Monthly Archives: November 2022

November 30, 2022

Board Diversity: Women’s Gains Stall at Big Banks

Big banks have been leading the way in board gender diversity – but this Bloomberg article says that the percentage of women on boards at these institutions has recently dropped. Here’s an excerpt:

Gains have stalled as women reached a third of seats, which researchers have said is a key level for gaining influence in the boardroom. Groups such as 50/50 Women on Boards are now trying to nudge representation higher, to reflect women’s near parity in the workplace overall.

The average number of women directors was unchanged at 4.7, out of an average board size of 13.7. The percentage of female directorships fell to 34.6% from 35%. That compares with 32% for the S&P 500 Index.

The drop was caused by 3 banks each appointing a new male director last month – which shows just how precarious diverse representation can be. Of the 18 banks in the index, Citigroup has the highest percentage of women on its board – 58%!

It is disappointing that Citibank’s composition is still so exceptional, not to mention that it’s problematic to be stuck in the mud on the basics as we look ahead to more leaders & stakeholders identifying as non-binary. Imagine if there were headlines whenever male representation surpassed 50%…which is the case for every bank in the index besides Citi.

Liz Dunshee

November 30, 2022

Board Diversity: What’s Moved the Needle?

A recent working paper from the National Bureau of Economic Research poses this question:

There is a growing emphasis on diversity, equity, and inclusion (DEI) in American society. A majority of S&P 500 companies now employ a chief diversity officer (Green, 2021), and since 2017, nearly 2,000 CEOs have pledged to advance DEI within their firms (PwC, 2021). Yet, women continue to be underrepresented in the highest tiers of US leadership, including in business, where women account for only 5% of public company CEOs and 18% of top executives despite accounting for 48% of the labor force and 40% of managers (ILO, 2020).

To increase gender diversity in corporate leadership, governments around the world have enacted quotas requiring companies to appoint women to their board of directors. In the US, where as recently as 2016 only 13% of public companies’ directors were women, California adopted a board gender quota — which courts have since overturned — and similar regulations have been proposed in other states. That lawmakers are turning to controversial mandates begs the question: Why don’t firms appoint more female leaders on their own, and how might they be encouraged to do so without government intervention?

The researchers found that “private ordering” by shareholders has had the greatest impact on increasing board gender diversity – in particular, due to voting policies of the “Big 3” asset managers following State Street’s “Fearless Girl” campaign that was launched in March 2017. Here’s what they concluded, based on board composition data at companies where the Big 3 had an ownership stake:

We estimate that their campaigns led American corporations to add at least 2.5 times as many female directors in 2019 as they had in 2016. Firms increased diversity by identifying candidates beyond managers’ existing networks and by placing less emphasis on candidates’ executive experience. Firms also promoted more female directors to key board positions, indicating firms’ responses went beyond tokenism. Our results highlight index investors’ ability to effectuate broad-based governance changes and the important impact of investor buy-in in increasing corporate-leadership diversity.

The influence of the Big 3 has become much more politically charged since 2017, causing the institutions to look for ways to disseminate voting power and become slightly less vocal, but stating diversity expectations was definitely groundbreaking at the time. The voting policies of BlackRock & SSGA continue to articulate diversity aspirations, and leave the door open to “case-by-case” voting decisions for companies that don’t meet them. Vanguard’s voting policy is more disclosure-based.

Liz Dunshee

November 30, 2022

Board Diversity: More Progress Across the Pond

UK-listed companies are assembling more diverse boards & executive management teams than we are in the US, ahead of new rules from the UK Financial Conduct Authority that will require disclosure in annual reports beginning in April 2023.

In addition to numerical disclosure in a new table about the diversity of the board and executive management, the rules call for “comply or explain” disclosure against diversity targets set by the FCA. Those targets are: that corporate boards be comprised of at least 40% women directors and have at least one director from a non-white minority ethnic background, and that at least one “senior board position” (Chair, CEO, CFO, or Senior Independent Director) be held by a woman.

ISS ESG recently collected data from affected companies about their progress on these requirements. Here’s an excerpt from their blog that summarizes the findings:

ISS ESG Director & Executives Diversity Data collated at the end of April showed that 18 percent of FTSE AllShare constituents (excluding investment trusts) did not yet meet any of these targets and that only 14 percent had met all three.

Six months later and roughly five months ahead of implementation, ISS ESG finds a smaller proportion – 14 percent – of FTSE AllShare constituents were not yet meeting the targets while, conversely, those that met all three had grown by five percentage points to 19 percent.

Moreover, an analysis of data as of November 1 finds that 40 percent of FTSE AllShare constituents had met the target of at least 40 percent of women on the board, 53 percent have at least one senior board position held by a woman and 64 percent have at least one minority director, up eight, five and five percentage points respectively since late April.

Liz Dunshee

November 29, 2022

Caremark Liability: SolarWinds Dismissal Shows It’s Still a High Bar

John blogged a few months ago about lessons for boards from recent Delaware cases. A recent Fried Frank memo layers on the Court of Chancery’s recent dismissal of Caremark claims in a derivative suit against SolarWinds’ directors, relating to the massive cyber attack that occurred at that company two years ago and the 40% tumble in the company’s stock price that followed the incident. Here’s an excerpt with key takeaways:

This is the second Delaware decision in the past year to address a board’s oversight duties under Caremark with respect to cybersecurity risk. In both cases (the other being Sorenson, relating to the hacking of Marriott’s hotel reservation system), Caremark claims were asserted following a cybersecurity attack by third party hackers that exposed customers’ personal information. In both cases, the court dismissed the Caremark claims and reaffirmed that—notwithstanding a recent increase in Caremark claims following corporate traumas—it remains very difficult for a plaintiff to succeed on a Caremark claim. The court emphasized in both cases that a board’s failure to prevent a corporate trauma is not sufficient for liability under Caremark unless the failure was due to “bad faith” by a majority of the directors.

The court found that the board’s inattention to cybersecurity issues and “subpar” system for reporting and monitoring cybersecurity risk did not, without more, indicate “bad faith.” The board allegedly: did not receive relevant information from the committees with responsibility for cybersecurity; did not discuss cybersecurity even once in the two years leading up to the Sunburst attack; and ignored warnings about cybersecurity deficiencies. The court found no implication of bad faith, however, as the board: “did not allow the company itself to violate law”; “did ensure that the company had at least a minimal reporting system about corporate risk, including cybersecurity”; and did not “ignore[] sufficient ‘red flags’ of cyber threats to imply a conscious disregard of a known duty, indicative of scienter.”

Notwithstanding the dismissal of the case, the court’s opinion underscores the need for boards to implement appropriate systems to monitor and address cybersecurity risk. The court acknowledged the growing and consequential risks posed by cybersecurity threats. Indeed, the court characterized cybersecurity as a “mission-critical” risk for online providers, as they rely on customers sharing with them access to their personal information.

The memo takes a look at key facts that were relevant to the court’s decision to dismiss this case, and provides additional practice pointers specific to boards & to management.

Lest anyone get too carried away with celebrating this dismissal, it’s important to remember that derivative suits are only one flavor of liability. SolarWinds reported on a Form 8-K last month that it had settled a securities class action, also arising out of the December 2020 cyber incident, for $26 million. This blog from ISS Securities Class Action Services summarizes that complaint – and notes that the SEC may also be considering an enforcement action against the company.

Cybersecurity oversight continues to be a hot-button issue for the SEC’s disclosure initiatives as well – making an appearance in the Strategic Plan that I blogged about yesterday. All of this adds up to a topic that boards cannot ignore. For an additional resource, check out Dave’s 21-minute podcast about cybersecurity exposure preparedness for directors.

Liz Dunshee

November 29, 2022

SEC Takes Its Place In “Crypto Creditor” Line

It’s getting hard to keep up with all of the crypto collapses that have followed the FTX implosion, but apparently BlockFi filed for bankruptcy yesterday. The part of the petition that caught my eye is that the SEC is one of the largest creditors! As reported in this Bloomberg article, and shown on page 8 of the petition, the Commission has a $30 million unsecured claim relating to a $100 million settlement that BlockFi agreed to with the agency and state regulators earlier this year.

BlockFi’s attempt to discharge this debt may not do the industry any favors with SEC Chair Gary Gensler – who was profiled by the NYT last week as the “Crypto Nemesis” – but at this point, maybe there’s nothing to lose. Here’s an excerpt from that article:

Much of Mr. Gensler’s agenda may ultimately hinge on the ruling in the Ripple suit, which the S.E.C. filed in December 2020. Before the filing, Ripple’s signature token, XRP, was the third most valuable cryptocurrency; it has dropped down the rankings since the S.E.C. labeled it a security.

The outcome will also draw attention in Congress, where a slate of crypto-related bills was introduced this year. When Mr. Gensler testified in front of the Senate Banking Committee in September, he was grilled by Republican senators, who said the S.E.C. was offering insufficient legal guidance to crypto companies that wanted to comply with federal law.

“Not liking the answer from the S.E.C.,” he shot back, “doesn’t mean there isn’t guidance.”

Since we’re still in the middle of this meltdown, it’s hard to say whether the SEC’s regulatory stance and enforcement approach is having the desired outcome of protecting investors, or if the market will just take care of it by wiping out the industry. The fines lose some of their punch if they aren’t paid, and lots of crypto holders are losing everything anyway.

Liz Dunshee

November 29, 2022

Secondary Offerings: Time to Brush Up

If you’ve been busy with secondary offerings, you’re not alone. Over the weekend, Bloomberg reported:

While initial public offerings have largely vanished, share sales have been surging. Since the start of November there have been $24 billion in additional stock sales globally, on track for the biggest monthly haul since August when almost $25 billion was raised, data compiled by Bloomberg show. 

The article says not to take this as a signal that IPOs will return in force – and also notes that secondary-offering volumes are still down 65% from a year ago. But as my grandpa always said, “you’ve gotta make hay while the sun shines.” And right now, this is the hay to be made.

Make sure to keep our “Secondary Offerings Handbook” ready for any questions that arise when you work on these offerings. It covers the entire terrain, from the basics to how to deal with selling shareholders, and it’s posted along with other practical guidance in our “Secondary Offerings” Practice Area. If you’re not already a member with access to these resources (and our Q&A forum), email

Liz Dunshee

November 28, 2022

Corporate Scandals: The “Box Office” Effect

If your Thanksgiving break was anything like mine, turkey & football were followed by a heavy helping of cinema. One of my favorite genres, at least before today, was “corporate scandal.” But if you’re at a company that finds itself the subject of one of those films, your IR team best get their messaging in order.

A recent study says that when these movies hit the box office, the stock market impact can be very real – even though they simply resurface drama that everyone already knew about. If you’re into horror, here’s a finding from the study:

Our empirical results demonstrate that the release of scandal re-exposing movies, as a special form of stale information reiteration (regarding past corporate scandals), also triggers prominent stock market reactions. However, unlike the findings of Gilbert et al. (2012) and Tetlock (2011), both of which show that the changes in stock prices caused by stale information reverse over the course of a day to a week subsequently, our findings align more closely with Huberman and Regev (2001), showing that scandal re-exposing movies induce a permanent discount in stock valuation.

Permanent discounts! Yikes. My first instinct here was to blame “cancel culture,” but guess what? Many of the films in the sample date back to the ’90s and 2000s. You can see the full sample on page 35 of the study. At this point, there’s probably no additional harm in using it as a “watch list”…right?

Liz Dunshee

November 28, 2022

SEC’s Strategic Plan: Continued Goal for Modernized Disclosure

Last week, the SEC announced its Strategic Plan for fiscal years 2022 – 2026. As Dave previewed in August when the draft plan was issued, the 16-page Strategic Plan focuses on three goals to advance the SEC’s mission:

1. Protect the investing public against fraud, manipulation, and misconduct;

2. Develop and implement a robust regulatory framework that keeps pace with evolving markets, business models, and technologies; and

3. Support a skilled workforce that is diverse, equitable, and inclusive and is fully equipped to advance agency objectives.

When it comes to protecting investors, the Strategic Plan says that the SEC will do this through rulemaking as well as enforcement & examination. It also articulates this goal:

Modernize design, delivery, and content of disclosures so investors, including in particular retail investors, can access consistent, comparable, and material information to make informed investment decisions.

The markets have begun to embrace the necessity of providing a greater level of disclosure to investors. From time to time, the SEC must update its disclosure framework to reflect investor demand. Today, investors increasingly seek information related to, among other things, issuers’ climate risks, cybersecurity hygiene policies, and their most important asset: their people. In order to catch up to that reality, the agency should continue to update the disclosure framework to address these areas of investor demand, as well as continue to take concrete steps to modernize the systems that support the disclosure framework, to make public disclosures easier to access and analyze and thus more decision-useful to investors.

Goal #2 – the regulatory framework – includes this sub-goal:

Update existing SEC rules and approaches to reflect evolving technologies, business models, and capital markets.

The ongoing movement of assets into private or unregulated markets, the continual creation of new financial instruments and technologies, and the challenges of increased globalization all require the agency to rapidly update and evolve.

To do so, the SEC must enhance transparency in private markets and modify rules to ensure that core regulatory principles apply in all appropriate contexts. To maintain the integrity of the markets, the SEC needs to develop specific regulations to ensure investors remain informed and protected via a broad-based disclosure frameworks.

The agency must also continue to focus on supervising global entities appropriately. Inherent in the interplay with international markets is the challenge of protecting sensitive information when coordinating with other regulators. Consistent data protection policies are essential for this effort.

Throughout the Strategic Plan, there’s an emphasis on using technology & data, and the SEC’s evolution to meet new market issues. Here’s the 4-year Strategic Plan published by former SEC Chair Jay Clayton in 2018, which shared a few similar themes.

Liz Dunshee

November 28, 2022

SEC’s Investor Advisory Committee Meeting Next Week: Tax Transparency on Agenda

In developing the Strategic Plan that it released last week, the SEC took into account information gathered from many sources – including Congress and congressional committees, investors, businesses, academics, other stakeholders, comments to rule proposals, and more. It also considered input from SEC roundtables and advisory committee meetings. On that note, the Investor Advisory Committee continues to be an active group, and the SEC has announced another upcoming public meeting on December 8th.

The agenda includes a panel discussion on corporate tax transparency. Here’s more detail:

This panel will focus on the potential benefits to investors of greater tax transparency, including country-by-country tax reporting. New regulations require companies to provide this information to tax authorities, but investors currently do not have access to this information. Given financial, reputational and regulatory risks of a company’s tax practices, investors need more information to be able to evaluate the scope of tax risks facing multinational companies. The speakers will provide an overview of the existing requirements, emerging investor expectations and new transparency requirements in other jurisdictions, and provide insight on how regulators and standard-setters might address the existing information gaps.

Liz Dunshee

November 23, 2022

Happy Thanksgiving!

We’re taking a few days off for the holiday and our blogs will return on Monday. In the past, we’ve left you with recipe tips and cookbook recommendations to improve your Turkey Day, but I’ve got to admit that I’ve been struggling a little to come up with something for this Thanksgiving.

My daughter and son-in-law are hosting this year, and I was thinking about what to do with today’s blog last night as I was going over the shopping list with her. When she pointed to a very large bag of potatoes that it appears I’ll be in charge of peeling tomorrow, I decided that this year, it might be nice to provide our readers with a little music to accompany their Thanksgiving Day food prep.

We’re still all reeling from Dave’s bombshell revelation about his lack of fondness for the Fab Four, so I’m trying to make this selection non-controversial. With that objective in mind, what better musical accompaniment to Thanksgiving Day celery chopping & potato mashing could there be than Thelonious Monk’s “Stuffy Turkey”?

Happy Thanksgiving from everyone here at – and as always, thanks for reading!

John Jenkins