Monthly Archives: July 2022

The Proposed SEC Climate Disclosure Rule: A Comment from Scott Hirst

Posted by Scott Hirst (Boston University), on
Monday, July 11, 2022
, , , , , , , , ,
More from:

Scott Hirst is Associate Professor of Law at Boston University. This post is based on his comment letter submitted to the SEC regarding the Proposed SEC Climate Disclosure Rule. 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, by Lucian Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here).

This post is based on a comment letter submitted to the SEC regarding the Proposed SEC Climate Disclosure Rule by Professor Scott Hirst. Below is the text of the letter with minor adjustments to eliminate the correspondence-related parts.

This letter (the “Letter”) suggests a simple, but far reaching, change to the Commission’s proposed climate-related disclosure rule (the “Proposed Rule”): The Commission should let investors in a registrant decide which of the disclosure obligations in the Proposed Rule apply to the registrant. More specifically, the Commission should allow a registrant to opt-out of particular disclosure obligations, if such an opt-out has been approved by a vote of the registrant’s investors. Below I suggest further details on how the opt-out should be structured. I refer to this as an “investor-optional” disclosure rule, in contrast to the Commission’s proposed mandatory disclosure rule.

As I explain further below, the Commission should make the Proposed Rule investor-optional for four main reasons:

  1. Investor-optionality is consistent both with the claims of the Commission supporting the Proposed Rule—that investors demand climate disclosure—and those of the Proposed Rule’s critics—that investors do not want climate disclosure, because it would impose additional costs on them, and current disclosure is sufficient for their needs. Letting investors decide whether climate disclosure is appropriate for their protection is the only way to resolve the tension between these two claims.
  2. Making the Proposed Rule investor optional would nullify the strongest attacks on the validity of the Proposed Rule. If these apply at all, they apply only to a mandatory rule. By substantially reducing the likelihood of the Proposed Rule being invalidated, investor-optionality would increase the expected benefit from the Proposed Rule.
  3. Investor-optional climate disclosure would be better for investors than a mandatory rule. In no plausible state of the world would it be worse for investors than a mandatory rule, and in most plausible states of the world it would be better.
  4. Failure to make the Proposed Rule investor-optional would be potential grounds for its invalidation. At a minimum, because investor-optionality is a reasonable alternative, the Administrative Procedure Act requires the Commission to consider it. And because investor-optionality is likely to be better for investors than a mandatory rule, it will be extremely difficult for the Commission to justify implementing a mandatory rule rather than an investor-optional rule. If the Commission did so without adequate justification, its decision would be arbitrary and capricious, and therefore subject to invalidation.

READ MORE »

Q2 2022 Audit Committee Newsletter: Helping You Prepare for Your Next Meeting

Posted by Maria Moats, Stephen Parker, and Gregory Johnson, PricewaterhouseCoopers LLP, on
Monday, July 11, 2022
, , , , , , , , , ,
More from: , , ,

Maria Moats is a Leader; Stephen Parker is a Partner; and Gregory Johnson is a Director at the Governance Insights Center, PricewaterhouseCoopers LLP. This post is based on their PwC memorandum.

1. “Dear CFO” letter spotlights disclosures related to war in Ukraine

The war in Ukraine continues to have a profound impact on business operations within the conflict zone as well as on markets worldwide. In May, the SEC’s Division of Corporation Finance issued an illustrative letter with sample comments the Division may issue to registrants, reinforcing disclosure obligations related to matters that directly or indirectly impact a company’s business. The letter provides a useful reminder of the SEC’s disclosure expectations as companies prepare their quarterly disclosures and could be relevant more broadly to matters such as supply chain disruptions, inflation, and market volatility.

While not an exhaustive list, topics addressed in the letter include the following:

  • Direct and indirect impact of the Russia’s invasion on a company’s business, such as government actions (including expropriation), reaction of investors, employees, and/or other stakeholders
  • The extent and nature of the board of directors’ role in overseeing risks related to the war
  • Changes in the risk of potential cyberattacks
  • Disclosure of known trends or uncertainties, including impairment of tangible and intangible assets, contract modifications, and recoverability and collectability issues
  • Enhancements needed to critical accounting estimates disclosures
  • Disclosure of any material import or export bans
  • How supply chain disruptions have impacted segments, products, lines of service, projects, or operations
  • Non-GAAP adjustments related to the invasion and/or supply chain disruptions
  • The impact on disclosure controls and procedures and internal control over financial reporting (ICFR)

READ MORE »

Poised for Change? Boardroom Diversity Survey

Posted by Melissa Aguilar, KPMG Board Leadership Center, on
Monday, July 11, 2022
, , , , , ,
More from: ,

Melissa Aguilar is Director of Content Creation at the KPMG Board Leadership Center, KPMG LLP. This post is based on her KPMG memorandum. Related research from the Program on Corporate Governance includes Politics and Gender in the Executive Suite (discussed on the Forum here) by Alma Cohen, Moshe Hazan, and David Weiss; Will Nasdaq’s Diversity Rules Harm Investors? (discussed on the Forum here) by Jesse M. Fried; and Duty and Diversity (discussed on the Forum here) by Chris Brummer and Leo E. Strine, Jr.

A premium on thinking differently

Recent progress—and the continued push—toward greater boardroom diversity comes at a pivotal time for corporate America. The ability to challenge long-held assumptions; understand megatrends; and effectively calibrate strategy, risk, and talent in the context of heightened stakeholder expectations puts a premium on thinking differently.

To better understand how directors view the opportunities and challenges of enhancing diversity in the boardroom, the KPMG Board Leadership Center surveyed more than 700 directors around the world.

Among the U.S. respondents to the survey, it’s clear that:

  • Many directors would make moderate changes to their board’s composition if starting from a clean sheet
  • Directors have concerns about blind spots and missed opportunities due to a lack of diverse views.
  • Sixty-nine percent of directors say board diversity of composition and thinking is relevant or very relevant to the company’s consideration of its role in society.
  • While a majority of directors say board leadership is effective at drawing out the views of all members, achieving better boardroom discussions is a work in progress.
  • Racial and ethnic diversity and technology and digital experience continue to be in high demand.

These trends are also reflected in other countries around the world, with notable variations. (See global results in the complete publication, available here.)

We hope these survey results—and questions—help you drive robust discussions about diversity in your own boardroom.

READ MORE »

Short Selling Activism in Europe—A Strategic Communications Perspective

Posted by Zeno Bach, Alexander Fink, Roland Leithauser, Kekst CNC, on
Sunday, July 10, 2022
, , , , , , ,
More from: , , ,

Zeno Bach is an Associate, and Alexander Fink and Roland Leithauser are Partners at Kekst CNC. This post is based on their Kekst CNC 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.

Companies under pressure

In September 2020, the German anti-money laundering authority launched an investigation into the German financial services provider Grenke. Fueled by fears of a new Wirecard-style scandal, the authorities were looking into suspicious money laundering reports, alleged investment fraud, insider trading, and market manipulation. In subsequent days the story quickly spiraled out of control for the company, leading to the sudden resignation of the companies’ COO and CEO, external audits by KPMG, and further investigations by the German BaFin.

But while most of the allegations could not be substantiated, the damage was already done. The reason for this escalation was activist investor Fraser Perring, head of the British hedge fund Viceroy Research. The investor and his team uploaded a 60-page document on their website accusing Grenke of money laundering, questioning the existence of reported assets, and classifying several acquisitions as worthless and the balance sheet inflated. The share price of Grenke immediately plummeted to a record low, sending the company into a tailspin—over 1 billion Euros in value vanished overnight.

Over the last decade, attacks like this have become common in many European countries. They pose not only an economic risk to firms of any size and industry, but also a significant reputational one as well—making it important for management to have a solid communications strategy in place.

Big profits from falling stocks

Short selling is a common, but controversial, form of trading in financial markets. When going short, an investor borrows shares of the company in question, with the bet that the shares can be rebought at a lower price when the stock falls, with the margin between the two prices profiting the investor. This scenario allows for big profits, but also entails great risks: if the share price of the targeted company rises, the short seller will be forced to buy back the shares at a higher price, therefore incurring a loss. In theory, these losses can be infinite: the share price can rise indefinitely, but can only fall to zero.

READ MORE »

The Data Story of Ukraine, Russia and Corporate Responses

Posted by Michael White and Ana Rocha, Kekst CNC, on
Sunday, July 10, 2022
, , , , , , ,
More from: , ,

Michael White is a Senior Consultant and Ana Rocha is an Associate at Kekst CNC. This post is based on their Kekst CNC 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 (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; and 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.

The first quarter of 2022 presented a challenging communications terrain for business leaders as the Russian invasion of Ukraine shook markets, shattered supply chains and shocked the world. Within hours, it was clear that big businesses would have a huge role to play; what they did—and what they said about what they were doing—would shape the contours of the conflict.

For the leaders of the FTSE100 companies, the world indeed was watching.

Now, new analysis from Kekst CNC’s insights team reveals the data story of Ukraine, Russia, and corporate responses—and in doing so discloses a dramatic shift in executive communications.

Kekst CNC’s FTSE100 CEO Social Tracker analyzes all posts published by CEOs on their personal LinkedIn and Twitter accounts. In this second edition, we evaluated 302 posts across LinkedIn and Twitter from 1st January 2022 to 31st March 2022. We found that compared to the first edition of the report, the FTSE100 CEO social rankings have changed significantly, including new CEOs who are defining their own executive communications strategies.

Data tells a story

The data reveals that the Ukraine crisis served as a social media reset for all CEOs. Executives went silent, with landmark company announcements being the only exceptions. The report reveals the following:

READ MORE »

How Gold Medal Boards Prioritize Their Time

Posted by Rusty O'Kelley, Rich Fields, and Laura Sanderson, Russell Reynolds Associates, on
Saturday, July 9, 2022
, , , , , , ,
More from: , , , , , ,

Rusty O’Kelley co-leads the Board and CEO Advisory Partners in the Americas, Rich Fields leads the Board Effectiveness practice, and Laura Sanderson co-leads the Board and CEO Advisory Partners in Europe at Russell Reynolds Associates. This post is based on a Russell Reynolds memorandum by Mr. O’Kelley, Mr. Fields, Ms. Sanderson, PJ Neal, Jemi Crookes, and Elena Loridas.

Consciously or unconsciously, every board independently decides where it is going to focus its attention and efforts.

We asked directors to reflect on their board agenda over the past 12 months and identify the top three areas where their full board has spent the most time, and we then ranked those items based on how frequently they end up in a top-three list. There was substantial movement between 2019 and 2022—no surprise, given the significant upheaval and challenges companies faced in 2020 and 2021. But there were also differences between how typical boards spend their time and how Gold Medal Boards (boards whose directors rate their board effectiveness as a 9 or 10 on a 1-10 point scale, and report the company as having outperformed relevant TSR benchmarks for two or more consecutive years) spend their time, as shown in the visual below.

As we wrote in Harvard Business Review in 2020, “Reviewing financial statements, audit activities, and compliance activities are the responsibility of the board, not the mission of the board. The most successful boards not only know this, but they craft their work and interactions to reflect it.” [1] How boards prioritize topics and structure their agendas to focus on future focused, strategic topics is critical. We saw that when we looked at how Gold Medal Boards focus their time in 2019, and we see it again in 2022.

READ MORE »

Shareholder Resolutions in Review: Political Spending

Posted by Subodh Mishra, Institutional Shareholder Services, Inc., on
Saturday, July 9, 2022
, , , , , , ,
More from: , ,

Subodh Mishra is Global Head of Communications at Institutional Shareholder Services, Inc. This post is based on an ISS memorandum by Paul Hodgson, Senior Editor at ISS Corporate Solutions.

Shareholder resolutions filed in the 2022 proxy season included several different types of proposals focused on political spending by corporations, reflecting investor concerns that support of certain candidates and causes may be inconsistent with the stated values of the company.

In this series of snapshots, ISS Corporate Solutions examines the key corporate issues raised by this season’s shareholder resolutions. In this post, we look at resolutions focused in campaign contributions, including calls for greater disclosure. Voting results are based on filings by companies up to June 13, 2022.

More shareholder resolutions were filed in the 2022 proxy season than in the previous year, with 586 environmental and social proposals submitted at U.S. companies so far, compared with 561 in 2021. Though many have since been withdrawn, many have been or will be voted on. According to data from ISS Corporate Solutions, 569 shareholder resolutions on ESG issues have either been voted on or are pending in annual meetings through November this year.

Types of Resolutions

There were a number of different kinds of resolutions focused on political spending, all trying to get at slightly differing types of information:

  • Report on Political Contributions
  • Report on Congruency of Political Spending with Company Values and Priorities
  • Report on Global Public Policy and Political Influence
  • Report on Political Contributions and Expenditures
  • Issue Transparency Report on Global Public Policy and Political Influence

READ MORE »

The Proposed SEC Climate Disclosure Rule: A Comment from Jon Lukomnik and Keith Johnson

Posted by Jon Lukomnik (Sinclair Capital), and Keith Johnson (Global Investor Collaboration Services, LLC), on
Friday, July 8, 2022
, , , , , , , , ,
More from: ,

Jon Lukomnik is Managing Director of Sinclair Capital, LLC, and Keith Johnson is CEO of Global Investor Collaboration Services, LLC. This post is based on their comment letter submitted to the SEC regarding the Proposed SEC Climate Disclosure Rule.

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); Does Enlightened Shareholder Value add Value (discussed on the Forum here) and Stakeholder Capitalism in the Time of COVID (discussed on the Forum here), both by Lucian A. 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 by Leo E. Strine, Jr. (discussed on the Forum here); and Corporate Purpose and Corporate Competition by Mark J. Roe (discussed on the Forum here).

This post is based on a comment letter submitted to the SEC by Jon Lukomnik and Keith Johnson regarding the Proposed SEC Climate Disclosure Rule. Below is the text of the letter with minor adjustments to eliminate the correspondence-related parts of the letter.

It is our pleasure to submit comments in support of S7-10-22, the proposed rule “The Enhancement and Standardization of Climate-Related Disclosures for Investors”.

By way of background on the signatories, Jon Lukomnik is the managing partner of Sinclair Capital LLC, a strategic consultancy to institutional investors. Jon has been the investment advisor or a trustee for more than $100 billion (including New York City’s pension funds) and has consulted to institutional investors with aggregate assets of $1 trillion dollars. He served for more than a decade as the executive director of the IRRC Institute, which researched capital market issues. Jon is currently a trustee for the Van Eck mutual funds, and a board member for The Shareholder Commons. He co-founded the International Corporate Governance Network (ICGN) and GovernanceMetrics International (now part of MSCI). Jon is a Senior Fellow for the High Meadows Institute and a former Pembroke Visiting Professor at the Judge Business School at Cambridge (UK). He has written three books and more than 200 practitioner and academic articles examining the capital markets. His work has been recognized and honored by the ICGN, Council of Institutional Investors, Ethisphere, the National Association of Corporate Directors, Transparency Task Force, and Global Proxy Watch.

Keith Johnson is CEO of Global Investor Collaboration Services, LLC, which provides educational, governance and stewardship-support services to global institutional investors that collectively have more than $5 trillion under management. He previously served as the chief legal officer of the ninth largest public pension fund in the United States and co-chaired the Institutional Investor Services group at Reinhart Boerner Van Deuren s.c. Keith was also President of the National Association of Public Pension Attorneys, Program Director of the University of Wisconsin Law School’s International Corporate Governance Initiative, chair of the Intentional Endowments Network Fiduciary Duty Working Group, and co-editor of the Cambridge University (UK) Handbook of Institutional Investment and Fiduciary Duty.

READ MORE »

Combatting Racial Inequity: A Two-Year Retrospective

Posted by Adam Emmerich, David Silk, and Sabastian Niles, Wachtell, Lipton, Rosen & Katz, on
Friday, July 8, 2022
, , , , ,
More from: , , , , ,

Adam O. Emmerich, David M. Silk, and Sabastian V. Niles are partners at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell memorandum by Mr. Emmerich, Mr. Silk, Mr. Niles, Elina Tetelbaum, and Carmen X. W. Lu.

The events of the summer of 2020 galvanized the country and drew attention to how systemic racism and injustice continue to burden communities of color. Business leaders throughout the country stepped up to the challenge of combatting racial injustice by pledging funds and taking action to address inequity within their workforces, local communities and society at large. The Business Roundtable launched comprehensive efforts to combat racial inequality in employment, finance, education, health and housing. Diversity, equity and inclusion (DEI) has permeated the governance landscape, as evidenced by corporate and stakeholder focus on board and workforce diversity, the emergence of racial equity and civil rights audits and the heightened number of shareholder proposals targeting the disclosure of DEI metrics. Challenges remain, particularly as macroeconomic headwinds will likely leave many people, families and communities of color vulnerable.

We review some of the tools and approaches that have helped buttress corporate efforts to address racial inequity and meet the evolving expectations of investors and stakeholders.

Transparency and Disclosure. As the old adage goes, you cannot manage what you don’t measure. DEI is no exception. Over the past 18 months, companies have increasingly moved to provide disclosures on their workforce demographics, notably publishing their EEO-1 reports, in part due to pressure from investors, including the NYC Comptroller, institutional pension funds and large asset managers last year. Some companies have also provided information on gender and racial pay disparities, policies regarding supplier diversity, initiatives to cultivate a pipeline of diverse employees and candidates for management and board roles and DEI targets. Shareholder proposals submitted in this year’s proxy season reflect ongoing pressure for DEI disclosures, with several proposals asking companies to provide disclosures on progress related to DEI initiatives and policies relating to the hiring, training, retention and promotion of diverse employees. Thoughtful DEI disclosures can be a powerful tool to demonstrate progress and credibility, particularly in advance of additional SEC rulemaking on human capital expected later this year.

READ MORE »

Weekly Roundup: July 1-7, 2022

Posted by the Harvard Law School Forum on Corporate Governance, on
Friday, July 8, 2022

More from:

This roundup contains a collection of the posts published on the Forum during the week of July 1-7, 2022.

Comment Period Reopens on Proposed Compensation Clawback Rules

Posted by Sonia Gupta Barros, John P. Kelsh, and Corey Perry, Sidley Austin LLP, on Friday, July 1, 2022
Tags: , , , , , , , , 

The Proposed SEC Climate Disclosure Rule: A Comment from Former SEC Chairmen and Commissioners

Posted by Harvey L. Pitt, Kalorama Partners, LLC, on Friday, July 1, 2022
Tags: , , , , , , , , 

Developments in Unfair Prejudice Litigation

Posted by James Whitaker and Riku Ode, Mayer Brown LLP, on Saturday, July 2, 2022
Tags: , , , , , , , , 

What the Volume and Diversity of Comment Letters to the SEC Say About its Climate Proposal

Posted by Lawrence A. Cunningham (George Washington University), on Sunday, July 3, 2022
Tags: , , , , , , , , 

Shareholder Resolutions in Review: Lobbying Disclosures

Posted by Subodh Mishra, Institutional Shareholder Services, Inc., on Monday, July 4, 2022
Tags: , , , , , , , 

The Critical Role of the Board Chair in Driving Board Performance

Posted by Rusty O’Kelley, Rich Fields, and Laura Sanderson, Russell Reynolds Associates, on Tuesday, July 5, 2022
Tags: , , , , , 

Sustainable Investing with ESG Rating Uncertainty

Posted by Abraham Lioui (EDHEC Business School), on Tuesday, July 5, 2022
Tags: , , , , , , , 

The Proposed SEC Climate Disclosure Rule: A Comment from Eight U.S. Senators

Posted by Senator Brian Schatz (D-HI), Senator Elizabeth Warren (D-MA), and Senator Sheldon Whitehouse (D-RI), on Tuesday, July 5, 2022
Tags: , , , , , , , , 

2022 Say on Pay & Proxy Results

Posted by Todd Sirras, Austin Vanbastelaer, and Justin Beck, Semler Brossy LLC, on Wednesday, July 6, 2022
Tags: , , , , , , , , , 

The Proposed SEC Climate Disclosure Rule: A Comment from Twenty-Two Professors of Law and Finance

Posted by Lawrence A. Cunningham (George Washington University), on Wednesday, July 6, 2022
Tags: , , , , , , , , , 

Hidden Agendas in Shareholder Voting

Posted by Scott Hirst (Boston University), and Adriana Robertson (University of Chicago), on Wednesday, July 6, 2022
Tags: , , , , , , 

New SEC Rule Mandates Electronic Filing of Form 144s and “Glossy” Annual Reports

Posted by Eric Orsic, McDermott Will & Emery LLP, on Thursday, July 7, 2022
Tags: , , , , , , , 

VICI Properties: Creating Value from the Ashes of Caesar’s Demise

Posted by William Ferguson (Ferguson Partners), David F. Larcker (Stanford University), and Brian Tayan (Stanford University), on Thursday, July 7, 2022
Tags: , , , , , , , 

The Proposed SEC Climate Disclosure Rule: A Comment from the Investment Company Institute

Posted by Dorothy Donohue, Susan Olson, and Eric Pan, Investment Company Institute, on Thursday, July 7, 2022
Tags: , , , , , , , , , 
Page 6 of 8
1 2 3 4 5 6 7 8