Monthly Archives: February 2021

Retaining the C-Suite After CEO Turnover

Marco Pizzitola is a consultant, and Joe Sorrentino and Stephan Bosshard are principals at FW Cook. This post is based on their FW Cook memorandum.

Effective CEO succession, the planning and execution of which can span several years, is critical to the potential success of a company. For a CEO to set and execute a winning strategy, a stable, engaged, and high-functioning team is needed in the C-suite. However, CEO succession can often result in the departure of other senior executives—some of whom may have been candidates for the CEO role themselves, and some of whom may be less aligned with the strategy of the new leadership. Such departures are often those who are most respected in the market—and thus, essential to ensure investor and company confidence throughout the transition.

One common strategy to limit post-succession turnover is to make special retention grants to some or all of the leadership team. Retention grants include cash or equity awards, with delayed vesting, made in addition to regular, annual compensation. FW Cook investigated the effectiveness of this strategy and discovered that special retention grants have a strong effect in the immediate term, but that the impact wanes quickly.


A New Whistleblower Environment Emerges

Robert T. Biskup is Managing Director of Deloitte Risk & Financial Advisory, Deloitte Financial Advisory Services LLP. This post is based on his Deloitte memorandum.

As the COVID-19 pandemic continues, the whistleblower environment is changing in ways that should have the focused attention of compliance executives across industries. Three converging factors are at work here:

1) a significant increase in fraud and whistleblower activity; 2) disruptions stemming from remote work; and, 3) new Department of Justice (DOJ)/Security Exchange Commission (SEC) guidance on corporate compliance programs. This post offers insights on what’s driving the new environment and strategic actions you can take to adapt.

5 insights you should know

Economic uncertainty and COVID-19-related instability have real consequences. Rapid, unprecedented economic turmoil has created record unemployment and layoffs. Organizations are under significant cost-reduction pressure. According to a recent ACFE survey, 79 percent of member companies have observed an increase in fraud, and 90 percent expect further fraud increases in the next 12 months. [1]


Spencer Stuart S&P MidCap 400 Board Report

Julie Daum is a Consultant, Laurel McCarthy is a Senior Associate, and Ann Yerger is an Advisor of the North American Board Practice at Spencer Stuart. This post is based on the Spencer Stuart S&P MidCap 400 Board Report.

Spencer Stuart’s inaugural survey of S&P MidCap 400 companies finds significant differences between mid- and large-cap boards. Not only are mid-cap boards generally smaller in size, younger and less diverse than larger S&P 500 companies, the profiles of directors joining mid-cap boards differ. In some ways, mid-cap boards appear to be casting a wide net to identify boardroom talent, appointing more actively employed executives, first-time directors and division/functional heads compared to large-cap boards.

MidCap 400 board gender diversity lags S&P 500 boards

Similar to larger companies, mid-cap companies appear to be focusing on enhancing the diversity of their boardrooms. Of the 293 independent directors added to S&P MidCap 400 boards during the 2020 proxy season, 58% were women or minority (defined as Black/African American, Asian or Hispanic/Latinx) men—comparable to the incoming class of S&P 500 directors.


Weekly Roundup: February 4-11, 2021

More from:

This roundup contains a collection of the posts published on the Forum during the week of February 4-11, 2021.

SEC Adopts Revised Investment Adviser Marketing Rule

Incentive Design Changes in Response to COVID-19: Russell 3000

Private Equity – Year in Review and 2021 Outlook

New Human Capital Disclosure Requirements

SEC Issues Guidance in Light of Ongoing Surge in SPAC IPOs

ESG Disclosures

The Future of the Virtual Board Room

Corporations Should Reconsider the Value of Their Political Action Committees

HLS Forum Sets Several New Records in 2020

Uptick in Restructurings May Outlast COVID-19 Pandemic

ESG: The S Is Not for Short

Does Media Coverage Cause Meritorious Shareholder Litigation? Evidence from the Stock Option Backdating Scandal

Future-Ready Boards

Making “Stakeholder Capitalism” Work: Contributions from Business & Human Rights

Biden Administration Signals Intention To Be Tougher on Corporate Crime

Responsible Institutional Investing Around the World

2021 Proxy Season Preview and Shareholder Voting Trends (2017-2020)

Matteo Tonello is Managing Director of ESG Research at The Conference Board, Inc. This post relates to 2021 Proxy Season Preview and Shareholder Voting Trends (2017-2020), an annual benchmarking study and online dashboard published by The Conference Board and ESG data analytics firm ESGAUGE, in collaboration with leadership advisory and search firm Russell Reynolds Associates and Rutgers Law School Center for Corporate Law and Governance.

2021 Proxy Season Preview and Shareholder Voting Trends (2017-2020) builds on a comprehensive review of resolutions submitted by investors at Russell 3000 companies to provide insights into the new season of annual general meetings (AGMs). The data and analysis include trends in the number and topics of shareholder proposals, the level of support received by those proposals when put to a vote, and the types of proposal sponsors.

In particular, this post provides insights for what’s ahead in four key areas that promise to be the focus of investor attention in 2021: virtual shareholder meetings, environmental issues, human capital management, and board diversity.

The historical analysis across a large index of companies such as the Russell 3000 helps to plot the trajectory of shareholder demands and to gain helpful insights into the voting season ahead.


Responsible Institutional Investing Around the World

Pedro Matos is John G. Macfarlane Family Chair and Professor of Business Administration and Academic Director of the Richard A. Mayo Center for Asset Management at the University of Virginia Darden School of Business. This post is based on a recent paper by Professor Matos; Rajna Gibson Brandon, Professor of Finance at the University of Geneva; Simon Glossner, Post-doctoral research associate, UVA Darden School of Business and Richard A. Mayo Center for Asset Management; and Philipp Krueger, Associate Professor of Finance at the University of Geneva and Senior Chair at the Swiss Finance Institute. 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); Companies Should Maximize Shareholder Welfare Not Market Value by Oliver Hart and Luigi Zingales (discussed on the Forum here); and Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee by Max M. Schanzenbach and Robert H. Sitkoff (discussed on the Forum here).

The practice of responsible investing, whereby institutional investors incorporate environmental, social, and governance (ESG) issues into their investment processes, is becoming increasingly important as evidenced by the growth of the Principles for Responsible Investment (PRI) network. Despite the prevalence of PRI signatories in global equity markets (which now manage half of the assets held by institutional investors), there is limited academic evidence on the motivations and portfolio consequences of signing up to the PRI’s Principles and on how those may vary at the international level.

In our paper, Responsible Institutional Investing Around the World, we examine whether PRI signatories walk their (ESG) talk. Our research is the first to use the data from PRI Reporting & Assessment Framework that PRI signatories use to report annually on their responsible investment activities. We match the signatories’ publicly available reporting data with archival data on institutional investors’ global equity portfolio holdings. To measure how serious PRI signatories are about taking ESG issues into account, we calculate a value-weighted ESG score for each institutional investor’s stock portfolio based on the scores from Refinitiv, MSCI, and Sustainalytics. We call these portfolio scores ESG footprints.


Biden Administration Signals Intention To Be Tougher on Corporate Crime

David Meister and Jocelyn E. Strauber are partners at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a Skadden memorandum by Mr. Meister, Ms. Strauber, Ernie E. Butner IV, and Andrew C. Stavish.


Forecasting the enforcement priorities of the Department of Justice (DOJ) under a new administration is difficult at best. However, the Biden administration is widely expected to be tougher on corporate crime than its predecessor, consistent with the approach of prior Democratic administrations. If that is the case, the DOJ’s policies and priorities over the past four years that have emphasized individual culpability while incentivizing robust corporate compliance programs presumably will continue unchanged. However, Trump administration policies that arguably reflect a more business-friendly approach to corporate prosecutions will likely be revised or abandoned by the new administration, which is expected to more closely scrutinize and aggressively pursue corporate misconduct, including on the part of financial institutions. In addition, Foreign Corrupt Practices Act (FCPA) investigations, a key enforcement area in the Obama and Trump administrations, are expected to remain a focus, while changing economic realities—including the aftermath of the COVID-19 pandemic—are likely to shape the DOJ’s enforcement priorities, at least for the next year.

Emphasis on Individual Culpability

The DOJ’s focus on individual culpability in corporate prosecutions was formally announced in September 2015 in the so-called Yates Memorandum, issued by then-Deputy Attorney General Sally Yates. Rod Rosenstein, Yates’ successor, stated in late 2018 that pursuing culpable individuals remained a “top priority in every corporate investigation,” a claim supported by the annual reports of the DOJ’s Fraud Section, which principally prosecutes FCPA, health care fraud and securities fraud cases. The reports show an increase in the number of individuals charged during each year of the Trump administration, from 300 in 2016, the year before he took office, to 478 in 2019. Although 2020 tallies are not yet available, there is no indication that the DOJ’s priorities shifted over the past year; for example, the DOJ announced charges against 345 individuals for health care fraud offenses in September 2020. (See “Biden Administration’s Expected Impact on Health Care and Life Sciences Enforcement.”) There is every reason to believe that the DOJ will continue to prioritize charging individual actors, including culpable corporate officers and employees, in the coming year.


2021 Proxy Season Preview

Jamie C. Smith is Investor Outreach and Corporate Governance Specialist at the EY Center for Board Matters. This post is based on an EY memorandum by Ms. Smith and Stephen W. Klemash.

As we mark a decade of engaging with investors with this year’s proxy season preview, much has changed in the investor landscape, particularly over the past year of the pandemic. Investors want boards to help companies adapt their strategies for a future in which prioritizing stakeholders and considering environmental and social impacts will be critical to building resilience and creating long‑term value.

Investors view workforce diversity as a key component in driving innovation and performance. This is of particular importance in a dynamic environment marked by ongoing business model disruption, changing stakeholder demands and accelerating sustainability risks. These are some of the key themes of our conversations with governance specialists from more than 60 institutional investors representing over US$38 trillion in assets under management, including asset managers (62% of all participants), public funds (20%), labor funds (13%) and faith-based investors (2%), as well as investor consultants and associations (3%).

In this post we focus on:

  • Factors investors cite as the top strategic drivers and threats for companies
  • Top investor engagement priorities for 2021
  • Six ways companies can enhance their ESG reporting
  • Steps investors want boards to take to strengthen their effectiveness


Making “Stakeholder Capitalism” Work: Contributions from Business & Human Rights

John Ruggie is the Berthold Beitz Research Professor in Human Rights and International Affairs at Harvard University Kennedy School of Government, and Caroline Rees and Rachel Davis are Senior Fellows at the Kennedy School Corporate Responsibility Initiative, and are President and Vice President of Shift, a nonprofit focused on the UN Guiding Principles on Business and Human Rights. This post is based on their recent paper. 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); and Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock by Leo E. Strine, Jr. (discussed on the Forum here).

For the first time in nearly a half-century, leading business associations, corporations, and the corporate law and governance community are seriously proclaiming that maximizing shareholder value is no longer adequate as the primary let alone sole purpose of the listed corporation—that the corporation must also benefit and be accountable to its workers, suppliers, consumers, and society at large. The new paradigm is variously called stakeholder governance, stakeholder capitalism, or corporate repurposing.

But the question of how this is to be achieved unveils significant differences of opinion and practical difficulties. Some advocates place their bet on enlightened voluntary cooperation between corporations, large institutional investors, and other stakeholders. Yet considering the financial incentives the current system affords corporate executives and directors, especially in the Anglo-American system heavily driven by equity-based compensation, voluntarism by itself is unlikely to move the needle far enough. Others provide long and detailed lists of laws and regulations that would need to be changed or newly adopted to ensure that accountability to wider stakeholder groups is established. But that inevitably involves political contestation, which is an inherently slow process and has a high risk of generating unanticipated consequences.


Future-Ready Boards

Byron Loflin is Global Head of Board Engagement at Nasdaq. This post is based on his Nasdaq memorandum.

The competitive landscape in nearly every sector is changing rapidly. You are likely looking for ways to remain relevant and drive your company’s mission while making changes to reflect shifts in society. A future-ready board adds value by augmenting opportunity identification and maintaining its duties to investors and stakeholders.

Leadership teams are expected to lead well and reflect respectful, strong stakeholder values. For example, diversity and inclusion measures are a core value for leading companies today. Those that communicate authentic care for ESG and stakeholder impact demand transparency, corporate responsibility, and more ethical business processes from within and from outside vendors.

Investors and stakeholders look to work with companies committed to investing in innovative products and technologies that benefit a broad stakeholder community. They want to know that companies are taking security precautions to protect unique intellectual property from social malfeasance and bad actors.


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