Monthly Archives: December 2022

Silicon Valley and S&P 100: A Comparison of 2022 Proxy Season Results

David A. Bell is Partner and co-chair of Corporate Governance, and Ron C. Llewellyn is Counsel at Fenwick & West LLP. This post is based on a Fenwick publication titled ‘2022 Proxy Season Results in Silicon Valley and at Large Companies Nationwide.”

In the 2022 proxy season, 143 of the of the technology and life sciences companies included in the Fenwick – Bloomberg Law Silicon Valley 150 List (SV 150) and 99 of the companies in Standard & Poor’s (S&P 100) held annual meetings. Generally, such annual meetings will, at a minimum, include voting with respect to the election of directors and ratification of the selection of the auditors of the company’s financial statements. Fairly frequently, it will also include an advisory vote with respect to named executive officer compensation (say-on-pay).

Annual meetings also increasingly include voting on one or more of a variety of proposals that may have been put forth by the company’s board of directors or by a stockholder that has met the requirements of the company’s bylaws and applicable federal securities regulations.

This post summarizes key developments relating to stockholder voting at annual meetings in the 2022 proxy season among the SV 150 and S&P 100.[1]

Significant Findings

Our 2022 Proxy Season Results Survey shows that the number of stockholder proposals has steadily increased over the last five years. SV 150 companies saw a sharp increase in the number of proposals related to ESG-related policy issues, such as diversity and sustainability, on which stockholders voted in 2022. Overall stockholder support for such proposals increased slightly compared to 2021. S&P 100 companies saw a similar substantial increase in the number of stockholder proposals in 2022 (the number of such proposals more than doubled); however, overall support declined compared to 2021.


SEC Finalizes Proxy Vote Reporting Changes: New Form N-PX

Nichol Garzon-Mitchell is Chief Legal Officer and Senior Vice President of Corporate Development at Glass, Lewis & Co. This post is based on her Glass Lewis memorandum.

The Securities and Exchange Commission recently made the most significant changes to U.S. proxy vote reporting in the past 20 years. On November 2, 2022, a divided SEC adopted rules requiring Form 13F filers to disclose their say-on-pay votes, as well as significantly revising and expanding the disclosures required on Form N-PX, the form that funds use today and that both funds and the “institutional investment managers” subject to the new say-on-pay vote reporting will use going forward.

While the new Form N-PX will not have to be filed until 2024, that filing will cover votes cast after June 30, 2023. As such, institutional investment managers and funds will want to familiarize themselves with the new disclosure requirements and, in the near term, consider whether any changes to their proxy voting policies and procedures, as well as their share lending and recall practices, are warranted before votes become subject to the new disclosure regime.

Investment Manager Say-on-Pay Vote Disclosure

The first part of the SEC’s final rules implements a mandate from the Dodd-Frank Act. In addition to introducing say-on-pay votes for U.S. public companies, Section 951 of that Act requires “institutional investment managers” subject to the reporting requirements of section 13(f) of the Exchange Act to disclose their say-on-pay votes annually. The SEC’s final rules implement this statutory directive by requiring Form 13F filers to report such votes each year on Form N-PX, as enhanced through the rule and form changes discussed below.

The SEC’s final rules generally track its proposal from last Fall. Key elements include:

  • Votes to be disclosed. The rules apply to all “say-on-pay” votes, that is: 1) periodic votes on the approval of executive compensation, 2) votes on the frequency of such say-on-pay votes, and 3) votes to approve “golden parachute” compensation in connection with mergers and acquisitions.
  • Managers covered. The rules apply to any institutional investment manager that “exercised voting power” over a security. A manager exercises voting power, as defined in the rules, when it has the ability to vote the security or direct the voting of the security and uses that voting power to influence a voting decision.
  • No exceptions. The rules do not contain a de minimis exception for smaller holdings or an exception for managers that, as a policy, do not vote proxies. The final rules do, however, allow for notice filings and permit a single manager (or fund or manager affiliate) to report on behalf of another manager in some circumstances, with related changes to Form N-PX intended to clearly identify such situations.


PBCs and the Pursuit of Corporate Good

Lara Aryani is a Partner and Jess Gorski is an Associate at Shearman & Sterling LLP. This post is based on a Shearman & Sterling piece and is part of the 20th Annual Corporate Governance Survey publication of Shearman & Sterling LLP. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) and Does Enlightened Shareholder Value Add Value? (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.; Stakeholder Capitalism in the Time of Covid (discussed on the Forum here) by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita; and Corporate Purpose and Corporate Competition (discussed on the Forum here) by Mark J. Roe.


There exists a longstanding notion, often cited by corporate executives and directors, that a corporation’s primary purpose is to maximize stockholder value.[1] In 2013, Delaware adopted a new subchapter of the Delaware General Corporation Law (“DGCL”) that allowed corporations to form as, or convert into, a public benefit corporation (“PBC”), a corporation that is expressly mandated to act not only in the best interests of its stockholders, but also to act for the benefit of an identified social good.

Unlike a non-PBC corporation, a PBC is required to state in its certificate of incorporation at least one specific public benefit that will constitute part of its overall corporate purpose. With this expansion of the corporate mandate, directors of a PBC thus are allowed, or even required, to consider a broader range of factors (other than stockholder value) and stakeholders (other than the stockholders) when making corporate decisions. Alongside the growth of PBCs, the following question has arisen: are PBC boards uniquely permitted to pursue social benefits within their corporate mandate, or are the fiduciary duties of non-PBC corporations adequately flexible to allow their boards to do the same?

Under Title 8, Subchapter XV of the DGCL (the “PBC Code”), a PBC is “a for-profit corporation organized under and subject to the requirements of this chapter that is intended to produce a public benefit or public benefits and to operate in a responsible and sustainable manner.”[2] A PBC must state within its certificate of incorporation the specific public benefit to be promoted by the corporation.[3]

The causes that qualify as a “public benefit” under the PBC Code are broad, with only the following guidance provided:

a positive effect (or reduction of negative effects) on [one] or more categories of persons, entities, communities or interests (other than stockholders in their capacities as stockholders), including, but not limited to, effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature.[4]

As a result, the stated public benefits of PBCs vary widely. For instance, Vital Farms, a PBC, states that its “public benefit” includes “bringing ethically produced food to the table,” and “being stewards of our animals, land, air and water, and being supportive of our community,”[5] and Laureate Education, a PBC, states its “public benefit” is “to produce a positive effect for society and students by offering diverse education programs both online and at campuses around the globe.”[6]


Weekly Roundup: December 2-8, 2022

More from:

This roundup contains a collection of the posts published on the Forum during the week of December 2-8, 2022

SEC Adopts Amendments to Modernize Fund Shareholder Reports and Disclosures

The Director’s Guide to Shareholder Activism

The Evolution of ESG Disclosure for Biotech Companies

SEC Proposes New Rule to Require Investment Advisers to Conduct Additional Oversight of Service Providers

ESG and Incentive Compensation Plans: Are Investors Satisfied?

Cybersecurity Disclosures What Progress has been made?

Enforcement Authorities Urge Integration of Corporate Compliance Programs in 2023

Why Cryptoassets Are Not Securities

Glass Lewis 2023 Policies Guidelines – United States

Corporate Governance & Executive Compensation Survey

Mutual Fund Performance at Long Horizons

Universal Proxy, Increased Activism and Director Vulnerability

SEC Division of Enforcement Annual Report Highlights Record-Breaking Recoveries

Human Rights-Related Shareholder Proposals in the 2022 U.S. Proxy Season

Remarks by Commissioner Peirce at the American Enterprise Institute

Hester M. Peirce is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on her recent remarks. The views expressed in this post are those of Commissioner Peirce and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

Thank you, Ben [Zycher], and thanks to the American Enterprise Institute for the opportunity to be part of today’s event. Before I begin, I must remind you that my views are my own and not necessarily those of the Securities and Exchange Commission (“SEC”) or my fellow Commissioners. As an SEC Commissioner, I appreciate hearing about people’s views of the SEC, even negative ones. Recently, for example, an email came in saying, “I can’t remember when the SEC was held in such LOW ESTEEM. . . . I honestly believe the SEC needs to re-evaluate the quality of and STANDARDS for SEC ON-AIR COMMENTATORS & while you are at it, please re-evaluate the SEC Referees, too.” A similar concern about SEC refereeing came in another recent weekend email: “Just sayin’ my ex boyfriend accidentally tackle[s] someone and y’all made him leave the game and then one of [the other team’s][1] players punched someone and then just got to walk on the field. That’s just not right!” I admire both writers for being devoted enough fans to reach out to an SEC Commissioner, even if they intended their emails for the Southeastern Conference Commissioner rather than for this Commissioner.


Human Rights-Related Shareholder Proposals in the 2022 U.S. Proxy Season

Subodh Mishra is Global Head of Communications at Institutional Shareholder Services. This post is based on an ISS Governance memorandum by Joseph Hong, Specialty Research Associate. 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.; Stakeholder Capitalism in the Time of COVID (discussed on the Forum here) by Lucian Bebchuk, Kobi Kastiel, and Roberto Tallarita; and Corporate Purpose and Corporate Competition (discussed on the Forum here) by Mark J. Roe.

The topic of human rights is of major concern among many stakeholder groups, spanning the public, private, and social sectors (e.g., companies, investors, consumers, NGOs, governments, intergovernmental organizations, etc.). Human rights issues present material risks to not only companies, but also to institutional investors, as reputational as well as regulatory and litigation risks, can impact both companies and their investors. Reputational costs stemming from, say, damaging viral news stories could negatively impact consumer loyalty, brand perception, and ultimately share price. As many institutional investors engage with companies to increase alignment on ESG performance and reporting, the ‘S’ in ESG (Environmental, Social, and Governance) has come under increasing scrutiny in recent years.

Additionally, there have been significant legal and regulatory developments regarding human rights-related issues, such as the recent enforcement of the Uyghur Forced Labor Prevention Act (UFLPA) which came into effect in June 2022 and the EU’s September 2022 proposed ban on goods made with forced labor – and accompanying social compliance-related reassessments of supply chain human rights due diligence (mostly limited to tier 1 finished goods facilities), upstream materials traceability protocols (e.g., cotton and polysilicon), and associated reporting and disclosure requirements. As such, due also in part to NGO engagement and consumer segment expectations, best practices have emerged among corporate leaders with regards to transparent and comprehensive end-to-end supply chain disclosures.


How Peter Drucker Revolutionized Canada’s Public Sector Pension System: Lessons for Americans

Keith Ambachtsheer is President at KPA Advisory Services. This post is based on his KPA Advisory Services piece.

“They own assets all over the world, including property in Manhattan, utilities in Chile, international airports, and the high-speed railway connecting London to the Channel tunnel. They have taken part in six of the top 100 levered buy-outs in history. They have won the attention of Wall Street, which considers them rivals, and institutional investors, which aspire to be like them.”

From “Maple Revolutionaries”

THE ECONOMIST, March 3, 2012

Who are these “Maple Revolutionaries”, why did they warrant a feature article in THE ECONOMIST ten years ago, what lessons are there in this story for American public sector pension plans, and what does the great management philosopher Peter Drucker have to do with all this? This article addresses all four of these questions.

The Maple Revolutionaries

The “Maple Revolutionaries” are Canada’s large public sector pension plans and the investment organizations that manage their assets. The eight largest, “The Maple 8”, manage the assets of the Canada Pension Plan (CPP Investments), the Quebec Pension Plan and other Quebec public sector pension plans (CDPQ), the British Columbia public sector pension plans (BCI), the Alberta public sector pension plans (AIMCO), the Ontario Teachers’ Pension Plan (OTPP), the Ontario Municipal Employees Retirement System (OMERS), the Hospitals of Ontario Pension Plan (HOOP), and of other Ontario pension entities (IMCO). Collectively, these eight organizations manage retirement savings amounting to some US$1.4 trillion today.

Why did these Maple Revolutionaries warrant a feature article in THE ECONOMIST ten years ago? In short because, as the article points out, by then these funds had developed a unique, effective style of ‘value for money’ management that was revolutionizing the pensions world, and continues to do so to this day.


SEC Division of Enforcement Annual Report Highlights Record-Breaking Recoveries

Lara Shalov Mehraban and Ranah Esmaili are Partners at Sidley Austin LLP. This post is based on a Sidley memorandum by Ms. Esmaili, Ms. Mehraban, Stephen Cohen, Barry Rashkover, and Ashley DePalma.

On November 15, 2022, the U.S. Securities and Exchange Commission (SEC) released its  enforcement results for the 2022 fiscal year (October 1, 2021 – September 30, 2022).

The SEC reported that it brought a total of 462 standalone actions, a 6.5% increase over 2021. The total enforcement actions also increased 9% from the prior year for a total of 760. These numbers are still down substantially from pre-Covid years.

Most notably, the SEC touted a record-breaking year in monetary recoveries ordered due to a huge increase in penalties. Money ordered in SEC actions totaled over $6.4 billion in civil penalties, disgorgement, and prejudgment interest — the most on record in SEC history and almost $2.6 billion more than was collected in 2021. Of that, civil penalties comprised $4.194 billion, also the highest on record and nearly double the amount collected in disgorgement, which decreased to $2.245 billion in 2022.

Nonetheless, Enforcement Division Director Gurbir S. Grewal cautioned: “[W]e don’t expect to break these records and set new ones each year because we expect behaviors to change. We expect compliance.” Consistent with that message, the SEC reported “robust” enforcement through resolutions it noted were designed to deter future violations. For example, the SEC highlighted actions against 16 broker-dealers and one investment adviser in connection with off-channel recordkeeping violations resulting in $1.235 billion in cumulative penalties as well as admissions of wrongdoing and remedial undertakings by each firm.[1]  Firms can look to these undertakings in considering potential enhancements to their compliance programs around communications and recordkeeping. Other examples include obtaining the largest-ever penalty from an audit firm[2] as well as more than $1 billion in combined penalties, disgorgement, and prejudgment interest from an investment adviser in connection with an alleged “massive” fraudulent scheme that concealed “immense” downside risks of a complex options trading strategy.[3]


Universal Proxy, Increased Activism and Director Vulnerability

Rich Fields leads the Board Effectiveness practice and Rusty O’Kelley co-leads the Board and CEO Advisory Partners in the Americas at Russell Reynolds Associates. This post is based on their Russell Reynolds memorandum. Related research from the Program on Corporate Governance includes Universal Proxies (discussed on the Forum here) by Scott Hirst.

Each fall, Russell Reynolds Associates conducts dozens of meetings with investors, activists, and governance lawyers and professionals, focusing on governance trends. In our most recent meetings, we are hearing that the intersection of the universal proxy,[1] an active environment for traditional shareholder activism, and more assertive institutional investors will bring significant pressure on boards and directors concerning board composition and potential director vulnerabilities. Companies should prepare now, before a proxy contest or a campaign against the election of individual directors. This new and challenging environment will require most boards to greatly enhance their review of board composition and individual director vulnerability in the event of a proxy contest. Even if these campaigns do not garner strong investor support, they can publicly reveal board skill gaps and individual director vulnerabilities. We urge boards to talk with their lawyers, bankers, and firms like Russell Reynolds to understand the implications of these newly converging forces.

In the coming proxy season, public companies should expect to face more challenges from single issue activists/groups (e.g., climate and sustainability) as well as economic activists (e.g., traditional investment funds). We also expect to see an even greater increase in shareholder proposals on a wide range of governance topics. While companies have dealt with many of these issues before, they have not faced them with the added impact of the new universal proxy rules which went into effect in September 2022. The universal proxy gives these activists and cause-related groups the ability not just to propose a slate of directors, but it also allows all shareholders the ability to pick and choose individual directors from both company and activist nominees. As ISS noted, the new rules are a “superior” way for shareholders to vote and it is a “dramatically easier” and “cheap” way for activist shareholders to launch proxy fights. As one major investor noted, even if the activist garners only small support, the case against an individual director serving on a board and his or her perceived skill gaps will be highlighted.

In forthcoming proxy contests, we expect the more aggressive activists and single issue groups to target directors who may appear in public company disclosures to have the weakest case for their continued board service. In our early November interviews, a senior leader at one of the world’s largest institutional investors told us that they will be paying much more attention to each director’s qualifications, why each director is serving on a board, and their link to long-term value creation or destruction. Large institutional investors are ready to vote for the best board candidates and will pick among candidates from both company directors and activist candidates.


Mutual Fund Performance at Long Horizons

Michael J. Cooper is Huntsman Chair in Finance at the University of Utah David Eccles School of Business; Hendrik Bessembinder is Labriola Chair in Finance at Arizona State University W.P. Carey School of Business; and Feng Zhang is Corrigan Research Professor in Finance at Southern Methodist University Cox School of Business. This post is based on their recent paper, forthcoming in the Journal of Financial Economics. 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; The Specter of the Giant Three (discussed on the Forum here) by Lucian Bebchuk and Scott Hirst; and The Limits of Portfolio Primacy (discussed on the Forum here) by Roberto Tallarita.

Most research that considers investor outcomes reports on unconditional or conditional (as in “alpha” estimates) arithmetic means of returns that are measured over relatively short horizons, most often monthly. In contrast, investment and decision horizons can stretch to decades, and differ across investors. We posit that many investors are concerned with the compound returns that accrue over longer horizons, propose that empirical measures of investment performance should therefore consider a variety of return measurement horizons, and report on compound returns to U.S. equity mutual funds at the monthly, annual, decade, and full-sample horizons. We also shed light on the respective roles of return skewness and mutual fund expenses, and we tally the full-sample dollar gain or loss to mutual fund investors in aggregate, on both a fund-by-fund basis and in total. The results verify that compound long-horizon returns often contain important information that is not readily apparent in the distribution of short-horizon returns. For example, some funds with positive monthly performance estimates have negative long-horizon abnormal returns.

We study a broad sample of nearly 8,000 U.S. equity mutual funds during the 1991 to 2020 period. We show that the percentage of funds that outperform market benchmarks decreases with the horizon over which returns are measured. In the monthly data, fund returns exceed the matched-month return to the SPY Exchange Traded Fund (taken as a proxy for the overall market that investors could readily have captured) for 47.2% of observations. The percentage of sample funds that generate buy-and-hold returns that exceed buy-and-hold returns to the SPY decreases to 41.1% at the annual horizon, 38.3% at the decade horizon, and 30.3% at the full-sample horizon. In fact, over 20% of funds fail to even outperform one-month U.S. Treasury Bills at the full-sample horizon.

These results reflect a prominent dimension by which long-horizon returns contain different information than short-horizon returns: the cross-sectional distribution of long-horizon fund buy-and-hold returns is strongly positively skewed, while such skewness is not observable in monthly returns. This positive skewness in compound long-horizon returns is of substantial practical importance. Financial planning (e.g. at pension funds) is often based on assumptions regarding mean returns. Aside from the active debate as to whether the assumed mean returns are appropriate, in a positively skewed distribution a potentially large majority of possible future realizations are less than the mean outcome. Of course, while strong positive skewness implies that many funds underperform, some funds perform very well. Out of 7,883 sample funds, 442 delivered a positive full-sample compound return more than twice as large as the compound return to the SPY over the matched months, and 160 delivered compound returns three times as large as the SPY during the matched months of the full sample.


Page 5 of 7
1 2 3 4 5 6 7