Yearly Archives: 2020

Glass Lewis and ISS Issue Final 2021 U.S. Voting Policies

Andrea K. Wahlquist and Sabastian V. Niles are partners, and Justin C. Nowell is an associate at Wachtell Lipton Rosen & Katz. This post is based on their Wachtell memorandum.

Glass Lewis recently released its 2021 U.S. Voting Policies, which heighten focus on board diversity and related disclosures, board tenure and refreshment, and environmental and social risk oversight. The new policies also address incentive compensation plans and shareholder proposals. The new policies generally become effective for shareholder meetings held on or after January 1, 2021. ISS also recently released its final U.S. Voting Policies, which track previously issued draft policies and become effective for shareholder meetings held on or after February 1, 2021.

Glass Lewis

Notable updates to Glass Lewis’ voting policy guidelines include:

Board Gender Diversity. Glass Lewis reaffirmed its commitment to board gender diversity and will now generally recommend voting against the nominating committee chair of a board that has fewer than two female directors, starting with shareholder meetings held after January 1, 2022. In the interim, Glass Lewis will apply its existing guideline of a minimum of one female board member for meetings held in 2021 and will flag companies if their boards have fewer than two female directors. Although Glass Lewis’ voting policy guidelines did not adopt a board diversity policy that goes beyond gender or disclosure (see below), it would not be surprising to see a voting policy that addresses ethnic and/or racial diversity on boards in the future. This is particularly true given ISS’ adoption of such an approach and enhanced scrutiny from investors on boards lacking racial and ethnic diversity.


Biden In the Boardroom

Michael Peregrine is partner at McDermott Will & Emery LLP, and Charles Elson is professor of corporate governance at the University of Delaware Alfred Lerner College of Business and Economics. This post is based on their recent article, originally published in Forbes.

A Biden Administration can be expected to have a notable impact on corporate governance, both through specific proposals and by how its policies influence state legislation, “best practices” formulation and board conduct.

During the long presidential campaign, progressive candidates floated several proposals with significant potential impact on corporate governance, including the Accountable Capitalism Act, the Ending Too Big to Jail Act and the Corporate Executive Accountability Act. [1] But in the absence of a “Blue Wave” remaking the composition of Congress, the legislative appetite for such aggressive legislation would appear quite slim. That does not mean, however, that some of the related themes won’t find their way into Administration proposals, especially as it seeks to accommodate the progressives at some level.

For example, it is fair to anticipate proposals that establish basic goals (if not baseline requirements) for diversity, gender equality and worker representation in board composition. More significantly, the Biden Administration can be expected to emphasize the concept of “underrepresented communities” in the context of positions of authority—as has already been demonstrated in the composition of the COVID-19 task force and his transition agency review teams. [2]


ISS Updates its Voting Policies

Pamela Marcogliese, Maj Vaseghi, and Doru Gavril are partners at Freshfields Bruckhaus Deringer LLP. This post is based on a Freshfields memorandum by Ms. Marcogliese, Ms. Vaseghi, Mr. Gavril, Elizabeth Bieber and Kelsey MacElroy.

On November 12, Institutional Shareholder Services (“ISS”) published its annual policy updates in its 2021 global proxy voting guidelines, which are effective for shareholder meetings held on or after February 1, 2021. Social and environmental issues, board diversity, shareholder litigation rights and COVID-19 recovery era policies emerged as ISS’ main areas of focus for its policy updates. Below is a summary of ISS’ key updates for U.S. companies:

Social and environmental issues

Governance failures: material environmental and social risk oversight

ISS will recommend withhold votes against directors, committees or the entire board for, among other things, a material risk oversight failure, and this year will include in its list of examples as to what constitutes a material risk oversight failure the oversight of environmental and social issues, including climate change.


Statement by Commissioner Roisman at a Meeting of the Asset Management Advisory Committee

Elad L. Roisman is a Commissioner at the U.S. Securities and Exchange Commission. The following post is based on Commissioner Roisman’s recent public statement. The views expressed in this post are those of Mr. Roisman and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

Good morning. I want to thank this Committee for continuing your important work. We are entering the holiday season, but your efforts are clearly not letting up. Thanks to your dedication, as well as the tireless leadership of Ed [Bernard] and the supporting efforts of the Commission staff, you remain focused on the complex topics you committed to explore almost a year ago. I look forward to hearing from all of the Subcommittees slated to speak on today’s agenda; but I want to focus my remarks on ESG in particular, as the ESG Subcommittee will discuss the headway they are making toward developing a final recommendation.

To the members of this Subcommittee, I want to say: it is clear that you have devoted a lot of time to hearing from various organizations with interests in ESG-related investing. You have also studied issues related to “Environmental-,” “Social-,” and “Governance-” focused investing on your own. I have reviewed the draft recommendation you provided and would like to offer a few initial thoughts. First, I agree with several aspects of your potential recommendation, namely:

  • That a prescriptive approach to mandating that public issuers provide “E-,” “S-,” or “G-” disclosures is not likely to strike the best balance between obtaining decision-useful information and minimizing burden on those issuers;
  • That it is important to seek information that is tailored to the particular issuer rather than impose one-size-fits-all disclosure requirements; and
  • That the SEC’s existing principles-based rule set, which is grounded in materiality, provides a good framework upon which to build.


Boards Beware: Accountability is Rising

Douglas Chia is Founder and President of Soundboard Governance LLC and a Fellow at the Rutgers Center for Corporate Law and Governance, and Lex Suvanto is Global Managing Director of Financial Communications at Edelman. This post is based on their Edelman memorandum. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); Socially Responsible Firms by Alan Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here); and Toward Fair and Sustainable Capitalism by Leo E. Strine, Jr (discussed on the Forum here).

Boards are facing new expectations and accountability as stakeholder capitalism gains steam. One year following the release of the Statement on the Purpose of a Corporation by the Business Roundtable, a live debate continues over the purpose of the corporation and to whom the board is accountable. The fact that 181 prominent CEOs signed a statement that shifted the way boards and CEOs view their accountability is clear evidence that a diverse set of stakeholders have indeed attained leverage on corporations to live up to their expectations. Amidst the COVID-19 pandemic and resulting economic recession, employees and communities are increasingly looking to boards and CEOs to consider their needs for a strong recovery. Boards are likewise increasingly expected by shareholders to ensure their companies are taking action to address climate change.

Board Accountability: The Legal Perspective

While jurists, academics, and lawyers actively debate to whom the law “says” boards and CEOs have a duty—be it the shareholders, a mix of stakeholders, the corporation itself, or some combination thereof—one thing that is clear is that in the eyes of the law, the standard of fulfilling those duties is extremely low. The “business judgment rule” is very forgiving of corporate directors and officers for making lousy business decisions, so long as they can show evidence that those decisions were duly considered. And the process for considering those decisions may also be far from perfect.


Defining the Role of the Audit Committee in Overseeing ESG

Kristen Sullivan is Partner, Sustainability and KPI Services, at Deloitte & Touche LLP; Maureen Bujno is Managing Director and Audit & Assurance Governance Leader at the Center for Board Effectiveness, Deloitte & Touche LLP; and Leeann Galezio Arthur is Senior Manager at the Center for Board Effectiveness, Deloitte & Touche LLP. This post is based on a Deloitte memorandum by Ms. Sullivan, Ms. Bujno, Ms. Arthur, and Jenny Lynch. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); Socially Responsible Firms by Alan Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here); and Toward Fair and Sustainable Capitalism by Leo E. Strine, Jr (discussed on the Forum here).


While 2020 has been a challenging year for many companies, the pandemic has provided a reason to spotlight the importance of a purpose-driven strategy to drive business and societal value and highlighted the interrelationship between long-term corporate strategy, the environment, and society. Many companies have also reevaluated their corporate purpose and ability to drive the long-term sustainability of their enterprise by addressing environmental, social, and governance (ESG) strategies and challenges.

The ”G” in ESG and the important role the board of directors and each board committee plays in overseeing the company’s transparency around sustainability initiatives continues to be a primary focus in the ESG conversation. The “G” can be described as the governing structure, policies, and practices employed by an organization to define responsibilities and decision-making rights that provide the foundation for overall accountability and credibility. Included in this is how the board defines its committee structure and delegates oversight responsibility across the board and its committees.


Behavioral Corporate Finance: The Life Cycle of a CEO Career

Marius Guenzel is Assistant Professor of Finance at the Wharton School of the University of Pennsylvania and Ulrike M. Malmendier is Edward J. and Mollie Arnold Professor of Finance at University of California Berkeley Haas School of Business, and Professor of Economics at the University of California Berkeley. This post is based on their recent paper.

The study of managerial biases and their implications for firm outcomes is one of the fastest-growing research areas in finance. Since the mid-2000s, this strand of behavioral corporate finance has provided ample theoretical and empirical evidence on the influence of biases in the corporate realm. Research in this field has been a leading force in dismantling the argument that traditional economic mechanisms—(1) selection, (2) learning, and (3) market discipline—are sufficient to uphold the rational-manager paradigm.

In Behavioral Corporate Finance: The Life Cycle of a CEO Career (Oxford Research Encyclopedia of Economics and Finance, September 2020), we review and analyze the growing body of research in the field. We structure our discussion according to three distinct phases of CEO careers: appointment, being at the helm, and dismissal. A key contribution of our paper is the insight that each phase of this CEO career life cycle is closely linked to one of the three aforementioned pillars of the rational-manager paradigm.


Weekly Roundup: November 27–December 3, 2020

More from:

This roundup contains a collection of the posts published on the Forum during the week of November 27–December 3, 2020.

The CPA-Wharton Zicklin Model Code of Conduct

IPOs Surge While Market Tightens, But Opportunities Remain

When That Problematic Board Member Just Won’t Leave

Innovation in the Stock Market: Exchanges and ATSs

Public Thrift, Private Perks: Signaling Board Independence with Executive Pay

Statement Regarding Audit Quality in Emerging Markets and Recent Developments

Sense and Nonsense in ESG Ratings

Workplace Wellness and Employee Mental Health—An Emerging Investor Priority

Spotlight on Boards

Examining the SEC’s Proxy Advisor Rule

The Edmans–Bebchuk Debate on “Stakeholder Capitalism: The Case For and the Case Against”

The European Corporate Governance Institute and the London Business School Centre for Corporate Governance will host next week a virtual debate on stakeholder capitalism between Professors Alex Edmans and Lucian Bebchuk. The debate will be moderated by Gillian Tett of the Financial Times. Edmans will present the case for corporate leaders serving goals other than shareholder value, Bebchuk will question this approach, and Tett will both present questions of her own and field some from the audience.

Titled “Stakeholder Capitalism: The Case For and Against,” the virtual debate will be held on Thursday, December 10 at 12:00-13:00 EST / 17:00 – 18:00 GMT. Readers who wish to watch the debate should register here.

Alex Edmans is Professor of Finance and Academic Director of Centre for Corporate Governance, London Business School. His presentation will draw on his academic work “Grow the Pie: How Great Companies Deliver Both Purpose and Profit.” Posts by him on the Forum discussing his approach are available hereherehere, and here.

Lucian Bebchuk is the James Barr Ames Professor of Law, Economics, and Finance and Director of the Program on Corporate Governance at Harvard Law School. His presentation will build on his articles “The Illusory Promise of Corporate Governance” (co-authored with Roberto Tallarita and discussed on the Forum here) and “For Whom Corporate Leaders Bargain” (co-authored with Kobi Kastiel and Roberto Tallarita and discussed on the Forum here). An op-ed and presentation slides that provide a brief account of his approach are available here and here.

Ms. Gillian Tett is Chair of the Editorial Board and Editor-at-Large (US) of the Financial Times, and Co-Founder of Moral Money, which focuses on the world of socially responsible business, sustainable finance, impact investing and ESG trends.

Examining the SEC’s Proxy Advisor Rule

Paul Rose is the Robert J. Watkins/Procter & Gamble Professor of Law, and Christopher J. Walker is the John W. Bricker Professor of Law at The Ohio State University Moritz College of Law. This post is based on their recent report, prepared for the U.S. Chamber Center for Capital Markets Competitiveness.

As proxy advisors have taken on greater visibility and importance in markets in the United States and around the world, scrutiny of the power and influence of proxy advisors has increased commensurately. Over the last decade, Congress has repeatedly considered the role and regulation of proxy advisors. The same is true at the Securities and Exchange Commission. Beginning with a 2010 Concept Release and through a series of informal interpretations, notice-and-comment rulemaking, and engagements with proxy advisors, investors, company officials, academics, and others, the SEC has considered questions of proxy advisor conflicts of interest and advice quality. Following this extensive study and analysis, the SEC promulgated a new rule in July 2020 that is designed to increase the transparency, accuracy, and completeness of the information proxy advisors provide to investors making proxy voting decisions (Final Rule).

As described in our report, prepared for the U.S. Chamber Center for Capital Markets Competitiveness, the Final Rule represents the culmination of a decade-long review and analysis of the role and regulation of proxy advisory businesses. After a review of the history of proxy advisor regulation, the report provides a detailed analysis of the SEC’s Proposed Rule in November 2019, the extensive comments on the Proposed Rule, and the impact of those comments on the Final Rule promulgated in July 2020. Reviewing potential legal challenges to the Final Rule, we conclude that it is unlikely that a federal court would invalidate the Final Rule.


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