Tag: Board composition


2015 Activism Update

Eduardo Gallardo is a partner focusing on mergers and acquisitions at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn client alert. The full publication, including tables, is available here. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here), The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here), The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here), and Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon Brav, Robert J. Jackson Jr., and Wei Jiang.

This post provides an update on shareholder activism activity involving publicly traded domestic companies during the first half of 2015. At the midway point of 2015, shareholder activism shows no signs of slowing. In fact, our survey for the first half of 2015 includes nearly as many activist campaigns as did our survey for all of 2014.

Although funds continue to make news with activist campaigns involving large domestic companies, the most notable trend is the sheer number of funds involved in activist campaigns that are captured by our survey: 42 funds in just the first half of 2015 versus 35 funds for all of 2014.

In all, our 2015 Mid-Year Activism Update covers 56 public activist campaigns at 50 unique domestic companies by 42 unique investors during the period from January 1, 2015 to June 30, 2015. Ten of those companies faced advances from at least two activist investors. Market capitalizations of the targets range from just above our study’s $1 billion minimum to approximately $120 billion.

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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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Where Women Are On Board: Perspectives from Gender Diverse Boardrooms

Diane Lerner is a Managing Partner and Christine Oberholzer Skizas is a Partner at Pay Governance LLC. This post is based on a Pay Governance memorandum.

Interest in, and momentum toward, greater diversity in the boardrooms of U.S. publicly traded companies is increasing. We believe this is due to a combination of international developments, workplace trends and investor sentiment.

Although all aspects of diversity are meaningful topics, this post is solely focused on gender diversity. Currently, females represent approximately 15% of outside board member seats in the S&P 1500 and about 18% of the S&P 500 seats. This equates to a median of 1-2 female board members in a group of 9-11 board members.

While the overall statistics for U.S. companies are regularly reported, relatively little has been written about those U.S. public company boards that have moved farther down the path of gender diversity. For the purpose of our review, we define “gender diverse” at 30% female directors or more, using a standard typical in countries who have enacted legislation. Assuming more companies will want to reach a 30%+ level of gender diversity over the next decade, we wanted to study companies that have already achieved this level. We wanted to identify any specific similar characteristics that can be found at these companies and to learn more through selected interviews about the paths to a gender diverse board.

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Four Takeaways from Proxy Season 2015

Ann Yerger is an executive director at the EY Center for Board Matters at Ernst & Young LLP. The following post is based on a report from the EY Center for Board Matters.

As the 2015 proxy season concludes, some key developments stand out. Most significantly, a widespread investor campaign for proxy access ignited the season, making proxy access the defining governance topic of 2015.

The campaign for proxy access is closely tied to the increasing investor scrutiny of board composition and accountability, and yet—at the same time—the number of votes opposing director nominees is the lowest in recent years.

Also, the number of shareholder proposal submissions remains high, despite the fact that ongoing dialogue between large companies and their shareholders on governance topics is now mainstream. These developments are occurring against a backdrop of increased hedge fund activism, which continues to keep boards on alert.

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Getting to Know You: The Case for Significant Shareholder Engagement

F. William McNabb III is Chairman and CEO of Vanguard. This post is based on Mr. McNabb’s recent keynote address at Lazard’s 2015 Director Event, “Shareholder Expectations: The New Paradigm for Directors.”

I’ll begin my remarks with a premise. It’s a simple belief that I have. And that is: Corporate governance should not be a mystery. For corporate boards, the way large investors vote their shares should not be a mystery. And for investors, the way corporate boards govern their companies should not be a mystery. I believe we’re moving in a direction where there is less mystery on both sides, but each side still has some work to do in how it tells its respective stories.

So let me start by telling you a little bit about Vanguard’s story and our perspective. I’ll start with an anecdote that I believe is illustrative of some of the headwinds that we all face in our efforts to improve governance: “We didn’t think you cared.” A couple of years ago, we engaged with a very large firm on the West Coast. We had some specific concerns about a proposal that was coming to a vote, and we told them so.

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Failing to Advance Diversity and Inclusion

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today [June 9, 2015], the Securities and Exchange Commission failed to take meaningful steps to advance diversity and inclusion in the financial services industry, as required by Section 342 of the Dodd-Frank Act. Accordingly, I have no choice but to dissent from the Final Interagency Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices of Entities Regulated by the Agencies (the “Final Policy Statement”) that was issued today by the SEC and a number of other financial regulators.

The financial services industry has a long history of failing to promote diversity in its workforce. The industry has consistently failed to recruit and retain a diverse workforce over the years, and the need is particularly acute at the executive and senior management levels. This lack of diversity has persisted despite the mounting evidence that diversity makes the American workforce more creative, more diligent, and more productive—and, thus, makes U.S. companies more profitable.

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The Trend Towards Board Term Limits is Based on Faulty Logic

Robert Pozen is a senior lecturer at Harvard Business School and a senior fellow at the Brookings Institution. This post is based on an article by Mr. Pozen and Theresa Hamacher that originally appeared in the Financial Times.

In the business world, experience is generally considered to be positive. When it comes to corporate directors, however, tenure is increasingly viewed with suspicion. Yet the trend towards board term limits is based on faulty logic and threatens performance.

The movement towards director term limits is global. In France, directors are not considered independent if they have served on the company’s board for more than 12 years. In the UK, publicly traded companies must either comply or explain: terminate a director after nine years of service, or explain why long tenure has not compromised director independence.

In the US, the Council of Institutional Investors, which represents many public pension funds, urges its members to consider length of tenure when voting on directors at corporate elections. The council is concerned that directors become too friendly with management if they serve for extended periods.

Institutional Shareholder Services, the proxy voting advisory firm that is a powerful force in corporate governance, penalises companies with long-serving directors by reducing their “quick score” governance rating. Under the current methodology, a company loses points if a substantial proportion of its directors has served for more than nine years. Although ISS recognises that there are divergent views on this, it concluded that “directors who have sat on one board in conjunction with the same management team may reasonably be expected to support that management team’s decisions more willingly”.

But the assumption that lengthy director service means cozy relationships with management simply is not supported by the facts.

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Shareholder Involvement in the Director Nomination Process

Stephen Erlichman and Catherine McCall are Executive Director and Director of Policy Development, respectively, at Canadian Coalition for Good Governance (CCGG). This post is based on a CCGG policy publication, titled Shareholder Involvement in the Director Nomination Process: Enhanced Engagement and Proxy Access; the complete publication is available here. Related research from the Program on Corporate Governance includes Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

Proxy access is the corporate governance cause célèbre in the 2015 U.S. proxy season. There has been a concerted push on the part of institutional shareholders and others to convince companies to adopt proxy access, most commonly in the form of a trigger of 3% of outstanding voting shares held for 3 years. Shareholders have responded very favourably to the proxy access shareholder proposals put forward by institutions such as the New York City Pension Funds through its Board Accountability Project. A surprising (to many) number of companies [1] have adopted proxy access on the 3%/3 year basis, including some of the largest, best known and established of U.S. companies, some voluntarily and without a majority approved shareholder proposal on the matter. In Canada, the Canadian Coalition for Good Governance (CCGG), an organization which represents institutional shareholders that collectively own or manage approximately Cdn $3 trillion of assets and which has a mandate to promote good corporate governance at Canadian public companies, has just released its own proxy access policy. The policy, entitled Shareholder Involvement in the Director Nomination Process: Enhanced Engagement and Proxy Access (available here), has been developing for over a year following widespread input and consultation among CCGG’s members and other market participants.

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2015 Proxy Season Insights: Board Composition

The following post comes to us from Ernst & Young LLP, and is based on a publication by the EY Center for Board Matters.

Heading into the 2015 proxy season, board composition and renewal are once again in the spotlight for a number of reasons.

  • Investors increasingly seek confirmation that boards have the skill sets and expertise needed to provide strategic counsel and oversee key risks facing the company, including environmental and social risks.
  • The continued lack of turnover on many boards and slow progress on increasing diversity, including by gender and ethnicity, are bringing director tenure and board succession planning under scrutiny.
  • A new widespread push for proxy access could make it easier for shareholders to nominate their own candidates to the board. [1]

These factors make it increasingly important for boards to explain their composition in a compelling way. Meeting this expectation is made all the more challenging by the fact that investors are assessing board composition using different factors.

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Women on US Boards: What Are We Seeing?

The following post comes to us from Ernst & Young LLP, and is based on a publication by the EY Center for Board Matters.

Despite the value of bringing more women onto corporate boards being increasingly recognized, US companies continue a slow march toward gender diversity. While progress is being made, it is not at the pace needed to compete with public sector approaches being taken in other markets.

This post looks at diversity in US boardrooms at the time of their 2014 annual meetings and, unless otherwise noted, reflects S&P 1500 companies. It is based on the EY Center for Board Matters’ proprietary corporate governance database. It is also part of the Center’s ongoing board diversity series and follows Diversity drives diversity: From the boardroom to the C-suite (2013) and Getting on board: Women join boards at higher rates, though progress comes slowly (2012). For EY’s global perspective, see Women on boards: global approaches to advancing diversity (2014) and Women. Fast forward (2015).

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