September 28, 2020

ISS Releases Policy Benchmark Survey

Last week, ISS released the results of its 2020 policy benchmark survey.  Here are some of the highlights:

Pandemic-Related Issues

1. ISS policy guidance in response to COVID-19 pandemic: With respect to ISS’s policy guidance issued in response to the pandemic, a significant majority of both investor (62%) and non-investor respondents (87%) indicated that ISS should carry this or similar guidance into 2021 and continue to apply flexible approaches where warranted through at least the 2021 main proxy seasons.

2Annual Meetings: Regarding the question on the preferred shareholder meeting format, absent continuing COVID-19 health and social restrictions, almost 80% of investor respondents chose “Hybrid” meetings, with the possibility for shareholders to attend and participate in the meeting either in-person or via effective remote communications. On the other hand, a plurality of non-investor respondents (42%) indicated a preference for in-person meetings, with virtual meetings used only when there is a compelling reason (such as pandemic restrictions).

3. Expectations regarding compensation adjustments: When asked about executive compensation in the wake of the pandemic, 70% of investor respondents indicated that the pandemic’s impact on the economy, employees, customers and communities and the role of government-sponsored loans and other benefits must be considered by boards, incorporated thoughtfully into decisions to adjust pay and performance expectations, and be clearly disclosed to shareholders. Among non-investor respondents, 53% indicated that many boards and compensation committees will need flexibility to make reasonable adjustments to performance expectations and related changes to executive compensation.

4. Adjustments to short-term/annual incentive programs: Regarding short-term/annual incentive programs and the respondents’ views on what is a reasonable company response under most circumstances, 51% of investors and 54% of non-investors indicated that both (1) making mid-year changes to annual incentive metrics, performance targets and/or measurement periods to reflect the changed economic realities and (2) suspending the annual incentive program and instead making one-time awards based on committee discretion could be reasonable, depending on circumstances and the justification provided.

Non-Pandemic-Related Issues

5. Director accountability to assess and mitigate climate risk: Investors ranked the top three actions that appropriate for shareholders to take at a company that isn’t effectively not effectively reporting on or addressing its climate change risk as follows: (1) engage with the board and company management (92%); (2) consider support for climate-related shareholder proposals (87%); and (3) consider support for shareholder proposals seeking greenhouse gas reduction targets (84%).

Notably, three-quarters of investors responded that they would consider a vote against directors who are deemed to be responsible for poor climate change risk management.  Non-investors overwhelmingly favored engagement with the board and company management as the most appropriate action (93%) while other possible actions were far less popular.

6. Sustainable development goals: When asked whether the UN’s SDG framework to be an effective way for companies to measure environmental and social risks and to commit to improving environmental and social disclosures and actions, 44% of non-investors said “yes,” while 51% said “no.”  Investor responses were “yes” (44%) and “no” (56%).

7.  Auditors and audit committees: ISS often considers the relative level of non-audit services and fees compared to audit-related services and fees when assessing auditor independence of the external auditor. When asked what other factors (when disclosed) they considered relevant to the evaluation of auditor independence & performance, 88% of investors said significant audit controversies. That edged out significance/frequency of material restatements, which was cited by 83% of investors. Significance/frequency of material restatements (67%) topped the list for non-investors.

When asked what information should be considered by shareholders in evaluating a company’s audit committee, the most popular response among investors was significant controversies relating to financial reporting, financial controls or audit (93%). Skills and experience of audit committee members (97%) topped the list for non-investors.

8. Racial and ethnic diversity: When asked should all corporate boards provide disclosure of the demographics of their board members including directors’ self-identified race and/or ethnicity, 73% of investors indicated all boards should disclose this information to the full extent permitted under relevant laws. Only 36% of non-investors gave the same response, while 32% said boards should only disclose this information where it is mandated in jurisdictions where they operate.

9. Independent board chairs: 85% of investors said that an independent chair is their preferred model, but 47% said that company-specific circumstances may justify other models. On the other hand, 38% said that non-independent chairs should only be allowed in emergency or temporary situations. Nearly half of non-investor respondents indicated that there was no single preferred model for board leadership.

PPP Loans: The SBA is MIA On Loan Forgiveness

According to this recent “American Banker” article, the SBA isn’t off to a great start when it comes to acting on PPP loan forgiveness applications.  In fact, this excerpt suggests that it hasn’t gotten off to any start at all:

More banks, weary of waiting on legislative fixes, are moving ahead with processing Paycheck Protection Program forgiveness applications. Many of those lenders have become more frustrated by a lack of communication from the Small Business Administration.

The $1.6 billion-asset NexTier Bank in Kittanning, Pa., submitted the first of 95 applications on Sept. 15, while the $2.2 billion-asset First Choice Bancorp in Cerritos, Calif., has processed about 200 applications in recent weeks. The $1.4 billion-asset IncredibleBank in Wausau, Wis., has submitted 50 loans since the forgiveness portal opened on Aug. 10. Each is still waiting for a response from the SBA.

“We have not yet had a single one validated,” said Robert Franko, First Choice’s president and CEO. “To our knowledge, no one has yet received forgiveness,” Franko added. “There’s no question borrowers are tired of waiting. We have an automated system and everything can be done online.”

Lenders and borrowers aren’t the only ones dissatisfied with the SBA’s performance. According to this recent GAO report, the SBA’s guidance on the loan forgiveness process leaves some remaining uncertainty about some aspects of the lenders’ role in the process, and its plans for overseeing the loan forgiveness process are still incomplete.

The GAO report said that the SBA had received approximately 56,000 forgiveness applications as of Sept. 8. According to the American Banker article, “The GAO report did not mention any approvals, and other lenders said they know of no applications that have made their way through the review process.”

Fantasy “Stockball”?  Score a TD & Get Stock for Free!

A member tipped us off to a new twist on “fantasy football.”  Apparently, the online financial services & investment platform SoFi is offering a promotion where you can win up to $100 in stock for every touchdown your NFL team scores in one game.  When I first saw this, I immediately thought about all of those enforcement actions that the SEC brought against companies that gave away securities for “free” during the late 90s. The SEC has also had occasion to crack down on this practice more recently, in the context of ICO “airdrops.”

This free stock promotion is different from the ones that have given the SEC heartburn. Instead of using its own stock, SoFi is giving away shares (or fractional shares) of other companies that it holds in its inventory. It turns out that SoFi isn’t the only online investment platform that gives away stock as a promotion – apparently Robinhood does something similar.

I like fantasy football, but I’m not into online trading. I’m also a Cleveland Browns fan, which means that it’s far from a sure thing that my team is going to score a touchdown on any given Sunday. So, I think I’ll take a pass on “fantasy stockball” and stick to my fantasy football league, where my team – “Myles Garrett’s Helmet Helpers” – is off to a 3-0 start. And yes, this entire blog was just an excuse to tell you that.

John Jenkins