Category: Corporate Governance
The impact of short-term pressures on long-term decision-making
In this article in the WSJ and this article in the New Yorker, the authors discuss the challenges companies encounter when they try to make long-term investment decisions in the face of short-term market pressures: the debate between short-term and long-term thinking on Wall Street “is a key concern for chief executives trying to justify major capital investments that can take years to pay off. Long-range strategies can be hard to pull off in an era when Wall Street is fixated on three-month reporting periods.” Should companies try to please long-term investors or investors who are “playing the quarterly game?” What about hedge-fund activists that threaten to force the company to adopt a short-term perspective?
Members of Chevedden group shift focus to environmental, social and political proposals
Companies that have long battled the prolific John Chevedden group on corporate governance shareholder proposals, as first noted on theCorporateCounsel.net proxy season blog, may be heartened to hear — or maybe not—that some members of the group are changing their focus.
No-action letters provide more insight into “ordinary business” exclusion under Rule 14a-8(i)(7)
On the heels of the release of SLB 14J, Corp Fin has posted a couple of new no-action letters that shed some more light on the “ordinary business” exclusion of Rule 14a-8(i)(7). As you may recall, in SLB 14J, the staff addressed the nature of the board analysis the staff would find most “helpful” in evaluating a no-action request to exclude a shareholder proposal under Rule 14a-8(i)(7), as well as “micromanagement” as a basis for exclusion under that same Rule. Most impressive is that, in the response letters, the staff actually includes a sentence or two that provides some insight into the staff’s reasoning. If you recall, a request for more clarity from the staff was one of the comments raised at the SEC’s proxy roundtable, and the staff appears to have heard. (See this PubCo post.) Both of the letters were submitted in connection with proposals to Walgreens Boots Alliance.
ISS posts 2019 policy updates
Yesterday, ISS announced updates to its policies for next year. Like Glass Lewis a month ago, ISS is also—shall we say “unfriendly”— to boards of companies that submit to shareholders a charter or bylaw ratification proposal while excluding, as permitted under SEC rules and staff no-action positions, a conflicting shareholder proposal. Below are some of the highlights of the ISS updates:
What happened at the SEC’s proxy process roundtable?
At last week’s proxy process roundtable, three panels, each moderated by SEC staff, addressed three topics:
proxy voting mechanics and technology—how can the accuracy, transparency and efficiency of the proxy voting and solicitation system be improved?
shareholder proposals—exploring effective shareholder engagement, experience with the shareholder proposal process, and related rules and SEC guidance
proxy advisory firms—can the role of proxy advisors and their relationship to companies and institutional investors be improved?
The first panel, on proxy plumbing, was characterized by the panelist who began the discussion as “the most boring, least partisan and, honestly, the most important” of the three topics. (But it was surprisingly not boring.) The last panel, on proxy advisory firms, was characterized by Commissioner Roisman as the “most anticipated,” but the expected fireworks were notably absent—except, perhaps, for the novel take on the subject offered by former Senator Phil Gramm. Here are the Commissioners’ opening statements: Chair Clayton, Stein and Roisman
SASB issues sustainability accounting standards for 77 industries
Way back in 2016, the SEC issued a Concept Release requesting comment on an enormous variety of potential changes to Reg S-K, including sustainability. (See this PubCo post.) As reported by BNA, then-Director of Corp Fin, Keith Higgins, advised that the highest proportion of comments received on the Reg S-K Concept Release related to better environmental and social responsibility disclosure. He observed that, of the 360 “unique” comment letters (i.e., non-form letters) received, about 80% “were looking for improved sustainability disclosure.” The problem, he recognized, was that those types of sustainability disclosures were not necessarily amenable to one-size-fits-all rulemaking. According to Higgins, “[c]limate change tops the list of issues….” However, he acknowledged, the issues involved in sustainability “cut across 79 different industries and aren’t suited to a constant set of rules….‘Everyone recognizes that one-size-fits-all disclosure is likely not to be so effective in the sustainability area—others recognize the enormity of that task.’” (See this PubCo post.) Now, independent standard-setting organization SASB, the Sustainability Accounting Standards Board, seems to have come to the rescue, announcing that it has published a series of sustainability accounting standards specifically tailored for 77 industries. According to the SASB Chair, the publication of these standards represents an “important milestone” because they provide “codified, market-based standards for measuring, managing, and reporting on sustainability factors that drive value and affect financial performance.” Will the SEC now take up the challenge of sustainability disclosure?
Low board turnover? Less opportunity for board diversity
Is board stability always a good thing? A new study from consultant Spencer Stuart showed that, in 2018, 428 new directors were elected to boards of companies in the S&P 500, the most new directors since 2004, representing an increase of 8% from 2017. What’s more, 57% of boards added at least one new director, and 22% appointed more than one new director. However, overall turnover remained “modest.” While these new directors added “fresh skills, qualifications and perspectives”—and many were women, minorities and/or first-time directors—nevertheless, the study concludes, “progress is mixed.”
NYSE proposes change to conform to new SEC definition of smaller reporting company
The NYSE has proposed a change to Section 303A.00 of the Listed Company Manual related to the exemption from the compensation committee requirements applicable to smaller reporting companies. (See this Cooley Alert.) The amendment is intended to conform the Section to the new SEC rules related to SRCs.
It’s election day, and CEOs consider the role of business in society
It’s election day. Don’t forget to vote!
And given that it’s election day, it’s a good time to step back and consider the big picture. To that end, you might want to take a look at this DealBook column, which discusses CEOs’ perspectives on the role of business in politics and the impact of technology on society—all in one column no less.
CAQ releases 2018 audit committee transparency barometer
The Center for Audit Quality, working with Audit Analytics, has just released a new edition of its annual Audit Committee Transparency Barometer, which, over the past five years, has measured the robustness of audit committee disclosures in proxy statements among companies in the S&P Composite 1500. The bottom line, according to the CAQ, is that the level of voluntary transparency has continued to steadily increase in most areas. The report includes several useful examples of the types of disclosure discussed.
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