As I blogged today in this “Proxy Season Blog,” shareholder support of corporate political spending proposals increased to 28% this year – which is an 8% increase since 2014. With that in mind, here are results from our recent survey on political spending oversight:
1. Oversight of our company’s political spending is conducted by:
– Full board – 13%
– Board committee – 58%
– Committee consisting only of management – 8%
– Individual officer – 17%
– Other – 4%
2. For those overseeing political spending, the type of information they get regarding actual contributions is organized by:
– Individual contributions – 38%
– Particular contributions (e.g. sensitive races or large amounts) – 0%
– Aggregate breakdown (e.g. total annual amount, amount by type of election, political party breakdowns, etc.) – 46%
– No information is provided about actual contributions – 17%
3. If the board or a board committee is involved, their role is primarily:
– Ensure the process is sound from a governance perspective – 55%
– Ensure there is a process & that it’s followed – 36%
– Provide input on the amount or type of contributions – 0%
– Maximize the likelihood that contributions will be consistent with the company’s mission – 9%
Please take a moment to participate anonymously in these surveys:
We haven’t heard as much about proxy access this year. But it’s covered on page 38 of this 110-page report from Shearman & Sterling – which has lots of interesting info about governance provisions & disclosure, executive pay and proxy season trends.
As many have discovered first-hand, it’s an uphill battle to resist shareholder requests to implement proxy access: 90% of companies that received “adopt” proposals in 2015-2018 ended up doing so. And although there’s been a big drop in the number of these proposals, that’s partly because 67% of the S&P 500 and 89 of the largest 100 companies now have a proxy access bylaw in place. Here are some other stats:
– 53 companies adopted proxy access during the 2018 proxy season – compared to 87 during 2017
– Only 22 “adopt” proposals were received this season compared to 100 last year – due to a greater number of companies choosing to voluntarily adopt proxy access and shareholders switching their focus from “adopt” to “fix-it” proposals
– Only 28 “fix-it” proposals were received this season compared to 64 last year – but shareholders continue to advocate for changes to details in proxy access bylaws, as well as restrictions on the shareholder aggregation cap, renominations and the percentage of directors electable via proxy access
– From 2016-2018, only 2 of 103 “fix-it” proposals passed – and those were at companies that used a 5% minimum percentage ownership threshold. However, 37 companies have amended their proxy access bylaws during that time period – which might suggest behind-the-scenes pressure.
– More than 900 meetings have been held by companies with a proxy access bylaw since 2011. Only 1 nomination has been attempted using proxy access – and zero proxy access candidates have ultimately appeared in a company proxy statement
Transcript: “Nasdaq Speaks”
We have posted the transcript for our recent webcast: “Nasdaq Speaks – Latest Developments & Interpretations.”
As a look-back on their first full year as Co-Directors of the SEC’s Division of Enforcement, Stephanie Avakian gave this speech – and Steve Peikin gave this speech – to recap their accomplishments. Stephanie’s speech expands on Enforcement’s “Guiding Principles” for investor protection – and emphasizes that statistics showing a decline in the number of enforcement actions don’t adequately reflect the quality of their efforts. Instead, the goal is to use limited resources to bring “meaningful cases that send clear & important messages.” Here’s the intro:
Last year Steve and I articulated five principles that would guide our decision-making. They are: (1) focus on the Main Street investor; (2) focus on individual accountability; (3) keep pace with technological change; (4) impose sanctions that most effectively further enforcement goals; and (5) constantly assess the allocation of our resources.
I’m going to talk about the Division’s approach to dealing with initial coin offerings (ICO) and digital assets, and second, I will address the Division’s Share Class Selection Disclosure Initiative. These two examples illustrate our approach of identifying challenges and risks facing investors and markets, and developing a response that addresses those challenges in a thoughtful and effective way, and that maximizes our use of resources.
In the context of ICOs, she goes on to discuss non-fraud enforcement actions for ICO registration cases – and says Enforcement isn’t going to shy away from recommending substantial remedies for Section 5 violations. And as I’ve previously blogged, it’s not just issuers who can be the target of an ICO enforcement action. Recent settlements included a hedge fund that violated investment company registration requirements and an unregistered broker dealer.
SEC Enforcement: “Money Isn’t Everything”
John’s blogged that the magnitude of monetary penalties might not be the right way to measure enforcement activity – and Steve Peikin seems to agree. In his recent speech, he elaborated on the full range of relief that the Division of Enforcement recommends to the SEC – and says Theranos is a good example of how customized non-monetary remedies are deployed:
Aspects of the Theranos matter have been covered extensively in other forums. But for today’s purposes, one of the most important elements of the Commission’s settlement with Holmes were undertakings that (1) required her to relinquish her voting control over Theranos by converting her supermajority shares to common shares, and (2) guaranteed that in a liquidation event, Holmes would not profit from her ownership stake in the company until $750 million had been returned to other Theranos investors.
In Theranos, the Commission confronted a situation where, because of the capital structure of the company, Holmes had nearly complete control of the company. And given what we alleged had occurred, it was appropriate to seek relief that protected investors from potential misuse of that controlling position going forward. The undertakings were designed to do exactly that.
Tomorrow’s Webcast: “This Is It! M&A Nuggets”
Tune in tomorrow for the DealLawyers.com webcast – “This Is It! M&A Nuggets” – to hear Weil Gotshal’s Rick Climan, Arnold & Porter’s Joel Greenberg, McDermott Will’s Wilson Chu and Sullivan & Cromwell’s Rita O’Neill impart a whole lot of practical guidance!
Our last “list” blog featured Nina Flax’s morning routine. Now we get to see how Karla Bos starts her day:
OK, here’s the “Bos” edition of the pre-8:30 am accomplishment list. Very different from Nina’s, aside from the requisite coffee and email consumption, but that’s no surprise—she’s a Commuting Supermom and I’m a Work-from-Home Empty Nester. My list looked more like hers when I had a commute and kids at home.
Even so, reflecting on my current list, I realized that 10 years ago I would have read it and totally rolled my eyes, wondering what working person could find the time for all this in the morning and get up so many hours before they really had to. All I can say is that I started to get up earlier and earlier over the years as it dawned on me that doing so allowed me to take control of my day and take care of myself in a meaningful way. So for me, where I am now, this program works:
1. Decide Whether Sleep Will Come Again After 4 a.m. I’ve learned that, as soon as one of my three dogs whimpers or my monkey mind starts jumping, going vertical bears more fruit than chasing a few extra and unlikely minutes of sleep. But if the dogs are quiet, I hold off so the husband can sleep.
2. Get Up by 4:45 a.m. I don’t say “wake up” because I am almost always awake by then. Sometime during the last 10 years I turned into a morning person.
3. Take Dogs Outside. Scan the yard and stand guard for predators (hence, no doggie door) while my little dogs sniff everything as if for the first time. “Oh tree, how I’ve missed you!” I take a moment to enjoy the early morning desert quiet—until the senior dog barks to announce we can go in NOW …
4. Feed the Dogs. For age and health reasons, everyone gets their own custom menu with varying levels of meds and supplements. Start my coffee. Encourage the puppy to eat instead of play.
5. Take Dogs Outside Again. And generally repeat a slightly faster version of step #3. If it’s light enough by now I putter in the yard and make a mental list of what needs attention.
6. Set Out Coffee for My Husband. He’s in the shower about now. He is much less of a morning person (and less of a talker) than I and has a healthy commute. We used to carpool when we worked at the same company, which I thought was great because I could talk and talk and check my email while he drove—but I think he enjoys the quiet time now.
7. Coffee/Digital Content Intake. This means distracting the dogs with dental chews while I drink coffee, check email, and read to get a little smarter about corporate governance and the world. Being in Arizona, I share Nina’s challenge of waking up to east coast days that are already in full swing. Fortunately, our geographically distributed and highly responsive team helps make the time zone balancing act manageable.
8. Throw on Workout Clothes. This is one of the times I listen to a favorite podcast. Once I’d worked from home for a while, I realized I’d stopped doing this, so now I catch up here and there in the morning and whenever I step out of my office for a break.
9. Exercise and Stretch. Some days this means a full-on workout (Empty Nester = spare room for a home gym), some days mostly stretching (which I don’t love because I am not flexible, so podcasts are a great distraction), but it’s a must. It’s key to managing stress, aging, and too much time sitting. Drink water.
10. Check Email.
11. Walk the Dogs. The desert gear required is a separate list but includes big floppy hat, tweezers to remove cactus spines, and a whistle and pepper spray to fend off any aggressive wildlife (which usually keep their distance, but we had a dicey encounter with a group of javelinas and we see coyotes most mornings). Also a headlamp when it’s still dark. Enjoy the stillness and quiet but watch for predators. (You get used to it, rather like walking the streets of NY.)
12. Check Email.
13. Brush Dogs’ Teeth. Owners of small dogs know they require dental vigilance or things get ugly and pricey. Another chance to listen to podcasts.
14. Shower—and Sing! Singing in the shower is another must. Really gets me energized, and I cannot think (worry) about anything when I am belting out a showtune.
15. Meditate for 10-15 Minutes. Mindfulness meditation, which I’m new at, but feels really valuable. One time in the day I don’t make mental lists (well, try not to; like I said, I am new at this).
16. Get Dressed. While I love that this takes far less time and effort now that I work from home, it’s still important to set and adhere to standards, e.g., anything you slept or worked out in is not suitable work attire, and you’re not trying hard enough if your husband comes home and looks startled when he sees you.
17. Eat a Healthy Breakfast. Admittedly this happens at my desk if the preceding 16 activities expanded.
18. Commute to Work. There are things I miss about working onsite with a team, but I adore that my commute simply means walking down the hallway to my home office, where the dogs settle in for a snooze. Power up and get to work!
Nasdaq Proposes Changes to Initial Listing Liquidity Requirements
On Friday, Nasdaq announced that it’s seeking public comment on potential changes to its liquidity requirements for new listings. While all input is welcome, the proposal identifies four topics of particular interest:
– Restricted Shares
– Minimum Investment Value for Holders
– Trading Volume
– Reg A+ Listings & SPACs
Any changes to the rules will apply only to initial listings – not continued listings. Comments are due by November 16th.
As I’ve blogged, studies that show many investors are now taking ESG seriously. For example, in this “Proxy Season Blog”, I noted that State Street’s Rakhi Kumar was encouraging boards to become more familiar with SASB and the growing importance of ESG scores in driving investment.
So it’s not a big surprise that proxy advisors have begun incorporating ESG ratings into their reports & recommendations. Broc blogged about how ISS is starting to do this through its “E&S QualityScore” (aided by its slew of recent acquisitions in the ESG space). Now, Glass Lewis has announced that it’s taking a step in that direction. It will soon start displaying SASB standards in its research reports and on its voting platform – which is a nice boost for SASB in light of all the competition in the “ESG disclosure framework” space. Here’s more detail (also see this blog from Davis Polk):
Guidance on material ESG topics from the Sustainability Accounting Standards Board (SASB) will be integrated into Glass Lewis Proxy Paper research reports and its vote management application, Viewpoint. As a SASB Alliance Organizational Member since mid-2017 Glass Lewis is familiar with the value provided by SASB’s industry-specific standards, and has now been granted the right to display this content directly within its standard proxy research as well as its vote management platform.
As such, users of Glass Lewis’ services will be able to easily identify whether items are aligned with the SASB standards, helping inform the clients’ proxy voting and engagement activities. SASB’s information will be incorporated into Glass Lewis’ products in advance of the 2019 season after the SASB standards are codified, and available for thousands of companies across Glass Lewis’ global coverage universe.
ICOs: Court Says Coins Might Be “Securities”
About a year ago, the SEC brought its first ICO enforcement action – against the promoters of RECoin, which was supposedly a cryptocurrency backed by real estate, but (spoiler alert) wasn’t actually backed by real estate, and didn’t actually provide investors with any form of token or currency.
Now, the same defendant is fighting litigation in the first-ever federal district court case on ICOs – where the issue is whether federal securities laws can be used to prosecute ICO fraud. And wouldn’t you know, he’s not faring so well. Last week, the judge denied his motion to dismiss, in which he’d argued that the ICO didn’t involve “securities.” This Proskauer blog describes the judge’s reasoning (also see these memos):
The definitions of “security” in the relevant securities laws includes “investment contracts,” and whether the investment schemes at issue in this case are investment contracts is a question reserved for the ultimate fact-finder, which will be required to conduct an independent Howey analysis based on the evidence presented at trial.
At the motion to dismiss stage, the court must decide whether the “elements of a profit-seeking business venture” are sufficiently alleged in the indictment such that, if proven at trial, a reasonable jury could conclude that investors provided the capital and shared in the earnings and profits, and that the promoters managed, controlled and operated the enterprise. Judge Dearie concluded that such elements were sufficiently alleged in the indictment, and that if such allegations were proven, they would permit a reasonable jury to conclude that Zaslavskiy promoted investment contracts.
We don’t know for sure what’ll happen at trial, but the defendant’s argument seems a little shaky. Particularly because RECoin wasn’t a “utility token” that could be used in transactions – it was supposedly an investment in tokens that represented interests in assets. And it probably doesn’t help that a Florida magistrate judge recently applied the Howey test to another sketchy ICO – and ruled against the promoters (as described in this DLA Piper memo). But the bigger question is what impact the holding and dicta in these cases will have on ICOs that don’t involve fake tokens and imaginary asset interests.
Are ICOs Insurable?
If you’re in the cryptocurrency service space – e.g. security, custody, transfers, investments – or even if you just accept cryptocurrency for payment, it might be time to have a chat with your insurance broker. This “D&O Diary” blog says that you might even be able to get coverage for ICOs and D&O exposure, in addition to business risks. It’s timely advice, since last week the SEC reminded everyone that the legal risks of ICOs aren’t limited to ICO promoters – e.g. unregistered broker-dealers are also fair game for an enforcement action.
Of course, you’ll have to jump through some hoops to get coverage, in the form of extensive underwriter diligence as well as negotiations on policy limits. This “D&O Diary” blog cautions that coverage will be different from what you’d get in a traditional IPO – and elaborates on the attributes of an “insurable ICO”:
– The company is institutionally/VC backed and has already undergone fundraising
– The company is already an established corporate with an experienced management team & a good track record
– The insurer has been able to fully evaluate all of the relevant exposures, including systemic exposures
– The company can justify that the project underpinning the ICO cannot be achieved or the issue solved without blockchain technology
– The company is able to provide a white paper, regulatory authorizations, evidence of compliance controls, legal opinions, audit reports, banking agreements and outsourced service agreements
The “Ceres Investor Water Hub” – a working group of more than 100 investors that represent $20 trillion in assets – has published an “Investor Toolkit” to foster engagement with companies on water issues. Among other topics, it covers:
– Types of water risks – physical, regulatory, social – and how to assess materiality
– Shareholder resolutions & trends linked to water
– Database of proxy voting guidelines that integrate water issues
– Engagement tips for investors
– Recommendations for incorporating water issues into investment decisions
This Forbes op-ed from Ceres’ CEO Mindy Lubber notes that 81% of major U.S. companies in water-dependent sectors have water stewardship programs – though only 37% have set qualitative targets to better manage water resources. It doesn’t take too much imagination to predict that there’ll be more requests for disclosure in this area.
Why Do Some Companies Go Public Through Debt IPOs?
I don’t see much written about private companies issuing public debt, so this study caught my eye. Here’s an excerpt:
As compared to companies in the same industry that conduct an equity IPO in the same year, companies that go public via debt are typically significantly larger and more easily able to disclose their important performance data through their financial statements (versus non-financial disclosure). When the debt-first companies eventually go public by issuing equity, they face lower underpricing than companies without public debt.
Ownership structure (backing by a financial sponsor such as a venture capital or private equity firm) and the relative cost of information production in debt versus equity markets appear to be significant in explaining why these firms choose debt before equity and their subsequent decision to issue equity. Future research on IPOs should take into account that firms do not just face a simple choice between going public and staying private, but also an intermediate choice of issuing public debt but staying private.
More on “Proxy Season Blog”
We continue to post new items daily on our blog – “Proxy Season Blog” – for TheCorporateCounsel.net members. 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:
– More on “Shareholder Meetings: What to Do With a Tied Vote?”
– Shareholder Meetings: What to Do With a Tied Vote?
– 6 Reasons Why Corp Fin Denies Exclusion Under SLB 14I
– Icahn, Elliott & Activist Peers Grab the Mic in Meeting Season
– Management Proposals: Factors for Those That Just Eke By?
Check out the latest report from BarkerGilmore – a boutique executive search firm – about in-house counsel compensation trends. Among the findings:
1. The median salary increase has fallen 0.5% – to 3.8%
2. 41% of in-house counsel believe they’re underpaid
3. GCs at public companies earn a lot more than GCs at private companies, due to long-term incentives
4. On average, female in-house counsel earn 84% of what their male counterparts are paid – the gap is wider at the GC level
5. The lowest paying in-house jobs tend to be in the professional services industry
Investor Views on “Equity Choice Programs”
With only 2 weeks left before our “Proxy Disclosure Conference,” we thought we’d give you a taste of some of the practical nuggets from our “Course Materials” – which are now available to everyone who’s registered to attend the conference, whether in-person in San Diego or via live video webcast. Here’s one topic from Bob McCormick of CamberView:
While still used by just a small percentage of companies in their long-term incentive programs – mainly in the technology and bio-pharmaceutical industries – equity choice programs are growing in popularity. Shareholders will have an open mind about equity programs that allow for some measure of choice by the employee of the type of equity award they will receive subject to some basic parameters:
1. Irrespective of the type of award, shareholders will want to see a significant part of the long-term equity awards tied to one or more performance metrics.
2. Shareholders will expect that the performance metrics will be both tied to long-term corporate strategy and subject to transparent, challenging targets.
3. Some shareholders and proxy advisors may not consider options to be inherently performance-based so, if stock options are one of the equity choices, there should be accompanying disclosure that describes the board’s rationale for including options as one of the equity choices. The disclosure should include the board’s views on the benefits of the use of options including why the board considers that options provide a strong performance incentive that is linked to long-term corporate performance.
4. Purely time-based awards may be acceptable if complemented by performance based awards but most shareholders prefer performance based awards make up the largest percentage of the grants.
5. All awards should be subject to substantial (e.g. at least three years) performance/vesting periods.
6. Awards types and amounts should not allow employees to game the system by opting for the type of award with a higher value.
7. Companies should consider whether excluding senior executives is desirable to avoid investor reaction to the executive team’s equity choice based on the executives’ views on the company’s performance prospects.
It’s Done: 2019 Edition of Romanek & Dunshee’s “Proxy Season Disclosure Treatise”
We have wrapped up the 2019 Edition of the definitive guidance on the proxy season – Romanek & Dunshee’s “Proxy Season Disclosure Treatise & Reporting Guide” – and it’s printed. With over 1750 pages – spanning 33 chapters – you will need this practical guidance for the challenges ahead. Here’s the Detailed Table of Contents listing the topics so you can get a sense of the Treatise’s practical nature. We are so certain that you will love this Treatise, that you can ask for your money back if unsatisfied for any reason. Order now.
A few months ago, I blogged that National Association of Manufacturers (NAM) had launched an “anti-ESG campaign.” Now, 45 companies that sit on NAM’s Executive Committee & Board are caught in the middle of that organization’s beef with ESG advocacy. Walden Asset Management & CalSTRS announced that they have led more than 80 investors to write letters that urge the companies to distance themselves from NAM’s effort to limit engagements. Here’s an excerpt:
We believe your company may have a very different perspective than that expressed by MSIC & NAM and that your continued affiliation with them could pose reputational risks to your company. Thus, we urge you, as a member of the leadership team of NAM, to question your Association’s research funding priorities and its working alliance with MSIC. In addition, we are interested in your answers to the following questions about your company’s positions on these issues:
– Are you aware of the new NAM paper and its attack on the efficacy of shareholder resolutions and ESG investing factors?
– What are your views on the priorities and objectives of NAM’s, new partner, Main Street Investors, and its work to discredit shareholder resolutions?
– Will you help clarify for the record and the investing public where the company stands on the right of investors to file shareholder proposals and your thoughts on efforts to significantly limit the ability to present such proposals?
If your company’s position differs from that of the MSIC’s stated mission, we ask the company to communicate with NAM’s management your disagreement with the positions being taken by Main Street Investors and urge NAM to distance itself from these positions. We also request that you state this publicly to inform concerned investors.
Gender Pay Gap: Heightened Employee Focus
Here’s something I recently blogged on CompensationStandards.com’s “The Advisors Blog”: We’ve blogged about how activist shareholders increasingly want companies to disclose how they analyze & address gender pay inequity – and about mandatory gender pay reporting for companies with a UK presence. But companies also need to prepare for employee questions. A new Pearl Meyer survey shows that 62% of companies are – or expect to be – fielding gender pay questions from their workforce. Some think that the #MeToo movement has been the “tipping point” to elevate discussions that have been brewing for years.
The survey also shows that employee understanding of pay practices is mediocre at best. Only 8% of respondents believe the quality of their pay communications is “excellent.” Here’s some other key findings:
– In the last two years, almost half of the companies surveyed (48%) have increased compensation communication
– A majority of companies (52%) don’t share information about base salary ranges with all employees
– About two-thirds of managers are trained to have formal compensation conversations with their direct reports, but the majority (70%) of those surveyed believe those conversations are not effective
– Less than a quarter of respondents believe employees can appropriately compare their compensation to colleagues (21%) or compare their compensation to similar positions in other organizations (22%)
– Of the 62% who are or expect to receive questions about gender pay equity, a majority have clear and detailed information ready to share or are currently drafting their responses.
Perks: “If You’ll Be My Bodyguard”
And here’s something else that I recently blogged on CompensationStandards.com’s “The Advisors’ Blog”: I can only speculate about what it’s like to be a VIP tech CEO. One part that doesn’t sound too appealing is having a personal security detail. Because if someone is attacking Mark Zuckerberg, they’re probably after more than his $350 t-shirt. But if there’s a bright side, it’s that you don’t have to pay your bodyguards out of your own pocket – they’re pricey! This article looks at how much a few well-known companies spend on security & travel for high-profile executives – and how they describe those “perks” in their proxy statements:
1. Facebook – $7.3 million for CEO security & $1.5 million for CEO use of private aircraft ($2.7 million for COO)
2. Amazon – $1.6 million for CEO business & travel security
3. Oracle – $1.5 million for Executive Chair home security ($104k & $0 for the co-CEOs)
4. Salesforce – $1.3 million for CEO security
5. Google – $636k for CEO security and $48k for CEO use of chartered aircraft
6. Apple – $224k for CEO security and $93k for air travel
7. Qualcomm – $138k for Chair’s “insurance premiums, security & home office” and $153k for Chair use of corporate aircraft
8. IBM – $178k for CEO use of corporate aircraft
A member emailed to point out that there’s a reason security is expensive:
I met an executive’s bodyguard once. Former cop & one of the friendliest, most down to earth people I’ve ever met. He was very devoted to the executive, for whom he’d worked for nearly 30 years. However, it was also clear to me that this guy knew 6 ways to kill you with a paper napkin.
Remember that our recently-updated “Executive Compensation Disclosure Treatise” has a chapter devoted to perks – with comprehensive guidance on disclosure of airplane use & personal security, among other topics.
Here’s the news from Annalisa Barrett: On Wednesday, the California Assembly passed Senate Bill 826, which requires that companies headquartered in the state which are traded on a major stock exchange have women on their boards.
If the bill is signed by Governor Brown, companies with their principal executive offices located in California will face monetary penalties if they do not have at least one female director serving on their board as of December 31, 2019. As of June 30th, among Russell 3000 companies that are headquartered in California:
– 20% of boards (85 companies) had no women
– 38% of boards had one woman
– 29% of boards had two women
– 14% of boards had three women
California’s New Gender Diversity Law: The Details
Annalisa Barrett also sends us these details: The Russell 3000 Index does not include many of the microcap companies headquartered in the California. A recent study of microcap boards nationwide found that most do not have female directors; therefore, it stands to reason that the number of companies affected immediately by the bill is much higher than 85. In fact, Board Governance Research has identified more than 120 California-headquartered companies which have all-male boards.
The bill further requires that nearly all companies headquartered in California have more than one female director by December 31, 2021. The number of female directors required by that date varies by board size, as follows:
– 4 or fewer directors: 1 female director required
– 5-member board: 2 female directors required
– 6 or more directors: 3 female directors required
Based on board size and composition as of June 30, 2018, 377 of the Russell 3000 companies headquartered in California will need to add a total of 684 female directors by December 31, 2021.
Boards which do not add the requisite number of women to their boards by the 2019 and 2021 deadlines will have to pay fines to the Secretary of State. The first time a company is not in compliance, the fine will be $100,000. In the event of subsequent years of noncompliance, the fine increases to $300,000. However, while the monetary impact of non-compliance is important, the reputational damage may be even more impactful. Since the bill requires that the California Secretary of State publish an annual update of compliance, the scrutiny from the press and public will likely lead to negative publicity for any company with an all-male board.
However, one could argue that this negative publicity will occur even if the Governor does not sign the bill. Therefore, companies headquartered in California would be well served to begin the process of identifying female director candidates if they have not already done so. And, given the nationwide attention that the bill is receiving (e.g., this WSJ article), companies across the US with all male boards should expect intensified scrutiny as well.
This WSJ article notes that opponents of the mandate believe it will result in unfair discrimination against men – so they intend to challenge the law in court. It also points out that the legislation provides for creating an extra board seat to accommodate a new female member, rather than removing a man already on the board.
Board Gender Diversity: Russell 3000 Adds Women
Earlier this week, Equilar reported that the percentage of women on Russell 3000 boards has increased for the third consecutive quarter – to almost 18%. And from April to June of this year, 35% of new board seats went to women. However, 485 companies – about 17% of the Russell 3000 – continue to have all-male boards.
Here’s the second “list-of-lists” installment from Karla Bos of Aon (here’s the first one):
1. Things I’ve Moved To My JOMO List – To Practice The “Joy Of Missing Out”
2. Reasons Everyone Should Move Across Country At Least Once
3. The Name Of Every Plant In My Yard, Where I Bought It, What I Paid For It & When I Planted It
4. Barriers I Have Implemented/Need to Implement So Rattlesnakes Can’t Get Into My Yard
5. Home Improvement Projects My Husband & I Want To Do Ourselves
6. Home Improvement Projects My Husband Wants To Do (But I Think We Should Hire Someone)
7. Ways That “Urgent” Work That Gets In The Way Of “Important” Work & How I Try To Balance That
8. My MinimaLIST – Items I Never Use & Should Donate, Items I’ve Donated This Year, Things I Need To Let Go Of
9. Verbal Commands For Our Home Automation System That I Can Never Remember
10. Things I Need To Research & Source Before Buying (AKA What Not To Buy If Enough Time Passes & Apparently I Didn’t Need It After All)
11. Foods My Niece & Nephew Will – And Won’t – Eat These Days
12. Rattlesnake Emergency & Removal Contacts – And What To Do If Bitten
Sustainability Disclosure: “Give The People What They Want”
This recent 31-page report from Ceres – “Disclose What Matters” – benchmarks sustainability disclosure from almost 500 companies worldwide to see whether they’re providing the information that investors actually need.
The report acknowledges that sustainability disclosure has grown by leaps & bounds during a short time period. But some of it’s akin to throwing everything at the wall to see what sticks. According to Ceres, here’s what investors want:
1. Comparability: There’s been a lot of progress here – 70% of companies now use the Global Reporting Initiative Standards, often in conjunction with other overlapping reporting standards. As painful as it might be, it’s time to familiarize yourself with the available standards and help select one or more for your company.
2. Integration: Only about 20% of companies connect the dots to describe how their systems integrate sustainability values & assessments into business processes. Reiterating its spring 2018 report on “systemic” sustainability, Ceres suggests describing the board’s oversight role, materiality assessment processes, how assessment results are used in the business, financial relevance, and stakeholder engagement.
3. Reliability: Only 42% of companies give any indication that there’s been formal assurance for sustainability disclosures, and fewer than 10% provide the “holy grail” of third-party verified disclosures and recommendations for improvement.
The report also includes sector & regional findings – 80% of American companies are classified as “median” or “poor” performers – and provides “best practice” examples.
Transcript: “Retaining Key Employees in a Deal”
We have posted the transcript for our recent DealLawyers.com webcast: “Retaining Key Employees in a Deal.”
According to two recent studies, the days of CEOs staying out of politics are pretty much over. The jury’s out on whether that’s good for business. This Weber Shandwick study says that 46% of people are more likely to buy from a company whose CEO speaks out on an issue (that they agree with), but 35% of people have boycotted a company because of CEO activism. And 7% of people say it’s led them to buy a company’s stock – while 5% say it’s led them to sell. This Morning Consult study reflects similar findings.
With stats like that, you might think CEOs should just avoid risk by keeping a low profile. That might’ve worked 5 years ago – but now a big chunk of people view silence as activism too. This WSJ op-ed suggests that it’s as likely to alienate customers & business partners as public declarations. It contends that the way to simultaneously please the “stick to business” crowd & the “social justice” crowd is to make statements that link the issue to the company’s bottom line – not personal moral views.
Board Oversight of CEO Political Activism
If CEO social & political activism is the “new normal,” the next question is whether – and how – boards can manage the related risks & opportunities. This “Corporate Board Member” article and this NACD article give some recommendations on how to proactively establish CEO communication guidelines that address:
1. The company’s mission, audiences, and relevant social & political issues
2. How to handle specific topics (Practice in advance. Get diverse views to recognize “blind spots.”)
3. Whether & how to use social media
4. Using a “personal opinion” disclaimer for comments related to the CEO’s personal convictions
5. Ways to monitor sentiments of employees, shareholders & other stakeholders – and make timely updates to company policies on evolving issues
6. How the CEO’s internal & external communications will be evaluated as part of the performance review
Earlier this month, I blogged about a heightened focus on “impact investing” among funds, foundations, banks, family offices and pension funds. This study (from an asset manager that specializes in impact investing) suggests that’s probably a result of client demand. About half of the 1000 survey participants were interested in using their investment dollars to make a positive impact on society, in addition to their obvious desire to garner a financial return. Here are the finer points:
– 49% of people found impact investing “appealing” – compared to 38% in 2016
– 56% of Millennials are interested in impact investing – compared to 52% of Gen Xers and 44% of Boomers
– 45% of people say they intentionally choose to do business with companies whose “values align” with their own
– Popular causes for impact investing ranked as healthcare/disease prevention, environment/sustainability, education, mitigating poverty, and alignment with religious principles
