Director-Shareholder Engagement: Getting It Right

Maria Castañón Moats is Leader, Paul DeNicola is Principal, and Matt DiGuiseppe is Managing Director at the Governance Insights Center at PricewaterhouseCoopers LLP. This post is based on their PwC memorandum.

When done right, director-shareholder engagement can pay dividends for both the investor and the company. We identify the key steps for directors—and investors—to get the most out of these exchanges.

Years ago, “shareholder engagement” was an earnings call led by the company’s CEO and CFO, or a
meeting with the investor relations team. Any contact was handled by company management.

Today, the picture is quite different. In PwC’s 2021 Annual Corporate Directors Survey, more than half (53%) of directors say that board members (other than the CEO) engaged directly with the company’s shareholders during the prior year.

Part of this shift in engagement relates to investors’ recent focus on environmental, social and governance (ESG) concerns, and the desire to hear from directors about how the company is approaching those issues. In 2021, ESG topped strategy as the most common discussion topic, it was raised in 43% of discussions, up from 23% in 2020. [1] Directors can be well-positioned to give investors a long-term view of the company’s plans.


The SEC Revolving Door and Comment Letters

Michael Shen is an Assistant Professor of Accounting at NUS Business School, National University of Singapore, and Samuel T. Tan is an Assistant Professor of Accounting at the School of Accountancy, Singapore Management University. This post is based on their recent paper, forthcoming in The Journal of Accounting and Public Policy. 

The revolving door between the Securities and Exchange Commission (SEC) and the private sector has been the subject of a great deal of scrutiny in recent years. The SEC regulates, and enforces laws concerning, public companies, with a mission that includes “protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation“. However, SEC employees who leave the agency regularly find themselves aiding the very corporations the SEC is regulating, and working against the SEC’s regulatory activities. Between 2001 and 2010, over 400 former SEC employees filed statements that they intended to represent an external party before the SEC.

In our study, forthcoming at the Journal of Accountancy and Public Policy and available at SSRN, we examine the impact of the revolving door on the SEC’s comment letter process, a crucial process by which the SEC exercises its regulatory mission.

The Sarbanes-Oxley Act of 2002 requires the SEC to review companies’ filings at least once every three years, and the SEC sends comments to the company when SEC staff believe that the disclosures in its filings can or should be improved. This review process leads to a dialogue between the firm and SEC staff, in which the SEC may make requests of the firm, for example to amend one or more past filings, and in which the firm may negotiate for more desirable outcomes, for example to simply revise future filings. Firms often involve external lawyers in this conversation with the SEC, and these lawyers may have formerly been employed by the SEC.


SEC Final Share Repurchase Disclosure Rules Less Burdensome Than Expected

Brad Goldberg and Jaime L. Chase are Partners and Asher Herzog is an Associate at Cooley LLP. This post is based on a Cooley memorandum by Mr. Goldberg, Ms. Chase, Mr. Herzog, Cydney Posner, Reid Hooper, and Stephanie Gambino. Related research from the Program on Corporate Governance includes Short-Termism and Capital Flows (discussed on the Forum here) by Jesse M. Fried, and Charles C.Y. Wang; and Share Repurchases, Equity Issuances, and the Optimal Design of Executive Pay (discussed on the Forum here) by Jesse M. Fried.

On May 3, 2023, the Securities and Exchange Commission (SEC) voted at an open meeting to adopt final rules to require enhanced disclosure about issuer share repurchases under the Securities Exchange Act of 1934, as amended. The final rules will:

  • Require tabular disclosure to be filed quarterly [1]  in an exhibit to Forms 10-Q and 10-K of an issuer’s [2]  repurchase activity aggregated on a daily basis, replacing the current requirements in Item 703 of Regulation S-K to disclose monthly repurchase data. Foreign private issuers (FPIs) filing on forms available exclusively to FPIs will have to disclose quarterly the same daily repurchase data on a new Form F-SR, in place of the current requirements in Item 16E of Form 20-F to disclose monthly repurchase data.
  • Require a company to disclose quarterly via a checkbox whether any of its Section 16 officers or directors – or senior management or directors for FPIs – purchased or sold shares (or other units) that are the subject of a company share repurchase plan or program within four business days before or after the announcement of the plan or program.
  • Revise and expand Item 703 to require a company to disclose in its Forms 10-Q and 10-K:
    • The objectives or rationales for its share repurchases and the process or criteria used to determine the amount of repurchases.
    • Any policies and procedures relating to purchases and sales of the company’s securities by its officers and directors during a repurchase program, including any restrictions on those transactions.


Investor Group Launches Plan to Boost Corporate Climate Engagement

Jason M. Halper is a Partner and Sara Bussiere and Duncan Grieve are Special Counsel at Cadwalader, Wickersham & Taft LLP. This post is based on their Cadwalader memorandum. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) by Lucian A. Bebchuk and Roberto TallaritaHow Much Do Investors Care about Social Responsibility? (discussed on the Forum here) by Scott Hirst, Kobi Kastiel, and Tamar Kricheli-Katz; Does Enlightened Shareholder Value add Value (discussed on the Forum here) by Lucian Bebchuk, Kobi Kastiel, Roberto Tallarita; and Companies Should Maximize Shareholder Welfare Not Market Value (discussed on the Forum here) by Oliver Hart and Luigi Zingales.

The Institutional Investors Group on Climate Change (IIGCC), a European membership body for investor collaboration on climate change, announced the launch of its Net Zero Engagement Initiative (NZEI). A primary goal of the initiative is to “support investors align more of their investment portfolio with the goals of the Paris Agreement” while also increasing the number of companies subject to investor engagement on climate change. While Climate Action 100+, of which IIGCC is a coordinating member, “has transformed the scale and prominence of climate engagement with 166 high emitting focus companies, many more companies need to be engaged to align portfolios with net zero,” said IIGCC.

As of the end of March 2023, 93 investors have agreed to participate in NZEI, including Allianz, BNP Paribas, the Church of England Pensions Board, and Schroders. 107 companies across a wide range of industries have received letters requesting confirmation that the companies have developed, or intend to develop, a net zero transition plan, which “provides a key tool for understanding the alignment of investment portfolios.” The letters state that the “plans should set out both a company’s emissions targets and a strategy for how it intends to deliver them. Recognising that most companies will not be able achieve net zero by themselves, they should also set out how they intend to support the transition more broadly.”


Mission and Goals of the Racial Justice Initiative

Olivia Knight leads As You Sow’s Racial Justice Initiative. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) by Lucian A. Bebchuk and Roberto TallaritaHow Much Do Investors Care about Social Responsibility? (discussed on the Forum here) by Scott Hirst, Kobi Kastiel, and Tamar Kricheli-Katz; and Social Responsibility Resolutions (discussed on the Forum here) by Scott Hirst.

Racial Justice — As You Sow

In May 2020, the world witnessed the horrific death of George Floyd, shocking Americans into confronting the racial injustice experienced by Black Americans daily. This event forced a re-evaluation of our most fundamental beliefs and institutions and became a catalyst for change. As You Sow, the nation’s leading non-profit in shareholder advocacy, created the Racial Justice Initiative to hold corporations accountable on the racial justice statements issued in response to George Floyd’s murder and the national uprising demanding eradication of systemic racism. Corporate public statements of support for Black communities were released quickly, some as vague and noncommittal as the corporate actions that followed. Other companies expressed profound commitments to sustained efforts to eliminate systemic racism and are actively working on promoting racial justice. The purpose of the Initiative is to monitor these corporate responses and follow up with companies to ensure that the statements of support for racial justice are translated into concrete actions that truly promote equity thereby helping them on the path to end corporate complicity in systemic racism.

Corporate Engagement on Racial Equity and Diversity, Equity and Inclusion

There is growing acknowledgement that systemic racism is the underlying cause of discrimination and injustice, and that corporations are complicit in perpetuating systemic racism. Despite the well-documented material benefits that companies gain through diversification, corporations have been slow to realize the critical role they play in perpetuating systemic racism. First steps have been taken by many companies by acknowledging the inequities that exist and expressing a willingness to change. Our role, as shareholder advocates, is to educate companies so they can examine the implicit biases built into their systems. The Racial Justice Initiative helps companies achieve an antiracist perspective to enhance their business models and create a direct positive impact on the lives of all stakeholders. 

Since 2020 the Racial Justice Initiative has developed Racial Justice Scorecards on the Russell 1000, which track publicly available information on key actions related to racial equity, diversity, equity and inclusion (DEI) disclosure and policies, and environmental justice. We update our data quarterly, giving companies we engage with the opportunity to improve throughout the year. We conduct our annual deep-dive research from May – September. Our Scorecards serve as educational tools, guidelines to help a variety of stakeholders understand and gauge corporate progress on racial equity.


Environmental, Social Policy & Related Corporate Governance Issues in Proxy Season 2023

Heidi Welsh is the Executive Director at the Sustainable Investments Institute. This post is based on the Proxy Preview report, an annual collaboration between the Sustainable Investments Institute, Proxy Impact, and As You Sow.

This post includes the executive summary and overview sections from Proxy Preview report, an annual collaboration between the Sustainable Investments Institute (Si2), Proxy Impact and As You Sow.  Si2 authored the Proxy Preview forecast of the proxy season, with data as of mid-February.

 Eighty-five additional proposals have come to light since February, mostly from anti-ESG proponents (see separate post). 

 Figure 1 provides an updated overview of proxy season results as of May 31, 2023, but this post otherwise reflects the state of proposals in February, with a few exceptions as noted.

Proxy Preview Executive Summary

As of mid-February, shareholder proponents had filed at least 542 shareholder resolutions on environmental, social and related sustainable governance issues for the 2023 proxy season, about the same as in 2022; by the end of May this rose to 626—clearly on track to exceed last year’s unprecedented final total of 627. A shift at the Securities and Exchange Commission (SEC) dramatically cut the number of proposals omitted in 2022 and far fewer companies submitted challenges in 2023.  As of May 31, 2023, 43 proposals had been omitted, compared with 39 in all of 2022.  The lower number of withdrawals apparent in February has continued and as of May 31, only 222 have been withdrawn or were not voted for other reasons, compared to 275 in all of 2022. Addition negotiations in engagements continued, but overall agreements seem less likely in 2023.

Record high votes on many issues in 2021 appear to have prompted both more filings in 2022 and — to some extent — more expansive proposals. After the average vote then fell, though, proponents reframed some 2023 requests to be less specific, but what appears to be an anti-ESG contagion nonetheless appears to have persuaded a number of big investors not to support shareholder proposals this year.  While the war in Ukraine and a tumultuous energy market might have affected climate change proposals, the impact seems broader even though the fundamental risks and opportunities posed by ESG issues remain unchanged and have even grown more urgent in the intervening year.


Weekly Roundup: May 26-June 1, 2023

More from:

This roundup contains a collection of the posts published on the Forum during the week of May 26-June 1, 2023

Modernization of Beneficial Ownership Reporting Rule Proposal

Florida Passes Farthest-Reaching Anti-ESG Law to Date

Significant Amendments to Private Fund Adviser Reporting on Form PF

The Imperfect CEO

It’s Time to Call a Truce in the Red State/Blue State ESG Culture War

Disloyal Managers and Shareholders’ Wealth

New Disclosures in Periodic Reports on Share Repurchases

2023 Say on Pay & Proxy Results

Officer Exculpation Under Delaware Law—Encouraging Results in Year One

2023 Proxy Season: More Proposals, Lower Support

Anti-ESG Shareholder Proposals in 2023

Anti-ESG Shareholder Proposals in 2023

Heidi Welsh is the Executive Director at the Sustainable Investments Institute. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) by Lucian A. Bebchuk and Roberto TallaritaHow Much Do Investors Care about Social Responsibility? (discussed on the Forum here) by Scott Hirst, Kobi Kastiel, and Tamar Kricheli-Katz; and Social Responsibility Resolutions (discussed on the Forum here) by Scott Hirst.

While much recent public controversy about sustainable investment focuses on climate change and fossil fuel companies, almost all shareholder proposals from organizations opposed to ESG investment considerations instead are about social policy.  While “regular” ESG proposals generally offer ideas for how to address various corporate policies—voicing different ideas for new policies, actions or disclosures—the anti-ESG proponents ask companies to stop doing things.  Theirs is a “just say no” campaign.

Generally speaking, the anti-ESG proponents seek to roll back the clock to a mid-20th century world where businesses operated with little consideration of their social and environmental impacts.  The needle has moved, however; investors with trillions of AUM now routinely examine corporate impacts on society and the natural world.  The cutting-edge debate is not about if there are impacts, but rather about the nature of systemic economic risk from climate change, human capital management and other issues.  Proponents with anti-ESG ideas have gained little recent traction with investors at large in proxy season, even though like-minded politicians have had some success in passing state laws eschewing ESG considerations in the investment process.

More proposals, meager support:  The volume of proposals from “anti-ESG” proponents has more than doubled in the last three years, growing to 79 and up from 30 just three years ago.  Only eight such proposals went to votes in 2021 but more than four dozen are on track for votes in 2023.  Support levels have not budged significantly, with 36 votes as of May 31 earning average support of 2.8 percent—half what is needed to qualify for resubmission in the first year.  Average support has dropped from last year’s already meager 3.5 percent.  (Figure 1.) 


2023 Proxy Season: More Proposals, Lower Support

Paul Washington is Executive Director of the ESG Center at The Conference Board, Inc. Merel Spierings is Researcher at the ESG Center. This post relates to Shareholder Voting Trends Live Dashboard, an online dashboard published by The Conference Board in partnership with ESG data analytics firm ESGAUGE and in collaboration with Russell Reynolds Associates and Rutgers Center for Corporate Law and Governance.

We are continuing to see a flood of shareholder proposals in 2023.  Thus far this year, shareholders have filed 803 proposals at Russell 3000 companies, compared to 801 through in the first half of 2022. That’s more than the 798 proposals filed in all of 2021.


Officer Exculpation Under Delaware Law—Encouraging Results in Year One

Brian V. Breheny, and Allison L. Land are Partners and Ryan J. Adams is Counsel at Skadden, Arps, Slate, Meagher & Flom LLP. This post is by Mr. Breheny, Ms. Land, Mr. Adams, Alexander J. Vargas and Melanie Yeames, and is part of the Delaware law series; links to other posts in the series are available here.

Effective August 1, 2022, Section 102(b)(7) of the Delaware General Corporation Law (the “DGCL”) was amended to permit Delaware corporations to exculpate certain senior officers, to provide them with protection from liability for monetary damages that is similar to the protection that has been available for directors under the DGCL for nearly 40 years.  To provide for officer exculpation, however, a Delaware corporation must amend its certificate of incorporation, which requires stockholder approval.  Heading into the 2023 proxy season, it was unclear how many Delaware corporations would seek to take advantage of this new officer exculpation provision and, if so, whether their stockholders and the proxy advisory firms would support proposed amendments to certificates of incorporation to effect this change.  With many annual meetings completed, initial results have been very encouraging.  To date, over 260 publicly traded Delaware corporations have proposed amendments to their certificates of incorporation to provide for officer exculpation, and have submitted such proposed amendments to their stockholders for approval at their 2023 annual meeting.  With nearly half of those annual meetings completed, the vast majority of such proposals have received stockholder approval, often by an overwhelming majority of the votes cast.


Section 102(b)(7) of the DGCL was amended less than a year ago to authorize exculpation of certain senior officers of Delaware corporations from personal liability for monetary damages in connection with breaches of their fiduciary duty of care (the “Officer Exculpation Amendment”).  This was viewed by many as a welcome and necessary change, putting such senior corporate officers on similar footing with directors, who have long been afforded protection from personal liability, [1] although the officer exculpation provisions are more limited than the protection available to directors.[2] In recent years, the frequency with which officers of public corporations have been targets of stockholder lawsuits has increased significantly, emphasizing the need to provide them with protection from personal liability.


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