Having worked at the SEC during the heyday of penny stock fraud, I can’t help but chuckle at the notion of Congress trying to ramp those terrible deals back up in the just passed “Accelerating Access to Capital Act” (HR 2357), which incorporates the “Micro Offering Safe Harbor Act” and the “Private Placement Improvement Act.” Of course, not every penny stock offering was fraudulent – but plenty were back then. President Obama has threatened to veto this bill if the Senate ever passed it. Here’s the intro from this WSJ article:
Penny-stock firms, which regulators warn are more susceptible to manipulation by swindlers and company insiders, would be granted access to a regulatory shortcut for selling stock under legislation approved Thursday by the House of Representatives. The House voted 236-178, largely along party lines, to approve legislation that would allow microcap companies to tap a method of issuing shares that typically involves less oversight by regulators. Republicans who supported the legislation said it would allow smaller companies to use a fundraising tool that has so far been restricted to bigger companies. “Extending these cost-saving provisions to smaller companies that large companies are currently able to enjoy is absolutely critical, and makes a difference for in their ability to issue additional offerings, expand their business and create more jobs,” said Rep. Ann Wagner (R., Mo.), who sponsored the legislation. Only one Republican opposed it.
The bill, which doesn’t have a Senate sponsor, would allow microcap companies, including those that don’t meet exchange-listing standards, to offer stock on a rolling basis without having each sale approved by the Securities and Exchange Commission. The SEC defines microcaps as companies whose shares outstanding are valued at less than $300 million.
Meanwhile, here’s a letter from CII about the proxy advisors bill…
House lawmakers on Friday approved a bill to ease regulatory requirements on private-equity managers, legislation that the White House has threatened to veto. The House voted 261 to 145 to advance the bill sponsored by Rep. Robert Hurt (R., Va.), largely along party lines. The measure exempts private-equity firms from having to provide regulators with certain information, such as the debt levels of their portfolio companies and the countries where investments were made.
The legislation, which lacks a companion bill in the Senate and is opposed by the Obama administration, faces long odds of becoming law. Its likelihood of enactment hangs on the possibility of its provisions being added to a must-pass spending bill Congress often advances at the end of the year. The bill comes after years of failed attempts by the industry to exempt most managers of private-equity funds from having to register with the Securities and Exchange Commission. Instead, Friday’s legislation aims to roll back regulatory provisions that supporters say are unduly burdensome and crimp funds’ investment in companies that create jobs. Thirty-five Democrats supported the measure. Managers of private-equity funds pool their money alongside institutional investors such as pension funds and university endowments to buy equity stakes in companies or pieces of them.
Before Friday’s vote, the House agreed to modify some provisions that opponents found objectionable, approving by voice vote an amendment sponsored by Rep. Bill Foster, an Illinois Democrat. The amendment has the effect of preserving investor-protection rules set up in the wake of the Bernard Madoff Ponzi scheme. Those rules require that funds undergo a third-party audit or a surprise SEC examination to verify they actually own the assets they say they do.
Notables While I Was Gone: To Fly (With Bruno)
1. Nice scoop by John about a possible SEC Enforcement sweep over non-GAAP disclosures.
2. The SEC proposes to mandate links to exhibits! A capital idea that was long overdue. I’ll be blogging more about my own ideas on this – & may even submit my 1st personal comment letter to the SEC about a rulemaking!
3. Corp Fin has been able to get out a slew of proposals despite the limitations of having only three sitting SEC Commissioners! Bravo!
4. While I was gone, John did a helluva job with the Penske file – but he clearly isn’t Penske material (I didn’t even know that Mr. Tuttle was finished interviewing)…
In June, the SEC adopted rules under the FAST Act permitting companies to include an optional summary page in their Form 10-Ks. As noted in this blog, Broc wasn’t all that excited since companies were permitted to voluntarily include summaries before this forced rulemaking. Anyway, this recent blog from the “SEC Institute” points out that for some companies, the decision about whether to include this summary may come down to a matter of disclosure philosophy:
To simplify a bit, some companies adopt a very “compliance” based philosophy for disclosure. In this model companies disclose what the SEC requires to be disclosed and essentially nothing more. This can be done in a fairly mechanical fashion and is usually very simple and direct, if not almost terse. At the other end of a disclosure spectrum some companies adopt a more “communications” based philosophy where they disclose more than the bare bones requirements in an effort to tell a more complete “story” of how their company operates.
What do these different approaches look like? To help answer that question, the blog compares the 10-Ks of two companies:
Here is a very well done example for Golden Enterprises of the compliance approach. Golden makes snack foods and does a simple, direct presentation.
Here is another well done example of a company (Square) that uses a more communications oriented approach. Square is a payment processor and supports businesses in many ways.
Companies that treat their Exchange Act filings as a communications tool often opt to disclose more in those filings than is technically required. It’s worth noting that some companies were including summaries in their 10-Ks long before the FAST Act – and the use of summaries in proxy statements has become widespread in recent years. These efforts reflect a desire to make filings more user friendly – and indicate that an increasing number of companies are taking a communications oriented approach to their filings. If that’s right, then the inclusion of 10-K summaries may well become a major trend over the next few years.
Here We Go Again(?) The GM Case & Bank Debt as a “Security”
This Kramer Levin memo describes a recent bankruptcy court decision in GM’s preference litigation that may call bank debt’s status as a “non-security” into question. Most people believe that this issue was put to rest long ago – and that ordinary course commercial bank lending does not involve the issuance of a “security.” The GM opinion suggests that this may not be the case – at least under bankruptcy law.
The status of GM’s bank debt became an issue because of defenses to preference claims raised by the company’s term lenders. The viability of those defenses turned on whether the payments in question were made pursuant to a “security contract.” In arguing that a security contract was involved, the defendants pointed to several factors, including the registration and active trading of interests in the term loans. That was enough to persuade the court that this was a live issue – at least for purposes of a motion to dismiss.
While GM involves only bankruptcy law, the case could be a very big deal if it leads to rethinking bank debt’s status under the securities laws – the memo notes:
If bank loans are securities for general securities law purposes, then a borrower could not “issue” bank loans except through a public offering, a Rule 144A offering or other private placement. Bank loans are syndicated without any of the documentation or approvals required for securities issuance. Worse, the agent bank routinely knows more about the borrower, under its confidentiality agreement, than the syndicate members to whom it sells the loan. Selling syndicate members have access to confidential data rooms and therefore may know more than outside buyers do. Thus if a bank loan is a security, every syndicating agent and every selling member of the syndicate courts liability under Section 10(b) and Rule 10b-5.
Some have suggested that concerns about the GM opinion may be overstated. As one of our members recently observed: “This case is getting a lot of play but I think it may overstate the risk. As you know, the SEC has considered syndicated loans to be securities for the purposes of the ’40 Act for almost 30 years.”
The New “Investors’ Exchange”: Should Companies Care?
This Sidley memo notes that after much back & forth, the Investors’ Exchange is up and running:
On September 2, 2016, the Investors’ Exchange, LLC (IEX) commenced full operations as a registered national securities exchange. After receiving over 400 comment letters during the SEC’s review and a spirited debate on equity market structure, the SEC approved IEX’s application to become a national securities exchange on June 17, 2016. As highlighted in the widely read book Flash Boys, by Michael Lewis, IEX employs a speed bump or delay on market participants accessing liquidity on IEX (IEX access delay).
The IEX had to adopt listing standards to get SEC approval – but it isn’t a “listing exchange” at present. The IEX’s purpose is to address the advantage provided to high frequency traders through their ability to access information milliseconds faster than other market participants on existing trading platforms. The Exchange’s CEO said that IEX “can help issuers improve their experience with the markets as well” – and the Exchange has promoted itself to public companies. For example, in this interview, IEX’s Chief Marketing Officer touted the benefits for public companies. Essentially, the pitch is that IEX is seeking to appeal to “buy & hold” investors, who are the kind of investors that companies want – and that its model will provide lower volatility and improved transparency.
Here’s the survey results from our survey about proxy mailing practices:
1. For our proxy materials, we file them:
– On same day we commence mailing of full sets – 76%
– At least one day prior to commencing mailing of full sets – 18%
– We do something different – 7%
– Not sure – 0%
2. We use notice & access (aka e-proxy):
– Yes – 79%
– No – 21%
– Not sure – 0%
3. We print this number of proxy materials to mail:
– Less that 25,000 – 66%
– 25,001 to 75,000 – 18%
– 75,001 to 150,000 – 10%
– More than 150,000 – 3%
– Not sure – 3%
As a follow-up to Broc’s blog on the recent Temple Inland decision, here’s the intro from this Morris Nichols alert about another decision on Delaware’s escheatment process:
On August 16, 2016, the US District Court for the District of Delaware issued an opinion in the case of Plains All American Pipeline, L.P. v. Cook granting defendants’ motions to dismiss federal Constitutional challenges to Delaware’s unclaimed property law for lack of subject matter jurisdiction where plaintiff failed to demonstrate that it had standing to assert such claims and that the claims were ripe for decision.
This decision is a significant follow-on to the Delaware District Court’s recent opinion in Temple Inland, Inc. v. Cook, to the extent that it clarifies and reinforces the State’s ability to estimate holder liability and rejects the use of the declaratory judgment action to challenge the audit process in advance of a demand for payment. Among the noteworthy rulings made by the Court are findings concerning a holder’s standing to sue third party contract auditors, the ripeness of challenges to unclaimed property audit methodologies (including estimation), and the constitutionality of the State’s selection of holders for audit.
Delaware’s aggressive approach toward unclaimed property shows no signs of abating. In fact – as this Reed Smith memo notes – it’s now moving against other states:
On May 26, 2016, Delaware filed a motion with the United States Supreme Court requesting leave to file a bill of complaint against other states regarding escheatment of uncashed “official checks.” Specifically, Delaware asserts in its motion that uncashed “official checks” should be escheated to the state where the check issuer is incorporated, not the state where the checks were purchased.
If Delaware is successful in getting the Supreme Court’s attention, this will be the first time the high court has addressed unclaimed property issues in almost 25 years, and the decision could have a major impact.
Here’s the registration information for our popular conferences – “Tackling Your 2017 Compensation Disclosures: Proxy Disclosure Conference” & “Say-on-Pay Workshop: 13th Annual Executive Compensation Conference” – to be held October 24-25th in Houston and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days.
Discounted Rates – Act by September 9th – Only One Day Left!: Huge changes are afoot for executive compensation practices with pay ratio disclosures on the horizon. We are doing our part to help you address all these changes – and avoid costly pitfalls – by offering a reduced rate to help you attend these critical conferences (both of the Conferences are bundled together with a single price). So register by the end of tomorrow, Friday September 9th to take advantage of the 10% discount.
Last week, the SEC issued this proposing release that would require companies to include links to exhibits in most SEC filings. A rule like this would definitely make EDGAR filings more user-friendly. This blog by Davis Polk’s Ning Chiu summarizes the “clunky” way that EDGAR users currently navigate their way to a company’s exhibits:
Currently, anyone trying to access an exhibit that has been incorporated by reference instead of filed with the document must first review the exhibit index to determine which company filing includes a particular exhibit, and then search through the company’s Edgar history to find the exhibit. The SEC believes this process is burdensome, and has now proposed rules that would require a link to each exhibit listed in the exhibit index of any registration statement or report subject to Item 601 of Regulation S-K.
The current format also makes it a little cumbersome to access exhibits that are filed with the document itself – you have to find the exhibit you’re looking for in the document, then back out of the document to a page where separate links to each exhibit appear – and then click on the exhibit that you need.
One potential issue for some filers is that exhibits would need to be filed in HTML – since the ASCII format does not support hyperlinks. The SEC raised this issue in the release, but also noted that during 2015 – over 99% of all filings on the forms that would be affected by the proposal were filed in HTML.
This Simpson Thacher memo discusses guidance on the use of non-GAAP financial information in a new report issued by the “International Organization of Securities Commissioners” (known as “IOSCO”). The memo notes:
Because IOSCO is a consensus-driven supranational organization, its guidance is broader and less specific than the corresponding SEC guidance, and it is subject to interpretation and implementation by relevant national authorities.
Nevertheless, we expect IOSCO’s guidance will have substantial influence in European & other international markets, especially where national authorities have not previously issued their own specific guidance on the subject of financial measures not calculated in accordance with applicable accounting standards or principles.
The memo also notes that IOSCO’s report sets forth 12 principles intended help companies structure their non-GAAP disclosure in an understandable way, while avoiding confusion or misleading disclosures:
In general, the recent SEC guidance on the subject of non-GAAP financial measures is far more detailed and prescriptive than the IOSCO report. There are a number of points on which the SEC and IOSCO largely agree and overlap; however, some of the points emphasized in the SEC guidance do not find their way into the report’s 12 principles.
For example, the SEC’s warning against non-GAAP revenue measures which accelerate the recognition of subscription or long-term contractual revenue which the relevant GAAP requires to be recognized over time does not appear in the IOSCO report. Similarly, the SEC’s specific warning against presentation of non-GAAP liquidity measures on a per-share basis, the guidance on the definition of “funds from operations,” and the SEC’s discussion on the specifics of income tax adjustments each do not have direct parallels in the IOSCO report.
Webcast: “After Brexit! Current Developments in Capital Raising”
Tune in tomorrow for the webcast – “After Brexit! Current Developments in Capital Raising” – to hear Manatt Phelps’ Katherine Blair, Calfee Halter’s Kris Spreen and Davis Polk’s Michael Kaplan explore the latest developments in the capital markets, including alternatives such as PIPEs, registered direct offerings, “at-the-market” offerings, equity line financing and rights offers.
We recently learned that some companies have been contacted by the SEC’s Division of Enforcement concerning their non-GAAP disclosure practices. Enforcement’s interest appears to focus on Item 10(e) of Regulation S-K’s requirement that companies disclosing a non-GAAP measure in SEC filings and earnings releases must also present the most directly comparable GAAP measure with equal or greater prominence.
The disclosures being called into question were made in earnings releases – and predate the issuance of Corp Fin’s updated CDIs in May. Enforcement’s interest does not appear to have been prompted by the comment letter process, but instead seems to be the result of its own initiative. Could we be looking at a new sweep?
Although the disclosures that have been questioned were made within the last year, the companies under scrutiny are being asked to provide relevant documents covering multiple years. They are also being asked to identify any other instances of Reg G violations beyond those cited by Enforcement.
Public Benefit Corps: Pros & Cons
This Gibson Dunn memo discusses the pros & cons of the “public benefit corporation,” an alternative entity that is now an option in 30 states, including Delaware:
Although state corporate law statutes and the tax code treat PBCs as for-profit enterprises, the legal focus of this new corporate model contrasts with that of traditional corporation, which focuses solely on maximizing shareholder wealth. The PBC laws are designed to empower the board of directors to consider additional stakeholders alongside shareholders, and leave it to the board to determine the relative weight to place on shareholders’ and other stakeholders’ interests.
The advantages of the PBC form include more leeway to consider non-shareholder constituencies, possible increased interest from socially conscious investors, and additional takeover protection due to statutory limits on mergers with non-PBC entities. Disadvantages include possible hesitancy among traditional investors, legal uncertainties, additional reporting obligations, and complexities involving governance of PBC subsidiaries owned by traditional entities.
A number of large companies are experimenting with PBCs -and although there are no publicly-traded PBCs, that will likely change soon. Here’s a snapshot of the current PBC landscape:
As of August 2016, over 4,000 companies have formed as or converted to PBCs, including well-known consumer companies like Patagonia, Kickstarter, and Method Products. In August 2013, just after Delaware’s PBC statute became effective, Campbell Soup Company caused its newly acquired subsidiary, Plum Organics, to reincorporate as a PBC. Other public companies are similarly considering acquiring PBCs or converting subsidiaries to PBCs.
There are no publicly traded PBCs, but Etsy, which is certified as a “B Corp” by the non-profit entity B Lab, has gone public. According to B Lab rules, Etsy must convert to a Delaware PBC by August 2017 to maintain its certification.
You Have to Blow a Whistle to be a Whistleblower
This recent blog from “Jim Hamilton’s World of Securities Regulation” flags an interesting new federal court decision addressing what is & isn’t “whistleblowing.” The case – Verfuerth v. Orion Energy Systems – involves a pretty odd situation. As the court explained:
This case presents the unusual scenario in which a CEO claims to have been a “whistleblower” about his company’s failure to disclose material facts to shareholders during the same period he himself was certifying that his company’s disclosures were complete.
This case addressed the former CEO’s claim that the board terminated him for blowing the whistle on alleged securities fraud involving the company. The court was skeptical of his fraud claims – but it also believed that the whistle was never blown. It determined that the CEO’s allegations were premised solely on advice that he gave the board during internal discussions. Absent evidence that he communicated these concerns to the SEC, that wasn’t enough:
In sum, Verfuerth seems to have voiced disagreements with various board members about the company’s disclosure obligations, but simply telling someone he thinks they should disclose information is not blowing the whistle on anything. Essential to the concept of whistleblowing is the reporting of another person’s conduct to an appropriate entity, and there is no evidence that such activity occurred here.
There are two things that I know for sure. First, this duet between Ron Livingston of “Office Space” and Keyboard Cat is why Al Gore invented the Internet. Second, there’s no better way to kick off the Labor Day weekend than to watch it. Enjoy the holiday, everybody.
My law firm went all business casual for the summer (yeah, I know – everybody else did this 10 years ago & doesn’t do it anymore – gimme a break, we’re from Ohio). Anyway, as part of that process, firm management sent around the obligatory dress code memo. Most of it was non-controversial – and it looked a lot like the version posted on “Above the Law” a few years ago.
That being said, the policy did have its idiosyncrasies. For example, the clear expectation was that men shouldn’t wear short sleeve golf shirts, except maybe sometimes, and then only with a sport coat. Seriously? I mean – unless you’ve just won “The Masters” – who would think wearing a golf shirt with a sport coat is a good look?
While the blazer with golf shirt rule was spelled out in detail, the policy remained maddeningly unclear when it came to expectations about the role of the sport coat in other settings. To its credit, the policy posted on “Above the Law” made no bones about it: in a law firm, business casual means a coat.
Yeah, well, the problem is that not all of us are built like Steve Jobs – and those of us who look like Norm from “Cheers” look like… well … “Norm from Cheers” when we put on a sport coat. If it is to mean anything at all, business casual must mean that fat guys like me don’t have to wear a sport coat. So, when it comes to mandatory jackets on business casual days – I vote “no.”
Poll: Business Casual – Are Jackets Required?
survey software
Our September Eminders is Posted!
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Yesterday, the SEC announced the second largest whistleblower award in its history – more than $22 million. This award was topped only by a $30 million award made in 2014. The press release announcing the award said that the individual’s “detailed tip and extensive assistance helped the agency halt a well-hidden fraud at the company where the whistleblower worked.”
Media reports quickly identified the enforcement action giving rise to the award, but the SEC closely guards whistleblower confidentiality, so neither the announcement nor the SEC’s order said anything about the matter.
The SEC’s order did note that the claimant decided “not to contest” the award – definitely a good call there, claimant!
SEC: More Than $100M in Whistleblower Awards Since 2011
The SEC followed up this news by announcing that more than $100 million in awards had been paid since the whistleblower program’s inception in 2011. The announcement went on to highlight several other program metrics:
– The Whistleblower Office has received more than 14,000 whistleblower tips from individuals in all 50 states and the District of Columbia and 95 foreign countries.
– Tips from whistleblowers have increased from 3,001 in fiscal year 2012 – the first full fiscal year that the Whistleblower Office was in operation – to nearly 4,000 last year, an approximately 30 percent increase.
– More than $107 million has been awarded to 33 whistleblowers, with the largest being more than $30 million.
– The assistance provided by these whistleblowers enabled the SEC to bring enforcement actions involving more than $504 million in sanctions, including more than $346 million in disgorgement and interest for harmed investors.
The announcement also noted actions that the SEC has taken to protect whistleblowers, including the recent enforcement proceedings involving provisions in confidentiality and severance agreements that deterred whistleblowing.
The SEC accompanied this announcement with a “Top Ten List” containing information about the 10 largest awards, the whistleblower process, and the number of tips received from each state.
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor 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:
– Restatements Hit a New Low
– ISS’ “2016 Board Practices Study”
– Is Tracking Stock Making a Comeback?
– Audit Report Transparency: Netherlands Trumps US – Hands Down
– Omnicare Applied to Audit Reports
This comes from Delaware Vice Chancellor Glasscock’s opinion in Pogue v. Hybrid Energy, a books & records case. Here’s the setting:
The Plaintiff was an employee of the Defendant Hybrid Energy. He alleges that, at the time he was hired in 2011, the Company issued to him a stock certificate representing one million shares of Hybrid common stock. Despite this fact, the record demonstrates that Hybrid, at the time, had no treasury shares available to distribute; its certificate of incorporation authorized the issuance of only 1,500 shares, which were all then outstanding, held by its principal.
The company responded to the plaintiff’s books & records suit by saying that only a stockholder could assert a right to inspect corporate records under Delaware law, and the plaintiff wasn’t a stockholder. The outrageousness of this position prompted the Vice Chancellor to drop the following footnote:
This Court has defined the useful Yiddish word “chutzpah” as “an audacious insolence; a mixture of nerve and gall.” . . . The paradigm example often given is of a murder defendant, who has killed his mother and father, throwing himself on the mercy of the court as an orphan. Another is alleged here: a company that issues a void stock certificate to an employee to defraud him of his services, defending a books and records request on the ground that said employee is no stockholder.
“Audacious Insolence”? Perhaps. Effective? Definitely – The Vice Chancellor granted the defendant’s motion for summary judgment.
Disclosure Effectiveness: Disclosure Overload Prompts IR Innovation?
This post from “Jim Hamilton’s World of Securities Regulation” highlights NIRI’s comment letter on Corp Fin’s Reg S-K disclosure effectiveness project. NIRI’s concerns center on the problem of disclosure overload, which it attributes to Congressionally-mandated disclosure requirements, fear of litigation, and the desire to satisfy outstanding staff comments or avoid new ones.
Due to its concerns about overload, NIRI urges the SEC to avoid any new disclosure requirements that wouldn’t pass muster under TSC Industries v. Northway’s materiality standard — and to take into account the many voluntary initiatives that companies have undertaken to improve investor disclosure when considering any new mandate.
It’s in discussing these voluntary initiatives that NIRI makes its most interest point — that disclosure overload has prompted companies to innovate in order to give investors what they want:
As a result of this information overload, many companies no longer rely solely on their periodic Exchange Act filings to provide detailed information about their businesses to analysts and investors. Instead, many issuers are presenting professionally designed slide decks during investor day events, non-deal road shows, or at industry conferences.
Many companies have created extensive IR websites with information on the company’s operations, financial metrics, historical stock price performance, company fact sheets, and earnings guidance (where applicable), and to broadcast and replay quarterly earnings calls. In recognition of the importance of these disclosure tools, some companies have hired consultants to improve the readability, visual appeal, and effectiveness of their presentations and/or IR websites.
Attributing most of the IR department’s functions to the fallout from disclosure overload seems like a bit of a stretch — but there’s no doubt that the overall level and quality of investor engagement has risen sharply over the past decade. So NIRI may be on to something when it sees a link between increasingly burdensome disclosure mandates and innovation in voluntary disclosure practices.
Our Executive Pay Conferences: 10% Reduced Rate – Only Two Weeks Left!
Here’s the registration information for our popular conferences – “Tackling Your 2017 Compensation Disclosures: Proxy Disclosure Conference” & “Say-on-Pay Workshop: 13th Annual Executive Compensation Conference” – to be held October 24-25th in Houston and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days.
Discounted Rates – Act by September 9th: Huge changes are afoot for executive compensation practices with pay ratio disclosures on the horizon. We are doing our part to help you address all these changes – and avoid costly pitfalls – by offering a reduced rate to help you attend these critical conferences (both of the Conferences are bundled together with a single price). So register by September 9th to take advantage of the 10% discount.
The Business Roundtable recently updated its “Corporate Governance Principles” for the first time since 2012. The updates focus on encouraging more shareholder engagement, boardroom diversity, and cybersecurity. But the most interesting part of the update may be its call for increased shareholder responsibility & accountability.
The BRT contends that an increase in shareholder access to the boardroom requires an increase in transparency regarding the “nature of [a shareholder’s] identity and ownership, even in cases where the federal securities laws may not specifically require disclosure.” But its call for shareholder responsibility goes well beyond that:
More fundamentally, we believe that the responsibility of shareholders extends beyond disclosure. We sense that there is a rising belief that shareholders cannot seek additional empowerment without assuming some accountability for the goal of long-term value creation for all shareholders. Moreover, we believe that shareholders should not use their investments in U.S. public companies for purposes that are not in keeping with the purposes of for-profit public enterprises, including but not limited to the advancement of personal or social agendas unrelated and/or immaterial to the company’s business strategy.
Well, when you put it that way – sure, personal and social agendas that aren’t material to the company’s business have no place in the shareholder dialogue. We can’t argue about that, right?
Should Shareholders Be Engaging Over Social Issues?
Okay, maybe we can argue about that. There are a lot of investors who would take issue with the BRT’s position on advancing “personal or social agendas.” Some heavy hitters contend that the environmental, social and governance (ESG) issues that others would lump into this category are closely linked with long-term value creation. For example, here’s an excerpt of what BlackRock’s Investment Stewardship team says on the subject:
ESG considerations are integral to our investment stewardship activities. Our clients are long-term investors and it is over the longer term that ESG risks and opportunities tend to be material and have the potential to impact financial returns. The best companies ensure that their investors, as well as other constituents of the company, have enough information to understand the drivers of, and risks to, sustainable financial performance.
When it’s put like this, disagreeing with the importance of ESG issues sounds akin to disrespecting mom or apple pie.
The problem with this debate is that vague concepts like “sustainable financial performance,” “long-term value creation,” and the need to avoid agendas “that are not in keeping with the purposes of for-profit public enterprises” don’t add a whole lot to the conversation about where to draw the line between legitimate investment concerns and frivolous personal agendas.
Poll: Should Shareholders Be Engaging Over Social Issues?
Please take a moment to participate in this anonymous poll:
