Who are the new directors?

Posted by Subodh Mishra, Institutional Shareholder Services, Inc., on
Friday, September 22, 2023
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Subodh Mishra is Global Head of Communications at Institutional Shareholder Services (ISS) Inc. This post is based on an ISS Corporate Solutions memorandum by Sandra Herrera Lopez, Ph.D., Vice President, ESG Content & Data Analytics, & Veronica Nikitas, Senior Associate, Compensation & Governance Advisory at ISS Corporate Solutions.

A look at the demographic makeup of the latest independent board directors

Bringing on new board members presents a valuable opportunity for companies to benefit from fresh insights and expertise. In the following analysis, ISS Corporate Solutions examined the current directors across Russell 3000 companies to understand the diverse composition of the most recent group of independent directors.

KEY FINDINGS:

  • Underrepresented groups including women, Asians, and African Americans are gaining ground
  • The average age of new directors is 58, which is higher than the average age for tenured directors when they joined a board
  • 28% of new directors participate in another Russell 3000 board

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Weekly Roundup: September 15-21, 2023

Posted by the Harvard Law School Forum on Corporate Governance, on
Friday, September 22, 2023

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This roundup contains a collection of the posts published on the Forum during the week of September 15-21, 2023

Financial Implications of Rising Political Risk in the US

Posted by Stephen Davis (Harvard Law School), on Friday, September 15, 2023
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In 2022, Corporate Time Horizons Shorten, Investors’ Lengthen

Posted by Allen He, Jessica Pollock, FCLTGlobal, on Saturday, September 16, 2023
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The EU Corporate Sustainability Reporting Directive -what non-EU companies should know

Posted by Peter Pears, Tim Baines, and Oliver Williams, Mayer Brown LLP, on Sunday, September 17, 2023
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Discretionary Investing by ‘Passive’ S&P 500 Funds

Posted by Peter Molk (University of Florida), and and Adriana Robertson (University of Chicago), on Monday, September 18, 2023
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2023 Proxy Season Digest

Posted by Subodh Mishra, Institutional Shareholder Services, Inc., on Monday, September 18, 2023
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Guarding Against a Short Attack

Posted by Richard J. Grossman, Neil P. Stronski and Demetrius A. Warrick, on Tuesday, September 19, 2023
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CEO Succession Practices in the Russell 3000 and S&P 500

Posted by Matteo Tonello, The Conference Board, on Tuesday, September 19, 2023
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Supply Chains: From Out of Sight To Front and Center on the Board Agenda

Posted by Ben Shrewsbury, Andrew Hayes, and Fawad Bajwa, Russell Reynolds Associates, on Wednesday, September 20, 2023
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Wildest Campaigns of 2023

Posted by Jason Booth, Will Arnot, and Miles Rogerson, Diligent Institute, on Wednesday, September 20, 2023
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Statement by Commissioner Uyeda on Updates to the Names Rule

Posted by Mark T. Uyeda, U.S. Securities and Exchange Commission, on Thursday, September 21, 2023
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Statement by Chair Gensler on Updates to the Names Rule

Posted by Gary Gensler, U.S. Securities and Exchange Commission, on Thursday, September 21, 2023
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Statement by Chair Gensler on Updates to the Names Rule

Posted by Gary Gensler, U.S. Securities and Exchange Commission, on
Thursday, September 21, 2023

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Gary Gensler is Chair of the U.S. Securities and Exchange Commission. This post is based on his recent statement. 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.

Today, the Commission is considering final rules to update the Names Rule. I am pleased to support this rule adoption because it will help ensure that a fund’s portfolio matches a fund’s name. Such truth in advertising promotes fund integrity on behalf of fund investors.

The Names Rule reflects a basic idea: A fund’s investment portfolio should match a fund’s advertised investment focus. In essence, if a fund’s name suggests an investment focus, the fund in turn needs to invest shareholders’ dollars in a manner consistent with that investment focus. Otherwise, a fund’s portfolio might be inconsistent with what fund investors desired when selecting a fund based upon its name.

In crafting the federal securities laws, Congress understood the importance of how funds describe themselves—including through the names they choose. Thus, in the Investment Company Act of 1940, Congress included fund naming provisions. In 1996, Congress amended these provisions to authorize the Securities and Exchange Commission to define registered investment company names as “materially deceptive or misleading.”[1]

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Statement by Commissioner Uyeda on Updates to the Names Rule

Posted by Mark T. Uyeda, U.S. Securities and Exchange Commission, on
Thursday, September 21, 2023
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Mark T. Uyeda is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on his recent public statement. The views expressed in the post are those of Commissioner Uyeda, and do not necessarily reflect those of the Securities and Exchange Commission or the Staff.

Thank you, Chair Gensler, and my thanks to the staff for their presentations. Today, the Commission is adopting amendments to rule 35d-1 under the Investment Company Act, known as the “fund names rule,” and related Form amendments, including to Form N-PORT. While the adopting release makes a number of changes from the proposal, they ultimately do not go far enough.

With these amendments, the Commission overemphasizes the importance of a fund’s name, as if to suggest that investors and their financial professionals need not look at the prospectus disclosures. These amendments also will entail significant compliance costs for funds to implement – costs not captured in our particular method of estimating time burdens and costs under the Paperwork Reduction Act – which ultimately will be borne by investors. Alternatively, funds might simply select generic or exceedingly complex names that do little to help investors.

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Wildest Campaigns of 2023

Posted by Jason Booth, Will Arnot, and Miles Rogerson, Diligent Institute, on
Wednesday, September 20, 2023
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Jason Booth is an Editorial Manager, Will Arnot is a Senior Editorial Specialist, and Miles Rogerson is a Financial Journalist at Diligent Market Intelligence. This post is based on a Diligent memorandum by Mr. Booth, Mr. Arnot, Mr. Rogerson, Rebecca Sherratt, and Joe Lyons. 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); Dancing with Activists by Lucian Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch (discussed on the Forum here); and Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System by Leo E. Strine, Jr. (discussed on the Forum here).

Amid depressed financial markets and soaring inflation, activists are placing a heightened focus on company profitability and have been increasingly unforgiving of companies failing to maximize profits and streamline operations.

In this section, the Diligent Market Intelligence (DMI) editorial team reveals our picks for the wildest activist campaigns of the 2023 season.

So far this year, we’ve seen the godfather of shareholder activism lock horns with a biotech giant while simultaneously defending his holding company from a shorts attack, veteran activist Nelson Peltz back down from a fight, and divisive mergers and acquisitions, some of which have developed into heated lawsuits.

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Supply Chains: From Out of Sight To Front and Center on the Board Agenda

Posted by Ben Shrewsbury, Andrew Hayes, and Fawad Bajwa, Russell Reynolds Associates, on
Wednesday, September 20, 2023
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Ben Shrewsbury and Andrew Hayes are Managing Directors, and Fawad Bajwa is a Leader at Russell Reynolds Associates. This post is based on a Russell Reynolds memorandum by Mr. Shrewsbury, Mr. Hayes, Mr. Bajwa, Mike Nurminen, Gregory Gerin, and Vijuraj Eranazhath.

Supply chains have become an increasingly crucial board priority. Here’s why.

Supply chains have always been vulnerable to disruption, but our current combined crises of COVID-19’s after-effects, the ongoing war in Ukraine, and ripples from recent trade wars have caused disturbances at never-before-seen magnitudes. Furthermore, increased expectations from internal and external stakeholders to operationalize sustainability have resulted in supply chain functions taking a more central role in the sustainability journey. Recent changes in universal proxy rules are likely to result in more challenges to boards from single issue activists/groups (e.g., climate and sustainability). Consequently, supply chains have become a strategic priority for many organizations, shifting them from out of sight to front and center on C-suite and—in an increasingly significant trend—board agendas.

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

Posted by Matteo Tonello, The Conference Board, on
Tuesday, September 19, 2023
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Matteo Tonello is Managing Director of ESG Research at The Conference Board, Inc., Jason D. Schloetzer is Associate Professor of Business Administration at the McDonough School of Business at Georgetown University, and Lyndon A. Taylor is a Partner at Heidrick & Struggle and the regional managing partner of the Americas CEO & Board of Directors Practice. This post relates to CEO Succession Practices in the Russell 3000 and S&P 500: Live Dashboard, an online dashboard published by The Conference Board, executive search firm Heidrick & Struggles, and ESG data analytics firm ESGAUGE.

These Key Findings are based on a dataset downloaded on July 31, 2023 from CEO Succession Practices in the Russell 3000 and S&P 500: Live Dashboard. The Live Dashboard is updated weekly with information on succession announcements about chief executive officers (CEOs) made at Russell 3000 and S&P 500 companies; please browse the Live Dashboard to review and download the most current figures. For comparative purposes, the Live Dashboard includes historical data and breakdowns across business sectors (as classified under the Global Industry Classification Standard, or GICS) and company size groups; see Using This Dashboard for more details. In the coming weeks, these Key Findings will be complemented with a series of insights for members of The Conference Board.

The project is conducted by The Conference Board and ESG data analytics firm ESGAUGE, in collaboration with executive search firm Heidrick & Struggles.

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Guarding Against a Short Attack

Posted by Richard J. Grossman, Neil P. Stronski and Demetrius A. Warrick, on
Tuesday, September 19, 2023
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Demetrius A. Warrick, Richard J. Grossman, and Neil P. Stronski are Partners at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on their Skadden memorandum. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism (discussed on the Forum here) by Lucian Bebchuk, Alon Brav, and Wei Jiang; Dancing with Activists (discussed on the Forum here) by Lucian Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch; and Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System (discussed on the Forum here) by Leo E. Strine, Jr.

Key Points

  • To prepare for the possibility of a short seller attack, companies should assess their vulnerabilities, maintain open channels of communication with shareholders, monitor short positions and changes in their shareholder base, and formulate a communications strategy.
  • In the face of a short attack, it is vital for a company to respond promptly with detailed evidence to rebut the short seller’s accusations point by point.
  • Share buybacks and dividend increases may help to restore a share price depressed by a short attack, but there is a risk that these may be seen as superficial defensive moves that do not address fundamental questions about the business.
  • Suing the firm or individuals behind a short attack or seeking an intervention by regulators rarely is successful and can backfire, drawing attention to the criticisms.

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2023 Proxy Season Digest

Posted by Subodh Mishra, Institutional Shareholder Services, Inc., on
Monday, September 18, 2023
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Subodh Mishra is Global Head of Communications at Institutional Shareholder Services (ISS) Inc. This post is based on an ISS memorandum by Toby Huang, Associate, Data Analytics; and Sandra Herrera Lopez, Ph.D., Vice President, ESG Content & Data Analytics at ISS Corporate Solutions.

Introduction

Each year during proxy season, ISS Corporate Solutions (ICS) analyzes recently collected data from Russell 3000 company filings. This year we focused on director support and diversity, executive compensation, and shareholder proposals. In this season-ending review, we aggregate our findings for a comprehensive lookback on the 2023 proxy season.

Key Takeaway

  • Boards continued to diversify while director support levels trended slightly lower.
  • Failed Say-on-Pay proposals were down, but median support levels are also declining.
  • One year Say-on-Pay frequency is increasingly becoming the norm among smaller companies.
  • ESG-related performance metrics are gaining popularity in executive compensation packages.
  • Environmental and Social shareholder proposals are gaining prevalence but support has weakened.

Board of Directors

  • Director Vote Support Declining
  • Diversity among Boards of Directors
  • Percentage of Women on the Board in Leadership Roles

Director vote support has eroded steadily by about 1% over the past five years. Women and ethnic minorities enjoy 0.5%-1.0% higher support than their counterparts.

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Discretionary Investing by ‘Passive’ S&P 500 Funds

Posted by Peter Molk (University of Florida), and and Adriana Robertson (University of Chicago), on
Monday, September 18, 2023
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Peter Molk is the John H. and Mary Lou Dasburg Professor of Law at the University of Florida Levin College of Law and  Adriana Z. Robertson is Donald N. Pritzker Professor of Business Law at the University of Chicago Law School.  This post is based on their recent paper. Related research from the Program on Corporate Governance includes The Agency Problems of Institutional Investors (discussed on the Forum here) by Lucian Bebchuk, Alma Cohen, and Scott Hirst; Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy (discussed on the Forum here) by Lucian Bebchuk and Scott Hirst; and The Specter of the Giant Three (discussed on the Forum here) by Lucian Bebchuk and Scott Hirst.

So-called “passive” index funds, which track a pre-specified underlying index, manage over $12 trillion in assets. It is widely assumed that the managers of these funds cannot select portfolios that deviate from the index’s holdings. In Discretionary Investing by ‘Passive’ S&P 500 Funds, we show this assumption is false as a matter of both law and empirical fact. We analyze funds that track the S&P 500 – the most widely used index – and find their holdings regularly diverge from the index’s, by between 1.7% and 7.5% in the fourth quarter of 2022 alone. These deviations amount to over $60 billion in discretionary investment decisions, roughly equivalent to Target Corporation’s entire market capitalization. Our findings complicate the standard narrative around index funds and weaken many of the criticisms traditionally levied against these funds.

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