Category Archives: Corporate Social Responsibility

Court Strikes NYC’s “Responsible Banking Act”

Robert J. Giuffra, Jr. is a partner in the Litigation Group at Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell publication by Mr. Giuffra, H. Rodgin Cohen, Matthew A. Schwartz, and Marc Trevino.

On August 7, 2015, in a 71-page opinion, Judge Katherine Polk Failla of the United States District Court for the Southern District of New York struck down New York City Local Law 38 of 2012, entitled the “Responsible Banking Act” (“RBA”), as preempted by federal and state banking law. The RBA—enacted by the City Council on June 28, 2012, over Mayor Bloomberg’s veto—established an eight-member Community Investment Advisory Board (“CIAB”), charged with collecting data at the census-tract level from the 21 banks eligible to receive some of the City’s $150 billion in annual deposits. This data, which went beyond data required by federal and state banking regulators and would be disclosed publicly, covered a variety of categories ranging from the maintenance of foreclosed properties, to investment in affordable housing, to product and service offerings. Based on the data collected and feedback from public hearings, the CIAB was to develop “benchmarks and best practices” against which the deposit banks were to be evaluated, including against each other, in a publicly filed annual report. The report was to identify deposit banks that refused to provide the requested data. Finally, the RBA provided that the City’s Banking Commission—responsible for designating eligible deposit banks—“may” consider the CIAB’s annual report in making its designation decisions.

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Corporate Governance and Diversity

Aaron A. Dhir is an Associate Professor of Law at Osgoode Hall Law School in Toronto, Canada. The post is based on Professor Dhir’s book, Challenging Boardroom Homogeneity: Corporate Law, Governance, and Diversity (Cambridge University Press, 2015).

Earlier this year, Germany joined the ranks of countries such as Norway, France, Italy, Belgium, and Iceland by enacting a quota to increase the number of women in its corporate boardrooms. Starting in 2016, both genders must make-up at least 30 percent of specified German companies’ supervisory boards.

The news from Germany provoked decidedly negative reactions in major media outlets. In the New York Times, the Washington Post, and the Economist, critics questioned the soundness of pursuing positive discrimination in the corporate governance arena. The reality, however, is that we actually know very little about how corporate quotas have worked in practice. Advocates and detractors each suggest that these measures will alter the effectiveness and dynamics of firms in some way—whether for better or worse. But the speculation remains largely uncorroborated and our knowledge is incomplete at best.
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Corporate Investment in ESG Practices

Matteo Tonello is managing director at The Conference Board, Inc. This post relates to an issue of The Conference Board’s Director Notes series and was authored by Mr. Tonello and Thomas Singer. The complete publication, including footnotes and Appendix, is available here.

Corporate investment in environmental, social, and governance (ESG) practices has been widely investigated in recent years. Studies show that a business corporation may benefit from these resource allocations on multiple levels, ranging from higher market and accounting performance to improved reputation and stakeholder relations. However, poor data quality and the lack of a universally adopted framework for the disclosure of extra-financial information have hindered the field of research. This post reviews empirical analyses of the return on investment in ESG initiatives, outlines five pillars of the business case for corporate sustainability, and discusses why the positive correlations found by some academics remain disputed by others.

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New Investor Guide on Engaging on ESG Issues

Elizabeth Ising is a partner and Co-Chair of the Securities Regulation and Corporate Governance practice group at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn Securities Regulation and Corporate Governance Monitor blog post by Ms. Ising.

On May 28, 2015, BlackRock and Ceres released a guide for investors on engaging with public companies, asset managers and policymakers on environmental, social and governance (“ESG”) sustainability matters. The guide, titled “21st Century Engagement: Investor Strategies for Incorporating ESG Considerations into Corporate Interactions,” includes sections written by BlackRock and Ceres as well as AFL-CIO, California Public Employees Retirement System (“CalPERS”), California State Teachers Retirement System (“CalSTRS”), Council of Institutional Investors (“CII”), International Corporate Governance Network (“ICGN”), the Office of New York City Comptroller, New York State Common Retirement Fund, North Carolina Department of State Treasurer, PGGM, State Board of Administration of Florida, TIAA-CREF, T. Rowe Price and UAW Retiree Medical Benefits Trust.

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Proxy Monitor 2015 Mid-Season Report

James R. Copland is the director of the Manhattan Institute’s Center for Legal Policy. The following post is based on a memorandum from the Proxy Monitor project, available here.

As we near the close of corporate America’s “proxy season”—the period between mid-April and mid-June when most large, publicly traded corporations in the United States hold annual meetings to vote on company business, including resolutions introduced by shareholders—a clear picture has begun to emerge. By May 27, 2015, 211 of the nation’s 250 largest companies by revenues, as listed by Fortune magazine and in the Manhattan Institute’s ProxyMonitor.org database, had filed proxy documents with the Securities and Exchange Commission. This post bases its analysis on those companies’ filings, as well as voting results for 186 of those companies that had held their annual meetings by May 22.

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Human Rights Through A Corporate Governance Lens

George Dallas is Policy Director at International Corporate Governance Network (ICGN). The following post is based on an ICGN publication by Mr. Dallas and Lauren Compere, Managing Director at Boston Common Asset Management; the complete publication, including annexes, is available here.

Human rights [1] are attracting increasing attention from a corporate governance perspective as a dimension of both business ethics and enterprise risk management for companies. Indeed, the ethical and risk dimensions are in many ways intertwined, insofar as ethical lapses or inattention to human rights practices by companies may not only breach the human rights of those affected by corporate behaviour, but may also have material commercial consequences for the company itself. In extreme cases human rights problems can pose a franchise risk to companies [2]; in lesser cases these can increase costs and damage valuable relationships with stakeholders.

In a broad governance context human rights cannot be simply framed as a reputational or “non-financial” risk; the consequences of poor human rights practices can materially impact a company’s stakeholder relations, financial performance and prospects for sustainable value creation. Accordingly, human rights is an issue warranting greater attention from long-term investors as a matter of investment analysis, valuation and engagement with companies.

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Corporations and the 99%: Team Production Revisited

Shlomit Azgad-Tromer is a researcher at Tel Aviv University—Buchmann Faculty of Law. This post is based on the article Corporations and the 99%: Team Production Revisited. Related research from the Program on Corporate Governance includes The Growth of Executive Pay by Lucian Bebchuk and Yaniv Grinstein, and The CEO Pay Slice by Lucian Bebchuk and Jesse Fried (discussed on the Forum here).

“We Are the 99%” is a political slogan used by the Occupy Wall Street movement, referring to the prevailing wealth and income inequality, and claiming a divergence of corporate America from the public. The article explores the interaction between the general public and the public corporation, and its legal manifestation.

Stakeholder theory portrays the corporation as a sphere of cooperation between all stakeholder constituencies, including the general public. Revisiting team production analysis, the article argues that while several constituencies indeed form part of the corporate team, others are exogenous to the corporate enterprise. Employees, suppliers and financiers contribute together to the common corporate enterprise, enjoying a long-term relational contract with the corporation, while retail consumers contract with the corporation at arm’s length, and other people living alongside the corporation do not contract with it at all. Under this organizational model, the general public may participate in the team forming the corporate enterprise by providing public financing. Indeed, corporate law was developed to protect public investors.

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Responding to Corporate Political Disclosure Initiatives

The following post comes to us from Robert K. Kelner, partner in the Election and Political Law Practice Group at Covington & Burling LLP, and is based on a Covington Alert by Mr. Kelner, Keir D. Gumbs, and Zachary Parks. Recent work from the Program on Corporate Governance about political spending includes: Shining Light on Corporate Political Spending by Lucian Bebchuk and Robert J. Jackson, Jr. (discussed on the Forum here). Posts related to the SEC rulemaking petition on disclosure of political spending are available here.

Despite recent setbacks, efforts by activist groups to pressure companies to disclose details of their political activities are not going away. As these groups become increasingly sophisticated, 2015 looks to be their most active year to date. In fact, for the first time ever, the Center for Political Accountability plans to issue a report this year ranking the political spending disclosure practices of all 500 companies in the S&P 500 Index. This post highlights recent developments regarding corporate political spending disclosure efforts, looks ahead to what public companies can expect in the near future, and provides strategies and tips for those grappling with disclosure issues.

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Diversity on Corporate Boards: How Much Difference Does “Difference” Make?

The following post comes to us from Deborah L. Rhode, the Ernest W. McFarland Professor of Law and Director of the Center on the Legal Profession at Stanford University, and Amanda K. Packel, the Deputy Director of the Arthur and Toni Rembe Rock Center for Corporate Governance, a joint initiative of Stanford Law School and the Stanford Graduate School of Business.

In recent years, increasing attention has focused on the influence of gender and racial diversity on boards of directors. More than a dozen countries now require some form of quotas to increase women’s representation on boards, and many more have voluntary quotas in corporate governance codes. In the United States, support for diversity has grown in principle, but progress has lagged in practice, and controversy has centered on whether and why diversity matters.

In our article, Diversity on Corporate Boards: How Much Difference Does “Difference” Make?, which was recently published in Delaware Journal of Corporate Law, 39, no. 2, Fall 2014, we evaluate the case for diversity on corporate boards of directors in light of competing research findings. An overview of recent studies reveals that the relationship between diversity and financial performance has not been convincingly established. There is, however, some theoretical and empirical basis for believing that when diversity is well managed, it can improve decision-making and enhance a corporation’s public image by conveying commitments to equal opportunity and inclusion. We believe increasing diversity should be a social priority, but not for the reasons often assumed. The “business case for diversity” is less compelling than other reasons rooted in social justice, equal opportunity, and corporate reputation. Our article explores the rationale for diversity and strategies designed to address it.

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The First Annual Conflict Minerals Filings: Observations and Next Steps

Amy Goodman is a partner and co-chair of the Securities Regulation and Corporate Governance practice group at Gibson, Dunn & Crutcher LLP. The following post is based on a Gibson Dunn alert.

As companies prepare for the second year of filings under the Securities and Exchange Commission’s (“SEC”) new conflict minerals rule, many companies are looking for guidance from the first annual filings, which were due June 2, 2014. As expected, the inaugural Form SD and conflict minerals report filings reflect diverse approaches to the new compliance and disclosure requirements. We offer below some observations based on the first round of conflict minerals filings for companies to consider as they address their compliance programs and disclosures for the 2014 calendar year. It is important to note, however, that the shape of future compliance and reporting obligations will be impacted by the outcome of the pending litigation challenging the conflict minerals rule, which also is discussed below, and any subsequent action by the SEC.

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