2024 CPA-Zicklin Index of Corporate Political Disclosure and Accountability

Posted by Dan Carroll, David Pahlic, and Bruce Freed, Center for Political Accountability, on
Wednesday, November 6, 2024
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Dan Carroll is the Vice President for Programs and Counsel, David Pahlic is the Director for Programs, and Bruce Freed is the President at Center for Political Accountability. This post is based on their CPA memorandum.

The 2024 CPA-Zicklin Index is published shortly before Election Day and at an unparalleled time in the nation’s political history. The Index’s data reflect leading companies holding firm overall to established norms of political disclosure and accountability, despite fierce headwinds against environmental, social, and governance (ESG) and related principles for investors and U.S. corporations.

Moreover, when the 2024 Index results are compared against the last presidential election years of 2020 and 2016, the picture is striking: Many large public companies have realized major gains in disclosure and accountability for their election-related spending from corporate funds, and the gains are permanent. Whether examining the overall number of S&P 500 companies in 2024 or the 331 companies that have been a constant in the Index since 2015, the Trump years (2017 to 2021) plus Biden years (2021 to the present) have seen solid and dramatic increases in corporate political disclosure and accountability.

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Box Jumping: Portfolio Recompositions to Achieve Higher Morningstar Ratings

Posted by Lauren H. Cohen (Harvard Business School), David Sunghyo Kim (MIT), and Eric C. So (MIT), on
Wednesday, November 6, 2024
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Lauren H. Cohen is the L. E. Simmons Professor of Business Administration at Harvard Business School, David Sunghyo Kim is a PhD student at MIT Sloan School of Management, and Eric C. So is the Sloan Distinguished Professor of Management at the MIT Sloan School of Management. This post is based on their recent paper.

How money is managed in the stock market is of first-order importance, particularly in the United States, where the plurality of individuals participate in equity markets through delegated portfolio management (i.e., professional portfolio managers). A central player in this process is Morningstar – who provides widely recognized and accepted star ratings for mutual funds. These ratings guide investors on where to allocate their money, with higher-rated funds on average attracting significantly more investor capital. Morningstar’s star ratings are based on a clear and standardized process, which helps investors compare funds easily. However, this transparency also opens the door for mutual fund managers to adjust their strategies to receive higher ratings, boosting their appeal to investors and, in turn, the mutual fund managers’ revenues.

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Chancery Rejects Bid For An “Equitable Eraser”

Posted by Nora L. Brodnitz and Alex J. Kaplan, Sidley Austin LLP, on
Wednesday, November 6, 2024
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Nora L. Brodnitz is an Associate and Alex J. Kaplan is a Partner at Sidley Austin LLP. This post is based on their Sidley memorandum and is part of the Delaware law series; links to other posts in the series are available here.

It may seem obvious that “[e]quity cannot bless th[e] deliberate violation of an explicit statutory prohibition,” but in the recent Delaware Court of Chancery decision, TS Falcon I, LLC v. Golden Mountain Financial Holdings Corp., Vice Chancellor Lori Will reminded us of this maxim in the context of setting record dates for annual stockholders’ meetings.  As discussed herein, the court declined to bless the defendants’ deliberate violation of the express language of Section 213(a) of the Delaware General Corporation Law, and further rejected the defendants’ request that the court apply Section 205 to cure this “defective corporate act.”

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How Leading CEOs are Engaging in Politics

Posted by Brian Bartlett, and Piotr Pillardy, Kekst CNC, on
Tuesday, November 5, 2024
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Brian Bartlett is a Partner and Piotr Pillardy is a Research Principal at Kekst CNC. This post is based on a Kekst memorandum by Mr. Bartlett, Mr. Pillardy, Ellie Taylor, Bay Dotson, Olivia Kim, and Allie Worchell.

Tracking Campaign Contributions to Candidates, PACs and Parties

As companies navigate evolving public and stakeholder expectations around political and policy engagement, CEOs are at the forefront of shaping the approaches of their organizations. Beyond setting institutional policies, CEOs play an individual role via their personal political contributions. As these donations are part of the public record, they can serve as a de facto communication channel for the company. Consequently, CEO contributions may be seen as reflecting the company’s stance on a political race, particularly in the absence of other overt company messaging.

Understanding CEO political giving trends is key to grasping how Corporate America engages in political and policymaking dynamics. We analyzed the contribution patterns of Fortune 100 CEOs over two electoral cycles (the 2020 and 2022 elections), offering insights that can help inform best practices for executives.

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SEC 2025 Exam Priorities

Posted by James R. Burns, Brant Brown, and Robin M. Bergen, Cleary Gottlieb Steen & Hamilton LLP, on
Tuesday, November 5, 2024
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James R. Burns, Brant Brown, and Robin M. Bergen are Partners at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum by Mr. Burns, Mr. Brown, Ms. Bergen, Rachel Gerwin, Anna Bintinger, and Ben Rosenblum.

The U.S. Securities and Exchange Commission (“SEC”) Division of Examinations (the “Division”) released its 2025 examination priorities on October 21, 2024 (the “2025 Priorities”).  The 2025 Priorities highlight a wide range of topics for entities subject to SEC examinations, particularly investment advisers and broker-dealers.  The topics should be very familiar, as they largely continue recent focus areas for not only the Examinations Division but also the Enforcement Division.

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Governance Protections of the 1940 Act and Abuses Allowed by Annual Meetings

Posted by Paul G. Cellupica and Kevin Ercoline, Investment Company Institute, on
Monday, November 4, 2024
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Paul G. Cellupica is a General Counsel and Kevin Ercoline is an Assistant General Counsel at the Investment Company Institute. This post is supplemental to the Investment Company Institute’s comment letter.

The New York Stock Exchange’s (NYSE) 1920s-era annual shareholder meeting requirement for listed closed-end funds (CEFs) has left open an end-run around the governance protections of the Investment Company Act of 1940 (1940 Act), the landmark law governing mutual funds and other registered investment companies. Recently, the NYSE proposed a rule amendment that would realign its listing standards for CEFs with the governance protections that Congress specifically thought appropriate for investment companies. As it considers whether to permit the NYSE to change its listing rule, the SEC ought to recognize that Congress chose consciously not to mandate annual meetings for CEFs and other investment companies registered under the 1940 Act (either at its inception in 1940 or any time after 1940), which is why no other type of registered fund is subject to such a requirement.

ICI has written a detailed analysis of the issue here, explaining why the NYSE’s rule, which predates the 1940 Act, is unnecessary and in fact facilitates abusive practices. However, we have noted that some well-known academic commentators, in at least one case commissioned by an activist hedge fund that relies on the annual shareholder meeting requirement to take over CEFs, have sought to portray the NYSE rule change as anti-shareholder and poor corporate governance.[1] We respectfully think this academic critique is misinformed and actually encourages hostile practices harmful to retail shareholders and other investors.

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SEC Charges Four Companies for Misleading Cyber Disclosures

Posted by Charu Chandrasekhar, Erez Liebermann, and Benjamin R. Pedersen, Debevoise & Plimpton LLP, on
Monday, November 4, 2024
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Charu Chandrasekhar, Erez Liebermann, and Benjamin R. Pedersen are Partners at Debevoise & Plimpton LLP. This post is based on a Debevoise memorandum by Ms. Chandrasekhar, Mr. Liebermann, Mr. Pedersen, Julie Riewe, and Andrew J. Ceresney.

Key Takeaways:

  • On October 22, 2024, the U.S. Securities and Exchange Commission announced settled charges in separate actions against four technology companies who had been downstream victims of the unprecedented 2020 SUNBURST cyber-attack.
  • These actions represent the SEC’s first resolutions based on its multi-year investigations into the adequacy and accuracy of disclosures made by victims of that attack, and of related compromises believed to be committed by the same state-sponsored threat actors.
  • Although the disclosures and statements at issue in these four matters pre-date the SEC’s new cybersecurity disclosure rules, companies should closely consider these cases as reflecting the Commission’s latest views on materiality assessments and disclosure decisions regarding cybersecurity incidents.

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The Case for Multigenerational Corporate Boards

Posted by Bob Herr and Luke Pryor, AllianceBernstein, on
Sunday, November 3, 2024
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Bob Herr is a Director of Corporate Governance, and Luke Pryor is a Portfolio Manager and Senior Research Analyst at AllianceBernstein. This post is based on their AllianceBernstein memorandum.

Just 5% of board directors are under the age of 50. But research indicates that more age-diverse boards may possess unique business advantages.

A company’s governance practices can provide valuable insights into its risk management and sustainability—and a company’s board composition is a key factor to consider. Research—our own included—indicates that the age diversity of a company’s board of directors may correlate with operational performance and shareholder returns, making a strong case for multigenerational boards.

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What Chief Sustainability Officers Are Thinking

Posted by Martha Carter, Kensey Biggs, and Heidi Park, Teneo, on
Saturday, November 2, 2024
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Martha Carter is a Vice Chair and Head of Governance Advisory, Kensey Biggs is a Managing Director and Head of U.S. Corporate ESG, and Heidi Park is a Senior Associate at Teneo. This post is based on a Teneo memorandum by Ms. Carter, Ms. Biggs, Ms. Park, and Andrea Calise.

Below is a summarized collection of insights that we have heard from Chief Sustainability Officers (CSOs) recently.

Covering topics such as how global businesses are approaching sustainability strategies, responding to reporting requirements, addressing stakeholder feedback and communicating their priorities, these insights highlight the importance of sustainability across industries and the role of collaboration in driving meaningful change.

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Hail to the (Returning) Chief

Posted by Riyaz Lalani and Dan Gagnier, Gagnier Communications, on
Friday, November 1, 2024
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Riyaz Lalani is a Managing Director, and Dan Gagnier is the Founder and a Managing Partner at Gagnier Communications. This post is based on their Gagnier Communications memorandum.

The long shadow of former CEOs as change agents has touched companies from Starbucks to Disney. Charismatic former executives have successfully lobbied company board members to oust their successors. These situations rely heavily on past relationships and goodwill with members of the board, and are something of a family affair.

Former senior executives with industry experience are also regularly sought after as independent company directors and activist nominees at companies where they have no prior employment history.

Many of these individuals serve as knowledgeable and experienced change agents and leaders. (E.g. the late railroad legend E. Hunter Harrison was enlisted by activist investors at Canadian Pacific Railway and CSX Corp.) This is by no means a new phenomenon and one that boards and investors frequently navigate.

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