All the focus on COVID-19 disclosures notwithstanding, the SEC has not taken its collective eyes off the basics. This Order discusses settled charges against Argo Group International Holdings, Ltd. related to its failure to disclose in its proxy statements—for five years—millions in personal expenses and perks paid to its CEO, such as personal use of corporate aircraft and cars, “personal services provided by Argo employees and watercraft-related costs.” Not to mention that the CEO was able to approve his own expense reports. According to the press release, Enforcement continues “to focus on whether companies are fully disclosing compensation paid to their top executives and have appropriate internal controls in place to ensure that shareholders receive information to which they are entitled.”
Like ISS (see this PubCo post), proxy advisor Glass Lewis has also revisited the application of its policies to take into account the impact of COVID-19—having conducted, in its words, “scenario planning in order to consider how this will impact governance and broader ESG issues in the present and future.” Glass Lewis advises that it expects, currently and probably through 2021, “all governance issues and most proposal types to be impacted by the pandemic,” including balance-sheet and executive comp issues, on which Glass Lewis expresses some rather strong opinions. Relying on the flexibility inherent in its “contextual approach,” Glass Lewis plans to exercise its “existing discretion and pragmatism” in connection with voting on any affected proposals.
Today, ISS provided special policy guidance on the impact of the COVID-19 pandemic, observing that, in light of the current uncertainty, it is appropriate “to provide our stakeholders with some specific guidance on a number of voting policy issues that are likely to be directly implicated over the coming months by the pandemic and the global response to it.” While the guidance suggests that ISS will apply its policies more flexibly under the circumstances, some things never change: option repricings—still disfavored.
You might recall that, in November 2019, the SEC proposed amendments to the proxy rules to add new disclosure and engagement requirements for proxy advisory firms, such as ISS and Glass Lewis. Among the amendments included in that proposal was a new provision that would require proxy advisory firms to allow companies time to review and provide feedback on the advisory firm’s advice in advance of dissemination of the advice to the firm’s clients. (See this PubCo post.) Although there has been a substantial amount of pushback with regard to the SEC proposal and its earlier related guidance, including litigation filed by ISS (see this PubCo post), as noted on thecorporatecousel.net blog, proxy advisor Glass Lewis has announced that it will now include “unedited company feedback on its research…with all its proxy research papers” and will deliver that information “directly to the voting decision makers at every investor client.” Will ISS follow suit?
On Friday, the President signed into law the ‘‘Coronavirus Aid, Relief, and Economic Security Act” (CARES Act), a $2 trillion relief package intended to provide “emergency assistance and health care response for individuals, families and businesses affected by the 2020 coronavirus pandemic.” Here is a link to our Cooley Alert, which summarizes key portions of the CARES Act: https://www.cooley.com/news/insight/2020/2020-03-29-president-signs-cares-act
How many people have strong opinions about most hot topics in corporate governance— staggered boards, proxy advisory firms or dual-class share structure? In Pay for Performance… But Not Too Much Pay: The American Public’s View of CEO Pay, from the Rock Center for Corporate Governance at Stanford, the authors take a look at a corporate governance subject on which everyone seems to have an opinion—CEO pay—and the public’s perceptions about it. While academics may be arguing about labor market efficiency, much of the public takes a more intuitive or pragmatic approach: “the issue of CEO pay boils down to a personal assessment of whether any executive deserves to be paid so much money.” The authors’ conclusion from the survey: “the disconnect between observed pay levels and the public’s view of pay is stark.” Overall, the survey results were quite fascinating.
At the end of 2018, the SEC dredged up its 2015 rule proposal regarding hedging disclosure (required by Dodd-Frank) and voted to adopt final rule amendments. The amendments mandate disclosure about the ability of a company’s employees or directors to hedge or offset any decrease in the market value of equity securities granted as compensation to, or held directly or indirectly by, an employee or director. As described in the legislative history of the related Dodd-Frank provision, the purpose of the requirement was to “allow shareholders to know if executives are allowed to purchase financial instruments to effectively avoid compensation restrictions that they hold stock long-term, so that they will receive their compensation even in the case that their firm does not perform.” As required, companies have now begun to include the new hedging disclosure in their proxy statements. To see how companies were approaching their responses to the new rule, comp consultant F.W. Cook examined the first 40 proxies that contained the new disclosure (covering the period from August 23, 2019 to October 4, 2019) and provides us with a number of observations that may well be helpful as we head into the new proxy season.
What does good governance really mean? What does it mean to follow best practices? Are there really best practices that make sense for all companies? Do we tend to latch onto easily identified and measured structural features that may not really be effective for good governance and ignore qualities that may be more effective but are not as easily identified or measured? Do we even have a common understanding of the meaning of concepts central to governance? These are some of the questions addressed in an interesting paper, “Loosey-Goosey Governance Four Misunderstood Terms in Corporate Governance,” from the Rock Center for Corporate Governance at Stanford.
Who else but Delaware Chief Justice Leo Strine would bid his farewell to the Delaware bench with nothing less ambitious than a “comprehensive proposal to reform the American corporate governance system” laid out in a paper with longest title of any in recorded history: “Toward Fair and Sustainable Capitalism: A Comprehensive Proposal to Help American Workers, Restore Fair Gainsharing Between Employees and Shareholders, and Increase American Competitiveness by Reorienting Our Corporate Governance System Toward Sustainable Long-Term Growth and Encouraging Investments in America’s Future”? Strine offers up his always interesting ideas: for example, he advocates setting up board committees focused on the welfare of the workforce, imposing a tax on most financial transactions to be dedicated to funding infrastructure and research, curbing corporate political spending in the absence of shareholder approval and enhancing the fiduciary duties of institutional investors to consider their ultimate beneficiaries’ economic and human interests. And here’s another idea: Strine believes that the number of proxy votes each year is an “impediment to thoughtful voting” and leads to outsourcing of voting decisions by institutional investors to proxy advisory firms. Say on pay every four years? He has a plan for that too.