Risk Management and the Board of Directors

Martin Lipton is a Founding Partner at Wachtell, Lipton, Rosen & Katz. This post is based on his Wachtell Lipton memorandum.

This post is based on a Wachtell, Lipton, Rosen & Katz memorandum by Martin Lipton, Karessa Cain, Sarah Eddy, Kevin Schwartz, Lina Tetelbaum, David Adlerstein, and Anna D’Ginto.

I. INTRODUCTION

Overview

Public companies and their boards of directors face an increasingly complex array of risks that test the resilience of corporate values, strategies, operations, and enterprise risk management frameworks. Tighter monetary policies, deepening geopolitical tensions, widening domestic political polarization, labor shortages, severe weather events, growing challenges tied to nature and biodiversity loss, and the uncertainties surrounding generative AI are among the varied risks that companies have had to contend with in recent years.

These risks are likely to persist and even intensify—against the backdrop of unpredictable trade and foreign policy, ongoing conflict in Ukraine and the Middle East, and China’s sluggish post-pandemic recovery. Severe wildfires, heatwaves and flooding across the globe, rising insurance costs, and the exodus of insurers from large pockets of the country underscore the burgeoning financial risks and challenges of climate risks. Cybersecurity risk continues to increase in scale and scope while the geopolitical rivalry between China and the United States remains unabated. According to the World Economic Forum’s Global Risks Report 2025, the majority of the business leaders polled anticipate some instability and a moderate risk of global catastrophes, while another 31% expect even more turbulent conditions over the next two years.

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When Disclosure Pays: Evidence from the Over-The-Counter Markets

Robert Bartlett is the W. A. Franke Professor of Law and Business and the faculty co-director of the Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford Law School, and Colleen Honigsberg is the Associate Dean of Curriculum, a Professor of Law, and also the faculty co-director of the Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford Law School. This post is based on their recent paper.

A familiar concern among policymakers is the shrinking number of U.S. publicly traded companies. For instance, SEC Commissioner Hester Peirce recently highlighted that the number of listed firms has fallen from approximately 8,000 in 1996 to around 4,200 in mid-2022. Increasing the supply of public companies has been a bipartisan policy objective.

Yet this debate often overlooks thousands of firms traded outside national exchanges on the over-the-counter (OTC) market. While not “listed” in the traditional sense, many of these firms’ securities are publicly traded via broker-dealers and interdealer quotation systems (IDQS). OTC Markets Group, for example, enables retail investors to buy and sell the stock of nearly 5,000 U.S. issuers. By a functional definition of “publicly traded,” the U.S. market may be considerably larger than the standard narrative suggests.

A critical distinction, however, lies in disclosure. Exchange-traded firms must comply with Section 13 of the Exchange Act, which ties eligibility for exchange trading to mandatory, periodic disclosures. In contrast, many OTC issuers historically provided no ongoing public financial information while continuing to benefit from broker-dealer quotations. This separation of public trading and ongoing disclosure is unusual in U.S. securities markets, where the two are typically bundled.

In a new paper titled When Disclosure Pays: Evidence from the Over-The-Counter Markets, we study a recent regulatory reform—amendments to SEC Rule 15c2-11— that, for the first time, directly tied periodic disclosure and public trading in the OTC market. This reform ended the longstanding anomaly in which firms’ could be publicly quoted without making periodic public disclosures. In so doing, we provide new estimates of the costs and benefits, in terms of liquidity and valuation, of a mandatory disclosure regime that bundles together disclosure and public trading. READ MORE »

Proxy Season Global Briefing: Trends on Executive Pay

Kevin Gibb and James McQuerrey are Lead Analysts, and Alicja Bielawska is a Director at Glass, Lewis & Co. This post is based on a Glass Lewis memorandum by Mr. Gibb, Mr. McQuerry, Ms. Bielawska, Matti Jaakkola, Krishna Shah, and Dimitri Zagoroff.

In the fourth installment of our Proxy Season Global Briefing, we provide a rundown of the headlines and key trends relating to executive pay from around the globe. Glass Lewis clients can also access the full report via the content libraries on Viewpoint and Governance Hub. For earlier installments in the series, read part onepart two, and part three.

Whether you call it compensation or remuneration, how — and how much — executives get paid remains a lightning rod for companies and investors around the world. Read on below for this year’s trends.

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SEC’s Spring 2025 Regulatory Flex Agenda Signals a Strategic Pivot

Samantha Nussbaum and Dina Bernstein are Principals at FW Cook. This post is based on a FW Cook memorandum.

On September 4, 2025, the SEC released its latest Spring 2025 Regulatory Flex Agenda, referred to below as the Agenda, outlining its rulemaking priorities under Chairman Paul Atkins. The Agenda marks a pronounced shift compared to those published under the prior administration, focusing on deregulation and streamlined disclosures. As foreshadowed in recent public remarks by Chairman Atkins and other senior SEC officials, the Agenda rolls back previously proposed ESG-related rulemakings, and while not detailed in this blog entry, contains a significant number of crypto-market related items and reforms.

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Recap of the 2025 Say on Pay Season

Linda Pappas is a Principal, and Perla Cuevas and Montserrat Longoria are Consultants at Pay Governance LLC. This post is based on their Pay Governance memorandum.

Introduction

Pay Governance has gathered information on Say on Pay (SOP) proposal outcomes and total shareholder return (TSR) for S&P 500 companies dating back to when SOP began with the 2011 proxy season. This article places into context how the most recent 2025 SOP outcomes are unfolding compared to recent history beginning in 2021. In both 2024 and 2025, we found that, overall, companies had greater SOP success, with proxy advisor opposition to SOP proposals and the number of companies failing SOP at record lows. Although the year has not yet ended, about 90% of S&P 500 SOP proposals have already been put to a shareholder vote through August 31, 2025.

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What Do Women Bring to the Boardroom? Evidence from Corporate Environmental Performance

Po-Hsuan Hsu is the Tsing Hua Chair Professor and NTHU Ching-Jing Distinguished Talent Chair at the National Tsing Hua University, Kai Li is the W.M. Young Professor of Finance and the Canada Research Chair in Corporate Governance at the University of British Columbia, and Yihui Pan is an Associate Professor of Finance at the University of Utah. This post is based on their article forthcoming in Management Science.

Rising interest in board gender diversity has spurred debates in both academia and the business world about what women bring to the boardroom table. Proponents argue that female directors are less likely to succumb to groupthink, better positioned to identify long-term risks and opportunities, and more willing to prioritize stakeholder concerns. Skeptics question whether female directors have a measurable impact on firm outcomes.

Our recent paper, The Eco-Gender Gap in Boardrooms, available here, takes up these questions in the context of corporate environmental performance. We characterize our project as “E meets S and G”: Po has long worked on environmental issues, while Kai and Yihui have focused on corporate governance, including corporate social responsibility. Together, we examine how board gender diversity—a governance issue with social implications—affects firms’ environmental engagement.

Gender Differences in Prioritizing Environmental vs. Economic Issues

We begin with new survey evidence from the Gallup Social Series Poll. Across different income groups and time periods, we find a consistent gender gap: female respondents are more likely than male respondents to prioritize environmental protection over economic growth or energy supply. Male respondents, by contrast, more often emphasize short-run economic or energy benefits.

This finding echoes results from PwC’s Annual Corporate Directors Survey, which shows that female directors are more likely to prioritize environmental issues than their male counterparts. The survey also highlights a persistent challenge: 43% of directors surveyed report that it is difficult to voice a dissenting view in the boardroom.

We propose that one way to increase diversity of thought, especially on complex tradeoffs such as environmental investments, is through gender diversity inside the boardroom. READ MORE »

DExit: Reincorporation Data Seem to Support the Hype

Gaurav Jetley is a Managing Principal, and Nick Mulford is an Associate at Analysis Group, Inc. This post is based on their Analysis Group memorandum, and is part of the Delaware law series; links to other posts in the series are available here.

Interest in reincorporation away from Delaware has increased

Following the Delaware Court of Chancery’s invalidation of Elon Musk’s $56 billion Tesla compensation package in January 2024, there has been an uptick in the business press on reincorporations away from Delaware (DExit). Figure 1 shows that there was more than a threefold increase in the number of news articles in the business press referencing reincorporations from the 2021–2023 period to the 2024–2025H1 period (32 versus 144 average annual articles). [2] Similarly, Google Trends data show an increase in searches for “Delaware incorporation,” with the searches peaking in January 2024, which coincided with the Chancery Court’s decision on Musk’s compensation matter. A few articles since the Tesla decision in January 2024 provocatively suggested that the decision caused Musk to “[lead] a revolt,” “ha[d] Delaware scrambling to preserve its lucrative status as the corporate home of the American business world,” [3] and required lawmakers to “overhaul corporate law” with the aim of “keeping the state attractive to both investors and company leaders.” [4]

Figure 1 also shows that, even though some of the increased attention to DExit – as represented by Google searches and articles published in the business press – has subsided from the levels seen during Q1 2024, the levels remain elevated compared with those observed from Q3 2020 through Q4 2023.

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Fair Corporate Suffrage or Federal Overreach? The 1943 Hearings and Rule 14a-8

Timothy M. Doyle is the President and Co-founder of the Responsible Business Initiative, and Robert Eccles is Visiting Professor of Management Practice at the Oxford University Said Business School.

Prologue

On September 10, 2025, the House Committee on Financial Services convened a full Committee hearing on a slate of proposed bills that would fundamentally reshape the federal proxy rules. Proposals range from registration requirements and expanded liability for proxy advisory firms to sweeping restrictions. Other measures include codification of materiality in issuer disclosure and codification of existing exclusions under Rule 14a-8. Additional proposals would remove the “significant social policy” exception from the ordinary business exclusion and authorize issuers to exclude environmental, social, and political proposals entirely. There is even a bill calling for outright repeal of the shareholder proposal rule itself.

There are also bills directed at asset managers, including measures that would require proportional pass-through voting by passive fund managers, mandate institutional investors to explain their votes in connection with proxy firm recommendations, and prohibit outsourcing of voting decisions to proxy advisory firms. Finally, there are proposals requiring the SEC to establish a Public Company Advisory Committee and to conduct recurring reports on the proxy process.

This legislative agenda is animated by the same debates that have recurred since 1943: whether the proxy process should remain a disclosure regime grounded in shareholder franchise, or become an arena for regulating corporate governance, social policy, and institutional investor stewardship. Eighty-two years ago, the House Committee on Interstate and Foreign Commerce summoned Securities and Exchange Commission Chair Ganson Purcell to testify on the Commission’s adoption of the first federal proxy rules. Then as now, the central questions were whether the SEC had strayed beyond disclosure into the management of corporate affairs, and whether Congress should cabin or expand the Commission’s authority.

The parallels are unmistakable: legislative proposals to narrow Rule 14a-8, impose new disclosure requirements, or displace federal authority with state law echo the very criticisms first aired in the wartime hearings of June 1943.

I. Introduction

In June 1943, the House Committee on Interstate and Foreign Commerce – today known as the House Financial Services Committee – convened three days of hearings to examine the Securities and Exchange Commission’s recent overhaul of the federal proxy rules, including the 1942 adoption of what had been known as X-14A-7 and would later become Rule 14a-8 (see 1943 Hearings, U.S. House Committee on Interstate and Foreign Commerce). The hearings unfolded against a decade of rapid statutory innovation: the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940 – all of which SEC Chair Ganson Purcell invoked as the legal architecture for the Commission’s authority over proxies and shareholder suffrage.

The Commission’s stated objective was straightforward in theory and complex in practice: to ensure “fair corporate suffrage” by improving disclosure and curbing abuses in proxy solicitation at a time when the dispersion of share ownership made in-person participation unrealistic for most investors.

The 1942 revisions pushed beyond the SEC’s earlier “anti-fraud only” posture. After receiving hundreds of comments on its August 1942 proposal, the Commission adopted final rules in December that, among other things, expanded disclosure about directors and executive pay, required companies to furnish annual reports to shareholders together with proxy solicitations, abolished the solicitation exemption for non-interstate communications, and created the controversial “100-word statement” for shareholder proponents.

These changes triggered immediate congressional interest, due in part to their adoption shortly after Congress had adjourned and to concerns raised earlier by members, staff, and a committee of business leaders that the SEC itself had convened and then appeared to disregard. READ MORE »

Corporate Citizenship in Transition: Lessons from 2025, Planning for 2026

Matteo Tonello is the Head of Benchmarking and Analytics at The Conference Board, Inc. This post is based on a Conference Board report by Andrew Jones, Principal Researcher, Governance and Sustainability Center, The Conference Board.

Drawing on a survey of over 80 corporate citizenship and philanthropy leaders at US and multinational firms, this report examines how corporate citizenship is evolving in 2025 amid economic uncertainty, tax changes, legal scrutiny, and nonprofit challenges and outlines priorities for companies planning for 2026.

Trusted Insights for What’s Ahead®

  • Corporate citizenship budgets have held steady in 2025 and are likely to stay flat in 2026, although 19% of surveyed leaders anticipate reductions as companies continue to face economic and strategic uncertainty.
  • A rule introduced in the recent US budget reconciliation measure restricts corporations to deducting aggregate charitable contributions only above 1% of taxable income; this may prompt some companies to reconsider how they plan, time, and structure giving.
  • More than half of surveyed citizenship leaders report that federal scrutiny of diversity-related initiatives has shaped their giving decisions in 2025 as many scale back or reframe identity-based programs and increase emphasis on broad bipartisan themes like education.
  • Many companies have strengthened governance and risk oversight of corporate citizenship this year, with one-third introducing senior or legal approvals for certain types of grants and 60% increasing broader coordination with legal and compliance teams.
  • Two-thirds of surveyed executives report that nonprofit grantees lost government funding in 2025, leading to layoffs and program cuts; corporates have responded in various ways, from providing unrestricted support to reducing partner portfolios.

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2025 Proxy Season Review: Compensation-Related Matters

Marc Treviño is a Partner at Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell memorandum by Mr. Treviño, Julia Khomenko, Brittney G. Kidwell, and Rebecca M. Rabinowitz.

KEY TOPICS

Support for management say-on-pay proposals remained high

  • The number of failed say-on-pay votes continued to remain low across both the S&P 500 and the Russell 3000
  • Overall shareholder support averaged 90% among the S&P 500 and 91% among the Russell 3000 in H1 2025 (consistent with H1 2024)

ISS recommendations meaningfully impacted shareholder votes on say-on-pay proposals 

  • Compared to proposals ISS supported, proposals with negative recommendations received 26% and 22% lower support on average, respectively, at S&P 500 and Russell 3000 companies • Alignment of CEO pay with relative total shareholder return remained the most important quantitative factor underlying ISS negative recommendations
  • Limited, opaque or undisclosed performance goals became the most often cited qualitative factor underlying ISS negative recommendations and use of above-target payout was the second-most cited (compared to the use of above payout target as the most often cited in H1 2024)

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