In this 23-minute episode of our “Women Governance Trailblazers” podcast, Courtney Kamlet & I had the pleasure of speaking with Anat Alon-Beck. Anat (a.k.a. the “Unicorn Lady”) is an Associate Professor of Law at the Case Western Reserve University School of Law. Her extensive research on large privately held companies – and their impact on our market – has been cited to Congress, the SEC, and federal courts. Her findings have also influenced conversations & policy on a variety of high-profile corporate governance and securities law issues – including board diversity and human capital, corporate purpose, risk oversight, public benefit corporations, direct listings, and more. Listen to hear:
1. How Anat found her way into academia after practicing as a corporate & tech lawyer, and what led her to focus her research on corporate governance & securities issues.
2. The common thread that ties Anat’s published topics together – and a bit about her forthcoming research.
3. What the research shows about legal & regulatory reforms that could improve opportunities for corporate governance & securities practitioners and our markets overall – and what practitioners could do from a practical perspective to support reforms.
4. Thoughts on how boards & advisors can navigate the competing tensions and fraught political environment. Specifically, whether there are theories or data that could guide decision-making on sensitive topics without diverting too much time and money from the company’s core mission.
5. What Anat thinks women in the corporate governance field can add to the current conversation on the role of corporations in society.
To listen to any of our prior episodes, visit the podcast page on TheCorporateCounsel.net or use your favorite podcast app. If there are “women governance trailblazers” whose career paths and perspectives you’d like to hear more about, Courtney and I always appreciate recommendations! Shoot me an email at liz@thecorporatecounsel.net.
Welcome back from the long weekend, everyone. In a treasured end-of-summer tradition, ISS recently announced that it has released its Annual Global Benchmark Policy Survey. There is nothing quite like this annual event to help us focus on what lies ahead in the upcoming proxy season. This year I’m particularly grateful for the opportunity to focus on the future, because my middle child is excitedly heading to his first day of kindergarten today, and there have been tears (from me, not him).
Anyway, in addition to executive compensation topics, this year’s survey includes questions on:
– Impact on director independence of being employed by a firm that provides professional services to the company
– Application of FPI vs. market-specific policy to companies that dual-list in the country of incorporation
– Whether the ISS policies should aim for global consistency on certain E&S issues vs. take a market-specific approach
– How investors and companies are considering single vs. double materiality
– What actions investors should expect companies to take to reduce an environmental or social risk that appears to be material to a company
– For high GHG emitters, whether risk should be assessed based on meeting standards under all of the governance, strategy, risk management, and metrics & targets pillars vs. each pillar individually
– Input on what guidelines, standards and frameworks are most relevant to companies and investors for drafting a climate transition strategy or plan
– How much tolerance investors will have for a reduction in transparency that results from risks from increased politicization of “ESG”
The survey is slated to close on September 21, 2023, at 5 p.m. ET.
In addition to feedback from the annual survey, as ISS develops its 2024 voting policies, it will also gather input from investors, company directors, and others by hosting various regionally-based, topic-specific roundtable discussions and other engagements. ISS will then publish for public comment the key proposed changes to its voting policies for next year, before adopting and publishing the final policies that will apply to 2024 meetings.
Glass Lewis historically has conducted a less formal process for annual voting policy updates, compared to ISS. On its “current policies” page, you can submit feedback on policy guidelines by emailing guidelinescomments@glasslewis.com. You can email Glass Lewis at any time, but if you want your feedback to be considered for the 2024 guidelines, you should probably reach out this month.
This year, a few members have informed us that Glass Lewis is also running a policy survey for its clients, which seeks feedback on specific governance, sustainability, and executive compensation topics. As a reminder, Glass Lewis’s policy updates last year related to board diversity, board oversight of E&S issues, director overboarding, cyber risk oversite, officer exculpation, and long-term incentives being tied to performance – and the updates are usually published in November or December.
When it comes to getting the votes you want during proxy season, if you want to look especially smart to your boss and save your company (and yourself) from time-consuming back & forth, the best thing you can do is sign up for our “Proxy Disclosure & 20th Annual Executive Compensation Conferences.” Our panel on “Navigating ISS & Glass Lewis” features a conversation with Rachel Hedrick – who is VP of US Executive Compensation Research at ISS – and Krishna Shah – who is Director of North America Executive Compensation at Glass Lewis – moderated by Davis Polk’s Ning Chiu. This is going to be a very practical session on the types of disclosures & practices that will (or won’t) help your cause on say-on-pay, compensation committee elections, and equity incentive plan approvals. Rachel & Krishna will bust some myths and share a few predictions for 2024.
Not to toot our own horn, but we hear quite a bit from our members about how the resources on TheCorporateCounsel.net and other CCRcorp sites have made them look like heroes in their day jobs – or saved them from embarrassment. One person told us that they would get a tattoo of our logo on their forehead if their spouse would let them. If that’s not an endorsement, I don’t know what is!
Now is the time for your membership to pay off even more. If you have friends who aren’t already in the fold, we are offering a referral program that gets you 15% off any new CCRcorp product or membership and your friend 15% off their first CCRcorp purchase.
What does a membership to one of our sites get you? Well, I’m glad you asked. We do our best to source straightforward answers to complicated questions. You can find those answers efficiently through our filtered content libraries / practice areas, checklists, handbooks, quick-take podcasts, timely webcasts & transcripts, benchmarking surveys, blogs on key updates, and our community Q&A forums. Here on TheCorporateCounsel.net, the Q&A forum is approaching 12k posts – on topics ranging from the most basic to the most obscure. We also have great conferences! Our amazing community delivers “practical guidance, direct from the experts.”
Do your friends (and yourself) a favor and take advantage of this offer! Email sales@ccrcorp.com today – or call 1-800-737-1271.
John predicted last week that the robot overlords are coming for our jobs. In the short-term, though, we will probably have more work on our plates – to train them in and set up the proper oversight systems.
This Mayer Brown blog walks through what boards need to think about as part of overseeing the issues in this brave new world. Basically, it’s “last year’s model with a new coat of paint” – boards need to apply the same fiduciary duties to AI decisions & oversight that we all already know and love. But, that may mean encouraging management to develop new AI-specific policies. For example, the blog says:
Many companies are developing policies and procedures specifically applicable to the use of generative AI by officers and employees. They are updating their corporate policies to address concerns about potential risks and harms in the context of generative AI, such as bias/discrimination, confidentiality, consumer protection, cybersecurity, data security, privacy, quality control, and trade secrets.
In addition, in light of recent Caremark cases, the board needs to pay more attention if AI is a “mission critical” risk. If that’s the case, the blog suggests:
For companies where AI is associated with mission-critical regulatory compliance/safety risk, boards might want to consider: (a) showing board-level responsibility for managing AI risk (whether at the level of the full board or existing or new committees), including AI matters being a regular board agenda item and shown as having been considered in board minutes, (b) the need for select board member AI expertise or training (using external consultants or advisors as appropriate), (c) a designated senior management person with primary AI oversight and risk responsibility, (d) relevant directors’ familiarity with company-critical AI risks and availability/allocation of resources to address AI risk, (e) regular updates/reports to the board by management of significant AI incidents or investigations, and (f) proper systems to manage and monitor compliance/risk management, including formal and functioning policies and procedures (covering key areas like incident response, whistleblower process, and AI-vendor risk) and training.
Note that in July, 7 Big Tech companies agreed to adopt voluntary “guardrails” on AI, which could be a sign of things to come and eventually serve as a framework for others.
The blog also gives some practical suggestions on protecting sensitive information from widely accessible AI models. Those procedures and limitations could be added to policies or could be informal. Lastly, when it comes to “The Beginning of the End” – using AI to prepare disclosures – don’t overlook the continued importance of internal controls:
For public companies using generative AI in financial reporting and securities filings, boards may need to confirm with management that the company appropriately uses generative AI’s capabilities in connection with its internal control over financial reporting as well as disclosure controls and procedures.
What a difference a year (or two) makes. With “ESG” terminology generating a lot of political hot air, the phrase seems to be evaporating from earnings calls. This FactSet article says that in Q1 of this year, only 74 S&P 500 companies directly used the term “ESG” in their earnings calls, which is the lowest number since Q2 of 2020.
As a reminder, data from last year showed that “ESG” was coming up a lot during Q&A, and “climate change” started to pop up in earnings calls two years ago. FactSet says that we reached “peak ESG” (in earnings calls) during Q4 of 2021. Here’s more detail on where we stand now:
At the sector level, the Financials (11) and Health Care (11) sectors had the highest number of S&P 500 companies citing “ESG” on earnings calls for Q1. Combined, these two sectors accounted for 30% of the total number of S&P 500 companies discussing “ESG” on earnings calls for Q1 2023. On a quarter-over-quarter basis, eight of the eleven sectors recorded a decrease in the number of companies citing “ESG” on earnings calls, led by the Industrials (-5) and Information Technology (-4) sectors.
The FactSet data aligns with this GlobalData analysis, which appears to have reviewed earnings releases, call transcripts, investor presentations, and – shockingly – sustainability reports from around the world. In this data set, the mentions of “ESG” – and “climate change” – have supposedly dropped by 85% in corporate disclosures this quarter compared to the same quarter last year. ESG was still mentioned 115,363 times in the most recent quarter, with climate change mentioned 31,094.
The drop in “climate change” mentions is surprising to me since here in the US, we have all spent the summer grieving disasters, roasting in heat waves, and/or breathing copious amounts of wildfire smoke – all as we await the SEC’s final climate disclosure rules. Apparently, though, inflation is getting more airtime around the world. And what buzzworthy new topic are US companies discussing with investors? AI, of course!
Over on PracticalESG.com – and at our upcoming “2nd Annual Practical ESG Conference” – we continue to share checklists, other resources, and guidance from experienced practitioners on how to navigate this time of turbulence. Refining your ESG strategies, communications, and programs is actually more important now than ever. Here’s the full agenda for the conference, which has sessions on how to tackle greenwashing, avoid ESG-related risks, position DEI, and more.
At the end of July, FASB announced a proposed Accounting Standards Update that would require disaggregated disclosure of certain expense categories. I’ve blogged a few times on CompensationStandards.com that this could be coming – particularly with respect to “human capital”-related expenses. FASB’s announcement says:
The proposed ASU would require public companies to provide detailed disclosure of specified categories underlying certain expense captions in interim and annual periods. It would provide investors with more detailed information about the types of expenses, including employee compensation, depreciation, amortization, and costs incurred related to inventory and manufacturing activities in income statement expense captions such as cost of sales; selling, general and administrative; and research and development.
The amendments in the proposed ASU do not change or remove existing expense disclosure requirements and do not change requirements for presentation of expenses on the face of the income statement. They would require public companies to include certain existing disclosures in the same tabular format disclosure as the other disaggregation requirements set forth in the proposed ASU.
The ASU goes into more detail about what would be required in the notes to financials if it’s adopted:
1. Disclose the amounts of (a) inventory and manufacturing expense, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, and (e) depreciation, depletion, and amortization recognized as part of oil- and gas-producing activities (DD&A) included in each relevant expense caption. A relevant expense caption would be an expense caption presented on the face of the income statement within continuing operations that contains any of the expense categories listed in (a)–(e).
2. Disclose a further disaggregation of inventory and manufacturing expense (from 1 above) into the following categories of costs incurred: (a) purchases of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, and (e) DD&A. Costs incurred would include those that are either capitalized to inventory or, if not capitalized to inventory, directly expensed (expensed as incurred) during the current period. On an annual basis, an entity would disclose its definition of other manufacturing expenses.
3. Include certain amounts that are already required to be disclosed under existing generally accepted accounting principles (GAAP) in the same disclosure as the other disaggregation requirements.
4. Disclose a qualitative description of the amounts remaining in relevant expense captions or in inventory and manufacturing expense that are not separately disaggregated quantitatively.
5. Disclose the total amount of selling expenses and, on an annual basis, an entity’s definition of selling expenses.
Comments on the proposal are due on October 30th, and FASB will host a public roundtable on December 13th to gather additional feedback. See this blog from Cooley’s Cydney Posner for even more details & background. Cydney also notes that FASB has tentatively decided to move forward with enhanced requirements for segment expense disclosures and that a final ASU could be coming soon on that. John blogged about the proposed changes last fall.
This 20-page report from LRN analyzes codes of conducts across the globe and suggests best practices that could help during your next review. First, LRN (which provides ethics & compliance trainings and resources) says that an effective code can be measured across 8 dimensions. The report provides examples of codes and code provisions that cover each of them:
– Tone from the top
– Purpose and values orientation
– Applicability and administration
– Speaking up
– Risk topics
– Knowledge Reinforcement
– Usability
– Look and feel
What makes a code “effective”? According to LRN, your code is most effective if it does the following:
– Communicating a leadership message that connects employees to purpose and company heritage.
– Integrating and providing behavioural guidance around their values and mission.
– Referencing specific responsibilities and expectations of stakeholders.
– Providing details on the resources for reporting concerns and making those resources accessible.
– Covering important risk areas and giving values-based business rationale for risk-mitigating measures.
– Incorporating multiple types of reinforcement tools throughout the document.
– Ensuring the document is laid out as a guide: linked, easy to read, and logically organised.
– Unifying the document with company branding and reinforcing the culture visually.
Public companies aren’t the only ones grappling with cybersecurity right now. Your law firm may need to revisit how to respond to cyber-breaches and government requests for client info, in light of a recent court order.
I’ve blogged a couple of times about the SEC’s efforts to compel cooperation from a law firm whose clients may have had information accessed or stolen in a big cyber breach. The SEC wanted the firm to turn over the names of nearly 300 clients. The firm – along with 83 other big firms – pushed back.
As reported by Reuters, in late July, a court ordered the law firm to give the SEC the names of 7 clients. The firm identified those clients in an internal review that assessed whether any material non-public information may have been improperly accessed – and for those 7, the firm couldn’t rule out that possibility.
The SEC wants to use the info to probe for securities law violations relating to the attack. Specifically:
(1) to determine whether a threat actor or others engaged in illegal trading based upon access to material nonpublic information; and
(2) to evaluate whether any publicly traded issuers failed to disclose material cybersecurity events in connection with the attack.
The firm plans to appeal. In the meantime, law firms that discover a cyber breach will continue to face complex decisions about whether to notify law enforcement and what data to provide during an investigation.
