Results for: board racial diversity
ISS issues benchmark policy updates for 2023
At the end of last week, ISS announced its benchmark policy updates for 2023. The policy changes will apply to shareholder meetings held on or after February 1, 2023, except for those with one-year transition periods. The changes for U.S. companies relate to policies regarding, among other things, unequal voting rights, problematic governance structures, board gender diversity, exculpation of officers, poison pills, quorum requirements, racial equity audits, shareholder proposals on alignment between public commitments and political spending and board accountability for climate among the Climate Action 100+. The results are based in part on the results of ISS’s global benchmark surveys (see this PubCo post) as well as a series of roundtables.
Political spending transparency from Russell 1000 companies? Not so much
In the wake of the events of January 6, a number of companies, highly sensitized to any misalignment between their political contributions and their public statements or announced core values, determined to suspend or discontinue some or all of their political donations (although many have since resumed business as usual). As social and political unrest and political polarization have continued, demand for disclosure about corporate political spending has increased. In the midst of an unusually fraught mid-term election season, the Center for Political Accountability and the Zicklin Center for Business Ethics Research at the Wharton School of the University of Pennsylvania released their annual CPA-Zicklin Index of Corporate Political Disclosure and Accountability for 2022. The Index annually benchmarks public companies’ disclosure, management and oversight of corporate political spending, and includes specific rankings for companies based on their Index scores, as well as best practice examples of disclosure and other helpful information. (See this PubCo post.) This year, accompanying the Index is a new CPA-Zicklin Model Code of Conduct for Corporate Political Spending, designed to provide a “thorough and ethical framework” for corporate political spending. CPA launched the Index in 2011 following the decision by SCOTUS in Citizens United, benchmarking only the S&P 100. In 2015, it began to benchmark the S&P 500. This year, the Index has expanded its coverage to the Russell 1000. The difference in the levels of transparency between the S&P 500 and the Russell 1000 (excluding companies in the S&P 500) is dramatic.
What happened at the 2022 PLI Securities Regulation Institute?
At the PLI Securities Regulation Institute last week, the plethora of SEC rulemaking took some hits. It wasn’t simply the quantity of SEC rules and proposals, although that was certainly a factor. But the SEC has issued a lot of proposals in the past. Rather, it was the difficulty and complexity of implementation of these new rules and proposals that seemed to have created the concern that affected companies may just be overwhelmed. Former Corp Fin Director Meredith Cross, a co-chair of the program, pronounced the SEC’s climate proposal “outrageously” difficult, complicated and expensive for companies to implement, and those problems, the panel worried, would only be compounded by the adoption of expected new rules in the EU that would be applicable to many US companies and their EU subsidiaries. (See this Cooley Alert.) The panel feared that companies would be bombarded with a broad, complicated and often inconsistent series of climate/ESG disclosure mandates. Single materiality/double materiality anyone? But it wasn’t just the proposed climate disclosure that contributed to the concern. Recent rulemakings or proposals on stock buybacks, pay versus performance and clawbacks were also singled out as especially challenging for companies to put into effect.
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SEC’s Investor Advisory Committee discusses human capital and beneficial ownership
On Wednesday, the SEC’s Investor Advisory Committee held a jam-packed meeting to discuss, among other matters, human capital disclosure and the SEC’s proposal on Schedule 13D beneficial ownership. Wait, didn’t this Committee just have a meeting in June about human capital disclosure, part of the program about non-traditional financial information? (See this PubCo post.) Yes, but, as the moderator suggested, Wednesday’s program was really a “Part II” of that prior meeting, expanding the discussion from accounting standards for human capital disclosure to now consider other labor-related performance data metrics that may be appropriate for disclosure. The Committee also considered whether to make recommendations in support of the SEC’s proposals regarding cybersecurity disclosure and climate disclosure.
State legislation targets company policies on ESG—how will it affect the corporate balancing act?
Over the past several years of political discord, many CEOs have felt the need to voice their views on important political, environmental and social issues. For example, after the murder of George Floyd and resulting national protests, many of the country’s largest corporations expressed solidarity and pledged support for racial justice. After January 6, a number of companies announced that their corporate PACs had suspended—temporarily or permanently—their contributions to one or both political parties or to lawmakers who objected to certification of the presidential election. Historically, companies have faced reputational risk for taking—or not taking—positions on some political, environmental or social issues, which can certainly impair a company’s social capital and, in some cases, its performance. These types of risks can be more nebulous and unpredictable than traditional operating or financial risks—and the extent of potential damage may be more difficult to gauge. As if it weren’t hard enough for companies to figure out whether and how to respond to social crises, now, another potent ingredient has been stirred into the mix: the actions of state and local governments—wielding the levers of government—to enact legislation or take executive action that targets companies that express public positions on sociopolitical issues or conduct their businesses in a manner disfavored by the government in power. As described by Bloomberg, while “companies usually faced mainly reputational damage for their social actions, politicians are increasingly eager to craft legislation that can be used as a cudgel against businesses that don’t share their social views.” And many of these actions are aimed, not just at expressed political positions, but rather at environmental and social measures that companies may view as strictly responsive to investor or employee concerns, shareholder proposals, current or anticipated governmental regulation, identified business risks or even business opportunities. How will these legislative trends affect the difficult corporate balancing act?
More prescriptive proposals, less support for 2022 proxy season
This proxy season, companies saw more shareholder proposals than in the past, a change that has been widely attributed to actions by the SEC and its Division of Corporation Finance that had the effect of making exclusion of shareholder proposals—particularly proposals related to environmental and social issues—more of a challenge for companies. As discussed in this article in the WSJ, investors are taking the opportunity to press for more changes at companies. Nevertheless, the prescriptive nature of many of the proposals, especially climate-related proposals, has prompted many shareholders, including major asset managers, to vote against these proposals. Will next season reflect lessons learned by shareholder proponents from this proxy season?
A jam-packed Spring 2022 agenda for the SEC
The SEC has posted its Spring 2022 Reg-Flex agenda and it’s crammed with pending and new rulemakings—and they’re all going to be proposed or adopted in October! (Ok, admittedly, that’s an exaggeration, but not much of one.) Here is the short-term agenda and here is the long-term agenda. According to SEC Chair Gary Gensler, the “U.S. is blessed with the largest, most sophisticated, and most innovative capital markets in the world….But we cannot take that for granted. As SEC alum Robert Birnbaum and his team said decades ago, ‘no regulation can be static in a dynamic society.’ That core idea still rings true today.” Gensler’s public policy goals for the agenda are “continuing to drive efficiency in our capital markets and modernizing our rules for today’s economy and technologies.” As with recent prior agendas, SEC Commissioner Hester Peirce has almost no kind words for the agency’s plans—“flawed goals and a flawed method for achieving them.” In fact, she went so far as to characterize the agenda as “dangerous”: in her view, the agenda represents “the regulatory version of a rip current—fast-moving currents flowing away from shore that can be fatal to swimmers. Just as certain wave and wind conditions can create dangerous rip currents, the pace and character of the rulemakings on this agenda make for dangerous conditions in our capital markets.” There’s no dispute that the agenda is laden with major proposals—human capital, SPACs, board diversity. What’s more, many of these proposals—climate disclosure, cybersecurity, Rule 10b5-1—are apparently at the final rule stage. Whether or not we’ll see a load of public companies submerged by the rip tide of rulemakings remains to be seen, but there’s not much question that implementing them all would certainly be a challenge in any case.
Lee to leave SEC
SEC Commissioner Allison Herren Lee has announced her intention not to seek another term on the Commission when her current term ends in June. Here is Chair Gary Gensler’s statement on her departure.
Is the Rooney Rule just window dressing?
At the beginning of Black history month, in a class action complaint against the NFL and others replete with heart-breaking allegations of racism, former Head Coach of the Miami Dolphins, Brian Flores, charged that, among many other things, he and other members of the proposed class have been denied positions as head coaches and general managers as a result of racial discrimination. Defendants that have responded publicly have reportedly denied the allegations and said that the claims are without merit. Particularly notable from a governance and DEI perspective are allegations regarding the disingenuous application of the vaunted “Rooney Rule”—which originated in the NFL back in 2002 in an effort to address the dearth of Black head coaches—but has since become almost de rigueur in governance circles as one effective approach to increasing diversity in a wide variety of contexts, including boards of directors. However well-intentioned originally, the complaint alleges, “the Rooney Rule is not working.” Flores claims that, to fulfill the admonitions of the Rooney Rule, NFL teams “discriminatorily subjected” him and other Black candidates “to sham and illegitimate interviews due in whole or part to their race and/or color.” While this claim is far from the most incendiary in the complaint, if shown to be accurate, it would certainly seriously damage the reputation of the defendants involved. Can an approach that has allegedly failed to work in its original setting still be made to work effectively in other contexts?
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