Yearly Archives: 2022

Statement by Chair Gensler on Final Rule Regarding Pay Versus Performance

Posted by Gary Gensler, U.S. Securities and Exchange Commission, on
Friday, August 26, 2022
, , , , , , ,
More from: ,

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

Today, the Commission voted to adopt a rule requiring certain public companies to disclose information regarding their executives’ compensation and how such compensation relates to the company’s financial performance. I was pleased to support this rule—so-called “pay versus performance”—because it will strengthen the transparency and quality of executive compensation disclosure to investors.

In 2010, Congress under the Dodd-Frank Act directed the Commission to provide clear disclosure to investors on the relationship between companies’ executive compensation actually paid and financial performance. We proposed a rule in 2015 to implement this provision and reopened the proposal in January of this year. With this adoption, the Commission today has fulfilled Congress’s mandate.

The Commission has long recognized the value to investors of information on executive compensation. The first requirements for disclosures on executive compensation originated in the Securities Act of 1933. [1] Since then, the Commission from time to time has continued to update compensation disclosure requirements.

Building upon this long tradition of disclosure, today’s rule makes it easier for shareholders to assess a public company’s decision-making with respect to its executive compensation policies.

READ MORE »

Statement by Commissioner Uyeda on Final Rule Regarding Pay Versus Performance

Posted by Mark T. Uyeda, U.S. Securities and Exchange Commission, on
Friday, August 26, 2022
, , , , , , ,
More from: ,

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.

Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) requires the Commission to issue a rule requiring disclosure of information reflecting the relationship between executive compensation actually paid by a company and the company’s financial performance. [1] Although this provision lacks a statutory deadline, it is unacceptable for more than twelve years to elapse before fulfilling a Congressional mandate.

However, no provision of the Dodd-Frank Act exempts the Commission from having to comply with the Administrative Procedure Act. [2] Rather than taking the more appropriate route of re-proposing the pay versus performance rule with updated data and analysis, the Commission bypassed having an effective notice-and-comment process as required by the Administrative Procedure Act in favor of a procedural shortcut. [3]

The proposal to implement the Dodd-Frank Act’s pay versus performance requirement was initially issued on April 29, 2015. [4] On January 27, 2022, the Commission reopened the comment period on the proposed rule (“Reopening Notice”). [5]

The Reopening Notice did not update any economic analysis, benefits and costs discussion, or analysis required by the Paperwork Reduction Act [6] and the Regulatory Flexibility Act. [7] In contrast, the 2015 Proposal included nearly 34 pages of economic analysis assessing the impact of the proposed rule. [8] Thus, the public, in providing new comments on the rule, could only respond to a seven-year old economic analysis.

READ MORE »

Weekly Roundup: August 19-25, 2022

Posted by the Harvard Law School Forum on Corporate Governance, on
Friday, August 26, 2022

More from:

This roundup contains a collection of the posts published on the Forum during the week of August 19-25, 2022.

2021: The Year of CFO Turnover and Strides in Gender Diversity

Posted by Jenna Fisher, Jim Lawson, and Rose Mistri-Somers, Russell Reynolds Associates, on Friday, August 19, 2022
Tags: , , , , , 

Better Succession Planning Starts with Knowing Your CEO

Posted by Richard Holt, Alvarez & Marsal, and Amerino Gatti, Helix Energy, on Friday, August 19, 2022
Tags: , , , , 

The Proposed SEC Amendments to Shareholder Proposal Rule: A Comment from Shareholder Rights Group

Posted by Sanford Lewis, Shareholder Rights Group, on Saturday, August 20, 2022
Tags: , , , , , , , , 

Tech Companies Lean on Cyber to Go Faster and Gain Trust

Posted by Alex Holt, Mark Gibson, and Vijay Jajoo, KPMG LLP, on Sunday, August 21, 2022
Tags: , , , , , 

More Prescriptive Proposals, Less Support for 2022 Proxy Season

Posted by Cydney Posner, Cooley LLP, on Monday, August 22, 2022
Tags: , , , , , , , , 

The Proposed SEC Climate Disclosure Rule: A Comment from Shivaram Rajgopal

Posted by Shivaram Rajgopal (Columbia University), on Monday, August 22, 2022
Tags: , , , , , , , 

ESG + Incentives 2022 Report

Posted by John Borneman, Jennifer Teefey, and Matthew Mazzoni, Semler Brossy Consulting Group LLC, on Monday, August 22, 2022
Tags: , , , , , , , , , 

EU Corporate Sustainability Reporting Directive—What Do Companies Need to Know

Posted by Kolja Stehl, Leonard Ng and Matt Feehily, Sidley Austin LLP, on Tuesday, August 23, 2022
Tags: , , , , , , , 

The Effect of Intermediary Coverage on Disclosure: Evidence from a Randomized Field Experiment

Posted by Andrew Belnap (University of Texas at Austin), on Tuesday, August 23, 2022
Tags: , , , , , , 

CFO Turnover in 2022 Slows, But Don’t Expect it to Stay

Posted by Linda Barham, Jim Lawson, and Catherine Schroeder, Russell Reynolds Associates, on Tuesday, August 23, 2022
Tags: , , , , , 

DOL Proposes Significant Amendments to Prominent ERISA Exemption

Posted by Brian Robbins, Erica Rozow, and George Gerstein, Simpson Thacher & Bartlett LLP, on Wednesday, August 24, 2022
Tags: , , , , , , , 

Top 5 SEC Enforcement Developments

Posted by Jina Choi, Michael D. Birnbaum, and Haimavathi V. Marlier, Morrison & Foerster LLP, on Wednesday, August 24, 2022
Tags: , , , , , , , , 

ESG Ratings: A Compass without Direction

Posted by Brian Tayan (Stanford University), on Wednesday, August 24, 2022
Tags: , , , , , , , , , 

Board Refreshment and Evaluations

Posted by Matteo Tonello, The Conference Board, Inc., on Thursday, August 25, 2022
Tags: , , , , , 

2022 Proxy Season Review: Rule 14a-8 Shareholder Proposals

Posted by June Hu, Melissa Sawyer, and Marc Treviño, Sullivan & Cromwell LLP, on Thursday, August 25, 2022
Tags: , , , , , , 

A Critique of the American Law Institute’s Draft Restatement of the Corporate Objective

Posted by Stephen M. Bainbridge (UCLA), on Thursday, August 25, 2022
Tags: , , , , , , , 

A Critique of the American Law Institute’s Draft Restatement of the Corporate Objective

Posted by Stephen M. Bainbridge (UCLA), on
Thursday, August 25, 2022
, , , , , , ,
More from:

Stephen M. Bainbridge is the William D. Warren Distinguished Professor of Law at UCLA School of Law. This post is based on his recent paper.

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 Tallarita; For Whom Corporate Leaders Bargain (discussed on the Forum here) and Stakeholder Capitalism in the Time of COVID (discussed on the Forum here) both by Lucian Bebchuk, Kobi Kastiel, and Roberto Tallarita; Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy – A Reply to Professor Rock (discussed on the Forum here) by Leo E. Strine, Jr.; and Corporate Purpose and Corporate Competition (discussed on the Forum here) by Mark J. Roe.

The American Law Institute (ALI) is currently working on a Restatement of the Law of Corporate Governance (“Restatement”). As with all Restatements, the purpose of the proposed Restatement is to clarify “the underlying principles of the common law” that have “become obscured by the ever-growing mass of decisions in the many different jurisdictions, state and federal, within the United States.” As I argued in my paper, Do We Need a Restatement of the Law of Corporate Governance?, corporate law is virtually unique in being dominated by the law of a single jurisdiction; namely, Delaware. Given the prominence of Delaware law in this field, the proposed Restatement is unlikely to be influential.

In my new paper, A Critique of the American Law Institute’s Draft Restatement of the Corporate Objective, I turn to an assessment of a key provision of the proposed Restatement; namely, § 2.01, which purports to restate the objective of the corporation. Section 2.01 differentiates between what the drafters refer to as common law jurisdictions and stakeholder jurisdictions. The latter are those states that have adopted a constituency statute (a.k.a. a non-shareholder constituency statute).

The tentative draft of § 2.01 was approved by the ALI membership at the Institute’s annual meeting. My article is intentionally agnostic on the underlying normative issue of whether corporations should focus exclusively on shareholder interests or should also consider stakeholder interests. Instead, it offers a critique of § 2.01 and offers suggestions so as to clarify important open questions and better align § 2.01 with current law.

The drafters assert that, in common law jurisdictions, the corporate objective is to “enhance the economic value of the corporation, within the boundaries of the law . . . for the benefit of the corporation’s shareholders . . ..” In doing so, corporation is allowed to consider the impact of its actions on various stakeholders, provided doing so redounds to the benefit of shareholders.

READ MORE »

2022 Proxy Season Review: Rule 14a-8 Shareholder Proposals

Posted by June Hu, Melissa Sawyer, and Marc Treviño, Sullivan & Cromwell LLP, on
Thursday, August 25, 2022
, , , , , ,
More from: , , , , ,

June Hu is an associate, and Melissa Sawyer and Marc Treviño are partners at Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell memorandum by Ms. Hu, Ms. Sawyer, Mr. Treviño, H. Rodgin Cohen, and Elizabeth Lombard.

Introduction

In the tenth edition of our annual proxy season review memo, we summarize significant developments relating to the 2022 U.S. annual meeting proxy season. This year, our review comprises two parts: Rule 14a-8 shareholder proposals and compensation-related matters. This is Part 1, and we expect to issue Part 2 over the next weeks. We will also host our annual webinar in September to discuss 2022 proxy season developments.

The Rule 14a-8 shareholder proposals we discuss are those submitted to and/or voted on at annual meetings of the U.S. members of the S&P Composite 1500, which covers approximately 90% of U.S. market capitalization, at meetings held on or before June 30, 2022. We estimate that around 90% of U.S. public companies held their 2022 annual meetings by that date.

The data on submitted, withdrawn and voted-on shareholder proposals derives, in part, from ISS’s voting analytics with respect to 797 known shareholder proposals submitted this year to U.S. members of the S&P Composite 1500. We have supplemented the ISS data with information published by proponents on their websites and other independent research. The number of proposals submitted includes proposals that were not included in a company’s proxy statement as a result of the SEC no-action process or withdrawn after being included in a company’s proxy statement (usually following engagement with the company). The data on submitted proposals understates the number of proposals actually submitted, as it generally does not include proposals that were submitted and then withdrawn unless either the proponent or the company voluntarily reported the proposal to ISS or on its website.

READ MORE »

Board Refreshment and Evaluations

Posted by Matteo Tonello, The Conference Board, Inc., on
Thursday, August 25, 2022
, , , , ,
More from: , ,

Matteo Tonello is Managing Director of ESG Research at The Conference Board, Inc. This post is based on a Conference Board memorandum by Merel Spierings, in partnership with ESG data analytics firm ESGAUGE and in collaboration with Debevoise & Plimpton, the KPMG Board Leadership Center (BLC), Russell Reynolds Associates, and the John L. Weinberg Center for Corporate Governance at the University of Delaware.

As US corporations seek to increase diversity of backgrounds, skills, and professional experience on their boards, they face a central hurdle: limited board turnover that creates few openings for new directors. Indeed, the percentage of newly elected directors in the S&P 500 has remained flat over the past several years. To overcome that hurdle, boards can (temporarily) increase their size—which they are doing modestly. [1] Additionally, they can adopt and implement board refreshment policies and practices that foster an appropriate level of turnover within the current ranks of the board.

Regardless of their approach to board refreshment, companies should expect continued investor scrutiny in this area. Indeed, while institutional investors may defer to the board on whether to adopt mandatory retirement policies, many are keeping a close eye on average board tenure and the balance of tenures among directors and will generally vote against directors who serve on too many boards.

This post provides insights about board refreshment policies and practices, as well as director evaluations at S&P 500 and Russell 3000 companies. Our findings are based on data pulled on July 7, 2022, from our live, interactive online dashboard powered by ESGAUGE as well as a Chatham House Rule discussion with leading in-house corporate governance professionals held in April 2022. Please visit the live dashboard for the most current figures. [2]

READ MORE »

ESG Ratings: A Compass without Direction

Posted by Brian Tayan (Stanford University), on
Wednesday, August 24, 2022
, , , , , , , , ,
More from: , , ,

Brian Tayan is a researcher with the Corporate Governance Research Initiative at Stanford Graduate School of Business. This post is based on a recent paper by Mr. Tayan; David Larcker, Professor of Accounting at Stanford Graduate School of Business; Edward Watts, Assistant Professor of Accounting at Yale School of Management; and Lukasz Pomorski, Lecturer at Yale School of Management.

Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) and Will Corporations Deliver Value to All Stakeholders? (discussed on the Forum here), both by Lucian A. Bebchuk and Roberto Tallarita; Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock (discussed on the Forum here) by Leo E. Strine, Jr.; and Stakeholder Capitalism in the Time of COVID (discussed on the Forum here) by Lucian Bebchuk, Kobi Kastiel, and Roberto Tallarita.

ESG ratings are intended to provide information to market participants (investors, analysts, and corporate managers) about the relation between corporations and non-investor stakeholders interests. They do so by sifting masses of data to extract insights into various elements of environmental, social, and governance performance and risk. Investors rely on this information to make investment decisions, while corporations use ratings to gain third-party feedback on the quality of their sustainability initiatives.

Recently, ESG ratings providers have come under scrutiny over concerns of the reliability of their assessments. In this post, we examine these concerns. We review the demand for ESG information, the stated objectives of ESG ratings providers, how ratings are determined, the evidence of what they achieve, and structural aspects of the industry that potentially influence ratings. Our purpose is to help companies, investors, and regulators better understand the use of ESG ratings and to highlight areas where they can improve. We find that while ESG ratings providers may convey important insights into the nonfinancial impact of companies, significant shortcomings exist in their objectives, methodologies, and incentives which detract from the informativeness of their assessments.

Demand for ESG Information

Demand for ESG information has exploded in recent years. Ten years ago, the term ESG—although in existence—was rarely used by the investment community or in corporate boardrooms. Instead, public and professional interest was focused on the general concepts of corporate responsibility, sustainability, and impact investing. Only recently has the focus on ESG (environmental, social, and governance) as a unique concept come to the forefront and with it an explosion in the demand for information (see Exhibit 1).

READ MORE »

Top 5 SEC Enforcement Developments

Posted by Jina Choi, Michael D. Birnbaum, and Haimavathi V. Marlier, Morrison & Foerster LLP, on
Wednesday, August 24, 2022
, , , , , , , ,
More from: , , ,

Jina Choi, Michael D. Birnbaum, and Haimavathi V. Marlier are partners at Morrison & Foerster LLP. This post is based on their MoFo memorandum.

In order to provide an overview for busy in-house counsel and compliance professionals, we summarize below some of the most important SEC enforcement developments from the past month, with links to primary resources. This month we examine:

  • A framework for CCO liability;
  • Whether scheme liability claims under Rule 10b-5 require more than misstatements or omissions;
  • Charges against a former Coinbase product manager in a crypto asset insider trading action;
  • A blast of insider trading actions generated by the SEC’s own data analysis; and
  • Fines for three financial institutions for inadequate identity theft controls, in violation of Regulation S-ID.

1. SEC Holds Chief Compliance Officer (CCO) Liable for Failing to Implement Policies and Procedures

On July 1, 2022, Commissioner Hester M. Pierce issued a statement in support of a settled administrative hearing brought the day before against Hamilton Investment Counsel LLC (“Hamilton”), a registered investment adviser based in Georgia, and its CCO. Hamilton was found to have violated Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder, which require that registered investment advisers adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act; the CCO was charged with aiding and abetting those violations. Commissioner Pierce’s support of this action is significant given her prior statements setting forth her concerns regarding personal liability for CCOs and her analysis of how one framework could be adopted for this analysis.

READ MORE »

DOL Proposes Significant Amendments to Prominent ERISA Exemption

Posted by Brian Robbins, Erica Rozow, and George Gerstein, Simpson Thacher & Bartlett LLP, on
Wednesday, August 24, 2022
, , , , , , ,
More from: , , , ,

Brian Robbins and Erica Rozow are partners and George Gerstein is senior counsel at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher memorandum by Mr. Robbins, Ms. Rozow, Mr. Gerstein, and Jeanne Annarumma.

On July 27, 2022, the U.S. Department of Labor (the “DOL”) proposed major changes (the “Proposal”) [1] to a core exemption used by many investment managers that have discretionary responsibility over the assets of funds and accounts that are deemed to hold “plan assets” under the U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”). [2] The exemption, commonly known as the “QPAM Exemption,” [3] allows a manager of a “plan assets” fund or account (i.e., the “QPAM”) to enter into a myriad of transactions on behalf of the fund/account that would otherwise be prohibited under Section 406(a) of ERISA and Section 4975 of the U.S. Internal Revenue Code of 1986, as amended.

Should the DOL finalize these amendments, those that manage “plan assets” on a discretionary basis should reconsider whether it can, or is willing to, continue relying on the QPAM Exemption. Moreover, investment managers would most likely need to revise investment management agreements and provisions in ISDAs and other trading agreements, if representations regarding QPAM-status are included. Private fund sponsors will also be affected, namely, they will need to (i) evaluate whether the QPAM Exemption remains available, if a fund holds “plan assets,” and, if not, whether an alternative exemption may be available, (ii) revise, as necessary, subscription and offering documents that refer to the QPAM Exemption, and (iii) consider whether any of its portfolio companies act or intend to act as a QPAM and whether such companies can continue doing so. [4]

READ MORE »

CFO Turnover in 2022 Slows, But Don’t Expect it to Stay

Posted by Linda Barham, Jim Lawson, and Catherine Schroeder, Russell Reynolds Associates, on
Tuesday, August 23, 2022
, , , , ,
More from: , , ,

Linda Barham leads the Americas Financial Officers Practice; Jim Lawson co-leads the Global Financial Officers Practice; and Catherine Schroeder is a member of the Financial Officers Practice Knowledge team at Russell Reynolds Associates. This post is based on their Russell Reynolds memorandum.

Halfway through 2022, there have been 51 CFO transitions within the S&P 500, bringing turnover to 10% year to date. This number is slightly down from 12% at this time last year (Figure 1), likely due to CFOs favoring the job security of their current role as the market slows.

However, this slowing turnover may paint a misleading picture. Russell Reynolds Associates analyzed CFOs from the S&P 500 from 2019 to 2022 (N = 500) to compare turnover rates at the half-year (HY) mark and gain insight into the latest hiring trends such as gender diversity, internal versus external promotions, first-time in the role and CFO exits. We found that, while turnover was indeed down in the first half of 2022, multiple trends are suggesting that turnover will be on the rise in the second half of the year.

  1. Due to the expected increase in market volatility, CFOs should expect more scrutiny of their job performances from the CEO and Board, therefore increasing the potential for increased turnover.
  2. Better succession planning is leading to more internal and first-time CFO appointments, resulting in the fight for women CFO talent to carry on, with the percentage of newly appointed women CFOs continuing to outpace the broader S&P 500, although slightly down since last year.
  3. Finally, CFO retirement rates increased for the first time in three years, indicating that more turnover is likely on the horizon.

Figure 1. Trending CFO Turnover

Source: RRA analysis of S&P500 CFOs from 2019 to the end of June 2022, N= 500
Note: 3 of the new CFOs are interim

READ MORE »

Page 29 of 89
1 … 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 … 89