Here’s something Ngozi blogged yesterday on PracticalESG.com: At the end of June, the Supreme Court, powered by its 6-3 conservative majority, issued its expected opinion in Dobbs v. Jackson. That opinion overturned Roe v. Wade – reversing the decades-long interpretation that the US Constitution provides a right to choose abortion without excessive government restriction.

In its wake, the Dobbs opinion has provoked heated debates and protests across the nation. This is just the beginning of the reaction to this ruling – and companies are grappling with how to respond. Many of you have already initiated conversations internally – dozens of companies have even proceeded with public statements (some more measured than others). Here are some thoughts as you start and continue your response plan:

– Know and understand your employees. Employees have become a major driver on “social” issues. Employee power may diminish slightly if the labor market softens, but the pandemic, generational differences and social media have culminated in a sea change that is unlikely to completely reverse. Boards, executives, HR leaders, DEI departments, ESG and PR staff, and legal counsel need to be attuned to the employee/contractor population and sentiment so that they can meet the expectations of these important stakeholders and be positioned to respond to rapidly changing civil rights frameworks (even beyond abortion). While tracking employee surveys and data on workforce locations and demographics seems like basic blocking & tackling, it is essential to have this information at your fingertips – and be prepared to take a deeper dive.

– Understand that this particular ruling – and other substantive due process rights that may be on the chopping block per Justice Thomas’s concurring opinion – may have a disproportionate impact on underrepresented and marginalized employees. Plan ahead for what you can do to support these employees and consider the impact that corporate responses (or non-responses) may have on your overall DEI results. Consider proactively checking in with affected groups. See our member checklist on employee resource groups.

– Keep tabs on evolving laws and litigation. With 26 states either certain or likely to ban abortion, companies that may be looking to change their benefits policies and plans first need to assess the legal landscape and the political winds in each state where employees are located. We expect to see a cascade of newly active state laws rolling out in the coming weeks, so this will need to be an ongoing analysis – with appropriate staff and advisors involved. Companies that provide travel reimbursement or other accommodations to employees in states where abortion rights are curtailed may face penalties or lawsuits from abortion-restricted states and groups. Get your benefits broker – and your legal counsel – on speed dial.

– Carefully consider reactive public statements. Your employees and business partners may expect a show of solidarity – and it may bolster engagement and retention for some – but we have also seen (over & over) that performative statements end up being of little value. Outspoken companies may attract unwanted attention that detracts from their mission and behind-the-scenes support for healthcare. It is possible for companies to provide access to healthcare and affirm support for employees without taking an “activist” approach on a complicated and sensitive issue. While the right to choose is supported by over 60% of Americans, there are plenty who feel strongly the other way. It comes down to knowing your stakeholders and determining whether this is an issue that is core to the company’s business. Examples of public statements to-date are included in this NYT article.

– Carefully consider political and trade association contributions. Contributions to politicians, trade associations and other advocacy organizations are already receiving major scrutiny – and that’s only going to increase. Emily blogged recently on TheCorporateCounsel.net that two lobbying-related shareholder proposals received majority support at recent meetings. Many trackers now exist that monitor the alignment of corporate political donations with stated values – with several companies already in the news for donations to anti-abortion politicians, and shareholder proponents also picking up the mantle with a new iteration of “values misalignment” shareholder proposals. Gone are the days when a board could simply confirm that the company’s donations were striking a roughly even split between Republican and Democratic organizations. Now, management may need stricter directives to ensure that each donation aligns with overall values – and the board may need to dig deeper to ensure it’s informed of any potentially controversial activities.

– Prepare for increasing requests for civil rights audits. Over the past year, civil rights audits transformed from a nascent practice to a mainstream expectation. I blogged about some specific instances this spring. And as Lawrence blogged when the draft Dobbs opinion was leaked, without a consistent federal foundation on abortion or other civil rights, we face a system where civil rights differ based on what state you’re in. It’s not a stretch to imagine that investors will push companies to analyze how their decisions on where to locate corporate facilities or undertake significant projects affect the rights of employees and other community members. For practical guidance on how to consider and use these audits, check out our recent event on “Understanding & Using Civil Rights Audits” – which featured Eric Holder, Jr., Laura Murphy, Megan Cacace, Aaron Lewis and Tejal Patel – and our related checklist with key takeaways.

– Incorporate civil rights into long-term decision-making. While it may be difficult to uproot an established location in response to a particular event, the trend of disparate rights is just beginning. It is a factor to consider as part of longer-term decisions – e.g., where to establish facilities, where to conduct large events or projects, etc. Because this is a nuanced and continuously evolving topic, there won’t be a black & white answer. But the company needs to be able to demonstrate that it considered and understands the impact of its decisions – and be prepared to justify how the outcome aligns with corporate values. If a significant amount of money is involved or a significant number of people will be affected – or if it runs up against a major corporate value – this may rise to a board-level conversation.

We’re posting the deluge of memos on this topic in our “Diversity: Well-Being” Subject Area page on PracticalESG.com – with guidance to navigate benefits plans, state laws, and additional fallout. If you aren’t already a member with access to these resources, sign up online, email sales@ccrcorp.com, or call 1-800-737-1271. Our “100-Day Promise” makes this a “no-risk” situation: during the first 100 days as an activated member, you may cancel for any reason and receive a full refund.

– Liz Dunshee

On our “Q&A Forum” (#2280), members recently resurrected a 16-year-old discussion about interlocking directors – i.e., directors who serve on more than one board together. These relationships haven’t drawn a whole lot of scrutiny in the past, but that might be changing. It’s also important to keep an eye on all of the potential independence implications – including if the board is approving an item that could be challenged and you need to show that everyone voting was disinterested. Here’s the most recent back & forth:

Is there anything recent on this topic? I would think it would be possible to have a number of directors overlapping without a disclosable interlock; any guidance/practice on what that upper limit is or what institutional investors/proxy advisory firms think of the same? Thanks as always.

John responded:

I’m not aware of anything from proxy advisors on this topic yet, but I recently blogged about how the DOJ is promising to increase scrutiny of potential interlocking directorates under the Clayton Act.

Section 8 of the Clayton Act doesn’t require actual anticompetitive behavior, just the potential for it. In today’s antitrust enforcement environment, I think companies would be wise to take a hard look at whether overlapping directorships have the potential to raise Clayton Act issues. Skadden wrote a really good memo on this issue last year.

The latest follow-up:

A question to clarify here: Director A and Director B are on the Board of a NYSE listed pub company. Director A also works full-time at another non-competitor company where Director B is on the Board. Are there any issues and what should I be considering here? Neither director is on the Comp committee of either company.

John responded:

I don’t think their overlapping directorships necessarily raise independence issues under the NYSE’s categorical standards, although they might with respect to the director who is also an employee of the other company if the first company has made payments to the other company that exceed the amounts specified in the NYSE’s categorical standards. You’d also need to check your own independence guidelines to determine whether anything in there might be implicated.

I can also see situations where the independence of the director-employee might be called into question in a state law derivative action based on allegations that his or her status as an employee of a company for which the other director serves as a member of the board makes that individual somehow beholden to the other director. Not necessarily a great claim, but it depends on the facts and circumstances.

– Liz Dunshee

John blogged a couple of weeks ago that the SEC pursued enforcement against The Brink’s Company for not including a “whistleblower” exemption in employee confidentiality agreements. We’re posting memos on this topic in our “Whistleblowers” Practice Area – and you’d better read them! Because as this Wiley memo points out, the SEC expects you to know what’s in there and act accordingly. Here’s an excerpt:

Remarkably, the SEC Order relies on Brinks’s receipt of widely distributed law firm client alerts to demonstrate that Brinks had knowledge that its Confidentiality Agreements were improperly restrictive. The SEC Order specifies that between 2015 and 2016, Brinks’s legal department received multiple legal updates from outside counsel highlighting new SEC enforcement actions for violations of Rule 21F-17(a).

As we described in our own client alert in 2016, at this time, the SEC had launched its campaign to enforce the whistleblower rules enacted in 2011. The emerging enforcement actions indicated that the SEC was targeting restrictive clauses – even those in legacy confidentiality agreements and other employment documents which pre-dated the enactment of the SEC’s 2011 whistleblower rules.

Specifically, the SEC order emphasized that company lawyers had received several “general client bulletins, legal alerts, and case summaries” about the Commission’s 21F-17 enforcement activity. In addition, the company’s regular outside employment counsel attached an alert as a “client memo” to an email they sent to the General Counsel and other lawyers involved with the employment agreements, which predicted more enforcement activity and recommended that public companies revise their employment agreements. While Rule 21F-17(a) doesn’t require intent to prove a violation, the SEC cast that as “specific advice” – and used it to add context to other findings that resulted in the settlement.

The SEC isn’t alone in expecting lawyers to read client alerts and apply the steps that the alerts recommend. A few years ago, John blogged about a federal court decision that found a “known trend” could exist for MD&A disclosure purposes because it was described in a client alert. John’s takeaway is doubly important now:

Aside from making a subscription to our sites even more of a necessity, this case shows both the resourcefulness of the plaintiffs’ bar and the potential need for companies to incorporate the “client alert” communications from their professional advisors into their disclosure controls & procedures.

– Liz Dunshee

In a record-setting order last week, a FINRA arbitration panel issued a $52 million defamation award to Dan Michalow – the former co-head of global hedge fund D.E. Shaw’s Macro Group who had been fired in 2018. D.E. Shaw said publicly at the time that the termination was prompted by a complaint that alleged “abusive and offensive conduct.” Here’s more info from one of the firms that represented Mr. Michalow in the binding proceedings:

The FINRA panel explicitly found that D.E. Shaw had defamed Michalow and that Michalow did not commit sexual misconduct. D.E. Shaw and four members of its executive committee were found jointly and severally liable.

According to FINRA databases, the damage award is the sixth-largest overall award handed down to an employee by FINRA, the largest ever awarded by FINRA for defamation, and the largest ever to an individual employee.

According to this Investment News write-up, Mr. Michalow issued a statement in connection with the order that says he believes he was a scapegoat to deflect scrutiny of the firm’s broader culture.

This outcome shows that there’s often no cut & dry way to respond to complaints like the one that started this whole mess. It may be appropriate to take swift action and make public statements that stand against alleged wrongdoing – yet it’s also important to avoid making pointed statements against individuals before they’re proven true. Even better, avoid the issue in the first place by monitoring & addressing cultural issues before they lead to a complaint. Last fall, D.E. Shaw appointed Maja Hazell, the former Global Head of Diversity & Inclusion at White & Case, as a Managing Director and first-ever Head of DEI.

Our checklist on “Board Risk Oversight – Sexual Harassment Policies” outlines steps to navigate these issues. On PracticalESG.com, we’re adding resources every day that provide practical guidance on enhancing Diversity, Equity & Inclusion programs. DEI effort & progress is essential in today’s environment where employees are empowered to publicly air grievances and the public is ready to pile on – and DEI officers need to be supported with adequate resources in order to solve the problems they’re hired to address. We have over a dozen subject area pages with curated, practical guidance on navigating diversity topics, on-demand replays of our 3-part event on DEI data and civil rights audits, DEI checklists on 20 key topics (and growing), and more.

If you aren’t a member with access to these resources, sign up online, email sales@ccrcorp.com, or call 1-800-737-1271. Our “100-Day Promise” makes this a “no-risk” situation: during the first 100 days as an activated member, you may cancel for any reason and receive a full refund!

– Liz Dunshee

We continue to post new items regularly on our “Proxy Season Blog” for TheCorporateCounsel.net members. “Proxy season” never really ends these days – but as we reach the end of the busiest part of the year for annual meetings, it’s time to reflect on how to prepare for “off-season” engagements and 2023.

Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Two Lobbying-Related Shareholder Proposals Garnered Majority Support

– JUST Capital’s Corporate Racial Equity Tracker

– More on: Advocate’s Proxy Voting Service Could Amplify Its Calls for ESG Action

– Georgeson’s Institutional Investor Survey: Look Out for More E&S Support

– CPA-Zicklin Expands “Political Spending” Index to Russell 1000

– Virtual Annual Meetings: “Shareholder Q&A” Floor Proposal Defeated, For Now

– Liz Dunshee

We wish everyone a safe and happy holiday weekend. We’re off on July 4th & our blogs will be back on Tuesday.

“Most of the big shore places were closed now and there were hardly any lights except the shadowy, moving glow of a ferryboat across the Sound. And as the moon rose higher the inessential houses began to melt away until gradually I became aware of the old island here that flowered once for Dutch sailors’ eyes—a fresh, green breast of the new world. Its vanished trees, the trees that had made way for Gatsby’s house, had once pandered in whispers to the last and greatest of all human dreams; for a transitory enchanted moment man must have held his breath in the presence of this continent, compelled into an aesthetic contemplation he neither understood nor desired, face to face for the last time in history with something commensurate to his capacity for wonder.

And as I sat there brooding on the old, unknown world, I thought of Gatsby’s wonder when he first picked out the green light at the end of Daisy’s dock. He had come a long way to this blue lawn, and his dream must have seemed so close that he could hardly fail to grasp it. He did not know that it was already behind him, somewhere back in that vast obscurity beyond the city, where the dark fields of the republic rolled on under the night.

Gatsby believed in the green light, the orgastic future that year by year recedes before us. It eluded us then, but that’s no matter—tomorrow we will run faster, stretch out our arms further… And one fine morning—

So we beat on, boats against the current, borne back ceaselessly into the past.” – F. Scott Fitzgerald, The Great Gatsby

– John Jenkins