Executive compensation practices, disclosures, and the regulatory environment have evolved considerably since Dodd-Frank, and Say-on-Pay has become a key process for shareholder-board dialogue. With the new Pay-versus-Performance disclosure requirement and soon-to-be-effective listing standards on clawback policies, all the generally applicable executive compensation rules mandated by Dodd-Frank will be in place. We are entering a new era for Say-on-Pay!
Tune in today at 2 pm Eastern for the free webcast – “The Evolution of Say-on-Pay: Where We Started; Where We Are Now; What’s Next” – co-hosted by ISS Corporate Solutions and CCRcorp – to hear ISS Corporate Solutions’ Cameron Abrahams O’Neill & Valeriano Saucedo, and our very own Meredith Ervine and John Jenkins, as we examine the history of Say-on-Pay, current trending topics in executive compensation, a look back at the 2023 U.S. Proxy Season, and the future of pay-for-performance and pay practices.
Yesterday, the SEC posted a notice of filing – and immediate effectiveness – of a Nasdaq proposal to amend Listing Rules 5610 and IM-5610 – which is the rule and corresponding interpretation that requires listed companies to maintain a “code of conduct” and disclose certain waivers.
The amendment will permit board committees to approve waivers of the code of conduct for directors or executive officers, rather than requiring that approval to be granted exclusively by the board, which is what the rule currently requires. The updated rule also requires Foreign Private Issuers to disclose these types of waivers within 4 business days. Here’s more background:
Nasdaq is proposing to allow waivers of the code to be approved either by the board of directors or a committee of the board. This would give listed companies flexibility to place the oversight of a company’s code of conduct within the jurisdiction of a particular committee if that structure is more effective and appropriate, while following the obligations of ethical conduct required by Listing Rules 5610 and IM-5610.
The approach of delegating oversight authority to a board committee is also consistent with the provisions of Listing Rule 5630 that requires approval of related party transactions by the company’s audit committee or another independent body of the board of directors. In addition, Nasdaq believes that the proposed change would align the requirements of this rule with the requirements of Rule 303A.10 of the Listed Company Manual of the New York Stock Exchange (“NYSE”).
And here’s what the exchange says about FPIs:
Nasdaq is also proposing to clarify that Foreign Private Issuers are required to disclose any waivers of the code for directors or executive officers within four business days by providing website disclosure that satisfies the requirements of Item 5.05(c) of Form 8-K, by including disclosure in a Form 6-K or by distributing a press release. The disclosure of any code of conduct waivers provides investors the comfort that waivers are not granted except where they are truly necessary and warranted, and that they are limited and qualified so as to protect the company and its shareholders to the greatest extent possible.
Accordingly, Nasdaq believes that Foreign Private Issuers, like other Nasdaq listed companies, should be required to make such disclosure within four business days by providing website disclosure that satisfies the requirements of Item 5.05(c) of Form 8-K, by including disclosure in a Form 6-K or by distributing a press release rather than providing such disclosure in the next Form 20-F or 40-F.
If you’re a Nasdaq company, this amendment may be a point to consider when you next review your committee charters. The amendment is immediately effective, but there is still an opportunity for public comment, and the SEC may temporarily suspend the rule change if it determines within 60 days that a suspension is necessary or appropriate.
We’ve blogged a few times about the DOJ’s enforcement sweep for problematic director interlocks under the Clayton Act. In August, the agency announced that it had secured a couple of more director resignations pursuant to this initiative. Once again, the press release casts a wide net for tips, which makes it pretty clear that the DOJ is actively looking for more violations:
Anyone with information about potential interlocking directorates or any other potential violations of the antitrust laws is encouraged to contact the Antitrust Division’s Citizen Complaint Center at 1-888-647-3258 or antitrust.complaints@usdoj.gov.
As John noted in a recent DealLawyers.com blog, the DOJ’s interlocks initiative has now led to 15 interlocking director resignations from 11 boards. Moreover, a recent FTC settlement clarifies that non-corporate entities are also in the cross-hairs.
As we look ahead to proxy season, this is a reminder to revisit this topic in your annual D&O questionnaires (or any time a new director is joining the board). Our “D&O Questionnaire Handbook” has a couple of sample questions. And if you find yourself with a director who may be considered as also serving on the board of a competitor, this WilmerHale memo from last year gives a good primer on Clayton Act exceptions and consequences.
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.
