the Interfaith Center on Corporate Responsibility (ICCR) and the New York City Comptroller’s Office, has grown to over 250 investors representing over $6 trillion in assets under management, with more investors still signing on.  Companies are asked, among other things, to:

  1. Provide paid leave for all their workers,
  2. Prioritize health & safety for their workers and communities,
  3. Maintain employment for their workers, to enable an eventual resumption of operations more quickly,
  4. Maintain supplier & customer relationships to help stabilize the economy, protect communities, and ensure stable supply chains, and
  5. Exercise financial prudence & responsibility, particularly in such areas as share repurchases and executive compensation.

Companies should expect further calls from investors and investor-led organizations, such as PRI, to prioritize COVID-19-related issues in their ESG policies and engagements.

Second, as we begin to understand where the funds are flowing from the $2 trillion CARES Act rescue package, it seems inevitable that investors will increase focus on transparency in corporate political spending.  Among others, Bruce Freed, president and co-founder of the Center for Political Accountability, has already asked, “Will we ever know whether undisclosed political contributions influenced which companies benefited most from the legislation?”  He pointed to the relationship between One Nation, a 501(c)(4) group, and the Senate Leadership Fund (a so-called “527 Super-PAC”), closely associated with Senate Majority Leader Mitch McConnell, and evidence — through political spending reports and voluntary disclosures — of corporate money flowing through One Nation to this Fund.  Such relationships, he said, feed fears that contributions could improperly influence who benefits from legislation.  Freed believes that “it’s critically important that an increasing number of publicly owned companies … embrace… corporate political disclosure.”

Companies should be prepared for even more shareholder resolutions on political disclosures and more investor pressure to disclose all of their political spending, particularly those corporate funds channeled into so-called “dark money” vehicles:  trade associations and 501(c)(4)s (organizations originally designed to promote social welfare and cause-related activities, to help educate the public), as well as the 527 Super-PACs that enable corporations to advocate indirectly for and against political candidates.

Additional Insight on Investor Stewardship & Covid-19

SquareWell Partners recently issued a report providing additional insight from asset managers about how they will fulfill their stewardship responsibilities given the continued uncertainty resulting from the Covid-19 pandemic.  The report summarizes information based on feedback from 20 asset managers representing about $7.2 trillion in managed assets.  They want to know more about what the board’s doing…here’s some of what they said:

– Most investors are prepared to deal with the current disruption and defer to regulatory guidance about the format for annual meetings – with a preference that companies revert back to a hybrid meeting format after the uncertainty subsides

– Investors expect communication from companies about the impact of recent events either through public disclosures or direct contact with management teams and would appreciate more information about how the board is overseeing the situation

– In terms of executive pay, investors expect boards to focus on more critical business issues and investors aren’t going to place additional importance on pay but note that there will be societal pressure to demonstrate restraint and manage reputational risk

California AG: No Delay in Enforcing CCPA

A few weeks ago, I blogged about the latest round of changes to the California Consumer Privacy Act.  Some had requested a delay in enforcement of the CCPA due to ongoing need to focus on Covid-19 related concerns.  This blog from Taft says that the California Attorney General provided an answer to the delayed enforcement request, and in short it’s “No”.  As noted in the blog, there is some question about the exact start date for enforcing the CCPA – although it sounds like practitioners should plan on July 1.

– Lynn Jokela