Tag: Board diversity

When theories collide: what happens when the shareholder preeminence theory meets the stakeholder theory?

Laurence Fink, the Chair and CEO of BlackRock, has issued his annual letter to public companies, entitled A Sense of Purpose.  As in prior years, Fink advocates enhanced shareholder engagement and a focus on long-term strategy development. (See this PubCo post and this PubCo post.) What’s new this year is that he is also advocating that companies recognize their responsibilities to stakeholders beyond just shareholders—to employees, customers and communities.  Holy smokes, Milton Friedman, what happened to maximizing shareholder value as the only valid responsibility of corporations?  

What’s on the Agenda—the SEC’s Regulatory Flexibility Agenda, that is?

SEC Chair Jay Clayton has repeatedly made a point of his intent to take the Regulatory Flexibility Act Agenda ”seriously,” streamlining it to show what the SEC actually expected to take up in the subsequent period. (See this PubCo post and this PubCo post.)  The agenda has just been released, and it certainly appears that Clayton has been true to his word: several items that had taken up long-term residency on numerous prior agendas seem to be absent from this one.

PwC’s 2017 Annual Corporate Directors Survey shows directors “clearly out of step” with institutional investors on social issues

In its Annual Corporate Directors Survey for 2017, PwC surveyed 886 directors of public companies and concluded that there is a “real divide” between directors and  institutional investors (which own 70% of U.S. public company stocks) on several issues. More recently, PwC observes, public companies have been placed in the unusual position of being called upon to tackle some of society’s ills: in light of the “new administration in Washington and growing social divisiveness, US public company directors are faced with great expectations from investors and the public. Perhaps now more than ever, public companies are being asked to take the lead in addressing some of society’s most difficult problems. From seeking action on climate change to advancing diversity, stakeholder expectations are increasing and many companies are responding.” But apparently, many boards are not taking up that challenge; PwC’s “research shows that directors are clearly out of step with investor priorities in some critical areas,” such as environmental issues, board gender diversity and social issues, such as income inequality and employee retirement security.

SEC Committee on Small and Emerging Companies completes final report and recommendations

At the final meeting yesterday of the SEC Committee on Small and Emerging Companies (apparently soon to morph into the Small Business Capital Formation Advisory Committee), the Committee finalized the discussion draft of its Final Report to the SEC and heard  presentations on SOX 404(b), the most recent bête noire of deregulation advocates. (The Committee also heard a presentation on Rule 701, which will be addressed in a subsequent post.)

Studies show hedge fund activists have adverse impact on board diversity and target more firms with women CEOs

While more and more institutional holders and asset managers are noisily promoting board diversity among their portfolio companies (see this PubCo post)—including, most recently, the NYC Comptroller and the NYC pension funds (see this PubCo post)—hedge fund activists (fka corporate raiders, now styling themselves as “activists”), seem to take quite a different tack.   Two recent studies have looked at the impact of hedge fund activism on diversity from different perspectives: one study showed that hedge fund activists have an adverse effect on board diversity at companies they attack and another study showed that female CEOs are significantly more likely than male CEOs to come under threat from hedge fund activists. 

Will board diversity be the new proxy access?

In 2014, NYC Comptroller Scott Stringer, who oversees the NYC pension funds, submitted proxy access proposals to 75 companies—and ignited the push for proxy access at public companies across the U.S. The form of proxy access proposed in this first phase of the Boardroom Accountability Project was very similar to the form of proxy access mandated under the SEC’s rules that were overturned in 2011, requiring an eligibility threshold of 3% ownership for three years, with shareholders having the right to nominate up to 25% of the board. (See this PubCo post and this PubCo post.) It has been reported that, of the 75 proposals submitted by the NYC comptroller in 2014, 63 went to a vote, with  average support of 56% and 41 receiving majority support.  In 2015, Stringer submitted more proxy access proposals. Notably, until Stringer’s initiative, private ordering for proxy access had not gathered much steam; only six companies had adopted proxy access.  Stringer’s office reports that, today, more than 425 companies, including over 60% of the S&P 500, have enacted proxy access bylaws. Now, the NYC Comptroller’s Office, leveraging the success of its proxy access campaign and the “powerful tool” it represents to “demand change,” has announced the Boardroom Accountability Project 2.0, which will focus on corporate board diversity, independence and climate expertise. Will Project 2.0 have an impact comparable to that of the drive for proxy access?

Why have institutional investors become so outspoken on corporate governance issues at their portfolio companies?

The substantial increase in activism on corporate governance issues by large institutional shareholders and asset managers qua investors has been hard to miss. Now, joining the ranks of these other enormous asset managers and passive institutional investors—such as BlackRock and State Street (see, e.g., this PubCo post, this PubCo post and this PubCo post)—Vanguard has recently announced, in its Investment Stewardship Report for 2017, that it too has been taking a more active role in advocating for effective corporate governance at its portfolio investments. But what has triggered this shift?  After all, it’s not as though these institutional investors are new to the sport—they’ve been shareholders for many, many years, but mostly of the low-key variety.  Why this noisy advocacy now?