Largest Companies View AI as a Risk Multiplier

Posted by Dean Kingsley, Matt Solomon, Deloitte & Touche LLP, and Kristen Jaconi (USC Marshall), on
Wednesday, November 20, 2024
, , ,
More from: , , ,

Dean Kingsley is a Principal and Matt Solomon is a Senior Manager at Deloitte & Touche LLP. Kristen Jaconi is an Associate Professor of the Practice in Accounting and Executive Director at Peter Arkley Institute for Risk Management at the USC Marshall School of Business. This post is based on their recent Deloitte report.

We are certainly continuing to live in “interesting times.” Even when we feel as though the volume and velocity of risks can’t possibly accelerate further, they do. The past 12 months have seen US companies reacting to numerous cyber events, unprecedented political activity, conflicts in the Middle East and Europe, fluctuations in the US economy, and an increase in artificial intelligence (AI) capabilities. That’s to say nothing of accelerating extreme weather events, regulatory changes, and the continued rise of stakeholder and social activism.

In light of this ever more complex risk environment, what do the largest US public companies view as their most material risks? Deloitte and the USC Marshall School of Business Peter Arkley Institute for Risk Management (USC Marshall Peter Arkley Institute for Risk Management) have completed our fourth year of analysis of annual risk factor disclosures of Standard & Poor’s (S&P) 500 companies. The results show a continued trend toward more extensive risk factor disclosures to reflect this complex environment, even though the SEC’s risk reporting reforms in 2020 [1] sought to simplify and reduce the volume of risk factor disclosures.

This year, we conducted a deeper review of risk factors mentioning AI, complementing our deeper reviews in previous years of cybersecurity risks and climate-related risks. Over 60% of the S&P 500 companies reviewed believe they have material risks around AI, and this wasn’t restricted to the Information Technology sector – companies in all sectors disclosed AI risks relating to cybersecurity, competition, innovation, regulatory, intellectual property, ethical, and/or reputational risks. Numerous companies disclosed multiple AI-related risks this year, with 20% of companies disclosing three or more AI-related risks. Clearly, the AI revolution is well and truly underway and posing challenges for many companies in their ability to manage the associated risks.

READ MORE »

Securities Litigation and Enforcement Highlights

Posted by Patrick Gibbs, Tijana Brien, and Brett DeJarnette, Cooley LLP, on
Wednesday, November 20, 2024
, , ,
More from: , , ,

Patrick Gibbs, Tijana Brien, and Brett DeJarnette are Partners at Cooley LLP. This post is based on their Cooley memorandum and is part of the Delaware law series; links to other posts in the series are available here.

Cooley’s securities litigation + enforcement group continued to share key insights on key cases and developments in securities litigation throughout the spring and summer. They highlighted important decisions in Delaware courts, precedent-setting cases in the US Supreme Court and appellate courts, and recent developments at the Securities and Exchange Commission (SEC), as well as trends in derivative action settlements. Below is a roundup of key highlights from our team for Q2 and Q3.

READ MORE »

CEO Succession Practices in the Russell 3000 and S&P 500

Posted by Matteo Tonello, The Conference Board, Inc., on
Tuesday, November 19, 2024
, , ,
More from: ,

Matteo Tonello is the Head of Benchmarking and Analytics at The Conference Board, Inc. This post is based on a Conference Board memorandum by Mr. Tonello, Greg Arnold, Blair Jones, Deborah Beckmann, and Jason Schloetzer.

Chief executive succession rates have dropped after a peak during the pandemic, but an impending wave of retirements among older CEOs underscores the need for boards to focus on long-term planning. This report offers comprehensive data on current trends in CEO succession among US public companies, along with best practices for leadership transitions.

Key Insights

  • While the overall rate of CEO succession is decreasing and normalizing to prepandemic levels, total shareholder return is playing a larger role than usual in predicting turnover.
  • Succession rates among CEOs aged 64 years and older have steadily dropped in recent years, likely reflecting boards’ preference for stability amid uncertainty, but signaling a potential surge in successions as these CEOs eventually retire.
  • Despite a 70% increase in female CEOs among Russell 3000 companies since 2017, women CEOs still represent just 8% of the total index, while in the S&P 500, the figure is slightly higher at 10%, highlighting slower progress compared to the faster rise in female board representation.
  • CEOs are typically promoted rather than hired, and the chief operating officer role remains the most common path to the top, although companies with declining performance are more likely to hire externally.

READ MORE »

The Moral Preferences of Investors Experimental Evidence

Posted by Augustin Landier (HEC Paris), Parinitha Sastry (Columbia Business School), and David Thesmar (MIT), on
Tuesday, November 19, 2024
, , ,
More from: , , ,

Augustin Landier is a Professor of Finance at HEC Paris, Parinitha Sastry is an Assistant Professor of Finance at Columbia Business School, and David Thesmar is the Franco Modigliani Professor of Financial Economics at the MIT Sloan School of Management. This post is based on a recent article forthcoming in the Journal of Financial Economics, by Professor Landier, Professor Sastry, Professor Thesmar, and Professor Jean-Francois Bonnefon.

Over recent years, responsible asset management has developed considerably in size. However, the exact nature of responsible investors’ preferences remains somewhat elusive. Our paper investigates the moral preferences of investors through incentivized experiments.

There are essentially two main views of investors’ ethical preferences in the literature.

  • Value-alignment refers to investors’ aversion to owning shares in companies whose business practices conflict with their own moral values. Such investors experience corporate externalities of the portfolio companies they own as a non-pecuniary dividend.
  • Impact-seeking investors prioritize the social consequences of their investment choices, valuing the additionality of their actions. For these investors, corporate externalities impact their utilities regardless of their stock holdings, reflecting a preference for making a positive social impact.

READ MORE »

A Second Trump Administration: Implications for Asset Managers

Posted by Jamie McGinnis, Josh Lichtenstein, and Jonathan Reinstein, Ropes & Gray LLP, on
Tuesday, November 19, 2024
, , ,
More from: , , ,

James D. McGinnis is a Counsel, and Joshua A. Lichtenstein and Joshua A. Lichtenstein are Partners, at Ropes & Gray LLP. This post is based on a Ropes & Gray memorandum by Mr. McGinnis, Mr. Lichtenstein, Mr. Reinstein, Jeremiah Williams, Melissa Bender, and Joel Wattenbarger.

On Wednesday, November 6, 2024, major media outlets announced Donald J. Trump as the winner of the 2024 U.S. presidential election.  This alert discusses the potential impact of Mr. Trump’s election on the U.S. Securities and Exchange Commission (the “SEC”) and the regulation of asset managers more generally.

READ MORE »

U.S. Shareholder Proposals: A Decade in Motion

Posted by Subodh Mishra, ISS STOXX, on
Monday, November 18, 2024
, , ,
More from: ,

Subodh Mishra is Global Head of Communications at ISS STOXX. This post is based on an ISS-Corporate memorandum by Kosmas Papadopoulos, Executive Director, Head of Sustainability Advisory – Americas; Jun Frank, Managing Director, Global Head of Compensation & Governance Advisory; and Pinak Parikh, Associate, Compensation & Governance Advisory at ISS-Corporate.

Shareholder proposals, often seen as a bellwether of investor sentiment and preferences, have gone through a significant shift over the past decade. The number of proposals on environmental and social topics exploded, surpassing the governance and compensation topics that had dominated the discourse in mid-2010s. In recent years, discussions related to environmental, social, and corporate governance (“ESG”) risks have become highly politicized, including attempts to politicize the shareholder proposal process. However, investors show little to no interest in proposals that advocate a political viewpoint without demonstrable economic relevance. ISS-Corporate reviewed the data of shareholder proposals submitted at U.S. companies from July 2014 to June 2024 [1] and examined how shareholder proposals as well as corporate behavior and disclosures on sustainability and corporate governance have changed over the decade.

READ MORE »

Section 13 and 16 Developments: Lessons Learned from Recent SEC Enforcement Actions

Posted by Maia Gez, Scott Levi, and Danielle Herrick, White & Case LLP, on
Monday, November 18, 2024
, , ,
More from: , , ,

Maia Gez and Scott Levi are Partners, and Danielle Herrick is a Professional Support Counsel, at White & Case LLP. This post is based on a White & Case memorandum by Ms. Gez, Mr. Levi, Ms. Herrick, and Claudette Druehl.

Over the past year, the U.S. Securities and Exchange Commission (“SEC”) has intensified its focus on beneficial ownership reporting under Sections 13(d), 13(g) and 16(a) of the Securities Exchange Act of 1934 (“Exchange Act”), as well as seemingly starting to focus on enforcement of reporting obligations under Sections 13(f) and 13(h) of the Exchange Act. This alert provides an in-depth review of recent developments and lessons learned from recent SEC enforcement actions.

READ MORE »

Type and Magnitude of Non-Employee Director Compensation Increases

Posted by Tahmid Ali, FW Cook, on
Sunday, November 17, 2024
, , ,
More from: ,

Tahmid Ali is a Consultant at FW Cook. This post is based on his  FW Cook memorandum.

An analysis of multi-year trends in non-employee director compensation revealed that approximately 35% – 40% of companies made program adjustments in any given year. Most elected to increase the equity component only or coupled increases in the cash component with a corresponding increase in equity. The analysis further revealed the following takeaways that indicate that the director compensation market has become increasingly uniform over the last decade:

  • The overall variability in director compensation adjustments has fallen significantly.
  • The magnitude of the “typical” annual adjustment (indicated by the median) has increased.
  • The fraction of companies making larger adjustments (e.g., between $15K and $30K) has correspondingly increased, while the prevalence of outliers (companies making very small or very large adjustments) has fallen.
  • The above observations were consistent across all three size segments reviewed (i.e., small, mid-, and large-cap).

READ MORE »

How Investment Stewardship Of Digital, Cybersecurity and Systemic Risk Governance Drives Alpha

Posted by Bob Zukis and Fay Feeney, Digital Directors Network, on
Saturday, November 16, 2024
, , ,
More from: , ,

Bob Zukis is the Founder and CEO and Fay Feeney is an Advisory Board Member at Digital Directors Network.

The role of corporate governance has never been a more vital control in securely delivering on the potential of the digital future. As the economic outputs and risks from digital business systems increase and expand, boardroom effectiveness is vital to how companies use and protect the digital business systems delivering their future.

As fiduciaries, asset managers such as Blackrock, Vanguard, State Street and others deploy investment stewardship programs that share the common objective of promoting and strengthening boardroom effectiveness to safe-guard assets and enable investment returns for the companies they invest in on behalf of their clients. Those programs are an underleveraged source of value creation and protection in the digital economy.

Vanguard states their stewardship responsibilities as “…a clear mandate to safeguard and promote long-term investment returns at the companies in which our funds invest.”

State Street puts it succinctly when they say “We believe our portfolio companies must have effective oversight and governance of opportunities and risks that are material to their businesses and that they should disclose how they are overseeing such risks and opportunities to investors.”

With the practice and profession of digital, cybersecurity and systemic risk governance starting to develop, evidence from the early adopters of leading policies and practices in digital governance demonstrates that boardroom effectiveness on these issues is creating superior returns for investors and reducing risk.

This article provides investment stewardship programs with a blueprint for understanding and promoting the drivers of boardroom effectiveness in digital, cybersecurity and systemic risk oversight.

READ MORE »

Remarks by Chair Gensler Before PLI’s 56th Annual Institute on Securities Regulation

Posted by Gary Gensler, U.S. Securities and Exchange Commission, on
Friday, November 15, 2024
, , ,
More from: ,

Gary Gensler is Chair of the U.S. Securities and Exchange Commission. This post is based on his recent remark. The views expressed in this post are those of Chair Gensler, and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

My thanks to the Practicing Law Institute and the 56th Annual Institute on Securities Regulation.

When I was with you two years ago, I quoted President Franklin Roosevelt when he signed the first of the foundational securities laws in 1933: “This law and its effective administration are steps in a program to restore some old-fashioned standards of rectitude.” [1]

This year, I am going to talk about that effective administration.

As is customary, I’d like to note that my views are my own as Chair of the Securities and Exchange Commission, and I am not speaking on behalf of my fellow Commissioners or the staff.

I believe our securities laws have significantly contributed to our nation’s great economic success these last 90 years.

The securities laws—benefiting investors and issuers alike—help create trust in our capital markets. These laws help lower costs. They help lower risks.

The results are evident in the size, scale, and depth of our capital markets. At more than $120 trillion today, they are part of our comparative advantage as a nation, undergirding the dollar’s dominance [2] and our role in the world. We are the capital markets of choice for issuers and investors around the globe. At more than 40 percent of the world’s capital markets, [3] we punch above our weight class of just 24 percent of the world economy. [4]

This didn’t just happen by chance.

READ MORE »

Page 1 of 1190
1 2 3 4 5 6 7 8 9 10 11 … 1,190